Tam Sze Leung and Others -v- Commissioner of Police [2024] HKCFA 8
On 10 April 2024, the Hong Kong Court of Final Appeal (CFA) handed down a landmark unanimous judgment, in which it confirmed that the “Letter of No Consent” regime (No Consent Regime) under the Organised and Serious Crimes Ordinance (Cap. 455) (OSCO) is constitutional. This means it is lawful for the Hong Kong Police Force (Police) to issue letters of no consent (LNCs) which can lead to banks voluntarily disabling, or freezing, accounts suspected of containing proceeds of crime.
No Consent Regime
Money laundering offences under ss. 25 and 25A of the OSCO
The No Consent Regime stems from ss. 25 and 25A of the OSCO: –
- S. 25(1) of the OSCO creates an offence for any person to deal with property known or reasonably believed to represent proceeds of crime.
- S. 25A of the OSCO makes it an offence for any person who fails to disclose to an authorised officer if he or she knows or suspects that any property links to proceeds of crime.
- S. 25A(2)(a) of the OSCO states that it is a defence if disclosure is made before dealing with the subject property and such dealing is made with the consent of an authorised officer.
Making a disclosure
A disclosure in relation to suspected money laundering activities should be made by way of filing a suspicious transaction report (STR) with the Joint Financial Intelligence Unit (JFIU), a unit jointly run by the Police and the Hong Kong Customs & Excise Department.
Investigating STR and issuing LNCs
Upon receipt of a STR, the JFIU will investigate the case and issue an LNC to prevent the dissipation of funds if there are reasonable suspicions. The subject account would then be realistically “frozen” as the bank would usually refuse to deal with the subject property until the relevant LNC is withdrawn or when the requisite consent to process is granted by the Police, or by a court, in order to avoid committing an offence under the OSCO and other anti-money laundering legislation.
In essence, therefore, the No Consent Regime is an informal asset freezing mechanism developed by the Police under the OSCO to secure the targeted assets pending investigation of the case.
Background
The lawfulness of the No Consent Regime was first examined in Interush Ltd -v- Commissioner of Police [2019] HKCA 70, in which the Court of Appeal (CA) affirmed its constitutionality. This decision was challenged in Tam Sze Leung which concerned the issuance of LNCs by the Police following an investigation by the Securities and Futures Commission (SFC) in respect of alleged stock market manipulation.
The SFC referred the matter to the Police on the basis that s. 25(1) of the OSCO may have been engaged. The Police subsequently alerted three banks where the suspicious transactions landed and recommended that they file STRs. The banks thereafter submitted STRs in respect of the appellants’ accounts, which eventually led to the issuance of the LNCs, causing around HK$30-40 million in 12 accounts in the appellants’ names to be frozen (the Police’s Actions).
The appellants sought to challenge the relevant LNCs and the constitutionality of the No Consent Regime on the ground that they contravened various rights protected by the Hong Kong Basic Law (Basic Law) and the Hong Kong Bill of Rights.
The lower court decisions
The Court of First Instance (CFI) distinguished this case from Interush and held that the No Consent Regime was unconstitutional because it was ultra vires, not prescribed by law and disproportionate.
On appeal by the Police, the CA overturned the CFI’s decision and held that the No Consent Regime was constitutional. Among other things, it disagreed that the No Consent Regime was ultra vires or disproportionate or that it fell foul of the “prescribed by law” requirement.
The CFA decision
The CFA unanimously dismissed the appeal and held that the No Consent Regime was constitutional.
Ultra vires and improper purpose
The CFA held that the Police’s Actions were not ultra vires for the following reasons:
- The Police’s Actions did not have to be authorized by the OSCO and fell within the ambit of the Police’s powers under statute and at common law. Their power to act as they did was conferred on them by s. 10 of the Police Force Ordinance (Cap. 232) (PFO), pursuant to which the Police have the powers and duties to prevent and detect crimes and offences and prevent injury to property. This is supplemented by the Police’s common law duty to take all steps necessary to prevent crime.
- The accounts were not frozen as a result of the Police’s Actions and the Police’s communications with the banks were not mandatory instructions to the banks to freeze the accounts. The accounts were frozen as a result of the banks’ decisions, which sought to balance their duties to their customers whilst complying with their legal obligations and avoiding potential criminal liability under the OSCO and other money laundering legislation.
- S. 10 of the PFO conferred on the Police the power to instigate the freezing of the targeted assets pending investigation. The Force Procedures Manual (FPM) also recognized that the LNCs were only provisional expedients with finite durations, being subject to periodic reviews by the Police.
The CFA also found there was no improper purpose in respect of the Police’s exercise of their statutory power under the No Consent Regime. There was no misuse of implied power on the part of the Police by way of withholding consent to deal with the targeted property under s. 25(2)(a) of the OSCO. The source of the Police’s power to deal with the banks was properly derived from s. 10 of the PFO as opposed to the OSCO.
Constitutional requirements
The Police’s Actions did not infringe the appellants’ constitutional rights because the Police were not responsible for the banks’ decision to freeze the accounts and thereby deprive the appellants of the use of their funds. As such, the right to property under Arts 6 and 105 of the Basic Law were not engaged.
Even if this was wrong, the Police’s Actions fulfilled the “prescribed by law” requirement as the Police’s power to take these actions derives from the PFO and FPM, which also set out clearly the manner in which such power should be exercised, including the requirement of conducting intermittent reviews regarding the maintenance of LNCs. As such, the Police’s powers were “prescribed by law.”
Additionally, the Police’s Actions had legitimate aims, namely facilitating investigation and depriving perpetrators of the proceeds of crime at the domestic level and fostering cross-border anti-money laundering schemes at the international level. The relevant measures were no more than reasonably necessary and achieved a reasonable balance between achieving anti-money laundering aims and protecting individual property rights.
Furthermore, the rights to private and family life enshrined in Art 14 of the Hong Kong Bill of Rights were not infringed as the appellants had apparently found alternative funds for their living expenses and legal fees. The alleged contravention of the rights to access to legal advice and to the Court in Art 35 of the Basic Law and Art 10 of the Hong Kong Bill of Rights also failed on the same ground.
Procedural unfairness
There was no procedural unfairness regarding the operation of the No Consent Regime. Adopting a common-sense approach, it would be sensible for the Police to keep the investigation confidential for the purpose of preventing and combating crimes under the legal framework.
Furthermore, the appellants’ rights to make representations were not contravened as they had been given the opportunity to dispel suspicion but chose to keep silent. The appellants also had the opportunity to initiate judicial review proceedings against the Police or to seek relief against the banks for withholding their funds.
The CFA noted that, in any event, restraint orders under s.15 of the OSCO were subsequently obtained following investigations by the Police and replaced the LNCs. This, together with the fact that the appellants failed in their opposition to the extension of the validity of the restraint orders, rendered their complaint of the Police’s use of the LNCs instead of restraint orders unsustainable.
Comment
This CFA decision has reaffirmed the constitutionality of the longstanding No Consent Regime.
It is a significant decision in light of the fact that cases of fraud and deception are at an all-time high and victims are often unsuccessful in tracing and recover their lost funds.
Recent statistics released by the Police reveal a staggering 39,824 fraud cases in 2023. This marks a 42.6% surge from the previous year’s figures and a significant surge of 375.7% when compared with 2018. Around 70% of these cases are linked to internet scams, involving total losses of over HK$9 billion. Fraud cases can cause severe financial loss to individuals and to businesses. In most cases, due to advances in technology, stolen funds can be dissipated swiftly by the fraudsters, rendering the tracing and recovery process difficult.
The CFA’s decision highlights that the No Consent Regime remains a powerful tool to preserve the assets in question before scam victims have had a chance to seek an injunction or freezing order.
Nonetheless, in practice, victims should not solely rely on the No Consent Regime pending civil recovery as: (a) the Police are not obliged to keep victims and/or their legal representatives abreast of the progress of their investigation; (b) the relevant LNCs may not be in place at all material times; and (c) there is a possibility, albeit small, that a bank will disregard an LNC. Consequently, victims should consider commencing legal action promptly to formally freeze the assets in question before they are dissipated.
Similarly, banks and other financial institutions should carefully balance the contractual obligations owed to their customers whilst fulfilling their statutory duties.
Those affected by LNCs can also ask the courts to judicially review the Police’s Actions on a case-by-case basis or seek appropriate relief against the banks that freeze their funds.
This article first appeared in the May 2024 issue of Hong Kong Lawyer, the official monthly publication of The Law Society of Hong Kong.
