The Australian lawyer who built a booming practice on finding loopholes

Patrick Flynn loves a loophole. The 54-year-old Australian lawyer has built a booming international legal practice by advising Australians how to exploit them to minimise their tax.

Flynn is also fond of secrecy. He tells clients how to stay a step ahead of police and tax investigators – which is why a man who uses air quotes when referring to "serious criminal activity" prefers to communicate using "military grade encryption".

Tax lawyer Patrick Flynn performing with the band The Defendants in 2019.

Flynn is one of the Australian lawyers and accountants facing unprecedented scrutiny from the Australian Tax Office as it undertakes what law enforcement officials acknowledge is a Sisyphean task – tracking the flow of untaxed money from Australia into offshore bank accounts.

An undercover media investigation has also captured exactly what Flynn and other advisers are saying as they spruik "creative" offshore solutions that include complex corporate structures to minimise tax.

This week, The Age, The Sydney Morning Herald, 60 Minutes and The New York Times revealed how a secretive international operation, part led by the ATO and codenamed Atlantis, is targeting dozens of Australian taxpayers who use a Puerto Rican bank, Euro Pacific, co-owned by American celebrity business figure Peter Schiff.

Atlantis is also tracking the lawyers and accountants who have recommended to Australians that they use the bank, the ATO has confirmed. Flynn is under ATO scrutiny, official sources have confirmed, because he refers his clients to Euro Pacific. Under Australian law, Flynn and other Australian proponents of offshore structuring are acting legally, even though they use loopholes.

This has prompted calls for new laws in Australia and better enforcement because, four years after the publication of the Panama Papers revealed that lawyers Mossack Fonseca were directing wealthy Australians towards offshore accounts, the practice is still thriving.

Financial crime experts say the federal government must introduce long-stalled laws that would force Australian lawyers and accountants to report their clients to authorities if they move money in a suspect fashion, including offshore.

The experts, including Alex Erskine, a former senior executive from corporate watchdog ASIC, say advisers such as Flynn highlight the need for changes to ensure lawyers and accountants face the same obligations as banks and money remitters to report suspicious transactions. Instead, they are advising how not to leave a money trail.

On one recording, Flynn says to a person who he thinks is a potential client: "I say to clients all the time, 'Look, there's no reward without risk. You're wanting to set up a tax-free situation, to avoid information exchange [with tax authorities] ... There's no perfect world, mate'."

It may not be perfect, but Flynn is there to show the way to best get there.

'Solid secrecy'

In the late 1990s, Flynn took an out-of-the-blue call from an old university friend that changed his life. While Flynn had spent the past decade running his suburban firm, his mate had moved to London to become a big-time corporate solicitor. It was there, according to covertly made recordings, that he learnt about the offshore finance industry. The attractions were clear.

"Hang on a second, I can make more money setting up off-shore companies, [with] a lot less stress than I can working as a litigation lawyer slash commercial lawyer in London. F--- that," Flynn said on one recording.

His mate was looking for referrals to his new business in the Seychelles – the tax haven that boasts of "solid secrecy and attractive offshore business laws". According to Flynn, "I straight away saw the opportunity, and I said, 'Mate, is there room for two?'"

Lawyer Patrick FlynnCredit: Screenshot

Within days, the Queenslander had boarded a flight from Brisbane to the island in the Indian Ocean, about 1600 kilometres east of Kenya. Seychelles is the stereotype of a tropical paradise – pin-striped hammocks overlook snow white sand and the crystal water is jammed with fish and holidaymakers.

"I spent a week over there, saw the opportunity, saw the country, saw the lifestyle and I thought, ‘Yeah, this will be great.'"

He rushed back to Brisbane, sold his law firm, told his family they were moving and in June, the tropical dot in the Indian Ocean was his new home. While brushing up on international tax planning, Flynn pitched for clients. In his spare time, he played solo gigs in hotels across the island and jammed with his rock band, The Red Trees.

Labyrinthine structures

In his critique of advisers who sell secrecy and loopholes, Australia's deputy tax commissioner Will Day will not name any company or individual. But he's scathing of those who push the limits of the Australian law by offering "international tax evasion" structures.

"What they are attempting to sell is complex financial arrangements in the hope that you can hide behind them ... What you would get in this package is a company in one country, maybe a bank account in another country, maybe a trust in a third country."

While The Age and Herald are not suggesting Flynn is breaking the law, Day's description applies perfectly to his business, Offshore Companies International (OCI). Flynn tells one prospective client his typical advice involves creating "a trading company up front, maybe a holding entity in between and then an ultimate holding entity at the bottom". This hides beneficial ownership. Flynn's clients are also advised to use encrypted email services Hushmail or Protonmail for "maximum confidentiality".

Flynn is particularly fond of Seychelles' private foundations – a type of corporate structure – for the same reason.

"In the event of a lawsuit or tax investigation or regulatory inquiry, your client can swear under oath, 'I am not the legal or beneficial owner of this Company', which could be the difference between being charged with/jailed for tax evasion and walking away a free man."

A man proud of his skills

In his conversation with an undercover operative posing as a representative for an Australia-based multinational businessmen, Flynn also describes "a number of banking jurisdictions" where "we can open up a bank account for your clients" that will not share information with tax authorities.

"There's no risk. There's absolutely zero risk of bank account information sharing," he says.

Anti-money laundering expert John Chevis.

In his pitch, Flynn boasts of his relationships with dozens of offshore banks, and a partner in his firm, says Flynn, is a chartered accountant dedicated to starting offshore accounts.

"For the last 10 years, [that's] all she's done all day, every day."

One "big loophole", he confides to the undercover operative, involves claiming any new offshore account is being set up to run a business, rather than to receive passive income.

"When you open the bank account, for f---'s sake, tell the bank, 'Hey, banker, this company is a trading company,'" says Flynn. "And the bank goes, 'Great – your file goes in pile B.' Pile A are the files where information exchange [with tax authorities] will take place. Pile B is a pile of files where information exchange does not have any application."

Puerto Rico is another favoured destination. It enjoys the two virtues in Flynn's world of secrecy and low or zero taxes. Flynn has been "working with" Euro Pacific – the bank at the centre of international tax evasion probe Operation Atlantis – "for about eight years".

For Flynn, the bank's greatest selling point is the fact it doesn't automatically share information about its Australian customers with other countries' tax authorities, because Puerto Rico and the US are not signatories to an international treaty designed to prevent tax evasion.

Flynn says this means Euro Pacific offers "a totally private bank account. That's the big advantage." Flynn has his own account at Euro Pacific, linked to a currency trading company in Panama.

"I've personally got accounts there," he says.

'Designed to fail'

Financial crime experts such as Erskine and former Australian Federal Police detective John Chevis say advisers such as Flynn are far too lightly regulated. This is despite a bipartisan parliamentary committee in 2015 calling for laws that would make lawyers and accountants becoming money laundering "reporting agents". The laws are also being pushed on Australia by the Financial Action Task Force, a global intergovernmental financial crime agency.

Erskine says Australia's anti-money laundering regime as it stands is "designed to fail. Accountants and lawyers need to be treated as reporting agents for this to change."

Australia's top money laundering and tax haven expert, Professor Jason Sharman, directs his criticism towards a federal government that "doesn't really care about most financial crime". In Sharman's view, Operation Atlantis and other major probes are exceptions to a mostly passive financial crime law enforcement environment.

The ATO's Will Day refuses to comment on calls for legislative change, but concedes he's "concerned about professionals, whether they're lawyers, tax agents or accountants, who might be the connector between an Australian-based tax evader or organised criminal and some of those offshore arrangements". But considering that most act within the law, albeit at its fringes, stopping them is difficult.

When the undercover operative implies to Flynn that the money he is seeking to park offshore is the proceeds of bribery, the lawyer says he doesn't want to be involved with kickbacks.

"It's not an area that I'll be, in terms of my risk appetite ... prepared to work with," he says.

Yet Flynn doesn't end the call immediately. He provides advice for another 15 minutes about how to set up a Euro Pacific account and then agrees to keep dealing with the operative.

'I'm a crime boss ...'

Flynn's Australian competitors include a firm called Wealth Safe, which has staff in Perth and Melbourne. Its founders are lawyers and accountants who promote their businesses as the leader in "creative tax strategies" to "slash your tax". Wealth Safe is not involved with Euro Pacific.

Chief executive Warren Black markets himself as "not your everyday accountant".

Black claims to be an expert in offshore structures, having previously spent "10 years at the ATO including time as an auditor and foundations and structuring specialist".

Prospective clients of Wealth Safe must fill in an online questionnaire. One question asks: "How do you generate your income right now?" A drop-down box suggests: "I'm a crime boss (I have a weird sense of humour!)" Another asks clients why they want to slash tax. "I owe the Tax Office a lot of money in my business and they're chasing me. HELP!!!" is one drop-down option.

When our undercover operative contacts Wealth Safe's Melbourne manager, Virna White, she describes her firm's ability to drastically reduce tax saying: "We can do all weird and wonderful things."

White, a trained accountant, offers the services of a third party – a so-called "internationalisation architect" named "Stephen" – who can help clients set up offshore structures. Stephen, says White, doesn't have "all these regulations weighing him down like we do as professionals".

Lawyer Virna WhiteCredit: Screenshot

"Stephen's more free to go a bit further with our clients than we can, because we're watching our licence closely," she says.

White also stresses that Warren Black's previous job as a senior tax office auditor pays dividends for clients.

"He understands a lot about the ATO system, how they function, because he was a senior one in there," she says. "Because we know what goes on in there … we're always safeguarding things to make sure that in case of an audit or whatever, all the facts are lining up."