In May 2023, we have issued a newsletter on the case of Tam Sze Leung & Others v Commissioner of Police [2023] HKCA 537 under which the Court of First Instance (the “CFI”)’s decision that the police’s practice of issuing “Letters of No Consent” (the “LNCs”) was unlawful was overturned by the Court of Appeal (the “CA”).

As we rightly predicted in our said newsletter, the case was further appealed to the Court of Final Appeal (the “CFA”). The CFA recently handed down its decision, unanimously dismissing the appellants’ appeal and reaffirming the legality and constitutionality of issuing LNCs.

Background

The appellants were suspected by the Securities and Futures Commission (“SFC”) of having engaged in market manipulation of stocks in Hong Kong and made profit of over HK$300 million out of those unlawful transactions. After investigation and searches of the appellants’ premises, the SFC referred the matter to the police which, among all actions, issued LNCs to four banks in Hong Kong where the appellants’ bank accounts were held. Following the issuing of the LNCs, the relevant banks disabled or “froze” the appellants’ bank accounts.

The appellants applied for leave to seek judicial review of the police’s decision to issue and maintain the LNCs in respect of the appellants’ bank accounts. Despite that the judicial review became academic after a restraint order was obtained by the Secretary for Justice and the relevant LNCs were lifted, Coleman J upheld aspects of the appellants’ challenge on ultra vires and constitutional grounds. Nevertheless, the CA later allowed the police’s appeal, upholding the lawfulness of the issuing of LNCs.

CFA’s decision

Before considering the questions of law in this case, the CFA has examined the nature and purpose of issuing LNCs. As the police acknowledges, the aim of issuing the LNCs is “to prevent dissipation of assets by the applicants while police investigation is ongoing”. However no property belonging to the suspect is ever held or seized by the police under the LNCs regime. The decision as to whether the customer should be allowed to draw on the suspect funds or whether the account should be disabled remains with the bank maintaining the customer’s account. The bank, having received the LNCs, can usually be expected to continue freezing the account for the purpose of compliance under the Organized and Serious Crimes Ordinance (Cap. 455) (“OSCO”), the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and the regulatory obligations imposed by the Hong Kong Monetary Authority. However, it is apparent that such freezing is not the police’s act.

The CFA ruled against the appellants and affirmed the decision of the CA, the reasoning of which are highlighted as follows:

1.    Whether the LNCs regime and the LNCs issued in respect of the appellants’ bank accounts are ultra vires and/or for improper purpose

The appellants argued that the LNCs are ultra vires because OSCO does not confer power to operate a de facto property freezing regime by the use of such letters and attendant procedures.

The CFA rejected this argument on the basis that (i) the authorization of the police’s actions is indeed premised upon the statutory duties and powers under the Police Force Ordinance (Cap. 232) (“PFO”) instead of OSCO; (ii) the actions of the police do not involve freezing or ordering the banks to freeze the bank accounts and hence a search for statutory authorization to operate such a freeze is misguided; and (iii) it is the bank which, being motivated by the wish to meet its anti-money laundering obligations and to avoid criminal, regulatory and reputational sanctions, disables and freezes its customer’s account when it decides that the suspicion is not dispelled. For the reasons given above, the appellants’ argument contending that the police, having been given a statutory power, misuses it for an improper purpose must also be rejected. The CFA went further to explain that even if the freezing was properly attributed to the actions of the police, such a temporary measure aimed at preventing dissipation of suspect assets pending further investigation and possible invocation of the court’s jurisdiction is not a misuse of, but consistent with, the powers conferred by the PFO.

2.    Whether the LNCs regime and the LNCs issued in respect of the appellants’ bank accounts comply with the requirements of being prescribed by law and are proportionate restrictions on such fundamental rights

The CFA rejected the appellants’ contention of infringement of the right to use of property as protected by articles 6 and 105 of the Basic Law, considering that no such rights are engaged. Neither the LNCs nor a restraint order deprives the appellants of their property in their bank funds. The CFA repeated its stance that the appellants have mischaracterized the police’s action. The police does not by his acts freeze, or make a “crucial contribution” to the bank’s decision to freeze or continue freezing the funds, and therefore such acts did not prevent the appellants from using the property nor infringe their protected rights as alleged.

The CFA further held that even if the police’s actions did “freeze” the accounts, such actions are prescribed by law since they are governed by clear and accessible provisions under the PFO. Being a temporary and provisional means of securing suspicious assets until investigations were sufficiently advanced to enable a decision to be made whether to start criminal proceedings or to consent to the release of the funds, the interference with the appellants’ use of their funds would thus be of a limited nature and finite duration. It is not disproportionate because it reflect a reasonable balance between the anti-money laundering aims of society and the protection of individual property rights.

3.    Whether the LNCs regime and the LNCs issued in respect of the appellants’ bank accounts was procedurally unfair

The appellants contended that police investigations of suspected money laundering should be treated as if the police were conducting a “suit at law” involving a public hearing in some adjudicative forum, giving the suspects notice, reasons and an opportunity to make representations. The CFA considered that the police were fully entitled to keep sensitive aspects of their investigations confidential in order not to prejudice the investigation and hence the appellants contention defies common sense.

Besides, during the investigation process, the appellants have consistently chosen to exercise their right of silence despite being repeatedly requested to assist in the investigation. They had every opportunity, if they so wished, to make representations with a view to dispelling the suspicion. It has also been open to the appellants throughout to seek relief against the banks in a “suit at law” for withholding their funds, or to resort to the courts in bringing judicial review proceedings against the police, as indeed they have done.

4.    Whether the case of Interush Ltd v Commissioner of Police was correct in holding that the LNCs regime is a necessary and proportionate restriction on the right of enjoyment of private property under the Basic Law

Interush concerned with a direct challenge to the constitutionality of certain OSCO provisions, which is different from what the appellants sought in this appeal. The correctness of Interush decision is obviously not the subject of this appeal. Besides, the CFA raised queries as to the reasoning in Interush that the CA on one hand accepted LNCs regime does not by itself freeze the accounts of the applicants, but on the other hand held that the LNCs regime engaged the property right.

Takeaway

In the modern world where scams and frauds are commonly seen and dissipation of funds can be so easily done via electronic means, the decision of the CFA in this appeal is undoubtedly good news to victims of fraud. The CFA’s affirmation of the validity of the LNCs regime confirms the legality of the police’s power and tools in preserving funds before or at the stage of investigation, and by doing so, allows the victims to have more time to seek relief and increases the chances of having the funds recovered. However, if an innocent party’s bank account was caught and frozen by a bank with an ongoing law enforcement investigation, even though the CFA confirmed that there were ways for a bank account holder to explain and dispel suspicions, that could be an onerous process involving substantial legal costs and time. There is at present no legal way or recourse such as in a restraint order scenario where an application could be made to the Court for use of the frozen funds for living expenses and legal fees. In any event, it is advisable for any person, whether being a victim of fraud or an account holder affected by LNCs, to immediately seek legal advice.