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 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”.
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.
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.
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:
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.
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:
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.
Fourthly, regarding the ground of “prescribed by law”:
Lastly, regarding the ground of “proportionality”:
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.
heading