2010/3/3DOJ1 Lawyers and AML Three Ordinances, Two Duties, And One “ P ” Direction

2010/3/3DOJ2

2010/3/3DOJ3 Introduction What is money laundering? What is money laundering? What is the significance? What is the significance? What are the reporting offences? What are the reporting offences? What are the protections? What are the protections? What about confidentiality? What about confidentiality? What about LPP? What about LPP?

2010/3/3DOJ4 Sources of Law Main Ordinances Others Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) – since 1989 [DTROP] Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) – since 1989 [DTROP] Organized and Serious Crimes Ordinance (Cap. 455) – since 1994 [OSCO] Organized and Serious Crimes Ordinance (Cap. 455) – since 1994 [OSCO] United Nations (Anti- Terrorism Measures) Ordinance (Cap. 575) – since 2002, some provisions not in force United Nations (Anti- Terrorism Measures) Ordinance (Cap. 575) – since 2002, some provisions not in force High Court Rules, O High Court Rules, O Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order (Cap. 405A) (Cap. 405A) Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) Prevention of Bribery Ordinance (Cap. 201) Prevention of Bribery Ordinance (Cap. 201)

2010/3/3DOJ5 SECTION 25 : OSCO –MONEY LAUNDERING “ 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. ”

2010/3/3DOJ6 Interpretation of Section 25 Actus Reus This is dealing in property, any property This is dealing in property, any property Not necessary to prove that the property was in fact proceeds of an actual indictable offence – the status of the property is only relevant to the mens rea Not necessary to prove that the property was in fact proceeds of an actual indictable offence – the status of the property is only relevant to the mens rea (Oei Hengky Wiryo (2007) 10 HKCFAR 98) A person can deal with property which represents proceeds of his own crime A person can deal with property which represents proceeds of his own crime (Lok Kar Win (CFI), leave refused (CFA AC))

2010/3/3DOJ7 Dealing with Property conceal and disguise property to make it look legitimate

2010/3/3DOJ8 Dealing Receiving or acquiring property IF you keep it in the bath or a transfer is received into a bank account

2010/3/3DOJ9 Dealing using property to borrow money, or as security. using property to borrow money, or as security.

2010/3/3DOJ10 Dealing bringing into or removing the property from Hong Kong bringing into or removing the property from Hong Kong

2010/3/3DOJ11 Interpretation of Section 25 Mens Rea Mens Rea Knowing: subjective standard Knowing: subjective standard – believing a state of affairs that is in fact true (Lee Wai–yiu, CACC 100/2006, 7 Jun 2007) – believing a state of affairs that is in fact true (Lee Wai–yiu, CACC 100/2006, 7 Jun 2007)OR Having Reasonable Grounds to Believe: objective standard Having Reasonable Grounds to Believe: objective standard “whether, objectively, reasonable grounds existed for the belief and, if so, whether subjectively the defendant was aware of the existence of those reasonable grounds” : Yam Ho-Keung, CACC 555/2001, 24 Oct 2002.

2010/3/3DOJ12 Elements of the ML Offence Section 25 Mens Rea Not necessary for the prosecution to prove that D actually believed that the property represented the proceeds of an indictable offence (Ma Zhujiang, CACC 491/2005, 20 Aug 2007) Not necessary for the prosecution to prove that D actually believed that the property represented the proceeds of an indictable offence (Ma Zhujiang, CACC 491/2005, 20 Aug 2007) Honest belief as to the innocent status of the property is NOT a defence, if D was aware of the objective grounds. Honest belief as to the innocent status of the property is NOT a defence, if D was aware of the objective grounds. Not necessary to particularize or prove the precise “indictable offence” in charging/proving that D had reasonable grounds to believe (Li Ching, CACC 436/1997, 17 Dec 1997; Lam Hei Kit, FAMC 27/2004, 27 Sept 2004; Chen Zhen Chu, CACC 433/2006, 2 Nov 2007) Not necessary to particularize or prove the precise “indictable offence” in charging/proving that D had reasonable grounds to believe (Li Ching, CACC 436/1997, 17 Dec 1997; Lam Hei Kit, FAMC 27/2004, 27 Sept 2004; Chen Zhen Chu, CACC 433/2006, 2 Nov 2007)

2010/3/3DOJ13 Elements of the ML Offence Section 25 Mens Rea Choi Sui Hey, CACC 277/2007, 31 Oct 2008 “If a person either allows another to use his bank account for the transmission of funds or accepts substantial funds from others which he then remits, without enquiry by him or explanation by the others, to third parties unknown to him then, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account or the funds with which he has dealt represent proceeds of an indictable offence.” (para 20)

2010/3/3DOJ14 Approaches to Money Laundering Self Laundering Self Laundering Laundering for others Laundering for others

2010/3/3DOJ15 Make sure crime does not pay

2010/3/3DOJ16 How to make crime not pay Deny the criminal the fruits of crime, big house, fancy car Deny the criminal the fruits of crime, big house, fancy car Deny him the ability to support his family luxuriously Deny him the ability to support his family luxuriously Deny him the assets to invest in more crime Deny him the assets to invest in more crime

2010/3/3DOJ17 Disclosure of knowledge or suspicion Section 25A(1) OSCO- the reporting offence – summary offence Section 25A(1) OSCO- the reporting offence – summary offence Failing to report to an authorised officer Failing to report to an authorised officer Knowledge or suspicion that any property is or is connected to the proceeds of an indictable offence Knowledge or suspicion that any property is or is connected to the proceeds of an indictable offence Within a reasonable time Within a reasonable time

2010/3/3DOJ18 Relevant Property s.25A(1) in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence was used in connection with; or was used in connection with; or is intended to be used in connection with, is intended to be used in connection with, an indictable offence. an indictable offence.

2010/3/3DOJ19 Mens Rea Only Subjective Only Subjective actual knowledge or suspicion concerning the nature of the property actual knowledge or suspicion concerning the nature of the property no objective qualifier, such as “reasonable” for the alternative mental state of “suspicion” no objective qualifier, such as “reasonable” for the alternative mental state of “suspicion” Suspicion: “there is a possibility, which is more than fanciful, that the relevant facts exist “ - and the suspicion is in some cases settled K Ltd v Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 311 Suspicion: “there is a possibility, which is more than fanciful, that the relevant facts exist “ - and the suspicion is in some cases settled K Ltd v Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 311

2010/3/3DOJ20 Threshold of Suspicion Suspecting property has the quality defined in s.25A(1) falls a long way short of having demonstrable proof that the property is of that quality Suspecting property has the quality defined in s.25A(1) falls a long way short of having demonstrable proof that the property is of that quality What matters is what the defendant thought, not what the reasonable person would have thought in the particular circumstances - Annexure 4 of Practice Direction ‘P’ What matters is what the defendant thought, not what the reasonable person would have thought in the particular circumstances - Annexure 4 of Practice Direction ‘P’

2010/3/3DOJ21 Actus Reus Failing to report in a reasonable time Failing to report in a reasonable time What is reasonable? What is reasonable? Depends on circumstances Depends on circumstances May allow for consultations or obtaining legal advice - Practice Direction ‘P’ May allow for consultations or obtaining legal advice - Practice Direction ‘P’

2010/3/3DOJ22 Reporting to whom Authorised officer- police and customs Authorised officer- police and customs Joint Financial Intelligence Unit (JFIU) Joint Financial Intelligence Unit (JFIU) STREAMS STREAMS Annex 5 & 6 - Practice Direction ‘P’ Annex 5 & 6 - Practice Direction ‘P’

2010/3/3DOJ23 Confidentiality and LPP Disclosure in OSCO and DTROP subject to LPP: OSCO s.2(18) Disclosure in OSCO and DTROP subject to LPP: OSCO s.2(18) Declaration of LPP: OSCO s.2(1) Declaration of LPP: OSCO s.2(1) Advice Privilege Advice Privilege Litigation Privilege Litigation Privilege

2010/3/3DOJ24 LPP Important public and private interest Important public and private interest Advice privilege Advice privilege Negative Examples: Negative Examples: Not conveyancing documents Not conveyancing documents Not client account ledger of client’s money Not client account ledger of client’s money Not correspondence with other lawyers Not correspondence with other lawyers

2010/3/3DOJ25 Advice privilege What is it? What is it? Communications directly seeking or providing advice Communications directly seeking or providing advice Information passed so that advice may be given Information passed so that advice may be given Includes advice on what can be done in a relevant legal context Includes advice on what can be done in a relevant legal context

2010/3/3DOJ26 Litigation privilege Confidential communications in course of litigation or reasonably in prospect of same between Confidential communications in course of litigation or reasonably in prospect of same between Lawyer and client Lawyer and client Lawyer and agent Lawyer and agent Lawyer and third party Lawyer and third party

2010/3/3DOJ27 Litigation Privilege Sole or dominant purpose: Sole or dominant purpose: Seeking or giving advice in relation to litigation Seeking or giving advice in relation to litigation Obtaining evidence to be used in it Obtaining evidence to be used in it Obtaining information leading to obtaining such evidence Obtaining information leading to obtaining such evidence

2010/3/3DOJ28 Crime exception for LPP No LPP for documents forming part of a criminal act No LPP for documents forming part of a criminal act LPP is not displaced until there is prima facie evidence of a fraud or other crime LPP is not displaced until there is prima facie evidence of a fraud or other crime

2010/3/3DOJ29 Protections AML offence: s.25 (1) OSCO AML offence: s.25 (1) OSCO Disclosure protection and offence: s.25A(2) Disclosure protection and offence: s.25A(2) Protection against suit: s.25 (3) Protection against suit: s.25 (3) Offence to disclose the disclosure: s.25 (5) tipping off “any matter likely to prejudice an investigation” Offence to disclose the disclosure: s.25 (5) tipping off “any matter likely to prejudice an investigation”

2010/3/3DOJ30 Section 25A(2) OSCO Disclosure of property suspicion under Disclosure of property suspicion under s. 25A(1) s. 25A(1) Does an act in contravention of s. 25(1) Does an act in contravention of s. 25(1) Disclosure relates to that act Disclosure relates to that act Gain protection if disclose prior to the act and does act with consent of authorised officer Gain protection if disclose prior to the act and does act with consent of authorised officer Protection if disclosure after the act but reasonably soon and on own initiative Protection if disclosure after the act but reasonably soon and on own initiative

2010/3/3DOJ31 S. 25A(2) OSCO - Protection What protection? What protection? Does not commit an offence under s.25(1) - money laundering Does not commit an offence under s.25(1) - money laundering Disclosure must be of every discrete act in relation to the property subject to the original disclosure Disclosure must be of every discrete act in relation to the property subject to the original disclosure

2010/3/3DOJ32 Protecting yourself & the firm Disclosure protects Disclosure protects At your own risk if do not disclose At your own risk if do not disclose Client reality : need fees, need referrals Client reality : need fees, need referrals Practical reality: busy, mind set, Practical reality: busy, mind set, Legal reality: what is knowledge or suspicion Legal reality: what is knowledge or suspicion

2010/3/3DOJ33 Conclusions Difficult area for lawyers Difficult area for lawyers Develop awareness Develop awareness Be mentally prepared to disclose Be mentally prepared to disclose For your own protection and firm’s; and For your own protection and firm’s; and for the wider public interest. for the wider public interest.

2010/3/3DOJ34 Conclusions (Cont’d) Three Ordinances- Three Ordinances- DTROPO, OSCO & UNATMO Duty to report suspicion about property s.25A(2) OSCO Duty to report suspicion about property s.25A(2) OSCO Duty to be aware of the elements of s.25(1) OSCO - money laundering Duty to be aware of the elements of s.25(1) OSCO - money laundering Practice Direction ‘P’- guidance Practice Direction ‘P’- guidance

2010/3/3DOJ35 Thank You Welcome questions Welcome questions Welcome exchange of views and experiences Welcome exchange of views and experiences