Inside Job: The Plutus Payroll tax fraud conspiracies

The conduct of those persons complicit in the Plutus Payroll Australia Pty Ltd (Plutus) tax fraud conspiracies – the investigation into which is known as Operation Elbrus – amounted to one of the grossest violations of tax law in Australia’s history.

Following a recent trial by jury, the scheme’s “architects” Jay Onley and Adam Cranston were convicted of conspiring to defraud the Commonwealth and dealing in the proceeds of crime and sentenced to a total of 15 years gaol with a minimum non-parole period of 10 years: R v Cranston [2023] NSWSC 1004 (22 August 2023).

Many of the scheme’s participants have now been prosecuted and sentenced. This article focuses on the recent sentence imposed on former ATO employee Adam Cranston, his involvement in the scheme and the associated risks (and management thereof) to the ATO and indirect tax system.

The conspiracies

In September 2016, the AFP-led Serious Financial Crime Taskforce commenced an investigation into an alleged conspiracy between several persons to dishonestly cause a loss to the Commonwealth (the tax fraud conspiracy). Evidence capable of proving the matter beyond a reasonable doubt was obtained by lawful telephone intercepts and surveillance video.

The tax fraud conspiracy involved the establishment and operation of a payroll services company, Plutus, and several apparently unrelated sub-contracting companies, which were in truth controlled by several of the conspirators (the second-tier companies). The purpose of establishing this structure was to deprive the Commissioner of Taxation of Pay As You Go Withholding (PAYGW) amounts and Goods and Services Tax (GST).

Between 2014 and 2017, Plutus collected from its legitimate clients $141,291,923.08 in PAYGW and GST that it was obliged to remit to the ATO. At least $105,625,304.36 was misappropriated because of the conspiracies (74.7% of all PAYGW and GST amounts collected by Plutus). Only $30,883,342.47 was ever remitted to the ATO and a further $4,783,276.25 was later garnisheed by the ATO.

The conspirators agreed to launder the money which should have been paid to the ATO (the money laundering conspiracy). In furthering the money laundering conspiracy, various entities were used to receive, conceal and divert the misappropriated taxes derived from the tax fraud conspiracy, essentially for the benefit of a number of the conspirators.

Mr Cranston was one of the architects of the scheme, along with Jason Onley, Peter Larcombe and Simon Anquetil. Joshua Kitson was involved from the beginning of the tax fraud conspiracy and was a significant participant. Mr Dev Menon became over time a pivotal participant in both conspiracies.

Mr Anquetil pleaded guilty and was sentenced to 7 years and 6 months gaol with a non-parole period of 5 years. Mr Menon was sentenced to jail for 14 years with a 9-year non-parole period for using his skills as a solicitor. He was charged with conspiring to cause a loss to the Commonwealth, and conspiracy to deal with proceeds of crime of $1 million or more. Mr Kitson was sentenced to 4 years and 6 months gaol with a non-parole period of 3 years.

Mr Menon played a key role in the conspiracies. Using his skills as a solicitor, he gave advice on how to avoid detection and mislead the ATO and covered up the conspiracy’s crime.  A number of other persons were also identified as complicit and have been charged/sentenced for their parts in the scheme.

Mr Cranston: The ATO Insider

In the course of sentencing Messrs Onley and Cranston, Justice Payne said the conspiracies were “at the highest range of seriousness … and Mr Cranston’s role is at the top of these conspiracies”. Cranston spent $6.9 million of the proceeds on three properties, expensive cars, a boat and an aircraft. In fact, the scheme was found to have been designed by former ATO Deputy Commissioner Michael Cranston’s son, Adam Cranston (who, again, was also an ATO employee). Adam Cranston used his knowledge of how the ATO operated as well as to protect the $106 million proceeds of the crimes.

Despite the objective seriousness of the conspiracies, Justice Payne observed during sentencing that “Mr Cranston does not appear to understand even now the gross violation of societal norms” that his conduct in running the fraud represented.

Justice Payne said Cranston had used his knowledge of vulnerabilities in the tax system to avoid detection. His Honour quoted one phone conversation about the level of unpaid GST and PAYG tax, where Cranston advised reducing the PAYG shortfall and ignoring outstanding GST. Cranston indicated the ATO’s indifference to GST. He said eventually GST would be pursued as a tax debt, but not immediately, as GST was dealt with by a separate department.

Justice Payne said Cranston had led efforts to dump evidence in the sea, suggesting in one call, “we’ll take the boat out. We’ll take all the [evidence] on the boat, go out by the heads”.

There were also discussions involving Mr Cranston talking about Plutus being hacked (ie computer “hacking”) in order to destroy all of the records.

As was found by Justice Payne, the conspiracies were co-designed by Mr Cranston using his inside knowledge of the vulnerabilities of the indirect tax system. These vulnerabilities relate to both (1) the GST system itself as well as (2) the ATO’s administration of it. The risk of offenders designing a scheme such as the Plutus conspiracies is much lower in the absence of an insider. For this reason, it important to consider the risks exploited by the scheme not only by reference to the detection, investigation and prosecution of the offenders but also from the perspective of internal fraud risk.

ATO’s fraud control processes

The information in the ATO’s actual and constructive possession must enjoy the highest level of protection. Apart from this gargantuan amount of taxpayer information (including information disseminated to it by other organisations such as AUSTRAC), the ATO must also enjoy protection around its processes and methodologies. Because of the latter, it is neither practical nor appropriate to publicly review the ATO’s fraud and corruption control processes other perhaps than at a strategic level. In this regard and in addition to its own internal processes, the ATO has the support of the Commonwealth Fraud Prevention Centre (within the Attorney-General’s Department) (CFPS). This centre was established in July 2019 to strengthen the counter-fraud capability of Australian Government entities.  The CFPS does this via three ways: general support to strengthen Australian Government counter-fraud arrangements; direct support for entities looking to improve capability; and mutual support for entities with established capabilities. The CFPS also formally adopts the AS 8001: 2021 Fraud and corruption control Australian Standards the objective of which is to provide minimum requirements and additional guidance for organisations wishing to develop, implement and maintain an effective fraud and corruption control system.

For any organisation, fraud risk may be considered in the more fundamental context of reputational risk. In relation to government agencies, including the ATO, this risk includes the level of confidence of the community. As a revenue authority, the ATO enjoys an excellent reputation both domestically and internationally. How does it manage best any issue of reputational risk following this incident?

The significant sentences imposed upon Mr Cranston and the other offenders is a matter of public record and denounces and will go some way to generally deter similar behaviour.

As for strategic-level explanations around the ATO’s fraud control processes, there is little public information in relation to the ATO and Commonwealth’s fraud control processes following the risk exploited by Mr Cranston. The CFPS only makes one reference to Plutus/Elbrus in a “case study” dated July 2020. The ATO’s publications in relation to the conspiracies focus on the Serious Financial Crime Taskforce’s eventual detection and subsequent prosecution of co-conspirators (rather than any internal risk to the ATO). It may assist, therefore, and perhaps even improve the community’s confidence in the ATO’s reputation if it (and/or the CFPS) were to release some (or some more) information in relation to any review of its fraud control processes – including in relation to the exploitation of the indirect tax system following Operation Elbrus.

Key takeaways

  • The Plutus payroll tax conspiracies/Operation Elbrus was one of Australia’s largest ever tax crime schemes and was co-designed by an ATO employee.
  • The matter was successfully detected, investigated, and prosecuted following an investigation by the Serious Financial Crime Taskforce, which in particular relied upon the production in court of lawful telephone intercepts and video surveillance evidence.
  • Australian Government entities are not immune to fraud and Mr Cranston’s actions identified internal and external risks to the ATO and the indirect tax system.
  • This matter emphasises the need for organisations, including the ATO, to not only identify and manage their fraud control risk but to manage them on a continuing basis.
  • One of the biggest risks to any organisation is reputational. Although the ATO must necessarily protect its information and processes, some public release of information, at least at strategic level, around its internal control processes following Mr Cranston’s actions may mitigate any such risk and improve community confidence in the ATO.

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