AFP v Arora – Cuckoo Smurfing

On 20 February 2019, Allanson J delivered his decision in Commissioner of the Australian Federal Police v Arora [2019] WASC 40.  This was yet another case involving unsuccessful applications fr exclusion involving cuckoo-smurfing (which has been the subject of various earlier updates).

In short, Allanson J followed (and was bound by) the recent decisions in Commissioner of the Australian Federal Police v Kalimuthu No.2 (2018) WASCA 192, Commissioner of the Australian Federal Police v Fernandez [2018] NSWCA 198 and Lordianto v Commissioner of the Australian Federal Police [2018] NSWCA 199.

As with the earlier cuckoo-smurfing decisions, this case involved remitting (this time by the Arora family) of funds from overseas (here, India) to Australia using a money remitter.

A large part of the funds remitted into Australian accounts of the Arora family were “structured”, namely cash deposits by unknown persons below the $10,000 reporting threshold.

As a result, the Commissioner of the Australian Federal Police (Commissioner) relied upon the following two offences:

  • a contravention of s.142 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which provides that a person commits an offence if the person is, or causes another person to become, a party to two or more non-reportable transactions (below $10,000 presently) and it would be reasonable to conclude that this occurred for the sole or dominant purpose to avoid the reporting of the transaction;
  • 400.9(1) of the Criminal Code 1995 (Cth), which provides that a person commits an offence if that person deals with money or other property, it is reasonable to suspect that the money or other property is proceeds of crime and at the time of the dealing, the value of the money or other property was $100,000 or more.

After money was structured into the various bank accounts of the Arora family, that money was used to purchase a house.  It was the house that was the subject of the application for exclusion.  The evidence of the Arora family was to the effect that a money remitter had told Mr Arora that the money would arrive in installments and that the exchange rate offered by the money remitter was between 1 and 2% better than the rates published in the newspaper.  Mr Arora said that he checked the balance in the accounts regularly and was aware that some of the deposits were cash deposits.  He said he was not suspicious about that because he was used to dealing with cash through his business dealings in India.

The critical question in the proceeding was whether the funds, which were deposited into the bank account, ceased to be proceeds of crime or an instrument under the Proceeds of Crime Act 2002.  That was critical because those proceeds were used to acquire the house and, therefore the house retained the same character as the source used to acquire it.

Pursuant to s.330(4) of the Proceeds of Crime Act 2002, property only ceases to be proceeds of an offence or an instrument of an offence if it is acquired by a third party for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires).

Allanson J determined that the applications failed for a number of reasons (following earlier court of appeal authority referred to above).

Firstly, he found that the applicants were not a “third party” within the meaning of s.330(4)(a) (at [58]).  His Honour stated “third party … must be a person who is not a party to and has no involvement in the transaction by which the property first becomes the proceeds of an offence [or] an instrument of an offence.  The respondents are ‘third parties’ unless, at the time of the criminal conduct, they were wholly removed from the property constituting the proceeds of an offence of an instrument of an offence.  Even an unwitting participant in a transaction-based offence, such as the offence under s.142 of the Anti-Money Laundering and Counter-Terrorism Financing Act cannot be regarded as a third party.  Mr Arora was not a third party to any of the transactions which contravened the Anti-Money Laundering and Counter-Terrorism Financing Act because he acquired property in those transactions.  Ms Arora was not a third party to the deposits into the Bankwest account in her name or the joint account” (at [58]-[59]).

Secondly, Allanson J found that there had been no ‘sufficient consideration”.  His Honour stated (at [60]) that “to show that they acquired the property for ‘sufficient consideration’, the respondents need to prove that the money that was paid to [the money remitter] in India somehow represented, through a series of intermediaries or transactions, consideration for the funds being deposited into their Australian accounts.  It is not sufficient to rely on transactions entered into in India, by which [the money remitter] was given funds, as those transactions do not identify the means by which the respondents acquired property in Australia.

Thirdly, Allanson J went on to consider the “reasonable suspicion” element.  He posed the question (at [65]) as follows “the question is whether having regarding to what [the respondents] knew, the conduct identified by the known circumstances would arouse a reasonable suspicion that the property was proceeds of an offence or an instrument of an offence.  The section does not require [the respondents] to have known that the conduct identified by the known circumstances constituted an offence.

Even though Allanson J found that Mr Arora did not come across as financially sophisticated, he found that there was enough known to Mr Arora “to raise a reasonable suspicion that the money was being laundered through the accounts” (at [70]).

As for Ms Arora, Allanson J found that she knew less than her husband and was “probably” aware that her account and her daughter’s account were receiving deposits of less than $10,000.  Allanson J concluded that “what Ms Arora knew was not enough to engender a reasonable suspicion that the money deposited into the accounts was the proceeds of, or an instrument of an offence” (at [72]).

Having regard to the fact that the applicants for exclusion did not satisfy several of the elements in s.330(4) of the Proceeds of Crime Act 2002, the applications were dismissed.

The decisions of Lordianto v The Commissioner of the Australian Federal Police (decided in the New South Wales Court of Appeal) and the decision in The Commissioner of the Australian Federal Police v Kalimuthu No.2 (decided in the Western Australian Court of Appeal) are presently the subject of special leave applications to the High Court, in each case by the applicants for the exclusion orders who failed by reason of the construction given to s.330(4) of the Proceeds of Crime Act 2002.

Several cases are awaiting the outcome of the decision in the High Court before progressing further.

As the law presently stands, innocent victims of cuckoo-smurfing have no prospects of excluding restrained property.  The result is particularly harsh and merely highlights the draconian nature of the operation of some of the provisions under the Proceeds of Crime Act 2002.