Key issues

2.1        Submitters expressed mixed views in relation to the Proceeds of Crime Amendment (Proceeds and Other Matters) Bill 2017 (the bill). This chapter will outline the support for the bill followed by the key issues as raised by submitters. Finally, the committee view and recommendation will be discussed.

Support for the bill

2.2        Submitters were generally supportive of laws which allowed for the confiscation of proceeds of crime.[1] The Police Federation of Australia (Police Federation) explained the importance of proceeds of crime laws:

...organised crime is motivated by money. Therefore, a major focus on crime prevention strategies should be to confiscate the assets of criminals and criminal enterprises. ...With the 'Mr. Bigs' of the crime world able to distances themselves from the actual commission of crimes, or with criminals unconcerned with serving short term goal [sic] sentences, asset confiscation is an integral piece of the crime fighting puzzle.[2]

2.3        The Commissioner for Victims' Rights agreed, stating that:

Internationally and domestically confiscating the proceeds of crime is an important crime preventive tool. Such can happen as an independent punishment or as an addition to conventional punishment (for example, community service or imprisonment). A prime objective is to take away the financial and economic benefits criminals have attained from the crime, so criminals do not profiteer from their crimes but also their families.[3]

2.4        The Uniting Church in Australia, Synod of Victoria and Tasmania (Uniting Church), noted the apparent ease with which corrupt individuals are able to transfer their assets into Australia and expressed its support for the bill.[4] Additionally, the Uniting Church argued that having a mechanism whereby proceeds of crime can be confiscated and restrained without a conviction, was often 'the only way to recover the proceeds of corruption and to exact some measure of justice.'[5] It noted that non‑conviction based confiscation was both 'quicker and more efficient and may be the only recourse when the offender i[s] dead, had fled the jurisdiction, or is immune from prosecution.'[6]

2.5        The Police Federation noted that the confiscation of proceeds of crime works in three ways—it removes the incentive to engage in criminal activity by making crime less profitable; it seizes assets that could have been used to fund further criminal activity; and it reinvests the confiscated assets into crime prevention initiatives.[7] The Police Federation endorsed a system whereby the money obtained from proceeds of crime was reinvested into crime prevention measures and law enforcement.[8]

2.6        The Commissioner for Victims' Rights argued for a federal fund to be set up for the victims of crime in which a portion of the money from confiscated assets is paid into the fund.[9] The Commissioner explained:

In some jurisdictions, the money derived from confiscated proceeds of crime can be used to pay for rehabilitative and health programmes, for example, needle exchange for drug users to minimise the spread of disease. ...The funds could then be utilised to pay for victim assistance programmes for victims of crimes under Commonwealth law, such as victims of terrorism, victims of human trafficking and child victims of sexual exploitation. Many victims of crime under Commonwealth law are victims of 'organised and transnational crime' who under international law are entitled to practical, medical, therapeutic and financial assistance.[10]

Concerns with the Act

2.7        While the inquiry relates to the bill, a number of submitters raised concerns with certain aspects of the Proceeds of Crime Act 2002 (the Act). These concerns included that the application of the Act goes beyond its original intent; that the Act may not be a proportionate measure; and that further research is needed before the Act is extended.

Intention of the Act

2.8        According to Civil Liberties Australia (Civil Liberties), ''[u]nexplained wealth' laws and similar legislation at the state and territory level have been implemented and applied in ways contrary to their original intent and contrary to assurances given to state and federal parliaments.'[11] Civil Liberties explained that when state and federal legislations were introduced and passed, assurances were given that the laws would only be used to combat 'serious and organised crime where there were such sophisticated business models that it would be extremely difficult to secure convictions against senior-level crime bosses.'[12] According to Civil Liberties these laws are often not used against serious organised crime figures but to recover amounts as little as $3,000.[13] Furthermore, Civil Liberties argue that in many of these cases there was no indication of a sophisticated or impenetrable business model.[14] Civil Liberties explained:

Those Acts are applied well beyond "organised crime" and impose oppressive, often life-destroying additional punishment on individuals who have already been through the criminal justice system and have already been subjected to punishment as determined by a judicial officer for the same conduct. A good example is Dickfoss v DPP (2012) 31 NTLR 16 where a soft drug user in his 50s causing no harm to anyone except perhaps himself and who had already been sentenced for the same conduct by a court, lost his home, which was of little value to anyone save of course himself.[15]

2.9        In addition, Civil Liberties warned that:

...members of parliaments should be very concerned that laws that take the extremely serious step of reversing the burden of proof to deal with the specific cases of the "Mr Bigs" of the crime world are instead being used to deal with minor cases.[16]

2.10      In relation to these concerns the Department of Home Affairs (the Department) noted that the Act contains a range of protection measures, outlined in paragraph 39 of the Explanatory Memorandum, 'which ensure that unexplained wealth orders do not unfairly impact upon petty offenders.'[17]

Proportionality

2.11      The Law Council of Australia (Law Council), noted the Act 'already provides for the forfeiture of property in an extremely wide range of circumstances'.[18] The Law Council explained that sections 329 and 330 of the Act use the expression 'partly derived or realised' and that property becomes 'proceeds' or an 'instrument' where it has been 'partly derived or realised from a disposal or other dealings with proceeds [or an instrument] of the offence.'[19] The Law Council provided an example of how the expression 'partly derived or realised' could lead to a disproportionate outcome:

If $100 of stolen funds are contributed towards the acquisition of $1 million property, that property will constitute 'proceeds' notwithstanding the fact that only 0.01% of the purchase price was derived from unlawful activity.[20]

2.12      This concern regarding proportionality was also raised by the Uniting Church who stated that:

The only amendment the Unit would support is to ensure the courts are left with some discretion to act proportionately in dealing with proceeds of crime where a property is partly derived from the proceeds of crime. For example, if a residential property was purchased with 10% of the mortgage payments being from the proceeds of crime, the court should have some discretion about preventing a disproportionate outcome in the manner in which the property is then treated as proceeds of crime while still not allowing people engaged in criminal activity from being able to financially benefit from their criminal activity.[21]

2.13      The Law Council explained that the need for proportionality was especially critical given 'the low threshold in obtaining restraining orders, the strict exclusion tests, the very limited judicial discretion under the [Act] to prevent forfeiture, and the operation of the forfeiture provisions.'[22] The Law Council made the following observation:

Presently, a restraining order may be obtained under section 17 over all of the property of a suspect charged with indictable offences without the need to establish reasonable grounds to suspect that such property is 'proceeds' or an 'instrument'. In other words, there need not be any nexus between the restrained property and the alleged offending at the restraining order stage. If the suspect is later convicted of a 'serious offence', the property will be liable to automatic forfeiture under section 92 of the [Act] unless an exclusion order is made under section 94 of the [Act]. To obtain an exclusion order, the applicant must demonstrate that, on the balance of probabilities, the interest in property sought to be excluded is neither 'proceeds' of 'unlawful activity', nor an 'instrument' of 'unlawful activity' and that the interest was 'lawfully acquired'. However, having regard to the breadth of the definition of 'proceeds', which imports no concept of proportionality, the test is extremely onerous.[23]

2.14      The Law Council suggested that the issue of proportionality can be resolved by amending 'partly derived or realised' to 'substantially derived or realised':

By way of contrast, the Confiscation Act 1997 (Vic) (Confiscation Act) defines 'tainted property' (the analogue to 'proceeds' under the [Act]) as property that 'was derived or realised, or substantially derived or realised, directly or indirectly, from the commission of' a relevant offence. By using the expression 'substantially' rather than 'partly', the Confiscation Act seeks to create some proportionality between the financial contribution and its impact on the relevant property.[24]

The need for further research

2.15      Mr Jarryd Bartle also noted that the existing proceeds of crime law had been raised by academics and legal professionals as being 'unfairly broad' and that there had been a lack of research as to the effectiveness of these laws.[25] As such, Mr Bartle argued that in light of these concerns, 'it would seem ill-informed to extend existing laws to cover further circumstances without a comprehensive evaluation of the scope of the existing laws.'[26] Civil Liberties also noted that it does not support the proposed amendments to the Act 'pending a proper review of the operation of Australia’s unexplained wealth regime at both the federal and state levels.'[27]

2.16      However, the Department pointed to a number of reviews that have been conducted into the Act.[28] It noted that while these laws will continue to be reviewed, the amendments to the bill should not be delayed 'as these amendments are time‑sensitive and necessary to address pressing vulnerabilities in the Act.'[29]

Broadening of terms

2.17      As outlined in chapter one, the bill would amend key terms such as 'proceeds', and 'instrument', and extend the circumstances in which these terms would apply. According to the Law Council, broadening these terms would serve to compound the concerns in relation to proportionality.[30] This was further explained by the Law Council:

Hence, if an immaterial amount of money derived from unlawful activity is used towards a loan repayment or towards a home renovation, the property would be rendered 'proceeds' and, most likely, also an 'instrument', making it impossible to exclude it or to obtain a compensation order arising from its forfeiture.

The amendments will place a significant additional evidentiary burden on an applicant for an exclusion order, who must satisfy a Court that the relevant interest in property is neither 'proceeds' nor an 'instrument'. If, for example, some improvements were carried out to a home an applicant for an exclusion order would be forced to put on evidence showing the origin of the funds used to make such improvements, however far back they may have been carried out and whatever their value.[31]

2.18      The Law Council noted that the protections under the Act can at times be illusory:

One 'protection' for such an applicant exists in section 94A of the [Act], which provides that a court can make a compensation order where it 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'. However, a Court is precluded from ordering compensation where the applicant's interest in the property is an 'instrument'. By reason of that prohibition, the 'protection' is almost always rendered illusory. That is primarily so because the very act of using illegally obtained funds (relevantly 'proceeds') renders such funds an 'instrument' through provisions which prohibit dealings in proceeds of crime.[32]

2.19      However, the Department explained that the Act contains a range of protection measures to ensure that 'disproportionate' or 'unjust outcomes' do not occur.[33] In relation to the example provided by the Law Council, the Department provided the following explanation of how the protective measure would operate:

In cases where property is both the proceeds of crime and an instrument of crime, courts still have the discretion to adopt a more proportionate approach by: refusing to issue a restraining order if this would not be in the public interest (ss 17(4), 19(3) and 20A(4)); revoking a restraining order where the restraining order was made without the respondent being present (ss 42); making allowances for expenses to be made out of property covered by a restraining order (s 24) and; allowing the person to buy back the property (ss 57 and 103).

In cases where a person commits further offences by dealing with proceeds of crime (i.e. the laundering of their criminal profits into different forms of property), however, it is appropriate that the Act takes a robust approach to ensure its central aims are upheld.[34]

2.20      The Law Council reiterated their suggestion for the expression 'partly derived or realised' to be replaced with 'substantially derived or realised'.[35] According to the Law Council, the suggested amendment would address the issue arising from a lack of proportionality as well as 'the absence of any judicial discretion to ameliorate disproportionate consequences.'[36]

2.21      However, the Department did not support the Law Council's suggestion stating that it 'is likely to undermine the underlying objects of the Act by establishing a gap in the criminal assets confiscation regime that makes crime profitable.'[37] The Department explained that if 'partly' were amended to 'substantially' then criminals may be able to structure their affairs so that the amount of money invested in property is below the threshold, thereby avoiding confiscation of their assets.[38]

2.22      The Department also argued that the Law Council's proposal would also create an inconsistency as the words 'partly derived or realised' are used in other offences within the Criminal Code.[39] Furthermore, the Department noted that the use of the word 'substantially' is more appropriate for the Confiscation Act as it does not contain compensation orders.[40]

Allowing for reasonable legal expenses to be met

2.23      The Law Council also argued that the Act should allow 'for courts to permit respondents to use restrained assets to meet the person's reasonable legal expenses arising from confiscating proceedings.'[41] The Law Council provided the following explanation for its suggestion:

In the Law Council’s view, the Legal Aid provisions under the legislation are impractical and in most cases inoperable. The inability to access legal aid raises difficulties in circumstances where, quite frequently, the defendants to [the Act] proceedings have had all their property and cash restrained, including future property orders, and are unable to defend applications often made at short notice and on multiple fronts.[42]

2.24      The Commissioner for Victims' Rights argued for a Commonwealth fund to be set up for the victims of crime and for restrained and confiscated assets to be used to pay for the legal expenses of the victims of crime. The Commissioner provided the following case example:

A and B are married and are the parents of C. A and B have joint interest in the family home and other assets. B kills A, so the police arrest and charge B. The Director of Public Prosecutions later successfully prosecutes B. While on remand awaiting trial, B sort to utilise the 'value' of the family home and other assets to pay defence counsel fees. C, however, had hereditary right to a proportion of the family's assets, so as Commissioner for Victims' Rights, I engaged a lawyer to defend C's right. I expended appropriately $40,000 to attain and enforce a civil freezing order. C's guardians who were elderly could not afford the legal fees.[43]

2.25      The Department was not supportive of the Law Council's proposal to allow reasonable legal expenses to be met by restrained assets pointing to a 1999 report of the Australian Law Reform Commission and a Parliamentary Joint Committee on Law Enforcement report of 2012, which concluded that restrained property should not be used to pay for legal expenses.[44] The Department noted that following the 2012 report, the unexplained wealth provisions were amended to remove the ability for restrained assets to be used to pay legal expenses.[45]

2.26      In relation to the Commissioner for Victims' Rights proposal to set up a Commonwealth fund for the victims of crime, the Department explained that the majority of victim-based crime is the responsibility of states and territories.[46] The Department further noted that the states and territories are responsible for their own victim compensation schemes,[47] and that funds confiscated under the Act are:

...regularly reinvested within the community for the following purposes:

1. Crime prevention measures
2. Law enforcement measures
3. Measures related to the treatment of drug addiction, and
4. Diversionary measures relating to illegal use of drugs.[48]

2.27      Moreover, the Commonwealth administers a 'victim compensation scheme' for those 'harmed in an overseas terrorist act and to Australians whose close family member or members have died in an overseas terrorist act.'[49]

Committee view

2.28      The committee notes that the bill seeks to address a gap in legislation which allows criminals to structure their affairs to avoid the forfeiture or confiscation of assets that were not lawfully acquired. The committee considers that it is timely and appropriate that this gap is closed.

2.29      The committee notes the support the bill has received from submitters and more generally, support for proceeds of crime laws as necessary 'crime fighting'[50] and 'crime preventive'[51] tools. The committee agrees that these laws play an important role in undermining the profitability of criminal activity.

2.30      The committee also notes the concerns raised by submitters particularly in relation to whether the forfeiture provisions within the Act are a proportionate measure. The committee acknowledges the Law Council's proposal to replace 'partly derived or realised' with 'substantially derived or realised', but notes that this suggested change goes to the Act and not the bill. Furthermore, the committee notes that the Act contains a range of safeguards and procedures relating to the unexplained wealth regime as well as further protections to individuals whose property may be subject to other orders. As outlined in the EM:

A person whose property is subject to a restraining or forfeiture order under the Act can still apply to a court to: direct that the court refuse to issue the order; exclude property from the scope of the order; transfer the property to them; buy back the property; relieve dependents from hardship created by the order; or provide compensation for the proportion of the value of the property that was not derived from crime.[52]

2.31      The committee acknowledges the concerns of the Law Council that some of the protections within the Act are ' rendered illusory'[53] but notes that the Law Council only provided one example of this phenomenon. The Department, however, provided evidence regarding other orders for which a defendant may be able to apply.[54] This included orders which allow individuals to apply to a court to exclude property from an order, or provide compensation for the portion of property that was not derived from crime.[55] The Department also highlighted the protection from unjust outcomes implicit in the model litigant obligations of the Commissioner of the Australian Federal Police.

2.32      In addition the committee notes the evidence provided by the Department that to amend 'partly' to 'substantially' would undermine the primary object of the Act as it may allow criminals to structure their assets so that they do not meet the threshold of 'substantially'. Ultimately, the committee is of the view that the proposed amendments are reasonable and that the Act contains sufficient safeguards to ensure that its operation, following the amendments that are the subject of this inquiry, will not result in disproportionate outcomes.

2.33      Finally, the committee acknowledges the Law Council's suggestion to allow reasonable legal expenses of the defendant to be met from restrained assets. The committee notes, however, that the unexplained wealth regime was amended to remove the ability for restrained assets to be used to pay for legal expenses following a number of reports which investigated this issue. The committee also acknowledges the proposal from the Commissioner for Victims' Rights for a Commonwealth fund to be set up for the victims of crime. The committee notes, however, that crimes compensation schemes operate within state and territory jurisdictions, and that confiscated funds are already being re-invested at the commonwealth level into crime prevention, law enforcement and the minimisation of illegal substance abuse.

Recommendation 1

2.34      The committee recommends that the bill be passed.

Senator the Hon Ian Macdonald
Chair

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