‘No Consent’ Procedure Confirmed Lawful by Hong Kong Court of Appeal

Other Authors      Ka Wai Leung, Trainee Solicitor

Overview

In Tam Sze Leung and others v. Commissioner of Police [2023] HKCA 537, the Hong Kong Court of Appeal (CA) has overturned the lower court’s decision that found the ‘No Consent’ procedure followed by the Police and the Joint Financial Intelligence Unit to be unconstitutional. 

The CA’s ruling reaffirms the lawfulness of the ‘No Consent’ procedure as set out in the Force Procedures Manual and allows the Police to proactively inform banks of suspicions arising from their investigations. This, in practice, acted as a stop-gap measure to prevent dissipation of suspicious funds before a restraint order is obtained from court. The CA emphasised, however, that the decision on whether or not to freeze a bank account is ultimately up to the bank. The Police does not have the power to order a bank to do so.

Background

The facts of this case and our detailed comments on the lower court’s decision have been set out in our previous Legal Update. 

To provide a brief recap here, the applicants, who were first investigated by the Securities and Futures Commission for suspected stock market manipulation and then by the Police for suspected money-laundering activities, made an application to judicially review the Police’s decision to issue “letters of no consent” (LNCs) in respect of their 12 bank accounts, effectively ‘freezing’ their funds totalling HK$30 million to HK$40 million for approximately ten months. On 31 December 2021, the Court of First Instance held that the ‘No Consent’ procedure and the LNCs were ultra vires, not prescribed by law and lacked proportionality.

The Commissioner of Police appealed, and succeeded. 

Key Findings in the Appeal

Ultra Vires 

The CA disagreed with the lower court’s analysis that the ‘No Consent’ procedure was a way for the Police to exercise a “secret, informal and unregulated asset freezing power”. The CA reasoned that the account is ‘frozen’ not because there is any enforceable order made by the Police to block that account, but because the bank is choosing not to comply with customer instructions (irrespective of whether that is permissible under the banking contract) on the basis that it does not want to act in contravention of section 25(1) of the Organized and Serious Crimes Ordinance (Cap. 455) (OSCO) i.e. dealing with property that represents proceeds of a crime.

Further, as part of its duties to prevent crime, it is within the Police’s power to alert financial institutions to potential money laundering offences and suspicions that the account possibly contains proceeds of crime. If that power is exercised in bad faith or irrationally, then of course there are grounds for complaint, but there were no such allegation in this case. The CA reasoned that it does not follow, therefore, that the LNCs became ultra vires simply because the Police had proactively reached out and alerted the banks in the first place – there is no requirement under section 25A(2)(a) of OSCO that the bank’s disclosure should be made on its own initiative. Additionally, the fact that the Police requested or recommended the filing of suspicious transaction reports (STRs) by banks does not make the LNCs ultra vires. 

Improper Purpose

The applicants failed on the improper purpose ground. The CA found that there was nothing improper about refusing consent for the purpose of preventing the dissipation of the applicants’ funds because the Police were investigating the applicants at the time and had reasonable suspicions of their activities when the LNCs were issued and maintained. 

Prescribed by Law

The applicants tried to argue that the interference on their fundamental rights (e.g., the use of a person’s property under the Basic Law) by the power to issue LNCs is not prescribed by law because section 25A(2)(a) of OSCO does not adequately indicate the scope of that power. The CA rejected this argument and held that the statutory scheme under sections 25(1) and 25A(2)(a) of OSCO does not fall foul of the ‘prescribed by law’ requirement because “there is no relevant uncertainty or vagueness in section 25(1) which prohibits dealing with property in specified circumstances, gives rise to concerns on the part of third parties such as banks, and eventually leads them to take steps to prevent any dealing with the property”. Although the Police’s discretion to give or refuse consent under section 25A(2)(a) of OSCO is without specific parameters, there are sufficient constraints in place “to guard against arbitrary refusal [of consent], and sufficient signposts to give guidance for a citizen, with legal advice, to anticipate the scope of the discretion and the manner of its exercise”. 

Proportionality and the Case of Interush

The applicants also tried to argue that Interush Ltd v. Commissioner of Police [2019] 1 HKLRD 892 was plainly wrong and distinguishable. In Interush, the applicants raised a systemic proportionality challenge against sections 25 and 25A of OSCO but the court in that case (also the Court of Appeal) held that those statutory provisions and the ‘No Consent’ procedure are constitutional because they are "no more than necessary for the legitimate purpose and societal benefit of anti-money laundering". Further, a reasonable balance is struck “between the societal benefits of the consent scheme and constitutionally protected rights of the individual”. 

In the absence of any valid argument pointing to Interush being plainly wrong, the CA held that Interush is a binding authority. As such, sections 25 and 25A of OSCO and the issuance of LNCs as set out in the Force Procedures Manual are not systemically unconstitutional. 

Key Takeaways

The CA’s clarification of the nature and legality of the ‘No Consent’ procedure is likely to result in the continued use of LNCs. This is good news for victims of fraud and other crime who can regain comfort in relying on this longstanding practice between law enforcement and financial institutions, to increase their chances of recovering their funds in what is often a race against time. 

The judgment should also be most welcomed by banks as there is more certainty on how to handle LNCs and the affected accounts. The CA has explained clearly that it is the bank’s own decision as to whether it complies with customer instructions in respect of suspicious funds – it must weigh the risk of contravening OSCO against the risk of complaints by customers, taking into account the bank’s contractual terms. 

Notwithstanding the outcome of the CA’s decision, the key takeaways from our earlier article continue to apply: it is good practice for banks to document the grounds, and retain supporting evidence, of its decision on whether to file an STRs and/or to apply restrictions to affected accounts. It is also prudent for banks to periodically review cases where accounts have been frozen for a lengthier period of time, including checking with law enforcement for updates where an STR is filed, to ensure the bank acts and continues to act reasonably and rationally in response to changes in circumstances which may require the bank to revisit its earlier decision to freeze an account. The CA has confirmed that there is nothing to prevent the Police from providing more information on the suspicious activities in their communication with the bank. It is therefore open to banks to seek such information from the Police, if necessary, to support a decision on whether to freeze a customer’s account.