Senate

Revised Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs Senator the Honourable Chris Ellison)

General outline and regulation impact statement

General outline

This Bill supplements the provisions of the Proceeds of Crime Bill 2002 by providing transitional provisions and making consequential amendments to other Commonwealth legislation. The Bill repeals the existing money laundering offences in the Proceeds of Crime Act 1987 and replaces them with new provisions in the Criminal Code which are graded both in terms of the mental element required to be established and the value of the property the subject of the dealing which constitutes money laundering.

The Mutual Assistance in Criminal Matters Act 1987 is also amended not only to reflect the provisions of the new proceeds regime but also to move many of the provisions which relate to foreign orders and offences from the Proceeds of Crime Act 1987 into that Act. These provisions will also enable the enforcement of civil forfeiture related orders in relation to prescribed countries. It is envisaged that only those countries would be proscribed which provide reciprocity and where there is confidence that the confiscation regime is fair, adequately supervised by an independent judiciary and provides adequate safeguards for innocent third parties.

The Financial Transaction Reports Act 1988 is amended to include the record retention provisions previously included in the Proceeds of Crime Act 1987 .

The Bankruptcy and Family Law Acts are amended to clarify the relationship between proceedings under those Acts and proceedings under the Proceeds of Crime Bill 2002.

Consistent with the recommendations of the Australian Law Reform Commission proceeds of crime proceedings will normally take precedence over those other proceedings.

The Taxation Administration Act is amended to expand access by authorised law enforcement agencies to taxation information for the purpose of civil forfeiture investigations and proceedings. The Telecommunications (Interception) Act 1979 is amended to enable the NCA to pass information gained through telephone interception to the Commonwealth DPP and state and territory equivalents in proceeds of crime proceedings. The Telecommunications (Interception) Act is also amended to enable intercepted information to be used to obtain restraining orders under the Proceeds of Crime Bill 2002.

The Administrative Decisions (Judicial Review) Act 1977 is amended to ensure that decisions by the DPP and an approved examiner relating to the conduct of a compulsory examination under the Proceeds of Crime Act are not subject to that Act. The AFP Act is amended to specifically confer powers under the Proceeds of Crime legislation on the AFP.

The amendments to other legislation are purely consequential.

Schedule 7 to the Bill contains the transitional provisions for the phasing out of the confiscation regime in the Proceeds of Crime Act 1987 . Generally speaking after the commencement of the new legislation the existing information gathering powers can only be used to execute existing warrants or orders. All orders and warrants are to be sought under the new provisions and information already obtained under the 1987 Act is to be treated as if it were obtained under the new regime. In relation to confiscation action if no restraining order exists at the time of commencement all orders must be sought under the new legislation. Where a restraining order exists all action and enforcement continues under the 1987 Act.

Regulation Impact Statement

The following information is provided in accordance with the guidelines document, A Guide to Regulation , produced by the Office of Regulation Review in the Productivity Commission.

Proposal

The Commonwealth Parliament is currently considering the Proceeds of Crime Bill 2002 ('the POC Bill') and the Proceeds of Crime (Consequential Amendments and Transitional Provisions) Bill 2002 ('the POC Consequentials Bill').

It is suggested that a Government amendment to the POC Bill and the POC Consequentials Bill be introduced to expand the definition of 'financial institution' in each Bill to include casinos and Totaliser Agency Boards (TABs). The inclusion of casinos and TABs in the definition of 'financial institution' would permit law enforcement agencies to issue notices to TABs and casinos for the provision of a document or information under Part 3-3 of the Bill and obtain monitoring orders in relation to accounts held by those institutions under Part 3-4 of the Bill. In addition, the casinos and TABs would be required to comply with the document retention provisions being relocated into the Financial Transaction Reports Act 1988 (FTR Act) by Schedule 3 of the Consequentials Bill. The definition of 'financial institution' is limited to those two areas and the term is not used elsewhere in the Bills.

A more detailed description of the proposed reforms is contained in Annex 1.

Problem

Under the current provisions ( Proceeds of Crime Act 1987 ), financial institutions are obliged to retain certain documents for defined periods. In addition, law enforcement agencies may use the information gathering powers under the Act to monitor accounts held by those institutions; under the PoC Bill, law enforcement would also be able to obtain documents or information relating to those accounts.

The definition of financial institutions in both the current Act (section 4) and the Bill is reasonably limited, and does not include TABs and casinos. The experience of law enforcement agencies suggests that accounts held with casinos and TABs may be used to launder the proceeds of crime as they can be used as every-day trading accounts but are not subject to the document retention requirements imposed on accounts held with financial institutions.

The definition of 'financial institution' contained in clause 338 of the POC Bill is as follows:

financial institution means:

(a)

a body corporate that is an ADI for the purposes of the Banking Act 1959;

(b)

the Reserve Bank of Australia;

(c)

a society registered or incorporated as a co-operative housing society or similar society under a law of a State or Territory; or

(d)

a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution; or

(e)

a body corporate that is a financial corporation within the meaning of paragraph 51(xx) of the Constitution; or

(f)

a body corporate that, if it had been incorporated in Australia, would be a financial corporation within the meaning of paragraph 51(xx) of the Constitution.

Currently the document retention obligations and the information gathering powers are both located in the Proceeds of Crime Act 1987 . As the document retention provisions are being relocated into the Financial Transaction Reports Act 1988 , the definition of financial institution for the purposes of the document retention obligations has been amended to include the same bodies as above (see Item 4 of Schedule 3 of the POC Consequentials Bill).

Under current arrangements, if a law enforcement agency requires account information from a casino or TAB, it must obtain warrants by a court order under section 3E of the Crimes Act 1914. The warrant specifies the name of the account-holder and whatever other information the agency has available to identify the person.

This process has been used in the past and casinos and TABs have generally been able to provide the necessary information. However, this is a cumbersome and time-consuming system. Judicial officers have to be found to authorise the issue of the warrants and it involves paper work - all cutting into critical investigation time. In an age of electronic transactions, such a system does not facilitate effective law enforcement. To target money laundering, law enforcement officers need to be able to respond quickly to notification of possible offences. Officers must gather the necessary information rapidly before further transactions take place and the 'trail' of the proceeds of crime is lost altogether.

Objective

The objective of the proposal is to enhance the ability of law enforcement agencies to target and investigate possible money laundering offences.

The proposal to expand the definition of 'financial institution' would enable law enforcement agencies to issue notices to casinos and TABs. Implementation of this proposal would enhance the ability of law enforcement agencies to investigate and prosecute money laundering offences, and to restrain and confiscate the proceeds of those offences.

Options

Continue with current arrangements

As mentioned above the current system is a cumbersome and time-consuming system and unsuited to contemporary methods of carrying out transactions.

Proceed with the proposal

If the proposal is implemented, the process to obtain account records and transaction information from casinos and TABs would be significantly streamlined. It would also enable law enforcement agencies to obtain information that is either in addition to what is already available to them through the TRAQ database maintained by the Australian Transaction Reports and Analysis Centre (AUSTRAC), or is the primary evidence that is needed to prove a case.

A simple and more straightforward process, and the ability to access information in addition to what is currently available through other sources, would assist in the investigation of money laundering and may result in more successful prosecutions for such offences, together with the greater recovery of proceeds of crime.

Impact analysis

Current legislative requirements

The immediate practical impact of the proposal to include casinos and TABs in the definition of 'financial institution' would be to require those organisations to comply with the document retention requirements being inserted into the Financial Transaction Reports Act 1988 ('the FTR Act') by Schedule 3 of the POC Consequentials Bill (these requirements are currently located within Part IV of the Proceeds of Crime Act 1987 ).

Casinos and TABs are already included in the definition of 'cash dealer' contained in section 3 of the FTR Act, which imposes record retention obligations on those organisations.

The record retention obligations contained in the FTR Act require casinos and TABs to maintain information relating to accounts and signatories to accounts, and to keep relevant records or documents. The type of information they are required to keep under the FTR Act is limited to the following:

•

the name and address of the person who holds the account;

•

whether the account is held by an individual or association, corporation, business or in trust;

•

whether the signatory has disclosed to the cash dealer that he or she is commonly known by another name; and

•

any identification record the cash dealer has for the signatory to the account.

The obligations imposed by the document retention regime in Schedule 3 of the POC Consequentials Bill include requiring institutions to retain any documents relating to:

•

financial transactions carried out by the institution;

•

the operation of accounts by account holders;

•

the opening or closing of an account; and

•

the telegraphic or electronic transfer of funds carried out by the institutions on behalf of account holders.

Those documents may be either supplied to the institution by the account holder or be otherwise generated.

TABs and casinos are also regulated by a range of state and territory legislation. Under such legislation TABs and casinos may be subject to record keeping obligations. In each state and territory TABs ^[F1] and casinos ^[F2] are subject to legislation governing licensing and their general operations. Under such legislation TABs in some states and territories are required to keep records regarding their operations ^[F3] , whilst most states and territories require casinos to keep and maintain records that correctly record and explain the transactions and financial position of the casino ^[F4] . For example:

•

In NSW, under the Totalizator Act 1997 (NSW) the TAB is granted an exclusive off-course (section 14) and on-course (section 15) licence to conduct totalizator systems. This exclusive licence operates for 15 years from 6 March 1998 (section 11). Under the Totalizator Act 1997 the TAB, as a licensee, is required to keep records concerning its conduct in its principle place of business in NSW (subsection 99(1)) and for a period not less than 7 years from the completion of the transaction to which the record relates (subsection 99(2)).

•

In Victoria casinos are directly regulated under the Casino Control Act 1991 (Vic) and associated legislation. Under the Casino Control Act 1991 casinos are required to prepare and keep a list of names of persons who are subject to an exclusion order for the casino (section 76); casino operators are required to keep accounting records in a certain manner (section 124); and may be subject to directions which may include record keeping aspects (subsection 31(1)).

•

Also in Victoria under the Gaming and Betting Act 1994 (Vic) a TAB is likely to be a holder of a wagering licence under that legislation. Holders of wagering licences are required to keep all documents relating to the operations of the operator that are required under the Gaming and Betting Act 1994 on the operator's principal place of business for 7 years after the transaction to which they relate (section 123). Under this legislation holders of wagering licences must also keep such 'accounting records as correctly record and explain the transaction and financial position of the operations of the operator' (section 122). They are also subject to investigations from time to time by the Victorian Casino and Gaming Authority.

•

Casinos in Western Australia are regulated by the Casino Control Act 1984 (WA). Under this legislation casinos in WA are required to keep at the casino or an approved place all books relating to the accounts of the gaming operations and management of the casino (subsection 25(1)) and keep such books for 7 years after the completion of the transactions to which they relate (subsection 25(2)).

•

In SA, casinos are regulated by the Casino Control Act 1988 (SA). Under that legislation, a casino licensee must keep all proper accounts and records for the transactions and affairs of the casino licensee (paragraph 121(a)) and keep such records for a period of seven years (section 124)). Also under the Casino Act 1997 a casino licensee must keep proper financial accounts for the operation of the casino (subsection 48(1)).

•

The submission from the Australian Casino Association noted that very similar powers and obligations apply to casino operators in Queensland.

Would the implementation of the proposal be onerous for the industry?

Although casinos and TABs are not currently required by the POC Act to retain transaction records and associated information, some organisations maintain these records, as a matter of good commercial practice, for registered gamblers and account holders as well as for audit and taxation purposes. In addition, state and territory legislation may in some cases already impose document retention requirements of the kind under consideration. Law enforcement agencies advise that such records have previously been obtained by warrant from casinos and TABs.

If a suspect is not a registered TAB account holder or a registered gambler with a casino, section 7 of the FTR Act requires that cash dealers (including casinos and TABs) report all transactions (covering individual bets and pay-outs) greater than $10,000 in value to AUSTRAC as a 'significant cash transaction report'.

Estimated usage rate of monitoring orders and notices under the proposal

To date, the experience of Commonwealth law enforcement agencies has been that TABs and casinos have been able to provide necessary records under warrant. If these records were to be obtained under a monitoring order, the reporting frequency would generally be twice per week but possibly once per week or even daily depending on the circumstances.

In order to report, TABs and casinos would need to interrogate their computer systems at the close of business. This process would identify transactions and the relevant transaction report would then be submitted to the appropriate law enforcement agency. As is the case with 'financial institutions' (as currently defined) and in light of the projected overall low usage rates, it is not expected that this would represent an excessive burden.

The use of monitoring orders for casinos and TAB accounts would be expected to be on a case by case basis.

In major Australian centres where gambling-related money laundering is suspected to be at a high level the number of search warrants obtained per year for account information is currently no more than 12. This figure approximates the total number of monitoring orders anticipated for investigations into accounts held with casinos and TABs. Across Australia, this would amount to no more than 100 per year on current estimates. The increase will be as a result of the comparative ease of the new procedure compared to using search warrants and because the new Proceeds of Crime legislation covers a wider range of activity than the current Act. Regardless of the precise number of monitoring orders, the information obtained under any one such order could prove invaluable in targeting the activities of known and suspected money launderers.

Benefits of the proposal

Any additional compliance costs for the gaming industry must be balanced against the objectives of law enforcement agencies in targeting money laundering. The value of information gained under the proposed scheme (Part 3-3 of the POC Bill) could be significant in relation to both known and suspected money launderers. The quicker streamlined process will reduce the time that gaming organisations which have the information are the focus of the law enforcement agencies. It will enable the agencies to move on to their targets quickly, not only enabling suspects to be dealt with more quickly, but also enabling the gaming organisations to get on with their business.

Implementation of this proposal may also result in benefits for the gaming industry. The gaming industry itself is vulnerable to fraud and, in particular, to the activities of organised criminal enterprises. Such fraud in turn impacts negatively on the industry's relationship with regulators. Indeed, a reputation for integrity is a key asset for gaming organisations. An efficient mechanism for deterring money launderer use of their facilities should improve the reputation of these organisations. On occasion there has been media attention on this issue which has not been positive for the industry. A reputation for integrity is particularly important to organisations who wish to establish new businesses as gaming regulators are usually very cautious about the vetting of new participants. The Department of Gaming and Racing (NSW) submission notes that the casino in that State states it is keen to deter people from engaging in money laundering.

Consultation

The Department has consulted widely with relevant state and territory departments and agencies, industry organisations and consumer groups.

In addition to writing to these organisations, advertisements were placed in The Australian, the Sydney Morning Herald, The Age (Victoria), the Courier-Mail (Queensland), the Financial Review, the Canberra Times, the West Australian, the Advertiser (South Australia), the Mercury (Tasmania) and the Northern Territory News on Saturday 13 April 2002.

Views of affected parties

There has not been a very large response to the organisations to which the Department wrote. Those that responded were not overly concerned about the new measures. TABCORP (Victoria) noted that although the proposals may impose a greater administrative burden on TABCORP, it does not have a fundamental objection to the legislation.

TABCORP did take the view that the amendments should not be limited in scope to TABs and casinos, but should include other gambling operators or organisations. The position of other operators is being considered in the context of a review of the FTR Act and will require separate consultation.

The Australian Casino Association commented that feedback from our members who operate the smaller casinos indicates that they do not foresee any negative impact for their businesses. However the Association reported some large Queensland casinos indicated they are already adequately regulated without this additional measure, their operations are not susceptible to money laundering and feared it would place an additional burden on them (while at the same time acknowledging similar requirements already apply to them). They also agreed with the TABCORP view that other gambling operators or organisations should have similar obligations.

The Department of Gaming and Racing (NSW) was supportive of the measures, noting that they were consistent with the recommendations in the report of an inquiry into the Sydney casino licence conducted by Peter McClellan QC and that the NSW Government is currently reviewing NSW money laundering provisions.

Conclusion and Recommended Option

Defining TABs and casinos as 'financial institutions' for the purposes of information-gathering powers under the PoC Bill and document retention requirements under the FTR Act would greatly enhance the ability of law enforcement agencies to investigate, prosecute and/or confiscate the proceeds of money laundering and other organised and serious crime.

Consultation with the industry, affected organisations and the wider community has not revealed any significant concerns about the proposal. Importantly, the response has not indicated that exposing TABs and casinos to the document retention provisions will impose a significant burden on those operating such businesses.

The process has not revealed any alternative method for ensuring that account related records are retained by TABs and casinos.

On balance, amending the definition of financial institution to include casinos and TABs would considerably enhance the ability of law enforcement agencies to identify those engaged in money laundering and other criminal activity, and would not have a significant impact on the business of running a TAB or casino.

In those circumstances, it is recommended that the definition in the PoC Bill and the POC Consequentials Bill be amended to include TABs and casinos.

Annex 1

Proposal

Provision for the issuing of notices to financial institutions is contained in Part 3-3 of the Bill and represents an important aspect of the new information-gathering scheme.

Under clause 213 of the POC Bill, law enforcement agencies will be able to issue notices to financial institutions, seeking information about accounts held by a 'specified person'.

The officer who issues the notice must reasonably believe that giving the notice is required to determine whether to take any action under the Act or in relation to proceedings under the Act: subclause 213(2). The POC Bill provides for both conviction-based confiscation proceedings and civil forfeiture confiscation proceedings. Notices to financial institutions can be used as an investigative tool for both types of proceedings.

The notice can be used for any one or more of the following purposes which are set out in subclause 213(1): determining whether an account is held by a person with the financial institution; determining whether a person is a signatory to an account; obtaining the current balance of any such account; obtaining details of transactions on such an account over a specified period (up to 6 months in length); obtaining details of any related accounts; and obtaining information about a particular transaction conducted by the financial institution on behalf of a specified person.

The notice may be issued by the Commissioner of the Australian Federal Police (or a Deputy Commissioner), a senior executive AFP employee (authorised by the Commissioner to issue the notice) or a member of the National Crime Authority: subclause 213(3).

The Bill introduces measures to ensure protection, in responding to such a notice, for the institution and its employees. These measures include:

protection from any legal process in relation to action taken under the provision, or in the mistaken belief that such action was required: subclause 215(1));

protection from any prosecution for money laundering in respect of the possession of the information provided under the notice: subclause 215(2); and

a prohibition on the disclosure of the existence of the notice: clause 217.

Financial Impact

There is no financial impact flowing directly from the provisions of this Bill. However, as these provisions will render the confiscation regime more effective both in its international operation and in avoiding abuse of bankruptcy and family law proceedings to dissipate assets the impact should be to significantly increase Government revenue. There may be some effect on creditors and divorcing couples as proceeds of criminal activity can no longer be used to satisfy bankruptcy creditors or to support former spouses.

Abbreviations used in the Explanatory Memorandum