Bank accounts frozen after the issue of ‘no consent’ letters – an informal freezing regime?
The account holders were suspected of involvement with a “ramp and dump” scheme under investigation by the Hong Kong Securities and Futures Commission (SFC). The SFC referred the matter to the police because of the suspicion of money laundering under s25 Organised and Serious Crimes Ordinance Cap. 455 (OSCO). The police emailed three banks alerting them to the ongoing investigation. It urged the banks to file suspicious transaction reports (STRs). The emails stated explicitly that ‘letters of no consent’ (LNCs) would be issued. Each of the banks filed STRs to the police in relation to the accounts. LNCs were issued by the Commissioner to the banks. The banks subsequently froze the accounts. Prior to being contacted by the police, the banks had no relevant suspicion of unlawful activity in the bank accounts.
Months later, after correspondence with the banks and the police, the account holders commenced judicial review against the police challenging the freezing of their bank accounts. They argued that the No Consent Regime, as operated by the police in the context of s25A OSCO, had been used to effect an informal freeze of bank accounts as a ‘temporary stop-gap measure’ before a restraint order could be obtained from the court.
Specifically, the account holders challenged the legality and constitutionality of how the No Consent Regime operated in this case. They argued that: (i) the LNCs were tainted by procedural impropriety and unfairness (e.g. no reasons had been provided to the account holders and there was no opportunity to make representations); (ii) OSCO does not confer any power on the Commissioner to issue an LNC responding to a STR which has only been triggered by the police notifying the bank of suspected unlawful activity in the account; and (iii) the LNCs disproportionately interfered with the account holders’ constitutional rights to property under Hong Kong’s Basic Law.
The Court found that it was the police informing the banks of its pending investigation and the police suspicion that triggered the freezing of the accounts. Had the police not contacted the banks, the banks would have had no reason to file STRs in relation to the accounts. The Court therefore held that the No Consent Regime, as operated in this case by the Commissioner, was unlawful.
OSCO No Consent Regime lawful in some circumstances
The judgment ruled on the unlawfulness of what is effectively an “initiating request” from the police asking banks to file STRs and freeze accounts, where the bank has no prior relevant knowledge or suspicion.
The judgment did not question the lawfulness of cases where a bank independently, based on its own knowledge or suspicion, files a STR, and in response the police issues LNCs to the bank. The lawfulness of this aspect of the No Consent Regime, and the constitutionality of ss25 and 25A of OSCO, were upheld in 2019 by the Court of Appeal in Interush Ltd v Commissioner of Police [2019] HKCA 70.
The judgment did not suggest that such a request from the police is incapable of giving rise to relevant knowledge or suspicion by the bank. This judgment does not affect how banks should discharge their legal and regulatory anti-money laundering duties. It is possible that a police-initiated LNC may provide sufficient details of the grounds for suspicion and investigation that a bank, when assessing such information against its own records and information regarding the account and account holder, concludes that it holds the requisite suspicion to file a STR.
Comment
It will be interesting to see whether: (i) the police explore seeking to amend the OSCO to give effect to their informal freezing regime; or (ii) the police will explain to banks, in “initiating requests” or upon request by banks, the basis of their suspicion, in order to help banks form their own view on whether to freeze the relevant bank accounts. The exact relief has yet to be decided by the Court, and the case also remains open for the parties to appeal the decision.
