In April 2015, the Financial Action Task Force (FATF) released its Mutual Evaluation Report of Australia. It noted that Australia is seen as an attractive destination for foreign proceeds of crime and identified the Australian real estate sector as a high money laundering risk.
A few weeks ago, Fairfax Media published a major investigative article alleging that the sale of a Melbourne apartment complex had been used to facilitate the payment of bribes to Malaysian officials. The article in The Age alleged that developers in Melbourne's suburb of Caulfield accepted a price from a Malaysian Government investment fund that was inflated by around A$4.75 million. The excess A$4.75 million was allegedly then paid to corrupt Malaysian government officials through the Australian developers. The Age alleged that the developers went along with the money laundering scheme in order to push forward the sale of the development.
This case highlights the need for property developers in Australia to understand their potential liability should they be found to have facilitated money laundering (whether knowingly or not).
In Australia, anti-money laundering offences are mainly contained in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and accompanying regulations (together, AML Laws) and the Criminal Code Act 1995 (Criminal Code). This legislation captures a wide range of conduct such as receiving, possessing or disposing of money or other property that is the proceeds of crime or may become an instrument of crime.
The Criminal Code makes it an offence to 'deal with' money or other property that is, or is likely to become, proceeds of crime or an instrument of crime. 'Deal with' is defined as receiving, possessing, concealing or disposing of money or other property, as well as importing, exporting, or engaging in a banking transaction relating to money or other property. An 'instrument of crime' is money or other property used in the commission of an offence.
The requisite mental element for the Criminal Code money laundering offence is knowledge, recklessness or negligence. For a company, the required mental elements of the crime are proven if the company is proved to have expressly, tacitly or impliedly authorised or permitted the commission of the offence. Authorisation can be proved by showing that the corporation failed to create and maintain a corporate culture that required compliance with the Criminal Code. Negligence can be proved by showing inadequate corporate management or supervision of an agent of the company. The mental elements of the money laundering offence mean that it is vital for developers to have a process in place to review investors and the source of their purchase funds and also a training program that overtly encourages and maintains an appropriate corporate culture.
Penalties and other orders
Penalties under both the AML Laws and the Criminal Code depend on the value of the money or property involved. Penalties under the Criminal Code additionally depend on the state of mind of the defendant when the offence was committed. The Criminal Code deals with money of a higher value than the AML Laws and it also deals with property. From 31 July 2015, the maximum penalty for a corporation under the Criminal Code is A$1,350,000 where the value of the money or property involved is over A$1,000,000.
In addition to penalties, proceeds of crime can be confiscated under the Proceeds of Crime Act. Under this legislation, a developer has the onus of proving that the purchase moneys were not a proceed or instrument of crime. Confiscation can be ordered even if the purchase moneys were received unknowingly and have been dissipated within the business. This can be a substantial burden for developers who have not undertaken adequate due diligence in relation to investors.
The Criminal Code also criminalises bribery of a foreign public official and bribery of a Commonwealth public official. Australian State and Territory legislation prohibits private sector bribery.
In some circumstances, a company's involvement in money laundering may also constitute bribery or aiding and abetting bribery.
From 31 July 2015, the maximum penalty for a company under the Criminal Code for a bribery offence will be A$18 million, three times the value of the benefit the company has obtained from the conduct, or 10% of the company's annual turnover, whichever is the greater.
Earlier this year, Transparency International published 'Corruption on your doorstep: How corrupt capital is used to buy property in the UK'. The report set out various of the organisation's key findings regarding international investment in UK property markets, including a recommendation that transparency be established over the owners of shell companies investing in property in the UK by making such transparency a Land Registry requirement.
In a similar vein, Australia's booming property markets have a growing reputation as some of the most lucrative for international money laundering, particularly for money flowing from the Asia-Pacific region. This means that Australian property development businesses should be vigilant when it comes to governance obligations under Australia's anti-money laundering laws. A failure to do so may result not only in significant fines, seizure or tracing of purchase moneys but also significant reputational damage.