Top court rejects "thought crime" defence in money laundering appeal 1

Client Briefing August 2016

Top Hong Kong court rejects "thought crime" defence in money laundering appeal In a judgment dealing with the conviction of the former Birmingham City Football Club chairman Carson Yeung, Hong Kong's Court of Final Appeal reaffirmed that, on a charge of dealing with proceeds of crime contrary to section 25(1) Organised and Serious Crimes Ordinance (OSCO), prosecutors have no need to prove that property handled by a defendant is the proceeds of crime, only that the defendant had reasonable grounds to believe it was. The ruling also clarified the mental element of the offence, rejecting the suggestion that an offence can be committed by negligently failing to realise that property was the proceeds of crime.

Carson Yeung appealed against his The District Court had heard that conviction in the District Court on various parties, including a Key issues five counts of dealing with property casino, had made more than 400  Prosecutors do not need to believed to be proceeds of an deposits into accounts held by Yeung prove that property handled indictable offence for having and his father. The prosecution did by a defendant is the laundered HKD721 million in Hong not seek to identify the offences from proceeds of crime to establish Kong. Yeung was originally which the monies were said to have an offence under OSCO. sentenced to six years in jail. derived. Instead, the prosecution case was that Yeung must have had  All that is required is that the Section 25(1) OSCO says that "a reasonable grounds to believe that defendant had reasonable person commits an offence, if, the monies in question were derived grounds to believe that the knowing or having reasonable from proceeds of crime. property did represent the grounds to believe that any property proceeds of crime, and that in whole or in part directly or indirectly Yeung gave evidence that the monies the grounds were reasonable represents any person's proceeds of in the accounts in his name had come when viewed objectively. an indictable offence, he deals with from legitimate sources including his  The CFA clarified the test for that property." casino winnings and share dealings. the mental element of the The trial judge rejected Yeung's offence. The question before the Court was evidence and said that Yeung had  The CFA also gave leave to whether it was necessary for the used his father's name to open appeal on a separate case as prosecution to prove, as an element accounts and had used these to whether a specific act of the offence, that the proceeds accounts to conceal the source of the needs to be proven to being dealt with were in fact proceeds funds. of an indictable offence. establish the offence of misconduct in public office.

2 Top Hong Kong court rejects "thought crime" defence in money laundering appeal

Proof of proceeds of money in fact arose from indictable The mens rea test clarified sources. crime Another important aspect of the Counsel for Yeung, Clare "Thought Crime"? Yeung case is that it clarifies a confusion arising from an earlier CFA Montgomery QC, tried to persuade Yeung also argued in his defence that decision in HKSAR v Pang Hung Fai2. the CFA that an earlier CFA decision accepting the prosecution case meant 1 in 2007 had been wrongly decided a defendant could be convicted for a In Pang, the CFA had endorsed the and that the legislation ought properly "thought crime". The CFA rejected test for the mental element of the to be understood as requiring it to be this assertion saying: "A person who offence under section 25(1) taken shown that the property dealt with by is convicted of dealing with property in from a previous case3 that "to convict, the accused in fact represented some one or more of the ways in OSCO s 2 the jury had to find that the accused person's proceeds of crime. in circumstances where he had had grounds for believing; and there Ms Montgomery pointed to UK reasonable grounds to believe that it was the additional requirement that legislation including the Criminal represented the proceeds of an the grounds must be reasonable: That Justice Act 2008 where the definition indictable offence can hardly be said is, that anyone looking at those of "criminal property" requires proof of to have been convicted merely on the grounds objectively would so believe." basis of his thoughts." the underlying offence and that the However, the CFA in Pang had gone property should be shown to be the The CFA observed that if a defendant further, saying "in s.25(1), the word actual proceeds of criminal conduct. does not know, but has reasonable 'believe' is used in the sense of 'know'. She argued this was the intention of grounds to believe, that funds are The two mental elements in the the Hong Kong legislature when tainted, the defendant can claim subsection should be understood as if formulating section 25 OSCO. immunity under section 25A OSCO by they read: 'knew or ought to have The CFA held that when OSCO was disclosing his suspicion to an known'." authorised officer with legal powers to originally enacted in 1994, it did The CFA in Yeung noted this investigate the source of the funds. require such proof but that this alternative formulation appeared "not requirement had been abolished by The judges said there were good to sit comfortably with the rest of the amendments made to OSCO the policy reasons for their findings: "the Pang Hung Fai judgment" and that following year. predicate offence is likely to have "the phrase 'ought to have known' is In the CFA's words, the 1995 taken place in one or more foreign generally taken to connote amendments had "radically changed jurisdictions, not susceptible to proof negligence." in Hong Kong, and the proceeds of and expanded the basis of liability, Without expressly overruling itself, the such crimes are likely to have passed abandoning the original requirement CFA said the connotation of through various layers and of proving the defendant's "negligence" was unintended, and transformations aimed at concealing involvement in an arrangement that "the phrase 'knew or ought to their provenance." concerning a person's actual have known' should not be invested proceeds of criminal conduct." Critics point out, however, that the with any greater significance." test in Hong Kong means a person The Hong Kong approach can "Sweetener" enough? therefore be distinguished from the can be convicted, even if no current approach in the UK, which underlying crime is ever cited by On 12 July, the day following the requires proof that the laundered prosecutors nor proven to the Carson Yeung ruling, the CFA tackled satisfaction of the court. another high profile financial crime

2 [2014] 17 HKCFAR 778 1 3 Oei Kengky Wiryo v HKSAR (No 2) Seng Yuet Fong v HKSAR [1999] 2 HKC [2007] HKCFAR 98 888

Top Hong Kong court rejects "thought crime" defence in money laundering appeal 3

issue, when it gave leave to appeal to For financial institutions, which play a the former chief secretary of Hong critical role in identifying and reporting Kong, Rafael Hui, and the former suspicious activity, the Yeung case chairman of Hong Kong property serves as a reminder of the developer Sun Hung Kai Properties importance of filing timely and (SHKP), Thomas Kwok, against their complete Suspicious Transaction 2014 convictions for misconduct in Reports to discharge their obligations public office. The Court granted the and claim immunity under Hong appeal to determine "whether in the Kong's anti-money laundering case of a public officer, being or legislation and regulations. remaining favourably disposed to another person on account of pre- office payments, is sufficient to constitute the conduct element of the offence of misconduct in public office." Central to the issue is the validity of the so-called "sweetener" doctrine, which says it is not necessary for prosecutors to prove a specific quid pro quo to establish misconduct in public office offences. Prosecutors successfully argued that Hui had received USD8.5 million from Kwok to help ensure that the government maintained a "favourable disposition" towards SHKP. The Court of Appeal dismissed an appeal against the convictions in February 2016, in which the appellants argued that prosecutors had not been able to point to any specific act that Hui had done to favour SHKP. The hearing will take place in May 2017. Financial crime trends Taken together, these two decisions show the continuing trend in Hong Kong to clarify the prosecutorial burden in cases involving financial crimes such as money laundering and bribery. In some ways, the decisions may assist the prosecution in proving charges involving complex patterns of transactions or conduct.

4 Top Hong Kong court rejects "thought crime" defence in money laundering appeal

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