TWO PARALLEL STATUTORY PILLARS
The statutory regime combatting money laundering in Hong Kong relies primarily on two parallel pillars: the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP, Cap. 405) and the Organized and Serious Crimes Ordinance (OSCO, Cap. 455).
DTROP was enacted first in 1989 to target the financial lifelines of drug trafficking. Recognising that money laundering extended far beyond narcotics trafficking, the legislature subsequently enacted OSCO in 1994. OSCO expanded the anti-money-laundering framework to proceeds of indictable offences generally. Both Ordinances remain in force, although OSCO has substantially broader application and commonly covers proceeds connected with fraud, theft, tax offences and other indictable criminal conduct.
Proceeds of indictable offences
Proceeds of drug trafficking
ELEMENTS OF THE OFFENCE
The primary money-laundering offences under OSCO and DTROP use closely corresponding statutory elements and carry the same maximum penalty. Their principal structural distinction is the predicate criminal conduct from which the property represents proceeds. The prosecution must prove every element beyond reasonable doubt.
The actus reus — dealing with property
The defendant must deal with the property. The statutory definition is broad and includes receiving or acquiring it, concealing or disguising it, disposing of or converting it, bringing it into or removing it from Hong Kong, and using it to borrow money or as security.
The mens rea — knowledge or reasonable grounds
The defendant must act knowing or having reasonable grounds to believe that the property is illicit. The second limb is assessed by reference to the facts and circumstances known to the particular defendant, followed by an objective evaluation of those grounds.
The predicate nexus
Under OSCO, the property must in whole or in part, directly or indirectly, represent any person's proceeds of an indictable offence. DTROP applies the corresponding offence to property representing proceeds of drug trafficking.
REASONABLE GROUNDS TO BELIEVE
The defendant's knowledge, followed by an objective judgment
The phrase “having reasonable grounds to believe” is the mental element under section 25 of both OSCO and DTROP. It does not require proof of actual knowledge, but it requires more than mere suspicion. The court applies the statutory test to the grounds known to the particular defendant.
Limb 1: The subjective inquiry — the defendant's mind
The court first determines what facts, circumstances, perceptions and personal beliefs were actually known to, or operating on, the defendant at the time. It may consider the defendant's background, education, experience and the information actually received about the transactions. This matters because personal beliefs or misleading information may affect the grounds that were available to that defendant.
Limb 2: The objective inquiry — the reasonable-person test
Once those facts and matters have been identified, the court asks whether any reasonable person affected by them would have been bound to believe that the property was tainted. The question is not whether a reasonable person could or might have suspected that the money was dirty. If the objective answer is yes, the alternative mental element may be established even if the defendant says that they honestly believed the property was clean, unless that belief was reasonably held in light of all the matters known to them.
COMMON EVIDENTIAL RED FLAGS
Examples of reasonable grounds to believe
Allowing a personal bank account to be used by third parties to funnel millions of dollars without any apparent commercial logic.
Receiving substantial funds from multiple unrelated third parties without any identifiable commercial purpose or supporting documentation.
Executing substantial fund transfers disconnected from the account holder's stated profile, income or business operations.
14 years' imprisonment
The maximum penalty applies to the money-laundering offence under both OSCO and DTROP. The sentence in an individual case depends on the facts, the defendant's culpability and the applicable sentencing principles.
RECENT DEVELOPMENTS
Court decisions and regulatory developments
These decisions clarify the grounds that may establish the alternative mental element and the meaning of “proceeds of an indictable offence” under section 25(1) of OSCO.
HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778
On 10 November 2014, the Court of Final Appeal unanimously allowed Pang Hung Fai's appeal against his earlier District Court conviction for money laundering. In an important judgment delivered by Spigelman NPJ, the Court examined the meaning of “having reasonable grounds to believe” in section 25(1) of OSCO.
Spigelman NPJ stressed that the inquiry must remain focused on the grounds available to the particular defendant, rather than becoming an abstract division between “objective” and “subjective” elements. The prosecution must establish that the defendant had reasonable grounds to believe that the property dealt with represented proceeds of crime. The defendant's personal beliefs, perceptions and prejudices may therefore be relevant and given appropriate weight when a judge or jury assesses whether the statutory mental element has been proved.
HKSAR v Li Kwok Cheung George (2014) 17 HKCFAR 319
In another case, the Court of Final Appeal considered whether money laundering could be committed where a person dealt with funds known not to derive from any offence but intended to be used in furtherance of an offence. The Department of Justice argued that “proceeds of an indictable offence” was broad enough to include property received “in connection with” an offence even where the property was known not to be tainted as a benefit produced by that offence.
The Court rejected that interpretation. The ordinary meaning of “proceeds” requires money or property generated by the predicate offence; clean funds do not become criminal proceeds merely because they are used as an instrument to further a criminal scheme. Interpreting sections 2(6)(a) and 25(1) in light of OSCO's purpose, the payment must be in the nature of a reward received in connection with the offence and represent an economic benefit obtained from it.
HKMA supervision under AMLO
Parallel to criminal proceedings, the Hong Kong Monetary Authority (HKMA) updates its supervisory guidance for authorized institutions to keep Hong Kong's institutional anti-money laundering and counter-financing of terrorism framework aligned with international FATF standards under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO, Cap. 615). The HKMA may take disciplinary action against authorized institutions for failures in transaction monitoring and related controls.
These regulatory duties are distinct from the criminal mental element under section 25(1) of OSCO. Transactional red flags may form part of the evidence, but Pang Hung Fai and Harjani require the court to examine the facts and matters known to the particular defendant when deciding whether there were reasonable grounds to believe that the property represented the proceeds of crime.
HKSAR v Yeung Ka Sing Carson & HKSAR v Salim Majed (2016) 19 HKCFAR 279
In these jointly heard benchmark appeals, the Court of Final Appeal clarified several important aspects of the money-laundering offence under section 25(1) of OSCO.
The prosecution does not need to identify or prove the particular indictable offence that generated the property. It must nevertheless prove that the property represented the proceeds of an indictable offence and that the defendant dealt with it while knowing or having reasonable grounds to believe that it represented such proceeds.
“Dealing” is broadly defined and includes receiving or acquiring property; concealing or disguising it; disposing of or converting it; bringing it into or removing it from Hong Kong; and using it to borrow money or as security.
Constitutional confirmation of the Letter of No Consent regime
In Tam Sze Leung & Others v Commissioner of Police (FACV 7/2023; [2024] HKCFA 8), the Court of Final Appeal unanimously dismissed the challenge to the legality and constitutionality of the Letter of No Consent (LNC) regime operated under sections 25 and 25A of OSCO. The Court upheld the regime as lawful and compatible with the constitutional protection of property rights.
An LNC records that the Police do not consent to the bank dealing with the suspected property; it does not itself impose a statutory freeze. The bank makes its own decision whether to decline the customer's instructions in light of its potential criminal liability. The regime can therefore preserve suspicious funds temporarily while investigators seek a formal restraint order or other judicial relief where appropriate.