Hong Kong court approves police use of Letters of No Consent to 'freeze' bank accounts

Thursday, 18 April 2024
The Court of Final Appeal of Hong Kong (the Court of Final Appeal) has affirmed the validity of the letter of no consent (LNC) regime, an informal procedure under which the Hong Kong police can ask banks not to allow suspected persons to move funds out of their accounts.
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The regime has been used for some years but came under challenge when it was used to block withdrawals by members of the Tam Sze Leung family. The family members, who had several Hong Kong bank accounts, were suspected of stock market manipulation offences. To assist an investigation by the Securities and Futures Commission, the Hong Kong Police issued LNCs to preserve funds to banks where the appellants held accounts.

The family responded by launching a judicial review challenge to the police's right to issue LNCs and to refuse consent to the withdrawal of any funds from the accounts. While waiting for the hearing, the appellants were arrested, and the Secretary for Justice eventually obtained a restraint order against them so that the LNCs could be lifted. The judicial review went ahead even though it was now academic. Coleman J upheld aspects of the challenge on constitutional grounds and on the basis the regime was ultra vires.

The police appealed to the ordinary Court of Appeal of Hong Kong, which overturned the decision. The family then appealed again and the Court of Final Appeal has now unanimously upheld the police's right to issue LNCs.

The court emphasised the statutory framework behind the LNC regime, which is the Organised and Serious Crimes Ordinance (the Ordinance). If the accounts are disabled, this is not done by the police but by the banks in compliance with their own legal duties under the Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, as well as regulatory obligations laid down by the Hong Kong Monetary Authority. It is the bank that maintains the account for the customer and decides whether the customer should be allowed to draw on the suspect funds or whether the account should be disabled. The freeze might have been instigated by the police but it represents the bank's own act, made in compliance with its legal and regulatory duties. A person who deals with property knowing or having reasonable grounds to believe that it represents proceeds of crime commits an offence of money laundering. Similarly, a person who has knowledge or suspicion that the property concerned represents such proceeds but fails to report it to the police commits a further offence. Despite the LNCs, the regime does not involve any property belonging to the suspect being held or seized by the police.

The Court of Final Appeal thus held that the actions of the police were lawful. They were not ultra vires, nor did they constitute any misuse of police power. The communications with the banks fell within the duties and powers of the police under the Police Force Ordinance to prevent crime and to protect property. The police's acts did not prevent the appellants from using the property and so did not infringe their protected rights, so articles 6 and 105 of the Basic Law invoked by the family were not engaged. Even if they were, the police's actions are 'prescribed by law' and so not disproportionate, said the court (Tam Sze Leung v Commissioner of Police, 2024 HKCFA 8).

Hong Kong insolvency specialists Tanner de Witt said the ruling 'provides significant relief to victims of fraud and also brings clarity to the police and practitioners involved in asset tracing and recovery.'

'In the modern world where funds can be dissipated so quickly, the LNC regime...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', said the firm.

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