Court of Final Appeal Confirms the Elements of Money Laundering Offence

In the recent case of HKSAR v. Yeung Ka Sing, Carson, FACC No. 5 of 2015, 11 July 2016, the Court of Final Appeal (CFA) dismissed the appeal by the Defendant, the former Birmingham City Football Club Chairman, against his conviction on five counts of money laundering offences.  The CFA has also clarified and confirmed the elements required for the offence. This is the third occasion on which the CFA has considered the ambit and operation of money laundering offences after Pang Hung Fai (2014) 17 HKCFAR 778 and Li Kwok Cheung George (2014) 17 HKCFAR 319. The CFA’s acceptance of yet another appeal on money laundering offences highlights the growing importance of these offences.

Background

Yeung was convicted on five counts of money laundering offences regarding the dealing of sums of money in five bank accounts between 2001 and 2007 totalling over HK$700 million, contravening section 25(1) of the Organized and Serious Crimes Ordinance (Cap. 455) (OSCO) and was sentenced to six years’ imprisonment by the District Court in March 2014.

The prosecution did not base its case on the “knowing” limb of the offence (as it is generally more difficult to prove that the defendant knew that the property dealt with represents the proceeds of an indictable offence). In addition, the prosecution would need to prove that the property dealt with actually represents the proceeds of an indictable offence: R v Montila [2004] 1 WLR 3141). Yeung’s prosecution was on the basis that he must have had reasonable grounds to believe that the monies were the proceeds of an indictable offence. The trial judge disbelieved Yeung’s explanation and held that Yeung had reasonable grounds to believe that the monies in the five accounts were the proceeds of an indictable offence.

Yeung appealed against his conviction to the Court of Appeal and the appeal was dismissed on 13 May 2015. He then appealed to the CFA and the appeal was again dismissed on 11 July 2016.

The main issues considered by the CFA included:

1. On a charge of dealing with proceeds of crime contrary to section 25(1) of the OSCO, whether it is necessary for the prosecution to prove that the proceeds being dealt with were in fact proceeds of an indictable offence (the Proceeds Issue); and
2. In considering the mental element of a charge contrary to section 25(1) of OSCO, to what extent does a trial judge need to make positive findings as to a defendant’s belief, thoughts and intentions at the material time even though the judge rejects the defendant’s testimony (the Mental Element Issue).

The Proceeds Issue

The Defendant asked the Court to overturn and depart from its previous ruling that it is not necessary to prove that the property dealt with by the defendant in fact represents the proceeds of an indictable offence.

After considering the previous rulings and the legislative history of section 25 of OSCO, the CFA held and confirmed that it is not necessary for the prosecution to prove that the proceeds being dealt with were in fact proceeds of an indictable offence. This was based on:

1. The legislative intent in relation to the amendment of section 25 of OSCO in 1995 – the CFA found that the amendment was intended to avoid imposing any requirement of proof that the property dealt with actually represents the proceeds of an indictable offence; and
2. Policy reasons – the offence is difficult to prove as the offence is likely to have been committed in more than one jurisdiction outside of Hong Kong and the proceeds are likely to have passed through various layers and transformations in order to be concealed.

The Mental Element Issue

At trial, Yeung testified and gave evidence providing innocent explanations for the funds flowing through his bank accounts and negating any reasonable grounds to believe that the funds were proceeds of crime. The trial judge rejected his testimony. This led to the Mental Element Issue and in particular, in a case where the defendant’s testimony is rejected, whether the judge can “remain oblivious to the defendant’s actual reason(s) for dealing with the specified proceeds in making the finding that the defendant had reasonable grounds to believe that the proceeds he dealt with were proceeds of crime”.

The CFA endorsed the test adopted in its decision in Seng Yuet Fong [1999] 2 HKC 833 at 836 that “To convict, the jury had to find the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.” This involves an assessment of the defendant’s state of mind for:

(i)         an inculpatory purpose, i.e. whether on the reasonable grounds proven to have been available to him, he would have been led to have the requisite belief; and

(ii)       an exculpatory purpose, i.e. whether the defendant’s personal beliefs, perceptions and prejudices, which fit readily within the concept of a “ground”, may be such as to exclude a culpable state of mind.

If the defendant provides no evidence of his beliefs and perceptions etc, the Court is left to draw whatever inferences may be proper, based on the prosecution’s evidence. If the defendant does testify as to his state of mind but is disbelieved, this does not automatically mean that the defendant must be convicted; it remains necessary for the Court to be satisfied that the case against him has been proved beyond reasonable doubt. There is no requirement for the Court to make findings as to the defendant’s belief, thoughts and intentions at the material time in such circumstances.

The CFA also took the opportunity to clarify that in Pang Hung Fai (reported earlier in Deacons’ Newsletter), although Spigelman NPJ said the phrase “having reasonable ground to believe” in s.25(1) could be understood as if it read “ought to have known”, the phrase “ought to have known” is capable of being misunderstood because it is generally taken to connote negligence; and the reformulation should not be followed. The Seng Yuet Fong test (as stated above) is all that is required.

Conclusion

The judgment is useful as it provides important clarification and guidance regarding section 25 of OSCO.

Such clarification includes:

1. In relation to the second limb “having reasonable grounds to believe”, it is not necessary for the prosecution to prove that the property dealt with by the defendant under section 25(1) is the proceeds of an indictable offence;
2. The test regarding the defendant’s mental element is (a) whether the defendant had the requisite reasonable grounds to believe and (b) whether any reasonable person looking at the grounds “would believe” that the property dealt with represents the proceeds of an indictable offence; and
3. In a case where the defendant’s testimony has been rejected, the Court must decide on the evidence which it accepts as to whether the section 25(1) offences are made out beyond reasonable doubt.

The judgment is significant to future prosecutions and appeals under section 25 of OSCO. For instance, in the case of Wu Wing Kit (reported earlier in Deacons’ Newsletter), a re-trial has been ordered by the Court of Appeal after the CFA decision in Pang Hung Fai; no doubt, the re-trial will be considered in the light of the principles clarified by the CFA in this case.

Further, this decision serves as a reminder that any persons should be cautious and alert before and when dealing with money. Due diligence must be conducted, training should be provided to staff and compliance systems should be in place within companies to minimise the risk of money laundering. It is also prudent to report any suspicion immediately in order to immunise oneself under section 25A of OSCO.

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