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AFP ordered to return money to innocent cuckoo smurfing victim under the Proceeds of Crime Act 2002

Justice Allanson in the Supreme Court of WA has delivered judgment in Commissioner AFP v Ganesh Kalimuthu & Anor [2017] WASC 108. His Honour allowed in full an application to exclude the funds standing to the respondents’ Australian bank accounts. I appeared for the successful respondents, Mr Ganesh and his wife.

In earlier reasons1 his Honour restrained (froze) those funds under s 19 of the Proceeds of Crime Act 2002 (Cth) (POCA). The accounts were frozen on the basis that a Federal Police officer suspected the funds in the accounts were proceeds of crime.

Although the final judgment on the exclusion application records the application as ‘turning on its own facts’, those facts are similar to several other cases currently listed around the country. The decision in Commissioner of the AFP v Ganesh Kalimuthu answers several legal questions about s 330(4)(a) POCA. The answers are likely to become a precedent in other cases.

Section 330(4)(a) is the primary protection given to innocent third parties (which includes victims of offending) under the POCA. That much had previously been established in a case I argued in 2015.2

In the last year or so, in a number of cases around the country, the AFP has been arguing that innocent victims of money laundering are not protected by s 330(4)(a) when funds are paid into their bank accounts in what is termed a ‘structured’ fashion. His Honour found that such people can be protected by section 330(4)(a).

Facts

    1. At Penang, Malaysia, on several occasions Mr Ganesh paid cash Malaysian Ringgit banknotes to one Mr Zamri as part of an agreement that Mr Zamri would cause an equivalent amount of Australian Dollars to be deposited to accounts in Australia that Mr Ganesh (and his wife) had set up for that purpose.3
    2. Mr Ganesh used Mr Zamri (whose parents were licenced money changers) because he thought he would get a better exchange rate than he would if he was to use a bank.4
    3. Mr Ganesh believed he was sending money in a way that Malaysian law permitted.5
    4. Most of the funds were deposited to Australian accounts in cash, by unknown individuals in amounts less than $10,000.6 To the well informed observer (that is well informed about relevant Australian law) a strong suspicion arose of ‘structuring’ (or splitting up) the deposits to avoid the $10,000 cash reporting requirement imposed on Australian banks, contrary to s 142 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The label applied to this type of activity is “Cuckoo smurfing”, a term his Honour remarked as being “colourful if not particularly descriptive”.7 The best Australian judicial description of Cuckoo smurfing arguably remains that found in Majeed v The Queen [2013] VSCA 40 at [6] and following.

I have written an explanation of cuckoo smurfing here.

  1. Mr Ganesh was aware that a lot of payments were in amounts of less than $10,000. In fact that was all he recalled seeing.8
  2. Mr Ganesh made only basic inquiries about why the payments were being made in that way; but he received some reassurance from Mr Zamri.9. His failure to inquire was not indicative of willful blindness.10
  3. Mr Ganesh never withdrew any money from the Australian accounts.11 Each of the accounts was frozen by a Magistrate on an interim freezing order and then restrained under s 19 POCA.12
  4. Mr Ganesh was a Malaysian citizen who had always lived in Malaysia.13 Implicitly Mr Ganesh had limited awareness of Australian laws.

The following are the key passages of the judgment:

[105] The debt owed by the Bank to Mr Ganesh (in relation to each bank account) is a single obligation to pay the amount standing to the credit of that account from time to time. It is not a series of debts relating to each deposit credited to the account.

And turning to the key concepts in s 330(4)(a) POCA:

Acquisition of property at [114] and following. His Honour holds that Mr Ganesh acquired an interest in the Australian bank accounts.

Third party at [117] and following. His Honour holds that Mr Ganesh is a third party and describes his position as analogous to that of a seller of Malaysian ringgit who is to be paid by the deposit of a corresponding amount of Australian currency into his account in Australia. The existing contractual relationship with the bank does not alter that he is a third party acquiring property through that transaction.

Sufficient consideration at [122] and following.

Reasonable suspicion (and whether Mr Ganesh should have held such a suspicion) at [125] and following. His Honour deals with s 142 AMLCTF Act (AMLCTF Act) at [113] and [129] noting the importance of the offender’s “purpose” in avoiding the reporting requirement. It is difficult to infer that an average account holder, especially a foreign national, who knows little about financial regulation in Australia would hold a suspicion that an offence against the AMLCTF Act had been committed. His Honour says at [129]:

It may not be necessary for Mr Ganesh to be aware of the terms of s 142. But he could not have a reasonable suspicion that his interest in his bank account was tainted unless he knew that the deposits were structured (that is, deposits of physical currency in amounts of less than $10,000) and there was some material sufficient to induce a suspicion that they were being done in that manner and form for the purpose of avoiding reporting requirements [found in s 43 AMLCTF Act].

At [125] His Honour applies the objective test (taking into account the respondent’s circumstances) referred to by the High Court in DPP v Le (Vic) to the reasonable suspicion test in s 330(4)(a). As his Honour noted “The question posed by the section is objective: would the circumstances arouse that reasonable suspicion in a person in the position of the respondents, knowing what they knew (my emphasis).

In closing submissions I had argued that parts of the Commissioner’s approach to the evidence showed a subconscious bias against alternative remittance and amounted to “not looking beyond the white cliffs of Dover,” that is to say a very Anglo-centric approach. If the respondent is from a country where alternative remittance is common, if the respondent is a person who lacks experience with western banking, if the respondent has very little knowledge of the way things are done in Australia, these are all matters to be taken into account.

SUBSEQUENT EVENTS

The Commissioner of the AFP has appealed Justice Allanson’s decision, arguing that his Honour erred in relation to each and every element of s 330(4)(a). That is to say the Commissioner argues that Mr Ganesh was not a third party, that he did not acquire any property for sufficient consideration and that a reasonable person in his circumstances would have suspected that the property was tainted.

The appeal is likely to be heard in February 2018 by the Court of Appeal (WA).

There are numerous similar cases that have since been argued and in which various judges have reserved their decisions. There have also been 2 further single judge decisions published that are relevant to the issues raised by this case.

Lordianto and Fernandez

In Commissioner of the Australian Federal Police v Lordianto [2017] NSWSC 1196, Simpson J disagreed with a number of the legal conclusions reached by Allanson J in Commissioner of the AFP v Ganesh.

In another decision published on the same day, Commissioner of the Australian Federal Police v Fernandez [2017] NSWSC 1197, Simpson J held that the relevant property was not “proceeds of crime”. Accordingly the public interest discretion in s 49(4) had to be considered. Her Honour refused the Commissioner’s application for forfeiture, variously describing submissions articulated on behalf of the Commissioner as disingenuous, flawed and wrong14 before concluding:

Forfeiture of the property of an innocent victim … does not in any way operate as deterrent to those who use the property of innocent victims to achieve their criminal ends. … [T]he public interest is not served by ordering forfeiture of the defendant’s interest in the property.15

Commissioner of the AFP v Jieying Sun

In Commissioner of the Australian Federal Police v Jieying Sun [2017] NSWSC 1476, Wilson J also sitting in the Supreme Court of NSW has declined to follow Simpson J in Lordianto/Fernandez.

Sun ultimately turns on its own facts. The respondent was not believed on multiple aspects of her evidence. Indeed, Wilson J found at [87]: I formed the distinct impression that Ms Sun had knowingly sworn a false affidavit [on an earlier application].

Sun is NOT a structuring case. The smallest deposit was $30,000: reasons at [6].

At the end of the judgment her Hon said:

132 The parties referred the Court to these decisions and sought to make further submissions based upon them. Fernandez was an application by the Commissioner for forfeiture pursuant to s 49(1) of POCA. Lordianto was an application pursuant to s 29 for exclusion of property the subject of restraint. Simpson JA intended the two decisions to be read together.

133 Her Honour considered s 330(4) of POCA, and the meaning of “acquisition” with respect to the deposit of funds into an account, concluding that the relevant acquisition was the opening of a bank account, thereby acquiring a chose in action, rather than the deposit of funds to that account: Lordianto [81] – [83].

134 Respectfully, I am unable to agree with such an interpretation of “acquisition”. Property may well have been acquired when the respondent opened her CBA account on 8 August 2014, but further property was acquired when the deposits were made to it on 11 and 12 August 2014.

 


  1. Commissioner of the AFP v Ganesh Kalimuthu (No 1) [2014] WASC 390. 

  2. Commissioner of the AFP v Li & Global Forex (Perth) Pty Ltd (2015) 306 FLR 130; [2015] WASC 488 at [116(b)]. 

  3. reasons at [40] 

  4. reasons at [36] and [124] 

  5. reasons at [133] 

  6. reasons at [14] to [26] 

  7. reasons at [71] 

  8. reasons at [41] 

  9. reasons at [51] 

  10. reasons at [138] 

  11. reasons at [18][23][26] 

  12. reasons at [87] and [5] 

  13. reasons at [132] 

  14. At [86] to [91]. 

  15. At [92] to [94]. 

Author:

Edward Greaves is a barrister at Francis Burt Chambers in Perth, Western Australia. Edward takes briefs in most civil and commercial litigation matters as well as financial and complex crime and regulatory and government matters. View profile | Connect on LinkedIn

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