ANZ throws fraud victims to wolves

By Jock Anderson

Friday 16th July 2004

Two banks whose slack cheque handling practices helped dishonest tax agents commit multimillion-dollar fraud are at odds over reimbursing victims.

In a rare move Westpac reimbursed victims.

ANZ, now called ANZ National, wouldn't even talk about it.

In unrelated but uncannily similar circumstances both banks enabled fraudulent tax agents to rip off clients at opposite ends of the country. Victims were individuals and small businesses.

Westpac and ANZ ignored Bankers' Association standards and the Cheques Act by accepting "not transferable" cheques made out to other people for deposit into the fraudsters' accounts.

By doing so both banks helped the commission of major frauds.

Under the Cheques Act, banks can be held liable if appropriately protected cheques do not reach the intended recipient.

Both tax agents ripped off clients by banking client tax cheques intended for Inland Revenue, and client tax refunds from the IRD, into their own accounts.

The IRD insisted the fraudsters' innocent victims remained liable and those who could afford to had to pay unpaid core tax totalling about $1.4 million.

But in the circumstances the IRD was prepared to waive use of money interest and late payment penalties.

During investigations by the Press newspaper in Christchurch, Westpac confirmed confidential settlements were reached with some victims after admitting its cheque handling practices helped North Canterbury tax consultant Tony King commit a $1.8 million fraud.

The Press reported that for seven years Westpac allowed King, due to be sentenced in Christchurch District Court today, to deposit into his account $830,000 in cheques not made out to him or his firm, Gowland King Taxation Services.

King did not pass on most of nearly $750,000 in cheques made out to the IRD. Nearly $90,000 of tax refunds, in individuals' names, also ended up in King's Westpac account.

In addition King ripped off nearly $1 million from investment funds he managed.

Westpac spokesman Paul Gregory put the bank's "hand up" and candidly admitted Westpac made an error by accepting "not transferable" cheques.

But in a similar case the ANZ refused to say if it would follow Westpac's lead and reimburse the victims of struck-off Auckland accountant and tax agent Brett William Knock.

An ANZ spokesman's frustrating line ran that the bank was "unable to say whether anyone is a customer given ANZ's statutory and common law duties of confidentiality to all of its customers."

ANZ did not respond to the National Business Review's suggestion that from a banking integrity and customer reassurance point of view it could comment on a hypothetical scenario without necessarily referring to the Knock fraud.

Bankers' Association chief executive Errol Lizamore said the association maintained standards and a code of practice for banks. But how banks interpreted these was up to individual banks and could not be enforced by the association, which did not discipline banks.

Knock, whose fraud NBR revealed in June last year, was last week jailed for six years after admitting 14 representative fraud and forgery charges.

Knock's clients still owe nearly $1 million tax and the IRD expects them to cough up. According to the IRD, some clients swindled by Knock still owe between $12,000 and $200,000 tax.

Compounding the damage is that clients who were defrauded out of tax refunds paid directly to King and Knock won't get replacement refunds. They are faced with taking civil action against fraudsters but with little or no money.

Referring specifically to the Knock fraud, the IRD's Auckland north service centre manager, Richard Philp, said the IRD was using client records to reconstruct the correct tax position and would work with each taxpayer to establish if he or she could afford to pay core tax.

Philp said where the increased liability was onerous and the taxpayer was in financial hardship, the IRD had discretion to waive the tax.

"Some people are in a disastrous situation and we are not going to push that ... but some are in a position to follow through and address liability and we will work out something sensible with them."

Philp said because of extenuating circumstances of how the liability occurred, there would not be any risk to victims over late-payment penalties or use of money interest.

Victims would not be required to pay that but they would have to make a written request to the IRD to enable the correct process to be followed.

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