The Court of Appeal recently overturned the Court of First Instance decision in Tam Sze Leung & Ors v Commissioner of Police  HKCA 537 that the “letters of no consent regime (LNC Regime) as operated by the Commissioner of Police (Police)” to prevent the dealing with or disposal of assets representing proceeds of crime was unconstitutional. Our blogpost on the first instance decision may be accessed here.
The LNC Regime has been created with reference to section 25A(2)(a) of the Organised and Serious Crimes Ordinance (Cap. 455) (OSCO), which prohibits a person from dealing with funds that may constitute proceeds of crime once a suspicious transaction report (STR) has been made, unless specific consent is given. In practice, the Police would issue LNCs to financial institutions where appropriate after assessing an STR filed, stating that he does not give the financial institution consent to deal further with funds that are believed to hold proceeds of crime. The funds in the bank account are in effect frozen.
As a reminder, Tam Sze Leung is a judicial review case. The Applicants were under investigation for stock market manipulation. The Police informed three out of the four banks which held the Applicants’ funds of the investigation and urged them to file STRs. The fourth bank filed its own STR separately without any prompting from the Police. In response, the Police issued LNCs in respect of the Applicants’ accounts held with all four banks.
The Applicants applied for leave to judicially review the Commissioner’s decision to issue the LNCs in respect of their accounts.
On 31 December 2021, Coleman J held at first instance that the LNCs issued in respect of the Applicants’ accounts and the LNC Regime as operated by the Commissioner: (1) were ultra vires; (2) interfered with the Applicants’ constitutional rights in a way that was not “prescribed by law”; and (3) disproportionately interfered with the Applicants’ rights. Further details of the first instance judgment are included in our previous blogpost on this case.
The Commissioner appealed the first instance decision and succeeded.
At the outset, the Court of Appeal pointed out that the phrase “LNC Regime as operated” which formed the basis of Coleman J’s reasoning was not clearly defined anywhere. The Applicants failed to specify what was systematically unlawful or unconstitutional. Given the operation of the statutory provisions necessarily involves the interplay between the respective actions of financial institutions and the Police, the Court of Appeal found the Applicants’ approach to be problematic.
Allowing the Commissioner’s appeal, the Court of Appeal offered a different view on the grounds accepted by Coleman J at first instance.
Ultra vires and improper purpose of the LNCs issued
The Court of Appeal disagreed that the LNC Regime was an “informal and unregulated asset freezing power” deployed by the Police. It held that the Applicants’ accounts were not “frozen” because of any enforceable order made by the Police, but because the banks themselves decided not to comply with their customers’ instructions for fear of attracting criminal liability by dealing with their funds in breach of the OSCO.
Similarly, the Court of Appeal was not convinced that the Police had acted ultra vires when legislation specifically authorises the Police to give or withhold consent to deal with the funds. The actions taken by the Police fell within their duties to take steps to prevent crime and refusal to provide consent was provided for under section 25(1) of the OSCO.
The Applicants’ alternative argument that the LNCs were issued for the improper purpose of securing an informal freezing order, such that their issuance was ultra vires section 25A(2)(a) of the OSCO, was also rejected for the reasons identified above.
Not prescribed by law
As for the Applicants’ contention that the LNCs’ interference with their fundamental rights was “not prescribed by law”, the Court of Appeal emphasised that the Police only have the power to decide whether consent should be given or withheld, and it is up to the banks to decide whether they wished to carry out the Applicants’ instructions under such circumstances.
Although the Forces Procedures Manual (Manual) and guidelines governing the issuance of LNCs (see paragraphs 10 and 87 for further detail) are not strict law, the Court of Appeal observed that they are available to the public and are not so vague or uncertain as to fall foul of the law.
In this case, the fact that the LNCs were in place for more than six months, being the normal duration of an LNC according to the Manual, was not found to be a cause for complaint. This was due to the complexity of the case and volume of information and documents involved.
The Court of Appeal had previously considered and rejected a systematic challenge against sections 25 and 25A of the OSCO in Interush on the basis that the provisions created an “informal freezing regime”. The Applicants’ attempt to distinguish Interush by referring to the effect of an “informal freezing order” was unsurprisingly rejected, given the Court of Appeal’s firm view that the act to “freeze” the Applicants’ funds or not to follow their instructions came from the banks and had nothing to do with the Police.
This judgment reaffirms the status of the LNC Regime and the use of LNCs in Hong Kong.
In particular, the Court of Appeal’s conclusion that the actual “freezing” of a customer’s funds stems from a financial institution’s own independent decision, and not as a result of any order of the Police, makes it all the more unlikely that the LNC Regime will be challenged again on constitutional grounds.
The Court of Appeal decision also provides clarification and guidance for banks and financial institutions in their operations when they are faced with LNCs issued by the Police. But as repeatedly emphasised by the Court of Appeal, the decision on how or whether to execute instructions over funds that may represent proceeds of crime ultimately rests with the banks and financial institutions themselves. This means that the potential of attracting criminal liability under the OSCO for banks and whether banks may be at risk of complaint by customers for failing or refusing to comply with the customers’ instructions always have to be weighed against each other with great care.