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How Legal Practitioners Should Handle Client’s Money from an AML Perspective? Some Good News, But More Alerts

2017-09-01

Background

On 19 September 2014, W K Wu (“Wu”), a solicitor and partner, was convicted and sentenced to imprisonment for money laundering.

As we have discussed in our previous article Money-Laundering: Would I Have Believed I Was Dealing with Dirty Money?,  the Court of Final Appeal has clarified the law on  Section 25(1) of the Organized and Serious Crimes Ordinance (Cap 455)(“OSCO”) in its judgment in the case of Pang Hung Fai FACC 8 of 2013 on 10 November 2014.

Relying on the Pang Hung Fai case, Wu appealed to the Court of Appeal and was ordered a retrial (in CACC 299 of 2014) on 26 May 2016. On 1 September 2017, the District Court handed down its judgement after the retrial.

The charge against Wu was based on the “having reasonable grounds to believe” limb of the offence of dealing in property that represents crime proceeds under s25 of OSCO. In the retrial, there is little dispute on facts but much divergence over interpretation of evidence and law.

It was the prosecution’s case that Wu had reasonable grounds to believe the money in the respective charge represented the proceeds of an unproved indictable crime. On the other hand, Wu’s argument was that the reasonable grounds he had would not have led him to believe the money he handled represented indictable crime proceeds.

Reasoning of the Court

The Court confirmed that the law on money laundering was clearer after Pang Hung Fai and then the case of Yeung Ka Sing Carson FACC 5&6 of 2015 (The Soccer Boss Saga: Carson Yeung and Money-laundering (Part IV) – Re-visit on Elements of Money Laundering Contravening Section 25(1) of the Organized and Serious Crimes Ordinance).

The Court emphasised that “having reasonable grounds to believe” limb should be “grounds which WOULD have led the defendant to believe the property he dealt with represented in whole or in part directly or indirectly proceeds of an indictable offence”; NOT “mere grounds” or “grounds sufficient for the defendant to so believe”. Further, such grounds must be reasonable, i.e., anyone looking at those grounds would so believe (see Pang Hung Fat at [59]-[77]; Yeung Ka Sing, Carson at [106]).

Wu was acquitted because the Court held that the circumstances, though suspicious, do not indicate for sure that the reasonable grounds of Wu had at the material time would have led him to believe the money represented in whole or in part directly or indirectly the proceeds of an indictable crime.

This case has re-confirmed the Court’s attitude towards money laundering cases which were brought under the “having reasonable grounds to believe” limb.

Mixed Messages

Judge J Lam commented in Wu’s case that “one can hardly expect such a lawyer to know all his clients well and be able to assess each and every client correctly.  After all, lawyers should adopt an agnostic approach towards their clients”. He further said that “while one might criticise D1 [Wu] for being over agnostic at times, he cannot be condemned to guilt for that.” This less onerous approach is good news for legal practitioners.

However, the Judge also criticised Wu for having breached the Law Society’s Practice Direction P (Guidelines on Anti-Money Laundering and Counter Terrorist Financing), which the Court considered Wu should have complied with carefully and strictly.

Practice Direction P

The Law Society issued the revised the Practice Direction P on 1 December 2008.

Practice Direction P embodies a risk-based approach in complying with the requirements of client identification, verification and due diligence in the anti-money laundering measures. Law firms are given latitude to establish their own internal guidelines which are best suited for individual firms’ needs.

Solicitors shall carry out due diligence in respect of their clients’ identity and the transactions instructed to be carried out, in particular, the source of any funds that are to pass through or be held in the solicitor’s bank accounts.

Practice Direction P does not have the force of law. It is a set of guidelines and a standard for good practice.

Compliance of the Practice Direction P does not necessarily guarantee legal practitioners immunity from prosecution for money laundering offences. However, non-compliance of it will certainly increase the possibilities of committing the criminal offences, in addition to the disciplinary proceedings by the Law Society.

What’s Coming Next

The Financial Services and the Treasury Bureau of Hong Kong proposed to amend the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO) (Cap. 615), to implement Hong Kong’s international obligations under the Financial Action Task Force recommendations. On 23 June 2017, the Government published the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Bill 2017 (the “Bill”) in the gazette. The Bill was introduced into the Legislative Council on 28 June 2017, and the Government proposes to implement the amendments on 1 March 2018.

The amendments mainly relate to requiring designated non-financial businesses and professions (“DNFBPs) (including solicitors, which cover sole practitioners, partners or employed professionals within professional firms) to observe statutory customer due diligence (“CDD”) and record-keeping requirements.

CDD measures will include identifying and verifying the identity of customers when establishing business relationships, carrying out occasional transactions above a threshold of HK$120,000 when there are suspicions of money laundering and/or terrorist financing, or when there are doubts on veracity or adequacy on previously obtained customer identification data.

DNFBPs are expected to undertake customary CDD measures in normal circumstances, and enhanced CDD measures when dealing with customers presenting high money laundering / terrorist financing risks.

As to the record-keeping requirements, DNFBPs will be subject to the same requirements as for financial institutions.

The Law Society will take on a statutory oversight for monitoring and ensuring compliance with the AMLO requirements by the legal professionals, and it will continue to rely on the applicable disciplinary and sanction measures to process non-compliance under the AMLO.  It is expected that once the new AMLO comes into force, the Law Society will issue guidelines on how legal professionals should comply with the new requirements under AMLO.

The Bill offers the Practice Direction P a statutory backup for enforcement. It is yet to see how the amendments will be implemented. However, we are sure that the regulations on anti-money laundering and counter-terrorist financing will be more and more enhanced.


For enquiries, please contact our Litigation & Dispute Resolution Department:

E: criminal@onc.hk                                                             

W: www.onc.hk                                                                   

T: (852) 2810 1212

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

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