Saturday, December 03, 2005

Paul McIntyre: Board member falls from lofty heights

It's taken four days of high controversy but Adelaide businessman and establishment figure Robert Gerard quit as a board member of the Reserve Bank of Australia (RBA) yesterday.

Gerard, who happens to have slipped the Liberal Party of Australia about $1.1 million in donations since 1998, was under siege for his company, Gerard Industries, using tax havens and ultimately settling a 14-year investigation by the Australian Tax Office for more than A$75 million ($79 million) late in 2003.

The problem for Gerard and indeed federal Treasurer Peter Costello was the settlement was finalised seven months after he was appointed to the RBA board in March 2003. RBA board directors are supposed to be without blemish in these matters.

Until yesterday, Gerard sat on the RBA board with other industry bigwigs such as Westfield billionaire Frank Lowy, Telstra chairman Donald McGauchie and former chairman of miner WMC, Hugh Morgan.

About the same time as Gerard quit the RBA yesterday, Costello announced Woolworths boss Roger Corbett was joining the central bank to replace him. Corbett had been due to replace the retiring Frank Lowy this month.

But it was Gerard's resignation that stirred the most interest. "This week has been aimed at destroying my reputation and damaging the Government," he said in a statement released though his lawyers. "Even though I have done nothing wrong and broken no law, the accusations made against me by the media have seriously affected my health and have brought unwanted attention to the board of the Reserve Bank of Australia."

Indeed, Gerard's tenure was under intense heat all week. A few days back former Reserve Bank Governor Bernie Fraser said Gerard should "do the right thing" and resign from the board and the former chairman of the National Companies and Securities Commission Henry Bosch, said on Thursday that if Gerard was on a public company board, colleagues would encourage him to go.

"What has occurred is damaging to the Reserve Bank, and I think if this was a major public corporation, his colleagues would be indicating to him that perhaps his presence was not adding much at this stage," Bosch told ABC Radio.

And Gerard's close links to the Liberal Party gave plenty of fodder for the federal Opposition. It claimed on Tuesday that either the Treasurer knew about Gerard's tax problems or Gerard himself had not been honest when he was vetted for the RBA position.

"Why did the Treasurer still appoint this man to the Reserve Bank board?" asked Labor's Julia Gillard four days ago. "Well it's crystal clear Mr Gerard had bought it and the going price was more than $1 million," referring to his donations to the Liberal party.

A report prepared for the Australian Government Solicitor, which was acting on behalf of the ATO, by an eminent reinsurance expert, John Allison, alleged that Gerard was involved in the set-up of a sham insurance company, FAI Insurances NV, in the tax haven of the Dutch Antilles (it has nothing to do with the Australian FAI Insurance operation).

Gerard's company, Gerard Industries, is alleged by the ATO to have claimed massive tax deductions on insurance it paid to FAI which Allison said had no "capability of fulfilling its obligations" as an insurer.

"I am totally convinced that the structure of this relationship bears no resemblance to a properly conducted insurance and reinsurance operation. It is as though they have drawn a railway engine and carriages and made some endeavour to get the picture right. But any trained engine driver, after inspecting the detail of the picture, would realise that it could not be driven on any of the railway tracks of the world which have been designed for the safety and protection of the passengers."

The increasingly embattled Gerard said in a statement earlier this week that he acted within the law "at all times" and rejected the ATO allegations. "They are not facts as they were never admitted, nor tested in court nor found by any court to be true," he said. "Settlement [with the ATO] was achieved on the basis that, at no stage, were any allegations by the ATO admitted and the fact of the settlement did not imply any fraud, evasion or a deliberate avoidance of taxes."

The statement also said Gerard had "never made any secret of the fact that, at the time of his appointment, his companies were involved in a dispute with the ATO".

And it's here where it got murky. The federal Treasurer has been reluctant to admit any knowledge of tax issues with Gerard but on Thursday claimed his appointee had not "avoided a dollar of tax" and had "fully answered" questions about his creation of a tax haven company.

The Treasurer's defence came despite a recent comment he made that "ordinary, law abiding taxpayers are rightfully outraged by the use of offshore havens to avoid paying Australian tax."

In Gerard's statement yesterday he said he had been asked by the RBA to provide a statement covering only his personal tax issues, which technically excluded the long Tax Office investigation into his family companies and the subsequent settlement. But the public exposure in the end pushed Gerard from the lofty heights of the RBA boardroom in Sydney's Martin Place.

* Paul McIntyre is a Sydney journalist

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