Regulatory Regimes and Organised Crime: Report (html)

Executive summary

1 On 29 October 2014, the then Attorney-General, the Hon. Robert Clark, MP, asked the Victorian Law Reform Commission to review and report on the use of regulatory regimes to help prevent organised crime and criminal organisations entering into or operating through lawful occupations and industries. In the terms of reference, and in this report, the term ‘infiltration’ means both entering into and operating through lawful occupations and industries by organised crime.

2 There is a growing recognition—both in Australia and internationally—that the infiltration of lawful occupations and industries is an important strategy of organised crime groups. Alongside this, there is a growing interest in the use of regulatory regimes to deter and detect that infiltration. Under the terms of reference, the concept of infiltration involves both the entry of organised crime groups into an occupation or industry (for example, through owning or operating a business), and the operation of organised crime groups through an occupation or industry. ‘Operating through’ an occupation or industry includes the use of professional facilitators and specialist service providers.

3 The terms of reference do not ask the Commission to make recommendations for law reform. Instead, the Commission is asked to establish a framework of principles for assessing the risks of organised crime infiltration of occupations and industries, and for developing suitable regulatory responses to those risks.

4 The Commission’s report therefore contains guidance of a general nature that can be applied to any lawful occupation or industry that may be at risk of organised crime infiltration. Given the diversity of occupations/industries that may be vulnerable to infiltration, and the different forms that infiltration may take, it would not be possible—or advisable—to attempt to present a ‘one size fits all’ regulatory response that could be applied to all lawful occupations/industries at risk of organised crime infiltration. Any changes to the regulatory regime of an occupation or industry to address a risk of infiltration must be proportionate to that risk and the harm likely to be caused by infiltration, and take into account the other policy goals of the regulatory regime. The Commission’s consultations made clear that a regulatory response to infiltration will only be effective and proportionate if it is specific to the at-risk occupation/industry and the particular vulnerabilities and opportunities that organised crime groups may seek to exploit within it.

5 The Commission recommends that the report be read in conjunction with the Victorian Guide to Regulation and used by policy makers in assessing the risks of organised crime infiltration of lawful occupations and industries, and in developing regulatory responses to those risks.

6 The following key messages emerge from the Commission’s report.

The nature of organised crime

7 Organised crime comprises an increasingly broad range of activities. An effective regulatory response to organised crime infiltration requires an understanding of the breadth of activities that may benefit from (or require) the infiltration of lawful occupations and industries, and the particular forms of conduct that organised crime groups may engage in once infiltration has occurred. While infiltration may enable the conduct of ‘traditional’ organised crime activities such as the trafficking of illicit commodities and money laundering, it may equally enable conduct such as fraud (including investment, taxation or identity fraud), unlawful practices that are specific to an occupation or industry (such as illegal commercial fishing or waste management practices), or labour exploitation or trafficking.

8 Regulators should have an understanding of contemporary forms of organised crime activity, and remain abreast of changes to such activity as organised crime groups seek out new markets and means of profit-making. This understanding is necessary not only for the identification of risk factors for infiltration and the choice of regulatory strategies but also for the implementation of the regulatory response. In tackling organised crime, it is becoming more common to take a multi-disciplinary approach to enforcement and consider the enforcement actions available to several government agencies. This requires an understanding of the numerous types of activity in which organised crime groups may be engaged in a particular occupation or industry, such as taxation fraud, employment law contraventions, or migration law contraventions.

Identifying risk factors for infiltration

9 Existing analyses of common risk factors for organised crime infiltration are at an early stage of development, and are relatively few. Drawing on the existing analyses and its own consultations, the Commission has identified a series of high-level risk factors that can assist policy makers in identifying a risk of infiltration of a particular occupation or industry. However, as the Commission’s consultations made clear, a more detailed, specific risk assessment of a particular occupation or industry should also be conducted to determine the precise vulnerabilities that organised crime groups may exploit and the appropriate regulatory strategies to reduce those vulnerabilities.

Collaboration and information sharing

10 An effective regulatory response to organised crime infiltration will require some degree of collaboration among regulatory, law enforcement and other government agencies. No one agency will hold all the necessary information, or be equipped with all the necessary powers and skills, to address organised crime infiltration.

11 Information sharing among government agencies is key to any collaborative work. The Commission has suggested that improved information sharing requires addressing any legislative barriers to information sharing, instituting appropriate governance arrangements for the sharing of sensitive information, and creating some form of centralised information-sharing mechanism, whether this comprises a multi-agency network through which information can be requested and circulated, or a centralised agency that can source and evaluate information from multiple agencies where a regulator has concerns about a particular licence applicant or other regulatory matter.

12 Collaboration between government agencies and industry is also key. Regulators will need to engage with industry in identifying risks of infiltration, developing a regulatory response, and implementing that response (including utilising industry members as a source of information about organised crime infiltration).

Strategies to reduce the risk of infiltration: licensing and beyond

13 The report sets out four main strategies for reducing the risk of organised crime infiltration of a lawful occupation or industry:

• assessing the existing regulatory regime

• restricting entry into an occupation or industry through a licensing scheme

• regulating post-entry behaviour in an occupation or industry

• addressing the use of professional facilitators.

Restrictions on entry

14 Where no regulatory regime currently operates, or the existing regime is deficient, it may be appropriate to restrict entry to the occupation or industry through a licensing scheme. However, licensing should not be a default response to a risk of organised crime infiltration. The report sets out a range of factors that should be considered in deciding whether licensing is appropriate, including whether the form of infiltration is of a type that could be addressed through licensing measures, whether the regulator would be willing and able to conduct a rigorous examination of licence applicants, whether the regulator (or possibly Victoria Police) would have the powers and resources to prevent unlicensed operation, and the potential anti-competitive effects of licensing on the occupation/industry.

15 Where a licensing scheme is used, a host of factors will need to be considered in order to detect any links to organised crime when assessing a licence applicant’s probity and suitability. This includes enquiring into the professional competency of the licence applicant, the beneficial owners of corporate applicants, any history of prior unlawful behaviour (whether criminal or non-criminal) and adverse administrative decisions, and the financial capacity of the applicant to conduct the licensed business. Although criminal intelligence may be heavily relied on in some licensing decisions, it is particularly important that regulators consider a broad range of information in assessing probity and suitability, so as not to place an unreasonable burden on law enforcement agencies, and to establish the most complete picture possible of the applicant’s probity and suitability.

Post-entry regulation

16 The post-entry regulation of an occupation or industry is just as important as any restrictions on entry.

17 Any licensing scheme will need to be supplemented with the ongoing regulation of an occupation or industry in order to detect organised crime groups that evaded detection during the licensing process, or which have corrupted existing occupation/industry members.

18 Post-entry regulation is also a potential alternative to restrictions on entry. It may be that the particular vulnerabilities of an occupation/industry are best addressed through a targeted, post-entry measure, such as record-keeping requirements or restrictions on cash-based transactions.

19 Post-entry regulation also provides an opportunity to ‘widen the regulatory gaze’ and harness the capacity of third parties—such as occupation and industry members, customers, and employees/workers—to participate in regulation. In some industries, for example, legitimate businesses may play a key role in deterring and detecting organised crime infiltration by conducting supplier or customer due diligence.

20 The report outlines five forms of post-entry regulation that should be considered in order

to reduce the risk of organised crime infiltration:

• ongoing monitoring of probity and suitability

• customer and supplier due diligence measures

• record-keeping requirements

• restrictions on cash-based transactions

• controls on coercive conduct.

Professional facilitators

21 The use of service providers and ‘professional facilitators’ by organised crime groups is one potential form of infiltration. Professional facilitators may include lawyers, accountants, financial advisers and real estate agents, who wittingly or unwittingly assist with money laundering or other unlawful conduct. Insofar as professional facilitators may be key enablers of such activity, there may be significant disruptive value in addressing their use by organised crime groups.

22 Any regulatory strategies that seek to address the use of professionals should have regard to the continuum of facilitating conduct by professionals, which ranges from unwitting assistance through to wilful blindness and, at its highest, voluntary and deliberate facilitation of unlawful activity. With this in mind, consideration should be given to three key regulatory strategies that may help to prevent the use of professional facilitators by organised crime groups:

• professional ethics education and support measures

• customer due diligence measures

• accessorial liability provisions.

23 The Commission notes that one key issue concerning professional facilitators is the current scope of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), which at the time of delivery of this report was under review by the Commonwealth government in relation to its proposed extension to lawyers, accountants and real estate agents. Being Commonwealth legislation, the Commission has not commented on this proposed reform, and has confined its attention to strategies that may be used under Victorian regulatory regimes.

A comprehensive regulatory response

24 By aligning this report with the Victorian Guide to Regulation, the Commission seeks to emphasise that any regulatory response to organised crime infiltration must be comprehensive; that is, it should begin by clearly identifying the particular vulnerabilities of an occupation or industry to infiltration, identify regulatory strategies that directly address those vulnerabilities, and ensure that the regulatory response is able to be effectively implemented.

25 The third step—implementation—requires a consideration of:

• which agency—or agencies—are most appropriate to administer the regulatory regime

• the need to foster information gathering from a broad range of sources

• which investigative powers are required

• the necessity of a robust enforcement response.

26 In this respect, it is especially important that policy makers first consider the utility of any existing regulatory regime before developing new regulatory strategies. An existing regime may be sufficient ‘on paper’, but its effectiveness may be hampered by inadequate regulatory skill sets, insufficient collaboration and information sharing among relevant government agencies, or a limited and risk-averse enforcement response. Any such issues should be identified and redressed before new regulatory measures are considered.

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