House of Representatives Speech- Foreign Evidence Amendment Bill 2008

The amendments in the Foreign Evidence Amendment Bill 2008 facilitate the process of adducing business records held overseas as evidence in Australian courts. By changing the Foreign Evidence Act, they will assist in the prosecution of persons who, by hiding money in the world’s shadowy places, seek to defraud the Commonwealth. They will add to the federal government’s arsenal against tax evasion, money laundering and organised crime. The amendments, by changing or making more simple the receipt of foreign business records by Australian courts, will ensure that Australia’s financial intelligence network—which includes the Australian Crime Commission, the Australian Taxation Office, the Australian Federal Police and the Commonwealth Director of Public Prosecutions—can continue to vigorously pursue investigations into tax fraud both here and overseas. Under the amendments, as long as the requirements of division 3 are met, foreign material relating to business records will be admissible in Australian courts. The court would not be required to consider any other rules of evidence under Commonwealth, state or territory law in relation to that material.

The amendments in the Foreign Evidence Amendment Bill 2008 facilitate the process of adducing business records held overseas as evidence in Australian courts. By changing the Foreign Evidence Act, they will assist in the prosecution of persons who, by hiding money in the world’s shadowy places, seek to defraud the Commonwealth. They will add to the federal government’s arsenal against tax evasion, money laundering and organised crime. The amendments, by changing or making more simple the receipt of foreign business records by Australian courts, will ensure that Australia’s financial intelligence network—which includes the Australian Crime Commission, the Australian Taxation Office, the Australian Federal Police and the Commonwealth Director of Public Prosecutions—can continue to vigorously pursue investigations into tax fraud both here and overseas. Under the amendments, as long as the requirements of division 3 are met, foreign material relating to business records will be admissible in Australian courts. The court would not be required to consider any other rules of evidence under Commonwealth, state or territory law in relation to that material.

It is instructive to consider the nature of business records and why it is that, for many years, there have been continuing attempts to make the receipt of business records in evidence in court proceedings a more simple procedure. The explanatory memorandum for this legislation notes:

Business records are generally considered an accurate and reliable form of evidence.

That has certainly been the view of Australian lawyers and judges for many years, and since the middle of last century there have been reforms made to Australian rules of evidence dealing with the receipt of Australian business records in courts, all of which have been designed to get over the problem that business records might otherwise have been thought to be hearsay, to have been excluded from evidence and not to be admissible in evidence. There are often problems with using business records to establish the identity of the particular record keeper who made the record. There are often problems in establishing the precise provenance of the business records, and thus there might quite often be either a difficulty or an impossibility in having someone directly connected with the making of the business record come before the court to say that the record in question is authentic, proving the document in the way in which other documents are required to be proved in court. Recognising the usefulness of business records, there have been continual amendments to state evidence acts. Indeed, the Australian Law Reform Commission, in its very large recent review of the Commonwealth Evidence Act—which has also been adopted as a model law in New South Wales—has made some suggestions as to how the business records provisions as they appear in the Commonwealth Evidence Act should be improved.

These amendments look at foreign business records, which are records of most direct relevance in pursuing the kinds of tax evasion that are occurring through the use of overseas structures, overseas banks and overseas companies and improving the offences that are being prosecuted under Australian law in Australian courts. Very often, it is seen as greatly useful to be able to bring into evidence records that are obtained from overseas sources. Perhaps most particularly, these amendments will allay any risk that the current unamended provisions of the Foreign Evidence Act will obstruct a number of current prosecutions that arise from Operation Wickenby—an operation that other speakers in this debate have mentioned—which is Australia’s largest tax fraud investigation to date. The purpose of Operation Wickenby has been to detect and dismantle the intricate evasion mechanisms used by a small number of Australian citizens to avoid tax. It has been estimated that these illicit enterprises put in excess of $300 million of Commonwealth revenue at risk. Operation Wickenby has demonstrated a commendable whole-of-government approach to the problem of tax avoidance. It has brought together the expertise of the Australian Taxation Office, Centrelink and the regulators at the Australian Securities and Investments Commission with the enforcement powers of the Australian Crime Commission and the Federal Police.

Since 2004, Operation Wickenby has had considerable success in combating tax evaders who blatantly falsify deductions, conceal their taxable income, use offshore transactions and establish companies for the benefit of other tax evaders. There has been quite a deal of publicity given to some of those prosecutions, some of which involve high-profile people and which have been well reported on. Up to June 2008, the Australian Taxation Office had issued tax assessments in the order of $71 million in tax revenue as a direct result of the Australian Crime Commission’s Wickenby investigations. Similarly, the Wickenby examination process has provided invaluable evidence from difficult witnesses for still pending prosecutions. In the year to 30 June 2008, the Australian Crime Commission conducted 203 coercive examinations and issued 182 notices to obtain intelligence and information. In December 2007, three people were charged with conspiracy to defraud the Commonwealth of $6.6 million and were committed to stand trial.

Nothing raises the ire of the Australian taxpayer more than the kinds of people that these amendments to the Foreign Evidence Act are aimed at. An excellent example is the very first enforcement action brought as a result of Operation Wickenby, which was against Adam Hargraves, a Gold Coast entrepreneur whose business, Phone Directories Co., had declared four years without profit. Investigations into Mr Hargraves’s financial arrangements uncovered a sophisticated evasion scheme concealing three Porsches, 10 properties and over $3 million in a Commonwealth securities account. To the hardworking taxpayers in my electorate of Isaacs, this kind of contempt for tax obligations is infuriating. Tax evaders hold the rules of our society in complete disregard. They take the benefits of our public hospitals, our schools, our roads and all the other services that our taxes make possible, but they contribute nothing. I think of tax evaders as thieves, people who steal the benefits of our community without paying for them. This parliament should do everything possible to ensure that the full armoury of powers is available to Commonwealth investigative and prosecuting agencies to ensure that tax evasion is brought to account.

The focus of these amendments on the procurement of foreign business records and their use in evidence will be invaluable in combating schemes like those of Mr Hargraves, the Gold Coast entrepreneur. The businesses complicit in these frauds will generally have documentary evidence, often overseas, that is the key to successful prosecution. By way of illustration, one could look at a classic international scam loan arrangement that is outlined in the 2008 Australian Taxation Office publication Tax Havens and Tax Administration. This involves an Australian company establishing a fraudulent tax scheme offering, for example, an $80,000 tax deduction for a $20,000 cash contribution. It runs like this. First, the Australian promoter instructs an international promoter to ‘provide’ finance to the taxpayer. Second, the international promoter sets up a finance company outside Australia. Third, the offshore finance company makes a book entry purporting to finance the Australian taxpayer with a non-recourse book entry loan of $60,000, which is paid on paper, but which is not actually paid, directly to the promoter. Fourth, the Australian taxpayer pays $20,000 in cash to the promoter. Fifth, the Australian taxpayer claims a deduction from the Commonwealth of $80,000, being the book-entry $60,000 loan plus their $20,000 contribution. The last two steps outlined in the Australian Taxation Office’s publication are that the so-called loan is never paid back, and the result is that, at a 40 per cent tax rate, a tax refund of $32,000 is obtained, so that each taxpayer recoups their $20,000 investment and retains a net benefit of $12,000—at, of course, the cost of Commonwealth revenue.

These arrangements are difficult to identify. With these amendments, the business records from the offshore finance company—to use the illustration given by the Australian Taxation Office—would be more readily able to be used in evidence in court proceedings, as would the records of the international promoter. It will be harder to set up sham loans like this, because the evidence of whether or not they have been paid back—the evidence that shows that they are in fact sham transactions—will be more readily available to Australian courts. This foreign evidence will be able to be collated with information from tax returns, from credit and debit cards and from international information exchanges under our relevant tax treaties so as to be able to pinpoint abusive schemes created by tax avoiders and evaders.

When monitoring patterns of incoming and outgoing transactions, AUSTRAC will identify an inconsistency between a tax evader’s foreign dealings and reported tax outcomes. That is the reason we ask all persons leaving the country to indicate on their departure card if they are carrying more than $10,000 in currency. Evidence is already difficult to obtain from overseas. Companies such as the Geneva firm Strachans SA—the dealings of which were a catalyst for Operation Wickenby—are notoriously secretive. It is no coincidence that Adam Hargraves had a Visa card from the Corner Bank, a private banking institution in Lugano Banca, Switzerland. Of course, access to evidence is dependent on bilateral agreements between the Australian government and governments overseas. Operation Wickenby involves what are known as ‘mutual assistance requests’, whereby Australian law enforcement authorities seek cooperation from international counterparts to secure evidence located offshore. For example, in 2005 the Federal Supreme Court of Switzerland ordered that the Australian Crime Commission be given access to Swiss documents detailing a fraudulent $90 million scheme being run out of Sydney to allegedly manufacture Scotch whiskey. It was through this mutual assistance request process that Australian authorities were able to use their international counterparts, the Swiss Magistrates Office, to procure the information necessary to recover the money defrauded from the Commonwealth. The Swiss authorities were also able to assist in the release of the documents identifying several Australian promoters of these fraudulent schemes.

These amendments build on the Labor tradition of protecting the Australian taxpayer. Since Australia’s first specialist financial intelligence unit, AUSTRAC, was established under the Hawke government in 1989, Labor has built on this legacy and now introduces these amendments to guarantee the security of Australia’s revenue. I commend the bill to the House.