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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Toohey J

The circumstances giving rise to this appeal and the terms of the Financial Transaction Reports Act 1988 (Cth) (``the Act'') appear in other judgments. I shall avoid undue repetition. The question before the Court is whether s 31(1) of the Act is a valid law of the Parliament.

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The Act

The Act's long title expresses it to be inter alia ``for the reporting of certain transactions and transfers''. Sub-section 4(1) asserts as the principal object of the Act, ``to facilitate the administration and enforcement of taxation laws''. Sub-section 4(2), somewhat cryptically, asserts as a further object of the Act, ``to facilitate the administration and enforcement of laws of the Commonwealth and of the Territories'' and s 4(3) asserts as yet a further object, ``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''.

The key provision to the means by which these objects are sought to be achieved is s 7 which requires that, subject to some exceptions, where a ``cash dealer'' <sup>[91]</sup> See the definition in s 3(1). is a party to a ``significant cash transaction'', ^[92] See the definition in s 3(1). the dealer must report the transaction to the Director of AUSTRAC. ^[93] The Australian Transaction Reports and Analysis Centre, established by s 35. The principal exception is an exempt transaction. A significant cash transaction is eligible for exemption if it falls into one of the categories in s 10. These may loosely be described as including transactions between one financial institution and another and between a financial institution and an established customer who meets the requirements of the section.

Section 31, which falls within Pt V - Enforcement, then comes into play. Sub-section (1) reads:

``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.''

Notwithstanding the language of s 4(1), the Commonwealth justified s 31(1) primarily by reference to the power of the Parliament conferred by s 51 of the Constitution to make laws with respect to ``(xii) Currency, coinage, and legal tender''. The Commonwealth also pressed the power of the Parliament to make laws with respect to ``(ii) Taxation...''.

The currency power

Section 31(1) can only be supported under s 51(xii) of the Constitution if it can properly be characterised as a law with respect to currency. (It is unnecessary to say anything about coinage or legal tender; the sub-section is clearly not a law with respect to coinage or legal tender. ^[94] ``Both `coinage' and `legal tender' involve quite specific and narrow concepts, the former being concerned with coins as money and the latter with the prescription of that which is, at any particular time, to be a lawful mode of payment within a polity.'': Watson v Lee (1979) 144 CLR 374 at 398 per Stephen J. ) To be so characterised, ``it must appear that there is a relevant and sufficient connexion with the subject matter of the power''. ^[95] Nationwide News Pty Ltd v Wills (1992) 177 CLR 1 at 27 per Mason CJ. Or, to put it in different language, the words ``with respect to'' require ``a relevance to or connection with the subject assigned to the Commonwealth Parliament''. ^[96] Grannall v Marrickville Margarine Pty Ltd (1955) 93 CLR 55 at 77 per Dixon CJ, McTiernan, Webb and Kitto JJ. As I commented in Re Dingjan; Ex parte Wagner : ^[97] (1995) 183 CLR 323 at 352.

``The cases make clear that each paragraph of s 51 can support not only laws which operate directly on the subject matter of the paragraph in question but also laws which... can be seen as incidental to the power.''

The plaintiff argued that while s 31(1) and some other sections of the Act used the term ``currency'', the provision in question had no legal effect in relation to currency. The Act gives rise to an obligation to report transactions involving at least $10,000 to a government agency; any connection the creation of an offence for structuring transactions in a

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particular way may have with ``currency'', it was said, is no more than tenuous or remote. The plaintiff made a specific attack on the terms in which s 31(1) imposes criminal liability; consideration of that attack can await determination of the general challenge.

The Commonwealth's response to the general challenge was in these terms. ``Currency'' is defined as meaning

``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.''

^[98] s 3(1).

Sub-section 31(1) attaches criminality to conduct which involves the physical transfer of currency in the circumstances identified in the sub-section. Hence, the sub-section is clearly a law with respect to currency.

The plaintiff's rejoinder was that s 31(1) exists simply to support the reporting requirement dealt with in s 7. Section 7 requires a cash dealer to a significant cash transaction to prepare a report of the transaction and to communicate the information contained in the report to the Director of AUSTRAC. The section does no more than require a report; it does nothing to prohibit or inhibit a reportable transaction. Hence, the argument ran, a provision such as s 31(1) which purports to make it an offence to be a party to two or more non-reportable cash transactions, where it would be reasonable to conclude that the person conducted the transactions for the sole or dominant purpose of ensuring that the transactions would not give rise to a significant cash transaction or would give rise to exempt cash transactions, can have no sufficient connection with s 51(xii) of the Constitution.

The general challenge mounted by the plaintiff must fail. A requirement that cash dealers report significant cash transactions, that is, cash transactions ``involving the transfer of currency of not less than $10,000 in value'' is clearly a law with respect to currency. In the same way, in Watson v Lee <sup>[99]</sup> (1979) 144 CLR 374 at 410. Mason J, with whom Gibbs J relevantly agreed, accepted that s 51(xii) included ``power to control and regulate the receipt and use of foreign currency in Australia''. Section 31 of the Act, which attaches certain consequences to persons who structure currency transactions in a manner designed to avoid the obligation to report, is likewise a law with respect to currency. If the Act is valid in so far as it requires that certain transactions be reported (and the plaintiff did not challenge that part of the Act), it is hard to see why a provision that attaches consequences to the non-reporting of relevant transactions is not equally valid. Indeed, if s 31 is not a law with respect to currency, it is hard to see why s 7 itself would qualify as such a law or, for that matter, other provisions of the Act. In putting the matter that way, I am concerned only with the general challenge to s 31(1), not the particular attack on the basis on which criminal liability is identified, nor the question of proportionality upon which the plaintiff relied as well. It should be said also that if the provision is a law with respect to currency, it does not lose that character because the Act's principal object is expressed by reference to taxation laws. ^[100] Northern Suburbs General Cemetery Reserve Trust v The Commonwealth (1993) 176 CLR 555 at 569-570 has some relevance in that regard.

The basis of liability

It must be acknowledged that the manner in which s 31(1) goes about establishing criminal liability is unusual. It avoids the conventional means by which an offence is created, that is, simply by the proscription of identified conduct. The sub-section creates an offence, but not just by reference to conduct. Rather, if the manner and form in which the non-reportable cash transactions were conducted make it reasonable to conclude that they were conducted for the sole or dominant purpose of ensuring, or attempting to ensure, that the reporting requirements of the Act were inapplicable, then the person has committed an offence.

The obligation to report a significant cash transaction is cast upon the cash dealer by s 7 and it is the cash dealer who commits an offence under s 28 by refusing or failing to communicate information to the Director when and as required. However, a person who is not a cash dealer may commit an offence under s 31. This does not destroy the validity of the provision if it is otherwise a law with respect to currency. The experience in the United States is relevant in this regard. In Ratzlaf v United States ^[101] (1994) 126 L Ed (2d) 615; 16 F (3d) 1078. a prosecution under the Money Laundering Control Act of 1986 failed only because the Government did not prove that the defendant ``wilfully'' violated an antistructuring provision. But the constitutional validity of the antistructuring provision itself

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was not in doubt. Indeed, before there was such an express provision, conduct aimed at evading the reporting requirements by such means was held to be in breach of the Act. ^[102] United States v Thompson (1979) 603 F 2d 1200 at 1203 ; United States v Tobon-Builes (1983) 706 F 2d 1092 at 1097-1099 . However, some later decisions took a different view. ^[103] United States v Varbel (1986) 780 F 2d 758 ; United States v Anzalone (1985) 766 F 2d 676 . The difference was resolved by the introduction of an express provision.

A number of other things can be said about s 31(1), whether as to the element of mens rea, proof beyond reasonable doubt or the onus of proof. But the plaintiff's attack is on the constitutional validity of the provision and it is on that footing that s 31(1) must be judged. On that footing there is no reason to conclude other than that the necessary connection exists between the sub-section and a constitutional head of power. As Gibbs J observed in Milicevic v Campbell : ^[104] (1975) 132 CLR 307 at 316.

``The parliament may, when legislating with respect to a subject within the ambit of its powers, validly enact laws prescribing the rules of evidence and procedure to be observed in any legal proceedings, whether criminal or civil, arising in relation to that subject matter and may in particular cast the onus of proof upon either party to those proceedings... Of course, the parliament may not, by enacting legislation which purports to be merely procedural, extend the operation of its laws to subjects beyond its power; it cannot, in other words, expand the boundaries of its powers by its own enactments.''

There is nothing in s 31(1) which offends any of the principles enumerated by Gibbs J. The sub-section adopts an unusual approach to the standard of proof but the standard is not subjective; it must ``be reasonable to conclude'' in terms of par (b) of the sub-section that the accused conducted the transactions in a manner or form for the sole or dominant purpose referred to.

Taxation power

Reference was made earlier in these reasons to s 4(1) of the Act which reads: ``The principal object of this Act is to facilitate the administration and enforcement of taxation laws''.

The Act is not overly forthcoming in express provisions identifying its connection with taxation laws. However s 16(1) requires a cash dealer, who has reasonable grounds to suspect that information the dealer has concerning a transaction ``may be relevant to investigation of an evasion, or attempted evasion, of a taxation law'', to report the transaction to the Director of AUSTRAC. The dealer must then, if required to do so by the Director, by a relevant authority (which includes the Commissioner of Taxation) or by an investigating officer (which includes a taxation officer) ``give such further information as is specified in the request to the extent to which the cash dealer has that information''. ^[105] s 16(4). Section 27 entitles the Commissioner of Taxation and any taxation officer to access to ``FTR information'', a term which is defined by s 3(1) to mean information obtained by the Director under Pt II - Transaction Reports. Part VI - Administration contains s 38 which includes as a function of the Director ``to provide advice and assistance to the Commissioner in relation to FTR information''. ^[106] s 38(1)(d); see also s 38(3) and (4) and s 41.

It is apparent that there is a close link between AUSTRAC and the Commissioner of Taxation, in relation to financial transactions which attract the attention of the Act. The reason for this is explained by Doyle CJ in Rogers v The Queen ^[107] (1995) 64 SASR 280. where there was a challenge to the validity of s 24 of the Act under which the appellant was charged. Section 24 is in Pt III - Accounts and makes it an offence to open or operate an account with a cash dealer in a false name. His Honour concluded: ^[108] (1995) 64 SASR 280 at 293.

``But once one accepts, as I do, that the `cash economy' and the operation of accounts in false names are significant means of evading liability to pay Commonwealth tax, it seems to me that a measure which prevents the operation of accounts in a false name does disclose a sufficient connection to the power to make laws with respect to taxation.''

Certainly, the Minister introducing the Bill which became the Act saw the legislation as representing:

``one of the most significant initiatives to counter the underground cash economy, tax evasion and money laundering.''

^[109] Commonwealth, (Senate), Parliamentary Debates , 25 November 1987 at 2413.

The reasoning in Rogers v The Queen leads irresistibly to the conclusion that a provision, designed to ensure that what are in truth reportable cash transactions are reported discloses a sufficient connection with the subject of taxation. Leaving aside the terminology employed to achieve its end, s

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31(1) may fairly be regarded as an integral part of a legislative scheme directed to the collection of tax and, incidentally thereto, to the concealment of assets or income. As to the terminology employed, what I have said earlier in regard to the currency power applies equally to the taxation power.

Reasonable Proportionality

The plaintiff had a further string to his bow in his challenge to the constitutional validity of s 31(1). It was an argument that went to the validity of the sub-section, whether justification turned on par (xii) or (ii) of s 51 of the Constitution. The argument basically was that a reasonable proportionality must exist between the designated subject or purpose of the challenged provision and the means selected by the Parliament for achieving that object or purpose. It was then said that the means selected through s 31(1) are disproportionate to the object or purpose of the Act.

In my view concepts of proportionality have no part to play in this appeal. ^[110] See generally Lee, ``Proportionality in Australian Constitutional Adjudication'', Lindell (ed), Future Directions in Constitutional Law , (1994) at 126. In Cunliffe v The Commonwealth ^[111] (1994) 182 CLR 272. I said something about the role of proportionality in determining the constitutional validity of legislation of the Parliament. In view of the present attack, it is desirable to say something more on the subject.

The terms ``proportionate'', ``reasonably proportionate'', ``proportionality'' have in recent years become part of the vocabulary of constitutional law. The way in which they have been employed, at least in argument before this Court, is illustrated by Cunliffe where Pt 2A of the Migration Act 1958 (Cth) was challenged. In that regard I repeat the following passage from my judgment: ^[112] (1994) 182 CLR 272 at 371-372.

``As the plaintiffs presented their case, the concept of reasonable proportionality was germane to each of the three bases on which Pt 2A was challenged. As to the first basis, they argued that Pt 2A does not have a direct legal operation upon the subject matter of any relevant paragraph of s 51 and that it can be supported only as being incidental to the subject matter of any such paragraph, or within the incidental power itself. In that event, they said, the validity of Pt 2A is dependent upon a reasonable connexion between the law and a purpose or object within power. And for that connexion to exist the law must have an operation of reasonable proportionality to its legitimate purpose. As to the second basis, the contention was that the implied freedom of communication is not absolute but that any law impinging upon the freedom must be reasonably proportionate to the purpose of legislation otherwise operating within power. As to the third basis, the plaintiffs said that the freedom of intercourse demanded by s 92 is limited only in that it is not infringed by a law providing for a legitimate purpose which is reasonably proportionate to the curtailment of that freedom.''

The relevance of proportionality as a criterion of validity is perhaps expressed most broadly by Mason CJ in Nationwide News Pty Ltd v Wills ^[113] (1992) 177 CLR 1 at 29. where his Honour said that:

``in characterising a law as one with respect to a permitted head of power, a reasonable proportionality must exist between the designated object or purpose and the means selected by the law for achieving that object or purpose. The concept of reasonable proportionality is now an accepted test of validity on the issue of ultra vires.''

In Nationwide News Dawson J adopted a narrower view, confining the concept of reasonable proportionality to a purposive power. His Honour said: ^[114] (1992) 177 CLR 1 at 89.

``Then the question is what the legislation operates for , not what it operates upon . That is to say, purpose rather than connexion with any particular subject matter must then be the test.''

The matter was mentioned again in Re Director of Public Prosecutions; Ex parte Lawler ^[115] (1994) 179 CLR 270. where the role of proportionality in the process of characterisation seemed to be accepted by some members of the Court. ^[116] See (1994) 179 CLR 270 at 285-286 per Deane and Gaudron JJ, 294-295 per McHugh J. It should also be noted that ``reasonable proportionality'' and ``reasonably and appropriately adapted'' have been treated on occasion as synonymous. ^[117] The Commonwealth v Tasmania (The Tasmanian Dam Case) (1983) 158 CLR 1 at 260 per Deane J; Polyukhovich v The Commonwealth (War Crimes Act Case) (1991) 172 CLR 501 at 592 per Brennan J; Nationwide News (1992) 177 CLR 1 at 30-31 per Mason CJ; Ex parte Lawler (1994) 179 CLR 270 at 286 per Deane and Gaudron JJ; Cunliffe (1994) 182 CLR 272 at 296-297 per Mason CJ.

However I remain of the view that the place of reasonable proportionality in the characterisation of a law is where there is a tension between two operative principles. This is mostly likely to arise as between an express grant of power under s 51 of the Constitution and some implied freedom, for instance an implied freedom of communication. To repeat something said in Cunliffe : ^[118] (1994) 182 CLR 272 at 376. ``The implied freedom does not override the express grant of power. Rather, it points to the likely limits of

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the express grant''. I respectfully agree with the observation of Brennan J in Cunliffe : ^[119] (1994) 182 CLR 272 at 320.

``It is not for the court to evaluate the proportionality of the law to a head of power: a question in such diffuse terms is not justiciable.''

In expressing that agreement, I understand his Honour to be addressing the question whether there is a sufficient connection between the law challenged and the subject of the power relied upon to support the law. ^[120] And see Victoria v The Commonwealth (1996) 70 ALJR 680 at 690; 138 ALR 129 at 147. The well accepted language of reasonably adapted will ordinarily suffice where characterisation is involved, ^[121] Cunliffe (1994) 182 CLR 272 at 377-378. as will the expression ``reasonably capable of being considered appropriate and adapted''. ^[122] Victoria v The Commonwealth (1996) 70 ALJR 680 at 690, 707; 138 ALR 129 at 146-147, 170.

While the concept of proportionality is not unknown to the common law, its use in constitutional cases in this country derives, I think, from the European Court of Human Rights in its interpretation of the European Convention on Human Rights and Fundamental Freedoms and also from the European Court of Justice. ^[123] See the discussion by Kirby P in State of NSW v Macquarie Bank Ltd (1992) 30 NSWLR 307 at 321-324 , also Minister for Resources v Dover Fisheries Pty Ltd (1993) 116 ALR 54 at 64. Considerations of proportionality have entered into the approach of the European Court of Human Rights because ``inherent in the whole of the Convention is a search for a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights''. <sup>[124]</sup> Soering v United Kingdom (1989) 11 EHRR 439 at 468 . In those Articles of the Convention which expressly allow restrictions upon the rights they contain, for instance that a state may restrict the protected right to the extent that this is ``necessary in a democratic society'', the formula has been interpreted as meaning that the restriction must be ``proportionate to the legitimate aim pursued''. ^[125] Handyside v United Kingdom (1976) 1 EHRR 737 at 754-755 . See generally Harris, O'Boyle and Warbrick, Law of the European Convention on Human Rights , (1995) at 11-12. Again, the concept has been employed when setting the limits to an implied restriction that had been read into a Convention guarantee. ^[126] Mathieu-Mohin and Clerfayt v Belgium (1987) 10 EHRR 1 at 16 ; Fayed v United Kingdom (1994) 18 EHRR 393 at 415-416 . In the European Court of Justice proportionality has been used to determine the validity of subordinate legislation. ^[127] See the cases mentioned by Kirby P in State of NSW v Macquarie Bank Ltd (1992) 30 NSWLR 307 at 323. See generally Emiliou, The Principle of Proportionality in European Law: A Comparative Study , (1996).

Of course this Court is not tied to the use of terminology by other courts. But more and more we draw on the learning of other judicial institutions. In the case of the European Court of Human Rights it is enough to refer to Nationwide News , ^[128] (1992) 177 CLR 1 at 47 per Brennan J. Dietrich v The Queen , ^[129] (1992) 177 CLR 292 at 300 per Mason CJ and McHugh J. Theophanous v Herald & Weekly Times Ltd ^[130] (1994) 182 CLR 104 at 130 per Mason CJ, Toohey and Gaudron JJ. and, most recently, Grollo v Palmer . ^[131] (1995) 184 CLR 348 at 367-368 per Brennan CJ, Deane, Dawson and Toohey JJ. In that event the use of similar terminology may carry or may be thought to carry with it overtones of the concept which gave rise to the terminology in another court. But the concept itself may not necessarily be appropriate in this country, particularly in a constitutional context. If reasonable proportionality were to become a general touchstone of constitutional power, the Court would be drawn inexorably into areas of policy and of value judgments. I would confine its use in the way indicated earlier in these reasons.

Conclusion

It follows from what has been said earlier that the question reserved should be answered ``Yes''.