Australian Tax Office Deputy Commissioner Michael Cranston is facing charges for abuse of public office for allegedly accessing restricted information on ATO systems.
It is alleged that Cranston — the deputy commissioner for taxation, private groups and high wealth individuals — accessed information about a tax audit after a request from his son, who is one of nine people charged over alleged an tax fraud conspiracy worth $165 million.
The Australian Federal Police believe the deputy commissioner was unaware of the alleged conspiracy, however. He has been issued a notice to appear in court for abuse of public office on June 13.
Four other ATO employees are also under investigation by the tax office for breaches of the Australian Public Service Code of Conduct for allegedly accessing information at the request of Cranston. The people being investigated have been suspended without pay.
“I cannot overstate the seriousness of these matters,” said ATO Acting Commissioner Andrew Mills.
“Australians must have a tax administration they can trust, and the people of the ATO must be of the utmost integrity and good judgment. This is even more important for those in leadership positions.”
The eight month investigation, codenamed Operation Elbrus and conducted by AFP and ATO investigators, culminated yesterday with 28 search warrants in Sydney, Wollongong and the Southern Highlands. A further six search warrants are being executed today.
Six people have been charged with conspiracy to defraud the Commonwealth for their alleged role in the syndicate, while two men were charged with money laundering offences. One was charged in relation to an alleged extortion on the syndicate, which also resulted in additional charges against two people charged in relation to the syndicate.
Police allege that the fraud involved a company established by the syndicate to provide payroll services to legitimate clients. The money received from these companies was transferred to subcontracted companies — allegedly controlled by syndicate members — to process payroll. While processing these payments, funds paid by legitimate clients to service tax obligations were allegedly diverted by the syndicate for their own personal gain.
Tax office investigators estimate the amount in tax obligations not paid to the ATO to be approximately $165 million. Assets including luxury residential houses, funds in bank accounts, luxury cars, boats, motorbikes and aircraft have been seized.
AFP Deputy Commissioner Leanne Close said yesterday’s activity involved more than 290 AFP members.
“The scale of this alleged fraud is unprecedented for the AFP; the response from our members yesterday is a direct response to the level of offending that we have identified during this operation,” she said.
“Investigations such as this are inherently complex and we still have a lot more work to undertake as we analyse the material that has been seized.
“The threat posed by this syndicate to the revenue stream is demonstrated by the fact that $165 million was removed from the tax system, ultimately removing it from possible use by the community.”
How the scheme worked
The legitimate payroll company — run by the syndicate members — accepted money from legitimate clients to process payroll on their behalf. This money was transferred to seven sub-contracted companies known as tier two companies, which then made payroll payments to individual workers of clients.
The directors of these tier two companies are known as straw directors. They are essentially a front — individuals recruited to appear to be running the companies, but the syndicate members retain effective control.
As part of their contractual obligations to the legitimate payroll company’s clients, the tier two companies are required to remit pay as you go withholding tax payments to the ATO on behalf of the clients. However, investigators found that only part of these tax obligations were paid. The remaining money was allegedly siphoned off by the syndicate members and channelled through a complex series of companies and trusts for their own personal gain.
Potentially, hundreds of government IT contractors could be affected by the alleged tax fraud conspiracy that centres around Plutus Payroll.
Issues with Plutus’ operations recently came to light after contractors performing work for federal and state agencies raised the alarm over payment irregularities and approached elected representatives and the Opposition for assistance.
The office of Senator Doug Cameron says it was approached by contractors seeking help in relation to payment for work undertaken at agencies and departments including: the Department of Defence, National Disability Insurance Agency, Department of Foreign Affairs and Trade, Department of Social Services, Department of Immigration and Border Protection, and Transport for NSW.
The scale of the AFP sting is sure to raise issues around how closely federal and state agencies check and vet payroll services suppliers used to pay contractors, especially around the information technology arena.