Judge blasts the tax office for assuming it’s entitled to money from Project Wickenby probe

It turns out the ATO wasn’t entitled to money it seized. Picture: iStock

Wilful blindness, want of probity, highly unsatisfactory – all strong words from the judicial bench. And no, we’re not talking about some small-time white-collar crook, we’re talking about the Australian Taxation Office and one of its most senior officials.

The bludgeon was wielded by NSW Supreme Court Justice Anthony McGrath, who took a blunt axe to the ATO in a long-running case that undermines the tax office’s actions in its prized Project Wickenby tax evasion investigations.

In essence, the matter was over whether the ATO was entitled to take the first pick of the ­assets of a tax cheat when it should have known the money was never his to avoid taxes on in the first place.

The case, in all its long and tortured history, has been running since 2007 – so we’ll have to skip a few details, even the juicy ones.

The sorry tale starts with West Perth penny stock Chameleon Mining and Sydney ­accountant Phillip Grimaldi.

Grimaldi was only ever a shadow director of Chameleon, but effectively – along with Perth prospector Greg Barnes – raised money through Chameleon to buy West Australian iron ore tenements for a company of which Grimaldi was a director, NiCu.

NiCu turned into Murchison Metals, which became the centrepiece of ill-fated efforts to create a new iron ore district in WA’s midwest region, and managed to become worth a fair bit along the way.

Former Vanuatu-based accountant Robert Agius was arrested in 2008 as part of Project Wickenby.

Chameleon never got the benefits of the cash it raised, or Murchison’s future good luck. But Grimaldi had organised himself a “spotter’s fee” in Murchison shares for arranging the transaction.

He cashed out those shares when Murchison stock took off, for a tidy $36m.

Grimaldi then hired Vanuatu-based Australian accountant Robert Agius to help him disappear the money offshore and out of the reach of the tax ­office. As you do.

Enter the ATO’s Project Wickenby, which twigged to Agius’s schemes and was hunting for high-profile scalps – of which Grimaldi became one, ­settling a $36m tax bill for $19.5m in 2010.

The problem for the ATO is that Chameleon – at the time chaired by rugby league legend Benny Elias – had also cottoned on to the swiftie with Murchison shares and was suing everyone in sight, Grimaldi included, arguing it should have gotten the Murchison shares or the iron ore deposits, or preferably both.

But by the time Chameleon won against Grimaldi in 2010, the ATO had already scarpered with the bulk of his winnings.

And so, Chameleon – these days wholly owned by the litigation funder that backed the initial case – went to court to get the money back from the ATO.

Justice McGrath on Tuesday ordered it was entitled to the cash. In part, because Chameleon’s lawyers told the ATO the money was never Grimaldi’s to start with, and it should cool its jets on the seizure.

But, when you’re running the biggest tax fraud investigation in the country’s history, scalps matter, and the tax office took the cash anyway. That’s the conclusion of Justice McGrath, at any rate.

Former NRL player Ben Elias was a director of Chameleon Mining.

“In effect, the ATO had instituted a policy of wilful blindness in relation to the claims in the Chameleon proceedings akin to a ‘tax now, ask questions later’ approach. Although in this case, it did not even bother to ask any questions later,” he said.

The ATO conducted itself with a “want of probity” by forcing Grimaldi to use his ill-gotten funds to pay a tax debt, then didn’t even tell Chameleon it had done it.

And as for the senior tax officials involved, most notably former assistant commissioner Michael O’Neill?

He was last seen unravelling PwC’s tax scandal at the Tax Practitioner’s Board, before being sidelined as a “special adviser” to the Charities and Not-for-profits Commission this month. God’s work, to be sure.

But Justice McGrath’s commentary on his evidence will be a late-career black mark that stings.

O’Neill’s evidence was “unreliable”, “incorrect” and “highly unsatisfactory and damaging to Mr O’Neill’s reliability and credibility as a witness”, according to the judge. Not a great look.

Final orders in the case are still due, but it looks like the ATO will have to hand over the money it took from Grimaldi – plus interest dated from 2010. A solid win for the litigation funders, if not for the ATO’s reputation or Treasurer Jim Chalmers’ budget.

Lastly, spare a thought for the lawyer who won the case, Banton Group’s Amanda Banton.

Banton only entered the legal profession in 2003, took on the Chameleon case in 2007, and has therefore spent most of her ­career plumbing the depths of the West Perth mining scene in the noughties.

We can only hope the costs to be awarded is generous.