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Australian Federal Police - Platypus Journal/Magazine |
Blazing new trails in fighting financial crime
Feeding on the 'information age', sophisticated crime now involves more complexities for investigators than ever before. The AFP's General Manager, Southern and Central Regions, explored the transformation this has rendered in modern law enforcement and the vital role of cooperation between organisations both nationally and internationally in managing the investigation of serious crime. The following article was taken from an address he made at an anti-money laundering seminar jointly sponsored by the Australian Transaction Reports and Analysis Centre and the Monash University Law School in Melbourne recently.
New technologies are radically affecting every facet of human interaction through their accelerating globalisation and increasing sophistication.
This generation is experiencing a prodigious increase in the sheer complexity and rate of change of technological advances. In particular, the rapidly increasing rate, complexity and diversity of global change is having a significant impact on all aspects of contemporary policing.
With transnational crime continuing to expand across the globe, the jurisdiction and role of the Australian Federal Police in this emerging environment is becoming more crucial within Australia and more relevant to the global law enforcement network. This is probably best demonstrated in the changing approach being taken to combat money laundering.
Improvements in communication and information exchange systems mean that financial and commercial transactions affecting Australia are not necessarily physically or identifiably located within this country. Information and money are increasingly being accessed and moved by individuals and enterprises through the use of various communication networks that transcend national boundaries and make regulation difficult. A key feature of electronic commerce of the near future is that business activities such as advertising, selling and delivery may become fully automated. More Australian businesses may therefore locate offshore to further obviate Australian tax laws and consequential tax liability.
At the same time, organised crime structures are becoming sophisticated, mobile and global. They appear to be adapting multinational corporation trends, including modern business practices and the latest technologies, to suit their own criminal intents.
Through its real and perceived impacts, transnational crime is increasingly being viewed by the international community as posing a significant threat to national and international stability, and as a significant factor in global national security considerations. Besides being a major consideration in its own right, transnational crime has important relevance to national and international political, economic, and social issues. The emphasis placed by the UN group of seven industrialised nations (G7) on the problems posed by international drug trafficking, organised crime, money laundering and corruption, shows that the criminal threat is regarded as a serious global problem. It requires a unified legal, social and law enforcement response.
Organised criminals, in particular drug traffickers, generate inordinate amounts of cash. They must make their illegally acquired wealth appear legitimate to derive the maximum benefit from their illegal activities, and so they indulge in money laundering. Illicitly gained cash is injected into the financial system through the business community with the aim to: avoid prosecution; increase profits; avoid seizure of accumulated wealth; and evade tax.
By its very nature, money laundering is difficult to quantify, although some discussion forums in the World Bank have suggested that between US$300-500 billion in proceeds from serious crime (not tax evasion) is laundered each year. Comprehensive figures in a 1995 study projected the amount of money laundering in Australia to be approximately A$3.5 billion for that year.
The diversity and complexity of financial services have the potential to cloud conventional audit trails. Such financial services include international transactions, submerging of transactions among many other transactions, false name accounts and the operating of accounts on behalf of third parties.
The traditional means by which police have gathered financial information about criminal activity has failed to keep pace with modern technology. However the introduction of the Proceeds of Crime Act 1987 (Commonwealth) empowered the AFP to restrain and seize assets. Consequently, various Commonwealth departments have come to rely upon the AFP's powers and assistance under the Act to recover the conversion of funds and assets, together with the profits of illegal activities.
The AFP's mission is to provide dynamic and effective law enforcement to the Australian people. Our current goals focus effort in operational areas. In pursuing those goals, the AFP works in partnership with the police services of the states and the Northern Territory, with other government agencies, such as the Australian Transactions Reports and Analysis Centre, the National Crime Authority, and Director of Public Prosecutions, along with financial institutions and international law enforcement organisations, in the latter instance primarily through ‘on-site' liaison officers.
The AFP's primary goal is to deter serious fraud, and major and organised crime against the Commonwealth. This program incorporates our major operational activities concerned with the investigation of fraud, drug trafficking, organised crime and other serious crimes committed against Commonwealth laws.
The critical factors that relate to the goals of the AFP's primary program are:
• • The implementation of strategies and operations that successfully combat crime and bring offenders before the courts.
• • The reduction of the impact of crime on the community through the recovery of the proceeds of crime and the elimination or reduction of opportunities to commit crimes
• • The responsiveness and appropriateness of response.
• The relevant objectives that relate to the goals of this program are to:
• • Combat serious crime against Commonwealth law.
• • Deter, disrupt and counteract major and organised crime.
• • Contribute to and maintain involvement in international efforts to counteract and prevent transnational criminal activity.
The AFP's Financial Investigation Teams play a major role in supporting the goals and objectives of the AFP. Some of the critical areas through which this is demonstrated include: Currency and Money Laundering; Fraud against the Commonwealth, International Liaison, and Organised Crime.
To assist the AFP in its investigations of money laundering and taxation evasion, AUSTRAC makes available the following range of financial information and intelligence: suspicious financial transactions; cash transactions of $10,000 or more; significant betting of $10,000 or more; and international funds transfer instructions.
This information provides an essential, timely and high quality intelligence resource that assists the AFP in disrupting criminal activity and attacking its financial base, while helping maintain the integrity of Australia's financial transactions' regime.
White-collar criminal activity frequently involves breaches of state and Commonwealth criminal and regulatory legislation. Given the vast number of commercial and private financial transactions occurring each day, it is easy for an illicit dealing to be hidden in the vast amounts of other reports. It is therefore crucial in conducting any investigation to be able to carefully analyse the relevance of information.
The information holdings of organisations such as the AFP, state police services, AUSTRAC and financial institutions are capable of carrying out this analysis. AFP investigators place considerable emphasis on the cooperative aspects of gaining information.
Just as the finance industry has become more global with overseas branches and joint ventures, the AFP continues to foster and enhance international law enforcement obligations of the Commonwealth through the strategic deployment of 28 liaison officers in 14 countries. Accordingly, the AFP works closely with police and law enforcement bodies of the various jurisdictions, at both the national and international levels. The AFP represents the interests of this collective through our overseas liaison network, with cooperating foreign law enforcement organisations, and through Interpol. Modern technology is assisting our liaison officers with fast and secure on-line computer access from overseas posts into AFP databases.
To investigate and combat higher level organised crime, the AFP requires access to information and intelligence on all aspects, including street-level activity.
As noted previously, criminal organisations in Australia and throughout the world are increasing in size, sophistication, resources, mobility and efficiency. This has been brought about in part because of political deregulation, which has allowed increased personal freedom, and mobility of people to cross national and international borders. As a result, crime trends, evident for some time in other parts of the world, have extended their boundaries. Criminal organisations do not observe laws and corporate regulations, nor are they concerned with the economic or social impact of their criminal activities. They are quick to see the benefits of harnessing and developing technology to enhance their illegal activities and launch new criminal enterprises.
These economic, political and technological changes in the criminal environment are placing increased demands upon law enforcement globally to supplement traditional enforcement methods with modern technologies, closer inter-agency cooperation and smarter intelligence gathering techniques and exchanges.
Such international cooperation must include mutual assistance in criminal matters, extradition treaties, and proceeds of crime and money laundering legislation. Other measures must ensure that practical and effective steps are taken to minimise the opportunities for criminals to escape the law enforcement process or to continue to operate by moving to neighbouring jurisdictions.
Organised crime groups, such as those in Italy, Japan, Colombia, Russia and Eastern Europe, Nigeria and the Far East, continue to be responsible for a large proportion of the ‘dirty' money flowing through financial channels as proceeds of a wide range of criminal activities. In addition to drug trafficking, these enterprises generate funds from loan sharking, illegal gambling, fraud, embezzlement, extortion, prostitution, corruption, illegal trafficking in armaments, human beings and organ parts, organised motor vehicle theft and many other offences. In some countries, criminals who had been previously solely engaged in drug trafficking have been either broadening their activities to take part in a wider range of criminality, or have switched to fraud and other offences which attracted lower penalties.
There is ample evidence that these various organised crime groups and syndicates operating at the international level have forged close working relationships in areas of mutual dependence, including within Australia. As with any business enterprise, they are seeking the greater profitability afforded by larger world markets and economies of scale.
Criminal networks from other countries are targeting Australia for the shipment of narcotics with multi-kilogram shipments of heroin and multi-tonne shipments of hashish being detected in recent times by the Australian Customs Service and the AFP.
For example, the significance of the international aspects of the drug trade can be highlighted by recent AFP estimates of the gross heroin turnover in Australia to be equivalent to that of a multi billion dollar industry. It may be assumed that a vast proportion of the proceeds comes out of the Australian economy to pay for the ‘near-to-source' cost of the drugs. AUSTRAC estimated A$655 million was sent out of Australia in 1995 to South East Asian drug producing countries. It is natural to assume that some of those funds would have been used for the importation of narcotics into Australia.
The Commonwealth Law Enforcement Review in 1994 identified 11 priority areas of organised crime activity, which posed an immediate threat to Australia. They were: Chinese Triads; Vietnamese organised criminal groups; N'drangheta (Italian organised crime); Lebanese criminal groups; Australian organised crime groups referred to generally as the ‘East Coast Milieu'; Romanian crime groups; outlaw motorcycle gangs; organised paedophilia networks; Colombian cocaine syndicates; Japanese Yakuza groups; and groups with origins in the former eastern bloc.
Clearly, these groups reflect that criminal activities can be conducted across the political borders between states, and transgress legal, cultural, religious and organisational boundaries among and within states. Several of these groups have links to international organised crime syndicates based in other countries. Their impact on the political, economic and social fabric of countries, which they infiltrate, is real.
Closer cooperation between the AFP and the state and Territory police services, with financial institutions, and with overseas law enforcement agencies is fundamental to combating the spread of transnational organised crime. Its success will, in part, be measured by the effectiveness of intelligence exchanges and cooperative efforts.
The AFP, as an active partner with AUSTRAC, understands and respects the confidential provisions of relevant legislation especially when dealing with suspect transaction records (SUSTRs). The AFP has taken the initiative by sponsoring a series of round table conferences over such issues. Participants have included AUSTRAC, the Australian Bankers' Association, Australian Association of Permanent Building Societies, the Credit Unions Services Corporation and the employees of those bodies represented by the Finance Sector Union of Australia.
Agreements have been made between the parties to ensure that a spirit of cooperation prevails between such parties and the AFP when investigating SUSTRs. For instance: it was emphasised that all parties would protect the interests of the cash dealers' staff; the AFP would give due consideration to the commercial and management interests of cash dealers; and the cash dealers acknowledged and agreed to cooperate with the AFP when investigating such matters.
Tracing the whereabouts of a person can be crucial in implicating or excluding a suspect from further investigation. For example, a recent murder conviction in England focussed on the offender's claim that he was in London at the time of the murder. As he always had his mobile phone with him, telephone company records were checked. They showed the telephone had travelled away from London to the location of the murder during the time it was committed and then back to London, thus disproving the alibi. No calls were recorded but the mobile phone had been logged into various cells as the murderer travelled to and from the location.
In a similar way, technology can facilitate the tracing of a suspect's circumstances when serious crimes are involved. Technology has brought about changes in the way people conduct their financial activity. Although the cheque has given way to the credit card in many instances, the comments of Justice Douglas of the US Supreme Court are just as relevant in this changing environment:
"In a sense a person is defined by the cheques he writes. By examining them the agents get to know his doctors, lawyers, creditors, political allies, social connections, religious affiliations, educational interests, the paper and magazines he reads and so on ad infinitum".
Electronic commerce has no geographical or jurisdictional boundaries. In the early 1980s, cheques were the principal instruments in non-cash payments, constituting approximately 85% of transactions. By 1991 the trends had shifted and about half the payments were made through electronic systems. EFTPOS payments have increased rapidly and now account for around 13 per cent of all non-cash payments whereas cheques now account for only 38 per cent of transactions.
Electronic commerce is increasingly having an impact upon communications, tourism and transport, vending machines, utilities, government services and a diverse range of other applications. Its impact is felt especially by way of new systems of payment, including Electronic Data Interchange, stored value cards and payment over the Internet. Stored value cards have attracted the interest of law enforcement authorities as they have the potential to make the auditing of the money trail that much more difficult.
Security systems associated with such technologies will have to be commensurate with the level of risk or exposure. Should a card allow disclosure, modification or repudiation of a transaction, then there may be serious opportunities for fraud which would reflect adversely on the credibility of the card vendor.
Within the Australian context, Professor Alan Tyree wrote recently:
"If smart cards and digital coins do assume characteristics of currency then there is a need to deal with the problem of illicit transfers. If there is no limit on the amount that may be loaded on a smart card and if card-to-card transfers are permitted, then the card becomes much more attractive than currency as a means of moving ‘black' money. The attraction of digital coins is even greater since international transfers are no more difficult than local ones".
Unfortunately, some suggested solutions to the money laundering problem, (limits on the amounts, limits on the acceptable range of transfers, monitoring the movements on individual cards), all limit the attractiveness of the smart card/digital coin as a general purpose payment method. There is no obvious solution to the money laundering problem even when ‘hard currency' is the medium of exchange. However, it is easy to overstate the effect of new payment systems on the money laundering problem. It must be remembered that the problem for the launderer is to convert ill-gotten gains to gains which appear to be legitimate. The ill-gotten gains must either be smuggled out of Australia or they must be disguised as the proceeds of some legitimate enterprise.
Smuggling a smart card loaded with $1m value or transferring $1m worth of digital coin is certainly easier than smuggling a suitcase of cash but there is still the very significant problem of converting the amount to electronic form in the first place.
As long as all payment transfers to/from Australia must ultimately pass through a bank or other financial institution the actual method of payment is not particularly relevant to the money laundering problem. In order for black money to be converted to electronic funds the services of a ‘cash dealer' must be used. (‘Cash dealer' is defined in the Financial Transactions Reports Act 1988 (CTH). The term includes entities as disparate as banks and bookmakers). The methods used now by AUSTRAC (the Australian Transaction Reports and Analysis Centre) are independent of payment form and there is little reason to suppose that they will be any more or less effective when cards or digital coins are the method of payment.
The challenge is therefore to ensure that the use of the smart card as black money is unattractive to the money launderer, because money launderers could be released from two major hurdles were they able to resort to smart cards. Firstly they would not have to transact through the conventional banking system, and secondly they would not have to carry around large amounts of cash.
While Tyree suggests that a million dollar smart card might be easier to smuggle than cash, ultimately it is only of use if the money launderer can convert the proceeds into some other form of value. The launderer therefore must determine how to access the funds without attracting attention. A limit on the maximum value, or close control on the issuing of such large cash cards would provide a deterrent to their illegal use. The amount of electronic money that can be accumulated on a card will obviously be an issue for each financial institution to address in their own way.
The establishment and uptake of the use of smart cards will obviously impinge greatly upon traditional credit cards. The latter currently require the complex integration and transfer of data between at least four parties: the customer; the customer's financial institution; the retailer; and the retailer's financial institution.
The Internet is also generating a whole new range of payment systems, the most common so far being the credit card. Already banks are permitting some customers to move funds between their own accounts and issuing instructions to make third-party payments.
It seems only a question of time before smart cards are used at street level for prostitution, illicit gambling and drugs. Fortunately, at some point in its existence, the smart card has to integrate with the financial system. It is at that point that an audit trail can begin.
AFP investigators use AUSTRAC's information to gain investigative leads. For example, AFP investigators based in Melbourne examined 7,714 SUSTRs during 1997, with an average of 642 reports, totalling A$86 million per month. These reports relied heavily on the diligence of staff in various financial institutions, including banks, credit unions, bullion dealers and gambling institutions in identifying suspicious activities and submitting reports.
The AFP begins some of its enquiries from SUSTR information gained from AUSTRAC, while at other times information is passed on to other designated AUSTRAC users for investigation.
In one instance, the ACS, a designated AUSTRAC user, was alerted to a ship's chandler who was depositing large amounts of cash into his bank account. Responses indicated that owing to ships' countries of origin, traders were often reluctant to receive anything from them but cash — hence the large cash holdings.
During 1997, the AFP advised AUSTRAC that throughout Australia it would retain 416 reports for investigation. Those 416 reports amounted to nearly $753m in transactions.
At the beginning of every working day, AFP investigators throughout Australia request AUSTRAC to forward any SUSTRs, relevant to their region, which have come on-line since the previous day or since the last request. Obviously, such a process is completely dependent on the level of cooperation from the financial sector.
Reports received by the AFP have been sanitised to remove names of staff involved. This process ensures the highest level of confidentiality possible. However, the reasoning for identifying the transaction as suspicious is a critical part of the evaluation process and is passed on for consideration by the vetting officers. Background information, of any nature, may be very relevant, thus permitting AFP investigators to match information with the matrix of other intelligence already held.
Investigators will then begin preliminary enquiries to determine if there are additional leads that warrant following up. Section 16 (4) of the Financial Transactions Report Act permits AFP investigators to approach financial institutions for further information. In some instances such enquiries may reveal a plausible reason for the transaction.
There have been cases where initial AFP enquiries have resulted in financial institutions reviewing their transaction procedures. In one of these, a company was cashing cheques over the counter at a bank which resulted in a teller becoming concerned about the volume of cheques not being processed through the company account. Consequently, the teller submitted a SUSTR. The AFP conducted preliminary enquiries and a legitimate reason was established. The bank then became aware that by not clearing all cheques through accounts, it was losing revenue from bank service fees. As a result, the bank changed its internal procedures.
In each region, members of the AFP's regional AUSTRAC teams handle reports which warrant in-depth investigation. They develop the primary intelligence about such cases and then submit investigation proposals to the Regional Operations Coordination Centre. This centre monitors the availability of resources and staffing and prioritises the matter for consideration by the Regional Management Team.
In December 1997 the top 20 revenue cases under investigation by the AFP in Victoria (Southern Region) were all of multi-million-dollar amounts — a strong indicator of the demands for the AFP to investigate serious criminal offences. In recent years, there has been a reduction in the number of AFP investigators available for such tasks, in part due to the secondment of skilled officers to the NCA, Austrade, Australia Post, Insolvency and Trustee Service, Australian Securities Commission and Australian Taxation offices. Currently the AFP in Southern Region has about 100 investigators handling about 130 investigations of all types, including SUSTRs.
The specialised skills and high level of cooperation with financial institutions enables AUSTRAC team members to provide a strategic and tactical support role for operational members.
The following cases highlight how effective AUSTRAC data has been to the AFP in combating serious crime.
Operation Anthem
A joint AFP/NCA/Customs narcotics and money laundering investigation, Operation Anthem, lasted 12 months and resulted in the controlled delivery of 24kg of heroin intercepted at Tullamarine Airport in October 1996. Three offenders were arrested, and A$1.2m worth of assets were seized. A previous importation of an additional 12kg was also detected, resulting in further charges being laid.
Operation Puritan
Puritan, an investigation into large scale money laundering and income tax evasion in the Victorian clothing industry, established that agents acting for reputable clothing wholesalers were enabling manufacturers to fraudulently evade income tax liabilities by cashing cheques through third party bank accounts. The agent charged the manufacturer a commission for cashing cheques through business bank accounts opened for that purpose. The total amount laundered was A$16.05m with 14 people convicted and sentenced to terms of imprisonment ranging from 15 months to two-and-a-half years. Reparation orders imposed amounted to nearly A$642,000.
Operation Flange
An AUSTRAC program, which identifies unusual transactions, focused on a Melbourne bank account, which had been opened in the name of a charity. Substantial amounts of monies deposited into that charity account were then remitted to Israel. During a seven year period, at least A$48 million was removed from the Australian economy through this account. Several people have been arrested, and are currently before the court.
Operation Flint
Two men, using a number of aliases, made eight international money transfers to the USA via Australian banks. The payments were of about A$7,000 each in order to circumvent AUSTRAC reporting requirements.
The recipient was a narcotic supplier in Los Angeles who was also a former police officer. AFP checks on the AUSTRAC database enabled investigators to follow the money trail. Arrests were then carried out in Melbourne, followed by restraining orders being issued by the Supreme Court on the following assets: three residences; two blocks of land; four Harley Davidson motor cycles; and a Chevrolet motor car.
A major limitation of the Proceeds of Crimes Act is that a person must be charged before its provisions come into effect. Furthermore, unlike departments such as Taxation, Customs, Centrelink and the National Crime Authority, the AFP does not have a general power to request the provision of information from financial institutions.
Before the Cash Transactions Reports Act 1988 (Commonwealth) the AFP was required to appear before a judicial officer to seek the issue of a warrant in order to obtain financial information. This process is invariably resource intensive, may delay an investigation and have the potential to bring about frivolous legal challenges to the validity of the issuing processes of the search warrant. Apart from those instances where an SUSTR exists, the AFP is still required to obtain a search warrant when evidence is required from financial institutions and the like.
The Mutual Assistance in Criminal Matters Act 1987 (Commonwealth) permits the Commonwealth to institute action overseas to recover assets. Likewise, the AFP often responds to foreign country requests for help in restraining and seizing assets in Australia, which are the proceeds of criminal activities overseas.
The introduction of the Privacy Act 1988 (Commonwealth) has had both a positive and negative impact on the financial and law enforcement sectors.
Organisations in both sectors were obliged to formalise the manner by which the disclosure of information could take place. Protocols established by relevant organisations often brought about the sanitising of data to a bare minimum. A frustration frequently experienced by law enforcement officials has been the citing of privacy principles as a reason for non-disclosure. Fortunately, Principle 11(1)(e) can alleviate the situation as it provides for disclosure, which is ‘reasonably necessary for the enforcement of the criminal law or a law imposing a pecuniary penalty, or for the protection of the public revenue'.
In general, though, there is a need for our legislators, state and federal, to consider the jurisdictional problems between the Commonwealth and the states that currently present some barriers to efficient execution of operations. Commonwealth agencies often are thwarted, or at least slowed by constitutional limitations. There is an emerging role for the Commonwealth to enter into this area by covering the field with federal legislation, while remaining cognisant of competing issues such as privacy. There is an absolute need to continually ensure that the right balance is maintained between the rights of the state to effective law enforcement, and the individual's right to privacy. The AFP regards an individual's privacy highly, and only has an impact on that privacy when there are very solid grounds to do so.
The AFP operates in a challenging and continually changing environment. We continue to achieve success in dismantling or disrupting highly organised criminal groups through the use of intelligence driven multi-agency task forces, often comprising international law enforcement agencies as well as those within Australia.
In one operation alone, one of the world's largest narcotic trafficking organisations was dismantled in Australia, Canada and the United States. This was clearly not only a pleasing outcome but directly relevant to our identified high value business.
It was also a very strong demonstration of the positive results that can be achieved through national and international agency cooperation and the proper and strategic management of the investigation of serious crime.
The AFP is a constantly evolving organisation, always seeking to learn new and more up-to-date ways in which it might conduct its business.
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URL: http://www.austlii.edu.au/au/journals/AUFPPlatypus/1998/25.html