In Tam Sze Leung v. Commissioner of Police¹, the Hong Kong Court of Appeal (CA) overturned the Court of First Instance judgment in which the judge held that the police’s use of the letter of no consent (LNC) under the “No Consent” regime to informally “freeze” the suspicious bank accounts is unconstitutional.

In its judgment, the CA revisited its previous judgment in Interush Ltd v. Commission of Police² (Interush) and reconfirmed the lawfulness of the “No Consent” regime under the Organised and Serious Crimes Ordinance (Cap. 455) (OSCO).

The “No Consent” regime

The “No Consent” regime is a creature of OSCO. Under s.25 of OSCO, it is an offence to deal with property known or reasonably believed to represent the proceeds of crime. Section 25A of OSCO requires that a person knowing or suspecting any property to be the proceeds of crime make disclosure of such knowledge or suspicion to an authorised officer. It is a defence for a person to deal with the property if disclosure is made before any dealing and such dealing is made with consent of the authorised officer.

In practice, the disclosure under s.25A is made by way of suspicious transaction report (STR). Upon receipt of such report and examination of the situation, the Joint Financial Intelligence Unit (JFIU) will issue an LNC if the property is suspected to represent the proceeds of crime. If LNCs are issued, banks will not have the prerequisite consent from the JFIU to allow further withdrawals from the relevant account(s). Banks will invariably err on the side of caution and refuse to make payment. As a result, the account(s) will be informally “frozen”.

Hong Kong Court of Appeal’s previous decision in Interush

The constitutionality of the “No Consent” regime was examined and affirmed by the CA in Interush. The CA concluded that the LNC did not by itself freeze the accounts. Rather, the freezing of the accounts was carried out by the financial institutions themselves. The CA also disagreed that the property rights under the Basic Law had not been disproportionately infringed. Therefore, the CA concluded that the statutory regime under OSCO was constitutional.

Case background

In the present case, the applicants were under investigation by the Securities and Futures Commission (SFC) for suspected stock market manipulation. The SFC then referred the matter to the police on the basis that a suspected money laundering offence under s.25 of OSCO had been committed.

After the SFC’s referral, the police alerted three of the applicants’ banks³, informing them of the investigation and asking them to file the STRs. The banks submitted the STRs and, shortly after, the police issued the LNCs causing around HK$30 million to HK$40 million in 12 accounts to be frozen. The applicants sought leave to apply for judicial review challenging the lawfulness of the Commissioner’s operation of the “No Consent” regime and the use of the LNCs.

Court of First Instance judgment⁴

The first instance judge distinguished the present case from Interush and found the “No Consent” regime as operated by the Commissioner to be unlawful. In summary, the judge held that:

• The alleged power of the Commissioner to operate an informal asset-freezing regime was not necessarily implied in ss.25 and 25A of OSCO. Therefore, the “No Consent” regime as operated by the Commissioner was ultra vires.
• The “No Consent” regime as operated by the Commissioner was not “prescribed by law” as the OSCO and the Police’s Force Procedures Manual did not provide clarity or certainty as to the scope of the Commissioner’s power.
• Further, there is no “temporal limitation” on the operation of the “No Consent” regime, and reviews were only carried out internally intermittently. The “No Consent” regime as operated by the Commissioner disproportionally intruded on the property rights enshrined in the Basic Law.

In a further decision on relief and costs⁵, the judge declared that the “No Consent” regime as operated by the Commissioner is ultra vires ss.25 and 25A of OSCO and incompatible with articles 6 and 105 of Basic Law. The Commissioner appealed to the CA.

Court of Appeal judgment

The CA found itself in “respectful disagreement” with the first instance judge and set aside the declaration.

First, the CA did not accept the concept of “No Consent” regime as operated by the Commissioner on which the first instance judge appeared to have placed great emphasis. This phrase was not defined in the judgment or the subsequent decision on relief; therefore, its meaning is unclear.

Secondly, in the CA’s view, the account is “frozen” not because there is an enforceable order made by the police (like a Mareva injunction granted by a civil court) that blocks the account, but because the bank has chosen not to comply with its customer’s instruction. The withholding of consent no more “freezes” an account than the giving of consent compels the bank to release money. The police have no power to require the bank to do anything.

Thirdly, regarding the ground of ultra vires:

• The CA noted the first instance judge’s concern that the banks’ suspicions were derived from the police and that the contact from the police triggered the freezing of the accounts.

However, in the CA’s view, this does not matter. Alerting the banks to relevant investigations and suspicions is within the power of the police. Provided that there are proper grounds for alerting the banks, it does not follow that a subsequent LNC becomes ultra vires simply because the police had “proactively reached out” and alerted the bank to the suspicious circumstances in the first place.

• Similarly, the CA took no issue with the police’s request for STRs to be filed by the banks. There is no basis to argue that it is ultra vires for the police to request or recommend compliance with the law.

Fourthly, regarding the ground of “prescribed by law”:

• The police have devised principles and procedures governing the issuance of LNCs in its Force Procedures Manual.⁶
• While the discretion for giving or refusing consent under s.25A of OSCO is conferred on the police without any specified fetters or parameters, there are sufficient constraints to guard against arbitrary or capricious refusal, and sufficient signposts to give guidance for a citizen, with legal advice, to anticipate the scope of the discretion and the manner of its exercise. Accordingly, the statutory scheme does not fall foul of the prescribed by law requirement.

Lastly, regarding the ground of “proportionality”:

• The CA held that Interush is binding on the first instance judge and also on the CA unless the CA considers it plainly wrong.
• The CA did not see any basis for distinguishing Interush in the present case and concluded that ss.25 and 25A of OSCO and the practice of JFIU in issuing LNCs are constitutional.

Comments

The message from the CA’s judgment is clear – the “No Consent” regime under OSCO is constitutional and lawful.

This CA judgment will undoubtedly assist the victims of fraud in preserving stolen monies. With the relevant account(s) being informally “frozen” by the operation of the “No Consent” regime, they will have time to seek legal advice on next steps in order to recover and protect their assets in the most efficient manner.

As for banks, the CA’s judgment does not appear to have changed their obligation to file STRs under OSCO. Banks should continue to monitor unusual activity in their customers’ accounts, assess whether or not an STR should be filed, and keep detailed document records. Further, banks may wish to review the terms of their customer contracts to ensure that the contract expressly allows them to decline to execute a customer’s instructions where the bank suspects that the account balance may represent proceeds of crime.

1. [2023] HKCA 537↩
2. [2019] HKCA 70↩
3. The three banks are Bank of China Hong Kong, Bank of East Asia and the Hongkong and Shanghai Banking Corporation. One of the applicants had accounts with Hang Seng Bank. However, there was no evidence that the police had requested Hang Seng Bank to file a STR. The “freezing” of the account with Hang Seng Bank appeared to have been done by Hang Seng Bank of its own motion.↩
4. Tam Sze Leung v. Commissioner of Police [2021] HKCFI 3118↩
5. [2022] HKCFI 772↩
6. See paragraph 10 of the Court of Appeal’s judgment.↩