Administrative and Constitutional Law — Police use of “no consent letters” to freeze bank accounts held unlawful by the High Court
The Court found nothing in the language or purpose of section 25A(2)(a) of Organized and Serious Crimes Ordinance which necessitates the implication of a power to operate an “informal freezing regime” by issuing letters of no consent.
Tam Sze Leung & Ors v Commissioner of Police
| Reference: | [2021] HKCFI 3118 |
| Court: | Court of First Instance |
| Before: | Hon Coleman J |
| Appearance: | Tim Parker and Geoffrey Yeung (led by Abraham Chan SC), instructed by O Tse & Co., for the Applicants |
| Date of Decision: | 30 December 2021 |
Overview
The Court of First Instance handed down an important judgment concerning the scope of Hong Kong Police powers under the Organized and Serious Crimes Ordinance (Cap. 455) (“OSCO”). The Court found the “No Consent Regime”, pursuant to which Police informally freeze bank accounts suspected of containing the proceeds of crime by issuing “no consent letters” to banks and financial institutions, is unlawful. The Court held that the regime as operated by the Commissioner of Police (“the Commissioner”) is (1) ultra vires; (2) not prescribed by law; and (3) a disproportionate interference with property rights protected in Article 105 of the Basic Law.
Background
The “No Consent Regime” arose out of the use by the Commissioner of the anti-money laundering and disclosure provisions in sections 25 and 25A of OSCO. Pursuant to section 25, it is an offence to deal with property known or with reasonably believed to represent the proceeds of crime. Section 25A requires those dealing with property to notify authority if they know or suspect them to be the proceeds of crime, and provides a defence for financial institutions by authorising the Commissioner to give consent for suspicious funds to be dealt with.
In practice, the disclosure is done by way of Suspicious Transaction Reports (“STRs”) made to the Joint Financial Intelligence Unit (“JFIU”). Where an STR has been made, JFIU may issue a letter of consent authorising the party making the disclosure to deal with the funds. In practice, the Commissioner had been issuing letters of no consent, proactively stating that the recipient was not authorised to deal with the funds in order to procure the financial institution to freeze the relevant account(s).
The Applicants were suspected of involvement with a “ramp and dump” scheme under investigation by the Securities and Futures Commission. Letters of No Consent (“LNCs”) were issued by the Commissioner, causing around HKD 30 to 40 million in their bank accounts to be frozen. The Court found that the Commissioner had actively procured the relevant banks to issue STRs, requesting them to freeze the Applicants’ accounts and informing the banks that LNCs would be issued – which in due course they were (Judgment §28).
Issues
The Applicants raised 6 grounds of challenge to the No Consent Regime, some of which are systemic and some are specific to the facts of this case:
(1) The issue and maintenance of the LNCs are tainted by procedural impropriety and unfairness;
(2) The LNCs are ultra vires OSCO, which does not confer power on the Commissioner to operate a de facto property freezing regime;
(3) The LNCs interfere with the Applicants’ constitutional rights, and the interference is not prescribed by law;
(4) The LNCs breach the Applicants’ right to fair hearing under Article 10 of the Bill of Rights;
(5) The No Consent Regime and the LNCs disproportionately interfere with the Applicants’ rights to property under Articles 6 and 105 of the Basic Law and right to privacy and family under Article 14 of the Bill of Rights; and
(6) The decisions to refuse even partial consent to release of funds are unlawful.
Holdings
The Court held that Grounds 2, 3 and 5 above are made out. The No Consent Regime as operated by the Commissioner is ultra vires OSCO. Its interference with property rights is neither prescribed by law nor proportionate.
Ultra Vires
On Ground 2, the Court applied the principle of legality in light of the constitutional rights at stake and held that there is a “high threshold” to be met before the Court will find that it was the statutory intention for the No Consent Regime “to be utilised as it has been used” (Judgment §72). The Court also considered that, “in cases such as the present where the financial institution itself had no prior relevant suspicion”, it is the LNC which is what causes the freeze of assets (Judgment §76).
Taking into account the context of the other express asset freezing powers in the OSCO, and the legislative history of OSCO, the Court found that nothing in the language or purpose of section 25A(2)(a) of OSCO necessitates the implication of a power to operate an “informal freezing regime” by issuing LNCs (Judgment §77-91). The Court also accepted that the use of section 25A as an informal freezing regime was inconsistent with the Padfield principle, according to which statutory powers could be used only for the purposes for which they had been enacted.
Constitutional Grounds
The Court noted that the constitutionality of the No Consent Regime was partially considered and upheld by the Court of Appeal in Interush Ltd v Commissioner of Police [2019] HKCA 70. However, it considered that the picture of the regime presented in Interush was materially different from that presented to the Court in this case. Whereas in Interush the Court proceeded on the basis that neither the Police nor the No Consent Regime “cause the freezing of the assets”, the Commissioner now asserts that freezing assets was the deliberate object of his operation of the No Consent Regime (Judgment §63). The Commissioner’s stance in his oral submissions, in “proper reaction to the Commissioner’s evidence filed in [the] proceedings”, was that sections 25 and 25A do create an “informal freezing regime” and are used by the Commissioner for that purpose (Judgment §62). As a result, in the “changed circumstances”, the Court decided the issues on the facts and evidence presented in the present case (Judgment §65).
It was common ground, as held in Interush, that the No Consent Regime engages the constitutional right to enjoyment of property enshrined in Articles 6 and 105 of the Basic law. The burden therefore fell on the Commissioner to show that the No Consent Regime was both prescribed by law and proportionate. The Court did not accept an alternative argument that privacy and family rights under Article 14 of the Hong Kong Bill of Rights (section 8 of Cap. 383) were engaged (Judgment §150).
Under Ground 3 – the prescribed by law issue – the Court considered that the main questions were whether there was sufficient clarity in the scope of the power and the manner of its exercise, and whether the law provided adequate effective safeguards against abuse (Judgment §99).
The Applicants submitted that OSCO sets out no limit or safeguards at all against the power to issue LNCs, with: (1) no objective threshold for the exercise of the power; (2) no indication as to the scope of the power; (3) no limit as to the duration that the power can be exercised; (4) no independent reviewing body; and (5) no procedural safeguards. The power to issue LNCs is thus left to uncharted administrative discretion, such that the No Consent Regime is liable to abuse (Judgment §103).
The Court considered, first, that even the Commissioner’s own understanding of the true source, nature and extent of his powers under the Regime had undergone a “divergence or major development” since Interush (Judgment §112). Second, the Court doubted whether judicial review or civil proceedings against the banks would provide appropriate safeguards against abuse (Judgment §§113-116). Third, the Court found “no clarity or certainty” in OSCO itself (noting that this perhaps also reflects the fact that the regime as operated is ultra vires the statute), or in the Commissioner’s own procedural manuals. Fourth, the Court also considered that the Commissioner’s failures to adhere to his own procedural manuals in this case are “indicative of the systemic problems” (Judgment §117).
The Court concluded that the No Consent Regime as operated by the Commissioner is not prescribed by law (Judgment §118).
On Ground 5 – proportionality – the Court accepted the Commissioner’s submissions as to the standard of scrutiny, namely that the measure should be held lawful unless it was manifestly without reasonable foundation (Judgment §155).
Applying that standard, the Court accepted the Applicants’ submissions that there are “myriad alternatives” for the Commissioner to tackle money laundering at an early stage of investigation, “albeit with clearly defined powers and safeguards” (Judgment §157). Considering that the No Consent Regime “can operate, and is operated, without temporal limitation yet with only internal intermittent review of justification, itself apparently lacking any proportionality assessment the longer the period of operation continues”, the Court did not consider that a reasonable balance has been struck between the need to combat money laundering and the property rights of persons and companies using financial services in Hong Kong (Judgment §159). In light of the Commissioner’s stance taken in these proceedings that he has the power to and does operate the No Consent Regime “precisely to effect an informal freezing”, the Court held that the regime as operated by the Commissioner failed the proportionality test (Judgment §160).
The Court dismissed the remaining grounds of review, and invited parties to make submissions on relief (Judgment §167).
| Tim Parker
Tim Parker’s practice spans advocacy and advisory work in public international law, constitutional and administrative law, competition, and civil / commercial matters. He practices both in Hong Kong and the United Kingdom, where he is a member of Blackstone Chambers. Tim has acted in a number of landmark constitutional and administrative law cases before the Hong Kong Court of Final Appeal and the Privy Council, including QT v Director of Immigration (2018) 21 HKCFAR 324 (striking down the Immigration Department’s exclusion of same-sex couples from its dependant visa policy). He is ranked as a leading junior in Chambers and Partners 2021 for Hong Kong and the United Kingdom, and in Legal 500 Asia-Pacific 2021. |
Geoffrey Yeung 
Geoffrey Yeung, a Bar Scholar and a Rhodes Scholar, was called to the Bar in 2018. He has a broad practice in general civil and commercial litigation, as well as in constitutional and administrative law, land law, insolvency, companies, probate, discrimination law, and criminal law. Geoffrey acted (with Tim Parker) for the applicant in Infinger, Nick v Hong Kong Housing Authority [2020] 1 HKLRD 1188, where the Court of First Instance allowed a judicial review application in respect of public rental housing policies which discriminated against same-sex couples. |
This article was published on 30 December 2021.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.