For the third time in five years, the Hong Kong Court of Final Appeal (CFA) has found it necessary to clarify the requisite mental element in “having reasonable grounds to believe” that property represents the proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crimes Ordinance (Cap.455) (OSCO).
Although the CFA had previously provided detailed comment and guidance on this phrase in Pang Hung Fai (2014)1 and then again in Carson Yeung (2016)2, the need to revisit this guidance arose just three years later in Harjani (2019).3 The CFA has now confirmed in Harjani that a person can be convicted of money laundering if the defendant’s belief that the proceeds are not an indictable offence is proven to be unreasonable having regard to all the facts known to the defendant.
On 4 August 2015, Harjani (the Defendant) was convicted in the District Court of conspiring with others to deal with property, knowing or having reasonable grounds to believe that that property represented the proceeds of an indictable offence contrary to sections 25(1) and (3) of OSCO and sections 159A and 159C of the Crimes Ordinance. He was sentenced to three years and nine months imprisonment.
The circumstances of the offence involved fraudsters hacking into emails between a buyer and a seller of fertiliser. By sending false emails, the fraudsters tricked the buyer into paying a deposit due to the seller to a third-party’s account at a bank in Hong Kong. The Defendant was arrested while making a cash withdrawal from this account.
In reaching his decision, the Trial Judge relied on the CFA’s judgement in Pang Hung Fai, determining that a substantial objective element was required when deciding whether a person had “reasonable grounds to believe” property represented “the proceeds of an indictable offence” (“tainted” property). The Trial Judge rejected the suggestion that if a defendant honestly believed that the property was not tainted, he was entitled to be acquitted. While he found that the Defendant did not know the money in question was tainted, he found the Defendant had shut his eyes to obvious indications of illegality and had reasonable grounds to believe the money was in fact tainted.
The Defendant’s appeal to the Court of Appeal (CA) was dismissed. However, the CA held that the Trial Judge had adopted an erroneous approach to the interpretation of “reasonable grounds to believe”. The CA concluded that a defendant’s genuinely held belief that property he dealt with was not tainted, would secure an acquittal even if that belief was objectively unreasonable. Nevertheless, despite the Trial Judge’s erroneous approach to the law (in the view of the CA), it was apparent that he found the Defendant did not hold that honest belief and therefore the CA dismissed the appeal.
In the Defendant’s appeal to the CFA on grounds of a grave and substantial injustice, the CFA raised a number of questions for determination including: First, what is the meaning of “having reasonable grounds to believe” that any property represents tainted property under section 25(1), OSCO? And second, what is the relevance of the defendant’s actual belief in determining whether the statutory test is satisfied?
While noting that it had addressed these same issues in both Pang Hung Fai and Carson Yeung, the CFA stated that due to the terms of the CA’s judgment of in Harjani, “clarification is necessary as to the effect of these decisions”. The CFA explained that it was the CA, not the Trial Judge, that erred in explaining the test of “reasonable grounds to believe” as imposing a subjective test of belief.
The Reformulated Test for “Reasonable Grounds to Believe”
In the interests of clarity, the CFA reformulated the test to determine whether a defendant had “reasonable grounds to believe” property was tainted, as follows:
(i) What facts or circumstances, including those personal to the defendant, were known to the defendant that may have affected his belief as to whether the property was the proceeds of crime (tainted)?
(ii) Would any reasonable person who shared the defendant’s knowledge be bound to believe that the property was tainted?
(iii) If the answer to question (ii) is “yes” the defendant is guilty. If it is “no” the defendant is not guilty.
The CFA explained that the first issue that the judge or jury (the tribunal) must address is what matters the defendant knew of that might have affected his belief as to whether the property was clean or tainted. This question is subjective in the sense that the tribunal is required to make findings as to the actual knowledge of the defendant at the time of the relevant transaction.
The second issue is whether any reasonable person who shared the defendant’s knowledge would have been bound to believe that the property was tainted. The CFA stressed that this question is objective. The tribunal must take into account the facts and matters which have, or may have, affected the defendant’s belief. The tribunal should then engage with the question: would any reasonable person with knowledge of those facts and matters have believed that the property was tainted? If the answer to the question is “yes” the defendant is guilty. If it is “no” the defendant is not guilty.
The CFA considered that where the defendant does not give or adduce evidence, the application of the test will “normally be relatively straightforward.” The tribunal has first to find what relevant facts or circumstances were known to the defendant, and then decide whether those facts or circumstances would have led any reasonable person to believe that the property in question was tainted.
A more difficult case is where the defendant gives evidence that he did not believe the property was tainted. In that case, the CFA held that the tribunal has to consider two interrelated questions:
(i) Is the defendant telling the truth when he says that he did not believe that the property was tainted; and
(ii) Could a reasonable person in the position of the defendant have failed to believe that the property was tainted?
The Court added that generally, these questions will yield the same answer.
Three decisions in five years show it is clear the CFA is struggling to settle on the formulation of the test for the mental element of money laundering. This reflects the challenges faced by judges and juries when a criminal conviction for money laundering can be imposed without the need to prove the property in question constitutes the proceeds of an indictable offence, and even if the defendant holds a genuine belief they are not proceeds of an indictable offence, if such belief is found to be unreasonable.
In Pang Hung Fai, Spigelman NPJ was at pains to direct interpretation of “reasonable grounds to believe” away from previous complicated tests involving a distinction between subjective and objective elements to a less complicated compound test, reflecting the language of section 25(1) OSCO itself, which focuses on the accused rather than on an abstract legal construct. Will the CFA’s reformulation in Harjani prove to be third time lucky? With the increased focus on money laundering offences in recent times we may soon know if Harjani has finally settled the debate as to what the correct test is and how it should be applied.
1 HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778.
2 HKSAR v Yeung Ka Sing Carson (2016) 19 HKCFAR 279.
3 HKSAR v Harjani Haresh Murlidhar (2019) 22 HKCFAR 446.