Gareth Vaughan argues the public should be told how much ASB & IRD agreed the bank would cough up & the taxman would accept to settle a dispute involving hundreds of millions of dollars

By Gareth Vaughan

Where does the public interest end and a government department and bank's right to privacy begin?

This is a question I've been considering after covering a dispute between the Inland Revenue Department (IRD) and ASB over $153 million of potential tax, plus interest and penalties, over the past couple of years.

The case, which I covered here, here and most recently detailed here in June after the two parties settled, centred on ASB claiming tax deductions on foreign exchange losses from its so-called "Yen Transaction." The dispute stemmed from revised tax assessments issued by IRD for the 2008 and 2009 years. ASB launched legal proceedings to challenge the assessments.

Three times I applied to view the court file and three times was granted permission by High Court judges to do so. First time around IRD, the defendant, objected saying because the case was at a very early stage there was a presumption against access. However, Justice Helen Winkelmann over ruled this objection noting "there is considerable public interest in matters concerning taxation" and the principle of open justice favoured disclosure.

 Second time around Justice Winkelmann granted ASB's request that one affidavit be withheld because my viewing it might've created an unbalanced view of proceedings at that point.

And third time, with my request coming after the case had been settled out of court, ASB's lawyers Russell McVeigh argued that my application should perhaps be denied because the case had settled early. This argument went along the lines that weight ought to be given to protecting the parties from any harm that might ensue from the disclosure of untested allegations.

However, Justice Patricia Courtney over ruled this objection saying there was sufficient public interest to justify me searching the file.

Of course, given the case settled out of court there was no smoking gun in the court file saying what financial settlement the parties agreed to. And nor did I expect to find one. All we know publicly is what ASB disclosed in its annual report, which is the legal proceedings and tax treatment of the transaction were resolved between the parties. ASB had made "adequate provision for this matter" in previous years.

Beyond that neither ASB nor IRD have been prepared to comment with ASB citing confidentiality, and IRD citing taxpayer secrecy provisions "in the legislation under which we operate."

Here's the prepared statement ASB CEO Barbara Chapman read when I interviewed her in August after ASB issued its annual financial results; "This is a historical tax dispute relating to liquidity funding transactions that took place from 2007 to 2009 (before Chapman was CEO). The matter has been resolved between the parties. The terms of the resolution are confidential so we cannot comment further."

So whilst there was sufficient public interest to allow a member of the media to search the court file and ascertain on behalf of his audience what the case was about, the public isn't allowed to know how much ASB has paid to settle the case, or put another way, how much IRD has accepted on behalf of taxpayers to settle the case.

What we do know is that a joint memorandum of ASB and IRD's counsel filed on May 20 this year said the two parties had reached an "in principle settlement" and were "documenting their agreement."  On May 26 Justice Geoffrey Venning confirmed the scheduled four week trial, that had been set to begin on June 15, had been cancelled. ASB, the plaintiff, then filed a notice of discontinuance on June 19. The parties agreed on costs between them.

We also know that ASB went as far as filing opening submissions in anticipation of the hearing, but these were returned to the bank's lawyers once the proceedings were halted.

Full disclosure on the structured finance transactions

The issue of banks and tax has been a hot one in New Zealand since the days of the so-called structured finance transactions. To jog the memory this dispute between ANZ, ASB, BNZ and Westpac on one side, and IRD on the other, ended on December 23, 2009 with the banks agreeing to pay, and IRD agreeing to accept, $2.2 billion from the four banks combined, equivalent to 80% of what the taxman was claiming.

This was the largest commercial settlement ever reached with IRD, and what each individual bank agreed to pay was disclosed. ASB agreed to cough up $264 million. Charles Pink, the bank's CEO at the time, said ASB's existing provision was enough to cover this settlement.

In the structured finance transactions case we, the public, were told what sums were changing hands in the settlements. This time, with ASB's Yen Transaction, we haven't been. 

However, in my view the considerable public interest in tax matters and the principle of open justice cited above by Justice Winkelmann, ought to prevail again. Because we have one entity, IRD, accepting a settlement on behalf of taxpayers (the public), and another, a bank that's one of our biggest corporations with hundreds of thousands of customers that's also the "official bank" of our national rugby team, disputing and then settling over hundreds of millions of dollars worth of tax, or potential tax.

If it was in the public interest for the value of the structured finance transaction settlements to be disclosed, I don't see why it's not also in the public interest for the value of ASB's Yen Transaction settlement to be disclosed.

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