Author: Bugg, D. Date: 15/05/2001 Venue: ATO Serious Non-Compliance Conference
As many, if not all of you know, the DPP was established on 5 March 1984 when the Director of Public Prosecutions Act 1983 came into force. The primary role of the DPP was then, and remains, to prosecute offences against Commonwealth laws, and to recover the proceeds of crimes against Commonwealth laws. From its inception, the DPP’s tax practice has formed an important part of the prosecution role of the DPP. Indeed one of the first major functions of the DPP in 1984 was to take over the role of Special Prosecutor Gyles whose brief had been to “assume responsibility for the handling of the prosecutions for the alleged taxation frauds referred to as ‘bottom-of-the-harbor’ schemes and for co-ordinating the recovery by civil remedies under existing law of the amounts thereby lost to the Commonwealth”. In keeping with the spirit of the DPP Act, it was accepted that the DPP would prosecute serious taxation frauds (whether investigated by the AFP or by the ATO and whether under the Crimes Act 1914 or the Crimes (Taxation Offences) Act 1980) as well as serious offences against the taxation laws (eg offences which might result in a prison sentence). However the DPP’s supervisory role was extended to effectively cover all taxation offences, and specifically taxation offences which might be considered to carry a pecuniary penalty. This was achieved by virtue of s6(1)(g) of the DPP Act which gives the DPP the function of instituting or carrying on proceedings, or supervising or co-ordinating action by others, to recover pecuniary penalties under Commonwealth law in respect of any matter specified in an instrument signed by the Attorney-General. By an instrument dated 3 July 1985 the Attorney-General included in matters covered by s6(1)(g) of the DPP Act “taxation offences within the meaning of sub-s8A(1) of the Taxation Administration Act 1953”. The practical result of the Attorney-General’s decision to make this instrument was that the DPP now had at least supervisory control over all offences relating to taxation matters. Having said this, it was recognised that the ATO’s relationship with the DPP would be somewhat different from the DPP’s relationship with other Commonwealth investigative agencies such as the AFP. One reason for this was that the single largest Commonwealth criminal practice was the prosecution of offences of all kinds involving taxation matters. Of these the single largest group again was the prosecution of taxation offences within the meaning of s8A(1) of the TAA. The ATO had established a competent body of “in-house” prosecutors who conducted these routine high volume taxation prosecutions and it was accepted on the DPP’s part that the DPP simply would not have the resources to undertake these high volume prosecutions. In keeping with the DPP’s supervisory function over all offences relating to taxation matters, the DPP and ATO established guidelines for the conduct of taxation prosecutions by ATO officers. These are the “DPP/ATO Guidelines: Investigation and Prosecution”. In essence these guidelines:
- The responsibility for investigating tax offences rests with the ATO and AFP with the DPP role at the investigation stage limited to providing legal advice;
- The primary responsibility for prosecuting such offences rests with the DPP, with the DPP agreeing that ATO officers may conduct certain prosecutions for offences against taxation laws;
- Offences involving taxation matters should be prosecuted by the DPP under the Crimes Act or the Crimes (Taxation Offences) Act where:
- serious fraud on the revenue was involved; and
- cases in which there is a circumstance of aggravation (eg bribery or corruption involving ATO officers);
- DPP agreed that ATO officers may conduct summary prosecutions for offences against the TAA and other taxation laws so long as certain listed matters were referred to the DPP such as (and this list is by no means exhaustive):
- effectively all matters where there is a plea of not guilty;
- matters involving “high profile persons”
- appeals from summary taxation prosecution
It is fair to say that these Guidelines have stood the test of time and they remain in force today. Certainly some changes are needed to the guidelines by way of updating, but these changes will not affect the basic reasoning of the Guidelines. For example, references to the Criminal Code will now have to be included.
- While the DPP is confident we enjoy good working relationships with the ATO, nevertheless, as with all good relationships, we see the need to keep them under constant review. In particular, three recent developments have prompted the DPP to again review its tax practice and relationship with the ATO. These developments are:
- the Tax Law Improvement Project;
- the gradual introduction of the Criminal Code;
- ATO taking over responsibility for excise matters; and
- (particularly) the introduction of the GST.
I think it can be fairly said that the recent changes to taxation administration (eg self-assessment, GST) have greatly increased the potential for fraud on the revenue. The PPS “scam” being run recently from various prisons, and the recently well publicised GST fraud have shown how easy it is to defraud the tax system if a person sets a mind to it. Electronic forms, computerised assessments etc do make crime easier. We should therefore be all the more vigilant to ensure that the system to discourage fraud operates as effectively as possible. In response to these developments, and the consequential increase in workload in both the ATO and the DPP, the DPP has
- established a Specialist SES position at the Head Office with primary responsibility for providing specialist advice to both DPP Regional Offices and the ATO on taxation matters, with special emphasis on GST matters, and with responsibility for liaison with the ATO at the national level;
- although the DPP has had specialist tax units in Sydney and Melbourne for some years now, in recognition of the expected workflow from the new tax system and the GST, these units have been expanded and are now separate branches headed by an SES lawyer;
- specialist tax units have also been set up in Brisbane, Adelaide, and Perth (the DPP offices in Hobart and Darwin do not have specialist tax units but both offices have prosecutors at the Principal Legal Officer level experienced in tax prosecutions, and can call on assistance as necessary from Head Office or, mirroring ATO’s arrangements, from respectively Melbourne and Adelaide).
However I would not wish it to be thought that DPP and ATO co-operation is limited to the prosecution sphere. The DPP and the ATO have always liaised closely at both the operational level and at the wider level. However, with all the developments in the tax sphere, both the DPP and the ATO have returned to more frequent National Liaison meetings, including formal national and regional Liaison Meetings devoted to purely Excise matters (one need only refer to the current spate of “chop-chop” tobacco frauds in this regard). The purpose of these meetings includes discussing matters of mutual concern and agreeing to unified responses, airing problems and addressing them and generally keeping both Offices informed of relevant developments in the other. Similarly both the ATO and the DPP have assisted each other to meet the new developments relating to tax matters by offering relevant to training. Thus the DPP was very pleased to accept the ATO’s offer to provide training on the GST and its operation (which training DPP lawyers found to be of great assistance), and the DPP in return has provided training sessions to ATO personnel on the impact of the Criminal Code in the taxation sphere I would also wish to emphasise that co-operation between the ATO and the DPP is of great benefit at the investigation stage. While the DPP rightly acknowledges that that the responsibility for investigation lies with the investigation agency which after all has the necessary expertise in investigation, the fact is that the DPP still has a valuable role in investigation. Thus the DPP can provide advice on matters such as:
- Legal advice on possible offences thus assisting investigators to decide on lines of investigation. For example, in one recent matter, the DPP advised that a person who threatened commercial tenants with eviction if they withheld tax where that person failed to disclose his ABN number could be guilty of an offence under s76 of the Crimes Act. The resulting investigation adduced sufficient evidence to commence a prosecution under section culminating in a conviction.
- Legal advice on eg search warrants. In the recent GST matter the DPP effectively had two lawyers on standby to assist ATO investigators on matters such as search warrants, given that this was the first major GST fraud. While the matter is not yet concluded, the investigation has resulted in an arrest and a strong case.
- Drafting charges.
Before I finish, I will briefly touch on the new civil forfeiture legislation as an option for the ATO and DPP to explore.
CIVIL FORFEITURE LEGISLATION AND THE ATO
As people are probably aware, the Government recently announced that it plans to introduce amendments to the Proceeds of Crime Act to introduce a new civil based forfeiture regime. A Bill to amend the Act is currently being drafted. It is difficult to say a lot about the details of the proposed legislation. We haven't yet seen a draft of the legislation, and it still has to get through Parliament. However, it is now clear that we are going to see the introduction of civil based forfeiture legislation in the foreseeable future. The attached documents gives an outline of the current proposal. Three States of Australia now have introduced civil based forfeiture legislation and both major parties at the federal level have expressed support for the concept. Civil forfeiture is clearly the coming wave. The current plan is to introduce a new civil based scheme which will stand alongside the current conviction based provisions in the Proceeds of Crimes Act. The conviction based scheme will not be repealed. It will still be possible to apply for forfeiture orders and pecuniary penalty orders after conviction. However, it will also be possible to apply for forfeiture orders, and things called proceeds assessment orders, on the basis of a finding by a court that a person has committed prescribed unlawful conduct. The court will make that finding on the civil standard of proof and applying the rules of civil procedure. Prescribed unlawful conduct will be defined to cover drug crime, money laundering and serious fraud offences against Commonwealth law. It will also pick up some offences against legislation like the Financial Transaction Reports Act which tend to be an indicator of underlying money laundering. There will also be provision for the courts to make property directed forfeiture orders in cases where it can be shown that an identifiable piece of property is the proceeds of crime, even if the person who committed the crime cannot be identified. As is probably clear by now, the re-drafted Proceeds of Crime Act is likely to be a complicated piece of legislation. There will be two recovery regimes running in parallel and each regime is going to provide three ways to pursue the proceeds of crime. Under the conviction based provisions there will forfeiture orders, pecuniary penalty orders and automatic forfeiture for serious offences. Under the civil based provisions there will be person based forfeiture orders, proceeds assessment orders and property based forfeiture orders. It is going to take a lot of work for the DPP and the investigative agencies to get across the new legislation and to develop the procedures needed to use it to maximum effect. The introduction of civil forfeiture legislation is a very significant development which has the potential to change the way we go about pursuing the proceed of crime. The conviction based provisions have been in force for 14 years, but there are limitations on them because of the need to secure a conviction before we can seek orders for the recovery of property. The new provisions will break that nexus. The recovery of criminal assets has always been seen as an adjunct to the prosecution process, as something of an add on to the trial process. Under the new legislation, the recovery of criminal assets has the potential to become a separate enforcement regime running parallel to the prosecution process. We will have the option of prosecuting the defendant, recovering the proceeds of crime, or doing both. The advent of the new legislation is going to pose a number of challenges for the DPP. The first is that we have to make sure that we use the civil recovery regime to the full extent possible. There is no point in being given a powerful new tool if we are only going to use it. We will need to be prepared to see the legislation as an alternative method for enforcing the criminal law and not just an add on to the prosecution process. That is going to involve a change of approach by the DPP. At the same time, we need to ensure that civil recovery does not become an alternative for prosecution. There may be a tendency in some quarters to see a case as over once we have recovered the money. The DPP's vies is that prosecution and civil recovery must both be pursued in appropriate cases and we need to work to make sure that happens. Finally, the DPP will need to ensure that the conduct of criminal proceedings and civil recovery proceedings are coordinated in cases where both types of action are taken against a single defendant. There is obvious potential for action taken in civil recovery proceedings to adversely affect the prosecution process and vice versa. As a single example, if we were to move too early to restrain assets in an ongoing investigation it could alert the suspects the fact their affairs are under investigation and could frustrate the police operation. We will need to coordinate action in these cases and we will need to work closely with the investigative agencies to ensure we are all moving in the same direction. I think there are some interesting times ahead for the DPP and for the investigative agencies. We are going to have to do a lot of training for our officers and put a lot of work into developing procedures and settling guidelines to ensure that we make proper use of the new legislation. I think we are also going to have to devote more resources to Criminal Assets work. It is difficult to predict how much new work there is going be in this area until we see precisely what the legislation looks like. However, a lot of people will be disappointed if we do not see a substantial increase in workload and a substantial increase in the amount of money we recover. That brings me to the final question, which is how the new legislation is likely to affect ATO. That is a difficult question to answer given that we do not know what the final legislation is going to look like. Even when we see the legislation, I think it's going to take a while to work out what can be done under it and where the strengths lie. However, I think we are going to see a lot more work in tax cases than there has been under the current legislation. That is because a lot of the problems we run into under the conviction based scheme are not going to arise under the new legislation. We all know that it takes a long time to investigate a complex tax fraud and it takes a long time to get the matter through the courts. Under the conviction based scheme we cannot get restraining orders until the investigation is over, and charges have been laid, and we cannot get final orders until we have secured a conviction. There is no way to process these case more quickly. Under the new legislation we will have the option of applying for restraining orders at a much earlier stage and we will be able to apply for final orders as soon as we are in a position to do so. We should be able, in appropriate bases, to take civil recovery action in and pursue it to completion, while the criminal investigation is still in process. The other potential improvement under the new legislation in that, as currently proposed, a defendant will not be able to gain access to restrained property in order to pay their legal expenses. They will be required to apply for legal aid and will be funded at legal aid rates. There have been a lot of case over the years where the DPP has gone to great trouble to identify and restrain property, sometimes taking action to get property repatriated from overseas, only see it used to fund pointless and hopeless legal challenges. At the end of the day the money that might have been used to pay money owed to the Commonwealth has all been spent on legal costs. Hopefully that will soon be a thing of the past. There have, of course, been cases where we have used the conviction based provisions of the PoC Act to recover the proceeds of crime in tax fraud cases. However, there have also been cases where we have looked at using the conviction based provisions of the PoC Act and decided that it is likely to be quicker, and potential more effective, to leave it to ATO to recover unpaid tax using the normal methods of civil recovery. I think will see an increase in the number of tax cases where the DPP takes action to recover the proceeds of crime. I think it unlikely that we are going to see a wholesale move away from the normal methods of civil recovery. I don't envisage that the DPP will use the civil forfeiture provisions to recover unpaid tax in every case where we can prove that there has been criminal fraud committed. However, the fact remains that the new provisions will provide a new mechanism for recovering the proceeds of criminal fraud and I think there will be cases where that mechanism can, and should, be used to recover the proceeds of tax fraud. It is hard at this stage to be more specific about the likely impact of the new legislation on ATO. We are going to have to meet with ATO when we see the new Act. We need to discuss when the it will be appropriate to use the new legislation in tax cases and to talk about the type of support the DPP will need from ATO to support recovery action. That is about all I plan to say about the new legislation. The current timetable calls for a Bill to be drafted by early June and for it to be introduced into Parliament a short time later. It is an optimistic timetable. I hope it can be met. If there are any questions I will try to answer them.
1. Proposed changes to the PoC Act 1 General
The legislation will provide two parallel streams of recovery action:
- Conviction based recovery; an
- Civil based recovery.
The conviction based stream will work the same way as the existing PoC Act provisions, with procedural improvements recommended by the ALRC. The civil based recovery stream will itself have two components:
- Person directed forfeiture (based on the model of the NSW CAR Act); and
- Asset directed forfeiture (along the lines of the US forfeiture model).
There will be no new agencies. Court proceedings will be conducted by the DPP. Investigations will be conducted by the AFP, NCA and other investigative agencies. ITSA will administer restrained property and recover forfeited property. There be a review of the new legislation after two to three years operation.
2 Machinery provisions
There will be provisions in the Act to allow for property to be restrained, so it cannot be dissipated before final orders are made, and to give agencies the search and examination powers they need to perform their role. The new powers will include power for a police officer to serve a notice on a financial institution to produce information for use under the Act. There will also be provisions under which a court which has made a restraining order can direct a person whose assets are outside Australia to repatriate them to Australia, with a penalty for non-compliance. The Act will provide that information obtained by the NCA and ASIC through the exercise of compulsory powers will be admissible in the civil forfeiture proceedings. The result is that a person who is questioned under compulsion by the NCA or ASIC, and who admits to committing a relevant crime, will face the prospect of civil recovery action even though their answers cannot be used against them directly in criminal proceedings. There will also be provisions to protect the rights of third parties and innocent family members, although there will be no protection for a person who takes property as a gift.
3 The components of the civil based stream Person directed forfeiture
The components of the civil based stream Person directed forfeiture will be possible if a Court has found that a person committed a “prescribed Commonwealth offence” at some time in the preceding six years. The Court will apply the civil standard of proof (the balance of probabilities) but the onus will be on the DPP to prove its case. If a Court finds that a person engaged in “prescribed Commonwealth offence”, there will be two avenues for recovery. If the amount derived from the relevant conduct is known, the court will be able to make a proceeds assessment order (similar to a pecuniary penalty order under the existing Act). A proceeds assessment order will be enforceable against restrained assets. Alternatively, the DPP will be able to rely on a rebuttable presumption that any property the person owns or controls, and which is covered by a restraining order, is the proceeds of crime. The person will lose the property unless they can show, on the balance of probabilities, that it was derived from a lawful source. “Prescribed Commonwealth offence” will be defined to cover certain types of serious crime. Not every crime against Commonwealth law will be a prescribed Commonwealth offence, but drug trafficking, money laundering, people smuggling and fraud which involves an amount in excess of $10,000 will all be covered. The definition will also pick up offences against the FTR Act, which are often an indication of underlying money laundering, and there will be provision for other offences to be added by regulations.
Asset directed forfeiture will be possible if a Court finds, on the balance of probabilities, that a particular asset is “Commonwealth indictable proceeds”. There will be no need to identify the actual offender. The proceedings will be directed against the asset. “Commonwealth indictable proceeds” will be defined to pick up the proceeds of an indictable offence against Commonwealth law, an offence against foreign offence that would be indictable if committed in Australia, and an offence against State law if the proceeds are dealt with in breach of a Commonwealth law. Note that instrumentalities (property used to commit crime) will not be at risk under the assets directed forfeiture provisions. The scheme will only apply to the actual proceeds of crime.
4 Choice of recovery action
The Act will leave it to the DPP to decide which form of recovery action is the most appropriate in the circumstances of the case. There will be no restrictions on when a particular form of recovery can be used, except that there will have to be a prosecution before the DPP can pursue conviction based recovery.
5 Connection with the prosecution process
The civil recovery stream will operate independently of the prosecution process. It will be open to the DPP to take civil recovery action when criminal charges have been laid in a matter, and it will be open to the DPP to apply for final orders even if the criminal charges have not been dealt with.
6 Other amendments The opportunity will also be taken to do the following:
- amend the existing money laundering offences to widen their scope;
- provide that a criminal who sells their story to the media can be stripped of the profits of doing so;
- reduce the scope for restrained assets to be used up in legal fees by providing that a person whose property has been restrained can obtain legal aid, subject to the controls which apply under the legal aid regime; an
- amend the Taxation Administration Act to ensure that tax information can be used to support recovery action under the new legislation;
The new legal costs scheme will depend on arrangements being entered with the States, which administer legal aid through the State Legal Aid Commissions. The Act will provide that if an arrangement is not on force with a particular State, a court will have power to allow access to restrained funds, subject to a number of limitations picked up from NSW CAR Act.
Jurisdiction under the new provisions will be vested in the State Supreme Courts and State intermediate courts. The Federal Court will not have jurisdiction under the Act and neither will magistrates courts in those places where there is no intermediate court.
The new legislation will override the provisions of the Bankruptcy Act. Property which is under restraint will not be available in bankruptcy and, in the event that a forfeiture order is made, the Commonwealth’s interest will rank before the interests of unsecured creditors.