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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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This bill seeks to improve and clarify Commonwealth arrangements targeting
the criminal business model, ensuring that law enforcement
has suitable tools to
detect illicit financial flows through effective information-gathering,
confiscate relevant assets and prosecute
responsible individuals
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Portfolio
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Home Affairs
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Introduced
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House of Representatives on 2 September 2020
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Bill status
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Before the House of Representatives
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2.28 In Scrutiny Digest 13 of 2020 the committee requested the minister's more detailed advice as to the justification for the maximum penalties imposed by each of the proposed offences in Schedule 1 to the bill, particularly addressing relevant principles as set out in the Guide to Framing Commonwealth Offences.[11]
Minister's response[12]
2.29 The minister advised:
General justification
Part 3.1.1 of the Guide to Framing Commonwealth Offences (the Guide) provides that a high maximum penalty will be justified where there are strong incentives to commit the offence or where the consequences of the commission of the offence are particularly dangerous or damaging.
The high maximum penalties under the proposed offences are necessary to overcome the strong incentives that currently exist to commit money laundering.
Transnational serious and organised crime (TSOC) groups are primarily motivated by profit, and money laundering is an essential component of their criminal business model. These groups are no longer confined to a particular crime-type or association, but have instead evolved into sophisticated multinational businesses, constantly shifting their operations to create, maintain and disguise illicit financial flows. Money laundering enables these groups to disguise illicitly obtained funds behind a veil of legitimacy, allowing them to realise their profits from criminal activity, hide and accumulate wealth, avoid prosecution, evade taxes and fund further criminal activity.
In this profit-focused environment, demand for money laundering services has increased dramatically, creating financial incentives that have fueled the proliferation of global laundering networks. Money laundering remains extremely profitable within the illicit economy, and networks are able to charge high commissions to move money around the world in a manner that is incredibly difficult to trace. Australian law enforcement experience indicates that these commissions are generally five to ten per cent of the value of the money laundered. This is a considerable sum when one considers the total value of money laundered globally, which the United Nations estimates to be 2-5% of global GDP, or approximately $800 billion - $2 trillion in current US dollars [see UNODC - Money Laundering and Globalisation, available on line at https://www.unodc.org/unodc/ en/money-laundering/globalization.htmI].
The high maximum penalties imposed under the proposed offences can also be justified as money laundering has a particularly dangerous and damaging impact on society.
Money laundering remains a fundamental enabler of almost all TSOC activity, allowing profits from crime to be realised, concealed and reinvested in further criminal activity, or used to fund corruption and lavish lifestyles. Money laundering systematically devastates the health, wealth and safety of Australia's citizens through the conduct it enables, such as illicit drug trafficking, terrorism, tax evasion, people smuggling, theft, fraud, corruption and child exploitation. The Australian Institute of Criminology estimates that overall TSOC activity costs Australia up to AUD47.4 billion per year.
Money laundering also directly impacts on Australia's economic wellbeing, distorting markets, generating price instability and damaging the credibility of Australia's institutions and economy. These consequences can deter foreign investors and impede economic growth. Money laundering also diminishes the tax revenue collected by the Australian Government, causing indirect harm to millions of Australians that would otherwise benefit from Government programs funded through this revenue.
Penalty benchmarks
As the Committee points out, part 3.2.1 of the Guide states that a penalty 'should be consistent with penalties for existing offences of a similar kind or of a similar seriousness'. The maximum penalties of the proposed offences in Schedule 1 are consistent with those imposed under the existing money laundering offences in Division 400 of the Criminal Code.
Offences of a similar kind
As outlined in the table below, the maximum penalty of the existing offences (highlighted in blue) and proposed offences (highlighted in green) reflect: the level of awareness a defendant has as to the link between property (which includes money) and criminal activity; the seriousness of their conduct in relation to this property; and the value of the property.
[Table can be accessed in the full ministerial response published on the committee's website at https://www.aph.gov.au/senate_scrutiny].
By expanding on the existing penalty structure under Division 400, the proposed offences enable the legislature to be more precise in specifying the penalties it considers to be appropriate for particular conduct. This provides a greater level of certainty, increasing the deterrent effect of these offences, while ensuring that penalties under the proposed offences can be justified by reference to existing offences.
Offences of a similar seriousness
The most serious of the proposed offences under subsections 400.2B(1)(3) involve laundering property valued at $10,000,000 or more and are punishable by a maximum sentence of life imprisonment. This maximum penalty is the most serious that can be imposed under Commonwealth law, and is currently only applied to abhorrent offences such as people smuggling, espionage, large-scale illicit drug trafficking and terrorism.
The proposed offences under subsections 400.2B(1)-(3) are of similar seriousness to existing offences punishable by life imprisonment as the consequences of committing these offences is often just as damaging.
For example, if an offender commits an offence of dealing with an instrument of indictable crime under subsection 400.2B(1) by providing $10,000,000 directly to a drug syndicate, this would enable the syndicate to purchase approximately 33 to 110 kilograms of cocaine. Even on the most conservative estimates, the commission of the money laundering offence will have allowed the syndicate to possess and sell sixteen times the 'commercial quantity' of cocaine required to attract a maximum sentence of life imprisonment [see item 43 of table 1 of Schedule 2 to the Criminal Code Regulations 2019 and section 304.1 of the Criminal Code].
If the drug syndicate provides $10,000,000 of proceeds from the sale of this cocaine to a person, who subsequently commits a proceeds offence under subsection 400.2B(2) or (3) in disguising the illicit origins of these proceeds, this may have concealed multiple offences punishable by life imprisonment from law enforcement. With the proceeds 'cleaned', the drug syndicate could use these proceeds to buy and resell further commercial quantities of cocaine, or to invest in a lavish lifestyle and thereby incentivise others to engage in drug offending, enabling the cycle of serious offending to continue.
The offences under subsections 400.2B(1)-(3) will only be triggered by the most serious forms of conduct. In order to commit an offence under subsections 400.2B(1)-(3), the property must be proceeds of indictable crime, proceeds of general crime, or the person must intend that the property will become an instrument of crime. A further requirement is that a person must have a high degree of awareness of the link between the property they are dealing with and criminal activity.
A person will only be liable in relation to property (including money) under the offences where they:
• deal with property that is 'proceeds of indictable crime' while believing it to be 'proceeds of indictable crime' (subsection 400.2B(1)) - for example, dealing with $10,000,000 while believing that it was derived from selling illicit drugs; or
• deal with property intending that it will become an instrument of crime (subsection 400.2B(1)) - for example, providing $10,000,000 to a drug syndicate while meaning to ensure that these funds are used to purchase drugs or aware that this will occur in the ordinary course of events; or
• engage in conduct in relation to property that is 'proceeds of general crime' while believing it to be 'proceeds of general crime' and concealing or disguising its origins (subsections 400.2B(2)-(3)) -for example, concealing the origins of $10,000,000 while believing that these funds to be derived from crime generally.
Committee comment
2.30 The committee thanks the minister for this response. The committee notes the minister's advice that the high maximum penalties for the proposed offences are necessary to overcome the strong incentives to commit money laundering, as per the justification in the Guide to Framing Commonwealth Offences. The minister also advised that money laundering has a particularly dangerous and damaging impact on society as it enables transnational and serious organised crime groups to fund criminal activities, which also negatively impacts on the economy.
2.31 The minister also provided further detail as to the range of penalties which apply to the offences with reference to existing money laundering offences of a similar seriousness in Division 400 of the Criminal Code. The minister advised that the most serious of the proposed offences under subsections 400.2B(1)-(3) involve laundering to the value of $10 million or more with a maximum penalty of life imprisonment. The minister further advised that life imprisonment is currently only applied to abhorrent offences such as people smuggling and terrorism which the minister considers are of a similar seriousness to the offences under proposed subsections 400.2B(1)-(3).
2.32 The committee requests that an addendum to the explanatory memorandum containing the key information provided by the minister be tabled in the Parliament as soon as practicable, noting the importance of these explanatory materials as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).
2.33 In light of the detailed information provided, the committee leaves to the Senate as a whole the appropriateness of the penalties imposed by each of the proposed offences in Schedule 1 to the bill, including the maximum penalty of life imprisonment for the offences under proposed subsections 4002B(1)-(3).
2.34 In Scrutiny Digest 13 of 2020 the committee requested the minister's advice as to why it is proposed to reverse the legal burden of proof in this instance and why it is not sufficient to reverse the evidential, rather than legal, burden of proof.[14]
Minister's response
2.35 The minister advised:
The Committee has requested advice as to why the defence at subsection 400.9(5) reverses a legal burden of proof and why it is not sufficient to reverse an evidential burden. Part 4.3.2 of Guide provides that the defendant should generally bear an evidential burden of proof for an offence-specific defence, unless there are good reasons to depart from this position.
Subsection 400.9(5) imposes a legal burden of proof on the defendant, requiring them to establish, on the balance of probabilities, that they had no reasonable grounds for suspecting that money or property was derived or realised, directly or indirectly, from some form of unlawful activity. A legal burden of proof is higher than an evidential burden, which requires a defendant to merely adduce or point to evidence that suggests a reasonable possibility that a particular matter exists or does not exist.
It is necessary to impose a legal rather than evidential burden on the defendant to ensure that the offences can pierce the 'veil of legitimacy' that money laundering networks frequently use to disguise their activities.
These networks often exploit seemingly legitimate banking products; remittance services; front companies; complex financial, legal and administrative arrangements; real estate and other high-value assets; gambling activities; and a range of formal and informal nominee arrangements to conceal proceeds of crime and obscure beneficial ownership. This layering activity generates a paper trail that can be used to establish a 'reasonable possibility' of legitimacy that, in many cases, would be sufficient to meet an evidential burden under subsection 400.9(5) and thereby allow these networks to avoid criminal liability.
An evidential burden may be met by pointing to evidence, even slender evidence, adduced as part of the prosecution case. Hence a defendant could discharge an evidential burden by pointing to an answer provided in a police record of interview which suggested that the money or other property was derived from a legitimate business activity. By imposing a legal burden of proof on the defendant, subsection 400.9(5) ensures that courts look beyond this 'reasonable possibility' to properly examine the genesis and operation of structures used to legitimise transactions, reducing the effectiveness of layering activity.
Committee comment
2.36 The committee thanks the minister for this response. The committee notes the minister's advice that a legal burden of proof is higher than an evidential burden and that this higher burden is necessary to ensure that offences can 'pierce the veil of legitimacy' used by money laundering networks to shield their criminal activities.
2.37 The minister also advised that a defendant may be able to discharge an evidential burden of proof by adducing what may be considered slender evidence that the money or property was derived from legitimate business activities, and that a reversal of the legal burden of proof is needed to ensure the courts look beyond this 'reasonable possibility' to properly examine the genesis and operation of structures used to legitimise transactions, reducing the effectiveness of layering activity.
2.38 The Guide to Framing Commonwealth Offences recommends that the explanatory materials should justify why a reversed legal burden of proof has been imposed instead of an evidential burden of proof. In this instance, the committee considers that the explanatory memorandum would benefit from the additional detail provided by the minister in his response.
2.39 The committee requests that an addendum to the explanatory memorandum containing the key information provided by the minister be tabled in the Parliament as soon as practicable, noting the importance of these explanatory materials as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).
2.40 In light of the detailed information provided, the committee leaves to the Senate as a whole the appropriateness of reversing the legal burden of proof for the exception to the new offences in proposed subsections 400.9(1AA) and 400.9(1AB) of the Criminal Code, which would require a defendant to prove that they had no reasonable grounds for suspecting some form of unlawful activity.
2.41 In Scrutiny Digest 13 of 2020 the committee requested the minister's advice as to whether the bill can be amended to:
• include at least high-level guidance as to the terms and conditions on which financial assistance may be granted; and
• include a requirement that written agreements with the states and territories about grants of financial assistance relating to crime prevention made under proposed Division 4 of Part 4-3 are:
• tabled in the Parliament within 15 sitting days after being made; and
• published on the internet within 30 days after being made.[16]
Minister's response
2.42 The minister advised:
The advice relates to proposed Division 4 of Part 4-3 (the new funding mechanism) of the Proceeds of Crime Act 2002 (the POC Act), which would allow the Minister for Home Affairs to provide financial assistance to a State or Territory through the COAG Reform Fund.
The Committee's proposed amendments would be duplicative
The amendments suggested by the Committee would duplicate existing limitations imposed by Parliament, existing oversight mechanisms and the existing mechanisms through which the terms and conditions on which financial assistance will be provided are made public in appropriate circumstances.
Under proposed subsection 298A(1) of the POC Act, Parliament limits the Minister to only making a grant of financial assistance to a State or Territory for a narrow range of purposes, including crime prevention, law enforcement, drug treatment and/or drug diversion measures. Where the Minister decides that a grant of financial assistance should be made to a State or Territory, proposed sections 298E and 298F of the POC Act further require the relevant amount to be debited from the Confiscated Assets Account and sent through the COAG Reform Fund to the State or Territory recipient. The new funding mechanism would not circumvent any existing approval processes required to make payments to States, and large programs of expenditure would still be subject to the budget approval process.
It is also important to note that the new funding mechanism operates as an alternative to the existing mechanism under section 298 of the POC Act, which allows the Minister to approve expenditure to organisations for the same purposes. In practice, the new funding mechanism is only likely to be used in a narrow range of circumstances, usually where a State or Territory is best placed to deliver a particular measure. For example, if the Commonwealth wishes to provide financial assistance to an established State program to deliver grants to schools to improve security infrastructure, the Commonwealth could authorise payments to the State via the COAG Reform Fund.
The new funding mechanism, like the existing mechanisms under section 298, is also limited by the balance of the Confiscated Assets Account pursuant to subsection 80(1) of the Public Governance Performance and Accountability Act 2013.
The conditions by which financial assistance is provided will be outlined under National Partnership Agreements with the States, which are subject to well-established transparency and oversight mechanisms. National Partnership Agreements are typically published on the Federal Financial Relations website, although this is not a statutory requirement, and Agreements may also be outlined through an exchange of letters between Ministers.
To effect payment under an Agreement, the relevant State must provide evidence to the Department of Home Affairs that a key milestone has been met. If the Department is satisfied, it will submit a payment request to Treasury, which will then authorise the payment if the payment request complies with the Agreement. This authorisation is formalised in a determination by a Treasury portfolio minister that is subsequently lodged on the Federal Register of Legislation.
Once payment is made to the relevant State or Territory, it will be required to abide by any applicable oversight and transparency mechanisms when delivering the funded program. These mechanisms differ from State to State.
Committee comment
2.43 The committee thanks the minister for this response. The committee notes the minister's advice that the committee's proposal to amend the bill to include high level guidance as to the terms and conditions of a grant of financial assistance, and that written grant agreements be tabled in the parliament, would be a duplication of existing limitations and oversight mechanisms. The minister advised that proposed subsection 298A(1) of the Proceeds of Crime Act 2002 provides that the minister may only make financial assistance grants to States and Territories for a narrow range of purposes such as crime prevention and law enforcement.
2.44 In addition, the minister advised that the grant conditions will be outlined under National Partnership Agreements which are subject to established transparency and accountability mechanisms, and which are generally published on the Federal Financial Relations website, although this is not a statutory requirement. The minister further advised that agreements may also be outlined through an exchange of letters between ministers.
2.45 While acknowledging the minister’s advice, the committee reiterates that section 96 of the Constitution confers on the Parliament the power to make grants to the states and to determine the terms and conditions attaching to them. Where the Parliament delegates this power to the executive, the committee considers it appropriate for the exercise of the power to be subject to at least some level of parliamentary scrutiny, particularly noting the terms of section 96 and the role of senators in representing the people of their state or territory.
2.46 While the committee acknowledges that grants of financial assistance may only be made for a narrow range of purposes as set out in the bill, it remains the case that the bill contains no guidance as to the terms and conditions on which financial assistance may be granted, other than to specify that the terms and conditions must provide for the circumstances in which the grant recipient must repay amounts to the Commonwealth.
2.47 In addition, while the minister advised that agreements are generally published on the Federal Financial Relations website, this is not a statutory requirement and there is no requirement to table the agreements in the Senate. In this regard, the committee notes that the process of tabling documents in the Senate alerts senators to their existence and provides opportunities for debate that are not available where documents are only published online.
2.48 The committee draws this matter to the attention of senators and leaves to the Senate as a whole the appropriateness of:
• leaving the terms and conditions on which financial assistance to the states relating to crime prevention and law enforcement may be granted to be determined by the executive; and
• not including a requirement that agreements between the Commonwealth and the states relating to grants of financial assistance must be published online and tabled in the Parliament.
[10] Schedule 1, items 9, 13, 17, 21, 27, 31, 35 and 62. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).
[11] Senate Scrutiny of Bills Committee, Scrutiny Digest 13 of 2020, pp. 2-3.
[12] The minister responded to the committee's comments in a letter dated 2 November 2020. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 15 of 2020 available at: www.aph.gov.au/senate_scrutiny_digest
[13] Schedule 1, item 62, proposed subsections 400.9(1AA) and (1AB). The committee draws senators' attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).
[14] Senate Scrutiny of Bills Committee, Scrutiny Digest 13 of 2020, pp. 5-6.
[15] Schedule 7, item 55. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).
[16] Senate Scrutiny of Bills Committee, Scrutiny Digest 13 of 2020, pp. 7-8.
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URL: http://www.austlii.edu.au/au/other/AUSStaCSBSD/2020/203.html