Judge Finds Tax Office, Prosecutors Misused Powers and Falsified Evidence in Tax Case

A Queensland judge has blown the whistle on abuses of power inside the ATO and CDPP, warning their conduct threatens the foundations of justice.

A sculpture of the Roman goddess Justitia, commonly known as Lady Justice, outside the Queen Elizabeth II Courts of Law in Brisbane, Australia. Chris Olszewski, Creative Commons Licence via Wikimedia.

A Queensland Supreme Court justice has found that staff from the Australian Tax Office (ATO), with the support of the Commonwealth Director of Public Prosecutions (CDPP), hid and falsified evidence to prosecute a defendant oppressively, in what he called a serious abuse of investigative powers.

Justice Paul Smith said the ATO “has brought the administration of justice into disrepute and has the tendency of undermining the integrity of the court.”

The decision exposes what the judge described as systemic failures in the way the ATO and CDPP pursued a woman, referred to by the court under the pseudonym “Julie Clark,” whom the ATO suspected of falsifying an invoice to claim inflated research and development (R&D) expenses.

ATO Misled Defendant During Investigation

According to the judgement, Clark had earlier complained to the Inspector General of Taxation about the ATO audit team’s conduct. Soon after, the agency decided to conduct a compulsory tax interview, involving its criminal investigations team.

An investigator told her the interview was to “clarify gaps” in her R&D application. The judge found this statement “misleading.”

At two further interviews, led by the ATO’s crime team, Clark was told she did not have a right to silence, as the interviews were being conducted for “civil” purposes under taxation laws.

However, the court found that the main purpose of the interview was to question her about an alleged criminal fraud.

“The court concludes that the defendant was unlawfully subjected to a hybrid audit/criminal interview because the audit team did not have the power to investigate a breach of the Commonwealth Criminal Code to compel [her] to answer questions concerning the criminal matter,” the judgment states (pdf).

In other words, the judge found that the ATO had used its civil audit powers, meant only for checking taxes, to question Clark about an alleged crime, which it had no legal authority to do.

Unlawful Conduct by ATO Investigator

Justice Smith also found that ATO investigator Anthony Rains became convinced Clark had defrauded a private investor in her business and unlawfully referred the matter to the Queensland Police Service (QPS) without a complaint from the investor.

According to the judgement, Rains failed to provide evidence that supported Clark’s innocence, including documents showing she was entitled to a consulting fee and that company funds had been used for legitimate business expenses. The judge said such material must be disclosed because it can help prove a person’s innocence.

Justice Paul Smith. Courtesy of Queensland Supreme Court

The court identified at least ten further acts of misconduct by Rains, including:

• failing to disclose documents
• altering a document
• assisting in the preparation of a false witness statement, and
• providing misleading information in affidavits to obtain search warrants, thereby misleading numerous judicial officers.

Justice Smith noted that Rains also lied in a briefing note to the Queensland Bar and breached ATO directives by keeping no records of key conversations.

“I paid close regard to the demeanour of Rains in the witness box. At times, I found him to be evasive,” the judge said. “When asked the ‘hard’ questions, he often shifted uncomfortably in the witness box.”

‘Justice Has Been Put at Risk’: Judge

Despite being presented with “compelling evidence” that there was no case to answer, the Commonwealth Director of Public Prosecutions continued the prosecution for several years until Clark personally wrote to the director requesting it to be discontinued.

“The conduct of the ATO during the investigation and prosecution of both sets of charges ... amounts to oppression of the defendant,” Justice Smith found.

“Unless the courts can rely on the integrity of government investigators and institutions, then our system of justice is put at significant risk. In this case, justice has been put at risk.”

Clark, who ultimately represented herself, spent around $80,000 on lawyers before the judge permanently halted the case.

Lawyer Pier Paolo Parisi, who acted for Clark in a related matter, described the actions of both government agencies as a “betrayal of the justice system.”

“This can happen to any innocent person. ” Parisi said.

“The prosecutors’ alignment with criminally corrupt ATO staff casts a shadow over the whole justice system.”