The Federal Court has thrown out a case alleging that Commonwealth Bank enabled “cuckoo smurfing” of customer accounts as a result of breaches of its anti-money laundering obligations.
Federal Court Judge Mark Moshinsky ruled that a provision of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which makes suspicious matter reports inadmissible in court proceedings, made it difficult to prove or disprove the allegation against the bank.
Delania Marundrury and her mother Widya Marundrury had accounts with Commonwealth Bank from 2013 to 2020.
Over a two-year period from 2013, Widya’s husband Fona arranged for money to be transferred from Indonesia to the Australian bank accounts using the services of a “money changer”.
Delania and Widya alleged that, unknown to them, no funds were transferred to them directly from Indonesia. Instead, funds equivalent to the amounts intended to be transferred were paid into the accounts by way of deposits from a local source.
This is a typical example of cuckoo smurfing. A person in an overseas location deposits funds with a remitter to send to an Australian account. The remitter is corrupt and, acting on behalf of a criminal group, does not send the money to the Australian account.
The criminal group notifies its Australian connection (the “smurf”) of the amount of funds supposedly transferred and the account details. The smurf collects funds from the local representative of the criminal group and deposits it in the “cuckoo’s” account.
Once those funds have been deposited the corrupt remitter gives the funds that were to have been sent to Australia to the criminal group. In this way payment for a shipment of drugs, for example, is paid to the suppliers.
The local account holders are usually unaware that the funds being transferred into their accounts are the proceeds of crime.
Delania and Widya claimed that a substantial amount of money in the accounts was forfeited under proceeds of crime legislation. They claimed that Commonwealth Bank breached its monitoring and reporting obligations under Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and that this breach caused their loss.
And they claimed that had the bank complied with its obligations, particularly the suspicious matter reporting requirement, they would have changed the transfer arrangements.
They also argued that the bank had a duty of care to take reasonable steps to protect the interests of customers against foreseeable harm, including losses arising from doubtful or potentially illegal transactions occurring through their accounts.
Sections 123 and 124 of the AML/CTF Act have the effect that evidence relating to reporting obligations is inadmissible in court proceedings. The Act gives the Austrac chief executive discretion to waive the application of the sections but the discretion was not exercised in this case.
Sections 123 and 124 are based on a view that suspicious matter reports are “hearsay and subjective” and not compatible with the nature of legal proceedings, and their disclosure may reduce their future utility in law enforcement investigations.
Moshinsky said that without disclosure of the suspicious matter reports, it is hard to prove or disprove the allegation. He said it would be unfair for