John Richard Bracken, 54, ran the scam through his company, Bracken Enterprises Ltd (BEL), established to export various materials to the Pacific Islands, which resulted in him receiving $17.4 million (10.4m EURO) in GST refunds that he was not entitled to.
For 4 years the scam went unnoticed, until BEL’s employee contacted SFO (Serious Fraud Office), police got involved and at last the IRD. According to her testimony, she feared the tax bills she was preparing for the company might not be legal. In mid-2019, IRD brought 39 charges against Bracken in relation to GST returns BEL filed between September 2014 and August 2018.
Records held by the New Zealand Customs Service showed that BEL had exported just $478,000 products to Niue under its own name between 2011 and 2018, but falsely claim it had purchased product in country worth more than $133 million and exported nearly all of it over the four years.
The scheme involved Bracken contacting various companies and enquiring about purchasing their products. This would involve the companies providing a pro forma invoice in which the terms of trade were set out. In most cases the companies never heard from Bracken again. These pro forma invoices were then copied and altered and used by Bracken to falsely show large purchases that never took place.
Bracken stood before Justice Graham Lang in the Gisborne Supreme Court this March.
The trial was heard by directors and owners of several companies who allegedly delivered the invoices. They refused to provide the products or invoices Bracken claimed, saying the invoices looked very similar to the pro forma invoices they had provided him. Some of the bills were for amounts that the directors said were much higher than their annual sales figures.
The Judge Lang said, “Bracken was the architect of the project because he made sure that the invoices were drawn up showing both the purchase and subsequent export of the fictitious product. He also did the banking and re-depositing the funds into BEL’s bank account to create the impression that the transactions were genuine.“ The Brackens are currently under legal action against the Brackens under the Commissioner’s Criminal Proceeds (Recovery) Act in relation to their assets, including their farm in Matawai, near Gisborne, valued at approximately $ 7 million.
The freezing of the assets family owns began in 2019, at that time John Bracken told the Weekend Herald that having his assets frozen made him feel “basically guilty” before any evidence was heard in court. “It’s quite a horrible situation here. Our funds are frozen, we don’t have a lawyer, we’re not really sure what avenue we’re going down to fight it,” said Bracken.
“[We’ve done] absolutely nothing wrong. What I’ve done is fine [regarding tax affairs], I’ve done it for 20 years and a lot of other people do it.
IRD had no idea
Unfortunately IRD had no system in place to detect the fraud. If there wasn’t a whistle blower, Bracken could’ve continued his operation unnoticed. IRD investigators collected evidence for four years, but how far exactly did this fraud went on only Bracken knows. His statement to Weekend Herald that he has done it for 20 years, could be true.
Fiji and Samoa are the first countries in the region to adopt unitary digital invoice. Such case could not go undetected in these jurisdictions because the system (TaxCore®) is built on top of the public key infrastructure and uses a certificate authority to provide security. The public key infrastructure allows for mutual authentication of the taxpayer and tax authority, prevents the repudiation of digital signatures, and ensures data transport security and invoice integrity. The IRD would not have any doubt to sound alarm on the first fake invoice that would’ve arrived from Mr Bracken with the claim request.
What IRD has introduced recently is e-invoicing so invoices will be digital, hopefully mandatory one day, however verifying them will not be as efficient as in their neighbouring Island countries. Unless IRD adopts clearance model, they will have to run their system for matching up invoices like in South Korea or India, which can be automated, however it’s not a complete answer for all case scenarios which group of authors explained well in a research paper called “Invoice Matching or a Unitary Digital Invoice“.