Introduction

In recent years, banks, multinationals and professional firms have faced increased pressure from regulators in Hong Kong to clamp down on money laundering. Money laundering here is a crime and companies and individuals convicted of money laundering face severe sanctions. In this article, we provide a brief overview of Hong Kong’s anti­money laundering laws both before and after the key decision of Spigelman NPJ in HKSAR v Pang Hung Fai [2014] HKEC 1831 handed down by the Court of Final Appeal (“CFA”) on November 10, 2014.

Money Laundering Laws in Hong Kong: Prior to Pang CFA Decision

The offence of money laundering is set out in s.25 of the Organized and Serious Crimes Ordinance (Cap. 455) (“OSCO”). This provision states that 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.”

Prior to the Pang CFA decision, the elements of s.25 were analyzed in this way:

  1. The word “know”, as used in s.25(1) includes evidence of a person’s involvement with the commission of the indictable offence, or by admission that he knew that the property was proceeds of an indictable offence (Seng Yuet Fong v HKSAR [1999] 2 HKC 833, 836D).
  2. The meaning and application of the second limb “having reasonable grounds to believe” requires (i) proof that there were grounds that a common sense, right thinking member of the community would consider it sufficient to lead a person to believe that the property in whole or in part represented any person’s proceeds of an indictable offence; and (ii) proof that those grounds were known to the defendant (HKSAR v Shing Siu Ming [1999] 2 HKC 818, 825H; HKSAR v Yam Ho Keung (unrep, CACC 555/2001, [2002] HKEC1315)).
  3. The Court of Appeal in HKSAR v Pang Hung Fai [2013] 4 HKC 366 also held that the word “belief” in s.25 of OSCO did not require a high level of certitude or conviction, as belief is something more than suspicion and, implicit in what is said, something less than knowledge. It is not even proof on the balance of probabilities.
  4. The act of “dealing” in the property which is the subject of the offence (HKSAR v Lung Yun Ngan & Another (unrep, CACC 482/2010)) includes “receiving, acquiring, concealing, disguising, disposing of, converting, bringing into or removing from Hong Kong the property or using the property to borrow money or as security (whether by way of charge, mortgage or pledge or otherwise) ”.

Such a broad view of the mens rea element of s.25 has been criticized by many as being “out of whack” with equivalent criminal law principles in other jurisdictions. The Shing Siu Ming case in particular, has often been criticized for creating a test of criminality that is too objectively­oriented and which places insufficient weight on the subjective beliefs of the defendant.

The Pang Decision

Mr. Pang had been convicted by the District Court in 2012 on a charge of dealing with property known or believed to represent proceeds of an indictable offence, contrary to s.25(1) and (3) of the OSCO. He was sentenced to two and a half years’ imprisonment. The Court of Appeal dismissed Pang’s appeal in 2013. On November 10, 2014, the CFA quashed the conviction of the defendant. The Pang CFA decision delivered by Spigelman NPJ is a welcomed one and in our view represents a return to more conventional thinking on the necessary mens rea element in the crime of money laundering.

Pang Hung Fai (“Pang”) owned a successful garment manufacturing business. Mr. Kwok Wing (“Kwok”) was the chairman and a major shareholder of Tack Fat Group International Limited (“Tack Fat”), a public company listed

on the Stock Exchange of Hong Kong. Pang and Kwok had been close friends for over 30 years. On several occasions in the past, they had helped each other with unsecured, interest­free loans on occasion when cash­ flow difficulties arose.

At the request of Kwok, Pang allowed HK$14 million to be transferred from two mainland individuals into a bank account of a Hong Kong company owned and controlled by Pang and remitted the same to a Cambodian company controlled by Kwok 26 days later. Unknown to Pang, Kwok had in fact perpetrated a fraud of stealing about HK$14 million from Tack Fat.

The Hong Kong’s CFA, in quashing Pang’s conviction, restored the importance of Pang’s own state of mind. It was held that the lower courts erred in not taking into account Pang’s perception and evaluation of relevant facts and matters as constituting or contributing to the test of “reasonable grounds to believe”.

Also, in determining whether the defendant's grounds of belief are reasonable, the CFA said test is whether any reasonable person looking at the relevant grounds “would believe” that the property dealt which represents the proceeds of an indictable offence rather than a test of “could believe”. This raises the burden of proof on the prosecution in money laundering cases.

The decision laid down by the CFA in Pang should be viewed positively by banks, corporations and professional firms with operations in Hong Kong. There are other appeals underway at present that may cast further light on the Court’s approach to money laundering in Hong Kong. We shall provide further updates soon.