3. The infiltration of organised crime groups into lawful occupations and industries

  1. 3.1 This chapter examines issues relating to the establishment of a framework of principles for assessing the risk of infiltration. In order to formally consult on this topic, information is presented about the following:
  • the existence and extent of infiltration
  • the harms of infiltration
  • forms and purposes of infiltration
  • a draft model for assessing the risk of infiltration.

The existence and extent of infiltration

  1. 3.2 The infiltration of lawful occupations and industries appears to be a key strategy of organised crime groups in Australia. Cumulatively, the reports of government inquiries, law enforcement agencies, and research bodies indicate that organised crime groups use this strategy in order to enable or facilitate criminal conduct and to conceal or launder the proceeds of crime.1 However, there are some difficulties in identifying the nature and extent of infiltration, including which particular occupations and industries are subject to, or susceptible to, infiltration. Organised crime activity is inherently clandestine, and relevant law enforcement intelligence may be protected. Insofar as information is publicly available, claims of infiltration or suspected infiltration come from a range of sources, including anecdotal evidence, non-protected law enforcement intelligence, criminological research, and (less commonly) legal judgments.
  2. 3.3 The extent of infiltration is unquantified, both among and within occupations and industries. In the view of law enforcement agencies, infiltration is a substantial problem. For example, the Commonwealth Organised Crime Strategic Framework identifies six challenges in addressing organised crime, one of which is the infiltration of organised crime groups into legitimate sectors of the economy. Another challenge is the ‘flexible, dynamic, innovative and resilient’ nature of organised criminal networks: ‘Criminal networks are sensitive to the tactics employed by law enforcement and regulatory agencies and are knowledgeable of legitimate industry practices, demonstrating a high degree of resilience to traditional organised crime interventions.’2
  3. 3.4 The Australian Crime Commission (ACC) similarly reports that two key tactics of high-threat organised crime groups are the intermingling of legitimate and criminal enterprises to enable the commission of crime or concealment of the proceeds of crime, and the use of specialist advisors and professional facilitators in order to conduct criminal activities.3
  4. 3.5 Victoria Police states that organised crime groups have infiltrated a range of lawful occupations and industries, including the private security, debt collection, and trucking and heavy haulage industries.4 While some of these statements have been made in the context of recent investigations into outlaw motorcycle gang (OMG) activity in Victoria, police concerns about the infiltration of legitimate business predate the recent focus on OMGs. In Victoria Police’s organised crime strategy for 2005–2009 (developed at the time of the so-called ‘gangland wars’), one of the six strategic areas identified by Victoria Police was the improvement of regulatory regimes—particularly via the sharing of information and intelligence—in order to reduce the opportunities for organised crime group infiltration of legitimate business.5
  5. 3.6 The infiltration of organised crime into lawful occupations and industries is not unique to Australia. It has also been identified in the United States and Europe.6

The harms of infiltration

  1. 3.7 The harms of infiltration will vary in nature and extent, depending upon the form and purpose of infiltration and the particular occupation or industry in issue. Broadly speaking, infiltration by organised crime groups may cause the following types of harms.

Social harms

  1. 3.8 The social harms of infiltration include:
  • the enabling or facilitation of criminal conduct (for example, the infiltration of a legitimate business may enable an organised crime group to efficiently distribute illicit goods to a large market)
  • general unlawful conduct—having entered an occupation or industry for other illegitimate purposes, an organised crime group may have a propensity for more general unlawful conduct when operating a legitimate business, including in relation to tax, occupational health and safety, and workplace relations laws; in turn, the competitive advantages of non-compliance may encourage other occupation or industry participants to behave in a similar way
  • threats to public safety through the use of unlawful tactics to achieve commercial results (for example, the use of intimidation or violence in debt collection services)
  • damage to the integrity of an occupation or industry where infiltration by organised crime groups attracts and shelters disreputable participants and repels reputable participants or entrants.

 

Economic harms

  1. 3.9 The economic harms of infiltration include:
  • increased barriers to entry for lawful occupation or industry participants, including regulatory requirements such as licensing and the potential for increased insurance and financing costs if the risk profile of an occupation or industry is substantially impaired by the infiltration of organised crime groups
  • other anti-competitive effects, including the ‘crowding-out’ of legitimate businesses where organised crime groups are able to exercise unfair competitive advantages such as the use of no- or low-cost inputs (for example, stolen property), the use of unlawful tactics to impair or remove competitors (for example, the use of intimidation, extortion or assault), and the ability to operate at a loss where the business is primarily used as a vehicle for criminal conduct and/or concealment or laundering of the proceeds of crime, rather than as a source of revenue7
  • less efficient transactions in affected occupations and industries (for example, consumers of private security services, including government consumers, may need to spend additional resources finding out whether a security firm has any links to organised crime groups before transacting)
  • loss of tax revenue insofar as criminal activities (assuming no tax is paid on them) result in fewer legitimate business activities.

Forms and purposes of infiltration

  1. 3.10 This section draws on public information to consider systemic forms and purposes of infiltration. The review is cross-sectional and does not claim to be exhaustive. On the basis of this review, it appears that there are two key forms of organised crime group infiltration of lawful occupations and industries:
  • the entry of organised crime groups into an occupation or industry, including through ownership or operation of a business, an employment relationship with a business owner, or a significant connection with a business through a partnership or financing arrangement
  • the use of trusted industry insiders and professional facilitators by organised crime groups (the distinction between entry into, and operating through, an occupation or industry is recognised by the terms of reference, as noted at [1.14]).
  1. 3.11 Each of these forms of infiltration is considered below. At the end of each section there is a table that sets out the possible purposes of infiltration in each occupation or industry.
  2. 3.12 The final section of the chapter draws on this overview of the purposes of infiltration, and the literature on risk factors for infiltration, to propose a draft model for assessing the risk of infiltration.
  3. 3.13 The occupations and industries referred to in this paper are themselves lawful, but are said to have been infiltrated by organised crime groups or to be vulnerable to infiltration, in material on the public record. As is appropriate, the Commission has reviewed that material for the purpose of this paper.

 

Entry into a lawful occupation or industry

  1. 3.14 The following lawful occupations and industries are said to have been entered, or to be vulnerable to entry, by organised crime groups: private security, debt collection, trucking and heavy haulage, lawful sex work, commercial fishing, labour hire, gaming, waste management, tattooing, and professional sports and fitness.

Private security

  1. 3.15 The private security industry includes security guards, bodyguards, crowd controllers, investigators, private security trainers, security equipment installers, and security advisers. Following an investigation of the industry between 2007 and 2009, the ACC reported that organised crime groups may enter the private security industry by owning security firms and having group members employed by security firms. In addition, organised crime groups may use trusted insiders by bribing or corrupting security firms or employees. The ACC stated that within the industry it found ‘a number of examples of criminal influence and organised crime across all states and territories, including by members of outlaw motorcycle gangs’.8 OMGs have allegedly infiltrated the private security industry in order to facilitate distribution and sales of amphetamine-type substances.9

Debt collection

  1. 3.16 Debt collection involves the recovery of debts owed to another person, or repossession of goods on behalf of another person, for remuneration or reward.10 Organised crime groups, including OMGs, are said to have entered the lawful debt collection industry in order to recover debts on behalf of legitimate businesses.11
  2. 3.17 Building and construction industry debts may be a particular focus for organised crime groups, partly due to the extent of insolvency and bad debt in the industry. In 2012–13, 24 per cent of external administration reports lodged with the Australian Securities and Investments Commission related to companies in the construction sector (a marginal increase from 23 per cent in 2010–11). In 2010–11, creditors in the construction industry collectively lost an estimated $2.4 billion in bad debts.12 On the basis of these data and evidence from law enforcement agencies, the Australian Senate Education and Employment References Committee concluded in a 2014 inquiry: ‘The huge sum of money lost underpins an extensive debt collection industry that, as the evidence from policing authorities shows, attracts organised criminality.’13

 

Trucking and heavy haulage

  1. 3.18 Victoria Police has stated that the trucking and heavy haulage industry is a relatively recent target of infiltration.14 Infiltration is said to have occurred through organised crime groups’ ownership of trucking/haulage firms and associations with industry participants, consistent with experience in the United Kingdom and Europe.15 Victoria Police has stated that:

Many members of [OMGs] are known to own, have involvements in (including silent partners/financiers) or exploit their relationship with associates who own or who are involved with trucking and towing (heavy haulage) companies. Involvement in the transport industry allows for ready access to both inter and intra state distribution routes and networks.16

  1. 3.19 Infiltration of the trucking and heavy haulage industry may allow organised crime groups to distribute illicit drugs.17
  2. 3.20 In relation to the transport sector more generally, the ACC has reported that organised crime groups have infiltrated the airport and maritime sectors in order to distribute illicit goods.18

Lawful sex work

  1. 3.21 Sex work means the provision of sexual services in return for payment or reward. In Victoria, sex work is lawful where it occurs through licensed brothels or escort agencies, or in small, owner-operated brothels or escort agencies that are exempt from the requirement to hold a licence; street-based sex work is unlawful.19
  2. 3.22 Consistent with the terms of reference, this paper is concerned with organised crime infiltration of the lawful sex work industry (and not the unlawful sex work industry). The nature and extent of such infiltration is unclear. Some of the main investigations of this issue occurred in the context of inquiries into prostitution laws in Victoria, Queensland and New South Wales during the 1980s and early 1990s, and inquiries into corruption during the same period.20
  3. 3.23 Several agencies have suggested, in broad terms, that organised crime groups have some involvement in the sex work industry. Victoria Police has stated that organised crime activity is present in the lawful and unlawful sex work industries.21 The Queensland Crime and Misconduct Commission has referred to anecdotal evidence of organised crime group involvement in lawful and unlawful prostitution in Victoria.22 According to the ACC, some OMGs are involved in prostitution, ostensibly in several states and territories.23 In 2011 the Sex Work Act 1994 (Vic) was amended partly to support the goal of removing ‘criminal elements’ from the industry.24
  4. 3.24 A specific form of infiltration appears to be human trafficking, slavery and servitude offending in licensed brothels.25 This offending may involve both existing industry participants such as brothel licensees, managers and other employees, and people external to the industry. In Australia, small-scale organised crime groups—rather than large, sophisticated syndicates—tend to be involved in trafficking offending. Small business operators and couples are common types of offenders (such behaviour would meet the definition of ‘organised crime’ under section 3AA of the Major Crime (Investigative Powers) Act 2004 (Vic)). Small groups have been found to use family or business contacts overseas to facilitate recruitment, movement into Australia, and visa fraud.26

Commercial fishing

  1. 3.25 The Australian Institute of Criminology (AIC) has reported that organised crime groups are involved in commercial fishing in several states and territories (including Victoria) and may participate in activities such as:
  • the harvesting, processing and distribution of high-value, restricted fish stocks in contravention of catch limits or prohibitions (in 2005, abalone was most vulnerable to organised crime activity in Victoria; other vulnerable species were rock lobster, eel, native fish, and live seahorses)
  • unlawful conduct unrelated to fishing, such as the manufacturing of drugs at aquaculture facilities and the distribution of drugs
  • money laundering, enabled by the vertical integration of fishing businesses (that is, control of harvesting, processing and distribution of fish stocks by a single business).27
  1. 3.26 The AIC also received anecdotal evidence of OMG involvement in the industry in some states and territories.28
  2. 3.27 Illegal fish stock is sold on domestic and/or export markets, depending on the species in question. The export of illegal fish stock may require cooperation between organised crime groups within and outside Australia.29

Labour hire

  1. 3.28 Labour hire agencies arrange placements for employees, independent contractors, trainees, and apprentices in return for commission from client firms.30 Labour hire agencies in the building and construction industry may be one particular target of infiltration. In evidence to the Royal Commission into Trade Union Governance and Corruption, a senior officer of Victoria Police stated that Victoria Police has intelligence indicating that people with links to organised crime groups may be involved in labour hire agencies in the building and construction industry, and that a fit and proper person test should be introduced for businesses in the building and construction industry.31
  2. 3.29 More broadly, the labour hire industry may provide a site for organised labour trafficking and labour exploitation. Low- or semi-skilled workers on short-term visas, international students, and migrant workers in the agricultural, domestic services, and maritime sectors may be particularly vulnerable to labour exploitation.32
  3. 3.30 To the extent that organised crime groups have infiltrated the labour hire industry, entry into the industry may provide an opportunity for the maximisation of profits through non-compliance with (or the exploitation of ambiguities in) workplace relations and occupational health and safety laws.33

Gaming

  1. 3.31 Gaming is a subset of the broader gambling industry, and refers to the use of gaming machines (otherwise known as poker machines or ‘pokies’) in venues such as hotels and clubs.34 Gaming and other gambling businesses may be susceptible to infiltration by organised crime groups,35 including through the possible granting of operator licences to people with links to organised crime groups. In 1999, the Productivity Commission reported that while organised crime ‘has little opportunity to get a foothold in Australia’s casinos’ due to probity controls, ‘[t]he potential is greater in parts of the hotel gaming sector, but the [Productivity] Commission was provided no evidence of it happening.’36
  2. 3.32 Consistent with these observations, the main objectives of the Gambling Regulation Act 2003 (Vic) include to ensure that the management of gaming equipment and other forms of gambling is free from criminal influence and exploitation.37
  3. 3.33 In addition to, or instead of, the entry of organised crime groups as venue operators,38 a venue operator may perform a similar function to a professional facilitator of organised crime, either complicitly or non-complicitly. First, gaming and other forms of gambling are said to be money laundering sites.39 The ACC has observed that alongside gaming services, gaming venues may offer ancillary services that are ‘similar to those of financial institutions, including accounts, foreign exchange, electronic funds transfers, cheque issuing and safety deposit boxes’ which may be exploited for the purpose of money laundering.40
  4. 3.34 Second, gaming venues may provide organised crime groups with access to potential victims or new recruits for criminal conduct. The incidence of ‘loan sharking’ by unlawful lending organisations at gaming venues—with or without the knowledge of venue operators—is acknowledged as a significant issue.41 In turn, debtors may be recruited for criminal conduct, such as cannabis cultivation, in order to repay debts.42

Waste management

  1. 3.35 The waste management industry—particularly hazardous waste disposal—is said to be vulnerable to infiltration by organised crime groups, consistent with experience in Europe and the United States.43 The AIC has stated that ‘Australia has not seen a concerted influence of organised crime on the waste disposal business. However, present economic restraints and evidence of the formation of alliances between players operating on the boundaries of legality suggest that greater collusion is inevitable and incidents of illegal waste disposal likely to escalate.’44
  2. 3.36 International experience suggests that organised crime groups may seek to participate in activities such as the illegal dumping of both hazardous and non-hazardous waste and the illegal export of waste.45 These activities may allow the maximisation of profits by avoiding the costs of lawful waste transportation and disposal.46

Tattooing

  1. 3.37 Victoria Police has stated that OMGs are involved in the tattoo industry in order to distribute amphetamine-type substances to a wide market.47 The New South Wales and Queensland parliaments have introduced licensing regimes for tattooists and tattoo business operators in order to address the perceived connections between organised crime groups and the tattoo industry.48

 

Professional sports and fitness

  1. 3.38 The ACC has reported that ‘[t]he presence of organised criminal identities and groups in the PIEDs [performance and image enhancing drugs] market presents a threat to the integrity of Australian professional sport as a direct consequence of the increased likelihood of criminal identities and groups interacting with professional athletes and the potential exploitation of these relationships for criminal purposes.’49 Organised crime groups are said to use several strategies to infiltrate professional sports, including:
  • the establishment of ‘research’ bodies in order to acquire peptides and hormones
  • the distribution of peptides and hormones to athletes through complicit anti-ageing clinics, medical specialists, and/or sports scientists
  • the cultivation of business and personal relationships with athletes in order to supply illicit drugs and exploit resulting vulnerabilities for the purpose of criminal conduct; for example, match-fixing and the acquisition of inside information for gambling purposes
  • investment in and sponsorship of sporting clubs, which is allegedly enabled by deficiencies in due diligence requirements across the industry.50
  1. 3.39 Victoria Police has stated that OMGs have involvements in gyms in order to distribute amphetamine-type substances to a wide market.51
  2. 3.40 In a 2008 report on integrity assurance in the Victorian racing industry, His Honour Judge Lewis described links between the racing industry and organised crime, including suspicions of the proceeds of organised crime being laundered through the thoroughbred racing industry.52 The AIC has referred to ‘claims of organised crime involvement [in the New South Wales greyhound racing industry], notably by outlaw motorcycle gangs, who were engaged in the breeding and selling of dogs, and the deliberate fixing of races by putting in dogs who were known not to be good performers’.53

The possible purposes of entry into an occupation or industry

  1. 3.41 Table 1 lists the possible purposes of infiltration in respect of each occupation or industry discussed above. In some cases, the Commission has identified the purposes of infiltration by drawing on existing analysis; in other cases, it has suggested possible purposes of infiltration as a basis for consultation. The Commission will consult about the accuracy and completeness of Table 1 in its formal consultations.

 

Table 1: Possible purposes of organised crime group entry into lawful occupations and industries 54

Occupation or industry

Possible purpose of infiltration
(high-level)

Possible purpose of infiltration
(specific)

Private security54

 

Access to inputs for the commission of crime.

Access to restricted firearms.

Access to property and confidential information (for example, information relating to security systems and routines) for the purpose of organised theft.

Defrauding and extortion of clients.

Distribution of illicit goods and services.

Access to border sites (ports and airports) in order to import illicit drugs.

Access to customers of illicit drugs at licensed premises.

Exploitation of competitive advantage.

Intimidation and extortion of competitors in order to increase market share.

Concealment or laundering of the proceeds of crime.

Intermingling of lawful and unlawful revenue, including through the receipt of cash payments for security services.

Debt collection

Obfuscation of criminal conduct.

Intermingling of unlawful debt collection practices (for example, assault, intimidation or extortion of debtors) and lawful debt collection practices.

Intermingling of debt collection for unlawful purchases (for example, illicit drugs) and lawful purchases.

Exploitation of competitive advantage.

Use of intimidation to recover debts through self-presentation (for example, use of motorcycle club insignias) or reputation for criminal conduct.

Willingness and capacity to recover debts through unlawful means.

Concealment or laundering of the proceeds of crime.

Intermingling of lawful and unlawful revenue, including through the receipt of debt payments and recovery fees in cash (untraceable transactions obscure unlawful debt collection practices and the recovery of debts for unlawful purchases).

 

 

Occupation or industry

Possible purpose of infiltration
(high-level)

Possible purpose of infiltration
(specific)

Trucking and heavy haulage

 

Distribution of illicit goods and services.

Access to commercial intra- and interstate distribution networks (wide-scale, regular and efficient).

Division of unlawful goods among a wide range of distributors in order to spread the risk of detection and the risk of product loss (as opposed to concentrating risk in a single distributor).

Obfuscation of criminal conduct.

Intermingling of lawful and unlawful transported goods.

Lawful sex work

Infiltration related to trafficking/servitude offending

Distribution of illicit goods and services.

Access to the established business infrastructure and client bases of licensed brothels for the supply of trafficked women/victims of servitude.

Obfuscation of criminal conduct.

Intermingling of voluntary sex workers with trafficked women/victims of servitude.

Use of a licensed brothel under the pretence of providing lawful sex work services.

Exploitation of competitive advantage.

For licensed brothel owners: minimisation of labour costs.

High-volume servicing of clients by exploitation of trafficked women/victims of servitude.

Concealment or laundering of the proceeds of crime.

Intermingling of lawful and unlawful revenue (that is, revenue earned from legitimate sex work services and revenue earned from unlawful activity).

Infiltration unrelated to trafficking/servitude offending

Access to inputs for the commission of crime.

Recruitment of new organised crime group members.55

Concealment or laundering of the proceeds of crime.

Intermingling of lawful and unlawful revenue (that is, revenue earned from legitimate sex work services and revenue earned from unlawful activity unrelated to trafficking/servitude offending).

 

55

Occupation or industry

Possible purpose of infiltration
(high-level)

Possible purpose of infiltration
(specific)

Commercial fishing56

Access to inputs for the commission of crime.

Access to restricted fish stock (in contravention of quotas or prohibitions on fishing).

Distribution of illicit goods and services.

Distribution of illegal fish stock to end-buyers.

Distribution of illicit drugs.

Obfuscation of criminal conduct.

Intermingling of legal and illegal catches.

Exploitation of competitive advantage.

Unlawful harvesting of high-value, scarce resources to the detriment of competitors.

Superior capacity to withstand seasonal fluctuations in business by raising revenue from other unlawful activity (for example, drug manufacturing and distribution).

Concealment or laundering of the proceeds of crime.

Retailing of fish on cash or barter basis.

Labour hire

Obfuscation of criminal conduct.

Intermingling of unlawful labour hire practices (for example, intimidation of clients) and lawful labour hire practices.

Exploitation of competitive advantage.

Any non-compliance with workplace relations and occupational health and safety laws may provide a competitive advantage over compliant businesses.57

Gaming

Access to inputs for the commission of crime.

For operators:

• manipulation or corruption of gaming equipment

• capital-raising for organised crime activity.

For groups who use gaming venues as ‘professional facilitators’:

• access to gamblers for unlawful lending58

• recruitment of new organised crime group members (for example, cannabis ‘crop-sitters’).59

Concealment or laundering of the proceeds of crime.

Money laundering in gaming venues (for example, paying cash to a player who has accumulated credits on a gaming machine and then requesting a cheque from the gaming venue for the credits).60

 

5657585960

Occupation or industry

Possible purpose of infiltration
(high-level)

Possible purpose of infiltration
(specific)

Waste management61

Access to inputs for the commission of crime.

Access to regulated waste for illegal disposal.

Obfuscation of criminal conduct.

Intermingling of lawful and unlawful waste disposal services (for example, illegal dumping of hazardous waste with non-hazardous waste).

Cash-based transacting at waste transfer and waste disposal facilities (in order to conceal the identity of the waste disposer and the waste product).

Exploitation of competitive advantage.

Avoidance of regulatory costs attached to the lawful disposal of waste (for example, by dumping hazardous waste at inappropriate sites).

Tattooing62

Distribution of illicit goods and services.

Access to customers of illicit drugs.

Obfuscation of criminal conduct.

Intermingling of lawful and unlawful services.

Concealment or laundering of the proceeds of crime.

Intermingling of lawful and unlawful revenue.

Professional sports and fitness63

Access to inputs for the commission of crime.

Access to athletes for the purpose of criminal conduct such as match-fixing and the acquisition of inside information for gambling purposes.

Access to greyhounds for the purpose of race-fixing.

Recruitment of new organised crime group members at gyms.64

Distribution of illicit goods and services.

Access to customers of illicit drugs (including PIEDs).

 

Concealment or laundering of the proceeds of crime.

Laundering the proceeds of crime through the racing industry.

 

61626364

Use of trusted insiders and professional facilitators

  1. 3.42 The second key form of organised crime group infiltration of lawful occupations and industries is the use of trusted industry insiders and professional facilitators by organised crime groups. This entails organised crime groups using the services of people who would otherwise be considered lawful participants in an occupation or industry. Those otherwise lawful participants may assist organised crime groups either wittingly or unwittingly.
    A trusted industry insider could be an employee of a pharmaceutical or chemical distributor. A professional facilitator could be a lawyer, accountant or financial adviser.
  2. 3.43 According to the ACC, the use of lawful specialists and professional facilitators is one of the key characteristics of organised crime in Australia. Professional facilitators may be engaged by organised crime groups in order to provide specialist skills, knowledge or access to particular areas (for example, the financial sector) or to distance organised crime groups from criminal activity and provide a pretence of legitimacy. Professional facilitators may be voluntary enablers of organised crime activity, coerced into providing services through extortion or intimidation, or unwittingly provide services that facilitate organised crime activity.65
  3. 3.44 Organised crime groups are said to use the services of the following trusted insiders or professional facilitators: pharmaceutical and chemical manufacturers and distributors, hydroponic equipment suppliers, licensed firearm dealers, motor vehicle wreckers/recyclers and scrap metal dealers, second-hand dealers and pawnbrokers, lawyers, accountants and financial advisers, and real estate agents.

Pharmaceutical and chemical manufacturers and distributors

  1. 3.45 The illicit drug market is reportedly the primary illicit market for organised crime groups.66 The production of illicit drugs—particularly amphetamine-type substances—may require access to precursor chemicals.
  2. 3.46 Precursor chemicals may be imported into Australia or sourced from legitimate domestic industries—namely, pharmaceutical and chemical manufacturers, third-party distributors of pharmaceutical and chemical products, and retail pharmacies. Precursor chemicals may be sourced by diverting supply from both witting and unwitting industry participants. The proportion of precursors sourced through imports or legitimate domestic industries is not known.67

 

Hydroponic equipment suppliers

  1. 3.47 The cannabis market is reportedly ‘attractive to organised criminal groups seeking to diversify their profit base and minimise their level of risk. The reliable income stream may provide a financial base for a broad range of other criminal activities.’68 Hydroponic equipment is a key input for commercial-scale cannabis production—producers generally rely on hydroponic methods to achieve faster growth rates and higher yields than those available through ‘bush’ cultivation.It is estimated that 70 per cent of domestic cannabis is produced through hydroponic cultivation, with the remaining 30 per cent produced through bush cultivation.69
  2. 3.48 Some legitimate hydroponic equipment suppliers are said to facilitate cannabis cultivation, on either a witting or unwitting basis.70 Victoria Police has suggested that the size of the hydroponic equipment industry in Victoria is disproportionate to the licit market for hydroponic products.71 In the early 2000s, South Australia Police estimated that 75 per cent of hydroponic retailers in that state were associated with the cannabis trade.72

Firearm dealers

  1. 3.49 Corrupt licensed firearm dealers have been identified as one source of supply to the illicit firearm market.73 The illicit firearm market comprises firearms that are illegally imported into Australia, illegally manufactured in Australia, or diverted from either the licit market (registered firearms held by licensed owners) or the grey market (firearms that should have been registered or surrendered under the schemes arising from the 1996 National Firearms Agreement).74
  2. 3.50 Illicit firearm trafficking is reported to be ‘dominated by a collection of criminal gangs (OMCGs are frequently nominated) in which illicit firearm trafficking is run as a side business to the primary criminal venture (eg the drugs market) and small networks or individual operators, such as corrupt licensed dealers, who move illicit firearms around by word of mouth.’75 Corrupt licensed dealers have been described as ‘well placed to divert firearms—they have access to large firearm collections, and their familiarity with legislation and processes around the importation, sale and distribution of firearms will have revealed where vulnerabilities exist and can best be exploited.’76

Motor vehicle wreckers/recyclers and scrap metal dealers

  1. 3.51 A proportion of Victorian motor vehicle wreckers/recyclers and scrap metal dealers are said to facilitate organised profit-motivated vehicle theft. An investigation of the industry between 2013 and 2014 identified two key forms of facilitation: the acquisition of stolen vehicles from organised crime groups, and the retailing of stolen vehicle parts and wrecking by-products on domestic and export markets. Businesses involved in these activities may be operating without the requisite authorisation (that is, a licence or registration), or may be failing to comply with certain conditions of their licence or registration (for example, record-keeping requirements).77
  2. 3.52 Due to the greater value of vehicle parts in comparison with whole vehicles78 and the improved regulation of written-off vehicles,79 the re-birthing of vehicles (that is, the re-identification and sale of whole stolen vehicles) is in decline. Profit-motivated vehicle theft is now focused on the sale of stolen vehicle parts and scrap metal, and the repair or upgrading of lawfully owned vehicles with stolen parts.80

Second-hand dealers and pawnbrokers

  1. 3.53 While most instances of property theft are defined as opportunistic, a small class of organised property theft has been identified, separate to organised vehicle theft.81 Stolen goods may be distributed through second-hand dealers and pawnbrokers; however, organised crime groups may use this method on a relatively small scale.82
  2. 3.54 Any facilitating role played by second-hand dealers and pawnbrokers may be in decline for several reasons, including offender dissatisfaction with low wholesale prices, and evidence of a growing preference for the theft of cash rather than consumer items, which avoids the need for a professional distributor/retailer (but may raise laundering requirements).83 In addition, other legitimate businesses and online sales sites may offer alternative distribution methods.84

Lawyers, accountants, and financial advisers

  1. 3.55 While the nature and regulation of each of these professions differs, lawyers, accountants, and financial advisers are examined together here because certain members of each profession are said to perform broadly similar enabling tasks for organised crime groups, including:
  • advising on and implementing complex business structures in order to conceal real ownership of businesses used for criminal activity and/or to launder the proceeds of crime (including the establishment of overseas entities)
  • advising on the circumvention of anti-money laundering legislation
  • managing investments, including intermingling the proceeds of crime with legitimately acquired funds in investments such as securities, legitimate businesses and real estate
  • advising on fraudulent tax arrangements (including tax evasion measures and the fraudulent claiming of tax concessions)
  • advising on the operation of fraudulent, high-yield investment schemes by organised crime groups and/or referring clients into such schemes. Fraud and financial crime is an increasingly common form of activity by organised crime groups.85
  1. 3.56 Certain features of the legal and accounting professions may be attractive to organised crime groups. For example, legal professional privilege may be perceived as creating a protected environment in which to seek professional guidance about criminal activity.86
    In addition, lawyers and accountants are generally not subject to the
    Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act), unlike financial institutions and other services regulated under that Act. The Australian government is currently examining whether the AML/CTF Act should have explicit application to lawyers and accountants, among other professions.87

Real estate agents

  1. 3.57 According to the Australian Transaction Reports and Analysis Centre (AUSTRAC), real estate transactions are used to conceal or launder the proceeds of crime. Real estate agents may wittingly or unwittingly play a role in such transactions.88 A study by the AIC estimated that real estate was the most common destination for laundered funds in Australia in 2004 (23 per cent of an estimated $2.8 billion in laundered proceeds of crime).89 Concealment or laundering may be effected by methods such as:
  • investing previously laundered funds in real estate
  • using a mixture of legitimate and illegitimate funds to purchase real estate
  • using loans to integrate illegitimate funds into real estate (the property becomes a laundering vehicle as loan repayments are made using unlawfully obtained cash)
  • purchasing property in family, associate or false names.90
  1. 3.58 As with lawyers and accountants, real estate agents are generally not subject to the AML/CTF Act, but this is currently under review.91

The possible purposes of use of trusted insiders and professional facilitators

  1. 3.59 Table 2 lists the possible purposes of the use of trusted insiders and professional facilitators in respect of each occupation or industry discussed above. In some cases, the Commission has identified these purposes by drawing on existing analysis; in other cases, it has suggested possible purposes of the use of trusted insiders and professional facilitators as a basis for consultation. The Commission will consult about the accuracy and completeness of Table 2 in its formal consultations.

 

Table 2: Possible purposes of organised crime group use of trusted insiders and professional facilitators929394

Occupation or industry

Possible purpose of infiltration
(high-level)

Possible purpose of infiltration
(specific)

Pharmaceutical and chemical manufacturers and distributors

Access to inputs for the commission of crime.

Access to restricted precursor substances for illicit drug manufacturing.

Hydroponic equipment suppliers

Access to inputs for the commission of crime.

Access to hydroponic equipment for cannabis cultivation.92

Obfuscation of criminal conduct.

Intermingling of supply for lawful and unlawful purposes (which frustrates the detection of illegitimate customers).

Firearm dealers93

Access to inputs for the commission of crime.

Access to restricted firearms for firearm trafficking.

Motor vehicle wreckers/recyclers and scrap metal dealers94

Distribution of illicit goods and services.

Distribution of stolen vehicles and vehicle parts.

Obfuscation of criminal conduct.

Intermingling of stolen and lawfully acquired vehicles and vehicle parts (which frustrates the detection of suppliers of stolen vehicles and retailers of stolen vehicle parts).

Concealment or laundering of the proceeds of crime.

Cash-based transactions for the acquisition and supply of stolen goods.

Intermingling of cash obtained through the sale of lawfully acquired and stolen vehicle parts (untraceable transactions obscure the chain of vehicle acquisition and disposal).

Second-hand dealers and pawnbrokers

Distribution of illicit goods and services.

Distribution of stolen property.

Obfuscation of criminal conduct.

Intermingling of stolen and lawfully acquired property (which frustrates the detection of suppliers of stolen property and retailers of stolen property).

Concealment or laundering of the proceeds of crime.

Cash-based transactions for the acquisition and supply of stolen goods.

Intermingling of cash obtained through the sale of lawfully acquired and stolen property (untraceable transactions obscure the chain of property acquisition and disposal).

Lawyers, accountants, and financial advisers95

Distribution of illicit goods and services.

Channelling of clients into fraudulent investment schemes on behalf of organised crime groups.

Obfuscation of criminal conduct.

Receipt of advice and services in relation to the concealment of criminal conduct under the pretence of legitimacy and potentially protected by confidentiality/legal professional privilege.

Concealment or laundering of the proceeds of crime.

Receipt of advice and services in relation to the concealment or laundering of the proceeds of crime under the pretence of legitimacy and potentially protected by confidentiality/legal professional privilege.

Real estate agents96

Concealment or laundering of the proceeds of crime.

Receipt of advice and services in relation to the concealment or laundering of the proceeds of crime under the pretence of legitimacy.

Draft model for assessing the risk of infiltration

  1. 3.60 A traditional response to organised crime largely relies on law enforcement tools to investigate and prosecute organised crime offences after the event. However, recent commentary suggests that organised crime is more likely to be reduced through addressing the factors that create opportunities for organised crime activity.97 In this respect, risk assessments may be used to identify the characteristics of lawful occupations and industries that may attract organised crime groups.
  2. 3.61 The risk of infiltration may be assessed through the development and application of a scanning mechanism, which seeks to identify the elements of a particular occupation or industry that are conducive to organised crime activity. This approach is informed by a criminological theory known as situational crime prevention (SCP), which examines the opportunities for crime in certain environments, rather than the motivations of criminal groups or their individual members. The study of organised crime from an SCP perspective has particularly sought to highlight how the legal environment—rather than the criminal environment—creates opportunities for crime.98
  3. 3.62 SCP theory tends to be based on the assumption that organised crime group members make rational decisions to achieve financial or other gain. That assumption has been criticised for minimising the influence of other motivators of criminal behaviour.99 Nonetheless, an SCP analysis may provide useful insights.
  4. 3.63 Using an SCP approach, a risk assessment may be conducted by examining the following areas:
  • the elements of the business process in the occupation or industry, including the nature of the goods and services produced, and the manner in which goods and services are distributed100
  • the characteristics of the market in which the occupation or industry is situated, including factors of supply, demand, barriers to entry, regulatory oversight, and existing competitors.101
  1. 3.64 These frameworks, and the suggested purposes of infiltration set out in Tables 1 and 2, have been drawn upon to prepare the following draft model for assessing the risk of organised crime group infiltration of lawful occupations and industries. The draft model is structured around the five high-level purposes of infiltration suggested in Tables 1 and 2:
  • access to inputs for the commission of crime
  • distribution of illicit goods and services
  • obfuscation of criminal conduct
  • exploitation of competitive advantage
  • concealment or laundering of the proceeds of crime.

The nature of the draft model

  1. 3.65 The model identifies key characteristics of an occupation or industry that, if present, may increase the risk of infiltration by organised crime groups. Following each key characteristic are questions that could be asked of the occupation or industry under examination, in order to determine whether a risk of infiltration is present. For clarity, the Commission is not seeking answers to the questions in the draft model as part of its consultation process. However, the Commission would like to receive feedback on the draft model (see questions 2 and 3 on page 38) including feedback on whether the questions in the draft model are useful and/or need improvement.

Access to inputs for the commission of crime

Key characteristic: the occupation or industry offers inputs for the commission of crime

  1. 3.66 Does the occupation or industry offer goods, services or people (inputs) that may be useful to organised crime groups? Inputs may include:
  • chemicals and equipment used in illicit drug manufacturing (for example, precursor chemicals and hydroponic equipment)
  • firearms
  • new recruits for criminal conduct (for example, recruitment may occur at gyms operated by or connected with organised crime groups).

 

Key characteristic: the occupation or industry offers superior inputs

  1. 3.67 Does the occupation or industry offer inputs that are superior to those available from other sources? This may be due to factors such as:
  • the greater range and choice of inputs (for example, entry into the private security industry or the use of corrupt licensed firearm dealers likely offers a wider selection of restricted firearms than is available through ad hoc thefts)102
  • the quality of inputs (for example, precursor chemicals diverted from the legitimate pharmaceutical and chemical industries may be superior in quality to illicitly manufactured precursor chemicals)
  • consistency and reliability in the sourcing of inputs (for example, for firearm traffickers, a corrupt licensed firearm dealer likely provides a more consistent and reliable source of restricted firearms than ad hoc thefts).

Key characteristic: the occupation or industry offers lower-risk inputs

  1. 3.68 Does the occupation or industry offer lower-risk inputs than other sources? This may be due to factors such as:
  • the mode of access (for example, accessing precursor chemicals through the legitimate domestic pharmaceutical and chemical industries may be less risky than importation or self-manufacturing in clandestine laboratories)
  • the transparency and proximity of the supplier—does the occupation or industry allow organised crime groups to better establish the credentials of a potential supplier, enforce non-compliance with the terms of supply, and seek ‘after sales service’ for inputs (for example, accessing restricted firearms through a corrupt licensed firearm dealer may offer a better opportunity to establish the reliability of the supplier, and deal with any problems in supply, than alternatives such as informal, clandestine sales or importation).

Distribution of illicit goods and services

Key characteristic: the occupation or industry offers a superior customer base

  1. 3.69 Does the occupation or industry offer a customer base that is superior to other distribution sites? This may be due to factors such as:
  • the size of the customer base (for example, entry into the private security industry offers access to a wide network of licensed venues for illicit drug distribution; entry into the debt collection industry may offer access to a large number of creditors and high-value debts)
  • the ability to command premium prices from the customer base (for example, premium prices may be commanded for illicit drugs from professional sportspeople, given the demand for drugs for professional purposes and the threat of revelation of drug use)
  • the established nature of the customer base (for example, a partnership with a licensed brothel owner allows human traffickers to access an established client base rather than having to generate a new client base).

 

Key characteristic: the occupation or industry offers a superior distribution method

  1. 3.70 Does the occupation or industry offer a distribution method that is superior to other forms of distribution? This may be due to factors such as:
  • the regularity of distribution (for example, the regular runs of trucking/heavy haulage firms)
  • the breadth of the distribution network (for example, the intra- and interstate distribution networks of trucking/heavy haulage firms)
  • transparency in distribution—given that illicit goods and services cannot be marketed like legal products, does the distribution method allow the potential buyer to better assess the quality of the product and the reliability of the supplier (for example, illicit drug customers may be better able to make these assessments in a perceived safe location such as a licensed venue)?

Key characteristic: the occupation or industry offers a lower-risk distribution method

  1. 3.71 Does the occupation or industry offer a lower-risk distribution method than other forms of distribution? This may be due to factors such as:
  • the ability to exercise control over critical points in the supply chain (for example, entry into the private security industry may allow organised crime groups to access highly restricted border sites for the importation of illicit drugs, rather than seeking to rely on third parties to intercept drugs at the border)
  • the ability to disperse illicit goods and services among a wide range of distributors—this may spread the risk of product loss due to theft by rivals or seizure by police, and may reduce illicit drug quantities below major trafficking offence thresholds (for example, entry into the trucking/heavy haulage industry may allow organised crime groups to disperse illicit drugs among a large fleet of witting or unwitting distributors).

Obfuscation of criminal conduct

Key characteristic: the occupation or industry allows the intermingling of lawful and unlawful goods and services

  1. 3.72 Does the occupation or industry allow lawful and unlawful goods and services to be intermingled (for example, the intermingling of lawful second-hand goods and stolen property, lawful and unlawful trucked goods, and sex work services by voluntary sex workers and trafficked women/victims of servitude)?

Key characteristic: the occupation or industry allows intermediation between the organised crime group and other actors

  1. 3.73 Does the occupation or industry allow criminal conduct to occur at arm’s length from the organised crime group with a pretence of legitimacy (for example, a partnership between human traffickers and a licensed brothel operator for the supply of trafficked women into a lawful brothel)?

 

Key characteristic: the occupation or industry is cash-intensive

  1. 3.74 Does the occupation or industry rely on cash-based transactions that obscure the chain of product acquisition and supply/disposal (for example, the extensive use of cash-based transactions for the acquisition and disposal of second-hand vehicles; the use of cash-based transactions at waste transfer and disposal facilities in order to conceal the identity of the waste disposer and the waste product)?

Exploitation of competitive advantage

Key characteristic: the occupation or industry has low barriers to entry

  1. 3.75 Does the occupation or industry have low barriers to entry that may be particularly vulnerable to exploitation by organised crime groups? This may be due to factors such as:
  • the presence of numerous small firms rather than a concentration of large firms, with high turnover and limited continuity—these ‘high noise’ factors may assist in concealing the use of lawful occupations and industries for criminal conduct
  • a high proportion of low-skilled or non-professional workers—this factor enables organised crime groups to avoid a significant investment of time and resources in training when entering an occupation or industry
  • low sunk costs—this factor may be particularly important for organised crime groups as their businesses are at greater risk of termination by authorities than those of competitors, and organised crime groups may not be able to liquidate stock as easily as competitors in the event of business failure. (There is likely to be a smaller market for tainted business stock and organised crime groups may not wish to reveal commercial assets and income as willingly as competitors.)

Key characteristic: the occupation or industry is under-regulated

  1. 3.76 Is the occupation or industry under-regulated in a way that may be particularly vulnerable to exploitation by organised crime groups? This may be due to factors such as:
  • the under-resourcing of the regulator due to insufficient funding or growth in the regulated occupation or industry (for example, the growth in demand for private security services from the public and private sectors)103
  • limited or deficient regulatory frameworks (for example, the limited applicability of the AML/CTF Act to lawyers and real estate agents, currently under review)104
  • limited private sector oversight (for example, the alleged deficiencies in due diligence requirements in relation to investment in or sponsorship of professional sports).105

 

Key characteristic: the occupation or industry is highly or efficiently regulated

  1. 3.77 Is the occupation or industry highly or efficiently regulated, such that large profits may be enjoyed by organised crime groups that are willing to operate contrary to regulatory requirements? This may be due to factors such as:
  • artificial restrictions on supply106 (for example, restrictions on the harvesting of certain fish species and the resulting scarcity of supply may be exploited by organised crime groups through illegal fishing and the distribution of high-demand stock on domestic and export markets)
  • increases in the cost of lawful goods and services due to regulatory requirements107 (for example, organised crime groups may seek to dispose of hazardous waste illegally without the attendant costs of legal disposal; improvements in wages and conditions for sex workers may create a commercial incentive to lower business costs through the supply of trafficked women into licensed brothels)
  • the prohibition of certain practices in the occupation or industry (for example, organised crime groups may be willing to use unlawful means including intimidation and violence in the recovery of debts, which may give them a competitive advantage over debt recovery firms that only use lawful practices).

Concealment or laundering of the proceeds of crime

Key characteristic: the occupation or industry allows the intermingling of lawful and unlawful revenue

  1. 3.78 Does the occupation or industry allow the intermingling of lawful and unlawful revenue, including through the use of cash-based transactions?

Key characteristic: the occupation or industry provides access to specialist services

  1. 3.79 Does the occupation or industry provide organised crime groups with specialist services that group members may not be able to perform themselves nor obtain from other, illicit sources (for example, while an organised crime group involved in illicit drug manufacturing may be able to access drug production services ‘in-house’, it may have to rely on external service providers such as lawyers, accountants and financial advisors to conceal or launder the proceeds of crime)?

Key characteristic: the occupation or industry is protected/perceived as protected from regulation

  1. 3.80 Does the occupation or industry provide organised crime groups with a means of concealing or laundering the proceeds of crime through a professional facilitator who is protected from certain forms of regulation, or perceived as such (for example, communications with lawyers may be protected by legal professional privilege, or be perceived to be protected in this manner)?

Questions

  1. 1 What changes or additions would you make to the information presented in Table 1 (pages 23–26) and Table 2 (pages 31–32) regarding the purposes of infiltration? You may wish to comment on occupations or industries that are not listed in Tables 1 or 2.
  2. 2 Is the draft model for assessing the risk of infiltration (pages 32–37) a helpful way to assess the risk of organised crime group infiltration of lawful occupations and industries?
  3. 3 What changes or additions would you make to the draft model for assessing the risk of infiltration (pages 32–37)?
  4. 4 Having regard to the regulatory tools described in Chapter 4, which regulatory tools are, or might be, useful in addressing each of the risks identified in the draft model for assessing the risk of infiltration (pages 32–37)?

 

Footnotes

Main menu

Back to top