Fifth wave of COVID-19 in Hong Kong: Importance of vigilance and taking proactive mitigating steps against cybercrime

Police letter of no consent regime and resulting temporary freezing measures

Typically, when victims have fallen prey to a cybercrime incident and have transmitted funds into a Hong Kong based bank account, they would usually urgently report the incident to the police or their remitting bank, which would in turn alert the receiving bank. Banks with knowledge or suspicion of such fraud would also file suspicious transaction reports with the Joint Financial Intelligence Unit (“JFIU”) with a view to complying with the disclosure requirements under section 25A of the Organised and Serious Crimes Ordinance (Cap. 455, “OSCO”).  The JFIU may issue a LNC to the banks which, as its name suggests, means that the JFIU does not give its consent to the banks dealing with the funds in the relevant account. While the ultimate decision to deal with property remains with the banks, they would generally refrain from doing so.  

Overtime, victims who have come to know about the LNC regime have relied on the LNC as a temporary freezing measure which quickly stops the fraudsters from further dissipating the funds, while taking time to identify the issues, collect the evidence, interview the involved personnel, and decide whether to take civil action to recover the defrauded funds. Where the defrauded funds are less substantial, some victims might have gone ahead with their civil action to recover the funds without firstly obtaining a freezing order, relying on the LNC to hold the defrauded funds in the bank accounts in the meantime.

Recent judgment holding that the no consent regime is unlawful

Recently, by its decision in Tam Sze Leung and others v Commissioner of Police [2021] HKCFI 3118 dated 30 December 2021, the Hong Kong Court of First Instance held that the JFIU’s “No Consent” regime is unlawful on the grounds that (1) it is ultra vires the OSCO, (2) it is not prescribed by the law and (3) it disproportionately interferes with the rights to property. 

It is unclear whether the decision will be subject to an appeal, or whether any interim measures/ legislative or policy changes will be introduced. A number of likely ramifications are nevertheless anticipated. First, the Police are likely to take even more care when deciding when to issue and/or extend a LNC, leading to possible delays in their issuance and/or shorter periods of their application. Second, the banks, receiving LNCs, will likely be even more careful in deciding whether to freeze bank accounts, particularly if they are in receipt of conflicting instructions from their customers to transfer funds out of the targeted bank accounts.