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AUSTRAC information revealed complex ‘round robin’ tax evasion scheme

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AUSTRAC disseminated a financial intelligence assessment to authorities, which initiated an investigation into a complex ‘round robin’ tax evasion scheme. These schemes essentially aim to make funds movements appear as payments to other parties while, in reality, the funds ultimately return to the original beneficiary. AUSTRAC information was the primary source of intelligence throughout the investigation. Part of the investigation focused on two suspects (A and B) who were jailed for evading company and personal income tax of approximately AUD750,000.

The AUSTRAC assessment detailed the financial activities of a Vanuatu-based business. Enquiries identified that the principal promoter and operator of the tax evasion scheme was a senior partner of an accountancy firm based in Vanuatu.

Analysis of AUSTRAC information uncovered the round robin tax evasion scheme which involved the transfer of funds between Australia-based individuals and bank accounts of companies in other countries. The scheme allowed individuals and companies to evade tax in Australia. AUSTRAC searches on bank accounts identified the flow of funds to numerous Australia-based individuals, including suspects A and B.

Enquiries revealed that suspect A was the sole director and shareholder of companies X and Y, and suspect B was the sole director and shareholder of company Z. Both suspects operated businesses which performed contract work through their respective companies in the building industry.

The method used to facilitate tax evasion was:

  1. The suspects transferred funds from their companies’ accounts to the bank accounts of companies in New Zealand. The New Zealand companies and the bank accounts were controlled by the Vanuatu-based accountant, who was a signatory to the bank accounts.
  2. The payments were falsely described in the suspects’ companies’ records as expenses in the form of ‘management and consultancy fees’. False invoices were created for the fictitious expenses. No evidence was available to show that any consulting work had been carried out. The invoice amounts matched the amounts paid to the bank accounts in New Zealand.
  3. The false expense payments were claimed as deductible expenses in the tax returns of companies X, Y and Z, thereby fraudulently reducing the companies’ taxable income and therefore the amount of tax they were assessed as liable to pay.
  4. The accountant then transferred the funds under the guise of international ‘loans’ through a series of round robin international transactions, through accounts held in the name of companies owned and operated by the accountant.
  5. The accountant transferred the funds into the personal bank accounts of the suspects in Australia. The funds were transferred via an overseas company controlled by the accountant, separate to the companies in New Zealand that received the funds originally.
  6. In order to disguise the funds being transferred back into Australia as loans, false documents were created purporting to be international loan agreements with a foreign lender. Loans are not assessable income and are tax free.
  7. The funds, disguised as international loans, were not disclosed in the suspects’ personal tax returns. The suspects were thus assessed as liable for less tax than they should have been, thereby avoiding income tax obligations.
  8. Effectively, the ‘loans’ paid to the suspects were funds from their respective companies but were disguised by the scheme, allowing them to evade company and personal tax.

It was alleged that suspect A engaged in 15 round robin transactions over a one-year period and lodged false tax returns for himself and companies X and Y.

AUSTRAC data showed that over a five-year period suspect A received incoming international funds transfers of approximately AUD540,000 from New Zealand. These funds were sent by a company of which the accountant was a director.

It was alleged that suspect B engaged in 11 round robin transactions over a three-year period. He also lodged false tax returns for himself and company Z. Over a one-year period suspect B made four international funds transfers to bank accounts in New Zealand for amounts ranging from approximately AUD26,000 to AUD40,000. The accountant was a signatory to the New Zealand bank accounts.

Suspects A and B evaded approximately AUD390,000 and AUD360,000 in company and personal tax respectively.

Suspect A pleaded guilty to one charge of obtaining a financial advantage by deception contrary to section 134.2(1) of the Criminal Code Act 1995.

Suspect B pleaded guilty to:

  1. defrauding the Commonwealth contrary to section 29D of the Crimes Act 1914
  2. obtaining a financial advantage by deception contrary to section 134.2(1) of the Criminal Code Act
  3. dealing in proceeds of crime worth AUD100,000 or more contrary to section 400.4(1) of the Criminal Code Act.

Both suspects were sentenced to three years imprisonment.

Suspects A and B also became liable to pay penalties and interest to the Australian Taxation Office of more than AUD1 million and AUD900,000 respectively.

The accountant was convicted of conspiring to defraud the Commonwealth and was sentenced to eight years and 11 months imprisonment.

Case 1 - AUSTRAC information revealed complex round robin tax evasion scheme

Case 1 - AUSTRAC information revealed complex round robin tax evasion scheme

Offence

  • Tax evasion
  • Money laundering

Customer

  • Business
  • Individual

Industry

  • Banking (ADIs)

Channel

  • Electronic

Report type

  • IFTI

Jurisdiction

  • Domestic and international – New Zealand, Vanuatu

Designated service

  • Account and deposit-taking services

Indicators

  • Account activity inconsistent with customer profile
  • Customer receives international funds transfers declared as loans from a foreign lender
  • Customers undertaking complicated transfers without a business rationale
  • Different ordering customers sending international funds transfers to the same beneficiaries
  • False invoices created for services not carried out
  • International funds transfers to a high-risk jurisdiction
  • Multiple high-value international funds transfers to and from Australia with no apparent logical reason
Last modified: 30/07/2015 15:37