Edwards, David --- "Confiscation That Counts" [1999] ALRCRefJl 28; (1999) 75 Australian Law Reform Commission Reform Journal 47

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Reform Issue 75 Spring 1999

This article appeared on pages 47 – 50 of the original journal.

Confiscation that Counts

The Australian Law Reform Commission’s review of Commonwealth Proceeds of Crime (POC) legislation has advocated a sharp shift in Australia’s approach to federal asset confiscation laws.

David Edwards writes,* ‘Confiscation that counts: a review of the Proceeds of Crime Act 1987’ recommends the introduction of a non-conviction based forfeiture regime to work alongside the existing model.

The fundamental principle of confiscation legislation is that people who engage in unlawful activity should not profit from breaking the laws of society. Money made from such activity should be confiscated, to prevent the reinvestment of that profit into further illegal acts.

The ALRC’s review of Australia’s confiscation regime found that ground breaking POC legislation - introduced in 1987, and designed to strike at the heart of organised crime by attacking the profit motive - had become largely ineffective. Over the past five years, Commonwealth confiscation laws have netted an average of $7.5 million per year. While the size of the criminal economy is difficult to estimate, such a sum is obviously modest when compared with the scale of illegal takings.

Confiscation that counts: a review of the Proceeds of Crime Act 1987 is the culmination of an 18-month inquiry by the ALRC that began in December 1997. The report was officially launched by Attorney-General Daryl Williams in Sydney in June this year.

Mr Williams said the Commission’s recommendations had the “potential to increase greatly the reach of the legislation and its capacity to strip the illicit wealth from those criminals who have considered themselves successful and safe”. He indicated the report would be the subject of an intensive consultation process and period of analysis, before new legislation was introduced.

Civil forfeiture

As it presently stands, the Commonwealth Proceeds of Crime Act (POC Act) is a conviction based forfeiture regime. Confiscation of the proceeds of crime is the last stage of combined criminal and civil processes, although both are decided in the criminal courts.

The Commission has proposed the introduction of a non-conviction based, or civil, confiscation regime. The incorporation of a non-conviction based regime into the POC Act would enable confiscation of the profits of prescribed unlawful conduct, on the basis of proof to the civil standard of ‘on the balance of probabilities’.

Since 1979, the Customs Act 1901 (Cth) has provided a non-conviction based confiscation regime in relation to prescribed narcotics dealing, but that regime has been limited to the making of pecuniary penalty orders and is not often used. By contrast, the new non-conviction based regime proposed by the Commission would involve both forfeiture of property and the imposition of pecuniary penalty orders.

_{Unlike the non-conviction based regimes of Victoria and New South Wales, recovery of the profits of unlawful activity would not be limited to criminal conduct. Under the Commission’s proposals, the regime would be able to be applied to profits gained from activities related to conduct that is unlawful under either criminal or civil law. But its scope would, because of its far reaching effects, be limited to conduct that is ordinarily engaged in by persons on a serial or continuing basis for the purposes of profit, such as involvement in money laundering activities or dealing in narcotics.}

The idea of a civil forfeiture regime may be controversial in some areas. However, the Commission is not suggesting that the presumption of innocence in criminal trials be altered, or that criminal sanctions be imposed at a lower standard of proof.

In proposing this regime, the Commission rejects the notion that recovery of profits from unlawful conduct is an adjunct of the criminal law process and, as such, should apply only to conduct that is criminal and has been proved ‘beyond reasonable doubt’.

Instead, the Commission believes that the recovery of the profits of unlawful activity - on proof of unlawful conduct on the civil onus of ‘on the balance of probabilities’ - is justified. To support this view, the Commission relies on the fundamental principle that no-one should be entitled to be unjustly enriched on the basis of conduct that is criminally or civilly unlawful.

Judicial discretion

The Commission has proposed that existing judicial discretions under the current conviction based regime be reduced, so that the confiscation of the profits of criminal activity becomes mandatory. Under the Commission’s proposals, the courts would have a discretion only in relation to the confiscation of lawfully acquired property used in or in connection with the commission of the offence. An example of this would be computer equipment, bought with legitimate funds, but used to defraud the Commonwealth.

Money laundering

Under the current provisions of the Act, a conviction of the offence of money laundering requires proof, first of the commission of a separate indictable offence and, second, that the proscribed conduct was engaged in with money or property that is the proceeds of that offence. These requirements have limited the capacity of these provisions to meet the underlying objectives of the POC Act of depriving criminals of the proceeds of their crimes, and of suppressing serious crime.

^{In its report, the Commission has proposed that the offence of money laundering be made provable by reference to a wider range of activity. Specifically, the Commission has proposed that Section 81 of the Act be broadened to render guilty of the offence of money laundering any person who “receives, possesses, conceals and disposes of any money or other property for the purpose of committing or facilitating the commission of an indictable offence against a law of the Commonwealth or as a consequence of the commission of such an offence”. Section 82, which deals with possession of property suspected of being the proceeds of crime, should be broadened along the same lines.}

Additionally, the Commission has recommended that a provision parallel to Section 81 be enacted to deal with the circumstance where a person imports into or exports money or other property from Australia for the purpose of committing or facilitating the commission of an indictable offence against the Commonwealth, state or territory laws, or against a corresponding law of a foreign country, or as a consequence of the commission of such an offence. A new provision correspondingly parallel to Section 82 is also proposed.

To reinforce the ability to prevent and detect money laundering activity, the Commission has further recommended that new powers be given to courts to issue transaction suspension orders. These orders would require financial institutions to suspend certain transactions for 48 hours to enable appropriate investigative, preventative and restraining measures to be taken in respect of the monies concerned.

Literary proceeds

One of the specific matters that the Commission was asked to address is the question of possible legislation to cover ‘literary proceeds’. Literary proceeds can be broadly defined as profits or benefits derived by a criminal as a result of the publication in any form, of details or experiences related to that person’s crime or life of criminal activity.

None of the submissions received by the Commission argued against a provision which would enable the confiscation of literary proceeds. However, a number of submissions advocated the placing of some limitations - including the conferral of wide discretion on courts - to avoid injustice in particular cases.

The Commission has concluded that confiscation of literary proceeds should not be so wide as to cover, for example, benefits or profits made by notorious criminals if their activities are not related to their unlawful activities. For example, a ‘notorious’ criminal who becomes a successful writer - and writes on subject matters other than his or her crime - should not be at risk of losing that income. Indeed, that would hinder the rehabilitation process.

Instead, the Commission believes that any new laws to confiscate literary proceeds should be limited to money or other property derived by way of profits from the commercial exploitation of a crime, or other unlawful activity, that falls within the scope of the POC Act.

Throughout this report, the Commission has consistently taken the view that confiscation of profits should be mandatory. Literary proceeds is the exception. This is because there will be occasions when difficult judgments need to be made on the extent to which profits relate to criminal or other unlawful activity, as distinct from other considerations such as experiences gained through the rehabilitative process. In such situations, a court will be best placed to determine the issue on the basis of evidence placed before it. However, in making such judgments, the court should be required to have regard to the criteria of public interest, social and educational value, and the nature and purpose of the publication, production or entertainment, including its use for research, educational and rehabilitative purposes.

Restrained assets and legal expenses

The current system allows defendants access - with court approval - to restrained assets that are suspected of being the proceeds of crime for legal expenses. According to the Commonwealth Director of Public Prosecutions, during the period from the commencement of the POC Act to May 1998 assets totalling $7.9 million were released for this purpose.

In the Commission’s view, defendants should be required first to have access to unrestrained assets for their legal defence. Where such assets are insufficient for that purpose, defendants should be required to seek assistance from legal aid commissions which are well qualified and equipped to assess the defendant’s needs and then make provision for, and monitor expenditure of, assistance. In view, however, of the special disadvantage suffered by such defendants by reason of restraint of assets that would otherwise be available for their defence, legal aid commissions should be required to provide a defence of the kind that an ‘ordinary self funded person’ could be expected to provide as an adequate defence for themselves. Under the Commission’s proposals, a defendant would have the right to have the level of such assistance reviewed by the court.

Having regard to already stretched legal aid resources, the Commission believes that the provision of such assistance should not be at the expense of claimants for existing legal aid funding. The Commission proposes, therefore, that the assistance be able to be drawn down directly by legal aid commissions from the Confiscated Assets Reserve (the statutory fund into which proceeds of crime, confiscated under the POC Act, are paid).

A scheme of this kind will, the Commission believes, strike an appropriate balance between the need to preserve restrained assets for possible confiscation, while ensuring that an appropriate legal defence is provided to persons whose ability to provide for their own defence is prevented by restraint of their assets.

Innocent third parties

Included in the Commission’s recommendations are measures designed to provide increased protection for the rights of innocent third parties - particularly the rights of creditors - without undermining the integrity of the confiscation regime.

It is clear from the various provisions dealing with the rights of third parties in the POC Act that there was no intention to adversely impact on innocent third parties with bona fide interests in property. However, the provisions providing relief for innocent third parties are extremely complex.

The Commission considers - at least in some circumstances - that third parties are unfairly required to prove matters when they cannot reasonably be expected to be in a position to offer evidence. It also seems inappropriate that the burden required to be discharged by an innocent third party should differ, and in some cases differ quite significantly, just because restraining orders are sought under different provisions of the POC Act.

For these reasons, the Commission favours a single simplified universal test to be satisfied by innocent third parties seeking release of their interest from any kind of restraining or forfeiture order.

_{One issue that attracted a great deal of attention in this area was the protection of the rights of secured creditors. The Australian Finance Conference (AFC), as the industry body representing finance companies, pointed in its submission to the significant asset risk posed to its members by the various confiscation regimes, including the POC Act. While conceding that there have been few reported occasions on which assets have been lost through confiscation under the POC Act, when they do occur, losses can be significant. (Editor’s note: For further information on the AFC submission see ‘Criminal proceeds: a finance industry view’ by Steve Edwards and Alison Tierney, Reform Issue 73.)}

The Commission has addressed this issue by recommending a substantially lower burden of proof should be placed on third parties (such as credit providers) whose secured interest in restrained or confiscated property has been obtained in the ordinary course of business.

The Commission acknowledges with gratitude the important contribution made to its deliberations by the Honorary Consultants to the reference and those persons and organisations that made submissions to the inquiry.

*David Edwards PSM was the Deputy President of the ALRC from December 1995 to September 1999. He was the Commissioner with responsibility for the proceeds of crime reference.