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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

When a West Australian mining billionaire was accused of a decade of tax evasion, his lawyers responded by trying to cut a deal with the tax office.

The terms of that deal included an 80 percent reduction in the penalty payable and an assurance that his conduct wouldn’t be referred to police, or the corporate watchdog.

The reason that billionaire Chris Ellison of the company Mineral Resources would push for those terms is obvious. The real question is why the tax office would agree to it.

Today, national correspondent for The Saturday Paper Mike Seccombe on how the ATO protects the rich.

It’s Tuesday October 29.

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RUBY:

Mike, let's begin with Chris Ellison - the mining billionaire at the centre of this story. Tell me about him and his rise to power.

MIKE:

Well, he's he's a typically abrasive, you know, West Australian mining company head. He's also a genuinely self-made man. He grew up in Dunedin in New Zealand's South Island. Left school the day he turned 15, worked on a farm and then a cattle station.

And then he came to Australia at the age of 19, in 1977.

Audio Excerpt - Chris Ellison:

“We ended up getting on a plane and flew over to Sydney. Bought ourselves a Black Holden Monaro, which was a pretty hot car in its day. So we'd go and apply for jobs and what can you do? And we'd say anything then what do you do? And I know literally we can do anything. What are you qualified for? Well, I can ride pretty good. I can drive anything.”

MIKE:

Then when he was 21, he got a crane driver's licence and he moved to Port Hedland in Western Australia and he made quite a lot of money during the north West shelf gas boom providing cranes.

Audio Excerpt - Chris Ellison:

“I had a whole bunch of cranes that I'd hired in and I was rehiring them out to everyone but I’d run the whole of the supply base, so I was making $550,000 a month that I was banking. Profit.”

MIKE:

He set up several companies providing mining services and then in 2006 he merged three of these companies into one and listed on the share market, took it public. And that company was called Mineral Resources, usually known as MinRes, and MinRes went from just providing mining equipment to other miners to becoming a mining company in its own right, particularly in iron ore and lithium. So he got very rich in a great hurry, according to the Financial Review Rich list. He was personally worth $2.25 billion in early 2023.

Audio Excerpt - Chris Ellison:

“It's pretty cool to be able to run a business like this. My Mondays are better than the average person's Friday, because I get so passionate about the things that we get to do.”

MIKE:

That has subsequently slumped somewhat due to the plunging lithium price and weakening iron ore prices and the fact that MinRes has settled itself with big borrowings. So Ellison's fortune was estimated to be down about $1 billion a couple of months ago.

MinRes was looking a bit shaky already, but things got much worse about a week ago when the Financial Review investigative journalist Neil Chenoweth began publishing a series of stories, the first one headlined ‘Chris Ellison's Offshore Secret’, alleging that Ellison had evaded tax over many years.

RUBY:

Okay. And so how many years, Mike, and how much tax did Ellison fail to pay?

MIKE:

He and four other executives allegedly dodged something like $10 million in tax from 2003 to 2014 over a decade. And this involved a web of offshore companies. The interesting thing here is that the ATO first raised concerns way back in 2007. They wrote to Ellison back then and said they wanted to discuss his tax affairs. But even after that, obviously it continued.

The Fin reporting said the essence of what this involved was that Ellison and other senior executives used a company based in the British Virgin Islands to buy machinery cheap and then on-sell it at large mark-ups, including to mineral resources, which The Fin has dudded shareholders more than $7 million. It's also alleged that the same firm that provided Ellison's personal tax services also acted as auditor for several of his companies, including MinRes.

So all of these matters are clearly of concern. But the real shock for a lot of people, including me and perhaps the most appalling part, is the way the Tax Office responded to all of these allegations when lawyers began negotiating with them in 2019.

RUBY:

Okay. So how did the Tax office respond?

MIKE:

Well, as revealed in the Chenoweth reports, in late 2019 and early 2020, a Sydney tax lawyer by the name of Christopher Batten negotiated with the ATO officials the terms under which five people, including Ellison, would agree to quote, voluntary disclosure, unquote, of the details of their tax evasion. So what that means is they would admit their wrongdoing without the necessity of ATO having to take them to the courts or any of that sort of stuff, that that would get complicated and messy. So what this lawyer, Barton negotiated was, in the first instance, an 80% reduction in penalties. He wanted that.

And then the really gobsmacking bit, I reckon, was the other demand that he made, which is, and I'm quoting here, not to refer a disclosure that my clients intend to make to law enforcement agencies as well as other federal government agencies, which basically means the ATO promising that they wouldn't tell any of the stuff they found out to the Australian Federal Police, the Australian Securities and Investments Commission or the Public Prosecutions.

Now, this did come with a slight caveat, which is that that only held as long as there was no active investigation being undertaken by any of those other agencies. But, you know, as one source that I spoke to, you know, with insight into this case, put it, there was little chance of that because how could ASIC, for example, launch an investigation if they didn't know about the source material which was held by the ATO who had already investigated at length? So, you know, effectively what we're seeing is the Australian Tax Office agreeing to keep quiet about the tax evasion of some of Australia's wealthiest people. And I think it shows, you know, the relative powerlessness of our government agencies against the might of Australia's billionaires.

RUBY:

Coming up after the break - why the ATO keeps rich people’s secrets.

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RUBY:

So, Mike, you've been looking into the fallout from the news that Chris Ellison, who is one of Australia's richest men, had allegedly evaded tax for many years, and then did a deal to reduce the penalties and avoid prosecution. So how often does the ATO make these kinds of deals with billionaires?

MIKE:

Well, the ATO negotiates actually quite a few of these things. They reduce penalties anyway, quite often with well-resourced people and companies that they believe have evaded tax. As to why, one tax specialist that I spoke to put it to me like this: what it boils down to is nervousness about taking on well-resourced offenders who are able to match or surpass the budget of the ATO that the ATO might have to prosecute. So in other words, they're prepared to cop an outcome where the miscreant pays less than the tax office thinks they owe, so as to avoid the cost and uncertainty of litigation.

According to data from 2022-23, they entered into settlements with 251 entities. I think most of them were foreign multinationals and as a result secured an extra $3.16 billion in tax revenue. But the ATO also reveals that there was a, quote variance unquote of 44%, meaning they secured just 56% of the amount that they initially assessed they were owed, for the sake of legal convenience. What wasn't revealed and isn't revealed in this ATO data is individual details. So we don't know the identities of the people who have struck such deals.

Audio Excerpt - Barbara Pocock:

“I think there is a really strong argument for policy reform here. Other countries don’t keep such tax settlements secret. They should be published…”

MIKE:

I spoke to the Greens Senator Barbara Pocock about this. She, you might recall, was the Prime Inquisitor in the Senate inquiry into the PwC tax scandal, and she says she can see no reason for this secrecy and she questions the deterrent effect of fines that are seriously reduced and agreed in secret. And she says that the PwC case was one example why that was necessary.

Audio Excerpt - Barbara Pocock:

“It's just extraordinary. And more than that, to then ask the ATO to lean on other enforcement mechanisms and to keep it all secret is astounding.”

MIKE:

Pocock is far from alone in that view. I spoke to a number of other people who also were of the view that the ATO is unnecessarily generous and secretive in its dealings with tax cheats.

One of them was Geoffrey Watson, SC, former counsel assisting ICAC in New South Wales and elsewhere director of the Centre of Public Integrity. And he's strongly critical of the deal that was done in the case of MinRes. And he told me he found it extraordinary that the Tax office would enter into such arrangements that he said didn't appear to be in the public interest. You know, as he put it, this seems to have been a very, very contrived tax arrangement, very carefully organised, persistently pursued over many years. Why in any sane world, were the words he used, would this attract any reduction in penalty?

RUBY:

So how has Chris Ellison and his company MinRes responded to everything that’s come out so far?

MIKE:

Well, that's been pretty interesting. In response to The Fin's revelations, Ellison released a statement explaining “some of the dealings”. He said that MinRes was established in 2006 with the merger and public listing of several private companies operated by him and his business partners. I'll quote from his statement “more than 20 years ago, and prior to minerals listing, we also operated entities overseas for acquiring mining equipment and parts to import into Australia and on sell some equipment. Prior to minerals listing was sold to our then privately owned Australian businesses. Regrettably, revenue generated by the overseas entities that we were beneficiaries of was not disclosed to the Australian Tax Office at the time. This was a poor decision and a serious lapse of judgement.”

Now my first observation would be, you know, when one talks of a lapse of judgement, one usually thinks of something quick. This was a lapse of judgement that lasted for a decade. But his argument essentially is he wasn't cheating the MinRes shareholders because at the time there were no MinRes shareholders. It was his private company.

When Chenoweth’s first story appeared Saturday a week ago, he called MinRes, quote “a $9 billion company”. Well, that was right when he wrote it. It's not now, though. As of Monday this week, when I last checked it, it was a $6.7 billion company. So perhaps the best indicator of how serious this scandal is, it's $2.3 billion worth of serious.

RUBY:

Right. Okay. But I think it's fair to say that that wouldn't have happened. None of this would have happened if these reports hadn't come out in the press. So what does that tell us, Mike, about the role of the Australian Tax Office and how it seems to be operating differently for different people?

MIKE:

Well, the first thing I would say is, you know, you can't expect billionaires and corporates not to do everything in their power to minimise their tax debt. And you know, they can, they can do this legally. Of course, there's a million loopholes that they can exploit. But, you know, there's also ways that are not legal. And it appears that that was, you know, the allegation here.

But as Barbara Pocock says, the ATO's actions suggest that there is one law for the rich and the well-connected and another law for the battling in the intimidated sheep. She drew the comparison with robo debt, you know, which destroyed a lot of lives when a bunch of battlers were hit with debts and fines that they they didn't owe, but which in most cases they felt they had no power to contest. Meanwhile, she says, you know, the big end of town caught cheating on their taxes, sending their lawyers to the ATO and demand, you know, an 80% discount on their penalties and then demand protection from other law enforcement agencies, you know, and demand secrecy.

This is not just serious for the shareholders of MinRes. It's also serious for Australian taxpayers who miss out on billions of dollars when the ATO cuts secret deals with corporate tax evaders. You know, and this enrages Barbara Pocock and in her view, it should outrage every Australian. Hard to argue with that, isn't it?

RUBY:

Mike, thank you so much for your time.

MIKE:

Thank you. Cheers.

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RUBY:

Also in the news today…

The Treasurer, Jim Chalmers, has raised the prospect of stripping gambling companies of their access to government research tax concessions following figures from the Australian Tax Office showing they had claimed almost $90m in a single year.

When asked about the figures at a news conference, the Treasurer indicated the government may be prepared to change the laws.

And, a woman has faced court over the alleged assault of independent senator Lidia Thorpe at a public event in Melbourne earlier this year.

Ebony Bell appeared via video link in the Melbourne Magistrates court charged with two counts of recklessly causing injury and three counts of unlawful assault, and will remain on bail before the case returns to court on November 22.

I’m Ruby Jones, this is 7am. Thanks for listening.

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