Solicitors:
Australian Federal Police (Plaintiff)
Slater and Gordon Lawyers (Defendant)
File Number(s): 2015/205574
[2]
Judgment
The parties to these proceedings are the Commissioner of the Australian Federal Police ("the Commissioner"), who is the plaintiff, and Rommy Fernandez, the defendant. The Commissioner seeks, under s 49(1) of the Proceeds of Crime Act 2002 (Cth) ("the Act"), an order that certain property of the defendant be forfeited to the Commonwealth. The defendant resists the application on two separate bases, relying upon s 330(4)(a), and, in the alternative, s 49(4) of the Act, and, if he fails in that resistance, seeks an order for compensation under s 77 of the Act.
Three questions arise for determination. Put shortly, they may be identified as:
(i) whether certain identified property of the defendant has, because it falls within the formulation in s 330(4)(a) of the Act, ceased to be proceeds of an indictable offence, or an instrument of a serious offence (as will be seen, that formulation assumes that, at some previous time, the property was either the proceeds of an indictable offence, or the instrument of a serious offence);
(ii) whether the court should make a forfeiture order under s 49(1) of the Act, or, alternatively, decline, under s 49(4), to do so;
(iii) whether the court should make a compensation order under s 77 of the Act.
If question (i) is answered favourably to the defendant, questions (ii) and (iii) do not arise; if question (ii) is answered favourably to the defendant, question (iii) does not arise.
Before moving to the factual basis of the proceedings, it is necessary to set out (regrettably, at some length) the relevant provisions of the Act, and relevant provisions of the Anti-Money Laundering and Counter-Terrorism Finance Act 2006 (Cth) ("the AML Act") and of the Criminal Code (Cth) ("the Code"). Since the provisions, or some of them, are complex, I will, for ease of reference, paraphrase or summarise in such a way as to identify what is relevant to the present proceedings. What follows should not therefore be taken as a comprehensive outline of the provisions of the Act; it is intended to represent the provisions as they are applicable to the issues for determination in these proceedings.
[3]
The Proceeds of Crime Act
In s 5, the principal objects of the Act are stated. They include:
"(a) to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories; and
…
(c) to punish and deter persons from breaching laws of the Commonwealth or the non-governing Territories; and
…
(da) to undermine the profitability of criminal enterprises; and
(e) to enable law enforcement authorities effectively to trace proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts; and
(f) to give effect to Australia's obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and other international agreements relating to proceeds of crime; and
…"
By s 19(1), a court with proceeds jurisdiction (which includes the Supreme Court of NSW) must order that:
"(a) property must not be disposed of or otherwise dealt with by any person; or
(b) property must not be disposed of or otherwise dealt with by any person except in the manner and circumstances specified in the order"
where certain specified conditions are met.
The specified conditions (relevant to the present proceedings) are:
a proceeds of crime authority (which includes the Commissioner) applies for the order; and
there are reasonable grounds to suspect that the property is either:
(i) the proceeds of (inter alia) an indictable offence; or
(ii) an instrument of a serious offence; and
the application is supported by an affidavit of an authorised officer stating:
(a) that the authorised officer suspects that:
(i) the property is the proceeds of the offence; or
(ii) if the offence to which the order relates is a serious offence - the property is an instrument of the offence; and
(b) the grounds on which the authorised officer holds the suspicion; and
the court is satisfied that the authorised officer holds the suspicion on reasonable grounds.
An order made under s 19(1) is referred to as "a restraining order".
An "indictable offence" is, as may be expected, an offence that may be prosecuted on indictment; "serious offence" is expansively defined, and includes, inter alia, an indictable offence punishable by imprisonment for 3 years or more and certain money laundering offences (see the Dictionary to the Act, s 338).
"Property" is defined in s 338 to mean:
"real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible, and includes an interest in any such real or personal property."
An "interest" in relation to property is also defined in s 338, and means:
(a) a legal or equitable estate or interest in the property or thing; or
(b) a right, power or privilege in connection with the property or thing,
whether present or future and whether vested or contingent.
By s 329(1) property is proceeds of an offence if:
"(a) it is wholly derived or realised, whether directly or indirectly, from the commission of the offence; or
(b) it is partly derived or realised, whether directly or indirectly, from the commission of the offence;
whether the property is situated within or outside Australia."
Section 336 provides that proceeds of an offence may be derived directly or indirectly.
By s 329(2) property is an instrument of an offence if:
"(a) the property is used in, or in connection with, the commission of an offence; or
(b) the property is intended to be used in, or in connection with, the commission of an offence;
whether the property is situated within or outside Australia."
Property that is either the proceeds of an indictable offence, or the instrument of a serious offence (inter alia), is referred to as "tainted property" (see s 338).
Sub-sections 330(1), (2) and (3) expand on the circumstances in which property becomes or remains proceeds or an instrument of an offence. (Put shortly, it seems to me that sub-ss 330(1)-(3) provide for tainted property to be traced through subsequent transactions, so as not, by the subsequent dealing, to lose the taint of criminality.) Paragraphs (a)-(g) of s 330(4) state the only circumstances in which property ceases to be proceeds or an instrument of an offence. Only one of those circumstances is here material. Section 330(4)(a) is in the following terms:
"(4) Property only ceases to be proceeds of an offence or an instrument of an offence:
(a) if it is acquired by a third party for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires)."
"Sufficient consideration" is defined in s 338 as follows:
"an acquisition or disposal of property is for sufficient consideration if it is for a consideration that is sufficient and that reflects the value of the property, having regard solely to commercial considerations."
By s 30, a person who claims an interest in property in respect of which an application for a restraining order has been made, but not yet granted, may apply for an order excluding from the restraining order a specified interest in the property. By s 29, the court to which an application for a restraining order has been made must, in specified circumstances, exclude from the restraining order a specified interest in property, either at the time the order is made, or subsequently. Where the restraining order is made under s 19, the relevant circumstances are those stated in s 29(2)(d). The court must exclude the interest where it is:
"neither:
(i) in any case - proceeds of an indictable offence … nor
(ii) if an offence to which the order relates is a serious offence - an instrument of any serious offence."
An order made under s 29 is, for obvious reasons, commonly referred to as "an exclusion order". However, in s 338 (the Dictionary to the Act) that term is reserved for exclusion orders under s 73, to which I will come. To the extent that it is necessary to differentiate, I will refer to "s 29 exclusion order(s)" and "s 73 exclusion order(s)".
By s 180, where a restraining order is in force, the court may make orders for the examination of any person, including (specifically) any person whose property is, or who has or claims an interest in property, the subject of the restraining order, about the affairs of that person and the affairs of certain other classes of persons.
By s 49(1), a court with proceeds jurisdiction must make an order that property subject to a restraining order specified in the order is forfeited to the Commonwealth if four conditions are met. The conditions are stated as:
"(a) the responsible authority for a restraining order under s 19 that covers the property applies for an order under this subsection; and
(b) the restraining order has been in force for at least 6 months; and
(c) the court is satisfied that one or more of the following applies:
(i) the property is proceeds of one or more indictable offences;
(ii) …
(iii) …
(iv) the property is an instrument of one or more serious offences; and
(e) the court is satisfied that the authority has taken reasonable steps to identify and notify persons with an interest in the property"
(There is no par (d)).
An order under s 49(1) is referred to as "a forfeiture order".
By sub-s (3) of s 49, par (1)(c) does not apply if the court is satisfied that no application has been made for a s 29 exclusion order, or that any such application that has been made has been withdrawn. That is, if no application for a s 29 exclusion order has been made, or such an application has been made and withdrawn, it is not necessary for the court to be satisfied that the property is the proceeds or an instrument of a relevant offence.
By s 49(4), despite sub-s (1), the court may refuse to make a forfeiture order relating to property that the court is satisfied:
(a) is an instrument of a serious offence other than a terrorism offence; and
(b) is not proceeds of an offence,
if the court is satisfied that it is not in the public interest to make the order.
By s 73, a court in which an application for a forfeiture order is pending, or which has made a forfeiture order, must make an order excluding a specified interest in property from forfeiture if:
(a) a person applies for the exclusion order; and
(b) the forfeiture order or application specifies property in which the applicant has an interest; and
(c) the court is satisfied that the applicant's interest in the property is neither:
(i) proceeds of unlawful activity; nor
(ii) if an offence on which the order was (or would be) based is a serious offence - an instrument of any serious offence.
An order under s 73 is referred to as "an exclusion order" (see s 338).
By sub-ss 78(1) and (2), a person who claims an interest in property that has been specified, or may be specified, in a forfeiture order may apply for a compensation order.
By s 77(1), a court in which an application for a forfeiture order is pending, or which has made a forfeiture order, must make a compensation order if five conditions are satisfied. The five conditions are:
(a) the applicant has applied (under s 78) for a compensation order;
(b) the court is satisfied that the applicant has an interest in property specified in the forfeiture order or application for forfeiture order;
(c) the court is satisfied that a proportion of the value of the applicant's interest was not derived or realised, directly or indirectly, from the commission of any offence;
(d) the court is satisfied that the applicant's interest is not an instrument of any offence;
(e) in the case of a court that is hearing or is to hear an application for a forfeiture order - the court makes the forfeiture order.
By s 317, an applicant in any proceedings under the Act bears the onus of proving, on the balance of probabilities, the matters necessary to establish the grounds for the order sought. Accordingly, the Commissioner bears the onus of proving the matters necessary for a forfeiture order under s 49; the defendant bears the onus of proving the matters necessary for a compensation order under s 77.
[4]
Anti-Money Laundering and Counter-Terrorism Finance Act 2006
By s 43 of the AML Act, a reporting entity (which, by ss 5 and 6, includes a bank) is obliged to report to the Australian Transaction Reports and Analysis Centre ("AUSTRAC"), within 10 business days, any "threshold transaction". A cash transaction involving $10,000 or more is a "threshold transaction" (see s 5).
Such a transaction is referred to as a "reportable transaction". It follows that a cash transaction of less than $10,000 is a non-reportable transaction: see s 5.
Section 142 of the AML Act creates an offence shortly known as "structuring". Sub-sections (1) and (2) of s 142 provide:
"(1) A person (the first person ) commits an offence if:
(a) the first person is, or causes another person to become, a party to 2 or more non-reportable transactions; and
(b) having regard to:
(i) the manner and form in which the transactions were conducted, including the matters to which subsection (3) applies; and
(ii) any explanation made by the first person as to the manner or form in which the transactions were conducted;
it would be reasonable to conclude that the first person conducted, or caused the transactions to be conducted, in that manner or form for the sole or dominant purpose of ensuring, or attempting to ensure, that the money or property involved in the transactions was transferred in a manner and form that would not give rise to a threshold transaction that would have been required to have been reported under section 43.
Penalty: Imprisonment for 5 years or 300 penalty units, or both.
(2) Subsection (1) does not apply if the defendant proves that the first person did not conduct the transactions, or cause the transactions to be conducted, as the case may be, for the sole or dominant purpose of ensuring, or attempting to ensure, that the money or property involved in the transactions was transferred in a manner and form that would not give rise to a threshold transaction that would have been required to have been reported under section 43.""
The matters to which sub-s 3 applies are:
"(a) the value of the money or property involved in each transaction;
(b) the total value of the transactions;
(c) the period of time over which the transactions took place;
(d) the interval of time between any of the transactions;
(e) the locations at which the transactions took place."
An offence against s 142 is both an indictable offence and a serious offence.
[5]
The Criminal Code (Cth)
Pt 10.2 of the Code deals with money laundering. Section 400.9 provides:
400.9 Dealing with property reasonably suspected of being proceeds of crime etc.
(1) A person commits an offence if:
(a) the person deals with money or other property; and
(b) it is reasonable to suspect that the money or property is proceeds of crime; and
(c) at the time of the dealing, the value of the money and other property is $100,000 or more.
Penalty: Imprisonment for 3 years, or 180 penalty units, or both.
(1A) A person commits an offence if:
(a) the person deals with money or other property; and
(b) it is reasonable to suspect that the money or property is proceeds of crime; and
(c) at the time of the dealing, the value of the money and other property is less than $100,000.
Penalty: Imprisonment for 2 years, or 120 penalty units, or both.
(2) Without limiting paragraph (1)(b) or (1A)(b), that paragraph is taken to be satisfied if:
(a) the conduct referred to in paragraph (1)(a) involves a number of transactions that are structured or arranged to avoid the reporting requirements of the Financial Transaction Reports Act 1988 that would otherwise apply to the transactions; or
(aa) the conduct involves a number of transactions that are structured or arranged to avoid the reporting requirements of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 that would otherwise apply to the transactions …"
An offence of money laundering is both an indictable offence and a serious offence.
[6]
Procedural history
By summons filed on 14 July 2015 the Commissioner applied to this Court for, inter alia:
restraining orders under s 19 in relation to specified property;
an order under s 180 that the defendant be examined about "his affairs"; and
forfeiture orders under s 49 in relation to the specified property.
Schedules to the summons identified the property the subject of the application as:
"SCHEDULE ONE
1. Funds standing to the credit of Commonwealth Bank of Australia Savings Account number xxx9650 in the name of Rommy Fernandez and any interest earned thereon.
SCHEDULE TWO
1. Funds standing to the credit of Commonwealth Bank of Australia Savings Account number xxx9669 in the name of Rommy Fernandez and any interest earned thereon."
The application was supported by an affidavit of Darren Burtenshaw, a member of the Australian Federal Police ("the AFP"), and an authorised officer within the meaning of s 338 of the Act. Mr Burtenshaw swore that he suspected that the property was "wholly or partly the proceeds, and/or instrument", of an offence of money laundering (contrary to s 400.9 of the Code) "and/or wholly or partly the proceeds and/or instrument" of a structuring offence (contrary to s 142 of the AML Act). Mr Burtenshaw set out the grounds on which he held that belief.
On the same day Davies J made, ex parte, restraining orders under s 19 in relation to both accounts, and ordered, under s 180 of the Act, that the defendant be examined about his affairs. In doing so, he was satisfied of the matters of which, by s 19(1), he was required to be satisfied, including that the suspicion of Mr Burtenshaw was held on reasonable grounds.
The remainder of the orders sought by the Commissioner, including the application for a forfeiture order, was stood over for further hearing at a later date.
For the purposes of s 49(1)(3), the Commissioner then took steps to identify and notify persons with an interest in the property. For that purpose, he corresponded with two inmates of correctional centres, Leonard Dharmananda Linggo and Kim Ching Cheung (to whom further reference will be made).
On 9 October 2015 the defendant, pursuant to s 180 and the order of Davies J, was examined.
On 10 February 2016 the defendant filed two notices of motion in this Court, seeking, respectively, under s 29, exclusion of specified interests in the property from the restraining orders, and, under s 73, exclusion of specified interests in the property from any forfeiture order that might be made. On 30 June 2016 he filed a third notice of motion in which he sought, under s 77 of the Act, compensation. On 7 October 2016 he filed a fourth notice of motion, seeking leave to withdraw the February notices of motion (seeking s 29 and s 73 exclusion orders); leave was granted on 13 October 2016.
[7]
The present proceedings
The present proceedings are constituted by:
(i) the Commissioner's summons filed on 14 July 2015, so far as it has not already been disposed of (what remains is the application under s 49 of the Act for forfeiture orders); and
(ii) the defendant's notice of motion seeking compensation under s 77 of the Act.
I set out at the commencement of these reasons the three questions identified as being for determination. In fact, it is difficult to see how the first - concerning s 330(4)(a) of the Act - is properly before the Court. The basis for an exclusion order is, by s 29(2)(d), that the interest in property is neither the proceeds of an indictable offence nor an instrument of any serious offence. The defendant's application for such an order was withdrawn. In those circumstances, it is difficult to see how s 330(4)(a) arises. Section 330(4) is merely declaratory of circumstances in which property (that has been proceeds or an instrument of an offence) ceases to be so. If property has ceased to be proceeds or an instrument of an offence, s 29(2)(d) applies, and a s 29 exclusion order must be made. Section 330(4) does not provide any other avenue for orders under the Act. But there is here no application for a s 29 exclusion order before the Court. No application, for example, for declaratory relief in relation to the property has been made. Indeed, s 330(4)(a) was raised only at the very end of the closing submissions of counsel. However, the Commissioner did not take issue with it being raised, and it can be dealt with relatively briefly.
I have considered the construction of s 330(4)(a) in Commissioner of the Australian Federal Police v Lordianto [2017] NSWSC 1196, to be delivered concurrently with these reasons, and will make some reference to that decision.
It is appropriate to point out that, for the purposes of s 49(1), and for the purposes of s 330(4)(a), I am not concerned to determine whether or not the property in question was either the proceeds or an instrument of a relevant offence. The reasons that that is so are:
(i) the application for a s 29 exclusion order (which, if pursued, would have raised that issue) was withdrawn;
(ii) by reason of s 49(3)(b) of the Act, when an application for a s 29 exclusion order has been made and withdrawn, that part of s 49(1) that would have required such a determination is inapplicable; and
(iii) s 330(4) (providing the circumstances in which property ceases to be the proceeds or an instrument of an offence) is necessarily predicated upon the property having had that character.
However, for the purposes of s 49(4), it will be necessary to consider whether the defendant's interest in the property was either the proceeds of an offence or the instrument of an offence (other than a terrorism offence); and for the purposes of the s 77 compensation application, it will be necessary to determine whether the defendant's interest in the property (or a proportion of his interest) was the proceeds of crime (s 77(1)(c) and whether his interest in the property was (or was not) an instrument of any offence (s 77(1)(d)).
[8]
The evidence
Essentially, the material evidence was the affidavit of Mr Burtenshaw that was before Davies J in support of the restraining order, supplemented by two further affidavits sworn by him; affidavit evidence of officials of the Commonwealth Bank of Australia ("CBA"); and an affidavit of the defendant. The evidence of Mr Burtenshaw included a transcript of the defendant's s 180 examination. None of the witnesses, including the defendant, was required for cross-examination, and there was no oral evidence. There is, therefore, no reason to doubt the veracity of the evidence, including that of the defendant. The evidence establishes the following.
The defendant is an Indonesian citizen, now aged 25. His father is a wealthy Indonesian businessman. The defendant is currently employed in his father's business. From 2009 until 2013 he was a student at the University of New South Wales, studying for a degree in commerce. He graduated in 2013. On his arrival in Australia he opened two accounts with the CBA, and a third in late 2013, before he returned to Indonesia. Two of the accounts, which the bank statements show were opened in 2010, were the accounts numbered xxx9650 and xxx9669. These are the accounts the subject of the restraining orders. While the defendant was living in Sydney, his family were in the habit of transferring money to his accounts for his living expenses.
In May 2015 (in Indonesia) the defendant's father gave him approximately $500,000 (Australian) to be deposited in an Australian account. He opened a "term deposit" account with CBA, into which he proposed to deposit the money. In order to transfer money from Indonesia, he (or a member of his family) contacted a "money changer" in Jakarta, with whom the family had previously dealt in business matters. On 11 dates in May, June and July 2015, the defendant's father, through the money changer, purchased Australian dollars to be deposited into one of the defendant's CBA accounts. These amounts were in the order of $40,000 each time. On occasion the defendant himself deposited money in Indonesian rupiah with the money changer, to be transferred to one of the CBA accounts. He checked his CBA accounts to ensure that the funds had been deposited. On some occasions he noticed it was transferred in "full amounts" (presumably meaning the full amount paid to the money changer). On other occasions it was deposited in "partial amounts". He raised this with his father, out of concern that the full amount might not be transferred, but his father reassured him that the money changer could be trusted. He found that, despite being made up of several "partial deposits", the correct total amounts were always deposited in his accounts.
The defendant had a practice of monitoring his accounts regularly, usually on a daily basis.
In the s 180 examination, the defendant said that when he or his father wanted to transfer money to the CBA accounts, the money changer in Jakarta directed them to pay money into Indonesian accounts nominated by her. These were in the names of individuals not known to the defendant or his father. No documentation was provided by the money changer in relation to the transactions.
Comprehensive records of the defendant's CBA accounts numbered xxx9650 and xxx9669 were in evidence. Statements for account numbered xxx9650 show significant evidence of structured transactions over a period of less than two months in 2015. For example, on 29 May 2015, six cash deposits of $6000 each were made into the account, at various Sydney city branches. On 26 June 2015 five similar cash deposits were made, also at Sydney city branches. On 30 June, again, five deposits of $6000 in cash were made into the account. Between 25 May 2015 and 6 July 2015, 50 cash deposits in amounts of under $10,000 were made into the account.
Between 25 May 2015 and 4 July 2015, $481,000 was transferred from account numbered xxx9650 to the defendant's account numbered xxx9669.
That is sufficient to establish that the defendant's account numbered xxx9650 was used in structuring transactions and was, therefore, an instrument of a structuring offence (or offences). That conclusion is strengthened by further evidence concerning two men, Linggo and Cheung (referred to above). On 30 June 2015 Linggo and Cheung were arrested in a hotel room where they were found to be in possession of more than $1,000,000 in cash. Also in the possession of one or other of them were notebooks containing what were apparently records of bank deposits. The defendant's name and account numbered xxx9650 were among those in the notebook. On a mobile phone seized from Cheung was a screen shot that showed the name of the defendant, the account numbered xxx9650, "6000+6000+6000+6000+6000" and the date 30 June 2015 - coinciding with the deposits in to the defendant's account on that date. Linggo and Cheung both made significant admissions and were charged with, and pleaded guilty to, offences of money laundering and structuring.
The Commissioner did not suggest that the defendant made the deposits himself, nor that he was in any way involved in the transactions. The Commissioner appeared to accept that the defendant was an innocent victim of a sophisticated criminal organisation.
Implicit in the Commissioner's case was that the money changer in Jakarta failed to remit the money provided to her by the applicant's father, and that the cash deposited by Linggo and/or Cheung was the proceeds of criminal activity in Australia. If that were not so, there would have been no need for the Commissioner to rely on the evidence of the activities of Linggo and Cheung. The mere fact of the structured deposits would have been sufficient to sustain a conclusion that a structuring offence (or offences) had been committed.
I now proceed to deal with the three issues identified above.
[9]
(1) Section 330(4)(a) of the Act
For convenience, I will repeat s 330(4)(a):
"(4) Property only ceases to be proceeds of an offence or an instrument of an offence:
(a) if it is acquired by a third party for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires)."
As a preliminary, I observe that s 330(4)(a) played no apparent part in the defendant's case until the close of counsel's submissions.
As I have said, whether the defendant's interest in the bank account or accounts had, at that time, either represented proceeds or were instruments of an offence does not arise in relation to this question. That it was is assumed by the subsection.
There are five elements to s 330(4)(a):
(i) that property is acquired;
(ii) by a third party;
(iii) for sufficient consideration;
(iv) without knowledge that the property was the proceeds or an instrument of a relevant offence; and
(v) in circumstances that would not arouse a reasonable suspicion that the property was the proceeds or an instrument of a relevant offence.
I have mentioned that, by s 317, the onus of proof lies on an applicant in any proceedings under the Act. There is no "application" under s 330(4)(a), and so s 317 does not strictly apply. However, I propose to proceed on the basis that the onus lies on the defendant to prove each of the five elements of the paragraph.
The defendant's submissions did not address the separate elements of s 330(4)(a).
[10]
(i) acquisition
No submissions were directed to this question. In Lordianto, I set out at some length the reasons why, in indistinguishable circumstances, there was no relevant acquisition of property. I do not propose to repeat all that I there said. I will state, only briefly, why that is so. These reasons should be read in conjunction with the reasons in Lordianto.
An acquisition of property, for the purposes of s 330(4)(a), must occur after the criminality that renders the property tainted. The nature of the property in a bank account is a chose in action, a contract between the bank and the account holder, pursuant to which the account holder is entitled to require the bank to pay an amount equal to the balance in the account at any time. It is acquired at the time the account is opened. The value of the right that the account holder has fluctuates according to the balance in the account. But deposits in the account do not give rise to new contracts, or to any new rights; they merely increase the value of the right that already exists. The chose in action, or the right of the account holder, is acquired when the account is opened. Increases in the balance do not constitute new rights or new choses in action.
Accordingly, in the present case, as in Lordianto, there has been no acquisition of property for the purposes of s 330(4)(a). That part of the defendant's case must fail for that reason alone.
[11]
(ii) was the defendant a third party?
No submissions were directed to this question. For the reasons I gave in Lordianto, a person claiming the benefit of s 330(4)(a) must establish that he or she is a third party to the property dealing - that is, that he or she has acquired the interest in the property subsequent to the commission of the offence or offences that caused it to be tainted. The person is a third party in the ownership of the property. Since there has been no acquisition, the defendant is not a third party.
The remaining elements arise for consideration only if the previous conclusions are wrong. I will proceed to deal with them on that assumption.
[12]
(iii) for sufficient consideration?
Again, the defendant's submissions did not address this question. What must be acquired for sufficient consideration is the defendant's interest in the property. That interest is the chose in action that he acquired on opening the account. There is no reason to suppose that that was not acquired for sufficient consideration.
[13]
(iv) without knowledge that the property was tainted
The Commissioner sought to rely on the defendant's student history, including his study of commerce, to establish that he knew that money laundering and structuring were offences. I do not accept that. Nor do I accept, in this case, that the circumstances were such as to fix the defendant with knowledge, through the concept of wilful blindness: see R v Crabbe (1985) 156 CLR 464 at 470; [1985] HCA 22; Pereira v The Queen (1988) 35 A Crim R 382 (discussed in more detail in Lordianto).
The defendant was well aware that funds were being deposited into his account in an unorthodox manner. However, when he raised this with his father, he was reassured.
The Commissioner's case is that, by reason of the manner in which the deposits were made, the funds in the account were the proceeds of an offence. Even it if were correct to treat the funds in the account (as distinct from the account itself) as the property in question, I would not accept that the defendant knew that they were the proceeds of crime. What he knew was that they were being deposited in an unorthodox and even suspicious manner. But they were in amounts that coincided with amounts that he had good reason to believe should legitimately have been credited to those accounts. He did not know that the funds in the account were the proceeds of crime. So far as he knew, they were the funds provided to him by his father through the Indonesian money changer. Further, the transactions took place over a relatively short period of time.
A more difficult question is whether the defendant knew that the funds in the account were an instrument of an offence. As I have mentioned, the defendant knew of the unorthodox manner of depositing. However, having been reassured by his father, his concerns were allayed.
I accept that the defendant did not know that the property was either the proceeds of, or the instrument of, an offence. The answer is the same if, as I consider to be the case, the "property" is the defendant's right to have the CBA pay him a sum equivalent to the balance in the accounts.
[14]
(v) were the circumstances such as not to arouse a reasonable suspicion that the property was tainted?
It should be noted that the foregoing conclusion, that the defendant did not know that the property was tainted, and specifically my rejection of the Commissioner's argument that the defendant was wilfully blind to such a fact, does not dictate the further conclusion that a reasonable person in the circumstances of the defendant would have suspected that the property was proceeds or an instrument of the offence. Those questions involve different considerations.
I accept that the circumstances were such that a reasonable person in the defendant's position would not have suspected that the cash being deposited in the account was proceeds of an offence. But that is not the point. The question is whether the circumstances were such that a reasonable person in the position of the defendant would (or would not) have suspected that the defendant's right to the money equivalent to the balance in the account was either proceeds or an instrument of an offence. I am not satisfied that such a person, observing the manner in which funds were deposited into the account, would not reasonably have suspected that the funds deposited were the proceeds of some form of criminality. Nor am I satisfied that a reasonable person in the position of the defendant would not have suspected that the deposits were being made in contravention of rules requiring reporting of threshold transactions.
The defendant's reliance on s 330(4)(a) fails.
[15]
(2) Should the Court make a forfeiture order under s 49(1)?
If the four conditions stated in s 49(1) are met, the Court is obliged to make a forfeiture order, unless, in the exercise of its discretion, it refuses, in the circumstances provided by sub-s (4), to do so.
The four conditions prescribed by s 49(1) are:
the responsible authority for a restraining order applies for forfeiture orders;
the restraining order has been in force for at least six months;
the court is satisfied that the property is proceeds or an instrument of a relevant offence; and
the court is satisfied that the authority has taken reasonable steps to identify and notify persons with an interest in the property.
As I have said more than once, as a consequence of the defendant's withdrawal of his application for a s 29 exclusion order, it is not necessary to consider the third of these, that is whether the property is proceeds or an instrument of an offence (although what I have said above plainly dictates such a conclusion). There was no dispute that each of the other conditions is met. (The fourth was met by the communications with Linggo and Cheung, the persons who were believed to have physically made the deposits. There is no other person who could be seen to have an interest in the accounts.)
Accordingly, unless sub-s (4) applies, a forfeiture order must be made.
[16]
Section 49(4): the discretion to refuse to make a forfeiture order
Section 49(4) permits the court to refuse to make an order where the property is not proceeds of an offence, but is an instrument of a serious offence other than a terrorism offence. That is this case. The property (that is, the defendant's chose in action) was acquired, so far as the evidence goes, innocently, in 2010. The fact that its value was enhanced by criminal activity does not mean that the chose in action - that is, the right of the defendant to require the CBA to pay him the equivalent of the balance in the account - was proceeds of an offence: see Lordianto.
The conclusion I have reached in Lordianto, and above, concerning the nature of the defendant's interest in the property (that is, a chose in action), operates in respect of this question to his advantage. His interests in the accounts are not proceeds of an offence or offences; the value of his interest has been enhanced by the criminality, but that is not the same as saying that his interest in the property has been wholly or partly derived from the commission of an offence or offences.
I am, however, satisfied that the defendant's interest in the account was an instrument of a serious offence (although not one committed by him).
The question, therefore, is whether I am satisfied that it is not in the public interest to make a forfeiture order.
[17]
(i) principles
The concept of "the public interest" is a familiar one in statutes conferring discretionary powers upon courts. It is seldom defined (although there are instances where relevant considerations are identified). It is not defined in the Act. Some guidance as to what considerations are relevant is to be found in the objects of the Act (s 5): Hogan v Hinch (2011) 243 CLR 506; [2011] HCA 4 at [80]. Relevantly, those objects are:
"(a) to deprive persons of the proceeds of offences, the instruments of offences, and benefits derived from offences, against the laws of the Commonwealth or the non-governing Territories; and
…
(c) to punish and deter persons from breaching laws of the Commonwealth or the non-governing Territories; and
…
(da) to undermine the profitability of criminal enterprises; and
(e) to enable law enforcement authorities effectively to trace proceeds, instruments, benefits, literary proceeds and unexplained wealth amounts; and
(f) to give effect to Australia's obligations under the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and other international agreements relating to proceeds of crime; and
…"
The relevant considerations are not confined to those that may be discerned from the objects of the Act. In O'Sullivan v Farrer (1989) 168 CLR 210 at p 216; [1989] HCA 61, Mason CJ, Brennan, Dawson and Gaudron JJ (adopting a statement of Dixon J in Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492; [1947] HCA 21) said:
"Indeed, the expression 'in the public interest', when used in a statute, classically imports a discretionary value judgment to be made by reference to undefined factual matters, confined only 'in so far as the subject matter and the scope and purpose of the statutory enactments may enable ... given reasons to be [pronounced] definitely extraneous to any objects the legislature could have had in view' …"
One relevant consideration is justice to the individual: Attorney-General (NSW) v Quin (1990) 170 CLR 1 at 18; [1990] HCA 21.
Inevitably, there will be competing arguments as to what is in the public interest: Osland v Secretary, Dept of Justice (2008) 234 CLR 275; [2008] HCA 37 at [137] per Hayne J.
With specific reference to the concept of public interest as it is used in s 49(4) of the Act, Buss JA, with whom McLure P and Mazza JA agreed, considered that the public interest was sufficiently broad to include, as a fact requiring consideration, any relevant prejudice or hardship: Courtenay Investments Ltd v Director of Public Prosecutions (Cth) [2012] WASCA 121 at [115].
[18]
(ii) the application of the principles to the present case
It was no part of the Commissioner's case that the defendant was a party to any of the money laundering offences or structuring transactions, nor that they were undertaken at his instigation, nor, indeed, with his prior knowledge. Inherent in the Commissioner's case was that it was Linggo and Cheung, acting in the course of a significant criminal enterprise, who made the deposits. It is an inescapable inference that the cash deposited was the proceeds of other criminal activity, probably serious and extensive (given the amount of money involved). It is true that the defendant was aware, on monitoring his bank records, of the manner in which the deposits were being made. It is also true that I have found that this ought to have aroused suspicion. The amounts deposited, however, accorded with what he expected to appear in his accounts. Further, the suspect transactions took place over a relatively short period of time. Had they proceeded for longer, a stronger adverse inference might have been drawn that the defendant closed his eyes to the manner in which his accounts were being used. It is also here relevant to note that the defendant was a young man at the time of the transactions.
There is nothing in the evidence in this case that invites suspicion concerning the transfer of money from Indonesia through money changers. It was not the Commissioner's case that there was anything untoward about the defendant's father's wish or decision to transfer money. Although the Commissioner submitted:
"14 But [the defendant] could readily have avoided the scenario he now faces by using the facilities of the legitimate banking system in Indonesia to transfer currency to Australia …"
he did not adduce any evidence to establish that money changers in Indonesia are not part of the "legitimate banking system in Indonesia".
The Commissioner's submissions accepted that his opposition to the defendant's reliance on s 49(4) "may raise issues of perceived unfairness", but argued that the defendant or his father might still have an action against the money changer in Indonesia, and further, that he could have pursued the s 29 exclusion application (and, no doubt, the s 73 exclusion application, both of which he made but withdrew).
This last submission is disingenuous. As pointed out above, a s 29 exclusion order is available only where it is shown that the interest in property is neither proceeds of an indictable offence, nor an instrument of any serious offence. It was always the Commissioner's case that the defendant's interests in property was both. Although framed differently, s 73 imposes the same requirements. And, although I have concluded that the defendant's interest in the accounts was not the proceeds of an offence, I have also concluded that it was the instrument of an offence.
The Commissioner's submission is correct to this extent: issues of unfairness arise. There is no doubt that the Act operates harshly; there is equally no doubt that it was intended to do so. But whether it was intended to penalise the innocent victim of criminal offences may be doubted.
In Lordianto, I used an analogy of a married couple, A and B, whose son, C, without their knowledge, uses their rural property as a venue for drug trafficking, as a consequence of which the property becomes an instrument of that offence, and vulnerable to a restraining order and ultimately a forfeiture order. The only apparent avenue by which A and B could retain their property is s 49(4). (For reasons that will appear below, because the property is an instrument (as distinct from proceeds) of an offence, a s 77 compensation order would not be available.)
The Commissioner's submissions also included the following:
"If the court refuses the Forfeiture Orders in the circumstances of [the defendant's] case, it is allowing a 'loop hole' to remain open within the Australian financial system that would permit a known money laundering methodology. Parliament passed the Act in an effort to ensure that the Australian financial system was hardened against systemic and widespread money laundering methodologies and it is not in the public interest to condone the use of money remitters who seek to operate outside the rules of the Australian financial system."
There are a number of flaws in this submission. First, the references to "a known money laundering methodology" is not explained and not supported by the evidence in the case. No doubt it is a reference to the practice of "cuckoo smurfing", which I explored in Lordianto. However, that practice was never an issue in the present case. Second, the reference to "money remitters who seek to operate outside the rules of the Australian financial system" is also unsupported by the evidence in this case.
Finally, it is wrong to assert that s 49(4) provides a "loophole". The legislature has conferred a discretion on the court: that is not a "loophole". It is more wrong to assert that for this Court to apply the legislation as it has been enacted would be to allow a loophole to remain open. And it is even more wrong to suggest, as the submission does, that this Court should close a loophole that the legislature has created. The role of this Court is to apply the law as it has been enacted. Although, as I have said, there is no "loophole", if there were one, the defendant would be entitled to take advantage of it.
I appreciate the gravity of offences of money laundering and structuring, and that they protect the profits of criminal activity; I fully appreciate the need for the confiscation system to operate to short circuit the use of those means of criminal profit protection. Forfeiture of the property of an innocent victim does not achieve that, and does not in any way operate as deterrent to those who use the property of innocent victims to achieve their criminal ends.
It is not the role of this Court to ameliorate the harshness of legislation properly enacted. It is, however, the role of this Court to apply that legislation, including by exercising the discretion conferred by s 49(4), by making the value judgment inherent in that discretion.
I have concluded that the public interest is not served by ordering forfeiture of the defendant's interest in the property.
The Commissioner's application for a forfeiture order is, under s 49(4), refused.
[19]
Section 77
In case I am wrong about that, I will consider the compensation order sought by the defendant. As indicated above, there are five pre-conditions for the making of such an order. Those that need to be considered are:
the court's satisfaction that a proportion of the value of the defendant's interest was not derived or realised, directly or indirectly, from the commission of any offence; and
the court's satisfaction that the defendant's interest is not an instrument of any offence.
Section 77(1)(c) is interesting in that it implicitly recognises the distinction between the property, or the interest in property, of an applicant, and the value of that interest. It is directly applicable to the value of the defendant's interest in the chose in action represented by his account with the CBA. It is apparent, from the outline of facts above, that some proportion of the value of the defendant's interest in the accounts is entirely legitimate, untainted by commission of the structuring or money laundering offences. On the evidence before me, I am unable to quantify that value.
In any event, the defendant would be defeated by s 77(1)(d). As I have held above, the defendant's interest in the account - his entitlement to require the CBA to pay him the value of the balance in the account - was the instrument of the offences of structuring and money laundering. Section 77(1) does not permit a compensation order in those circumstances.
It is unnecessary, having regard to the view I have reached in relation to the Commissioner's application for a forfeiture order, to dispose of the defendant's application for a compensation order under s 77: were it necessary, I would be obliged to dismiss it.
The orders I make are:
(1) The Commissioner's summons, so far as it claims a forfeiture order under s 49(1) of the Proceeds of Crime Act 2002 (Cth), is dismissed;
(2) The Commissioner is to pay the defendant's costs of the proceedings.
[20]
Amendments
08 September 2017 - typographical error - coversheet
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Decision last updated: 08 September 2017
Parties
Applicant/Plaintiff:
Commissioner of the Australian Federal Police
Respondent/Defendant:
Fernandez
Legislation Cited (2)
Anti-Money Laundering and Counter-Terrorism Finance Act 2006(Cth)