Court documents show another $26 million of tax payments was diverted by the alleged conspiracy in those four months.
While the AFP says it needed more time to finalise the case, Michael Cranston was always the prime target of Operation Elbrus, from the time it was set up in August 2016.
In the period from January to May 2017, while the scheme was still running – and costing taxpayers $2 million a week in lost taxes – the AFP was seeking evidence to incriminate Cranston.
AFP executed search warrants
When Operation Elbrus closed down the alleged scam with a massive series of raids on May 17, 2017, the AFP executed search warrants and asset seizures obtained the day before. These stated Cranston was a close associate of the conspirators and had acted as part of the conspiracy to defraud.
But when AFP Deputy Commissioner Leanne Close announced the raids at a press conference on May 18 she said: “Michael Cranston is not being considered for conspiracy to defraud the Commonwealth . . . We don’t believe that at this point he had any knowledge of the actual conspiracy and the defrauding.”
The massive media coverage triggered by the media conference had a devastating effect on Tax Office morale, with Commissioner Chris Jordan forced to defend his Reinvention of the ATO program that promoted more engagement with taxpayers.
In addition to the AFP’s public statements, the media coverage was fuelled by a series of leaked prosecution documents that contained explosive quotes of Michael Cranston speaking to his son, without context. It now appears the AFP misunderstood some of the transcripts involving the then deputy commissioner.
Cranston resigned after he was put on leave without pay. It’s estimated his legal bill exceeds $500,000.
“I never really did anything [for Adam],” Cranston told AFR Weekend. “I declared my conflict. I said, ‘I can’t get involved’. My son’s a taxpayer like anybody else. I didn’t know what he was up to.”
He added: “I love my children, I always will.”
While the jury was only told of the matters relating to the two charges against Cranston, a broader picture has emerged of how Operation Elbrus investigators tried to build their case against him.
He was the big prize
Starting in August 2016, Elbrus had focused on Plutus Payroll Australia, which investigators allege diverted tax payments from the payroll services the company offered to third-party companies and some government departments.
By January 2017, telephone intercepts had uncovered the alleged scam. But there was no sign Michael Cranston had any knowledge of what was going on. The AFP had got wind of rumours swirling in criminal circles that Cranston was involved in the fraud. He was the big prize they were chasing, but it turns out the rumours were wrong.
At the end of January the Elbrus team, which by now included ATO auditors operating out of Townsville, froze a number of bank accounts, as a test.
The AFP telephone taps would allow them to see how the Plutus operatives responded: if Adam would contact his father.
Michael Cranston knew nothing of this. The nightmare that would engulf him began with what looked like a Tax Office blunder.
In the last weekend of January, Adam visited him and said his associate Simon Anquetil had a tax problem.
He showed his father a letter the ATO had sent to Anquetil on January 24, under Michael Cranston’s signature.
The letter said that a tax audit had found a $75,000 payment into Anquetil’s bank account and the ATO concluded this was a consultancy fee. But if this was undeclared income, it was also eligible for GST, and Anquetil had not filed a Business Activity Statement.
The auditor had charged Anquetil $139,850 for unpaid tax plus penalties, plus $122,939 for failing to file BAS statements – and then slapped a garnishee order on Anquetil’s bank account to seize the money, all without notifying Anquetil.
But the $75,000 this was all based upon had been part of the purchase price for selling Plutus to Adam’s company Synep, Adam told his father. So it wasn’t taxable income, nor was there any need for GST or BAS statements.
Adam said Anquetil wanted the name of someone at the Tax Office he could talk to, to explain this, according to his father.
Michael Cranston testified that he thought the Tax Office’s treatment had been harsh, and that it was his job as the ATO’s head of serious non-compliance to rein in tax officers who had been too aggressive.
Son told Anquetil file was ‘protected’
He subsequently asked Assistant Commissioner Scott Burrows to access the relevant Tax Office file, after mentioning his son’s association with Anquetil, but Burrows found the file was blocked.
The first of the charges Cranston faced, that he used information obtained as a public officer “with the intention of dishonestly obtaining a benefit” for Adam, related not to the inquiry he had made, but to what he then told his son.
Cranston told Adam that the Anquetil file was “protected” by a “secret number”, and that the audit was probably in the serious crime division of the ATO.
But what Cranston told his son wasn’t true.There was no secret number, and the serious crime division was not involved, the court heard.
Cranston said he misled his son because he wanted to warn him to distance himself from some of his associates.
Adam had told him a story that a former associate, Peter Larcombe, had embezzled money from the Plutus companies.
Michael told Adam the Tax Office was probably using data matching to trace networks of people linked to Larcombe. Other accountants testified that the ATO had widely publicised such information.
The Elbrus investigators, however, saw it in simpler terms. By the first week of February they had the intercepts that would be used to charge Michael Cranston. But the evidence seemed equivocal. They let the Plutus operation keep going.
The alleged Plutus conspirators regrouped and set up new straw companies. The tax fraud was a $2 million-a-week drain in lost taxes.
It wasn’t until Friday, April 28 – 13 weeks and $26 million later – that the final phase began and the money tap was turned off.
Late on that Friday afternoon an ATO officer in Townsville working with Elbrus slapped $46.6 million in tax assessments on Plutus and froze its accounts, leaving 2000 employees and contractors without wages.
For AFP, a critical conversation
Adam Cranston called his father that afternoon from the offices of Plutus’ tax lawyer, Dev Menon, but Michael was about to get on a plane. He told his son, “We’ll have to work out a strategy,” about whether Adam should contest the assessment, negotiate with the ATO, or “walk away from the bloody thing”.
“You just make sure you haven’t got anything in anywhere – you could be subject to search warrants,” he told Adam.
For the AFP officers listening in, this was a critical conversation. They thought they had him, but there was no elation. “There was not a single high-five in the room” when they heard this, AFP state manager Chris Sheehan later told the Daily Telegraph.
“Michael had been hovering about the edge of our investigation but it was sad that his judgment went that way,” Mr Sheehan said.
“It gave us certainty about his position going forward but it was really quite deflating. We’re all parents, we all think our children are amazing but parents can be blind.”
But as it turned out, the way forward was not as simple as the AFP thought it would be. Despite the line about working out a strategy, Michael Cranston made no attempt to contact his son Adam over the weekend.
On Monday, May 1, Michael was ill but still fielded calls from Adam and then Menon, who told him 2000 contractors’ wages had been frozen and that they were making complaints to the media about the ATO.
They asked him for the name of someone at the AFP they could speak to on Monday, because the Townsville auditor was unavailable on a public holiday.
Irate contractors caught up in AFP trap
It’s not clear whether the Elbrus team timed their move to use the public holiday to increase pressure on the Plutus principals.
In any case, the irate contractors had unknowingly become part of the AFP operation to trap the deputy commissioner.
Michael Cranston called assistant commissioner Tony Poulakis, told him of his son’s link to Plutus and said he was concerned about possible adverse media about the unpaid contractors. He asked Poulakis to have someone call Plutus because of the holiday in Queensland.
Poulakis called Menon, the Plutus lawyer, and advised him to stall any media coverage for a day. He emailed the Townsville officer about what he had done and took no further action.
Cranston “asked Mr Poulakis to do something which ordinarily would have happened the next day . . . because of the public holiday”, Cranston’s defence counsel, David Staehli told the jury.
“The whole case is less than a storm in a tea cup. It’s a nothing in the context of Tax Office affairs. The whole thing is blowing in the wind, we say, and the door should have been slammed on it.”