The right to protection from retroactive criminal law

"Bottom of the harbour"

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In Australia in the 1970s, a complicated method of avoiding company tax became popular. This method involved either stripping a company of its assets before tax became payable, or using another company as the entity which became liable for tax but ensuring that it never had sufficient assets to pay the money owed. These schemes were labelled "bottom of the harbour" schemes because the records of the stripped companies were, figuratively, sent to the bottom of Sydney Harbour once they had served their purpose.

In the late 1970s the legality of these activities was unclear, that is, it was not clear whether these schemes constituted tax avoidance or minimisation (legal) or tax evasion (illegal):

It was generally believed by those in government that [this activity was not covered by existing law], although advice had been given by counsel to the Government that criminal laws relating to conspiracy to defraud under the Crimes Act 1914 (Cth) would comprehend such cases.29
In 1980 the Crimes (Taxation Offences) Act (Cth) made it a criminal offence for a natural person to be a party to, or aid and abet, arrangements to make a company or trustee incapable of paying its taxation debts.30 Penalties for a breach of the Act were originally five years' imprisonment or a $50,000 fine, and in 1986 both penalties were doubled.

This Act drew much criticism. Some argued that tax evasion was not "criminal" in the generally accepted sense; that tax evaders were "white-collar" offenders, and that the harsh penalties under the Act were inappropriate. It is certainly true that tax evasion had been, during the eighteenth and nineteenth centuries, seen as something less than criminal. As the obligation to pay tax was seen as a civil obligation, any legislation which recovered unpaid tax could hardly be seen as criminal legislation. But, despite the criticism, there is no doubt that the 1980 legislation made certain tax evasion schemes criminal.

Jurists have tended to define "crime" fairly broadly:

Crime is ... conduct which is recognised by the law (as made by the courts, and legislatures) as being criminal.31
It is for the lawmaker (the legislature and the courts) to determine within any given legal system what acts should be classified as criminal.32
It is generally accepted that liability to punishment by fine and/or imprisonment indicates that an action is criminal:
A crime ... is a legal wrong that can be followed by criminal proceedings which may result in punishment.33
The 1980 Act provided for imprisonment and fines for offenders; the intention of the legislature in passing the Crimes (Taxation Offences) Act was clear (and evidenced even by its short title): the "bottom of the harbour" tax evasion schemes were criminal.

In 1982 the Commonwealth Parliament passed a number of related Acts, the most important of which was the Taxation (Unpaid Company Tax) Assessment Act. This Act aimed to recover tax evaded under the Crimes (Taxation Offences) Act 1980. It was significant as it was explicitly retroactive: tax could now be recovered from "bottom of the harbour" schemes which were entered into before the 1980 Act was passed. There was some debate as to whether the 1982 Act was truly retroactive, or whether its effect was merely to recover tax which was always payable, even before 1980. Nevertheless, the legislation is generally said to have been retrospective in its operation.

One opponent of the legislation in the Commonwealth Parliament was Senator Don Chipp. Speaking against the bill in the Senate, he said:

Good heavens; give politicians the chance to legislate retrospectively and we will open a Pandora's box. I find that quite frightening. On this occasion a Pandora's box is opened in the excuse of catching the filthy people who cheat on tax. It is done for a noble purpose, one might say, and I agree. But I have never been one to subscribe to the view that the end justifies the means. That sort of proposition leads one down a track which is fraught with disaster. That is the track that Adolf Hitler went down. It is the track that every tyrant in history has gone down; that is, to make illegal today something which was legal last year.34

In his second reading speech on the 1982 Bill, the Federal Treasurer, John Howard, justified the retrospective nature of the legislation as follows:

Our normal and general reluctance to introduce legislation having any retrospective element has, on this ocassion [sic], been tempered by the competing consideration of overall perceptions as to the equity and fairness of our taxation system and the distribution of the tax burden.35
It is interesting to note how the rhetoric of the proponents of the principle of non-retroactivity ("equity and fairness") was employed to justify a retroactive law.
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