Australian Financial Review article on 1 November 2017
John Kinghorn, the founder of RAMS Home Loans and Allco Finance and one of the country’s leading philanthropists, faces 10 years in jail after being charged with two counts of fraud for avoiding $30 million in tax by concealing his beneficial ownership of Jersey Island-registered companies.
Mr Kinghorn, 76, appeared in the Downing Centre Local Court on Tuesday and pleaded not guilty to the fraud charges which relate to claiming in 1997 that he did not control any unlisted companies outside Australia and then from 2004 to 2007 claiming he did not control two companies called Kalomo Corporation and Kalomo Pacific Leasing.
The Australian Federal Police said in a statement that the frauds allowed him to avoid $30 million in tax liabilities and Mr Kinghorn faces a maximum penalty of up to 10 years imprisonment.
The tax fraud charges, which were served on Mr Kinghorn on October 6, are a new blow to the rich lister who has spent a decade defending his reputation after the disastrous float of RAMS in 2007 and revelations at the NSW Independent Commission Against Corruption linking him to corrupt former NSW minister Eddie Obeid.
The AFP commenced the investigation into Mr Kinghorn in June 2009, which perhaps coincidentally was the month Australia signed a treaty with Jersey on exchange of tax information.
Kalomo Corporation, one of the companies mentioned in the AFP charges, was registered in the English Channel tax haven, according to Australian Securities and Investments Commission filings. The identity of its owners is not disclosed.
In 1998 Mr Kinghorn and Greg Jones, his partner in RAMS Home Loans, were directors of an Australian company called Tryden Enterprises which signed a complicated $150 million mortgage agreement with the Jersey-based Kalomo Corporation and then extinguished the agreement a year later.
Kalomo signed the mortgage agreement with Tryden in connection with a syndicated loan agreement involving RAMS Home loans and Morgan Guaranty Trust of New York’s Sydney branch. The mortgage gave Tryden Enterprises security over certain money and property such as origination fees received by Kalomo.
AFP Assistant Commissioner Neil Gaughan, national manager organised crime and cyber, said the investigation required extensive cooperation within the Serious Financial Crime Taskforce and with international agencies.
“I’d like to commend the officers involved in this complex and lengthy investigation for their persistence and dedication to ensuring the integrity of Australia’s financial frameworks,” Assistant Commissioner Gaughan said.
Mr Kinghorn made $650 million selling 80 per cent of RAMS Home Loans in a public float just weeks before the start of the global financial crisis. Mum and dad investors lost most of their cash over the next six months when RAMS lost access to the short-term funding it relied on and the company was forced into a fire sale of its assets.
Mr Kinghorn then embarked on a massive program of philanthropy, contributing most of the funds for the Kinghorn Cancer Centre at St Vincents Hospital in Sydney. He has said he has placed $300 million from the RAMS sale into the Kinghorn family charity.
He told The Australian Financial Review Magazine in 2015 he had set up the fund to reduce his tax bill from the RAMS profits. “We wanted it to be big enough to be meaningful but small enough to be comfortably within our means,” he said. “It seemed like a much better use of the money than to give it to the Australian Taxation Office.”
The investigation by the AFP into Mr Kinghorn’s tax affairs was first revealed in a 2014 biography of Obeid by Linton Besser and the Sydney Morning Herald’s Kate McClymont.
According to the book He who must be Obeid, the AFP tapped Mr Kinghorn’s phone in 2009 for the tax-related investigation and then by chance stumbled on him discussing the Obeids’ interest in the $500 million purchase of Cascade Coal in which Mr Kinghorn was an investor.
The AFP handed the tapes to the NSW Independent Commission Against Corruption. Public ICAC hearings in 2012 revealed Mr Kinghorn had talked with coal baron Travers Duncan about concealing from the stock exchange that the Obeids were Cascade Coal’s partners in a secret $60 million joint venture.
ICAC made adverse findings against Mr Kinghorn and several others for failing to disclose the Obeids’ interest in the coal mine. However, the NSW Supreme Court in 2014 quashed ICAC’s finding against Mr Kinghorn because he had discharged his obligation to disclose by recusing himself from all decisions relating to the sale of Cascade Coal.
Mr Kinghorn was an investor in Krispy Kreme donuts which went into administration in 2010 and tried unsuccessfully in 2011 to privatise the shrunken version of RAMS, called RHG, that survived the crisis. He lost $90 million when Allco Finance collapsed in 2008.