By Professor Jeremy Gans
Some trace the term ‘money laundering’ to the coin-operated Chinese laundromats that Al Capone pretended were the source of millions he earned from Prohibition-era alcohol sales and vice. This dubious origin-story rests on some hard facts: that crime can pay, that it may pay a lot, but that not all money is equal. If criminals want to spend their profits without attracting attention to their crimes, they have to find a way to make it look like their riches were legitimately earned. That is, illicit money is of little value until it is ‘cleaned’.
The criminal law now adds to the wealthy criminal’s burden by deeming the act of money laundering to be an especially heinous offence in and of itself. In Australia, after police and prosecutors baulked at the dirty work of sorting out criminals’ financial shenanigans, legislatures and courts have recently stretched the offence’s definition to include simply handling any money or property en route to or from any crime. The result is that many very ordinary criminal acts can now also be charged as money laundering. Shoplifting. Bank robbery. Social security fraud. Commercial offences. Just about any crime that involves anything of value. That includes tax evasion, the only crime the Americans were able to pin on Al Capone. Or it did, until the High Court put a stop to the bloat of money laundering last month.
Airing some dirty laundry
On Valentine’s Day 2004, officers of the Australian Crime Commission entered a presidential suite in Melbourne’s Sheraton Towers (now The Langham), armed with a warrant to search for evidence that celebrity lawyer Michael Brereton had schemed to evade tax. Brereton himself was never charged with tax fraud, but the Toshiba notebook computer they seized (belonging to the room’s occupant, Philip Egglishaw) yielded a list of the clients of Egglishaw’s Geneva firm Strachan and prompted seven federal agencies to join forces to investigate offshore tax havens.
Project Wickenby has resulted in dozens of prosecutions and convictions and has featured at least yearly in the High Court’s caseload this decade. In 2010, the Court rejected attempts by one of Wickenby’s most famous (but also never charged) targets, Paul Hogan, to keep a document detailing his tax affairs secret. The next year, the Court ruled that the common law did not prevent the Commission from compulsorily examining one target’s wife. In 2010, 2011 and 2013, the Court dismissed three criminal appeals by convicted Wickenby targets. This run of successes in the High Court ended with this year’s Milne v The Queen  HCA 4.
In 2004 and 2005, entrepreneur Michael Milne, one of Strachan’s clients [EDIT: see the second comment below] and the director of an information technology company, obtained a $2 million windfall resulting from intra-company loan agreements that was paid to one of his companies in the form of shares in another. However, he failed to declare the eventual capital gains that resulted. He was charged after a Wickenby investigation and a jury held that the failure was intentional, meaning that he was guilty of the crime of tax evasion (specifically, dishonestly obtaining a financial advantage from the Commonwealth by deception). That conviction (as well as a further tax evasion conviction for failing to pay income tax on consultancy fees) stands today and was not challenged in the High Court.
Rather, Milne challenged a further conviction for money laundering, founded on his act of swapping the windfall shares for others in a less well-known company in 2005. The prosecution alleged that this swap was a step not only towards liquidating his capital gain but was also made to avoid attracting attention from financial markets (and hence the tax office) to his windfall. The prosecution wanted this behaviour to count against Milne at his sentencing, but a 1981 High Court precedent bars Australian sentencing judges from taking account of more serious but uncharged criminal acts. To overcome this problem, the prosecutors added a charge of money laundering to Milne’s indictment, which yielded Wickenby a windfall of its own when he was convicted. The value of the shares Milne swapped was so high that the maximum sentence for the money laundering conviction was 25 years, dwarfing the 5 year maximum for tax evasion. As a result, Milne’s combined sentence for money laundering and tax evasion was almost 10 years, the highest imposed to date on a Wickenby target.
Taken to the cleaners
The international definition of money laundering is:
[t]he conversion or transfer of property, knowing that such property is proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property …
This clearly covers Capone’s laundromats, but is a far cry from Milne’s share swap, which hid only his entirely legitimate entrepreneurial earnings. Alas, 18 months before that swap, Australia expanded its definition of money laundering well beyond the international version.
The origin of the expansion was an inquiry by the Australian Law Reform Commission into the federal proceeds of crime statute. The inquiry was a nadir in the venerable reform body’s work. Attorney-General Daryl Williams gave the Commission just a year to report on this complex topic and not only rebuffed its request for more time to allow it to publish a discussion paper but added to the terms of reference partway through. The Commission’s report lamented that it had to ‘dispense with the Commission’s normal process of testing and refining reform options and proposals through a rigorous public consultative process’. Indeed, the inquiry’s sole publication prior to its 400 page final report was a 20 page ‘pamphlet’, making this the most compromised public consultation in the body’s history.
Unsurprisingly, most of the inquiry’s attention was directed to the highly controversial issue of confiscation and the pamphlet only made passing mention of the statute’s criminal offences. Nevertheless, the federal police and national crime authority made lengthy submissions bemoaning the difficulty they had proving where their targets’ money came from and explaining that it was easier to wait to see what they spent it on, with the result that they never got to prosecute anyone for laundering the proceeds of crime. Rebranding requirements for prosecution as ‘barriers to prosecution’ is the oldest trick in the law and order lobby’s book, but the hurried Commission fell for the ploy:
The Commission believes that the submissions referred to above make a significant case for reforms that would enable the offence of money laundering to be provable by reference to a wider range of activity, namely, proscribed activity relating to money or property that can be proved beyond reasonable doubt to be preparatory to, or associated with, the commission of the relevant predicate offence …
This recommendation to turn the offence of money laundering on its head, which was never raised in public consultations and which was not the subject of any other submissions, became law two years later.
Ironing out a few wrinkles
The expanded offence of money laundering covers anyone who ‘deals with money or other property’ that she ‘intends … will become an instrument of crime’. But, as the ALRC (and the police and national crime authority) failed to mention, the notion of an ‘instrument of crime’ is anything but straightforward. What were the instruments of Milne’s tax evasion? The pen he used to sign his tax return? The computer he used to fill it in? His (and Philip Egglishaw’s) business brain? Or was it the shares he acquired by windfall? The NSW Court of Criminal Appeal thought the latter was enough — after all, you can’t evade capital gains tax without dealing in capital. (Think about that next time you offer to pay cash to a tradie.) In the High Court, the prosecution wisely disowned that part of the appeal court’s reasoning.
Instead, the prosecution’s argument was that the shares Milne swapped were ‘used to facilitate the commission of’ the tax evasion by making it harder to detect. They relied on a 2011 High Court judgment, White v Director of Public Prosecutions (WA)  HCA 20, which held that a drug-dealer who killed a defaulting customer outsider an isolated industrial property ‘used’ that property to commit the murder. The current Court retorted that White ‘involved a different statute’ — a confiscation law — ‘and very different facts’ — Milne’s share swap actually put the shares ‘beyond the reach of the accused by sale to a third party’. Observing that the verb ‘use’ was an ‘essential integer’ of the concept of an instrument of crime, the High Court ruled that, while the swap facilitated the later fraud, there was no intended future ‘use’ of the shares Milne disposed of.
This decision makes it clear that merely hiding money to evade tax doesn’t make someone a money launderer (any more than hiding a winning lottery ticket does ahead of murdering its co-owner). But the terms of the Court’s ruling go potentially further. It seems now that receiving money with a plan to spend that money to buy equipment or personnel may now not be enough to count as money laundering, because the money will be in a third party’s hands when the crime is eventually committed. If that is the case, then the ruling cuts across the raison d’être for expanding the definition of money laundering in the first place.
Same day service
The High Court issued its judgment on Valentine’s Day 2014, exactly ten years after the Australian Crime Commission raided Philip Egglishaw’s penthouse suite. A more surprising piece of timing is that the judgment came just eight days after the case was argued in the Court. That’s an astonishing turnaround for five judges to decide a complex case and for all of them to collaborate in drafting, circulating and proofing the 5000 word reasons for judgment. Unlike the ALRC, the High Court reached its speedy judgment without any external deadline.
Many will celebrate the national court’s ability to issue quick justice and its increasing tendency to produce a single set of reasons. However, as noted on this blog last year, Gageler J (one of this judgment’s co-authors) has pointed out how excessive haste can lower the likelihood that a collegiate body will make the right judgment. Here, I note two more specific possible downsides of the Court’s fast turnaround in Milne v The Queen.
The first is that, while the Court outlined a number of ways the money laundering provision should not be interpreted, its own statement of how the offence should be read was very brief:
The definition of ‘instrument of crime’ and the deployment of that term in s 400.3(1)(b)(ii) require a temporal separation between the requisite dealing and the intended use of the property. They also require an instrumental connection between the intended use of property and the commission or facilitation of the commission of an offence.
These bare remarks stand in contrast to the very detailed analysis of the terms of the statute and its application put in the highly readable written submissions by Milne’s counsel. Lower courts will find the Court’s quick work a quick read but not necessarily an easy one when it comes to applying the Court’s interpretation to new cases.
A second potential downside is that the Court offers little commentary on the significant issues of criminal responsibility that are raised by Australia’s expanded money laundering offence, notably its expansion of inchoate (ie, pre-crime or thought crime) beyond the traditional offences of attempt, incitement and conspiracy. While a terse, dry style is now the Court’s usual way of discussing statutory interpretation, there has in the past been room for some pointed observations in a concluding paragraph or in a concurrence. Here, the Court’s commentary was limited to the following:
The language of s 400.3(1)(b)(ii), and its associated definitions, is capable of application to a range of circumstances which fall within their ordinary meanings. Its construction according to the ordinary meaning of its words is sufficient to provide a broad coverage consistent with its purpose and without resort to ‘extended’ meanings of those words.
It is doubtful that these remarks will cause much pause to legislatures when (as they soon surely will) they consider requests from Australia’s crime agencies for some quick alterations to mend a pesky hole in the nation’s criminal laws helpfully pointed out by the national court.
Hung out to dry
Michael Milne is no longer a ‘convicted money launderer’, but he is still a convicted tax evader. Rather than asking the NSW courts to resentence him for his remaining fraud conviction (which may, perhaps, have involved raising that sentence to take account of the allegedly preparatory share swap) the High Court simply excised his money laundering sentence, lowering his head sentence by 18 months.
However, the judgment’s implications go beyond adjustments to criminals’ sentences. As the police told the ALRC, they sometimes catch people dealing with money destined to be used as an instrument of crime before the crime ever occurs. Unless those people came close enough to committing their planned crime in word and specific intentions to be guilty of attempt or conspiracy, the only crime they can be charged with is Australia’s extended crime of money laundering. The implication of Milne v The Queen is that fewer of those people can now be properly charged and that some have been wrongly convicted.
Take Abdul and Hajmaideen Ansari, who ran a currency exchange business in Sydney that authorities believed laundered money for drug traffickers and the like. After police watched the Ansaris agree to receive money from a drug mule, they relied on the expanded money laundering offence to score a conspiracy conviction on the basis that the Ansaris knew that there was a risk that the money would be hidden from the tax and financial regulators. Four years ago, the High Court refused to hear a similar ground of appeal to the one made by Milne, because the Ansaris had not raised it at their trial or state appeal. While it is understandable that a busy court cannot accommodate all last minute appeals for justice, the outcome in Milne reveals the unpalatable prospect that prosecutors’ and lower courts’ overly broad reading of the expanded offence of money laundering may have caused some people to serve prison time for actions (and agreements to do acts) that are no crime at all.
AGLC3 Citation: Jeremy Gans, ‘Is Every Crook a Money Launderer? Milne v The Queen’ on Opinions on High (5 March 2013) <http://blogs.unimelb.edu.au/opinionsonhigh/2014/03/05/gans-milne/>.
Jeremy Gans is Professor of Law at Melbourne Law School and an Editor of Opinions on High.