Doing the Darwin Shuffle. The Northern Territory as a tax haven. Part One: 1971 to 1982
Graeme Lewis was part éminence grise, part bagman and part trouble-maker—as often within as without—for the NT's Country Liberal Party for more than forty years. Lewis passed away in early April while speaking from the floor of the 2018 annual conference of his beloved CLP. For all his apparent successes and failings—I'll leave the hagiography and excoriation for others—Graeme Lewis never held publicly elected office but nonetheless deserves respect as the Northern Territory's long-term political player par excellence. Lewis was also a prominent player in the Darwin Shuffle, the avoidance scheme that operated in the NT from at least the early 1970s through to the 1980s.
This is the first of several articles drawn from research into political fundraising in the NT – here dealing with an early and as yet undocumented aspect of Northern Territory economic history. Later chapters will examine the affairs of Carpentaria Pty Ltd and the now infamous Foundation 51, both widely regarded as slush funds for the NT’s Country Liberal Party. Graeme Lewis was a central player in both companies.
You can read Part Two – the Darwin Shuffle 1982 to 1986 – here.
Part One – the Darwin Shuffle 1971 to 1982
The Darwin Shuffle had its origins in the administration of the Northern Territory by the Commonwealth government from 1911 through to 1974 and was perhaps best described in the Explanatory Memorandum for a Bill presented to the New South Wales parliament in 1986. The Darwin Shuffle:
… involved the movement of a parcel of shares by a company incorporated in one of the States onto a newly-created register of members in the NT, where the shares were transferred at a lower duty than that chargeable in the originating State. The shares were then moved to a register in another State.
That all sounds innocent enough, if not a little boring, but stamp duty and the paying of it had been a running sore for the Commonwealth’s administration of the NT from at least the early 1970’s. From 1947 to 1974 the NT was governed by a Legislative Council made up of a blend of Commonwealth-appointed and locally-elected members. From 1974 to self-government in mid-1978 the Legislative Assembly consisted wholly of locally-elected members.
In August 1971 the Northern Territory News reported that the locally-elected members were revolting, again refusing to allow the introduction of new stamp duty legislation that the Commonwealth’s man, Assistant Administrator Martyn Finger, described as “a matter of essential Government business.” Finger reckoned the NT was punching well below its weight in the collection of duties compared to the Australian Capital Territory, where a population of 140,000 had contributed $3 million in duties the previous year. The NT population of 70,000 people yielded a paltry $150,000 for the same period.
Similar reform attempts were frustrated by locally-elected members in December 1971, February and May 1972 and again in February and October 1973 when Finger told the Legislative Council that the NT was being used as a tax haven to avoid stamp duty on traded shares. Finger noted that the NT was the only Australian jurisdiction where such a duty was not imposed and that from July 1972 to August 1973 shares worth $130 million were transferred through the NT, representing a loss of $780,000 to the States where the companies were registered.
Finger had a final fling in February 1974 when in a “Don’t tread on me” moment elected members sent Finger away with the words “No increased taxes without increased representation” ringing in his ears.
Finger’s foreboding that the NT had become a tax haven was no doubt prompted by protests from the States, who had lost millions of dollars in stamp duty revenue to the rebellious representatives in the far north.
Tax havens need clients in order to succeed and NT Archives records show that Perth-based businessman Alan Bond was an early adopter of the Darwin Shuffle, using the Darwin office of accounting firm of Wilson Bishop Bowes and Craig to restructure his business affairs in August 1973. Wilson Bishop Bowes and Craig later became one of the founding members of “big four” accounting firm Pannell Kerr Forster.
Ten years on—these matters can have very long tails—another early connection to the Darwin branch of Wilson Bishop Bowes and Craig surfaced in the case of Commonwealth of Australia v O’Reilly in the Supreme Court of Victoria. There Justice Fullagar noted that the defendant O’Reilly had from about 1970—when he was Wilson Bishop Bowes and Craig’s Darwin-based audit manager—worked with two tax consultants in the firm’s Melbourne office. Fullagar J said that from 1976 O’Reilly—no longer with Wilson Bishop Bowes and Craig—was involved in the liquidation of about 2,000 companies, with about 1,100 of those involved in some form of tax avoidance scheme and at least 700 to 800 being companies controlled by the two former employees of Wilson Bishop Bowes and Craig.
It is unclear when Graeme Lewis came to the Northern Territory but in November 1974 his name surfaces as the recipient of powers of attorney in correspondence from Peat Marwick Mitchell to the NT Commissioner of Stamps that sought the waiving of stamp duty penalties. Lewis was a partner at the Darwin branch of Peat Marwick Mitchell for eleven years and in 1987 Peat Marwick Mitchell merged with KMG (Klynveld Main Goerdeler) to form the “big four” accounting firm KPMG.
Graeme Lewis was part éminence grise, part bagman and part trouble-maker—as often within as without—for the Northern Territory Country Liberal Party for more than forty years. Lewis passed away in early April while speaking from the floor of the 2018 annual conference of his beloved CLP. For all his apparent successes and failings—I’ll leave the hagiography and excoriation for others—Graeme Lewis never held publicly elected office but nonetheless deserves respect as the Northern Territory’s long-term political player par excellence.
In May 1976 Graeme Lewis was elected as Treasurer of the Country Liberal Party, an office he would hold through to 1979, following which he would be elected as General Secretary of the party for the year to 1980, then returning as Treasurer for 1980 to 1981 later serving as President from 1982 to 1986. Lewis was made an honorary life member in 2013. Most recently Lewis served briefly as General Secretary from September 2017, resigning in early 2018 amid speculation that his resignation was linked to pressure from the Northern Territory Labor Government’s political donations inquiry.
Lewis was a prominent player in the Darwin Shuffle, the avoidance scheme that operated in the NT from at least the early 1970s through to the 1980s. During that time the Darwin Shuffle became enmeshed in the operation of the bewilderingly complex set of tax avoidance and evasion promotions that were later glossed as “bottom-of-the-harbour” schemes. There will no doubt be apologists for Lewis and the many other Darwin-based accountants and lawyers involved in the Darwin Shuffle and related schemes, but, lawful or not, there are moral questions that remain concerning the responsibilities that the professions have when a scheme proposed by a client might be just a bit whiffy.
Notwithstanding the catastrophic effects of Cyclone Tracy on Christmas Eve 1974, the Darwin office of Peat Marwick Mitchell was back in business in early 1975, conducting share transfers for businesses run by corporate raider, transport operator and publisher Gordon Barton. Later in 1975 the Darwin office was involved in transactions that included a share transfer from Brian Maher (Lakemba) Pty Ltd to Maheo Pty Ltd.
Three years later Brian Maher was the subject of a withering spray in the Queensland parliament by the Labor member for Archerfield Kevin Hooper, who told the Assembly in November 1978 that Maher was a notorious “stripper” of companies for tax purposes and had never made any secret of his involvement in the tax-avoidance business, claiming that one of his companies was in the top ten of the tax-avoidance businesses in Australia. Hooper noted Maher’s convictions for gaming and betting offences, sixteen false pretence charges and charges—later dismissed—for fraud and misappropriation.
Paul Grabosky and Adam Sutton chronicled Maher’s downfall in their book Stains on A White Collar, noting his committal in late 1984 on fifteen Federal and six State conspiracy charges involving more than $100 million in tax revenue. In 1985 Maher was found guilty on one count each of conspiracy to defraud the Commonwealth and of conspiring to defraud a named company and was sentenced to two years and nine months’ imprisonment on the first count and five years on the second. The latter conviction and sentence were set aside on appeal by the High Court. At his trial the Judge described Maher as “the dominant figure” and mind of “a massive and sophisticated fraud.”
Peat Marwick Mitchell wasn’t the only local firm active in the Darwin Shuffle, with Ward Keller Rorrison (now Ward Keller, then as now the largest private law firm in the NT) among others featuring regularly in NT Archive records from the 1970s.
One 1977 transaction showed that not only was the Darwin Shuffle being used to avoid tax and stamp duty payable in the southern States but that on at least one occasion the share registry didn’t even make it to Darwin to be shuffled, the Australian Tax Office’s Board of Review later observing that there was “no evidence of the actual opening of Darwin registers” as claimed, nor that any Darwin share transfers had been made.
Another transaction that would later provide more detail about stamp duty avoidance in the NT was made in February 1978 but surfaced in September 1980 when Labor MHR John Dawkins asked his fellow West Australian, then Federal Minister for Business and Consumer Affairs, Victor Garland about the affairs of three companies—Stirling West, Greenbank and Frederick Salon—of which he was the major shareholder and controller. Little more was heard of this affair at the time but it re-emerged in more dramatic circumstances in 1983.
During the first half of 1978 the NT was frantically preparing for the coming salad days of self-government when, for the first few years at least, so much Commonwealth money splashed around the Territory that drunken sailors would’ve blushed at the largesse.
In an attempt to mop up the spreading stain on the NT’s reputation as a tax haven, in late May 1978 the incoming CLP government introduced a new Stamp Duty Bill. Five years on from Martyn Finger’s rather more definite account, CLP Finance and Planning Minister Marshall Perron’s speech to the Legislative Assembly modestly noted that the stamp duty regime in the NT had created “something of a tax haven” and that while he was unaware of the actual value of that business to the NT he was also careful not to scare the local business horses.
There is no doubt that adoption by us of the uniform rate of duty which applies in the states would cause the turnover to virtually cease and with it significant business activities. I cannot put figures on this assertion as the value of transactions is not always revealed when documents of transfer are presented for the impression of the “duty not available” die. I do not propose to impose a duty which will frighten this business away.
When the Bill came back on for debate a month later Labor Opposition leader Jon Isaacs was equally cautious, noting that the government’s proposal would “bring very great problems indeed” for local business and that the proposal was not only of concern to “foreign companies – that is, people who use the Northern Territory as a tax haven” but also to the local legal and accountancy firms that prospered because of it.
Labor’s Pam O’Neill followed her leader, observing that the tax and duty avoidance business was only “a small industry” but one that “brings in quite a bit of income to the Northern Territory” and there was a risk that the proposed new duty would see the business “disappear entirely from the Northern Territory,” something that “would be a great shame.”
The early groans from the south at the NT’s status as tax haven of choice became a dull roar in the months following self-government. In November 1978, Patrick McCabe and David La Franchi were appointed by the Victorian Attorney-General to investigate the affairs of three Queensland and 923 Victorian companies over five years from early 1973.
Meanwhile, the stamp duty avoidance practice of Graeme Lewis and Peat Marwick Mitchell continued apace. One transaction concerned the appointment of Lewis as local attorney for a company using the Darwin Shuffle in November 1978. Eleven years later in the Administrative Appeals Tribunal—I said these matters had long tails—Senior Member Beddoe found that it was:
… perhaps notorious that Peat Marwick Mitchell and Co. conducted certain operations in Darwin for the purpose of assisting in the avoidance of stamp duties. Although clearly hearsay evidence the applicant’s accountant stated that the assignment was executed by Mr Lewis at Peat Marwick Mitchell and Co.’s office in Darwin ‘to minimise stamp duty’.
By January 1980 the promoters of tax avoidance and evasion schemes had contributed a new term to the fiscal lexicon. The Australian Financial Review reported the comments of a senior investigator at the Sydney Taxation Office that the Office was “frightened” by the size of the [tax avoidance] problem and could only guess at its scope. The schemes were jokingly referred to as Bottom of the Harbour Pty Ltd by members of the Sydney tax avoidance fraternity, as many of the documents had “gone to a watery grave.” One industry participant quipped: “There is a reef somewhere between Circular Quay and Manly which comprises suitcases full of company records.”
In March 1980 the Darwin branch of Wallace McMullin & Small acted for Sydney’s ‘Mr Sin’ Abe Saffron in relation to transfers between Saffron-owned companies and Anson Pty Ltd, which since 1967 had owned his family home in Hopetown Avenue, Vaucluse in Sydney’s eastern suburbs.
A month later the Senior Assessor for Controller of Taxes, NT wrote to the Comptroller of Stamps, giving a heads-up that a scheme was operating in the NT designed to avoid duty on transfers of shares in Victoria and offering to provide his Victorian counterparts with documents and further information if requested. No response from Victoria was apparent in the NT Archives files but it is unlikely that this offer wasn’t taken up.
By the early months of 1982 the full extent of nationwide tax avoidance activities was slowly becoming clear, not least because of revelations pouring out of the McCabe-La Franchi report and proceedings of the Costigan Royal Commission.
In March Adele Horin reported in The National Times an open question posed by Frank Costigan during hearings at the Royal Commission. Costigan—referring to the intimate involvement of the professions in tax avoidance—asked a rhetorical but pertinent question: “To what extent should lawyers and accountants aid and abet tax avoiders?” Counsel assisting Douglas Meagher added: “Some people might be a little impatient with people who deliberately bury their heads in the sand so they will not know that perhaps a wrong is being done.”
Three months later McCabe and La Franchi released their report into the Particular Affairs of Navillus Pty Ltd and 922 Other Companies. Their assessment of the central role of the professions is worth quoting at length. McCabe and La Franchi observed that during the 1970s many firms of accountants or solicitors either refused or were reluctant to advise their clients to participate in avoidance activities, mainly because they maintained appropriate standards of professional conduct that did not condone the practice.
McCabe and La Franchi noted that pressure on those who declined to participate was increased by community willingness to participate in tax avoidance schemes and the lack of enforcement and regulatory action by the Taxation Office.
Some firms were given an ultimatum by clients that the business would be taken to another firm unless the sale of the structure was organised. In face of such pressure, the desire to retain the business of the client became paramount. It is understandable many smaller firms could not afford to lose a major client. Their own professional standards were subjected in pressure when it became obvious other well-known firms were not maintaining the same standards. From the earliest period, Brian J. Maher & Co made known its willingness to pay commissions or fees to the vendor agents. According to Maher, by 1977 it was almost impossible to make a purchase unless a benefit was offered to the vendor agent.
In June 1982 Mike Steketee reported in the Sydney Morning Herald that the New South Wales government, which had launched its own investigation into tax avoidance, was “losing millions of dollars in revenue itself through companies finding ways around the State’s tax law … the Northern Territory has been used as a means of avoiding stamp duty on share transactions through a system known as the “Darwin Share Shuffle.””
By the last quarter of 1982 tax avoidance schemes were also the subject of sharp scrutiny in the far west, with the Darwin Shuffle squarely in focus.
Then 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 Australia parliament that a special task force be established to conduct a major investigation into the operations and extent of bottom of the harbour tax avoidance schemes in Western Australia.
This was the beginning of the end for the Darwin Shuffle.
In part two I will look at the effect that increased state and Federal attention had on the NT as a tax haven and the consequences of Police raids, court cases and other factors that operated to nobble the Darwin Shuffle.
Photo: The Smith Street Darwin branch of the Commonwealth Bank, c1970s