On 10 April 2024, Hong Kong’s highest level court, the Court of Final Appeal (“CFA”), delivered its judgment in Tam Sze Leung & Ors v Commissioner of Police [2024] HKCFA 8 confirming in a unanimous decision the legality and constitutionality of the “Letter of No Consent” (“LNC”) regime as operated by the Hong Kong Police under the Organized and Serious Crimes Ordinance, Cap. 455 (“OSCO”), thereby settling this question once and for all.
Background
As explained in our previous articles on the Court of First Instance (“CFI”) decision “Informal Police Freezing Regime Found to Be Unlawful” and on the Court of Appeal (“CA”) decision “Court of Appeal Affirms the Police’s “Informal Freezing” Powers”, the LNC regime has been routinely used by the police to impose an informal freeze on suspicious bank accounts where appropriate. In particular, LNCs are frequently used to assist the victims of financial crimes such as on-line frauds and cybercrimes, where misappropriated funds or monies representing the proceeds of crime ended up in bank accounts held in Hong Kong. By issuing LNCs to the banks in question, effectively informally and temporarily “freezing” the accounts, the police often are able to issue such LNCs much more quickly than victims could otherwise obtain freezing orders from the Court in civil proceedings. The LNC regime, therefore, is a very important tool among those available to the police, as well as victims and the legal practitioners assisting them, in preserving and recovering victims’ stolen assets.
First instance decision
The Applicants in Tam Sze Leung were suspected of involvement in a “pump and dump” stock market manipulation scheme being investigated by the Securities and Futures Commission (“SFC”). The SFC referred the matter to the police, as a result of which the JFIU notified banks with which the Applicants held accounts, urging them to issue suspicious transaction reports (“STRs”) in accordance with the provisions of S.25A OSCO, which the banks duly did. Thereafter, the JFIU issued LNCs to the banks, causing around HK$30-40 million to be frozen.
The applicants sought judicial review of the Commissioner of Police’s decision to issue the LNCs, challenging the legality and constitutionality of the “no consent” regime.
On 31 December 2021, the CFI held that the LNC regime “as operated” by the police was illegal and unconstitutional on the grounds that LNCs (1) were ultra vires of OSCO; (2) were not prescribed by law; and (3) disproportionately interfered with the Applicants’ property rights.
Appeal
Following an appeal by the police, on 14 April 2023, the CA overturned the CFI decision and upheld the validity of the LNC regime.
Given the great general public importance of the matter, the CA granted the appellants (the applicants in the CFI case) leave to appeal to the CFA against the CA decision.
CFA’s decision
The appellants appealed on four questions of law, namely:
- Whether the LNC regime operated by the police is ultra vires and/or LNCs are issued for an improper purpose (the “Ultra Vires/Improper Purpose Question”).
- Whether the LNC regime operated by the police complies with constitutional requirements of being prescribed by law and is a proportionate restriction on fundamental rights under the Basic Law and Hong Kong Bill of Rights (the “Constitutional Challenge”).
- Whether the LNC regime operated by the police is procedurally unfair and/or in violation of the right to a fair hearing under art. 10 of the Hong Kong Bill of Rights (the “Fair Hearing Question”).
- Whether the case of Interush Ltd v Commissioner of Police [2020] HKCA 70 was correct in holding that the LNC regime is a necessary and proportionate restriction on the right to enjoyment of private property under arts. 6 and 105 of the Basic Law (the “Interush Question”).
The Ultra Vires/Improper Purpose question
The ultra vires complaint contended that the alleged freezing of accounts by the police and the issuance of LNCs is ultra vires sections 25 and 25A of OSCO. The CFA found, however, that the LNC regime was not ultra vires of OSCO as these sections are primarily concerned with the granting or withholding of immunity against liability for dealing with the proceeds of crime in cases where the bank has disclosed suspicious transactions to the police and is not intended to govern police communications with the bank or the issuance of LNCs. Rather, the power to issue LNCs derives from section 10 of the Police Force Ordinance (“PFO”), which empowers the police to take lawful measures for the prevention and detection of crime and to prevent the dissipation of suspected proceeds of crime.
The CFA also affirmed the CA’s ruling that the police do not directly freeze accounts or order banks to do so. Rather, it is the bank which decides whether or not to disable/freeze an account in order to comply with its anti-money laundering obligations and other regulatory requirements.
The Constitutional challenge
The CFA found that the LNC regime operated by the police is constitutional and that the acts of the police are proportionate and do not infringe any fundamental rights under the Basic Law and Hong Kong Bill of Rights. The CFA emphasised that the “freezing” of accounts is conducted by the banks. Further, even if (contrary to the CFA’s view) the police’s actions did “freeze” the accounts, such actions are “prescribed by law” by the combined effect of the PFO and the police’s Force Procedures Manual, being governed by clear and accessible provisions which confer the applicable powers on the police.
The CFA noted that the LNC regime is aimed at facilitating the investigation and detection of crime as well as denying the use of banking services to persons seeking to dispose of the proceeds of crime and held that the issuance of LNCs is proportionate and no more than reasonably necessary to achieve these legitimate aims. Even if (contrary to the CFA’s view) the police’s actions did “freeze” the accounts, such actions were merely a temporary means of securing suspicious assets pending investigation to enable a decision to be taken on whether to start criminal proceedings or consent to the release of funds, thus of a limited nature and finite duration and would reflect a reasonable balance between the anti-money laundering aims of society and the protection of individual property rights.
The Fair Hearing question
The CFA rejected the appellants’ arguments that the LNC regime operated by the police is procedurally unfair and/or in violation of the right to a fair hearing under art. 10 of the Hong Kong Bill of Rights. In particular, the CFA said that it defies common sense to suggest that police investigations of suspected money laundering should be treated as if the police were conducting a legal suit involving a public hearing in an adjudicative forum, giving the suspects notice, reasons and an opportunity to make representations. The police were fully entitled to keep their investigations confidential.
The CFA said that in this case the appellants’ complaint about not being given a chance to make representations rang especially hollow as they chose to exercise their right of silence despite being repeatedly asked to assist in the police’s investigation. In any event, it was open to the appellants (and to any account holder whose account was “frozen”) to seek relief against the bank.
The Interush question
The CFA observed that the challenge in Tam Sze Leung was in respect of the LNC regime as operated by the police, rather than the (unsuccessful) “full frontal” argument in Interush challenging the constitutionality of certain OSCO sections including sections 25 and 25A. The CFA noted that the correctness of the Interush decision was not the subject of this appeal but went on to say that the CA in Interush had adopted an analysis which the CFA did not fully support but that it had nonetheless arrived at the correct result.
Final considerations
The CFA’s confirmation that the LNC regime under OSCO is lawful and constitutional is welcome and brings an end to uncertainty regarding this issue. It enables the police to continue to provide timely assistance to victims of fraud and other crimes to help with recovery of stolen assets where time is of the essence to prevent dissipation.
This means that LNCs will remain an important tool for victims with the temporary freeze effected by the LNC regime providing victims with time to apply for their own freezing order from the Court in civil proceedings or in other cases enabling them to ascertain whether the amounts informally frozen justify the expense of applying for their own freezing order. In cases where the amounts involved might not justify the costs of applying for a civil freezing order, or where victims might not have the financial resources to do so, victims might rely on the informal freeze to obtain default judgment quickly against the wrongdoer and then garnish the frozen accounts for the return of their monies.
The CFA’s decision will also be welcomed by financial institutions for whom the first instance decision had created much uncertainty. The CFA’s decision provides assurance and guidance for financial institutions by reaffirming of the status of the LNC regime and the use of LNCs in Hong Kong. Ultimately, however, the decision on whether to comply with an LNC or to execute an account holder’s instructions over funds that may represent proceeds of crime rests with the financial institutions themselves, requiring them to balance their contractual duties owed to and commercial relationships with their customers against potential criminal liability if permitting dealing with property that represents proceeds of crime.
The article updates the case analysis published on 17 June 2022 “Informal Police Freezing Regime Found to Be Unlawful” which was originally featured on Hong Kong Lawyer
The article Court of Appeal Affirms the Police’s “Informal Freezing” Powers was published on Hugill & Ip’s website on 31 May 2023
