CFA’s reformulation of the test for money laundering offence

Previously we reported on the two important Court of Final Appeal (CFA) cases of HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778 and HKSAR v Yeung Ka Sing Carson (2016) 19 HKCFAR 279 in relation to the money laundering offence under s.25(1) of the Organized and Serious Crimes Ordinance (Cap.455) (OSCO).  In those cases, the CFA laid down important principles for construing the meaning of “reasonable grounds to believe” in that section.

Subsequent to the above two decisions, on 5 December 2019, the CFA handed down another landmark judgment in HKSAR v Harjani Haresh Murlidhar (FACC 17/2018) (Judgment) which further clarified and reformulated the test for determining if a person has “reasonable grounds to believe” the property represents proceeds of an indictable offence.  In addition, the CFA elaborated on the relationship between s.159A of the Crimes Ordinance (Cap. 200) (CO), the conspiracy offence, and s.25(1) of OSCO, the substantive money laundering offence.

There have been quite a number of occasions in recent years, of which the present case is one, in which the CFA has seen fit to comment on the ambit of s.25 of OSCO, demonstrating the growing importance of these provisions and the difficulties of setting a clear scope for them.

In summary, the test, as reformulated now by the CFA, for determining the “reasonable grounds to believe” is as follows:

It is now decided by the CFA that a defendant can still be convicted despite a genuinely held belief that the subject proceeds are not tainted, if that belief is proved to be unreasonable by objective standards with reference to the defendant’s knowledge of the facts and circumstances.

Background

The event related to an e-mail fraud.  Fraudsters hacked into e-mails concerning a contract to supply fertilizer which required the buyer to pay the seller 5% of the contract price as a deposit.  The fraudsters tricked the buyer into paying the deposit instead to a bank account held by the defendant’s company. The defendant was arrested when he made withdrawals from his company account in Hong Kong and was charged with the offence of conspiracy to deal with property known or believed to represent the proceeds of an indictable offence, or commonly known as conspiracy to commit money laundering, contrary to ss.159A and 159C of CO and s.25(1) and (3) of OSCO.

At trial, the defendant did not dispute that there was an e-mail fraud. The thrust of his defence was that he was a legitimate businessman and, when dealing with the fraudster, he believed that the latter was an agent acting bona fide on behalf of the principals in the fertilizer deal with the funds in question deriving form a genuine commercial transaction.

The trial judge relied upon the CFA judgment in Pang Hung Fai, interpreting the effect of it as requiring a substantial objective element when deciding whether a person had “reasonable grounds to believe” that the property represents the proceeds of an indictable offence.  He found that although the defendant did not know that the property represented proceeds of an offence, he turned a blind eye to the facts and had reasonable grounds to believe that the money was tainted.  He held that such level of culpability sufficed to found the defendant’s guilt of the conspiracy offence.  The defendant was ultimately sentenced to prison for 3 years and 9 months.

On appeal, the Court of Appeal (CA) applied the CFA judgement in Yeung Ka Sing Carson and held that a genuinely held belief that the money was not tainted would secure an acquittal even if the belief was unreasonable by objective standards.  The CA nonetheless upheld the conviction on the basis of the judge’s finding that the defendant’s belief was not only unreasonable but was simply untrue.

Questions of law for determination

The defendant appealed against his conviction to the CFA.  The CFA dismissed the appeal and determined several questions of law in relation to the offence:-

The test for determining “having reasonable grounds to believe that the property is tainted”

The CFA re-affirmed the correctness of the test propounded in Seng Yuet Fong v HKSAR[1999] 2 HKC 833 (which had been endorsed in both CFA decisions of Pang Hung Fai and Yeung Ka Sing Carson) in determining whether a defendant has reasonable grounds to believe that the money in question is tainted for the purposes of the (reasonable grounds limb) of the money laundering offence in s.25(1) of OSCO.

It will be recalled that the test in Seng Yuet Fong laid down by the CFA was 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.”

The proper interpretation is that the test has a subjective and an objective limb. In the interests of clarity, the CFA reformulated the test as follows:

In other words, unlike other criminal offences requiring proof of a defendant’s subjective belief or mens rea as the basis for determining his culpability, a defendant’s actual belief is not determinative of the question of guilt under the reasonable grounds limb of the money laundering offence.  The CFA made it clear that where the defendant puts forward a defence that he believed that the money in question is clean, it is the facts and circumstances that the defendant claims to have led him to that belief that are significant, rather than the belief itself. If a reasonable person who shared the defendant’s knowledge of the relevant facts and circumstances would be bound to believe that the money is so tainted, the offence is still made out even though the defendant may have subjectively believed otherwise (i.e., believed that the money was clean).  Hence, the CFA took the view that the CA fell into error in giving too much weight to the defendant’s subjective belief as being capable of an acquittal.

The CFA said that the aforesaid scenario would be a rare case and is only likely to arise in circumstances where it is apparent that the defendant lacks the reasoning abilities of a normal person.  In such case, the defendant’s actual subjective belief is only relevant to mitigation (para. 33 of the Judgment).

Relevance of “wilful blindness” in the test

“Wilful blindness” essentially means that a defendant is treated as having the required knowledge if he suspects the likely truth but deliberately avoids making the enquiries that would have given him the knowledge of the truth.

The CFA found that this concept is not very relevant in determining whether the test is met since “having reasonable grounds to believe” is the statutory alternative to having knowledge for the purposes of the s.25 offence.  The CFA therefore found it not necessary or helpful to apply the concept to prove the offence.

Relationship between s.159A CO and s.25 OSCO

The CFA concluded that a person can be guilty of conspiracy to commit an offence under s.25 when he/she agrees and intends with others to deal with a property and at the time of the conspiratorial agreement he/she knew or had reasonable grounds to believe that that property in whole or in part represents or will represent the proceeds of an indictable offence, even if it does not actually materialise in the end.

Commentary

It is unclear whether the current test, as now reformulated by the CFA, will be the final one.  The difficulties in setting a clear scope for the “reasonable grounds limb” of s.25 of OSCO is apparent.  New sets of facts will continue to arise such that the CFA may find it necessary to opine on the scope of the offence.

In Pang Hung Fai, Spigelman NPJ (with which all members of the CFA agreed) stated that the simple test in Seng Yuet Fong on most occasions will be all that is required (para. 55 of Pang) and that test retains the statutory word “grounds”, avoids the “subjective” terminology and any contrast with “objective” terminology and focuses attention on the accused (para. 53 of Pang).

It appears that the CFA in Harjani has gone back to the subjective terminology and contrasted it with the objective terminology.

While the CFA said it is a rare case (para. 33 of the Judgment) that a court would conclude that a reasonable person would have believed that the property was tainted but nonetheless accepts that the defendant did not have this belief and this kind of case is only likely to arise when such defendant lacks the reasoning abilities of a normal person, the CFA maintained that such defendant (who lacks the reasoning abilities of a normal person) should still be convicted, but his actual belief could be a mitigating factor at sentencing.  One may question if this approach is casting a net which is too wide and inconsistent with the fundamental principles of criminal law that criminal liability is only attached when the defendant has the requisite mental element of the offence (mens rea).  Spigelman NPJ in Pang Hung Fai stated that “by the imposition of the same penalty, the mental element of the “reasonable grounds” alternative is regarded as being at the same level of moral obloquy as actual knowledge.” (para. 77 of Pang).  If a person indeed lacks the reasoning abilities of a normal person and genuinely believes that the money was not tainted, why should he be convicted and subject to, potentially, the same level of penalty as actual knowledge?  Stock VP in the Court of Appeal of Pang Hung Fai was concerned that a morally blameless person may find himself convicted of an offence (para. 211 of Pang in CA).  Spigelman NPJ responded that there is a significant mens rea in the second limb of the offence and there is a strong element of moral blame (para. 57 of Pang).

The reformulated test in Harjani refers to a reasonable person who shared the defendant’s “knowledge”. However, it is unclear if the defendant’s “knowledge” is also meant to encapsulate the defendant’s reasoning abilities, belief, perception and prejudices.  Should the hypothetical reasonable person also share the defendant’s reasoning abilities, belief, perception and prejudices when assessing the defendant’s guilt?

It remains to be seen if the reformulated test for the reasonable grounds limb of the money laundering offence in s.25(1) of OSCO will provide a workable formulation that helps the jury and lower courts decide the verdict going forward.  Perhaps simplicity is the key and the test in Seng Yuet Fong is all that is required:

“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.”

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