Between 2000 and 2010 governments wanted to address a public perception that there were drug dealers and others in the community who were, for whatever reason, supposedly ‘untouchable’. It would sometimes be said that that high level dealers never handled the drugs themselves so it was difficult to arrest and prosecute them.
As a result the Criminal Property Confiscation Act 2000 (WA) and the Proceeds of Crime Act 2002 (Cth) each contain unexplained wealth powers. The Federal laws were introduced in 2010 following a riot at Sydney airport between rival Outlaw Motor Cycle Gangs which resulted in the death of one member.
“The overarching purpose behind these amendments is to improve the ability of law enforcement agencies to target upper‑echelon organised crime figures that derive the greatest financial benefit from offences, but are seldom linked by evidence to the commission of an offence.”Explanatory memorandum to the Crimes Legislation Amendment (Serious and Organised Crime) Bill 2010 (Cth)
- How do unexplained wealth laws work?
- Total Wealth
- Lawfully acquired wealth
- Unexplained wealth accounting process
- Case Law
- Further Reading
- Briefing an Unexplained Wealth barrister
How do unexplained wealth laws work?
The following section is a simplification of the unexplained wealth laws in the Criminal Property Confiscation Act 2000 (WA). Those laws have been drafted in simpler terms than the unexplained wealth provisions of the Proceeds of Crime Act 2002 (Cth).
At the heart of the concept of unexplained wealth is a very simple mathematical formula:
Unexplained wealth = Total wealth minus lawfully acquired wealth 1
Thus a person whose total wealth is $5m, and whose lawfully acquired wealth is $2m, can be said to have unexplained wealth of $3m.
As with most confiscation laws, from that simple concept further concepts (and complexity) is added.
Typically the onus for proving “total wealth” rests with the relevant authority (DPP, CCC, AFP). The authority must prove that the person’s total wealth is $x, and they must do so on the balance of probabilities.
Total wealth is defined broadly. It is not just the current assets owned by the person at the current date. Total wealth includes not only property owned by the person, but services, advantages and benefits enjoyed or consumed by the person over time. The importance of this point can be demonstrated by example. Take for example a defendant who:
- 10 years ago had known assets of $250,000, which the authority accepts was lawfully acquired.
- Earns $75,000 (before tax) from wages / salary each year, for 10 years.
- Has no other known source of income or wealth over that 10 year period.
- Takes frequent overseas holidays over those 10 years, always flying business class and staying in 5 star hotels. The expenditure totals an average of $40,000 per year for each of the 10 years.
- Now has assets of $500,000.
If total wealth were defined simply as the $500,000 it would not be all that difficult for the defendant to show that their lawful acquired wealth was also $500,000; and thus the Court would find that none of the wealth was ‘unexplained’. The person would say: “I had $250,000 to begin with, my wealth has grown by a further $250,000 over 10 years (an average of $25,000 per year) and that is the result of living frugally, saving and good fortune with investment.”
However because total wealth includes the $400,000 spent on travel (which is an advantage and/or benefit), the total wealth is now $900,000 (ie the $500,000 in assets plus the $400,000 spent on travel).
It will be difficult for the defendant to explain how $650,000 (being $900,000 less the $250,000 that he started with) was lawfully acquired over 10 years.
Lawfully acquired wealth
This is the second part of the formula. Critically, it is where the onus is reversed.
Section 12(2) of the Criminal Property Confiscation Act provides that:
“Any property, service, advantage or benefit that is a constituent part of the [person’s] wealth is presumed not to have been lawfully acquired unless the [person] establishes to the contrary.” 2
Unexplained wealth accounting process
Unexplained wealth matters will usually require extensive forensic accounting evidence. They are the sort of matters that are likely to result in competing experts with differing views on how transactions should be viewed.
It is worth stating the obvious – the role of the expert is not to tell the Court the answer – but to assist the Court to formulate the answer. It is the presiding Judge that must be satisfied as to the person’s total wealth. It is the presiding judge who must decide whether a defendant has demonstrated that a constituent part of their wealth was lawfully acquired.
The forensic accountants can only express their opinions based on underlying documents such as bank statement and property transfer documents. Attention must be given to the admissibility of these records, and any gaps in them.
Forensic accounting reports should be examined closely to ensure that they do not exaggerate total wealth by double counting. For instance if a person regularly gambles at the casino, it is wrong to assume that every time they cash out chips they have ‘won’. Consideration also needs to be given to the chips that they purchased. Likewise if a person regularly buys and sells cars, it is wrong to treat every purchase as an expense unless every sale is also treated as income.
One would expect the forensic accountants to prepare written reports that comply with relevant accounting industry standards such as the APES 215.
Forensic accounts will be familiar with and likely use one (or both) of the following 2 methods to assist in formulating their views in relation to total wealth over time. Nevertheless, forensic accountants briefed in unexplained wealth matters must be directed to the applicable statutory text and test/s. The methods of calculation typically used in accounting (which are informed by income tax audit practices) should not become a substitute for the legislative test that the Court must ultimately apply.
Unexplained Wealth Asset betterment method
This method looks at the net worth of an individual year on year.
Source and application of funds method
This is a cash flow analysis that looks at where funds come from and how they are expended.
Historically the Unexplained Wealth (sometimes referred to as ‘UEW’) powers have been rarely used.
Consequently, the case law on Unexplained Wealth is thin. The leading decision nationally is arguably Burnett v Northern Territory (2007) 228 FLR 365;  NTCA 7. It relates to the Northern Territory legislation which is modelled on the Western Australian Criminal Property Confiscation Act.
Between 2011 and 2018 the WA powers were not used. On 28 June 2018, the WA Parliament gave the Corruption and Crime Commission (“CCC”) the power to pursue Unexplained Wealth under the Criminal Property Confiscation Act 2000 (Cth). For more information, review my blog post. Since then I have been involved in three matters commenced by the CCC that at least have the potential to become unexplained wealth matters. One of those matters is likely to be dealt with in that way.
Federal Unexplained Wealth matters
The Federal laws, being sections 20A and Part 2-6 of the Proceeds of Crime Act 2002, have been on the statute books since 2010. They were amended in 2011 and again in 2015, each time without having been previously used.
Finally in 2017 they were used for the first time, as it happens in Western Australia. On 19 April 2017 Justice Banks-Smith published her reasons for granting a restraining order on unexplained wealth grounds under s 20A Proceeds of Crime Act 2002 (Cth). See Re Application under s 20A Proceeds of Crime Act 2002; ex parte Commissioner of the AFP  WASC 114. The decision has been anonymised. I have been briefed in this matter. I am also briefed in another unexplained wealth matter under the federal POCA in Victoria. There is a third case that has been commenced under the federal POCA. All three cases that have been started under the federal POCA remain before the Court, without having been listed for trial.
National Scheme for Unexplained Wealth
At a Federal level, 2018 also saw the establishment of a National Scheme. NSW was the only State to join the Scheme. Canberra used the territories power to compel the ACT and the NT to join.
Given the lack of case law on unexplained wealth generally, and the complete absence of any under the Federal Proceeds of Crime Act, those involved in defending the first cases will want to look very closely at the wealth of extrinsic material available. Section 15AB(1)(b) of the Acts Interpretation Act 1901 (Cth) allows regard to be had to a wide range of extrinsic material “to determine the meaning of the provision when: (i) the provision is ambiguous or obscure; or (ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable”.
The relevant extrinsic material includes:
- The explanatory memoranda and parliamentary debates on each of the amending Acts;
- The March 2002 report of the Federal Parliamentary Joint Committee on Law Enforcement entitled Inquiry into Commonwealth unexplained wealth legislation and arrangements; and
- The Inquiry home page for the above joint committee inquiry, which includes transcripts and submissions.
Of course many of the concepts found in the unexplained wealth provisions of the Proceeds of Crime Act and the Criminal Property Confiscation Act have common features with other parts of those Acts.
There is case law under the Criminal Assets Recovery Act 1990 (NSW) that may also be of general assistance. The case law on money laundering may also be of some use. For example, section 400.9(2)(c) of the Criminal Code (Cth) effectively makes it an offence to possess unexplained wealth. That provision has been far more widely used.
Briefing an Unexplained Wealth barrister
For specific unexplained wealth advice please contact me directly. I am happy to take instructions in relation to unexplained wealth matters under the:
- Proceeds of Crime Act 2002 (Cth);
- Criminal Property Confiscation Act 2002 (WA);
- Criminal Assets Recovery Act 1990 (NSW);
- Confiscation Act 1997 (Vic);
- Criminal Property Forfeiture Act 2002 (NT);
- Serious and Organised Crime (Unexplained Wealth) Act 2009 (SA);
- Criminal Proceeds Confiscation Act 2002 (QLD); and
- Crime (Confiscation of Profits) Act 1993 (Tas).
- See s13(1) of the Criminal Property Confiscation Act 2000 (WA); see also ss179E(2) and 179G of the Proceeds of Crime Act 2002 (Cth).
- Section 179E(3) of the Proceeds of Crime Act 2002 (Cth) achieves a similar result.