On 2 May this year, the Australian Federal Treasurer the Honourable Joe Hockey MP announced a foreign investor moratorium for any person who illegally purchased Australian property without first obtaining prior approval from the Foreign Investment Review Board (FIRB). Under the moratorium foreign investors will have until 30 November 2015 to “self report” by disclosing to the Australian Government their illegal real estate purchases or face potential prosecution.
Additional measures announced by the Treasurer include increasing penalties from the current 2 years to 3 years imprisonment or a fine of up to $127,500. Those foreigners who self disclose will be forced to sell their properties but according to the Treasurer they will not be subject to criminal prosecution. The Australian Taxation Office will be tasked with administering the new regime when it is implemented.
The Treasurer also announced that third parties who knowingly assist a foreign investor to breach the rules will also be subject to civil and criminal penalties under the new arrangements. Despite the assurance from the Treasurer, a foreign investor who self-reports under this scheme may expose themselves and involved third parties to criminal prosecution or other legal action. While not mentioned by the Treasurer third parties could include real estate agents, settlement agents, solicitors and bankers who have either in some way been involved in the movement of money relating to the sale or purchase of property or in the purchase or settlement of Australian property purchased illegally by a foreign person. Australian citizens and permanent residents who are friends or family members of foreign investors who are often involved in the purchase of Australian property could also be captured by the changes.
While legislation relating to the new measures is yet to be drafted, of concern is that the Treasurer made no reference to how the current foreign investment framework and the new policy will work in conjunction with other federal laws in particular the money laundering provisions in the Criminal Code Act 1995 and the forfeiture provisions of the Proceeds of Crime Act 2002.
Australian federal money laundering laws are perhaps the most powerful criminal money laundering provisions in the world. The laws apply to all Commonwealth indictable offences, which is an offence that carries a penalty of imprisonment greater than 12 months. Offences relating to the illegal purchase of real property (referred to as Australian Urban Land) in Australia by a foreign person carry penalties not exceeding 2 years imprisonment. Federal money laundering law therefore applies to indictable offences in the Foreign Acquisitions and Takeovers Act 1975.
The money laundering laws apply to property (real and personal) as well as money. And the laws capture the proceeds of crime, which could include the sale of any property purchased illegally and to instruments of crime which include funds used to the purchase property illegally. If a foreign investor therefore has purchased property in contravention of the current foreign investment rules or under the new regime or sells property purchased illegally then there is a high chance they will also commit a money laundering offence.
Breaches of federal money laundering law carry penalties up to 25 years imprisonment and/or a fine of up to $255,000 if any property involved (either purchased or sold) is more than $1 million in value. A summary of the penalty provisions relevant to federal money laundering law is attached. Many purchases by foreigners of Australian property would probably fall into the high value category and therefore attract the harshest penalty. This could have significant implications for any foreign investor. They and any involved third party could potentially be charged with money laundering if they follow the Treasurer’s advice and disclose and sell their property. And the Treasurer despite his announcement, he and FIRB cannot grant immunity from prosecution. Only the Commonwealth Director of Public Prosecutions (CDPP), an Australian prosecution body, has the authority to do that.
Third parties such as real estate agents, family members and others who assist foreign investors may be charged with money laundering offences even if their conduct was reckless or only negligent. Full knowledge of the circumstances is not required. The Australian Federal Police investigate most money laundering matters in Australia and they are prosecuted by the CDPP.
Australia was one of the first countries to implement criminal money laundering laws. They were initially implemented to combat the laundering of the proceeds of drug traffickers. Australian federal money laundering laws were later extended to apply to all indictable offences. Primarily the money laundering laws were expected to target organisers of human trafficking, people smuggling, illegal gun running and tax evasion. But the extension to all indictable offences means that foreign nationals and third parties could be captured by and prosecuted on a similar scale to drug dealers who launder their illegal money.
Australian federal money laundering legislation has extended jurisdiction. The law applies to Australian citizens and Australian companies operating offshore from Australia. And to any other entity or person where the money or property is intended to become an instrument of crime or there is a risk the property could become an instrument of crime or the money is the proceeds of crime. Consequently a third party operating offshore could be bound by Australian money laundering law if they are involved in the transmission of funds to Australia that will be used or there is a risk it could be used to illegally purchase property.
Similarly, if the offshore third party for example a bank, a lawyer or a corporate service provider receives funds from Australia that were derived from the sale of property purchased illegally then they could potentially face prosecution for money laundering. Third parties (i.e. bank or lawyer) based in Australia who facilitate the movement of funds derived from the sale of an illegally purchased property to other offshore third parties could face a criminal charge of money laundering.
But more confronting is that under the current foreign investment regime there is already a risk that the illegally purchased property or proceeds of the sale of any property could be seized as proceeds of crime. Seizure can occur whether or not someone is charged with or convicted of a criminal offence. But the change in the penalty for breaching the foreign ownership rules to 3 years imprisonment increases the options available to seize the property or the proceeds of any sale under the Proceeds of Crime Act 2002.
Other than the indictable offences in the Foreign Acquisitions and Takeovers Act 1975 relating to the purchase of Australian property illegally, the AFP can allege a money laundering offence as a way of seizing property or the proceeds of the sale of illegally acquired property and applying for its confiscation. They don’t need to lay a criminal charge to do this. “Reasonable suspicion” a very low legal standard is all that is needed to initiate court action. This could also occur if the foreign investor has evaded Australian tax. And as announced by the Treasurer, the Australian Taxation Office will use data matching with other agencies to identify violators.
Foreign investors who have bought property illegally or have sold it could face the might of the AFP’s normal investigative powers (such as search warrants) as well as specific powers under the Proceeds of Crime Act. For instance, the federal police can also compulsorily question people in connection with the purchase and sale of the property. There is no right to silence. It is very powerful legislation.
A foreign investor who follows the Treasurer’s advice and discloses their property may not only be forced to sell. They could find themselves facing serious criminal charges and loss of all their property. Third parties who are involved in property transactions with foreign nationals should also be cautious in their dealings.
The policy changes in relation to foreign ownership of real property in Australia announced by the Treasurer have been put forward without due consideration to the wider issues that have been raised in this paper. The serious criminal and financial implications makes it prudent for foreign investors and third parties to get specialist legal advice before making a self-report of any breach of Australia’s foreign investment rules. Advice should also be sought from a specialist in criminal money laundering legislation and Australian federal civil forfeiture investigations (as opposed to a specialist in Australian anti-money laundering legislation and framework).
The Australian Treasurer has no power to tell the AFP or the DPP what to do, they are independent agencies. It would be folly to place faith in assurances given by the Treasurer at least until the legislation implementing the new measures has been drafted.
Please note this publication expresses an opinion only. It does not constitute legal or financial advice and does not take into account individual circumstances. It is highly recommended to seek specialist advice before taking any action in relation to the issues raised in this article.
Australian criminal money laundering laws and related offences contained in the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 are complex. Further complications arise when those offences are combined with any forfeiture action initiated under the Proceeds of Crime Act 2002. Malkara Consulting is the only Australian consulting firm with extensive experience in the investigation of Australia’s criminal money laundering legislation and AML offences and in the application of the conviction and civil forfeiture provisions of the POC Act. No other Australian consulting firm has the experience teaching money laundering and civil forfeiture in Australia and offshore.
Consequently Malkara Consulting is available for an initial consultation to examine individual cases and circumstances and discuss available options, including if necessary where to obtain legal advice.
Malkara Consulting is also available to deliver training sessions on Australian criminal money laundering provisions and the relevant forfeiture provisions contained in the Proceeds of Crime Act 2002.
Chris Douglas, APM
Perth, Western Australia