Keeping Your Nose Clean: The Problem with Proceeds of Crime

Oct 28, 2015

Over the years we have handled a number of cases involving proceeds of crime, including applications for freezing and forfeiture orders brought by Police. In addition, common preliminary questions asked of us of clients in criminal cases, and particularly drug matters, concern the likelihood of such an application being brought and its prospects of success. The area seems to be a great source of concern for clients, and also for those looking to purchase or utilise the assets of persons imprisoned for extended periods, so we thought we would throw a few general pointers out there…

The legal regime covering proceeds of crime is quite complex and detailed, with two different statutes at the Commonwealth level and a further two at the NSW State level, in addition to accompanying regulations for each. As such, it is only possible here to provide a very brief and generic overview.

The starting point is that the regime (i.e. Commonwealth vs. State) to be utilised by an applicant in any given case will almost certainly accompany the jurisdiction under which the accompanying criminal charges have been laid. For example, if the Australian Federal Police are prosecuting criminal charges, the Commonwealth system would naturally be pursued, whereas the NSW State regime would be employed by NSW Police.

Firstly, under the NSW scheme, a recovery or forfeiture order depends upon a conviction. Obviously, unless and until someone is convicted under that scheme, an order for the forfeiture of property cannot be made.

Generally, all schemes are hinged to “tainted property”. This is defined widely as not only the proceeds of the crime (i.e. the actual revenue generated from the crime; usually, but not only, drug offences), but also any property used in, or in connection with, the commission of the offence. This means, for example, that a house in which drugs are manufactured are potentially within the scope of the regime. Further, there is a presumption that any property found in possession of an offender at the time of the offence is “tainted”. That being so, in some cases, the cards will be stacked against the defendant, at least at first instance.

However, making orders with respect to proceeds of crime is a discretionary power of the Court, meaning it is not mandatory and does not follow simply because a person is convicted, and even if the connection between the property and the offence is strong (take a pill pressvis-à-vis the premises in which drugs were manufactured, for example). In considering whether to exercise the discretion, the Court will consider a number of factors, including the seriousness of the offence, the use to be made of the “tainted” property, and any hardship likely to be caused by an order.

Some protection is provided for third parties who claim an interest in tainted property, but the onus of proof will be on them to show that they were not involved in the offence in any way. If they obtained their interest after the commission of the offence, they will also need to show that they paid for it in circumstances that involved no reasonable suspicion that the property was tainted.

The Courts have traditionally taken a strict view to determining the strength of the connection between the use of property and the commission of the offence before it becomes “tainted property”. However, where the property is land or real property, the Court will be more reluctant. For example, in one case, it was held that a house in which drugs were concealed and weighed was not tainted property (although that case was in Western Australia under their regime). Further, the Court has constructed the regime as an “all-or-nothing” measure, meaning it is not possible to order the forfeiture of only part of an interest in the property, and as such, any forfeiture order must be proportionate to the crime actually committed.

So, property that was purchased legitimately well before the offence in question, property that is held as joint tenants with a spouse or business partner not involved in the offence in question, property held on trust for a child, and so forth, will all be less susceptible. So too will property sold to an independent third party without notice of its involvement in the commission of an offence, or the fact that its purchase may have derived from crime.

In some cases, when it comes to calculating proceeds, the Courts can look to all of the existing property of the defendant, plus any property they may have owned in the past five years, which have been transferred to another person under a sham arrangement, for example. However, generally, a pecuniary penalty order requires proof that the defendant has derived an actual benefit from their criminal activity, and even then, the Court can only award a penalty equal to the actual value of the benefit derived from the criminal activity. That being so, a defendant who can show legitimate and consistent income over a period of time, and the application of that income to the purchase of the property in question, will have much greater chances of resisting any application.

Up until this point, we have discussed forfeiture orders only, but there are alternatives. For example, the Court can order that the defendant pay penalties, and those penalties may be enforced against the property of the defendant (such as any real property they own). The Court can also grant restraining (or “freezing”) orders in criminal matters, where there is some urgency regarding a risk of assets being moved beyond the Court’s power to make a forfeiture order, or beyond reach for enforcing a pecuniary penalty. Such an order can prohibit the property being dealt with in certain ways, or even to come under the control of the public trustee. They can also relate to property not technically or legally owned by the defendant, but within their control (such as the assets of a trust or company or a car registered in a family member’s name).

Under the Commonwealth regime, all property covered under a restraining order is automatically forfeited six months after a conviction is recorded for some offences, including drugs offences involving a trafficable quantity, unless proceedings are commenced to prohibit forfeiture, in which case the defendant bears the onus of proving the property was lawfully acquired, not used in connection with the crime and was not derived, directly or indirectly, from unlawful activity. Again, a third party with an interest in the property can apply for relief to block the forfeiture, provided, again, they can show that there was no reason to suspect that the property was tainted, that it is not subject to the defendant’s control, and that they were not in any way involved in the offence (or if they were, that the property was in fact not proceeds of crime or tainted, and was lawfully acquired). The earliest point at which such an order can be applied for is when the defendant is about to be charged, i.e. before the criminal proceedings actually commence. Further, under the NSW regime (although not the Commonwealth system), the Court must find that there are reasonable grounds for the belief that the property in question is tainted property or proceeds of crime. Under the Commonwealth system, if an application is made, the Court must make a restraining order for drugs offences involving trafficable quantities.

As you can see, it is relatively easy for Police, prosecutors and / or the Crime Commission to obtain a restraining order, especially under the Commonwealth system, and in turn, it would be easier for them to obtain a forfeiture order or a pecuniary penalty in a sneaky, “back door” fashion.

Building on the above, costs are a relevant factor in this context. In that regard, note that costs can actually be payable in criminal cases in some circumstances. Specifically, if the prosecution and / or the Crime Commission fail with any application they bring, they could wind up being liable to pay the defendant’s costs, even if the application is made off the back of criminal proceedings. However, in NSW, the Crime Commission can apply for proceeds of crime orders in civil cases relating to serious drugs offences. The advantage for them is that the standard of proof is lower, at the balance of probabilities as opposed to beyond reasonable doubt, which means that in some cases, even if a person is acquitted of a criminal charge, they could still be subject to a civil proceeds of crime order. However, the same factors will go towards a defence, and the general rule in civil cases that costs follow the event applies (i.e. the loser pays the winner’s legal costs), making it more risky to bring an application.

Ultimately, dealing in proceeds of crime or using such proceeds to fund the purchase of property, investments or a general lifestyle is a high-risk endeavor. To answer the age-old question – ‘who says crime doesn’t pay?’ – well, certainly not the Police or the Crime Commission…

As always, feel free to contact us regarding any related issues.