Introduction

1. Australian resident taxpayers are required to pay tax on their worldwide income. Accordingly, Australia’s taxation system of self assessment places a responsibility on taxpayers to declare all of their assessable income and claim only deductions and offsets to which they are entitled.

2. To evade taxation and other financial obligations, some Australians use offshore schemes to conceal assets and income, or to overstate business expenses. These schemes are often facilitated through secrecy havens, which are countries, regions or states with opaque tax or financial systems. Within these jurisdictions, there is little transparency about the ownership of assets and banking transactions and these countries do not have effective avenues for international cooperation, including exchange of information agreements. These jurisdictions also have minimal taxes for non-residents.

3. While many transactions between Australia and secrecy havens are lawful international dealings, the features that make havens attractive for legitimate purposes may also be used in arrangements designed to evade paying Australian tax, or for other criminal purposes. Abusive secrecy haven schemes allow participants to enjoy the benefits of ownership and control of assets and entities without the responsibilities that come with ownership, such as meeting their tax and other obligations as required by Australian laws.

4. Many nations are involved in a global effort to combat the abusive use of secrecy havens. The extent of tax evasion is difficult to measure, however the Organisation for Economic Cooperation and Development (OECD) has estimated that US$5-7 trillion is hidden in secrecy havens.¹

5. The Project Wickenby² cross-agency taskforce was established in 2006 to protect the integrity of Australia's financial and regulatory systems by preventing people from promoting, facilitating or participating in illegal offshore schemes, particularly those involving the abusive use of secrecy havens.³ The taskforce includes the: Australian Taxation Office (ATO); Australian Crime Commission (ACC); Australian Federal Police (AFP); Australian Securities and Investments Commission (ASIC); Attorney-General’s Department, Commonwealth Director of Public Prosecutions; and Australian Transaction Reports and Analysis Centre (AUSTRAC).⁴

6. Project Wickenby represents the first time such a broad range of Australian Government resources has been used to address the significant threat that illegal offshore schemes pose to the integrity of Australia's financial and regulatory systems. Activities carried out by the Project Wickenby taskforce include:

• civil audits and risk reviews conducted by the ATO and enforcement or regulatory action undertaken by ASIC under these agencies’ respective legislation;
• criminal investigations conducted by the ACC, AFP and ASIC;
• prosecutions and other legal action undertaken by the Attorney-General’s Department, the Commonwealth Director of Public Prosecutions, and the Australian Government Solicitor;
• administrative actions, including banning people from the financial services industry and using data from AUSTRAC to track money moving in and out of Australia; and
• proceeds of crime action, including action to restrain property and, subsequently, to seek its forfeiture.

7. The Commissioner of Taxation has responsibility for the administration of the Commonwealth of Australia’s taxation laws, and consequently the ATO is the lead agency for the project.

8. The Australian Government provided additional funding of $308.8 million over seven years for Phase 1 of Project Wickenby, commencing in February 2006. This funding was further increased in 2009 by an additional $122.1 million for Phase 2, reaching $430.9 million in total, and ceasing on 30 June 2013.

Audit objective and scope

9. The objective of the audit was to assess the effectiveness of the Project Wickenby taskforce in making Australia unattractive for international tax fraud and evasion by detecting, deterring and dealing with the abusive use of secrecy havens by Australian taxpayers.

10. The focus of the audit was on the roles of the ATO, ACC and AFP in the Project Wickenby taskforce. In particular, the audit examined the:

• extent to which the project had met its objective, outcomes, and collection commitments to government;
• cross-agency coordination and governance arrangements;
• arrangements to harness intelligence and select cases for civil compliance interventions and criminal investigations;
• conduct of risk reviews and audits by the ATO; and
• conduct of criminal investigations by the ACC and AFP.

11. The appropriateness of professional judgments and decisions made by these three agencies in conducting civil compliance interventions and criminal investigations was outside the scope of the audit. The audit also did not examine the roles of the other four partner agencies, except to the extent that their activities supported broader project outputs or those of the ATO, ACC or AFP.

Overall conclusion

12. In February 2004, the ACC seized documents and a laptop computer as part of its investigation of a Swiss-based promoter of tax schemes. This information revealed the names of hundreds of Australians potentially linked to his Jersey-based accountancy firm. Subsequent investigation and audit activity by the ACC and ATO identified extensive Australian participation in individually tailored offshore taxation arrangements. This exposure provided the impetus for the establishment of the Project Wickenby taskforce in 2006. The aim of Project Wickenby is to make Australia unattractive for tax fraud and evasion by preventing the abusive use of secrecy havens.

13. At that time, the scale of the abusive use of secrecy havens by Australians was largely unknown, although the ATO had estimated that at least $300 million in taxation revenue was at risk. It was feared that participation in the schemes could quickly escalate and become an even more significant compliance risk.⁵ The rationale for the project was to protect the revenue base, and the Government provided $430.9 million in additional funding to Project Wickenby agencies. The Government has required a conservative quantifiable return on this investment—mainly through setting a target for the project to collect $654 million in additional tax revenue.

14. As a result of Project Wickenby’s focus on preventing the abusive use of secrecy havens, Australia is presently less attractive for international tax fraud and evasion than it otherwise would have been. After a slow start, the project has achieved substantial results from its activities, which contribute to protecting Australia’s revenue base. These results include the conviction of 20 people who were investigated for criminal offences (with custodial sentences imposed of up to eight-and-a-half years imprisonment), and more than $1 billion in tax liabilities being raised from over 2300 ATO audits and risk reviews completed to 30 June 2011.

15. The impacts on improved voluntary compliance (and on reduced international tax fraud and evasion) are more difficult to measure. However, there are promising indicators. The ATO calculated that a ‘compliance dividend’ of some $308 million in extra tax was declared by those ‘touched’ by the project. AUSTRAC analysis also shows that the financial flows between Australia and secrecy havens reduced by a significant extent between 2008 and 2010, including by 80 per cent and 50 per cent in two major secrecy haven jurisdictions dealt with by Project Wickenby. An indirect deterrence impact is indicated by qualitative factors such as: generally positive media reporting of the project; court sentencing judgements about the serious nature of tax fraud; and professional bodies advising that some tax agents and accountants have warned their clients not to participate in secrecy haven schemes because of the project.

16. The project has met the Government’s combined ongoing collection targets since mid-2009. At 30 June 2011, the estimated compliance dividend of $308 million combined with $253 million in cash collected meant that Project Wickenby had exceeded its collection commitments to government.⁶ However, as previously noted, the targets for collections were a conservative multiple of funding provided.⁷

17. Australia is not, however, ‘unattractive’ for international tax fraud and evasion, and the risk posed by secrecy havens remains high. Through improved detection of secrecy haven risks, the ATO had identified over 11 000 Australian taxpayers with links to more than 200 identified promoters of secrecy haven schemes, as at June 2010. The ATO also estimated that the amount of revenue foregone from tax evasion associated with these promoters and secrecy havens would be almost $400 million by June 2013, which exceeds that estimated at the commencement of Project Wickenby in 2006. In this light, there is some risk to revenue if the responsible agencies are unable to reprioritise existing demands on their resources, or obtain additional budget funding, to pursue criminal and civil compliance interventions after funding for the project is scheduled to cease on 30 June 2013.

18. While Project Wickenby has had notable achievements, including the 20 criminal convictions, over $1 billion raised in tax liabilities and significant reduction in funds flowing to particular tax havens, community confidence in the integrity of Australian financial systems associated with the abusive use of secrecy havens is not high. Only 52 per cent of respondents to the ATO’s most recent Community Perceptions Survey in 2009 considered the ATO was effective in stopping people and businesses using international secrecy havens to avoid paying tax, which was a reduction of 11 percentage points in confidence compared to the previous year.

Effectiveness of administration

19. Project Wickenby has sound governance arrangements, underpinned by the effective operation of cross-agency governance committees, comprehensive risk management approaches, and adequate performance monitoring and reporting. The ATO has effectively led the taskforce and developed and coordinated cross-agency strategies. Improvement opportunities involve the ATO: more systematically developing a program to release, update and integrate project plans; and streamlining high-level performance reporting.

20. Intelligence about the nature and impact of the abusive use of secrecy havens has improved markedly since the inception of Project Wickenby. The risk population is better defined, particularly by identifying many large clusters of potential compliance intervention cases. Exchange of information with foreign revenue authorities and law enforcement agencies has provided considerable intelligence and potential cases.

21. Selection of the initial cases for criminal investigation and/or civil action stemmed from analysis of the information seized from the Swiss-based promoter. While the specific rationale for selecting all cases was not readily available, the selection processes have been refined over the life of the project for both criminal investigations and civil actions. Changes to strategic priorities and reduced funding, however, have resulted in varying approaches to selecting criminal investigations of a similar nature over time, as the capacity to approve investigations that may have been accepted earlier in the project has diminished.

22. Project Wickenby audits are conducted within the ATO’s existing audit and quality assurance framework. While not assessing the technical merits of decisions reached, the ANAO found that the available case decision reports clearly linked evidence to established ATO positions and tax law. However, Project Wickenby auditors could have better used the electronic case management system to record key decisions and manage evidence. Over 30 per cent of all the sampled cases did not have a record of approvals for planning and case decisions on this system. In addition, 19 per cent of cases did not have documentation to support the basis for audit decisions, either on this electronic system or the associated hard copy files. Incomplete or inaccurate records pose a risk to the effectiveness and cost of conducting Project Wickenby audits in the context of high levels of challenge by taxpayers, and subsequent objections, appeals and debt collection processes, as well as related criminal prosecutions.

23. The relatively few criticisms and complaints⁸ about the ATO’s administration of Project Wickenby have focused on the timeliness of audit and objection processes, a lack of transparency and excessive imposts on those being audited, and alleged improper handling of information. Timeliness of audits has been an ongoing problem, with the sampled audits taking an average 541 days to complete, and not achieving their expected duration in two-thirds of cases. The ATO has revised its processes for disseminating information to partner agencies, and progressively adopted approaches involving more transparent audit processes and readier acceptance of audit evidence. Risk reviews have been used more frequently since 2009 to streamline the ATO’s compliance intervention program, and would benefit from further internal assessment to improve the choice of review type, their results⁹ and performance in achieving cycle time standards.

24. Undertaking serious criminal investigations is challenging when dealing with complex tax evasion schemes in foreign secrecy haven jurisdictions, where critical evidence to support prosecutions is difficult to obtain, and investigation processes are subject to extensive legal disputation. Within this environment, the ACC and AFP have worked effectively, together with other taskforce agencies, to investigate and prosecute the participants, facilitators and promoters of secrecy haven schemes. However, responding to these challenges and disputes has been resource intensive and costly to the administration of the project, resulting in investigations being completed much later than planned. ACC investigations were completed in an average 49 months (compared to the planned 18 months), and AFP investigations 36 months (compared to the planned 12 months).

25. Operationally, both agencies, but particularly the ACC, could improve elements of their investigation planning and case management, including recording the approval of, and rationale for, critical decisions.¹⁰ Major investigation plans generally lacked specific risk assessment and mitigation, and significantly underestimated the resource requirements. The incomplete recording on both agencies’ electronic case management system of key investigation management documents, such as investigation and tactical plans, poses a risk to the effectiveness of investigations, given the complexity and extent of challenge experienced. The ACC’s document management system had substantial functionality limitations for supporting major criminal investigations, and the AFP was in the process of upgrading its electronic case and document management systems. To improve the management of their investigations, the AFP could revise the practice of allocating serious tax and financial crime investigations among its state and territory offices based on the proximity to the main potential offenders rather than where operatives with relevant skills are located.

26. The ANAO has made six recommendations to strengthen the administration of Project Wickenby. Four recommendations were made to the ATO, and emphasised the importance of: effectively using risk reviews to support the program of compliance interventions; managing audits more effectively through the electronic case management system; expediting the completion of audits; and conducting a post-implementation review of the project shortly after funding ceases in June 2013. Two recommendations were aimed at improving the ACC’s and AFP’s use of case and document management systems for criminal investigations, and the AFP’s case allocation practices.

Key findings

Achieving the Project’s Objective, Outcomes and Commitments to Government

27. The ATO has developed a suite of measures to monitor and report the extent to which Project Wickenby has achieved its objectives and outcomes. These measures cover: improved voluntary compliance with tax laws; outcomes of the project’s criminal investigations and civil audits; improved community confidence in the ATO’s management of serious non-compliance with taxation laws; and enhanced administrative approaches to address the abusive use of secrecy havens.

28. The Government has emphasised the first two measures by setting targets relating to a compliance dividend from improved voluntary compliance, and a cash collection target resulting from civil audits. Improved community confidence can be measured by surveys assessing changes in attitudes over time against baseline survey results. No targets were set for enhanced administrative approaches or contributions to regulatory reform.

29. As previously noted, the project has met its collection commitments to government and is partly achieving its overall objective by making Australia less attractive for international tax fraud and evasion.¹¹

30. The ATO has a sound framework for measuring the impact of Project Wickenby on improved voluntary compliance with tax laws. There is scope, however, to update and improve the calculation of the compliance dividend and refine the indicators of compliance effectiveness for the project. More specifically:

• the calculated compliance dividend captured the main elements for estimating net future revenue attributable to Project Wickenby interventions. However, it was important to update its coverage of relevant taxpayers, test whether their declared liabilities were actually paid, and revise the base years and control group; and
• while the compliance effectiveness method applied to Project Wickenby reflects the main indicators of improved voluntary compliance discussed in this audit—the compliance dividend, AUSTRAC transaction analysis and qualitative indicators—the specific measures and overall reporting could be improved to better analyse the effectiveness of Project Wickenby to meet its overall objective of making it unattractive for Australian taxpayers to participate in ‘Wickenby-type’ activity.¹²

31. In addition to the decline in community confidence indicated by the Community Perceptions Survey (discussed earlier), a Tax Agents Survey conducted in 2011 found that awareness of Project Wickenby outcomes was low. Just over one-third of respondents believed that the project had been at least slightly effective in detecting, deterring and dealing with the abusive use of secrecy havens, but almost half were neutral or did not know. It is important that the ATO includes the results of these surveys as part of its external and internal reporting on achieving project outcomes, and reviews the appropriateness of measures of community confidence as required. There would also be merit in the ATO further reviewing the Project Wickenby Marketing Communications Strategy, so that positive outcomes achieved in addressing abusive secrecy haven schemes are better understood in the community and by tax specialists.

Project Governance

32. Project Wickenby cross-agency governance and assurance processes were designed on a taskforce basis, to promote collaboration and joint decision-making by agencies to deliver commitments to Government. As well as contributing to cross-agency arrangements, each agency has specific processes governing the delivery of taskforce outputs. As the lead agency, the ATO has primary carriage for facilitating governance and assurance arrangements for the project.

33. Project Wickenby cross-agency coordination arrangements provide a template for future taskforce projects. Cross-agency committees were instrumental in developing and implementing strategies and building taskforce cohesion. The ATO performed well as the lead agency in coordinating these committees and managing other governance responsibilities.

34. Project Wickenby largely adopted the ATO’s risk management, planning and performance monitoring frameworks. These frameworks were soundly implemented. There was scope, however, to improve the formal planning arrangements for Project Wickenby as there was no clear design or schedule for releasing or updating high-level plans. There is also an opportunity to rationalise and streamline some performance reports, which would enable more consistent reporting against the risks of implementing the 13 high-level strategies.

35. The Terms of Reference for Project Wickenby stated that a review was to occur in October 2010. This review was not undertaken as the project was extended for a further three years. To respond to the Government’s initial requirement, the ATO should conduct a post-implementation review after the scheduled completion of Project Wickenby Phase 2 in June 2013. The review could inform any future activity under Project Wickenby and capture lessons learned for other cross-agency taskforces of this nature.

36. An underspend of 9.3 per cent of the overall Phase 1 budget allocation of $308.8 million stemmed mainly from a large shortfall in spending by the Commonwealth Director of Public Prosecutions while awaiting delayed prosecution cases. This underspend offset the considerable overspend by the ACC, arising from the resources required to respond to legal challenges. The extent of these challenges had been underestimated.¹³ Moving funds between partner agencies to where they were most needed proved difficult for the taskforce due to the agency-based emphasis given to the management of funds inherent in the Commonwealth Financial Framework.

37. The funding allocation for Phase 1 was an additional $308.8 million, with the funding proposal and methodology clearly separating the costs and benefits arising from this funding from those arising from pre-existing resourcing. However, once underway, project costing practices have been to exclude pre-existing costs. Future projects with funding provisions that clearly separate additional and pre-existing costs and outcomes need to have in place reporting systems to distinguish these two components.

38. The Project Wickenby taskforce has had considerable international engagement, including with foreign revenue agencies, foreign law enforcement agencies and multilateral forums. Feedback from foreign entities that have been involved in international cooperation with the Project Wickenby taskforce included positive comment about the knowledge and approaches of taskforce officers.

Intelligence and Case Selection

39. Intelligence about the nature and impact of the abusive use of secrecy havens has improved markedly since the inception of Project Wickenby. The risk population is better defined and strategic intelligence provides a better understanding of broad risks. Operational intelligence has identified many cases for potential compliance treatments, and tactical intelligence has facilitated the extensive transfer of information at the case level.

40. Selection of the initial cases for criminal and/or civil action under Project Wickenby was conducted according to a case categorisation model. Categories were based on assessment of risk, complexity, revenue at risk and economies of scope. A feature of the criminal investigation strategy was the decision to task the ACC with those cases relating to the Swiss-based promoter, and the AFP with those of other promoters. While this allocation of investigations provided for a clear delineation of cases, it did not necessarily direct cases to the agencies with the most appropriate powers to obtain evidence.

41. Selection processes for investigations have subsequently been refined, and draw on extensive multi-agency input. Changes to strategic priorities and reduced funding have meant that investigations similar to those conducted earlier in the project were not pursued in later years. To act as a deterrent to those currently involved in, or considering, the abusive use of secrecy havens, the taskforce should review the merit of selecting new cases for investigation.

42. Refinements have also been made to processes for selecting cases for civil audit and review since the categorisation derived from information obtained from the Swiss-based promoter. Reforms introduced in early 2010 have enabled the ATO to consistently prioritise and manage the compliance caseload across work streams and geographically across Australia. The ATO has also clearly reported the reasons for selecting candidates for audits and risk reviews since that time.

Civil Compliance Interventions

43. Project Wickenby’s extensive program of civil compliance interventions has contributed to the taskforce outcomes and collection commitments to government. The ATO had completed over 750 audits and 1500 risk reviews by 30 June 2011, raising nearly $1.1 billion in liabilities and collecting over $250 million in revenue.

44. Administrative arrangements to conduct Project Wickenby audits and reviews are based on the initial separation of criminal and civil cases, and provide for the distribution of compliance interventions geographically. These established arrangements would benefit from a review given that funding for the project is scheduled to expire in June 2013.¹⁴

45. The focus of compliance interventions in the early years of Project Wickenby was on major audits that collected significant information from and about clients, with limited open engagement and communication, as the ATO considered many clients likely to be serious non-compliers. As the profile of Project Wickenby clients became apparent, and in response to funding pressures and experiences of long audit cycle times to complete, the ATO progressively adopted approaches involving more transparent audit processes and greater use of risk reviews.

46. Since 2009, the ATO has used reviews extensively to assess risks for clusters of taxpayers, often relating to particular haven jurisdictions or to promoters of potentially abusive schemes. Seventeen types of reviews were used to 30 June 2011, although there was little specific rationale provided for the selection of some of the review types. At that time, only 25 per cent of completed reviews had a positive result for the ATO, and 62 per cent of reviews had met their respective cycle time standard. Many of these cases were comprehensive reviews, with an expected completion time of 240 days. To improve the utilisation of resources, and minimise imposts on clients, there would be merit in the ATO assessing the choice of risk review type for Project Wickenby, their results, and the time taken to complete the reviews.

47. Project Wickenby auditors applied sound audit practices, generally following processes to address identified risks, gather sufficient relevant evidence, analyse this evidence according to agreed ATO positions and factor in client contentions. However, Project Wickenby auditors could improve their use of the electronic case management system to record key audit decisions and manage documents and evidence. Only 57 per cent of the applicable audits sampled had appropriately used the case management system throughout the audit process to record key decisions and attach relevant documentation. Notably, 21 per cent of the applicable sampled audits did not have a planning document that specified the risks to be addressed, and 23 per cent did not include a final case decision report either on the electronic case management system or hard copy file. A major reason for the lack of planning documents and case decisions reports was reliance on primary case documents held on related-entity files, such as the family trust, but with no specific reference to that primary document on the audit’s paper or electronic files.

48. As discussed previously, the relatively few criticisms of Project Wickenby audits by stakeholders focused on the timeliness of audit and objection processes, a lack of transparency and excessive imposts on those being audited, and alleged improper handling of information. To learn from this feedback, the ATO could selectively survey taxpayers, and continue to examine approaches to expedite audits.

49. Other areas the ATO could learn from feedback include an instance of requests for substantial information it already held, and another where taxpayers had approached the ATO with details of a tax scheme and the ATO did not respond, as promised, to advise if there was a problem with the scheme’s legitimacy. In the latter case, the ATO did not respond until almost four years later, when it identified serious non-compliance issues and instigated audit activity and criminal investigations through the Project Wickenby taskforce.

50. A number of issues and allegations surfaced in late 2007 and early 2008 regarding information handling practices within the ATO’s Serious Non Compliance business line, including Project Wickenby. These allegations were independently investigated¹⁵, and while some problems were identified, they were found not to be major. The ATO subsequently adopted strategies to improve information handling processes and practices.

51. Many taxpayers have undertaken actions to challenge Project Wickenby compliance intervention activities and outcomes, including through objections, appeals and procedural challenges. Around one-third of completed objections were allowed in part, mainly because the taxpayer provided additional information. The ATO has taken steps to improve the processes for sharing intelligence with partner agencies that emerges from tax objection and appeal matters.

52. Less than a quarter of all liabilities raised from Project Wickenby compliance interventions had been collected as at 30 June 2011. These high debt levels have arisen mainly because most ATO assessments had been disputed by taxpayers, and nearly half of all these taxpayers’ assets are located overseas. The ATO had issued 14 Departure Prohibition Orders in 2010–11 on the basis of approval of detailed submissions.¹⁶ Where the ATO has issued Departure Authorisation Certificates for individuals subject to Departure Prohibition Orders, more formal recording of the reasons for decisions would reflect better practice.

Criminal Investigations

53. Project Wickenby’s program of criminal investigations has also contributed to the taskforce outcomes. To 30 August 2011, 62 people had been charged with serious criminal offences under Project Wickenby. Of these, 14 resulted from ACC investigations and 48 from AFP investigations. Of the 20 convictions to that date, 16 were participants, two were intermediaries and two were promoters. The ACC has been challenged extensively in the courts, with favourable outcomes for the ACC in 31 of the 43 instances to September 2011¹⁷, while all 12 legal challenges against the AFP to that date have resulted in a positive outcome for the AFP.

54. Successful criminal investigations rely on adherence to sound administrative processes and reasonable judgements being made, based on sufficient and appropriate evidence. The ANAO’s review of the 21 investigations conducted under Project Wickenby¹⁸ focused on the adequacy of administrative processes and practices, including planning, management¹⁹, resourcing and timeliness. The ANAO, however, did not seek to second-guess the appropriateness of professional judgments and decisions made by the ACC and AFP in conducting criminal investigations.²⁰

55. Of the nine ACC investigation plans assessed: only one specifically addressed risks and identified mitigation strategies; none considered costs; three had been updated; and none were signed and dated or had a record of formal approval. Of the 12 AFP investigation plans assessed: none specifically addressed risks or considered costs; two were updated; and five were signed and dated or had a record of formal approval. The plans generally underestimated the resource requirements, duration and timing of key milestones. ACC and AFP planning practices for Project Wickenby investigations could have been improved by explicitly assessing and mitigating risks, considering investigation costs, updating major investigation plans to reflect critical decisions, and better estimating expected investigation timeframes. Ensuring that approved investigation plans are attached to the official case management system would improve project management.

56. Project Wickenby criminal investigations were subject to management arrangements that provided regular oversight, coordination and monitoring at the taskforce level through cross-agency forums and internally at the ACC and AFP through various operating committees. However, detailed evaluations or quality assurance reviews have not been undertaken systematically across all Project Wickenby criminal investigations. There would be merit in the ACC developing and implementing a quality assurance framework to provide assurance to senior executives on the management of investigations.

57. Critical investigation decisions are required to be approved by the investigation team leader, and recorded in the case management system by the case officer.²¹ Those critical decisions for Project Wickenby investigations that were recorded on the electronic case management systems were appropriately approved, but not always clearly explained. However, the ACC did not record all critical decisions on the case management system. Only 12 critical decisions were so recorded across the nine ACC investigations, compared to 197 recorded across the AFP’s 12 investigations. The ACC recorded critical investigation decisions in other locations²², although this reporting was disparate and inconsistent.

58. The ACC and AFP did not use their electronic case management systems sufficiently to record all key investigation management documents²³, thus creating a risk to the effectiveness of investigations given the level of legal challenges associated with the cases. The ACC’s document management system was prone to user errors and search limitations, which necessitated the implementation of additional measures to assist in the location of relevant documents when required. At the time of audit fieldwork, the AFP was in the process of procuring a commercial investigation, intelligence and incident management system to replace the existing systems and better manage case documentation.

59. The ACC funding allocation has not covered the costs of conducting Project Wickenby investigations. The ACC had spent $47.8 million on these investigations by the end of the sixth year (2010–11), which was 80 per cent more than the total funding allocation of $26.5 million. The ACC overspend was due to additional time and staff required to manage litigation, and fewer ATO staff being seconded than originally anticipated, which added to ACC staffing costs. To adequately resource the remaining Project Wickenby criminal investigations, the ACC advised that it will be utilising a small but appropriate level of resources to support the prosecution process.

60. A lesson from the complex financial investigations conducted for Project Wickenby is that there would be merit in the AFP reviewing the practice of allocating investigations to offices primarily based on the location of potential offenders. Other factors can be more important, including having access to sufficient numbers of dedicated investigators and to specialist technical skills and expertise. Centralising investigations into particular criminal activity types in one or two larger offices would allow the AFP to better coordinate activities, such as obtaining offshore evidence and sharing investigation techniques.

61. Two main factors affecting the timeliness of Project Wickenby criminal investigations have been the need for foreign government assistance to obtain evidence of tax evasion, and the large number of legal challenges. To support future investigations that require evidence held offshore, it is important that the ACC and AFP build on the mutual assistance request strategies developed over the course of Project Wickenby.²⁴ Any reform to streamline processes to respond to claims of legal professional privilege²⁵ would also assist the timeliness of Wickenby-type investigations.

Summary of agencies’ response

62. The agencies’ responses to each recommendation are included in the body of the report, directly following each recommendation. Agencies’ general comments on the audit report are below; the full responses are at Appendix 1.

Australian Taxation Office

63. The ATO welcomes this review and considers that the report is supportive of the approach the Project Wickenby taskforce has taken to detecting, deterring and dealing with the abusive use of secrecy havens by Australian taxpayers. This includes the cross-agency coordination and governance arrangements for the taskforce, which have been led by the ATO.

64. The report recognises that this is the first time such a broad range of Australian Government resources has been used to address the significant threat of this abusive use of secrecy havens and notes a number of instances where we have made improvements to our administration through the life of the project. The report also identifies a number of opportunities for further improvements. The ATO agrees with the four recommendations in the report pertaining to our agency.

Australian Crime Commission

65. The ANAO report outlines the success of Project Wickenby including the ACC’s criminal investigations of promoters of tax evasion and the ACC developed intelligence picture of tax evasion and other financial crimes. The ACC notes the findings of the ANAO’s performance audit of the Administration of Project Wickenby. As the ANAO report indicates, the nature of Project Wickenby offences makes criminal investigations complex. This is particularly given the use of offshore secrecy havens which attempt to hide the true nature of individual’s finances. Project Wickenby demonstrates the success that can be achieved by a collaborative cross-agency task force in responding to offshore tax evasion schemes.

66. The ACC will address each of the ANAO findings and incorporate these into ACC investigations as well as policies and procedures moving forward. The ACC accepts recommendation five which comments on the central recording of critical investigation decisions in the ACC’s case management system as well as improvements to the document management system. As acknowledged in the ACC’s comments attached to the report, strategies for improvement have already been instigated to address ANAO findings.

Australian Federal Police

67. The AFP has welcomed the opportunity to contribute to the ANAO performance audit on the Administration of Project Wickenby. The AFP embraces the commentary provided within the report and agrees with the recommendations arising from the audit as they relate to the AFP.

68. Since commencing Project Wickenby investigations, the AFP and its task force partners have significantly increased their understanding of the operational complexities of Project Wickenby typology matters and their impact on investigational practices, including investigation timeframes, the recording of critical decisions, the management of investigational risk and the costing of investigations.

69. In relation to both Recommendations 5 and 6, the AFP has taken conscious and concrete actions to improve investigation management practices.

70. With regard to Recommendation 5, the AFP is in the process of acquiring a new investigation, intelligence and incident management system. Significant improvements will be made to current case management practices and procedures. The AFP has reviewed and implemented revised investigation management and planning tools for serious criminal investigations, which has included the adoption of protocols to better record critical decisions.

71. With regard to Recommendation 6, the AFP has revised its practice for allocating serious tax and financial crime investigations and now provides national support to Project Wickenby investigations in smaller offices.

72. The professionalism and effective outcomes of investigations are judged and scrutinised through the court processes. Notwithstanding the significant litigation activity occurring with Project Wickenby matters, the AFP has been highly successful in both criminal and civil court proceedings, as highlighted in Table 2.2. This has played a significant role in making Australia less attractive for international tax evasion and has contributed to changed tax payer behaviour.

Footnotes

[1]   Angel Gurria, OECD Secretary-General, Improving transparency and stepping up exchange of information in tax matters, Conference on the Fight against International Tax Evasion and Avoidance: improving transparency and stepping up exchange of information in tax matters’, 21 October 2008.

[2]   The name ‘Wickenby’ does not refer to any individuals involved in, or related to, the project. Rather, it refers to an airfield in the north of England, and was simply the next on the list of airfields, which was the family of entities being used at the time by the Governance of Operations Committee of the Australian Crime Commission to generate names for investigations.

[3]   Promoters are mainly located offshore and formulate and deliver international tax evasion schemes to participants, usually through intermediaries. Intermediaries are the key leverage point in facilitating tax evasion schemes and are usually located onshore, in this case, in Australia. Participants are Australian taxpayers who use illegal offshore schemes offered by a promoter.

[4]   The Australian Government Solicitor is a supporting agency.

[5]   Boutique haven schemes for high-wealth individuals had existed for some time. However, with lower costs of travel and communications, increased global trade, and the use of the internet, the barriers to entry for haven schemes had reduced, giving new opportunities for participation, including to small businesses and moderately wealthy individuals.

[6]   To 30 June 2011, $561 million had been collected in cash and from the compliance dividend, which was 132 per cent of the pro rata target of $426 million (as a proportion of the total project target of $654 million). As discussed in paragraph 52, less than a quarter of all liabilities raised from Project Wickenby compliance interventions had been collected, as at 30 June 2011.

[7]   The collection ratio for Project Wickenby funding is 2.8, calculated by dividing $654 million in collection commitments to government by $235 million funding to the ATO only. The Project Wickenby cash collection target of 2.8 is lower than comparable targets in other countries. For example, the United Kingdom has set a target of bringing in £7 billion from £900 million invested in tax compliance and debt collection activities (a cash collection target of 7.8), including taking specific action to tackle offshore avoidance and evasion.

[8]   There were 43 complaints about the ATO’s administration of Project Wickenby to 30 August 2011.

[9]   In particular, 72 per cent of the most common review type completed for Project Wickenby—a comprehensive review with a cycle time standard of 240 days—did not provide a positive result for the ATO (such as a financial outcome, voluntary disclosure or progression to audit).

[10]   As discussed in paragraph 57, only 12 critical decisions were recorded on the electronic case management system across the ACC’s nine investigations, compared to 197 recorded across the AFP’s 12 investigations.

[11]   Risk ratings for the project assessed by the ATO in late 2010 support these audit findings. The risk ratings included that the overall level of project risk was high, the risk of not meeting government commitments was low, and the risk of failing to meet stakeholder expectations was moderate.

[12]   Specific improvements could include: an explicit conclusion about the effectiveness of the project in achieving its desired outcome; developing a proposed indicator of the impact of ACC, AFP and ASIC investigations on compliance behaviours; replacing the indicator relating to profiling Wickenby clients with a measure of community confidence; and combining the two indicators covering the compliance dividend.

[13]   The ACC had spent $47.8 million on conducting the investigations by the end of the sixth year
(2010–11), which was 80 per cent more than the total funding allocation of $26.5 million.

[14]   This review could determine whether these structures remain the most efficient and effective means of administering civil compliance activities as the volume of work decreases. In doing so, the review could assess the ongoing need for a separate compliance stream nominally to support criminal investigations where the other major stream is also supporting criminal investigations.

[15]   Boucher D., Report of a Review of Information Handling Practices in the Serious Non Compliance Business Line of the Australian Taxation Office, December 2008.

[16]   The ATO can issue a Departure Prohibition Order where a person with a tax liability or obligation is likely to depart Australia without discharging the outstanding debt or obligation or making arrangements to do so.

[17]   Of the other 12 challenges, three did not favour the ACC, parts of another three did not favour the ACC and six were neutral outcomes.

[18]   A single investigation can encompass a number of people.

[19]   Elements of investigation management examined included: oversight, coordination and monitoring arrangements; making and approving critical decisions; the use of case and document management systems; and review, assurance and improvement mechanisms.

[20]   Also outside the audit scope were investigative practices (such as obtaining witness statements, issuing search warrants, and interrogating potential offenders) and the development of briefs of evidence for prosecution provided to the Commonwealth Director of Public Prosecutions. Investigation practices are tested through legal and judicial processes and by other authorities, particularly the Commonwealth Ombudsman.

[21]   Examining the approval of critical decisions by appropriately authorised officers provides some assurance that investigators had made sound judgements.

[22]   The ACC also recorded critical investigation decisions in locations such as email systems, case officer personal logbooks or simply as case note entries in the case management system.

[23]   For example, the Australian Government Investigation Standards requires a tactical plan to be developed where search warrants are issued. However only one of the ten AFP investigations and one of the six ACC investigations, where search warrants had been issued, had all standard tactical plans attached to the electronic case management system.

[24]   A mutual assistance request is the formal process countries use to request, provide and obtain formal government-to-government assistance in criminal investigations and prosecutions.

[25]   Legal professional privilege is a common law right which protects the right of individuals and other entities to obtain confidential legal advice about their legal circumstances. This right protects some legal advice from being used as evidence against an individual.