Key takeaways
The Hong Kong Court has held to be unlawful the no-consent regime operated by the police under anti-money laundering legislation: Tam Sze Leung v Commissioner of Police [2021] HKCFI 3118 (30 December 2021).
While persons who know or suspect they hold property representing the proceeds of crime must still seek the police’s consent before dealing with that property, there is at present considerable uncertainty regarding the factors the police will apply in deciding whether to give or withhold consent. We will continue to monitor developments on this point.
Background
The Organised Serious Crimes Ordinance (“OSCO”) forms part of Hong Kong’s legislative framework to combat money laundering. OSCO is designed to prevent persons benefiting from proceeds of crime, ultimately by their confiscation. Further, it seeks to ensure that those who know or suspect they hold the proceeds of crime will make a report to the authorities, to facilitate further investigation.
In line with these purposes, sections 25 and 25A make it a crime for a person to deal with property they know or suspect represents the proceeds of crime unless the police consent to the dealing. The police purported to give effect to these provisions by implementing a regime under which the police would issue and maintain letters of no-consent while its investigations continued (“No-Consent Regime”).
The police administer this regime under guidelines that provide that when the police receive a report on property known or suspected to be the proceeds of crime, the police may issue a “letter of no-consent” (“LNC”) to indicate a withholding of consent to deal with the property. While the guidelines provide for regular reviews of the decision to maintain the LNC and that the LNC should normally last no more than six months except in extraordinary circumstances, they do not provide a fixed outer limit on how long an LNC can remain in place.
Court’s judgment
In Tam Sze Leung, certain HK residents applied to judicially review the police’s decision to issue and maintain letters of no-consent with respect to funds held in the applicants’ accounts with various HK banks.
The Court found in favour of the applicants, holding that sections 25 and 25A OSCO did not empower the police to operate the No-Consent Regime. The police claimed to be empowered to operate the No-Consent Regime to informally freeze funds to provide the police time to complete their investigations and to decide whether to apply for restraint or confiscation orders, which are the formal mechanisms for freezing funds under OSCO. The Court held that there was nothing in sections 25 and 25A OSCO conferring a power on the police to operate an informal freezing mechanism.
The Court further held that, even if sections 25 and 25A OSCO did empower the police to operate the No-Consent Regime, the regime operated in a way that was contrary to the Basic Law. The No-Consent Regime restricted constitutionally guaranteed rights of access and use of property. As such, the government could only restrict these rights by means that are prescribed by law – that is, sufficiently accessible and precise – and proportionate. The Court held that the No-Consent Regime failed to meet either of these criteria.
Effect of the judgment
The Court’s judgment does not mean, however, that a person who knows or suspects they hold the proceeds of crime is now free to deal with that property. The judgment did not hold sections 25 and 25A OSCO themselves to be unlawful, merely the No-Consent Regime by which the police had purported to give effect to those sections.
This means a person holding the proceeds of crime must still obtain the police’s consent before dealing with the property, as required by section 25A, and that the police may validly decide to withhold that consent.
There is at present considerable uncertainty regarding the factors the police will consider in handling requests to lift existing letters of no-consent or requests for consent to deal with property. While the effect of Tam Sze Leung is that the police may not decide to withhold consent by applying the No-Consent Regime, the decision does not prescribe the approach the police should adopt instead.
Further, if the police appeal the Court’s judgment – a likely prospect in light of the importance of the No-Consent Regime to HK’s anti-money laundering framework – the police may decide to continue to apply the No-Consent Regime, or a modified version of this regime, pending determination of the appeal.
We are continuing to monitor this situation.