This was published 4 years ago
The day the international tax authorities came knocking
On a sunny Friday in late January, investigators from the Australian Tax Office ruined some people’s days. In Amsterdam it was icy when, on the same day, investigators were doing the same thing.
By Charlotte Grieve, Nick McKenzie and Joel Tozer
Peter SchiffCredit: The Age
On a sunny Friday in late January, investigators from the Australian Tax Office issued subpoenas and fired off letters as part of an unprecedented probe that reached around the world.
It was a similar scene in Amsterdam, where investigators from the Dutch tax agency set about a similar task. So, too, did investigators in the United States, Canada and the United Kingdom.
While none of the millionaire tax dodgers targeted on January 24, including about 100 Australians, knew each other, they shared a bond: they were customers of a little-known Caribbean bank.
The Euro Pacific Bank in Puerto Rico’s capital San Juan was founded by American celebrity investor and business commentator Peter Schiff. The silver-haired and pugnacious businessman is worth an estimated $100 million. On major television networks, popular podcasts and his own YouTube channel, he reminds his audience he predicted the Global Financial Crisis. He also likes to warn people about the upcoming economic apocalypse from which they can take financial refuge in his “privacy assured” bank.
Banker Peter Schiff.Credit: Channel Nine
Schiff’s celebrity status is likely why some major Australian financial institutions, including Westpac and the Perth Mint, hopped into bed with the Euro Pacific Bank. They weren’t alone. The New York Federal Reserve and Canada’s Bank of Montreal both allowed their customers to transfer funds into the bank, cloaking it in an air of credibility it used to attract thousands of clients, including at least 400 from Australia (about 100 are considered "high risk").
But on January 24, Euro Pacific became the target of Operation Atlantis, the world’s largest tax evasion probe. Australia’s deputy tax commissioner, Will Day, describes the inquiry as “unprecedented”.
An investigation by The Age, The Sydney Morning Herald and 60 Minutes in collaboration with The New York Times can reveal that Operation Atlantis is examining the financial transactions of Euro Pacific’s customers. Hundreds of account holders are now suspects in a tax evasion probe.
Among the super wealthy Australians suspected to have sought to keep their financial affairs secret is the Sydney businessman responsible for one of Australia’s biggest tax rorts, Simon Anquetil. Other Australian account holders include Darby Angel, a Hollywood film financier with a drug-trafficking conviction.
Simon Anquetil in happier days.
If Euro Pacific is the suspected heart of a shady financial system, its partners such as Westpac and the Perth Mint are the veins. Despite the raids, Euro Pacific is still, for now, pumping suspected tax-lite dollars around the world. And in an interview, Schiff says he intends to keep it that way.
Like father, like son
A dislike of paying tax is a Schiff family trait. Peter Schiff’s father, Irwin, is viewed as a martyr of the tax resistance movement. He ran a business called Freedom Books from a Las Vegas shop front, selling information packages that taught thousands of Americans how to cheat the system. He died in jail for tax evasion.
Schiff has inherited his father's love of profile. He spends hours each week recording his internet show, talking about everything from inflation and gold to the “fake news” of white privilege. But while Irwin opened a bookshop, his son opened an offshore bank in sunny Puerto Rico – a US territory in the Caribbean which offers low to zero tax rates for eligible businesses and residents.
It was January 2017, almost three years to the day before the ATO began knocking on doors, when Schiff and partner Mark Anderson filed into the Department de Estado – a pale-blue Spanish colonial-style building with two Puerto Rican flags adorning the front entrance — to sign documents registering their new venture.
The bank’s new office is on the 10th floor of a blue-glass block that overlooks the North Atlantic Ocean. It’s in the expensive part of San Juan. But former employees speaking on the condition anonymity say the office was a bit like the bank itself. “An empty shell that has the appearance of luxury,” according to one Puerto Rican who worked there. “It was basically empty except for a few desks, chairs and the computers.”
Colourful houses line the hillside overlooking the beach in San Juan, Puerto Rico. Credit: Shutterstock
When it opened in San Juan, Euro Pacific was one of 81 offshore banks on the island and it would become by far the biggest. Government records from the time of registration show the bank had 13,000 customer accounts and more than $232 million in deposits. Schiff himself lives there with all the trappings of colonial luxury.
Offshore accounts can have legitimate purposes. For example, they can hold money for multi-national businesses. But former Australian Federal Police officer and financial crime expert John Chevis has also seen them used to stash untaxed and undeclared income, aided by bankers who, even if they may not have direct knowledge of what their customers are up to, are willing to exploit legal loopholes.
"You would have to question why someone would place their money in a jurisdiction that's so far away, in a bank that doesn't pay any interest, in a bank that charges enormous fees for moving your money," Chevis said.
Euro Pacific’s former IT director, John Ogilvie, also had questions after working at the bank in 2014-16. Ogilvie says he was confronted with a shambolic business, lax data security and high-risk clients. He suspected some Australians were opening up accounts to avoid the ATO.
The bank's security was also a problem. Anderson’s computer was hacked three times over a two-year period, Ogilvie says, and at one point, Russians tried to extort the bank for a ransom of 1000 bitcoins, worth millions of dollars. Ogilvie says customers from Australia and elsewhere seeking to keep their bank accounts secret were instead at risk of having their financial affairs floating around the dark web.
Former AFP organised crime investigator John Chevis.
Recruiting customers was a relentless job done by “onboarders”. Five of them, speaking on the condition of anonymity, claim they went through an inconsistent vetting process that ranged from a quick Google and social media check “to make sure they were a real person” to, in some cases, a more thorough series of checks.
“There’s a huge disconnect between what you’re taught and what you do,” says one ex-employee.
Euro Pacific’s anti-money laundering efforts were also viewed sceptically by some of the large companies it was courting. Mastercard rejected the bank’s application for a licence around 2017 after it failed to meet anti-money laundering standards, leaving many customers without debit cards. By 2018, negative feedback about the bank was circulating online, and applications for new accounts started to dry up. At the San Juan office, the kitchen stopped being filled with coffee and snacks.
By then, Ogilvie had been sacked over a disagreement with senior management. After two years at Euro Pacific, his last act was to send an email to Peter Schiff.
“The chickens will come home to roost,” Ogilvie wrote. “You will have to deal with the problems within Euro Pacific Bank Ltd. at some point.”
The Australian connection
What most of us know about the world of international tax avoidance comes from the exposure of Panamanian law firm Mossack Fonseca which arranged for the ultra-wealthy to hide their financial affairs in tax havens.
But the "Panama Papers" scandal had another profound effect. It exposed tax authorities as flat-footed and reactive. In the months after the leak in 2016, senior investigators from Australia’s Tax Office and criminal intelligence commission proposed their own network of global investigators. With minimal fanfare, a taskforce called the “Joint Five” was created in 2018, comprising the five chiefs of tax agencies in Australia, the US, UK, Canada and the Netherlands.
Australian Tax Office investigator Will Day.Credit: Alex Ellinghausen
Mimicking the Five Eyes spy alliance, the Australian "J5" chief Will Day says he and the fellow tax sleuths began searching for snippets of financial intelligence that could open up a “chink in the armour” of secretive offshore banks.
“There's always a trace for us to pick up on and that might be through our own covert operations, it might be from an investor coming forward,” says Day.
Day agreed to be interviewed on the condition he would not name any entity or individual. He is very careful. But he confirms the J5 chiefs began hunting for the sort of leaked data that informed the Panama Papers. He also confirms the title of the J5’s biggest investigation: Atlantis — the name of a mythic Greek island.
And the chink in the armour that triggered Atlantis?
According to a source with involvement in the overseas operations of the tax probe, a leak of the account details of thousands of Euro Pacific customers opened up lines of inquiry. Once the J5 had the information, customer names were matched against criminal databases held by police and tax agencies around the globe, along with income tax declarations. The information revealed Euro Pacific’s customers included entities linked to a who’s who of financial and organised crime. Among them was Sydney businessman Simon Anquetil, the mastermind behind Australia’s biggest tax fraud, Plutus Payroll.
Simon Anquetil during his Plutus Payroll days.
The Plutus fraud, hatched in 2014, started as a payroll services company but morphed into a scheme that stole millions of dollars from the tax office that paid for fast cars and glitzy events graced by the likes of Miss World Australia. By the time police arrested Anquetil in May 2017, they estimated he had stolen more than $105 million.
Sources say another of Euro Pacific’s account holders is Australian entrepreneur and Hollywood film financier, Darby Angel.
Angel first appeared in public records in 1996 when he was convicted in the Melbourne Magistrates Court of drug trafficking.
When approached for this story, Angel was quick to contact the same lawyer who represented him back in 1996 – Melbourne’s Bernie Balmer, the gruff-speaking defence lawyer who goes by the name Bernie the Attorney. Angel said he’d never heard of the bank and denied any involvement in wrongdoing outside of his historic drug conviction. It must be a case of stolen identity, he said.
Entrepreneur Darby Angel.
Years of work ahead
An international customer was Canadian national Gunnar Helgason, who in 2013 was arrested and deported by Thai authorities as the mastermind of “an international boiler-room scam”. Helgason was blamed in the media for stealing $50 million from Australians between 2008 and 2013 but was never charged.
His corporate bank account at Euro Pacific was linked to a Seychelles company created to export furniture, he says. The bank never asked him about his past, Helgason says, only lots of standard check-the-box questions.
“No one at Euro Pacific Bank said: 'Can we have a copy of your most up-to-date CV? And by the way, don't leave anything out'," he recalls.
The FBI also linked an account at Euro Pacific to a Russian syndicate described by the FBI as the world’s worst cyber crime group.
It will take years for investigators to work through the bank’s thousands of customers. Some may be legitimate. Others not. Of the 100 or more Australian customers, one was John Clark.
Clark was a fan of Schiff’s podcast and shared his fears the economy would soon collapse. The 65-year-old says he’s worked hard all his life and wanted to secure his assets. In 2014, stashing some cash in an offshore bank backed by gold sounded like the right option. He says no authorities have got in touch, but he now plans to close the account.
“It seemed like a good idea at the time. Nothing sinister to be honest. It was easy putting the money in, I bet it’ll be a lot harder pulling it out,” says Clark.
The veins
Will Day from the ATO says Operation Atlantis targets international money laundering and tax evasion. The January 24 raids, he says, were the first time in the history of tax enforcement that investigators around the world had simultaneously launched actions to disrupt and collect evidence about an offshore bank.
Sources aware of the overseas raids have confirmed that British tax authorities arrested a Euro Pacific client and issued warrants to several banks dealing with Euro Pacific. In Canada, referral agents were approached and interviewed. In America, the IRS intercepted Schiff and Anderson for questioning.
Day won’t discuss these actions but he will admit to “a feeling of excitement”. As far as international financial crime probes go, he says, Operation Atlantis was “unprecedented".
The operation needs to “disrupt the operations of this particular financial institution”, but Day also stresses he is circling “those professionals who might be thinking about connecting their clients to these sorts of arrangements”.
The J5 is also hunting the lawyers, accountants and financial institutions linking taxpayers to Peter Schiff’s bank.
Euro Pacific would not survive if not for the big and small players that make up the financial ecosystem supporting it. Referral agents, including lawyers and accountants, direct their clients to the bank in return for a commission or client fee.
One of Euro Pacific’s key Australian promoters is lawyer Patrick Flynn. He quite lawfully recommends his clients to the bank, saying its main virtue is that it refuses to automatically share information with overseas tax authorities. Flynn also promises to help keep law enforcement away from his clients’ financial affairs by using bank accounts linked to company structures in multiple offshore jurisdictions.
Lawyer Patrick Flynn.Credit: Screenshot
“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)',” he tells clients.
Flynn said in a statement that he helped clients with "legitimate commercial and fiduciary structures" with more than 50 banks around the world. He added: "[We] do not assist clients to evade taxes. So far as we are aware, no client of our firm has ever been accused of, let alone convicted of, tax evasion."
In 2017, former AFP financial crime investigator John Chevis discovered that the West Australian government-owned Perth Mint was working with Euro Pacific.
"I was very surprised," Chevis says. "I think there's a significant risk that some of the gold held within the Perth Mint by customers of the Euro Pacific Bank may be held beneficially for criminals in other parts of the world."
Gold bars at the Perth Mint.Credit: Bloomberg
The mint, which is guaranteed by the WA government, is the largest refiner of newly mined gold in the world. Schiff’s ultra-bearish investment style has encouraged thousands of clients to pour money into the precious metal. Euro Pacific customers could buy bars of gold through the bank and, at one stage, its debit cards were supposedly backed by the Perth Mint’s gold.
The Perth Mint was also probed by the ATO in January, sources with knowledge of the raids say. The company refused to comment on its relationship with Euro Pacific. However, shortly after this masthead asked about its relationship with the Puerto Rican bank, the years-long relationship was severed.
Chevis says Westpac faces identical questions. For years, Westpac was Euro Pacific’s correspondent bank in Australia, enabling it to send and receive Australian funds in return for a small fee and access to Euro Pacific’s clients.
These partnerships have caused headaches for the country's oldest bank. In November, the financial crimes watchdog found Westpac failed to properly monitor transactions related to 16 of its correspondent bank partners. The failure caused it to breach anti-money laundering laws 23 million times with some payments linked to live child sex shows in the Philippines. Westpac has now agreed to pay the largest fine in Australian corporate history: $1.3 billion.
But Euro Pacific was not one of the correspondent banks singled out in the action by the regulator.
Westpac had connections with Euro Pacific Bank until 2018.
A former Westpac employee who worked in the bank’s anti-money laundering department, who spoke on the condition of anonymity, said Westpac relied on its correspondent bank partners to provide information about its clients. In other words, it's a one-way stream of information. This makes it Euro Pacific's responsibility to ensure its clients aren't involved in criminal activity.
Westpac terminated its relationship with Euro Pacific in 2018 but won’t say why or provide any details on how much money it helped the bank move.
Euro Pacific is now on the hunt for a new Australian banking partner, telling customers in July it would notify them “as soon as incoming AUD transfers are available again”.
Schiff confronted
Schiff agreed to an interview last month. It took place via Zoom from his upmarket home outside of New York. His guard was down. In the nine months since the J5’s raids, Euro Pacific’s name had not leaked. Schiff started talking about topics he’s comfortable with – tax, the economy, the wrongs of government spending.
Peter Schiff objects to reporter Nick McKenzie's line of questioning.Credit: Channel Nine
But the moment he was asked about his Puerto Rican bank, he stiffened and distanced himself from its operations. Asked why his bank was caught up in the world’s biggest tax evasion probe, Schiff denied any wrongdoing, personally or by his bank.
“I'm just going to get out of this chair if you're going to keep asking me these kinds of questions,” he said.
Asked why the US Internal Revenue Service visited him on January 24, he refused to elaborate.
“I've already answered the question that we're not involved in any illegal activity,” he said, adding the bank “turns down far more accounts than we approve because our compliance is so rigorous".
Schiff threatened to sue this publication, ripped off his microphone and stormed out of his own living room.
Peter Schiff leaves the interview.Credit: Channel Nine
Displace and chase
Chevis says targeting Euro Pacific is a thankless task. Close down one bank and another quickly fills its place.
“That’s the game, you displace them and chase them to the next spot.”
Still, Chevis says, it’s worth it.
“If Euro Pacific closes down, people are going to have to go somewhere else ... and hopefully some of them just won’t do it. At least, that’s what I tell myself.”
Day says Atlantis continues to move in on the “professionals who might be thinking about connecting their clients to these sorts of arrangements”.
And he warns the Australians caught up in the probe may face civil penalties or jail terms for tax evasion. Other Australian policing agencies have joined the hunt. The nation’s peak criminal intelligence agency, the Australian Criminal Intelligence Commission, has listed Euro Pacific as an Australian Priority Organisation Target. This designates it as one of the most serious criminal threats to the nation’s security.
Schiff is dismissive of the interest from law enforcement.
“It's got nothing to do with reality,” he says of Operation Atlantis. “There's a lot of things that a government could believe that might not be true.”
And before storming away, Schiff made it clear Euro Pacific is going nowhere.
“Now eventually, I’m hoping that the bank will be profitable,” he said.
If it does, it will buck the Greek myth after which Will Day's and the J5's operation is named. The ancient story of Atlantis ends with the island sinking forever into the ocean.