Bittersweet is the way tax lawyer turned whistleblower Tony Watson describes the Australian Tax Office’s decision to smack global construction giant Lendlease with an initial $112 million tax bill after his tip-off a few years ago.

He says his sense of vindication, when the ATO’s audit was made public on May 13 this year, was tainted by his sacking and the need to sell the family home, which will be listed for sale on May 22. This is just one of the many costs of blowing the whistle, including a mental breakdown and the loss of his job.

“All because I called those bastards out for doing the wrong thing,” he says.

The situation Watson finds himself in makes a mockery of the corporate whistleblower protections that were introduced in July 2019 and inspired him to take legal action three years later.

Arguably, his whistleblowing helped boost Australian tax revenue by $112 million and by the time the ATO is finished with Lendlease, it could be in excess of $300 million.

He says a small tweak in the current laws would solve his situation. To that end, he has reached out to several politicians, including driving to Canberra last October to meet the assistant treasurer and minister for financial services Stephen Jones, who never got back to him.

Seven months on, nothing has changed.

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Lendlease’s big battle 

It comes as Lendlease — whose developments include Barangaroo in Sydney, Docklands in Melbourne, Adelaide Oval in Adelaide and RNA Showgrounds in Brisbane — is embroiled in a big battle with some major investors, with a showdown expected at an investor day meeting later this month.

One of the company’s major shareholders recently sent a letter to the board describing its culture as bureaucratic and without enough accountability as it called for radical strategic reform, including downsizing its global operations. Some others are also critical as the company’s profits and value on the share market have tanked in recent years.

Watson says the description of Lendlease’s culture is apt. “Lendlease has lost the capacity to see itself as others see it.”

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He should know. Watson was Lendlease’s primary tax adviser for 30 years, working with senior executives and directors. At one stage, he was invited to sit on the board of one of its biggest subsidiaries, as well as due diligence committees and most things the board did that had a tax aspect to it, including acquisitions and capital raisings.

As part of his job, he gave tax advice to Lendlease, including running a high-profile case against the ATO in the Federal Court, which he won.

But when it came to the way Lendlease was treating tax on its $1.7 billion retirement village acquisitions, which he claims was “double dipping”, he advised them they couldn’t do it.

He first started raising his concerns in 2012. He briefed company officials, Lendlease’s external auditor, the board and his law firm, where he held the position of partner. When all else failed, he informed the ATO in a series of protected disclosures between 2018 and 2022.

“They were stealing from Australian taxpayers and I couldn’t stay silent,” he says.

The role of auditors

Watson estimates the tax scheme boosted Lendlease’s profits by at least $260 million, based on $1 billion of tax deductions.

KPMG, which has been Lendlease’s external auditor for more than 66 years, approved the accounts.

It’s the job of auditors to be independent and give a “true and fair” view of the organisation’s financial position and affairs. Auditors play a big role in the integrity of the financial system. Banks, investors, and superannuation funds rely on an auditor’s independent assessment of financial accounts to make decisions.

Some governance experts say companies should rotate audit firms every 10 years to ensure independence. Some countries, including the European Union, have made it mandatory for listed companies to rotate audit firms every decade.

Until last year, corporate regulator ASIC conducted annual audit quality report cards on the six biggest auditors — including Deloitte, KPMG, PwC and EY — and found deficiencies in a third of the biggest firms. Separate reviews found negative findings in 48 per cent of KPMG’s audit cases.