CANBERRA: The Australian Taxation Office has for the first time launched legal action against foreign retail banks over their alleged role in “back-to-back loan” tax-avoidance schemes as part of its $125 million fight with the Binetter family behind Nudie Juice. In Federal Court proceedings, liquidators funded by the ATO accuse two big Israeli banks — Bank Hapoalim and Israel Discount Bank (IDB) — of providing “knowing assistance” to members of the Binetter family to avoid tax by disguising illicit offshore cash stashes as legitimate loans. The banks are accused of deliberately assisting the family to hide at least $67m used to fund their business empire, contributing to massive tax bills when the ATO discovered the scam and disallowed millions of dollars of tax deductions claimed for interest on the “loans”.
Bank Hapoalim settled the case on confidential terms but the proceeding against IDB continues. Last Friday the liquidators, John Sheahan and Ian Lock of Sheahan Lock, who are in control of key Binetter companies, won a separate Federal Court case against members of the family. However, IDB’s deep pockets — it is Israel’s fourth-largest bank with assets under management of about $US50 billion — make it an attractive target for ATO.
In a back-to-back loan, the “borrower” is able to provide tax authorities with bank documents that appear to prove money was advanced to them as part of a commercial loan agreement. However, the “borrowing” is secured by money held in a secret account at the offshore bank, meaning the client is effectively drawing on their own resources. In IDB’s case, Sheahan Lock accuses the bank of providing Binetter family companies with back-to-back loans totalling more than $55m. It is alleged most of the money was transferred to family company accounts held at the ANZ between 1999 and 2009, although about $17m was transferred before June 30, 1992.
IDB “devised and provided the IDB banking service as a means of facilitating the ability of primary customers who sought to avoid or evade tax in the home jurisdiction of the primary customer”, Sheahan Lock said in their statement of claim. It said there was “no commercial rationale” for offering a back-to-back product apart from its role in allowing customers to dodge tax. The case against Bank Hapoalim revolves around 12 million Swiss francs (about $12m at the time) deposited with the bank’s Swiss arm in 1993 and then on-lent to Binetter family company BCI Finances.
Bank Hapoalim is accused of reaching an “understanding” with the Binetter family that no evidence of the Swiss deposits would be kept in Israel or Australia. Its Israeli head office and its Swiss arm “knew that the purpose of the Binetter family in implementing the BCI scheme was to assist persons or entities comprising the Binetter family in evading Australian tax”, Sheahan Lock alleges in its statement of claim. Court documents show Sheahan Lock dropped its case against Bank Hapoalim on September 30. Mr Sheahan declined to comment on the settlement.
