Just DO IT -- make ATO investigate fraud

February 13, 2015

The Hong Kong and Shanghai Banking Corporation (HSBC) is the second-largest bank in the world.

It operates in most countries, including Switzerland, which has long had a reputation for the secrecy of its finance sector. In 2008, a former HSBC employee gave the French government a list of the names of 261 Australians who held HSBC bank accounts in Switzerland.

In 2010, the year that HSBC’s 25th branch office in Australia was opened in North Sydney by Treasurer Joe Hockey, the Australian Taxation Office (ATO) received a copy of the list — a fact it disclosed on February 9.

It is perfectly legal to hold offshore bank accounts, but for Australian residents to do so and not declare income from them is illegal because any income that accrues is taxable in Australia.

In March last year, the ATO launched a scheme called Project DO IT (disclose offshore income today). It provided Australians holding overseas cash the opportunity to declare it by December 19 last year, and granted immunity from criminal prosecution to those who did so.

What came with it was the extraordinary offer of a huge discount on money owed to the ATO. Those earning undisclosed income were required to pay income tax on a maximum of the last four years only of undeclared income, together with a 10% fee that was described as a “penalty”.

So if you happened to have a family trust with significant offshore assets that no tax had been paid on for decades, it provided the opportunity to clean them in the ATO laundry and pocket the profit. Less, of course, the onerous maximum of four years tax payments and 10% on top.

HSBC issued a statement saying it had taken steps over the past few years to implement reforms and “exit” clients who did not meet their now “strict HSBC standards”.

This was apparently necessary because, surprisingly enough, “in some cases, individuals took advantage of bank secrecy to hold undeclared accounts”.

Why it took five years for the ATO to release the names of the 261 Australians with HSBC accounts in Switzerland — including the late Kerry Packer, Elle Macpherson, and the former chairperson of ANZ bank Charles Goode — has not been explained.

But a handy clue comes from the International Consortium of Investigative Journalists in Washington. On February 8, the day before the ATO release, these journalists had published the files. They also provided the helpful information that those HSBC clients with links to Australia had total holdings of $1.24 billion.

The ATO said that about 70 HSBC offshore account holders had come forward under the DO IT program. Their expectation is that when all disclosures are processed, the assets uncovered will exceed $4 billion and the income disclosed will be above $600 million.

Of the 70, there were, according to the ATO, a “number” of Swiss HSBC account holders.

This suggests that there are probably at least 250 individuals who aren’t going to DO IT. Alongside them are 36 Australian companies with entities in Switzerland, which are being investigated for the possible avoidance of total tax amounting to $9.2 billion.

HSBC knows a bit about money laundering. In 2012, they paid a US$1.9 billion fine to US regulators after a Senate investigation revealed the bank was used to launder hundreds of millions of dollars for Mexican drug cartels. But it was a fine they could easily afford. In the first six months of last year it made a profit of US$12.34 billion.

If the Australian government were serious about cracking down on corporate tax avoidance and dodgy banking practices they would fund the ATO to properly investigate them. Simple really, just DO IT.

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