Interush Ltd and Another v. The Commissioner of Police and Others

HCAL167/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.167 OF 2014

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Before : Hon P. Li J in Court

Date of Hearing : 10, 11 June 2015

Date of Judgment : 5 August 2015

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J U D G M E N T

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Introduction

1.This is an application for judicial review on the constitutionality of sections 25 and 25A of the Organised and Serious Crimes Ordinance, Cap 455. (‘OSCO’) 

2.The applicants also challenge the propriety of the decision making process under section 25A(2)(a). (‘no consent regime’) 

3.Leave for judicial review was granted by Au J on 10 February 2015. 

Background

4.On 1 November 2013, alerted by newspaper coverage[1], officers of the Commercial Crime Bureau (‘CCB’) started an investigation on the 1^st applicant for promoting an alleged pyramid scheme contrary to Pyramid Schemes Prohibition Ordinance, Cap 617. (‘PSPO’)  

5.The main features of the scheme were as the following:

a The 1^st applicant offered cloud based Internet services at a monthly charge of $800. 

b There was an initial membership fee of $390. 

c If a member subscribed 3 sets of identical services at $2,400 per month and recruited new members, he might be entitled to monthly bonus up to $234,000. 

d The 1^st applicant would pay dividend to members when it was publicly listed in Hong Kong. 

6.On the same day, Bank of East Asia (BEA) suspended the account of the 1^st applicant as their investigation since June 2013 revealed that the account might be used in connection with illegal activities.[2] 

7.On 4 November 2013, further investigation by CCB revealed that large number of mainland individuals were arranged to come to Hong Kong and attended the office[3] of the 1^st applicant for registration.  According to some individuals interviewed by CCB officers, they only joined the scheme with a view to earn bonus.  They had no knowledge of the underlying services. 

8.On the same day, Heng Seng Bank Ltd (HSB) had suspicion about the accounts of the 1^st and 2^nd applicants. HSB filed a “Suspicious Transaction Report” (STR) to the Joint Financial Intelligence Unit. (JFIU)[4]

9.On 6 November 2013, CCB officers searched the office of the 1^st applicant and found about 50,000 completed registration forms.  Five members of the senior management of the 1^st applicant were arrested for the offence of “Promoting a pyramid scheme”.  

10.In the meantime, the JFIU issued a ‘no consent’ letter [5] to HSB covering the accounts of the 1^st and 2^nd applicants.

11.Two days after the search, the Chief Executive Officer of both applicants, Mr MJ Matthews, surrendered to the police.  He was also arrested for the same offence. 

12.On 6 February 2014, Mr MJ Matthews was further interviewed and cautioned for the offence of “Dealing with property representing proceeds of an indictable offence”. [6]  

13.Financial analysis revealed that between 2012 and 2013, there were 2040 deposits totalling HK$680 million and 1926 withdrawals totalling HK$497 million through the accounts of the 1^st applicant held in HSB.  The majority of the sources and destinations of these transactions were outside Hong Kong. 

14.On 9 April 2015, a restraint order was granted against the accounts of both applicants in HSB and Bank of America.[7] 

Judicial Review

15.Mr Paul Shieh, SC, for both applicants, challenges the constitutionality of s 25 and s 25A, OSCO. (constitutionality challenge)  

16.Mr Shieh also challenges the propriety of the ‘no consent’ letter, pursuant to s 25A(2)(a), covering the accounts of both applicants in HSB and BEA. (fact-specific challenge) 

Constitutionality challenge

17.Mr Shieh argues that s 25 in conjunction with s 25A infringes Articles 6 and/or 105[8]. Section 25 interferes with the use or disposal of the property of the applicants.  It imposes criminal liability without prescribing:

a any time limit within which the authorised officer should decide whether or not to give consent under s 25A(2)(a);

b any time limit for the expiry of a ‘no consent’ decision; and/or

c any compensation by the Government for the loss of an applicant whose property was withheld under a ‘no consent’ letter. 

18.According to Mr Shieh, s 25(1) creates an offence of dealing[9] with property.  At the time of the dealing a person knows or has reasonable grounds to believe that the property represents[10] proceeds of an indictable offence.  

19.Section 25A(1) OSCO requires a person to disclose to an authorised officer any property he knows or suspects of representing proceeds of an indictable offence, or used[11] in connection with an indictable offence.  

20.Under s 25A(2)(a), if a person deals with any property which is disclosed to an authorised officer, he would be guilty of an offence under s 25(1) unless he has prior consent from that officer. 

21.Given this legislative scheme, Mr Shieh argues that so long as the authorised officer refuses to give consent, he may freeze the property of a suspect for an indefinite period.  The person who makes the disclosure would not deal with the property as that amounts to an offence under s 25(1) OSCO.  

22.Mr Shieh stresses that the suspect would not be able to claim any compensation under OSCO even if the freeze turns out to be unwarranted. 

23.Mr McCoy, SC, for the respondents, argues as follows:

a Section 25 creates an offence of dealing with proceeds of an indictable offence. 

b Sections 25A(1) & (7) create an offence for failure to disclose suspicious property.  

c Section 25A(2)(a) provides that if there is consent from the authorised officer, it shall be a defence for continue dealing with the suspicious property 

d None of the above provisions empower intervention of a person’s property.  Art 6 and 105 of the Basic Law are not engaged.

e The relevant banks refused to honour their contractual duty as they were suspicious of the activities in the accounts of the applicants.[12]  The applicants had actually initiated civil proceedings against the banks.[13]  It has no connection with the operation of the criminal law.  

Relationship between sections 25and 25A, OSCO

24.For the constitutionality challenge, I adopt the approach set out in HKSAR v Ng Po On[14]:

a firstly, interpret the relevant statutory provision according to common law principles;

b secondly, consider whether that interpretation derogates from the property rights protected by the Basic law or the Bill of Rights;

c if yes, whether the derogation can be justified;

d if the derogation cannot be justified, whether the validity of the provision can be saved by the application of any rule of construction, severance of the offending part, reading down, reading in or any other remedial technique.

25.Section 25(1) provides:

“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 the property.”

26.The actus reus of this offence is dealing with the property.  The mens rea is that at the time of the dealing there are reasonable grounds to believe that the property represents proceeds of an indictable offence.  These elements of the offence have no connection with section 25A, in particular, s 25A(2)(a).  

27.The only connection is in s 25(2).  It creates a defence if a person intends to disclose under s 25A(1) and has reasonable excuse for failing to comply with s 25A(2).  

28.Section 25A(1) provides:

“When a person knows or suspects that any property—

(i) in whole or in part directly or indirectly represents any person’s proceeds of;

(ii) was used in connection with; or

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

an indictable offence, he shall as soon as reasonable for him to do so disclose that knowledge or suspicion….to an authorised officer. ”

29.This section creates a duty to disclose any suspicious property to an authorised officer.  Failing which is an offence under s 25A(7).  

30.Section 25A(2)(a), which is the main dispute in this judicial review, provides:

“If a person who has made a disclosure….. does any act in contravention of section 25(1)…..he does not commit an offence under that section if –

(a) that disclosure was made before he does that act and he does that act with the consent of an authorised officer….”

31.This subsection creates a defence to a charge under s 25(1) if the person, who has made a disclosure, has consent from an authorised officer prior to further dealing with the suspicious property. 

32.In my view, the proof of an offence under s 25(1) does not depend on s 25A at all.  The two sections deal with different situations.  The former creates an offence of dealing with any property representing proceeds of an indictable offence.  The latter creates a duty to disclose suspicious property.  

33.Besides, s 25(2) creates a defence for a person who has not make a disclosure while s 25A(2) creates a defence only for a person who has made a disclosure.  

34.There is no justification to link both sections together as Mr Shieh argues.  

35.The constitutionality of s 25A(2)(a) would not affect that of section 25(1).  The latter is not concerned with intervention, confiscation or deprivation of any property.  Its operation is independent of s 25A(2)(a). In my judgment, so far as s 25 is concerned, articles 6 and 105 are not engaged. 

Is section 25A(2)(a) unconstitutional?

36.As set out above, s 25A(1) creates a duty for a person to disclose suspicious property.  In reality, this section mainly concerns financial institutions such as banks, insurance brokers and money service operators.  

37.More comprehensive duties of financial institutions can be found in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, Cap 615.  This ordinance requires financial institutions to enforce customer due diligence measures which include procedures to verify the identity of customers and beneficiaries, to examine unusual or suspicious transactions and to monitor business relationship with a customer.[15]

38.The ordinance also requires financial institutions to train and appoint staff for performing these duties and creates offences for failure to perform the duties under the ordinance. 

39.In this case, HSB and BEA had signed detailed agreements with 1^st applicant in relation to the operation of its accounts.  In compliance with their duties, staff of both banks had continuously monitored the activities in these accounts and reviewed business risk. 

40.For BEA, they had signed merchant agreements in March 2010 with the 1^st applicant which set out the rights and obligations of the parties.  Since January 2013, BEA noticed sharp increase in the balance of the accounts of the 1^st applicant.  Staff of BEA sought to meet the 1^st applicant to ascertain the reasons for this growth but with limited progress.  On 1 November 2013, BEA noticed the newspaper coverage[16]. It suspected that there might be a pyramid scheme.  It decided to suspend the account of the 1^st applicant on the ground that there were breaches of the merchant agreements.  

41.On 2 July 2014, BEA terminated the merchant agreements and withheld the balance in the accounts of the 1^st applicant.  BEA also made a report to the police.[17]

42.In the case of HSB, the accounts of both applicants were opened in 2007.  Detailed terms and conditions were set out in the Integrated Business Solution accounts agreements.  

43.On 1 November 2013, HSB noticed the newspaper coverage which triggered off their internal investigation into the accounts of the 1^st applicant. HSB suspected that the 1^st applicant was involved in a pyramid scheme.  HSB found that from August 2013 to October 2013, there were huge sums deposited into the 1^st applicant’s account and substantial transfer out to the account of a company overseas.  During this period, the account of the 2^nd applicant was inactive.

44.On 4 November 2013, HSB filed a STR to JFIU.  

45.On 6 November 2013, HSB received the ‘no consent’ letter from JFIU.  HSB withheld the balance in the accounts of the 1^st applicant. They had informed the 1^st applicant to contact the police.  

46.HSB maintained that there was an implied term in the agreement enabling it to refuse to execute the instructions of the 1^st applicant.[18] 

47.The law imposes general duties on financial institutions to monitor the activities in the accounts of their customers.  Individual financial institution also incorporates clear clauses in their agreements with customers enabling them to perform these duties.  

48.For BEA, it suspended the accounts of the 1^st applicant on 1 November 2013, long before it reported the suspicion to the police in July 2014.

49.For HSB, it suspended the accounts of the 1^st applicant shortly after receiving the ‘no consent’ letter.  Be that as it may, I anticipate HSB would refuse instructions of both applicants based on their suspicion even without the ‘no consent’ letter.  As stressed in the affidavit of Mr Tam Heung Wing, HSB was entitled to refuse the instructions of both applicants on the authority of the expressed and implied terms of the agreements.[19] 

50.In my view, financial institutions like HSB and BEA would monitor activities in their customers’ accounts and take steps to protect the interest of the bank.  They would refuse instructions from their customers and withhold the suspicious accounts on their own initiative.  The ‘no consent’ letter, which is often issued subsequent to the disclosure, is not a prerequisite.  

51.Apart from financial institutions, there could be people who may hold or control suspicious property under other circumstances.  If these people disclose the suspicious property to an authorised officer under s 25A(1), they must have the requisite knowledge or suspicion.  I am sure they would not further deal with the property after disclosure as it may amount to an offence under s 25(1). The dealing also contradicts their knowledge or suspicion.  The ‘no consent’ letter is not a prerequisite for the decision of these people.  

52.In my judgment, s 25A(2)(a) does not operate to withhold the accounts or property of a suspect.  It only creates a defence for further dealings with the property after disclosure.  This ensures that the further dealing would not prejudice the investigation.  Certainly, it remains for the financial institutions to decide whether to honour the instructions of their customers despite their suspicion and the disclosure. 

53.Mr McCoy referred me to the case of The Chief Officer, Customs & Excise, Immigration & Nationality Service v Garnet Investment Ltd.[20]  The Court of Appeal in Guernsey considered the consent scheme under s 39(3) of the Proceeds of Crime Law in Guernsey.  That section was substantially the same as s 25A OSCO.  The central argument by the appellant in that case was that s 39(3) permitted the police to freeze funds suspected of being proceeds of a crime to facilitate subsequent applications of a restraint order or confiscation order.  

54.After reviewing the legislative scheme, Montgomerry JA concluded:

“39 …..In our opinion the principal purpose of the consent regime was to provide an opportunity to the police to give an exemption from criminal liability by consent but only where it was in the interests of law enforcement to do so; it was not to create an informal mechanism to be used by the police for freezing funds…..

41 In our judgment, it is not the FIS (Financial Intelligence Service) that is denying Garnet access to its property and preventing judicial oversight, it is the impact of the width of the criminal law and its chilling effect upon the person holding the fund, namely BNP.” 

55.I agree with the observation of Montgomerry JA.  For the analysis above, the “no consent regime” under s 25A(2)(a) does not operate to freeze suspicious property.  Articles 6 and 105 of the Basic Law are not engaged.  I need not proceed to the other stages of analysis set out in Ng Po On.[21] 

56.Except when a person has knowledge, the law only requires ‘suspicion’ before he should make a disclosure which triggers the “no consent regime”.  At this stage, it is not sufficient to support a restraint order which requires ‘reasonable grounds to believe that a person has benefited from a specified offence’.  There may need to be further investigation before a restraint order can be made. 

57.Mr Shieh pointed out that the police could extend the ‘no consent’ letter indefinitely.  He also criticised that there is no compensation to the owner of the suspicious property if the investigation turned out to be fruitless. 

Time limit ̶̶ ̶ “no consent regime”

58.It is true that s 25A does not stipulate any time limit for the “no consent regime”.  Theoretically, the police can extend the ‘no consent’ letter for an indefinite period.  

59.The 3^rd respondent has filed an affirmation explaining the internal guidelines on the operation of the “no consent regime”.[22]  In gist, when the JFIU receives a STR, it will refer the STR to an investigation unit for action.  The Superintendant of the investigation unit would decide whether a ‘no consent’ letter is warranted.  

60.Relevant factors for consideration include the nature of the offence; prospect of a conviction; value of proceeds and realizable property; reasonable likelihood of obtaining a restraint order; reasonable likelihood of obtaining an injunction by the victim and the preservation of proceeds of crime for confiscation. 

61.Once a ‘no consent’ letter is issued through the JFIU, its extension would be reviewed by the Superintendant of the investigation unit on a monthly basis.  If the aggregate extension exceeds three months, the Formation Commander[23] will be responsible to review the situation on a monthly basis. 

62.Under normal circumstances, a ‘no consent’ letter should not exceed 6 months.  In exceptional cases, the Formation Commander will review the situation critically and consult the Department of Justice for legal advice.  

63.Though of no legal effect, the above guidelines are sufficient safeguard to ensure that the “no consent regime” operates fairly.  In the affirmation of Senior Superintendant Yuen Yuk Kin, some records of the review are exhibited.  It shows that from January 2013 to March 2015, the “no consent regime” in relation to the applicants was reviewed monthly.[24]  This supports the 3^rd respondents’ affirmation that when the aggregate extension exceeds three months, the Formation Commander will review the situation on a monthly basis. 

64.One could always query whether the police would strictly observe the guidelines.  In my view, in case of any grievance, the owner of the property can always sue the financial institution or person holding the suspicious property. In that event, the court may look into the matter in detail.  

65.This was exactly what the applicants had done on 7 July 2014 when they take out an action against HSB and BEA in HCMP 1626/2014.  By then, I am sure the applicants knew about the ‘no consent’ letter as HSB was authorised to inform any person who made enquiry to contact the officer-in-charge.[25] 

66.So far, there is no updated information before this court about the progress of HCMP 1626/2014. 

67.In addition, the applicants may also challenge the decision of the police concerning the “no consent regime” by way of Judicial Review. 

68.In Guernsey[26], the Court of Appeal of Guernsey agreed with the reasoning of the Court of Appeal in England in R (oao UMBS Online Ltd) v SOCA [27].  The latter held that judicial review is available in relation to a consent decision notwithstanding the existence of a concurrent right to bring a civil claim. 

69.In the latter case[28], the Court of Appeal in England was invited to consider whether the bank, which made the disclosure, was the only party entitled to judicial review the refusal of consent by SOCA (Serious Organised Crime Agency).  The Court of Appeal ruled that:

“Nothing in the Act requires the potential offender under section 328 to be responsible, and the only one responsible, for seeking a review of the refusal of consent. A request from the person directly affected by the freezing of the account must trigger the duty to look at the matter again. It is absurd for SOCA to suggest that they can only act on a request from the bank. The bank may no longer be interested in the matter. The bank has done its duty by reporting its suspicion and now it may simply sit on its hands and take care not to operate the account until the expiry of the moratorium. It is not directly affected but its customer is and the customers of the customer are. They are entitled to ask SOCA to review the matter and SOCA are obliged to do so.” (Emphasis added)

70.Similar concern was raised concerning the propriety of SOCA in the “no consent regime” in K Ltd v NatWest.  In giving judgment for the Court of Appeal, Longmore LJ reiterated that this could be resolved by way of judicial review.

“Even so the terms of the 2002 Act have, not surprisingly, given rise to concern. Judge Norris QC, sitting as a judge of the High Court in Birmingham District Registry on 10 February 2006, in New Bridge Holdings Ltd v Barclays Bank plc (unreported), has suggested that one way forward might be:

“to provide for some procedure whereby the arbitrary and capricious exercise of power should be prevented by the court being told, in confidence by the relevant authority, whether or not an investigation is in progress and the general nature of that investigation, so that the court could form a view-a view as to the likely success of the applicant at trial in obtaining the relief he seeks or the bank committing an offence if it makes the transfer without the relevant consent.”

I fear that I do not think it would be satisfactory or acceptable for the Serious Organised Crime Agency to communicate privately to the court without the court being able to communicate to the claimant. That would not be open justice. In so far as Judge Norris QC was concerned about arbitrary or capricious exercise of power by the Serious Organised Crime Agency (or any other relevant authority) that can be catered for by judicial review…..”[29] (Emphasis added)

71.In my judgment, similar reasoning applies to the situation here.  Nothing in OSCO limits the financial institution making the disclosure to be the only party entitled to judicial review the “no consent regime”.  The applicants are entitled to do so as they are directly affected.  

72.For the above reasons, I am of the view that there are sufficient safeguard to ensure reasonable time limit in the “no consent regime”.  The risk suggested by Mr Shieh is more apparent than real. 

Compensation

73.Under s 29 OSCO, compensation may be granted to a person aggrieved by the investigation or prosecution under the ordinance.  Section 29(1) governs those who are acquitted or not prosecuted.  This is not our prime concern. 

74.Section 29(4) is relevant to the argument of Mr Shieh as it governs the situation where there is a disclosure but no proceedings are instituted against any person.  This section covers compensation for the period from the issue of the ‘no consent’ letter to its termination.  

75.For this period, s 29(5) allows the Court of First Instance to grant compensation to a person who suffered loss only because of some serious default by those concerned in the investigation or prosecution.  The serious default had to be committed during the investigation or prosecution of a specified offence or offences. 

76.In my view, where there is a disclosure under s 25A(1), the consequential investigation invariably concerns an offence under s 25 OSCO which is a specified offence. Certainly, there could be a combination of other specified offences.  

77.In fact, Mr MJ Matthews was interviewed under caution in February 2014 for an offence under s 25 OSCO.[30]  Although he was first arrested in November 2013 for an offence concerning pyramid scheme which is not a specified offence, the circumstances indicated that he was all along investigated for an offence under s 25 OSCO.  In case he suffered loss because of the investigation, he could apply for compensation under s 29 OSCO provided the conditions under s 29(5) are satisfied. 

78.Having said so, nothing in s 29 or OSCO precludes other civil action against the police or the financial institutions for damages arising out of their act in relation to this case.

Less stringent consent regime in UK

79.Mr Shieh pointed out that in UK, the police must decide whether to give consent in 7 days after a disclosure.  Failing which consent is deemed to be given.  Where consent is refused within the 7-day-period, the refusal will automatically expire in 31 days.[31]  Mr Shieh stresses that the consent regime in UK strikes a precise balance of conflicting interests.[32]  In Hong Kong, there is no such time limit under OSCO.  The stringent power is unnecessary and disproportionate even for law enforcement and crime prevention. 

80.Mr McCoy argues that the present model of time limit in UK does not necessary mean that the model under OSCO affords less protection or infringes any rights of a suspect. 

81.It may minimise dispute if time limits are set out in the law.  This however is a matter of social choice after balancing the rights of an individual and the public interest in crime prevention and law enforcement.  Ultimately, it is the decision of the Legislative Council.  It is impossible for this court to decide what is the appropriate time limit. 

82.Even if a court ventures to imply a reasonable time requirement under s 25A(2), it cannot assist very much as what is reasonable depends on many factors and individual case.  In fact, what is reasonable must be decided by way of judicial proceedings on a case by case basis.  The question boils down to whether there is sufficient judicial oversight despite there is no clear time limit.  

83.In Shah and another v HSBC Private Bank (UK) Ltd,[33] in allowing an appeal by the customer against summary judgment, the Court of Appeal ruled that the bank was required to prove the important fact of suspicion in the ordinary way at trial by first making relevant disclosure and then calling either primary or secondary evidence from relevant witnesses.  It cannot rely on a witness statement by its legal adviser as the tipping off provision under s 333 of the Proceeds of Crime Act 2002 was no longer relevant at the time of the trial.[34]

84.In commenting on judicial oversight on executive actions in the context of the Proceeds of Crime Act 2002, Longmore LJ stressed that:

“The normal procedures of the court are not to be sidestepped merely because Parliament has enacted stringent measures to inhibit the notorious evil of money laundering, unless there is express statutory provision to that effect.”[35]

85.The above echoes the comment of Sedley LJ in an earlier case of R (UMBS Online Ltd) v Serious Organised Crime Agency[36],

“…..Although the statutory powers can intrude heavily, and sometimes ruinously, into civil rights and obligations, the supervisory role which the court would otherwise have is limited by its primary obligation to give effect to Parliament's clearly expressed intentions.  But, except where the statute prevents it, the scheme must also accommodate what Byles J in Cooper v Wandsworth Board of Works (1863) 14 CBNS 180, 194, called “the justice of the common law”.  That is the duality we have sought to recognise in deciding this case.” 

86.I agree with their Lordships.  There is nothing under OSCO or other law which exclude judicial supervision in this area. 

87.As analysed above, the “no consent regime” is amenable to judicial review.  The suspicion of the financial institutions and their consequential acts may be challenged by customers under civil law.  In my view, stringent though the “no consent regime” may be, it is subject to judicial supervision.  The rights of a person affected by the “no consent regime” are adequately protected.

Access to court

88.Mr Shieh argues that in the absence of time limit at different stages, coupled with the anti-tipping off provision under s 25A(5)[37], there is no effective remedy or timely access to courts for challenging the “no consent regime”. 

89.I have already concluded that the “no consent regime”, the financial institution’s decision to withhold customers’ accounts and its suspicion are subject to judicial scrutiny.  I need not repeat here. 

90.The fact that a financial institution may have a defence under s 25A(3)[38] is neither here nor there.  It is for the trial court to consider the evidence adduced.  Before the trial court’s decision, one should not easily jump to the conclusion that the financial institution must win whatever the facts turn out to be.[39] 

91.Further, s 26(2)(b) empowers the court to allow a witness to reveal the disclosure and the identity of the person making the disclosure in the interest of justice.  This enables a party to call the right person for cross-examination in a trial.

92.In all, I do not accept that access to court is denied under OSCO or other ordinances. 

93.Given the above, I rule that s 25(1) and s 25A(2)(a) are not unconstitutional. 

Fact-specific challenge

94.Mr Shieh argues that even if s 25(1) is not unconstitutional per se, given the following facts, the decision of the police to refuse consent is unlawful: 

a The respondents are using the “no consent regime” to freeze the applicants’ accounts.  There was no right for compensation under s 29. 

b The respondents failed to take into account the extent of the financial damage suffered by the applicants. 

c The respondents failed to produce evidence to show that they have seriously considered the applicants’ case.

95.Mr Shieh also argues that the refusal of consent in all circumstances was unreasonable and irrational. 

96.Mr McCoy points out that Article 10 of the Hong Kong Bill of Rights is engaged when there is a “determination” of a criminal charge against a person or his rights and obligations in a suit at law.  A decision of the “no consent regime” is not a “determination” under Article 10.  

97.The courts in civil and criminal proceedings will ensure that the applicants have a fair trial. 

98.The reason for the ‘no consent’ letter was obvious. There was ongoing belief that the funds in the applicants’ accounts represent proceeds of a crime.  Whether the funds in those accounts are proceeds of a crime should be decided in the criminal trial.  A court in judicial review proceedings should be slow to interfere with the ongoing criminal investigation.  The grievances of Mr MJ Matthews could be resolved in other appropriate forum. 

99.I have ruled that the primary aim of the “no consent regime” under s 25A(2)(a) was not to freeze the property of the applicants.  It just ensures that any further dealing of the funds in the accounts would not prejudice the ongoing investigation.  It was not used to bypass the procedures for a restraint order. 

100.In the affirmation filed by Detective Senior Inspector Cheng Sze Wai of CCB[40], the business model of the 1^st applicant was explained in detail.  A pamphlet was exhibited demonstrating how bonus could be earned by recruiting other members.[41]  

101.In short, the 1^st applicant provides cloud based Internet software packages by monthly subscription.  A member can earn ‘commercial bonus’ when others purchase the Internet software packages through him.  When a member introduces new members to form a team[42], the former will be entitled to ‘team bonus’ depending on the number of packages purchased in the team.  The higher the level in the team, the more ‘team bonus’. The ‘team bonus’ may range from $600 to $234,000.  Depending on the number of new members introduced and the number of packages purchased, members are classified into ‘bronze’, ‘silver’, ‘gold’ and ‘platinum’ members.  A successful member may also be entitled to ‘share bonus’.  A member may also earn bonus points through ‘Profit Sharing Program’ which would entitle him to further bonus. 

102.Inspector Cheng had reasonable suspicion that this is a pyramid scheme contrary to PSPO.  The suspected proceeds were deposited in the accounts of the applicants with HSB. 

103.Inspector Cheng pointed out that there were about 49,000 applicants for membership.  They were from different provinces of China.  The main ones were Guangdong, Guangxi and Zhejiang. 

104.Financial analysis revealed that from 2012—2013, there were 2040 deposits totalling HK$680 million and 1926 withdraws/transfers totalling HK$ 497 million in the applicants account with HSB.  In response to a production order, the applicants could only produce bank statements with no subscriber record or account ledgers.  

105.Given the circumstances, Inspector Cheng concluded that the ‘no consent’ letter was justified.  

106.Senior Superintendant Yuen Yuk Kin is the head of fraud section of CCB.  He oversees the review of the ‘no consent’ letter in this case.  In his affirmation dated 10 April 2015, he explained the following:

a The ‘no consent’ letter was reviewed by Superintendant Cheng Hung in the first 3 months.  After that, the situation was reviewed by Chief Superintendant Wong and himself on a monthly basis.  He produced memos from CCB to JFIU recommending continuation of the ‘no consent’ letter.[43]

b There was constant liaison with Department of Justice for legal advice with a view to lay charge and apply for a restraint order. 

c The scale of the investigation was large due to the volume of transactions and that applicants spread over several provinces in China. 

d The cross border investigation took longer time. 

e There was little co-operation from Mr MJ Matthews in providing necessary business records such as ledgers of the 1^st applicant. 

f This was one of the largest pyramid sales case investigated in Hong Kong. 

107.In the affirmation of the 3^rd respondent, he explained the operation of the “no consent regime” and the internal guidelines. He also confirmed that there was constant liaison between JFIU and CCB in this case. 

108.I have read the affirmation of Mr MJ Matthews dated 1 June 2015, I address his queries as follows:

a He pointed out that given the complexity of this case as the officers claimed in their affirmations, the police could not have decided on 6 November 2013 that a “no consent letter” was justified.  

i On 1 November 2013, there was the newspaper coverage.  The police made a preliminary enquiry of the background of the 1^st applicant and learned about the suspected pyramid scheme.  

ii On 4 November, the police had interviewed several applicants and had information about the seminar in the office of 1^st applicant.  

iii On 6 November, the police searched the office of 1^st applicant locating about 50,000 completed application forms.  On the same day, HSB filed a STR in relation to the accounts of both applicants.  

iv Given these events, I am satisfied that the police had suspicion to justify a ‘no consent’ letter. 

v Certainly, the further investigation was complicated given the scale of the alleged scheme.  It uncovered more information to support the initial suspicion. 

b He criticised that there was no mention of the legal advice by the Department of Justice in the affirmation of Senior Inspector Cheng.  In my view, this kind of information is usually not disclosed as it is privileged and sensitive.  I do not think it is relevant here.

c There was no evidence that the 1^st applicant used its business as a façade to launder crime proceeds.  In my view, Mr Matthews fails to appreciate that the business itself may be a crime in Hong Kong.  Any profit/benefit arising out of the business may be proceeds of a crime.  Anyone dealing with the proceeds in the account of the 1^st applicant may commit an offence under s 25(1) OSCO if he has the requisite intent. 

d Certainly, Mr Matthews may exercise his right of silence.  The point raised by the police about lack of co-operation was mainly about business records such as ledgers of 1^st applicant. This contributed to additional difficulty in their investigation. 

109.I appreciate there are information which may not be disclosed in the affirmations of the police because of the ongoing investigation.  However, I am satisfied that on the information so far before me, there was no indication that the respondents have acted unreasonably.  In my view, they have taken into account relevant factors.  The initial ‘no consent’ letter and its subsequent extension are justified.  They are not Wednesbury unreasonable.

Conclusion

110.Given the above, I dismiss the application of both applicants.

111.I make an order nisi that costs of this application be to the respondents.  This order shall become absolute 14 days from the date of this judgment unless any of the parties applies by summons for variation. 

Mr Paul Shieh SC, leading Mr Abraham Chan, instructed by Haldanes, for the 1^st and 2^nd applicants

Mr Gerard McCoy SC leading Mr Albert Wong, instructed by Department of Justice, for the 1^st ,2^nd and 3^rd respondents