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Be on your guard

Be on your guard

Chris.Douglas

Property lawyers are naïve when it comes to money laundering by foreign investors in Australia, writes Chris Douglas.

Foreign investors illegally or legally purchasing property in Australia using funds derived from criminal activity (for example, corruption) pose a significant risk to any person involved, including a property lawyer.

To be successful, money-laundering activity mirrors lawful and normal transactions. Consequently, it is an activity that is difficult to detect.

Any person involved in providing professional services in relation to a property purchase should be more active in preventing themselves from being caught up in a money-laundering scheme.

And while it might be expected that an investor who uses funds derived from crime to buy Australian property will not seek Treasury approval, a shrewd criminal posing as an investor employing a complex money-laundering scheme might do so as part of the deception.

In Australia, property is an attractive investment for the laundering of money. The high returns, security of the investment and the almost complete absence of any anti-money laundering regulation in the industry attract organised crime and foreign criminals to hide their funds.

Australian real estate is just one favoured destination for illegal funds that have originated from many foreign jurisdictions, such as China, the UK, Papua New Guinea, Japan and Russia. The source of illegal funds varies, but primarily originates from drug-trafficking, human-trafficking and corruption.

Techniques used to transfer legal and illegal funds to Australia are many and varied, and appear to be legitimate transactions.

Funds are sent disguised as loans to family members living in Australia or payment for student fees, which is aided by the fact that there are relatives living and studying in Australia. Other funds are sent as part of an informal money transfer system.

Professionals such as lawyers will only see part of a transaction path, which adds to the challenge of understanding the source of the funds or the final destination of funds.

Based on my experience with the investigation of money laundering, it is reasonable to conclude that lawyers engaged in property transactions are ignorant of not only money-laundering techniques but of the consequences for inadvertently being involved in providing professional advice and assistance to criminals.

Can lawyers be unknowingly implicated in money-laundering schemes?

The short answer is: yes.

The primary relevant laws that apply to property transactions, money laundering and the legal profession are:

  1. The Anti-Money Laundering & Counter-Terrorism Financing Act 2006 (AML/CTF Act)
  2. The Financial Transaction Reports Act 1988
  3. Division 400 Criminal Code Act 1995

The AML/CTF Act 2006 has not been implemented in its entirety. No new laws are recommended other than that the government should pass Tranche 2 of the AML/CTF Act. 

Tranche 2 is designed to bring within the AML/CTF framework of reporting entities: solicitors, accountants, dealers in precious metals, real estate agents and trust and company service providers. 

Following resistance from affected parties, that legislation has been put on hold since the start of the global financial crisis and is not likely to be passed by Parliament during this term. 

The AML/CTF Act provides a reporting mechanism that does not breach confidentiality and the legal professional privilege. 

Any person who discloses any information to AUSTRAC under the AML/CTF Act using any of the reporting mechanisms is protected from legal action by the subject of the report. 

In addition, the lawyer is provided limited protection from prosecution for money laundering under Section 51 of the AML/CTF Act by being deemed not to have knowledge of the particular matter they are reporting.

Successful money-laundering schemes operate using deception and concealment techniques.

A lawyer might not know that they are a victim of such crimes or involved in the crimes until it is almost complete or when it is too late to prevent their involvement.

Section 51 is therefore an important protection mechanism for reporting entities including lawyers, as they might be part of a money-laundering scheme and undertake various transactions in relation to a matter before taking any action to report it. 

Once discovering their involvement, Section 51 provides some protection from prosecution, which is particularly important if through their actions they might have been reckless or negligent.

The Criminal Code Act 1995 covers self-launderers, those who commit what is known as the predicate offence and then launder the proceeds of their own crime. It also applies to any other person who is involved in the laundering process. 

A person commits the physical act of money laundering if they receive, possess, conceal or dispose of or engage in a banking transaction involving the proceeds of crime or an instrument of crime, or if they import or export proceeds of crime or an instrument of crime.

But the widest component of the legislation is the fault elements (state of mind). A person can be convicted of money laundering if they know the illegal origin or intended illegal use of the money or property.

But if that cannot be proven, they can be convicted of money laundering even if they did not know of the origin of the money or intended use. 

The offence could be established if it is proven that the person who engaged in the act of money laundering was either reckless or negligent.

Whether someone has been reckless or negligent is a matter for a jury to decide. 

However, a lawyer can be implicated in a money laundering scheme if they fail to take preventive measures, such as identifying their clients, their clients' business and income, the source of funds and intended use of any funds.

Chris Douglas (pictured) is a financial crime consultant and trainer at Malkara Consulting.

Note from the authour: T
his 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.

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