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Issue #1779      May 31, 2017

A sorry tale of capitalism

The present scandal enveloping the Australian Taxation Office (ATO) is a microcosm of the capitalist system in all its all-consuming greed and individualism. It is the story of how a small group of conspirators allegedly set out to rob the ATO of millions of dollars by syphoning off a proportion of the PAYG payments that had been deducted from the wages of the employees of thousands of contractors whose payrolls they managed.

Adam Cranston leaves Sydney Police Centre in Surry Hills after being released on bail.

In a period of less than 12 months they allegedly syphoned off $165 million in PAYG tax payments through a complex web of bank accounts and trusts while managing a gross payroll of $1.3 billion through sham subcontractors.

The allegations have yet to be tested in court. So far 10 arrests have been made with seven people charged with conspiracy to defraud the Commonwealth, two with money laundering and another with extortion.

The story as told includes allegations of fraud, sham contractors, phoenix companies, privatisation, greed, internecine fighting over the carve-up of the spoils, extortion, non-payment of workers, and the purchase of millions of dollars worth of luxury goods for personal use with taxpayer money.

It has the makings of a great film once the court hearings are over!

The alleged conspirators have the mentality that keeps the capitalist system ticking. Their behaviour is little different to that witnessed amongst the traders and financial advisers in banks, insurance companies and hedge funds. In fact, they mostly have backgrounds in finance, accounting, marketing and taxation law.

The toll so far:

  • The theft of $165 million of taxpayers’ money of which half is unlikely to be recovered.
  • Seven individuals facing charges of defrauding the Commonwealth, including Adam and Lauren Cranston, the son and daughter of the Deputy Commissioner of Taxation Michael Cranston.
  • While there is no suggestion that Cranston senior was involved in the scam, he is none-the-less due to appear in Court in June in relation to allegations of abusing his position as a public official by seeking information about the tax office’s investigation into the alleged tax fraud involving his son, Adam. He was stood down without pay on May 18.
  • Four other ATO staffers have been stood down, including two Assistant Commissioners.

Ironically, Cranston senior recently chaired the OECD Task Force on Tax Crimes. Unauthorised access to records is considered to be a serious offence within the ATO.

From legal to illegal

The following is a brief overview of how the conspiracy allegedly evolved and eventually came undone based on the statement of facts prepared by the Australian Federal Police for the court on May 17:

Back in April 2014, IT executive Simon Anquetil set up Plutus Payroll Australia, a company specialising in payroll services. Employing aggressive marketing techniques his company quickly signed up large numbers of mostly IT companies and government departments as clients who contracted out the management of their payroll to his company.

It offered a PAYG “zero-fee payroll” service for its clients, handling wages, superannuation, tax and other payments for businesses.

These departments included Defence, Foreign Affairs and Trade, Social Services, Border Protection and Justice. Amongst the thousands of private sector clients were Telstra, Fujitsu Australia and the IT FinXL.

In effect, the payroll systems of these government agencies were privatised. The payroll side of Plutus was legal.

This “too good to be true” business that operated without charging fees should have rung alarm bells, but slick marketing answered any such concerns with claims that it made its profits from other services.

Then in March 2016, Cranston junior (Adam) and his mate Jason Onley set up a company called Synep. According to Fairfax media which broke the story, Cranston (junior) is a finance executive and Onley is the managing director of a corporate finance and business consulting service.

“Straw directors”

In June Synep buys Plutus Payroll and sets up a second tier of seven firms which are registered as businesses. They were all registered between May and July. These second tier companies had legal responsibility to Plutus Payroll’s contractors in handling wages and other worker entitlements such as superannuation.

In order to distance themselves from these companies, young and mostly hard-up directors were recruited for these firms, what the Federal Police call “straw directors”.

Cash-strapped people including a pole dancer, an ex-Nomads bikie, an unemployed plumber, a single teen mother, drug addicts and social security recipients were recruited to sign on as directors.

Monthly payments were made to the straw directors of the second tier companies while the conspirators retained control of them. It seems the less the straw directors knew the better.

Daniel Rostankovski and an IT team which included Lauren Cranston (sister of Adam) and business woman Devin Michelle Hammond managed the straw companies.

The idea was to pay the wages as required, the ATO around 50-60 percent of PAYG tax due on those wages, and carve up the rest among themselves. It all seemed too easy. Tax lawyer Dev Menon was able to advise them as to the amount they could cream off without raising suspicions within the ATO and on trusts and other measures to hide the money trail.

He used to work for KPMG and is presently a partner in Clamenz Lawyers. “His innovative approach to tax is highly reputable throughout the industry and he has been involved in many prominent tax and insolvency matters,” his profile says on the law firm’s webpage.

Too greedy by far

The story continues:

The AFP got wind that something was amiss and began wiretaps last October. These revealed concerns among the gang that the proportion going to the ATO was down to 36 percent.

The tapes showed internecine battles over the carve-up of the takings, in particular Cranston junior’s spending sprees and Simon Anquetil’s desire to retain 20 percent of the spoils.

It gets serious when in December one of the straw directors, Danielle McDonnell, allegedly took control of a second tier company’s bank account which had $1 million in it. As a result that second tier company could not pay wages for one of its clients or the 50-60 percent needed for the ATO. They did not want to pay it from another second tier company as that would create a link between them.

The ATO investigations continued with the net closing in on the gang. The ATO serves garnishee orders on five of the straw companies in January 2017, and they cannot make any payments to the contractors. Cranston junior seeks assistance from his father to check on the ATO’s audit of Plutus which leads to the unauthorised access of records.

Stephen Barrett who had offered A Current Affair a scoop on the ATO scam which was rejected turns his attention demanding $5 million payment from the gang.

On April 27 the ATO, which was co-operating with the AFP in the investigation, froze the bank accounts of Plutus for unpaid debts meaning contractors and workers could not be paid. When Menon became aware that the ATO realised they had outstanding liabilities that they could not meet he discussed with Cranston junior the winding up of the two tier companies – what is known as phoenixing.

That’s the story so far according to the allegations made in a statement by the AFP prepared for the court on May 17.


The AFP carried out raids on a number of Sydney properties, searching premises and seizing assets worth millions of dollars and other material in Sydney, Wollongong and the Southern Highlands. According to a list issued by the AFP, the assets seized include:

  • 25 luxury motor vehicles
  • $15 million in bank accounts
  • 18 luxury residential properties
  • 12 motorbikes
  • Two aircraft
  • Firearms.

The media then speculates on links between some of the main players and the criminal underworld, developers and possibly bikies. One of the lawyers involved is linked to jailed former Labor power-broker Eddie Obeid. Investigations continue and it will take some time to sort out the complex contracting and other tax structures.

If ever there were an indictment of capitalism and all its 21st century features then it would be hard to go past the fraud allegations enveloping the Australian Taxation Office.

The victims in all of this are the workers who were not paid and the workers who may now owe the ATO money because of underpayment of PAYG income tax over the past year or so.

Sorry tale

The saga – and we still have more to learn about it – is indicative of white-collar crime. It goes to the heart of capitalism, a system based on corruption, greed, individualism and exploitation and a capitalist state that does little to protect the victims of this crime – working people.

There were a number of specific factors that contributed to this mighty heist.

They include:

  • The use of contractors and subcontractors where there is no accountability or transparency instead of managing the payroll in-house – that is the privatisation of the working of government
  • Massive cuts to staff at the ATO adding up to almost 30 percent of employees in the past five years and an increasing reliance on external “consultants”, casuals and part-time staff to do work that was previously done by permanent employees
  • The slashing of red tape within the ATO – a form of deregulation
  • Lack of protection of workers’ entitlements when companies go into liquidation and failure to impose heavy penalties on directors
  • The lack of effective laws and willingness by authorities to stamp out the practice of phoenixing. This is where a company is stripped of its assets, is left with no funds to pay wages and other entitlements, outstanding debts or tax. The company goes into liquidation, the assets are used to start a new company under a new name, by the same people, and often from the same premises
  • Inadequate funding of watchdogs such as the Australian Security and Investments Commission and a seeming reluctance to come down heavily on offenders.

All of which begs the question: Who knows how many other schemes are fleecing the ATO and community of income through contractors and subcontractors?

Next article – A stain on the soul

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