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CDPP successfully prosecutes gold bullion GST fraudsters

Year
2023
Location
New South Wales

On 11 July 2023, following a 6-week trial in the Supreme Court of NSW, Mr Jonatan Kelu and Mr Cedric Millner were each found guilty of 2 counts of conspiring to dishonestly cause a loss to the Commonwealth, for their role in committing gold bullion fraud over a 2-year period.

In total they defrauded the Commonwealth of $40,911,685.

The CDPP successfully prosecuted the matter and on 11 July 2023, Mr Kelu and Mr Milner were each convicted of an offence contrary to s135.4(3) of the Criminal Code Act 1995 (Cth). On 15 December 2023 they were sentenced to 8 years’ imprisonment with a non-parole period of 4 years and 6 months.

Background

When the New Tax System (Goods and Services Tax) Act 1999 was enacted, it provided an exemption on the payment of Goods and Services Tax (GST) applicable to ‘investment-grade’ gold bullion (gold that had been stamped into bars and coins) on the basis it was considered a form of currency.

Investment-grade gold bullion was made distinct from ‘scrap’ gold or gold that had changed its form by either being damaged, melted down or because it came in the form of jewellery, which was subject to GST.

This distinction created a loophole which was exploited by criminals who would purchase GST-free bullion and change its form into scrap gold. They would then sell it to precious metals dealers and jewellers, adding 10 per cent GST. Instead of remitting the GST owed to the ATO from the sale of the scrap gold, offenders would claim input tax credit (ITC) exemptions applicable to the sale of second-hand goods and keep the profit.

In 2013, the Australian Federal Police set up Operation Nosean and, as part of their investigations, conducted raids in the precious metals industry.

The Matter

Between January 2012 and October 2013, Mr Kelu and Mr Millner defrauded the Commonwealth by intentionally failing to remit GST owed to the ATO on the sale of scrap gold.

The elaborate conspiracy involved the offenders purchasing GST-free bullion and transforming it into scrap gold. They would then sell the scrap gold to a gold refiner adding 10 per cent GST, solely for the purpose of making a profit.

To offset the payment of GST owed to the ATO, the offenders would claim ITCs on each transaction of the sale of scrap gold, thus exempting the offenders from paying GST.

This resulted in a loss of GST revenue owed to the Commonwealth in the total sum of $40,911,685. The conspiracy in 2012 resulted in a loss to the Commonwealth of $15,925,956 and $24,985,729 in 2013.

The matter was initially referred by AFP Criminal Assets Confiscation Taskforce to the ATO’s Serious Non-Compliance criminal investigation unit in 2013. Following a detailed investigation, the ATO then referred the matter to the CDPP in April 2015.

The Operation Nosean prosecution involving volumes of documentary material and a Crown case, relied on close collaboration between partner agencies to ensure a successful prosecution.

Due to the overwhelming size and complexity of the brief referred to the CDPP, orders were made at the request of the offenders’ legal representatives, that the prosecution serve a consolidated electronic brief of evidence.

The electronic brief of evidence comprised of over 77,000 documents. The CDPP team used Relativity, the CDPP’s Evidence Management Solution to review, analyse and sort key documents in the brief. In particular, the tagging functions were used to prepare tender bundles for trial.

Sentencing

Due to the objective seriousness and duration of the offending conduct, the CDPP submitted the only appropriate sentence in this case was one of full-time imprisonment.

The sentencing Judge, Richard Cavanagh J, accepted the CDPP’s submissions noting that general deterrence was an important factor and therefore, each offender’s sentence must be substantial.

“Tax fraud is not a victimless crime. By their conduct, the offenders have caused loss to the community as a whole, in the sense that they have defrauded the Government of a significant sum of money which could have been used for the benefit of the community.

“Further, tax fraud involves a significant breach of trust, in the sense that our modern system of tax collection is one of self-assessment,” the Judge said.

The maximum penalty for each offence is 10 years’ imprisonment and/or a fine of 600 penalty units ($108,000).

Both offenders were sentenced to 5 years’ imprisonment for the 2012 conspiracy and 6 years’ imprisonment for the 2013 conspiracy, resulting in a total head sentence of 8 years’ imprisonment, with a non-parole period of 4 years and 6 months.

Legislative Amendment

In 2017, an amendment to the Goods and Services Tax Act 1999 Act was introduced to ensure entities engaged in transforming the form of a precious metal they acquire, can no longer exploit the special GST treatment on second-hand goods by claiming input tax credits.

Related links:

ATO: From gold bars to iron bars

ATO: Fraud in the precious metals refining industry