Earlier this week, Jeweller documented proposed reforms to Australia’s anti-money laundering (AML) and counter-terrorism financing (CFT) regime. The changes are being advanced by the Attorney General’s Department and include a 16-page paper specifically addressing the jewellery industry.
If adopted, the changes will have a far reaching impact on how all sectors of the Australian jewellery will operate.
» See AML and CFT articles Part I and Part II, and which detail the number of people who have been jailed over gold GST fraud in the Australian jewellery industry.
Earlier this week, Jeweller documented proposed reforms to Australia’s anti-money laundering (AML) and counter-terrorism financing (CFT) regime. The changes are being advanced by the Attorney General’s Department and include a 16-page paper specifically addressing the jewellery industry.
If adopted, the changes will have a far reaching impact on how all sectors of the Australian jewellery will operate.
One of the most high-profile court cases involving the precious metals sector and the Australian Taxation Office (ATO) has been the case of ATO v ACN 154 Pty Ltd which involved the Pallion Group and its managing director Andrew Cochineas.
Notwithstanding that Pallion Group’s legal dispute did not involve allegations of money laundering, there are other reasons why the details of this affair should be analysed, given that it involves a number of investigations into the gold sector and a legal case that has last more than a decade.
Some of the other cases involving GST fraud and theft may have contributed to new AML/CFT laws.
Background - 10 years in the making
Pallion Group is the largest precious metals services group in Australia. It offers the jewellery industry bullion trading, refining and minting, casting and custom jewellery, findings, goldsmithing, and silversmithing.
ASIC records show six directors of Pallion Group Pty Ltd: Andrew and Phillip Cochineas, Philip Williams, Jane (Janie) Simpson, Francis Gregg, and Andrew Robinson.
The legal dispute between its company and the ATO is complex and has dragged through the courts for 10 years. It has included various appeals, with each side claiming ‘victory’ at different stages.
The case has generated more than 44,000 documents containing more than 50,000 pages and has even been reduced to debating the word ‘refining’.
Suffice to say that Jeweller will not attempt to comprehensively explain the legal complexities of the case; however, if a snapshot could provide insight into the root cause of the dispute, then it is this ABC News report.
In December 2016, the ATO named 670 large companies, stating they paid no corporate tax in the 2014-15 financial year.
The list included ABC Refinery (a Pallion-related company) and revealed that the company generated $644 million in income and paid no tax.
The stoush dates back to 2014 and concerns the collection of GST payments.
How it came about and where the legal dispute is today makes for interesting reading. It involves a long list of people, companies, and their subsidiaries; too many to include here.
Court document show that the intricate details begin in 2012 and involve several businesses run by Adrian Catanzariti — Italian Prestige Jewellery Pty Ltd, Premium Metal Service Pty Ltd, Antel Metals Pty Ltd, 4 Nines Pty Ltd, and A1 Metals Pty Ltd — together called IPJ Group.
IPJ is described as the ‘first client’ of EBS & Associates – a company established in 1999 and later acquired by Pallion Group.
The large value and frequency of gold transactions by IPJ Group were documented, as were the pricing of the gold, the coincidental timing of payments, and deliveries of precious metal followed by deliveries of scrap gold.
The documents also detail EBS’s extraordinary sales growth over three years and detail how its turnover “increased dramatically” — from $63 million during the last five months of the 2012 financial year to approximately $595 million the following year — an increase of around $465 million (based on a full year estimate of $130 million in 2012).
The company’s turnover increased by another $150 million in the ensuing 12 months, reaching approximately $746 million in the 2014 financial year.
This indicates an increase in turnover across two years of more than $600 million.
The Commissioner of Taxation’s position was that these businesses entered or carried out a scheme with the sole or dominant purpose of EBS & Associates receiving a GST benefit from the scheme, namely the input tax credits for its acquisitions.
In July 2014 the ATO commenced an audit into the GST adders of EBS & Associates.
In August 2015 a new company - ABC Refinery (Australia) Pty Ltd - was incorporated and the directors were the same people who were the directors of EBS & Associates, together with Mr Paul Cochineas.
Court documents detail that the shares in the ABC Refinery were all owned by Pallion Group Pty Ltd a company incorporated on 3 November 2014 whose directors were the same persons as the directors of EBS & Associates, together with Mr Philip Williams.
Allegation of tax driven scheme
On 1 September 2015 - and at the time EBS & Associates’ GST affairs were under audit - it transferred its business and assets to ABC Refinery. One month later the ATO commenced an audit into ABC Refinery's GST affairs.
The audit into EBS & Associates' GST affairs was concluded in April 2016 which resulted in the the ATO issuing notices of amended assessment to EBS for more than $122 million and notices of penalties totalling more than $58 million.
EBS & Associates objected to the notices.
Shortly after the ATO disallowed EBS & Associates' objections, the company was placed in liquidation and was renamed ACN 154 520 199 (ACN 154).
In December 2019, the ATO had an important victory when its $250 million assessment against EBS/ACN154 was upheld by the Administrative Appeals Tribunal (AAT).
At the time, Deputy Commissioner Will Day said, “The Tribunal found that these artificial arrangements dealing in gold were a tax-driven scheme. This decision clearly supports the ATO’s work in tackling schemes in the precious metals refining industry aimed at manipulating the GST treatment of gold.”
The challenge then reached the Full Court of the Federal Court comprising Justices Perram, Moshinsky and Thawley. Their judgment was that EBS/ACN154 was held to be entitled to an input tax credit provided the company was not part of an anti-avoidance scheme.
However, on the question of anti-avoidance, the Federal Court remitted it back to the AAT for redetermination and to be reheard by a differently constituted tribunal.
The dispute before the Federal Court revolved around a number of complex matters which can be summarised as involving two main issues.
The first was whether the gold sales by EBS/ACN154 were GST free as a ‘first sale’ of gold.
That is, gold bullion (investment grade 99.9 per cent) is GST free because it’s considered a form of currency. The dispute around this issue (the Construction matter) was about whether gold bullion can be claimed as having been refined and therefore, whether sales to the dealers were GST free.
The second issue was whether - in this case - input tax credits (GST refunds) were applicable on the purchase of scrap gold because the ATO alleged that they were part of tax scheme (fraud) where the seller, having charged a client GST on the sale of scrap gold, did not remit the GST payment to the ATO.
The Federal Court ruled in favour of ACN 154 on the ‘construction’ matter saying that “ACN 154’s supplies of gold to the dealers constituted the ‘first supply of that precious metal after its re?ning by ... the supplier”, notwithstanding that the gold may have been defaced or melted down from gold previously sold as 99.9 per cent, investment grade gold.
This was therefore deemed GST-free, contrary to the ATO’s view.
In relation to retention of input tax credits (GST) by ACN 154 paid to ‘scrap’ gold suppliers who had failed to remit the GST to the ATO, the court found that “subject to the operation of the anti-avoidance provisions of Division 165, ACN 154 was entitled to input tax credits totalling $122,112,065 in respect of its acquisitions of scrap gold from the suppliers”.
As this entitlement was expressed in the judgment to be subject to the anti-avoidance provisions, the court ordered that the AAT’s decision must be set aside because there had been procedural unfairness to 154.
"In our view, the Tribunal’s reliance on the two emails in circumstances where Mr Cochineas was not a party to the emails, was not cross-examined on the documents and the documents were not the subject of any submissions by the parties, constituted a denial of procedural fairness,” the decision reads.
The court believed the Tribunal had denied ACN 154 procedural fairness and that the denial was material.
The November 2022 decision by Justices Perram, Moshinsky and Thawley made the following orders to the effect that (a) the appeal be allowed, (b) the December 2019 decision of the Tribunal be set aside, and (c) the matter be remitted to the Tribunal (differently constituted) for determination according to law.
A cost order was awarded in favour of EBS/ACN 154.
The matter was then re-heard by the AAT in May and June 2023 by a differently constituted Tribunal. The judgement was handed down five months later on 30 November 2023.
It stated that it was “not prepared to make a positive finding that ACN 154 was an informed participant that knew of, or ought to have known of and turned a blind eye to, the activities of the Division 165 Supplying Entities or that it was not such an informed participant in the arrangements”.
The Tribunal preferred to base its decision upon whether obtaining an input tax credit by ACN 154 was the sole or dominant purpose of, or that the principal effect of either scheme or any part of either scheme was, the applicant obtaining the Contested input tax credits (GST refund).
The Tribunal found that it was not and, therefore, ACN 154 was entitled to the input tax credits.
Here we go again
With that said, if Cochineas believed the success of this latest victory (November 2023) along with the EBS/ACN 154 win in November 2020 would bring the matter to an end, he was mistaken.
The legal dispute is set to continue.
A spokesperson for the ATO has confirmed that a notice of appeal in the Federal Court regarding the AAT’s revised decision has been filed.
The spokesperson added that the ATO would make no further comment while the proceeding remains undetermined.
If that wasn’t enough, in July last year - before the AAT re-hearing - the ATO had another victory in the Federal Court, where it was granted the right to appoint Special Purpose Liquidators (SPL) for EBS & Associates, which, as mentioned, was placed in liquidation and renamed ‘ACN 154 520 199’, and referred to as ACN154.
Why? Well, according to Justice Goodman, the original liquidator appointed to EBS/ACN154 was conflicted, or at least appeared to be so.
What is an SPL, and who appointed the original liquidator in 2017?
How was he funded, and why did the ATO take the matter to the Federal Court?
That’s another story entirely, and it will be documented in the next instalment of this series, which examines proposed changes to Australia’s money laundering and anti-terrorist financing regime.
Editor’s Note: This article was updated on 5 November, 2024 to encompass further court proceedings and to detail the ramifications of the judgements, noting that the ATO has two seperate legal proceedings on hand, as detailed above.
Detailed reading
» Part I - New money laundering laws: What do jewellers need to know?
» Part II - New money laundering laws: Millions at stake in the jewellery industry
» Part III - New money laundering laws: Loopholes, lawyers, liquidation and Pallion
» Part IV - New money laundering laws: Pallion Group, the ATO, and the voidable transaction
» Part V - Pallion Group: Timeline of missing detail, controversy and legal dispute
Federal Court Documents
» Commissioner of Taxation v EBS Refinery - November 2020
» Deputy Commissioner of Taxation v ABC Refinery - 31 July 2023
» Federal Court Order - Justice Goodman - 31 July 2023
Footnote: In the second instalment of this series, Jeweller informed readers that a subsequent story would address a court case involving Pallion Group and the Australian Taxation Office. Two days before this story was published, Jeweller was contacted by a representative from Fowlstone Communications on 22 May, requesting a ‘right of reply’ to any editorial content relating to the Pallion Group. The company's managing director, Geoff Fowlstone, describes himself as a leader in “the field of Crisis Communications and Reputation Management.” The Fowlstone representative claimed to act on behalf of Pallion Group, although no evidence was provided to support this assertion. The email also sought a telephone call to discuss the matter further. He was informed by Jeweller that if it were necessary to seek comment from Pallion directors, it would be done directly. The representative replied the same day, reiterating the expectation of a ‘right of reply’ and instructing that any questions for Pallion Group should be directed to Fowlstone Communications. Jeweller replied on 23 May, advising the representative that these demands would be ignored and that his company was not in a position to dictate terms to the media. The same day, Pallion Group CEO Andrew Cochineas was contacted by Jeweller via email to raise this issue and asked if Fowlstone acted for Pallion Group. Cochineas was also advised that any questions would be directly provided to him, not an external, third-party crisis management consultant. At the time of publication, Mr Cochineas had not responded to the email. |
More reading
Presentation at Sydney Fair to detail counter-terrorism and money laundering legal reform
Anti-money laundering agency pursues audit of Perth Mint
Two more gold dealers sentenced over stolen goods
Gold dealer linked to jewellery store robberies sentenced to jail
Jail likely for gold buyers linked to 2017 store robberies
Police drop more than 400 charges against gold dealer linked to jewellery store robberies
‘Record-breaking’ armed robbery at gold dealer; colourful history revealed
Gold dealer connected to jewellery robberies fronts court
Gold dealer linked to jewellery robberies ordered to pay $200,000
Melbourne jewellery robberies linked to gold GST fraud
Breakthrough in Melbourne jewellery robberies