Referral of the inquiry
The Currency (Restrictions on the Use of Cash) Bill 2019 (the bill) was introduced in the House of Representatives and read a first time on 19 September 2019.
On 19 September 2019, the Senate referred the provisions of the bill to the Senate Economics Legislation Committee (the committee) for inquiry and report by 7 February 2020.
On 6 February 2020, the Senate agreed to extend the inquiry reporting date to 28 February 2020.
Purpose of the bill
The bill will create new offences from 1 January 2020 that apply if an entity makes, or accepts, cash payments with a value that equals or exceeds a cash payment limit of $10,000.
The Explanatory Memorandum (EM) states that these offences will protect the integrity of the taxation law, and other Commonwealth laws, by ensuring that entities cannot avoid scrutiny and facilitate their participation in the black economy by making large payments in cash.
The EM notes that the offences will not apply if the payment is either of a kind specified in the rules under the bill, or made or accepted in circumstances of a kind specified in such rules. The EM also notes that the Treasurer may specify how to convert an amount of foreign or digital currency into Australian dollars in the rules made under the bill.
In his second reading speech, the Hon. Michael Sukkar MP, Assistant Treasurer, stated:
The Black Economy Taskforce final report found that large cash payments can be anonymous and untraceable allowing businesses to under-report their income and to offer consumers discounts for transactions that reflect the businesses' avoided obligations.
This practice has a profound negative impact on businesses that do the right thing. The vast majority of businesses that diligently pay their tax and meet their other obligations are not able to offer the same unfairly discounted price for their goods or services.
The cash payment limit sends a strong signal to the community that the government will protect the rights of honest businesses and their families from unfair competition from those who want to avoid their obligations.
The EM notes that cash is increasingly being replaced with various forms of electronic non-cash payments. These most commonly involve the use of debt or credit arrangements facilitated by banks and other payment system providers which, whilst generally designated in Australian currency, are forms of contractual arrangement between parties.
It is argued that such alternative payment methods are often more convenient for consumers and businesses, and increasingly involve lower costs as they simplify record keeping and avoid the security, insurance, and other costs associated with handling and holding large amounts of cash. They also offer significant regulatory benefits, as they typically create clearer records of transactions. As a result, the EM states there are economic benefits arising from the growing use of these alternative payment methods.
The EM, however, does note that, while these forms of payment are different, some forms of electronic payments are similar to physical currency; mainly crypto-currencies and other digital currencies, which are, on the whole, unregulated, and do not create clear records of transactions that can easily be used to identify the parties to a transaction.
The EM states the bill complements the arrangements already in place under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) for mitigating the risk of large, anonymous cash payments being used to facilitate money laundering and terrorism financing. These arrangements include the reporting of cash payments for goods and services of $10,000 or more by businesses that provide certain high-risk services.
Black Economy Taskforce Report
Following an initial investigation by the Board of Taxation, supported by the Department of the Treasury (the Treasury) and the Australian Taxation Office, the Turnbull government, in December 2016, established the Black Economy Taskforce (the taskforce) led by Mr Michael Andrew AO, to develop a whole‑of‑government strategy to combat the black economy.
In establishing the taskforce, the then Minister for Revenue and Financial Services, the Hon. Kelly O'Dwyer MP, noted that:
The government established the Black Economy Taskforce in December 2016 following an initial investigation by the Board of Tax which showed that a concerted effort was needed to halt or reverse growth in the black economy.
The taskforce's final report, released in October 2017, provided 80 recommendations to government (including a number of supplementary recommendations) spanning the whole economy.
In measuring the size of the black economy, the final report referenced an Australian Bureau of Statistics figure which estimated it to equal approximately 1.5 per cent of gross domestic product (GDP) in 2012, with the illicit drug industry representing a further 0.4 per cent. Based on subsequent trends, the taskforce estimated the black economy to be as large as 3 per cent of GDP in 2017, representing $50 billion.
The final report also noted that the use of cash is falling around the globe, including in Australia, and advances in technology and financial innovation are revolutionising the ways in which transactions take place. Innovations such as the growth of e‑commerce, electronic transfers, debit and credit cards, digital wallets and cryptocurrencies have all played a part in the reduced use of cash.
To illustrate this changing environment, the taskforce referenced a 2017 Reserve Bank of Australia (RBA) discussion paper, titled How Australians Pay: Evidence from the 2016 Consumer Payments Survey, which showed the decline in Australia's use of cash over the period 2007 to 2016. Overall, the RBA found in 2016 the number of transactions made in cash (under $9,999) had declined by 33 per cent, from 69 per cent of all transactions to 37 per cent. This contrasted with credit and debits cards, which increased their share from approximately 26 per cent to 52 per cent over the same period.
The RBA, in giving evidence to the committee, noted that in its most recent survey, undertaken in 2019, the use of cash had further decreased to around 25 per cent of all transactions.
The taskforce believed that the market-led move away from cash is a positive development, and one worth embracing, as it has made Australia's payment system more competitive and innovative; reduced its cost; and improved the quality and range of alternatives on offer. It has also brought into sharper focus the costs of cash, such as storage, transportation, and monitoring.
The report also noted that a lower reliance on cash transactions has the potential to help reduce the size of the black economy. For example, activities that can be facilitated by large cash payments include tax evasion, money laundering, fraud, bribery, and obtaining financial advantage by deception. Specifically, the taskforce stated that:
… an economy less reliant on cash could help counter the black economy. Electronic payments leave a footprint that cash transactions do not. That is why the latter are so attractive to criminals and those operating in the black economy. Not only is cash anonymous, but it can be used without leaving an obvious audit trail. In contrast, the more we move people into the digital payment world, the more visible, traceable and reportable their transactions can be. Digital payment can also be linked to identity, both individuals and businesses, which cash cannot.
We are not saying that digital payment methods are risk or fraud free. Payment system fraud will always be a risk, regardless of the means selected. The vulnerabilities will still be there, but change in nature.
A key recommendation of the final report to the government was the introduction of a $10,000 cash payment limit for transactions between businesses and individuals.
Although recommending a cash payment limit in its report, the taskforce observed that there was a continuing role for cash within the economy:
While cash facilitates under-reporting income and facilitates criminal transactions, getting rid of cash would not get rid of crime or of under‑reporting of income: illicit operators would move to some other form of payment, probably more than one form.
Rather than ban cash, which after all is a key part of our payment system and convenient and accessible for many, it is more important to constrain the use of cash in the areas where it is most abused, such as high-value transactions.
This narrows the scope for dishonest people to hide transactions and to hide what their real income is.
Government's response to the taskforce's report
In response to the taskforce's final report, the Turnbull government announced in the 2018‑19 Budget that it would introduce a cash payment limit with effect from 1 July 2019; however, this commencement date was subsequently amended to 1 January 2020 in the 2018-19 Mid‑Year Economic and Fiscal Outlook.
The Turnbull government also implemented a number of additional measures in response to the other recommendations of the taskforce's report. These included establishing the Black Economy Standing Taskforce as a cross‑agency body to address the challenges of the black economy, and setting up a hotline for individuals and business to report black economy and phoenix activity.
On 23 May 2018, the Treasury released a consultation paper on the cash payment limit which sought the views of stakeholders, and asked that they identify issues for consideration in implementing the cash payment limit measure; including views on reporting obligations, integrity measures, and whether any exemptions should apply.
Following the discussion paper, the Treasury undertook a consultation process from 26 July 2019 until 12 August 2019 on the exposure draft legislation and accompanying explanatory material to implement the economy-wide cash payment limit. The Treasury received 3,620 submissions to the consultation.
On 19 September 2019, the bill was introduced in the House of Representatives by the Hon. Michael Sukkar MP, Assistant Treasurer, and read a first time.
Provisions of the bill
The bill is set out in three parts:
Part 1—Preliminary: this part sets out the bill's commencement date, objects, application to the Crown, key definitions, approach to determining the value of foreign currencies and digital currencies, arrangement to determine periodic supplies, and extension to external territories.
Part 2—Offences: this part creates criminal offences for making or accepting certain cash payments which exceed the payment limit.
Part 3—Miscellaneous: this part sets out the treatment of entities other than individuals, bodies corporate, and bodies politic; vicarious criminal liability; and the rules which the minister may, by legislative instrument, make.
The principal object of the bill is to protect the integrity of the Commonwealth taxation system, by preventing the use of cash in order to avoid scrutiny by the Commissioner of Taxation (the Commissioner) seeking to enforce the taxation law. A secondary object of the bill is to protect the integrity of other laws.
The bill states that these objects are achieved by making it an offence for an entity to make or accept cash payments that are equal to, or exceed, the cash payment limit, unless the payment is expressly exempted. Entities will need to use other payment methods for payments that equal or exceed the cash payment limit.
The EM explains that, to give effect to the cash payment limit, the bill establishes four new offences for entities that make or accept cash payments that equal or exceed the cash payment limit. Specifically it states:
The use of criminal sanctions reflects the harm to the wider community that was identified in the Final Report of the Black Economy Taskforce. The use of an effective deterrent is required to change existing practices that have facilitated participation in black economy and particularly the use of cash payments to conceal income and criminal activity.
Importantly, the EM also notes that, although the bill makes it an offence to make or accept cash payments in excess of the cash payment limit, it does not make it an offence to be in possession of cash, regardless of the amount. The EM also states that the offences 'extend to all external territories and to some conduct that occurs outside Australia'.
Clause 12 sets out the first two main offences which apply if an entity makes or accepts a single cash payment or a series of payments. Strict liability applies to the circumstances of the payment, or payments, under these two offences. Per the EM, effectively, once an entity intentionally makes or accepts a payment, the entity commits the offence if the payment includes cash of an amount equal to or in excess of the cash payment limit. This applies whether or not the entity was aware that the payment included this amount of cash. [Subclauses 12(2) and (4) of the Bill]
The EM states under 'Fault elements' that:
To commit these two offences the entity must have intended to make or accept a payment. If an entity inadvertently makes or accepts a payment, without knowing or being aware of what they are doing, then they have not committed the offence. For the second offence, [a series of payments] the entity must also have intended that this payment is a payment for a supply or made as a gift. [Subclauses 12(1) and (3) of the bill]
For a natural person, the maximum penalty for both strict liability offences is 60 penalty units; however, the maximum penalty for body corporates is five times this amount, or 300 penalty units.
Clause 13 covers the two more serious offences which come into effect if an entity is reckless about making or accepting such a payment, or a series of payments.
These offences reflect the greater level of culpability involved in deliberately, or recklessly, breaching the cash payment limit. They apply when an entity knew that there was at least a real risk that the payment would result in the total amount of cash paid or received equalling or exceeding the cash payment limit.
Unlike the strict liability offences, which operate to ensure compliance with the limit, the recklessness offences apply to penalise entities that have consciously and deliberately decided to risk violating the cash payment limit.
The maximum penalty for these offences is 120 penalty units or 2 years imprisonment, or both.
Subclauses 12(5) and 13(3) of the bill provides the minister with the power to make rules to prescribe matters where permitted by the bill. All of the offence clauses provide that, if a payment is one that the Treasurer has specified in the rules, the offence does not apply to that payment.
The EM notes that the bill provides for rules which are consistent to those that apply in the context of the taxation law and under the AML/CTF Act about the consequences when an offence is committed by an entity that is not a legal person.
The EM explains that 'allowing kinds of transactions to be made exempt from the cash payment limit by legislative instrument ensures that there is flexibility in the regulatory regime to accommodate new kinds of transactions'. As such, the EM acknowledges that there is an expectation that exceptions will be created for payments related to transactions in which neither party is acting in the course of a business or other enterprise, as well as for certain payments that are subject to reporting obligations under the AML/CTF Act.
Provisions of the exposure draft rules
To complement the introduction of the bill, the Treasury developed and published an exposure draft of the rules. The rules are made under clause 20 of the bill, and are disallowable by the Parliament in accordance with the Legislation Act 2003.
The rules are set out in three parts:
Part 1—Preliminary: this part sets out the name of the rules, arrangements for commencement, authority, and key definitions.
Part 2—Value of cash – foreign currency and digital currency: this part sets out how to work out the value of foreign and digital currencies in Australian currency.
Part 3—Payments not subject to the cash payment limit: this part sets out the payments not subject to the cash payment limit.
Per clauses 2 and 3, the rules are made under the Currency (Restrictions on the Use of Cash) Act 2019 (the Act), and, in alignment with the bill's commencement date, also commence on 1 January 2020.
Part 2—Value of Cash—foreign currency and digital currency
Clauses 5 and 6 state that, for the purposes of the Act, the value in Australian currency of an amount of cash paid in a foreign currency or digital currency is to be worked out in the same manner as the manner determined by the Commissioner under the A New Tax System (Goods and Services) Tax Act 1999.
Part 3—Payments not subject to the cash payment limit
Part 3 specifies the circumstances in which payments are not subject to the cash payment limit. These are listed below:
Clause 7 excludes payments relating to personal or private transactions.
Clause 8 excludes certain payments involving reporting entities under the AML/CTF Act.
Clause 9 excludes certain payments involving reporting entities under the Financial Transaction Reports Act 1988.
Clause 10 excludes certain payments involving public officials in the performance of their duties.
Clause 11 excludes payments involving cash in transit providers.
Clause 12 excludes payments of digital currency.
Clause 13 excludes payments where no non-cash payment method is reasonably available.
Following the delivery of the final report by the taskforce, the Treasury, on 23 May 2018, issued a consultation paper seeking the views of stakeholders to identify issues for consideration in implementing this measure, including views on reporting obligations, integrity measures and whether any exemptions should apply. Submissions were open until 24 June 2018.
The government undertook public consultation on the exposure draft legislation from 26 July 2019 to 12 August 2019.
Commencement of the bill
The cash payment limit applies to payments made or received from 1 January 2020.
Subsequent to the establishment of this inquiry, the Assistant Treasurer, the Hon. Mr Michael Sukkar MP, advised the committee that the government does not intend for the bill, if passed by the Parliament, to be retrospective.
The EM states that the bill is estimated to have an unquantifiable impact on revenue over the forward estimates.
Per the EM, regulatory costs are estimated to be minor, as the cash payment limit does not introduce any additional reporting requirement on business. Further, the government considers that payments which exceed the limit are likely to be infrequent and most businesses use banks accounts.
In its digest dated 16 October 2019, the Senate Standing Committee for the Scrutiny of Bills (scrutiny committee) made a number of observations and requests regarding the bill.
The scrutiny committee's view was that significant matters, such as the kinds of transactions that will be exempted from offences, should be included in primary legislation unless a sound justification is provided. Given this, the scrutiny committee requested the Assistant Treasurer provide more detailed advice as to:
why it was considered necessary and appropriate to leave all of the exceptions to the offences to delegated legislation; and
whether it would be appropriate for the bill to be amended to include a non‑exhaustive list of the currently known kinds of transactions that would be exempt, with further kinds of exempt transactions able to be specified by the rules.
The scrutiny committee's expectation is that a detailed justification for the imposition of significant penalties, especially if those penalties involve imprisonment, be fully outlined in a bill's EM. In this instance, however, the scrutiny committee noted that the EM to the bill did not provide any specific justification for the proposed imposition of significant penalties.
Noting the lack of detail in the EM, it was not apparent to the scrutiny committee that the penalties in clause 13 of the bill are appropriate by reference to comparable Commonwealth offences and the requirements in the Guide to Framing Commonwealth Offences.
Hence, the scrutiny committee requested the Assistant Treasurer's more detailed advice as to the justification for the significant custodial penalty proposed in clause 13. In particular, the scrutiny committee requested advice as to specific examples of applicable penalties for comparable Commonwealth offence provisions.
As required under the Human Rights (Parliamentary Scrutiny) Act 2011, the government assessed the bill's compatibility with human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.
Per the EM, the bill engages with two rights and freedoms:
The right to the presumption of innocence under Article 14(2) of the International Covenant on Civil and Political Rights (ICCPR); and
the right to privacy and reputation under Article 17 of the ICCPR.
The government considers that, although the bill engages the right to the presumption of innocence and the right to privacy, the measures it contains are consistent with those rights and, hence, the bill is compatible.
Conduct of the inquiry
The committee advertised the inquiry on its website and wrote to relevant stakeholders and other interested parties inviting submissions by close of business 15 November 2019.
Following the call for submissions to the inquiry, the committee received 2,659 emails, letters, and documents from interested stakeholders. A significant number of these were from organised email campaigns that raised recurring themes and did not directly address the provisions of the bill.
Given this, the committee resolved to receive and publish a sample of these items and accept the balance as correspondence to the committee. Accordingly, the committee published 147 submissions which are listed at Appendix 2.
The committee undertook two public hearings for the inquiry. The names of witnesses who appeared at each hearing can be found at Appendix 3.
The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and attended public hearings to provide evidence.