CHEN and COMMISSIONER OF TAXATION
[2011] AATA 381
•3 June 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 381
ADMINISTRATIVE APPEALS TRIBUNAL )
) No NT2005/0422-0426
TAXATION APPEALS DIVISION ) Re ZHEN CHI CHEN Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr Julian Block, Deputy President Date3 June 2011
PlaceSydney
Decision
The objection decision under review is affirmed.
..................[sgd]............................
Mr Julian Block
Deputy President
CATCHWORDS
TAXATION AND REVENUE – income tax – substantiation of income – amended assessments issued due to suspicion of fraud or evasion – conviction for money laundering – penalty for understatement/shortfall – onus of proof – whether taxpayer has proven the assessments were excessive – objection decision affirmed
Taxation Administration Act 1953 (Cth) s 14ZZK
Black v Federal Commissioner of Taxation (1986) 17 ATR 331; (1986) 86 ATC 4113
Commissioner of Taxation v Salenger (1988) 19 FCR 378
Denver Chemical Manufacturing Company v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3
George v Federal Commissioner of Taxation (1952) 86 CLR 183
McEvoy v Commissioner of Taxation (1950) 9 ATD 206
Re Hamed and Commissioner of Taxation (2010) 76 ATR 649; [2010] AATA 684
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92
REASONS FOR DECISION
3 June 2011 Mr Julian Block, Deputy President PART A – PRELIMINARY AND BACKGROUND
1. The objection decision under review, dated 13 October 2005, disallowed the objections by the Applicant dated 6 June 2005 against Notices of Amended Assessment in respect of the tax years ending 30 June 1999, 30 June 2000, 30 June 2001, and 30 June 2002, a Notice of Assessment in respect of the year ending 30 June 2003 and a Notice of Assessment of Penalty for having a Tax Shortfall imposing penalty for the tax shortfall arising in the tax years ending 30 June 2001, 30 June 2002 and 30 June 2003; (understatement penalty was imposed for the tax years ending 30 June 1999 and 30 June 2000, the relevant amounts having been notified to the taxpayer in the Notice of Amended Assessment for those years). The tax years aforesaid are collectively referred to as the “relevant years” while any individual tax year is prefaced by a reference to its actual year; thus by way of example the year ended 30 June 1999 is referred to where relevant as “the 1999 year”. Although the year ending 30 June 1998 is not itself a relevant year it is to some extent germane in respect of this application and it is referred to, where applicable, as “the 1998 year”.
2. The Applicant was represented by Ms M Truong of Mai Lawyers, while the Respondent was represented by Mr R Scruby of Counsel, instructed by Mr R Pandey of the ATO Legal Services Branch.
3. The Tribunal had before it the T documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975; in addition it admitted exhibits as follows:
·Exhibit A1; a witness statement by Mr Xi Hui Chen (who is the Applicant’s father) dated 25 October 2010; one of the annexures to the father’s witness statement is a statement by Mr Shao Bin Chen who, it was claimed, is the Applicant’s adopted brother (this statement was also annexed to the wife’s witness statement and the Applicant’s witness statement);
·Exhibit A2; contains certain medical information in respect of Mr Xi Hui Chen;
·Exhibit A3; a witness statement by Ms Jinxia Liu (who is the Applicant’s wife) dated 20 October 2010;
·Exhibit A4; consists of a bundle of bank statements in respect of AC Long River International Trading Co (“Long River”) and Crown Aus International Trading Co (“Crown”);
·Exhibit A5; a witness statement by Mr Siu Pun Hui (who is the Applicant’s brother-in-law) dated 25 October 2010;
·Exhibit A6; a witness statement by the Applicant dated 17 November 2010;
·Exhibit A7; a statement (undated and unsigned) by Mr Zhen Chu Chen (who is the Applicant’s brother) with annexures;
·Exhibit A8; a witness statement by Mr Zhen Chu Chen (the Applicant’s brother) dated 15 November 2010 which is signed but does not include annexures (but is otherwise identical to Exhibit A7);
·Exhibit A9; the judgment of the New South Wales Court of Criminal Appeal dated 8 October 2010;
·Exhibit R1; the Applicant’s tax return from the 1998 year;
·Exhibit R2; the Applicant’s tax return from the 1999 year;
·Exhibit R3; the sentencing remarks dated 27 March 2008 of the New South Wales District Court (Criminal) in respect of the conviction of the Applicant on money laundering charges;
·Exhibit R4; an ASIC search in respect of K-Card Telecom. Pty Ltd;
·Exhibit R5; the Applicant’s tax return for the 2000 year; and
·Exhibit R6; the Applicant’s tax return for the 2001 year.
It may be noted that Exhibits A1, A3, A5, A6 and A7 are lengthy, especially when one takes into account their respective (and often numerous) annexures. This is so in particular but not only in respect of Exhibit A6, which inclusive of annexures consists of 332 pages.
4. Bearing in mind that some relevant names are similar (and this is particularly so in respect of the Applicant and his brother), I propose to refer to the persons who gave evidence as follows:
(a)Mr Zhen Chi Chen (sometimes referred to as Peter), the Applicant, is referred to as “the Applicant”.
(b)Mr Zhen Chu Chen, the Applicant’s brother (as to whom Exhibits A7 and A8 are referable), is referred to as “the brother” and sometimes as “the elder brother”.
(c)Mr Xi Hui Chen, the Applicant’s father to whom Exhibit A1 is referable, is referred to as “the father”.
(d)Mr Siu Pun Hui, to whom Exhibit A5 is referable, is referred to as “the brother-in-law”.
(e)Ms Jinxia (sometimes referred to as Carol) Liu, to whom Exhibit A3 is referable, is referred to as “the wife” or as the “Applicant’s wife”.
(f)Mr Shao Bin Chen, the nature of whose relationship to the Applicant is elaborated upon in Part N of these reasons, is referred to as “the adopted brother”.
5. There were in all five hearing days on which evidence was taken and being 23 November 2010, 24 November 2010, 25 November 2010, 26 November 2010 and finally 14 December 2010. References to the transcript are prefaced by a number which relates to the number of the relevant hearing day. By way of example, a reference to 2TS 15 is a reference to the second hearing day and to page 15 of the transcript for that day.
6. It will be noted that the Applicant’s objections were disallowed in 2005, and so that the hearing of this application took place only after a very long delay. The delay was caused, in the first instance, because these applications were held in abeyance at the Applicant’s request and with the Respondent’s consent while criminal proceedings involving the Applicant, including an appeal, took place. As a result of the criminal proceedings the Applicant is currently serving a lengthy sentence of imprisonment having been convicted of money laundering on an extensive scale. Following the hearing of his ultimately unsuccessful appeal the Applicant made a number of applications to the Tribunal for postponement on the basis that he was seeking legal representation and at a later stage and after Ms Truong was briefed, to enable her to make enquiries and to obtain evidence.
7. When this hearing commenced, Ms Truong advised the Tribunal that the witnesses for the Applicant would be the Applicant himself, the father, the wife and the brother-in-law. The Applicant’s brother is in prison in Hong Kong; as he too was convicted of money laundering. Ms Truong said that she could not furnish oral evidence by the brother because of his imprisonment in Hong Kong, or by the adopted brother because he is in China; she nevertheless sought to tender statements by them on the basis that they were certified. Ms Truong was advised that evidence of this nature (untested by cross-examination) could not be given any significant weight. As the matter developed, it became clear that their evidence was relevant and, as a result, both of them gave evidence by telephone.
8. A consideration of the witness statements as a whole tendered by the Applicant indicates that much of its content is either incoherent or irrelevant or contradictory. When the hearing was concluded, and at Ms Truong’s specific request, a period of almost three months was allowed for written submissions by the parties and a further period of a month for written submissions in reply. Both parties filed written submissions on 28 February 2011. Each of the parties filed a brief reply. The Respondent’s submissions (“RS”) deals in detail and in a form which is coherent with the evidence before the Tribunal which has drawn on it to some considerable extent.
9. It may be noted that, put in broad terms, the Applicant sought to contend that his tax returns were correct and that substantial sums had been provided to him by way of loans from members of his family. There is some conflict in the evidence as to who in fact provided loans; by way of one example only evidence that the father provided loans was contradicted by the father on the basis that he did not have the necessary means. It was in this context that it was pointed out to Ms Truong that the evidence of the adopted brother would be relevant, and as set out previously, and in the result he gave evidence by telephone from China.
10. The Tribunal was informed that the Applicant was, after he and his wife were married, charged with a receiving offence, which was apparently not pursued and during the course of which an amount of $300,000 in cash found in the possession of the Applicant was taken from him; that amount was, so the Tribunal was informed, received by the Respondent in reduction of the Applicant’s tax liabilities. That in effect is what this case is about. Prior to the hearing, and at directions hearings, the Applicant protested in the most vehement terms about the refusal by the relevant authorities to refund of what he referred to as his money, which according to him should never have been taken from him. That is why apparently this application was brought; if the Applicant is successful, the amount of $300,000, to which I have referred, will presumably be returned to him and this is above all what he most fervently desires. The Respondent contends that that amount is but a small part of the total tax owing by the Applicant.
PART B – THE APPLICANT’S TAX RETURNS FOR THE RELEVANT YEARS
11. The Applicant lodged returns for the relevant years which were in accordance with the self-assessment regime accepted by the Respondent; in summary the Applicant disclosed taxable income in respect of the relevant years as follows:
·1999 year; $12,630; see Exhibit R2;
·2000 year; $11,084; see Exhibit R5;
·2001 year; $9,610; see Exhibit R6;
·2002 year, $7,420; see Exhibit A6, pp. 154-158;
·2003 year; $4,660; see Exhibit A6, pp. 159-166; in respect of this year there was no assessment because the Applicant’s assessable income was below the taxable threshold.
12. The Respondent undertook an audit of the Applicant. As a consequence of the audit the Respondent assessed the Applicant in respect of taxable income and penalties as follows:
Year ended 30 June
Taxable Income
Penalty
1999
$655,024
$235,157.16
2000
$330,984
$114,924.66
2001
$251,442
$83,535.05
2002
$1,112,956
$403,651.35
2003
$578,930
$205,462.75
13. The Applicant challenged all of the assessments and contended that his returns were correct (5TS 51).
14. The Applicant did not take issue with the fact that the amended assessments issued in respect of the 1999 and 2000 years were issued outside the statutory period of four years provided by the then s 170(2) of the Income Tax Assessment Act 1936. Section 170(2)(a) of that Act authorises the Commissioner to amend an assessment at any time where there is the avoidance of tax and in the Commissioner’s opinion the avoidance of tax was due to fraud or evasion. The Tribunal is satisfied on the evidence before it and which is set out in these reasons that there was fraud or evasion: Denver Chemical Manufacturing Company v Commissioner of Taxation(NSW) (1949) 79 CLR 296 at 313.
15. The amounts returned as his income by the Applicant in respect of the relevant years were in all respects and in all cases extremely low. In his evidence, the Applicant spoke of visits to the Casino; he said that his gambling activities were at times successful but there was no firm evidence of any kind to this effect. He lived in a house in Belfield which was purchased by him, and which was subsequently transferred to his brother-in-law in circumstances set out later in these reasons. He has thereafter (apparently) lived in rented accommodation (prior to his imprisonment).
16. There was evidence before the Tribunal as to loans by relatives and, in particular, the brother-in-law and the adopted brother. That evidence, as will be demonstrated, was most unsatisfactory. The Applicant was for a period the registered owner of a substantial dwelling house in Belfield in the state of New South Wales, but the cross-examination of the brother-in-law indicated in the clearest possible terms that a very substantial part of the money provided by the brother-in-law to the Applicant was not a loan at all but in fact provided to the Applicant to enable him to purchase the house in Belfield for and on behalf of the brother-in-law. The evidence of the brother-in-law suggests that the house in Belfield may have been acquired in breach of the Foreign Acquisitions and Takeovers Act1975, in that it was acquired on behalf of the brother-in-law through the Applicant at a time when he, the brother-in-law, was not, as a matter of law, permitted to do so, and because he was then resident in Hong Kong, prior to his receiving permission to become a resident of Australia.
17. During the course of the hearing, the Tribunal was told of the Applicant’s activities in a variety of occupations and enterprises, and including but by no means only abalone and seafood, and as a house painter. At a later stage, the Applicant acquired a telephone card business (at a cost which was substantial) but according to his evidence that business was unsuccessful and, indeed, went into administration or some similar form of bankruptcy, but not before his sister was able to extract a large number of telephone cards from the business before it closed (5TS 74).
18. There was at least one glaring gap in the evidence presented by or on behalf of the Applicant, that is that although the Applicant’s tax returns for the relevant years were prepared by an accountant, there was no evidence by any such person as to the basis on which the returns were prepared or the information which was provided to him for this purpose. (The Applicant in his evidence on a number of occasions said that he had left a relevant return to his accountant.)
19. Some of the witnesses gave evidence to the effect that in Chinese families it is customary that loans would be made by persons in funds, to family members who needed money and where there would be no arrangement as to interest or repayment or any other relevant terms. All of the loans which are relevant for the purposes of this case, included the following features:
(a)The lenders were never asked for a particular sum of money. They appear to have decided themselves how much it was appropriate to lend.
(b)The lenders never advanced the loan amount in one sum. Instead, the loan amount was advanced in much smaller portions. There was no credible explanation given for the quantities or the timing of the smaller portions of loan monies. Sums of $10,000 or thereabouts were frequently sent within a short period of time.
(c)The lenders were not told, and did not ask, the purpose for which the loan monies were to be used.
(d)The loans were all made on interest free terms.
(e)The lenders have never sought or received repayment of the amounts said to have been lent.
(f)There was never even the most minimal enquiry as to whether the borrower had any capacity to repay any or all of the loan provided.
20. The evidence of the wife was the only evidence tendered by or on behalf of the Applicant which could be regarded, at least to some extent, as plausible. There is a significant difficulty with her evidence and that is that she met and married the Applicant some considerable time after the expiry of the relevant years, so that she herself could not have any personal knowledge of any relevant facts and matters. She was sent on an evidence gathering mission a short while before the hearing commenced, and during the course of which she visited both Hong Kong and China and met the brother (in jail) and the adopted brother (in China). Her evidence was of course hearsay.
21. The evidence before the Tribunal indicates that at least for a brief period (about six months) the Applicant worked for the brother-in-law doing manual work. That evidence was not consistent with other evidence as to the Applicant’s involvement in business in a substantial way, and in particular in seafood and abalone and in house painting.
PART C – METHODOLOGY
22. In RS the Respondent dealt with much of the evidence by reference to the relevant years. It seems to the Tribunal that it is convenient to some extent to adopt the same line, although it is also desirable to deal with the evidence of some of the witnesses individually.
PART D – 1998 YEAR
23. Although the 1998 year is not a relevant year, and although the Applicant’s income for the 1998 year is not in issue in this application, it is relevant insofar as his evidence in respect of that year reflects on his credibility.
24. In his return for the 1998 year, the Applicant stated that his main business activity was “contract painting and decorating services” (Exhibit R1).
25. The Applicant did not in his witness statement refer to painting and decorating; he said that in the period May 1998 to September 1999 he was engaged in the seafood/abalone/lobster business (Exhibit A6).
26. When his cross-examination commenced the Applicant said that his main business activity in 1998 was “abalone”, and that his only business in that year was “only abalone and one called lobster” (4TS 29-30).
27. When the Applicant was shown his tax return from the 1998 year, he endeavoured to explain the relevant statement by saying “but when there was no business I helped people to paint … I have helped people to paint and therefore there was tax return” (4TS 31).
28. The Applicant later said, but in contradiction of his initial evidence, that in 1998 “I didn’t operate the business almost. Only ‘99 started doing seafood” (4TS 37) and “‘98 I didn’t do abalone; only in ‘99 I did abalone” (4TS 38 and 57).
29. When it was put to the Applicant that his statement suggested that he did operate a seafood business in 1998 he replied “I was operating business. Doesn’t mean the business was successfully concluded” (4TS 58).
30. The evidence of the Applicant in respect of subsequent years took much the same form.
PART E – 1999 AND 2000 YEARS
31. In his tax returns for the 1999 year the Applicant stated that his main business was “labouring - contract painting and decorating” (Exhibit R2). The Applicant when asked about his business activities for that year furnished a number of inconsistent answers.
32. He initially said that his main business activity in this year was “minor portion of it abalone and lobster and painting” (4TS 33).
33.He then said that in this year “I was unemployed, did not have work” (4TS 34).
34. When asked what he was physically doing in 1999 he said “I was purchasing abalone and lobster and sell to others but I was earning commission” (4TS 34).
35. Later in cross-examination he said that his main business activity was “abalone”. He then sought to qualify that by saying “mainly abalone”. When asked by the Tribunal what else he was doing, he said “And lobsters”. When asked by the Tribunal what else, he said “Not really others, except doing part-time painting walls” (4TS 37).
36. Later in cross-examination, it was put to him that his main business activity in this period was selling abalone on commission. His response was “and painting”. When asked whether his main activity was painting or abalone, he said “painting” (4TS 38).
37. In his tax return for the 1999 year the Applicant claimed that his business income before expenses amounted to $294,281 (Exhibit R2). When asked in cross-examination for a rough indication of his business income before expenses in respect of the 1999 year, the Applicant said that it was between several thousand and $10,000 for painting and about $3,000 for abalone (4TS 39-40). When the Applicant’s attention was drawn to the discrepancy between this answer and what appeared in his tax return, he blamed his accountant saying “as of how the accountant did the tax return I do not know because I did not know English” (4TS 41). He then went onto say that his previous evidence was not about turnover or gross income but rather net income. He said “for money earning for my abalone business I have earned several thousand dollars, but I do not know the turnover. The documents that I gave my accountant – it was based on the information that I provided and, then, he did the tax return” (4TS 41).
38. In cross-examination the Applicant said that the scope of his business activity in the years 1998 to 2000 (both inclusive) was minimal. He said in relation to these years “Little business [was] not regarded as business. Just little business … I couldn’t earn money. I had to look for employment. How could you call this businesses? Otherwise I wouldn’t have to look for employment because there was no businesses” (4TS 35). In chief, he said of his business in the years 1999 – 2002 “at that time I was classified as unemployed. You can see that the business could not be run successfully. It’s just in name it was called doing business” (4TS 10). If this evidence was truthful then his claim that he was in receipt of large amounts of money by way of loans for the purpose of doing business must be doubted. If as he claimed he was doing little or no business, he would not have needed the loans in question.
39. The Applicant was asked how much in rough terms of abalone he had sold and he answered that in the 1999 and 2000 years he sold between 200 and 300 kilograms of abalone which cost him between $60 and $120 per kilogram. His only expenses were a car worth between $1,000 and $2,000, fuel and seafood which perished (5TS 47-48). If this is so, the Applicant’s requirements of capital in each of those years would not have been more than $30,000 to $40,000. When the Applicant was asked to explain why he needed to borrow over $150,000 in 1999 for the purpose of that business he answered (5TS 49):
I can put it in this way, because at the time when I borrowed the money – when I borrow money from my family, of course – of course I wished to do big business and the bigger the better. As of whether the business would be a successful one is out of my control.
40. The Applicant did not explain why in respect of the abalone business he required such large funds of capital by way of loan and moreover in advance. It is relevant also that the Applicant said that he closed his seafood business in late 1999; the date of closure appears as September 1999 in his affidavit and as October to November 1999 according to his oral evidence (5TS 44). Despite that evidence, over $100,000 was alleged to have been borrowed between August 1999 and September 1999 (Exhibit A6 at [20(d)]). There was never any explanation plausible or otherwise of why a business which was being run down would require such large loan capital injections.
41. Moreover and in the same context and if the Applicant was doing little or no business during this period, there would have been no need for him to withdraw all monies borrowed almost immediately after they were received. Every alleged loan amount which is recorded on bank statements in evidence was withdrawn on the day that it reached the Applicant’s account, or shortly afterwards. In the period March – September 1999 $210,000 was transferred in 10 instalments into the Applicant’s account and each instalment was withdrawn on the same day or shortly afterwards. (The payments in are summarized in Exhibit A6 at [20(d)] and appear on the bank statements at pp. 286-292 of Exhibit A6). There is no credible explanation for that consistent with the Applicant’s claim that he was doing little, if any, business at this time. When he was asked about this in cross-examination, his explanation was incoherent (4TS 35-36):
[W]hen I borrowed money – when I asked I was sent whatever amount they could help me to lend to me – try their best. As operator my business is more or less. For example, if I have borrowed $1 million doesn’t mean that I will do $1 million worth of business. I would like to explain. I have borrowed money of this amount of money of business so the money stayed with me.
42. The Applicant was then asked if he was seeking to allege that borrowed money merely lay in his bank account; his answer was as follows (4TS 36):
Not all of them. I have my own safe. I do seafood. I use cash. I have to use money to buy. I mean, I can’t use cheque to purchase because the other party wouldn’t sell that to me. Because if there was no money in the cheque then they wouldn’t sell it to me, so I have to pay cash as deposit.
43. When it was put to the Applicant that if he wasn’t doing business, there was no need to withdraw money from his bank account, the Applicant answered in a manner which was not comprehensible; and where the Applicant said (4TS 36):
Because this is a business registration. It is not a company. This is treated as my personal account. The mistake was it was the company account and personal account was mixed together, rather than separate.
The Tribunal agrees with the contention of the Respondent that there is no acceptable explanation consistent with the claims of the Applicant for the movement of large sums of money into and out of his account in this period.
44. It is relevant at this point to note that the Applicant sought to explain the receipt of $150,000 transferred to him in the 1999 year on the basis that it would be needed by him to buy a house. He did in fact buy a house but he did so for his brother-in-law. This aspect is referred to in more detail later in these reasons.
PART F – 2001 YEAR
45. In his return for the 2001 year the Applicant described his main business as “shop assistant/worker” (Exhibit R6). Also in cross-examination he said at first his main business activity involved “painting walls” (5TS 55) and when asked for confirmation answered to the effect that he had given all relevant documents to his accountant (5TS 55).
46. On 12 July 2000 the Applicant registered the business name “Crown (Aus) International Trading Co”. At registration he described the nature of the business as “electrician” (Exhibit A6, Appendix EE). His explanation for this in cross-examination was “When I registered I remember it was electronics but I remember I did not do it because I do not know about electronics … When I registered the business I didn’t know what business to conduct, and so the person registering the business, the accountant, told me ‘You have to register one item, but whether or not you will continue to do business in this is another story’” (5TS 52). Quite why it was necessary for the Applicant to register a business name in circumstances where he did not know whether he would be conducting business, or if so what kind of business, is not clear. The Applicant denied that this conduct was designed to conceal or disguise other activities (5TS 52). It is sufficient to conclude that his failure to offer any credible explanation for it further detracts from his credibility as a witness.
PART G – 2002 AND 2003 YEARS: K-CARD TELECOM PTY LTD
47. When asked what his main business activity was in the 2002 year the Applicant was again evasive (5TS 55-56). It would seem however that in the 2002 and 2003 years he borrowed substantial sums from his father, brother and adopted brother (Exhibit A6 at [20(n)] and [20(q)]). He contended that some of this money was used to conduct a seafood business but most of the money (amounting to $800,000) was, so he claimed, invested in a company called Kai Sheng Telecom; this was the name he gave it on day four but he referred to it as K-Card on day five. The Applicant said that that investment did not result in any profit.
48. The Applicant’s evidence as to his alleged investment in the telephone card company was not supported by any real evidence of any kind.
49. Nothing in the bank statements in evidence records any transfers which might be thought to represent the telephone card investment. The Applicant’s explanation for this was not credible (5TS 60-61). He said that he paid the aggregate amount of $800,000 in cash, in “many” instalments in April or May 2002. He said that he paid in cash because, not knowing English, “I did not know how to write cheques”. He claimed that his bank, the Commonwealth Bank in Chinatown, was a “Chinese Bank” and “they’re Chinese” so therefore, presumably, could not assist. The proposition that any investment of this size in what the Applicant claimed was a “legitimate business (4TS 8) would be made in cash defies ordinary human experience. The proposition that the Applicant could not write cheques and that his bank would not assist him for this purpose is ridiculous. It is easy to find references to cheques being drawn on most pages of the Applicant’s bank statements (see, for a few examples, Exhibit A6, pp. 283, 284, 286, 288, 291). Further, the Applicant when giving evidence about the purchase of a house in 1998 gave very different evidence about the willingness of the Commonwealth Bank and its Chinese staff to assist him: he claimed that officers at that bank filled out a loan application form for him (4TS 48 and following). If this is to be accepted it is difficult to accept the proposition that they would not assist him to write a cheque. Nor, on any view, is it possible to see why the bank could not have issued a bank cheque, which would not have required the Applicant to write any English and which would ordinarily be the means by which an investment of this size in a “legitimate” business would be made.
50. When asked by the Tribunal as to the precise nature of his “investment” he was unable to say whether it was a purchase of shares, a loan, or a combination of the two (5TS 58-59). All he was able to say was “I signed a contract” (5TS 58-59). If he had in truth invested so large a sum in such an enterprise he would surely have been able to present a more coherent explanation.
51. The Applicant initially claimed that his investment in K-Card was reflected in his tax returns (5TS 58). His tax return for the 2002 year describes his main salary and wage occupation as “shop assistant/worker” and discloses that he was paid $7,800 for that year by K-Card Telecom Pty Ltd (Exhibit A6, p. 156). The Applicant also claimed a protective clothing/laundry allowance of $295. That claim is not consistent with his claimed status as an $800,000 investor entitled to receive a 50% commission or share of the profits.
52. The source of the amount of $800,000 alleged to have been invested was not explained by the evidence. By May 2002, he had received a total of about $530,000 from his brother (including and perhaps consisting only of amounts said to have been provided to his brother by his adopted brother): Exhibit A6 at [20(n)] and [20(q)]). However, these amounts were said by him to have been borrowed for (and on one version of his evidence) only for his other businesses – timber and abalone. Even if one adds to this amounts said to have been borrowed by him from his brother-in-law in 1999 (about $200,000 – Exhibit A5 at [9] and Exhibit A6 at [20(d)] although as will be seen this figure was overstated by a large margin) one does not come to $800,000. It is necessary also to remember that the Applicant claimed to be relying on the “loan” monies to pay his living expenses and that he claimed that he was doing some seafood business in these years.
53. He said that that K-Card went bankrupt in 2002 “and was under administration” (5TS 58) which, he understood, was the same as “bankruptcy” (5TS 63). He made many references to administration and administrators, at one point in an attempt to explain why he was unable to produce the accounts of K-Card (because “all of the documents went to the administrator”: 5TS 58). A company search of “K-Card Telecom Pty Ltd” (Exhibit R4) indicates that that company was never put into external administration of any form but rather deregistered by ASIC in December 2003 pursuant to s 601AB of the Corporations Act 2001 (Cth). Relevantly, that section entitles ASIC to deregister a company if ASIC has no reason to believe it is carrying on business, if it is more than six months late in responding to a return of particulars, and if it has not lodged any documents with ASIC in the last 18 months. The ASIC search is completely inconsistent with the Applicant’s claims.
54. He gave inconsistent evidence as to when K-Card purportedly went “bankrupt”. Initially in his examination in chief, he said “[a]fter 2003 this Kai Sheng has become really big, but in 2003, all of a sudden, all gone” (4TS 9). He then said that he earned no income in the 2003 year because K-Card “went bankrupt” (4TS 10-11). Later, he explained the absence of any income being disclosed on his 2002 returns on the same basis: because K-Card went “bankrupt” (4TS 25).
55. The Applicant used three different names to describe the company in which he invested: “Kaising Telecommunication Australia” in his affidavit (Exhibit A6 at [12]); “Kai Sheng Telecom” in oral evidence in chief (4TS 8); and “K-Card” in cross-examination (5TS 57). This cannot be a difficulty in the process of translation: a person who invested $800,000 in a company would be able, at least, to give an accurate and consistent rendition of the name of that company.
PART H – UNEXPLAINED DEPOSITS
56. The Applicant’s bank statements (for Commonwealth Bank accounts in the name of AC Long River International Trading Co and Crown Aus International Trading Co) displayed numerous deposits and in respect of which there was no credible explanation. The Respondent in Schedule A to RS identified from the bank statements annexed to Exhibit A6 (pp. 282-332) the larger sums amongst the many transfers to the Applicant’s bank accounts that were not explained in evidence and which the Respondent submitted were inconsistent with the Applicant’s claims about the level of his income in the relevant years. Almost invariably the amounts deposited were withdrawn immediately. The deposits as identified by the Respondent in Schedule A were:
1999 year
Date of deposit Amount Reference 6 January 1999 $50,000 Exhibit A6, p. 283 8 January 1999 $40,000 Exhibit A6, p. 284 15 January 1999 $20,000 Exhibit A6, p. 284 19 January 1999 $10,000 Exhibit A6, p. 284 7 May 1999 $30,000 Exhibit A6, p. 288 13 May 1999 $60,000 Exhibit A6, p. 288 2000 year
Date of deposit Amount Reference 8 November 1999 $8,000 Exhibit A6, p. 294 11 January 2000 $7,000 Exhibit A6, p. 296 18 January 2000 $25,000 Exhibit A6, p. 296 29 February 2000 $24,200 Exhibit A6, p.297 3 March 2000 $34,250 Exhibit A6, p. 297 17 May 2000 $29,995 Exhibit A6, p.300 29 May 2000 $30,000 Exhibit A6, p. 300 1 June 2000 $24,000 Exhibit A6, p. 300 2001 year
Date of deposit Amount Reference 5 July 2000 $29,000 Exhibit A6, p. 301 3 November 2000 $20,000 Exhibit A6, p.305 12 December 2000 $4,000 Exhibit A6, p. 307 4 April 2001 $14,950 Exhibit A6, p. 310 2002 year
Date of deposit Amount Reference 6 December 2001 $24,700 Exhibit A6, p. 324 24 December 2001 $10,000 Exhibit A6, p. 324 2003 year
Date of deposit Amount Reference 29 July 2002 $25,640 Exhibit A6, p. 326 8 August 2002 $1,900 Exhibit A6, p. 326 6 September 2002 $1,900 Exhibit A6, p. 327 30 September 2002 $1,830 Exhibit A6, p. 327 15 October 2002 $3,752.50 Exhibit A6, p. 327 18 November 2002 $1,900 Exhibit A6, p. 327 17 December 2002 $1,890 Exhibit A6, p. 328 24 December 2002 $1,995 Exhibit A6, p. 328 17 January 2003 $1,919 Exhibit A6, p. 328 29 January 2003 $1,938 Exhibit A6, p. 328 12 February 2003 $1,947.50 Exhibit A6, p. 328 28 February 2003 $1,995 Exhibit A6, p. 329 14 March 2003 $1,960.80 Exhibit A6, p. 329 11 April 2003 $3,904.50 Exhibit A6, p. 329 23 April 2003 $6,000 Exhibit A6, p. 329 24 April 2003 $25,000 Exhibit A6, p. 329 8 May 2003 $20,000 Exhibit A6, p. 330 13 June 2003 $5,000 Exhibit A6, p. 331 25 June 2003 $23,600 Exhibit A6, p. 331 57.The amounts in approximate numbers are as follows:
·$210,000 for the 1999 year;
·$182,000 for the 2000 year;
·$68,000 for the 2001 year;
·$34,700 for the 2002 year;
·$134,000 for the 2003 year.
58. Neither the Applicant nor any of his relatives claimed that the amounts totalling $630,000 referred to in the preceding clause represented loans. As noted above this is not an exhaustive list of deposits for which there was no credible explanation put forwards.
PART I – CREDIT CARDS
59. The Applicant agreed that he had two to three credit cards during this period (4TS 56). He did not attempt to explain what they were used for or the amounts of monies utilized by him through these cards. The Tribunal has before it only statements for one credit card and only for the period 23 May 2002 until 22 August 2003 (Exhibit A6, pp. 182-205). Those statements indicate that in the 2003 year the Applicant paid about $127,000 to discharge indebtedness on this credit card. How the Applicant was able to achieve this was not explained. The sum of $127,000 is not inconsiderable for a person who claims to have been earning no money and who, in this period, says he made a failed investment of $800,000. Given that there are no statements available for the other one or two credit cards the Applicant had, or for any other income years, it is possible and indeed likely that $127,000 is a significant understatement of the Applicant’s credit card liabilities in the relevant period.
60. The Tribunal cannot make any positive findings about the source of funds used by the Applicant to discharge indebtedness on his credit cards, or about the total quantum of that indebtedness. However, the Applicant’s failure to provide any explanation in this regard reinforces the conclusion that he has failed to discharge his onus. These are facts “peculiarly within the knowledge of” the Applicant within the meaning of the principle identified by Latham CJ in Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 and the Applicant’s failure to deal with them tends heavily against a conclusion that he has discharged his onus.
PART J – OTHER BANK ACCOUNTS
61. The Applicant refused to accept that he had other bank accounts during this period. However, there are a number of reasons for coming to a contrary conclusion.
62. On one view of his evidence about the payment of the mortgage on the house purchased with his brother-in-law’s money, the Applicant must have had at least one other bank account.
63. The amounts recorded in the bank statements in evidence would not explain how the Applicant was able to invest $800,000 in K-Card Telecom Pty Ltd.
64. In his affidavit (Exhibit A6 at [20(v)(i)], the Applicant claimed that he had “misplaced” the bank statements that recorded transfers to him totalling $320,000 in the 2003 year. The bank statements in evidence, however, are a complete record of transactions occurring in the 2003 year for that particular account. It follows that the statements the Applicant says he “misplaced” were for another account.
65. It would seem that the Applicant’s solicitors have not ever attempted to obtain all of his bank statements for the relevant income years. The evidence of the Applicant’s wife was that, in the course of preparing for the Applicant’s criminal proceedings and for these proceedings, the Applicant’s solicitors never instructed her to attempt this task, and that she did not do so (2TS 18, 19, 23 and 27).
66. In these circumstances, the Tribunal must conclude that the Applicant did have more than one bank account for the relevant income years. It is not possible to reach any affirmative conclusion as to what the statements for any additional accounts would reveal. However, as with the position in relation to credit cards, the absence of any explanation in this regard favours a conclusion that the Applicant has failed to discharge his onus. In addition, since the Applicant in cross-examination positively denied having any other bank accounts, a conclusion to the contrary reflects adversely on his credibility.
PART K – MONEY LAUNDERING
67. The Applicant was convicted of money laundering related offences which included conduct that occurred in the 2003 year. At the time of the hearing he had unsuccessfully appealed to the New South Wales Court of Criminal Appeal and intended to seek special leave to appeal to the High Court of Australia. The Tribunal does not know whether he has in fact sought to lodge such an appeal or, as is necessary, to seek leave to appeal; the circumstances are such that it may be doubted whether such an application would be granted. He claimed that he was convicted on false evidence given by one of his former associates (the Applicant chose not the give evidence in those proceedings).
68. Exhibit R3 contains the sentencing remarks dated 27 March 2008 of his Honour Neild DCJ. It indicates that the Applicant was represented by Mr I Barker, QC, and that the relevant criminal trial took place over an extended period and involving numerous hearing days in September and October 2007. The Applicant was convicted and sentenced to a term of imprisonment of 15 years, 6 months and 10 days, and with a non-parole period of 9 years, 6 months and 10 days. Clauses 26 to 35 of Exhibit R3 read as follows:
[26] On 21 September 2007 the trial before the jury commenced. The jury heard evidence from twenty-two witnesses, all called by the Crown Prosecutor, and it received sixty-three exhibits, fifty-four presented by the Crown Prosecutor and nine presented by the offender’s solicitor, over seventeen days between 21 September 2007 and 17 October 2007, the addresses of the Crown Prosecutor and the offender’s solicitor over three days, 17 18 and 19 October 2007, my summing-up over two days, 19 and 22 October 2007, and it returned its verdict of guilty on 27 October 2007. After taking the jury’s verdict, I revoked the offender’s bail and fixed 13 December 2007, later changed to 1 February 2008, for the sentencing proceedings.
[27] The jury, by its verdict, must have accepted the evidence of Mr Huang that between 14 January 2003 and 4 November 2003 he had conducted 333 international money transfer transactions transferring overseas money amounting to $3,088,311 that had been provided to him by the offender using the method that the offender had instructed him to use, for the doing of which he was paid about $90.00 for each transaction that he conducted on behalf of the offender.
[28] Although it is not for me to say whether or not the jury’s verdict is correct, I say that its verdict of guilty did not surprise me as the Crown’s case was strong to the point of being overwhelming, with Mr Huang’s evidence being, to some extent, corroborated and largely unexplained.
[29] On 1 February 2008 the offender appeared before me on the sentencing proceedings. I received documentary material from the Crown Prosecutor and the offender's senior counsel and I heard evidence from the offender's wife and submissions as to sentence from the Crown Prosecutor and the offender's senior counsel, after which I stood over the sentencing of the offender to today.
[30] I am now to impose sentence upon the offender for the offence of which the jury has found him to be guilty.
[31] The offence of dealing with money of $1,000,000 or more intending that it become an instrument of crime is an offence against s 400.3(1) of the Criminal Code (Cth), for which the prescribed penalty is imprisonment for a maximum of twenty-five years or a fine of a maximum of $165,000 or both. I think that it is obvious and fair to say that the offence committed by the offender is a very serious offence.
[32] The evidence presented to the jury allows me to find that:
(1)Mr Huang conducted 333 international money transfer transactions transferring various amounts of money, all less than $10,000, in cash, to the accounts of six people, one of whom was the brother of the offender, at four banks in Hong Kong.
(2)The transactions were conducted on various occasions over a period of about ten months from 14 January 2003 to 4 November 2003.
(3)The total amount of money transferred overseas by Mr Huang on behalf of the offender was $3,088,311.
(4)Mr Huang received the money that he transferred overseas from the offender.
(5)Mr Huang was instructed as to the method to be used by him to transfer the money overseas by the offender.
(6)Mr Huang reported to the offender about the money that he had transferred overseas.
(7)Mr Huang was paid about $90.00 by the offender for each transaction that he conducted for the offender.
(8)As between Mr Huang and the offender, Mr Huang was the agent and the offender was the principal in relation to the transactions conducted by Mr Huang.
(9)The offender’s intention in providing Mr Huang with the money to be transferred overseas and in instructing Mr Huang as to the method to be used in transferring the money overseas was to avoid the cash reporting requirements of the Financial Transactions Reports Act (Cth).
[33] However, the evidence presented to the jury does not allow me to find that the money provided by the offender to Mr Huang to be transferred overseas by him was money that was either lawfully or unlawfully obtained by the offender or was money to which the offender was lawfully entitled or in which the offender had a lawful interest.
[34] As the offence committed by the offender is an offence against the law of the Commonwealth, I am required, in determining an appropriate sentence to impose upon the offender for the offence, to take into account the several factors set out in s 16A of the Crimes Act (Cth) and any other relevant factor.
[35] As to the factors set out in s 16A of the Crimes Act, I say these things.
(a) I have outlined the offence and the circumstances in which it was committed.
(b) I note that the subject offence is the only offence to be considered.
(c) I consider that the offence was a planned offence, which consisted of a series of criminal acts.
(d) I note that there was not any victim of the offence.
(e) I note that no one suffered any injury, loss or damage from the offence.
(f) I record that the offender has not shown any contrition for committing the offence.
(g) I record that the offender did not plead guilty to the offence.
(h) I note that the offender did not assist any law enforcement agency in the investigation of the offence or any other offence.
(j) I expect that the sentence will have a significant deterrent effect upon the offender.
(m) I have outlined the age, antecedents, employments, health and character of the offender.
(n) I accept that the offender has his family support but I cannot say whether he has a good or reasonable prospect for rehabilitation or whether he has a good or reasonable chance that he will not re-offend.
(p) I accept that the offender’s imprisonment will have a significant effect upon his parents, his wife and his child, all of whom are dependent upon him, but this effect is not unusual or exceptional, rather it is usual and expected.
69. It will be noted that the Applicant was represented at his trial by an eminent QC. It will be noted also that the court found that the evidence against the Applicant was overwhelming.
70. After being convicted of money laundering, the Applicant appealed to the Court of Criminal Appeal, and where his appeal was heard by Basten JA, Hulme J and Schmidt J; the Applicant’s appeal both against his conviction and sentence was dismissed. In respect of his appeal, the Applicant was again represented by a senior counsel, who was instructed by Ms Truong’s firm, Mai Lawyers.
71. On a number of occasions during the hearing, Ms Truong sought to lead evidence, in particular by the Applicant, as to his alleged innocence of any involvement in money laundering. The Tribunal drew her attention to the fact that this Tribunal is bound by the findings of a superior court. See in particular the judgment of French J, as he then was, in Commissioner of Taxation vSalenger (1988) 19 FCR 378.
72. This Tribunal must therefore accept that the Applicant was in fact guilty of money laundering and moreover on a very large scale indeed.
73. The connection between the transfers into and out of the Applicant’s bank account in the 2003 year and the conduct the subject of his conviction is not clear on the evidence. However, and in respect of the Applicant’s money laundering activities some comment is desirable.
74. The entries in the Applicant’s bank statements are consistent with money laundering activity in that over the period in question large sums of money flowed into and out of the Applicant’s account for no apparent reason. The nature and pattern of money flows in these bank statements are inconsistent with ordinary commercial transactions. They require a clear and convincing explanation but none was forthcoming.
75. The Applicant’s brother, who had a central role in the transfer of over $1 million to the Applicant’s account in 2002 and 2003, (some or all of which may have come from the adopted brother) is in prison in Hong Kong for money laundering. It seems possible and indeed likely that the money laundering activities of the Applicant and those of his brother were connected.
76. The Applicant vehemently denied ever being involved in money laundering (4TS 42). For reasons set out previously the Tribunal must accept that he was properly convicted and his denial cannot be accepted. But even if it were possible to accept his denial at face value there is still no acceptable explanation of the large transfers into his account.
PART L – THE EVIDENCE OF THE BROTHER-IN-LAW
77. Exhibit A5 consists of an affidavit dated 25 October 2010 which attaches as an appendix a statement dated 25 April 2010. The affidavit and oral evidence of the brother-in-law was that he transferred an amount of about $370,000 to the Applicant during 1999. In Exhibit A5 he said that the entire amount was a loan. He also indicated in his affidavit that $150,000 was borrowed to purchase a property/house.
78. In his earlier statement the brother-in-law said that he loaned a total amount of $168,110 and of that amount $150,000 was allocated to the house purchase. There is no reference in this statement forming part of Exhibit A5 to the additional amount of $200,000 and one must wonder why it was omitted from his statement. When asked why there was no mention of this in his statement, the brother-in-law said “The amount of money being owed to me no one asked me and I don’t have to tell anyone” (3TS 49). It must be remembered that in his statement he said “During the period of 1995 to 1999, [the Applicant] borrowed money from his sister and me for his business… I lent him $168110 in total”.
79. The brother-in-law kept no written record and he did not retain copies of the bank receipts (3TS 29).
80. In oral evidence the brother-in-law said that the money for the house was not a loan at all but made for the purpose of enabling the Applicant to buy a house for the brother-in-law.
81. The brother-in-law did not explain why an amount of $150,000 was lent in respect of the house, nor for that matter could he explain why this was so when the house in Belfield was purchased for $320,000 and where $220,000 was borrowed by the Applicant on mortgage. (The need for so large a mortgage was just one of the many unexplained mysteries which arose during this case).
82. In his oral evidence but not in Exhibit A5 the brother-in-law said that in addition the Applicant purchased furniture for him and paid for the renovation of the gardens.
83. The brother-in-law’s evidence as to why the money said to have been loaned to the Applicant for business purposes was paid in instalments (some of them very small instalments) was equally unsatisfactory. The first loan in 1995 was in an amount of $5,000. In relation to that first amount the brother-in-law said that that he decided the $5,000 was an appropriate amount for “initial assessment”. Then he said he decided to send $5,000 because that would be sufficient “to commence”. When it was put to him that “commencing and initial assessment” are two different concepts, he answered “to commence would have to understand the market to do assessment” (3TS 51). When asked what market he was talking about he said “What market – only Peter [the Applicant] would know. I was only responsible for lending him the money to do it” (3TS 51).
84. When asked to describe the circumstances surrounding the alleged loan of $19,995 on 30 August 1999, he initially said that all that the Applicant said to him was that he needed money for his business (3TS 52 and 53). When asked why he sent about $20,000 at this time, and not some other amount, the brother-in-law initially said “I will have to check if the exchange rate is ideal to decide if the amount will still be transferred” (3TS 53). He was then asked why he lent $20,000 the next day to the Applicant. In a departure from his previous position, he answered “He asked me, he knew I have money. He wanted to borrow $100,000 from me. But I didn’t send all to him in one go”. He then said that the Applicant asked for $100,000 in “[t]he period of time before I came to Australia” (3TS 53). Once again, whatever the true explanation for the amounts, character and timing of these payments, the evidence of the brother-in-law can be dismissed as untruthful.
85. The Tribunal considers that it is possible that some part of the money transferred by the brother-in-law to the Applicant may have been made by way of loan but the evidence as to how much was lent and when it was lent was so contradictory that the Tribunal is not able to make a finding to this effect. The Tribunal refers in the first instance to 3TS 37 as follows:
MR SCRUBY: And you understood the purpose of this statement was to indicate to the tribunal how much money you had lent Mr Peter Chen?
THE INTERPRETER: Yes.
MR SCRUBY: And in this – and you did your best when you prepared this statement to think about how much money you had lent him, and to describe the circumstances in which you had lent it?
THE INTERPRETER: I told according to the truth. This is it.
MR SCRUBY: And what you say in that statement is that you lent Peter Chen a total of $168,110. That’s right, isn’t it?
THE INTERPRETER: Yes.
MR SCRUBY: And of that 168,000, $150,000 was the money that you now say wasn’t a loan at all, but was a payment to yourself for the purchase of a house?
THE INTERPRETER: Yes.
MR SCRUBY: So in August of this year, your position was that you’d lent Mr Peter Chen a total of $18,000?
THE INTERPRETER: At that time, for this document, I only had this data at that time.
MR SCRUBY: If Mr Peter Chen truthfully owed you $190,000, you would have known that in August 2010, wouldn’t you?
THE INTERPRETER: Yes.
86. The evidence set out in the preceding clause was contradicted by and may be contrasted with the following evidence and as to which see 3TS 46 as follows:
MR SCRUBY: Is your evidence that none of the sums referred to in paragraph 9 are loans? Are you telling the tribunal that none of the payments referred to in paragraph 9 is a loan?
THE INTERPRETER: Is lending money but not mortgages. There is difference.
MR SCRUBY: That’s not a truthful answer, is it?
THE INTERPRETER: Is lending money has borrowed – one has borrowed this amount of 370,000 minus 150,000 which is $220,000 from me.
MR SCRUBY: That’s not what paragraph 9 says, is it?
THE INTERPRETER: Paragraph 9 which is this page. Maybe my meaning, after being translated, there is discrepancy. The fact was I have deposit 370,000 into this bank account.
MR SCRUBY: Is the position that when you swore this affidavit, you had no idea whether it was true or not?
THE INTERPRETER: This number here now is true. It’s true and correct.
MR SCRUBY: Could answer my ‑ ‑ ‑
THE INTERPRETER: But this $150,000 has been used on my house. And it’s been stated here that is for purchasing something, and that’s this word house here.
MR SCRUBY: Are you pretending that in paragraph 9, you intended to tell the tribunal that $150,000 referred to there was not a loan?
THE INTERPRETER: Yes. It is not a loan.
87. It is odd that the wife of the brother-in-law (the Applicant’s sister) who, according to the brother-in-law, was closely and intimately involved in all of these negotiations and matters, was not called to give evidence; an inference that her evidence would not have assisted the Applicant must be drawn.
88. Taken all-in-all, the evidence of the brother-in-law cannot be regarded as truthful.
PART M – AC LONG RIVER (“Long River”)
89. This part is included in these reasons only because Long River was referred to on so many occasions during the hearing and invariably in a manner which was inconsistent with other references. The Tribunal does not know whether the term Long River refers to a company or a business which has this name as its business name. While under the Applicant’s control it was the recipient of monetary transfers. It was originally a business or business name owned by the father, or perhaps the father and the brother (and there is evidence to both effects), and at some stage was transferred to the Applicant. The father said that when he came to Australia he retired and he was unable to undertake business affairs. The evidence as regards Long River was if this were possible even more inconsistent and incoherent than evidence as to other topics.
90. There is no plausible explanation of the precise part Long River played in the scheme of things or, for that matter, what sort of entity it was and who owned it at any time and from time to time.
PART N – EVIDENCE OF THE ADOPTED BROTHER
91. Shao Bin Chen made a statement dated 9 September 2010 which is annexed to Exhibits A1, A3 and A6. This witness is referred to, as set out previously, as “the adopted brother”, although there is some question as to whether he was ever adopted by the father in any formal or real sense; the adopted brother in his evidence referred to the father as his godfather and his evidence was both that he was adopted when he was three years old, and also that he was adopted at birth. The Tribunal was not furnished with any documents or other evidence of an official kind which would establish that he was adopted in a formal sense; the term “adopted brother” is used as a matter of convenience and subject to the qualification that the Tribunal was not furnished with any proof as to when and, above all, if he was adopted by the father. Those doubts are reinforced by the fact that according to the evidence of the adopted brother, there has been no physical contact between the adopted brother and the father for past six years and the fact that according to his evidence he has never visited him in Sydney and does not know where in Sydney he lives.
92. It is interesting to note that in his evidence the adopted brother referred to the Applicant as “abalone boy”.
93. The adopted brother said in evidence in chief that at the request of the father he transferred in Chinese currency the equivalent of $HK2.4 million to the brother in 2002. The adopted brother claimed that he neither knew nor asked the purpose for which the monies were needed, and later said that he did not want to know to whom the money was transferred (2TS 62).
94. The adopted brother gave evidence as to his “allegedly substantial” business and business turnover. This was done presumably in order to intimate that he had the money available to lend $HK2.4 million to the Applicant. It is not at all clear why if the adopted brother was prepared to lend money to the father or for that matter to the Applicant via the father, why the actual money was transferred to the elder brother. There is surely no reason why the money in question could not have been transferred either to the father or to the Applicant. The fact that it was transferred to the elder brother in Hong Kong, and having regard to the fact that both brothers are currently serving lengthy sentences for money laundering, has the inevitable effect that one must wonder whether the money laundering activities of both of them were not somehow involved.
95. The adopted brother said that he had not sought repayment of the money either from the father or anyone else.
96. When asked whether the amount transferred was part of a money laundering enterprise, the adopted brother said that he did not know what money laundering was (2TS 62). When it was put to him that he knew that the brothers were in jail for money laundering his response in both cases was that he didn’t know, not “at first” (2TS 62).
97. Although attempting to present himself as a wealthy, successful businessman, the adopted brother apparently does not have an office in which he is able to have telephone conversations. He gave evidence by talking on his mobile phone. Shortly after his cross-examination began there was background noise and he said he was on an underground train (2TS 49). He indicated that in 10 minutes he would arrive at his company, where it was quiet (2TS 49) and it was arranged that he would be called at that time. When he was called again he said that he had reached his office (2TS 50). After a short number of questions were asked, he said that there was a lot of background noise and that he could not hear clearly (2TS 51). He refused to be telephoned inside his office, apparently because there were many people there (2TS 52). After the Tribunal indicated that he was not helping his relatives (2TS 52), he said that he could “hear clearly now” (2TS 52). In re-examination the position became stranger still. He appeared to say that his office was not a convenient place to talk because “while I’m doing business, it’s not very convenient to have others overhearing their conversation” (3TS 6). If the adopted brother was so concerned about privacy why would he talk on a public train? The evidence of the adopted brother taken as a whole was so bizarre that the Tribunal must have grave doubts as to his evidence and even his claimed identity.
98. The existence of the adopted brother was not revealed in any of the statements initially filed on the Applicant’s behalf in these proceedings. Initially, what was filed were some documents and statements from the Applicant’s brother, the Applicant’s brother-in-law and the Applicant’s father. Nothing in this material referred to the adopted brother. In particular, the Applicant’s father, who now claims to have arranged the loans, does not refer in his initial statement to the adopted brother or the loans said to have been made by him at all (Exhibit A1, p. 8).
99. The Tribunal does not believe that the adopted brother was a truthful witness and moreover has doubts as to his claimed identity. It also has doubts as to whether the person who gave evidence over the telephone in such decidedly odd circumstances is indeed related to the Applicant or his father either in the manner indicated or at all.
PART O – EVIDENCE OF THE BROTHER
100. The brother affirmed an affidavit on 15 November 2010 which included as annexures statements dated 29 April 2010 and 21 September 2010 (Exhibits A7, A8). As set out previously, he gave oral evidence from the jail in Hong Kong.
101. He was unable to give any consistent description of his own business activities. In his statement of 21 September 2010 he described himself as having been in the following businesses: “garment wholesale”, “garment import and export”, and “transit trade” (Exhibit A8, p. 9). In his affidavit he referred to himself only as being in the business of “seafood trading (import and export)” (Exhibit A8 at [8] and [9]). In oral evidence he said he “did import and export businesses in fashion, electronics and seafood” (5TS 19). He discreditably tried to explain the discrepancy in cross-examination by asserting that “[s]eafood is regarded as part of the trading business” (5TS 30).
102. He gave inconsistent evidence about the names under which he claimed to have engaged in the seafood business. In oral evidence, he initially said that the name of his seafood business was “Jiang Yu Trading Company” (5TS 31-32). The two business names referred to in his affidavit were “Chang Jiang Trade Products Company” and “Zhen Yu Products Company” (Exhibit A8 at [8] and [9]). When prompted by the Applicant’s solicitor (5TS 32) he attempted to explain this discrepancy with the incomprehensible “One company registered in 2000, Chang Jiang, that company was already cancelled” (5TS 32).
103. He gave inconsistent evidence about his knowledge of the purpose of the loans he said he made to the Applicant in 2002. In his affidavit he suggests that the first time he learned that the Applicant was in the seafood business was in 2004 (Exhibit A8 at [12]). This was consistent with his evidence in cross-examination that the purpose of the alleged loans was to invest in a “timber factory and phone cards” (5TS 25 and 26). In oral evidence in chief, however, he said that seafood was also mentioned at this time (5TS 25). Similarly, in his statement of 29 April 2010, he said that he lent money to the Applicant from 2002 for the businesses of “abalone, telephone cards and timber” (Exhibit A8, p. 6).
104. He claimed that he advanced in total $AUD 1.37 million to the Applicant without knowing anything about the uses to which that money would be put other than that it was for a “timber factory” and “phone cards” (5TS 25-27). This approach to lending such large amounts of money was altogether incredible.
105. Nowhere in his written statements does he refer to payments made in March 2002 totalling $410,000 which the Applicant claims were loans made by the elder brother to the Applicant (Exhibit A6 at [20(n)]).
106.The Tribunal does not accept that the brother gave truthful evidence.
PART P – EVIDENCE OF APPLICANT’S FATHER
107. The Applicant’s father affirmed an affidavit on 25 October 2010 (Exhibit A1) and gave oral evidence. The effect of his evidence in chief was that in December 2001 he asked the adopted brother to lend money “to assist the family” (Exhibit A1 at [15]) and that in March 2002, at the Applicant’s request, he telephoned his elder son to arrange for some further money to be lent to the Applicant (Exhibit A1 at [8]-[10]). The evidence of the father cannot be accepted for the reasons set out in this Part P.
108. The Applicant’s father affirmed his affidavit, a document written in English, in circumstances where he could not read, write or speak English. His answers in cross-examination to questions about whether he understood his affidavit were evasive and non-responsive (1TS 57 and 58). Ultimately, he was prepared to say that the document was true (1TS 59). It was then pointed out to him that paragraph 7 recorded him as coming to live in Australia in 1999, and not, as he claimed in oral evidence in chief, 1996, and he agreed that paragraph was incorrect (1TS 59). When it was suggested to him that when he signed his affidavit he did not know whether what was in it was true or false, he said: “No. When I was read the – when I was read the affidavit sometimes I cannot hear very well”. The Tribunal does not in these circumstances believe the content of the affidavit of the father or in the seriousness with which he took his affirmation. Consistently with this, the father said in re-examination that the purpose of making his affidavit was “to get money to repay others” (1TS 78).
109. In his statement dated 29 April 2010 (the translation annexed to Exhibit A1, p. 8), the father makes no reference to his adopted son or to arranging loans for the Applicant through his adopted son. He refers only to asking his first son for money and the transfer by that first son of payments to the total of $410,000. In his affidavit he claims in addition that he arranged for the transfer of payments to the total of $450,000 to the Applicant via his adopted son (Exhibit A1 at [15]). There is no plausible reason why, if the latter transfers had been arranged by him, he would not have said so in his first statement. When asked to explain the absence of any reference to his adopted son in his initial statement, the father said “I don’t know what’s being said [in the initial statement]. I can’t remember. I borrow money. I borrow money from that son” (1TS 62). He later implausibly claimed that he had incorporated a reference to his adopted son by using the word “relatives” in the second paragraph of that statement (1TS 63). He then resorted to saying “It was a document which recorded the truth when we were written there – when we were given, giving the affidavit I was asked to give further details. That’s why I was giving further details, including details about my adopted son” (1TS 63). These explanations reflect badly on his credibility.
110. In neither his statement nor his affidavit did he disclose that the transfers he describes were made not by his elder son on his own account, but rather from a bank account in Hong Kong that he held jointly with his eldest son (1TS 63). When confronted with this in cross-examination, he initially claimed that this fact was referred to because of his reference in paragraph 10 of his affidavit to “Bank of China bank account” (1TS 64). He then appeared to retract that and accept that there was no reference to a joint bank account (1TS 65). Again, his responses on this issue reflect poorly on his credibility.
111. The father initially said that he retired from business when he came to Australia in 1996. He then agreed that when he arrived in Australia he established a business under the name of AC Long River and that it taken over by the Applicant in 1998 (1TS 68). The evidence as to loans by the father must be regarded in the light of his own evidence that he that he did not have the necessary means.
PART Q – EVIDENCE OF THE WIFE
112. As noted above the Applicant’s wife did not meet the Applicant until after the relevant years. The wife’s evidence was limited to explaining how evidence was obtained for the purposes of these proceedings and is not relevant to the substantive matter.
PART R – THE LAW
113. As previously noted and in accordance with the judgment of French J as he then was in Salenger, I must accept the Applicant was properly convicted of money laundering. I again refer to the sentencing remarks in which the judge found that the evidence against the Applicant was overwhelming.
114. The Respondent has in RS and in part B under the heading of Applicable Law, sets out in terms approved by the Tribunal the law as to the onus of proof which the Applicant bears, and the content of part B of RS is therefore included in full in these reasons as follows:
6.The Applicant bears the onus of proof in these proceedings. The precise content of that onus was explained recently by Senior Member Frost in Hamed v Commissioner of Taxation [2010] AATA 684 at [7] – [12]:
7.Almost 60 years ago the High Court explained in George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183 at 201, referring to authorities going back as far as 1918, that:
... the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income ...
8.As Brennan J put it in Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 621:
... the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.
9.(When both George and Dalco were decided the “burden of proof” provision was in s 190(b) of the Income Tax Assessment Act 1936 (the ITAA 1936), but it was in identical terms to the current TAA provision.)
10.In a sales tax case dealing with what are now the uniform burden of proof provisions in Part IVC of the TAA (s 14ZZK for Tribunal reviews and s 14ZZO for Federal Court appeals) – “uniform” in the sense that they apply to reviews and appeals in relation to virtually all of the taxation laws administered by the Commissioner – Hill J said in Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 at 99, after referring to George, Dalco and also McEvoy v Commissioner of Taxation (1950) 9 ATD 206:
... the word “excessive” requires that the taxpayer show that the assessment made by the Commissioner exceeds some nominated figure being the taxpayer’s liability.
11.His Honour noted later, at pages 99-100, that the obligation on a taxpayer to show not only in a conceptual sense that an assessment is excessive, but also the true extent to which it is excessive (by establishing the taxpayer’s correct taxable income), is not confined to the case of a default assessment, that having also been the view of the Supreme Court of New South Wales in Black v Commissioner of Taxation (1986) 86 ATC 4113.
12.What this means for the current case is that the taxpayer must prove, on the balance of probabilities, what were his “actual taxable income” and, from that, his “true tax liability” for the relevant years. If, but only if, the actual taxable income and the consequent true tax liability are less than the corresponding amounts assessed to him by the Commissioner, he will have discharged the burden placed upon him by s 14ZZK(b)(i)”.
7.Another relevant principle of law, related to the above, is the principle that when considering whether an Applicant has discharged his onus, it is relevant to consider what evidence the Applicant has put forward and that the failure of an Applicant to put forward relevant material counts against discharging his onus:
“The circumstance that the facts are (or were) peculiarly within the knowledge of one party is a relevant matter in considering the sufficiency of evidence to discharge a burden of proof … Obviously the facts in relation to his income are peculiarly within the knowledge of the taxpayer”: see Trautwein v FCT (1936) 56 CLR 63 at 87; and see also George v FCT (1952) 86 CLR 183 at 201).
8.As stated above, the Applicant’s case in attempting to discharge his onus is that the income recorded in his returns for the relevant years is correct. To use the terminology employed by Hill J in the passage from Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 at 99 quoted by Frost SM above, that income is the “nominated figure” which the Applicant seeks to prove is correct in order to establish that the returns are “excessive”.
PART S - PENALTY
115. Although the Applicant furnished an objection as to penalty he furnished no submissions as to the basis upon which he might be entitled to a remission of any part of the penalty in the event that he failed as to the main issue in respect of tax proper. The Tribunal does not consider that there is any basis upon which penalty can or should be remitted.
PART T – SUMMARY and CONCLUSION
116. The Tribunal considers that excepting only the wife, none of the persons who gave evidence before the Tribunal can be described as truthful. The Tribunal is prepared to accept that the wife was a truthful witness, but that she was in no position to give evidence as to what occurred in the relevant years, simply because she met and married the Applicant some considerable time after the relevant years had ended.
117. When the Tribunal considers the witness evidence (both oral and in written form) it is amazed by the extent to which that evidence considered as a whole is contradictory, and in many respects incoherent but above all untruthful. The evidence before the Tribunal is such that it is not possible to determine whether the money which came into the possession of the Applicant was legally or illegally derived. It is not necessary for the Tribunal to make a finding as to the origin of the money because the Applicant bears the onus.
118. There is only one possible result and that is that the Applicant has entirely and singularly failed to discharge the onus. Accordingly, and for these reasons, the objection decision under review must be affirmed.
I certify that the 118 preceding paragraphs are a true copy of the reasons for the decision herein of Mr Julian Block, Deputy President.
Signed: .....[sgd].........................................................................
AssociateDates of Hearing 23, 24, 25 and 26 November and 14 December 2010
Date of Decision 3 June 2011
Solicitor for the Applicant Ms M Truong, Mai Lawyers
Counsel for the Respondent Mr R Scruby
Solicitor for the Respondent Mr R Pandey, ATO Legal Services Branch
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