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On occasions public interest demands that the propriety rights in bank accounts are fettered to prevent criminals from dissipating proceeds of crime to the detriment of the victims.
Internet fraud is rife. To protect and recover money lost to fraud, victims can apply to a civil Court in Hong Kong for a Norwich Pharmacal disclosure order and a Mareva freezing injunction against the bank accounts suspected to have dealt with the fraud money. With those orders in place money can be recovered through garnishee proceedings. Speed is of the essence and there is the cost of the proceedings to consider.
Internet fraud is generally first reported directly to the police or to the bank. Dealing with the proceeds of fraud e.g. into and out of a bank account is ‘money laundering’. Section 25 of the Organised Serious Crime Ordinance Cap 455(OSCO) sets out the offence of money laundering.
Section 25A of OSCO imposes an obligation on all financial institutions to file a “Suspicious Transaction” Report (STR) to the Joint Financial Intelligence Unit JFIU of any transactions considered suspicious. If a victim makes a complaint to a bank this will be treated as suspicious and a STR will be made. Section 25A also provides an obligation on the maker of a STR not to ‘tip off’ anyone about the making of the STR.
After receipt of a STR the JFIU may then issue a “no consent” letter. This is a letter that directs the bank, that it does not have consent to deal with the account. The JFIU will not itself handle any subsequent investigation. This is passed onto the police.
The police have powers under OSCO to apply to court for a ‘restraint order’ to freeze accounts suspected of dealing in the proceeds of crime. This is a judicial process decided by a judge. The ‘no consent’ regime is essentially an administrative power managed by the police.
The legitimacy of the ‘no consent’ regime was challenged in the case of HCAL167/2014. It was argued the regime was unconstitutional and conflicted with the Bill of Rights Ordinance and propriety rights. The court found that the ‘no consent’ regime under section 25A(2)(a) of OSCO was constitutional. The court said the section did not operate to freeze the accounts of a suspect it merely created a defence for the banks future dealings with the account after disclosure.
In the normal course of events the superintendent of the investigation unit having had a STR passed onto him for further action, would decide whether a no consent letter was warranted. In HCAL 167/2014 the court highlighted the relevant factors for consideration which included the nature of the offence; the prospect of the conviction; the value of proceeds and realizable property; the reasonable likelihood of obtaining a restraint order; the reasonable likelihood of obtaining an injunction by the victim and the preservation of proceeds of crime for confiscation. The court further found that under normal circumstances a no consent letter should not exceed six months and should be reviewed on a monthly basis.
The court decided that the decision to freeze the bank account was made by the bank and that the bank account holders could bring civil proceedings against the bank if dissatisfied. The court did not consider the practical implications and the obvious fear to a bank of criminal charges of money laundering or ‘tipping off’ if it disregarded the police ‘no consent’ letter. The court dodged the opportunity to formulate judicial rules and procedures for the police handling of the ‘no consent’ regime.
In most cases the police decision to continue with a no consent letter is justified but there will be times when it is not and account holders should have the opportunity to ask the court to intervene in the police decision and have the court decide on whether the decision is reasonable.