Criminal, civil and administrative penalties for white collar crime

Submission 29

ATO Submission
Inquiry into penalties for
white collar crime
Senate Economics References Committee
1 April 2016

EXTERNAL
UNCLASSIFIED

Criminal, civil and administrative penalties for white collar crime

Submission 29

Table of Contents
Introduction .............................................................................................................................................. 3
Executive summary ................................................................................................................................. 3
The scope of this submission .................................................................................................................. 3
White-collar crime in a tax context .......................................................................................................... 4
The penalty regime applicable to tax crime ............................................................................................. 4
(A) Administrative penalties ................................................................................................................. 4
(B) Civil penalties ................................................................................................................................. 5
(C) Taxation offences........................................................................................................................... 6
(D) Serious tax crime prosecutions ...................................................................................................... 7
Observations about the current penalty regime ...................................................................................... 9

Criminal, civil and administrative penalties for white collar crime

Submission 29

Introduction
1.

The Australian Taxation Office (ATO) welcomes the opportunity to contribute to this
inquiry by the Senate Economics References Committee (the Committee) into
penalties for white-collar crime. This submission focusses on whether the current
criminal, civil and administrative penalties that apply to tax crime are working as
intended to change behaviour and deter others from engaging in tax crime.

Executive summary
2.

This submission focusses on the penalty regime as it applies to tax crime.

3.

The current penalty regime in Australia which deals with tax crime is broadly consistent
with comparable countries including the UK, United States and Canada. This penalty
regime provides the ATO with a range of treatment options that can be applied to
behaviour according to its level of culpability and seriousness.

4.

Overall, the current penalty framework is considered to be fit for purpose in terms of
its structure, the variety of penalty options it affords to treat white-collar crime, and the
maximum levels of penalties and criminal sanctions. In addition, the ATO has a range
of powers which support our ability to collect the financial penalties that we impose.
The laws include the ability to garnishee bank accounts and prevent taxpayers with a
taxation liability from leaving the country. Generally we believe that these laws are
effective in supporting the collection of penalties levied.

The scope of this submission

5.

The success of Australias tax and superannuation system depends upon the cooperation of taxpayers. The ATOs primary focus is on making it easier for the vast
majority of committed taxpayers to comply with the law. We are designing and
implementing a system that fosters willing participation and encourages future
compliance. Our research indicates that penalties play a minor role with taxpayers who
are willing to comply, whereas education programs, clear guidance and, as required,
audit activities, will usually have the desired effect.

6.

Penalties can and do play an important role in influencing the small group of taxpayers
who participate in tax crime. Penalties for this group are an important form of
punishment and signal to the community that tax crime will attract serious
consequences.

Criminal, civil and administrative penalties for white collar crime

Submission 29

White-collar crime in a tax context

7.

Tax crime relates to instances where people intentionally and dishonestly do not meet
their tax obligations, generally either through not disclosing income they have earned
or by mis-stating their deductions. Behaviours can range from deliberately not
disclosing cash receipts from business activities, to the hiding of assets and related
income in tax havens as typified by Project Wickenby

8.

Tax crime also comprises fraudulent attacks on the tax system, often facilitated by
identity theft, such as income tax or GST refund frauds.

9.

It is important to distinguish tax crime from tax avoidance. Tax avoidance is a form of
tax planning that goes beyond what would be considered as normal family or
commercial dealings, but instead is motivated primarily by the tax benefits argued to be
legally available through the adopted scheme. Australia has very strong laws to combat
tax avoidance, and tax avoidance can also attract significant administrative penalties,
but tax avoidance is not a criminal breach of the tax laws and is accordingly beyond the
scope of this submission.

The penalty regime applicable to tax

crime
10.

The ATO administers over 80 different types of penalties across the tax and
superannuation systems.

11.

There are four categories of penalties that can be applied to treat tax crime:
administrative penalties, civil penalties, taxation offences and serious tax crime
prosecutions. These are explained below.

(A) Administrative penalties

12.

Administrative penalties are imposed by the tax law, and are usually linked to the tax
assessment process. A uniform administrative penalty regime applies to all taxation
laws (defined broadly) and is contained in Part 4-25 in Schedule 1 to the Taxation
Administration Act 1953 (TAA 1953).

13.

The most commonly applied administrative penalty for tax crime that results in an
underpayment of tax is the imposition of a 75% penalty for intentional disregard of the
tax laws: subsection 284-90(1) in Schedule 1 to the TAA 1953. The test for intentional
disregard is subjective the intention of the taxpayer is a critical element. Dishonesty is
a requisite feature of behaviour showing an intentional disregard for the operation of
the law. Evidence of intention must be found through direct evidence or by inference
from all the surrounding circumstances, including the conduct of the entity. The base
penalty amount of 75% of the tax shortfall can be uplifted by another 20% (to a total of

Criminal, civil and administrative penalties for white collar crime

Submission 29

90% of the tax shortfall) where the taxpayer has engaged in repeat offending or been a
hindrance. Note that a 75% penalty is also imposed by the law for failure to lodge a
return which can also be consistent with fraud or evasion by omitting to report income.
14.

Where administrative tax penalties are applied in relation to tax shortfalls, the value of
the penalty is proportionate to the amount of the wrongful gain, i.e. the penalty is a
percentage of the amount of the tax shortfall. For example a taxpayer who has
intentionally disregarded the law and evaded $100,000 in tax, will be subject to a 75%
penalty which totals $75,000. This penalty must be paid in addition to the primary tax
evaded ($100,000) and interest charges.

15.

Overall penalty statistics are reported in the ATO Annual Report:1

Table 1: Administrative penalties
2012-13 2013-14 2014-15
Penalties

$M

$M

$M

Applicable

1,574

3,999

1,633

Remitted

93

1,163

663

Collected

582

788

498

Note: The majority of administrative penalties applied by the ATO are not directly
relevant to tax crime (and therefore not relevant to the scope of this submission). They
are rather at the lower end of culpability, primarily in relation to failure by a taxpayer to
take reasonable care. A significant portion of these lower level penalties are remitted
for a range of reasons including: the taxpayer having a good compliance record, the
taxpayer making a voluntary disclosure about their tax affairs, the taxpayer cooperating with the ATO or following an approach consistent with the general
administrative practice of the ATO.

(B) Civil penalties

16.

Civil penalties are imposed by a court upon application of the Commissioner of

Taxation. Whilst we have not yet tested these types of penalties in relation to tax crime,
the promoter penalty regime penalises those found to be promoting a tax exploitation
scheme: Division 290 in Schedule 1 to the TAA 1953 can be applied to a white collar
criminal who promotes a fraudulent tax evasion scheme to unwitting investors. Prior to
the introduction of the promoter penalties in 2006, there was an imbalance in
sanctions, creating risks for taxpayers, while promoters often escaped any liability,
outside of a criminal conviction. The use of the promoter penalty regime in preference
to a criminal investigation would be influenced by factors such as the availability of
evidence to support the higher burden of proof required for a criminal conviction.

ATO Annual Report 2014-15 (NAT 0995 -10.2015), pp. 41.

Criminal, civil and administrative penalties for white collar crime

Submission 29

17.

In terms of proportionality, these civil penalties can be extremely effective as a

deterrent due to their ability to impact on the promoters professional career. The
Federal Court on application by the Commissioner can order an entity to pay a civil
penalty or grant an injunction. The maximum penalty that may be imposed by the court
is the greater of 5,000 penalty units (i.e. $900,000) for an individual or 25,000 penalty
units for a body corporate (i.e. $4.5M) and twice the consideration received directly or
indirectly by the entity or its associates in respect of the scheme.

(C) Taxation offences

18.

Taxation offences are summary offences prosecuted by the ATO2 (and the
Commonwealth Director of Public Prosecutions for defended matters) and heard and
determined by a court following the issue of a complaint and summons/court
attendance notice. These offences primarily relate to noncompliance with lodgement
obligations, making false or misleading claims on ATO forms, keeping false records
and failing to respond to questions when required to do so. These offences are
contained in Part III of the TAA 1953. Maximum fines for most of these offences for
individuals and corporations are 20 penalty units (i.e. $3,600) for a first offence, rising
for subsequent offences. Penalties for third offences and failing to comply with court
orders can include imprisonment.

19.

Summary prosecutions results are published on the ATO website:3

Table 2: Summary prosecutions / taxation offences
Year

20.

Cases Convictions

Dismissals
and
Withdrawals

Fines
$M

2014-15 1,614

1,540

74

9.59

2013-14 1,773

1,540

233

13.02

2012-13 1,944

1,691

253

7.38

In terms of proportionality, whilst the maximum fine awarded by the court pursuant to a
summary prosecution can be far less than the actual tax evaded, a convicted person or
entity can also be ordered to pay up to double or, for subsequent offences, treble the
amount of tax avoided: sections 8HA, 8W of the TAA 1953.

Under agreement with the Commonwealth Director of Public Prosecutions

ATO, 2015, https://www.ato.gov.au/General/the-fight-against-tax-crime/news-and-results/tax-crime-prosecution-results/

Criminal, civil and administrative penalties for white collar crime

Submission 29

(D) Serious tax crime prosecutions

21.

Prosecutions of criminal offences pursuant to the Criminal Code Act 1995 (Criminal
Code) are the heaviest sanction available to treat tax crime and are imposed by a court
following a criminal investigation conducted by the ATO, Australian Federal Police or
Australian Crime Commission. Straightforward cases can be prosecuted by the ATO
however most are prosecuted by the Commonwealth Director of Public Prosecutions.
The main offences applicable to tax crime are:
section 134.1(1) Criminal Code dishonestly obtaining Commonwealth property
section 134.2(1) Criminal Code obtain financial advantage by deception
section 135.4(3) Criminal Code dishonestly cause a loss to the Commonwealth.

22.

The maximum penalty for offences against sections 134.1(1), 134.2(1) and 135.4(3) of
the Criminal Code is 10 years imprisonment.

23.

Serious tax crime prosecutions results are published on the ATO website.4 Table three
provides information relating to convictions from all matters referred to the
Commonwealth Director of Public Prosecutions by the ATO. These convictions have
resulted from behaviour ranging from opportunistic fraud to organised criminal attacks.
Table 3: Serious tax crime prosecutions
Year

Cases Convictions Custodial

sentences

Reparation
Orders
$M

Court
Fines
$

2014-15

37

33

30

9.94

4,600

2013-14

45

34

26

3.36

3,800

2012-13

52

52

38

3.50

26,000

24.

In respect of serious white collar crime Project Wickenby, a multi-agency taskforce

aimed at protecting Australias financial and regulatory systems by preventing people
from promoting or participating in the abusive use of secrecy jurisdictions achieved
significant results.5 These included 46 serious tax crime convictions up until 30 June
2015 (some cases are ongoing),6 69 prosecutions for taxation offences, $2.297 billion
in liabilities raised (of which administrative penalties for intentional disregard were an
integral part) and $985.67 million in money recouped.

25.

In terms of proportionality, we have seen a continuing trend for harsher sentencing in

relation to a number of the high profile Wickenby cases.

ATO, 2015, https://www.ato.gov.au/General/the-fight-against-tax-crime/news-and-results/tax-crime-prosecution-results/

https://www.ato.gov.au/General/The-fight-against-tax-crime/News-and-results/Project-Wickenby-has-delivered/

The Project Wickenby joint agency focus is now being managed through the Serious Financial Crime Taskforce.

Criminal, civil and administrative penalties for white collar crime

Submission 29

26.

In sentencing one of the promoters of tax evasion schemes involving Vanuatu

arrangements, the New South Wales Supreme Court noted the following in handing
down the head sentence of 8 years and 11 months:7
It is hardly necessary to say that offences such as these call for sentences containing a
strong element of general deterrence The Australian taxation system, based as it is on selfassessment, depends for its integrity upon the honesty of citizens. Of course, there will always
be those who choose to cheat. They are cheating their fellow citizens, casting a greater
burden on each of them. Further, when it is known that the system can be, and is, cheated,
the very structures of society are damaged. The self-assessment system depends not only on
the honesty of taxpayers, but on the confidence of taxpayers that others will make their proper
contributions, or that, if they do not, they will be adequately punished.

27.

In the case of Hili v The Queen; Jones v The Queen [2010] HCA 45, the High Court, in
agreeing that the original jail sentences of seven months were manifestly inadequate,
emphasised the importance of general deterrence as a sentencing consideration for
serious tax crime. The sentences had been increased to a minimum 18 months by the
New South Wales Court of Appeal and the High Court confirmed these sentences.

28.

In addition to the above four categories of penalties, there are a range of other
treatment options available to the Commissioner of Taxation to combat tax crime and
assist partner law enforcement agencies in disrupting serious crime. For example, the
ATO is an enforcement agency under the Proceeds of Crime Act 2002 (POCA) and
through the Criminal Assets Confiscation Taskforce we co-operate with partner law
enforcement agencies such as the Australian Federal Police to maximise confiscation
efforts. The ATO is included in the Commonwealths strategic, capability-led approach
to combating serious and organised crime as an agency with shared responsibility for
addressing the impact on Australia of serious and organised crime. The Commissioner
of Taxation is a member of the Australian Crime Commission Board and of the Heads
of Commonwealth Operational Law Enforcement Agencies (HOCOLEA). The ATO is a
member of the Serious and Organised Crime Coordination Committee, as well as the
Joint Management Group and Joint Operation Groups. The Serious Financial Crime
Taskforce is continuing the cross-agency co-operation which was a feature of Project
Wickenby, and allows all partner agencies to take a broader view of the treatment
options available to combat white-collar crime.

R v. Agius [2012] NSWSC 978 per Simpson J, at para 63.

Criminal, civil and administrative penalties for white collar crime

Submission 29

Observations about the current penalty

regime
29.

Australias penalty regime applicable to tax crime is broadly consistent with other
comparable countries including the USA, UK and Canada. All jurisdictions impose
penalties which generally increase proportionately to the level of harm the behaviour
may result in, whilst also considering the offenders level of culpability. Another
similarity is the tendency to utilise different types of penalties. These include
administrative penalties, such as fines and infringement notices, civil penalties (which
have a lower burden of proof) and also criminal penalties which are typically imposed in
instances of dishonesty, intentional or reckless behaviour. A snapshot of the maximum
financial penalties and jail terms available in these countries is provided below:
Country

Maximum administrative financial Maximum jail term for tax

penalty for tax crime
fraud

Australia

90% of the tax shortfall

10 years

Canada

200% of the tax shortfall

14 years

UK

200% of the tax shortfall

10 years

USA

75% of the tax shortfall

5 years (however other

provisions may apply)

Note: that the maximum administrative financial penalties and jail terms may only apply
in certain, specified circumstances and may not be applicable to all forms of tax crime.
30.

Australias penalty regime for tax crime provides for a variety of treatment options that
can be applied to behaviour according to the level of culpability and seriousness.

31.

Overall, the penalty regime for tax crime appears to be fit for purpose in terms of its
structure, the variety of penalty options and the maximum levels of penalties and
criminal sanctions available. In addition, the ATO has a range of powers which support
our ability to collect the financial penalties that we impose. The laws include the ability
to garnishee bank accounts and Departure Prohibition Orders (DPOs) which prevent
taxpayers with a taxation liability from leaving Australia. In practice, DPOs are rarely
issued and usually only where significant revenue is at risk. As of 30 March 2016, there
were 14 DPOs on hand. Between 1 July 2014 and 30 June 2015, nine DPOs were
issued and five revoked. To further ensure that a DPO is appropriate to remain in force,
quarterly case reviews are conducted for all active DPOs. It should be noted that the
ATO may issue a DPO where it believes the revenue is at risk. Consequently not all of
the DPOs issued by the ATO at any one time will relate to white-collar criminal activity.
Generally we believe that these laws are effective in supporting the collection of
penalties levied against white collar criminals.