Regulatory Regimes and Organised Crime: Report (html)

1. Background

Referral to the Commission

1.1 On 29 October 2014, the then Attorney-General, the Hon. Robert Clark, MP, asked the Victorian Law Reform Commission, under section 5(1)(a) of the Victorian Law Reform Commission Act 2000 (Vic), to review the use of regulatory regimes to help prevent organised crime and criminal organisations entering into or operating through lawful occupations and industries. The terms of reference are set out at page <?>.

1.2 Under the terms of reference, regulatory regimes are described as including ‘the use of laws, regulations, policies and instruments to regulate a given occupation or industry, including licensing regimes and occupational registration requirements’.

The context of the terms of reference

1.3 There is a growing recognition—both in Australia and internationally—that the infiltration of legitimate occupations and industries is an important strategy of organised crime groups. Alongside this is a growing interest in the use of regulatory regimes or ‘administrative measures’ to deter and detect that infiltration.

1.4 The Australian Crime Commission (ACC) has found that one of the three key characteristics of organised crime groups in Australia is an ‘ability to conceal criminal activity by integrating into legitimate markets’. The ACC notes that while organised crime groups continue to be active in traditional illicit markets, such as drug markets, they have infiltrated legitimate industries in order to generate and launder significant criminal profits, and to facilitate organised crime activity; for example, by establishing businesses in the transport sector that enable the trafficking of illicit goods.^[1]

1.5 In 2014, the Parliament of Victoria Law Reform, Drugs and Crime Prevention Committee recommended that the Victorian Government investigate the appropriateness of using administrative regulatory measures to reduce the opportunities available to organised crime groups for engaging in illegal activities in Victoria.^[2] That recommendation was made following an inquiry into the supply and use of methamphetamines in Victoria.

1.6 Under the National Organised Crime Response Plan for 2015–18, one of the five ‘key capabilities’ being pursued by the Commonwealth government is ‘[a] focus on disrupting and dismantling the criminal business model’. The Plan states that this can be achieved through anti-money laundering measures, proceeds of crime investigations and tax collections, and by ensuring that organised crime groups cannot exploit legitimate business structures or use professional advisers to facilitate their activities.^[3]

1.7 In some European countries, the use of regulatory regimes (or an ‘administrative approach’, as it is more commonly termed in Europe) is a major plank of recent anti-organised crime strategies. Similarly to Australia, European authorities have observed that organised crime groups infiltrate legitimate occupations and industries in order to invest the proceeds of crime, generate further profits, and/or facilitate organised crime activity. A key element of the administrative approach in Europe is the preventative screening and monitoring of applicants for business licences/permits, government subsidies, and tenders for government contracts.^[4]

1.8 It is within the context of these recent initiatives that the Commission presents this report. To the Commission’s knowledge, this is the first occasion on which a law reform body has been asked to conduct a review of the use of regulatory regimes to prevent organised crime infiltration of lawful occupations and industries. The report therefore represents a relatively early step in the examination of the issues raised by the terms of reference. The Commission anticipates that these issues will be examined again in subsequent years once regulatory responses to organised crime infiltration are further developed, implemented and refined.

Scope and nature of the report

1.9 The scope of the Commission’s review was set by the terms of reference. The terms of reference ask the Commission whether a framework of principles can be established for assessing the risks of organised crime infiltration of lawful occupations and industries, and for developing suitable regulatory responses to those risks. The Commission proposes such a framework.

1.10 As defined by the terms of reference, regulatory regimes include the use of laws, regulations, policies and instruments to regulate a given occupation or industry. While the focus of this report is on the use of regulatory measures to help prevent organised crime infiltration of lawful occupations and industries, as required by the terms of reference, regulatory regimes are also designed to achieve other policy goals. When policy makers consider using regulatory measures to address a risk of infiltration, they should consider how that will impact on the achievement of the other policy goals of the particular regulatory regime, such as promoting competition, protecting consumers, and preventing harm against particular groups (for example, one of the objectives of the Sex Work Act 1994 (Vic) is to promote the welfare and occupational health and safety of sex workers^[5]). The use of regulatory measures to prevent infiltration may complement, or conflict with, these other policy goals.

1.11 The terms of reference did not ask the Commission to make recommendations for law reform. However, the principles outlined in this report may ultimately lead to legislative reform.

1.12 The report is intended to be read in conjunction with the Victorian Guide to Regulation (VGR), which was developed by the Department of Treasury and Finance and is intended to be the definitive guide to developing regulation in Victoria.^[6] The VGR sets out the steps that policy makers should take in designing and assessing regulation, with the aim of achieving well-targeted, proportionate regulatory responses that address policy problems while avoiding undue burdens on business, government and other stakeholders, and the creation of undesirable, unintended consequences.^[7]

Recommendation

The Commission’s report should 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.

The meaning of organised crime

1.13 There is not a universal definition of organised crime. For the purpose of its review, the Commission was guided by the definitions of organised crime in the Major Crime (Investigative Powers) Act 2004 (Vic) and the Australian Crime Commission Act 2002 (Cth). These definitions are set out in Chapter 2. In summary, they establish that organised crime involves serious, group-based offending for financial or other gain, on a planned and often ongoing basis. Organised crime is distinct from immediate or opportunistic offending.

1.14 The terms of reference also refer to ‘criminal organisations’, a concept that is not expressly defined in Victorian or Commonwealth legislation. The Commission understands this concept to mean a group, body or association, whether incorporated or unincorporated, which is involved in serious criminal activity, and may include individuals who are related to one another.^[8]

1.15 The terms ‘organised crime’, ‘organised crime group’ and ‘criminal organisation’ are used interchangeably throughout the report.

The meaning of infiltration

1.16 ‘Infiltration’ denotes incursion by organised crime groups into lawful occupations and industries. The concept of infiltration does not denote organised criminality arising within an occupation or industry that is committed by otherwise legitimate occupation/industry participants; rather, the source of the criminality is external to the occupation or industry.

1.17 On the basis of the Commission’s review, it appears that there are two key forms of organised crime infiltration of occupations and industries:

• the entry of organised crime groups 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.

1.18 A range of occupations and industries are said to be vulnerable to organised crime infiltration in one or both of these forms. In order to identify common risk factors for infiltration, examine relevant regulatory regimes, and consult with appropriate regulators and industry representatives, the Commission conducted a literature review to determine which occupations and industries had previously been identified as vulnerable to organised crime infiltration.

1.19 Lawful occupations and industries that are said to be vulnerable to entry by organised crime include: private security, debt collection, trucking and heavy haulage, lawful sex work, commercial fishing, labour hire, gaming, waste management, tattooing, and professional sports and fitness.

1.20 In relation to the second form of infiltration, organised crime groups were identified in the literature as using the services of: pharmaceutical/chemical manufacturers and suppliers, hydroponic equipment suppliers, licensed firearm dealers, auto-wreckers/recyclers and scrap metal dealers, second-hand dealers and pawnbrokers, and professional facilitators such as lawyers, accountants, financial advisers and real estate agents.

1.21 While these are not exhaustive lists, they were deemed to provide a sufficiently broad sample for the purpose of the review.

1.22 The Commission notes that the final report of the Commonwealth Royal Commission into Trade Union Governance and Corruption was delivered in December 2015.^[9] That inquiry did not concern the form of infiltration referred to in the present terms of reference; the Royal Commission concerned allegations of criminality within trade unions, rather than the infiltration of those entities, or the occupations/industries in which they participate, by external organised crime groups.

The Commission’s process

1.23 The Commission’s review was led by the Hon. Philip Cummins AM and a Division that he chaired. The other Division members were Commissioners Liana Buchanan, Helen Fatouros, Bruce Gardner PSM, Dr Ian Hardingham QC, His Honour David Jones AM, Eamonn Moran PSM QC, Alison O’Brien, and the Hon. Frank Vincent AO QC.

1.24 The Commission established an advisory committee of experts (see Appendix A) to provide technical guidance about the issues raised by the terms of reference. The advisory committee met twice during the course of the review.

1.25 In June 2015, the Commission published a consultation paper which addressed the issues raised by the terms of reference and sought written submissions on these issues. The Commission requested that submissions be made by 3 August 2015. Submissions were accepted by the Commission after this date.

1.26 The Commission received 32 submissions. They are listed at Appendix B. Most of the submissions are public documents and can be viewed on the Commission’s website.

1.27 The Commission also received informal comments from individuals and agencies with specialist expertise.

1.28 Following the publication of the consultation paper, the Commission consulted with law enforcement agencies, regulatory agencies, and industry representatives. This included meetings with Victoria Police, the Australian Crime Commission, the Australian Federal Police, the Australian Transaction Reports and Analysis Centre, and the Commonwealth Attorney-General’s Department. Three roundtables were also conducted—two roundtables were attended by industry representatives, and the third was attended by representatives of regulatory agencies. The full list of consultation participants is at Appendix C.

1.29 The Commission records its warm thanks to the members of the advisory committee, and to all individuals and agencies that participated in the consultations and made submissions.

Structure of the report

1.30 For the most part, the report is structured in conformity with the Victorian Guide to Regulation. Together, the chapters comprise a series of steps that policy makers should take in identifying risks of organised crime infiltration and developing a regulatory response to infiltration.

1.31 Part One comprises chapters 1 to 4.

1.32 Chapter 2 (‘Overarching principles’) lists the overarching principles that should inform any regulatory response to organised crime infiltration of an occupation or industry.

1.33 Chapter 3 (‘Identifying the problem or issue’) outlines how the risk of organised crime infiltration of a particular occupation or industry might best be assessed.

1.34 Chapter 4 (‘Specifying the desired objectives’) briefly outlines the matters that should be considered in specifying the objectives of any regulatory response to infiltration.

1.35 Part Two comprises chapters 5 to 9.

1.36 Chapters 5 to 8 set out four main strategies to reduce the risk of infiltration:

• assessing the existing regulatory regime

• restricting entry into an occupation or industry

• regulating post-entry behaviour

• addressing the use of professional facilitators.

1.37 Chapter 9 (‘Considering the effect of the preferred strategies’) describes the perverse incentives that may arise through the operation of these strategies.

1.38 Part Three comprises chapters 10 to 12.

1.39 Chapter 10 (‘Developing an implementation plan for the preferred strategies’) presents the factors that should be considered in developing an implementation plan.

1.40 Chapter 11 (‘Detailing the evaluation strategy’) briefly outlines the priorities for any evaluation of a regulatory response to organised crime infiltration.

1.41 Chapter 12 concludes the report. The advisory committee, submissions and consultations are listed in the appendices.

1. Australian Crime Commission, Organised Crime in Australia 2015 (2015) 7.

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2. Law Reform, Drugs and Crime Prevention Committee, Parliament of Victoria, Inquiry into the Supply and Use of Methamphetamines, Particularly Ice, in Victoria: Final Report (2014) 430–33.

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3. Australian Government, National Organised Crime Response Plan 2015–18, 19.

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4. See A C M Spapens, M Peters and D Van Daele (eds), Administrative Approaches to Crime (2015) <http://ec.europa.eu/dgs/home-affairs

   /e-library/documents/policies/organized-crime-and-human-trafficking/crime-prevention/docs/final_report_eu_study_administrative_approaches_to_crime_en.pdf>; Hans Nelen, ‘Situational Organised Crime Prevention in Amsterdam: The Administrative Approach’ in Karen Bullock, Ronald V Clarke and Nick Tilley (eds), Situational Prevention of Organised Crimes (Willan Publishing, 2010) 93; Scottish Government, Scotland’s Serious Organised Crime Strategy (2015).

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5. Sex Work Act 1994 (Vic) s 4(h).

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6. Department of Treasury and Finance, Victorian Guide to Regulation (December 2014).

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7. Ibid 1–2.

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8. Adapted from the Criminal Organisations Control Act 2012 (Vic) ss 1, 7, 19.

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9. Commonwealth, Royal Commission into Trade Union Governance and Corruption, Final Report (December 2015).

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