Jersey: home of the tax dodge

June 27, 2005

John Garnaut looks at the latest tax scandal that involves some of Australia's biggest names.

Jersey's 90,000 residents have learnt how best to squeeze money from their moss-covered rock, just 14 kilometres by eight in the English Channel. It involves squashing income tax to a flat 20 per cent, eliminating inheritance, capital gains and local company taxes, and sitting back to watch some of the world's wealthiest and greediest people finance their economy.

Some 70 per cent of government revenue is paid by offshore entities. Of that, we have learned over the past fortnight, Australians have been paying more than their fair share.

Jersey is now the centre of the biggest tax avoidance crackdown in Australian history thanks largely to Philip Jepson Egglishaw, the face in Australia for a particularly successful firm of accountants called Strachans. The establishment firm offers to provide clients with "directors, secretaries, registered office, shareholders invoicing, etc", ie, everything necessary to give the appearance of a genuine business.

Egglishaw is an urbane accountant, born and bred in Jersey, and allegedly responsible for facilitating a large chunk of the $300 million-plus in avoided taxes that has so provoked the Tax Office, the Federal Police and the Australian Crime Commission.
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Egglishaw has been travelling annually to Australia for at least a decade to meet his network of lawyers, accountants and clients in Sydney, Melbourne, Perth and Brisbane. He offers to build and manage offshore structures involving trusts and companies in Jersey and the Caribbean tax haven of the Virgin Islands, Swiss bank accounts and agency agreements that potentially disguise the true nature of transactions.

Australian lawyers and accountants introduce him to their clients who want to "go offshore". The clients send money and some are alleged to receive invoices for services never rendered, enabling them to gain tax deductions on the money.

Egglishaw manages the money for their benefit and helps to wipe their fingerprints.

On request, he returns the money to entities related to the clients via "gifts", "inheritances" or "loans", often through credit cards. He is said to charge a modest 10 to 20 per cent for the trouble.

The local tax industry, which lives in the grey zone between the Tax Act's loopholes and anti-avoidance provisions, says it is shocked that something so crude could be so prevalent here.

But it shouldn't be.

Today's schemes were abundant in the 1980s and probably have been ever since.

Tax auditor Bob Fitton stumbled across a number of businessmen channelling money through top-tier lawyers and accountants to a Monaco outfit called European Business Consultants. It was 1987 and the transactions were so crude that Fitton asked the Tax Office's exchange control unit to tally international remittances to EBC.

They found a staggering $1 billion had flowed to the Monaco company in just three months. The money was paid "as part of the setting up and implementation of profit shifting, transfer pricing and other international tax avoidance schemes tailor-made to suit the clients", Fitton later said in a court affidavit.

The Tax Office had discovered a vast international tax avoidance scheme involving Australia's leading legal and accounting firms but the professionals had powerful friends and the Tax Office lost its nerve. Fitton won some legal battles but lost the war. He was bumped off the case.

"Just after the trials I was sent up to the tax intelligence area - talk about an oxymoron," says Fitton, speaking publicly about the investigations for the first time after retiring last year. "I spent most of the day just sitting there reading newspapers. The ATO snatched defeat from the jaws of victory."

Wealthy individuals watching the affair might have concluded that crude, international tax avoidance schemes were untouchable if channelled through the hands of reputable professionals. It was in this permissive environment that Egglishaw became established in Australia in the mid 1990s, working through respectable lawyers.

Egglishaw has maintained a very low profile for a man so central to the tax plans of so many.

His name appears on the honours board at Hautlieu, a government school where his father taught physics. The University of Nottingham confirms he graduated with honours in industrial economics in 1974.

His firm, Strachans, is headed by his older brother, Richard Jepson Egglishaw, who keeps an even lower profile. Richard graduated from Nottingham with honours in science. One of the few public references to Richard is in a USA Today article of 10 years ago. He is quoted as a businessman who had crossed the Atlantic by Concorde more than 20 times.

The Egglishaws are known in Jersey as quietly successful members of the financial services industry. One source says they rose from humble beginnings to become "very successful very quickly". Another says they left Jersey about four years ago when trust administration companies in Jersey were beginning to feel the heat from tighter regulation.

Records at the Swiss Department of Commerce suggest Strachans registered in Geneva as a business in 2001.

Philip Egglishaw hung up when the Herald called and Richard Egglishaw did not return phone calls or emails.

It is understood that a third director of the Geneva firm is P.E. De Figueiredo, who hails from one of Jersey's more successful financial services families.

A fourth principal, Terry Jehan, remained behind in Jersey to head Strachans Services in Ingouville Lane, St Helier. Jehan told the Herald he would say nothing except that he was no longer connected with the Geneva firm: "I'm not going to explain anything over the phone."

A Jersey islander says Jehan told him that the ongoing Australian crackdown was just another example of "a perfectly legitimate structure being persecuted".

The secretary of the Jersey Financial Services Commission, Stephen de Gruchy, told the Herald that "no Strachans entity is registered to conduct financial services business in Jersey".

Strachans operates with no apparent signage and has no website.

The low profile of Egglishaw and his firm helped them remain below the Tax Office radar until the second half of 2002, when their names featured in a number of files seized in a raid on a Melbourne boutique law firm. In 2003, the Tax Office referred its information to the Australian Crime Commission, which intercepted Egglishaw as he was leaving Australia early last year. The commission downloaded the contents of his laptop computer and gained the names of dozens of Australian lawyers, accountants and wealthy clients. Many of them had search warrants served on them on June 9 and 10.

There are local lawyers who claim to have had legitimate dealings with Philip Egglishaw, such as setting up testamentary trusts in the Channel Islands for English clients. One law firm partner says he referred work to Egglishaw and denies the scheme was possibly illegal: "He provided management services to enable people to transfer money over to a trust that wasn't a controlled trust for the purposes of tax law."

Others say they rejected Egglishaw's plans as naive, at best. "I thought to myself: Hang on, we've got all these tax laws and this just doesn't stack up," says one practitioner, introduced to Egglishaw by a fellow partner at a national law firm.

Another law firm partner says he referred legitimate work to Egglishaw and was later furious to find the client had poured all of his Australian assets into a Virgin Island trust and Jersey company, risking a criminal prosecution for tax evasion. Egglishaw was "smooth enough" to thank the lawyer for the dressing down that followed.

Rick Crabb, a Perth lawyer, says it would be "stupid" to hide money in the sorts of schemes Egglishaw had offered him, given modern surveillance technology. "It will be interesting to see who gets pulled in on it - it shows you how greedy some people can be," he says.

The search warrants of a fortnight ago related to investigations into possible criminal tax evasion, money laundering and provisions of the Crimes Compensation Act. No charges have yet been laid.

There are some, like Fitton, who say the Tax Office has proven itself to be spineless when pursuing high-profile prosecutions and will buckle again. "The commissioner works very closely with the Government and they do not want big businessmen or big business being prosecuted," says Fitton.

The bigger law firms are banking on the Tax Office capitulating under the pressure of court challenges and bad publicity. "Isn't the story from here that the Tax Office has gone over the top?" says a partner at one national firm drawn into the investigation.

But insiders say this blitz shows a resolve unlike any the Tax Office has previously undertaken. They point to the involvement of 285 personnel across three major agencies, and note the care with which Tax Commissioner Michael Carmody has managed the search process and has measured what he said.

Most importantly, they say, the Government has given the green light. "It has the total support of the Government," says the Minister for Justice, Chris Ellison.

The authorities might at last be willing to push the tax evasion genie back into the bottle.

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