7.1 The ATO has a range of processes in place to prevent, detect and respond to external fraud, as noted in the previous chapter. The successful management of external fraud risks, however, is also dependent on the ATO's collaboration with external agencies, including law enforcement agencies. This chapter examines such collaboration in terms of information sharing, funding and the coordination of specialist skills and resources.
7.2 Stakeholders have suggested that there could be improvements in the level of cooperation between government agencies for the purpose of tackling external tax fraud. Although the ATO participates in a number of multi-agency taskforces, stakeholders have observed that the level of communication between the taskforce members is often lacking. While this may be due to the legislative limits imposed on the disclosure of information, the end result is one where 'no one is bringing data to the table that helps'. Furthermore, even if the issues surrounding information disclosure are resolved, the current taskforce approach of using information requests and responses is not well-suited to swiftly responding to tax crime.
7.3 Some stakeholders, including government agencies who receive referrals from the ATO, have also observed that the requests for assistance from the ATO arrive via a number of different channels. This has led to a perception that priorities in the ATO are not determined at an organisational level but by discrete areas within the organisation. Furthermore, stakeholders have observed that the lack of prioritisation at an organisational level has resulted in a large amount of referrals being rejected and returned to the ATO. They have also questioned whether the ATO takes any action with respect to these returned referrals.
7.4 More generally, stakeholders have observed that government agencies are overly conscious of each other's 'turf,' which results in a reluctance to deal with issues that may potentially cross over to another agency's jurisdiction. Certain stakeholders have also taken the issue of cooperation one step further and hold the view that the ATO should also engage the private sector to take advantage of the resources and opportunities they can provide.
7.5 Stakeholders have also observed that the ATO is very focused on prosecution as the primary means of dealing with external fraud, which may be problematic due to the higher standard of proof and the length of time that may elapse before a result is achieved. Even if prosecution is an appropriate channel to treat a particular behaviour, the ATO should be working with other agencies to concurrently implement shorter term action or consider taking the matter to prosecution themselves as a way of taking into account the competing priorities of the AFP.
Private Groups and High Wealth Individuals business line
7.6 As mentioned previously, the TEC area in the PGH business line is responsible for the investigation and prosecution of all external fraud matters, ranging from less serious offences under the Taxation Administration Act 1953 (TAA) to the more serious and complex offences under the Criminal Code Act 1995.
7.7 Where assistance is required from other agencies to investigate external fraud, the PGH business line is the gateway between the relevant ATO business lines and the other agencies. In doing so, PGH aims to ensure that the ATO takes a holistic and consistent approach to external fraud based on its understanding of the risks and priorities of each of the ATO's business lines as well as those of the Commonwealth.
7.8 The PGH business line also has responsibility for managing the ATO's participation in multi-agency taskforces such as the Phoenix Taskforce and the SFCT.763 These taskforces seek to provide a whole-of-government approach to preventing, detecting and addressing certain types of external fraud by cooperation amongst agencies including sharing of information, capabilities and potential solutions.
Information sharing regime under the TAA
7.9 Division 355 of Schedule 1 to the TAA prohibits ATO officers from disclosing taxpayer sensitive information to others (the 'tax secrecy provisions') unless one of the relevant exceptions applies. The exceptions that directly relate to the sharing of information to law enforcement are outlined in section 355-70. One exception permits the ATO to disclose protected taxpayer information to law enforcement agencies for the purpose of investigating or enforcing offences against Australian law punishable by more than 12 months imprisonment or for the purpose of making, supporting or enforcing a Proceeds of Crime order (the general law enforcement agency exception).764 Another exception permits the ATO to disclose protected taxpayer information if the disclosure was made to an officer of a prescribed taskforce (the prescribed taskforce exception).765
7.10 Of the above two exceptions, the former is more restrictive than the latter as it prevents the ATO from making a disclosure for criminal intelligence purposes or in situations where a specific offence has not been identified. Accordingly, designating a taskforce as a prescribed taskforce creates an environment where it is easier for the ATO to share information with law enforcement agencies. Regardless of which of the two exceptions, it must either be made or approved by the Commissioner, a Second Commissioner or an SES officer.766 Accordingly, these disclosures are forwarded to the PGH Information Disclosure Team who is responsible for checking the validity of disclosures, obtaining approval from relevant SES officers, disclosing the information to the authorised law enforcement officers and capturing the necessary data for reporting purposes. Information regarding these disclosures is included by the ATO in its Annual Report.
7.11 There is yet another exception where an ATO officer may disclose sensitive tax information to any entity, including law enforcement agencies, for the purpose of administering any taxation law (the performing duties exception).767 If a disclosure to a law enforcement agency can be made through both the law enforcement and the performing duties exceptions, generally, the disclosure would be made under the law enforcement exception. However, disclosures would be made under the performing duties exception if they are made to the CDPP, in support of a request for search warrant assistance, in response to an ACIC surveillance request or in relation to a joint agency investigation.768
7.12 Once a disclosure has been made to a law enforcement agency or taskforce member, the taxation laws limit the use and further disclosure ('on-disclosure') of that information by the recipient769 unless certain exceptions apply. One such exception is where the on-disclosure is made for the same purpose as for the original disclosure.770 For example, if the ATO discloses information to a law enforcement agency to enable that agency to investigate a potential serious offence, the latter would not be permitted to use that information for addressing other potential non-serious offences.
7.13 In addition to the tax secrecy provisions, prohibitions are placed on disclosures of TFNs unless such disclosures are made in connection with the exercise of powers or performance of functions under a taxation law (the TFN secrecy provision).771 As the TFN secrecy provision operates independently from the tax secrecy provisions, the ATO redacts TFNs from its disclosures to law enforcement agencies.772
Limitations to effective information sharing under the TAA regime
7.14 Notwithstanding the above exceptions, the ATO considers that there are a number of barriers to effective information sharing with other agencies.
7.15 First, the ATO has observed that, in some circumstances, the general law enforcement agency exception does not allow disclosures to be made to non-law enforcement agencies who may be able to assist in addressing identified criminal behaviours. For example, in one case, the ATO detected large scale and ongoing fraud by prisoners but faced restrictions on the information that could be disclosed to the relevant state correctional institutions. As a result, the ATO could only make limited disclosures under the performing duties exception, which 'prevented a more holistic attempt to change the criminals' behaviour and prevent further, non-tax crime being committed in the future.'773
7.16 Secondly, the TFN secrecy provision prevents disclosure of TFNs to law enforcement agencies for non-tax purposes even where the TFNs themselves are critical to the prosecution of alleged offences. For example, in one case, fictitious TFNs and forged Notices of Assessment were used to create bank accounts in false names to perpetrate credit card fraud. The ATO was prevented from making disclosures to state police officers that a particular person was not linked to a particular TFN.774
7.17 Thirdly, the ATO has observed that the time taken to establish a prescribed taskforce, which can range from four to twelve months, does not always allow for rapid response to identified risks.775 Furthermore, delays are experienced in sharing information as every disclosure made under the law enforcement and prescribed taskforce exceptions require an SES officer to provide their approval.776
7.18 Fourthly, the exceptions to the tax secrecy provisions often prevent disclosing information to private sector entities even if such disclosures may protect the tax system from exploitation.
7.19 In addition to the limitation on the ATO's ability to make the above type of disclosures, other agencies may be limited in what they may disclose to the ATO. For example, telephone intercept information which is obtained pursuant to the Telecommunications (Interception and Access) Act 1979 may only be shared with the ATO for the purpose of assisting the interception agency's investigations, such as those conducted by the AFP or ACIC. Accordingly, the raising of tax assessments, which is a tactic to disrupt criminal activities of organised crime, is not an available option. The Parliamentary Joint Committee on Law Enforcement had made recommendation that the ATO be allowed to use telephone intercept information for this purpose on the condition that the use be restricted to investigations conducted by prescribed taskforces.777
7.20 The ATO has indicated support for a project led by the Heads of Commonwealth Operational Law Enforcement Agencies (HOCOLEA) to propose a new stand-alone legislative scheme that would allow full information sharing by agencies tasked with combatting serious and organised crime.778 The ATO considers that having a stand-alone or singular regime would not only result in fewer legislative amendments, as only one Act would need to be amended, but the regime would also, by focusing broadly on 'serious and organised crime' rather than specific sub-risks, lessen the need to constantly prescribe new taskforces as new risks emerge. The ATO is of the view that these efficiencies would have the additional benefit of reducing the risk of criminals being alerted to the direction of law enforcement activities due to the public nature of the legislative reform process.779
Information sharing with AUSTRAC
7.21 The ATO also receives information to assist in addressing external fraud from other agencies, such as AUSTRAC which operates as a specialist financial intelligence unit. During the 2013–14 financial year, it had provided information in about 20,931 ATO cases, resulting in $358.3 million in additional tax raised.780
7.22 ATO officers are able to directly access the AUSTRAC database781 which contains information about international funds transfer instructions, significant cash transactions, other suspicious transactions and cross border movements of physical currency. The insights drawn from the AUSTRAC data also identify money laundering and larger scale organised fraud.
7.23 AUSTRAC may also provide data relating to groups of individuals or entities linked by a particular industry, risk or region as well as intelligence reports upon request. Such requests are made by the ATO after consultation with AUSTRAC to ensure that duplicated requests are minimised.782
Information sharing with international entities
7.24 The ATO exchanges information with other countries that have entered into tax treaties or information exchange agreements with Australia and may use such information to prevent and detect fraudulent activities which have an offshore element. The response times for requests made under such agreements are typically provided within three to six months, however, timeframes may vary according to partner agency policies and relevant law. Australia has such agreements with over 100 jurisdictions.783 However, there are a few countries that Australia does not have a tax treaty with, including those in tax secrecy jurisdictions. Accordingly, the challenges with obtaining visibility over certain offshore information remains.
7.25 More broadly, the ATO's work with the OECD to improve international information sharing include participating in forums such as the Joint International Taskforce on Shared Information and Collaboration (JITSIC) Network which has proven useful in addressing the invisibility of offshore information to local revenue authorities. For example, the release of the 'Panama Papers' has highlighted the importance of international collaboration between revenue authorities in order to obtain relevant information for identification and investigation.784 Similarly, the release of the 'Paradise Papers' highlighted the 'commoditisation' of tax avoidance and the services offered by 'facilitators' and the need for international collaboration to analyse large data sets.785
7.26 Furthermore, the introduction of international transparency measures such as the Common Reporting Standard (CRS)786 and the US Foreign Account Tax Compliance Act787, where offshore account information is exchanged between jurisdictions, is expected to significantly reduce opportunities to evade tax. For example, the CRS is a global standard for the collection, reporting and exchange of financial account information on foreign residents for tax purposes. Under the CRS, banks and other financial institutions collect and report financial account information of non-residents to their revenue agencies. Such information may then be exchanged amongst these revenue agencies.
7.27 The ATO has also sought to identify alternative channels to share relevant information with international agencies. For example, in April 2018, the ATO had commenced a trial of its use of the Financial Criminal Investigation Network (FCINet) platform which allows international partner agencies to establish the existence of relevant information before formally requesting such information under an exchange agreement. The FCINet platform is a technology-based information sharing initiative led by the Belastingdienst (Dutch Taxation Office) and the HMRC and has been used in the European Union for over a decade. The ATO is also exploring the possibility of using the FCINet platform as a channel to facilitate information sharing with members of the SFCT, such as the ACIC and AUSTRAC, and their international counterparts.788
Working with law enforcement
Referrals to the AFP
7.28 There are three ways in which the PGH business line can refer a matter to the AFP for criminal investigation. First, a referral may be made to the ATO-led SFCT, which is the taskforce789 responsible for identifying and addressing the most serious and complex financial crimes. Formed on 1 July 2015, the SFCT comprises the AFP, ACIC, AGD, AUSTRAC, ASIC, CDPP and Australian Border Force (ABF) as well as the ATO. The Government has allocated $127.6 million to the SFCT over four years to lead the Commonwealth's operational response to high-priority serious financial crimes which currently include phoenix fraud, trust fraud and international tax evasion fraud.790 Serious financial crimes that align with these priorities will be referred by the PGH business line to the SFCT Treatment Forum which operates as the gateway into the SFCT. If the referral requires the AFP's investigative resources, it will be evaluated by the SFCT Treatment Forum. Through its representation on the Forum, the AFP will determine its capacity to accept the matter for criminal investigation. The AFP only accepts SFCT-related referrals through this process.
7.29 Secondly, the PGH business line may send a referral to the AFP-led Fraud and Anti-Corruption Centre (FAC Centre) where the referral relates to allegations of corruption by a Commonwealth official, the bribery of a foreign official by an Australian entity or a serious and complex fraud perpetrated against a Commonwealth system or program. In the case of fraud, ATO referrals to the FAC Centre may only be made where they do not fall within the remit of other taskforces, including the SFCT, or where the ATO does not have the capability to investigate the allegations.
7.30 Thirdly, PGH may refer a matter to the AFP-led CACT which is a prescribed taskforce that conducts investigations to trace, restrain and confiscate property in accordance with the Proceeds of Crime Act 2002, if all of the standard ATO debt recovery options have been exhausted and there is evidence that existing assets have been gained from fraudulent activity.791
7.31 Since 1 July 2015, the Tax Crime Forum has approved a total of nine referrals to the SFCT Treatment Forum, CACT Case Management Forum or the FAC Centre and all such referrals were accepted.
7.32 In November 2017, the ATO introduced a Complex Investigations Model (CIM) which changed the ATO's internal process for making referrals to the AFP.792 These changes were aimed at addressing some of the issues with the previous processes as well as feedback which had suggested that there were consistent weaknesses in ATO referrals to the AFP, often resulting in protracted assessment times and the need for the ATO to rework its referrals.793
7.33 Prior to the introduction of the CIM, all cases which potentially required the AFP's involvement were routed to the Tax Crime Forum within PGH. As previously mentioned, it is the forum's responsibility to assess and approve such referrals with the aim of ensuring that only matters of priority are referred to the AFP or the relevant taskforce. Once it has approved a referral, the relevant business line has the responsibility of preparing a referral package to the appropriate external forum which may be the SFCT Treatment Forum, the FAC Centre, or the CACT's Referral Forum.
7.34 Under the new CIM, if an approved referral is subsequently determined to require further work, it will be sent to the newly created ATO Case Development Team (CDT) within the PGH business line. The CDT includes ATO investigators, tax technical specialists and a forensic accountant. It is responsible for assessing and developing complex tax crime referrals to the AFP and associated taskforces. Whilst the referring business line will engage with the CDT and provide assistance, the latter will 'build' the referral request and, with the authority of the Tax Crime Forum, present it to either the SFCT Treatment Forum or the CACT Referral Forum.794
7.35 Where the CDT is considering a request for referral to the SFCT Treatment Forum, the AFP will discuss and consult on the proposed referral with the CDT. The allocation of AFP resources to engage in this consultation will occur following negotiation with the AFP National Coordinator – Fraud. This early engagement is intended to allow prospective complex referrals to be more effectively triaged, encouraging subsequent efforts to be only directed to referrals with greater merit.795 The ATO envisions that this model will lead to more effective processing of complex crime type referrals.796
7.36 In situations where the FAC Centre, SFCT or CACT does not accept a referral that had been submitted by the Tax Crime Forum, the Chair of that Forum, who is also a senior director in PGH, will ensure that the feedback is provided to the Forum members and CDT as well as the original referring risk owner and case officer.797
Complex Investigation Teams
7.37 At the same time the CIM was implemented, three Complex Investigation Teams (CITs) were established, comprising ATO investigators and tax specialists. Two CITs are based in the ATO and either work on ATO-only complex matters or jointly with the AFP on SFCT matters.798 A third team is located within an AFP office.799 It is intended that forensic accountants will be recruited into the CITs in future.
7.38 The CITs were established as a result of an ATO-AFP agreement following a recent review of the ATO's investigative structure. It was intended that three joint investigation teams would collaborate on SFCT-accepted investigations with the aim of providing a more agile response whilst taking into account each agency's existing resources.800
7.39 One of the reasons for conducting the review of the ATO's investigative structure was to address potential impacts on the treatment of financial crime that were perceived to have arisen from the AFP's resources being devoted to a range of non-tax priorities, such as national security and counter terrorism. For example, whilst the ATO was concerned that the AFP may have previously committed additional resources over and above the SFCT funding, the ATO believed that the AFP's current capacity to continue to do so had been 'greatly diminished'.801
7.40 Under the current arrangements, the AFP is funded to provide 20 FTE agents to the SFCT, including investigators, management and coordination staff, technical and specialist support. It should be noted that the AFP employs a strategy that ensures the allocation of resources is flexible enough to direct its resources to activities which are likely to have the greatest impact on criminal networks and security threats. For example, the AFP can redirect its resources to high priority matters when needed, such as by providing a 'surge capacity' when such matters move into significant overt phases and by providing specialist or technical capabilities when required. In 2016–17, however, this approach resulted in the AFP dedicating an average of 37 FTE agents to SFCT investigations. The AFP reports that it has maintained a similar average FTE contribution to SFCT investigations in 2017–18.802
7.41 It has also been noted that, in 2017, the SFCT had expanded its priorities beyond phoenix, offshore tax evasion and trusts risks to also include a focus on research and development fraud, precious metals and junket tour operators. However, due the competing demands on the AFP's investigative capability and the AFP's provision of more resources to SFCT investigations than that for which they are funded, 'only in exceptional circumstances is there likely to be criminal investigations progressed outside of phoenix and offshore tax evasion'.803
7.42 It is envisioned that the CIM model, including the CITs, will allow the ATO to play a larger role in assisting the AFP and result in more effective collaboration between the agencies. Furthermore, although agreement has not yet been reached with the AFP, the ATO aims to improve its capability to identify, assess and address complex fraud by, for example, CITs being led by AFP team leaders with direct access to the AFP's management systems and investigative tools.804
Evidence gathering for criminal matters
7.43 In addition to calling on the AFP's investigative capability, the ATO may also request the AFP's assistance to gather evidence for the ATO's own investigations. A common type of assistance requested by the ATO is for the execution of a search warrant by a police constable under section 3E of the Crimes Act 1914. Unlike referrals for criminal investigation, which must be routed through the Tax Crime Forum, PGH officers may apply directly to an AFP Operations Monitoring Centre for search warrants to assist with their investigations.
7.44 Approximately 85 per cent805 of search warrants applied for by the ATO are typically executed on disinterested third-party record holders, such as banks, who are willing to compile and provide the requested documents to the ATO investigator but have confidentiality constraints in making such disclosures without being compelled by law to do so (so-called 'friendly warrants').806 Although the ATO has compulsory information gathering powers under the TAA, they may not be exercised for criminal investigation purposes.807
7.45 The ATO's view is that the requirement to engage a police constable to execute a friendly warrant is disproportionate as it imposes an unnecessary drain on the AFP's resources. Each search warrant, on average, takes an AFP officer approximately 8 hours of work and, if there are competing AFP priorities, may also delay ATO investigations by one to four weeks. Accordingly, the ATO has suggested an alternative power could be provided which allows the ATO to compel a 'friendly' third party to provide documents for criminal investigation purposes, subject to review by a magistrate (proposed production order power).808
7.46 To effectively address external fraud, a well-coordinated whole-of-government response is required as no single agency has the requisite knowledge, skills, resources and powers to deal with the sophisticated arrangements that may be in place. As noted by the OECD, 'an effective framework for domestic interagency cooperation' is one of the ten principles that should be implemented to effectively address tax crime.809
7.47 Government agencies often operate discretely having designated legislative responsibilities as well as allocated budgets to fulfil those responsibilities. Such an approach to the organisation of the public service allows for the 'rational and efficient grouping of issues, clarity of focus to support a strong results orientation, and an effective basis for accountability and resource allocation'. However, it is not well-suited to handling problems that transcend the boundaries of each agency's responsibilities (so-called 'wicked problems').810 For example, fraudulent activities in the perpetration of organised crime typically violate a number of different laws which are administered by a number of agencies. In these circumstances a whole-of-government approach is required which must be achieved through effective collaboration given the relative autonomy of the agencies.
7.48 An essential element for an effective whole-of-government approach is information sharing.811 It is one of the major strategies that government agencies can adopt to maintain a level playing field with those involved in external fraud which is inherently multi-faceted and difficult to detect. According to the OECD:
In the course of their activities, different government agencies collect and hold information on individuals, corporations and transactions which may be directly relevant to the activities of other agencies in combating financial crime. Mechanisms to enable this information to be shared improve the prevention and detection of financial offences, enable investigations to be conducted more effectively and efficiently, result in faster and more successful prosecutions, and increase the likelihood of the proceeds of crime being recovered.812
7.49 Effective information sharing is essential to agencies' abilities to appropriately assess and manage their own risks as well as those of interagency taskforces. However, any such information exchange must be balanced against considerations of privacy and confidentiality.
7.50 Not only is there a general requirement to protect the privacy of individuals, which is a human right protected by the Privacy Act 1988 (Cth) and by Article 12 of the Universal Declaration of Human Rights, but government agencies also operate within the confidentiality constraints imposed by their respective secrecy provisions. For example, the tax law secrecy provisions aim to encourage taxpayers to provide fulsome and accurate information about their financial affairs to the ATO by restricting what information ATO officers may disclose and to whom.
Information sharing within a prescribed taskforce
7.51 As mentioned earlier, prescribed taskforces, such as the FAC Centre, are currently the most effective environment for the ATO to share information with other agencies as the latter may use such information for broader purposes.813 However, there is still room for improvement even in this context. For example, the time taken to establish a prescribed taskforce may be too long and there are limitations on information that taskforce agencies may disclose to each other.
7.52 Timeframes for establishing a prescribed taskforce could be shortened by authorising a statutory office holder, such as the Commissioner of Taxation, to establish a prescribed taskforce by way of tabling a disallowable instrument in Parliament. However, such authorisation may operate to compromise the important Parliamentary oversight arrangements which operate as a safeguard against excessive executive power. Furthermore, any such process would require the relevant agencies to resource the taskforce out of their existing departmental expenditure as any additional appropriation from the Consolidated Revenue would require Parliamentary approval through the budget process.
7.53 Whilst the ATO is authorised to disclose more protected tax information to other agencies when it is for the purpose of a prescribed taskforce, these agencies are not similarly authorised to share any further information. As stated earlier, there is an exception to the tax law secrecy provisions, allowing the ATO to share more information but there are no corresponding provisions for the other agencies. All of the secrecy provisions of the legislation that apply to these other agencies would need to be amended to allow them to share correspondingly more information. However, such an approach may still not produce a consistent result given the varying legislative contexts. Furthermore, every time changes become necessary, all these pieces of legislation would have to be amended, potentially giving rise to more inconsistencies.
7.54 There are two other alternatives for improving information sharing within prescribed taskforces. One option is to consider introducing a stand-alone legislative regime that overrides the existing secrecy provisions and allows for full information sharing by agencies tasked with combatting serious and organised crime. While HOCOLEA has commenced a project that seeks to develop such an information framework, the project has been put on hold by the AGD since 2016. The ATO has been supportive of this proposed framework814 and the IGT also believes that it has merit. However, such a stand-alone regime would be a significant undertaking, involving a large number of government agencies, and would need to be carefully balanced against the inherent potential for conflict with protecting citizens' privacy and right to confidentiality.
7.55 Another option for consideration would be to allow for real-time multi-lateral information sharing within designated information sharing centres or 'Fusion Cells.' A Fusion Cell builds on the idea of a prescribed taskforce but is distinguished from the taskforce in the sense that all members of the cell, as opposed to just the ATO, will be legislatively permitted to share information with other members for the purpose of the cell.
7.56 A Fusion Cell would differ from a prescribed taskforce in relation to the speed at which information is shared. Rather than relying on formal information requests, information sharing should instead occur at close to real-time speed so as to allow member agencies to quickly identify threats, predict targets' actions and develop response tactics. For example, the information sharing methodology that is currently used by AUSTRAC's Fintel Alliance allows for information sharing at a faster speed in the sense that each member has immediate access to their own agency's systems, can verbally request and divulge relevant information about entities of interest. Such an arrangement would allow conclusions to be drawn quickly, based on the totality of information that each member has contributed.815 A similar information sharing methodology may be considered for adoption by the Fusion Cell.
7.57 While the Fusion Cell proposal is similar to that of the stand-alone regime in the sense that it may lead to a potential increase in exceptions to secrecy requirements, the key difference between the two is that the Fusion Cell is far less all-encompassing than a stand-alone information sharing regime. As the Fusion Cell concept would only permit information sharing within a specialised unit, the exceptions may be managed by limiting and naming the officers who participate in these cells. These officers could also be subject to additional reporting requirements so as to facilitate independent review by appropriate scrutineers.
7.58 Compared to the stand-alone legislative regime, it may be easier for the 'Fusion Cell' model to resolve the inherent conflicts with protecting confidentiality due to its more limited scale. However, the Fusion Cell model is faced with some of the same difficulties encountered by the current prescribed taskforce model. There may be a constant need to update or form new cells as new risks and sub-risks are identified. Accordingly, the potentially lengthy and public legislative and regulatory reform process to set up a new or expanded cell may not only restrict the ability to respond more rapidly to threats but may also alert target criminals to the areas where law enforcement agencies are focusing their attention. As both options present challenges, the IGT considers that the Government may wish to consider a broader review of the current interagency framework to determine the optimal model for information sharing between agencies.
Information sharing outside of a prescribed taskforce
7.59 Not all tax crime matters considered by the ATO will fit within the ambit of a prescribed taskforce or, if implemented, a Fusion Cell. Accordingly, it is also important to consider the disclosure of information to law enforcement agencies under the general law enforcement exception. As mentioned earlier, there are a number of limitations to making disclosures under this exception.
7.60 The IGT is of the view that, at least, some of the above limitations are necessary to prevent inappropriate disclosure of taxpayer information. For example, the limitation whereby disclosure can only be made to law enforcement agencies is an appropriate control as law enforcement officers belong to a specific class of personnel that possess the relevant security clearances and training as well as been found to be fit and proper persons. That is not to say that there would never be situations where disclosure to a non-law enforcement agency would be appropriate. However, this should be permitted on a case-by-case basis as opposed to a broad authority to making disclosure to a wide-range of agencies.
7.61 Given that disclosures are irreversible, the IGT also believes that the limitation requiring SES officer approval for certain disclosures is appropriate particularly in a non-prescribed taskforce environment.
7.62 A limitation which the IGT believes should be relaxed is one that has been identified by the Parliamentary Joint Committee on Law Enforcement regarding the ATO's use of telephone intercept information. The Committee has recommended that the ATO should be allowed to use such information where it was gained in the course of joint investigations by prescribed taskforces. The IGT agrees in principle with the Committee's recommendation and notes that it may not unduly infringe on civil liberties.
7.63 Currently, due to the intrusive nature of telephone intercepts, a high threshold must be met before a law enforcement agency can obtain an interception warrant. The above recommendation does not result in a relaxation of this threshold. It merely provides the opportunity for the ATO to potentially enforce taxation laws against individuals who are already the subject of a criminal investigation by a prescribed taskforce and where the threshold for an interception warrant has already been met. It is further observed that the issuing of tax assessments is both a timelier and less punitive treatment option compared to criminal prosecution.
Information sharing with AUSTRAC
7.64 The ATO has a memorandum of understanding and its own internal processes to prioritise and determine the appropriateness of the information it requests from AUSTRAC. The ATO could make greater use of AUSTRAC capabilities particularly its analytical expertise which it has been further developing more recently.816
7.65 The ATO may also be able to more effectively exchange information with the private sector by engaging with AUSTRAC's Fintel Alliance. For example, the Fintel Alliance's work on the Panama Papers was critical to assisting the SFCT in identifying the flows of money and understanding how the offshore funds were repatriated into Australia. The distinguishing feature of the Fintel Alliance in this operation was the ability to engage the expertise and data of private sector financial institutions to provide a more holistic understanding of international and domestic flows of money.
Information sharing with international entities
7.66 As mentioned already, in recent years, there have been significant positive developments in terms of international collaboration to combat cross-border tax avoidance and fraud. In particular, the extent of information and intelligence sharing amongst revenue agencies has been encouraging following the revelations contained in the Panama Papers817 and Paradise Papers818. The next stage in the development of international collaboration should be for such matters to be uncovered by the revenue agencies rather than relying on whistleblowers and the media.
Agency risk management priorities, obligations and requirements
Shared purpose and funding
7.67 As mentioned earlier, the tension between the need for agencies to collaborate with each other and the need for each agency to manage their own risk priorities may result in an allocation of resources which is not optimal for achieving shared purposes, such as addressing sophisticated tax fraud. Experience has shown that such tension may be somewhat alleviated by providing agencies with funding that is separate from their usual budget appropriations to allow each agency to commit resources without being constrained by their existing risk management priorities. For example, the SFCT was funded by a budget measure which allocated funds to the ATO who then distributed agreed amounts to the members of the SFCT on an annual basis.819
7.68 The provision of separate government funding for the SFCT, however, may not be sufficient to guarantee an appropriate allocation of resources to member agencies. First, there are risks with inaccurately predicting the resources needed, given the difficulty in identifying the extent of fraudulent activities and member agencies' competing priorities. For example, the AFP had been allocating resources to the SFCT beyond the funding provided to address 'a larger than anticipated volume of high priority tax crime risks' detected by the ATO. However, when the AFP was required to utilise those additional resources for its own priorities, the SFCT was forced to re-prioritise the types of cases it would investigate. As a result, alternative investigative models were explored.820
7.69 Secondly, where the budget appropriation is allocated to one agency and distributed to the member agencies, it is possible that the former unduly influences the focus of the taskforce's activities towards risks it considers to be the most important according to its own priorities. One option to mitigate the undue influence of one member agency is to adopt the SFCT approach where the key priorities of the latter were based upon the assessments conducted by the ACIC and the AFP authorisation of its investigatory resources.821 Another option would be to appoint an independent leader, tasked with achieving a prescribed objective, similar to a Special Prosecutor used in the investigation of frauds and tax offences in the 1980s.822 However, such an approach may compromise the independent statutory functions of the relevant agencies particularly if such a leader has a degree of control over the deployment of their resources. Accordingly, the level of power or control afforded to such a leader must be carefully considered. One option would be for the leader to have budgetary control and strategic design responsibilities whilst the relevant agencies retain control over their operational resources.
7.70 As mentioned earlier, no single agency has the requisite knowledge, skills, resources and powers to address the sophisticated arrangements that may be employed by those perpetrating fraud. Collaboration is needed between the agencies rather than one agency attempting to perform tasks which another agency has the specialist capability to perform. The latter approach would give rise to significant risks. For example, although an ATO investigator may have significant law enforcement specialist capability, the absence of corresponding institutional safeguards may expose that officer and the ATO to a range of risks including corruption.823 Such risks may also include the investigator's brief of evidence, to the CDPP, being either incomplete or unwittingly tainted. To address the latter risk, the CDPP's expertise, in relation to which cases to prosecute and the type of evidence required, could be sought earlier in the process.
7.71 In collaborating with other agencies, requests from one agency to another for specialist work to be undertaken may compete with the latter's own priorities. Accordingly, the two agencies should consult and reach an agreement on the relative priorities and where certain work cannot be undertaken, alternatives should be identified. For example, the AFP has the 'primary law enforcement responsibility' to investigate serious or complex fraud824, whereas the ATO retains responsibility to investigate some tax fraud matters.825
7.72 For the most serious tax fraud matters, the SFCT referral process, described earlier, determines which matters should involve the use of the AFP's investigatory capability for identified high-priority areas. Although all ATO referrals to the SFCT have been accepted for investigation, the AFP has experienced demand for its capability beyond SFCT allocation. Recent efforts to reduce this demand on AFP resources have resulted in the ATO and AFP agreeing to implement the CIM model which is aimed at improving the quality of ATO referrals to the SFCT as well as the ATO's capability to conduct complex criminal investigations jointly with the AFP.
7.73 In the IGT's view, the above recent measures are positive steps which should be reviewed and evaluated in due course. However, further opportunities should also be sought to further improve interagency collaboration with enhancement to the taskforce model being one option.
7.74 There is opportunity to reduce the ATO's demand on the AFP's powers to execute search warrants under section 3E of the Crimes Act 1914 (Cth) as 85 per cent of the warrants sought by the ATO are so-called 'friendly warrants' which are served on third party record holders such as financial institutions.826 In the main, these types of warrants address the latters' concerns with confidentiality constraints827 and do not pose major safety risks. In the IGT's view, providing the ATO with the power to require such third parties to produce the required records for criminal investigation purposes would expedite matters and allow AFP resources to be directed to more specialist functions. Any concerns with the ATO's exercise of such a power could be appropriately addressed by requiring the approval of a magistrate.
The IGT recommends that Government consider a broad review of the current arrangements for interagency collaboration for combating tax fraud including the following key issues:
- optimal models for information sharing between agencies;
- the extent to which specialist capabilities should be shared amongst agencies and mechanisms to ensure that each agency has appropriate access to such capabilities;
- structure and funding for interagency taskforces including whether they should be headed by an independent leader with appropriate powers and secretariat;
- permitting the ATO to use telecommunication interception information obtained in joint investigations of prescribed taskforces in raising assessments for those who are subjects of such investigations; and
- in appropriate circumstances, allowing the ATO to issue production orders to third parties such as financial institutions who hold relevant information about persons or transactions of interest.
Matter for Government
763 Above n 711.
764 Taxation Administration Act 1953 sch 1 s 355-70(1) Item 1.
765 Taxation Administration Act 1953 sch 1 s 355-70(1) Item 4; Taxation Administration Regulations 2007 reg 67.
766 Taxation Administration Act 1953 sch 1 s 355-70(1)(c).
767 Taxation Administration Act 1953 sch 1 s 355-50(2) Item 1.
768 ATO, 'PGH Instruction 2015/08 – Information secrecy and disclosure' (Internal ATO document, 21 November 2016).
769 Taxation Administration Act 1953 sch 1 s 355-155.
770 Taxation Administration Act 1953 sch 1 s 355-175.
771 Taxation Administration Act 1953 s 8WB.
772 Above n 768.
773 ATO, 'PGH Tax Crime Reform – Response to Productivity Commission inquiry into Data Availability and Use' (Internal ATO Document, undated) pp 1–2.
774 ibid., p 2.
775 ATO, 'Operational Examples on Information Sharing For Serious & Organised Crime' (Internal ATO Document, 23 December 2014) p 7.
776 Above n 773, p 1.
777 Parliamentary Joint Committee on Law Enforcement, Parliament of Australia, Inquiry into Commonwealth unexplained wealth legislation and arrangements (March 2012) paras [3.116] and [3.118]–[3.121].
778 This project has been held in abeyance since 2016.
779 Above n 775, p 7.
781 Anti-Laundering and Counter-Terrorism Financing Act 2006 s 125.
782 ATO communication to the IGT, 12 February 2018.
783 ATO, 'Exchange of information under Australian tax treaties' (Internal ATO document, 25 June 2014).
784 See Appendix F.
785 See Appendix G.
788 ATO communication to the IGT, 5 March 2018.
789 Note: The SFCT sits within the FAC Centre which is a prescribed taskforce under Taxation Administration Regulations 2007 reg 67.
791 ATO, 'PGH Instruction 2015/03 – The Proceeds of Crime Act 2002: Guidance on policy and procedure' (Internal ATO Document, 24 August 2016).
792 ATO, 'AC Message – Complex Investigation Unit operationalised' (Internal ATO document, 8 November 2017).
793 ATO, 'PGH CLT Complex Investigations Model Project Outline' (Internal ATO document, 28 October 2016) p 6.
794 ibid., pp 6 and 9.
795 AFP communication to the IGT, 27 April 2018.
796 Above n 793, p 7.
797 ATO, 'Tax Crime Forum Charter' (Internal ATO document, July 2017) p 2.
798 Above n 795.
799 ATO communication to the IGT, 8 May 2018.
800 SFCT CEO Steering Group, '2017 Impact Assessment' (Internal SFCT document, 22 September 2017) p 3.
801 ibid., p 2.
802 Above n 795.
803 Above n 800, p 3.
804 Above n 793, pp 7 and 9.
805 ATO, 'Bank Warrant Project Table' (Internal ATO document, undated).
806 ATO, 'Soft Warrants – ATO discussion paper' (Internal ATO document, 10 January 2014).
807 ATO communications to the IGT, 12 February 2018 and 3 May 2018.
808 Above n 806, pp 2 and 12.
809 OECD, Fighting Tax Crime: The Ten Global Principles (2017) p 57.
810 Management Advisory Committee, Connecting government: whole of government responses to Australia's priority challenges (2004) pp 45 and 49.
811 ibid., p 1.
813 Explanatory Memorandum, House of Representatives, Tax Laws Amendments (2007 Measures No.1 ) Bill 2007 para [1.10].
814 Above n 775, p 7.
816 For example, AUSTRAC's improvements to its data lake and automated data integration: AUSTRAC, 'Submission to the Parliamentary Joint Committee on Law Enforcement', Inquiry into the impact of new and emerging ICT, January 2018, p. 9.
817 See Appendix F.
818 See Appendix G.
819 Australian Government, Budget Paper No 2 (12 May 2015) p 30; ATO, 'Serious Financial Crime Taskforce annexure to the Fraud and Anti-Corruption Centre memorandum of understanding' (Internal ATO document, 1 July 2015) p 2.
820 Above n 800, pp 2–3.
821 ATO, 'Serious Financial Crime Taskforce annexure to the Fraud and Anti-Corruption Centre memorandum of understanding' (Internal ATO document, 1 July 2015) p 4; ACIC, Serious Financial Crime in Australia 2017 (2017) <www.acic.gov.au>.
822 See, for example, Special Prosecutors Act 1982 (Cth).
823 See above n 10, p 15.
824 Above n 21, para .
825 Above n 18, para .
826 Above n 805.
827 Above n 806.