1. ATO Prosecutions: Firm and Fair Enforcement? Dr Declan Roche Centre for Tax System Integrity ANU

2. OverviewOverview o The ATO getting tougher o Benefits of tougher approach o Concerns about tougher approach o Implications for tax practice and regulatory theory

3. ‘You can expect us to be tougher on serious fraud and evasion. Bringing together our serious non-compliance operations has resulted in substantial prosecutions … We will focus on, and take tougher action against, habitual non-payers …’ Tax Commissioner, Michael Carmody, April 2005 The ATO says they are getting tougher

4. Evidence of their tougher approach o Increasing number of prosecutions o Press releases and media commentary o Public statements by ATO officials

5. A tougher approach has benefits  Roosevelt: ‘speak softly and carry a big stick’  Braithwaite: ‘responsive regulation’ Effective self-compliance and informal regulation requires the credible threat of more coercive regulation

6. But, a tougher approach also has its pitfalls o Procedural justice o Informal sanctions o Proportional enforcement

7. What we did o 34 people identified from ATO records o 3 letters sent to each o 10 replied consenting to phone interview –Male –30-60 years old –Served 3 months to 2 years

8. Procedural justice issues o Few complaints about conviction or sentence –“I knew I was as guilty as hell” o Many complaints about manner of prosecution

9. Complaints about treatment o Delay –‘I was effectively in prison for a couple of years more’ –‘My life was on hold … I couldn’t enjoy anything’ o Investigative Style –‘My friends all think they (the ATO) were vindictive. I wouldn’t say that … but it did seem as if they were working on commission’ o Communication –‘The hardest thing is to get in touch with them: totally, absolutely, unequivocally impossible. They have this phone menu but there’s nothing on it about owing them money … I’ll probably end up having to sue them, and take them to court. That’s the only way you can meet them, in court … I also owe money to Centrelink, but they’re a dream to work with.’

10. Not everyone complained… ‘I tried to bullcrap him [the ATO investigator], but he didn’t buy it - he was one of those old copper types - you know, dogged. He just kept asking sensible bloody questions…that I couldn’t answer’

11. Why delays are a problem o Increase risk of non-compliance o Undermine presumption of innocence o Can reduce eventual punishment

12. Judicial view of delay ‘It is bordering on the unconscionable for three years to elapse between a police interview which results in full admissions and the laying of ensuing charges … The public interest as well as the legitimate private interests of the offender require a matter such as this to be brought to justice quickly. A failure by the authorities to do so will mitigate an otherwise appropriate sentence’ - Mason P, R v Gay [2002] NSW CCA 6

13. Informal sanctions were more severe than formal ones Q: What was the hardest thing about your experience? v ‘Well, it wasn’t jail - been there before, done that - jail would be at the bottom of my list’ v ‘The hardest thing was not so much the jail time, but the time leading up to it, and the time after being released’

14. The harms caused by prosecution o Personal relationships –‘She says she married me for better or worse; she just didn’t think that the worst would be this bad’ o Employment –‘No-one will touch me’ –‘“Defrauding the Commonwealth” doesn’t sound too flash on your application form’ o Mental health –‘They say what doesn’t break you, makes you stronger. But I don’t know about that; it just makes you different, and in my case, angrier.’

15. Is ATO enforcement proportional to the offence? o No complaints about punishment o Widespread perception that ATO prosecutes less serious evaders more vigorously than serious evaders –‘They pick the easy channel’ o Similar perception revealed by ATO annual community survey

16. Implications for tax practice o Reinforce Taxpayers Charter applies to all taxpayers o Prosecute fewer cases, faster o Consider alternative approaches o Publish feature stories about those prosecuted o Prosecute high profile corporate cases

17. Responsive regulators should… o Set regulatory approach according to person’s behaviour o Always look for opportunities to regulate simply and informally o Always be prepared to escalate to more coercive regulation

18. National Crime Commission Assertive Use of ATO Powers Special Purpose Audits Real Time Enquiries Education Recognition Industry Watching Brief Full Cooperative Audit Litigated Assessment/Prosecution Litigation Taskforce The enforcement pyramid

19. Two faces of the ATO: ‘We need to differentiate our treatment of taxpayers according to their approach to meeting their tax responsibilities … we differentiate our responses to the needs and risk profiles of different market segments. For some segments, there is a stronger emphasis on enforcement approaches, for others it is more about education and information and supporting those advisers who are dealing directly with taxpayers’ - Tax Commissioner, Michael Carmody, 2002

20. Regulate responsively but … o Procedural justice should be fixed, not responsive –Procedural justice not something to be granted to the honest as a courtesy, nor withheld from the dishonest as a punishment –Honest and dishonest alike entitled to fair treatment