House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Law Enforcement and Cybersecurity, the Hon Angus Taylor MP)

Notes on Clauses

Clause 1 - Short title

1. Clause 1 provides that this Act is the Customs Amendment (Illicit Tobacco Offences) Act 2018.

Clause 2 - Commencement

2. Subclause 2(1) provides that each provision of this Act specified in Column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

3. Table item 1 provides that sections 1 to 3 (and anything else not covered by the table) commences the day this Act receives the Royal Assent.

4. Table item 2 provides that Schedule 1 commences on the day after this Act receives the Royal Assent. Schedule 1 inserts new offences relating to imported tobacco, and extends the power of arrest in section 210 of the Customs Act to these new offences.

5. Table item 3 provides that Schedule 2 commences on the later of:

a)

the start of the day after this Act receives the Royal Assent; and

b)

immediately after the commencement of Schedule 1 to the Treasury Laws Amendment (Illicit Tobacco Offences) Act 2018.

However, the provisions do not commence at all if the event mentioned in paragraph (b) does not occur.

6. Schedule 2 sets out the amendments to the Customs Act to enable the investigation and enforcement of new offences in the Taxation Administration Act 1953 (the TAA) which are being inserted by the Treasury Laws Amendment (Illicit Tobacco Offences) Act 2018. Therefore, those amendments cannot commence until either that Amendment Act commences, or if that Act commences before this Act commences, until this Act receives the Royal Assent. If that Amendment Act does not commence at all, the amendments in Schedule 2 will not commence.

7. Subclause 2(2) provides that any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

Clause 3 - Schedules

8. This clause is the formal enabling provision for the Schedules to the Bill, providing that each Act specified in a Schedule is amended or repealed as set out in the applicable items of the Schedule. This Bill amends the Customs Act.

9. This clause also provides that other items of a Schedule have effect according to their terms. This is a standard enabling clause for transitional, savings and application items in amending legislation.

Schedule 1 - Offences

Part 1 - Main amendments

Customs Act 1901

The purpose of Schedule 1 to the Bill is to insert new offences for imported tobacco products into section 233BABAD of the Customs Act, and to extend the power of arrest in the Customs Act to these new offences.

Background

The Government is committed to tackling the illicit tobacco market and implementing new and strengthened enforcement measures to deter those looking to profit through the trade in illicit tobacco. In the 2016-17 Budget, the Government announced a suite of measures to address the growing illicit tobacco trade and improve health outcomes in Australia.

The excise and excise equivalent customs duty increases on tobacco (announced at the 2016-17 Budget), along with the formation of the Tobacco Strike Team (TST) have helped to tackle the deliberate and highly calculated defrauding of the Australian public by criminal organisations smuggling illicit tobacco into the Australian market.

Since the TST began its operations in October 2015, and as at 31 January 2018, it has seized in excess of 104 tonnes of smuggled tobacco and 233 million smuggled cigarettes. This is approximately AUD 232 million in evaded revenue.

Trade in illicit tobacco is extremely profitable, particularly as a result of the ongoing excise and excise equivalent customs duty increases. Once illicit tobacco has entered the domestic supply chain, there are few disincentives or risks for those who engage in this trade. Organised crime groups are heavily involved in the illicit tobacco trade. For example, the then Australian Crime Commission's Organised Crime in Australia 2015 report states that:

Organised crime remains entrenched within the illegal tobacco market in Australia. It continues to perceive involvement in this market as a low risk, high profit enterprise.

Currently, officers of Customs can only prosecute tobacco smuggling offences under the Customs Act if knowledge or intention to defraud the revenue can be established. While the penalty is high, the standard of proof has created a barrier for effective enforcement and prosecution and is no longer an effective deterrent to those who engage in tobacco smuggling.

There are a number of limitations with existing tobacco-related revenue evasion offences in the Customs Act and the Excise Act:

•

The offences are inconsistent;

o

the Customs Act offences can only apply where knowledge or intention to defraud revenue can be proven, and

o

the Excise Act offences are associated with relatively low penalties and do not provide a sufficient deterrent to those dealing in illicit tobacco; and

•

An offence can only be successfully prosecuted if it can be proven whether the tobacco was imported or produced domestically (proof of origin).

As a result, neither officers of Customs who administer the Customs Act, nor officers of the Australian Taxation Office (ATO) who administer the Excise Act, are able to target the full range of illicit tobacco offences.

Since 1 July 2015, over 114 people have been charged with tobacco related border offences with only 69 of those being successfully prosecuted under the Customs Act.

This Bill would ensure officers of Customs can investigate and enforce new illicit tobacco offences relating to proof of origin in the TAA (the reasonable suspicion offences) allowing greater opportunities for successful prosecution of those involved in the illicit tobacco market.

The amendments would also create new offences which lower the standard of proof from 'intention' or 'knowledge' in defrauding the revenue to 'recklessness'. 'Recklessness' entails a lower level of culpability than 'intention' or 'knowledge', alleviating barriers to enforcement or successful prosecution of existing criminal offences. Introducing offences based on recklessness will allow officers of Customs to target a wider range of participants in the illicit tobacco trade and strengthen the illicit tobacco enforcement regime.

Item 1 Section 233BABAD (heading)

10. This item repeals and substitutes the heading to section 233BABAD of the Act. The language of the new heading "Offences involving tobacco products" reflects modern drafting practice.

Item 2 After subsection 233BABAD(2)

11. The Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018 proposes to amend the TAA to insert new offences that obviate the need to determine whether tobacco is imported or domestically produced or manufactured. Currently, the origin of tobacco (that is, whether it had been produced or manufactured domestically or imported) is required to determine whether the Excise Act or the Customs Act applies to the goods and to successfully prosecute offenders. This can be difficult to prove in cases where illicit tobacco is identified at a later stage in the supply chain by which point it is not clear if the tobacco had originated domestically (that is, production or manufacture occurred in Australia) or had been imported or a combination of both.

12. The new offences in the TAA are based on whether there is a reasonable suspicion that either excise or excise equivalent customs duty has not been paid on the tobacco. These offences will be contained in Subdivision 308-A of Schedule 1 to the TAA.

13. This item inserts two new tobacco smuggling offences into the Customs Act where the fault element is recklessness.

14. Under new subsection 233BABAD(2A), a person commits an offence if:

•

the person imports goods; and

•

the goods are tobacco products; and

•

the person imports the goods reckless as to whether there would be defrauding of the revenue.

15. Under new subsection 233BABAD(2B), a person commits an offence if:

•

the person conveys, or has in the person's possession, goods; and

•

the goods are tobacco products; and

•

the person is reckless as to whether the goods were imported with intent to defraud the revenue.

16. These new offences are proposed as there is often some evidence of tobacco smuggling activity, but insufficient evidence of the person's intention or knowledge to secure a conviction in respect of the person under subsection 233BABAD(1) or (2). For example, a person could be carrying tobacco into Australia at the request of another person under instructions to conceal that tobacco, and without questioning what they have been asked to do or whether duty has been paid in respect of that tobacco. While this circumstance would not necessarily result in a person being liable under current subsection 233BABAD(2), such a person could be caught by the offence in new subsection 233BABAD(2B).

17. The application of the fault element of recklessness in these new offences is in accordance with the default fault elements under the Criminal Code Act 1995. In these circumstances, the prosecution would have to prove beyond reasonable doubt that a person is aware of a substantial risk that the circumstance exists or will exist, and having regard to circumstances known to them, it is unjustifiable to take the risk. This is not as high a threshold as having to prove beyond reasonable doubt knowledge or intention. These offences are also consistent with those proposed in the TAA to replace the current illicit tobacco offences in the Excise Act. Those new offences also apply to the default fault element of recklessness.

Item 3 Subsection 233BABAD(3)

18. The amendment in this item provides that in a prosecution for an offence against new subsection 233BABAD(2B), it is not necessary to prove the identity of the person who imported the goods. This is consistent with current subsection 233BABAD(3), which provides that for the purposes of an offence against subsection 233BABAD(2), it is not necessary to prove the identity of the person who imported the goods. These two offences are concerned with the possession or conveyance of illicit imported tobacco products.

Items 4 and 5 After subsection 233BABAD(4) and after subsection 233BABAD(5)

19. Item 4 inserts the penalty for the new tobacco smuggling offences based on recklessness in subsections 233BABAD(2A) and (2B). The penalty is a period of imprisonment for not more than 5 years, a fine not exceeding the amount worked out under new subsection 233BABAD(5A), or both.

20. Item 5 provides that the monetary penalty in subsection 233BABAD(5A) is 3 times the amount of the duty that would have been payable if the goods had been entered for home consumption on the day on which the offence was committed (if known to the court) or otherwise, the day on which the prosecution for the offence was instituted. Otherwise, the monetary penalty is 500 penalty units.

21. This penalty is appropriate for the new tobacco smuggling offences based on recklessness. The term of imprisonment is half of that imposed as a maximum term for conviction of the tobacco smuggling offences based on intention or knowledge in subsections 233BABAD(1) and (2) respectively. The monetary penalty is also considerably lower than that imposed for conviction of the intention-based tobacco smuggling offences.

22. The penalties are also consistent with the Commonwealth's A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers.

Item 6 Subsection 233BABAD(6)

23. Subsection 233BABAD(6) provides that a person who is convicted or acquitted of an offence against subsection 233BABAD(1) or (2) in respect of particular conduct is not liable to proceedings under section 233 in respect of that conduct. Section 233 contains the general offences for smuggling of goods, as well as other offences.

24. This item ensures that a person who is convicted or acquitted of an offence against subsection 233BABAD(2A) or (2B) is also not liable to be prosecuted under section 233 in respect of the same conduct. It would not be appropriate for a person who has been convicted of an offence against section 233BABAD to be liable for prosecution under section 233.

Item 7 Application provision

25. The effect of this item is that a person can only be prosecuted under the new offences in subsections 233BABAD(2A) and (2B) in respect of goods imported on or after commencement of this item (that is, the day after the Act receives the Royal Assent).

Part 2 - Consequential amendments

Customs Act 1901

Item 8 Subparagraph 210(1)(a)(iii)

26. This item amends subparagraph 210(1)(a)(iii) of the Customs Act to allow an officer of Customs or police the power to arrest a person without warrant if the officer believes on reasonable grounds that the person has committed or is committing an offence against subsection 233BABAD(1), (2), (2A) or (2B) of the Customs Act. New subsections 233BABAD(2A) and (2B) are the new tobacco smuggling offences based on recklessness, and are inserted by item 2 above.

27. The power of arrest without warrant in section 210 of the Customs Act can only be exercised if an officer believes on reasonable grounds that proceedings by summons against the person would not achieve one or more of several purposes, including ensuring the appearance of the person before a court in respect of the offence. The arrest power currently applies to the offences under subsection 233BABAD(1) and (2). These offences concern the smuggling of tobacco products with intent to defraud the revenue, or the conveyance or possession of tobacco that the person knows was imported with intent to defraud the revenue.

28. It is appropriate for the power of arrest without warrant to be extended to the new recklessness offences in subsections 233BABAD(2A) and (2B).

29. The safeguards in Subdivision H of Part XII of the Customs Act will apply to a person who an officer of Customs or a police officer reasonably suspects of committing an offence against subsection 233BABAD(2A) or (2B) or Division 308-A of Schedule 1 to the TAA. These safeguards largely replicate those in Division 4 of Part 1AA of the Crimes Act 1914. For example:

•

section 210A provides that an officer of Customs must not, in the course of arresting a person under section 210, use more force, or subject the person to greater indignity, than is necessary and reasonable to make the arrest or to prevent the escape of the person after the arrest;

•

under subsection 210A(2), an officer of Customs must not, in the course of arresting a person under section 210, do anything that is likely to cause the death of, or grievous bodily harm to, a person unless the circumstances in paragraph 210A(2)(a) or (b) apply;

•

section 201B requires an officer of Customs or police to inform the person of the offence for which the person is being arrested at the time of the arrest;

•

section 212 requires an officer of Customs who arrests a person under section 210 to ensure the person is either delivered into the custody of a police officer or taken before a magistrate or bail justice as soon as practicable to be dealt with according to law.

Schedule 2-Powers of officers

Customs Act 1901

30. The amendments made by this Schedule enable officers of Customs to investigate and enforce the new illicit tobacco offences to be contained in Subdivision 308-A of Schedule 1 to the TAA that do not require the origin of the tobacco to be proved. As mentioned above, given that reasonable suspicion is based on whether excise equivalent customs duty may not have been paid on the tobacco, it is considered appropriate that the investigation powers in the Customs Act be extended to these offences.

Items 1 and 2 Subsection 183UA(1) (paragraphs (b) and (c) of the definition of authorised person )

31. These items amend the definition of authorised person in order to allow an officer of Customs to apply for a seizure warrant in respect of the new category of forfeited goods (see next item), and make a technical amendment to this definition.

Item 3 Subsection 183UA(1) (definition of forfeited goods )

32. Section 116 of the Excise Act is proposed to be amended by the Treasury Laws Amendment (Illicit Tobacco Offences) Bill 2018. New paragraph 116(1)(aa) provides that all tobacco in respect of which a person commits an offence against the Excise Act or an offence against a provision in Division 308 in Schedule 1 to the TAA is forfeited to the Crown.

33. This item amends the definition of forfeited goods in section 183UA of the Customs Act to include goods forfeited to the Crown under paragraph 116(1)(aa) of the Excise Act because of an offence committed against a provision in Subdivision 308-A in Schedule 1 to the TAA.

34. The amendments will mean that officers of Customs may apply to a judicial officer for a seizure warrant under section 203 of the Customs Act in respect of illicit tobacco on particular premises. Section 203A will also apply to authorise the things in that section to be done by seizure warrants for illicit tobacco. Those things include entering the warrant premises, searching for goods described in the warrant and seizing the goods described in the warrant.

35. These amendments are necessary to enable officers of Customs to enforce the new illicit tobacco offences in Subdivision 308-A in Schedule 1 to the TAA.

Item 4 Subsection 183UA(1) (at the end of the definition of offence )

36. This item amends the definition of offence in subsection 183UA(1) of the Customs Act to include the following provisions in Subdivision 308-A in Schedule 1 to the TAA:

•

Section 308-10 - Possession of tobacco (500Kg or above) - reasonable suspicion offence relating to tobacco

•

Section 308-15 - Possession of tobacco (100kg or above) - reasonable suspicion offence

•

Section 308-20 - Possession of tobacco (5kg or above) - reasonable suspicion offence

•

Section 308-25 - Sale of tobacco (500kg or above) - reasonable suspicion offence

•

Section 308-30 - Sale of tobacco (100kg or above) - reasonable suspicion offence

•

Section 308-35 - Sale of tobacco (5kg or above) - reasonable suspicion offence

•

Section 308-40 - Buying of tobacco (500kg or above) - reasonable suspicion offence

•

Section 308-45 - Buying of tobacco (100kg or above) - reasonable suspicion offence

•

Section 308-50 - Buying of tobacco (5kg or above) - reasonable suspicion offence

•

Section 308-55 - Matters taken to satisfy "reasonable to suspect" requirement.

37. The amendments made by this item would enable officers of Customs to apply for a search warrant under section 198 of the Customs Act to search premises for evidential material in relation to the commission of any of these offences. 'Evidential material' is defined in subsection 183UA(1) of the Customs Act as a thing relevant to the offence, including such a thing in electronic form. Section 199 will also apply to authorise the things in that section to be done by search warrants for illicit tobacco. Those things include entering the warrant premises, searching for evidential material described in the warrant and seizing the material described in the warrant.

Items 5 and 6 Subparagraph 210(1)(a)(vi) and at the end of paragraph 210(1)(a)

38. The amendments made by these items amend section 210 of the Customs Act to allow an officer of Customs or police the power to arrest a person without warrant if the officer believes on reasonable grounds that the person has committed or is committing an offence against a provision in new Subdivision 308-A in Schedule 1 to the TAA.

39. It is appropriate for the power of arrest without warrant in section 210 to be extended to the new reasonable suspicion offences in Subdivision 308-A of Schedule 1 to the TAA, given that reasonable suspicion is based on whether excise equivalent customs duty may not have been paid on the tobacco

Item 7 Application provision

40. The effect of this item is to extend the investigation and enforcement powers in the Customs Act to the new offences in Subdivision 308-A of the TAA that are committed on or after the commencement of this item (see item 3 of the Commencement table to the Act).