Tax Audit Only Served To Make Lowy Even Warier

The Age

Saturday July 26, 2008

Anne Davies, John Garnaut and Nick McKenzie

WESTFIELD chairman Frank Lowy's American-based son, Peter, appeared at a United States Senate subcommittee last night to explain his family's use of accounts in a Liechtenstein bank, as part of a probe into Americans hiding funds in the secretive LGT bank.

Flanked by his wife, Janine, Melbourne tax lawyer Mark Liebler and his US attorney, Robert Bennett, Mr Lowy asserted his right under the Fifth Amendment of the US Constitution against self-incrimination.

The Lowy family has been identified as a case study by the subcommittee after it reviewed more than 12,000 documents stolen from the LGT bank by a former IT technician, and which eventually found their way into the hands of German, American and Australian tax authorities.

Mr Lowy, 49, who runs Westfield's US operations and is a US citizen, was subpoenaed last week but asked for a week's delay due to business commitments.

Opening the inquiry, chairman Senator Carl Levin said the case history unfolded like a "spy novel" with secret meetings, shell companies and offshore transactions spanning the globe.

Ranking Republican member Norm Coleman said: "Mr Lowy had left the US on a red-eye flight to Australia, just before the US Marshsals Service could track him down and serve him with a subcommittee subpoena. All we seek here today is . . . a measure of candour and respect for the law."

However, Mr Lowy's US attorney, Robert Bennett, said outside the inquiry that it was "absolutely false" that Mr Lowy had tried to duck the subpoena. He said the marshals knew he was overseas because Mr Lowy's lawyers had told them so.

But Mr Bennett refused to comment on the substance of the allegations of tax evasion made by the committee.

Mr Lowy's appearance at the inquiry had been keenly anticipated by a group of former Australian tax investigators. Their interest in the calling to account of Mr Lowy is shown in a single page of a 1994 Australian Tax Office document titled "The Lowy Family Group".

The document is a key piece of a puzzle that, for the most part, remains unsolved: was shopping centre magnate Frank Lowy pursued to the full extent of the law after Tax Office investigators sought to penalise him in 1994 in connection with a mysterious untaxed deposit of $48 million in a Lowy-linked bank account?

Several sources close to the 1994 investigation have told The Age that political intervention led to the decision that allowed Mr Lowy to settle his 1994 tax dispute for $25 million - less than half the amount the Tax Office had originally sought.

"It is very hard to fight the PM and the opposition leader," says one former tax investigator close to the case. "The first person to defend Frank Lowy's reputation when the tax issue became public was Paul Keating. The second was John Howard."

According to documents aired last week as part of the US Senate committee's inquiry, the Tax Office's Lowy family tax audit in 1994 and 1995 served only to make Mr Lowy, or his advisers, more wary of the eagle eye of the Australian tax man.

One memo from the Liechtenstein bank used by Mr Lowy after 1995, and published by the committee, said: "Special caution is to be used, since he (Frank Lowy) doesn't believe the Australian tax authorities that the case with the payment of the 25M ($25 million) is settled for good. The entire documentation and assembly is to be done in such a manner that FL and his attorneys can testify before court in Australia without hesitation."

The 1994 "Lowy Family Group" document lists two companies, Cordera Holdings and Franley Nominees, as well as several names: Frank Lowy and his wife, Shirley, and their sons, David and Peter. Next to each of the names is a tax file number and three columns, titled "primary tax", "penalty tax" and "total".

The total amount of unpaid tax lined up against each of the names ranges from $45 million to almost $60 million and represented the Tax Office's decision to hold each of the named Lowy family members responsible for the mystery $48 million in the hope one of them would cough up.

Initially, the Tax Office investigation was allowed to run its usual course. Mr Lowy was called to a hearing to answer questions. "Lowy had to come to the ATO and say this $48 million came from nowhere. It was a hard load for him to carry," says a key Tax Office player.

The Lowy family claimed the $48 million was a capital injection from unknown international sources. But investigators didn't buy that. Before long, the investigation began to lose support.

With Mr Lowy relying on the advice of top Melbourne lawyer Mark Leibler, legal challenges were mounted. One well-placed source says the Lowy investigation "just ran dead everywhere".

In October 1995, Liberal MP Ken Aldred raised in Federal Parliament the issue of the $25 million settlement: "As Mr Lowy is reportedly a close friend of the prime minister (Mr Keating), the question must be asked: did Leibler's representations bring about the high-level interference in Mr Lowy's favour?"

Mr Keating has been questioned by journalists on the subject in the past, but declined to put his views on record.

A number of officials say the the Tax Office's top officials received personal entreaties about the Lowy audit from the top echelons of Australian politics. The Tax Office also referred the Lowy file to the Commonwealth Director of Public Prosecutions, which launched a major investigation. Under scrutiny was the question of where the mystery $48 million had come from.

While the DPP had some success tracking the money, it found no solid evidence that any crime had been committed.

Mr Lowy has denied the allegations in the US Senate report that he or his family attempted to hide the "ownership of assets from Australian tax authorities".

But despite his best efforts to end public scrutiny of his tax affairs, the curiosity of tax investigators on the other side of the world has turned the spotlight back into a corner Frank Lowy hoped would remain out of sight.

© 2008 The Age

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