Foreign investors illegally or legally purchasing property in Australia using funds derived from criminal activity (for example, corruption) pose a significant risk to any person involved, including a property lawyer.
Australian Journalists Risk Money Laundering Charge
Raids by the Australian Federal Police (AFP) on the Canberra home of Ms Annika Smethurst and the Sydney Headquarters of the Australian Broadcasting Corporation (ABC) have sparked an outcry from journalists, the organisations impacted upon and politicians. In both cases, which the AFP has stated are not connected, concern the investigation into the leaking of information from the Commonwealth. Concerns have been expressed about the AFP searching a private home and workplaces occupied by journalists and the need for their sources to be protected. I wonder, if the AFP was searching for the source of a leak involving the unlawful disclosure of private tax records, social security information or Medicare data pertaining to those journalists and politicians, would their outcry and demand for answers be as strong? I highly doubt it.
Information held by the Commonwealth Government is owned by the Government and it has an obligation to protect it from unlawful disclosure and misuse. Journalists and politicians cannot have it both ways. There cannot be two investigative approaches and two standards pertaining to the unlawful release of information. The person/s involved in the leaks must be found. From a national security perspective, those involved in the leaking would be potential targets for foreign espionage and criminal cultivation. If a vigorous pursuit of those involved in not undertaken then other potential leakers would be motivated to unlawfully release information. And what will be the next leak? The characteristics and capability of our new Attack class submarines? And if that occurred, would senator Rex Patrick from the Centre Alliance claim that any journalist involved in publishing the classified information, was simply performing their public duty?
In relation to the AFP raid on Annika Smethurst's home, the police were seeking the source of a leak of national security information pertaining to a story she wrote in April 2018. According to media reports, the story written by Ms Smethurst included photographs of government documents. While the ABC raid relates to a series of stories known as the Afghan Files which were broadcast in 2017. The stories revealed allegations of unlawful killings and misconduct by Australian special forces in Afghanistan and were reportedly based on hundreds of pages of secret Department of Defence documents leaked to the ABC.
Commentary has revolved around the right of journalists to protect their sources. This article does not address that issue. Missing from the arguments is the potential criminal liability that could arise to the journalists themselves, their managers and their respective media organisations by their direct or indirect handling of stolen or unlawfully obtained Commonwealth information. Mr David Anderson, managing director of the ABC has been quoted as saying the broadcaster will stand by its journalists and will protect its sources. Well, if he had knowledge of the nature of the information, as opposed to the source, then a question might arise as to who is going to protect him and the ABC? Because as I will outline below, the issue could easily be about the journalists and their managers and not entirely about the sources involved.
According to the ABC, Mr Porter the Commonwealth Attorney-General has stated that: "The investigation is not about the journalist per se. It's about the disclosure of information." But potentially it could be. Under Commonwealth Law an employee of the Commonwealth Government can be convicted of an indictable offence if he or she unlawfully discloses information. And any person can be convicted of stealing intangible property, which includes information, belonging to the Commonwealth. There is a Commonwealth offence for receiving stolen property and that offence could be applied to any person receiving intangible property stolen from the Commonwealth. But no similar offence applies to a person who receives information that has been unlawfully provided by a Commonwealth officer or former Commonwealth officer. In relation to the offence of stealing Commonwealth property, namely the information, any journalist who received it or handled it, would be in no different position to any person who receives stolen tangible goods.
A little known provision in Commonwealth Criminal Law that is relevant in this argument is the money laundering provisions contained Division 400 of the Criminal Code Act. The provisions are very broad and have extra territorial reach. While referred to as money laundering, a more accurate description would be property laundering.
A person commits money laundering if he or she directly or indirectly, deals with money or other property that is either proceeds of crime or an instrument of crime. Proceeds of crime means any money or other property that is wholly or partly derived or realised, directly or indirectly, by any person from the commission of an indictable offence against a law of the Commonwealth, a State, a Territory or a foreign country. The Commonwealth offence of receiving stolen property and the unlawful release of Commonwealth information by a serving or former Commonwealth employee would be captured by the term Commonwealth indictable offence. Property under the money laundering provision includes intangible property. Information held by the Commonwealth, regardless of its security classification, would be intangible property. This would include the classified documents received and held allegedly by Ms Smethurst and ABC journalists Mr Dan Oakes and Mr Sam Clark. And it does not have to have been communicated or given to them directly by the person who stole the information or who released it unlawfully. The act would apply if it was conveyed somehow to them by a third party, no matter where in the world they are located.
Dealing in money or other property can be undertaken many ways, but for the purposes of this issue, it includes receiving, possessing or concealing of property. It is a matter for a court to decide if the provision has been satisfied by a course of action. However, the handling of an envelope or storage device containing classified documents or receipt of an email etc might constitute receiving. Uploading of the material to another device, computer or the cloud would amount to possessing the items and if the information was later encrypted or password protected or both by a journalist, then those actions might amount to an act of concealment.
Commonwealth money laundering law has three levels of mental complicity. To satisfy the mental element, a person must have had full knowledge of the facts or was reckless or negligent at the time they were involved in the dealing. All of these elements would be easy to prove if the documents in question contained security classifications. The presence of which would alert any prudent journalist that the person releasing the information to them, would not be entitled to do so. And it is important to note, that the prosecution does not have to prove that the journalist knew if the stolen or unlawfully released information related to a Commonwealth, State, Territory or foreign indictable offence. The crown only needs to prove that the act of releasing the information was a crime.
There also exists in the money laundering provisions two offences where the prosecution does not have to prove a mental element. A journalist could be convicted of dealing in property that is “reasonably suspected of being the proceeds of crime”. Reasonable suspicion would be established by the presence of a security classification supported by other marks for example: name of the department involved.
To ground a money laundering charge, a value for the property must be established, including the provision dealing with reasonable suspicion. However, Commonwealth money laundering law enables a charge to be laid where the property in question is “any value”. That section does not apply to the reasonable suspicion provision. Even a hard copy of a photograph or a printed report has extrinsic value, albeit if it is minor. Though the prosecutor might argue that the intrinsic value of the documents was far greater and attempt to assign a higher value which would result in a person being charged with a money laundering offence that carries a higher penalty.
But where assigning a value to proceeds of crime was not possible, an instrument of crime includes any money or property used in the commission of an indictable offence or used to facilitate an indictable offence. Mobile telephones, laptops, computers, storage devices, etc used by journalists and media organisations to receive, store, communicate and publish stolen or unlawfully obtained Commonwealth information would be instruments of crime. Any vehicle used by a journalist to meet with any person considering communicating information obtained unlawfully or to receive such information would be an instrument of crime. A journalist could be prosecuted for money laundering if any of the equipment was used by them to possess or to receive or conceal information stolen or unlawfully obtained from the Commonwealth.
While managers and chief executive officers of media organisations, who are not directly involved in the dealing of proceeds of crime or an instrument of crime could not be charged with money laundering. They could be liable for aiding and abetting the receiving of stolen property or aiding and abetting money laundering if they had knowledge of the facts or were reckless or negligent, and provided assistance in relation to the dealing in the property. While not suggesting in any way that Mr Gaven Morris, the ABC’s director of News, was involved in any criminal activity, it is worth noting that the AFP chose to name him in the search warrant.
Any decision to prosecute any person for money laundering vests in the Office of the Commonwealth Director of Public Prosecutions. And it is probably unlikely the AFP would consider pursuing any journalist for money laundering or for receiving stolen Commonwealth property. However, journalists and their managers need to be aware that the Commonwealth has many options available to it, to pursue matters involving the theft or unlawful disclosure of Commonwealth information. A major function of the AFP is to “safeguard Commonwealth interests”. It would be a mistake to under estimate the extent the AFP would go to lawfully, to protect those interests.
Chris Douglas is a Director at Malkara Consulting Pty Ltd in Australia. He is a former member of the Australian Federal Police (AFP) for 31 years. Whilst there, he was involved in drug trafficking, people smuggling, human trafficking, corruption, organised crime and fraud investigations. His extensive experience in the investigation of money laundering and in the conduct of conviction based and civil forfeiture based investigations. His experience with investigating money laundering schemes pre-dates the introduction of AML/CTF legislation in Australia.
Money Laundering and Foreign Property Ownership in Australia
On 2 May this year, the Australian Federal Treasurer the Honourable Joe Hockey MP announced a foreign investor moratorium for any person who illegally purchased Australian property without first obtaining prior approval from the Foreign Investment Review Board (FIRB). Under the moratorium foreign investors will have until 30 November 2015 to “self report” by disclosing to the Australian Government their illegal real estate purchases or face potential prosecution.
Additional measures announced by the Treasurer include increasing penalties from the current 2 years to 3 years imprisonment or a fine of up to $127,500. Those foreigners who self disclose will be forced to sell their properties but according to the Treasurer they will not be subject to criminal prosecution. The Australian Taxation Office will be tasked with administering the new regime when it is implemented.
The Treasurer also announced that third parties who knowingly assist a foreign investor to breach the rules will also be subject to civil and criminal penalties under the new arrangements. Despite the assurance from the Treasurer, a foreign investor who self-reports under this scheme may expose themselves and involved third parties to criminal prosecution or other legal action. While not mentioned by the Treasurer third parties could include real estate agents, settlement agents, solicitors and bankers who have either in some way been involved in the movement of money relating to the sale or purchase of property or in the purchase or settlement of Australian property purchased illegally by a foreign person. Australian citizens and permanent residents who are friends or family members of foreign investors who are often involved in the purchase of Australian property could also be captured by the changes.
While legislation relating to the new measures is yet to be drafted, of concern is that the Treasurer made no reference to how the current foreign investment framework and the new policy will work in conjunction with other federal laws in particular the money laundering provisions in the Criminal Code Act 1995 and the forfeiture provisions of the Proceeds of Crime Act 2002.
Australian federal money laundering laws are perhaps the most powerful criminal money laundering provisions in the world. The laws apply to all Commonwealth indictable offences, which is an offence that carries a penalty of imprisonment greater than 12 months. Offences relating to the illegal purchase of real property (referred to as Australian Urban Land) in Australia by a foreign person carry penalties not exceeding 2 years imprisonment. Federal money laundering law therefore applies to indictable offences in the Foreign Acquisitions and Takeovers Act 1975.
The money laundering laws apply to property (real and personal) as well as money. And the laws capture the proceeds of crime, which could include the sale of any property purchased illegally and to instruments of crime which include funds used to the purchase property illegally. If a foreign investor therefore has purchased property in contravention of the current foreign investment rules or under the new regime or sells property purchased illegally then there is a high chance they will also commit a money laundering offence.
““Australian federal money laundering laws capture instruments of crime (money used to purchase property illegally) and to proceeds of crime (which includes funds derived from the sale of property purchased illegally)” ”
Breaches of federal money laundering law carry penalties up to 25 years imprisonment and/or a fine of up to $255,000 if any property involved (either purchased or sold) is more than $1 million in value. A summary of the penalty provisions relevant to federal money laundering law is attached. Many purchases by foreigners of Australian property would probably fall into the high value category and therefore attract the harshest penalty. This could have significant implications for any foreign investor. They and any involved third party could potentially be charged with money laundering if they follow the Treasurer’s advice and disclose and sell their property. And the Treasurer despite his announcement, he and FIRB cannot grant immunity from prosecution. Only the Commonwealth Director of Public Prosecutions (CDPP), an Australian prosecution body, has the authority to do that.
Third parties such as real estate agents, family members and others who assist foreign investors may be charged with money laundering offences even if their conduct was reckless or only negligent. Full knowledge of the circumstances is not required. The Australian Federal Police investigate most money laundering matters in Australia and they are prosecuted by the CDPP.
Australia was one of the first countries to implement criminal money laundering laws. They were initially implemented to combat the laundering of the proceeds of drug traffickers. Australian federal money laundering laws were later extended to apply to all indictable offences. Primarily the money laundering laws were expected to target organisers of human trafficking, people smuggling, illegal gun running and tax evasion. But the extension to all indictable offences means that foreign nationals and third parties could be captured by and prosecuted on a similar scale to drug dealers who launder their illegal money.
Australian federal money laundering legislation has extended jurisdiction. The law applies to Australian citizens and Australian companies operating offshore from Australia. And to any other entity or person where the money or property is intended to become an instrument of crime or there is a risk the property could become an instrument of crime or the money is the proceeds of crime. Consequently a third party operating offshore could be bound by Australian money laundering law if they are involved in the transmission of funds to Australia that will be used or there is a risk it could be used to illegally purchase property.
Similarly, if the offshore third party for example a bank, a lawyer or a corporate service provider receives funds from Australia that were derived from the sale of property purchased illegally then they could potentially face prosecution for money laundering. Third parties (i.e. bank or lawyer) based in Australia who facilitate the movement of funds derived from the sale of an illegally purchased property to other offshore third parties could face a criminal charge of money laundering.
““a third party operating offshore could be bound by Australian money laundering law if they are involved in the transmission of funds to Australia that will be used or there is a risk it could be used to illegally purchase property””
But more confronting is that under the current foreign investment regime there is already a risk that the illegally purchased property or proceeds of the sale of any property could be seized as proceeds of crime. Seizure can occur whether or not someone is charged with or convicted of a criminal offence. But the change in the penalty for breaching the foreign ownership rules to 3 years imprisonment increases the options available to seize the property or the proceeds of any sale under the Proceeds of Crime Act 2002.
Other than the indictable offences in the Foreign Acquisitions and Takeovers Act 1975 relating to the purchase of Australian property illegally, the AFP can allege a money laundering offence as a way of seizing property or the proceeds of the sale of illegally acquired property and applying for its confiscation. They don’t need to lay a criminal charge to do this. “Reasonable suspicion” a very low legal standard is all that is needed to initiate court action. This could also occur if the foreign investor has evaded Australian tax. And as announced by the Treasurer, the Australian Taxation Office will use data matching with other agencies to identify violators.
““Reasonable suspicion a very low legal standard is all the AFP needs to establish to initiate civil forfeiture action in relation to property purchased illegally in Australia. The increase in the penalty to 3 years expands the options available to the AFP””
Foreign investors who have bought property illegally or have sold it could face the might of the AFP’s normal investigative powers (such as search warrants) as well as specific powers under the Proceeds of Crime Act. For instance, the federal police can also compulsorily question people in connection with the purchase and sale of the property. There is no right to silence. It is very powerful legislation.
A foreign investor who follows the Treasurer’s advice and discloses their property may not only be forced to sell. They could find themselves facing serious criminal charges and loss of all their property. Third parties who are involved in property transactions with foreign nationals should also be cautious in their dealings.
The policy changes in relation to foreign ownership of real property in Australia announced by the Treasurer have been put forward without due consideration to the wider issues that have been raised in this paper. The serious criminal and financial implications makes it prudent for foreign investors and third parties to get specialist legal advice before making a self-report of any breach of Australia’s foreign investment rules. Advice should also be sought from a specialist in criminal money laundering legislation and Australian federal civil forfeiture investigations (as opposed to a specialist in Australian anti-money laundering legislation and framework).
The Australian Treasurer has no power to tell the AFP or the DPP what to do, they are independent agencies. It would be folly to place faith in assurances given by the Treasurer at least until the legislation implementing the new measures has been drafted.
Please note this publication expresses an opinion only. It does not constitute legal or financial advice and does not take into account individual circumstances. It is highly recommended to seek specialist advice before taking any action in relation to the issues raised in this article.
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Australian criminal money laundering laws and related offences contained in the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 are complex. Further complications arise when those offences are combined with any forfeiture action initiated under the Proceeds of Crime Act 2002. Malkara Consulting is the only Australian consulting firm with extensive experience in the investigation of Australia’s criminal money laundering legislation and AML offences and in the application of the conviction and civil forfeiture provisions of the POC Act. No other Australian consulting firm has the experience teaching money laundering and civil forfeiture in Australia and offshore.
Consequently Malkara Consulting is available for an initial consultation to examine individual cases and circumstances and discuss available options, including if necessary where to obtain legal advice.
Malkara Consulting is also available to deliver training sessions on Australian criminal money laundering provisions and the relevant forfeiture provisions contained in the Proceeds of Crime Act 2002.
Chris Douglas, APM
Malkara Consulting
Perth, Western Australia
