On 14 April 2023, the Court of Appeal (“CA”) in Tam Sze Leung v Commissioner of Police [2023] HKCA 537 overturned a Court of First Instance (“CFI”) decision which declared that the No Consent Regime as operated is (a) ultra vires sections 25 and 25A of OSCO, (b) not prescribed by law and (c) disproportionately interferes with rights and in particular to the right to the use of property.
The Facts
The Applicants were under suspicion by the Securities and Futures Commission (“SFC”) for having committed breaches of the Securities and Futures Ordinance, Cap. 571 for “stock market manipulation”.
The SFC referred the matter to the police for investigation and, in turn, the police informed a number of banks of the investigation and requested the banks’ action. The banks then submitted “suspicious transaction reports” (“STRs”) to the Joint Financial Intelligence Unit (“JFIU”), a unit jointly run by staff members of the Hong Kong Police Force and the Hong Kong Customs & Excise Department. LNCs were then issued and eventually the accounts were frozen by the banks.
The way the LNC regime had been operated by the police was put into question by the Applicants who challenged, by way of judicial review, the decision of the Commissioner of Police to issue and maintain LNCs in relation to their bank accounts.
The CFI Decisions – Tam Sze Leung v Commissioner of Police [2021] HKCFI 3118, [2022] HKCFI 772
Under section 25 of the Organized and Serious Crimes Ordinance (“OSCO”), it is an offence for someone to deal with property knowing or having reasonable grounds to believe that any property in whole or in part, directly or indirectly, represents any person’s proceeds of an indictable offence. This is subject to section 25A of OSCO, which allows for the dealing of such property if the said person discloses his knowledge or suspicion that such proceeds may be connected to crime to an authorised officer, and he receive the consent of said officer.
Of the six grounds of challenges raised by the Applicants, the CFIheld in favour of the Applicants on the following three grounds: ultra vires, prescribed by law and proportionality.
The CFI therefore granted a declaration in favour of the Applicants, holding that “the Letters of No Consent and the No Consent Regime as operated by the Commissioner” was unlawful. In doing so, the CFI judge distinguished the CA decision in Interush Ltd v Commissioner of Police [2019] HKCA 70, which upheld the constitutionality of the relevant sections of OSCO. The Commissioner of Police appealed to the CA.
The CA Judgment – Tam Sze Leung v Commissioner of Police [2023] HKCA 537
“No Consent Regime as operated by the Commissioner”
The CA was critical of the fact that the CFI decision had not defined the phrase in question, “No Consent Regime as operated by the Commissioner”, in both the judgment and the subsequent decision, and that the Applicants’ use of this phrase was to bypass the earlier decision in Interush. To say that the “No Consent Regime as operated by the Commissioner” is unlawful leaves one in doubt as to what precisely is held to be unlawful and as to the continued effect of the relevant statutory provisions.
Ultra Vires Ground
The CFI Judge remarked that the LNCs caused the financial institutions not to deal with the relevant funds and practically and informally froze the property. Sections 25 and 25A of OSCO do not empower, expressly or by necessary implication, the Commissioner to have such secret, informal and unregulated asset freezing power. The No Consent Regime as operated was therefore ultra vires.
The CA disagreed with the above analysis. The Commissioner was only empowered under section 25A to give consent for an act in contravention of section 25(1) of OSCO, but have no power to require the banks to do anything. The banks made its own decision whether to deal with the property in question. The Police in this case only informed the banks about their suspicion of money laundering activities and issued LNCs upon receiving the banks’ STRs. Neither of the aforesaid conduct was ultra vires. The CA dismissed the ultra vires ground.
Improper Purpose
The CA also dismissed the alternative argument of improper purpose. In the present case, the CA held that it was clear that the purpose of the JFIU in issuing the LNCs was to prevent dissipation of the funds in question, and was proper. The decision to not give consent is “exercisable not only where he or she is satisfied in fact – but also where there is reasonable suspicion – that the property is derived from criminal conduct”. Given that there was “no suggestion that the police did not have such reasonable suspicion”, the improper purpose ground was not made out.
Prescribed by Law
Restriction of fundamental rights must be prescribed by law. The Applicants’ basis for this ground was in the statute’s lack of defined scope for the power to be exercised under section 25A, including the evidential threshold, the property over which the power may be held, factors to be considered by an authorised officer, the duration for which the power may be exercised, etc.
The CA held that although there were no specified fetters or parameters as to how the police should exercise their discretion for giving or refusing consent in section 25A, there were sufficient constraints as discussed in the Judgment to guard against arbitrary or capricious refusal (e.g. the power must be exercised bona fide, and consent not given when there was “reasonable suspicion”, though not a high evidential threshold but certainly not unfamiliar and uncertain). Section 29 of OSCO also empowers the Court to award compensation in the event that a person suffers loss in view of serious defaults on the part of any person concerned in the investigation or prosecution. The CA ruled that the prescribed by law ground was not made out.
Proportionality
The Applicants brought a fact-specific challenge on this basis, but was allowed by the CFI Judge to pursue a systemic proportionality challenge. Such challenge failed because the CA’s decision in Interush held that sections 25 and 25A of OSCO and the practice of the JFIU in issuing LNCs were not systemically unconstitutional, and Interush would be binding under the fundamental doctrine of precedent. No valid basis had been raised to distinguish Interush. It was held that the CFI Judge should not have allowed the Applicants to pursue the systemic challenge especially when their originating document did not advance it.
Other grounds
The CA also rejected the other grounds raised by the Applicants, including procedural unfairness grounds, fair hearing ground and blanket freeze ground, all of which was rejected by the CFI Judge.
Conclusion
The CA judgment clarifies and reinforces the lawfulness of the use of LNCs, which will still be used proactively within the statutory regime.
LNCs practically result in the freezing of the suspicious bank accounts by the banks in most circumstances. For potential victims of cyber fraud, the CA decision will be welcomed as the early issue of an LNC often plays a vital role in what can be a race against time to preserve potential proceeds of crime. The judgment also puts an end to the ambiguity initially posed by the CFI’s judgment by clarifying the position of banks, financial institutions or other professional gatekeepers that deal with notifications of investigations and LNCs from the police.
Contacts
Nick Gall, Senior Partner
Tel +852 3405 7688
nickgall@gallhk.com
Chris Wong, Executive Partner
Tel +852 3405 7620
chriswong@gallhk.com
Evelyn Chan, Partner
Tel +852 3405 7671
evelynchan@gallhk.com
Felda Yeung, Partner
Tel +852 3405 7674
feldayeung@gallhk.com
