On 30 December 2021, the Court of First Instance held in Tam Sze Leung & Ors v Commissioner of Police  HKCFI 2118 that the “letters of no consent” (“LNCs”) regime (“LNC Regime”) in Hong Kong is unlawful.
What is the LNC Regime?
Generally speaking, and in practice, the LNC Regime is whereby the Hong Kong police effectively freezes bank accounts suspected of containing proceeds of crime. This is done by issuing LNCs to banks stating that the recipient and/or the banks do not have consent to deal with the funds contained in specific bank accounts.
The Hong Kong police issues LNCs when, for example, a victim of fraud was induced to transfer funds into a fraudster’s bank account and wants to prevent the fraudster from dissipating the funds.
The Hong Kong police relies on sections 25 (i.e., Dealing with property known or believed to represent proceeds of indictable offence) and 25A (i.e., Disclosure of knowledge or suspicion that property represents proceeds, etc. of indictable offence) of the Organised Serious Crimes Ordinance Cap 455 (“OSCO”) in issuing LNCs.
Background and Considerations in Tam Sze Leung
The Applicants in this case are Hong Kong permanent residents who are members of the same family. Their bank accounts in various banks containing significant amounts of monies were frozen as a result of LNCs issued by the Commissioner of Police (the “Commissioner”), who had also urged the various banks to file suspicious transaction reports where appropriate. The LNCs had been withdrawn by the time of the proceedings.
In this case, the Applicants sought leave to apply for judicial review of (1) the Commissioner’s decision to issue and maintain certain LNCs; and (2) the Commissioner’s refusal to consent to the withdrawal of funds from certain accounts which were effectively frozen by the LNCs in the context of section 25A OSCO. The Applicants also raised the question of the legality and constitutionality of the LNC Regime.
The Applicants raised six grounds of judicial review summarised as follows:-
- The issue and maintenance of the LNCs are tainted by procedural impropriety and unfairness, in that there is a lack of notice (before or after the issue of the LNCs), no reasons have been provided, and there is no opportunity for a fair hearing or other opportunity to make meaningful representations.
- The LNCs are ultra vires OSCO, which does not confer power on the Commissioner to operate a de facto property freezing regime by the use of such letters and attendant procedures.
- The LNCs interfere with the Applicants’ constitutional rights under the Basic Law (“BL”) and Bill of Rights (“BOR”) – specifically to (i) the use of a person’s property under BL 6 and 105, (ii) a fair hearing under BOR 10, (iii) access to legal advice and to a court under BL 35 and BOR 10, and (iv) privacy and family under BOR 14 – and such interference is not ‘prescribed by law’.
- The LNCs breach the Applicants’ right to a fair hearing.
- The LNC Regime and the LNCs disproportionately interfere with the Applicants’ property rights (under BL 6 and 105), and rights to privacy and family (under BOR 14).
- The decisions to refuse even partial consent to release of funds are unlawful in that the LNCs cause a ‘blanket freeze’, without any distinction as to which assets are or could be alleged to represent the proceeds of crime and which assets could not.
One of the key considerations of this case was whether, in seeking to protect the community from money laundering and related crimes, the public has been left under-protected in terms of their fundamental right to use their own property in the form of funds held in a bank account.
Findings of the Court in Tam Sze Leung
The LNC Regime was previously challenged in Interush Ltd v Commissioner of Police  HKCA 70 (“Interush”), where the Court of Appeal determined that the LNC Regime was constitutional. In this case, however, Hon Coleman J drew a distinction between the present case and Interush – the factual matrix presented in Interush indicate that the freezing of bank accounts was determined by the relevant financial institutions. Furthermore, the LNC Regime was operated as a responsive mechanism when a suspicious transaction report was received from a financial institution. This was different from the present case, in which it was submitted that the LNCs were deliberately put in place by the Commissioner to prevent the dissipation of assets under an “informal freezing regime”. Therefore, the Court did not consider itself bound to reach the same conclusion as Interush based on the facts and evidence in this case.
In respect to the six grounds of appeal as set out above, Hon Coleman J’s findings in regards to the factual circumstances of this case are summarised as follows:-
- Grounds 1, 4 and 6 were not made out.
- Ground 2 was made out – the LNC Regime as operated is ultra vires: The LNC Regime at least restricts access to property, or use of property, and engages BL 6 and BL. There is a high threshold to be met before the Court will find that it was the statutory intention for the LNC Regime to be utilised as it has been used. The real question to be answered is whether the power to operate the informal asset freezing LNC Regime put forward by the Commissioner is necessarily implied in the provisions of sections 25 and 25A of OSCO. Hon Coleman J did not think it to be the case here. He found that nothing in the language or purpose of section 25A(2)(a) necessitates the implication of the relevant power, looking at the provision against its legislative history.
- Ground 3 was made out – the LNC Regime is not ‘prescribed by law’: The crucial question in the present context is whether there is sufficient clarity as to the scope of power and whether the law provides adequate effective safeguards against abuse. Hon Coleman J did not consider this to be the case here. He also found no clarity or certainty in the OSCO itself (though this is perhaps also simply a reflection of the fact that the regime as operated is ultra vires the statute).
- Ground 5 is made out – the LNC Regime disproportionately interferes with rights, and in particular, to the use of property: There are myriad alternatives for the Commissioner to take on a proactive role in tackling money laundering at an early stage of investigation, albeit with clearly defined powers and safeguards. The nature of the relevant property in this context is money, and the limitation of its use potentially has wide effects. In light of the circumstances and the Commissioner’s stance taken in these proceedings that he has the power to and does operate the LNC Regime precisely to effect an informal freezing of bank accounts, the regime fails the proportionality assessment.
While the implications of this decision remain to be seen and parties can still appeal the decision at this stage, victims of fraud are still recommended to make a police report in any event. The Court has expressly pointed out in its decision that the Commissioner has the ability to alert financial institutions of potential money-laundering offences or to report suspicions arising from its ongoing investigations, as part of their wider obligations to prevent crime. At the same time, financial institutions are still obliged to comply with sections 25 and 25A OSCO and hence, should still decide whether to freeze a bank account based on the information that it has on hand.
That said, the police appear to be examining how they operate the no consent regime. We expect that the police will adjust their mode of operation to bring its regime in line with this judgment. Aside from that, it is also worth considering whether the legislature should amend the OSCO to expressly grant the Commissioner necessary and proportionate powers to assist victims of criminal activities.
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