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HKSAR v Pang Hung Fai: An approach tempered with proportionality

hong kong 864884 640Justin Bong-Kwan discusses the modified approach put forward by the Hong Kong Court of Final Appeal in HKSAR v Pang Hung Fai (FACC No. 8 of 2013) towards establishing the necessary mens rea for money laundering offences.

Speed Read

Prior to the judgment in HKSAR v Pang Hung Fai (FACC No. 8 of 2013), the approach of the courts towards establishing the alternative mens rea of actual knowledge for dealing with the proceeds of crime has been a two-pronged objective and subjective test. However, this test fails to give sufficient regard to the accused’s evaluation and perception of the factual circumstances. The Hong Kong Court of Final Appeal emphasised the importance of maintaining the focus of inquiry on the accused when determining whether there are reasonable grounds to believe that the money dealt with represents proceeds of crime, and it is submitted that the new test put forward by the Court of Final Appeal introduces a proportionate approach to money laundering.

Commentary

Irrespective of jurisdiction, money laundering is perceived as a serious offence since it enables criminals to benefit from profits derived from illegal activities by legitimising these proceeds. For an international financial hub such as Hong Kong, however, money laundering has wider implications as a proliferation of such activities may seriously damage its reputation as a legitimate place to conduct commercial activities. Therefore, it is imperative that money laundering is met with a heavy hand. Indeed, Woo VP in HKSAR v XU Xia Li (2004) 4 HKC 16, noted that, ‘[i]f money-laundering activities were allowed to be carried out in Hong Kong with impunity or treated lightly with minor penalties, it would mar Hong Kong’s reputation as a world-class financial and banking centre.’ [1] However, hefty penalties are inconsequential in the absence of a cogent approach towards the construction and interpretation of money laundering offences. Hence, the decision in HKSAR v Pang Hung Fai (FACC No. 8 of 2013) is particularly relevant to and indicative of the effectiveness of Hong Kong’s efforts to clamp down on money laundering.   

In Pang Hung Fai, the Hong Kong Court of Final Appeal considered, for the purposes of s 25(1) of the Organised and Serious Crimes Ordinance (Cap. 455) the correct interpretation and application of the phrase ‘having reasonable grounds to believe’ in determining whether a person is guilty of dealing with the proceeds of an indictable offence. The section 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.’ In the case, the appellant, Mr Pang, was charged with committing an offence under s 25 for allowing around HK$14 million representing the proceeds of a fraud committed by Mr Kwok to be transferred from two mainland Chinese individuals into Mr Pang’s company accounts at the request of Mr Kwok, and also for subsequently remitting the money to a company controlled by Mr Kwok.

Based on the factual circumstances and the quantum of the sum involved, the prosecution submitted that Mr Pang had reasonable grounds to believe that the property represented the proceeds of an indictable offence. However, in his defence, Mr Pang argued that he implicitly trusted Mr Kwok and had no reason to suspect otherwise. Not only had the two been friends and business associates for 30 years, but they had also occasionally given each other unsecured loans without interest in the past when either one of them encountered problems with cash flow. Therefore, when asked by Mr Kwok to deal with the HK$14 million in question, Mr Pang argued that in light of their mutual trust it was reasonable that he did so without questioning the matter further. The Court of Appeal accepted that Mr Pang did not have actual knowledge that he was dealing with the proceeds of an indictable offence, but nonetheless held that he had ‘reasonable grounds to believe’ that he was handling the proceeds of an indictable offence and thus upheld his conviction.

However, the Court of Final Appeal unanimously quashed the conviction after reconsidering Mr Pang’s arguments and the relevant facts, in particular, Mr Pang’s perception and evaluation of the relevant facts. It was held that the Court of Appeal had failed to take into account Mr Pang’s perception and evaluation of the relevant facts since it did not give weight to the mutual trust that existed between Mr Pang and Mr Kwok. In His Lordship’s judgment, Mr Justice Spigelman NPJ, echoing Chan PJ in HKSAR v Yan Suiling (2012) 15 HKCFAR 146, reasoned that it is important to maintain the focus of inquiry on the accused when determining whether the grounds being relied upon by the accused are reasonable, and criticized the labyrinthine nature of the approach adopted by the Court of Appeal. Conventionally, the Court of Appeal applied a two-pronged test consisting of an objective stage and a subjective stage. As elucidated by Mayo JA in HKSAR v Shing Siu Ming (1999) 2 HKC 818, the court must, in light of the relevant facts, determine whether there are grounds for an ordinary person in the community to believe that the property in question represented the proceeds of crime and if so, whether such grounds were known to the accused. In effect, the test was whether a reasonable person “could believe” that the property in question represented the proceeds of crime. However, the Court of Final Appeal was of the view that such a standard was too low for the alternative mens rea of actual knowledge in the context of an indictable offence, and that a “would believe” test would therefore be more appropriate.

It is submitted that the Court of Final Appeal’s focus on actual rather than presumptive circumstances in dealing with money laundering creates a sensible import of proportion by purporting to narrow the scope of the offence. Such an approach seems to be more in line with the approach adopted by the Proceeds of Crime Act 2002 in the sense that there is a focus on the accused’s evaluation and perception of the facts. Under s 328(1) of the 2002 Act, ‘a person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects (emphasis added) facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.’ However, the manner in which the English courts have interpreted ‘suspicion’ has also led to a somewhat draconian approach. In R v Da Silva [2006] EWCA Crim 1654, the court interpreted, for the purpose of s 93A of the Criminal Justice Act 1988, ‘suspicion’ as meaning that the accused must believe that there is a possibility that the relevant facts existed, and that this possibility has to be more than fanciful. Yet, it is not a requirement that there be clear suspicion or reasonable grounds for suspicion, which arguably sets a low bar for establishing suspicion for such a serious offence. Indeed, this approach was confirmed in Shah v HSBC Private Bank (UK) Ltd [2010] EWCA Civ 31. Perhaps the reasoning in Pang Hung Fai regarding the standard to be applied to an alternative mens rea to actual knowledge may be of interest to the English Courts if the interpretation of suspicion is to be reconsidered.

About the Author

Justin Bong-Kwan read law at St Mary’s College, University of Durham. The following year he obtained a LLM in Banking Law and Financial Regulation from the London School of Economics and Political Science with an emphasis on corporate and financial crime. Justin is starting pupillage in December 2016 to qualify as a practising barrister in Hong Kong.

 [1] At 23 (Woo VP).

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The views expressed in this article represent those of the author and not Bright Line Law.

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