Confiscation of Assets – Freezing Orders, Proceeds of Crime and Money-laundering

It’s a common scenario in Australia; an individual with foreign-born parents currently overseas has money sent to them for a special purpose.  Sometimes it’s to help a student with expenses, sometimes it’s for the purchase of a car.  In our client’s case, the parents wanted to help their child buy a property.

Saving up what they could to help with the deposit, the parents went to the local “money-man”, who “everyone trusts” to send money to Australia.  There was no reason to be suspicious; alternative remittance, a term used to describe moving money from one place to another without using banks or financial institutions, is incredibly common in most parts of the world.  It is also perfectly legal.

Yet, our client was served with a Freezing Notice.  Her account had been frozen by the Police, with the funds suspected of being proceeds of crime. In effect, the Police believed the money which ultimately was deposited into our client’s account was a result of “cuckoo smurfing”.

What is Cuckoo Smurfing?

Lordianto v Commissioner of the Australian Federal PoliceKalimuthu v Commissioner of the Australian Federal Police [2019] HCA 39 are the recent and leading cases on the subject.  Both involved “cuckoo smurfing”, a form of money laundering. The majority of the High Court (at [1]) adopted the following explanation:

[I]t relies on identifying a person offshore who wishes to transfer funds to a bank account in Australia using a money remitter. The remitter withholds amounts corresponding to the amount of money he has been told is to be laundered in Australia. The customer’s bank account details are provided to people in Australia. A team of depositors in Australia deposits cash into the bank account, generally at a series of bank branches and below the threshold [currently $10,000 AUD] for reporting transactions involving physical currency. The account holder sees deposits that match the amounts they intended to remit. Because the amounts of each deposit are below the threshold, there is generally no record that could enable regulatory agencies to intervene.

Because no money is transferred between borders, cuckoo smurfing shares some similarities with the alternative remittance system, ‘hawala’. Hawala is a method of transferring money without the funds moving in the traditional sense. A key difference between hawala and cuckoo smurfing however is that whilst hawala, as an alternative remittance practice, might pose money laundering risks, cuckoo smurfing is deliberate money laundering behavior. So while Hawala relies on a legitimate trust-based alternative remittance system, cuckoo smurfing makes use of a criminal network to launder money under the noses of the authorities.

Johannessen Legal was successful in convincing the authorities that our client was an innocent by-stander, and the Freezing Notice was withdrawn.