A Gisborne farmer who submitted false invoices for more than $133 million over four years has been convicted in New Zealands largest tax fraud case.
John Richard Bracken, 54, ran the scam through his company Bracken Enterprises Ltd, which led to him receiving $17.4 million in GST refunds that he was not entitled to.
The Serious Fraud Office was contacted by an employee of Brackens in 2017 after she became concerned that the tax invoices she was preparing for the company may not be legal. The SFO referred the matter to Police and the Inland Revenue Department.
In mid-2019 the IRD laid 39 charges against Bracken in relation to GST returns the company filed between September 2014 and August 2018.
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Justice Graham Lang issued his decision on Saturday. (File photo)
BEL was set up to export various materials to the Pacific Islands. Bracken or his wife Margaret filed invoices with a Gisborne accounting firm at the end of each month. The firm would match the invoices to transactions shown in the company’s bank accounts, then send copies of the GST returns to the Brackens for approval before they were submitted to the IRD.
After suspicions were raised, investigators contacted various entities that had dealt with BEL to provide IRD with information and documents relevant to those dealings.
The Crown said BELs GST returns were false because they related to fictitious purchases of products and were supported by invoices that had been created by people acting on Bracken’s instructions.
The Crown also said the company falsely claimed to have exported the products it received to the Pacific Islands. That meant the company was entitled to claim input tax credits for the products it purchased, and it was not required to pay output tax on the product it sold overseas (the sale of goods for export is a zero-rated activity for GST purposes).
Tom Pullar-Strecker/Stuff
IRD began investigating Bracken in mid-2019. (File photo)
Bracken would withdraw cash from BELs account, or obtain a bank cheque made out to himself or the company. He would then immediately re-deposit those funds into another company account, or an account he operated in the name of Mobile Veges.
The Crown said this created a money go round that enabled the company to claim it was paying for products when that wasnt the case at all.
This crude but effective scheme enabled the company to falsely claim it had purchased product worth more than $133 million and exported nearly all of it over the four years.
The scheme involved Bracken contacting various companies and enquiring about purchasing their products. This would involve the companies providing a pro forma invoice in which the terms of trade were set out. In most cases the companies never heard from Bracken again.
Bottled water was among the items that were the subjects of false invoices submitted to IRD. (File photo)
These pro forma invoices were then copied and altered and used by Bracken to falsely show large purchases that never took place.
They covered items such as UHT milk, kitset houses, bottled water, timber, honey and logs.
Bracken was the architect of the scheme and knew what the company was doing was dishonest.
Records held by the New Zealand Customs Service showed that BEL had exported just $478,000 products to Niue under its own name between 2011 and 2018.
Bracken stood trial before Justice Graham Lang in the High Court at Gisborne earlier this month.
The trial heard from directors and owners of several of the companies purported to have supplied the invoices.
They denied providing the products, or invoices, claimed by Bracken and said the invoices looked very similar to the pro forma ones they had provided to him.
Some of the invoices were for amounts the directors said were much higher than their annual sales figures.
Justice Lang issued his reserved decision on Saturday.
Inland Revenue (IRD) New Zealand / YouTube
Changes designed to simplify the tax system resulted in an extra workload for the department last year. (First published January 2020)
He said Bracken was the architect of the scheme because he arranged for the invoices to be created showing both the purchase and subsequent export of the fictitious product. He also physically carried out the banking and re-depositing of the funds to BELs bank account to create the impression the transactions were genuine.
Bracken was convicted on all 39 charges of dishonestly using a document for a pecuniary advantage. He was remanded in custody and will be sentenced in May.
There is ongoing court action against the Brackens under the Criminal Proceeds (Recovery) Act by the Commissioner of Police in relation to their assets, including their farm at Matawai, near Gisborne, valued at about $7 million.
