Commissioner of the Australian Federal Police v Agius

The history of proceedings

1. The defendant was arrested on 28 April 2008 in Western Australia and was then extradited to New South Wales. He stood trial with three others. (The jury was unable to reach unanimous verdicts in respect of two of them.) He was jointly charged with the others on an indictment alleging that they conspired with each other and with Owen Daniel to defraud the Commonwealth between about 1 January 1997 and about 23 October 2006. The indictment contained two counts with different wording reflecting the successive statutory regimes in force during the life of the conspiracy; the first charge was brought under ss 86(1) and 29D of the Crimes Act 1914 (Cth) and the second under s 135.4(5) of the Criminal Code (Cth).
2. The jury returned guilty verdicts with respect to the defendant on 31 July 2012 following a five-month trial. He was sentenced by Simpson J (as her Honour then was) on 23 August 2012 to an effective head sentence of 8 years and 11 months with a non-parole period of 6 years and 8 months expiring on 30 March 2019.
3. The defendant's appeals against conviction and sentence were dismissed by the Court of Criminal Appeal on 5 August 2015.

The application for a PPO

1. The present application was commenced by summons filed on 28 April 2008. It sought restraining and other orders under the Act following the defendant's arrest as well as the PPO considered herein. Following the defendant's unsuccessful appeals, the plaintiff filed written submissions in relation to the present application on 23 February 2016. The defendant filed written submissions in response on 16 March 2016.
2. Unsurprisingly in the circumstances and in accordance with the sentencing judge's findings it was common ground that the defendant received a benefit from his offending conduct and that a PPO ought to be made. The quantum of that order was, however, a matter of contention.
3. A hearing was conducted on 22 and 23 March 2016. The plaintiff, represented by Mr McGuire SC, read the affidavits of Jacqueline Davy sworn 28 April 2008; Patrick McCarthy affirmed 10 May 2013; and Rosanna Celona sworn 10 May and 3 December 2013. Ms Celona gave further evidence in the hearing.
4. The defendant, represented by Mr Coady of counsel, relied on the affidavits of Kym Gillen Butler affirmed 9 October 2013; Edward Solomon Neumann sworn 9 October 2013; and the defendant sworn 19 October 2013. Mr Butler and the defendant both gave evidence at the hearing.
5. Further submissions in writing were provided after the hearing; the plaintiff's dated 18 April 2016 and the defendant's dated 23 May 2016.

The issue for determination

1. There was no dispute as to the applicable statutory provisions and the defendant conceded that all jurisdictional and threshold requirements in the Act were satisfied. Accordingly I will only make reference (now and later) to provisions that directly bear upon making the order sought.
2. Proceedings on an application for a confiscation order (which includes for a PPO) are civil in nature (s 315(1)). The plaintiff need only establish its claim on the balance of probabilities (s 317) according to the rules of evidence applicable in civil proceedings (s 315(2)). The sum payable is a civil debt due to the Commonwealth (s 140(1)) and may be enforced as if it were an order made in civil proceedings (s 140(2)).
3. To put what follows in context I observe that a key issue is the meaning of the term "benefits derived from the commission of an offence" appearing in pt 2-4 div 2 sub-div B of the Act. It has a meaning that is controversial in its application to the issues in this case. The legislation seeks to expand it from a simple assessment of what profit an offender might have made personally from the commission of an offence. For example, there is provision to exclude deductions being made for expenses and outgoings and there is inclusion in the assessment of money (etc) derived for or on behalf of others. It includes property that may not be directly in the possession of an offender but is subject to his or her "effective control". A reference to a person having derived a benefit includes a reference to another person having derived the benefit, either directly or indirectly. I will say more about these provisions later.
4. The point of departure between the parties is the proper approach to be taken to calculating the value of the benefits the defendant derived from the commission of the offences.
5. In essence, the plaintiff contends that the benefits derived by the defendant should be valued on the basis of money paid in to accounts of, or under the control of, PKF or IFTCo.
6. The defendant contends that the assessment should be based upon the net amount actually received by him.

Ms Rosanna Celona

1. Ms Celona is highly qualified and has had many years of law enforcement experience as an investigating accountant and financial analyst with the Commonwealth Director of Public Prosecutions, the Australian Securities and Investment Commission and, since 1999, with the AFP. She has been involved with this case since she was assigned as the principal financial analyst assisting the investigation in October 2006.
2. In her report of 10 May 2013 Ms Celona described her "Calculation of the Financial Benefit derived by PKF Vanuatu". She determined that there was more money sent overseas by the clients of OTD than was returned. The discrepancy was found to be a result of outgoing money not returning for the following reasons: a) start-up commissions; b) establishment fees for setting up a Vanuatu nominee company for each client; c) annual fees in maintaining the Vanuatu nominee company; d) PKF's professional fees for maintaining financial accounts for the Vanuatu nominee company; e) fees for the use of the "consulting company" and "finance company"; f) fees for transferring, invoices and other documentation produced; and g) banking fees.
3. The ongoing fees described in (b) to (f) were either deducted from monies circulated from each financial transaction or were otherwise paid separately via credit card payment or separate telegraphic transfer to an account held in the name of IFTCo. In some instances the fees were paid to bank accounts held in the name of other corporate entities controlled by PKF.
4. Ms Celona provided schedules of transactions for each of the Australian OTD clients and of the overall 183 scheme transactions and 39 fee payments. The information was then reduced to the following summary of the total monies PKF retained and the total professional fees paid: Clients of OTD - Corporate Taxpayers PKF Vanuatu Monies Retained Professional Services Fees Paid Australian Safety Specialists Pty Ltd $100,000.00 $28,034.60 Anscott Pty Ltd $12,000.00 $19,813.57 Bemawell Pty Ltd $54,000.00 $895.69 Gladesville Bridge Marina Pty Ltd $31,000.00 $18,866.07 Hunter Civil & Hire Pty Ltd $28,000.00 $214,879.88 Jiess Building & Carpentry Services Pty Ltd $19,000.00 $2,976.23 Kylood Pty Ltd / Hilisa Pty Ltd $11,000.00 $7,490.17 Tare Consulting Pty Ltd $19,328.00 $13,011.07 SUB TOTALS $274,328.00 $305,967.81 TOTAL BENEFIT DERIVED $580,295.81

1. Ms Celona said in her evidence that the sums in the column headed "Professional Services Fees Paid" were identified from invoices and the sums in the "Monies Retained" column were other amounts making up the difference between money paid and returned to the OTD clients. She also explained that the individual amounts which made up the total for each OTD client in the "Monies Retained" column were ignored if they were less than $1000 and were rounded down to the nearest $1000 if they exceeded that amount. She adopted this rounding-down methodology so as to avoid the need to try and determine bank fees for the various transactions. (T10; 16-17)
2. Ms Celona made a number of assumptions to exclude banking fees and other charges relating to each transaction. Nothing appears to turn on this but the upshot is that an amount of $31,094.28 was ultimately excluded from the calculation of the total benefit derived.

Kym Butler

1. Mr Butler is a chartered accountant who has been in practice as such for 40 years. He was the auditor of IFTCo during the years of the conspiracies and since. He has also been admitted as a legal practitioner and acted for the defendant in taxation proceedings which are related to the criminal proceedings. He also described him as a personal friend. (T52)
2. Mr Butler prepared a report, dated 9 October 2013. He explained the purpose of his report in the following terms: "[1] I have provided my opinion as to the financial benefit to [the defendant] of being a director, partner and employee of PKF and IFTC from the transactions referred to in the Criminal Trial and relating to the Vanuatu and OTD Entities and referred to in the [report of Ms Celona of 10 May 2013] for the period from January 1st 1997 until 31st December 2008." (Report p. 3)
3. In short, it was Mr Butler's opinion that "the total benefit to [the defendant] from his partnership interests, director's fees and salaries is $21,786.00". (Report [12])
4. Mr Butler explained his methodology in arriving at that opinion. He examined invoices from PKF and IFTCo to the Vanuatu Entities (provided to him by IFTCo), finding that they revealed gross revenue earned by PKF and IFTCo of $303,666.90. He ignored any deductions for wages and overheads because he had "not been able to determine an appropriate apportionment". He noted that payments were also made to a related entity to PKF, namely Lime Street Commercial & General Insurance Ltd. He had insufficient information to analyse this but considered any benefit from these transactions would be minimal. (Report [16])
5. Mr Butler noted that the defendant did not have a 100 per cent interest in PKF or IFTCo; there were other directors or partners. For this reason he considered that the financial benefit to the defendant had to be adjusted by the proportion of his interest in those two entities as at the date of each invoice. (Report [17])
6. Mr Butler determined that the proportion of income the defendant received from IFTCo was $2,812.63 and from PKF was $18,973.17. Accordingly, "the total benefit to [the defendant] from his partnership interests, director's fees and salaries is $21,786.00". (Report at [12]; [27]-[29])

The defendant

1. The defendant swore an affidavit on 19 October 2013. He explained that he entered into a partnership agreement to carry on the accounting practice of Moore Stephens in Vanuatu on 29 September 1995. The name changed to PKF in 2002. In 2006 it was incorporated as PKF Vanuatu Limited. (The end date of the second conspiracy was "about" 23 October 2006.) (Affidavit [4]; [6])
2. According to the defendant, PKF provided a wide range of professional services to various clients including the "Vanuatu Entities" referred to in Mr Butler's report. The defendant confirmed that those entities were set up for the purposes of the OTD clients (the eight referred to in the table above). The defendant said that he was neither a director nor a shareholder of any of the Vanuatu Entities. (Affidavit at [8]-[11])
3. The defendant said that as a partner of PKF he was entitled to receive a salary and a share of annual profits. (Affidavit [13])
4. The defendant confirmed that he had been a director of IFTCo (since 1984). That entity charged fees for work performed for various international companies. He said that he received director's fees from IFTCo from 1998 to 2001 but nothing since. (Affidavit [19]-[20])
5. In essence, the defendant confirmed and agreed with the opinion of Mr Butler as to the income he derived from PKF and IFTCo. It was his belief that neither he, nor PKF and IFTCo, had any entitlement to the "monies retained" set out in the table in Ms Celona's report (see above at [30]). He denied receiving any personal benefit from any of those funds. (Affidavit [32])

Ms Celona's second report

1. Ms Celona provided a second report dated 3 December 2013. She had been asked to address a number of matters including the report of Mr Butler and the affidavit of the defendant.
2. In relation to Mr Butler's report she said: "[2] The methodology I had used to calculate the total benefit derived based on the criminal trial reconciled with the defendant's expert report and I reconfirm my opinion the total minimum amount of $580,296 was the benefit derived."
3. Ms Celona confirmed that the scope of her first report was: "[18] … [T]o formulate a methodology of calculating the financial benefit derived by PKF Vanuatu based on the evidence relating to eight Australian clients in the criminal proceedings. I had concluded the total benefit derived was $580,296 (rounded up). This amount included professional services paid and monies not returned to the client."
4. Ms Celona allowed that Mr Butler had the benefit of access to financial records which were unavailable to her. She had based her calculations on the agreed facts in the criminal trial showing the money sent from, and returned to, the eight OTD clients. She had only been able to determine that some of the difference between the two went to payment of professional fees with the balance she labelled "monies retained". The financial records available to Mr Butler enabled him to determine that, to a significant extent, what she called "monies retained" was in fact payments for professional fees as well. Based on the source documents referred to by Mr Butler (financial statements of the Vanuatu Entities and invoices issued by PKF and IFTCo to those entities), Ms Celona was able to re-categorise her total figures which she set out in the following table (Report [28]; see also T27-28): Australian Client Retained Funds Professional Fees Anscott Pty Ltd $ - $31,813.57 Australian Safety Specialists Pty Ltd $ 18,122.00 $109,912.60 Bemawell Pty Ltd $15,493.00 $39,402.69 Gladesville Bridge Marina Pty Ltd $ - $49,866.07 Hunter Civil & Hire Pty Ltd $208,118.00 $34,761.88 Jiess Building & Carpentry Services Pty Ltd $ - $21,976.23 Kylood Pty Ltd / Hilisa Pty Ltd $ - $18,490.17 Tara Consulting Pty Ltd $ - $32,339.60 $241,733.00 $338,562.81 $580,295.81

1. Ms Celona noted that Mr Butler had excluded from his calculation funds held on deposit in Vanuatu, namely the $241,733 in the "retained funds" column in the above table on the basis of his opinion that such funds were not held for the benefit of the defendant, PKF or IFTCo. His calculation of benefits the defendant had derived ($21,786) was based upon his partnership interest in the professional fees earned. (Report [29])
2. However, Mr Celona maintained her position, stating at the conclusion of her second report: "[30] My opinion remains that the total minimum benefit derived, based on the facts presented in the criminal trial, against the defendant was $580,296 as at the time of his arrest, being 28 April 2008. No adjustment for present value has been made." (Emphasis original)
3. In this report, Ms Celona also dealt with an issue as to the source of money used to discharge a mortgage over a property owned by the defendant. Her analysis revealed that the funds originated from IFTCo and that there was a round-robin of funds for no obvious (legitimate) reason before they arrived with the mortgagee. (T19) Senior counsel for the plaintiff indicated that this was relevant to the question of "effective control"; that is, that the defendant had such control in relation to the funds of IFTCo. (T28)

The oral evidence

1. Having regard to the conclusions I have reached it is unnecessary to review in any detail the extensive detail explored in the cross-examinations of Ms Celona, Mr Butler and the defendant. It suffices to say that Ms Celona largely relied upon documents from the OTD client perspective whilst Mr Butler largely relied upon documents/records from the Vanuatu perspective. Both analyses yielded similar results in terms of the amount of money that remained off-shore as a result of the defendant's offending; Mr Butler's a little more than Ms Celona's, her assessment being deliberately conservative. The difference in their ultimate conclusions is that Ms Celona regarded virtually all of the difference in the outgoing/incoming monies of the OTD clients as "benefits derived" whereas Mr Butler regarded the defendant's share of income from PKF and IFTCo as his benefits derived.

Consideration

1. Cases were referred to in the plaintiff's opening written submissions. I am cautious about placing too much reliance upon them as they were cases decided in other jurisdictions with similar but not identical statutory regimes. There is a pertinent note to one of the cases: R v May [2008] UKHL 28; [2008] 1 AC 1028 at [48]: "Guidance should ordinarily be sought in the statutory language rather than in the proliferating case law".
2. Two further cases were referred to in the opening written submissions of the defendant. They were both concerned with issues relating to what Wilcox J described in Cornwell v Commissioner of Australian Federal Police (1990) 24 FCR 544 at 554 as "division of spoils" between co-offenders. I do not find that they provide assistance in the resolution of the issues in this case.
3. The evidence and submissions in this matter present what is a potentially very complex corporate accounting exercise for the determination of the PPO sought by the plaintiff. However, I believe it boils down to some fairly simple and straightforward propositions and they can be resolved without recourse to caselaw but by direct application of the statutory provisions.
4. The defendant's offending involved the OTD clients sending money overseas and receiving some of it back. The plaintiff relies on the difference as being the benefit derived, namely $580,295.81, being the amount calculated (conservatively) by Ms Celona based upon what were agreed facts in the defendant's trial.
5. It was the case that the OTD clients paid the total sum of $580,295.81 in order to enable them to perpetrate taxation fraud. The essence of the defendant's offending was that he organised and facilitated this to occur. This simple proposition means that the proceeds of the defendant's crime were $580,295.81.
6. True it is that this money went in various directions: for example, payment of professional fees and expenses for the performance of the scheme. It went to PKF, to IFTCo, and into bank accounts in the names of the Vanuatu Entities. However, the defendant had an interest or control in one form or another in relation to each of PKF, IFTCo and the Vanuatu Entities. He benefited personally in relation to some of the money and he derived a benefit for others (e.g. partners in PKF) in relation to some of it. He, and the partners of PKF, did not benefit to the tune of all of the $580,295.81; some of it went in expenses and some remained in bank accounts in the name of the Vanuatu entitles which he caused to be incorporated and of which accounts he was a signatory.
7. The amount by which the defendant did not personally and directly benefit cannot be ignored when regard is had to the relevant statutory provisions. Mr Butler's analysis has no regard to these provisions. The term "benefit derived" has a meaning far beyond what Mr Butler considered and calculated, and his analysis does not take into account prohibitions, such as the deduction of expenses and outgoings.
8. The submission for the defendant that attention should be directed to "what actual net benefit or profit accrued to the defendant from his illegal activity" was based upon the approach taken by McCallum J in The Commissioner of the Australian Federal Police v Fysh [2013] NSWSC 81; 224 A Crim R 523 particularly at [21]-[24] and [54]. But her Honour was dealing with quite a different factual issue.
9. The issue in that case was whether an insider trader should be liable for a PPO based on the gross proceeds of the sale of the subject equities rather than the net proceeds after deduction of the purchase monies which were legitimately derived from his own assets. For the resolution of that issue, her Honour assessed the PPO at the level of the net proceeds. She did not, however, make any deduction for brokerage fees as they were an expense or outgoing prohibited from being deducted pursuant to s 126 of the Act. I do not regard her Honour's approach in the context of the factual issue in that case as providing assistance to the resolution of the present case. Here, there is nothing to suggest that there was a need for the defendant to outlay legitimately sourced funds in order to acquire an illegitimate gain. Such outlays for expenses and outgoings were met by use of the illegitimately acquired funds.

The statutory provisions

1. The defendant's liability to a PPO arises on both limbs in s 116(1) of the Act - he has been convicted of an indictable offence and has derived benefits from its commission (s 116(1)(b)(i)) and he has committed what is defined as a serious offence (s 116(1)(b)(ii)).
2. Pursuant to s 121 (and ignoring irrelevant aspects of it), the amount the defendant is required to pay under a PPO is the amount the court determines under sub-div B (ss 122-129) is the value of the "benefits the person derived" from the commission of the offence. Construing the term "benefits the person derived" in the context of the Act, particularly some provisions to which I am about to mention, cannot be such that it is necessarily just a question of what benefits the defendant personally derived.
3. The term "benefit" is defined in s 338 to include "service or advantage".
4. The term "derived" is dealt with in s 336 ("Meaning of derived"): "A reference to a person having derived … a benefit … includes a reference to: (a) the person; or (b) another person at the request or direction of the first person; having derived the … benefit … directly or indirectly."

Valuing the benefits derived under pt 2-4 div 2 sub-div B (ss 122-129)

1. Provisions of sub-div B which do not rise for specific consideration are ss 123-125; 127 and 129. (They are relevant contextually but need no further attention.)
2. Section 122 requires in sub-s (1) that the court have regard to evidence concerning a number of matters in determining the value of the benefits a person has derived from the commission of an offence. Relevantly, they include: "(a) the money, or the value of the property other than money, that, because of the illegal activity, came into the possession or under the control of the person or another person; …" (It should be noted that "person" includes a body corporate: s 2C(1) Acts Interpretation Act 1901 (Cth).)
3. Mr Butler's analysis does not take into account any money that came into the possession or under the control of "another person"; in fact he took great care to exclude any such sums. This is one reason for rejecting his analysis.
4. It is useful also to observe what I regard as a significant concession (although not expressed as such) in the final written submissions for the defendant (at [6]): "It is clear that PKF Vanuatu and IFTCo acted as corporate entities with multiple directors and shareholders, who all presumably took the benefit of the criminal activities." (Emphasis added)
5. Section 126 ("Matters that do not reduce the value of benefits") provides: "In assessing the value of benefits that a person has derived from the commission of an offence or offences (the illegal activity), none of the following are to be subtracted: (a) expenses or outgoings the person incurred in relation to the illegal activity; (b) the value of any benefits that the person derives as agent for, or otherwise on behalf of, another person (whether or not the other person receives any of the benefits)."
6. Mr Butler's analysis excludes expenses and outgoings incurred by the defendant as a partner of PKF (by confining his "benefit" to his share of profits etc) and as a director and shareholder (directly or indirectly) of IFTCo (by confining his "benefit" to his receipt of dividends). And his analysis excludes the value of benefits he derived for others. Again, these are reasons for rejecting his assessment.
7. Section 128 ("Property under a person's effective control") provides: "In assessing the value of benefits that a person has derived, the court may treat as property of the person any property that, in the court's opinion, is subject to the person's effective control."
8. "Effective control" is dealt with in s 337: "(1) Property may be subject to the effective control of a person whether or not the person has: (a) a legal or equitable estate or interest in the property; or (b) a right, power or privilege in connection with the property. ... (5) In determining whether or not property is subject to the effective control of a person, regard may be had to: (a) shareholdings in, debentures over or directorships of a company that has an interest (whether direct or indirect) in the property; and … (c) family … and business relationships between persons having an interest in the property, or in companies of the kind referred to in paragraph (a) … ... (7) To avoid doubt, property may be subject to the effective control of more than one person."
9. Mr Butler did not give any consideration to whether any property was subject to the defendant's "effective control".
10. In this case s 122 requires the court to have regard to all of the money that represents the difference between that which the OTD clients sent from Australia and that which was returned. That is because that amount represents money that, because of the defendant's illegal activity, came into the possession or under the control of either himself or another person. Ms Celona assessed that amount, conservatively, to be $580,295.81. Mr Butler assessed it as being (in round terms) $605,000.
11. Mr Butler sought to only take into account money which was purportedly for professional fees and excluded monies retained in the bank accounts of the Vanuatu Entities. The latter, however, was money that came into the possession or under the control of another person, namely those entities. It was also money that could not be applied to reduce the value of the benefits derived because s 126 prohibits a reduction being made for benefits derived by the defendant as an agent for, or otherwise on behalf of, another person, namely those entities.
12. A further reason for the inclusion in the calculation of "benefits derived" of money retained in the bank accounts of IFTCo and the Vanuatu Entities is that it was under the defendant's "effective control". As previously mentioned, he caused those entities to be established; the overseas aspects of the tax evasion scheme which made use of those entities operated under his direction; and he was a signatory to their bank accounts. In relation to IFTCo, he was at times a director and shareholder. At other times entities called Lion of Judah and St Paul's Trust were vehicles which gave the appearance that the ultimate beneficial owners of IFTCo were the defendant's sons but there was evidence to indicate he retained involvement (e.g. directorship of Lion of Judah; control of its bank account; use of its money to pay off his mortgage and to pay his personal legal fees).

Generally as to the evidence of Mr Butler and the Defendant

1. I note that the submissions for the plaintiff included criticism of the evidence of the defendant and suggested circumspection in relation to that of Mr Butler. I am inclined to agree for the reasons set out in the submissions but it is unnecessary to dwell on this because the matter may be disposed of for the reasons outlined above.

Conclusion

1. There was no dispute that a PPO should be made. I am satisfied that the various statutory preconditions have been met (as was conceded).
2. I am satisfied that it is more probable than not that the defendant derived benefit from his offending conduct to the value of $580,295 and a PPO should be made in that amount.
3. I note that the defendant did not make any submission in opposition to the plaintiff's entitlement to costs.

Orders

1. I make the following orders: 1. Pursuant to s 116 of the Act, the defendant, Robert Francis Agius, pay to the Commonwealth a pecuniary penalty in the amount of $580,295. 2. The defendant is to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 July 2016