Tax Agent Disclosure Obligations: what to do when you suspect fraudulent behaviour?

The conduct of tax practitioners has recently been the subject of widespread discussion and media scrutiny, driven by high profile scandals and ethical failings of practitioners. These situations have understandably drawn criticism for conduct which clearly fails 'the pub test' and has brought practitioners into disrepute. However, the reality is not always clear-cut. Away from the media spotlight, tax practitioners often face difficult decisions as to when they can, or are required to, report conduct which is dishonest or fraudulent.

The legal framework governing the reporting requirements for tax practitioners is a complex and interlocking web. There is no overriding obligation for a registered tax practitioner to report suspected fraudulent behaviour. Instead, practitioners need to understand and engage with the legislative regime, code of conduct obligations and specific requirements of the Tax Practitioners Board. These frameworks overlap and integrate with one another and are often misunderstood.

This article provides some practical guidance of matters for tax agents to consider where they become aware of suspected fraudulent conduct. These matters include the applicable relevant confidentiality requirements, when a legal duty arises to disclose confidential information without a client's permission, the 'Non-Compliance with Laws and Regulations' (NoCLAR) framework and the safe harbour provided by whistleblower protections.

The Tax Practitioners Board (TPB) has published a draft information sheet 'TPB(I) D50/2022 Code of Professional Conduct – Confidentiality of client information' (D50/2022) to assist registered tax agents and BAS agents (collectively, tax practitioners) to understand their confidentiality obligations. 

Practitioners should monitor when D50/2022 is finalised.

Confidentiality Obligation

Under Code Item 6,  unless a tax practitioner has a legal duty to do so, a tax practitioner must not disclose any information relating to a client’s affairs to a third party without that client’s permission.

In other words, a tax practitioner will breach Code Item 6 if they disclose any information relating to a client’s affairs to anyone other than the client (e.g., another tax practitioner, a legal practitioner, a contractor or an overseas or offshore entity). They can only disclose it where:

• they have the client’s permission; or
• they have a legal duty to do so.

Importantly, a tax practitioner may breach Code Item 6 even if the information only ‘relates to’ the affairs of the client (i.e., the information need not belong to the client, nor have been directly provided to the tax practitioner by the client).

Legal Duty to Disclose Confidential Information

A tax practitioner may have a legal duty to disclose client information to a third party when:

• providing information to the TPB under a notice issued by the TPB; 
• providing information to a court or tribunal pursuant to a direction, order, or other court process;
• providing information to the Australian Transaction Reports and Analysis Centre (AUSTRAC), in accordance with anti-money laundering and counter-terrorism financing reporting obligations;  or
• providing information to the ATO under a notice issued by the ATO.

If a tax practitioner is concerned as to whether there is a legal duty to disclose client information to a third party, they should seek independent legal advice.

Failure to comply with Code Item 6

If a tax practitioner discloses information relating to a client’s affairs to a third party without the client’s permission or when not under a legal duty to do so, the TPB may impose one or more of the following sanctions:

• a written caution;
• an order requiring the tax practitioner to do something specified in the order;
• suspension of the tax practitioner’s registration; or
• termination of the tax practitioner’s registration.

This is obviously in addition to any action the client may take against the practitioner.

Non-Compliance with Laws and Regulations

The NoCLAR framework provides standards for members of the Accounting Professional & Ethical Standards Board’s (APESB) on how practitioners must act when they become aware of NoCLAR. 

The 'NoCLAR' framework covers:

• any intentional or unintentional act of omission or commission; 
• which is committed by either a client of the practitioner or the practitioner's employing organisation; and 
• which is contrary to prevailing laws or regulations. 

This includes acts taken by management or by those charged with governance, or by others working for, or under the direction of, the practitioner's client or employing organisation, which is contrary to prevailing laws or regulations.

The NoCLAR framework does not impose an obligation on members of the APESB to disclose a NoCLAR or suspected NoCLAR, when there is no legal obligation to do so. However, members are expected to consider whether disclosure to an appropriate authority about NoCLAR or suspected NoCLAR is an appropriate course of action in the circumstances. 

If a member decides that disclosure of NoCLAR to an appropriate authority is the right course of action in the circumstance, then such a disclosure will not be considered a breach of confidentiality. However, if a disclosure would be contrary to law or regulation, such as Code Item 6, then disclosure will not be required nor permitted under the NoCLAR framework.

Whistleblower Protections

In the event that a tax practitioner 'blows the whistle' about an entity that is not complying with tax laws, the tax practitioner may benefit from the protection of whistleblower laws.

Recognising the important role that whistleblowers play in early detection and prosecution of corporate or tax misconduct, whistleblower laws provide valuable protection to whistleblowers, who otherwise open themselves up to significant personal and financial risk.

To be eligible for whistleblower protection, the whistleblower must: 

• be, or have been, in a relationship with the entity it is reporting about, for example, an individual who supplies services to the entity (e.g., a tax practitioner); and
• disclose the information to an eligible recipient, such as an auditor, tax practitioner or any other person that is in a position to take appropriate action.  Importantly, the TPB is not an eligible recipient.

The whistleblower will benefit from the protection of whistleblower laws, which provide that: 

• it is illegal for someone to disclose the identity, or information that may lead to disclosing the identity, of an eligible whistleblower who has made a disclosure to an eligible recipient; and
• the whistleblower is not subject to civil, criminal or administrative liability for making a disclosure and an entity cannot be sued for a breach of a confidentiality clause in a contract.

What happens now?

In light of recent high profile scandals and increased media scrutiny, it is vital for tax practitioners to ensure they are aware of their obligations regarding confidential information and when this may be disclosed. Although the legal framework comprises a myriad of legislative obligations, professional codes and TPB requirements, tax practitioners can take comfort from the guidance and clarity provided in D50/2022.

Despite the helpful guidance set out in D50/2022, tax practitioners will need to exercise caution and discretion in considering each case. As such, if a tax practitioner is concerned about their obligations regarding confidential information, we recommend that the tax practitioner should seek independent legal advice.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial Practice Group.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of matters, such as:

• Federal Court Reminds Tax Agents of Their Obligations
• New ATO Release: Compliance Approach for Professional Firm Profits

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