Tony Molloy: 'Time and time again, courts labelled Winebox deal fraud'

By Tony Molloy

Contrary to the claim in a Herald editorial Mr Peters is not being unfair to the Serious Fraud Office. The Herald is being unfair to Mr Peters.

The claim that the Winebox rorts were "legal in their day" is staggering. It is contrary to a whole line of judicial decisions on the Winebox findings. It is simply untrue.

Before the Winebox inquiry began, in Television New Zealand v European Pacific Banking Corporation, in 1994, the Court of Appeal accepted TVNZ's argument that it should be free to go to air with a documentary suggesting that the Magnum deal in the Winebox was "fraud in the form of tax evasion" and that it had been "designed to conceal the truth from taxation authorities".

The court held that "it is enough to say that on the evidence now before the court [Television New Zealand] have a seriously arguable case".

Once the inquiry was under way, the attempt was made to prevent Sir Ron Davison admitting testimony from former employees of one of the companies with which Fay Richwhite had been associated in these scams.

On February 16, 1996, the Court of Appeal rejected that attempt. The case was Controller and Auditor-General v Sir Ronald Keith Davison. Justice Henry held that there "is evidence presently before the [Winebox inquiry] to support a contention that some of the transactions may have defrauded the New Zealand revenue or provided a means for evading tax".

Again, in November 1998, the Court of Appeal upheld Mr Peters' right to contest the findings of Sir Ron's facile report. Justice Ted Thomas said of the European Pacific tax certificate scheme that "I would have thought that 229A [of the Crimes Act 1961] was prima facie applicable, necessarily leaving open the question of the element of intent".

Justice Thomas saw a "strong argument" that the Magnum "transaction is a sham, that is, [a transaction in which] the form merely conceals the fraudulent reality".

The Court of Appeal expressly found that there was a basis on which to contend "that by telling only half the story" the Fay Richwhite affiliated company in question "misled the New Zealand Inland Revenue", and thereby gained "the pecuniary advantage of immediate acceptance of the tax credits without the risk of having to withstand a tax avoidance investigation by the department".

In December 1998, a "committee of experts" headed by just retired Court of Appeal Judge Sir Ian McKay, and including Victoria University Law Professor John Prebble, John Waugh, and the writer, delivered to the Government its report on the robustness of the tax system.

The committee's terms of reference required that it comment on the quality of staff of Inland Revenue, whose then commissioner had exposed his appalling ignorance by declaring that there was "no fraud in the Winebox".

At paragraph 13.41, the committee reported that: "The skills of Inland Revenue staff are crucial to the integrity of the tax system. The committee cannot assure the Government that the Inland Revenue staff as a body have the expertise they need."

Those comments were applicable with equal force to the Serious Fraud Office.

At about the time the committee was completing its report, Mr Peters was exercising the right declared by the Court of Appeal, and was arguing his substantive case before that court. His case was that the Winebox schemes were fraud, and that Sir Ron had got it totally wrong.

Instead of putting the normal three judges on the case, the Court of Appeal allocated the hearing to its full bench of seven judges.

The court issued its judgment on the Winebox in August 1999. It held that "the Magnum tax credit was unlawfully received and retained". The judges reaffirmed the above findings of the courts in 1994, 1996 and 1998, that "the inferences that might be taken from the very nature, intended result, and non-disclosure of the steps taken in the Magnum transaction ... could support a finding that there was evidence of fraud".

The Court of Appeal therefore definitively quashed Sir Ron Davison's whitewash.

As the ninth anniversary of that decision draws near, is it too much to hope that the Herald might soon catch up with it?

- NZ Herald

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