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Lawyers and AML

Lawyers and AML. Three Ordinances, Two Duties, And One “ P ” Direction . Introduction. What is money laundering? What is the significance? What are the reporting offences? What are the protections? What about confidentiality? What about LPP?. Sources of Law. Main Ordinances. Others.

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Lawyers and AML

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  1. Lawyers and AML Three Ordinances, Two Duties, And One “P” Direction DOJ

  2. DOJ

  3. Introduction • What is money laundering? • What is the significance? • What are the reporting offences? • What are the protections? • What about confidentiality? • What about LPP? DOJ

  4. Sources of Law Main Ordinances Others DOJ Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) – since 1989 [DTROP] Organized and Serious Crimes Ordinance (Cap. 455) – since 1994 [OSCO] United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) – since 2002, some provisions not in force High Court Rules, O. 115 - 117 Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order (Cap. 405A) Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) Prevention of Bribery Ordinance (Cap. 201)

  5. SECTION 25 : OSCO –MONEY LAUNDERING “subject to section 25A, 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.” DOJ

  6. Interpretation of Section 25 Actus Reus • This is dealing in property, any property • Not necessary to prove that the property was in fact proceeds of an actual indictable offence – the status of the property is only relevant to the mens rea(Oei Hengky Wiryo (2007) 10 HKCFAR 98) • A person can deal with property which represents proceeds of his own crime(Lok Kar Win (CFI), leave refused (CFA AC)) DOJ

  7. Dealing with Property conceal and disguise property to make it look legitimate DOJ

  8. Dealing Receiving or acquiring property IF you keep it in the bath or a transfer is received into a bank account DOJ

  9. Dealing • using property to borrow money, or as security. DOJ

  10. Dealing • bringing into or removing the property from Hong Kong DOJ

  11. Interpretation of Section 25 • Mens Rea • Knowing:subjective standard • – believing a state of affairs that is in fact true(Lee Wai–yiu, CACC 100/2006, 7 Jun 2007) OR • Having Reasonable Grounds to Believe: objective standard “whether, objectively, reasonable grounds existed for the belief and, if so, whether subjectively the defendant was aware of the existence of those reasonable grounds” : Yam Ho-Keung, CACC 555/2001, 24 Oct 2002. DOJ

  12. Elements of the ML OffenceSection 25 Mens Rea • Not necessary for the prosecution to prove that D actually believed that the property represented the proceeds of an indictable offence(Ma Zhujiang, CACC 491/2005, 20 Aug 2007) • Honest belief as to the innocent status of the property isNOTa defence, if D was aware of the objective grounds. • Not necessary to particularize or prove the precise “indictable offence” in charging/proving that D had reasonable grounds to believe(Li Ching, CACC 436/1997, 17 Dec 1997; Lam Hei Kit, FAMC 27/2004, 27 Sept 2004; Chen Zhen Chu, CACC 433/2006, 2 Nov 2007) DOJ

  13. Elements of the ML OffenceSection 25 Mens Rea Choi Sui Hey, CACC 277/2007, 31 Oct 2008 “If a person either allows another to use his bank account for the transmission of funds or accepts substantial funds from others which he then remits, without enquiry by him or explanation by the others, to third parties unknown to him then, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account or the funds with which he has dealt represent proceeds of an indictable offence.”(para 20) DOJ

  14. Approaches toMoney Laundering • Self Laundering • Laundering for others DOJ

  15. Make sure crime does not pay DOJ

  16. How to make crime not pay • Denythe criminal the fruits of crime, big house, fancy car • Deny him the ability to support his family luxuriously • Deny him the assets to invest in more crime DOJ

  17. Disclosure of knowledge or suspicion • Section 25A(1) OSCO- the reporting offence – summary offence • Failing to report to an authorised officer • Knowledge or suspicion that any property is or is connected to the proceeds of an indictable offence • Within a reasonable time DOJ

  18. Relevant Property s.25A(1) • in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence • was used in connection with; or • is intended to be used in connection with, an indictable offence. DOJ

  19. Mens Rea • Only Subjective • actual knowledge or suspicion concerning the nature of the property • no objective qualifier, such as “reasonable” for the alternative mental state of “suspicion” • Suspicion: “there is a possibility, which is more than fanciful, that the relevant facts exist “ - and the suspicion is in some cases settledK Ltd v Natwest Bank (2006) EWCA Civ 1039, [2007] 1 WLR 311 DOJ

  20. Threshold of Suspicion • Suspecting property has the quality defined in s.25A(1) falls a long way short of having demonstrable proof that the property is of that quality • What matters is what the defendant thought, not what the reasonable person would have thought in the particular circumstances- Annexure 4 of Practice Direction ‘P’ DOJ

  21. Actus Reus • Failing to report in a reasonable time • What is reasonable? • Depends on circumstances • May allow for consultations or obtaining legal advice - Practice Direction ‘P’ DOJ

  22. Reporting to whom • Authorised officer- police and customs • Joint Financial Intelligence Unit (JFIU) • STREAMS • Annex 5 & 6- Practice Direction ‘P’ DOJ

  23. Confidentiality and LPP • Disclosure in OSCO and DTROP subject to LPP: OSCO s.2(18) • Declaration of LPP: OSCO s.2(1) • Advice Privilege • Litigation Privilege DOJ

  24. LPP • Important public and private interest • Advice privilege • Negative Examples: • Not conveyancing documents • Not client account ledger of client’s money • Not correspondence with other lawyers DOJ

  25. Advice privilege • What is it? • Communications directly seeking or providing advice • Information passed so that advice may be given • Includes advice on what can be done in a relevant legal context DOJ

  26. Litigation privilege • Confidential communications in course of litigation or reasonably in prospect of same between • Lawyer and client • Lawyer and agent • Lawyer and third party DOJ

  27. Litigation Privilege • Sole or dominant purpose: • Seeking or giving advice in relation to litigation • Obtaining evidence to be used in it • Obtaining information leading to obtaining such evidence DOJ

  28. Crime exception for LPP • No LPP for documents forming part of a criminal act • LPP is not displaced until there is prima facie evidence of a fraud or other crime DOJ

  29. Protections • AML offence: s.25 (1) OSCO • Disclosure protection and offence: s.25A(2) • Protection against suit: s.25 (3) • Offence to disclose the disclosure: s.25 (5) tipping off “any matter likely to prejudice an investigation” DOJ

  30. Section 25A(2) OSCO • Disclosure of property suspicion under s. 25A(1) • Does an act in contravention of s. 25(1) • Disclosure relates to that act • Gain protection if disclose prior to the act and does act with consent of authorised officer • Protection if disclosure after the act but reasonably soon and on own initiative DOJ

  31. S. 25A(2) OSCO - Protection • What protection? • Does not commit an offence under s.25(1) - money laundering • Disclosure must be of every discrete act in relation to the property subject to the original disclosure DOJ

  32. Protecting yourself & the firm • Disclosure protects • At your own risk if do not disclose • Client reality : need fees, need referrals • Practical reality: busy, mind set, • Legal reality: what is knowledge or suspicion DOJ

  33. Conclusions • Difficult area for lawyers • Develop awareness • Be mentally prepared to disclose • For your own protection and firm’s; and for the wider public interest. DOJ

  34. Conclusions (Cont’d) • Three Ordinances- DTROPO, OSCO & UNATMO • Duty to report suspicion about property s.25A(2) OSCO • Duty to be aware of the elements of s.25(1) OSCO - money laundering • Practice Direction ‘P’- guidance DOJ

  35. Thank You • Welcome questions • Welcome exchange of views and experiences DOJ

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