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Top court upholds LNC regime

By Alex Liu

Hong Kong, 3 May 2024: Police operations that involve issuing “letters of no consent” to effectively freeze suspicious bank accounts are lawful, the Court of Final Appeal has ruled. In endorsing a Court of Appeal judgment issued a year ago, Hong Kong’s top court has closed the book on a landmark challenge to the legality of such police actions.

The “letters of no consent” regime stems from the Organized and Serious Crimes Ordinance (Cap 455) (OSCO), in which section 25 makes it an offence to deal with the proceeds of crime and section 25A creates the offence of failing to disclose a suspicious transaction. When a bank or financial institution reports such a transaction, the police may issue a letter of consent allowing it to deal with the funds or a letter of no consent (LNC) withholding approval. An LNC is not binding but the bank or financial institution invariably freezes the account in question.

The highlighted case, Tam Sze Leung v Commissioner of Police [2024] HKCFA 8, was brought before the CFA by four family members who had challenged, by way of judicial review, a police decision to issue four LNCs in respect of their bank accounts, which contained some HK$30-40 million. The force had acted on advice from the Securities and Futures Commission which was investigating suspected stock market manipulation.

The Court of First Instance upheld aspects of the challenge by the appellants, but the Court of Appeal reversed that ruling, rejecting their argument that the freezing of the accounts was unlawful. The Court of Appeal did, however, grant leave to appeal to the CFA on four questions of law concerning police communications with banks in such circumstances and the issue of LNCs followed by the freezing of accounts.

Now, the CFA has unanimously held that the actions of the police were lawful. They were not ultra vires (meaning beyond lawful authority), nor did they constitute any misuse of police power, in that the communications with the banks fell within police powers under the Police Force Ordinance (Cap. 232) (PFO) to prevent crime and to protect property.

Moreover, the freezing of the accounts was not done by the police, but by the banks in compliance with their own legal duties under the OSCO and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), as well as regulatory obligations laid down by the Hong Kong Monetary Authority. It was therefore not sustainable to allege that the police actions had infringed any of the constitutional rights relied on by the appellants.

In unanimously dismissing the appeal, the CFA judgment also examines the international anti-money laundering framework and offers important guidance for Hong Kong banks with regard to compliance, noting that they are “on the frontline of global efforts against money laundering”. The court asserts that banks are “generally well motivated” to comply in order to avoid criminal liability as well as reputational damage and that “in practice, banks take compliance issues seriously”.

As well, the CFA judgment points out: “While a bank may be closely in touch with the police in particular cases, it is required to make its own decision as to what, if any, action it should take regarding the customer’s account.”

In conclusion, the CFA judgment provides reassurance to victims of fraud, who know they can take urgent action to prevent their funds being dissipated, and welcome clarity for banks. Further, it underscores Hong Kong’s commitment to robust regulation and transparency, as befitting a major financial centre, in the global fight against money laundering.

Here at BC&C, we have an experienced team handling matters concerning financial regulation and compliance. If you have any queries, we are happy to assist.

Alex Liu is Managing Partner of BC&C. His key areas of practice include commercial and corporate litigation, investigations by governmental bodies such as the SFC, ICAC and Commercial Crime Bureau, insolvency and debt restructuring, intellectual property and employment matters. He can be contacted at alex@boasecohencollins.com.

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