With the recent escalation of cybercrime and internet scams, we have handled a wide range of asset tracing and recovery actions domestically and internationally.   As time is of the essence, there always is the risk that the misappropriated assets would be dissipated quickly.  To advise our clients taking out costs-effective applications for Mareva and/or proprietary injunction and/or banker’s trust orders against the fraudsters in a timely manner with further assets tracing, if necessary, we have assisted our clients recovering the stolen monies by and large in the current legal system.

Traditionally, upon receipt of any victim’s Suspicious Transaction Report (“STR”) or police report, the Joint Financial Intelligence Unit (“JFIU”) of the HK Police Force (“HKPF”) may issue a Letter of No Consent (“LNC”) to the relevant financial institution(s), pursuant to which the recipient should stop further disposal of the misappropriated assets.  A financial institution disregarded the LNC and allowed the assets to be transferred out of the account would be liable for an offence under Section 25 of the Organised Serious Crime Ordinance, Cap. 455 (“OSCO”).

However, in a recent Hong Kong case Tam Sze Leung & Ors v Commissioner of Police [2021] HKCFI 3118, the Court of First Instance on 30 December 2021 held that the LNC regime is unlawful.

Brief Facts

Four Applicants, who had a total of 12 bank accounts maintained in several banks in Hong Kong, were found unable to withdraw funds from their accounts since around December 2020.  Upon making enquiries with the banks and the Commissioner of HKPF (“the Commissioner”), the Applicants were informed that they were under investigation by the Financial Investigations Division of Narcotics Bureau in relation to an indicatable offence of dealing with property known or believed to represent proceeds under Section 25 of the OSCO.

It transpired that the Applicants were suspected of having involved in a money-laundering scheme and were under investigation by the Securities and Futures Commission (“SFC”) since 2019.  In November 2020, the JFIU notified the relevant banks about their investigations, procured them to file STRs and informed them that LNCs would be issued soon.  As per the JFIU’s request, each of these banks filed their STRs and received LNCs from the JFIU.  All the relevant bank accounts were then frozen.  The LNCs were maintained for the next 10 months until the restraint orders against the Applicants and the said accounts were awarded by the Court.

Court’s Decision

The Applicants raised six grounds to challenge the LNC regime and three of them were successful, namely (i) ultra vires, (ii) not prescribed by law and (iii) lack of proportionality.

(i) Ultra vires

The Court accepted that the LNC regime might contribute to the overall objectives of the OSCO when the Forces Procedure Manual (“FPM”) and the Police’s internal guidelines set out the procedures to comply with for the issuance of LNCs.  However, looking at the language of Section 25A(2)(a) of the OSCO, the Court agreed with the submissions made by the Applicant’s Counsel that it was implausible that the legislature could have intended to enact the secret, informal and unregulated asset freezing power which the Commissioner asserted to be enjoyed under the LNC regime.

As the Court decided that using the express provision relating to LNC under Section 25A(2)(a) of the OSCO for securing an informal and unregulated freezing of assets was to use that power for a purpose other than that for which it was supplied, the Court held that the LNC regime was ultra vires OSCO.

(ii) Not prescribed by law

The Court held that the LNC regime was not ‘prescribed by law’.  The requirements for the concept ‘prescribed by law’ include the law should be adequately accessible and formulated with sufficient precision to enable citizens to regulate their conduct.  In the present case, there was insufficient clarity as to the scope of the power under the LNC regime and the manner of its exercise, together with inadequate effective safeguards against abuse under the OSCO and the FPM, the Court concluded that the LNC regime was not prescribed by law.

(iii) Lack of proportionality

The Court accepted that there was a legitimate purpose for the LNC regime to deter criminal activity by restricting access to the proceeds of crime.  Nonetheless, the LNC regime operated without temporal limitation but only having been observed with intermittent internal review and lacking of proportional assessment on the reasonable length of its operation, the Court did not consider that a reasonable balance had been struck between the necessity to combat money laundering and one’s right to the use of property under Article 105 of the Basic Law. Therefore,  the Court held that the LNC regime failed in the proportionality assessment.

Analysis and Takeaways

In Tam Sze Leung, the Court accepted that although the Commissioner was free to express or report suspicious transactions after its ongoing investigations to financial institutions so as to take all steps which appeared necessary for keeping peace, preventing crime and protecting property from criminal actions, the Court was reluctant to uphold the LNC regime which would violate to our current laws. Be that as it may, we trust that the relevant financial institutions will continue at the moment to follow the LNC regime unless there is any new development in the Hong Kong legislation catching up with the ratio herein.

Moreover, Tam Sze Leung does not affect the obligations of the bankers under Sections 25 and 25A of OSCO. The bankers are still obliged to closely monitor any suspicious accounts and to file STRs where appropriate.  It is prudent for the bankers to ensure effective anti-money laundering policies and mechanisms, which have to be in place and to keep a good record of all the documentation and evidence in support of their decision to restrict or freeze any suspected accounts.  We recommend the bankers to regularly review their decisions on freezing the suspected accounts and to check with the law-enforcing authorities in response to any changes or updates in circumstances.

The full impact of Tam Sze Leung remains to be seen, pending the relief to be granted by the Court to the Applicants and the potential appeal of the decision by the parties.  In addition, the constitutional problems identified in this case are yet to be resolved or addressed through legislative amendment or enactment.  With the uncertain development of the LNC regime, for now, it is advisable for the victims of commercial crimes to apply for relevant injunctions and/or appropriate court orders to stop any dissipation of funds as early as possible.

This article is authored by Ms. Milly Hung, Partner, Mr. Michael Lau, Senior Associate and Mr. Warwick Tam , Associate of Litigation Department of Stevenson, Wong & Co.  If you have any problem in relation to this matter, please contact Ms. Milly Hung on (852) 2533 2561 or email to millyhung.office@sw-hk.com.

This article is for information purposes only.  Its content does not constitute legal advice and should not be treated as such.  Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage in relation thereto.

We are delighted to announce that China Business Law Journal (CBLJ) has named our Partner Hank Lo, who is Head of our firm’s Corporate Finance Department, and Partner Heidi Chui, Head of Banking and Finance and the Litigation and Dispute Resolution Departments, on their A-List China’s Elite 100 Lawyers (Foreign Lawyers) for their extensive experience and exceptional recognition by clients.

The A-List is based on extensive research conducted by CBLJ by consulting thousands of in-house counsels, clients, and partners at PRC and international law firms. The final list of 200 elite lawyers (100 lawyers from PRC firms and 100 lawyers from international firms committed to China-related business) is selected from over 2,000 nominations and feedback from business professionals and clients, combined with CBLJ’s years of experience and insights into China’s legal market.

Mr. Lo, the head of Corporate Finance, specializes in capital markets, corporate finance, and mergers and acquisitions matters. He has significant experience in advising issuers, sponsors and underwriters on initial public offerings on both the main and GEM boards of The Stock Exchange of Hong Kong Limited; advising publicly listed companies on a broad range of corporate finance transactions; advising private equity funds, venture capital funds and Hong Kong-listed companies on their investments in and exits from companies with an emphasis on China. He also advises companies in Mainland China on matters including property transactions, foreign investment and initial public offerings in other overseas stock markets.

Mr. Lo has been recognised by multiple international industry-leading legal directories. In addition to being named as “The A-List China’s Elite 100 Lawyers” by CBLJ for 3 consecutive years, Mr. Lo was also named one of the “Dealmakers of Asia 2021” by Asian Legal Business (ALB), and “Highly Regarded Leading Lawyer in Capital Markets: Equity 2021-22” by IFLR1000.

Ms. Chui heads our firm’s banking and finance and litigation and dispute resolution departments. She has also served as an internal legal advisor of several Chinese banks.

Ms. Chui specializes in commercial litigation, international arbitration, and dispute resolution. Ms. Chui is experienced and adept at providing legal advice on asset tracing, mortgage litigation, corporate takeover, enforcement of judgments, winding-up of companies and receivership.

In addition, Ms. Chui provides legal advisory services for cases adjudicated in mainland China, taking the role of expert witness on Hong Kong law, and is experienced in cross-border litigation and international arbitration. She also specializes in handling matters relating to default payments and commercial fraud, assisting liquidators, receivers, official receivers, creditors, and other professionals in charge of insolvency and bankruptcy matters in debt restructuring and cross-border asset tracing.

Ms. Chui was the winner of Client Choice Award- Hong Kong’s Litigation practice organized by Lexology in 2016. She was nominated by Asian Legal Business for Dispute Resolution Lawyer of the Year in 2017, 2019 & 2020, and Woman Lawyer of the Year in 2017, 2020, and 2021. She has also been recognized as a distinguished practitioner in Banking and Finance (2018 & 2019) and Dispute Resolution (2018 – 2022) by Asialaw Leading Lawyers.

For any inquiries, please contact our Partners, Mr. Hank Lo or Ms. Heidi Chui, or visit “The A-List” here.

(中文) 2022年1月20日，本所合伙人、银行及金融部和诉讼及争议解决部主管徐凯怡律师受邀担任香港大学法律学院的校友讲座之分享嘉宾，分享她从香港大学毕业后的职业历程。本次网络研讨会 “近距离对话” (Up Close and Personal) 由香港大学法律学院和香港大学校友会联合举办。

徐律师除了向法学院学生分享在港大法学院求学时的经验和心得外，亦分享了她成为诉讼律师和仲裁员的经验和见解，以及如何克服在过程中遇到的困难和阻碍。此外，徐律师亦提醒学生们开放思维的重要性，并特意鼓励准备投身法律领域的女大学生。

本次分享广获好评。学生们在整个过程中积极参与，并踊跃向演讲嘉宾发问有关追求法律专业的见解和建议。

若阁下想了解更多详情，请联络本所徐凯怡律师 。

分享会主持人，香港大学法律学院专业法律教育系高级讲师叶彗茵女士

Our Partner, Mr. Gordon Tsang was invited to speak on the regulations and risks of Special Purpose Acquisition Companies (SPAC) at the 2022 Hong Kong Investment Forum held on 20 January 2022 and also, act as a panel speaker for “Strategies in Maximizing Investment Returns for Investors and Start-ups”. The full-day forum “Invest for a Better Future with Innovation- From SPAC to METAVERSE” was organised by LBS Communications Consulting Limited. Distinguished experts and industry-leading companies, including AAX and Huobi Tech, were invited to discuss up-and-coming investment trends and opportunities of the Metaverse and SPACs in Hong Kong.

Mr. Tsang shed light on Hong Kong’s new listing regime for SPAC and explained the new SPAC’s listing requirements before and during a De-SPAC Transaction. During the panel discussion, Mr. Tsang joined other speakers to share their listing experiences on Nasdaq and HKEx and also, compared the SPACs in Hong Kong with the US.

For more information, please contact our Partner, Mr. Gordon Tsang about this event

Our Partner, Mr. Gordon Tsang (top left), Mr. Claudius Tsang, CEO at A SPAC (top right), Panel Moderator Mr. Roy Ng, LBS Communications Consulting Limited (bottom left), and Mr. Steven Lo, CFO at Prenetics (bottom right)

We are delighted to announce that our SW Private Client Practice has once again been recognised by The Legal 500 Asia Pacific Guide- Private Client (Tax, Trusts, Wealth Management and Contentious Probate) for the 2^nd consecutive year. The Legal 500’s research team surveyed and interviewed more than 300,000 corporate counsels globally in the past year. Firms listed in the guide are highly regarded and recommended by counsels and clients.

The Legal 500 recognises that our SW Private Client Practice, “covers a broad cross-section of matters, with work ranging from family wealth and succession planning to assistance with the preparation of Enduring Powers of Attorney and managing the assets of the mentally incapacitated. Catherine Por,  who heads up the family law department, has wide-ranging contentious and non-contentious expertise, including ancillary relief and fiercely-contested matters involving custody and maintenance arrangements for children. Wendy Lam and Janice Chin are also recommended.”

Please contact our Partners and Heads of SW Private Client, Ms. Catherine Por and Ms. Wendy Lam, or visit The Legal 500 Asia Pacific Guide for any inquiries

Introduction

On 12 January 2022, the Hong Kong Monetary Authority (the “HKMA”) issued a discussion paper on crypto-assets and stablecoins (the “Discussion Paper”), inviting industry and public views on the applicable regulatory approach. Against the backdrop of increasing global adoption of crypto-assets and enhanced use of technology in financial systems, the HKMA has visited the regulatory regimes of Hong Kong as well as other major countries and the recommendations from the global regulators on this nascent field. The two keys of the Discussion Paper are the regulatory frameworks regarding (i) the Authorized Institutions (“AIs”) and (ii) payment-related stablecoins.

Crypto-assets and Stablecoins

In the Discussion Paper, the definition and nature of crypto-asset and stablecoins are broadly set out as follows:

Current Regulatory Regime in Hong Kong

A. Proposed licensing regime for virtual asset service providers (“VASP regime”)

In November 2019, the Securities and Futures Commission (the “SFC”) issued a position paper to set out a licensing framework for platforms which offer trading of securities-type VAs or tokens (“voluntary opt-in regime”).  In particular, the voluntary opt-in regime is applicable to only platforms that offer trading services of at least one virtual asset (“VA”) with securities features involved.  Platforms solely trading non-securities VAs are not covered.

In May 2021, Financial Services and the Treasury Bureau (“FSTB”) has completed the public consultation on introducing the VASP licence regime targeting at business operating a virtual asset (“VA”) exchange. At the initial stage, the licence regime will not apply to other types of VASPs such as crypto wallet providers or custodians. For further details, please refer to our news update “FSTB Consultation Conclusions on Legislative Proposals to Enhance Anti-Money Launder and Counter-Terrorist Financing Regulation in Hong Kong on Virtual Asset Services Providers” published on 9 July 2021.

B. Payment Systems and Stored Value Facilities Ordinance (“PSSVFO”)

Under the PSSVFO, the HKMA licenses and supervises Stored Value Facilities (“SVFs”), such as e-wallets and prepaid cards. The arrangements of crypto-assets, especially those used for payment purposes, are in some aspects similar to an SVF. Yet, whether a crypto-asset business amounts to an SVF is determined case by case. If a crypto-asset falls within the definition of SVF, it will be subject to a mandatory licensing regime administered by the HKMA. However, the definition of SVF of the PSSVFO may not cover certain types of stablecoins and/or their activities as may be seen in the market. Therefore, the HKMA is considering expanding the scope of the PSSVFO to cover such payment-related stablecoins.

C. Non-backed crypto-assets such as security crypto-assets

In November 2018, the SFC issued a circular to all intermediaries regarding regulatory requirements and expected standards and practices concerning the distribution of VA funds. For VA funds not authorised by the SFC, intermediaries should only target clients who are professional investors (as defined under the Securities and Futures Ordinance). The AIs intending to provide investment services related to VA must notify the HKMA and the SFC in advance.

Payment-related Stablecoins

Some stablecoins may become a commonly accepted means to make payment which may fall outside existing regulatory frameworks, posing risks to the market and community. One of the key risks is the money laundering/terrorist financing (ML/TF) risk as stablecoins may be held and changed hands anonymously and easily (even across the globe and borders) through the internet or other means.

Key Discussion Questions

A list of eight questions set out by the HKMA for industry and public feedback, together with its corresponding views, are extracted as follows:

Analysis and Takeaways

The fast-growing use of crypto-assets may pose risks to the financial system. Developing regulatory perimeters to appropriately govern crypto-assets could address the various risks posed to users and the financial system while embracing the potential benefit of innovations in the market. The Discussion Paper is a timely step taken by the HKMA to update its regulatory tools and shows the initiative and determination of the regulators in Hong Kong to ensure monetary and financial stability amidst technological advancement. We welcome more discussions and sparkles on this topic.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.