The Court of Final Appeal upholds the lawfulness of the “Letter of No Consent” Regime

On 10 April 2024, The Hong Kong Court of Final Appeal (“CFA”), Hong Kong’s highest court, delivered its ruling in Tam Sze Leung & Ors v Commissioner of Police [2024] HKCFA 8, affirming the validity of the Hong Kong Police’s Letter of No Consent (“LNC”) regime.  This decision provides significant relief to victims of fraud and also brings clarity to the Police and practitioners involved in asset tracing and recovery.

In our previous article we reviewed the scope and nature of the LNC regime and discussed the Court of Appeal’s ruling overturning the Court of First Instance’s decision which had held that such regime was unlawful and unconstitutional.  For details, please click here.

Background

In Tam Sze Leung, the appellants were family members and maintained several bank accounts with banks in Hong Kong. They were suspected by the Securities and Futures Commission of having committed stock market manipulation through illegal “pump and dump” activities and arranging for other persons to provide false stock trading tips or insider information to the public, thereby earning a profit at the expense of investors who had been misled by their false information.  In assisting the SFC’s investigation, the Hong Kong Police issued LNCs to banks where the appellants held accounts to preserve funds pending further investigation.  

The appellants applied for leave to seek judicial review to challenge the Police’s decision to issue and maintain the LNCs, and to fail or refuse to consent to the withdrawal of any funds from their accounts. The application was heard by Coleman J who upheld aspects of the appellants’ challenge on constitutional grounds and on the basis the regime was ultra vires.  However, by a decision dated 14 April 2023, the Court of Appeal allowed the Police’s appeal, upholding the validity of the LNC regime.

The Court of Final Appeal’s decision

The appellants were granted leave to appeal to the CFA on the basis the issues at stake were of general public importance.  The CFA was invited to consider four issues:

Q1 – Whether the LNC regime is ultra vires and/or whether the LNCs in question were issued for an improper purpose.

Q2 – Whether the LNC regime fulfils the requirement of being prescribed by law and whether it imposes proportionate restrictions on fundamental rights under the Basic Law and the Hong Kong Bill of Rights.

Q3 – Whether the operation of the LNC regime is procedurally unfair.

Q4 – Whether the case of Interush Ltd v Commissioner of Police was correct in holding that the LNC regime is a necessary and proportionate restriction on the right of enjoyment of private property under the Basic Law.

The CFA answered these questions as follows: Q1: No. Q2: Yes. Q3: No. Q4: Interush adopted an analysis which the Court of Final Appeal does not fully support.  However, Interush arrived at the correct result.

Below is a summary of the Court’s reasoning.

The LNC regime is not ultra vires and is for proper purpose

The CFA clarified that authorisation for the LNC regime stems from Section 10 of the Police Force Ordinance (PFO) which empowered the Police to take lawful measures to prevent dissipation of suspected proceeds of crime.  The appellants’ argument was therefore flawed as it wrongly premised Section 25A(2) of the Organised and Serious Crimes Ordinance (OSCO) as the basis for assessing whether the LNC regime is ultra vires.

The CFA also confirmed the Court of Appeal’s ruling that the LNC regime does not involve the Police freezing or ordering the banks to freeze the accounts.  It is the banks’ decision – driven by its own wish to meet its anti-money laundering obligations and to avoid criminal, regulatory and reputational sanctions – to disable and freeze its customer’s account.

On this analysis and given that the LNC regime only serves as a temporary and provisional measureto secure property believed to be the proceeds of crime, the LNC regime is not ultra vires and is not a misuse of (and instead is consistent with) the powers conferred by the PFO.

The LNC regime does not infringe any fundamental rights

The CFA also rejected the appellants’ constitutional challenge that the operation of the LNC regime has infringed their fundamental rights to property on the basis that no such rights are engaged – the Police do not by their acts (in operating the LNC regime) freeze or make a “crucial contribution” to the bank’s decision to freeze or continue freezing the funds in the relevant accounts.

The CFA went further to say that even if the Police action did have the effect of “freezing” the accounts, such actions are prescribed by law as they are clearly governed by accessible provisions (the PFO).  The LNC regime is also “undoubtedly” rationally connected with the achievement of the legitimate aim at both domestic and international levels – to secure suspect assets pending investigation and to comply with Hong Kong’s international obligations to put in place an effective anti-money laundering scheme.  Given its limited nature and finite duration, the LNC regime is therefore a proportionate measure which reflects a “reasonable balance between the anti-money laundering aims of society and the protection of individual property rights”.

No procedural unfairness

The CFA also rejected the appellants’ complaint that the LNC regime lacks procedural fairness.  In light of the clear statutory purpose of OSCO to avoid prejudicing investigations, the Police are fully entitled to maintain confidentiality of their investigations.  The Court said that it would be a defiance of common sense to suggest that Police investigation of suspected money laundering should be treated as if the Police were conducting a “suit at law” (the phrase employed in the Bill of Rights) involving a public hearing in some adjudicative forum, giving the suspects notice, reasons and an opportunity to make representations. 

Furthermore, the CFA determined that the appellants were not in fact deprived of their rights to make representations – they had been repeatedly requested to assist in the investigations and given the opportunity to dispel the suspicion.  It has also been open to the appellants throughout to seek relief against the banks in court for withholding their funds and to resort to the courts by bringing judicial review proceedings against the Police.

Not necessary to assess the correctness of Interush

The CFA considered that the correctness or otherwise of the Interush decision was not relevant to the appellants’ appeal as the appellants’ challenges are only confined to the validity of the LNC regime, not to the constitutionality of certain provisions of OSCO.  The CFA did not see it necessary to proceed with the proportionality assessment conducted in Interush.

Key takeaways

• The CFA decision not only affirms the operational framework of the LNC regime, it also underscores the crucial role of such regime in combating fraud and money laundering, and maintaining Hong Kong’s reputation as a global financial centre. 

• The upholding of the lawfulness of the LNC regime is undoubtedly welcomed by victims of fraud.  In the modern world where funds can be dissipated so quickly, the LNC regime, which has the practical effect of causing banks to immediately freeze the relevant bank account, will remain a vital instrument for practitioners and fraud victims alike to preserve funds pending the victim’s application for a civil injunction and pursuing tracing and recovery relief in the Hong Kong Courts. 

How we can help 

Our fraud and assets tracing team regularly represents clients in complex, high-value, and multi-jurisdictional fraud cases, including through applications to the Hong Kong Court for urgent disclosure and injunction orders.  We maintain close relationships with a network of leading practitioners in many other jurisdictions to support our domestic and international asset tracing and recovery practice.  

Any victim of fraud seeking relief, or a bank account holder adversely affected or with concerns that they might be adversely affected by a Letter of No Consent, should contact our partners Troy Greig, Jeff Lane, and Pamela Mak.

Robin Darton, Jeff Lane and Adam Hoi

If you would like to discuss any of the matters raised in this article, please contact:

Troy Greig
Partner | E-mail

Jeff Lane
Partner | E-mail

Pamela Mak
Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.