The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 45

The rise and fall of the wizards of tax avoidance 71W then had success in the High Court, and that the court said to him that the profits on the sale of his shares were not subject to tax, but were a capital gain. Knight postulated that a businessman would know if he was to make a profit by Christmas or the beginning of the year. He would then arrange to sell his company to a promoter, who would inject the Curran losses and no tax would be payable by the company. THEY were two working class men from the country who struggled against all odds and entered the high-flying world of Australian and international finance. But a fortnight ago they were both jailed for defrauding the Taxation Office of more than $22 million.

MATT CONDOM reconstructs the rise and fall of two of the country's former leading lights in "Bottom-Of -The-Harbour" tax avoidance. 1 KEITH 'It dldnt happen'. IN OCTOBER 1978, an agreement was reached between a company called Camper Timber and Trading and Ward and Knight. The company was to exclusively service Ward and Knight in the "washing" of income or other services. The tax avoidance schemes theoretically became unavailable in April 1978, when then Federal Treasurer, John Howard, announced a clampdown in Parliament.

It was retrospective to August 1977. In late 1979 Ward and Knight sought advice from a leading Sydney Queen's Counsel regarding the validity of the Camper Timber operation. The QC advised that the scheme was illegal and that Ward and Knight could be charged with conspiracy to defraud the Tax Office. Both men, however, continued to promote the schemes, allegedly construing that the QC's opinion supported the legality of the tax avoidance plans. The then NSW Attorney-General, Frank Walker, directed the National Companies and Securities Commission to investigate Ward, Knight and Dunn Limited in September, 1982.

By May 1983 Ward and Knight were both declared bankrupt. They have since been discharged. And in June and July, 1984, Knight was interviewed by the Australian Federal Police's major crime squad on four occasions. The official charge against both men read that they, between April 1, 1978 and December 3, 1980, at Sydney in the state of NSW and elsewhere did conspire with each other and with other persons to defraud the Commonwealth. Crown Prosecutor, Nicholas Cowdery, QC, alleged that the charges related to 71 companies that were "stripped and dumped" from mid-1978 to mid to late 1980.

He told the court that tax evaded and otherwise payable by those 7 1 companies was $22, 1 1 2,070.77. He added that the companies, controlled by Ward and Knight, benefited to the tune of $1,678,404.23. FRANK WARD. "without my knowledge'. "I could not have wished for a better trainer," Knight told the court.

Knight left the firm and became tax manager of Wallace, McMuIIen and Smail before opening his own accountancy practice Keith Knight, Chartered Accountant, Australia Square Tower Building, Sydney. Knight secured the employment of friend Peter John Titley. Titley and Knight met in 1975 at Wallace, McMuIIen and Smail. While Titley was overseas Knight sent him a telegram offering him a job with his new practice. Titley told the court: "Keith said to me, 'I am carrying on practice as a chartered accountant and my practice consists of besides the normal accounting and tax clients a tax specialist, tax advice area and also promoting certain tax schemes'." Knight also said in his statement to the court that he made the decision to become a scheme promoter on Titley 's return to Australia.

THE lives of Francis Dennis Ward and Reginald Keith Knight seemed destined to cross. Both 52 years old, they were born within months of each other. Knight grew up on a farm in Tasmania and had to leave school early to help support the family. Similarly, Ward spent his early years in rural NSW, abandoning school to assist his parents. After working a series of odd jobs, both completed their education and made tentative steps into the money market.

In June 1977 they met, and became caught in the profitable vortex of promoting tax avoidance schemes. Both were considered leading lights in the so-called "Bottom-Of-The-Harbour" tax avoidance rorts in the late 1970s. By 1980 the two boys from the bush had accumulated extraordinary wealth. Knight drove a white Rolls Royce, and owned a S500.000 Sydney home and a share in an ocean-going yacht. His net worth was estimated at $1.86 million.

Business partner Ward's net worth was about S2.8 million. On May I this year. Knight and Ward were found guilty of conspiring to defraud the Australian Taxation Office of S22 million, of which they allegedly received S1.7 million in commission. Both had pleaded not guilty. Ten days later they were jailed and ordered to pay S3 million each to the Federal Government.

Fittingly, after sharing so many similarities in their lives, they were both sentenced to 32 months in prison, with a non-parole period of two years. MUt'li'WIllllH IN KNIGHTS recollection of their meeting, he told the court that Ward was "with a merchant bank and had recently been responsible for the establishment of a trading bank in the Cayman At this time Knight said he was being "weighed down" with the administrative tasks of his growing accountancy firm, and formed Ward Pearce International with both Ward and Pearce. Ward and Knight then decided to branch out on their own, and went to London to meet Peter Dunn. Dunn at the time was European manager of a merchant banking operation, and previously the national general manager and chief executive of a merchant bank in Nigeria. Out of this meeting Ward, Knight and Dunn Limited was formed.

It opened for business in July, 1978. (Dunn was never associated with the illegal activities of Ward and Knight.) As Knight said: "We had a true merchant banking operation in that we had people attempting to introduce vendors and purchasers on an international scale. We had offices in Hong Kong and Europe." Ward, Knight and Dunn Limited grew rapidly, controlling Denman Homes, real estate and property developers Killen and Thomas, industrial property, a licence to make cement flooring and a chemical division. In 1979 and 1980 the company built the North Sydney Shopping Mall for S25 million. It also purchased the British Medical Association building in Macquarie Street, and the Cape York Reef and Game Fishiqg Lodge 60k north of Cairns, north Queensland.

The merchant bank-styled operation was also involved with the Longueville Private Hospital on Sydney's north shore. Knight told the court he was primarily interested in tax minimisation. "My aim, if I had one, was to assist the business community to minimise their tax," Knight said. "I have been trained to do this and, to me, it seemed a career that I wished to pursue." I EANWHILE, Frank Ward was working for the fledgling Nugan Hand Bank. He too had risen from nowhere and was forging ahead with a career in finance.

Ward was born in Wellington, in central NSW, on May 2, 1937. According to his statement to court, he moved to Balhurst as a child and had "always been inclined towards sporting achievement rather than academic He was known in Bathurst for his prowess in rugby league, golf and squash. Ward said he was obliged to leave school to assist with the family finances. He then joined the public service and studied English, typing and shorthand at college. He later worked for the Petersville company as its marketing services manager in Sydney, where he met his wife, Julie-Anne.

Ward then began travelling extensively in his new position for an international trust company, Australian Investments. He married his wife Julie-Anne in 1970. Later, through an old friend, he was introduced to Frank Nugan of the Nugan Hand Bank. His friend suggested he talk to them as they were in the process of setting up a precious metals trust. Apart from Frank Nugan and his secretary.

Ward was the only other person in the bank's Sydney office. Nugan asked him to act as director. Ward told the court he believed Michael Hand had left the bank because he had made enough money and wanted to settle in America. Ward himself later appeared as a witness at the Nugan Hand Royal Commission. In mid-1977 he met Tony Pearce through a friend.

Pearce was marketing tax schemes and offered Ward a commission job. Then at the end of June, 1977, Ward met Reginald Keith Knight. IN HIS statement to the Supreme Court, Knight declared: "My upbringing brought me into contact with just about all stratas of society except the very rich. That was an area that intrigued me. "I developed a fascination for tax plans.

Here large companies were saving millions and millions in tax simply by altering their affairs. "And I was starting to meet some of that class of society, of the rich and the famous." Ironically, it was the attraction to that class that eventually contributed to the downfall of Knight and Ward. Keith Knight hardly seemed a candidate for the high-flying world of international finance. Born in Geeveston, northern Tasmania, on February 26, 1937, he was the eldest of six children. After matriculating he moved into insurance and later started a wholesale vegetable business.

According to Knight's statement to the Supreme Court, he had to leave school at IS because his parents earned insufficient income to provide education for the children. Married with two children of his own by the age of 25, he worked in various clerical and labouring positions until he decided that without further education his ability to improve himself was "probably He later gained an economics degree from the University of Tasmania in Hobart, while driving taxis to support his family. In 1971, still fuelled with the desire to better himself, be moved to Sydney and took up a position with a major accountancy frrm. Knight worked in the taxation division under expert Ted Mannix. WARD'S brief 33-page statement to the court included: "I carried out my duties honestly and diligently and to the best of my knowledge.

I never acted dishonestly and if these companies were sold to men of straw, they were done without my knowledge or consent "The Slutzkin scheme was extremely technical and for this reason I personally avoided its promotion. There were far greater rewards in other aspects of tax promotion. "I never actively sought to interest clients in the Slutzkin tax planning method, it was only by accident in discussing tax matters with clients' accountants that they emerged. "I believe I carry on my family tradition in the manner so many average Australians do by being a good husband and father and conducting my life with dignity and honesty. I would not do anything to cause disgrace to my family or friends." In his 144-page statement to the court.

Knight began: "I believe that the methods used by myself, Frank, and everyone associated with our firm, were legitimate and would have legally effectively achieved these aims. "I have been charged, unfortunately, with conspiring to cheat the Tax Commissioner of a rather large sum of money. There is no evidence that I sat down with Frank, or with any of the others, and made some agreement which we put into a document where we all said, "We are going to cheat the It didn't happen. "I did not set out to cheat the Tax Commissioner." The Supreme Court found otherwise. KNIGHTS and Ward's main tax avoidance methods involved employing the now legendary "Curran" and "Slutzkin" schemes.

Knight explained to the court his definition of the Curran scheme, named after Sydney stockbroker Charles Curran who won a High Court challenge over his tax minimisation methods: "By share trading and creating additional shares and dealing in those shares, losses could be achieved which were only losses as far as the Tax Act was concerned. There was no real loss. "To me it did not seem as if it should work, but the High Court of Australia said 'Yes it does'." Knight added that a man named Slutzkin 4 THE SUN-HERALD, June 4, 1989.