Further to our previous articles[1] on the lower court decisions’ on the validity and constitutionality of the Letter of No Consent (“LNC“) Regime (“Regime“), the highest court of Hong Kong, the Court of Final Appeal (“CFA“), has put the uncertainty of the Regime to rest and confirmed its lawfulness.

The Appellants in Tam Sze Leung & Ors v Commission of Police [2024] HKCFA 8 lodged a final appeal to the CFA based on four questions of law. To begin with, it is helpful to understand the Appellants’ characterisation of the Regime which is common-themed across the four questions.

The Appellants’ Mischaracterisation of the Regime

At the outset, the CFA noted that the Appellants did not challenge the constitutionality of the related legislation, i.e. sections 25 and 25A of the Organised and Serious Crimes Ordinance (Cap 455) (“OSCO“).  Rather, they challenged the Regime as operated by the police, e.g. as “an informal asset freezing mechanism developed by the police” and that when issued, “LNCs invariably cause the recipient to refuse to deal with that property for fear of committing an offence under OSCO section 25(1)” ([14]).

The CFA noted that the police have developed a set of operational policies and procedures which are set out in the Force Procedures Manual (“FPM“), and that in giving effect to the FPM and the OSCO, a specific sequence of events would likely take place when the police receive information of possible money laundering, which includes the issuance of LNCs followed by constant reviews and endeavours to obtain a restraint order. Under Section 25A(2)(a) of OSCO, the issuance of LNCs amounts to withholding of a grant of immunity to the banks against criminal liability in dealing with the relevant funds ([51]), and if the banks decide to deal with the funds in question, it runs the risk of incurring criminal liability given that the information provided by the police is likely to constitute reasonable grounds for banks to believe that those funds represent the proceeds of an indicatable offence ([48]).

However, the CFA clarified that no property belonging to the suspect is ever held or seized by the police. It is the banks who maintain the accounts for the customers, and in accordance with the anti-money laundering requirements, decide whether or not the customers should be allowed to draw on the suspect funds ([47]).  Although the banks’ desire to avoid criminal liability when LNCs are issued (i.e. no immunity being granted by the police) might have motivated them to freeze the accounts, the freeze remains to be the bank’s act ([48]).

As such, the CFA held that the Appellants mischaracterised the freezing of the accounts as the actions of the police.

The Four Appeal Questions

With the analysis of the common-themed flaw among the four questions, we briefly summarise the CFA’s findings on the four appeal questions as follows.

Question 1A: Ultra Vires Ground

The major flaw found by the CFA in this question is that according to the Appellants, in order for the issuance of LNCs to be intra vires (i.e. within the legal power or authority granted to the police), they had to be authorised by OSCO and that in the absence of such authorisation in the ordinance, those actions were ultra vires ([59]). The CFA noted that the Appellants mischaracterised the authorisation to come from OSCO, rather than the Police Force Ordinance (Cap 232) (“PFO“). While Sections 25A of OSCO is primarily concerned with the granting of immunity to banks at a stage after the police investigation ([62]), it is Section 10 of PFO which confers authority to the police in taking lawful measures for preventing and detecting crimes and offences, and which lays down the duties and powers of police officers to issue LNCs in order to prevent the dissipation of proceeds of money laundering ([64]-[65]).

The second flaw found by the CFA is the Appellant’s mischaracterisation of the freezing as the police’s act as mentioned above ([67]-[69]).  As for the third flaw, the CFA clarified that (contrary to the Appellant’s contention) a restraint order from the Court is not the only lawful means of immobilising a bank account, and the PFO empowers the police to instigate disablement by the banks.

Question 1B: Improper Purpose Ground

As with the Ultra Vires ground, the Improper Purpose ground was similarly misdirected. This ground involved the contention that, having been given a statutory power, the police misused it for an improper purpose.  Similarly, the CFA held that the Appellants’ argument was flawed as they again relied on OSCO instead of PFO as the source of the police’s powers to deal with the bank, and that the Appellants mischaracterised the actions of the police as freezing of the accounts. Further, the CFA commented that even if the freezing of the accounts were properly attributed to the actions of the police, such is only a temporary measure which is aimed at preventing dissipation of the suspect’s assets pending further investigation and any potential restraint order from the Court, and is not a misuse of the powers conferred by the PFO.

Question 2: Constitutionality Ground

The Appellants sought to challenge the constitutionality of the Regime by alleging that, among others, it infringed:

1. the rights to use of property under the Basic Law (Articles 6 and 105);
2. the rights to private and family life under the Bill of Rights (BOR 14); and
3. the rights of access to court and to legal advice under both the Basic Law (Article 35) and Bill of Rights (BOR 10).

First, for the rights to use of property, as mentioned above, the freezing of the accounts remained the banks’ doing ([81]). Thus, the CFA found that the police’s actions did not prevent the Appellants from using the property, and on this ground alone, the constitutional challenge based on property rights could not be sustained.  Nonetheless, the CFA went further and examined the “prescribed by law” and “proportionality” tests, and concluded that the Regime is prescribed by law (as the PFO and FPM offer a clear and accessible sets of provisions conferring the power) ([83]), the Regime has a legitimate aim (to facilitate investigation and detection of crime, and prevent dissipation of criminal proceeds), and the temporary and provisional nature of LNCs reflected a reasonable balance between the anti-money laundering aims of society and protection of individual rights ([84]-[87]).

Second, for the rights to private and family life, the CFA agreed with the Court of First Instance and the Court of Appeal that the Appellants did not adduce evidence of hardship they experienced, and their hypothetical infringement of such right should not be entertained ([90]).

Third, for the rights of access to court and to legal advice, the same objection in respect of the rights to private and family life applied to the Appellants’ suggestion that the freezing of accounts was “well capable” of impairing their ability to retain a lawyer for advice or take legal action to contest the freeze ([93]). As the Appellants managed to instruct solicitors and three counsels to present and argue their case, the CFA would not address this constitutional challenge ([90]).

Question 3: Fair Hearing Ground

On this front, the Appellants alleged that since LNCs effectively achieved an indefinite freeze of assets without the formalities of a restraint order, this involved a “determination of rights and obligations in a suit at law”, and as such under BOR 10 and common law, the Appellants should be afforded adequate opportunity to make representations, a hearing before an independent and impartial tribunal, and adequate reasons should be handed down for the decision to issue the LNCs.  In rejecting this argument, the CFA stated that the police did not determine the Appellants’ rights to the relevant funds and the investigations conducted by the police are incomparable to a “suit at law”.  Moreover, the police were fully entitled to keep sensitive aspects of their investigations confidential ([99]), and it had in any event been open to the Appellants to seek relief against the banks in a “suit at law” or to bring a judicial review against the police as in this case.  As such, these rights were not engaged ([100]-[101]).

Question 4: A Revisit of the Interush Decision

The Court of Appeal previously held that the Regime was a necessary and proportionate restriction on the right to enjoyment of private property ([9(d)].  With the above analysis in mind, the CFA noted that the Court of Appeal adopted a different analytical basis, and proceeded to hold that it was not easy to see how the rights to use of property had been infringed ([109]).

Takeaways

With the Regime finally confirmed, victims of fraud would be more assured that bank accounts suspected of holding crime proceeds would most probably be temporarily frozen upon the issuance of LNCs by the police, potentially before civil action begins. This will assist victims to recover their stolen funds, before the funds dissipate, making the recovery more difficult.

On the other hand, banks should be reminded to keep proper document trail as to the grounds and supporting evidence of their decisions to freeze accounts in mitigating their potential liabilities owed to affected customers.

We have assisted many of such victims to recover their stolen funds, including cases where there had been a full recovery, and also in circumstances where the stolen funds had gone through several levels necessitating further tracing. It is essential that victims react speedily and decisively and seek legal assistance as soon as they are alerted to being defrauded.  Speed is of the essence, in light of technology in this day and age.

See full judgement here.

[1] Articles on 4 September 2023, 14 April 2022 and 11 February 2022.