Other Author Nikita Chan, Trainee Solicitor
The Hong Kong Court of Final Appeal (CFA) finally settled the question of legality of the No Consent Regime (NCR) in its recent judgment in Tam Sze Leung v. Commissioner of Police [2024] HKCFA 8 – confirming that police may issue “Letters of No Consent” (LNCs) in early stages of investigations to prevent money laundering.
The CFA’s judgment confirms that police may issue LNCs in respect of a suspect’s bank accounts and refuse to consent to the withdrawal of any funds.
This serves to prevent dissipation of the suspect funds pending further investigation and granting of a restraint order by the court.
Background
The facts of this case and our detailed comments on the decisions of the Court of First Instance (CFI) and Court of Appeal (CA) were set out in our previous Legal Updates dated 7 January 2022 and 11 May 2023.
In summary, the appellants were first investigated by the Securities and Futures Commission for suspected stock market manipulation; then by the police for suspected money laundering activities.
The appellants applied to judicially review the NCR after the police issued LNCs in respect of their 12 bank accounts, which left them unable to withdraw funds totalling around HK$30-HK$40 million.
On 31 December 2021, the CFI upheld aspects of the appellants’ challenge on ultra vires and constitutional grounds. But the CA overturned the lower court’s decision on 14 April 2023.
Key Findings in Final Appeal
The ultra vires and improper purpose question
The focus of the appellants’ ultra vires complaint was on the alleged freezing of the accounts by police through their issuance of LNCs and communications with the bank via email.
According to the appellants, nothing in the Organised and Serious Crimes Ordinance (Cap. 455) (OSCO) suggests that the legislature intended to authorise police to freeze accounts.
The CFA pointed out three flaws in the appellants’ argument.
First, the ultra vires claim was based entirely on OSCO, when the statute never intended to provide such authorisation. Even section 25A(2)(a) of OSCO – which envisages the police giving consent to dealings with suspect property in certain circumstances – is primarily concerned with conferring immunity in cases where disclosure has duly been made. It does not serve as a basis for assessing whether the acts of the police are ultra vires.
Second, the appellants mischaracterised the acts of the police as freezing the accounts – when in reality, the bank is obliged to exercise its own judgment.
Third, the appellants’ contention that the only lawful means of freezing an account is by obtaining a restraint order under section 15 of OSCO is unfounded. Section 10 of the Police Force Ordinance (Cap. 32) (PFO) provides ample authority for the police to instigate banks to freeze their customers’ accounts to prevent the crime of money laundering – and protect property from criminal injury – pending further investigation, and possibly seeking a restraint order.
The appellants’ improper purpose ground was similarly dismissed, as they argued that section 25A(2)(a) of OSCO was misused to freeze accounts. Since section 25A(2)(a) of OSCO is not the source of the police's powers to deal with the bank, the appellants’ argument cannot be upheld.
The constitutional challenge
The appellants challenged the constitutionality of the issuance of LNCs, alleging that the act not only infringed the right to property (article 6 and 105 of the Basic Law), but also the right to private and family life (article 14 of the Bill of Rights), as well as their rights of access to the court and legal advice (article 35 of the Basic Law and article 10 of the Bill of Rights, respectively).
1. The challenge based on property rights
The appellants contended that the NCR deprived them of the right to use funds in their bank account. The CFA held that the constitutional challenge based on property rights cannot be sustained, as the freezing of accounts remains the bank’s doing. This means that the police's acts did not prevent the appellants from using their property – which follows that their protected rights were not infringed.
2. The ‘prescribed by law’ and proportionality question
Even if the police did “freeze” bank accounts and deprive the appellants of the use of their funds, the CFA asserted that the actions are “prescribed by law”; as there are clear provisions which confer power on the police to conduct investigations and interact with banks.
Turning to proportionality, the impugned actions have a legitimate aim to facilitate detection of crime at the domestic level, and maintain Hong Kong’s international standing as a major financial centre at the international level.
Furthermore, interference with the appellants’ use of their funds was temporary, which demonstrated a reasonable balance between the anti-money laundering aims of society and protection of property rights.
3. The challenge based on the right to private and family life
The appellants claimed that a person’s right to private and family life is likely to be interfered with if all of their bank accounts become inoperable at once. The CFA rejected this argument on the basis that it was merely a hypothetical supposition and no evidence of any hardship was provided.
The fair hearing question
The appellants submitted that fair hearing rights are engaged because the issuance of LNCs involves a determination of rights and obligations in a suit at law. As there was no adequate notice of the decision to issue LNCs – nor adequate opportunity to provide representations as to whether the LNCs should be maintained – the appellants argued that there was procedural unfairness.
The CFA rejected this argument as the police did not determine the appellants’ rights to their funds.
Besides, it defies common sense to suggest that police investigations should be treated as a “suit at law” involving a public hearing as this would prejudice the investigation.
The appellants were also given a chance to assist in the investigation but consistently chose to exercise their right of silence.
It was also open to the appellants to bring judiciary review proceedings. Thus, the suggestion that the police's use of LNCs have infringed fair hearing rights was untenable.
Key Takeaways
The use of the NCR by police, as well as the Customs & Excise Department, to help ring-fence crime proceeds will now be buttressed by the judgment of Hong Kong’s highest court.
The CFA judgment will also provide reassurance to victims of fraud because stolen monies can be easily preserved through the operation of the NCR, which gives them time to seek legal advice and plan their next steps to secure and recover their funds quickly.
The CFA judgment also has significant implications for banks, who are regular recipients of LNCs.
Throughout the judgment, the CFA repeatedly emphasised whether a bank freezes customer accounts is the bank’s own decision, even though this may be triggered by receipt of a LNC. However, this can put banks in a difficult position, as they cannot simply rely on LNCs as shields to claims by customers for refusing to carry out the instructions given.
It follows that whether a bank may be liable to its customers for freezing bank accounts against the backdrop of LNCs will depend on the circumstances of the case. Therefore, the suggestions in our earlier articles continue to apply: banks are advised to document the grounds and retain supporting evidence of their decisions on whether to file suspicious transaction reports (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 long 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 them to release funds to their customers.
