SHTX and Tax Practitioners Board
[2016] AATA 451
•30 June 2016
SHTX and Tax Practitioners Board [2016] AATA 451 (30 June 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number
2014/4225
Re
SHTX
APPLICANT
And
Tax Practitioners Board
RESPONDENT
DECISION
Tribunal F D O'Loughlin, Senior Member
Date 30 June 2016 Place Melbourne
The decision under review is varied. In place of the termination of the Applicant’s registration as a tax agent:
(a)pursuant to s 30-15 of the TAS Act the Applicant be given a written caution;
(b)pursuant to s 30-20(1) of the TAS Act, the Applicant’s registration be restricted such that unless and until remedial education in courses approved by the Respondent concerning taxation and other compliance obligations of SMSF are undertaken and satisfactorily completed, the Applicant is not to be involved in preparing and lodging SMF returns and statements other than for a SMSF of which the Applicant is a member; and
(c)pursuant to s 30-20(1)(a) of the TAS Act before 30 June 2017 the Applicant enrol in and satisfactorily complete ‘Ethics, Tax Agent Services Act (TASA) 2009 AND THE Code of Professional Conduct’ offered by The Tax Institute or equivalent course approved by the Respondent.
The parties are directed to consult with each other and then advise the Tribunal within 14 days as to any requests for or opposition to using a pseudonym in the public reporting of this decision.
...........[sgd]..................................
F D O'Loughlin, Senior Member
TAX AGENTS CODE OF CONDUCT – breach of TASA Code of Professional Conduct – tax agent registration terminated – Applicant experienced personal and health problems – appropriate sanction – comparison with registration and regulation of legal practitioners – Decision under review varied
Legislation
Legal Profession Uniform Law Application Act 2014 (Vic), Schedule 1, ss 299, 120
Tax Agent Services Act 2009 (Cth) ss 30-1, 30-10, 30-15, 30-20(1), 30-20(1)(a), 60-125(2), 40-5(1)(b), 70-10, 60-95, 60-125, 60-5, 30-30, 30-20, 30-25Cases
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, 380Chamberlain v Australian Capital Territory Law Society (1993) 118 ALR 54
Harris and Tax Practitioners Board [2014] AATA 430Hughes and Vale Pty Ltd v State of NSW (No 2) (1955) 93 CLR 127, 156
Legal Practitioners Conduct Board v Nicholson [2006] SASC 21
Legal Services Commissioner v Mirabella [2014] VCAT 339
Prothonotary v Del Castillo [2001] NSWCA 75, 71
Re Fearon and Australian Prudential Regulation Authority (2006) 93 ALD 203
Re George and Australian Securities and Investments Commission [2014] AATA 167
Re Li and Tax Practitioners Board (2014) 141 ALD 201
Quinn v Law Institute of Victoria Ltd [2007] VSCA 122, 36
Stasos v Tax Agents’ Board of New South Wales (1990) 21 ATR 974, 984Su v Tax Agents’ Board of South Australia (1982) 61 FLR 1, 4 – 5
REASONS FOR DECISION
F D O'Loughlin, Senior Member
30 June 2016
The Applicant is a registered tax agent without apparent cause for any registration concerns until the present matters arose. The Applicant was employed as an accountant from 1979 until 2003 and has been self-employed since 2003. From 2006 the Applicant has operated as a sole practitioner.
The Applicant conducts a small tax agency practice in a non-metropolitan area with a small number of employees. The clients are predominantly individual taxpayers. Difficulties have arisen concerning SMSF which comprise a very small proportion of the work of the Applicant’s practice. [1]
[1]Self-Managed Superannuation Funds.
For the three years ended 30 June 2011 through 2013 the Applicant’s tax return preparation and lodgement statistics were as shown in Table 1.
Table 1
Tax returns/activity statements prepared and lodged
YEAR
Other
SMSF
TOTAL
% SMSF
2011
2312
39
2351
1.659%
2012
2415
31
2446
1.267%
2013
2405
13
2418
0.538%
In circumstances set out below:
(a)for the years ended 30 June 2010, 30 June 2011 and 30 June 2012:
(i)the Applicant lodged 43 annual returns on behalf of self-managed superannuation funds (SMSF) that incorrectly reported the identity of the auditor of those funds. The auditors name had been carried forward from earlier year documentation and had not been altered. There was a template in place that continued to be used; and
(ii)the Applicant lodged 44 annual returns on behalf of SMSF that falsely reported the completion of audits prior to lodgement;
(b)by letter dated 25 September 2013, the Applicant advised the Respondent that all superannuation fund taxation returns that have been lodged with the ATO have been audited and I sincerely apologise for the oversight by my firm of not altering the details of the auditor on the tax returns of any superannuation funds. The reality was that not all of the audits had been completed as at 25 September 2013 although steps had been taken to secure that outcome;
(c)by letter dated 27 March 2014, the Applicant advised the Respondent that the SMSF annual returns that had been lodged were either audited, in the process of the audit being finalised or about to be sent to [a new auditor] for the audit to be completed; and
(d)by letter dated 27 March 2014, the Applicant advised the Respondent that the Applicant had, amended the auditor’s details on all SMSF income tax returns that incorrectly had [the previous auditor] as the auditor when in fact as at 27 March 2014, no amended returns had been lodged with the Commissioner.[2] An attempt had been made to regularise the previous incorrect lodgements very shortly before that statement was made but that attempt had not succeeded,
the Respondent was satisfied that the Applicant had breached the Code[3] and that the Applicant had ceased to be a fit and proper person for registration as a tax agent.
[2]Commissioner of Taxation of the Commonwealth of Australia.
[3]Tax Agent Services Act 2009 (Cth) s 30-10, The Code of Professional Conduct.
The inaccuracies in the statements in paragraph 4 above are not disputed.
Pursuant to s 60-125(2) of the TAS Act,[4] the Respondent decided to terminate the Applicant’s tax agent registration under s 40- 5(1)(b) of the TAS Act on the basis that the Applicant ceased to meet the tax practitioner registration requirement of being a fit and proper person and that the Applicant should be prohibited from applying for registration under the TAS Act for three years
[4]Tax Agent Services Act 2009 (Cth).
It is necessary to have particular regard to the Applicant’s circumstances.
It is apparent that the Applicant underwent something of a debacle in relation to a miniscule aspect of the Applicant’s practice and did so at a particularly difficult time of life.
The dates are not clear on the evidence led, but it seems that the Applicant originally had a working relationship with an auditor with whom satisfactory arrangements had been in place. That auditor passed away shortly before the Applicant’s problems began. The deceased auditor’s colleague took over the auditing responsibilities. However, the colleague of the deceased auditor disappeared and time was taken trying to locate the colleague. An independent replacement auditor was engaged in about 2011. The relationship did not last very long. There were difficulties with travel times for consultations, cost, and then a perception that the new auditor wasn’t doing the job required. The Applicant then began attempts to secure a replacement auditor. Living in a non-metropolitan area, there were difficulties. An apparently suitable auditor was engaged in early 2013 and steps were resumed to attend to uncompleted audits of SMSFs.
Through this period, the Applicant began to suffer psychological and personal pressures from 2011 that led to a marriage breakdown and relationship difficulties with children. The Applicant suffered from depression and an alcohol misuse problem became apparent. In 2014 the Applicant was hospitalised for approximately three weeks to receive psychological help and treatment for these difficulties. The Applicant’s current diagnosis in relation to both those issues is good.
When the SMSF audits required were completed, the accounts audited did not require adjustment.
The Applicant has demonstrated a commitment to continuing professional development activities, some for which the Applicant has paid not inexpensive attendance fees for personal and staff attendance. The content of the activities undertaken included matters pertaining to SMSFs.
The conclusion I have reached is that through a particular period of personal difficulty and mental illness the Applicant ricocheted from problem to problem with SMSF clients and used best endeavours to regularise affairs.
Scope of review in the Tribunal
The scope of the Tribunal’s review power is confined by s 70-10 of the TAS Act which, relevant to the present context, is in the following terms:
S 70-10 Administrative review
An application may be made to the Administrative Appeals Tribunal for review of any of the following decisions of the Board:
…
(e) a decision under Subdivision 30-B or 40-A to terminate registration;
(f) a decision under section 30-20 to make an order or to specify a time period in respect of an order;
….
(h) a decision under section 40-25 to determine a period during which an application for registration may not be made;
The Respondent’s finding that the Applicant has breached the code of conduct is not reviewable: the sanction for the breach is. That said, it ought to be beyond controversy that there has been a breach of the Code in the present circumstances. Further, dealings with the regulator of a profession call for candour, openness and disclosure.
The statutory regime
The object of the TAS Act is set out in s 2-5 in the following terms:
The object of this Act is to ensure that tax agent services are provided to the public in accordance with appropriate standards of professional and ethical conduct. This is to be achieved by (among other things):
(a) establishing a national Board to register tax agents and BAS agents; and
(b) introducing a Code of Professional Conduct for registered tax agents and BAS agents; and
(c) providing for sanctions to discipline registered tax agents and BAS agents.
The Board has an investigatory role and powers as set out in subdivision 60-E of the TAS Act.[5] It is not in dispute that their investigation was done in accordance with s 60-95 of the Act. Following an investigation the Board can do one or more of the things listed in s 60-125 of the TAS Act including imposing a sanction under subdivision 30-B and terminate an entity's registration under subdivision 40-A. For breach of the Code the Board may terminate a tax agent’s registration. Alternatively the Board can issue a caution.
[5]The Tax Practitioners Board established by s 60-5 of the TAS Act.
Section 30-1 is in the following terms:
The Code of Professional Conduct regulates your personal and professional conduct as a registered tax agent, BAS agent or tax (financial) adviser.
If the Board investigates you and finds that you have failed to comply with the Code, the Board may give you a written caution, order you to take specified actions, or suspend or terminate your registration.
You must also notify the Board if certain circumstances change, including if you cease to meet the requirements for registration.
The Code of Professional Conduct terms are in s 30-10. They are as follows:
The Code of Professional Conduct
Honesty and integrity
(1)You must act honestly and with integrity.
(2)You must comply with the * taxation laws in the conduct of your personal affairs.
(3)If:
(a)you receive money or other property from or on behalf of a client; and
(b)you hold the money or other property on trust;
you must account to your client for the money or other property.
Independence
(4)You must act lawfully in the best interests of your client.
(5)You must have in place adequate arrangements for the management of conflicts of interest that may arise in relation to the activities that you undertake in the capacity of a * registered tax agent, BAS agent or tax (financial) adviser
Confidentiality
(6)Unless you have a legal duty to do so, you must not disclose any information relating to a client's affairs to a third party without your client's permission.
Competence
(7)You must ensure that a * tax agent service that you provide, or that is provided on your behalf, is provided competently.
(8)You must maintain knowledge and skills relevant to the * tax agent services that you provide.
(9)You must take reasonable care in ascertaining a client's state of affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of the client.
(10)You must take reasonable care to ensure that * taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.
Other responsibilities
(11)You must not knowingly obstruct the proper administration of the * taxation laws.
(12)You must advise your client of the client's rights and obligations under the * taxation laws that are materially related to the * tax agent services you provide.
(13)You must maintain professional indemnity insurance that meets the Board's requirements.
(14)You must respond to requests and directions from the Board in a timely, responsible and reasonable manner.
The powers of the Board for a breach of the Code are provided for in ss 30-15 to 30-30. Those sections are in the following terms:
S 30-15 Sanctions for failure to comply with the Code of Professional Conduct
(1)This Subdivision applies if the Board is satisfied, after conducting an investigation under Subdivision 60-E, that you have failed to comply with the * Code of Professional Conduct.
(2)The Board may do one or more of the following:
(a)give you a written caution;
(b)give you an order under section 30-20;
(c)suspend your registration under section 30-25;
(d)terminate your registration under section 30-30.
S 30-20 Orders
(1)The Board may make an order that requires you take one or more actions including, but not limited to, the following:
(a)completing a course of education or training specified in the order;
(b)providing * tax agent services for which you are registered only under the supervision of a * registered tax agent, BAS agent or tax (financial) adviser specified in the order;
(c)providing only those tax agent services that are specified in the order.
(2)The Board must notify you in writing of the order. The order may specify the following, as appropriate:
(a)the period of time within which you must complete the requirements specified in the order;
(b)the period of time during which the order applies.
S 30-25 Suspension
(1)The Board may, by notice in writing, suspend your registration for a period determined by the Board.
(2)You must not provide * tax agent services during the period of suspension.
(3)If, when the Board suspends your registration under subsection (1), your registration is already suspended, suspension is for a further period that the Board determines is appropriate. The further period commences at the end of the period of suspension.
(4)While you are suspended, you are taken not to be a * registered tax agent, BAS agent or tax (financial) adviser, except for the purposes of:
(a)Part 2 (Registration), Subdivision 30-C (Notifying a change of circumstances) and Part 4 (Termination of registration); and
(b)this Division.
S 30-30 Termination
The Board may terminate your registration.
It is clear that the TAS Act is intended to create a system of measured and tailored response to breaches of standards. For example the Explanatory Memorandum to the Bill which when enacted became the TAS Act included:
21. Under the new arrangements, if a tax agent or BAS agent has breached the Code, the Board has a range of options. The Board may caution the agent, require the agent to complete a course of training, subject the agent to practising restrictions, require the agent to practise under supervision, or suspend or terminate the agent's registration. (Currently, the state Boards are only able to suspend or terminate registration.)
23. Such a wide range of sanctions allows the Board to tailor its response according to the severity of the misconduct.
104. The only administrative sanctions that are currently available to the state Tax Agents' Boards (state Boards) are suspension or cancellation of registration. This can leave the state Boards without an effective response to conduct that is not desirable, but does not warrant depriving a person of their livelihood.
110. The Bill provides the Board access to a graduated range of administrative sanctions for breaches of the Code, so that the Board is able to respond to breaches appropriately.
116. If the Board finds that an agent has breached the Code, it may impose one or more of a range of graduated administrative sanctions. The sanctions the Board may impose include:
·cautioning the agent;
·requiring the agent to complete a course of training;
·subjecting the agent to specified restrictions when conducting their practice;
·requiring the agent to practise under supervision; and/or
·suspending or terminating the agent's registration.
170. The sanctions available to the Board allow the Board to tailor the sanction to the seriousness of the conduct that breaches the Code. The purpose of the sanctions is not primarily to punish tax agents and BAS agents, but rather to improve the performance of agents and maintain public confidence in agents' adherence to certain standards.
172. The graduated range of sanctions provides the Board with the capacity to tailor its response to the severity of the breach of the Code. For instance, in the case of isolated mistakes, the Board may take no specific action, or issue a written caution. For repeated mistakes the Board may issue an order specifying that the tax agent or BAS agent must undertake further education or training in the particular area. In more severe cases, where a tax agent or BAS agent has displayed a serious disregard for the Code, suspension or termination of registration may be appropriate. This is particularly so where a tax agent or BAS agent causes serious damage to their clients, or to the integrity of the tax system. Behaviour that calls into doubt the honesty, integrity or competence of a tax agent or BAS agent, or raises questions about their suitability to practise, may warrant more severe sanctions such as suspension or termination of registration.
300. The administrative sanctions available to the state Boards to discipline tax agents are inflexible and too limited, leading, at times, to counterproductive outcomes: the state Boards can only take an 'all or nothing' approach to regulation for misconduct. Because the sanctions available to the state Boards are limited to suspension or termination of registration, unless the misconduct is sufficiently serious to warrant the taking away of a person's livelihood, the state Boards are reluctant to impose a sanction. The ATO has advised that, in 2007-08, of 660 complaints that have been finalised, only 25 resulted in the imposition of a sanction.
309. The key elements of such an option would be:
· a national Tax Practitioners Board (Board) to replace the existing state-based Boards to, among other things, make consistent the registration process and standardise the way in which tax agents are regulated across the country;
· registration and regulation of both entities providing tax agent services (as tax agents) and entities providing BAS services (as BAS agents);
· a legislated and enforceable Code of Professional Conduct (Code), based largely on the codes of the professional associations, to make explicit the standards expected of tax agents and BAS agents and to clearly define their roles and responsibilities;
· a wider and more flexible range of administrative sanctions which may be imposed by the Board.
Parallel systems
The current system of registration and regulation of taxation practitioners has parallels with the systems of registration and regulation of legal practitioners. Those parallels are apparent in their terms and in what has been said about the respective systems.
Schedule 1 of the Legal Profession Uniform Law Application Act 2014 (Vic) is in the following terms:
Schedule 1—Legal Profession Uniform Law
3 Objectives
The objectives of this Law are to promote the administration of justice and an efficient and effective Australian legal profession, by—
….
(b)ensuring lawyers are competent and maintain high ethical and professional standards in the provision of legal services; and
(c)enhancing the protection of clients of law practices and the protection of the public generally; and
….
(e)promoting regulation of the legal profession that is efficient, effective, targeted and proportionate; and
….
The regulation of unsatisfactory professional conduct is provided for in s 299 and a graduated range of sanctions falling short of suspension from practice is available to the regulatory authority. Disqualification from legal practice is provided for in s 120 and is available as a sanction if disqualification is justified and the legal practitioner has been found guilty of professional misconduct.
In these circumstances, some guidance can be derived from decisions in these settings, particularly as the TAS Act system is relatively new.
The Respondent’s contentions
The Respondent defended its decision by submitting that the Applicant is not a fit and proper person to be a tax agent referring to:
(a)Australian Broadcasting Tribunal v Bond:[6]
[6](1990) 170 CLR 321, 380 (Toohey and Gaudron JJ).
The expression ‘fit and proper person, standing alone, carries no precise meaning. … The concept of ‘fit and proper’ cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive …
(b)Su v Tax Agents’ Board South Australia:[7]
[7](1982) 61 FLR 1, 4 – 5 (Davies J).
The function of a tax agent is to prepare and lodge income tax returns for other persons. A person is a fit and proper person to handle the affairs of a client if [that person is among other things] a person of such reputation and ability that officers of the [Commissioner] may proceed upon the footing that the taxation returns lodged by the agent have been prepared by him honestly and competently
(c)Stasos v Tax Agents’ Board of New South Wales:[8]
In addition to the tax agent dealing with his client, he will, almost invariably have dealings with the officers of the Australian Taxation Office and perhaps the Boards or Tribunals... Those dealings must be able to be carried on in an atmosphere of mutual trust.
(d)Hughes and Vale Pty Ltd v State of NSW (No 2),[9] where, in the context of offices or vocations, the observations were made that:
But their very purpose is to give the widest scope for judgment and indeed for rejection. ‘Fit’ … with respect to an office is said to involve three things, honesty, knowledge and ability: ‘honesty to execute it truly without malice, affection or partiality; knowledge …
[8](1990) 21 ATR 974, 984 (Hill J).
[9](1955) 93 CLR 127, 156 (Dixon C.J., McTiernan and Webb JJ).
The Respondent’s submission is that termination of registration and a period in which the Applicant may not apply for registration is warranted and it relies on the comments to the effect that the more serious the breach the more serious the sanction as observed in cases such as Re Li and Tax Practitioners Board.[10]
[10](2014) 141 ALD 201.
The Respondent contends that the unfortunate circumstances in this case do not excuse and are not sufficient to warrant disturbing the sanction imposed. The Respondent points to Re Fearon and Australian Prudential Regulation Authority,[11] and Re George and Australian Securities and Investments Commission.[12] In both cases the personal circumstances were insufficient to displace disqualification orders.
[11](2006) 93 ALD 203.
[12][2014] AATA 167.
The Applicant’s contentions
Unsurprisingly, the Applicant identifies several instances where the sanction otherwise to be imposed was significantly softened.
The effect of personal and health circumstances
The closest parallel to the Applicant’s circumstances in a matter before this Tribunal is the decision in Harris and Tax Practitioners Board where mental illness weighed heavily in the outcome.[13]
[13][2014] AATA 430.
A practitioner’s state of health or domestic circumstances or both may explain how unprofessional conduct came to occur but does not change the character of that conduct: it remains unprofessional conduct based on an objective assessment of the events that occurred.[14] That said, under the new regime for regulation of tax agents it is clear that the role is not to punish but to take action so as to encourage maintenance of standards.[15] Temporary medical conditions are a factor to be considered,[16] and in Harris the lawyer was not struck off when he otherwise may have been. In Chamberlain v Australian Capital Territory Law Society a reprimand was substituted for suspension for what was otherwise regarded as grave impropriety.[17]
[14]Legal Practitioners Conduct Board v Nicholson [2006] SASC 21, 26 per Doyle CJ, with whom Perry J at 40 and White J at 41 agreed, and the authorities there referred to.
[15]Legal Practitioners Conduct Board v Nicholson [2006] SASC 21, 27 per Doyle CJ, with whom Perry J at 40 and White J at 41 agreed, and the authorities there referred to.
[16]Ibid, 30 per Doyle CJ, with whom Perry J at 40 and White J at 41 agreed, and the authorities there referred to.
[17](1993) 118 ALR 54.
Present fitness, not fitness as at the time of the unsatisfactory conduct is relevant: Prothonotary v Del Castillo.[18]
[18][2001] NSWCA 75, 71.
There are analogies with sentencing such that any mental conditions at the time of breaches of standards require specific and general deterrence to be sensibly moderated: Quinn v Law Institute of Victoria Ltd where a suspension otherwise appropriate was quashed.[19] In Legal Services Commissioner v Mirabella similar considerations led to reducing the otherwise appropriate sanction to a reprimand with various practice restrictions. [20]
[19][2007] VSCA 122, 36 (Maxwell P).
[20][2014] VCAT 339.
Protecting the public interest by maintaining standards requires recognition that the public interest function of a regulatory regime can be regarded as served if the decision maker is satisfied that the offender has recovered.[21]
[21]Legal Practitioners Conduct Board v Nicholson [2006] SASC 21, 30 per Doyle CJ, with whom Perry J at 40 and White J at 41 agreed, and the authorities there referred to.
DECISION
In circumstances where:
(a)the current system has a protective function;
(b)heath and personal issues are not to be ignored and sufferers are to be afforded sensible moderation of otherwise applicable sanctions;
(c)a graduated system of sanction is available, and intended to be applied, so that the sanction applied can be both appropriate in the circumstances and not a ruinous imposition affecting tax agents’ livelihoods;
(d)the transgressions occurred concerning a miniscule aspect of the Applicant’s practice;
(e)the Applicant was attempting to deal with the relevant circumstances;
(f)the Applicant is no longer afflicted by the personal and health issues prevailing at the relevant time; and
(g)registration as a tax agent can be allowed with limits on the scope of particular activities and other protective styled orders can be made and thereby achieve the objectives of the new system and maintain standards,
it is not appropriate to find that on an ongoing basis the Applicant is not a fit and proper person to be registered as a tax agent if appropriate limits are placed on that registration. An appropriate sanction that addresses these matters, protects the public interest and standards of tax agents and reflects an appropriate balance, is to vary the decision under review as set out below.
In place of the termination of the Applicant’s registration as a tax agent:
(a)pursuant to s 30-15 of the TAS Act the Applicant be given a written caution;
(b)pursuant to s 30-20(1) of the TAS Act, the Applicant’s registration be restricted such that unless and until remedial education in courses approved by the Respondent concerning taxation and other compliance obligations of SMSF are undertaken and satisfactorily completed, the Applicant is not to be involved in preparing and lodging SMF returns and statements other than for a SMSF of which the Applicant is a member; and
(c)pursuant to s 30-20(1)(a) of the TAS Act before 30 June 2017 the Applicant enrol in and satisfactorily complete Ethics, Tax Agent Services Act (TASA) 2009 and the Code of Professional Conduct offered by The Tax Institute or equivalent course approved by the Respondent.
The parties are directed to consult with each other and then advise the Tribunal within 14 days as to any requests for or opposition to using a pseudonym in the public reporting of this decision.
I certify that the preceding 37 (thirty-seven) paragraphs are a true copy of the reasons for the decision herein of F D O'Loughlin,
Senior Member..........[sgd]................................................
Associate
Dated 30 June 2016
Date of hearing 20 August 2015 Date final submissions received 21 April 2016 Counsel for the Applicant Paul Bingham Advocate for the Applicant Marcus Adams Solicitors for the Applicant Falcone & Adams Lawyers Counsel for the Respondent Andrew Cameron Advocate for the Respondent James Matheson
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