HKSAR v. Li Kwok Cheung George

Press Summary (English)

Press Summary (Chinese)

FACC Nos 4, 5, 6 of 2013

FACC No. 4 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 4 OF 2013 (CRIMINAL)

(ON APPEAL FROM CACC NO. 96 OF 2010)

_______________________

Between

_______________________

FACC No. 5 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 5 OF 2013 (CRIMINAL)

(ON APPEAL FROM CACC NO. 96 OF 2010)

Between :

_______________________

FACC No. 6 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 6 OF 2013 (CRIMINAL)

(ON APPEAL FROM CACC NO. 96 OF 2010)

Between :

_______________________

_______________________

J U D G M E N T

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Mr Justice Ribeiro and Mr Justice Fok PJJ :

1.The offence of money laundering generally involves a person dealing with money or property which he knows or has reasonable grounds to believe represents the proceeds of an indictable offence with a view to concealing the criminal origins of such proceeds.  In this appeal, the question arises whether, by virtue of a statutory definition, the offence can be committed where a person deals with funds that are known not to derive from any offence but which are intended to be used as part of a fraudulent conspiracy.

2.The Appeal Committee granted leave to appeal on the basis of a question formulated as follows:

“Whether the expression ‘proceeds of an indictable offence’ in s 25(1) of the Organized and Serious Crimes Ordinance, Cap 455, is confined to money gained from the commission of an indictable offence or, instead, extends to money used in the furtherance of such an offence.”

A.  The parties

3.The appellants are four of the six defendants who appeared at the trial.  Two of them, namely, Wayland Tsang Wai Lun (“Tsang”) and his wife Nancy Kwok Wai Man (“Kwok”), controlled a listed company called Grand Field Group Holdings Limited (“Grand Field”), both being directors and shareholders, and Tsang being its chairman.  They were named as 1^st and 2^nd defendants[1] and, under what was Charge 3, convicted of having conspired with an immunised prosecution witness named Steve Au Yeung Keung (“Au Yeung”) to defraud the Stock Exchange of Hong Kong (“Stock Exchange”) and Grand Field’s shareholders (“the Charge 3 conspiracy”).

4.The other two appellants, namely, Charles Cheng Kai Ming (“Cheng”) and George Li Kwok Cheung (“Li”), were executive directors of another listed company called Upbest Group Limited (“Upbest”), the holding company of a group providing financial and securities broking services.  They were named as the 4^th and 5^th defendants[2] and alleged to have implemented a scheme involving circular payments aimed at concealing the Charge 3 conspiracy.  They were convicted of having conspired with Tsang, Kwok and others[3] to commit a money laundering offence contrary to section 25(1) of the Organized and Serious Crimes Ordinance (“OSCO”).[4] The present appeal relates solely to the appellants’ convictions on this charge.

B.  The factual background

5.The case was tried in the District Court before HH Judge A Wong[5] whose findings relevant to this appeal may be summarised as follows. 

6.In mid-March 2002, the price of Grand Field’s shares had fallen from $0.68 to $0.12.  In an effort to bolster that price, Tsang and Kwok hatched a scheme to give a false impression of profitable activity involving a Mainland joint venture to construct a natural gas pipeline near Chongqing.  A company called Sino Richest Limited (“Sino Richest”) was formed with shareholders, including a company called Logistic China Enterprises Limited (“Logistic China”), who were ostensibly unconnected with Grand Field.  On 25 May 2002, Sino Richest purported to sign a joint venture agreement with the Mainland party[6] and shortly thereafter, Grand Field purported to acquire 75% of Sino Richest in consideration of Grand Field issuing to the shareholders of Sino Richest 315 million new Grand Field shares.  On 4 June 2002, a bullish public announcement was made about this joint venture which was said to be subject to government licences and approvals.

7.The public announcement was false, it never having been the intention of Tsang and Kwok to proceed with the joint venture. However, Grand Field came under increasing pressure from the Stock Exchange to provide further details relating to the joint venture and the needed government approvals.  As Tsang and Kwok were unable to comply, hoping to put an end to such pressure, they sought to pretend with Au Yeung’s help that Grand Field had sold its interest in the joint venture (held via Sino Richest) back to Logistic China.  The purported sale was announced on 12 August 2003.  This pretence led to their conviction of the Charge 3 conspiracy.  Charge 3 alleged that Tsang, Kwok and Au Yeung had conspired to defraud the Stock Exchange and the shareholders of Grand Field by dishonestly

“... concealing that there had been no genuine acquisition of a business to develop and construct a gas pipeline in Chongqing, the Mainland; and falsely representing that there was a genuine disposal of the aforesaid business in Chongqing”.

8.To give credence to the re-acquisition by Logistic China, the four appellants (and others) set up a scheme with a view to providing evidence that Logistic China had duly paid Grand Field (through its subsidiary called  Ka Fong Industrial Limited (“Ka Fong”)) $32 million to re‑acquire the Sino Richest shares.  This was where Cheng and Li came into the picture.  On 31 July 2003, advancing funds which originated from Upbest, they caused a series of payments to be made (with Cheng signing a series of Upbest cheques) which resulted in a circular flow of funds bringing the money back to Upbest on the same day, after having passed through a web of local and offshore companies.[7] Payments to and by Logistic China, Ka Fong and Tsang formed part of these circular payments.  Logistic China received $32 million from a company upstream in the circular flow and then, purporting to pay for the re-acquired Sino Richest shares, made a payment of $32 million to Ka Fong (Grand Field’s subsidiary).  Ka Fong (by a cheque signed by Kwok) then paid the $32 million to Tsang who then passed the money onwards so that it was eventually returned, after certain disguising complications, to Upbest.  On the following day, 1 August 2003, Grand Field faxed to the Stock Exchange a copy of the payment-in slip showing that Logistic China had paid $32 million to Ka Fong on the previous day.

9.These circular payments were the subject of Charge 4 which alleged a “conspiracy to deal with property known or believed to represent the proceeds of an indictable offence contrary to ... sections 25(1) and (3) of [OSCO]”, particularised as follows:

“[Tsang, Kwok, Cheng, Li (and others[8])] ... knowing or having reasonable grounds to believe that property, namely $32 million ... in whole or in part directly or indirectly represented proceeds of an indictable offence, conspired together with [Au Yeung] to deal with the said property.”

C.  The prosecution’s case on the main OSCO provisions

10.The provision which creates the substantive offence in respect of which the conspiracy under Charge 4 was charged is section 25(1) of OSCO which states:

Section 25(1)

“Subject 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 that property.”

11.There was no suggestion that the $32 million which was advanced by Upbest consisted of funds derived from the commission of an indictable offence, hence the point of law raised in the present appeal.  The prosecution’s contention that those funds are nonetheless in law to be regarded as the “proceeds of an indictable offence” within the meaning of section 25(1) relies on section 2(6)(a) of OSCO which provides:

Section 2(6)(a)

“For the purposes of this Ordinance ... a person’s proceeds of an offence are –

(i) any payments or other rewards received by him at any time … in connection with the commission of that offence;

(ii) any property derived or realised, directly or indirectly, by him from any of the payments or other rewards; and

(iii)  any pecuniary advantage obtained in connection with the commission of that offence...”

12.The prosecution argues that for the purposes of the conspirators’ intended section 25(1) substantive offence, the $32 million advanced by Upbest would come within section 2(6)(a)(i) because it would be a payment received by Tsang “in connection with” the commission of the Charge 3 conspiracy in that it would be used in furtherance of that offence.   By receiving the funds and using them to make an onward payment, Tsang would (so the prosecution alleges) be dealing with such proceeds with the requisite knowledge and so committing the section 25(1) offence.  The conspiracy consisted of an agreement by the four appellants to commit the substantive offence so constituted.

13.Accordingly, the way that the prosecution put its case against the appellants on this charge was succinctly summarised in its opening submissions as follows:

“In respect of Charge 4 the underlying indictable offence is the conspiracy to defraud, the subject of Charge 3. The HK$32 million Ka Fong ultimately received from Logistic China and paid into [Tsang’s] bank account (the cheque having been signed by [Kwok]) were the proceeds of that conspiracy. [Tsang] dealt with the proceeds by receiving it through [his] personal bank account. It was [Tsang’s] proceeds as it was a payment received by him in connection with the conspiracy to defraud by falsely representing that there was a genuine disposal of the joint venture to develop and construct a gas pipeline in Chongqing.”

14.The prosecution’s construction of those provisions is therefore that section 2(6)(a)(i) widens the concept of “proceeds of an indictable offence” in section 25(1) to extend to money or property received in circumstances in which such receipt may be said to be “in connection with” the commission of an indictable offence even if that money or property is known not to be tainted as a benefit received on account of the commission of such an offence.  Such money or property, the prosecution contends, includes “clean” money which is intended to be used as an instrument for committing an indictable offence.  It includes, in the present case, the funds advanced by Upbest intended to be used as a vehicle for deceiving the Stock Exchange and Grand Field’s shareholders in furtherance of the Charge 3 conspiracy.  That construction was accepted by the trial Judge and the Court of Appeal[9] which upheld the appellants’ conviction. 

D.  The proper construction of the OSCO provisions

15.With respect, for the reasons which follow, we are unable to agree with the conclusion reached in the Courts below.  In our view, on the true construction of the relevant sections, the prosecution’s wide interpretation is erroneous.

D.1  The elements and structure of the main OSCO provisions

16.Before seeking to construe the relevant sections, it is worthwhile examining the elements of the offence and the structure of sections 25(1) and 2(6)(a)(i) when read together. 

17.The section 25(1) offence is committed by the act of dealing[10] with certain property which has specified characteristics.  It must be property which a person knows or has reasonable grounds to believe “in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence”.  As the Court held in Oei Hengky Wiryo v HKSAR (No 2),[11]section 25(1) does not define the actus reus as dealing with the proceeds of an indictable offence.  It defines it as dealing with “property” which the defendant knows or has reasonable grounds to believe represents the proceeds of an indictable offence.  The quality of the property being such proceeds is therefore an element in the mens rea but not the actus reus.  It is nevertheless a necessary ingredient of the offence that the characteristics of the property known to the defendant or giving reasonable grounds for belief must be such as to qualify the property in law as the “proceeds of an indictable offence” as an element of the mens rea.  The discussion which follows must be understood to proceed on that basis.  It must moreover be borne in mind that in the present appeal, the underlying offence relied on by the prosecution is a conspiracy to commit money laundering and not the substantive offence.

18.The concept of dealing with “proceeds of an indictable offence” envisages two separate transactions.  First, that an underlying indictable offence (often referred to as “the predicate offence”) has been committed.  Secondly, that there has been an act amounting to “dealing” with the proceeds of that predicate offence.  It is possible that the predicate offender and the dealer are the same person.  But often, they will be different persons.  In any case, at the time when the money or property is dealt with, it must have the prescribed characteristic of representing the proceeds of the predicate offence.

19.As noted previously, the prosecution relies on section 2(6)(a)(i) to contend that the concept of “proceeds of an indictable offence” extends to cover the untainted money advanced by Upbest which Tsang was intended to deal with.  Section 2(6)(a) specifies certain characteristics which operate to qualify particular property as a person’s proceeds of an indictable offence.  If property is received as a payment or other reward in connection with the commission of the predicate offence, such property constitutes in law the recipient’s proceeds of that offence.  It may be noted that the recipient may, but does not have to be the predicate offender.  But in every case where section 2(6)(a)(i) is relied on, the property in question must have the characteristic of a payment or other reward received in connection with commission of the predicate offence.

20.If those criteria are met, the dealer who subsequently deals with the property with the requisite mens rea is deemed to be dealing with property which he knows or has reasonable grounds to believe represents the proceeds of the relevant indictable offence and the “proceeds” ingredient is established. 

D.2  The ordinary meaning of “proceeds of an indictable offence”

21.Leaving aside section 2(6)(a) for the moment, if one were to give the word “proceeds” its ordinary meaning in the phrase “represents any person’s proceeds of an indictable offence” in section 25(1), such proceeds would be taken to mean money or property which is derived from or results from the commission of the relevant indictable offence.

22.This corresponds with the word’s dictionary meaning.  Thus, the Oxford English Dictionary defines “proceeds” as: “That which proceeds, is derived, or results from something; that which is obtained or gained by any transaction; produce; outcome; profit”.

23.That must be the starting-point in the process of construction.  It is against that background that one must scrutinise the prosecution’s contention that “clean” money which does not proceed from, is not derived from and is not the result of, some person’s commission of an indictable offence is nonetheless to be treated as representing the proceeds of an indictable offence. 

D.3  OSCO section 25A

24.While the word “proceeds” in its ordinary meaning requires the property dealt with to be something which is generated by the predicate offence, the prosecution submits that section 2(6)(a) removes that limiting requirement.  All that is required (so the prosecution argues) is that the property should be a payment received “in connection with” the predicate offence.  It contends that the words “in connection with” cast a net that is sufficiently wide to catch “clean” money which is intended to be used as an instrument in furtherance of a conspiracy to defraud.

25.In our view, section 25A(1) of OSCO suggests that the prosecution’s wide interpretation is wrong.  Section 25A imposes a duty to report suspected money laundering offences in the following terms:

Section 25A(1)

“Where a person knows or suspects that any property-

(a) in whole or in part directly or indirectly represents any person's proceeds of;

(b) was used in connection with; or

(c) is intended to be used in connection with,

an indictable offence, he shall as soon as it is reasonable for him to do so disclose that knowledge or suspicion, together with any matter on which that knowledge or suspicion is based, to an authorized officer.”

26.Section 2(6)(a) applies “for the purposes of this Ordinance” and therefore applies as much to section 25A(1) as it does to section 25(1).  If, as the prosecution seeks to argue, section 2(6)(a) has the effect of widening the meaning of the phrase “any person’s proceeds of an indictable offence” in section 25(1) to embrace payments which are not “proceeds” as ordinarily understood, but which (like the Upbest advance) are payments used or intended to be used in connection with the commission of an indictable offence, section 2(6)(a) ought to have the same effect in relation to the identical phrase which is contained in section 25A(1)(a). 

27.But the legislature has found it necessary to go on to make express provision in paragraphs (b) and (c) of section 25A(1) to cover property which “was used in connection with” or which “is intended to be used in connection with” an indictable offence.  If the prosecution’s construction of section 2(6)(a) were correct, paragraphs (b) and (c) in section 25A(1) would be redundant.  On its argument, by reading section 25(1) together with section 2(6)(a), section 25A(1)(a) would already cover the content of paragraphs (b) and (c). 

28.Section 25A(1) therefore provides a clear indication that it is not the legislative intent to give section 2(6)(a) the wide interpretation contended for by the prosecution.  Unfortunately, the significance of section 25A(1) was not brought home to the Court of Appeal which expressed the view that section 25A is of no relevance to this case.[12] 

D.4  “Payments or other rewards”

29.As noted above, section 2(6)(a) is concerned with specifying certain characteristics which operate to qualify particular property as a person’s proceeds of an indictable offence – a necessary mens rea ingredient of a section 25(1) offence.  It provides that “a person’s proceeds of an offence are … any payments or other rewards received by him at any time … in connection with the commission of that offence”.

30.If section 2(6)(a) is to apply, the payment must be envisaged to be received “in connection with the commission of” the predicate offence.  But, contrary to the prosecution’s submission, the section requires more than just some general, unspecified connection between the payment and the offence.  Due weight must be given to the words “or other rewards” in the phrase “payments or other rewards”.  As a matter of language, those words make it clear that the contemplated payment must be in the nature of a reward. It must in particular be a payment having the quality of a reward received in connection with commission of the relevant offence. 

31.In R v Allpress, Toulson LJ, giving the judgment of the English Court of Appeal sitting as a panel of five judges, stressed the need to have regard to the whole phrase and its effect as a matter of language:

“The phrase ‘payment or other reward’ implies that the payment must be in the nature of a reward in order to fall within the relevant section, and that is consistent with the rationale of the confiscation scheme as explained by the House of Lords. The final sentence of [17] in May would make no sense if physical receipt of a sum of cash by D constitutes ipso facto the receipt of a payment or other reward, whether payment is for himself or not.”[13] (Emphasis in original)

32.A relationship of “reward” linking the payment and the commission of the offence must therefore exist before the payment qualifies as “proceeds of an indictable offence” under section 2(6)(a).  For a payment to have this character, it has, for instance, to be a recompense or return or remuneration or incentive for or in connection with doing or having done something.[14]  In the context of section 2(6)(a), that “something” is the commission of the predicate offence.  It follows that the payment must derive from or be generated by, or be received on account of, commission of the offence.  Money so received is tainted by its criminal origins and unsurprisingly treated as the proceeds of an indictable offence. 

33.Section 2(6)(a) therefore only applies to tainted payments.  “Clean money” which is not paid or received in the nature of a reward in connection with commission of the predicate offence does not qualify as the proceeds of such an offence for the purposes of section 25(1).  So construed, section 2(6)(a) does not assist the prosecution.  The sum of $32 million advanced by Upbest does not qualify as the “proceeds” of the Charge 3 conspiracy either on the ordinary meaning of the word or by virtue of section 2(6)(a).  It was “clean money” advanced by Upbest intended to be used to deceive the shareholders and regulators.  Without section 2(6)(a), the prosecution’s case on Charge 4 fails.

34.The foregoing argument was made in the Court of Appeal but rejected on the basis, as Stock VP put it, that it “sits ill with the decision of the Court of Appeal of England and Wales in R v Gertrude Osei[15] and of this Court in R v Lo Chak Man and another”.[16]  We shall return to deal more fully with those cases later.[17]  For present purposes, it suffices to note that, citing Glidewell LJ in Osei,[18] the Court of Appeal adopted the view that the word “payment” in the relevant phrase meant “any payment” including a payment which is not in the nature of a reward but “which may be in some other way in connection with” the predicate offence (drug trafficking in that case).[19] Lo Chak Man was cited as a case decided in our Court of Appeal which endorsed the Osei approach.[20]  In order to place the Court of Appeal’s view based on those two cases in its proper context, the purposive construction of the relevant provisions advanced by Mr David Perry QC[21] should first be considered.

D.5  A purposive construction of the OSCO provisions

35.Mr Perry QC submits that the fundamental purpose of OSCO is to deprive drug traffickers, organized gangsters and other serious offenders of their ill-gotten gains.  It does so by giving the courts power to make confiscation orders stripping such offenders of the economic benefits of their crimes and by making it difficult for them to get help in dealing with and concealing those gains by criminalising money laundering activities.  To those ends, OSCO focusses on the “proceeds of an indictable offence” as representing such ill-gotten gains.  The Ordinance empowers the courts to make confiscation orders depriving the predicate offender of the proceeds of his predicate offence and depriving those who subsequently deal with those gains of their respective proceeds to the extent to which they may have benefited from their money laundering activities.

36.Mr Perry submits that when section 25(1) and section 2(6)(a) are construed in the light of that purpose, the inevitable conclusion is that the word “proceeds”, both for the purpose of establishing the section 25(1) offence and of making confiscation orders, has to be construed as referring only to money or property which represents an economic benefit gained by the relevant defendant in connection with the commission of the predicate offence.  The entire scheme of the Ordinance is aimed at depriving defendants of such ill-gotten benefits and criminalising the laundering of those gains.  He argues that the $32 million Upbest advance clearly was not a benefit received in connection with the Charge 3 conspiracy as it passed through the respective accounts of Logistic China, Ka Fong and Tsang. The circular payments were merely the instrument by which the conspiracy to deceive was carried out and were never intended to benefit or to confer any beneficial interest in the funds on the relevant appellants (or other participants in the circular flow). 

37.In HKSAR v Lam Kwong Wai[22] and HKSAR v Cheung Kwun Yin,[23] the Court affirmed the need generally to interpret statutory language in the light of its context and purpose, and not only when an ambiguity may be thought to arise.  And as Li CJ pointed out,[24] the context of a statutory provision is to be taken in its widest sense and certainly includes the other provisions of the statute and the existing state of the law.  His Lordship also noted that:

“The purpose of a statutory provision may be evident from the provision itself. Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation. The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill. Similarly, a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end.”[25]

38.Adopting that approach, in our view, the purposive interpretation advanced by Mr Perry is made good.  It is supported by the other provisions of OSCO (especially those concerning confiscation orders). It also receives support from the context in which OSCO came to be enacted, namely from the United Kingdom legislation upon which OSCO was modelled and decisions in the House of Lords and United Kingdom Supreme Court on materially comparable provisions.

D.5a The purpose appearing from the other provisions of OSCO

39.The Long Title demonstrates that a central purpose of OSCO is to target the proceeds of crime.  OSCO is:

“An Ordinance to create new powers of investigation into organized crimes and certain other offences and into the proceeds of crime of certain offenders; provide for the confiscation of proceeds of crime; make provision in respect of the sentencing of certain offenders; create offences relating to the proceeds of crime or property representing the proceeds of crime; and for ancillary and connected matters.”

40.The provisions governing confiscation orders are aimed at depriving a defendant of his proceeds of the relevant offence to the extent that he has benefited from such offence.  Such an order can be made against a defendant who has been convicted of and is to be sentenced for a specified offence.[26] But before the power can be exercised, section 8(4) requires the court first to determine that he “has benefited from the specified offence” and that “his proceeds of that specified offence or offences are in total at least $100,000.”  Benefit is therefore fundamental to the confiscation jurisdiction.  If satisfied as to such benefit, the court proceeds to determine the amount to be recovered from that defendant.[27]   Section 11(1) prescribes as the recoverable amount “the amount [the court] ... assesses to be the value of the defendant’s proceeds of the specified offence to which section 8(4) applies.”  The court may order[28] the defendant to pay that assessed amount or, if it is satisfied that the amount which can be realised is less than the assessed value of the defendant’s proceeds, a lesser sum.[29]  The power is therefore aimed at stripping the defendant of his proceeds of the offence to the extent to which he has benefited from it, within his realisable means.

41.The statutory purpose of targeting persons to the extent that they have benefited from crime is also evident from the ancillary powers conferred in aid of the confiscation jurisdiction.  Thus, special powers of investigation including the power to order material to be produced;[30] to issue certain search warrants;[31] and to make restraint and charging orders[32] are all subject to the condition that “there are reasonable grounds for suspecting that the person has benefited from organized crime or [a particular] specified offence”.  Similarly, special procedures have been laid down to help to determine whether a defendant has benefited from the crime and the value of his proceeds, including statutory assumptions that the court is permitted to make[33] and a procedure for the prosecutor to tender statements as a means of establishing such benefit and value.[34]

42.Section 25(1) does not directly refer to “benefit” as an element of the money laundering offence.  However (as we have seen), read together with section 2(6)(a), receipt of a payment or other reward – plainly a form of economic benefit – in connection with commission of an indictable offence qualifies such payment or other reward as the “proceeds of an indictable offence” for the purposes of section 25(1).  That the legislative intent is that such proceeds should reflect the “benefit” gained by the defendant from the offence is put beyond doubt by section 2(8) which provides:

“For the purposes of this Ordinance, a person who has ... received any payment or other reward in connection with the commission of an offence or an organized crime has benefited from that offence or organized crime, as the case may be.”

43.Thus, by the combined effect of sections 2(6)(a) and 2(8), the concept of “proceeds of an indictable offence” is equated with the receipt of “payments or other rewards” in connection with a predicate offence and the latter expression is deemed a benefit to the recipient for the purposes of the entire Ordinance, including sections 8 (dealing with confiscation) and 25 (constituting the offence).  Benefit is therefore of basic importance in both contexts. 

44.The purposive interpretation is accordingly supported by the confiscation provisions and the overall scheme of OSCO: payments received in the circular flow of funds which were never intended to benefit the appellants but were merely instrumentalities of the conspiracy to defraud do not qualify as proceeds of an indictable offence to constitute the Charge 4 conspiracy.

D.5b The United Kingdom legislation

45.In the written cases lodged on behalf of the prosecution and of Cheng, the legislative history of OSCO section 25(1) and section 2(6)(a) is traced in detail.  Its local precursors involved an Ordinance targeting the proceeds of drug trafficking,[35] later supplemented by an Ordinance targeting the proceeds of organized crime.[36]  We arrived at the current edition of OSCO after amendments enacted in 1995.[37]  OSCO is modelled on United Kingdom legislation, especially the Drug Trafficking Offences Act 1986 (“DTOA 1986”) which created a money laundering offence in relation to drug trafficking and conferred powers to make confiscation orders and is an Act which (as later amended[38]) continues to be reflected in the current provisions of OSCO.

46.Thus, section 8(4) of OSCO which requires the court when considering whether to make a confiscation order first to determine that the defendant “has benefited from the specified offence” and that “his proceeds of that specified offence or offences are in total at least $100,000”, was modelled on section 1(2) of DTOA 1986 which had made such benefit a necessary and basic condition.[39] Section 2(1)(a) of DTOA 1986 equates “payments or other rewards” received in connection with drug trafficking as the person’s “proceeds” of that offence and is reflected in OSCO’s section 2(6)(a).[40]  OSCO’s section 2(8) (which links “benefit” and “proceeds” for the purposes of both confiscation and the offence) was copied from section 1(3) of DTOA 1986.[41]  The Act also prescribes as the amount recoverable on a confiscation order, the value of the defendant’s proceeds of drug trafficking.[42]  And OSCO’s ancillary provisions in aid of investigation and proof of benefit and value of proceeds, and so forth, are all modelled on similar provisions in DTOA 1986.[43] 

47.It is therefore clear that OSCO’s fundamental requirement that “proceeds of an indictable offence” should involve “benefit” to the defendant as discussed above[44] derives from the DTOA 1986 scheme.  That Act was subsequently amended, and in important respects, Hong Kong followed suit.  For instance, the money laundering offence as originally enacted in DTOA 1986, section 24 involved an offence of assisting another to retain the proceeds of drug trafficking, reproduced in section 25 of the 1994 edition of OSCO.  When the offence was progressively refined and extended in the United Kingdom,[45] Hong Kong followed suit, resulting in the current section 25(1) offence.

48.Subsequent amending legislation in the UK retained the feature of benefit to the defendant as a central requirement in the confiscation scheme which continued to be linked through the concept of “proceeds” to the money laundering offence.[46]

49.The significance of the United Kingdom legislation for present purposes is that it accords basic importance to the element of benefit to the defendant and links such benefit to the concept of “proceeds of an indictable offence” in relation to both the offence and confiscation orders.  Modelling itself on such legislation, OSCO has done the same.  Of course there are differences in the various generations of the UK legislation but, regarding the “benefit” feature, OSCO is closely comparable to the United Kingdom legislation, making it helpful to examine some of the key judicial decisions concerning the place of “benefit” in the statutory scheme as an aspect of the purposive interpretation under discussion. 

D.5c The United Kingdom cases

50.The relevant United Kingdom cases demonstrate the importance of “benefit to the defendant” by treating that requirement not only as essential but as one which limits the scope of confiscation orders which can be made.  They do not deal directly with the elements of the money laundering offence but, as previously explained, the applicable legislation both in the UK and Hong Kong establishes a link between “benefit” and “proceeds” in relation to both confiscation and the offence, making the UK case-law on confiscation helpful in the present discussion.

(i)  R v May[47]

51.The leading decision is that of the House of Lords in R v May, where the facts (involving a VAT “carousel” or “missing trader” fraud) are not presently relevant.  However, a valuable analysis and statement of principle are to be found in the speech of Lord Bingham of Cornhill.[48]  Having referred to a series of statutes directed at confiscation of the proceeds of crime, his Lordship noted that:

“...despite much refinement and differences between the 1986 and 1994 Acts on the one hand and the 1988, 1993 and 1995 Acts on the other, the essential structure of the 1986 regime has been retained.”[49]

52.His Lordship explained that that regime (upon which OSCO is based):

“...requires the court, before making a confiscation order, to address and answer three questions: ... The first question is: has the defendant (D) benefited from the relevant criminal conduct? If the answer to that question is negative, the inquiry ends. If the answer is positive, the second question is: what is the value of the benefit D has so obtained? The third question is: what sum is recoverable from D?”[50]

53.Prominence was accordingly given to the need for the defendant to have benefited from the offence and for the value of that benefit to be assessed.  Elaborating upon the first of his three questions, Lord Bingham surveyed certain decisions where the lower courts had made confiscation orders in amounts which went beyond the actual benefit gained by the defendant and reflected instead the much greater value of property dealt with in the criminal activity in question. 

54.His Lordship provided some examples.  The first was R v Osei,[51] which involved “a drug courier armed, it seems, with a sum of cash to enable her to show that she could support herself in order to enter the country”, where the court held that “payment” in the statutory formula “payment or other reward” was “apt to cover not merely a profit or fee but also a payment of this kind”.[52]  This was the decision relied on by the Court of Appeal below to which we shall return.[53]

55.Lord Bingham pointed out that Osei had been applied in R v Smith (Ian),[54] “where ‘any payments’ were held to mean any payment in money or in kind, not net profit after deduction of expenses.”[55] 

56.His Lordship went on next to consider R v Simons,[56] which involved a middle-man who had bought and resold consignments of drugs.  Applying R v Smith (Ian), the Court of Appeal held that the confiscation order should not be confined to his profit but should be in the amount of the sale price, commenting:

“... where you have a chain of contracts, each purchase price is a ‘payment’. That result cannot be avoided simply by the entrepreneur or middle man ensuring that the contractual situation was that he merely passed on as postman a payment from the consignee to the consignor and that what in the ordinary course of events would have been his profit was paid to him as a handling fee or something of that sort. As Parliament deprives drug dealers of the proceeds of their sale, namely the payments made to them and not profits made from them, there is no reason why they should treat conduits any differently.”[57]

57.Stressing the importance of the defendant obtaining a benefit, Lord Bingham described the approach in Simons (and by implication in Smith (Ian) and Osei)as problematical, stating:

“The court went on to observe, obiter (p 104), that this result could not be avoided by treating the intermediary as a postman, and those acting as a conduit should not be treated differently. But this, with respect, is more problematical: under the 1986 Act the first question was always whether, on the facts (and allowing permissible inferences) the defendant had benefited by receipt of any payment or other reward, which a mere intermediary might possibly not. It does not necessarily follow from the mere possession of drugs that a person is not a mere minder or custodian...”[58]

58.In an “Endnote”, Lord Bingham summarised the broad principles applicable in confiscation cases.  The first principle supports the purposive interpretation being discussed as it identifies the object of the legislation in terms of stripping away the benefit gained by defendants:

“(1) The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, but nor does it operate by way of fine. The benefit gained is the total value of the property or advantage obtained, not the defendant's net profit after deduction of expenses or any amounts payable to co-conspirators.”[59]

59.After having re-iterated the three questions (two of which relate to the existence and value of benefit to the defendant) mentioned above and having made certain other points, Lord Bingham added:

“(5) In determining, under the 2002 Act, whether D has obtained property or a pecuniary advantage and, if so, the value of any property or advantage so obtained, the court should (subject to any relevant statutory definition) apply ordinary common law principles to the facts as found. The exercise of this jurisdiction involves no departure from familiar rules governing entitlement and ownership. ...

(6) D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers.”[60]

(ii)  Jennings v Crown Prosecution Service[61]

60.The decision in Jennings v CPS was published on the same day as R v May.  It arose in connection with the making of a restraint order in aid of confiscation proceedings where the central issue concerned the construction of section 71(4) of the Criminal Justice Act 1988.  That section materially provides:

“... a person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained”.

61.The focus was therefore again on the benefit gained by a defendant as a requirement of making a confiscation order. Jennings had been convicted on a charge of conspiracy to defraud.  The fraud had involved the extraction of “advance fees” from victims totalling over £584,000 and the prosecution argued that that amount should be treated as the property obtained by the defendant and adopted in the confiscation order.  His case was that he had at most obtained £50,000 by way of salary and a few minor payments.  The Court of Appeal had ruled in favour of the prosecution’s approach holding that it was only necessary to show “that the defendant's acts should have contributed, to a non-trivial (that is, not de minimis) extent, to the getting of the property”, viewing it as essentially a question of causation. Lord Bingham, again giving the opinion of the Committee, considered this erroneous and stressed the importance of bearing in mind the purpose of the legislation (which his Lordship held to be the same as the purpose of the drug trafficking legislation):

“It is, however, relevant to remember that the object of the legislation is to deprive the defendant of the product of his crime or its equivalent, not to operate by way of fine. The rationale of the confiscation regime is that the defendant is deprived of what he has gained or its equivalent. He cannot, and should not, be deprived of what he has never obtained or its equivalent, because that is a fine. This must ordinarily mean that he has obtained property so as to own it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else.”[62]

62.Lord Bingham pointed out that someone’s acts “may contribute significantly to property ... being obtained without his obtaining it” and emphasised that under section 71(4), “a person benefits from an offence if he obtains property as a result of or in connection with its commission, and his benefit is the value of the property so obtained, which must be read as meaning ‘obtained by him’.”[63] Accordingly, the obtaining had to involve the gaining of a benefit and not just participation in the fraud.  Such benefit was not only essential to making a confiscation order, the extent of such benefit limited the amount of the confiscation order.  Not being in the nature of a fine, such an order had to be limited to depriving the defendant of the benefit he had gained from commission of the offence.  The Committee held that the Court of Appeal’s approach was wrong but dismissed the appeal because the available material justified the making of a restraint order in any event.

(iii)  R v Waya[64]

63.The essential legislative purpose of stripping away the benefit gained from the commission of crime was also stressed in R v Waya,a decision of a panel of nine judges in the UK Supreme Court. Giving the judgment of the majority, Lord Walker of Gestingthorpe JSC and Hughes LJ stated:

“The purpose of the legislation is plainly, and has repeatedly been held to be, to impose upon convicted defendants a severe regime for removing from them their proceeds of crime. It is not to be doubted that this severe regime goes further than the schoolboy concept of confiscation, as Lord Bingham explained in R v May [2008] AC 1028 . Nor is it to be doubted that the severity of the regime will have a deterrent effect on at least some would-be criminals. It does not, however, follow that its deterrent qualities represent the essence (or the ‘grain’) of the legislation. They are, no doubt, an incident of it, but they are not its essence. Its essence, and its frequently declared purpose, is to remove from criminals the pecuniary proceeds of their crime.”[65]

64.Their Lordships added:

“...the scheme of the Act, and of previous confiscation legislation, is to focus on the value of the defendant's obtained proceeds of crime, whether retained or not. It is an important part of the scheme that even if the proceeds have been spent, a confiscation order up to the value of the proceeds will follow against legitimately acquired assets to the extent that they are available for realisation.”[66]

(iv)  R v Mackle[67]

65.The benefit theme is also prominent in R v Mackle, a case where the defendants had been convicted on their own pleas for evading duty and value added tax leading to confiscation orders against them on the basis that they had obtained a pecuniary advantage by evading such tax and duty.  The orders were made in amounts equal to aggregate duty and tax allegedly evaded.  It was however subsequently discovered that they had not in fact been liable to pay such tax and duty.  They had therefore not evaded such liability and the pecuniary advantage relied on as the benefit they had obtained did not exist. 

66.Giving the opinion with which the other members of the Court agreed, and after referring to the principles set out in R v May,Lord Kerr of Tonaghmore JSC stated:

“The focus must be, as Lord Bingham has said, on what benefit the defendant has actually gained. Simply because someone has embarked on a joint criminal enterprise, it does not follow that they have obtained an actual benefit. Being engaged in a conspiracy does not, of itself, establish that each conspirator has obtained the property which is the product of the conspiracy.”[68]

D.5d Applying the purposive interpretation

67.In our view, given that the United Kingdom’s confiscation regime employs closely comparable concepts, the abovementioned decisions of the House of Lords and Supreme Court provide persuasive and helpful guidance in the purposive construction of the relevant concepts in OSCO and in particular, the interpretation of the phrase “proceeds of an indictable offence” both for the purposes of section 25(1) and the confiscation regime.

68.The central proposition of the purposive interpretation is that, in line with the pervasive object of stripping away the economic benefits obtained by defendant in connection with the commission of the predicate offence, property ought not to be held to be a particular defendant’s “proceeds” unless that defendant has gained an economic benefit from such property.

69.As we have been at pains to point out, the section 25(1) offence is committed where a person deals with property knowing or having reasonable grounds to believe that the same represents the proceeds of the predicate offence.  The predicate offender is benefited by obtaining those proceeds.  The property he obtains are his payment or other reward received in connection with his commission of the predicate offence.  But, as we have seen, a further aspect of “benefit” arises in the context of the confiscation regime as applied to persons who subsequently deal with the proceeds of the predicate offence.  Before a confiscation order can be made against such persons, they must also be shown to have benefited from those proceeds as required by section 8(4).  Such benefit need not be shown to prove liability under section 25(1) but is a condition of making a confiscation order.  The following example illustrates this:

(a)  X is a drug trafficker who has just sold a consignment of drugs to a buyer and received a suitcase containing $3 million in banknotes in payment. 

(b)  X asks his friend Y (who knows where the money comes from) to deliver the suitcase to Z, a professional money launderer.  Y receives nothing for doing this, merely acting because of his friendship with X.

(c)  Z receives the money and is allowed to keep $100,000 as his fee after having dealt with the balance of the $3 million on X’s behalf in ways designed to conceal its criminal origins.

(d)  X commits the predicate offence of drug trafficking and the $3 million constitutes its proceeds with X obviously benefiting to the extent of $3 million.  A confiscation order in the amount of $3 million can in principle be made against X.

(e)  Y commits a section 25(1) offence since he deals with the $3 million which he knows or has reasonable grounds to believe represent X’s proceeds of the predicate drug trafficking offence.  However, since Y has not himself benefited, no part of the $3 million constitutes “his proceeds” of the predicate offence and the section 8(4)(a) requirement of a benefit to Y is not satisfied.  No confiscation order can be made against Y although he can be otherwise sentenced[69] for the section 25(1) offence.

(f) Z commits a section 25(1) offence since he deals with the $3 million which he knows or has reasonable grounds to believe represent X’s proceeds of the predicate drug trafficking offence.  His benefit from those proceeds is his fee of $100,000 and a confiscation order can be made against him to that extent.  He can of course also be otherwise sentenced for the section 25(1) offence.

(g)  We might add that a confiscation order can be made against X in respect of the $3 million proceeds, permitting restraint and receivership orders, etc, to be made to secure his property for eventual confiscation by invoking the ancillary provisions of OSCO where, for instance, the money is intercepted in Y’s or Z’s possession but X has absconded.

D.6  The Court of Appeal’s construction

70.As we previously noted,[70] the Court of Appeal rejected the argument that “payments” can only qualify by virtue of section 2(6)(a) as “proceeds of an indictable offence” if they are in the nature of a reward because the section refers to such payments as “payments or other rewards”.  Stock VP considered that argument to be inconsistent with the decisions of the English Court of Appeal in R v Gertrude Osei[71] and the Hong Kong Court of Appeal in R v Lo Chak Man”[72] which had adopted the Osei approach.[73]  He also took the view that the decisions in R v Allpress[74] and R v May[75] do not militate against that conclusion.  There appear to be two main strands in the reasoning of the Court of Appeal.

71.First, their Lordships agreed with Glidewell LJ’s view in Osei that the word “payment” in the relevant phrase meant “any payment” including a payment which is not in the nature of a reward but one which “may be in some other way in connection with” the predicate offence.[76]  This involves, as Mr Perry QC puts it, the uncoupling of “payment” on the one hand and “reward” or “benefit” on the other.  The Court of Appeal held that “the crediting of the funds passing though the accounts of Ka Fong and Tsang and then on through the accounts of the other companies in the convoluted chain are properly classified as ‘payments’”[77] so that under section 2(6)(a) they were to be treated as the appellants’ proceeds received in connection with the predicate Charge 3 conspiracy.

72.We are unable to agree with that reasoning.  Osei[78] preceded the House of Lords’ decisions in R v May[79]and Jennings v CPS[80]as well asthe later decisions of the UK Supreme Courtexamined above.[81]  In the light of the importance that they attach to the requirement of benefit to the defendant, both as a condition of making confiscation orders and as an assessed value limiting the amount of such orders, we do not think that Glidewell LJ’s uncoupling of payment from reward or benefit is consistent with those decisions. 

73.R v Osei, it will be recalled, involved a drug courier who pleaded guilty to trafficking and was found to have £2,500 in her possession.  The question was whether that sum should be treated as her proceeds of the trafficking offence and taken into the valuation for the purposes of a confiscation order.  She had told inconsistent stories about the money, one version being that it had been given to her by a stranger on the plane so that she would have enough money to get her through Immigration. It was said that she herself had stood to make only £1,000 to £1,500 for acting as courier.  It is unfortunately unclear what if any findings were made in Osei as to whether the whole or part of the £2,500 sum represented a reward for acting as courier, but it certainly appears likely that her benefit did not extend to the whole of that amount.  To the extent that the trial judge’s decision to order confiscation of the whole of the £2,500 was upheld by the Court of Appeal irrespective of any benefit to the courier, that judgment is inconsistent with the later House of Lords and UK Supreme Court decisions.  The Court of Appeal relied on R v Lo Chak Man[82] because of its adoption of the Osei approach.[83]  It does not call for separate treatment.

74.As indicated above,[84] our view is that on the true construction of section 2(6)(a), the payments in question must be “in the nature of a reward” received in connection with the commission of the predicate offence.  The “uncoupling” approach should in any event not be adopted in Hong Kong.

75.The second strand of the Court of Appeal’s reasoning for upholding the Charge 4 convictions involved taking note of the “reward” requirement.  Stock VP cited Toulson LJ’s statement in R v Allpress[85] that “The phrase ‘payment or other reward’ implies that the payment must be in the nature of a reward in order to fall within the relevant section” but did not consider it necessary to decide whether that cast doubt on Lo Chak Man.[86]

76.His Lordship cited the following passage from R v May:[87]

“D ordinarily obtains property if in law he owns it … which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. … Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property of the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers.”

77.It was suggested that Lord Bingham had there stated that “It may be otherwise with money launderers”, because “money launderers are likely, on the facts, to enjoy a power in law of disposition of control”.[88] This, the Court of Appeal concluded, applies in the present case:

“Mr Marash SC for the respondent submits, correctly in our view, that Tsang was not a mere nominee or trustee of the funds he received; he possessed a chose in action whilst the sum of $32 million was in his account. Whether this is classified as a payment or a pecuniary advantage matters not since the latter is also a person’s proceeds as defined by section 2(6) of the Ordinance.”[89]

78.In other words, the Court of Appeal was suggesting that insofar as benefit to the appellants had to be shown, this was achieved on the facts of this case.  This was because upon receiving payment from Ka Fong, Tsang “possessed a chose in action whilst the sum of $32 million was in his account”; Tsang thereby obtained a power of disposition or control and was not a mere nominee or trustee of those funds.

79.We do not accept that second strand of reasoning.  It is, with respect, entirely contrary to the evidence to suggest that the $32 million received in Tsang’s account from Ka Fong was a genuine benefit received by him.  It is of course true that for a very short period of time, as the funds washed around the circular flow of payments, a chose in action arose as a matter of law representing a debt owed by the bank to Tsang. It disappeared once the funds were passed along the chain of payments.  The very essence of the Charge 3 conspiracy was that the payments were a sham.  It was a conspiracy to defraud the Stock Exchange and the shareholders of Grand Field by dishonestly concealing the absence of any genuine acquisition of an interest in the Mainland joint venture and pretending to have effected a disposal of that interest.  There was no question of the payment conferring upon Tsang a genuine power of disposition or control over the funds which briefly transited his bank account.  It was essential to the conspiracy that the funds belonged to Upbest and that they would complete the circle and return to Upbest after having effected the deception.  The whole case is premised on the payment of $32 million being an instrument used in furtherance of the conspiracy, which is fundamentally inconsistent with Tsang personally benefiting from the receipt of that amount.

80.In the prosecution’s written case,[90] the following submission is made, seeking to establish benefit to Tsang on the basis of his having obtained a new form of a pecuniary advantage:

“ ... the Court of Appeal’s conclusion can also be supported on the narrower basis of evading a personal liability. ... In receiving the $32 million in his personal bank account as part of the money circle, A3 (Tsang) obtained a pecuniary advantage by evading potential civil liability to shareholders resulting from the conspiracy to defraud offences particularised in Charges 1 and 3. ... It is unnecessary to quantify this advantage for purposes of money laundering liability. It is submitted that the $32 million received as a means to evade such liability must, at least in part, directly or indirectly represent the pecuniary advantage obtained.”

81.This argument is not open to the prosecution as it involves fact-sensitive issues which were not raised or explored at the trial.  We would comment in passing that it is in any event a highly tenuous submission.  It is not suggested that there was any existing civil liability but only some unparticularised potential liability to shareholders, apparently incapable of quantification, which was allegedly evaded.  It is highly questionable, whether, if the matters alleged had been explored, they would have been capable of constituting a pecuniary advantage.

D.7  Other statutory formulations

82.A final point we would make on construction is that where the legislature has sought to regulate dealings with property used or intended to be used as an instrument of or in furtherance of crime, as distinct from property representing the proceeds of crime, it has done so in unequivocal terms.  We have already seen an example of this in section 25A(1) of OSCO discussed above.[91]  A further example can be found in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institution) Ordinance[92] which has a definition of money laundering referring to the proceeds obtained from commission of an indictable offence which is quite distinct from the definition of “terrorist financing” which refers to the provision or collection of property “with the intention that the property be used; or knowing that the property will be used ... to commit ... terrorist acts...” [93]  Similarly, section 7 of the United Nations (Anti-Terrorism Measures) Ordinance[94] prohibits the provision or collection of any property “with the intention that the property be used; or  ... knowing that the property will be used, in whole or in part, to commit one or more terrorist acts ...”

E.  Policy consequences

83.In our view, adoption of the wide interpretation proposed by the prosecution would be likely to have highly detrimental consequences.  Money laundering would become an offence of great and uncertain width.  Payments would constitute the offence without having to be payments which the defendant knows or has reasonable grounds to believe are in the nature of a reward received in connection with the commission of an offence. The prosecution would merely have to prove receipt of a payment and show reasonable grounds to believe that such payment has an undefined and uncertain “connection” with an indictable offence.  In jurisdictions having legislation aimed at catching payments beyond those representing the proceeds of crime, definitions are laid down to identify the necessary connection, thus avoiding such uncertainty.  For instance, in Australia,[95] the Commonwealth Criminal Code catches money or property which “will become an instrument of crime”.

84.Given the low threshold presented by the mental element in section 25(1) as held by the Court in Oei Hengky Wiryo v HKSAR (No 2),[96] the wide interpretation would place lenders at risk and impose onerous burdens on them.  They would be at risk if, unknown to them, loan moneys were used by a customer as an instrument of the customer’s criminal enterprise.  In a hypothetical case similar to the present, a customer might, for instance, seek a bridging loan plausibly explaining that it was to enable him to consummate a deal with repayment swiftly to follow.  If it turns out that, unknown to the lender, the customer uses the funds in furtherance of a conspiracy to defraud, the lender could be at risk if it had missed the significance of aspects of the transaction which the prosecution might (with hindsight) allege were such as to give the lender reasonable grounds to believe that the money was intended to be used “in connection with” the hypothetical conspiracy, even though the lender knew full well that the funds it was lending were its own entirely legitimate funds unconnected with any crime.  An onerous duty of due diligence would be imposed on lenders fearful of missing what might later be said to be clues about intended criminal conduct.  It is one thing to criminalise dealing with funds where the dealer knows or has reasonable grounds to believe that they are the proceeds of crime, it is quite a different matter to stigmatise as a money launderer, a lender dealing with its own “clean” funds because of what the borrower does or intends to do with them.

85.As the appellants point out, the wide interpretation would be likely to distort the practice of prosecutors.  They would understandably find it hard to resist the temptation of bringing money laundering charges made easy to prove whenever it was possible to prove a payment and some broad connection with some indictable offence, whatever might be the underlying criminality involved.  Indeed, in the present case, for unknown reasons, Cheng and Li were not charged as parties to the Charge 3 conspiracy.  That is somewhat surprising since, as the Court of Appeal pointed out, the prosecution appears in its closing submissions to have asserted that their participation in the Charge 3 conspiracy had been established on the evidence:

“[Prosecuting counsel] said that although it was not alleged that Cheng and Li were parties to the Charge 3 conspiracy, ‘the prosecution case is that pursuant to their own agreement they knew or had reasonable grounds to believe that a sum of money to be advanced by Upbest was for the purpose of falsely representing to the regulator and investors that Grand Field had genuinely sold out their interest in the joint-venture to Logistic China. ... It is submitted the evidence is sufficient to establish that the defendants [by which he was referring to them all] believed the sum of $32 million was not to be a legitimate payment by Logistic China to Grand Field but was to be used to dishonestly represent that Grand Field had genuinely disposed of their interest in the joint venture. With that belief they agreed that [Tsang] would deal with the money in a manner designed to return the entire sum to Upbest.’”[97]

86.The trial Judge apparently agreed.  As the Court of Appeal noted,[98] his Honour found that knowledge of the conspiracy to defraud was acquired by Cheng and Li at a meeting with Au-Yeung[99] and that Li “knew full well that the arrangement was for D1 to receive the money after it had been used to defraud the Stock Exchange and then dispose of it as arranged.”[100]

F.  Conclusion and disposal

87.We conclude that the Courts below were wrong to construe the expression “proceeds of an indictable offence” in s 25(1) of OSCO as extending to cover money used as an instrument furthering the Charge 3 conspiracy where there was no evidence that the appellants knew or had reasonable grounds to believe that such money represented the proceeds of an indictable offence.  It was on the contrary clear that all concerned knew that the payments and receipts of the sum of $32 million relied upon by the prosecution involved dealing with funds provided by Upbest, there being no evidence that such funds were other than legitimate.  It was erroneous to construe section 2(6)(a) as widening the concept of “proceeds of an indictable offence” to cover such payments.

88.The Charge 4 conspiracy was therefore in our view not established and we would accordingly allow the appellants’ appeal in respect of that charge and quash the appellants’ convictions thereunder.  We would direct that any party wishing to make submissions as to costs, should lodge such submissions in writing with the Registrar within 21 days of the date of this judgment and that any submissions in reply should be lodged within 14 days thereafter. 

Mr Justice Tang PJ :

89.I agree with the joint judgment of Mr Justice Ribeiro and Mr Justice Fok PJJ.

Mr Justice Bokhary NPJ :

90.These appeals succeed if the expression “proceeds of an indictable offence” in s.25(1) of the Organized and Serious Crimes Ordinance, Cap.455, is confined to what is derived from the commission of an indictable offence.  They fail if the expression extends to resources used in the furtherance of its commission.  On an ordinary reading, the word “proceeds” points to what is derived from rather than to what is used in the furtherance of.  That understanding of the expression in question is fortified by the interpretation clause of the statute concerned.  Section 2(6)(a)(i) thereof provides that a person’s proceeds of an offence extends to any “payments or other rewards” received by him at any time in connection with the commission of that offence.  The words “or other rewards” show that the “payments” covered are ones in the nature of a reward.  And that points to what is derived from rather than what is used in the furtherance of.

91.The foregoing is sufficient for the appellants’ purposes.  But as it happens, their position is supported by the highly persuasive authority of the decisions of the House of Lords in R v May [2008] 1 AC 1028 and Jennings v Crown Prosecution Service [2008] 1 AC 1046 and of the United Kingdom Supreme Court in R v Waya [2013] 1 AC 294 and R v Mackle [2014] 2 WLR 267.

92.For the brief reasons which I have given and for the reasons stated more fully in the joint judgment of Mr Justice Ribeiro PJ and Mr Justice Fok PJ, with which joint judgment I agree, I would allow these appeals to quash the appellants’ convictions under Charge 4.  I concur in the direction as to costs made in that joint judgment. And I conclude with an expression of my indebtedness to all counsel for their helpful and succinct arguments.

Lord Collins of Mapesbury NPJ :

93.I agree with the joint judgment of Mr Justice Ribeiro and Mr Justice Fok PJJ.

Mr Justice Ribeiro PJ :

94.The Court unanimously allows the appeal, quashes the appellants’ convictions in respect of Charge 4 and gives the directions as to the lodging of submissions regarding costs set out in the last paragraph of the joint judgment of Mr Justice Fok PJ and myself.

Mr S.K. Khattak (Kelly Lam), instructed by Lennon & Lawyers, for the Appellant in FACC No.4 of 2013

Mr David Perry QC, Mr Michael Blanchflower SC, Ms Maggie Wong and Ms Tanie Toh, instructed by Michael Li & Co., for the Appellant in FACC No.5 of 2013

Mr Collingwood Thompson QC, Mr Andrew Bruce SC and Mr Felix CY Hoe, instructed by Wat & Co., for the Appellants in FACC No.6 of 2013

Mr Keith Yeung SC, DPP of the Department of Justice, Mr Simon NM Young on fiat for, and Mr Anthony Chau, SPP of, that Department, for the Respondent