Tam Sze Leung & Ors v Commissioner of Police – Legality of the "No Consent" Regime

In the case of Tam Sze Leung & Ors v Commissioner of Police [2024] HKCFA 8, the Court of Final Appeal (CFA) affirmed the decision reached by the Court of Appeal and confirmed the legality of the “No Consent” regime (No Consent Regime) under the Organized and Serious Crimes Ordinance (Cap. 455) (OSCO).

 

1. Factual Background

The appellants were suspected by the Securities and Futures Commission (SFC) for having committed breaches of offences under the Securities and Futures Ordinance (Cap. 571) by transferring the profits gained from unlawful transactions to accounts maintained with various banks in Hong Kong.

The SFC referred the investigation to the police for suspected offence of money-laundering, contrary to section 25 of the OSCO, which provides that it is an offence if a person deals with a property, knowing or having reasonably grounds to believe that such property presents the proceeds of a crime.

The police wrote to three of the banks, informing them of the investigation against the appellants. The police noted that letters of no consent (LNCs) would be issued to them and requested them to submit suspicious transaction reports (STRs). The relevant banks did file the STRs with the police, and the LNCs were thereafter issued to them by the Head of the Joint Financial Intelligence Unit, resulting in 12 accounts being frozen. Having found out about the frozen accounts, the appellants made inquiries with the banks and the police and, eventually, applied for leave to seek judicial review against the decision of the Commissioner of Police, challenging the legality of the No Consent Regime.

The Secretary of Justice subsequently obtained a restraint order from the Court of First Instance, restraining the appellants from removing from Hong Kong their bank funds. Given the grant of the restraint order, the police wrote to the banks, stating that the refusal of consent to deal with the bank funds would be lifted for the banks to comply with the order.

On 31 December 2021, the Court of First Instance upheld aspects of the appellants’ challenge on ultra vires and constitutional grounds, finding that the No Consent Regime effectively operated as a “secret, informal and unregulated asset freezing power” of the police. On appeal, the Court of Appeal overturned the decision and upheld the validity of the No Consent Regime.

 

2. Grounds of Appeal

The appellants sought leave to appeal on various grounds, including:

1. whether the No Consent Regime and the issue of the LNCs were ultra vires (Ultra Vires Ground) or whether the LNCs were issued for an improper purpose (Improper Purpose Ground);
2. whether the No Consent Regime and the issue of the LNCs fulfil the requirements of being prescribed by law and whether they are proportionate restrictions on the fundamental rights under the Basic Law (Constitutional Ground); and
3. whether the No Consent Regime and the issue of the LNCs were procedurally unfair (Fair Hearing Ground).

 

3. Decision of the CFA

A. The Ultra Vires Ground and the Improper Purpose Ground

On the Ultra Vires Ground, the CFA found the argument that the OSCO does not confer power on the police to operate a de facto property freezing regime by the use of the LNCs flawed in three respects:

1. the ultra vires argument was based entirely on the OSCO, which never intended to provide authorization for the police. In fact, the communication with the banks and the issue and maintenance of the LNCs are performed pursuant to the statutory duties and powers of police officers laid down in the Police Force Ordinance (Cap. 32) (PFO);
2. the appellants have mischaracterized the acts of the police as freezing the accounts, when in fact it is the banks who were obliged to and did exercise their own judgment in freezing the bank funds. As the police did not actually freeze the bank accounts, a search for statutory authorization to operate such a freeze is misguided; and
3. contrary to the appellants’ argument that the only lawful means for the police to immobilize an account is by obtaining a restraint order under section 15 of the OSCO, section 10 of the PFO actually provides ample authority for the police to instigate disablement by banks of their customers’ accounts to prevent dissipation of the funds pending investigation.

Similarly, the Improper Purpose Ground was dismissed as the appellants relied on section 25A(2)(a) of the OSCO, which, under proper construction, is not the source of the police powers for communication with banks and the issue and maintenance of the LNCs.

B. The Constitutional Ground

The CFA also rejected the appellants’ contention on the infringement of their rights to property as the withholding of consent to deal with the funds itself does not freeze or make a “crucial contribution” to the banks’ decisions to freeze the bank funds. As such, the police’s act did not prevent the appellants from using the property and thus did not infringe their protected rights to property under the Basic Law.

In any event, even if the police’s acts did freeze the accounts of the appellants, such actions were governed by clear statutory provisions (i.e. PFO), and were merely temporary and provisional means of securing suspicious assets until investigations were sufficiently advanced. Such interference with the appellants’ use of their funds would thus be of a limited nature and finite duration, and would reflect a reasonable balance between the anti-money laundering aims of society and the protection of individual property rights.

In relation to the submission based on the rights to access to private and family life, the CFA rejected this argument on the basis that the appellants have not adduced any evidence of hardship and such hypothetical supposition would not be entertained by the court in a constitutional challenge.

C. The Fair Hearing Ground

The appellants argue that the right to fair hearing under the Basic Law and common law is engaged as the LNCs involve a determination of rights and obligations in a suit at law and effectively achieve an indefinite freeze of assets without the formalities of a restraint order, with potential for irreversible prejudice.

The CFA did not accept the appellants’ arguments:

1. as highlighted above, the police did not freeze the accounts and hence did not interfere with the appellants’ property rights; and
2. it “defies common sense” to say that the police investigations shall be treated as conducting a “suit at law” involving a public hearing in some adjudicative forum.

In any event, the appellants could seek relief against the banks in a “suit at law” for withholding their funds and could bring judicial review proceedings against the Commissioner of Police, which they in fact did. It is untenable for them to suggest that their rights to fair hearing have been infringed.

 

4.Key Takeaways

With the validity of the No Consent Regime being affirmed by first the Court of Appeal and then the CFA, the No Consent Regime can continue be invoked in the future as a powerful tool to freeze accounts and protect the assets of fraudulent schemes victims pending recovery actions to be taken place. Given that funds will likely be dissipated in a short time, prompt and urgent actions including reports to police as well as commencement of legal proceedings to trace and recover the funds should be carried out forthwith in order to achieve maximum recovery.

On the other hand, account holders who have their accounts suddenly frozen should be reminded that such can potentially be the result of the No Consent Regime. With the CFA decision, it will likely be difficult for account holders to challenge the constitutionality of the No Consent Regime in order to unfreeze their accounts. A suggested way forward is that account holders should engage experienced legal professionals to liaise with banks and authorities so as to find out as much information about the situation as possible and to take appropriate actions accordingly, noting that banks and authorities will generally become much more reluctant to release information and to cooperate with requests from account holders.

For banks and other financial institutions, it remains of utmost importance to maintain careful monitoring of activities in their clients’ accounts and to promptly report to authorities via the STRs should any suspicious activity be identified. Notifications by the police and authorities regarding suspicious activities in these clients’ accounts will likely remain an important alert to financial institutions in this regard. Once anything suspicious has been identified in their clients’ accounts, it is preferrable for financial institutions to conduct thorough analysis of the situation, keep proper documentation and seek professional advice in a timely manner, given that account holders and relevant third parties may challenge any actions carried out or failed to be carried out by the financial institutions in the future. Lastly, any LNCs issued by the police to financial institutions subsequent to the submission of the STRs should never be taken lightly, especially in view of the validity of the No Consent Regime now being affirmed by the Hong Kong Courts.