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Proceeds of Crime Amendment (Proceeds and Other Matters) Bill 2017

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2016-2017

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

PRoceeds of crime Amendment (proceeds and other matters) Bill 2017

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Minister for Justice, the Hon Michael Keenan MP)

 

                                                                                                        



 

Proceeds of crime Amendment (Proceeds and other matters) BILL 2017

General Outline

1.                 This Bill amends the Proceeds of Crime Act 2002 (the Act) .

2.                 The Bill contains a range of measures to:

·          align the Commonwealth unexplained wealth regime with other types of orders in the Act to ensure that it covers situations in which wealth is ‘derived or realised, directly or indirectly’ from certain offences

·          clarify that property becomes ‘ proceeds’ or an ‘instrument’ of an offence under the Act when ‘proceeds’ or an ‘instrument’ are used to improve the property or discharge an encumbrance security or liability incurred in relation to the property, and

·          clarify that property or wealth will only be ‘ lawfully acquired’ in situations where the property or wealth is not ‘proceeds’ or an ‘instrument’ of an offence.

The Bill comprises 1 schedule.

3.                 Schedule 1 clarifies key terms in the Act, including the terms   proceeds’, ‘instrument’ and ‘lawfully acquired’ and expands the Commonwealth’s unexplained wealth regime to ensure that it covers wealth derived or realised, directly or indirectly from certain offences. This will ensure that proceeds of crime authorities can appropriately restrain and confiscate property or wealth in cases in which illicit funds are used to make improvements to property or to wholly or partly discharge an encumbrance, security or liability incurred in relation to property.

4.                 These amendments have been made in response to developments in case law, which have potentially affected the scope of these terms, as illustrated below.

5.                 The Western Australian Supreme Court in Commissioner of the Australian Federal Police v Huang [2016] WASC 5 held that it could not consider the source of funds used to satisfy a mortgage over a residential property in determining whether this property was ‘lawfully acquired’ or ‘proceeds’ of crime, despite the possibility that unlawfully acquired funds had been used to make mortgage repayments. The court was therefore bound to exclude the residential property from forfeiture.

6.                 The majority of the Queensland Court of Appeal in Commissioner of the Australian Federal Police v Hart & Ors [2016] QCA 215 also recently held that the source of funds used to meet the costs of restoration and repairs of assets, or to repay a mortgage acquired after the initial purchase of the property, would ordinarily be irrelevant to whether the property was ‘derived from unlawful activity’. This may implicitly prevent a proceeds authority from seizing property where illicit funds are used to service repayments on mortgages taken out on the property after initial acquisition or where illicit funds are used to make improvements to the property.

7.                 The prevailing judicial interpretation of these terms is contrary to the intended meaning and to the objects of the Act - which are to deprive people of the ‘proceeds’ and ‘instruments ’ of offences, of unexplained wealth amounts, and to undermine the profitability of criminal enterprises.

8.                 Criminals regularly create a complex web of financial arrangements and asset protection structures to hide or disguise ‘proceeds’ or ‘instruments ’ of crime, including using a range of mortgages, loans and other agreements to achieve this purpose.

9.                 ‘Proceeds’ and ‘instruments’ of crime can also be used to retain, maintain improve, alter, repair, restore, structure and restructure a broad range of tangible and intangible property and wealth, including funding renovations to real property, ongoing maintenance or restoration costs associated with  luxury products such as planes and vintage cars, upgrading the assets of a business, the costs associated with subdividing or building on land or the renovation of property to assist in the commission of further offending (for example, where a building is altered to make it more suitable to store drugs or hide illicitly derived money).

10.             The amendments at Schedule 1 of the Bill ensure that proceeds of crime authorities can appropriately restrain and confiscate property or wealth in these instances, ensuring that criminals are not able to deliberately structure their affairs to avoid the operation of the Act and retain their ill-gotten gains.

11.             The Act contains safeguards and procedures that ensure the measures in the Bill are no more onerous than necessary to achieve their objectives. A person whose property is subject to a restraining or forfeiture order under the Act can still apply to a court to: direct that the court refuse to issue the order; exclude property from the scope of the order; transfer the property to them; buy back the property; relieve dependents from hardship created by the order; or provide compensation for the proportion of the value of the property that was not derived from crime.

FINANCIAL IMPACT

12.             The Bill will have no financial impact. 

 



STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Proceeds of Crime Amendment (Proceeds and Other Matters) Bill 2017

13.             This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . To the extent that the measures in the Bill may limit those rights and freedoms, such limitations are reasonable, necessary and proportionate in achieving the intended outcomes of the Bill.

Overview of the Bill

14.             The Bill amends the Proceeds of Crime Act 2002 (the Act) .

15.             The Bill ensures that proceeds of crime authorities can appropriately restrain and confiscate property or wealth in certain instances, ensuring that criminals are not able to deliberately structure their affairs to avoid the operation of the Act and retain their ill-gotten gains.

16.             The Bill achieves this objective by:

·          expanding the unexplained wealth regime to ensure that it covers wealth that is realised, directly or indirectly, from certain offences

·          clarifying that property will be considered ‘proceeds’ or an ‘instrument’ where encumbrances, securities, liabilities or improvements on the property are funded using   ‘proceeds’ or an ‘instrument’ of an offence

·          clarifying that property or wealth will only be ‘ lawfully acquired’ in situations where the property or wealth is not ‘proceeds’ or an ‘instrument’ of an offence, and

·          providing that ‘improvements’ extends to additions to, altering, repairing, restoring, structuring, restructuring or any other change to property or wealth (whether or not it results in an increase in value of the property or wealth).  

17.             Further details regarding the measures in the Bill and their human rights implications are set out below.

Human rights implications

18.             The human rights that may be of relevance to the Bill are those set out in Articles 2(3), 14(2)-(7) and 17 of the International Covenant on Civil and Political Rights (ICCPR).

Article 2(3) - Right to an effective remedy

19.             Article 2(3) of the ICCPR protects the right to an effective remedy for any violation of rights or freedoms recognised by the ICCPR, including the right to have such a remedy determined by a competent judicial, administrative or legislative authority or by any other competent authority provided for by the legal system of the state. The right to an effective remedy applies notwithstanding that a violation has been committed by persons acting in an official capacity.

20.             The Bill does not contain measures that prevent a person from bringing a private action for compensation. Therefore the right to an effective remedy is not engaged.

Articles 14(2)-(7) and 15 - Minimum guarantees in criminal proceedings

21.             Articles 14(2) to (7) and Article 15 of the ICCPR provide minimum guarantees which apply to criminal proceedings only.

Prohibition against retrospective punishment

22.             Article 15 of the ICCPR prohibits the retrospective operation of criminal laws.

23.             Item 14 of Schedule 1 of the Bill provides that some aspects of the Bill apply retrospectively. As the orders under the Act are civil in character (as per section 315 of the Act), the amendments in the Bill do not engage the prohibition against retrospective punishment in criminal proceedings.

Article 17 - Privacy

24.             Article 17 of the ICCPR provides that no one shall be subjected to arbitrary or unlawful interference with their privacy, family, home or correspondence, nor to unlawful attacks on their honour or reputation, and that everyone has the right to the protection of the law against such interference or attacks. Privacy may be subject to permissible limitations, where the limitations are authorised by law and are not arbitrary .

25.             The term ‘unlawful’ in Article 17 means no interference can take place except in cases authorised by law. What is ‘arbitrary’ will be determined by circumstances of each case. In order for an interference with the right to privacy not to be arbitrary, the interference must be for a reason consistent with the provisions, aims and objectives of the ICCPR and be reasonable in particular circumstances. The United Nations Human Rights Committee has interpreted reasonableness in this context to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

26.             The measures in this Bill are designed to achieve a legitimate objective of combating criminal activity and ensuring that property acquired unlawfully is not retained by criminals.

Does the Bill engage the right to avoid unlawful interference with a person’s home?

27.             On their face, these amendments may engage the right to avoid unlawful interference with a person’s home, as the amendments affect orders that can be used to restrain and forfeit real property.

28.             The Bill makes amendments to the Act to clarify that property or wealth can be appropriately restrained and forfeited under the Act in situations where improvements, an encumbrance, liability or a security is funded using ‘proceeds’ or an ‘instrument’ of an offence, or funds that have not been ‘lawfully acquired’ .

29.             The Bill also makes a minor amendment to the unexplained wealth regime to cover wealth that is ‘derived or realised from an offence, whether directly or indirectly’. This will align these provisions with the definition of ‘proceeds’ at section 329 of the Act.

30.             The amendments will ensure the intended operation of the orders that use these terms, which include, but are not limited to: restraining orders (sections 17-19 and 20A), forfeiture orders and automatic forfeiture (sections 47-49 and 92), exclusion from restraint and forfeiture (sections 29, 73 and 94), compensation orders (sections 77 and 94A), transfer orders (section 102), preliminary unexplained wealth orders (section 179B) and unexplained wealth orders (section 179E).

The amendments are necessary and not arbitrary

31.             These amendments, however, are necessary to achieve the legitimate objective of depriving criminals of the benefits of criminal activity and are not arbitrary.

32.             Recent case law, including from the Western Australian Supreme Court in Commissioner of the Australian Federal Police v Huang [2016] WASC 5 and the Queensland Court of Appeal decision in Commissioner of the Australian Federal Police v Hart & Ors [2016] QCA 215 have raised questions as to whether a court will consider the origins of payments made on property or wealth after the acquisition of the property or wealth in determining whether this property or wealth can be forfeited under the Act.

33.             These decisions make it necessary to clarify the operation of the Act to explicitly allow proceeds authorities (for example, the Australian Federal Police) to target property or wealth where payments associated with this property or wealth are made with funds linked to criminal conduct.

34.             This clarification is consistent with the intended meaning and to the objects of the Act - which is to deprive people of the ‘proceeds’ and ‘instruments ’ of offences, of unexplained wealth amounts, and to undermine the profitability of criminal enterprises.

35.             The amendments ensure that proceeds authorities can restrain and forfeit property where an encumbrance or security on, or a liability incurred to acquire, retain, maintain or make improvements to this property, such as a mortgage, loan and other agreement, is wholly or partly discharged using the ‘proceeds’ of crime or an ‘instrument’ of crime. The amendments also ensure that property can be restrained and forfeited when illicit funds are used to retain, maintain or improve property. This will ensure that criminals are not able to benefit from their crimes by structuring their affairs to avoid the operation of the Act.

36.             While it may be possible to obtain a pecuniary penalty order against a person in some of the above circumstances (and to enforce that order against restrained property), this will only be for an amount equivalent to the benefit that a person has gained from their offending and may not include any capital gains that a person has made in relation to property (which may be considerable).

37.             The amendments are therefore necessary to ensure that organised crime groups are not able to profit from their crimes by structuring their financial affairs to capitalise on potential loopholes within the Act.

 

Safeguards and protections  

38.             The Act already contains safeguards and protections that ensure the measures are no more onerous than necessary to achieve their objectives.

39.             In the context of the unexplained wealth regime, these safeguards and procedures include, but are not limited to, the following:

·          Courts may refuse to make an unexplained wealth restraining order, a preliminary unexplained wealth order or an unexplained wealth orders if there are not reasonable grounds to suspect that the person’s total wealth exceeds by $100,000 or more the value of their wealth that was ‘lawfully acquired’ (sections 20A(4), 179B(4) and 179E(6)).

·          A court may refuse to make an unexplained wealth restraining order or unexplained wealth order if the court is satisfied that it is not in the public interest to make the order (section 20A(4) and 179E(6)).

·          Courts may also exclude property from the scope of some of these orders or revoke these orders in a range of situations, including (for some orders) where it is in the public interest or the interests of justice to do so (sections 24A, 29A, 42 and 179C).

·          Courts may also make orders relieving dependents from hardship caused by unexplained wealth orders (section 179L) and allow for reasonable expenses to be paid out of funds restrained under unexplained wealth restraining orders (section 24).

40.             The following safeguards and procedures provide additional protection to individuals whose property may be subject to other orders affected by the amendments in the Bill:

·          If an individual’s property is subject to a restraining order, a court may be able to make allowances for expenses to be met out of property covered by the restraining order (section 24), exclude property from the scope of the order or revoke the order (sections 24A, 29, 42) or refuse to make the order where it is not in the public interest to do so (sections 17(4) and 19(3)).

·          If an individual’s property is restrained and subject to a forfeiture order or automatic forfeiture, a court can exclude the person’s interest from the scope of the order or from automatic forfeiture (sections 73, 94 and 102).

·          A court can refuse to make an order in relation to an ‘instrument’ of an offence in certain circumstances (sections 47(4), 48(2) and 49(4)).

·          An individual may also seek a compensation order for the proportion of the value of the property they did not derive or realise from the commission of an offence (sections 77 and 94A) or a buy back order (sections 57 and 103).

·          Where an individual acquires property that constituted ‘proceeds’ or an ‘instrument’ in the legitimate situations outlined under section 330(4), this property ceases to be ‘proceeds’ or an ‘instrument’ of crime and generally cannot be subject to restraint or forfeiture. This ensures that third parties who acquire property legitimately are adequately protected.   

41.             Proceeds of crime authorities are also Commonwealth agencies that are bound by an obligation to act as model litigants (see paragraph 4.2 and Appendix B of the Legal Services Directions 2017 ). This obligation requires these authorities to act honestly and fairly in handling litigation brought under the Act, and includes (but is not limited to) obligations not to take advantage of a claimant who lacks resources to litigate a legitimate claim and not to rely on technical defences except in limited circumstances.  

42.             The amendments are reasonable, necessary and proportionate measures to achieve the legitimate objectives of combating criminal activity and ensuring that property or wealth acquired unlawfully is not retained by criminals.

Conclusion

43.             The Bill is compatible with human rights because, to the extent that it may limit those rights, the limitations are reasonable, necessary and proportionate in combating serious criminal behaviour by undermining the profitability of criminal enterprises.

 

                                                            

NOTES ON CLAUSES

Preliminary

Clause 1 - Short title

1.                    Clause 1 provides for the short title of the Act to be the Proceeds of Crime Amendment (Proceeds and Other Matters) Act 2017 .

Clause 2 - Commencement

2.                    Clause 2 provides for the commencement of each provision in the Bill, as set out in the table at Clause 2(1). Item 1 in the table provides that the Act commences the day after the Act receives the Royal Assent.

3.                    Clause 2(2) specifies that information in column 3 of the table at Clause 2(1) is not a part of the Act, and information may be inserted in this column, or information in it may be edited, in any published version of this Act.

Clause 3 - Schedules

4.                    Clause 3 provides that legislation that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

Schedule 1 - Enhancements to the proceeds of crime regime

Item 1 - Paragraph 5(ba)

5.                    Item 1 expands paragraph 5(ba) to also cover unexplained wealth amounts that are  ‘realised, directly or indirectly, from certain offences’ .

6.                    This amendment is consequential to the amendments made at items 2 to 4, which incorporate the term ‘realised, directly or indirectly’ into elements of unexplained wealth orders.

Item 2 - Subparagraphs 20A(1)(g)(ii) and 3(c)(ii)

7.                    Item 2 amends subparagraphs 20A(1)(g)(ii) and 3(c)(ii) to expand the reference to wealth derived from an offence’ to cover wealth ‘derived or realised, directly or indirectly’. This will align this term with the definition of ‘proceeds’ at section 329. 

8.                    The inclusion of the phrase ‘directly or indirectly’ has been included due to the addition of ‘realised’ into these subparagraphs. The definition of the term ‘derived’ already includes a reference to ‘directly or indirectly’ in section 336 of the Proceeds of Crime Act 2002 (the Act). The inclusion of the phrase directly or indirectly’ in the new subparagraphs should not be taken to displace the operation of section 336 in relation to the meaning of the term ‘derived’ .

9.                    This amendment will ensure that an unexplained wealth restraining order can be made where the whole or any part of the person’s wealth was derived or realised, directly or indirectly from the commission of an offence.

Item 3 - Subsection 179A

10.                Item 3 amends the simplified outline of Part 2-6 — Unexplained wealth orders to incorporate the words ‘or realised, directly or indirectly’ from an offence. These amendments are consequential to the amendments at items 4-5.

Item 4 - Paragraphs 179E(1)(b) and 2(b)

11.                Item 4 amends paragraphs 179E(1)(b) and 2(b) to expand the reference to wealth ‘derived from an offence’ to cover wealth ‘derived or realised, directly or indirectly’. This aligns this term with that used in the definition of ‘proceeds’ at section 329.

12.                The inclusion of the phrase ‘directly or indirectly’ has been included due to the addition of ‘realised’ into these subparagraphs. The definition of the term ‘derived’ already includes a reference to ‘directly or indirectly’ in section 336 of the Act. The inclusion of the phrase ‘directly or indirectly’ in the new subparagraphs should not be taken to displace the operation of section 336 in relation to the meaning of the term ‘derived’ .

Item 5 - Subsection 179E(3)

13.                Item 5 amends subsection 179E(3) to expand the reference to wealth ‘derived from an offence’ to cover wealth ‘derived or realised, directly or indirectly’ from an offence. This aligns this term with that used in the definition of ‘proceeds’ at section 329 and is consequential to the amendments made by item 4. 

14.                The inclusion of the phrase ‘directly or indirectly’ has been included due to the addition of ‘realised’ into this subsection. The definition of the term ‘derived’ already includes a reference to ‘directly or indirectly’ in section 336 of the Act. The inclusion of the phrase directly or indirectly’ in the new subparagraphs should not be taken to displace the operation of section 336 in relation to the meaning of the term ‘derived’ .

Item 6 - Subsections 330(1) and (2)

15.                Item 6 repeals subsections 330(1) and (2) and replaces them with new subsections.

16.                New subsections 330(1) and (2) clarify the circumstances in which property will become ‘proceeds’ or an ‘instrument’ of an offence.

17.                New paragraphs 330(1)(a),(1)(b), (2)(a) and (2)(b) replicate the existing paragraphs 330(1)(a), (1)(b), (2)(a) and (2)(b) in the Act, and specify that property will become ‘proceeds’ or an ‘instrument’ where it is:

·          wholly or partly derived or realised from a disposal or other dealing with ‘proceeds’ or an ‘instrument’ of the offence; or

·          wholly or partly acquired using ‘proceeds’ or an ‘instrument’ of the offence

18.                New paragraphs 330(1)(c) and (2)(c) clarify that property will become ‘proceeds’ or an ‘instrument’ if: an encumbrance or a security on, or a liability incurred to acquire, retain, maintain or make improvements to, the property is wholly or partly discharged using ‘proceeds’ or an ‘instrument’ of the offence.

19.                These paragraphs ensure that property will be considered ‘proceeds’ or an ‘instrument’ where the ‘proceeds’ or an ‘instrument’ of crime are used to service mortgage repayments on property and/or loans taken out in relation to the property.

20.                The paragraphs do not distinguish between payments relating to encumbrances, securities or liabilities taken out to initially acquire the property and payments relating to securities or liabilities on the property taken out after the property is acquired. This ensures that property will become ‘proceeds’ or an ‘instrument’ if a person services second or subsequent mortgages or loans relating to property using ‘proceeds’ or an ‘instrument’ .

21.                New paragraphs 330(1)(d) and (2)(d) clarify that property will become ‘proceeds’ or an ‘instrument’ if the costs of retaining, maintaining or making improvements to the property are wholly or partly met using ‘proceeds’ or an ‘instrument’ of an offence.

22.                These paragraphs, in conjunction with the proposed definition of ‘improvements’ at Item 13, will ensure that property will become ‘proceeds’ or an ‘instrument’ where ‘proceeds’ or an ‘instrument’ are used to retain, maintain or improve property, including, but not limited to situations in which ‘proceeds’ or ‘instruments’ are used to renovate real property, demolish structures, repair or maintain high value assets and adapt structures to facilitate further criminal offending (e.g. to store drugs or launder money ). These amendments have been drafted broadly and are intended to capture a wide range of circumstances.

23.                New paragraphs 330(1)(e) and (2)(e) clarify that property will become ‘proceeds’ or an ‘instrument’ if it is improved using ‘proceeds’ or an ‘instrument’ . This is intended to address situations where ‘proceeds’ or an ‘instrument’ is used directly to improve a property. The term ‘improve’ is intended to be interpreted broadly having regard to the new definition of ‘improvements’ inserted at item 13 (and need not necessarily lead to an increase in the value of the property or wealth).

24.                For example, where a person fraudulently obtains the materials used to make a garage from the Commonwealth Government, these materials will likely constitute ‘proceeds’ of crime under subsection 329(1). If the person subsequently uses the material to build a garage on their property, the property will now also constitute the ‘proceeds’ of an offence under paragraph 330(1)(e). There seems to be doubt in case law as to whether this would be the outcome under the Act, and this doubt should be addressed through new paragraphs 330(1)(e) and (2)(e).

25.                New subsections 330(1) and (2) also allow property to become ‘proceeds’ or an ‘instrument’ ‘including because of one or more previous applications of this section’. This replicates an existing mechanism under current subsections 330(1) and (2) and ensures that the definition of ‘proceeds’ and an ‘instrument’ allows the tracing of illicit funds, including if it moves through different property, transactions, and/or legal structures.

26.                For example, where a car is bought with the ‘proceeds’ of a fraud offence against the Commonwealth, the car will be derived from the commission of an offence and will qualify as ‘proceeds’ under subsection 329(1). If the car is later sold, the money gained from the sale of the car will continue to be ‘proceeds’ under paragraph 330(1)(a) or (b). If the money is subsequently put towards a mortgage repayment on real property, this real property will then constitute ‘proceeds’ of the original Commonwealth offence under paragraph 330(1)(c). There seems to be doubt in case law as to whether this would be the outcome under the Act, and this doubt should be addressed through new subsection 330(1) and (2).

27.                These amendments are necessary to limit the avenues through which criminals can funnel unlawfully obtained funds and to ensure that criminals are not able to structure their affairs to avoid or minimise the operation of the Act.

Items 7 to 9 - Subsections 330(3), 330(4) and 330(5)

28.                Items 7 to 9 amend existing subsections 330(3), 330(4) and 330(5) to bold the existing words ‘ proceeds of an offence or an instrument ’ in these subsections.

29.                This does not change the meaning of these words but instead makes it clear that these subsections are also defining when property is ‘proceeds’ or an ‘instrument’ . This accords with the style exemplified in section 329.

Item 10 - Subsection 330(6)

30.                Item 10 amends existing subsection 330(6) to bold the existing words ‘ proceeds of an *unlawful activity, or an instrument ’ in these subsections.

31.                This does not change the meaning of these words but instead makes it clear that this subsection is also defining when property is ‘proceeds’ or an ‘instrument’ . This accords with the style exemplified in section 329.

Item 11 - At the end of section 330

32.                Item 11 inserts new subsections 330(7) and 330(8) at the end of section 330 to clarify the operation and interaction of the new subsections 330(1) and (2) and section 329.

33.                The addition of subsection 330(7) clarifies that paragraphs 330(1)(a) to (e) and (2)(a) to (e) do not limit the operation of one other. This is intended to ensure that courts do not narrowly interpret these paragraphs and similarly worded terms in the Act to limit their operation.   

34.                The addition of subsection 330(8) clarifies that the operation of section 330 does not limit the operation of section 329. This intended to ensure that courts do not read down section 329 and similarly worded sections in the Act to limit their operation.

  Item 12 - Paragraph 336A(c)

35.                Item 12 repeals existing paragraph 336A(c) and substitutes new paragraph 336A(c), which specifies that property or wealth will only be lawfully acquired where the property or wealth is not * ‘proceeds’ or an * ‘instrument’ of an offence.

36.                In conjunction with the amendments to ‘proceeds’ and ‘instruments’ at Item 6, these amendments ensure that the term ‘lawfully acquired’ draws on existing infrastructure in the definition of ‘proceeds’ and ‘instruments’ . This ensures that a court can, when determining whether property is lawfully acquired, examine the origins of property or wealth used to discharge securities or encumbrances or to make improvements to property, as well as situations where property is gifted to another person and situations where property is disposed of and later obtained by a person (see subsection 330(5)). 

37.                By extending the term ‘lawfully acquired’ in this way, this paragraph legislatively enshrines the High Court’s position in Henderson v Queensland [2014] HCA 52, which involved the consideration of an application to exclude property from forfeiture under similar provisions in the Queensland Criminal Proceeds Confiscation Act 2002 . In considering whether property was ‘illegally acquired property’ , the High Court found that the onus had not been discharged by applicants who had obtained money from the sale of jewellery inherited from their father where there was no evidence that the father had obtained the jewellery lawfully.

38.                In determining whether property or wealth is captured under paragraph 336A(c), a  court may also have regard to situations in which property ceases to be ‘proceeds’ or an ‘instrument’ of an offence under subsection 330(4).

39.                These amendments ensure that court can consider the origins of a person’s property or wealth, and that the proceeds and instrument of crime will not be seen to be ‘lawfully acquired’ merely because the act of acquiring the property or the circumstances in which the property was acquired was in itself lawful. In considering whether property or wealth is ‘lawfully acquired’ , a court may consider all relevant payments on the property or wealth in determining whether it can be linked to crime. Innocent third parties who unwittingly purchase for sufficient consideration property that is the proceeds or instrument of an offence will continue to be protected under subsection 330(4).

40.                While the definition of lawfully acquired is being expanded, this imposes no new requirements on a person applying for an order excluding property from forfeiture (section 94) or for a transfer order (section 102), as an applicant is already required to prove that property is not proceeds or an instrument of unlawful activity under paragraphs 94(1)(e) and 102(b)(ii) respectively.

41.                 ‘Lawfully acquired’ is also used in the context of unexplained wealth restraining orders (paragraph 20A(1)(d)) and preliminary unexplained wealth orders (paragraph 179B(1)(b)). However, these orders are interim orders and the term lawfully acquired is not used in the calculation of a final unexplained wealth amount under section 179E. As noted above, there are numerous protections that apply to unexplained wealth restraining orders and preliminary unexplained wealth orders that allow courts to ensure the fair operation of these provisions.

42.                This amendment ensures that courts may take into account any relevant payment on property in determining whether the property is ‘lawfully acquired’ under the Act.

Item 13 - Section 338

43.                Item 13 inserts a definition of ‘improvements’ into the Dictionary at section 338 of the Act, providing that: improvements to property or wealth includes additions to, altering, repairing, restoring, structuring, restructuring, or any other change to the whole or part of the property or wealth (whether or not it results in an increase in value of property or wealth).

44.                 This non-exhaustive definition is designed to capture a wide number of changes to both tangible and intangible property, covering everything from demolishing structures, renovating existing property, subdividing land, building a brand new property, adding money to a bank account, restoring antiques, increasing the equity in a business to reconditioning a vintage car (these are non- exhaustive examples of the application of this definition).

45.                The addition of this definition is also designed to ensure that a person cannot avoid operation of the term ‘improvements’ because the alterations did not actually increase the value of the property.  

Item 14 - Application of amendments

46.                Item 14(1) provides that the amendments made by items 1 to 5 in Schedule 1 apply after the commencement of the Schedule in relation to property derived or realised after that commencement, from the commission of an offence occurring before or after that commencement.

47.                Item 14(2) provides that the amendments made by items 6 to 11 and 13 of Schedule 1  apply after the commencement of the Schedule in relation to:

·          property that is wholly or partly derived or realised from a disposal or other dealing before or after that commencement, with property that is ‘proceeds’ or an ‘instrument’ of an offence (within the meaning of the Proceeds of Crime Act 2002 as amended by those items); and

·          property that is wholly or partly acquired, before or after that commencement, using property that is ‘proceeds’ or an ‘instrument’ of an offence (within the meaning of that Act as amended by those items); and

·          property for which an encumbrance, security or liability is wholly or partly discharged, before or after that commencement, using property that is ‘proceeds’ or an ‘instrument’ of an offence (within the meaning of that Act as amended by those items); and

·          property for which the costs of wholly or partly retaining, maintaining or improving are met, before or after that commencement, using property that is ‘proceeds’ or an ‘instrument’ of an offence (within the meaning of that Act as amended by those items); and

·          property that is improved, before or after that commencement, using ‘proceeds’ or an ‘instrument’ of an offence (within the meaning of that Act as amended by those items).

48.                Item 14(3) provides that the amendments made by item 12 of Schedule 1 apply after the commencement of the Schedule in relation to property or wealth acquired before or after that commencement.

49.                Retrospective operation of the items in Schedule 1 is necessary to ensure to ensure that relevant orders are not frustrated by requiring law enforcement agencies to obtain evidence of, and prove, the precise point in time at which certain property or wealth was derived, acquired , or became tainted under one of the scenarios in proposed paragraphs 330(1)(c), (d) or (e) .

50.                Such a requirement would be unnecessarily onerous and would be contrary to the objects of the Act, as it will be practically impossible to satisfy in complex cases of fraud or money laundering.

51.                If item 6 only applies prospectively, for example, a proceeds of crime authority would need to prove the date that the property was derived, acquired, or became tainted under one of the scenarios in proposed paragraphs 330(1)(c), (d) or (e) to avoid the potential application of adverse case law relating to the definitions of ‘proceeds’ and an ‘instrument’ . This will be practically impossible in cases where a person has accumulated significant amounts of property over decades and has no apparent source of legitimate income, especially in relation to property that is portable and not subject to registration requirements or where relevant financial records have been destroyed or lost over time.

52.                If the amendments apply prospectively and a proceeds of crime authority cannot establish the date that property was acquired or when a particular payment was made in relation to an improvement to property or to discharge an encumbrance, security or liability, a court may rely on existing case law which has suggested that whether a liability or security on property using unlawfully obtained funds, or an improvement to property was financed using these funds, is irrelevant in determining whether this property was ‘proceeds’ or an ‘instrument’ of an offence. 

53.                This would be contrary to the objects of the Act under section 5, as it would actively contribute to the profitability of criminal enterprises and prevent authorities from depriving persons of the ‘proceeds’ of offences.

54.                Further, it could lead to the anomalous outcome that different definitions of ‘proceeds’ , ‘instruments’ and ‘lawfully acquired’ could be applied to different pieces of property within the same proceeding.

55.                Previous amendments to unexplained wealth orders, restraining orders and the definition of ‘lawfully acquired’ have been applied retrospectively to property or wealth acquired before the amendments commenced (see item 34 of the Crimes Legislation Amendment (Unexplained Wealth and other Measures) Act 2015 and Schedule 3 item 2 of the Law Enforcement Legislation Amendment (State Bodies and Other Measures Act 2016 ).

56.                These amendments do not have the effect of criminalising conduct which was otherwise lawful prior to the amendments.