Hong Kong Court Of First Instance Rejects Police's Informal Freezing Powers Via Letters Of No Consent

• Published date: 13 January 2022
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Criminal Law, Constitutional & Administrative Law, Money Laundering, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Winston & Strawn LLP
• Author: Ms Christy Leung and Jeffrey Wee

In the recent case of Tam Sze Leung & Ors v. Commissioner of Police [2021] HKCFI 3118, the Court of First Instance held that (1) the Commissioner of the Police acted ultra vires in using the No Consent Regime to informally freeze bank accounts containing suspected proceeds of crime, (2) the No Consent Regime is not prescribed by law; and (3) the No Consent Regime disproportionately interferes with property rights. The implications of this decision remain to be seen. Financial institutions should continue to engage in due diligence with respect to their account holders, monitor transactions for suspicious activities, and file Suspicious Transactions Reports, as appropriate.

Recap of the No Consent Regime

To recap:

• Section 25 of the Organized Serious Crime Ordinance (Cap 455) (OSCO) prohibits dealings with property known or reasonably believed to represent proceeds of crime.
• Section 25A of OSCO requires anyone to notify the authorities where they know or suspect any property to represent proceeds of crime - this is typically done by filing a suspicious-transaction report (STR).
• Section 25A(2) of OSCO provides a defence for a notifier to continue dealing with those suspected proceeds of crime when the authorities, after receiving the STR, have given their consent by way of a letter of consent.

A practice has developed over the years whereby the Police would issue a letter of no consent (LNC) to expressly withhold consent for dealing with funds which are suspected to be proceeds of crime and thereby place financial institutions at risk of violating section 25 of OSCO if they decide to continue dealing with those funds. According to the Force Procedure Manual of the Police (FPM), the Police shall make the best endeavour to apply for a restraint order as soon as practicable following the issuance of a LNC, and the LNC should last no more than six months from the date of issue.

Understandably, financial institutions typically would err on the side of caution and refrain from dealing with funds which are subject to a LNC. It has therefore been said that the No Consent Regime effectively operates like an informal freezing order.

In Tam, the Court of First Instance was asked to decide whether the No Consent Regime empowers the Police to informally freeze bank accounts, leaving one's fundamental right to use his/her property in the form of funds held in a bank account under-protected.

Facts

The applicants are four members of the same family and held a combined...