If tax lawyer Michael Binetter has one regret, from his new home in New York, he must rue his limited language skills – his failure to learn Hebrew could cost his family more than $130 million.
It’s a fortune lost in translation.
If the fall of the house of Binetter – best known for Nudie Juice, shoe making, property investment and now industrial-scale tax evasion – can be traced to one moment, it’s a meeting Binetter had in the offices of a Tel Aviv law firm in May 2012.
He thought it went pretty well.
“That’s the first time that I’ve met a lawyer who really understands what we need,” Binetter told his sister-in-law, Deborah Huber, as they walked out of the Rotenstreich-Gitzerler offices.
Huber was there because unlike Binetter she spoke and wrote Hebrew fluently.
In hindsight, having Huber there wasn’t such a good idea, as Justice Jacqueline Gleeson made horribly clear in a Federal Court judgment this month. For after a falling out within the family, Huber would end up giving damning evidence against her brother-in-law about what happened next.
Binetter had explained to the lawyer, Amiram Gicelter, the family’s little contretemps with the Australian Taxation Office.
“Have you done anything wrong?” Gicelter asked.
“Absolutely not!” Binetter told him.
The Binetter family had been clients of Bank Hapoalim in Israel and Switzerland. Regrettably, the ATO was trying to obtain some files from Hapoalim, which might have given them the wrong impression about some loans.
Gicelter suggested he could give evidence that giving loans without security was usual practice for Israeli banks.
“I don’t think that’s going to be very useful,” Binetter said.
A really good lawyer
It’s at this moment that Gicelter gave the response that distinguishes the truly superior lawyer.
“Well, what do you really want from me?” he asked Binetter.
It turned out that what Binetter wanted was to pay someone to break into the bank and delete their files.
“We want the files destroyed,” Binetter allegedly said. “If we only get a copy we have no control over what is ultimately produced. I am particularly concerned about meetings where negotiations for the loans took place and whether there are any file notes of who attended those meetings.”
And after some consulting with colleagues in Hebrew, it turned out Gicelter knew the very person who could help him.
It would cost $63,000. Except that in reality it has cost the Binetter family far, far more.
Neither Gicelter nor Binetter gave evidence in the case before Justice Gleeson. “In more recent times Binetter has resided in New York,” she noted.
But after a major split in the Binetter family, uncontested evidence from Huber and her husband, Ronald Binetter, became the basis of a judgment by Gleeson that is set to cost the family up to $125 million – and that’s just the beginning.
It unfolded as a spectacular piece of familial self-immolation in the hearings last year. The ATO had issued tax assessments totalling $104.9 million against four Binetter family companies: BCI Finances, EWGL Development (Canberra), Ligon 268 and Binqld Finances.
These $2 companies didn’t have the resources to pay the tax bills, but the ATO appointed as liquidator John Sheahan and Ian Lock, who brought the action before Justice Gleeson against Binetter family members who had been directors, claiming breach of duty for lodging false tax returns..
Which is how stepping back from $2 companies has left some of the Binetter clan on the hook for the original tax plus interest plus legal fees plus liquidators costs. And then there are the other tax claims outstanding, and the fight over who gets the $80 million sale price of the Nudie juice business.
The expanding family
The saga is a family story, working out over 66 years.
Two brothers, Erwin and Emil Binetter, came to Australia as refugees from eastern Europe in 1950. They ran a shoe manufacturing business at Marrickville, Sydney, until 1990, when they turned to property investment, with a string of companies working out of the family mansion on Rawson Road, Rose Bay.
By that time, their children had their own careers.
Emil’s son Gary was a Qantas steward. Of Erwin’s four sons, Michael was a high-profile lawyer, advising the ATO as part of its National Tax Liaison Group; Peter was a merchant banker; Andrew ran the Tamarama fruit juice business, and later Nudie Foods; while Ronald was an ophthalmologist who pioneered using laser to correct vision.
By the late 1990s, Ronald’s Australian Laser Clinics had expanded into one of the lesser known fields in ophthalmology, using laser to remove body hair.
Ligon 268 was set up in 1991 as trustee for Ronald’s Bankstown Eye Trust, and administered his medical practice, but he resigned as a director in 1992.
By 2000, the family’s investments were expanding. This seems to have been where the trouble started, as family funds became intermingled. At his father’s request, Ronald loaned money from his now thriving business to Ligon 268, which had become embroiled in the corporate manoeuvres.
Following the money
These were no ordinary manoeuvres. Justice Gleeson’s judgment says that for decades, Erwin and Emil had been sending “black money” – earnings that have not been taxed – to bank accounts in Switzerland.
This money was then used as security deposits for “back to back loans” made to Binetter family companies by Bank Hapoalim and Israeli Discount Bank (IDB).
The bank carries no risk in a back-to-back loan because it always has an equal sum of money as security. For the lender it’s like borrowing your own money with the bank as a pass-through charging a small fee.
Justice Gleeson’s judgment exhaustively tracks the flow of loans every year from 1988 to 2012, a total of $75.8 million in loans from Bank Hapoalim and Israeli Discount Bank to four Binetter companies.
The Binetter companies would claim the interest payments as a tax deduction, but Justice Gleeson found the loan documents were a sham.
The typical interest rate was more than 7 per cent. Justice Gleeson found Bank Hapoalim charged only 0.3 per cent of the loan total as a fee, which meant that almost all the interest paid ended up in the Binetters’ offshore accounts.
As an example, the Binetters’ EGL Development (Canberra) paid just over $1 million in interest to IDB each year from July 2002 to June 2005, on an average loan of $14.1 million.
The interest deduction saved $300,000 a year in company tax for EGL. However it had to pay $100,000 withholding tax, and IDB charged 0.3 per cent of the total loan, or $42,400, as a fee.
Using this structure instead of paying 30 per cent tax on its Australian profits, EGL paid 14.2 per cent in tax and bank fees.
A seized laptop
The system worked flawlessly until February 14, 2004, when the Australian Crime Commission seized a laptop from Philip Egglishaw, a partner in Swiss accounting firm Strachans.
Michael Binetter was a file note on the laptop. In February 1998 he had met Egglishaw and asked for quotes for two “back to backs”, Justice Gleeson said.
But the deal didn’t go ahead, and even as the multi-force Operation Wickenby staged mass raids on Strachans clients in June 2005, there was no sign the Binetters were affected.
In May 2006, Binetter was helping out the ATO, as a consultant on the National Tax Liaison Group’s Promoter Penalty Co-Design subcommittee, drafting a law that would target tax scheme promoters such as Strachans.
But on July 31, 2006, the ATO wrote that it was auditing Binetter family companies’ use of “back to back” loans. Eventually it issued tax assessments going back to 1992.
It was an awkward time. In 2003, the Binetters had taken a 27.2 per cent share in a juice business, Nudie, based on their juicing plant at Pagewood. It was a runaway success – so much so that the Binetters wanted to take control.
In December 2006, Nudie filed notice of a huge share issue that left the Binetters with 99 per cent of the shares – only to issue a handwritten correction six months later that the new shares “should have been units allotted in a unit trust controlled by Nudie Pty Ltd”.
Meanwhile, the Binetter companies told the ATO their tax records had been destroyed in a devastating 2004 fire in the Nudie offices.
Erwin and Emil, together with Michael and Andrew, had shielded the details of the loans from other family members. But that changed after March 5, 2012 when the ATO asked for Israeli judicial help in obtaining Bank Hapoalim documents.
Michael Binetter called Deborah, who was on vacation in Israel with Ronald, to ask her to use her Hebrew to find a lawyer.
He then flew to Israel to meet Gicelter with Huber as translator. Michael also wanted his sister-in-law to be listed as Gicelter’s client so there was no paper trail to him.
Justice Gleeson says Andrew Binetter sent the first instalment of the $63,000 Gicelter demanded to destroy the Bank Hapoalim files, but gives no further details.
‘Inherently implausible’ loans
The Binetters’ legal defence seemed to have worked. In a case involving $4.75 million in loans to another Binetter company, Rawson Finance, from yet another Israeli institution, Mercantile Discount Bank, the Full Court of the Federal Court confirmed in March 2013 a decision by the Administrative Appeals Tribunal to throw out the ATO’s assessments.
Rawson’s case was that there were no back-to-back loans. MDB had loaned $4.75 million to a $2 company with no security or guarantee, or even loan agreements, and presented no witnesses involved in the transaction, while Rawson had failed to pay interest during seven of the 12 years of the loan.
The Full Court conceded the loans were “inherently implausible” but with no direct evidence that it was a back-to-back loan, Rawson’s case had to be accepted.
The Binetters could have applied the successful Rawson defence to the other companies facing assessments.
But at some point Deborah Huber and Ronald had fallen out with Michael and Andrew. They gave evidence against them in the separate case before Justice Gleeson, heard in September last year.
This wouldn’t have mattered: Ronald knew little of the loans. But Deborah’s evidence of the Gicelter meeting was devastating.
“This disgraceful episode”, as Justice Gleeson described it, is the basis for a new application by the ATO to overturn the Rawson Finance decision on the basis that it was obtained by fraud, accusing Michael Binetter and a former officer at Bank Hapoalim, Baruch Etzion, of giving false evidence.
But how had it come to this? How did Huber and Ronald Binetter provide such damning testimony against family members?
A family fight
Justice Gleeson’s judgment doesn’t shed light on this. But most family fights are about money.
Erwin Binetter died in 2009 and Emil in 2014.
It would be hard for Ronald and his wife not to feel aggrieved about the role of his brothers Michael and Andrew in corporate manoeuvres that have not only decimated the family inheritance but also might have ruled out any repayment of his own loans to Ligon 268.
The tax net has caught the company that administers Ronald Binetter’s medical practice even though Justice Gleeson found he had no part in what she found was tax evasion.
The family home on Rawson Road was sold in 2011. Nudie was sold in 2014 for $80 million (the ATO has frozen $45 million of the sale price), while Michael Binetter sold his nearby Chamberlain Avenue home for $12.5 million in July.
Justice Gleeson’s judgment splits the family in half.
Gleeson found that Erwin and Emil had breached their duties as directors, as had Andrew and Michael Binetter.
But she dismissed the claims against Erwin’s wife, Margaret, and against Emil’s son Gary. No claims were made against Ronald.
It’s important to note that the family could well appeal Justice Gleeson’s decision. And Huber’s evidence was via an affidavit. Her account was not tested by cross-examination.
The path ahead for the Binetters is not clear, except that it involves a lot of courtrooms.
And regrets. Why did Michael take Deborah to that meeting … that meeting which was actually conducted in English?
It’s a simple moral: when you take out a foreign loan, make sure you know the local language. Currency translation is a killer.