On 13 November 2019, the High Court delivered its decision in Lordianto v Commissioner of the Australian Federal Police; Kalimuthu v Commissioner of the Australian Federal Police  HCA 39.
The decisions at first instance and in the NSW and WA Courts of Appeal were the subject of earlier newsletters.
In summary, each of the proceedings concerned money remitters in foreign jurisdictions exchanging and remitting funds for their clients to Australian bank accounts. Part of the funds were deposited into the Australian bank accounts in a “structured” way, being deposits made by unknown persons in cash below the $10,000 reporting limit. It was not in dispute that the unknown persons had deposited funds in that way to avoid the generation of a report to AUSTRAC. The structuring of transactions in such a manner is an offence under, inter alia, s.142 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
By reason of the structured transactions, it was also not in dispute that the money standing to the credit of the customer (at law, a chose in action) was “proceeds” and an “instrument” for the purpose of the Proceeds of Crime Act 2002 (Cth) (POCA).
Since an applicant for exclusion, here the person who operated the accounts, was required to show that the property (i.e. the chose in action) was not “proceeds” or an “instrument” in order to succeed with their exclusion application, they needed to meet the test in s.330(4) of the POCA, which relevantly provides as follows:
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).
The plurality of the High Court noted (at ) that the test:
… is limited to a person who acquired specific property (necessarily, the subject of an existing or proposed restraining order) for sufficient consideration without that person knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds, or an instrument, of an offence. In many cases, perhaps most, that will be an inquiry very similar to the inquiry under the general law about whether a person is a bona fide purchaser for value without notice.
Hence, the matters that each applicant had to establish, on the balance of probability was:
1. That the chose in action was acquired for “sufficient consideration”;
2. That they were a “third party”
3. That they did not know that the property was proceeds of an offence or an instrument of an offence and that the transactions would not arouse a reasonable suspicion.
There had been differing views expressed by various judges at first instance and in the intermediate appeal courts on these issues.
The High Court has now simplified the matters.
Some judges in the first instance and intermediate appeal courts had determined that the applicants had not provided sufficient consideration for the chose in action in their account because, in essence, the money that had been deposited had been deposited by third parties with whom they had no connection.
The plurality of the High Court took a common-sense approach to the issue and noted that the transactions had not occurred in a “vacuum” (at ). The High Court determined that the applicants, by giving foreign currency to the remitters in the overseas jurisdictions, had provided sufficient consideration for the funds that were then deposited into their accounts.
Knowledge and suspicion
As to the question of suspicion, the plurality noted (at ):
A reasonable suspicion must have a factual basis. As this Court has previously stated, the test is objective. The question is: would a reasonable person in the position of the acquirer of property have had a suspicion that the property was proceeds, or an instrument, of an offence? It is a positive feeling and more than a mere idle wondering.
The plurality confirmed that it is not necessary that the applicant have a suspicion about the specific crime (at ):
…contrary to the submissions of the appellants, the objective inquiry is not whether a reasonable person in the position of the person acquiring the property would have had a suspicion that the property was proceeds of a specified crime. The requirement is that the suspicion be that “the property was proceeds of an offence or an instrument of an offence” – not proceeds or an instrument of a particular offence.
The plurality rejected the technical manner in which other judges had approached the expression third party by, for example, focussing on “third party” to the transaction or the criminal conduct. In essence, the High Court determined that the third party is nothing more than the descriptor of the person who makes the application for the exclusion order and can meet the balance of the test in s.330(4).
Although the High Court has clarified the various inconsistent approaches that had been adopted, it remains the fact that an applicant for exclusion faces a high burden where there are structured transactions arising from the fact that such transactions would, objectively, arouse a reasonable suspicion of underlying criminal conduct. That will in most cases mean that applications for exclusion will be refused.