In part one of this series we saw that by late 1982 then Western Australian Opposition Leader Brian Burke—later to suffer his own problems due to stamps of the philatelic rather than the dutiable kind—proposed to the Western Australian Legislative Assembly that a special task force investigate tax avoidance schemes in Western Australia.

Burke detailed the role that the Darwin Shuffle played in West Australian tax avoidance practices. Noting that 700 Western Australian companies that had been sent to the bottom of the harbour to avoid or evade tax and that prominent Liberal Party members had played a key role in such schemes, Burke referred to “another rort that directly deprived the State of Western Australia of legitimate income to which it was entitled,” noting that the Darwin Shuffle, when “married … to a bottom-of-the-harbour scheme, is part of an operation that is costing Western Australian millions of dollars.”

Burke also noted that—as with the NT—Brian Maher had promoted tax avoidance schemes in Western Australia since 1973 and, “within a very short period taxation avoidance had become a major growth industry in Western Australia … millions of dollars that are being lost through the use of Darwin in the share transfer operations.”

Burke and his parliamentary colleague David Parker named two Darwin accountancy firms—Peat Marwick Mitchell and Fell and Starkey—as being involved in the share transfers that formed a key part of avoidance behaviour, naming prominent West Australian Liberal Party member Denis Horgan among others.

Horgan—a former chairman of the WA Liberal Party’s finance committee—had been appointed by the Federal Liberal government to the boards of a number of Commonwealth authorities, including the Australian Industry Development Corporation, Aussat Ltd and the ABC.  Horgan had also been named in the McCabe-La Franchi report.

Two months later Michelle Grattan reported in The Age that Denis Horgan was under considerable pressure to resign from a number of Federal Government bodies because he had been “named in relation to bottom-of-the-harbour tax avoidance.” The Darwin Shuffle and Brian Maher’s tax avoidance schemes were both mentioned in Federal parliament in relation to Smorp Pty Ltd, a company associated with Horgan, that, while originally registered in Western Australia was subsequently transferred to Darwin, sold to interests based in Queensland, then resold to people in Victoria and Western Australia.

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In October 1982 Labor’s John Dawkins raised questions in Federal parliament about another prominent West Australian, former Liberal Minister and (now) Sir Victor Garland, a shareholder and controller of three companies, Stirling West, Greenbank and Frederick Salon.

In February 1978 the share register for those companies was transferred to Peat Marwick Mitchell in Darwin. New directors were appointed to each and their shares transferred to a company incorporated in Victoria, where later that year a liquidator was appointed and the companies wound up. Dawkins told parliament that at least 13 of the subsidiaries of those companies ended up at the bottom of the harbour with the help of the Maher organisation.

In March 1983 Senator Peter Walsh, who had first raised his concerns about Garland’s companies in 1980, doubled down on Garland’s affairs. Walsh told the Senate that:

… nobody indulges in a shuffle among two States and one Territory over a period of 18 months for changes of directors and secretary and a major issue of shares for a company which is worth only $500. It is equally apparent to anyone peripherally familiar with the murky, amoral world of tax avoidance that this two State and one Territory shuffle was conducted to dodge taxes.

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In September the previous year, the Fraser government established the Office of the Special Prosecutor under Roger Gyles QC. Based on the American task force system, Gyles brought together Taxation officers, Federal Police, solicitors and accountants to work together as teams to investigate pre-tax profit stripping of companies.

In April 1983 the Gyles task force, acting upon 27 search warrants, raided the offices of 20 Darwin legal and accounting firms, seizing documents relating to more than 5,000 companies allegedly involved in bottom of the harbour tax schemes. The five tonnes of documents seized were later transferred to Sydney—for security reasons—using a RAAF Hercules aircraft.

Task Force leader Chief Inspector Sing told the Northern Territory News that he believed the promoters of the alleged tax evasion schemes were attracted to Darwin because of the legal loophole which allowed firms to dodge stamp duty on share transfers in the Northern Territory.

Sing wouldn’t say if the task force had finished its work in the Territory or whether anyone in Darwin would face charges as a result of the raids, emphasising that there was no suggestion that any of the partners in the local firms “were in any way criminally involved in tax evasion schemes.” Further dust-covered documents were later seized in raids in Alice Springs.

A month after the Task Force raids in the NT Graeme Lewis appeared in the Darwin Magistrates Court on eight counts of failing to lodge tax returns between 1975 and 1982 for his company RandM Investments Pty Ltd. Lewis was convicted and fined $520 and ordered to lodge the outstanding tax returns by July 8.

In October 1983 the matter was back in Court, with the Deputy Commissioner of Taxation’s counsel telling the Court that Lewis had failed to lodge the returns by the due date. Lewis—who was not in Court, the matter being heard ex parte—was given fines totalling $1,050 by Magistrate Sally Thomas. It is not known whether the prosecution was a result of the search warrants executed in Darwin in April 1983. The Northern Myth has been unable to locate any Court or corporate regulator’s records relating to RandM Pty Ltd.

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On the last day of May 1983 NT Labor Senator Ted Robertson bowled a dorothy dixer to Senator Peter Walsh, then Minister for Resources and Energy in the (relatively) new Hawke government. Robertson asked Walsh if he was aware of the extent of bottom-of-the-harbour schemes and stamp duty rorts in the NT.

Walsh, who went on to earn a well-justified reputation as a zealous defender of the Federal purse, picked up Robertson’s ball and ran with it long and hard, aiming squarely at Chief Minister Paul Everingham’s CLP government in the NT.

Senator WALSH —I was aware of the fact that the Northern Territory is heavily dependent upon Commonwealth revenue [and] I have noted from time to time that nobody has a more voracious appetite for Commonwealth money than the present Northern Territory Chief Minister, although incongruously nobody is a more vocal critic of the Commonwealth taxes which raise the revenue which he so voraciously consumes … I am also aware … the offices of accounting firms in Darwin have been used on a very wide scale to assist tax avoidance and evasion.

Referring to his pursuit of Sir Victor Garland, Walsh noted the role of the Darwin office of Peat Marwick Mitchell, along with “many other firms of accountants in Darwin”. Sinking the knife further with an added twist for gleeful good effect, Walsh went on to note that he understood that “nearly all, the members of the Darwin accountancy firms which facilitated those activities are deeply involved in the Country Liberal Party of the Northern Territory.”

In 1983 the NT Legislative Assembly sat for a mere 24 days, for a total of 138 hours. It was coincidental—if not serendipitous—that the NT Legislative Assembly was sitting that day and Chief Minister Paul Everingham—a bombastic booster and dogged defender of all things Territorian—took characteristic umbrage at Walsh’s barbs. Everingham congratulated “almost all members of every accountancy firm in Darwin [who] will be pleased, to hear that they are members of the CLP. I will advise our Treasurer to send them statements tonight seeking payment of their back fees for the period of their residence in the Northern Territory.”

Walsh did not name Graeme Lewis in the Federal Parliament, but Everingham, in a move that must have caused some discomfort for his party president, had no such reluctance.

Mr EVERINGHAM: Of course, there was the slander by the Senator – which I bet he is not game to repeat outside the House – of accountants in Darwin. He mentioned particularly the firm of Peat, Marwick and Mitchell. We know why he did that. It is because Peat, Marwick and Mitchell is a firm in which the Northern Territory CLP’s president, Mr Graeme Lewis, is a partner. It acted for Sir Victor Garland in Perth.

The next day, CLP Senator for the Northern Territory Bernie Kilgariff also saw fit to defend Peat Marwick Mitchell’s apparently now-sullied reputation, challenging Senator Walsh to “put up or shut up” and characterising Walsh’s claims about the firm as “a baseless smear.”

Walsh, came back swinging.

Senator WALSH: I do not think I need to say any more except to repeat that the deliberate establishment by the Northern Territory Government of lower charges for share transfers for the purpose of attracting revenue to that Government facilitated widespread tax evasion.

Each year the NT Treasury submits a bid to the Commonwealth Grants Commission. The December 1983 submission perhaps put the lie to the claim by Senator Walsh that the NT government received an “enormous revenue” windfall from the lower duty on share transfers, showing that, under the heading of “Revenue – Taxation Office – Net Stamp Duty Receipts 1982/83″ that the duty on Marketable Securities provided the relatively modest amount of $317,298 – barely double that collected ten years earlier. How much the Darwin Shuffle poured into the pockets of Darwin’s lawyers and accountant over the previous decade and more is unknown.

In November 1986 Attorney-General Bob Debus told the NSW Legislative Assembly that he would move “an immediate clamp-down on a tax rort called the Darwin shuffle.”

The primary target of that clamp-down was the purchase by Alan Bond’s Bond Corporation of Tooheys’ pubs worth $264 million, 125 of them in New South Wales.

Debus said that by blatant minimisation, the [Bond] corporation paid approximately $430 stamp duty in New South Wales on the purchase.

… [T]he Bond Corporation therefore paid less stamp duty than would be payable on an average modest suburban home. It used a combination of the trust, the Darwin shuffle and the Clayton’s contract to bring off this rort. Legally, the scheme was not prohibited. Morally, it has cheated Australian taxpayers of between $8 and $9 million of stamp duty.

Late 1986 and early 1987 saw similar moves against the Darwin Shuffle in Western Australia and Queensland.

In 1987 Arie Freiberg published an important overview—based on his work with the Commonwealth Director of Public Prosecutions—of the various tax avoidance and evasion schemes.

Freiberg put the bottom of the harbour and related schemes in context, noting the McCabe-La Franchi report, along with the Costigan and Stewart Royal Commissions, had “stirred the fiscal conscience of the nation” and had collectively ripped the scab off “wrong-doing on a previously unimaginable scale,” exposing “the intricate details of what is perhaps the largest series of frauds in Australian criminological history.”

Freiberg queried how manipulation on such a scale could be both possible and legitimate—pointing to the fact that neither the Darwin Shuffle nor similar schemes were unlawful. For Freiberg the answers lay in the moral gymnastics that had so puzzled both McCabe-La Franchi and Costigan five years earlier.

It is of course, the lawyers and accountants who are the most artful exploiters of the corporate form and who, not surprisingly, are now in the dock, involuntary cartographers of the boundaries between the legitimate and illegitimate, between crime and non-crime and perhaps even between right and wrong.

For Freiberg the tax schemes threatened the fundamentals of capitalism, concluding that the corporate form itself was fundamentally suspect to manipulation:

The bottom of the harbour cases and litigation have revealed the ease with which one company can be sold and re-sold, transformed in structure and have its name changed within a very short period of time. In these schemes, company trafficking was raised to an art form … According to the McCabe/La Franchi Report, one promoter was said to have stripped some 2,086 companies. In 733 of those companies, the Commissioner had been unable to collect on incomes aggregating more than $128,000,000 … The problem lies in the perversion of the corporate form itself.

By the end of the 1980s the Darwin Shuffle was reduced to little more a footnote on the dance-card of corporate misconduct. P J Allen, writing in the resource industries’ AMPLA Yearbook, noted that the Darwin Shuffle and its variants had operated for many years and notwithstanding that they had continually adapted to find work-arounds to the anti-avoidance efforts implemented by governments, they had eventually fallen from favour.

While it is tempting to believe that the bottom of the harbour schemes, the Darwin Shuffle and other tax avoidance and evasion arrangements were little more than an aberrant blip, tax minimisation has long been—and continues—as part of the blood-sport of Australian business.

In Stains on a White Collar Paul Grabosky and Adam Sutton put the Darwin Shuffle and the conduct of Brian Maher and other tax scheme promoters—and their wilfully ignorant enablers in the professions—in historical and geographical context.

It is unsurprising that the NT figures prominently in that account nor that the NT, like Brian Maher, “had form”.

… it is clear that minimising tax is an Australian tradition. Most established companies have an extensive record of legitimate (but nonetheless substantial) tax avoidance. The outstanding example is the Vestey organisation. At the height of its activities, this privately-owned group controlled 30,758 square miles (79,663 km2) of cattle country in the Northern Territory. Despite controlling the largest privately-owned multinational in the world, and as Britain’s richest family with assets of $1,000 million, the Vestey Corporation always had been reluctant to pay even minimal tax on their extensive Australian profits. For at least 15 years—between 1937 and 1952—they enjoyed complete exemption from tax on income in the Northern Territory.

A closer look at the Vestey Corporation can wait for another day.

In the next article in this series I will look at Carpentaria Pty Ltd, the pre-cursor to the now notorious Foundation 51 and its links to the NT Country Liberal Party and—of course—Graeme Lewis.

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