Commissioner of the Australian Federal Police v Ortmann

Introduction

1. By summons filed on 8 April 2020, the Commissioner of the Australian Federal Police (the plaintiff) applies for an order pursuant to s 34A of the Mutual Assistance in Criminal Matters Act 1987 (Cth) (the Act) that a foreign forfeiture order issued in the United States of America (the Order) be registered in this Court.
2. The Order was issued by the United States District Court for the Eastern District of Virginia (the Foreign Court) on 22 January 2018. The property specified in the Order is the money standing to the credit of Mathias Ortmann (the defendant) in three accounts in his name at HSBC Bank Australia Limited (HSBC Australia), a "Premier account", a "Serious Saver" account and another account.
3. The defendant, for whom Mr Stanton appeared, accepted that the jurisdictional and procedural requirements for the making of an order for registration were satisfied. However, he opposed the registration of the Order on the basis that it would be "contrary to the interests of justice" within the meaning of s 34A(1) of the Act for it to be registered. It was common ground that the defendant bore the onus of persuading me that the registration would be contrary to the interests of justice.

Relevant legislation

1. Before turning to the facts of the present case, I propose to set out the relevant statutory provisions.
2. Part VI, Division 2, Subdivision A of the Act establishes a scheme for the registration of foreign restraining orders, foreign forfeiture orders and foreign pecuniary orders and for their enforcement as if they were orders made under the Proceeds of Crime Act 2002 (Cth).
3. Section 3 of the Act relevantly provides: "foreign forfeiture order means: (a) an order, made under the law of a foreign country by a court or other judicial authority, for the forfeiture of property in respect of an offence against the law of that country; or (b) a declaration, direction, notice, decree or other decision (however described), made under the law of a foreign country by a court or other judicial authority, evidencing forfeiture of property under the law of that country."
4. Section 33A(1) provides that the object of the subdivision is "to facilitate international cooperation in the recovery of property through the registration and enforcement of foreign orders in Australia." Section 33A(2) provides that, "for the purposes of achieving this object, it is the intention of Parliament that the validity of foreign orders not be examined."
5. Section 34(2)(a) of the Act relevantly provides that, if a foreign country requests that the Commonwealth Attorney-General make arrangements for the enforcement of a foreign forfeiture order that has the effect of forfeiting a person's property on the basis that the property is, or is alleged to be, the proceeds of a foreign serious offence (whether or not the person has been convicted of that offence) and is made against property that is reasonably suspected of being located in Australia, the Attorney-General may authorise a proceeds of crime authority, in writing, to apply for the registration of the order.
6. Section 34A relevantly provides: "Registration of foreign orders (1A) An application to a court for registration of a foreign order in accordance with an authorisation under this Subdivision must be to a court with proceeds jurisdiction. (1) If a proceeds of crime authority applies to a court with proceeds jurisdiction for registration of a foreign order in accordance with an authorisation under this Subdivision, the court must register the order accordingly, unless the court is satisfied that it would be contrary to the interests of justice to do so. …"
7. Schedule 1 of the Mutual Assistance in Criminal Matters Amendment (Registration of Foreign Proceeds of Crime Orders) Act 2011 (Cth) (the Amending Act), which became operative on 25 July 2011, introduced s 33A, inserted s 34A(1A) and added the following words at the end of s 34A(1), "unless the court is satisfied that it would be contrary to the interests of justice to do so".
8. The addition of s 33A was, as the Explanatory Memorandum to the Amending Act explained, "designed to ensure that when interpreting the provisions in the Subdivision, courts will have due regard to the overall objective … to give effect to foreign orders in situations where property related to serious foreign offences is located in Australia."
9. According to the Explanatory Memorandum, the amendment to s 34A(1) was made "to address issues raised by the High Court in International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49". The Explanatory Memorandum also stated that the court "should not, in determining whether registration of the foreign order is contrary to the interests of justice, examine the validity of the foreign order." This was said to be "consistent with the principles of international comity and recognises the fundamental importance of reciprocity in international cooperation in criminal matters."
10. It was common ground that this Court is a court with proceeds jurisdiction.

Factual background

1. The factual background was established by affidavits read and documents tendered by the parties. It is relevantly undisputed as there was no cross-examination of any deponent.

The genesis of Megaupload

1. The defendant, who was born in Munich in 1971, was asked by Kim Schmitz (now known as Kim Dotcom) to devise a way of transmitting large files by email. He contributed to the development of Megaupload, an internet service provider that allowed users to upload a file and have a link to that file sent to an email address of their choosing. Megaupload "went live" in March 2005 and has generated significant funds for its four founders, including the defendant, each of whom had a 25% share in the company which operated the business.

The plaintiff's Australian bank accounts

1. In 2010 the plaintiff opened three bank accounts at HSBC Australia in branches in Sydney to take advantage of the increase in the Australian dollar brought about by Australia's relative success in withstanding the effects of the Global Financial Crisis. As the plaintiff lived in Hong Kong and was an existing customer of HSBC in Hong Kong, he was able to open accounts at Sydney branches of HSBC Australia via a branch in Hong Kong. He made regular payments into one account, from which he periodically transferred money to the Serious Saver account. The plaintiff was unable to recall an occasion on which he had withdrawn money from either of these accounts, except for the purpose of transferring money between accounts.

The indictment

1. On 5 January 2012, an indictment was issued in the Eastern District of Virginia which charged the defendant and others (the Defendants) with conspiracy to commit racketeering, conspiracy to commit copyright infringement, conspiracy to commit money laundering, criminal copyright infringement and aiding and abetting criminal copyright infringement. The relief sought in the indictment included criminal forfeiture of assets around the world, including the defendant's accounts at HSBC Australia. The defendant denies all charges.

The restraining order

1. On 20 January 2012, on the application of the US Department of Justice, the Foreign Court, ex parte, granted a restraining order against the Defendants' property (the Restraining Order).

The arrest of the defendant in New Zealand

1. In January 2012, the plaintiff travelled to New Zealand to attend the celebrations for Mr Dotcom's birthday which were held at the "Dotcom mansion" in Coatesville, near Auckland. On 20 January 2012, New Zealand police, at the request of United States authorities, arrested the defendant, Mr Dotcom and another guest at the party, Finn Batato, who had also come to New Zealand for the occasion. Mr Dotcom's assets were seized. The defendant estimated that, at the time of his arrest, Megaupload had about 66.6m users.

The registration by this Court of the Restraining Order

1. The Restraining Order was registered by this Court (Gzell J) on 23 January 2012 pursuant to s 34A of the Act (the Registered Restraining Order).

The defendant's release on bail

1. The defendant was released on bail on 15 February 2012. His conditions of bail require him to remain in New Zealand, where he has lived on conditional liberty ever since.

The superseding indictment

1. On 16 February 2012, the US Department of Justice filed a superseding indictment which added charges of fraud by wire and aiding and abetting fraud by wire. The defendant denies the charges.

The attempted extradition of the defendant from New Zealand

1. Since the defendant's arrest, the US has sought his extradition from New Zealand pursuant to the US-New Zealand Extradition Treaty and the Extradition Act 1999 (NZ). The defendant's eligibility for surrender has not yet been finally determined by the courts of New Zealand.

Civil proceedings for the forfeiture of the defendant's assets

The proceedings in Hong Kong

1. On 29 July 2014, the US Department of Justice filed a complaint for civil forfeiture of the defendant's Hong Kong assets. On 28 August 2014, the defendant filed a claim to resist the forfeiture of his Hong Kong assets. On 18 November 2014 the US Department of Justice applied to strike out the defendant's claim to his Hong Kong assets on the basis that he was an "extradition fugitive".

The doctrine of fugitive disentitlement and its application to the defendant

1. In order to prove the applicable US law, Mr Stanton relied on an affidavit of Terrance Gilroy Reed, a legal practitioner who practises within the jurisdiction of the Foreign Court. Mr Reed's evidence as to the effect of US law was not controverted by the plaintiff. In his affidavit Mr Reed explained the "doctrine of fugitive disentitlement" has been codified in the Judiciary and Judicial Procedure Act 28 U.S.C. s2466, which provides that a person can be disallowed from pursuing a claim in a civil forfeiture order, if, after having been given notice of a warrant being issued for his or her arrest on criminal charges, that person, in order to avoid prosecution declines to enter or re-enter the US to submit to its jurisdiction.
2. In February 2015, the Foreign Court declared the defendant to be a fugitive from justice by reason of his invocation of rights pursuant to New Zealand extradition laws and his refusal to submit himself for extradition to the US without opposition. This had the effect of disentitling him from resisting the complaint for forfeiture of his Hong Kong assets.

The application for forfeiture of the defendant's assets in Australia

1. On 28 August 2015, the US Department of Justice filed a Verified Complaint for Forfeiture In Rem (the Civil Forfeiture Complaint) against the defendant's assets, including the defendant's assets in Australia which were the subject of the Registered Restraining Order. On 6 November 2015, the defendant filed a claim in the Foreign Court for the funds in his HSBC Australian bank accounts. On 28 November 2015, the US Department of Justice moved the Foreign Court for an order striking out the defendant's claim with respect to his Australian assets on the basis that, as a fugitive from justice, he was disentitled from contesting civil forfeiture.
2. Mr Reed explained that the Civil Forfeiture Complaint, being an action in rem, does not require the presence of the defendant (the alleged property owner) for the Court to have jurisdiction to determine the matter. He also explained that the genesis of the Order is the Civil Forfeiture Complaint (being civil proceedings) and not the criminal proceedings and that, accordingly, the Order could be made notwithstanding that the defendant was not present within the jurisdiction (and could not be served), and notwithstanding that he has not been convicted of the crimes charged in the indictment.
3. The Order is, according to Mr Reed, to be contrasted with the Restraining Order which was made by the Foreign Court in the exercise of its criminal jurisdiction by reason of the filing of the indictment. He explained the connection between the Restraining Order and the indictment in his affidavit as follows: "39. The original indictment returned against the defendants, dated January 5, 2012, appended a Notice of Forfeiture, which identified assets the DOJ [Department of Justice] sought to have forfeited in the event that the defendants were convicted on the indictment's charges. The listed property included various bank accounts in New Zealand, Hong Kong, Australia and elsewhere, Paypal accounts, vehicles, electronics, artworks and computer servers. This Notice of Forfeiture was repeated in the Superseding Indictment. 40. As noted above, the indictment and Superseding Indictment also included notice to the defendants that, upon conviction, a money judgment might be imposed on them equal to the total property subject to forfeiture, which was claimed to have a value of over US$175 million. 41. As is ordinary, upon securing the indictment, the DOJ asked the United States District Court for the Eastern District of Virginia ex parte for a restraining order authorizing pretrial restraints upon all of the defendants' assets identified as subject to forfeiture in the indictment. The DOJ's ex parte request was granted on January 10, 2012, on which date the Court entered a restraining order authorizing pretrial restraints against the defendants with respect to the listed property."
4. Mr Reed deposed that the Restraining Order could not be enforced in the US unless and until the defendant was extradited to the US for the following reasons: "48. As a legal matter, a pretrial restraining order can only restrain the parties as to which the court obtains personal jurisdiction (which does not yet include Mr. Ortmann). This means the pretrial restraining orders made in the U.S. have not ever had legal authority in this country against him. Of course, this does not prevent the court from issuing the order, or the DOJ from seeking to enforce it, but the order is unenforceable without first acquiring jurisdiction over the person against whom it is made. The restraining orders could not therefore be enforced in the United States as against Mr Ortmann unless and until he was extradited here." [Footnotes omitted.]
5. On 10 January 2018 the Foreign Court confirmed that the defendant was a fugitive. On 22 January 2018, the Foreign Court (O'Grady J) made the Order which is sought to be registered by this Court in the present proceedings. The Order was made by default, that is, in the absence of the defendant. Mr Reed accepted that the effect of the defendant being declared a fugitive was to prevent him from opposing the Civil Forfeiture Complaint, and therefore from opposing the making of the Order.

The US Department's request for assistance from Australia

1. On 16 October 2018, the US Department of Justice made a further request for assistance from the Australian authorities to give effect to the Order in respect of the defendant's Australian bank accounts. The request included, under the heading, "ASSISTANCE REQUESTED", the following: "Once the Subject Accounts have been forfeited, the United States requests that all available funds be repatriated to the United States for the purpose of victim compensation."
2. On 25 July 2019, the Acting Assistant Secretary, International Crime Cooperation Central Authority in the Commonwealth Attorney-General's Department authorised the plaintiff to apply for registration of the Order pursuant to s 34(2) of the Act. I am satisfied, on the basis of the affidavit evidence adduced by the plaintiff, which was not contested, that the plaintiff was duly authorised by the Attorney-General to apply for the order sought.
3. As referred to above, the plaintiff commenced the proceedings by summons filed on 8 April 2020.

The requirements of s 34 of the Act

1. The request for registration of the Order was made by a foreign country, the US, within the meaning of s 34(2) of the Act. The Order is a "foreign forfeiture order" for the purposes of the Act because it is an order under the law of a foreign country (the US) by a court (the Foreign Court) for the forfeiture of property (the funds in the accounts in the defendant's name at HSBC Australia) in respect of an offence against US law (including criminal copyright infringement).
2. The property is alleged to be the proceeds of a foreign serious offence within the meaning of s 34(2)(a)(i) as set out in the Civil Forfeiture Complaint. Section 3 defines a "proceeds of crime authority" to include the plaintiff. The plaintiff was authorised in writing by the Commonwealth Attorney-General, as required by s 34 of the Act.

The alleged matters said to establish that it would be contrary to the interests of justice to register the Order

1. Mr Stanton relied on the following matters in support of his contention that it would be contrary to the interests of justice for this Court to register the Order.
2. First, he submitted that it was an abuse of process, in circumstances where the indictment and the superseding indictment claimed the penalty for forfeiture of assets, for the US Department of Justice to have filed the Civil Forfeiture Complaint, which sought, in effect the same relief as was sought in the indictment and the superseding indictment. He submitted that, while the criminal proceedings (being the superseding indictment) depended on the defendant's presence in the US, the Civil Forfeiture Complaint did not. He argued that the US Department of Justice had, by filing the Civil Forfeiture Complaint, sought to take improper advantage of the declaration that the defendant was a fugitive, which entitled the Foreign Court to proceed in his absence.
3. Secondly, Mr Stanton submitted that the doctrine of fugitive disentitlement was contrary to the requirements of natural justice or procedural fairness recognised by Australian law.
4. Thirdly, Mr Stanton submitted that the purpose of the Civil Forfeiture Complaint was to obtain compensation for victims (as revealed by the terms of the request for assistance) and that, accordingly, it does not constitute a true forfeiture, but rather a civil remedy because it was, in substance, compensatory. As I understood it, the effect of Mr Stanton's submission was that this feature of the Civil Forfeiture Complaint meant that the Order made as a consequence of the Civil Forfeiture Complaint was either not a foreign forfeiture order (and therefore did not fall within s 34 of the Act) or that it was not in the interests of justice to register the Order because of the conduct of the US Department of Justice in availing itself of a civil remedy when it claimed the same remedy in the criminal proceedings.

The general principles

1. Before addressing these matters in turn, I propose to set out the relevant principles as established by LFDB v SM (2017) 256 FCR 218; [2017] FCAFC 178 (LFDB) (which are particularly relevant to the second argument).
2. In LFDB, SM, the respondent, obtained registration in the Federal Court of Australia of a judgment of the High Court of New Zealand concerning the division of property which she and the first appellant, LFDB, had held during their relationship. The judgment had been ordered without the Court having heard from LFDB, who was debarred from participating in the substantive hearing because he had failed to comply with an earlier costs order. The New Zealand Court had earlier made an order that, unless LFDB complied with the earlier costs order, he would be debarred from participating in the substantive hearing. LFDB failed to comply with the earlier costs order.
3. At first instance in the Federal Court and on appeal to the Full Federal Court, LFDB argued that the registration of the judgment was contrary to public policy because the judgment had been ordered without his participation and that this amounted to a denial of procedural fairness. The primary judge rejected the argument. LFDB appealed to the Full Federal Court (Besanko, Jagot and Lee JJ), which dismissed the appeal.
4. The Full Federal Court observed at [37]: "[I]t is natural, and to be expected, that different jurisdictions (including those countries with whom we have a close connexion and a shared legal heritage) adopt different solutions to the same problems without those different solutions 'suffering the ignominy of being described as contrary to public policy': see De Santis v Russo (2001) 27 Fam LR 414 at [18] per Atkinson J."
5. The Full Federal Court rejected the argument that there had been a denial of procedural fairness in the following terms, which are germane to the present case: "42 [T]here are reasons, in any event, to be sceptical of the underlying argument that there was some intractable problem with ever making a just order in the absence of one party. The example of a litigant recalcitrantly declining to appear was raised with senior counsel for the appellants. The problem that senior counsel had to confront was that the logical extension of his argument was that if one of the parties made a deliberate decision not to attend, a court may be placed in the impossible position of being prevented from making just and proper property division orders. It is sufficient to merely state this proposition to identify that the contention as advanced by the appellants, at the level of generality at which it was expressed, cannot be correct. 43 In any event, at the very least, the primary judge was correct to reject the notion that merely because a different approach is taken to a common problem in an overseas jurisdiction, that difference renders such an approach contrary to public policy in Australia. The primary judge recognised at [102] that the authorities demonstrate the need to go further. As Tamberlin J noted in Stern v National Australia Bank [1999] FCA 1421 at [143]: 'The thread running through the authorities is that the extent to which the enforcement of the foreign judgment is contrary to public policy must be of a high order to establish a defence. A number of the cases involve questions of moral and ethical policy; fairness of procedure, and illegality, of a fundamental nature.' 44 The primary judge was correct in determining that the Unless Order did not mean the Relevant Judgment was flawed in such a fundamental way. There is nothing about the bespoke nature of the judicial task to be performed under the NZ Act which brings this conclusion into question …"

Alleged abuse of process

1. The argument that it is an abuse of process for the US Department of Justice to commence civil proceedings for a forfeiture order while at the same time claiming forfeiture as a penalty on the indictment would appear to be based on the general proposition that it is generally an abuse of process to commence proceedings for one remedy and then claim the same remedy in different proceedings: Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201; [2007] NSWCA 104 at [33] and [34] (Campbell JA, Tobias JA agreeing). This is particularly so where there is an apparent collateral advantage to be gained from the second proceedings.
2. It is helpful to test this proposition by reference to similar proceedings in this jurisdiction where criminal proceedings may or may not have been commenced but there is a parallel avenue whereby an investigating authority can obtain orders in respect of assets which are suspected of being proceeds of crime. The parallel avenue is pursued in proceedings which, not being criminal proceedings, are civil proceedings: see the definition in s 3(1) of the Civil Procedure Act 2005 (NSW).
3. The criminal and civil proceedings brought in the US are of a particular genus, which has a close parallel in this jurisdiction both under Commonwealth and NSW legislation. Because of the similarity between the applicable US systems, as revealed by the evidence, and the statutory schemes in Australia, which deal with the same or similar topics, I do not regard the alleged abuse as providing a warrant for being satisfied that it would be contrary to the interests of justice to register the Order.
4. The point can be illustrated by reference to Commonwealth legislation, the Proceeds of Crime Act 2002 (Cth), which provides for the following two methods by which proceeds of crime can be recovered: 1. conviction-based recovery, which authorises the recovery of assets associated with a crime after a person has been convicted of an offence; and 2. civil recovery which allows for the restraint and recovery of assets suspected of being the proceeds of crime, without there being any need to obtain a criminal conviction.
5. One of the differences between the two methods is that the burden of proof for civil recovery is lower than for conviction-based recovery (for which the standard is beyond reasonable doubt). The civil recovery method allows law enforcement authorities with only a "suspicion" to bring civil proceedings to restrain and then forfeit assets without anyone having been charged or convicted.
6. Chapter 2 of the Proceeds of Crime Act authorises the making of restraining orders in circumstances where someone has been convicted or charged with an indictable offence (s 17); where someone is suspected of having committed a serious offence (s 18); and where property is suspected of being proceeds of an indictable offence (s 19). Under s 25, a "proceeds of crime authority" may apply for a restraining order. Section 27 provides: "Proceeds of crime authority may choose under which section it applies for a restraining order To avoid doubt, the fact that a * proceeds of crime authority may apply for a * restraining order under a section of Division 1 against property in relation to an offence does not prevent a proceeds of crime authority from applying for a * restraining order under a different section of Division 1 against that property in relation to that offence."
7. Forfeiture of property under the Proceeds of Crime Act may be effected in several ways, including pursuant to a forfeiture order (where the court orders that property which is the proceeds or an instrument of crime be forfeited to the Commonwealth (ss 48 and 49)); pursuant to a pecuniary penalty order (where a person who has been convicted of an offence is ordered to pay an amount equal to the benefit derived by the person from committing the offence); or by reason of statutory or automatic forfeiture which operates to forfeit property which is subject to a restraining order within a particular period of a person having been convicted of a serious offence. An order under s 49 of the Proceeds of Crime Act can be made in respect of property suspected of being proceeds of crime in circumstances where neither the owner nor the suspected offence has been identified: see, for example, Re Commissioner of the Australian Federal Police [2018] NSWSC 703 where a forfeiture order was made in respect of AUD 1,616,460 in cash which was found in a property at Wetherill Park and remained unclaimed notwithstanding several advertisements placed by the AFP with a view to identifying the owner.
8. In the present case, the US Department of Justice has sought forfeiture in the criminal proceedings (which depend on conviction) as well as in civil proceedings (which do not depend on conviction). Similar actions by the plaintiff in Australia would be authorised under the Proceeds of Crime Act. It does not follow from the differences between the standard of proof in, on the one hand, the criminal proceedings and, on the other, the civil proceedings that the proceeds of crime authority if availing itself of both avenues would be seen as seeking to take improper advantage of the differences by bringing civil proceedings. Indeed this course is expressly authorised by the Proceeds of Crime Act.
9. In these circumstances, I am not satisfied that the dual proceedings amount to an abuse of process, or provide a basis to refuse registration of the Order.

Alleged denial of procedural fairness

1. As to the alleged denial of procedural fairness, I regard the present case as relevantly indistinguishable from LFDB. In both cases, the relevant party (LFDB or the defendant in the present case) was not entitled to be heard by the relevant court because of a circumstance of his own making. In LFDB, the first appellant was not entitled to be heard because he had failed to comply with an earlier costs order and an order had been made that he would not be entitled to be heard unless he complied with that order. In the present case, the defendant was not entitled to make a claim in the Foreign Court to resist the Order because he had elected to remain in New Zealand and oppose his extradition, leading to a declaration that he was a fugitive from justice. In each case, the non-compliance with the costs order and the opposition to extradition can be regarded as the voluntary act of the person who has thereby foregone the right to be heard. For the reasons given by the Full Federal Court in LFDB, this is not sufficient to amount to a circumstance that would make the registration of the Order contrary to the interests of justice.

The compensatory element to the Civil Forfeiture Application

1. As referred to above, Mr Stanton relied on the indication that the property, once forfeited, would be used to compensate victims in support of the submission that this matter would deprive the forfeiture of the necessary penal characteristic.
2. It is not uncommon for legislation to provide that, if a person has been convicted of an offence, the court may order the offender to pay compensation to the victims. For example, s 87(1) of the Competition and Consumer Act 2010 (Cth) provides that such an order may be made in various circumstances, including where an offence has been proved: see also s 588K of the Corporations Act 2001 (Cth). That an order for compensation is also sought, does not convert the criminal proceedings into civil proceedings, much less make the order less than penal. Further, the circumstance that the prosecuting authority proposes to distribute some or all of the proceeds recovered to the victims does not make the proceedings any less penal. Nor does it have the effect of depriving the Order of its character as a "foreign forfeiture order" within the meaning of s 34 of the Act. In these circumstances, I reject the argument that the proposal that the monies be used for the compensation of victims provides a basis on which to refuse to register the Order.

Costs

1. No reason has been identified why costs ought not follow the event in accordance with the general rule: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

Orders

1. For the reasons given above, I make the following orders: 1. Pursuant to s 34A of the Mutual Assistance in Criminal Matters Act 1987 (Cth), the foreign forfeiture order issued in the United States of America by the United States District Court for the Eastern District of Virginia on 22 January 2018 be registered in the Supreme Court of New South Wales. 2. Order the defendant to pay the plaintiff's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2021