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Parliamentary Joint Committee on Law Enforcement
09/09/2014
Financial related crime

DONNELLY, Mrs Gillian, Private Investigator, Just Integrity Solutions; and Consultant to Uniting Church in Australia

ZIRNSAK, Dr Mark, Director, Justice and International Mission Unit, Synod of Victoria and Tasmania, Uniting Church in Australia

[14:05]

CHAIR: I now welcome representatives of the Uniting Church in Australia. Do either or both of you wish to make an opening statement before the committee moves to questions?

Dr Zirnsak : I am happy to make an opening statement. As would be obvious from our submission, our main focus has been around the issue of funds stolen from developing countries. Given that the World Bank estimates these are valued globally at $20 billion to $40 billion a year, and in the last 15 years only $5 billion has been returned to developing countries, these funds represent a significant loss of finance to developing countries. But the measures needed to combat this loss also apply to a range of other criminal activities, including the financing of terrorism.

One of our big concerns is the sheer volume of transnational crime that we see, and the volume of that crime appears to far outweigh the resources available to law enforcement. Increasingly we have a sense that law enforcement need to look at disruption strategies—those that try to reduce the profit of financially related crime. But obviously in Australia that immediately runs up against concerns around privacy and secrecy. There is often a trade-off between those two. That is a legitimate trade-off and I guess the argument would be that it is better to let 10 serious criminals go free than to have the privacy of one innocent individual violated. But what happens when it becomes 100 serious criminals or 1,000 serious criminals? Where do you draw the line in that trade-off that has to be made?

I will give you an example of the disruption strategies. We raised the commercial child sexual abuse material, but the use of section 313 of the Telecommunications Act to disrupt access to child sexual abuse material is an example of that kind of debate taking place. Interestingly, I recently spoke to a group of church members up at Wodonga thinking that no-one would ever have encountered the stop notice. Two of them indicated they would have tripped over child sexual abuse material had it not been for the stop message popping up. One of them was looking for Virgin airlines and would have gone on to a child sexual abuse site instead as a result of that.

In looking at the anti-money-laundering regime at the moment, though, we think there are some win-win situations that can be achieved where the system can result in lower regulation and yet be more effective at the same time. You already heard the previous witness talking about official ownership registers. If these were made public, it would reduce the burden on reporting entities to try and find out who they are really dealing with. The increased regulation perhaps then emerges on corporate service providers who are registering companies, but the overall benefit would be lower regulation and lower costs for reporting entities in the anti-money-laundering system itself.

Further, overseas there have been reforms on tipping-off provisions within the anti-money-laundering system that would make it more effective. Banks and other reporting entities here have complained about having to make multiple assessments of the same client, because they are not permitted to share information about a suspicious client even between different parts of the one reporting entity.

Also, we are concerned that at the moment there is a perverse incentive, potentially, in the anti-money-laundering system. Because it is left to the entities themselves to assess their risk and then come up with a plan that is adequate and appropriate to that risk, there is potentially an incentive to underassess your risk so that you therefore do not bear as much regulatory burden in having to meet your underassessed risk.

We stress in the submission the need for there to be more public demonstration of the health of the system. We do note that other jurisdictions, particularly the UK, have been good at doing this—at putting out reports that demonstrate how well the system is functioning. AUSTRAC does that, in our view, to a more limited degree here and is more inclined to keep the privacy of reporting entities as a higher priority. We would support, as was raised by previous witnesses, the need to look at virtual currencies. That does come up in our section that deals with commercial child sexual abuse material. We note, in the Liberty Reserve case that is in our submission, that virtual currencies were the main way that criminal bank operated.

Finally, if you will indulge me, this is outside of the submission we have made, but, just having listened to the witnesses on remittance services, I will raise some points around that. Firstly I point out that in the law there is actually obligation down the chain for each service that deals with money to assess the risk down the chain. We as the Uniting Church have our own funds management section, so I have just spoken on the phone to our money-laundering risk officer and just made sure I have got the law correct on that. In our case, if a bank transfers money into our funds management service, we still have an obligation to assess that there is a money-laundering risk or a terrorism-finance risk in that transfer. It is the same with remittance providers. If they transfer to a bank, then there is an obligation on the bank to assess the risks from that. To be honest, you would want that. We raised the Liberty Reserve casein our submission. That was a criminal bank. It was effectively said that the bank could just rely on the fact that Liberty Reserve was doing due diligence, when in actual fact it was run by criminals. That would obviously open a huge hole in the system. So you actually do need entities down the chain to check on that.

In terms of work on the remittance section, it would be good perhaps for the committee to question parts of the Australian government that actually are working in this area. Within the G20 there is a working group that is looking at remittance sectors. This issue of, globally, banks shutting down access to remittance services has been raised as a major issue, because it does harm people in developing countries in not being able to get remittances. Versus that, you do not want to open up an enormous loophole through which money laundering and finance for terrorism can flow. So there is the Global Partnership for Financial Inclusion,which is a multilateral body that is actually doing work in this space. The World Bank is doing a risk assessment report on remittances and remittance providers. The Australian government and the Canadian government are working together to figure out ways of reducing the costs on remittance services without undermining the effectiveness of the anti-money-laundering and counter-terrorism-finance system. I am presuming Attorney-General's Department will be before you tomorrow. It might be worth asking them about that range of work in terms of the remittance service providers.

CHAIR: Mrs Donnelly, do you have any further comments to add?

Mrs Donnelly : No, I do not.

CHAIR: Mark, in your submission you touch on money being moved from developing countries to Australia predominantly, but I am sure that happens in other parts of the world as well. I believe that you have sought to bring these matters to the attention of authorities. What has been the response to those concerns that you have raised and has any action been taken that you are aware of?

Dr Zirnsak : In terms of the Papua New Guinean situation, the Australian government probably responded more to the fact that it was publicly embarrassed—as we noted—by Sam Koim's comments here previously. Our conversations with the Attorney-General's Department and the Department of Foreign Affairs and Trade have indicated, since that time, efforts to work with Papua New Guinea specifically have been increased and there have been a greater number of staff from the Australian government working directly with the PNG government authorities to tighten up their anti-money-laundering system. That was confirmed by Sam Koim, as publicly stated—that the cooperation with Australia had improved over that time. Obviously that has reached an enormous hiccup at the moment, with the Prime Minister disbanding Task Force Sweep and—my understanding was—also issuing an arrest warrant for Sam Koim after he investigated whether the current Prime Minister had been involved in the situation with the lawyer Paul Paraka.

CHAIR: That is the PNG Prime Minister?

Dr Zirnsak : Yes; sorry. Obviously we are talking the Papua New Guinean Prime Minister, not the Australian Prime Minister—just to be very clear, for the record, on that matter. Clearly, that will have put a dint in that collaboration work.

The Australian government says the current task force that looks at asset confiscation does work with overseas partners. Again, we do not get a level of detail of transparency about what that means and how that works, and the degree to which Australia might be proactive in the way we outlined that you have units now in the UK and the US, particularly, that are proactively looking at money that may have been illicitly transferred into those jurisdictions that may have come from developing countries.

One of the big challenges here too, with the developing-country situation, is you will get jurisdictions where if money is stolen there is no chance of a prosecution, of the person who stole it, back in the home jurisdiction. The Equatorial Guinea case, in the case of the US, is a great example of that. The World Bank and the UN Office on Drugs and Crime is increasingly saying there is a need for recipient jurisdictions to simply freeze those assets, where they really think corruption or theft has been the source of that money, even if a prosecution has not occurred back in the source jurisdiction.

CHAIR: Do we not have to be very careful with that? That involves making extrajudicial decision as to whether those assets have been acquired by ill-gotten gains, without the backing of any criminal prosecution in the originating country of those funds? That is turning a few legal concepts on their heads.

Senator O'SULLIVAN: It is not uncommon, having looked at Marcos [inaudible].

Dr Zirnsak : You are right. You do not want this to be a free-for-all, where any asset can be frozen on a whim. I absolutely agree. There need to be safeguards about the use of that. The procedures and advice increasingly are being provided through the StAR project, the Stolen Asset Recovery project, run by the World Bank and the UN Office on Drugs and Crime, which the Australian government is participating in.

Potentially, the converse of what you have raised is there is a danger that the worse the jurisdiction—in other words, a jurisdiction run by a corrupt dictator who has control of the judiciary in that country—the more it gets a free hand in shifting assets overseas, with no consequence, whereas the jurisdiction that has a better legal system is the one with the assets able to be dealt with. It is a perverse outcome, potentially: the worse the jurisdiction, the more easy it is for them to steal money and transfer it overseas.

CHAIR: You already have many of those perverse outcomes. There are any number of countries. The list of countries is sufficiently long of the leadership or dictators in those countries having more than enough evidence, I suppose, that they have moved assets offshore at the expense of the country involved, but they are never going to be prosecuted in their own countries.

Dr Zirnsak : No, indeed, but you would hope you would get to a situation where, when there is a change in government, the ability for frozen assets to be returned is the case. The Mubarak example from Egypt is a good example. My understanding is that $70 billion is estimated to have been transferred offshore, and the new Egyptian government has been pursuing that. In the submission, we raise the case of the son of Equatorial Guinea, who has had assets frozen by the Kleptocracy Asset Recovery unit in the US. Somewhere around $70 million worth of assets have been frozen. Obviously they will not be returned while that regime is still in place. Those assets have been frozen on the basis of an unexplained wealth, which is more the way it would be done. Clearly, if the official salary of the supposed political leader is a certain amount but the wealth they seem to be able to transfer is far in excess of their official salary—

CHAIR: Our unexplained wealth provision is targeted at Australian citizens and residents, not necessarily foreign governments or non—

Dr Zirnsak : Our discussions with government have been that they can be used for both. Certainly our conversations with the Australian Federal Police, the Attorney-General's Department and even the Minister for Justice would seem to—my understanding is that those laws can be used to deal with stolen assets from overseas. Normally, it is with the proviso of a mutual legal-assistance request from overseas. I guess we are looking to say—

CHAIR: If that person is still in power overseas, it is highly unlikely it will arrive!

Dr Zirnsak : But, obviously, as we are pointing out, the US as a jurisdiction has been willing to take that step of saying, 'If there is unexplained wealth ending up here and there is no hope that the source jurisdiction is going to cooperate, there is still an ability to take action as a way of deterring those funds from being shifted overseas.'

CHAIR: Senator O'Sullivan, do you have questions?

Senator O'SULLIVAN: No, I think it is very straightforward. It was a good submission.

CHAIR: We have covered unexplained wealth, and there is a fair bit of detail in your submission. Do you want to add any final comments?

Dr Zirnsak : Out of the recommendations, I want to stress the need for a proactive unit to look into assets that are being shifted here. Also, inconsistent with other witnesses, I would be trying to stress the need for a public registry of beneficial ownership. I would also be keen to see AUSTRAC being more proactive in assisting reporting entities so that we get a base level of performance in reporting entities. That would also be of benefit to groups like remittance services, hopefully. If the argument could be made that all reporting entities reach a certain base level of standard, it is harder then for another entity, such as the banks, to simply say, 'We are blanket going to cut off access to reporting services.'

CHAIR: Would it be fair to say that, if they are a licensed or registered remittance adviser, they are already achieving some significant hurdles to get that registration?

Dr Zirnsak : Some previous research was done by the Australian Institute of Criminology that looked at remittance services and raised some concerns about that. AUSTRAC also, in its typology documents, gives case studies of where remittance services have been misused—of course along with other reporting entities, not to single them out. Also in our work, where we look at commercial child sexual abuse operations, even internationally renowned, large remittance services have found themselves caught up in being used as payment services for the purchase of commercial child sexual abuse material. There are certainly risks with remittance services, but I think there is a legitimate concern to say they should not be singled out and be blanketly assessed and treated as blanket high risk. That is certainly where this international work is going to be important, because doing that has negative consequences on the other side. Gillian, did you want to add anything from the research you have done for us into specific clients, specific targets?

Mrs Donnelly : The main thing that I have discovered is that a lot of PNG residents have been able to buy an awful lot of property, especially in Queensland. I was surprised at the value of it.

Dr Zirnsak : The point with that obviously goes to the heart of our recommendation around needing to include designated non-financial businesses and professions, particularly real estate agents, lawyers and accountants, to some level in the system. We recognise at the moment that AUSTRAC does not appear to have the level of resourcing needed to simply deal with the amount of suspicious transaction reports—

Senator O'SULLIVAN: The transactions we are talking about are in the billions, and there are thousands of transactions. These are not isolated things. Foreign investment people buying real estate in Australia—let's stay there for a second—are massive. What would trigger an agent to report on a matter? Someone has come in and inspected a property. They have had 15 or 20 minutes or an hour together. They put down a legitimate deposit and they sign a contract. Assume it complies with the Foreign Investment Review Board guidelines. I am responding to Gillian's statement that there are a lot of PNG people buying properties in Australia. What does that mean prima facie? What doubts should that raise? A lot of Canadians, Brits and Saudi Arabians and lots and lots of Chinese are also buying properties in Queensland.

Dr Zirnsak : Sure. You could deal with this in a number of ways. Let us take the simplest. It might be that, if you move to AUSTRAC having a list of politically exposed persons, when someone comes to buy real estate from overseas, the real estate agent simply enters the name into the AUSTRAC database that is publicly available—

Senator O'SULLIVAN: Well, I do not want to debate this, but imagine doing that with China—we would have a database here in Australia with 100 million communist officials on the list—

Dr Zirnsak : And those lists already exist. Commercial services already sell lists of politically exposed persons. That already happens, and China already has major issues with illicit outflows coming out of China. So that is not a problem that does not already exist, and it is not a problem that is not already, to a degree, being addressed—

Senator O'SULLIVAN: Dr Zirnsak, I would not want you to leave here thinking that this has attracted my attention and support—and I say that in a very open sense so that, if needs be, you can resubmit on the subject in a different way. But I would have thought that this is a massive task, administratively.

Dr Zirnsak : As I am indicating, these lists of politically exposed persons already exist. There are already commercial lists. That is what banks already buy, and what they already require. And other reporting entities are supposed to have them as well. The issue at the moment is, of course, the kind of—

Senator O'SULLIVAN: But tell me about that list. Let us just take, say, Italian men between the ages of 45 and 55, the traditional profile of someone in the Mafia in Italy. Are you telling me that the list is so exhaustive that it would capture most of those individuals? Or is it a list that people find their way onto for a particular reason? Are they are put on the list by an organisation, or by a security organisation?

Dr Zirnsak : My understanding with the PEP list—that is, Politically Exposed Persons—is that it is senior politicians and senior government officials. I will just check with Gillian: Gillian, you have had personal experience of this, am I right?

Mrs Donnelly : Yes, that is right. There are particular obligations required by reporting entities to AUSTRAC, to do with the risk surrounding politically exposed persons. And the people that I have done the research on are politically exposed persons from PNG.

Dr Zirnsak : So they are in senior positions.

Mrs Donnelly : Yes, that's right.

Dr Zirnsak : It is not junior government officials; it is not every government official throughout the world.

Mrs Donnelly : No; no.

Dr Zirnsak : It is at a very senior level—

Mrs Donnelly : Members of parliament.

Senator O'SULLIVAN: And who do you say prepares this list and provides it to AUSTRAC?

Dr Zirnsak : At the moment, my understanding would be that there are private entities that prepare lists of politically exposed persons. At the moment, AUSTRAC does not provide anything to reporting entities. So at the moment it is left to the reporting entity to assess whether they have a risk which requires them to purchase one of these commercially available, politically exposed persons lists.

Mrs Donnelly : Yes. And I do not believe that real estate agents are actually classified as reporting entities, so therefore they do not conduct that risk assessment.

Dr Zirnsak : Correct. So looking at low obligation, it is a matter not of saying, 'well, I have to investigate every client' but of identifying where there might be a high-risk client and trying to make it simple—for example, for a real estate agent—to assess whether they might be dealing with someone who is high risk.

Mrs Donnelly : That is right. And the politically exposed persons that I have dealt with and that have managed to purchase property here in Queensland had not actually appeared on particular risk lists. So my question is, what sort of risk analysis was actually done at the time when they purchased the property here?

Senator O'SULLIVAN: But if they are not on the lists—

Mrs Donnelly : They were—well, they were on one of the private entity lists that I checked.

CHAIR: But they are not recorded, from a law enforcement or regulatory point of view, on a list that can be checked for whether those transactions are legitimate or not.

Dr Zirnsak : Well, currently AUSTRAC does not provide a list—

CHAIR: I suppose what you are effectively saying is that a lot of our law enforcement is focused on fraud internally, and on Australian money going overseas because of a fraudulent event or fraudulent events occurring within the country. We are much less focused on fraud overseas resulting in assets being located in Australia—which is what you are talking about, predominantly, in your submission.

Dr Zirnsak : That is the focus of the submission, but I would suggest that some of what we are talking about would also impact on outflows. And, just noticing the allegations in the last couple of days—and my understanding is that the Australian government has said there is no substance to this but, again, you had in the PNG parliament allegations being aired that Australian-based companies have set up with people who are connected to terrorism, and who have set up subsidiaries in PNG for the purposes of—

Senator O'SULLIVAN: I would be absolutely disturbed if I thought today that there were private consultants in this country preparing lists that had the words 'high' and 'risk' and that you could make it onto the list simply because you were a senior public servant or a senior politician and they were selling that for personal financial gain to some other sovereign nation, for them to check whether Tony Abbott should have a villa in the Bahamas. I would resist that. Rather than promote this, I personally would resist this as a concept. I do not know where my colleagues sit on it, but it is about Big Brother-ish as you could get, with little brother doing the work. I hear your problem. It is valid. I hear the risk involved. It is high risk, but this—I would have to share with you—would not get the political energy as a solution. I can tell you that without any shadow of a doubt. This would not make it out of the hallway in the federal parliament, as a concept.

Dr Zirnsak : This is how the global system currently works. For reporting entities here, AUSTRAC will require them—and in fact that is where the enhancement of the anti-money-laundering rules has just focused on an increased assessment around reporting entities having to assess their risks against politically exposed persons.

Senator O'SULLIVAN: I accept the assessment of a risk. I am against this database arrangement where you are automatically on a list. You are high risk; you are on a list.

Dr Zirnsak : It does not mean every politically exposed person is high risk. It merely means that politically exposed persons are on lists and that reporting entities need to check if they are dealing with a politically exposed person.

Senator O'SULLIVAN: So, if I am on the list, that ought to trigger a whole other series of inquiries into me but not the drug-dealing punter who did not make it onto the list from Papua New Guinea.

Dr Zirnsak : My understanding would be that, if you are politically exposed persons, then—depending on whether the entity assesses you are at a risk—they may be required to do enhanced due diligence. In terms of ordinary criminals, Gillian, are there lists of ordinary criminals that reporting entities can rely on?

Mrs Donnelly : I do believe that World-Check have a list of anybody that has been implicated in crimes.

Dr Zirnsak : And—I am not sure if we included it in the report—there certainly was—

Senator O'SULLIVAN: So a sovereign nation now can go to a list of an individual who receives a conviction in this country and access them off a list that is provided by the private sector? Is that what you have just said, Gillian?

Mrs Donnelly : Yes. World-Check is probably the most well-used database by the major banks right round the world.

Senator O'SULLIVAN: How do they get the data that an Australian citizen has been convicted of a crime? How do they get that into their database?

Mrs Donnelly : It is not their database. It is a database that they access, that they pay for.

Senator O'SULLIVAN: Well, the database, this depository of data—who owns that?

Mrs Donnelly : I believe that it is a corporate company—

Senator O'SULLIVAN: Which has been able to access the criminal records or the convictions of criminals in Australia and put them on a list that can be accessed by people from overseas?

Mrs Donnelly : They can only access public records, to my knowledge.

Dr Zirnsak : For example, they will use the Interpol list of people wanted. A few years ago—I do not remember the exact date—they gave a list of UK company directors. For example, they pointed out at that time—from memory; I am quoting the numbers off the top of my head; I do not have them in front of me—17 people who were wanted for terrorism offences who were then existing company directors in the UK. And I think there were 37 who were wanted for drug related offences who were company directors in the UK. They were on the World-Check list.

Senator O'SULLIVAN: I am not going to turn this into a debate, but company directors are published. They are published in this nation too, and there are very sound reasons why. I am going to the heart of the creation of lists where the individual has done nothing, potentially, except been successful in public life, for example, and they are on some list that gives them, potentially, a heightened screening because of that. I have a problem with that. I am not here to debate it. I have a problem with that and I will be researching it further.

Dr Zirnsak : That is fine, and I am merely pointing out to you that that is how the global system actually works.

Senator O'SULLIVAN: And, if those sorts of things are happening, I will be working to reverse them, not enhance them. Thank you, Chair. Sorry; I just find it disturbing.

CHAIR: Thanks again, Mark, and thanks again, Mrs Donnelly. I appreciate your submission and your coming along this afternoon. If there are any further questions, we will come back to you. There will be a Hansard transcript for you to check as well.

Dr Zirnsak : Thank you.

Mrs Donnelly : Thank you.