The High Court has today restored simplicity to a central provision in the Proceeds of Crime Act 2002 (Cth), elevating the importance of the facts, and reversing a technical approach that had taken hold in the Supreme Court of New South Wales.1The approach of the NSW Courts culminated in Lordianto v Commissioner of the Australian Federal Police  NSWCA 199; 337 FLR 17; see also my commentary
Today’s decision, Lordianto v Commissioner of the AFP; Kalimuthu v Commissioner of the AFP  HCA 39, is the culmination of numerous cuckoo smurfing cases under the Proceeds of Crime Act 2002. I was trial counsel and junior counsel on appeal for Kalimuthu. Both appeals were dismissed. However, the decision is not a complete win for the Australian Federal Police (AFP).
The following summary assumes knowledge of the background of the Lordianto and Kalimuthu cases. More detail is available in my earlier blog posts.
The operation of s330(4)(a)
The High Court has unanimously endorsed observations made many years ago in the WA Supreme Court 2Commissioner of the AFP v Li  WASC 488; 306 FLR 130 at [116(b)]. about the purpose and operation of s330(4)(a). Today the Court stated:
“In many cases, perhaps most, [s330(4)(a) of the Proceeds of Crime Act 2002 calls for] an inquiry very similar to the inquiry under the general law about whether a person is a bona fide purchaser for value without notice.”3Joint reasons at , Edelman J concurring at .
The Court also observed the need to construe s330(4)(a) whole, rather than approach issues it raises in isolation.4At  and .
After discussing the judgment in legal terms, at the end of this blog post I suggest what it means for the innocent cuckoo smurfing victims who are being pursued by the Australian Federal Police.
Identifying the Property
The High Court made the important observation that before a Court applies the section to a particular case:
“Identifying the property sought to be excluded, and the property said to be acquired (as they may be different), is a critical initial step. It ensures that the property sought to be excluded is the subject of the restraining order and, where relevant, that it is proceeds, or an instrument, of an offence … Significantly, it also ensures that the balance of the question under s 330(4)(a) is the right question: namely, did the applicant for the exclusion order acquire the relevant property for sufficient consideration without that applicant knowing, and in circumstances that would not arouse a reasonable suspicion, that that property was proceeds, or an instrument, of an offence? If the property is misdescribed, what an applicant needs to prove necessarily proceeds from the wrong starting point.”5At .
Their Honours were not persuaded by an AFP argument that s330(4)(a) required ‘temporal disjunction’ (as it was described by the Commissioner and some of the Courts below) between the commission of some criminal offence and the acquisition of property by the current owner / applicant for an exclusion order.6At .
The High Court agreed with the submission I argued in the Courts below that “a ‘third party’ is no more, and no less, than a person who meets the description of what follows in s 330(4)(a), in light of the scheme of the Act and, in particular, ss 329 and 330.”7At  and .
The High Court also agreed with my argument that the question of sufficient consideration is “self-evidently not undertaken in some vacuum divorced from the circumstances in which the applicant acquired the property.”8at  Their Honours undertook an analysis of how electronic banking (and banking in general) actually works.9At  to . This was a step that was overlooked in some of the decisions in the lower courts.
The High Court found that the appellants, with the exception of Mrs Ganesh, had provided sufficient consideration.
Critically the High Court agreed with the AFP that the test for suspicion is objective and that:
“… although knowledge may in some circumstances be relevant, that does not extend to subjective ignorance of the law. The purpose of the scheme of the POCA is to prevent criminals from enjoying the proceeds of crime. To find that ignorance of the law is a defence would subvert this purpose. It would allow anyone to deal with criminals and merely assert ignorance of the law.”
It was for this reason the appellants failed. The appellants (with the exception of Mrs Ganesh) knew about the deposit pattern, namely that their accounts were receiving a large number of small deposits, all under $10,000 and often many such deposits on multiple days.
The Court observed that the AFP’s approach to s330(4)(a) would leave banks without a remedy if the AFP sought to freeze cash deposited with the bank.10At [104-5].
That was clearly unpalatable to the Court. For good reason. The consequences of the approach taken to s330(4)(a) would have left many innocent people in many situations defenceless against claims brought by the AFP. For example, see paragraphs 20-24 of the submissions advanced by Lordianto (and adopted by Kalimuthu).
Today’s decision is the first time the High Court has used the term ‘cuckoo smurfing’ in a judgment. Cuckoo smurfing, cuckoo smurf and variants were used 16 times throughout the judgment including in the catch words. Read more about cuckoo smurfing as a money laundering methodology.
What does today’s decision mean for innocent cuckoo smurfing victims who are being pursued under the Proceeds of Crime Act?
Today’s decision leaves the door open to argue that an innocent victim did not have sufficient factual knowledge to raise a suspicion. If the Court accepted that argument the cuckoo smurfing victim would be protected by s330(4)(a). A victim who can demonstrate that s/he was ignorant of the deposit pattern may, in an appropriate case, succeed in an application for exclusion of restrained property.
It has to be acknowledged that in all likelihood a substantial number of innocent cuckoo smurfing victims will still fail.
The case law is likely to continue to develop.
References [ + ]
|1.||↑||The approach of the NSW Courts culminated in Lordianto v Commissioner of the Australian Federal Police  NSWCA 199; 337 FLR 17; see also my commentary|
|2.||↑||Commissioner of the AFP v Li  WASC 488; 306 FLR 130 at [116(b)].|
|3.||↑||Joint reasons at , Edelman J concurring at .|
|4.||↑||At  and .|
|7.||↑||At  and .|
|9.||↑||At  to .|