LEASK v COMMONWEALTH OF AUSTRALIA

Judges:
Brennan CJ
Dawson J
Toohey J
Gaudron J
McHugh J
Gummow J
Kirby J

Court:
Full High Court

Judgment date: 5 November 1996

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Brennan CJ

Section 7 of the Financial Transaction Reports Act 1988 (Cth) (``the Act'') imposes on a ``cash dealer'' an obligation to report certain transactions to which the cash dealer is a party. The report is made to the Director of AUSTRAC (a statutory

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acronym for the Australian Transaction Reports and Analysis Centre ^[1] ss 3(1) and 35. ). Section 7 reads as follows:

``(1) Where a cash dealer is a party to a significant cash transaction, the dealer shall, before the end of the reporting period:

• (a) prepare a report of the transaction; and
• (b) communicate the information contained in the report to the Director;

unless:

• (c) the transaction is, at the time when it occurs, an exempt transaction; or
• (d) the transaction is, at the time when it occurs, eligible for exemption and becomes, before the end of the reporting period, an exempt transaction; or
• (e) the cash dealer is an approved cash carrier.

(2) The report shall be prepared in the approved form, contain the reportable details of the transaction and be signed by the cash dealer or otherwise authenticated by the cash dealer in a way approved by the Director.

(3) The communication shall be made to the Director:

• (a) by giving the Director a copy of the report; or
• (b) in such other manner and form as is approved by the Director, in writing, in relation to the cash dealer or to a class of cash dealers that includes the cash dealer.

(4) In this section:

`reportable details' , in relation to a transaction, means the details of the transaction that are referred to in Schedule 1.''

The definition of ``cash dealer'' <sup>[2]</sup> s 3(1). covers financial institutions and a large number of other persons whose business involves or is likely to involve ``cash transactions''. As counsel described the categories, they extend ``from the banking chamber to the racecourse''. Section 3(1) defines the term ``cash transaction'' to mean ``a transaction involving the physical transfer of currency from one person to another'' and the term ``significant cash transaction'' to mean ``a cash transaction involving the transfer of currency of not less than $10,000 in value''. ``Currency'' is defined by s 3(1) to mean:

``the coin and paper money of Australia or of a foreign country that:

• (a) is designated as legal tender; and
• (b) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue.''

The reporting obligation imposed by s 7 thus relates to transactions to which the cash dealer is a party involving the transfer of $10,000 or more in Australian currency or of overseas currency of the value of 10,000 or more Australian dollars. Moreover, the Act imposes a reporting obligation in respect of a transaction which a cash dealer has reasonable grounds to suspect may be relevant to investigation of an evasion or attempted evasion of a taxation law or to the investigation of an offence against a law of the Commonwealth or a Territory or which may be of assistance in enforcing the Proceeds of Crime Act 1987 (Cth). ^[3] s 16(1)(b). Some significant cash transactions to which a financial institution is a party or between a futures broker and a clearing house are ``exempt transactions'' ^[4] ss 9 and 10. and do not attract the obligation to report. ^[5] s 7(1)(c) and (d).

Information obtained by the Director (known as FTR information ^[6] s 3(1). ) is available to the Commissioner of Taxation as of right and to the Attorney-General for the purpose of dealing with requests for assistance made by a foreign country to which the Mutual Assistance in Criminal Matters Act 1987 (Cth) applies. ^[7] s 27(1)(a) and (d). On the written authority of the Director, access to FTR information can be given to a law enforcement agency and to the Australian Customs Service. ^[8] s 27(1)(b) and (c).

The objects of the Act are stated by s 4:

``(1) The principal object of this Act is to facilitate the administration and enforcement of taxation laws.

(2) A further object of this Act is to facilitate the administration and enforcement of laws of the Commonwealth and of the Territories (other than taxation laws).

(3) Without prejudice to the effect of this Act by virtue of subsections (1) and (2), a further object of this Act is to make information collected for the purposes referred to in subsection (1) or (2) available to State authorities to facilitate the administration and enforcement of the laws of the States.''

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Section 4(1) indicates a legislative belief that the administration and enforcement of taxation laws would be facilitated by giving to the Commissioner of Taxation information of the occurrence of, and parties to, transactions involving the transfer of currency to the value of $10,000 or more.

A cash transaction involving the transfer of currency of a value less than $10,000 does not attract an obligation to report, unless it is a suspect transaction falling within s 16. Suspect transactions apart, a person who wishes to use the services of cash dealers for the transfer of more than that amount can avoid enlivening a dealer's obligation to report by splitting the total amount into sums less than $10,000 and transferring currency to the value of those lesser sums in a series of distinct transactions. Section 31 seeks to prevent this and similar means of avoiding the operation of ss 7 and 16. Section 31 provides:

``(1) A person commits an offence against this section if:

• (a) the person is a party to 2 or more non- reportable cash transactions; and
• (b) having regard to:
  • (i) the manner and form in which the transactions were conducted, including, without limiting the generality of this, all or any of the following:
    • (A) the value of the currency involved in each transaction;
    • (B) the aggregated value of the transactions;
    • (C) the period of time over which the transactions took place;
    • (D) the interval of time between any of the transactions;
    • (E) the locations at which the transactions took place; and
  • (ii) any explanation made by the person as to the manner or form in which the transactions were conducted;
• it would be reasonable to conclude that the person conducted the transactions in that manner or form for the sole or dominant purpose of ensuring, or attempting to ensure, that the currency involved in the transactions was transferred in a manner and form that:
  • (iii) would not give rise to a significant cash transaction; or
  • (iv) would give rise to exempt cash transactions.

(2) A person commits an offence against this section if:

• (a) the person conducts 2 or more non- reportable transfers of currency; and
• (b) having regard to:
  • (i) the manner and form in which the transfers were conducted, including, without limiting the generality of this, all or any of the following:
    • (A) the value of the currency involved in each transfer;
    • (B) the aggregated value of the currency involved in the transfers;
    • (C) the period of time over which the transfers occurred;
    • (D) the interval of time between any of the transfers;
    • (E) the locations at which the transfers were initiated or conducted; and
  • (ii) any explanation made by the person as to the manner or form in which the transfers were conducted;
• it would be reasonable to conclude that the person conducted the transfers in that manner or form for the sole or dominant purpose of ensuring, or attempting to ensure, that no report in relation to the currency involved in the transfers would be made under section 15.

(3) A person who commits an offence against this section is punishable, upon conviction, by:

• (a) if the offender is a natural person - a fine not exceeding $10,000 or imprisonment for a period not exceeding 5 years, or both; or
• (b) if the offender is a body corporate - a fine not exceeding $50,000.''

The plaintiff challenged the validity of s 31(1) and McHugh J reserved for the consideration of the Full Court the following question:

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``Is section 31(1) of the Financial Transaction Reports Act 1988 a valid law of the Parliament of the Commonwealth?''

The Commonwealth seeks to support the validity of s 31(1) in reliance on the legislative powers conferred by s 51(ii) (``taxation...'') and s 51(xii) (``currency, coinage, and legal tender''). The plaintiff contends that the provisions of s 31(1) are not supported by either of those powers and are invalid.

The Parliament's definition of the principal object of the Act does not by itself establish its validity as a law with respect to taxation. It is not the declared object but the operation and effect of the Act which can give it the character of a law with respect to a head of power. The character of an Act is determined by its operation and effect: ^[9] Bank of NSW v The Commonwealth (1948) 76 CLR 1 at 186 ; see also Actors and Announcers Equity Association of Australia & Ors v Fontana Films Pty Ltd (1982) ATPR ¶ 40-285 at 43,586; (1981-1982) 150 CLR 169 at 216 ; The Commonwealth v Tasmania. The Tasmanian Dam Case (1983) 158 CLR 1 at 152 . its operation by reference to the rights, duties, powers or privileges that the Act creates or affects; ^[10] Fairfax v FC of T (1965) 14 ATD 135 at 137; (1965) 114 CLR 1 at 7 . its effect by reference to its operation in the circumstances to which it applies. ^[11] The Tasmanian Dam Case (1983) 158 CLR 1 at 152, 245; Cunliffe v The Commonwealth (1994) 182 CLR 272 at 315 . The statutory declaration of the object of an Act is relevant to the construction of a provision the construction of which would otherwise be ambiguous, ^[12] s 15AA of the Acts Interpretation Act 1901 (Cth). but the declaration is not sufficient by itself to affect the operation and effect of the Act. The Parliament cannot legislate a measure into power merely by declaring its measure to be enacted for a valid object.

When the operation and effect of an Act are ascertained, its connection or lack of connection with the subject matter of a head of power can be determined. Sometimes, as I pointed out in Cunliffe v The Commonwealth , ^[13] (1994) 182 CLR 272 at 319. ``a connexion with a head of power may be revealed more clearly by stating the purpose or object which the law is appropriate and adapted to achieve than by describing the law's effect and operation on particular rights, duties, powers and privileges''. But, as Dawson J points out, ``purpose'' in this context refers to the purpose of the law, not the purpose of the head of power. ^[14] See per Dawson J in Cunliffe (1994) 182 CLR 272 at 352. The purpose of a law is the end or object which a law achieves or, putting it another way, it is the effect of a law expressed by reference to a field of activity, relationship or status. As Dawson J says, the purpose of a law is an aspect of ``what the law does in fact'' so that the basic test of validity remains one of sufficient connection between the operation and effect of the law on the one hand and the head of power on the other. If the head of power is itself purposive (for example, the defence power), the existence of a connection may be determined more easily by comparing the purpose of the law and the purpose of the power. But if the relevant head of power is non- purposive (as the taxation and currency powers are non-purposive) the validity of the law is more likely to be determined by reference to its operation and effect.

The question for determination is therefore whether s 31(1), by its operation and effect, reveals a sufficient connection with either ``taxation'' or ``currency, coinage, and legal tender''. The operation of s 31(1) must be collected from its terms.

The two paragraphs of s 31(1) contain distinct elements of the offence created by the sub-section. Paragraph (a) prescribes the elements constituted by the conduct of the offender; par (b) prescribes the quality of the cash transactions to which the offender became a party. The plaintiff points to the clause ``it would be reasonable to conclude'' in par (b) to show that the elements of that paragraph may be satisfied irrespective of the actual purpose of the offender in conducting the cash transactions referred to in par (a) in the manner and form in which they were conducted. As the actual purpose of an alleged offender is not an element of the offence created by s 31(1), it is said that s 31(1) purports to create an offence of strict liability without the ordinary requirement of mens rea <sup>[15]</sup> He Kaw Teh v The Queen (1985) 157 CLR 523 . and that, in the absence of an intent to impair the effectiveness of the taxation laws, the connection between such an offence and the subject of taxation is too tenuous or remote to attract the support of s 51(ii) of the Constitution. This submission was supported by an argument that s 31(1) is not ``reasonably proportionate'' to the purpose of preventing tax fraud or money laundering. The submission encounters a number of difficulties which, for reasons presently to be mentioned, need not be finally decided. But as some stress was laid on the supposed absence of mens rea and the notion of proportionality, I refer to these points.

The term ``mens rea'' may be used to connote not only the voluntary doing of an offender's act but his concurrent knowledge of the circumstances in which it is done, his appreciation of the nature and quality of his act done in those circumstances and a specific intention that any result of his conduct prescribed as an element of the offence should be achieved. But the mens rea required for

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criminal responsibility for the commission of a statutory offence has to be ascertained by reference to the text which creates the offence. ^[16] The different forms of mens rea are discussed in He Kaw Teh v The Queen (1985) 157 CLR 523 at 569-582. The mens rea required by s 31(1) is confined, in my opinion, to the elements of the offence prescribed in par (a). A person who engages in the conduct mentioned in s 31(1)(a) is liable to conviction only if he voluntarily conducted the two or more ``non-reportable cash transactions'' therein mentioned and knew the facts which gave the transactions the character of ``non-reportable cash transactions''. In my opinion, the mens rea of the offence does not extend to a specific intention to achieve ``the sole or dominant purpose'' referred to in par (b) of s 31(1). Paragraph (b) requires the relevant transactions to have a particular objective quality, that is, they must exhibit such of the features mentioned in sub-par (b)(i) as would lead a reasonable person to conclude that the offender's sole or dominant purpose in conducting the transactions was one of those specified in par (b). But as to these elements, the mental state of the alleged offender is irrelevant except as a factor in an explanation offered by the alleged offender which precludes (by raising a doubt) a finding that an hypothetical reasonable person would reach the conclusion stated in par (b). It is immaterial whether the offender knew that his conduct was unlawful or that a court might, in the absence of any explanation by the offender, find that it would be reasonable to reach the conclusion stated in par (b). Section 31(1) is not a provision imposing strict liability but the mens rea of the offence is extremely limited.

It does not follow from the limitation of the required mens rea that s 31(1) is not a law with respect to taxation. If the effect of s 31(1) were found to be the facilitation of the administration or enforcement of the taxation laws - or, to put it another way, if that were found to be the purpose of s 31(1) - it would not lose the character of a law with respect to taxation by reason of its harsh or draconian impact on a taxpayer or a cash dealer. The argument based on proportionality seemed to assume that the severity of the impact was unnecessary and that that severity made the law ``disproportionate'' to the taxation power. If that was the assumption, it mistook the appropriate test of characterisation of laws claiming the support of the taxation power.

Proportionality is another expression for ``appropriate and adapted'', as I attempted to explain in Cunliffe . ^[17] (1994) 182 CLR 272 at 317-326. In the context of a challenge to a law on the ground that its operation and effect do not reveal a sufficient connection to the subject of a head of power, proportionality is a concept used to ascertain whether an Act achieves an effect or purpose within power. ^[18] (1994) 182 CLR 272 at 321. So used, proportionality has nothing to say about the appropriateness, necessity or desirability of the law to achieve an effect or purpose or to attract the support of the power.

However, ``proportionality'' may be used in a second sense in the context of a challenge to a law on the ground that it infringes a constitutional limitation, express or implied, which restricts a head of power. That is, when an impugned law has an operation and effect within a field described by a head of power but the law affects an immunity of the kind that the limitation is designed to protect (hereafter ``an immunity''), the head of power is confined, and the field it describes is correspondingly narrowed, by the limitation. If the law's operation and effect are outside the confines of any available power, it is invalid. The boundaries of a power confined by a limitation are not easily defined. A reconciliation between the power and the limitation must be made by treating the limitation as a qualification on the power. ^[19] See, for example, Cole v Whitfield (1988) 165 CLR 360 at 398-399 . The qualification leaves within the power the capacity to support a law that affects an immunity if an exercise of the power to achieve the legitimate effect of the law necessitates an affection of the immunity and the affection of the immunity is merely incidental to the achievement of the legitimate effect. That criterion involves matters of judgment and degree. In assessing these matters the terms ``proportionality'' and ``appropriate and adapted'' have been used. ^[20] Davis v The Commonwealth (1988) 166 CLR 79 at 100 ; Australian Capital Television Pty Ltd v The Commonwealth (ACTV) (1992) 177 CLR 106 at 143-144, 157, 217-218, 235, and cf 174 ; Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436 at 473-474 ; Cunliffe (1994) 182 CLR 272 at 324. In Cunliffe , ^[21] (1994) 182 CLR 272 at 324. I stated the approach in these terms:

``A law will not be supported by a power if it infringes the limitation on the power unless the infringement is merely incidental to the achievement of a legitimate (that is, non-infringing) purpose or object and the provisions of the law are reasonably appropriate and adapted (proportionate) to that end. ^[22] ACTV (1992) 177 CLR 106 at 157. Again, in determining whether the law is reasonably appropriate and adapted to the achieving of a legitimate purpose or object and any infringement is

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merely incidental, the court may inquire into the proportionality of the means adopted by the law to achieve the postulated purpose or object. ^[23] (1992) 177 CLR 106 at 195. Thus in Castlemaine Tooheys where a State law imposed a levy on the sale of beer in non-refillable bottles to the disadvantage of interstate traders, the Court said: ^[24] (1990) 169 CLR 436 at 473-474.

`If we accept, as we must, that the legislature had rational and legitimate grounds for apprehending that the sale of beer in non-refillable bottles generates or contributes to the litter problem and decreases the State's finite energy resources, legislative measures which are appropriate and adapted to the resolution of those problems would be consistent with s 92 so long as any burden imposed on interstate trade was incidental and not disproportionate to their achieve- ment .'''

(Emphasis added.)

That the term ``proportionality'' may be used in the second sense was accepted by Dawson J in ACTV : ^[25] (1992) 177 CLR 106 at 195.

``But if the real object of a law is not the restriction of movement across State borders, the fact that such restriction occurs incidentally will not offend s 92, provided that the means adopted to achieve the object are neither inappropriate nor disproportionate.''

When ``proportionate'' is used in the second sense, the context is similar to that in which the European Court of Justice employs the concept of proportionality, as Dawson J demonstrates in the present case.

I accept both his Honour's exposition of the jurisprudence of the European Court of Justice in relation to the concept of proportionality and his Honour's view that that concept has no application to the determination of the character of a law under our Constitution where the law does not affect an immunity of a kind which a limitation on legislative power is designed to protect. But if a law does affect such an immunity, it is appropriate for the court to recall that, in selecting the means of achieving an effect or purpose within power, the Parliament has what the European Court of Human Rights has called a ``margin of appreciation''. ^[26] ACTV (1992) 177 CLR 106 at 159; Cunliffe (1994) 182 CLR 272 at 325.

Despite this excursus on the notion of proportionality, it is unnecessary further to consider the taxation power. The support of the taxation power would depend upon the effect of the disclosure of FTR information to the Commissioner of Taxation upon the administration and enforcement of taxation laws. That effect cannot be determined with the same clarity as the issues that arise in determining the validity of the Act by reference to the power to make laws with respect to currency. The power extends to the making of laws with respect to foreign currency as well as to Australian currency, as this Court held in Watson v Lee . ^[27] (1979) 144 CLR 374 at 382, 397-400, 409-410. Currency consists of notes or coins of denominations expressed as units of account of a country and is issued under the laws of that country for use as a medium of exchange of wealth. ^[28] cf the description of ``money'' proposed by FA Mann in The Legal Aspect of Money , 5th ed (1992) at 8. It is characteristic of currency that effect is given to an intention of the transferor and transferee to transfer property in the notes or coins by physical delivery of the notes or coins. ^[29] Ilich v The Queen (1987) 162 CLR 110 at 138-139 . The transfer leaves no record. Sections 7 and 16 of the Act are designed to ensure that the use of currency to transfer wealth does have a record by requiring, in the prescribed circumstances, a report of the transaction to the Director of AUSTRAC. Section 31 prohibits the use of currency to transfer wealth in the circumstances prescribed. A legislative power which can be exercised validly to permit the transfer of wealth by the use of currency can be exercised validly to impose a qualified prohibition on the use of currency to transfer wealth. The qualified prohibition operates directly on the physical transfer of currency from one person to another. That is sufficient to characterise s 31(1) as a law with respect to currency and thus supported by s 51(xii) of the Constitution. It is unnecessary to consider the objects of the Act or its effect on fields of activity other than the actual transfer of currency. It is also unnecessary to determine whether s 31(1) finds support in s 51(ii).

The answer to the question reserved is: yes. The plaintiff should pay the defendant's costs of the question reserved.