Court of Criminal Appeal Quashes Tax Crime Convictions After Crown’s Creative Accounting

In Castagna v R; Agius v R [2019] NSWCCA 114 (Castagna; Agius), the Court of Criminal Appeal (CCA) allowed appeals from Dr Anthony Castagna and Mr Robert Agius, quashed certain convictions and entered verdicts of acquittal.

In this article, I’ll run through the finer points surrounding the prosecution and outline why it ultimately failed. Continue reading to work out what the outcome of the case has revealed about the intricacies of the authorities’ accounting practices. 

The alleged conspiracies

Dr Castagna and Mr Agius were charged with offences under the Crimes Act 1914 (Cth) and the Schedule to the Criminal Code Act 1995 (Cth) (Criminal Code) over payments made by Macquarie Bank Ltd and its associated companies in exchange for the supply of Dr Castagna’s services as a consultant during a period of time from 1998 to 2009. It was alleged that Dr Castagna was required to declare these payments as part of his “assessable income” for income tax purposes and that he failed to do so.

In particular, the Crown alleged two conspiracies between Dr Castagna and Mr Agius:

  1. To defraud or cause financial loss to the Commonwealth by concealing Dr Castagna’s assessable income; and
  2. To deal with money which was the proceeds of crime, being the part of the payments not declared as “assessable income”.

Contended shady payments and agreements

The payments were made by Macquarie Bank and its associated companies pursuant to a series of agreements between itself, Dr Castagna, and Billbury Ltd, a company controlled by Mr Agius. There was no suggestion that the agreements between Macquarie Bank, Dr Castagna and Billbury were “shams”.

The agreements provided that Billbury would supply Dr Castagna’s services as a consultant in exchange for the payments from Macquarie Bank. The agreements did not provide for any payment to be made directly to Dr Castagna.  This was because Macquarie Bank required all agreements with its consultants to be with legal, but not natural, persons.

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At first instance, the prosecution case was that, even though the payments were made to Billbury and the agreements between Macquarie Bank, Billbury and Dr Castagna were not “shams”, the payments were “ordinary income” which had been “derived” by Dr Castagna within the meaning of s 6-5(2) of the Income Tax Assessment Act 1997 (Cth), and therefore were “assessable income” which he had not but was required to declare on his income tax returns.

Defence for both Dr Castagna and Mr Agius made an application for a directed verdict at the trial on the basis that, as a matter of law, the payments to Billbury could not be “ordinary income” which had been “derived” by Dr Castagna by reason of the terms of the agreements between Macquarie Bank, Billbury and Dr Castagna. The primary judge of these applications and the jury later found Dr Castagna and Mr Agius guilty in relation to both conspiracies.

On appeal, the Crown contended that it was open to the jury to hold that the payments to Billbury formed part of Dr Castagna’s assessable income because they were held by Billbury on trust for Dr Castagna. Having not been part of the trial, both Dr Castagna and Mr Agius both objected to this new analysis.

Putting the prohibition on taking a new position on appeal to one side, the purported existence of a trust or trusts does not appear to be the only alternative basis that the Crown could have sought to “assess” Dr Castagna for the purposes of the alleged conspiracies.  Two other bases that may have been available on the Crown’s case theory could have been constructive receipt and/or agency.  The overarching problem with all three of these analyses is that they do not appear to be supported by the effect of the consultancy and related documents in evidence.  Moreover, without evidence of sham agreements and/or entities, agreements mean what they say and corporations are taken to enjoy separate legal personality from their directors and shareholders.

How the appeals were resolved

In resolving the appeals, the CCA (Bathurst CJ; Macfarlan JA; Gleeson JA) decided three issues.  First it held the primary judge erred on the applications for directed verdicts.  Secondly, the court held it was not open to the jury to find that the payments to Billbury formed part of Dr Castagna’s “assessable income” because they were held by Billbury on trust for Dr Castagna. The prosecution had not put any such case to the jury at trial.  Therefore, the convictions of Dr Castagna and Mr Agius could not be supported.  Thirdly, the CCA declined to order a retrial and entered verdicts of acquittal.

Paving the way for similar cases in the future

Castagna v R; Agius v R is an important case because the CCA has confirmed the general law position in criminal cases that, where transactions are entered into that are not shams with non-sham entities, such agreements are to be given their effects.  Moreover, although the case did not expressly deal with sham entities (as opposed to agreements), it was assumed that the companies involved were not sham entities and they ought to be and were treated as legal persons.

More fundamentally, this case is important to the criminal law because it now reflects better the law of tax administration in that tax-related liabilities arise objectively.  Although alternatives may arise, especially in more complex transactions, at the end of the day tax-related liabilities are objective and arise – or don’t arise, depending on the facts coupled with objective formulae in the tax law.  Although certain (especially complex) cases may give rise to multiple possible assessment bases, the ascertainment of tax-related liabilities is a matter of discretion for neither investigating entities nor prosecuting authorities.

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From a planning perspective, the case has significance too. Castagna v R; Agius v R suggests that taxpayers and their advisers who transact in accordance and compliance with the objective formulae set out in the tax law (to the extent that such can be obtained) should not have to fear conviction based on creative or discretionary interpretations of commercial and tax law by investigating and prosecuting authorities.

Dr Mathew Leighton-Daly is the newly commissioned author of our Financial Crime Control and Anti-Money Laundering on-line publication. Dr Leighton-Daly is an internationally recognised specialist in financial crime control.

The new work incorporates completely revised annotations to the principle Act, together with the Rules and regulatory material previously appearing in the earlier work. This material is complimented with the addition of commentary and legislative excerpts addressing criminal money laundering and civil proceeds of crime legislation.

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