We are delighted to introduce three articles in this issue.
In Operation Wickenby: Recent Developments in the Investigation of Major Tax Fraud,
Louise Jenkins and James McComish from Australian firm Allens Arthur Robinson
examine one of the key investigations to come out of the 2003 Australian Crime
Commission Money Laundering and Tax Fraud Determination (MIDAS). Code-named Operation Wickenby, the investigation involved allegations of tax fraud, money laundering and financial crimes. It has brought together a multi-agency investigative team involving the Australian Crime Commission, the Australian Federal Police, the Australian Securities and Investments Commission, the Australian Taxation Office and the Commonwealth Director of Public Prosecutions. It
is also notable for the level of international co-operation involved, reaching
across several jurisdictions.
Vibeke Borberg from Lett Law Firm in Denmark outlines two cases which address instances of fraud in which the beneficiaries were either not the apparent perpetrators, or it simply was not clear who gained from the fraud. The Court’s judgement in When It Isn’t Clear Who’s the Victim and Who’s the Beneficiary makes it apparent that companies need to know exactly what their funds are being used for, and where large sums of money are going. In Fraud for the Benefit of Others is Still Fraud, the court found a prominent public figure guilty of misappropriation after he had diverted municipal funds seemingly for the public good.
In next month’s issue, Diarmad Murray from Cayman Islands firm Walkers will address the methods by which evidence may be gathered in the Cayman Islands in support of proceedings in England. The connections between England and the Cayman Islands are such that this article will be of interest for organisations across a number of areas that are likely to take proceedings in England.
Previous issues of the AFN newsletter are available here . The newsletters include insights into fraud issues in different parts of the world. They are a useful resource for anyone faced with fraud-related issues.
Nick Burkill
Operation Wickenby: Recent Developments
in the Investigation of Major Tax Fraud
Operation Wickenby has highlighted the increased legal firepower that now lies in the hands of Australian federal investigators uncovering tax fraud. Wickenby is a large-scale joint investigation co-ordinated by the Australian Crime Commission (ACC) into tax fraud and money-laundering by wealthy individuals using offshore tax havens. It has already led to a parallel Australian Taxation Office (ATO) investigation into the use of similar offshore tax arrangements by companies.
Some 38 individuals are under investigation by the ACC, grouped into eight matters of criminal significance. Many of these people have faced compulsory oral examination under the ACC’s coercive powers, and hundreds more are also under investigation by the ATO and Australian Federal Police. Those under investigation include prominent figures from the business, entertainment, sport and horse racing worlds.
The sums involved are staggering. Over the next four years, the ATO expects to recover AUD$323 million in tax revenue along with untold amounts confiscated under proceeds of crime legislation. So far, the operation has cost the government nearly AUD$7.5 million, and a further AUD$305 million had been earmarked to fund the operation over the next six years. In purely monetary terms, the expected cost/benefit ratio is not high, and the ATO is at pains to stress that it is not a revenue-raising activity. Rather, the ATO characterises the operation as being for the “protection of the revenue base” and for the enforcement of the criminal law.
Some Background
The operation was initiated in 2002 when an ATO audit revealed an offshore tax scheme associated with Michael Brereton, a Melbourne lawyer with a celebrity clientele. That audit also revealed the central role of Swiss-based tax adviser Philip Egglishaw and his firm Strachans. The results of the ATO audit led to the matter being referred to the ACC in 2003 as a “federally relevant criminal activity” involving money laundering, tax fraud, obtaining financial advantage by deception, and knowingly dealing with the proceeds of crime. That operation subsequently became Operation Wickenby in 2004, once the full extent of the criminal activity became known. Wickenby forms part of an ongoing ACC project entitled Midas, focusing on money laundering and organised fraud more generally.
Wickenby hit the headlines in June 2005 when the ACC executed no less than 48 search warrants at offices and homes in Perth, Melbourne, Sydney, and Brisbane. Simultaneously, the ATO exercised its powers to enter and inspect records at 37 locations across the country. These investigations bore fruit on 20 July 2006 when the first arrests were made: telephone book publishers Adam and Glenn Hargraves and their business partner Daniel Stoten were arrested on the Gold Coast on two counts each of conspiring to defraud the Commonwealth. In total, the three are said to have defrauded the Commonwealth of some AUD$6.6 million in unpaid taxes. Assets worth AUD$10 million have already been seized from them, and it is expected that other arrests will be made in the months to come.
The substance of the Wickenby tax frauds took a number of different forms. In each case, a promoter operated a complex system of offshore trusts and companies, typically involving circular cross-ownership so as to make it very difficult to trace transactions. Some of these entities made sham loans or issued false invoices to Australian taxpayers. Others created elaborate charades in which the taxpayer appeared to gain a tax-free gift or an inheritance from a wealthy foreign relative. In many cases, the offshore entities provided debit or credit cards through which Australian residents were able to access wealth or income held offshore. Details of some 1,069 of these offshore debit and credit cards were obtained through high-level international co-operation from countries including Bermuda and Switzerland. The newly co-operative attitude of these jurisdictions is one of the most interesting aspects of the operation.
Testing the scope of ACC investigations
In S v Australian Crime Commission (2006) 149 FCR 361, a group of Wickenby suspects failed in their constitutional challenge to the validity of the Australian Crime Commission Act 2002 (Cth). Earlier, in a non-constitutional challenge, the Federal Court affirmed the ACC’s power to vary or extend the scope and duration of its own investigations. The specific statutory validity of Operation Wickenby has itself been affirmed by the Full Federal Court.
Maintaining Confidentiality
In C v Australian Crime Commission [2005] FCA 1736, both the ACC and the individual applicants successfully obtained orders that the applicants’ names and details be kept confidential so as not to prejudice either the ACC’s ongoing investigation or the applicants’ reputations. On the other hand, the mere fact that an individual is being examined by the ACC is not of itself grounds for a suppression order, and the press has revealed that such an order was refused in the case of Michael Brereton.
In addition to this power to make suppression orders, the Federal Court also has the power under the Evidence Act to hear evidence from one party without disclosing it to the other. This power was exercised by the Court in one case to allow the ACC to dispute a suspect’s claim to legal professional privilege without disclosing the confidential details of its own investigations.
Search and Seizure Powers
The Federal Court has affirmed that search warrants can be issued under the Crimes Act 1914 (Cth) to assist Operation Wickenby as an ACC “special investigation,” despite the fact that the ACC can not itself launch criminal prosecutions.
In February 2004, a warrant was issued to obtain material in Philip Egglishaw’s Melbourne hotel room relating to Brereton’s involvement in the Wickenby frauds. A laptop computer was subsequently seized and copied by the ACC. In December 2005, Egglishaw unsuccessfully challenged the validity of the warrant and the seizure.
Justice Sundberg held that the seizure fell within the terms of the warrant, and that Egglishaw could not complain that the ACC only formally “seized” the laptop after removing it from the hotel room in order to copy its contents. The judge also helpfully summarised the numerous ways in which relevant evidence can be taken when an investigator has a federal search warrant.
Importantly, the judge reserved special criticism for Egglishaw’s astonishing delay in bringing proceedings. Even if he had otherwise supported Egglishaw’s arguments, Justice Sundberg would have dismissed the case because of the 22 month gap between the seizure and the institution of proceedings. This result highlights the importance of prompt action when on the receiving end of a warrant or seizure order.
ACC Examinations
A major technique of the Wickenby investigation has been the systematic questioning not merely of suspects, but also of their family members and associates. Once a summons to attend an examination has been issued, it is virtually impossible to have it set aside. In particular, there is no obligation for the summons to contain the level of detail that could normally be expected in, for example, a subpoena to give evidence.
Examinees are obliged to answer all questions in an inquisitorial setting akin to the Star Chamber, and there is no privilege against self-incrimination. Nor is there any privilege against the incrimination of one’s spouse, whether de facto or otherwise.
Sharing Information
One of the most significant aspects of Operation Wickenby is the extent of information-sharing among Australian regulators, and between Australian regulators and their overseas colleagues. The most notable domestic flow is between the ACC and the ATO; a form of information-sharing whose validity the Full Federal Court has recently affirmed: Australian Crime Commission v AA Pty Ltd (2006) 149 FCR 540. This process of information-sharing is likely to become more straightforward if the suggestions in the August 2006 Treasury discussion paper, Review of Taxation Secrecy and Disclosure Provisions, are brought into effect.
Concluding Lessons
What lessons can be drawn from the experience of Operation Wickenby so far? Three are of particular importance.
First, the operation demonstrates the extraordinary investigative powers that now rest in the hands of bodies such as the ACC. What were formerly regulatory or administrative matters have now become full-scale criminal investigations with all the procedural and investigative firepower that those entail. While they might not have been common knowledge beforehand, Wickenby has now brought to public attention the wide-ranging coercive and inquisitorial powers upon which federal regulators can rely.
A second, related, point is that the operation highlights the extent to which the law of federal criminal procedure has become relevant to lawyers and advisers otherwise familiar with the more rarefied world of commercial and taxation advice. Parties and their advisers must know how to act quickly and effectively in this new legal environment.
Finally, and perhaps most importantly, Wickenby emphasises that just as business has become globalised, so too has law enforcement. Even offshore tax havens cannot escape the investigative gaze of Australian regulators. In light of this, perhaps the most striking aspect of Wickenby is the extent to which formerly non-cooperative jurisdictions like Switzerland and Bermuda have become active collaborators with the Australian government in bringing tax cheats to justice. Tax evaders can no longer assume that their affairs are beyond scrutiny just because they are beyond Australian shores.
 |
Louise Jenkins is a litigation partner at Allens Arthur Robinson. She has worked on a range of commercial disputes for a list of blue chip clients. Recent matters have focused on project financing and property development, banking, mining and exploration, broadcasting, intellectual property and privatisation of government owned entities. She has worked on a number of claims arising out of foreign exchange loans, misappropriated funds and major corporate collapses.
Contact Details:
T: + 61 3 9613 8785
E: louise.jenkins@aar.com.au
|
 |
James McComish is an articled clerk in the litigation group at Allens Arthur Robinson.
Contact Details:
T: + 61 3 9613 8012
E: jamesmccomish@aar.com.au |
When It Isn’t Clear Who’s the Victim
and Who’s the Beneficiary
On 30 May 2006, the criminal court in Vejle, Denmark, delivered its decision on a fraudulent abuse of position (fraud) and secret commission (bribery) case. Three former employees with consulting engineer Carl Bro Projektudvikling, a subsidiary of Carl Bro Group (Carl Bro), were acquitted of charges of bribery and fraudulent abuse of position totalling DKK 2 million (approximately €267,000).
Bribery cases are extremely rare in Denmark and the case has attracted much attention in the public and private business sectors. The case raised some fundamental issues regarding company awareness of bribery and fraud.
The Charges
In 2001, Carl Bro’s then new group chief executive discovered irregular practices in relation to payments of “special consultancy fees” in connection with two building projects in Hamburg. Having carried out a legal and accounting investigation, she contacted the police with the suspicion that the “consultancy fee” payments were made in order to obtain construction contracts.
The irregular practice she uncovered consisted of the transfer of a total of DKK 2 million to a company in Switzerland established by the defendants, apparently for the purpose of bribing German business connections in August 1998 and June 2000. The Swiss company issued invoices in respect of payments from Carl Bro’s construction accounts, and cash was taken from the account and paid to a German intermediary as “special provision fees.”
These allegedly ensured that Carl Bro Projektudvikling was awarded the contracts for the Hamburg construction projects.
The prosecution found that, in connection with the Hamburg construction projects, either the three executives had abused their positions to enrich themselves or others with DKK 2 million at the expense of Carl Bro, or they had perpetrated bribery by having paid money to an intermediary in order to obtain the two contracts.
The three executives pleaded not guilty. In court, they explained that the money paid from the Swiss company was to a German lobbyist who refused to issue invoices for his services and that the payments had been made in the full knowledge of Carl Bro’s management. Both the former and the present CEOs denied knowledge of the payments. The former CFO, however, said that the executives had permission from management to pay “special fees” in two specific cases. He subsequently emphasised that payments of such fees were not allowed in general.
Incompatible Offences
Interestingly, the two offences the executives were accused of were incompatible with each other.
As a result of setting up payments to themselves as directors of the Swiss company, the accused were charged with fraudulent abuse of position. Fraudulent abuse of position implies that the accused enriched themselves, or others, by having defrauded money from their principal (employers), the Carl Bro Group. As a result, the Group was the aggrieved party or victim of the crime.
The accused were also charged with criminal bribery. However, under Danish law, in this offence, it is the party which benefits from the offence by taking the bribe who should be charged. It is that person who acts contrary to their duty and is therefore guilty of the crime.
A decisive factor in establishing whether it was a case of fraudulent abuse of position or bribery was what happened to the money in question. Was it put into the executives’ own pockets—thereby enriching them—or was it was paid to the German business connection, with the tacit approval of Carl Bro—thereby enriching him? During the trial, it never became clear what the accused did with the money. Thus, the question as to what the crime actually was—fraud or bribery—was never clarified.
It was because the prosecution could not determine either the victim, or the individuals who benefited from the money, that the two offences were mutually incompatible,
Decision
The Court did not question that the DKK 2 million had been withdrawn from the company, but took into account the fact that the Carl Bro management had discussed paying “special consultancy fees” at two board meetings in 1998. The Court found it strange that, at that time, the management did not pay attention as to whether the fees were paid or not, and who they were paid to.
Furthermore, the Court held that the management knew of the conditions of payment of the consultancy fees in order to obtain the contracts and, therefore, the accused had not abused their positions fraudulently. As a result, there was no basis for a conviction of fraudulent abuse of position. Neither did the Court find any clarity regarding who had taken the alleged bribe. It held that the relationship between the accused and the German company which awarded Carl Bro the contracts was unclear. As a result, the Court could not find a basis for a conviction on the grounds of bribery.
In general, the Court’s findings give the impression that the Carl Bro management was well aware that suspicious activities took place regarding the Hamburg projects, but that it was an issue which the management simply chose to avoid. Immediately after the decision was delivered, the prosecution appealed and the case is now pending before the Western High Court of Denmark.
The Court’s decision makes it clear that, in cases where it can be established that senior management is aware of payments being made, there is no basis for a secret commission conviction. Therefore, if a company wishes to avoid being regarded as having accepted senior employees’ underhand actions, management will have to make it abundantly clear internally, as well as externally, that no kind of bribery is acceptable.
 |
Vibeke Borberg is an Attorney in Lett Law Firm, Denmark. She specialises in litigation and has extensive experience in contract law and criminal law, including in her capacity as defence counsel in cases concerning white-collar crime.
Contact Details:
T: + 45 33 77 00 28
E: vib@lett.dk |
Fraud for the Benefit of Others Is Still Fraud
On 20 June 2006, the criminal court in Hillerød, Denmark, delivered a conviction in a criminal fraud case. Former mayor of the Municipality of Farum (Farum ) and former Liberal member of the Danish parliament and minister of taxation, Peter Brixtofte was sentenced to two years’ imprisonment for having committed fraud under section 280 of the Danish Penal Code. Mr. Brixtofte was charged with two offences of fraud but was only convicted of one offence.
The case is the first of its kind in 20 years in Denmark and has drawn immense attention from the public and the media.
The Cases and Conviction
In Denmark, Mr. Brixtofte is famous for his commitment to developing Farum into a strong financial centre with a high level of public service and low taxes. He was the driving force behind often controversial initiatives. These included building a grand stadium for Farum ( Farum Arena ) to host two professional handball and football teams, and sending pensioners on package holidays to Spain to improve their quality of life, thereby saving public health and hospital expenses.
Both fraud charges were related to those initiatives and both charges concerned agreements on overpricing services delivered by private companies to the Municipality of Farum. An amount equivalent to the overprice was transferred to the handball and football teams through sponsorship agreements with the private companies.
The charge of which Mr. Brixtofte was convicted concerned a construction contract between Farum and Skanska, the developer engaged to build Farum Arena. The terms of the contract provided that Farum was to pay approximately DKK 27 million (€ 3. 6 million) to Skanska for the construction. However, it was agreed that, out of that amount, Skanska would place DKK 9 million (€ 1. 2 million) in a sponsorship contract for Farum Handball Club. In other words, by overpricing the contracting job, public funds were transferred from the Municipal Council to Farum Handball Club through a sponsorship agreement.
Under section 280 of the Danish Penal Code, a person is punishable for fraudulent abuse of his position if, for the purpose of obtaining unauthorised profit for himself or others, he inflicts a financial loss on another party, in this case, the Municipal Council, by abusing a permission granted to him to act with legal effect for such other party.
As grounds for the conviction, the court stressed that, regarding the Skanska agreement, Mr. Brixtofte was the main force of the project. This was partly by putting pressure on Skanska to enter into the agreement and partly by promising Skanska to pay the costs of the overpricing. Furthermore, the court emphasised that, even though Mr. Brixtofte did not gain any personal benefit from the sponsorship agreement, he had strong personal interests in strengthening and promoting the development of professional sport in Farum due to his capacity as chairman of and shareholder in Farum Handball Club.
The charge of which Mr. Brixtofte was acquitted concerned a similar matter of an overpricing agreement between Farum and the travel agency arranging package holidays to Spain for pensioners. Mr. Brixtofte was acquitted because the travel agency, and not Mr. Brixtofte, determined the price of the package holidays and because the sponsorship agreement did not, presumably, therefore form part of the initial agreement concerning the package holidays. This meant that it could not be sufficiently established that there was a link between the overpricing of the package holidays and the sponsorships.
Immediately after it was delivered, Mr. Brixtofte appealed against the conviction and the appeal is now pending before the Eastern High Court of Denmark. Further proceedings related to other charges against Mr. Brixtofte will continue in court.
|
Vibeke Borberg is an Attorney in Lett Law Firm, Denmark. She specialises in litigation and has extensive experience in contract law and criminal law, including in her capacity as defence counsel in cases concerning white-collar crime.
Contact Details:
T: + 45 33 77 00 28
E: vib@lett.dk |
|
The Anti-Fraud Network
The Anti-Fraud Network is a network of lawyers who specialise in the pursuit of claims arising out of the theft or other dishonest appropriation of assets, corruption, misuse of confidential information or similar breaches of duty. Recovering the proceeds of fraud and corruption is one of the truly global problems facing organisations today. Proceeds rarely stay in the country where they have been stolen. For organisations to recover stolen or corrupt assets they need access to lawyers specialising in their recovery across the world.
News and Events
London held a number of fraud conferences in September, including the 2006 Fraud World conference at which AFN member Nick Burkill chaired a discussion on ‘Anti-Money Laundering, Legal and Regulatory Issues.’ The discussion included consideration of the UK’s Fraud Bill, expected to come into law shortly. Recipients of the AFN newsletter who wished to attend were eligible for a discount from conference organisers IIR if they applied through the AFN.
Future conferences in London on fraud issues include the IQPC conference on Regulatory and Internal Investigations due to take place on 27 and 28 November. AFN member Nick Burkill will be speaking and taking part in a Q&A panel. Email us if you wish to receive details of the IQPC conference.
Click here for a list of upcoming events
AFN member Jerry Carter recently appeared in Money Media, talking about his practice on the Isle of Man and the Anti-Fraud Network. Click here to read the article in full.
If you would like to draw attention to fraud related issues, developments in the field, or key events of interest to anti-fraud professionals, please let us know at info@antifraudnetwork.com. We welcome contributions and articles from all jurisdictions.
Additional Resources
The AFN site now includes additional articles and items of interested from our worldwide members. Review available articles. If you would like to contribute to this section or to the newsletter, please contact us.
Associate Members
If you have responsibilities within your organisation for preventing or recovering the proceeds of fraud or corruption you could be eligible to join the Anti-Fraud Network as an associate member. There is no cost involved and you will have the opportunity to help shape the development of the Network, as well as have access to the expertise of colleagues across the world. For more information, contact us.
Subscribe Direct
Was this newsletter sent to you by the Anti-Fraud Network direct? If not, you are welcome to subscribe to it, enabling you to receive the newsletter directly in the future. Please complete the details under the subscription section by clicking here.
The Anti-Fraud Network has members throughout the world. Click here to see where members are located, view their backgrounds and expertise and see how they can assist you |
