September 28, 2020

Project Wickenby’s seven-year hunt lifts lid on dubious trades [Cayman Islands companies involved]

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f38eda90-c74b-11e4-88b2-befebcebf2b0_syd-5c4oqo5oc7o8ro83boo--646x363By Neil Chenoweth From Financial Review

The raids unfolded across the city at 8.40 on a Tuesday evening. Squads of federal police descended on Point Piper, Chatswood, city offices and the departure lounge of Sydney International Airport.

Accountant Vanda Gould was up when police arrived to arrest him. Across town officers scooped up his investment partner, former Sunland Group chairman John Leaver, in his pyjamas.

The third arrest of the raids on October 15, 2013, was Peter Borgas, a Belgian-Australian lawyer who had been about to board a flight back to his home in Switzerland.

Borgas had headed to the airport immediately after testifying before judge Giles Perram in the Federal Court in a civil case, where his claim to own a string of controversial offshore companies had been savaged in cross-examination by Des Fagan, SC, a barrister for the Tax Office.

The companies in Western Samoa, Britain, the Bahamas and the , had made hundreds of millions of dollars in profits from questionable trading in Australian shares – the Tax Office claimed the real beneficiaries were Gould, Leaver and colourful investor Joe Ross.

‘Problematic document’

The first thing federal police did at the airport was to search Borgas’s briefcase. They found “a problematic document which appears to have been taken from Mr Borgas following his arrest”, Justice Perram noted in the Federal Court last month.

Mr Gould’s lawyer, Clare Dixon, warned The Australian Financial Review in an email that “we are instructed that Mr Gould would seek to commence a private criminal prosecution against you or any other person or entity who seeks to disclose and/or publish the details” of the Borgas document. Ms Dixon did not respond to questions why documents found on Mr Borgas should involve Mr Gould.

“The Wickenby era is disgusting,” barrister John Hyde Page told The Sydney Morning Heraldthe day after the arrests.

Hyde Page, who works almost exclusively for targets of the inter-agency Project Wickenby tax investigation, urged: “One of the top priorities of the Abbott government should be shutting down this Gestapo unit, and sacking all its members.”

Hyde Page apologised in court the following day when Justice Perram suggested that members of the bar should strive to appear more impartial.

“I accept that it’s very likely that the remarks were wrongful and I mean, if somebody such as yourself has those concerns then I certainly regret making them,” Hyde Page told the judge.

The theatrics are important because as tax cases go, this is the big league. The civil case before Justice Perram was the climax of a seven-year investigation by the Wickenby task force, called Operation Rubix.

Large investigation

It was one of the largest investigations into tax agents and had produced $300 million in tax assessments, all of which were riding on Justice Perram’s eventual judgement.

Its origins date back to 2000, when the Tax Office began looking at offshore superannuation schemes linked to a Western Samoa company, Hua Wang Bank Berhad. Businesses would claim tax deductions on after paying into a super scheme in Western Samoa.

The money would end up with Hua Wang, which would loan the money back to the Australian business.

In a 2004 judgment the AAT deputy president Julian Block confirmed the scheme was tax avoidance by two taxpayers, finding the evidence might have supported a finding of fraud in a scheme “orchestrated entirely and only” by their tax agent, to whom Block gave the pseudonym Victor Gray.

A former Hua Wang Bank director had testified that Mr Gray owned the Samoan company. Mr Gray denied this but Block found that “Mr Gray’s evidence was evasive and in my view untruthful.”

The 30 clients who used the super scheme were out of luck, but Mr Gray walked away scot free. It was only with new laws targeting tax agents brought in for Project Wickenby that the focus of investigations changed.

In 2008 Wickenby launched Operation Rubix after Austrac traced $1 billion in funds flowing into and out of Australia through companies linked to Gould.

There were millions in annual life insurance payments made by Gould and by clients like Leaver, former anaesthetist Joe Ross and investment banker Tod McGrouther, to Fidelity Pacific Life Insurance Company Limited.

Fidelity was incorporated in Vanuatu but Justice Perram tracked its corporate records through Prince Edward Island in Canada to a director on Queensland’s Bribie Island.

The premiums ended up being loaned back to the original clients via Hua Wang Bank.

But most of the funds Operation Rubix targeted were used for trading in Australian public companies, through Hua Wang Bank; through Chemical Trustee Ltd, Derrin Brothers Properties Ltd and Southgate Investment Fund Ltd in Britain; and Bywater Investments Ltd in the Bahamas.

Secret shareholdings

Rene Rivkin famously used Swiss bank accounts to hold his secret Australian shareholdings. The deception avoided Australian tax, but it also gave him the potential to manipulate share prices or profit from market-sensitive information.

The ATO would discover the five companies in question were all owned by two companies in the Cayman Islands, JA Investments and MH Investments.

But who owned the Cayman companies?

“I am not the beneficial owner of the shares issued by the two Cayman Island companies in question,” Mr Gould toldThe Australian Financial Reviewthis month,referring instead to “clients who are residents all over the world”.

It was the Rockhampton-born Borgas, who lived in Neuchatel, Switzerland, who owned the companies and the shares. Or so he claimed.

Mr Gould has repeatedly given sworn evidence that he did not own or control Hua Wang. “I do not hold, and have never held, any interest in HWBB,” he said in a 2007 affidavit and again in 2008.

By August 2010 the Tax Office was ready to move. It slapped tax bills totalling $39.7 million on the five companies and sought freezing orders on their Australian assets.

The court papers detailed more than 1000 share trades, with $125.7 million in cash coming into the country and $162 million moved offshore.
‘Tax mischief’

The ATO claimed the companies were involved in “tax mischief”, which the company’s barrister Hyde Page laughed to scorn.

“For a freezing order to be granted on such slender evidence is unprecedented,” he said. “The impact on overseas investment in Australia will be sickening.”

British records showed $100 million cash in a UK bank account, prompting another $30 million tax assessment.

Meanwhile the ATO was about to get a break. On February 14, 2011, Australia signed a new tax treaty with the Cayman Islands. Nine days later ATO executive Neil Cossins wrote to the Caymans Island Tax Information Authority for records on JA and MH Investments.

Samoa had also signed a new tax agreement, which came into force on February 24, 2012. The first Australian request was for records of Hua Wang Bank –the response would arrive in October 2014.

But Caymans authorities in 2011 were much faster. The ATO had the documents just three months later. A follow up query came back by September 2011 and it was game over, as Justice Perram would eventually conclude on December 19 last year.

The documents “showed that it was Mr Gould who owned JA Investments and MH Investments and that Mr Borgas’ ownership of them was a front,” Justice Perram found.

The offshore companies “were run entirely from Sydney by Mr Gould and … Mr Borgas’ evidence that he managed them was deliberately false and part of an elaborate charade orchestrated by Mr Gould,” Justice Perram found on February 12 this year.

But getting to that judgment would involve a “litigation festival”, as Justice Perram noted.

It wasn’t just the Cayman documents. Justice Perram found that the companies “are a facade for Mr Gould”, but emails showed that many times the mask of appearances had slipped.

Borgas, who had flown to Sydney to testify that it all belonged to him, was shredded in cross-examination.

Mr Borgas “was a witness who was willing to lie on oath in a most discreditable way,” Justice Perram found.

“I have no doubt Mr Borgas was making this up,” he said of other testimony, and again, “With this, as with almost all of Mr Borgas’ evidence, I am satisfied that he was lying.”

Federal Police took the opportunity to arrest Borgas before he flew beyond their reach. There has been much speculation about what they found. One theory is that it included a series of questions Borgas might be asked in the court case, and proposed answers, though this remains surmise.
Criminal charges dropped

In any case, seven months later after a landmark High Court decision that changed the definition of money laundering the criminal charges against Gould, Leaver and Borgas were dropped.

In June, Hyde Page did a radio interview with Alan Jones, who was irate over the arrests, describing in great detail the agonies of someone “I know very well” and complained that his friend had been warned the investigation was continuing.

This was Leaver, who has owned racehorses with Jones, notably the successful Miss Finland.

Hyde Page repeated on-air his claim the Tax Office was like the Gestapo. In July he and Gould made submissions to a parliamentary committee based on companies linked to the case before Perram as examples of deplorable Tax Office conduct.

“The Wickenby era is disgusting,” Hyde Page repeated, while Gould in an appearance before the committee claimed that “some tax officers are fundamentally troglodyte-ideologues”.

Last October the Samoan documents arrived. They were lethal to Gould’s case.

Mr Gould set up Hua Wang Bank in January 1994 and obtained a B2 international banking licence restricted to clients of his Gould Ralph accounting firm.

Mr Gould was named in the application papers as the beneficial owner of Hua Wang through holding bearer debentures, and it was stressed that he would have to seek government approval to change the ownership.

“It can be seen that this structure is not designed to indirectly transfer a banking licence but is designed to avoid the Australian [Controlled Foreign Corporation] rules,” the banking application said.

“Here with this document one has the measure of the man,” Justice Perram found.
Judgment

He ordered copies of his December 19 judgment be forwarded to the Director of Public Prosecution, to Australian Securities and Investments Commission and to the Federal Police.

“The facts I have found strongly suggest widespread money laundering, tax fraud of the most serious kind and, possibly in some instances, insider trading. The conduct revealed in this case is disgraceful.”

This was, he said, “the worst case I have ever come across in my entire career.”

Gould told the Financial Review, “There is a lot I could say about Justice Perram’s judgment but … it is more appropriate that I do not comment at this point.”

His lawyer, Clare Dixon, told the Financial Review, “Mr Gould strongly disputes many of the findings of Justice Perram and the legal basis on which they have been made.”

The judgment is being appealed by the five companies.

IMAGE: Trainer David Hayes, from left, with owners John Leaver, John Messara and Alan Jones after Miss Finland’s win in the 2006 Victorian Oaks. Photo: Sebastian Costanzo
For more on this story go to: http://www.afr.com/p/national/project_wickenby_seven_year_hunt_4Vp4NWuDcq6Cht14hoRneP

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