3. Identifying the problem or issue: is the occupation or industry at risk of organised crime infiltration?

  1. 3.1 For a regulatory response to be both justified and effective, there must be a clear and demonstrable issue that needs to be addressed.1 This requires an assessment of the risk of organised crime groups infiltrating an occupation or industry.
  2. 3.2 At the risk assessment stage, policy makers should bear in mind the key forms of infiltration identified by the Commission, being:
  • entry into an occupation or industry, including through ownership or operation of a business, employment in a business or a significant connection with a business (such as a management, partnership or financing arrangement)
  • the operation of organised crime groups through an occupation/industry via the use of service providers and professional facilitators.
  1. 3.3 In the first scenario, an organised crime group could corrupt legitimate owners/operators or employees in order to infiltrate an occupation or industry. An organised crime group may pressure a business owner to relinquish the management of the business to the group.
  2. 3.4 An occupation or industry may be at risk of either or both forms of infiltration identified above. An investigation by Victoria Police and other agencies revealed that the auto-wrecking/recycling and scrap metal industry is vulnerable to both the entry of organised crime groups as business operators, and the use of existing operators by organised crime groups for the distribution of stolen property.2 By contrast, the available materials suggest that professional services—such as those offered by lawyers, accountants and real estate agents—may be vulnerable to use by organised crime groups as clients, and that infiltration is not generally attempted through the establishment of businesses in these sectors.3
  3. 3.5 A risk assessment in this context should aim to identify:
  • whether the occupation or industry is vulnerable to organised crime infiltration, and the form that infiltration may take
  • the likelihood of infiltration occurring
  • the harm that is likely to be caused by infiltration.

 

Vulnerability to infiltration

  1. 3.6 Two tools may assist policy makers in assessing whether an occupation or industry is vulnerable to organised crime infiltration and the form infiltration would be likely to take:
  • a ‘crime script analysis’ of particular forms of organised crime, in order to determine whether that crime would be facilitated by, or requires, the infiltration of certain occupations and industries
  • an analysis of whether the occupation or industry contains common risk factors for infiltration, as the starting point for a detailed, individualised vulnerability study of the occupation/industry.

Crime script analysis

  1. 3.7 A crime script analysis involves mapping out the essential steps required for the commission of a particular crime, and identifying the critical ‘pinch points’ at which regulatory intervention is likely to be most effective.4 By identifying the critical steps in the crime script, the vulnerabilities of several occupations or industries may be revealed.
  2. 3.8 Chiu, Leclerc and Townsley have conducted a crime script analysis of methamphetamine trafficking. Their analysis indicates that the essential steps involve locating a clandestine laboratory, procuring goods (including precursor chemicals), storing goods, manufacturing and packaging the drug, distributing the drug, and managing the proceeds of crime.5 The infiltration of various industries may be helpful or even necessary at each of these steps, including the diversion of precursor chemicals from legitimate manufacturers and suppliers, the potential infiltration of the trucking and/or private security industries to distribute the drug, and the potential use of real estate agents to both source/manage premises for drug production and storage, and to assist in laundering the proceeds of crime.
  3. 3.9 The use of crime script analysis is a relatively new technique in addressing organised crime, including organised crime infiltration of legitimate occupations and industries. Policy makers should have regard to the studies compiled by Bullock, Clarke and Tilley in their collection, Situational Prevention of Organised Crimes, which provide guidance about how a crime script might be mapped for a particular form of organised crime.6
  4. 3.10 As crime script analysis focuses on the criminal activity rather than a particular occupation or industry, it may better allow regulators to form a comprehensive picture of the extent of occupations/industries that are at risk of infiltration in order to enable the commission of a particular form of organised crime. It is likely to be most useful when conducted in collaboration with law enforcement agencies and other regulators whose industries may also be affected by the crime(s) under analysis. Regulators can gain an understanding of the crimes that may be connected to their occupations/industries by engaging with law enforcement agencies and considering common risk factors for infiltration.

Common risk factors

  1. 3.11 Internationally, analysts are attempting to identify common risk factors for infiltration as a way of alerting policy makers to vulnerable occupations/industries. The Commission is not aware, however, of any Australian analyses of common risk factors for infiltration. Ideally, the identification of common risk factors should be further advanced through an empirical study that is able to use the data-holdings of regulatory and law enforcement agencies and other sources. Such a study could potentially be undertaken by the Australian Crime Commission (ACC) in collaboration with other government agencies and academic specialists.
  2. 3.12 As a starting point, the Commission has sought to identify high-level risk factors for organised crime infiltration of occupations and industries, as set out in Table 1 (page 31). The factors outlined in Table 1 have been identified in the following way.
  3. 3.13 First, the Commission conducted a literature review to determine lawful occupations and industries that have previously been identified as vulnerable to organised crime infiltration, and to ascertain the apparent purposes of that infiltration. These occupations and industries are: private security, debt collection, trucking and heavy haulage, sex work, commercial fishing, labour hire, gaming, waste management, tattooing, professional sports and fitness, pharmaceutical/chemical manufacturing and supply, hydroponic equipment supply, firearm dealing, auto-wrecking/recycling and scrap metal dealing, second-hand dealing and pawnbroking, and professional services such as the legal, accounting and real estate sectors. This is not intended to be a comprehensive list; rather, it is a sample of occupations and industries that provides insights into common risk factors for infiltration.
  4. 3.14 Second, the Commission formulated a ‘draft model for assessing the risk of infiltration’, as set out in the consultation paper in June 2015. Consultation participants commented on
    the relative merits and shortcomings of the draft model.
  5. 3.15 Third, as a result of that consultation, the draft model was substantially modified and the list of high-level risk factors in Table 1 was prepared.

Existing research

  1. 3.16 Table 1 is also informed by international studies of risk factors. Such studies are rare, reflecting the relatively recent government and academic interest in the use of legitimate occupations and industries by organised crime groups, and the development of regulatory measures to counter such use.7
  2. 3.17 In a 2004 study, Vander Beken formulated a set of high-level indicators for assessing the vulnerability of legitimate business sectors to organised crime infiltration. The majority of these indicators are classified as ‘market indicators’, and include:
  • whether a sector contains many small firms or is controlled by monopolies or oligopolies (it may be more difficult to enter a sector characterised by the latter)
  • the level of demand for a product, the level of barriers to entry and exit, and the
    degree of regulatory oversight
  • the level of professionalisation in a sector
  • the extent of any prior organised crime infiltration of a sector.8

The vulnerability indicators put forward by Albanese in 2008 are similar to those advanced by Vander Beken.9

  1. 3.18 One of the most comprehensive studies of common risk factors has been conducted by a European research centre known as ‘Transcrime’. This 2015 study involved a pan-European analysis of organised crime group infiltration of legitimate business, through either the creation of new businesses or the corruption or acquisition of existing businesses.10 The business sectors identified as vulnerable to infiltration were the hospitality sector (bars, restaurants and hotels), construction, wholesaling and retailing of food and clothing, transportation and real estate. In addition, renewable energy, waste and scrap management, money transfer services and gambling were found to be emerging areas of infiltration.11 The study found that organised crime groups are motivated to infiltrate legitimate businesses in Europe in order to:
  • launder the proceeds of crime
  • profit from legal activities, which may be facilitated by illicit activities such as the unlawful discouragement of competition
  • profit from various types of fraud (including insurance, tax and government benefit frauds)
  • facilitate and conceal illegal activities (including the use of transport companies and licensed venues for the distribution of illicit goods).
  1. 3.19 The study also found that cultural or personal reasons may motivate infiltration. An organised crime group may invest in certain businesses because there is a cultural or familial tradition of business investment in a particular sector. Infiltration can also enable an organised crime group to achieve social acceptance by creating new business and jobs, or achieve control over a particular economic sector.12
  2. 3.20 Four main risk factors for infiltration were identified in the European study. These are:
  • Territory—a business is more vulnerable to infiltration if it is situated in a territory with past evidence of organised crime infiltration, a high presence of organised crime groups, large urban centres (which provide access to key economic activities and major transport facilities such as harbours and airports), high levels of infrastructure development (industrial, commercial and financial systems), and/or widespread shadow economies and corruption.
  • Business sector—a sector is more vulnerable to infiltration if it has been previously infiltrated by organised crime groups, has low levels of competition, is low-tech (which ‘ensure[s] high profits without entailing high research and development costs, or requiring specific knowledge’), has small average company sizes (the study found that organised crime groups frequently infiltrate small, unlisted companies to reduce visibility and the risk of oversight), has low barriers to entry (including limited start-up costs and an absence of licensing requirements), and/or has weak or developing regulation.
  • Business ownership structure—organised crime groups tended to conduct business through limited liability companies, often used nominee or other third-party shareholders (though direct shareholdings by group members were also common), and created complex corporate ownership schemes.
  • Financial management of business—among infiltrated businesses, it was common for the business to have a low level of financial debt (which may indicate that funding is being obtained from illegitimate sources), a high level of current assets, such as cash (which may indicate that the business is not being used for productive purposes and requires assets that can be easily liquidated in anticipation of disruption by law enforcement agencies), and low revenue and profitability.13
  1. 3.21 The factors identified by Transcrime demonstrate that risk assessments of organised crime infiltration, at least in the absence of more detailed data, require regard to be had to broad, high-level indicators of potential vulnerability to infiltration. As with the risk factors proposed by the Commission (set out below), they provide a foundation for European policy makers and regulatory and law enforcement agencies to assess, in further detail, possible vulnerabilities to infiltration. The authors of the Transcrime study noted that their list of risk factors constitutes a first step in the development of a model to assess the risk of organised crime infiltration of legitimate businesses in Europe, and that further data and analysis is required to advance the Transcrime model.14
  2. 3.22 The infiltration of legitimate occupations and industries for the purpose of facilitating ‘traditional’ organised crime activity, such as the trafficking of illicit goods, appears to be relatively well understood. There are fewer analyses of the opportunities that exist for the commission of less traditional organised crimes through legitimate occupations and industries, such as taxation fraud and investment fraud. In Australia, fraud is now a key species of organised crime, and it is becoming one of the most profitable activities of organised crime groups in Europe.15
  3. 3.23 Another area of vulnerability that is relatively under-analysed is the potential for organised crime groups to uniquely maximise profits and exploit competitive advantages by the infiltration of legitimate occupations and industries. This may occur through non-compliance with regulatory fees and other obligations or the unlawful avoidance of taxation, labour and other business costs.16 Studies by Transcrime, Vander Beken, and Morgan and Clarke have sought to highlight these types of vulnerabilities,17 but further analysis appears to be limited. European researchers are also beginning to examine the exploitation of government subsidies by organised crime groups in particular business sectors (which could provide an opportunity for increased profits) including through the corruption of government officers responsible for the granting of subsidies.18

High-level risk factors for vulnerability assessments

  1. 3.24 Drawing on the existing studies and the Commission’s consultations, Table 1 sets out broad, high-level risk factors for organised crime infiltration of an occupation or industry. Based on the available information, non-exhaustive examples of purported forms of infiltration are provided in relation to each risk factor;19 policy makers should consider whether the occupation/industry under examination contains a similar vulnerability to organised crime infiltration.
  2. 3.25 The presence or absence of one or more of these risk factors is not determinative of the need for a regulatory response. Several consultation participants said that an individualised study of an occupation or industry should be conducted in order to determine the particular ways in which the occupation/industry may be vulnerable to organised crime infiltration and the degree of any such risk.20 However, the risk factors set out below provide a starting point for policy makers to gain an appreciation of the reasons organised crime groups may seek to infiltrate an occupation or industry.

Table 1: High-level risk factors for organised crime infiltration of an occupation or industry

  1. Risk factor

    Examples of purported forms of infiltration

    (a) Factors facilitating the commission of crime:

    Access to sectors/markets for the commission of crime

    • Entry into the private security industry for the purpose of organised theft (access to property and confidential information of clients)
    • Use of professionals to facilitate investment frauds in particular markets

    Access to inputs for the commission of crime

    • Use of pharmaceutical/chemical manufacturers and suppliers to divert precursor chemicals
    • Use of licensed firearm dealers for the purpose of firearm trafficking

    Opportunities for the distribution of illicit goods and services

    • Entry into the trucking and heavy haulage industry (access to supply networks and secure sites)
    • Entry into the private security industry (supply of illicit drugs at licensed venues)
    • Use of auto-wreckers/recyclers, scrap metal dealers and second-hand dealers/pawnbrokers to distribute stolen property
    • Use of established tobacco retailers for the distribution of illicit tobacco products

    Opportunities for the intermingling of lawful and unlawful goods and services

    • Entry into the auto-wrecking/recycling and scrap metal industry (stolen and lawful vehicle parts can be intermingled for sale on domestic and export markets)

    Cash-intensive transactions, which hinder the creation of an audit trail in transactions for unlawful goods and services

    • Entry into the auto-wrecking/recycling and scrap metal industry (cash-based transactions obscure the chain of vehicle acquisition and parts disposal)

    (b) Factors enabling the maximisation of profits and the exploitation of competitive advantages by organised crime groups:

    Low barriers to entry,21 such as:

    • low sunk costs
    • low labour costs
    • a low level of professionalisation and skill
    • the presence of many small firms rather than a concentration of large firms
    • Entry into the trucking and heavy haulage industry
    • Entry into the waste management industry
    • Entry into the auto-wrecking/recycling and scrap metal industry

    Access to government subsidies, on a lawful or unlawful basis

    • Entry into the trucking and heavy haulage industry (access to fuel rebates)

    Opportunities for vertical integration or business expansion following previous infiltration of a related occupation or industry

    • Entry into the waste management industry may be facilitated by any previous infiltration of the construction industry
    • Entry into the private security industry may be facilitated by any previous infiltration of the hospitality industry/liquor licensed businesses

    Opportunities to unfairly undercut market prices through:

    • non-compliance with the costs of lawful business (for example, non-compliance with regulatory obligations and taxation obligations)
    • supplementation of lawful revenue with revenue from unlawful activity
    • Entry into the commercial fishing industry (supplementation of fishing revenue with revenue from drug trafficking)
    • Entry into the waste management industry (illegal disposal of hazardous waste, avoiding regulatory fees)

21

 

  1. Risk factor

    Examples of purported forms of infiltration

    Opportunities to differentiate goods and services from competitors by engaging in unlawful or unscrupulous conduct

    • Entry into the debt collection industry (recovery of debts using unlawful methods)
    • Entry into the commercial fishing industry (harvesting of high-demand fish stock in contravention of quotas or prohibitions)

    Opportunities to intimidate or extort competitors in order to increase market share

    • Entry into the private security industry

    (c) Factors enabling the concealment or laundering of the proceeds of crime:

    Cash-intensive transactions, which allow the intermingling of lawful and unlawful revenue

    • Entry into the hospitality industry/liquor licensed businesses
    • Use of established tobacco retailers (intermingling of lawful cash sales with unlawful revenue from illicit tobacco sales and any other unlawful activity)

    Access to sectors/markets that facilitate money laundering

    • Use of professional facilitators such as lawyers, accountants and real estate agents in order to launder the proceeds of crime through, for example, complex corporate structures and securities and real estate markets
    • Entry into the trucking and heavy haulage industry (purchase and resale of plant and equipment as a laundering method)

    (d) Factors indicating insufficient external or internal ‘guardians’ (such as government agencies, occupation and industry members, and industry/professional associations):

    Deficient or developing regulatory oversight

    • Use of real estate agents, who are not required to comply with anti-money laundering legislation

    The use of complex supply chains and outsourcing arrangements, where this complicates government or private sector oversight of the provision of goods and services

    • Entry into the waste management industry
    • Entry into the labour hire industry

    Occupation and industry members having pre-existing relationships with organised crime groups on a licit or illicit basis

    • Corruption of professional facilitators in the course of providing licit services or due to unpaid gambling debts or illicit drug use
    • Entry into the professional sport industry (pre-existing social relationships may be exploited for the purpose of drug distribution, match-fixing or the acquisition of inside information for gambling purposes)

    A preponderance of low margin and/or undercapitalised businesses, such that existing occupation and industry members may be susceptible to doing business with or relinquishing the business to organised crime groups

    • Use of existing members of the trucking and heavy haulage industry for the distribution of drugs and other unlawful activity

    (e) The occupation or industry has a history of organised crime infiltration

    • Entry into the racing industry, or the use of members of the racing industry

Likelihood of infiltration

  1. 3.26 After identifying any vulnerabilities to organised crime infiltration in an occupation or industry, the likelihood of infiltration should be assessed. The number of vulnerabilities identified in an occupation or industry is not necessarily indicative of the likelihood of infiltration. The existence of only one vulnerability may nonetheless expose an industry to a high likelihood of infiltration; for example, a legitimate industry may provide an essential input for the commission of crime that is more difficult to source elsewhere. Alternatively, an industry may be identified as having several vulnerabilities to infiltration, but the existence of particular protective factors may mean that the likelihood of infiltration is low.
  2. 3.27 In assessing the likelihood of infiltration, it may be useful to identify whether any protective factors exist in an occupation or industry that mitigate the risk of infiltration. An analysis of protective factors is sometimes used to assess risk in crime prevention and community health contexts.22 Protective factors will vary by occupation or industry. In order to identify protective factors, regard could be had to such factors as:
  • the scope and utility of any existing regulatory regimes
  • the degree of self-regulation (the existence of strong industry associations may make entry into an occupation or industry more difficult)
  • whether customers (including public and private sector procurers of services) are well-informed and conscientious in their dealings with business operators, such that unscrupulous business operators may be more easily detected and less able to find a market for the provision of sub-standard or unlawful services
  • whether businesses in the occupation/industry are profitable, enjoy secure trade, and are conscientious in their dealings with customers, such that the supply of goods and services to organised crime groups may be less likely to occur.

 

Harms of infiltration

  1. 3.28 It is important to assess the harm that is likely to arise—or is arising—from organised crime infiltration of a particular occupation or industry. Infiltration may have significant consequences that justify the various costs of regulatory intervention.
  2. 3.29 At a minimum, infiltration is likely to facilitate organised crime activity in some form, such as through the concealment or laundering of the proceeds of crime, and through the enabling of unlawful activities such as the trafficking of illicit goods, organised fraud and organised property theft.
  3. 3.30 However, infiltration may have broader consequences. As the Transcrime research centre has emphasised, it is equally important to consider the economic- and market-based harms of infiltration. Two particular forms of harm were identified in the Transcrime study.
  4. 3.31 First, businesses operated by organised crime groups may be sub-optimal or sub-efficient. These businesses may have poor profitability or deliberately operate at a loss, such as where the business is used as a front for unlawful activity rather than as a source of revenue. This may result in reduced taxation revenue. Further, an organised crime group may deliberately engage in tax avoidance strategies where substantial profits are generated. There will be further reductions in taxation revenue if an organised crime group is underpaying workers.23
  5. 3.32 Second, markets may be distorted by organised crime infiltration. During the course of its consultations, the Commission frequently heard that organised crime groups engage in unfair competitive practices once they have infiltrated an occupation or industry.24 These practices have also been observed in Europe.25
  6. 3.33 Organised crime groups may reduce their operating costs through non-compliance with the regulatory obligations of a particular occupation or industry, and through non-compliance with broader legal obligations, such as taxation and employer obligations. An organised crime group may also use coercive and intimidatory practices to achieve commercial outcomes (for example, in the collection of debts), or to drive competitors from the market. In these circumstances, legitimate operators may be forced to leave the market, or may refrain from further investment if the integrity of the industry is significantly impaired or the acquisition of financing or insurance becomes difficult due to organised crime infiltration. The Commission was told that some legitimate tattooists are finding it difficult to obtain commercial insurance due to reports of organised crime infiltration of that industry.26
  7. 3.34 Market distortion may also occur if significant investments in legitimate businesses and market sectors are primarily motivated by the need to conceal or launder the proceeds of crime, rather than fundamental investment characteristics. As the Australian Crime Commission (ACC) has stated, in these circumstances ‘funds are likely to be invested not on the basis of likely returns, but in businesses or schemes that provide the greatest chance of concealing the origins of the money’.27 This may distort the value of certain business types and asset classes (such as real estate) and result in legitimate investors being priced-out. There is a risk that markets may collapse, or at least be impaired, if a change in laundering strategies by organised crime groups results in capital flight from particular markets.28

The vulnerability of professionals to use by organised
crime groups

  1. 3.35 There is some controversy surrounding the claim that professionals are vulnerable to use by organised crime groups for the purpose of money laundering or other illicit activity.
  2. 3.36 A number of regulatory and law enforcement agencies have noted that professionals such as lawyers, accountants and real estate agents may wittingly or unwittingly facilitate money laundering and other illicit activity on behalf of organised crime groups. This was noted by the ACC in its most recent organised crime assessment,29 and during the course of the Commission’s consultations with the ACC, the Australian Federal Police, the Australian Transaction Reports and Analysis Centre (AUSTRAC), and the Commonwealth Attorney-General’s Department.30 In recent years, AUSTRAC has particularly sought to highlight the use of lawyers and real estate agents for the purpose of money laundering.31 Other potential professional facilitators of organised crime include liquidators, financial services providers and lenders.32
  3. 3.37 The analysis below does not propose or conclude that the professionals reviewed are engaged in unlawful activity. Rather, the analysis is directed at the potential for infiltration, and therefore the need for vigilance.
  4. 3.38 The available Australian research does not indicate that organised crime groups engage in infiltration in this context by entering into business in professions such as legal services, accounting and real estate. Instead, organised crime groups are said to seek the services of existing operators.33
  5. 3.39 The United Kingdom’s National Crime Agency (NCA) states that:

[t]he ability of criminals to launder large sums of money themselves without attracting attention is limited. Therefore, criminals need someone professional, capable and trustworthy to make the necessary arrangements. Although there are many ways to launder money, it is often the professional enabler who holds the key to the kind of complex processes that can provide the necessary anonymity for the criminal. Professionals such as lawyers, trust and company formation agents, investment bankers and accountants are among those at greatest risk of becoming involved, either wittingly or unwittingly.34

  1. 3.40 However, the NCA acknowledges that it has a relatively limited understanding of the scale of involvement and complicity of professionals in money laundering.35
  2. 3.41 The Financial Action Task Force states that lawyers, real estate agents and other professionals are vulnerable to use by organised crime groups for the purpose of money laundering, including professionals who provide company and trust services.36 The World Economic Forum has singled out the use of professional facilitators as one of two key enablers of money laundering, alongside the related activity of concealing beneficial ownership through complex corporate and trust structures for the purpose of illicit financial transactions.37
  3. 3.42 There is presently limited empirical evidence of the use of professional facilitators by organised crime groups. The 2015 Queensland Organised Crime Commission of Inquiry (QOCC) found no evidence of professionals in Queensland such as lawyers, real estate agents, accountants and financial advisers knowingly performing enabling tasks for organised crime groups, but concluded that there is a risk of professionals being targeted for the purpose of money laundering.38 In relation to lawyers specifically, the QOCC reviewed materials produced by the ACC and AUSTRAC that set out the types of enabling tasks that may be performed by lawyers, and the reasons why lawyers may be vulnerable to use by organised crime groups. In its June 2015 consultation paper, the Commission also referred to materials prepared by the ACC and AUSTRAC about the enabling tasks that lawyers, accountants and financial advisers may perform for organised crime groups (the Commission’s summary was in turn referred to by the QOCC in its final report).39 After reviewing these materials, the QOCC stated that ‘[a]lthough it is likely that lawyers in Queensland are facilitating organised crime in at least some of the ways outlined by the ACC, the Victorian Law Reform Commission and AUSTRAC, the [QOCC] found no reported cases’.40 No specific evidence was proffered by the QOCC for the statement of likelihood as distinct from risk.41
  4. 3.43 In a study of Australian lawyers, accountants and real estate agents, the Australian Institute of Criminology (AIC) found little evidence of intentional money laundering. While participants in the study were generally of the view that the risk of unwitting involvement in money laundering was low, it was possible that the participants ‘could simply have been unaware of instances of unwitting involvement in money laundering taking place within their sector’.42
  5. 3.44 The case study reviews by Middleton and Levi indicate that lawyers in the United Kingdom have facilitated money laundering and other illicit activity on behalf of organised crime groups, such as investment fraud. Middleton and Levi acknowledge that the extent and nature of facilitation of money laundering by lawyers is disputed, and that further research is required on this topic.43 The risk of solicitors facilitating money laundering has been recognised by the Solicitors Regulation Authority, which oversees solicitors in England and Wales.44
  6. 3.45 The pan-European Transcrime study found that financial institutions, professionals such as lawyers and accountants, and company service providers are key enablers (whether wittingly or unwittingly) of money laundering by organised crime groups, though some groups in Europe (such as the Italian ’Ndrangheta) were found to prefer more direct control over businesses without the involvement of external professionals and managers.45
  7. 3.46 Other studies have sought to ascertain the role of professionals by analysing police files relating to particular organised crime groups or a sample of money laundering cases. In a study of a Canadian drug network by Malm and Bichler, 102 of the 916 individuals known to be involved in drug market activity were identified as performing money laundering roles. Of those 102 members, the majority (80 per cent) were identified as ‘self-launderers’; that is, the laundering activity was carried out by the offenders themselves.46 A minority (8 per cent) of members were identified as professionals who performed money laundering roles.47 In a review of 52 Dutch money laundering cases, van Duyne found that only 3.8 per cent of cases involved the use of a professional.48
  8. 3.47 A lack of empirical evidence of the use of professional facilitators does not necessarily demonstrate the absence of such use, or the use of professionals to a limited degree. Sophisticated organised crime groups may successfully distance professionals from detection.49 Professionals may also be subject to less suspicion due to their relatively high social status.50
  9. 3.48 Further, the investigation of professional facilitators, and the financial dimensions of organised crime activity more generally, are developing fields of inquiry. Accordingly, the use of professionals by organised crime groups may be under-detected. In one study of 31 European drug importation cases, a correlation was found between a focus on financial matters at the beginning of the investigation and the identification of professional facilitators.51
  10. 3.49 Policy makers should be alert to the potential for professionals to be engaged by organised crime groups in order to facilitate money laundering or other illicit activity. According to AUSTRAC and the ACC, key avenues for money laundering are investment in real estate and securities, foreign exchange trading, the use of complex corporate structures to conceal illicit funds (including in offshore jurisdictions), and the establishment of legitimate, particularly cash-intensive, businesses.52 Further, organised crime groups may use complex business structures in order to conceal beneficial ownership of entities for the purpose of obtaining an occupational/industry licence, and to avoid detection when operating in an occupation or industry.53 These arrangements may involve the use of professionals at various stages, on a complicit or non-complicit basis.54

Assessing the vulnerability of professionals

  1. 3.50 Vulnerability should be assessed by examining the particular circumstances of professionals that may make them susceptible to use by organised crime groups; the instrumental reasons for which an organised crime group may seek the services of a professional; and any protective factors that may mitigate such use, such as the existence of effective regulatory regimes.
  2. 3.51 A professional may be susceptible to use by organised crime groups due to unpaid gambling debts or illicit drug use.55 Business factors may also play a role. Professionals may be vulnerable to exploitation if they are struggling to attract or retain clients or face demands from senior management for increased revenue, particularly as markets for professional services become more competitive, as is the case with the legal services and real estate sectors.56 Increased competition may mean that some firms or individuals may be less discerning in relation to the provision of services, while customers are afforded more of an opportunity to ‘shop around’ to obtain unlawful services.57
  3. 3.52 Less lucrative business conditions may have a similar effect. In the AIC’s study, some real estate agents expected that the risks of fraud and unscrupulous activity (but not necessarily money laundering) would increase in the event of substantial falls in property prices, as ‘both agents and clients attempt to supplement their income levels and maintain existing lifestyles’. Conversely, some industry members anticipated that ‘any reduction in work volumes would allow agents more time to examine transactions more closely’.58
  4. 3.53 Sales-driven remuneration measures may also increase the risk that a firm or individual will not properly enquire into the background of clients or requested services, or may willingly act for a spurious client.59
  5. 3.54 Three professions that regularly appear in analyses of professional facilitators of organised crime are lawyers, accountants and real estate agents.60 The reasons for which organised crime groups may seek the services of these professions are outlined below.

Lawyers and accountants

  1. 3.55 The primary potential form of organised crime infiltration of the legal and accounting professions is by operating through those professions—that is, seeking the services of those professions—rather than entering into them.
  2. 3.56 There is some overlap between the services that may be sought of lawyers and accountants, due to the use of trust accounts in both professions (noting that trust accounts are only used by solicitors, not barristers, within the legal profession), the expertise of both lawyers and accountants in relation to the establishment of business structures, and the potential involvement of each profession in the management of investments and the conduct of financial transactions.
  3. 3.57 Organised crime groups may seek the services of accountants in relation to:
  • the structuring of transactions so as to avoid reporting requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) or the Financial Transaction Reports Act 1988 (Cth) (FTR Act)
  • the creation of business structures in order to conceal illicit transactions and involvement in legitimate businesses
  • fraudulent tax arrangements, including tax evasion and the fraudulent claiming of tax concessions
  • the misuse of trust accounts and the conduct of transactions involving illicit funds, particularly where this involves entities in high-risk jurisdictions.61
  1. 3.58 Organised crime groups may seek the services of lawyers in relation to:
  • the structuring of transactions so as to avoid reporting requirements under the AML/CTF Act or the FTR Act62
  • advising on business structures63
  • the purchase and sale of real estate, where those transactions involve the proceeds of crime—this may involve not only the conduct of the transaction itself, but the falsification of documents (for example, buying property in a false name) or facilitating the transfer of ownership of property to nominees or third parties64
  • the misuse of trust accounts to launder the proceeds of crime (for example, the depositing of money into a trust account for the alleged purpose of purchasing property or other investments, the cessation of the transaction, and the disbursal of the trust funds to other parties)65
  • bogus debt recovery services for the purpose of moving illicit funds—this involves disguising illicit funds as ‘debts’ to be recovered, moving these funds through trust accounts, and returning the funds to the offender client66
  • the establishment and/or promotion of fraudulent investment schemes, such as land banking scams67—groups involved in organised fraud may use a lawyer or well-regarded law firm to publicly endorse or ‘back’ an investment and thereby disarm investor scepticism68
  • fraudulent tax arrangements, including tax evasion and the fraudulent claiming of tax concessions.69
  1. 3.59 Some professional associations have critiqued the assertion that professionals are enablers of organised crime. The Law Council of Australia (LCA) submitted to the Commission that ‘there is a dearth of empirical evidence available to support the contention that lawyers in Australia are systemically involved in money laundering’, and that these contentions tend to rely on outdated or overstated material, ‘lightly analysed lists of cases in multiple jurisdictions’ or material from confidential sources that cannot be tested.70 The LCA’s initial submission was endorsed by the Law Institute of Victoria, which also identified the importance of ‘raising awareness within the legal community of the risks of unwitting involvement in money laundering and other criminal conduct’.71 The importance of professional ethics education and support is discussed at []–[].
  2. 3.60 The LCA made a supplementary submission to the Commission following the publication of the report of the Queensland Organised Crime Commission of Inquiry (QOCC) in 2015. The LCA noted that the QOCC found no evidence that Queensland lawyers have knowingly facilitated organised crime in the forms suggested by the ACC to the QOCC, and the LCA contended that the QOCC had relied on the subjective views of the ACC, AUSTRAC and the Financial Action Task Force in reaching its conclusions. The LCA further stated that:

Despite this lack of evidence, the QOCC Report nevertheless concluded: ‘it is likely that lawyers in Queensland are facilitating organised crime in at least some of the ways outlined by the ACC’.

It is the Law Council’s submission [that] this conclusion can only be treated with such weight as the evidence which the QOCC Report had to sustain it. That is, the conclusion will bear no more or less weight than any other mere supposition as to matters that might or might not be the case. That the supposition is one that has been urged by law enforcement agencies such as the ACC does not give it any greater weight than any other supposition which is not based on objective evidence of substance.72

  1. 3.61 In its supplementary submission, the LCA noted its commitment ‘to working with Australian legal practitioners to avoid or prevent their involvement in organised crime.’73
  2. 3.62 The Victorian Bar in its submission noted that barristers in Victoria, unlike solicitors, do not operate trust accounts or hold or distribute client money. The Bar and the LCA emphasised the importance of legal professional privilege and its facilitative function in access to justice, and correctly pointed out that communications in furtherance of a crime or fraud are not privileged.74
  3. 3.63 In its submission, the Victorian Legal Services Board and Commissioner, while emphasising that ‘the legal profession in Victoria has always been very highly regulated’, noted that:

Lawyers of course may be called upon to advise clients who themselves are involved in organised crime. This could involve the lawyer advising on business structures and financial arrangements that might be used by the client in pursuing their criminal interests, unbeknownst to the lawyer.75

The submission stated that there have been a few individual lawyers who have engaged in criminal activity (case studies for which were provided to the Commission), but these are individuals rather than members of organised groups.

 

The submission also stated that, while there are limited examples of lawyers who may have links with organised criminals (which links are being monitored by the Legal Services Commissioner), there appears to be no evidence of organised or group criminality among lawyers.

  1. 3.64 The legal profession is bound by a set of ethical duties designed to facilitate access to justice while keeping the lawyer at arm’s-length from the client. A lawyer is generally bound to act on a client’s factual instructions in court proceedings but is forbidden from conspiring with the client in relation to the content of those factual instructions. Barristers are bound by the ‘cab-rank’ principle, which in general obliges barristers to accept a brief in their field of practice.76
  2. 3.65 The Commission notes the differing prevailing views as to the nature and extent of the use of lawyers and other professionals by organised crime groups. While it has not been appropriate in the course of this review for the Commission to conduct a factual investigation of this issue, good policy making should involve an awareness, and assessment, of the risks described in the materials reviewed above. Suggested strategies for addressing the potential use of professional facilitators are set out in Chapter 8.

Real estate agents

  1. 3.66 Money laundering appears to be the primary reason for which organised crime groups may seek the services of real estate agents. Real estate has been identified as one of the key destinations for illicit funds.77 Money laundering may occur in collaboration with other professionals, such as lawyers and conveyancers, who are primarily responsible for the transactional aspects of the purchase and sale of property, and valuers, who may be involved in the corrupt undervaluing or overvaluing of property.78 According to AUSTRAC, money laundering through real estate may be enabled by methods such as:
  • the purchase of property in the name of a third party, or the use of complex corporate and trust structures to obfuscate beneficial ownership
  • the use of loans as laundering vehicles, with lump sum payments or smaller, structured cash amounts paid using illicit funds
  • the deliberate overvaluation of property, which allows a larger loan to be obtained for the purpose of laundering through loan repayments
  • the deliberate undervaluation of property, with the difference between the recorded contract price and the true price of the property paid secretly by the purchaser using illicit funds
  • the sale of property in quick succession and at higher values to other entities controlled by an offender or to third parties linked to the offender.79
  1. 3.67 Real estate may be an attractive site for money laundering for several reasons. Real estate agents are not subject to the AML/CTF Act, and are therefore not legally obliged to report suspicious transactions to AUSTRAC or conduct customer due diligence. However, real estate dealings may be subject to oversight when transactions such as loans, deposits and withdrawals take place through financial institutions, as they are subject to the AML/CTF Act.80 Real estate may be particularly attractive for money laundering in booming property markets. European research indicates that organised crime groups were attracted to investment in the Irish, Spanish and United Kingdom real estate markets prior to the deflation of those markets in the late 2000s.81 In a booming market, the sale of property in quick succession and for higher value is less likely to arouse suspicion, particularly if speculative activity and short-term investment are common. A booming market may also enable a large amount of illicit funds to be ‘legitimised’ in one transaction.82 Further, corrupt overvaluation may be more difficult to detect if prices are rising rapidly, and the related acquisition of large loans for laundering purposes may be more feasible if abundant and cheap liquidity is available in a rising market.
  2. 3.68 In addition to its use as a laundering vehicle, the purchase of real estate may facilitate the commission of crime. Real estate agents may be witting or unwitting facilitators by supplying or managing properties used for cannabis cultivation or the housing of trafficked or exploited workers.83


Footnotes

Main menu

Back to top