Wednesday, November 6, 2013

A Bullion Company In Australia Hiding $130M Liability

This story slipped past my radar around a week ago... the Australian Tax Office, Australian Federal Police and Australian Crime Commission recently executed search warrants on premises associated with companies operating in the gold bullion and precious metals industries. The following is an excerpt from the AFP media release:
It is alleged the companies fraudulently claimed GST credits and failed to report GST correctly. They formed syndicates to conceal the true nature of their activities and to avoid detection.

As a result of the investigation the ATO has issued garnishee notices and GST amended assessments with liabilities of more than $130 million.

ATO Deputy Commissioner Greg Williams said the ATO takes GST fraud seriously.

“The majority of businesses do the right thing, however the ATO will pursue those that choose to engage in illegal behaviour.”

“Further audits of industry participants will be undertaken in the near future and we will continue to work closely with other government and law enforcement agencies to pursue those suspected of abusing the system,” Mr Williams said.
Bron Suchecki provided brief comment on his personal blog:
GST is a Australian sales tax of 10% that applies to precious metals that do not meet the definition of investment. It likely that the fraud involves scrap gold or silver where GST is payable. Note that it is being classified as "organised crime" which allows the police to invoke proceeds of crime laws so the people behind it can't hide behind the bankruptcy of the companies involved.
One thing I found interesting about the story is that the media release refers to investigating "companies". The explanation that the companies formed syndicates to conceal the nature of the activities suggests to me they are probably linked through ownership/mutual interest. So while the fraud may involve scrap metal (as Bron points out), the group of companies hiding the activities could very well include bullion dealer/s who provide services to the retail buying public.

There has been a little follow up in mainstream media, the state these companies are from has not been identified (The West), the AFP did not respond to requests for further information (ABC News).

Given that the ATO has issued garnishee notices it's possible they wish the companies to continue operating and have the money owed returned over time:
We can issue a garnishee notice to a person or business that holds money for you, or may hold money for you in the future. The garnishee notice requires them to make payments directly to us to reduce your debt. The payments may be a percentage of your wages or we may issue a notice for a lump sum amount. The notice will also specify when payments are to be made. ATO 
While this might be the best outcome for the ATO who is seeking to recover the funds (what are the chances they receive payment if the companies are publicly disclosed), it leaves bullion buying Australians in a precarious position. I know I wouldn't feel comfortable placing a large (or for that matter any sized) order with a company who has $130,000,000 in outstanding liabilities and what if these companies offer storage facilities for their clients? I'd suspect any customers holding unallocated bullion with these companies (assuming they offered such services), would be behind the ATO when lining up for a payout (in the event they were liquidated).

If the companies involved in the investigation were prepared to defraud the tax office of $65 million, then in my mind they shouldn't be allowed to continue operating, they are a risk to small time investors who are just looking for a safe asset, free of counterparty risk (ironic we often bear such risks in the purchase, delivery and storage of precious metals).

If anyone has any information that could lead to the confirmed identification of a company or companies involved in this investigation, please drop me an email (bullionbaron@gmail.com).

I welcome comments on this post, but in the interest of avoiding any lawsuits please do not speculate on the identity of the companies in question. And until the identity of these companies is revealed, tread carefully when buying or storing precious metals in Australia (care you should be taking anyway!).

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