Clarifying Hong Kong’s AML regime
Mohan Datwani FCIS FCS (PE) Senior Director and Head of Technical & Research, HKICS, and Certified Anti-Money Laundering Specialist, looks at the background to two cases HKSAR v Salim Majed & Anor and HKSAR v Yeung Ka Sing, Carson, scheduled to be heard by Court of Final Appeal in mid-2016 which it is hoped will clarify a number of contentious issues in the interpretation of Hong Kong’s money laundering offences.
Hong Kong is a member ‘country’ of the Financial Action Task Force (FATF). Under the February 2012 FATF Recommendations, it is stipulated under Recommendation 3 that ‘[c]ountries should criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention. Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences’.
As to what are ‘predicate offences’, under the Interpretative Note to Recommendation 3 (Money Laundering Offence), this is left to individual countries, or in Hong Kong’s case more accurately jurisdictions, to determine. Nevertheless, predicate offences should extend to property representing the ‘proceeds of crime’. Also importantly, it is stated that, ‘[c]ountries should ensure that: (a) [t]he intent and knowledge required to prove the offence of money laundering may be inferred from objective factual circumstances…’
As part of the FATF member countries, dealing with property that represents the proceeds of crime should be criminalised in Hong Kong, as it has been for decades. Further, the person dealing with such proceeds of crime cannot simply assert that he or she did not know that the proceeds were those of crime, when objectively this may be inferred from the factual circumstances. But doesn’t the prosecution still have to prove that, where the person claims he or she is not dealing with the proceeds of crime, that in fact the proceeds are those of crimes, as inferred from objective factual circumstances? This is a vexed question under Hong Kong law.
Currently it would appear that the reverse is true – the accused has to assert that he or she has done the necessary due diligence prior to dealing with the proceeds that the money is not the proceeds of crime. More simply put, the money is not ‘dirty’ or is otherwise ‘clean’. This appears to be over and above the minimum requirements under the FATF Recommendations, but there is nothing preventing a FATF member country to apply a standard relating to predicate offences over and above those required under the FATF Recommendations.
Points of law
On the topic of Hong Kong’s money laundering laws, The Centre for Comparative and Public Law of the University of Hong Kong hosted a conference with University College of London on 23 November 2015 at the University of Hong Kong titled ‘Financial crime, risk, and the rule of law’. During the conference, The Honourable Justice Joseph Fok, Permanent Judge of the Court of Final Appeal of Hong Kong, spoke on the ‘Development of the law in Hong Kong on Money Laundering’. As practitioners knowledgeable with money laundering issues will know, the contentious matter in relation to Hong Kong’s money laundering relates to the requisite knowledge required to find a conviction for a money laundering offence as alluded to in the above discussions.
Justice Fok, following an analysis, identified in detail the pertinent questions for Hong Kong’s court as follows:
- Whether, on a charge of dealing with the proceeds of crime contrary to the relevant anti-money laundering (AML) legislation, it is necessary for the prosecution to prove, as an element of the offence, that the proceeds being dealt with were in fact proceeds of a predicate offence?
- What is the appropriate mens rea for the offence of money laundering and does this import a necessity for the prosecution to prove the predicate offence?
- Whether indictments containing charges of multiple instances of money laundering are duplicitous? This last ground is because dealing in proceeds is unlikely to be a one-off incident but does each dealing represent the commission of an offence, or should this be viewed as a continuous conduct.
These questions cut across the offence of dealing with property known or believed to represent proceeds of an indictable offence under Section 25(1) of the Organized and Serious Crimes Ordinance (OSCO) and the Anti-Money Laundering Ordinance (AMLO) applicable generally and to financial institutions respectively. However, for company secretaries, of more relevance is Section 25(1) OSCO which states that ‘[s]ubject to Section 25A, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence, he deals with the property’. Upon conviction on indictment the offence is punishable by a fine of up to HK$5million and imprisonment for up to 14 years under Section 25(3). In view of the severe consequences, in case of doubt, Section 25A, namely the filing of a suspicious transactions report (STR) should be considered.
For example, in the case involving a solicitor, Wu Wing Kit, the District Court handed down a six-year sentence on Wu. This was not because the prosecution proved that the solicitor knew the money he dealt with in the case was the proceeds of a predicate offence, or in layman terms ‘dirty’, but rather that the solicitor did not do sufficient to ascertain that the money was, again in layman terms ‘clean’, through proper due diligence. This was in the context of the size of an alleged preliminary deposit which Wu dealt with for a client, and lack of reasonable due diligence by the solicitor, even where there are some applicable Law Society practice directions, which while not determinative, was a fact of the case. In short, the solicitor, and any person including a company secretary, could go to jail for dealing in property without proper due diligence that the money being dealt with is not dirty, or is otherwise clean, where an STR has not been filed.
But is this the correct approach? Should the prosecution have to prove that the proceeds were those of an indictable offence? Moreover, how much needs to be done by a person, in terms of due diligence, to prove that the proceeds are not dirty, or otherwise clean, to be safe in dealing with proceeds of property for others?
Justice Fok, without referring to the Wu Wing Kit case, as this has not yet reached the Court of Appeal level, went through other more pertinent authorities. The Appeal Committee in HKSAR v Wong Ping Shui & Another (2001) 4 HKCFAR 29, and the Court of Final Appeal in Oei Hengky Wiryp v HKSAR (No 2) (2007) 10 HKCFAR 98, both held that it is unnecessary for the prosecution to prove the money was ‘dirty’. This effectively means that, where a person charged with an offence did not conduct a reasonable level of due diligence, they will be facing a charge of criminal negligence. This leads to a further question about the mens rea (the level of knowledge and intent) required of the person to convict him or her of the offence to this criminal negligence standard?
As would be recalled, under Section 25(1) OSCO, if the person deals with knowledge that the proceeds are those of an indictable offence, he or she should be convicted. This is the first limb of Section 25(1) and indicates that the person must have actual knowledge. Where the mental state or mens rea is an issue is where the prosecution relies on the second limb of Section 25(1) on the ground that the person dealing with the proceeds has ‘reasonable grounds to believe that the relevant property represents the proceeds of an indictable offence’. This must be less than actual knowledge, which under the FATF rules should not be the only grounds to find a conviction as the rules refer to the fact that the ‘offence of money laundering may be inferred from objective factual circumstances…’
In the latest decision of HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778, Justice Fok noted that the test in Seng Yuet Fong v HKSAR was applied. That is, ‘to convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: that is, that anyone looking at those grounds objectively would so believe’. But this approach was rejected under HKSAR v Shing Siu Ming. That case adopted a two-stage approach to ‘having reasonable grounds to believe’, that is: a subjective evaluation of what facts were known to the accused – and then an objective evaluation of whether those facts would lead a common sense, right-thinking member of the community to believe that the proceeds constituted proceeds of an indictable offence, but uninfluenced by the personal beliefs, perceptions and prejudices of the defendant.
The current state of the law could therefore at best be said to be uncertain. That is, to what extent a person has to conduct due diligence to prove that the money is not dirty or otherwise clean, so as not to be liable for dealing in proceeds of indictable offence is unclear. Further, depending on which is the applicable test regarding mens rea, there could be different outcomes. This lack of certainty is undesirable.
Clarifying the law
It follows that there is a need for the Court of Final Appeal to clarify the law. In fact, this will happen in mid-2016 when the decisions of HKSAR v Salim Majed & Anor FAMC 71/2015 (10 February 2015) and HKSAR v Yeung Ka Sing, Carson FAMC 29/2015 (14 August 2015) are to be heard together commencing 31 May 2016. In Justice Fok’s presentation, he identified the grounds of appeal under the cases (see ‘Grounds of Appeal’ sidebar).
There will no doubt be keen interest relating to the determination of the Court of Final Appeal based on the current provisions of OSCO which contains similar legal issues as those under AMLO relating to financial institutions. As Justice Fok himself remarks, watch this space!
Mohan Datwani FCIS FCS(PE)
Senior Director and Head of Technical & Research, HKICS
SIDEBAR: Grounds of Appeal
HKSAR v Salim Majed & Anor
Regarding the HKSAR v Salim Majed & Anor FAMC 71/2015 (10 February 2015) case, the point of law for which leave to appeal to CFA was granted was: ‘In the context of the offence of money laundering under Section 25 of OSCO, how does the rule against duplicity operate? In particular, whether the offence of money laundering, capable of being committed in any of the modes of ‘dealing’ as included in its definition under Section 2 of the Ordinance, is or could be a continuing offence [so] that the rule against duplicity does not apply. Moreover, how do the exceptions to the rule against duplicity (namely ‘one transaction’ as in DPP v Merriman  AC 584, ‘general deficiency’ as in R v Tomlin  2 QB 274 and the ‘continuous course of conduct’ as in Barton v DPP  165 JP 779) appl[y] to a charge of money-laundering which alleges multiple dealings some of which [involve] money from known and different sources.’ The other case under appeal (see below) raises the same question.
HKSAR v Yeung Ka Sing, Carson
The HKSAR v Yeung Ka Sing, Carson FAMC 29/2015 (14 August 2015) case raises several important points of law.
Re actus reus
Leave to appeal was granted to defendant (appellant): ‘On a charge of dealing with proceeds of crime contrary to Section 25(1) of the Organised and Serious Crimes Ordinance (Cap 455) (OSCO), is it necessary for the prosecution to prove, as an element of the offence, that the proceeds being dealt with were in fact proceeds of an indictable offence? Was Oei Hengky Wiryo (2007) 10 HKCFAR 98 wrongly decided on this issue?’
Re mens rea
Leave to appeal was granted to:
- the prosecution (respondent) – ‘When considering whether a defendant had reasonable grounds to believe in the context of Section 25(1) of the [OSCO], how does a trial judge reconcile the formulation set out in Seng Yuet Fong v HKSAR (1999) 2 HKC 833 and the formulation ‘knew or ought to have known’ set out in HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778? Under what circumstances should the trial judge apply these two formulations?’
- the defendant (appellant) – ‘In considering the mens rea element of a charge contrary to Section 25(1) of OSCO, to what extent does a trial judge need to make positive findings as to a defendant’s belief, thoughts, intentions at the material time even though the judge rejects the defendant’s testimony? In particular, where the trial judge rejects the defendant’s testimony, to what extent can the judge remain oblivious to the defendant’s actual reason(s) for dealing with the specified proceeds in making the finding that the defendant had reasonable grounds to believe that the proceeds he dealt with were proceeds of crime?’