On 9 February 2018, N Adams J of the NSW Supreme Court handed down her decision in Commissioner of the Australian Federal Police v Tjongosutiono [2018] NSWSC 48.
In that case, the her Honour considered and dismissed an application to revoke a restraining order which had been made under the Proceeds of Crime Act 2002 (POCA).
Facts
Ex parte restraining orders were made under section 19 of the POCA over a residential property and some bank accounts belonging to the applicant, an Indonesian stockbroker. In obtaining the restraining orders, the Commissioner relied on section 143 of the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (being the offence commonly referred to as “structuring”) and section 400.9 of the Criminal Code 1995 (being the offence of money laundering of $100,000 or more). Essentially, the case involved what has become known as “cuckoo-smurfing” (as to what that is, see https://confiscationcomau.wordpress.com/2017/09/15/afp-v-lordianto/).
The applicant had used the services of a money exchanger to exchange and remit funds from Indonesia to Australia. He brought funds to Australia for the purpose of purchasing an apartment and to support his children, who were students studying in Australia. A large amount of money was deposited into the applicant’s bank accounts in structured (below $10,000) deposits.
The applicant gave evidence that he did not notice that the deposits were made in a structured manner (because, amongst other things, he only looked at the banking home screen, which showed the balance and not the individual transaction). The money remitter who the applicant had used was a licensed “exchange dealer” in Indonesia. It had been the intention of the applicant to bring $5M to Australia for the purpose of qualifying for a significant investor visa. The NSW Crime Commission had investigated the mater and concluded that the applicant had been an innocent victim of cuckoo-smurfing.
The revocation application under section 42 of the POCA was pressed on three grounds:
- That there were “no grounds” to make the restraining order since the property had ceased to be proceeds or an instrument of the offences as it had been acquired by the applicant for sufficient consideration without the applicant knowing it to be tainted and in circumstances where there were no reasonable grounds to suspect that it was tainted (section 330(4)(a) of the POCA).
- That the restraining order should be revoked in the interests of justice.
- That there was non-compliance with section 22(1), in that the affidavit in support of the restraining order application made reference to more than one suspect.
Reasoning
Section 22 argument
Adams J rejected the argument based on the fact that the affidavit referred to more than one suspect. The fact that a section 19 restraining order is directed to property, rather than a person, was at the heart of her Honour’s rejection (at [104]).
No grounds argument
As to the relevant test for revocation, Adams J stated (at [106]):
In order for the application under s 42(5)(a) of the Act to succeed I must be satisfied that there are “no grounds” on which to make the order. The test has been described as a “tough one” and the onus is on the applicant to demonstrate that there are “literally no grounds for the foundation of the order for it to be revoked”: Director of Public Prosecutions (Cth) v Tan [2003] NSWSC 717 at [14].
As for the test applicable to the making of a restraining order under section 19, Adams J observed (at [107]):
The statutory basis to make a restraining order under s 19 of the Act is a low one. A restraining order “must” be made by the court if it is satisfied that there are “reasonable grounds to suspect” that the property is either the proceeds of an indictable offence or an instrument of a serious offence. Thus, if the court is satisfied there is a basis for the relevant “suspicion”, there is no discretion; the order must be made. The meaning of “suspicion” in this context is well established. In George v Rockett (1990) 170 CLR 104; [1990] HCA 26, the High Court approved the definition of “suspicion” given by Lord Devine in Hussien v Chong Fook Kam [1970] AC 942 at 948-949 as follows:
“Suspicion in its ordinary meaning is a state of conjecture or surmise where proof is lacking: “I suspect but I cannot prove.” Suspicion arises at or near the starting point of an investigation of which the obtaining of prima facie proof is the end. When such proof has been obtained, the police case is complete; it is ready for trial and passes on to its next stage. It is indeed desirable as a general rule that an arrest should not be made until the case is complete. But if arrest before that were forbidden, it would seriously hamper the police….
Their Lordships have not found any English authority in which reasonable suspicion has been equated with prima facie proof.
Suspicion can take into account matters that could not be put in evidence at all… Suspicion can take into account also matters which, though admissible, could not form part of a prima facie case.”
Summing up the test applicable, Adams J stated (at [108]) that [t]hus, in order to establish that there are “no grounds” to base the orders, the applicant must establish that there are no grounds at all for the relevant suspicion in s 19 of the Act.
As for the five elements that need to be satisfied in order for property to cease to be proceeds or an instrument, her Honour observed (at [111]):
As Simpson J observed in Fernandez at [53], there are five elements an applicant must establish before a court can be satisfied that property which is the proceeds of crime (or the instrument thereof) is no longer the proceeds of an offence under s 330(4)(a) of the Act:
- that the property was acquired;
- by a third party;
- for sufficient consideration;
- without knowledge that the property was the proceeds or an instrument of a relevant offence; and
- in circumstances that would not arouse a reasonable suspicion that the property was the proceeds or an instrument of a relevant offence.
Acquisition: Adams J refused to follow the reasoning of Simpson J in Fernandez and Lordianto on this issue, preferring the approach of Allanson J in Kalimuthu. Adams J found that the deposting of funds into a bank account constituted an “acquisition” of property and stated (at [160]):
I am satisfied, having regard to the principles derived from these decisions, that there is no inconsistency between a conclusion that there is only one chose in action at any point in time, being the debt owed by the bank to the account holder, and a conclusion that when the amount owed by the bank increases the account holder has acquired additional property because the debt has increased and the funds standing in the account have been wholly or partly realised or derived, whether directly to indirectly from the commission of an offence.
Third party: Adams J refused to follow Allanson J in Kalimuthu, finding that the applicant was not a “third party” within the meaning of that expression in section 330(4). The following was observed (at [176ff]):
I have had regard to these decisions. I am, respectfully, unable to adopt the reasoning of Allanson J in Kalimuthu on this issue. It seems to me that, in order to be a third party, the property must be acquired after the funds become either the proceeds or an instrument of an offence. As counsel for the applicant pointed out during the hearing, the applicant was involved in the first step of the process in Jakarta and was also involved in the final step in Australia when the deposits were made. Just because the applicant was not directly involved in the criminal activity of money laundering, it does not follow that he was a “third party” for the purposes of s 330(4)(a) of the Act.
I have had regard to the context in which the words “third party” appear in s 330(4)(a) of the Act. I am not satisfied that a third party to a transaction extends to include a person who is a party to part of the transaction in question. The situation may be different if the structured deposits had been made into somebody else’s account and then transferred to the applicant’s account after the offence was complete. I am satisfied that a “third party” in the context of s 330(4)(a) of the Act is someone who becomes involved with the property for the first time after it has become the proceeds or an instrument of an offence.
I am thus not satisfied that the applicant is a third party within the meaning of s 330(4)(a) of the Act.
Sufficient consideration: Adams J again refused to follow Allanson J on this issue, preferring the approach of Simpson J. Adams J stated (at [185]-[186]):
The difficulty I have with the applicant’s approach is that identified by Simpson J in Lordianto: it is contradictory for the applicant to say that he played no part in the structured deposits and then to submit that he provided consideration for that to occur. It was accepted by the applicant that there is an evidentiary vacuum as to whether Andy was directly involved in the transactions or whether there were other intermediaries involved.
It was submitted on behalf of the applicant that I would favour the approach taken by Allanson J in Kalimuthu. I am respectfully unable to accept those findings. I cannot accept that the applicant paid to have the structured amounts deposited into his account thus I am not satisfied that sufficient consideration was provided in exchange for the structured deposits into the applicant’s accounts.
Applicant’s knowledge: The judge found (at [190]) that [t]he un-contradicted evidence before me is that the applicant did not know that the funds in his account were the proceeds of criminal activity.
Reasonable suspicion: As to this part of the test, Adams J stated (at [197]-[198]):
The focus of this element is on the objective facts in the context of an assertion that there are “no grounds” to make the restraining orders. The objective facts disclose that the manner and form of the funds being deposited into the applicant’s eSaver Account with Westpac were structured and indicative of money laundering. Hundreds of cash deposits of less than $10,000 were made directly into his bank account in person at different branches in NSW and Victoria, either on the same day or within a short time. That this was the case is obvious from the applicant’s bank statements which cover the period from October 2013 until May 2015.
The applicant must establish that these circumstances were not such as would have aroused a reasonable suspicion that the funds were the proceeds or instrument of an offence. Putting his affidavit evidence to one side, on these objective facts, I am not satisfied that he has discharged his onus on this element. The question is whether that conclusion changes once regard is had to his explanation that he never looked at his bank statements.
Once Adams J examined further the particular circumstances, she determined that this element of the test had not been satisfied.
Interest of justice
Adams J refused to revoke the restraining order on the public interest ground, even though it was accepted that the applicant was not complicit in any unlawful activity. The Court noted that the applicant had a remedy against the money remitter (at [220]-[221]):
The difficulty with reliance upon statements such as this is that it is not possible to exclude the possibility that the funds deposited into the applicant’s account were indeed earned through the “harm, suffering and… misery” of others. The fact that the applicant might not have been the direct cause of that harm does not detract from this circumstance. If, as has been contended, the applicant has been the innocent victim of a cuckoo smurfing operation via an authorised money-changer, then his recourse is with the company who has taken his money and not transferred it to the applicant’s account as it was contracted to do.
I have given consideration to the submission made on behalf of the applicant that the legislation was not intended to take the funds of innocent victims. The difficulty with its application in the present matter, however, is that the Commissioner does not seek to take the applicant’s money; that money presumably remains in Indonesia and was diverted by either Andy or someone else at Wisman. It was that unknown person who took the applicant’s money. Submitting that it is unfair that the applicant may ultimately forfeit those funds is simply to submit that it is unfair that some unscrupulous money lender in Indonesia took his money from him and instead the proceeds of crime were deposited into his account. His grievance is against the person who took his money and unwittingly involved him in a money laundering operation. In making this observation I have not overlooked the fact that money is fungible. I simply wish to highlight the fact, as was conceded by the applicant’s counsel at the hearing of this matter, that the funds deposited into the applicant’s account may well be the proceeds of criminal activity, the applicant sought that the restraining order be revokes under section 42(5).
Significance of the decision
Two thing are immediately apparent from a review of this further first instance decision concerning cuckoo-smurfing.
First, there are now five separate single instance judgments in various jurisdictions, all of which diverge in the application of the law. The appeals in Kalimuthu, Lorinato and Fernandez will all be heard this month (February 2018). Once the judgments of the Courts of Appeal are delivered, there will hopefully be greater consistency in the approach to be adopted.
Secondly, if the reasoning of Adams J was to be followed, no application for exclusion in a cuckoo-smurfing case could ever succeed since the money in the bank account (or its traceable proceeds) would not cease to be proceeds in the hands of the victim even if entirely innocent. Adams J remarks (at [224]): The legislation aimed at curtailing money laundering is harsh.
About the author
Christian Juebner (LLB (Hons), BEc (Accounting), Grad. Dip. (Commercial Law)) was admitted to practice in 1996. He became partner with commercial law firm Deacons (now Norton Rose Fullbright) in 2002 and joined the Victorian Bar in 2004.
Through his commercial background, he is well placed to advise on property, contract, trust and corporations law issues, insofar as they impact on proceeds of crime litigation.
Christian can be contacted as follows:
T (03) 9225 8203
M 0410 657 177
E juebner@vicbar.com.au
