On 10 April 2024, in a landmark ruling, the Hong Kong Court of Final Appeal (“CFA”) affirmed the lawfulness of the “Letter of No Consent” (“LNC”) regime, providing significant relief to victims of fraud and bringing clarity to the Hong Kong Police and practitioners involved in asset tracing and recovery. The decision has far-reaching implications for combating fraud and money laundering while maintaining Hong Kong’s reputation as a global financial centre.
To recap on our previous update, the case in question, Tam Sze Leung & Ors v Commissioner of Police [2024] HKCFA 8, involved family members suspected of engaging in stock market manipulation through illegal activities. To assist in the investigation, the Hong Kong Police issued LNCs to the banks where the appellants held accounts to preserve funds pending further inquiry.
The appellants applied for leave to seek judicial review, questioning the Police’s decision to issue and maintain the LNCs and to deny withdrawal of funds from their accounts. The Court of First Instance initially ruled the regime as unlawful and unconstitutional. However, on appeal, the Court of Appeal overturned this decision, upholding the validity of the LNC regime. Subsequently, the appellants were granted leave to appeal to the CFA.
Four Key Issues in CFA Appeal
Ultra Vires and Improper Purpose: The CFA held that the LNC regime, authorized under Section 10 of the Police Force Ordinance, empowers the Police to take lawful measures to prevent the dissipation of suspected proceeds of crime. In communicating with the banks to procure a LNC, the police’s actions were intra vires. The regime is not ultra vires, and the appellants’ argument, premised on the Organized and Serious Crimes Ordinance (“OSCO”), was held to be flawed.
Constitutional Challenge: The court rejected the appellants’ constitutional challenge, stating that the LNC regime does not infringe on fundamental rights to property. It is the account bank that disables and freezes its customer’s account when it decides that the suspicion from police is not unfounded. The Police’s actions do not freeze accounts but rather prompt the banks to disable and freeze accounts based on the banks’ own obligations and concerns.
Procedural Unfairness: The court dismissed the appellants’ claim of procedural unfairness, emphasizing the police’s entitlement to maintain confidentiality of sensitive aspects of investigations. It clarified that the LNC regime is a temporary and provisional measure to secure suspected proceeds of crime, not a formal legal proceeding requiring public hearings or extensive notice and representation.
Interush Decision: The court held that the case Interush Ltd v Commissioner of Police [2019] 1 HKLRD 892, on the constitutionality of sections 25(1) and 25A of OSCO, was not relevant to the appellants’ appeal, which focused solely on the validity of the LNC regime. Therefore, the court did not proceed with a full proportionality assessment.
Implications and Takeaways
Combatting Fraud and Money Laundering: The decision affirms the operational framework of the LNC regime, reinforcing its crucial role in combating fraud and money laundering. It ensures that suspect assets can be secured pending investigation and aligns with Hong Kong’s international obligations to implement effective anti-money laundering measures.
Protection for Victims of Fraud: The LNC regime provides a vital mechanism for victims of fraud to preserve funds swiftly, especially in cases where funds can be dissipated rapidly. It allows fraud victims and practitioners to pursue civil injunctions, tracing, and recovery relief in the Hong Kong Courts.
Maintaining Hong Kong’s Reputation: The decision supports Hong Kong’s reputation as a global financial centre by demonstrating its commitment to combating financial crimes and ensuring a robust regulatory framework.
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