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Sections 25 and 25A of the Organised and Serious Crimes Ordinance (Cap. 455) (“OSCO”) have once again come under the spotlight in a recent judicial review.
In Tam Sze Leung & Ors v Commissioner of Police [2021] HKCFI 3118 [1], the Court of First Instance held that the use of the letters of no consent (“LNCs”) issued under the so-called “no consent regime” (“No Consent Regime”) by the Commissioner of Police (“Commissioner”) in the context of section 25A of OSCO to informally freeze a bank account was unconstitutional.
The No Consent Regime
The No Consent Regime stems from the operation of sections 25 and 25A of OSCO. Under this regime, the Hong Kong Police may relieve any person or entity from criminal liability for dealing with property known or believed to represent proceeds of crime, when that person or entity has reported the suspicious transaction and has obtained the consent of the Police to deal with the property regardless. The Police’s power to provide consent necessarily implies a power to withhold consent through the issuance of LNCs.
An earlier challenge in Interush
The constitutionality of the No Consent Regime was examined and affirmed by the Court of Appeal (“CA”) in Interush Ltd v Commissioner of Police [2019] HKCA 70 (“Interush”) [2]. The CA proceeded on the basis that neither the Police nor the No Consent Regime caused the freezing of assets. The CA disagreed that the property rights under the Basic Law (“BL”) had been disproportionately infringed on the premise that the regime operated as a responsive mechanism that was triggered when a financial institution filed a suspicious transaction report (“STR”).
The present case, however, came with changed circumstances. Notably, the Commissioner now asserted that freezing assets was the deliberate object of his operation of the No Consent Regime. Given this fundamental difference, the Court considered the constitutionality and legality of the No Consent Regime as operated by the Commissioner.
Case Background
The applicants were investigated by the Police for suspected money laundering under section 25 of OSCO, following an investigation and referral by the Securities and Futures Commission for suspected stock market manipulation, namely the applicants’ suspected ‘pump and dump’ of shares.
The Joint Financial Intelligence Unit (“JFIU”) alerted various banks, with which the applicants held accounts, to the fact that such investigation was being conducted. It urged the banks to file STRs in relation to those accounts and indicated that LNCs would be issued. Accordingly, each of the banks filed STRs to the JFIU in relation to the relevant accounts.
Prior to being contacted by the JFIU, none of the banks appeared to have any reason to file a STR in relation to the applicants or their accounts.
After the banks filed STRs to the JFIU, LNCs were issued to the banks. Erring on the side of caution, the banks froze the relevant accounts and the applicants were subsequently unable to withdraw their funds.
About 10 months later, restraint orders against the applicants and the accounts were obtained and the LNCs were then withdrawn.
The applicants sought leave to apply for judicial review of the Commissioner’s operation of the No Consent Regime and the use of LNCs in the present case by relying on six grounds:
1 The issue and maintenance of the LNCs are tainted by procedural impropriety and unfairness;
2 The LNCs were ultra vires OSCO;
3 The interference of LNCs with the applicants’ constitutional rights (including property rights) was not prescribed by law;
4 The LNCs breached the applicants’ right to a fair hearing;
5 The No Consent Regime and LNCs disproportionately interfered with the applicants’ property rights under BL and rights to privacy and family under the Hong Kong Bill of Rights Ordinance (Cap. 383); and
6 The Commissioner’s decisions to refuse consent to even the partial release of funds, which in effect caused a blanket freeze, were unlawful.
Decision
The Court held that grounds 2, 3 and 5 were made out.
Ground 2: Ultra vires
The Commissioner acknowledged the purpose of issuing LNCs was to informally freeze the applicants’ accounts. The applicants argued that this was ultra vires OSCO.
Considering the language and purpose of OSCO, the Court found that the alleged power of the Commissioner to operate this informal asset-freezing regime was not necessarily implied in sections 25 and 25A of OSCO. OSCO expressly provided for asset freezing powers (e.g. restraint or confiscation orders) with substantive procedural safeguards in other provisions. Therefore, it could not be the legislature’s intent to create the informal and unregulated asset-freezing powers as the Commissioner alleged.
Bearing in mind the above and taking into account the legislative history of OSCO, to use the express provision relating to consent in section 25A(2)(a) for the purpose of securing an informal, unregulated freezing of assets is to use that power for a purpose other than that for which it was supplied. The Court therefore held that the No Consent Regime as operated by the Commissioner was ultra vires.
Ground 3: Not prescribed by law
As for this ground, the Court considered the crucial questions to be: (i) whether there was sufficient clarity to ordinary citizens as to the scope of the power and the manner of its exercise; and (ii) whether the law provided adequate effective safeguards against abuse.
The Court answered in the negative. For (i), neither OSCO nor the Police’s Force Procedures Manual provided clarity or certainty as to the scope of the Commissioner’s power, which may be due to the fact that the No Consent Regime as operated was ultra vires. Regarding (ii), the Court casted doubt on whether judicial review or civil proceedings against banks would be an appropriate safeguard or remedy which could be achieved expeditiously.
Accordingly, the Court was not persuaded that the No Consent Regime as operated by the Commissioner was “prescribed by law”.
Ground 5: Disproportionate interference
Although Ground 5 was raised and rejected in Interush, in light of the Commissioner’s change of stance, the Court considered the proportionality argument holistically in the context of the present case.
The Court considered there were numerous alternatives with clearly defined powers and safeguards available to the Commissioner to proactively tackle money laundering at an early stage of investigation, such as under the restraint order regime. Without temporal limitation and with only internal intermittent review of justification for the LNCs, the No Consent Regime as operated by the Commissioner failed the proportionality assessment.
Comments
The Court acknowledged that speedy means to freeze assets may be vital, especially since crime proceeds can now disappear within days or even at a push of a button. The Court also accepted that the Commissioner could alert financial institutions to potential money-laundering offences, and remind them of their obligation to submit STR. Nevertheless the Court is very clear that sections 25 and 25A of OSCO do not create an informal asset-freezing regime which could be used by the Commissioner.
This judgment has generated a lot of publicity and media headlines. This is not surprising as filing of the STR and the No Consent Regime have been an important part of the banking compliance system in Hong Kong.
However, the precise impact of this case on the operation of the No Consent Regime is uncertain and remains to be seen. This judgment may be subject to appeal and examined by higher courts. More importantly, the Court in the present case has yet to determine the relief to be granted.
Furthermore, this case arose out of a slightly unusual set of circumstances in which the LNCs were issued. It was the Police who requested the banks to file the STR and suspend the operation of the accounts. In the absence of such contact from the Police, the banks appeared to have no reason to consider the possibility of suspect activities.
Pending further judicial clarification on the nature, scope and operation of the No Consent Regime (if any), this judgment does not appear to have changed the banks’ obligation to file STR under OSCO once they suspect that there have been suspicious activities in the accounts. Banks should continue to monitor the bank accounts’ activities, make independent assessment as to whether or not a STR shall be filed and/or the relevant account should be restricted, and keep relevant document records.
As for victims of fraud, this judgment may have an impact on their recovery strategies. Rather than relying on the No Consent Regime of the Commissioner to impose a temporary “freeze” on bank accounts, they may now need to take the more proactive and expensive approach of making an urgent application to the Court and freezing the bank accounts of suspected fraudsters in order to protect their assets.
As mentioned, it remains to be seen whether this judgment would be subject to appeal and, if so, whether this judgment would be reversed on appeal. It is therefore important for us to keep an eye out for further judicial guidance on this judgment by considering whether and, if so, how this judgment is appealed, interpreted and/or cited by the Court in the future.
[1]https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=141312&currpage=T
[2]https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=119632&currpage=T
Banking and finance
Hong Kong