Introduction

In preventing the dissipation of suspicious funds, the police and the Joint Financial Intelligence Unit (“JFIU”) have been following the “No Consent” regime to inform banks not to deal with  suspicious accounts by issuing the “Letter of No Consent” under the Organized and Serious Crimes Ordinance (Cap. 455) (“OSCO”). In Tam Sze Leung & Others v Commissioner of Police [2023] HKCA 537, the Court of Appeal (the “CA”) overturned the Court of First Instance’s (the “CFI”) decision that the police’s use of the Letter of No Consent was unlawful and unconstitutional.

“No Consent” regime

The “No Consent” regime is stemmed from sections 25 and 25A of OSCO. Under section 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 provides that any person knowing or suspecting any property to be the proceeds of crime should disclose such knowledge or suspicion to an authorised officer. The disclosure under section 25A of OSCO is made by way of suspicious transaction report (“STR”). The JFIU will then issue Letter of No Consent to the relevant institutions that filed the STR, and banks will not have the prerequisite consent from the JFIU to allow further withdrawals from the relevant accounts.

Background

The applicants (the “Applicants”) are family members and maintained several bank accounts with banks in Hong Kong. They were under investigation by the Securities and Futures Commission (“SFC”) for engaging in stock market manipulation via pump and dump activities, as well as arranging for other person to provide false stock trading tips or inside information with the intention to raise the share prices through social media and other messaging applications.

The Applicants are alleged to have earned a profit of over HKD300 million at the expense of investors that bought shares from them and suffered significant losses when the stock prices came down after the sale. The SFC later referred the matter to the police for investigation against the Applicants for the suspected offence of money laundering. The police then issued Letters of No Consent against the Applicants’ bank accounts held at Bank of China Hong Kong, Bank of East Asia and the Hong Kong and Shanghai Banking Corporation to preserve the profits and identify the proceeds of crime pending further investigation.

The Applicants initiated a judicial review proceedings on the validity of the Letters of No Consent. The CFI held that the “No Consent” regime was (I) ultra vires of OSCO; (ii) not prescribed by law; and (iii) involved a disproportionate restriction of the constitutional right to property under the Basic Law. The Commissioner of Police then appealed against the decision.

The CA’s decision

The CA considered the following grounds accepted by the CFI in the current appeal:

Grounds accepted by the CFI:

1.       The “ultra vires” ground;

2.       The “improper purpose” ground;

3.       The “prescribed by law” ground; and

4.       The “proportionality” ground.

The “ultra vires” ground

The CA disagreed with the CFI’s conclusion that the legislature has enacted a “secret, informal and unregulated asset freezing power”. The CA is of the view that the action of alerting the banks to relevant investigations and suspicions is within the power of the police. As long as there are proper grounds for alerting the banks, a subsequent Letter of No Consent does not become ultra vires simply because the police proactively reaches out and alerts the bank to the suspicious circumstances in the first place.

Also, the CA is of the view that the account is frozen not because there is any enforceable order made by the police to block the account, on the contrary, because the bank is choosing not to comply with customer’s instructions to transfer the money in the account on the basis that banks are not acting in contravention of OSCO.

The “improper purpose” ground

The CA held that the Applicants failed on the improper purpose ground. The CA found that nothing was improper about refusing consent for the purpose of preventing the dissipation of funds as the police were investigating the matter at the material time and suspected the Applicants’ activities when the Letters of No Consent were issued and maintained.

The “prescribed by law” ground

Although the Applicants contended that the power to issue Letter of No Consent is not prescribed by law as section 25A of OSCO does not adequately indicate the scope of the power or the manner in which it is to be exercise, the CA found that there is devised principles and procedures governing the issuance of the Letter of No Consent in the Force Procedures Manual. Also, the CA held that there is no uncertainty or vagueness in section 25 of OSCO which prohibits dealing with property in specified circumstances, which gives rise to concerns on the part of third parties such as banks and leads them to take steps to prevent any dealing with the property.

Whilst the discretion under section 25A of OSCO is conferred on the police without any specified parameters, there are sufficient constraints to guard against arbitrary or capricious refusal. There are also sufficient signposts to give guidance for a citizen, with legal advice, to anticipate the scope of the discretion and the manner of its exercise.

The “proportionality” ground

The Applicants argued that Interush Ltd v Commissioner of Police [2019] 1 HKLRD 892 (For details of this case, you may refer to our previous article “Navigating the money laundering minefield – the Court of Appeal dismissed the constitutional challenge against the “no consent” regime“) was wrong and the CFI shall depart from the decision. In Interush, the applicants raised a systematic proportionality challenge against sections 25 and 25A of OSCO, yet the CA held that the statutory provisions and the “No Consent” regime are constitutional as they are no more than necessary for the legitimate purpose and societal benefit of anti-money laundering.

As there is no valid argument proving that the decision in Interush is wrong, the CA held that it is still a binding authority and concluded that the issuance of Letter of No Consent are not systematically unconstitutional.

Takeaways

Undoubtedly, the judgement that the “No Consent” regime under OSCO is lawful and constitutional has provided comfort to the victims of fraud in preserving their money and increase the chances of being able to recover the funds. The judgement also serves as a guidance to the banks as there is more certainty on how to handle the affected accounts. It is up to the bank to decide whether to comply with its customer’s instructions in respect of suspicious funds. This case might be further appealed to the Court of Final Appeal and might not be final on the challenge to the constitutionality of the “No Consent” regime.

Be that as it may, banks are advised to retain evidence of them filing STR and closely monitor any unusual activities in the customers’ bank accounts. Also, banks are encouraged to conduct regular review of customer contracts to ensure that the banks are entitled to decline the client’s instructions to transfer money to other bank accounts when they suspected that the account balance may be proceeds of crime.

 

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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.

Published by ONC Lawyers © 2023