Case study 3: Accountant facilitated a round- robin tax evasion scheme
Case Study Series:
Over the coming weeks we will bring you a number of case studies. These are a reminder that money launderers will go to extraordinary lengths to make their funds look legitimate.
Case Study 1 - Accountant received funds on behalf of criminal - Read more
Case Study 2 - Using an accountant as an intermediary in the legal structure of a business - Read more
Case Study 3 - Accountant facilitated a round- robin tax evasion scheme - Read more
Case Study 4 - Using shell businesses as a front for drug supply network - Read more
Case Study 5 - Transnational drug dealing - Read more
“Round robin” tax evasion schemes essentially aim to make funds movements appear as payments to other parties while, in reality, the funds ultimately return to the original beneficiary. In this case enquiries identified that the principal promoter and operator of a tax evasion scheme was a senior partner of an accounting firm based in Vanuatu. Analysis of Australian Transaction Reports and Analysis Centre (AUSTRAC) information uncovered the round robin tax evasion scheme, which involved the transfer of funds between Australia-based individuals and bank accounts of companies in other countries to evade tax in Australia.
The method used to facilitate tax evasion was:
Suspects in Australia transferred funds from their companies’ accounts to the bank accounts of companies in New Zealand. The New Zealand companies and the bank accounts were controlled by the Vanuatu-based accountant, who was a signatory to the bank accounts.
The payments were falsely described in the suspects’ companies’ records as expenses in the form of “management and consultancy fees”. False invoices were created for the fictitious expenses. No evidence was available to show that any consulting work had been carried out. The invoice amounts matched the amounts paid to the bank accounts in New Zealand.
The false expense payments were claimed as deductible expenses in the tax returns of the Australian companies, fraudulently reducing the companies’ taxable income and the amount of tax they were assessed as liable to pay.
The accountant then transferred the funds under the guise of international “loans” through a series of round robin international transactions, through accounts held in the name of companies owned and operated by the accountant.
The accountant transferred the funds into the personal bank accounts of the suspects in Australia. The funds were transferred via an overseas company controlled by the accountant, separate to the companies in New Zealand that received the funds originally.
In order to disguise the funds as loans, false documents were created purporting to be international loan agreements with a foreign lender. Loans are not assessable income and are tax-free.
The funds, disguised as international loans, were not disclosed in the suspects’ personal tax returns. The suspects were thus assessed as liable for less tax than they should have been, thereby avoiding income tax obligations.
Effectively, the “loans” paid to the suspects were funds from their respective companies but were disguised by the scheme, allowing them to evade approximately AU$750,000 in company and personal tax.
Both suspects in Australia were ultimately convicted of tax evasion and fraud offences and sentenced to three years imprisonment. The suspects also became liable to pay penalties and interest to the Australian Taxation Office of more than AU$1 million and AU$900,000 respectively. The accountant was convicted of conspiring to defraud the Commonwealth and was sentenced to 8 years and 11 months’ imprisonment.