Australian Arrests Highlight Links Between Tax Evasion and Money Laundering
By Judy Maguire and Katrina Parkin

A series of arrests in Australia in recent months have emphasised the connection between tax evasion, international tax havens and anti-money laundering.  The arrests are a result of Project Wickenby, a major multi-agency initiative established to investigate internationally promoted arrangements that allegedly involve tax avoidance and tax evasion and, in some cases, large-scale money laundering.

The arrest in February 2008 of a Sydney businessman, who has been charged with obtaining property by deception and money laundering in connection with an alleged multi-million dollar tax evasion scheme, was referred to by the Commissioner of Taxation in a speech delivered in March 2008.  In that speech, the Commissioner made the point that participants and promoters involved in abusive tax haven schemes could expect to face the full force of the law if they did not come forward.  The Commissioner also indicated that the case related to the transfer and sale of shares to the value of AUS$30 million to various tax haven entities for the benefit of the businessman.

Another arrest in April 2008 was the result of a referral in 2006 from the Australian Tax Office (the ATO).  The arrest was of an Australian, resident in Vanuatu, who has been charged with three fraud and money laundering offences.  According to a media release issued by the Australian Federal Police (the AFP), this arrest is linked to the alleged movement of sums in excess of AUS$100 million through foreign accounts since 2000 and the non-payment of Australian tax of more than AUS$13 million.  The AFP said that the investigation had identified a number of offshore money laundering schemes through which Australian earnings were transferred to overseas financial institutions, claimed as business expenses and then returned to Australia in the form of an interest free loan. 

Following that arrest, the ATO has issued a Taxpayer Alert in relation to the Vanuatu schemes. Read this alert on the ATO website for more details.

What Are the Australian Money Laundering Offences?

In Australia, the principal money laundering offences are contained in Division 400 of the Schedule to the Criminal Code Act 1995 (Cth) (the Code), although there are also money laundering offences contained in state legislation.  In essence, it is an offence to deal with money or property that is either proceeds of crime, or may become an instrument of crime.

“Dealing” is widely defined to include:

• receiving, possessing, concealing or disposing of money or other property;
• importing into or exporting from Australia money or property; or
• engaging in banking transactions relating to money or property

and the money or property is proceeds of crime or could bec ome an instrument of crime in relation to an Australian or foreign indictable offence.

“Proceeds of crime” means any money or property derived, or realised directly or indirectly, by any person from the commission of an indictable offence (including a foreign indictable offence), i.e., an offence that attracts a prison sentence of 12 months or more.  This would likely include the proceeds of the tax-related fraud or deception offences that are the subject of the charges mentioned above and illustrates the connection between tax evasion and money laundering.

The money laundering offences in the Code are structured according to the value of the money or property laundered.  The most serious offences occur where the money or property is worth Aus$1 million or more.

The offences are further structured according to the element of fault involved.  This ranges from the most serious offence, where the money or property is (and the person believes it to be) proceeds of crime, or intends that it will be an instrument of crime; through the mid-level offence, where the money or property is proceeds of crime or there is a risk that it will become an instrument of crime and the person is reckless as to those facts; to the lowest-level offence, which is committed when the person is negligent as to those facts.  Unlike money laundering offences in some other jurisdictions, it is not necessary to establish that the “dealing” was conducted in order to conceal or disguise the illegal source of the funds.

There is a separate offence of receiving, possessing, concealing, or disposing or bringing into or taking out of Australia, any money or property that may reasonably be suspected of being the proceeds of an indictable offence.

The fact that, in the cases mentioned above, the offences may not have been committed in Australia is not a bar to a successful prosecution.  The Code provides that, where the offending conduct occurs outside Australia and, at the time of the offence, the defendant is an Australian citizen, resident or a body corporate incorporated in Australia, or where a result of the conduct occurs wholly or partly in Australia, an offence will have been committed.

The AML/CTF Legislation

The Australian Transaction Reports and Analysis Centre (AUSTRAC), which is both the Australian financial intelligence unit and the regulator of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), (the AML/CTF Act), is, according to a Report on Tax havens and tax administration published by the ATO in November 2007 (available here), a primary source of information that identifies Australian taxpayers that may be engaged in tax evasion using tax havens.  AUSTRAC obtains this information by, among other methods, monitoring all cross-border transactions and domestic transactions and also by receiving reports of cash transactions over AUS$10,000 and suspicious transactions from its regulated entities.  In practice, this information often provides a money trail that allows the ATO to identify tax abusive arrangements.

Prior to the enactment of the AML/CTF Act, only “cash dealers” were obliged to report suspicious transactions.  That obligation has been extended by the AML/CTF Act to cover all “reporting entities” that are regulated by the Act.  As such, from 12 December 2008, most Australian financial service providers will be required to make such reports (including reporting information where there is a suspicion of tax evasion, attempted tax evasion or money laundering).

It is anticipated that this extension of the reporting obligation will mean a significant increase in the number of reports relating to tax evasion/attempted tax evasion and money laundering and will have a flow-through effect to the number of investigations and prosecutions.

For further information on the changes to the AML/CTF Act, please see “Changes to the Australian AML/CTF Regime” in the February edition of the AFN Newsletter.

Judy Maguire is a Senior Associate in the Sydney Office of Allens Arthur Robinson and a core member of the AAR AML team. The AML team advises a range of clients including global and national banks and fund managers on compliance with the AML/CTF Act and Rules. Judy has international AML experience and has worked closely with FATF. Contact Details: Tel: + 612 9230 4835 Email: Judy.Maguire@aar.com.au

Katrina Parkyn is a Senior Associate in the Brisbane office of AAR advising on tax matters.  Katrina has previously worked in the tax group at Clifford Chance LLP in London and the Sydney office of AAR.