House of Representatives

Explanatory Memorandum

Circulated by authority of the Attorney-General, the Honourable Robert McClelland MP

Schedule 5 - Money laundering

GENERAL OUTLINE

Part 1 of Schedule 5 amends the Criminal Code Act 1995 to enhance the ability of law enforcement agencies to investigate and prosecute the money laundering offences in Division 400. The amendments will address a number of impediments to the investigation and prosecution of the money laundering offences identified by the Australian Federal Police and the Commonwealth Director of Public Prosecutions. In particular, the amendments extend the geographical jurisdiction of those offences and remove limitations on the scope of the offences to enable them to apply to the full extent of the Commonwealth's constitutional power in this area.

Part 2 of Schedule 5 amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) to improve its operation and enhance AUSTRAC's ability to take enforcement action against reporting entities that do not comply with their obligations under the AML/CTF Act.

Part 1 - Criminal Code Act 1995

Items 1, 2 and 3 - Subsection 400.1(1) of the Criminal Code (definition of instrument of crime and proceeds of crime )

Items 1 and 3 amend the definitions of 'instrument of crime' and 'proceeds of crime' to clarify that the money laundering offences in Division 400 of the Criminal Code apply to instruments or proceeds of crime in relation to all indictable offences. This reflects the original policy intention of the amendments.

Instrument of crime and the proceeds of crime are defined for the purposes of Division 400 as including money or property that is related to "an offence that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence)."

Offence is defined in the dictionary of the Criminal Code as "an offence against a law of the Commonwealth." The effect of the definition of offence is that 'instrument of crime' and 'proceeds of crime' may not apply in relation to a State, Territory or foreign indictable offence.

Items 1 and 3 will remove that uncertainty.

Item 2 amends the definition of proceeds of crime to include money or other property, wholly or partly derived or realised, whether directly or indirectly, by any person from the commission of a Commonwealth, State, Territory or foreign indictable offence even if it may be dealt with summarily in some circumstances.

These items will ensure consistency with the definitions of 'instrument of crime' and 'proceeds of crime' in the Proceeds of Crime Act 2002 .

Item 4 - Section 400.2 of the Criminal Code

Item 4 repeals section 400.2 to introduce new sections which separate the conduct of 'dealing with money or property' and the circumstances that surround the dealing.

In this amendment, section 400.2 focuses on the conduct of 'dealing with money or other property' and retains the conduct set out in the existing paragraph 400.2(1)(a).

This item also amends the provisions in section 400.2 that deal with the application of the money laundering offences in Division 400.

It is not necessary to include an application provision for the money laundering offences insofar as they relate to the laundering of proceeds of crime because these aspects of the offences are wholly supported under s 51(xxix) of the Constitution by reference to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime (CoE Convention), to which Australia is a party.

However, an application provision is necessary for the money laundering offences insofar as they relate to the laundering of instruments of crime as these aspects of the offences are not supported by the CoE Convention.

Item 4 therefore introduces section 400.2A, which sets out the circumstances in which the dealing with money or other property that is an instrument of crime must occur in order to attract the application of the offences. This section limits the application of the offences, to the extent they apply to instruments of crime, to specified circumstances within Commonwealth legislative power. Subsection 400.2A(3) provides that the offences apply where the money or other property is intended to become, or is at risk of becoming, an instrument of crime in relation to an offence within Commonwealth legislative power. Subsection 400.2A(4) provides that the offences apply where the dealing with the money or other property that is intended to become, or is at risk of becoming, an instrument of crime occurs in the course of importation or exportation, by means of a postal, telegraphic or telephonic service, in the course of banking or outside Australia.

Subsection 400.2A(6) provides that absolute liability applies to subsections (3) and (4) as these subsections are both jurisdictional elements. The effect of applying absolute liability to these elements will be that no fault element needs to proved and the defence of mistake of fact will not be available. A jurisdictional element of an offence is an element that does not relate to the substance of the offence, but marks a jurisdictional boundary between matters that fall within the legislative power of the Commonwealth and those that do not. Absolute liability is appropriate and required for these elements of the offences. This is consistent with Commonwealth criminal law policy, as described in the Guide to Framing Commonwealth Offences, Civil Penalties and Enforcement Powers , and consistent with the approach taken in other offences in the Criminal Code.

Items 5 - 15 - Insertion of a reference to s400.2A at the end of sections 400.3 - 400.8

These items are consequential on Item 4 and introduce notes at the end of the offences at sections 400.3-400.8 which explain that section 400.2A affects the application of the money laundering offences so far as the offences relate to the instruments of crime.

Item 16 - Subsection 400.9(1) of the Criminal Code - creation of a graduated offence with a $100,000 threshold for dealing with money or property reasonably suspected of being the proceeds of crime

Item 16 amends section 400.9 to introduce a higher penalty for dealing with money or property reasonably suspected of being the proceeds of crime worth $100,000 or more.

The offences and penalties are as follows:

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Dealing with money or property reasonably suspected of being proceeds of crime worth under $100,000 continues to attract the existing penalty of 2 years imprisonment, or 120 penalty units, or both.

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Dealing with money or property reasonably suspected of being proceeds of crime worth $100,000 or more will attract a higher penalty of 3 years imprisonment, or 180 penalty units, or both.

A penalty of 3 years for the possession of money or property reasonably suspected of being the proceeds of crime worth more than $100,000 reflects the serious nature of possessing the proceeds of crime worth more that $100,000 and the significant criminal activity that has generated $100,000 or more.

Items 17 and 20 - Section 400.9 of the Criminal Code

These items are consequential on the amendment in item 16 which creates a graduated offence for dealing with money or property reasonably suspected of being the proceeds of crime.

Item 20 amends subsection 400.9(4) to provide that that absolute liability applies to paragraphs 400.9(1)(b) and 400.9(1A)(b) (which contain the element of the offence that it is reasonable to suspect that the money or property is proceeds of crime) and paragraphs 400.9(1)(c) and 400.9(1A)(c) (which set out the value of the money or other property that is the subject of the offence). This is consistent with the application of absolute liability to these elements in the current money-laundering offences.

As paragraph (b) establishes an objective standard of fault, being 'reasonable to suspect', it is appropriate to apply absolute liability to ensure that subjective fault elements, such as knowledge or recklessness, do not apply.

It is also appropriate to apply absolute liability to paragraph (c), as this element does not relate to the substance of the offence but merely specifies the monetary threshold for the application of the offence. Item 22 ensures that a person is not criminally responsible for the higher penalty offence in subsection 400.9(1), which applies where the value of the money or other property is $100,000 or more, if the person held a mistaken but reasonable belief that value of the money or property was less than $100,000.

Item 18 - Paragraph 400.9(2)(c) of the Criminal Code

Item 18 amends paragraph 400.9(2)(c) to attach a timeframe to the consideration of the conduct at paragraph 400.9(2)(c) of whether the value of money or property is grossly out of proportion to a defendant's income and expenditure. This amendment will ensure that consideration is given to the defendant's income and expenditure over a reasonable period within which the conduct occurs.

Item 19 - Subsection 400.9(3) of the Criminal Code

Item 19 repeals subsection 400.9(3) because it is not necessary to include an application provision for the offence in 400.9. The offence is supported in its entirety under section 51(xxix) of the Constitution by reference to the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime, to which Australia is a party.

Item 21 - Subsection 400.9(6) of the Criminal Code

Item 21 repeals subsection 400.9(6) and is consequential on the amendment to the application provisions in item 4.

Item 22 - Subsection 400.10(1) of the Criminal Code

Item 22 is consequential on the amendment in item 16 which creates a graduated offence for dealing with money or property reasonably suspected of being the proceeds of crime.

This amendment will ensure that a person is not criminally responsible for the offence in subsection 400.9(1), which has a greater maximum penalty, if the person held a mistaken but reasonable belief that value of the money or property was less than $100,000, which is an offence with a lower maximum penalty in subsection 400.9(1A).

Item 23 - Section 400.15 of the Criminal Code

Item 23 amends section 400.15 to extend the geographical jurisdiction for the money-laundering offences in Division 400. The new provision will provide that a person is guilty of the money laundering offences in situations where that person:

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engages in money laundering in circumstances covered by extended geographical jurisdiction - category B as set out in section 15.2 of the Criminal Code, or

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engages in money laundering outside Australia, and the money or other property is the proceeds of crime, or could become an instrument of crime, in relation to an Australian offence (that is a Commonwealth indictable offence, a State indictable offence, an Australian Capital Territory indictable offence, or a Northern Territory indictable offence).

The existing provision applied extended geographical jurisdiction - category B to the money-laundering offences. The effect of the new provision will be to extend the geographical jurisdiction of the offences to enable the prosecution of persons who launder money or property related to Australian offences overseas.

Item 24 - Application

Item 24 sets out the application of the proposed amendments. The amendments in Part 1 apply in relation to conduct engaged on or after the commencement of Part 1.

Part 2 - Anti-Money Laundering and Counter-Terrorism Financing Act 2006

Item 25 - Section 5 (definition of non-financier)

Item 25 inserts a definition of non-financier to mean a person who is not an authorised deposit-taking institution (ADI), a bank, a building society, a credit union or a person specified in the Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules).

Item 26 - Section 5 (definition of stored value card)

Item 26 amends the definition of stored value card to exclude debit cards and credit cards from the definition. Item 26 also amends the definition of stored value card to include a portable device that is capable of being used to gain access to money value.

This item will clarify the distinction between a stored value card, a debit or a credit card, and will provide greater certainty when considering the type of portable device that is capable of accessing monetary value. It will ensure that a portable device capable of accessing value cannot be both a stored value card, and a debit or credit card.

This item will clarify the definition of stored value cards and ensure that stored value cards that do not store the monetary value on the card itself are capable of being a stored value card for the purposes of the AML/CTF Act.

Item 27 - Subsection 6(2) (table items 21, 22, 23 and 24)

Item 27 amends the designated services relating to stored value cards in subsection 6(2) (Table 1, items 21, 22, 23 and 24) to omit "stored on" and substitute "stored in connection with".

This item will clarify the operation of the designated services relating to stored value cards and ensure that stored value cards that do not store the monetary value on the card itself are capable of being a stored value card for the purposes of the AML/CTF Act.

Item 28 - Subsection 6(2) (table items 31 and 32)

Table 1 in subsection 6(2) establishes designated services for the purposes of the AML/CTF Act.

Item 28 amends the designated services relating to designated remittance arrangements (table items 31 and 32) to limit the provision of such a service to a person who is a non-financier that is carrying on a business of giving effect to remittance arrangements.

The use of the term non-financier will ensure that an ADI, a bank, a building society, a credit union or a person specified in the AML/CTF Rules will not be able to provide the designated service at items 31 and 32.

This amendment will also ensure that a non-financier can only provide a designated service at items 31 and 32 when the service is provided in the course of carrying on a business of giving effect to remittance arrangements.

Item 28 amends the designated service at item 31 to capture situations where a non-financier receives an instruction from a transferor entity for the transfer of money or property under a designated remittance arrangement.

Item 28 amends the designated service at item 32 to capture situations where a non-financier arranges for money or property to be made available to an ultimate transferee entity as a result of a transfer under a designated remittance arrangement.

Providers of remittance services that use the financial system to 'accept' or 'make money or property available' for customers appear to have been inadvertently excluded from both the definition of 'designated remittance arrangement' and the related designated services at items 31 and 32.

This amendment will address this issue and implement the original policy intention by ensuring that remittance dealers who accept money from a customer, and make money available to a customer, through the financial system are providing designated services at items 31 and 32.

Item 29 - Application

Item 29 sets out the application of the proposed amendments to section 6 of the AML/CTF Act. The amendments to section 6 apply in relation to the provision of designated services on or after the commencement of this Part.

Item 30 - Paragraphs 10(1)(a) and (b)

Item 30 amends the definition of designated remittance arrangement in section 10 to include situations where at least one of the parties to the transfer of money or property under a designated remittance arrangement is a non-financier.

AUSTRAC has experienced difficulties relating to the taking of enforcement action against providers of designated remittance services in response to non-compliance with obligations under the AML/CTF Act. It is difficult to prove that the entity located in a foreign country is not an ADI, a bank, a credit union, a building society or a person specified in the AML/CTF Rules to satisfy the definition in section 10.

This amendment will remove the requirement to prove that the entity located in a foreign country is not an ADI, a bank, a building society, a credit union or a person specified in the AML/CTF Rules, when proving the existence of a designated remittance arrangement.

Item 30 also amends the definition of designated remittance arrangement to capture arrangements where a person receives an instruction from a transferor entity for the transfer of money or property under a designated remittance arrangement, or arranges for money or property to be made available to an ultimate transferee entity as a result of a transfer under a designated remittance arrangement.

Providers of remittance services that use the financial system to 'accept' or 'make money or property available' for customers appear to have been inadvertently excluded from both the definition of 'designated remittance arrangement' and the related designated services at items 31 and 32.

This amendment will address this issue and implement the original policy intention by ensuring that remittance dealers who accept money from a customer, and make money available to a customer, through the financial system are providing a service under a designated remittance arrangement.

Item 31 - Transitional Provisions for AML/CTF Rules

Item 31 introduces transitional provisions to ensure that existing AML/CTF Rules made under subparagraph 10(1)(a)(v) or (b)(v) apply to the definition of non-financier.

Item 32 - Paragraph 10(3)(a)

Item 32 is consequential to the amendment in items 28 and 30 and amends paragraph 10(3)(a) to capture arrangements where a person receives an instruction from a transferor entity for the transfer of money or property under a designated remittance arrangement. This amendment will implement the original policy intention and will address the issue outlined above in Item 30.

Item 33 - Section 46 (table items 3 and 4)

Item 33 amends section 46 by omitting "person in Australia" and substituting "non-financier in Australia". This amendment is consequential to the amendments in items 28 and 30 and will ensure that an ADI, a bank, a building society, a credit union or a person specified in the AML/CTF Rules is not required to report an international funds transfer under table items 3 and 4 of section 46.

Item 34 - Subsection 59(1)

Item 34 amends subsection 59(1) to clarify that a person who is required to provide a report about a movement of a bearer negotiable instrument (BNI) into or out of Australia, must do so immediately.

This amendment will address problems encountered by AUSTRAC, Customs and the AFP when issuing an infringement notice for the failure to provide a report about the movement of a BNI. The requirement to report a BNI 'as soon as possible' has created uncertainty over when a report must be provided.

This amendment will provide greater certainty over when a report must be provided and ensure consistency with the timing of the requirement to report the movement of physical currency.

Item 35 - Subsection 123(3)

Item 35 amends subsection 123(3) to prohibit a reporting entity from disclosing to a person information relating to a request for further information under subsection 49(1).

Specified persons or officials are permitted under subsection 49(1) to obtain further information about threshold transaction reports, international funds transfer instruction reports, and suspicious matter reports from a reporting entity.

Section 123 establishes an offence of 'tipping off'. In particular, subsection 123(3) prohibits a reporting entity that has given information or produced a document to a person under subsection 49(1) from disclosing to anyone else that the information or document was provided.

However, this prohibition only operates if the reporting entity gives information or produces a document. The prohibition does not exist prior to the giving of information or production of a document and section 123 does not prohibit a reporting entity from disclosing to another person that it has received a request for information.

This amendment will protect the integrity of the collection of AUSTRAC information by strengthening the tipping off offence in the AML/CTF Act and ensuring that there are no gaps in the offence. This reflects the original policy intention of the tipping off offence.

Item 36 - Application

Item 36 sets out the application of the proposed amendment to subsection 123(3). Item 36 will apply in relation to requirements made under subsection 49(1) before, on or after the commencement of this item. However, the penalties are not retrospective and will only apply after commencement.