AFP v Pratten: Pecuniary Penalty Orders

On 10 February 2021, Schmidt AJ delivered reasons in Commissioner of the Australian Federal Police v Pratten [2021] NSWSC 69.

Mr Pratten had been convicted of concealing large parts of his taxable income and was convicted of offences of dishonestly obtaining a financial advantage by deception from the Commonwealth by lodging tax returns which did not disclose all of his assessable income. The Commissioner of the Australian Federal Police (Commissioner) sought a pecuniary penalty order against Mr Pratten under s.116 of the Proceeds of Crime Act 2002 (POCA).

The Court noted that, given the preconditions to the making of a pecuniary penalty order had been satisfied, it had no discretion under section 116 of the POCA not to impose a pecuniary penalty (at [19]).

The Commissioner sought a pecuniary penalty order in the sum of approximately $2.4M, which was said to represent the present day value of the tax that should have been paid but was avoided on approximately $4.5M of undeclared income. On that basis, the Commissioner was seeking only to deprive Mr Pratten of the “profit” from his offending (i.e. the tax he should have paid).

Schmidt AJ observed “There is no question that the pecuniary penalties for which the Act provides are not necessarily restitutionary and may result in a penalty greater than the profit which a defendant made from his offending, consistently with the statutory objects” (at [220]) and “In determining the pecuniary penalty for that offending, it is arguable that it is the value of the income concealed to which regard must be had, that being the benefit derived from his illegal activity, when it was paid out of the Vanuatu accounts either to him or other third parties in Australia, not any additional tax payable on such income” (at [222]).

Hence, Schmidt AJ made clear that the application by the Commissioner was charitable in that it sought only to deprive Mr Pratten of the profit of his offending but could, in fact, have extended to the entirety of the income received by Mr Pratten notwithstanding the fact that, had tax been paid, part of that income would have been retained by him as lawfully earned.

The decision highlights the danger posed by the POCA, which can deprive persons of more than the profit derived from the offending.