2010/3/3 DOJ 1

Lawyers andLawyers and AML AML

Three Ordinances, Two Duties,Three Ordinances, Two Duties,

And One “P” Direction And One “P” Direction

2010/3/3 DOJ 2

2010/3/3 DOJ 3

IntroductionIntroduction

What is money laundering?What is money laundering? What is the significance?What is the significance? What are the reporting offences?What are the reporting offences? What are the protections?What are the protections? What about confidentiality?What about confidentiality? What about LPP?What about LPP?

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Sources of LawSources of LawMain OrdinancesMain Ordinances OthersOthers Drug Trafficking Drug Trafficking

(Recovery of Proceeds) (Recovery of Proceeds) Ordinance (Cap. 405) – Ordinance (Cap. 405) – since 1989 since 1989 [DTROP][DTROP]

Organized and Serious Organized and Serious Crimes Ordinance Crimes Ordinance (Cap. 455) – since (Cap. 455) – since 1994 1994 [OSCO][OSCO]

United Nations (Anti-United Nations (Anti-Terrorism Measures) Terrorism Measures) Ordinance (Cap. 575) Ordinance (Cap. 575) – since 2002, some – since 2002, some provisions not in forceprovisions not in force

High Court Rules, O. High Court Rules, O. 115 - 117 115 - 117

Drug Trafficking Drug Trafficking (Recovery of Proceeds) (Recovery of Proceeds) (Designated Countries (Designated Countries and Territories) Orderand Territories) Order

(Cap. 405A)(Cap. 405A) Mutual Legal Mutual Legal

Assistance in Criminal Assistance in Criminal Matters Ordinance Matters Ordinance (Cap. 525)(Cap. 525)

Prevention of Bribery Prevention of Bribery Ordinance (Cap. 201)Ordinance (Cap. 201)

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SECTION 25 : OSCO –MONEY SECTION 25 : OSCO –MONEY LAUNDERINGLAUNDERING

““subject to section 25A, a person subject to section 25A, a person commits an offence if, commits an offence if, knowing or knowing or having reasonable groundshaving reasonable grounds to believe to believe that any property in whole or in part that any property in whole or in part directly or indirectly directly or indirectly represents any represents any person’s proceeds of an indictable person’s proceeds of an indictable offenceoffence, he deals with that property.”, he deals with that property.”

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Interpretation of Section 25Interpretation of Section 25

Actus ReusActus Reus

This is dealing in property, any propertyThis is dealing in property, any property

Not necessary to prove that the property was in Not necessary to prove that the property was in fact proceeds of an actual indictable offence – fact proceeds of an actual indictable offence – the status of the property is only relevant to the the status of the property is only relevant to the mens reamens rea (Oei Hengky Wiryo (2007) 10 HKCFAR 98)

A person can deal with property which A person can deal with property which represents proceeds of his own crimerepresents proceeds of his own crime (Lok Kar Win (CFI), leave refused (CFA AC))

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Dealing with PropertyDealing with Property

conceal and conceal and disguise property disguise property to make it look to make it look legitimatelegitimate

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DealingDealing

Receiving or Receiving or acquiring acquiring propertyproperty

IF you keep it in IF you keep it in the bath or a the bath or a transfer is transfer is received into a received into a bank accountbank account

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DealingDealing

using property using property to borrow to borrow money, or as money, or as security.security.

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DealingDealing

bringing into or bringing into or removing the removing the property from property from Hong KongHong Kong

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Interpretation of Section 25Interpretation of Section 25 Mens ReaMens Rea KnowingKnowing:: subjective standardsubjective standard – – believing a state of affairs that is in fact believing a state of affairs that is in fact

truetrue ((Lee Wai–yiuLee Wai–yiu, CACC 100/2006, 7 Jun 2007), CACC 100/2006, 7 Jun 2007)

OROR Having Reasonable Grounds to BelieveHaving Reasonable Grounds to Believe: :

objective standard objective standard ““whether, objectively, reasonable grounds existed for whether, objectively, reasonable grounds existed for

the belief and, if so, whether subjectively the the belief and, if so, whether subjectively the defendant was aware of the existence of those defendant was aware of the existence of those reasonable groundsreasonable grounds””

: : Yam Ho-KeungYam Ho-Keung, CACC 555/2001, 24 Oct 2002, CACC 555/2001, 24 Oct 2002..

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Elements of the ML OffenceElements of the ML OffenceSection 25Section 25

Mens ReaMens Rea Not necessary for the prosecution to prove that D Not necessary for the prosecution to prove that D

actually believed that the property represented the actually believed that the property represented the proceeds of an indictable offenceproceeds of an indictable offence ((Ma ZhujiangMa Zhujiang, , CACC 491/2005, 20 Aug 2007)CACC 491/2005, 20 Aug 2007)

Honest belief as to the innocent status of the Honest belief as to the innocent status of the property isproperty is NOTNOT a defence, if D was aware of the a defence, if D was aware of the objective grounds.objective grounds.

Not necessary to particularize or prove the precise Not necessary to particularize or prove the precise “indictable offence” in charging/proving that D had “indictable offence” in charging/proving that D had reasonable grounds to believereasonable grounds to believe ((Li ChingLi Ching, CACC , CACC 436/1997, 17 Dec 1997; 436/1997, 17 Dec 1997; Lam Hei KitLam Hei Kit, FAMC , FAMC 27/2004, 27 Sept 2004;27/2004, 27 Sept 2004; Chen Zhen Chu Chen Zhen Chu, CACC , CACC 433/2006, 2 Nov 2007433/2006, 2 Nov 2007))

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Elements of the ML OffenceElements of the ML OffenceSection 25Section 25

Mens Rea

Choi Sui Hey, CACC 277/2007, 31 Oct 2008“If a person either allows another to use his bank

account for the transmission of funds or accepts substantial funds from others which he then remits, without enquiry by him or explanation by the others, to third parties unknown to him then, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account or the funds with which he has dealt represent proceeds of an indictable offence.” (para 20)

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Approaches toApproaches toMoney LaunderingMoney Laundering

Self Laundering Self Laundering

Laundering for Laundering for othersothers

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Make sure crime does not payMake sure crime does not pay

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How to make crime not payHow to make crime not pay

DenyDeny the criminal the criminal the fruits of crime, the fruits of crime, big house, fancy carbig house, fancy car

Deny Deny him the ability him the ability to support his family to support his family luxuriouslyluxuriously

DenyDeny him the assets him the assets to invest in more to invest in more crimecrime

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Disclosure of knowledge or Disclosure of knowledge or suspicionsuspicion

Section 25A(1) OSCO- the reporting Section 25A(1) OSCO- the reporting offence – summary offenceoffence – summary offence

Failing to report to an authorised Failing to report to an authorised officerofficer

Knowledge or suspicion that any Knowledge or suspicion that any property is or is connected to the property is or is connected to the proceeds of an indictable offenceproceeds of an indictable offence

Within a reasonable timeWithin a reasonable time

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Relevant Property s.25A(1)Relevant Property s.25A(1)

in whole or in part directly or indirectly in whole or in part directly or indirectly represents any person’s proceeds of an represents any person’s proceeds of an indictable offenceindictable offence

was used in connection with; orwas used in connection with; or

is intended to be used in connection with,is intended to be used in connection with,

an indictable offence.an indictable offence.

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Mens ReaMens Rea

Only SubjectiveOnly Subjective actual knowledge or suspicion concerning the actual knowledge or suspicion concerning the

nature of the propertynature of the property no objective qualifier, such as “reasonable” no objective qualifier, such as “reasonable”

for the alternative mental state of “suspicion”for the alternative mental state of “suspicion” Suspicion: “there is a possibility, which is Suspicion: “there is a possibility, which is

more than fanciful, that the relevant facts more than fanciful, that the relevant facts existexist “ - and the suspicion is in some cases “ - and the suspicion is in some cases settledsettled K Ltd v Natwest Bank (2006) EWCA Civ K Ltd v Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 3111039, [2007] 1 WLR 311

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Threshold of SuspicionThreshold of Suspicion

Suspecting property has the quality Suspecting property has the quality defined in s.25A(1) falls a long way defined in s.25A(1) falls a long way short of having demonstrable proof short of having demonstrable proof that the property is of that qualitythat the property is of that quality

What matters is what the defendant What matters is what the defendant thought, not what the reasonable thought, not what the reasonable person would have thought in the person would have thought in the particular circumstancesparticular circumstances - - Annexure 4 of Annexure 4 of Practice Direction ‘P’Practice Direction ‘P’

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Actus ReusActus Reus

Failing to report in a reasonable timeFailing to report in a reasonable time

What is reasonable?What is reasonable?

Depends on circumstancesDepends on circumstances

May allow for consultations or May allow for consultations or obtaining legal advice -obtaining legal advice - Practice Practice Direction ‘P’Direction ‘P’

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Reporting to whomReporting to whom

Authorised officer- police and Authorised officer- police and customscustoms

Joint Financial Intelligence Unit (JFIU)Joint Financial Intelligence Unit (JFIU)

STREAMSSTREAMS

Annex 5 & 6Annex 5 & 6 - Practice Direction ‘P’- Practice Direction ‘P’

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Confidentiality and LPPConfidentiality and LPP

Disclosure in OSCO and DTROP Disclosure in OSCO and DTROP subject to LPP: OSCO s.2(18)subject to LPP: OSCO s.2(18)

Declaration of LPP: OSCO s.2(1) Declaration of LPP: OSCO s.2(1)

Advice Privilege Advice Privilege

Litigation PrivilegeLitigation Privilege

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LPPLPP

Important public and private interestImportant public and private interest Advice privilegeAdvice privilege Negative Examples:Negative Examples: Not conveyancing documentsNot conveyancing documents Not client account ledger of client’s Not client account ledger of client’s

moneymoney Not correspondence with other Not correspondence with other

lawyers lawyers

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Advice privilegeAdvice privilege

What is it?What is it? Communications directly seeking or Communications directly seeking or

providing adviceproviding advice Information passed so that advice Information passed so that advice

may be given may be given Includes advice on what can be done Includes advice on what can be done

in a relevant legal contextin a relevant legal context

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Litigation privilegeLitigation privilege

Confidential communications in Confidential communications in course of litigation or reasonably in course of litigation or reasonably in prospect of same betweenprospect of same between

Lawyer and clientLawyer and client Lawyer and agentLawyer and agent Lawyer and third partyLawyer and third party

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Litigation PrivilegeLitigation Privilege

Sole or dominant Sole or dominant purpose:purpose:

Seeking or giving advice Seeking or giving advice in relation to litigationin relation to litigation

Obtaining evidence to Obtaining evidence to be used in itbe used in it

Obtaining information Obtaining information leading to obtaining leading to obtaining such evidencesuch evidence

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Crime exception for LPPCrime exception for LPP

No LPP for documents forming part of No LPP for documents forming part of a criminal acta criminal act

LPP is not displaced until there is LPP is not displaced until there is prima facie evidence of a fraud or prima facie evidence of a fraud or other crimeother crime

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ProtectionsProtections

AML offence: s.25 (1) OSCOAML offence: s.25 (1) OSCO

Disclosure protection and offence: s.25A(2) Disclosure protection and offence: s.25A(2)

Protection against suit: s.25 (3)Protection against suit: s.25 (3)

Offence to disclose the disclosure: s.25 (5) Offence to disclose the disclosure: s.25 (5) tipping off “any matter likely to prejudice tipping off “any matter likely to prejudice an investigation”an investigation”

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Section 25A(2) OSCOSection 25A(2) OSCO

Disclosure of property suspicion under Disclosure of property suspicion under s. 25A(1) s. 25A(1) Does an act in contravention of s. 25(1)Does an act in contravention of s. 25(1) Disclosure relates to that act Disclosure relates to that act Gain protection if disclose prior to the Gain protection if disclose prior to the

act and does act with consent of act and does act with consent of authorised officerauthorised officer

Protection if disclosure after the act but Protection if disclosure after the act but reasonably soon and on own initiativereasonably soon and on own initiative

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S. 25A(2) OSCO - ProtectionS. 25A(2) OSCO - Protection

What protection?What protection?

Does not commit an offence under Does not commit an offence under s.25(1) - money launderings.25(1) - money laundering

Disclosure must be of every discrete Disclosure must be of every discrete act in relation to the property subject act in relation to the property subject to the original disclosureto the original disclosure

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Protecting yourself & the firmProtecting yourself & the firm

Disclosure protectsDisclosure protects At your own risk if do not discloseAt your own risk if do not disclose Client reality : need fees, need Client reality : need fees, need

referralsreferrals Practical reality: busy, mind set, Practical reality: busy, mind set, Legal reality: what is knowledge or Legal reality: what is knowledge or

suspicionsuspicion

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ConclusionsConclusions

Difficult area for lawyersDifficult area for lawyers

Develop awarenessDevelop awareness

Be mentally prepared to discloseBe mentally prepared to disclose

For your own protection and firm’s; For your own protection and firm’s; andand

for the wider public interest.for the wider public interest.

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Conclusions (Cont’d)Conclusions (Cont’d)

Three Ordinances-Three Ordinances-

DTROPO, OSCO & UNATMODTROPO, OSCO & UNATMO Duty to report suspicion about Duty to report suspicion about

property s.25A(2) OSCOproperty s.25A(2) OSCO Duty to be aware of the elements of Duty to be aware of the elements of

s.25(1) OSCO - money launderings.25(1) OSCO - money laundering Practice Direction ‘P’- guidance Practice Direction ‘P’- guidance

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Thank YouThank You

Welcome questionsWelcome questions Welcome exchange Welcome exchange

of views and of views and experiencesexperiences