Australian ‘Charity’ Fined Record $1.5 Million

The Federal Court has ordered the Australian promoters of an AIDS pharmaceuticals donation scheme to pay $1.5 million to the Australian Taxation Office, the highest civil penalty ever, for attempting to exploit the tax system.

Stephen Arnold, Leaf Capital Pty Limited and the charity they run, Donors Without Borders (DWB), was fined the record amount for breaching promoter penalty provisions and “generating deductions to which their clients were not entitled”.

ATO Deputy Commissioner Tim Dyce said the fake philanthropic scheme was modelled on an arrangement which previously failed in Canada, and involved the purchase and donation of AIDS pharmaceutics to charities in Africa.

“As we discovered, the purchasers only paid 7.5 per cent of the grossly inflated price of the drugs, yet claimed tax deductions of 100 per cent,” Dyce said.

Dyce said the Federal Court had found that DWB was working on at least five grounds that were not available under the law and that there was no actual delivery of the AIDS medicine to the charities concerned at the relevant time.

“When it comes to schemes, we have seen some unscrupulous promoters,” he said.

“We’re here to protect investors from aggressive schemes and we will take decisive action against anyone who breaches the promoter penalty provisions.”

In awarding the large penalty, Justice Edmonds said it was intended that it would act as a deterrent to other tax cheats attempting to use a charity as a guise.

“Specific deterrence is a significant factor where, as here, the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse,” Justice Edwards said.

“Potential promoters must be left in no doubt that acting on the commercial temptation to engage in the proscribed conduct in relation to tax exploitation schemes, so as to realise the significant potential rewards that can be available, will result in substantial penalties.

“The penalties need to be substantial enough to persuade potential promoters that it is not worth the risk of whether a tax exploitation scheme will escape the detection by the Commissioner.”

DWB has posted a video online in which they refute the claims from the ATO.

In the video a representative of the organisation, Lindsay Clark, presented a health clinic in Soweto, Kenya, which he claimed had received medical donations from DWB.

“The HIV issues here are endemic in the local population,” Clark said.

“The pharmaceuticals supplied by Donors Without Borders are helping many hundreds of people and the generosity of Australians is appreciated not just by the recipients but by all the volunteers that are working in this clinic.”

The video showed footage of medicine that it was claimed was donated by DWB.

DWB claimed that in 2010 a total of 32,230 medical treatment kits costing donors $6.4 million were sent to Africa.

“The ATO is preventing this life-saving initiative from continuing. They say the medicine you saw in this video does not exist,” DWB said.

“They have asked the only company in Australia selling these goods to donors to stop and are forcing them out of business.

“They are intimidating the charities who participated in this initiative and have asked them not to ship their medicine to Africa.

“They are asking people to sign “voluntary undertakings” not to support this initiative.”

DWB also claimed that the ATO’s actions against them could have deadly consequences.

“They are more concerned about tax deductions than saving lives,” DWB said.

“Without continued medicine supply from members of DWB to those in need in Kenya and Burundi, many will die.”