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Australia is in the grip of a new wave of tax evasion and money laundering allegedly orchestrated by unscrupulous firms of professional advisers, including accountants.
The schemes involve “phoenixing” – the art of liquidating a company and allowing the directors to rise from the ashes in a new entity, free of debts – and prior to the Covid-19 crisis, a number of them were being intensively targeted by the Australian tax office.
Although the government put a moratorium on companies being wound up by creditors during the pandemic, after 31 December there is likely to be a flood of insolvencies.
Some will be companies that are genuinely in distress. But under the cover of Covid-19, there is also likely to be a new wave of strategic insolvencies. The ATO defines iIllegal phoenixing as when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.
Hundreds of millions – perhaps even billions – are being lost through illegal phoenixing, yet the federal government has been extremely slow to act. Anti-phoenixing legislation was finally passed by the federal parliament this year, but there remain concerns that regulators do not have the tools and staff needed to effectively enforce the new laws.
2014 was not a good year for Comanchero bikie brothers Baris and Fidel Tukel.
A dispute with the insurer of Baris’s Canberra brothel, the Gentlemens Club, following a fire was headed to the supreme court because the insurer claimed the brothers had failed to declare their bikie connections and had invalidated their policy.
At the same time, the brothers’ other companies, in property development, car dealing and a gym business, were being chased by the ATO.
The companies together allegedly owed well north of $1m with the biggest creditor being the ATO, according to creditors’ statements available via the corporate records.
That’s when the Tukels’ accountants, Banq Accountants and Advisors Pty Ltd, began the process of liquidation.
Banq is – or rather was – a small firm in a down-at-heel shopping strip on Canterbury Road in Punchbowl. Its website advertised its expertise in helping small business with “tax returns, business structuring, asset protection and insolvency”.
Banq’s activities have been under intense scrutiny in a civil case currently before the chief judge in equity, Julie Ward, in the New South Wales supreme court.
According to court documents, the case involves five sets of proceedings brought by the liquidator of five companies who were Banq clients. At the heart of this complex case is whether the 30-odd defendants named in the proceedings – all of whom were either principals of Banq or their clients or directors of the client companies – were involved to varying degrees in conduct alleged to amount to a conspiracy to avoid paying tax. The case began in 2016 and final submissions are being made in October . The Tukels are not named in this case, but they were named (not as defendants but as Banq clients) in a previous federal court case brought by the ATO against a liquidator of some of Banq client companies.
In the NSW supreme court case, Sydney liquidator Mitchell Ball has been funded by the ATO to bring proceedings against the defendants. Ball had originally been appointed by Banq to liquidate the five client companies – he was one of a handful of liquidators Banq turned to – but now he is pursuing Banq and others on behalf of the ATO and other creditors.
The amounts allegedly owing to the tax office by the five companies being examined by Justice Ward total between $5m and $7m.
But this is just a small fraction of what the ATO alleges is likely owed by more than 120 companies that were clients of Banq and were liquidated between 2009 and 2016.
According to those with close knowledge of the case, the alleged losses to the tax office could run into the hundreds of millions, rivalling the amounts at issue in the infamous Plutus payroll tax scam of 2017, which is alleged to have siphoned an estimated $165m from the tax system. Several alleged participants in Plutus are now before the courts on criminal charges.
Ball is seeking to challenge and overturn many of the transactions that took place prior to these five companies being liquidated. He is also seeking damages against former Banq key personnel and other entities that were allegedly involved – claiming what amounts to a conspiracy to deprive the tax office of money owed – and to make those accused personally liable for millions in tax.
Banq, its accused personnel and a number of clients named as defendants deny any wrongdoing or that there was any such conspiracy and are defending the case.
Whether it leads to substantial funds being recovered remains to be seen, but it is a clear signal from the ATO to the accounting industry that it is clamping down on suspected illegal phoenixing and tax evasion.
How phoenixing works
Phoenixing works by enabling business owners to move assets from a failing company to a new entity they control, leaving nothing behind in the old company but debts to the ATO and other creditors.
As well as the taxpayer, there is a direct human cost.
Among the ashes of the phoenixed companies are often employees who are left without their superannuation contributions, wages and entitlements; and suppliers and contractors who find themselves owed money for their services.
There are also victims among unwitting dummy directors who are sometimes duped into being the last man standing when the company goes under. The promoters of these schemes have been known to hunt out vulnerable people to act as directors. What follows are years of being pursued by creditors and the tax office.
Phoenixing also has a far more insidious economic effect.
Companies that evade their tax and other obligations gain an unfair advantage over competitors, making it harder for the thousands of small businesses that do pay tax and proper wages to compete.
Some industries are hotspots of phoenixing: construction, road transport, cleaning, restaurants, labour hire and childcare services.
Sometimes it’s simply a case of tradies who realise they are in financial strife and decides the best option is to wind up their company and start again. This may or may not be phoenixing, depending on whether it is done to avoid paying creditors.
But at the other end of the spectrum are businesses that are working hand-in-glove with pre-insolvency advisers and enablers and using phoenixing on an industrial scale.
And this is not a niche problem.
A report by PwC published in July 2018 put the direct economic impact of illegal phoenix activity at between $2.85bn and $5.13bn a year.
That figure, based on data from 2015-16, had three components: losses to employees, which were estimated at $31m to $298m; losses to suppliers and other businesses, which were put at $1.62bn to $3.171bn; and costs to the government of $1.66bn in unpaid taxes and compliance.
In 2018, the former financial services minister Kelly O’Dwyer revealed in a speech to parliament that phoenix activity to avoid paying GST had grown significantly and that over the previous five years more than 3,700 individuals had been identified as having engaged in phoenixing activity.
These individuals controlled over 12,000 insolvent entities responsible for $1.8bn in tax written off. The insolvent entities also claimed $1.2bn in GST credits between 2013 and 2017.
Banq’s shareholders at various times included Faouzi “Fred” Khalil, Peter Abboud, and a company called Givana.
According to the plaintiff’s submissions, Gino Cassaniti, a former bankrupt, also appears to have been an active member of the firm.
The name Cassaniti might ring some bells in tax circles: Gino’s cousin, Sam Cassaniti, was jailed in 2004 for tax fraud. Young Gino worked for his cousin in the 1990s at a time when Sam was locked in a ferocious battle with the tax office. There is no suggestion by Guardian Australia that Gino was in any way implicated in his cousin’s misconduct.
In the NSW supreme court Banq, Gino Cassaniti, Abboud and Khalil are alleged by the plaintiffs to be “the primary conspirators” in the case. According to court documents, the plaintiffs claimed the conspiracy among the primary conspirators “was, in effect, designed and implemented so as to disguise or hide income that would otherwise be taxable or expected to be taxable”. It was also alleged that Banq took a share of the transactions that it had designed and implemented, or assisted to implement, for its clients. Court documents allege “a scheme involving a ‘carousel of payments’ in most cases involving, somewhere in those transactions, a company controlled by the primary conspirators”.
For an accounting firm, Banq had a colourful clientele.
Aside from the Tukels, Banq appears to have provided services for another former Comanchero, Hakan Arif, the alleged head of a $1bn drug ring, who was arrested in Dubai in 2017 along with Michael and Fadi Ibrahim. Arif fled to Turkey before he could be extradited and remains overseas.
There were other newsworthy clients too. Banq did work for the failed Criniti’s restaurant chain, run by Frank Criniti and his now estranged wife, Rima. Their rapid expansion, celebrity clientele, mansion and fleet of high-end cars grabbed headlines. So too did Criniti’s alleged dispute with his lenders, Cassaniti and Khalil, over a $4m loan.
Criniti has been one of the main witnesses for the ATO in the conspiracy case, and gave evidence alleging that he was threatened by bikies over loans from the accounting duo, a claim that is disputed.
The defences filed by Gino Cassaniti, Khalil and Abboud in the NSW supreme court reveal that they are contesting the ATO’s characterisation of nearly all of the hundreds of transactions that the ATO says constitute a scheme to avoid tax.
In addition, Cassaniti is arguing that because he filed for bankruptcy in 2015 he cannot be held personally liable for debts incurred after that date.
Abboud, in his defence, says that he was not aware or involved in many of the transactions highlighted by the ATO and that the tax office has not established his involvement.
Guardian Australia sought comment on the case from Gino Cassaniti, Khalil and Abboud.
Cassaniti’s lawyer said that while the case is before the courts he was instructed to make no comment. He added, without specifics, that the “contents, assertions and allegations” contained in Guardian Australia’s email to his client in relation to the case were factually incorrect.
Khalil’s lawyer said: “It would be highly inappropriate to comment as to any specific information of the proceedings other than to note that our clients have defended the proceedings”. He also said, without specifics, that the assertions contained in Guardian Australia’s email to his client in relation to the case were factually incorrect.
Abboud described himself as a more junior member of the firm with a 10% shareholding.
Abboud told Guardian Australia: “There are no direct allegations of phoenixing of companies levelled against me. I have never caused a company to be put into liquidation.”
“I have denied all allegations of assisting any director of any company breach their duties. I was not a director or controlling mind of Banq and did not know what advice Banq was providing to the directors of the five companies that are plaintiffs in the proceedings.”
Banq featured in a separate federal court judgement from late last year brought by the ATO against the liquidator David Iannuzzi, of Veritas Advisory.
The judgment – the result of a negotiated settlement with Iannuzzi – resulted in Iannuzzi agreeing to a record-setting 10-year ban on working as a liquidator.
Justice Angus Stewart did not use the word “phoenixing” in his judgment although the ATO apparently had no such qualms, labelling him “a phoenix enabling liquidator” in its media release trumpeting the unprecedented 10-year ban.
It’s a label that Iannuzzi strongly rejects. In a detailed reply to Guardian Australia via his lawyers, he said “there was no allegation in the proceedings that he engaged in illegal pheonixing” and that at all times his relationship with Banq “was professional and entirely proper”. He said that he “categorically rejects any allegation he knowingly enabled or facilitated “illegal phoenix” activity or was knowingly concerned in such conduct” and said that anyone reading the decision would see that he had “committed no offences”.
The case before Stewart in 2019 looked at 23 companies liquidated by Iannuzzi. All were Banq clients and included an earlier iteration of Banq Accountants itself.
Among the companies in the case before Stewart were four companies owned by the Tukel brothers that were liquidated during 2015.
One of them was Tuff Gym Pty Ltd. According to court documents, as it lurched toward its demise, Tuff Gym changed directors twice. Fidel Tukel was replaced on 30 September 2014 by Anthony Crook of Eastwood. Banq then lodged another change in director in December, saying that Alex Shirakian, a young man who allegedly lived at Ryde, had been the sole director. The change of director was backdated to 30 September 2014. Shirakian then resolved to put the company into liquidation.
Iannuzzi admitted to the court that he should have suspected that Shirakian’s appointment may have been a sham.
In his report Iannuzzi told creditors the company had operated a health and fitness gym at an address at Eastwood, the residential address of Cook. In fact the company had had six principal places of business, including premises in Victoria.
Other companies in the Tukel group had similar changes of directors in the three months before they were declared insolvent and Iannuzzi appointed to liquidate them.
Banq lodged paperwork with Asic on Christmas Eve 2015 appointing Talal Joseph Shabobah as director of three Tukel group companies from 3 November 2015 – six weeks earlier. On the same day Iannuzzi lodged forms saying Shabobah had resolved to wind up the companies.
Guardian Australia attempted to contact Shabobah and Shirakian, but neither are on the electoral roll or have a social media presence.
Another Tukel company, National Auto Dealers NSW, was liquidated in 2017. Iannuzzi told creditors that there were no assets to recover and he believed the reason for the company’s failure was poor strategic management of the business.
But Justice Stewart found that Iannuzzi had failed to disclose that National Auto was still the registered owner of two motor vehicles, that five of the cars previously owned by National Auto had been transferred during the six months before the critical date when the liquidation began, and that four of the five had been transferred to Tucorp, a related entity.
The liquidator, an officer of the court, has a duty to act in the interests of creditors, to identify and realise the company’s assets, investigate claims by creditors and apply any remaining assets to satisfy those claims.
But clearly the ATO felt it did not have Iannuzzi in their corner.
Justice Stewart found Iannuzzi’s “systematic conduct” had been “reckless” because Iannuzzi had failed to make the requisite searches for assets, failed to investigate transactions, and failed to make proper inquiries about the swift changes of directors that happened just before the companies declared themselves insolvent and filed for winding up.
Justice Stewart did not make a finding of dishonesty against Iannuzzi, noting that the tax office did not seek such a finding because of Iannuzzi’s admissions and his acceptance of the very serious sanctions against him.
Through his lawyers, Iannuzzi told Guardian Australia there was no allegation in the federal court that he knowingly enabled or facilitated illegal phoenixing and it is wrong to suggest or imply otherwise.
He said that he felt he had been singled out by the tax office and that he was just one of a number of liquidators taking referrals from Banq at the time. He said Banq’s referrals accounted for just 8% of his fees.
Iannuzzi also said he had “no knowledge or suspicion regarding the involvement of Banq in running a phoenixing operation when he took referrals from them”. He said he was not aware of the allegations involving Banq and others in the supreme court.
Iannuzzi is now the sole principal of Veritas Advisory, after his former partners set up a separate firm. He continues to provide corporate advice and says he is trying to rebuild his business and life.
Fidel Tukel, who was the director of Tuff Gym, denied being aware of any wrongdoing and said of his dealings with Banq: “When you pay an accountant to do a job then you expect them to do it.”
He had subsequently discovered that the client was expected to know everything about what was submitted to the tax office, he said. “The onus was on us to know. I really don’t know what they did.”
Baris Tukel, who was the director of the other companies in the Tukel group, has moved overseas and was not able to be contacted.
Meanwhile, in the NSW supreme court, Justice Ward has trawled through thousands of pages of documents about Banq’s alleged activities in the lead-up to some of its clients’ voluntary liquidations.
Some of the alleged practices outlined in the tax investigator’s affidavits, and contested by the defendants, include:
Rapid round robins of cash deposits and withdrawals between companies that used Banq as their registered address or had Banq as their registered tax agent, which were allegedly used to move money around the Banq family of companies.
Allegedly fake invoices for business expenses issued by one Banq company to another. Some allegedly inflated the cost of services provided by Banq in order to boost business expense claims. For example, the tax office claims to have found invoices for accounting services charged at $6,000 an hour and invoices from labour hire firms which they say appear not to have provided workers.
Allegations of improper GST claims for business inputs where assets, such as earthmoving equipment and trucks, were sold multiple times between entities. GST input credits were allegedly claimed each time from the ATO.
A decision in the case is expected by early next year.
Where they are now
Banq Accountants and Advisors is now in the hands of court-appointed liquidators at Deloitte. Cassaniti, Khalil and Abboud continue to defend the NSW supreme court case, along with their co-defendants.
Since emerging from bankruptcy, Cassaniti has returned to the western Sydney business world as a lender.
Peter Abboud has moved on to Stratum Accountants, a firm based in Silverwater, Sydney. A number of clients and staff have moved with him.
Things are not so bad for the Tukels a few years on.
They won their fight against their insurers, receiving a $500,000 payout for the fire at the brothel.
Tucorp still has a website saying it’s in the construction business, but the Silverwater offices appeared deserted when Guardian Australia visited.
However, Fidel is back in the gym business. He has launched a new boxing gym, called FiteKlub, in the Sydney suburb of Maroubra.
He told Guardian Australia he retired from the Comancheros five or six years ago because it became incompatible with his interests: his family, working with the community and coaching a women’s rugby team.
“I am not proud of my history,” he said of his biker past. “I am now teaching kids what is right and wrong. If you look at my website you will see what sort of things I am doing. I am working with the community. I hold multiple community classes [at the gym] for kids at risk and who have been in trouble.”
“I am now coaching the largest all-female rugby club. My membership of the biker group was a conflict so I gave it up,” he said.
“I am helping people in the community. I have changed. I have seen the error of my ways.”
He is currently contesting his tax bills.
Source: The Guardian
Keyword: Phoenixing: how unscrupulous dealers rise debt-free from the ashes of failed companies | Australia news