Australian tax official charged in $123 million fraud probe

A senior Australian tax bureaucrat and his son are among 10 people charged over a sophisticated tax fraud that netted 165 million Australian dollars ($123 million) in less than a year, police said Thursday.

Australian Taxation Office Deputy Commissioner Michael Cranston faces up to five years in prison if convicted of abusing his position as a public servant by passing information to his son, Australian Federal Police Deputy Commissioner Leanne Close said.

Adam Cranston, 30, is managing director of a Sydney-based financial services company.

Police do not allege the 58-year-old bureaucrat was part of his son's nine-member criminal syndicate that spent unpaid taxes on luxury homes, racing cars, aircraft, motorbikes, jewelry, art and vintage wine, Close said.

The nine was arrested in police raids on Wednesday and will appear in court on Thursday on charges of conspiracy to defraud the government, dealing in the proceeds of crime and demanding money with menaces. Police could not immediately say what penalties they could face.

Police served Michael Cranston with a notice on Wednesday, after his son's arrest, to appear in court on June 13.

"Michael was in shock when we spoke to him yesterday, as you would image, knowing what's happened to his son," Police Detective Superintendent Kirsty Schofield said.

Three other tax bureaucrats face disciplinary action for accessing information about an internal audit of the fraud, Acting Commissioner of Taxation Andrew Mills said. Tax officials are only allowed to access data relevant to their work.

"I cannot overstate the seriousness of these matters," Mills said, referring to the alleged corruption uncovered.

"Australians must have a tax administration that they can trust and the people of the ATO must be of the utmost integrity and good judgment," he added.

The conspirators ran a legitimate payroll company contracted to pay staff on behalf of their employers.

The scam came in when the conspirators introduced subcontractors to pay the salaries. Police allege the subcontractors were "a front" that only paid part of the taxes that the employees owed.

The conspirators controlled the subcontracted companies that were officially run by "straw directors," people who are recruited to appear to be operating businesses which they have no real involvement in, police alleged.

News Corp. reported that the scammers believed they had struck a sweet spot where each individual tax underpayment was too small to trigger a tax office response.

Police began investigating the scam in June last year. The tax office later became aware of the fraud through its internal systems and started working with the police, officials said.