On 22 March 2019, Chief Justice Kiefel and Justice Bell granted special leave to appeal to the High Court in two factually very similar matters under the Proceeds of Crime Act 2002 (Cth) (POCA). I was junior counsel on special leave (having been trial counsel) for one of the applicants.
The applicants for special leave are two couples (husband and wife in each case) who are all foreign residents, and who had used alternative remittance to remit (loosely like a ‘transfer’ of) their own money from south east Asia to their own Australian bank accounts. The remittance process was in each case corrupted (although this was not known to the special leave applicants at the time) by the money laundering methodology known as cuckoo smurfing. I explain cuckoo smurfing and alterative remittance here.
Each of the applicants for special leave had their Australian bank accounts restrained (frozen) on the basis that there were reasonable grounds to suspect that much of the money deposited to the accounts was deposited in a ‘structured’ manner. Structuring is the process of making multiple cash deposits, each under $10,000, rather than a single deposit of more than $10,000, for the sole or dominant purpose of avoiding the reporting obligation under s43 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). Such conduct is an offence contrary to s142 of the AMLC/CTF Act. There has never been an allegation that any of the special leave applicants were criminally complicit in the structuring.
The applicants for special leave
The applicants for special leave were specifically:
Kalimuthu (my clients). Their matter has until now proceeded in the Supreme Court of Western Australia. I was their trial counsel and we succeeded at first instance in an application under s29 POCA to exclude (that is have returned to them) the funds in the restrained bank accounts. The Commissioner of the AFP successfully challenged that ruling on appeal to the WA Court of Appeal.
Lordianto & Koernia. Their matter proceeded in the Supreme Court of New South Wales. They were unsuccessful at trial in their exclusion application. They unsuccessfully appealed to the NSW Court of Appeal.
The chronological sequence of the litigation history of the two matters is significant:
- Kalimuthu were successful before Allanson J;
- Lordianto was unsuccessful before Simpson J;
- The Commissioner’s appeal in the Kalimuthu matter was heard in Perth;
- Lordianto’s appeal was heard in Sydney;
- Lordianto’s appeal was dismissed;
- The Commissioner’s appeal in the Kalimuthu matter was upheld;
- Lordianto applied for special leave; and
- Kalimuthu applied for special leave.
Each of the three judges on the WA Court of Appeal who heard the Commissioner’s appeal in the Kalimuthu matter would have disagreed with at least one key aspect of the decision of the NSW Court of Appeal in Lordianto’s matter.
An application for special leave is governed by s35A of the Judiciary Act 1903 (Cth). It provides:
In considering whether to grant an application for special leave to appeal to the High Court … the High Court may have regard to any matters that it considers relevant but shall have regard to: (a) whether the proceedings in which the judgment to which the application relates was pronounced involve a question of law: (i) that is of public importance, whether because of its general application or otherwise; or (ii) in respect of which a decision of the High Court, as the final appellate court, is required to resolve differences of opinion between different courts, or within the one court, as to the state of the law; and (b) whether the interests of the administration of justice, either generally or in the particular case, require consideration by the High Court of the judgment to which the application relates.
The differences of opinion between the NSW and WA Court of Appeal were naturally a strength of these applications. It was also potentially relevant that there are between 16 and 22 similar cases around the country ((See Lordianto v Commissioner of the AFP  NSWSC 551 at .)) and that future similar cases are clearly likely to come before the Courts.
On my calculation there have been 108 applications for special leave determined by the High Court so far this year. Of those, Lordianto, Kalimuthu and 4 others were successful. Another 102 applications were dismissed. See: http://www.hcourt.gov.au/registry/special-leave-applications-results-2019
The special leave application
The proper construction of s330(4)(a) of the Proceeds of Crime Act 2002 (Cth) lay at the heart of each of the special leave applications (and now the substantive appeals to the High Court). Section 330(4)(a) provides:
(4) Property only ceases to be proceeds of an offence or an instrument of an offence … if it is acquired by a third party for sufficient consideration without the third party knowing, and in circumstances that would not arouse a reasonable suspicion, that the property was proceeds of an offence or an instrument of an offence (as the case requires)
If property (including money in a bank account) ‘ceases’ to be proceeds or an instrument of crime by operation of s330(4)(a) the property will be excluded (ie returned to the account holder) under s29 of the Act.
The three emphasised phrases in the above passage are each special leave questions. The special leave questions in Kalimuthu are framed as follows:
Section 330(4)(a) of the [POCA] provides that property ceases to be the proceeds or an instrument of an offence when acquired by a ‘third party’ in certain circumstances. The applicants acquired property when Australian currency was deposited into their bank accounts in circumstances which amounted to the commission of an offence. Are the applicants ‘third parties’ for the purposes of s330(4)(a) if they were not complicit in the offence?
The applicants gave Malaysian ringgit bank notes to a money changer in Malaysia who agreed to arrange for the money to be sent to Australia. The money changer gave the ringgit to a Malaysian money remitter who arranged for the Australian dollar equivalent to be deposited into the applicants’ accounts in Australia. Did the applicants prove that they acquired property for ‘sufficient consideration’ for the purposes of s330(4)(a), read with s338 of the [POCA]?
The applicants were required, by s330(4)(a) of the [POCA], to prove that they acquired the relevant property in circumstances that would not arouse a ‘reasonable suspicion’ that the property was proceeds of an offence or an instrument of an offence. In determining whether a person who has acquired property has proved that they acquired the relevant property in circumstances that would not arouse a ‘reasonable suspicion’ that the property was proceeds of an offence or an instrument of an offence, is it relevant to take into account the person’s knowledge of, or suspicion about, the physical and fault elements of the offence?
The special leave hearing
The transcript of the hearing of the application is available via AustLII: Lordianto & Anor v Commissioner of the Australian Federal Police; Kalimuthu & Anor v Commissioner of the Australian Federal Police  HCATrans 54 (22 March 2019)
The application was heard by Chief Justice Kiefel and Justice Bell on 22 March 2019.
Lordianto & Koernia were represented by Mr Bret Walker SC and Mr Travis Mitchell. Mr Walker made submissions first. Mr Sam Vandongen SC (who like me is from Francis Burt Chambers in Perth) and I appeared for Kalimuthu.
Mr Walker SC was called upon first and made submissions in terms that:
- The POCA has a socially beneficial purpose
- It is by operation of s330(4)(a) that people who are colloquially described as ‘innocent’ may escape forfeiture
- The breadth of the POCA and of ss 329 and 330 cannot be doubted
- Section 330(4)(a) must be construed in a purposive manner
The Chief Justice noted the division of opinion at the appellate level on ‘third party’ and to some extent ‘sufficient consideration’. Justice Bell then invited Mr Walker to address the Court on ‘circumstances that would not arouse a reasonable suspicion’.
Mr Walker acknowledged that the concept of ‘ignorance of the law’ played a role in the Commissioner’s arguments. He observed that the concept has a role in the criminal law and pointed to the fact that his clients are not alleged to be criminally responsible.
He argued that there was no scope for introducing legal ‘fictions’ into the concept of reasonable suspicion. [In essence this boils down to does a reasonable person: (1) know that the AML/CTF Act requires banks to report to government cash deposits over $10,000; and (2) that it is a criminal offence to structure or arrange deposits for the purpose of avoiding such reports].
He argued that reasonable suspicion is a concept that both exposes and protects. The reasonable person is neither paranoid nor reckless.
The Chief Justice then enquired of Mr Walker why Lordianto was an appropriate “vehicle” for the High Court to consider his arguments [in essence – is this the right test case?]. Mr Walker addressed the facts in Lordianto.
On the question of ‘sufficient consideration’ Justice Bell observed that the Court was looking at s330(4)(a) in the context of acquisition of property. Her Honour asked whether Mr Walker was arguing that the property in this case was acquired for sufficient consideration on the basis that: had it not been for the dealings between Lordianto and the Indonesian alternative remitter – there would have been no receipt of funds by Lordianto in the Australian bank account. Mr Walker confirmed that he did, and that this was consistent with a purposive approach to s330(4)(a).
Mr Walker went on to note that s330(4)(a) applies in a wide range of scenarios where people acquire property. For instance if one buys a house in the usual Anglo-Australian way, the seller of the house cannot interrogate the financing arrangements of the buyer. If funds come to the seller as part of the purchase price, it is “for” sufficient consideration. Mr Walker reminded the Court that the receipt of funds in Australia mirrors the payment made by Lordianto to the remitter in Indonesia, after allowing for the exchange rate and a profit margin on the part of the remitter.
Mr Vandongen SC then adopted Mr Walker’s submissions on behalf of Kalimuthu. Mr Vandongen made submissions in support of the view adopted by Buss P in the WA Court of Appeal. Buss P opined that Kalimuthu had given sufficient consideration “for” the funds received into the Australian accounts.
Mr Vandongen made further arguments about ‘circumstances that would not arouse a reasonable suspicion’. He contended that the section requires the Court to consider the elements of the s142 AML/CTF Act offence.
Mr Vandongen addressed the facts in Kalimuthu.
Mr Vandongen stressed that the second applicant in Kalimuthu (the wife) was held by the WA Court of Appeal to have acquired the deposits to her bank account in ‘circumstances that would not arouse a reasonable suspicion’. As such Mr Vandongen argued that her case was an especially strong ‘vehicle’ for the High Court to consider the other issues of ‘third party’ and ‘sufficient consideration’.
Mr Moses SC argued on behalf of the Commissioner of the AFP that each of Lordianto and Kalimuthu seek to divert attention from the text of s330(4)(a). He argued that Lordianto and the husband in Kalimuthu were (factually) hopeless cases. He said each of those applicants were put on notice about things that should have aroused suspicion. Mr Moses addressed the facts in each case, and what he said were the key passages of each appellate judgment.
Mr Moses elected not to canvas the views of Buss P (in dissent below) on sufficient consideration. He stressed that none of the members of the WA Court of Appeal were prepared to hold that the NSW Court of Appeal findings in Lordianto were plainly wrong.
Mr Moses acknowledged the divergence of opinion in both appellate courts on third party. He said that McColl, Murphy and Beech JJA wrongly import a mental element into the concept of third party: about complicity in criminal conduct. He said that should not be accepted and that the Commissioner relied largely on the decision of Buss P in Kalimuthu on this question. The POCA is not a fault based scheme.
Mr Moses said that in the end result the correct construction of third party is found in the decision of Buss P at . A third party is someone who establishes (the onus being on them) that they acquired property after the commission of the offence and was not involved with or connected to the transaction by virtue of which the property became tainted. Justice Bell noted that s330 of the POCA had been amended. Mr Moses submitted (and no one suggested otherwise) that the amendments are of no present moment.
In reply Mr Walker reminded the Court that a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. Being put ‘on inquiry’ is insufficient. He relied on Correa v Whittingham (2013) 278 FLR 310;  NSWCA 263 at - per Gleeson JA, Barrett JA and Tobias AJA agreeing. He accepted that the large number of deposits did raise a basis to be put on inquiry, but not a basis to suspect.
Mr Vandongen’s reply was concerned with matters unique to Kalimuthu.
The High Court announced that there would be grants of special leave to all applicants. The High Court does not give reasons for granting (or refusing) special leave.
The two appeals will be heard together, likely by the full bench of the High Court over 1.5 days in the later part of 2019.
The appeal will be of critical significance to many future cases under the Proceeds of Crime Act 2002. If the appellants succeed, it will greatly enhance the protection of people other than offenders, including innocent victims.
The full appeals were heard on 7 and 8 August 2019. The High Court has published the written submissions filed in both matters, together with the full transcript and a video recording of the appeal hearing on its own website. Click for the Court’s dedicated pages for the Kalimuthu appeal and the Lordianto appeal.