Jan 2020

Money Laundering laws in Hong Kong: The latest interpretation

Once again the tricky issue of mens rea in the context of money-laundering prosecutions has come before the courts. HKSAR v Harjani Haresh Murlidhar [2019] HKCFA 47 is the case in question this time round. The case briefly involved the following facts:

The appellant (Harjani Haresh Murlidhar) was charged with conspiracy to deal with US$539,375 knowing or having reasonable grounds to believe that it represented the proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap. 455.

The appellant and one Castelino Brian Mario (“Brian”), who was named as one of the co-conspirators in the case, incorporated a company in Hong Kong called Sino Investment and Trading Limited (“SIAT”) in 2012.

There was a sales contract of a shipment of fertilizer for US$10,788,000, where the purchaser was required to make a down payment of 5% of the sum, with the balance to be paid by letter of credit. Emails exchanged between the parties were hacked and modified so as to deceive the purchaser into (i) paying the required deposit into a bank account of SIAT at the Hong Kong branch of State Bank of India and (ii) nominating SIAT as the beneficiary of the letter of credit. Accordingly, in July 2014, a sum of US$539,375 was diverted and paid into the US Dollar bank account of SIAT at the Hong Kong branch of State Bank of India (“SIAT USD Account”) instead of the seller’s.

Brian later instructed transfers totaling US$327,175 to be made from the SIAT USD Account to SIAT’s Hong Kong Dollar account (“SIAT HKD Account”). The appellant and Brian were the signatories of both SIAT USD Account and SIAT HKD Account. The appellant came to Hong Kong from Sri Lanka and withdrew cash totaling HK$236,000. He was then arrested and charged with the present offence.

This case raised the issue of whether the court below had applied the test correctly. The test being that set out in the CFA case of Carson Yeung. The difficult issue of the mens rea test in money-laundering is laid bare by the number of times and the regularity that the matter comes before the courts. The subjective/ objective mens rea test has never been easy to put into words. The latest Court of Final Appeal judgement attempts to clarify the test as below:

(i) What facts or circumstances, including those personal to the defendant, were known to him that may have affected his belief as to whether the money was tainted?

(ii) Would any reasonable person, who shared the defendant’s knowledge, be bound to believe that the money was tainted?

(iii) If the answer to (ii) is “yes”, the defendant is guilty. If “no”, the defendant is not guilty.

If a reasonable person (who shared the defendant’s knowledge of the relevant facts) would be bound to believe that the money was tainted, the offence is still made out even though the defendant subjectively believed (or may have believed) otherwise. However, his subjective belief may well be a mitigating factor.

This is another stab by the Court of Final Appeal at trying to put this test into user friendly language.

Jonathan Caplan QC was counsel for the Department of Justice. He commented: “Appellate courts around the world have been determining in different statutory contexts the meaning of “reasonable grounds to believe” or “reasonable grounds to suspect”. The consensus now is that the ultimate perspective must be that of the reasonable man informed by the matters known by the defendant and by his perceptions. The defendant’s own assessment and personal views are not determinative. The focus is on what the reasonable man in his shoes would have thought or done. This is the practical combination of the objective and subjective tests in the statute”.

This raises the question as to whether this is fair?

Money-laundering sentences are draconian and are intended to be so. Effectively it is not intended that gullible people should have a defence by saying they believe that it was okay. On the other hand, it could be said that many people are genuinely gullible.  Should their gullibility make them guilty of a criminal offence? It is our opinion that it should not render them guilty. At the moment the effect of the test is that the court might find as a fact that the defendant genuinely believed that the money that he was dealing with was clean. On the other hand, the ordinary third-party may have a different view.  At the moment that objective test element renders our gullible person guilty of the serious money laundering offence.

We ask the question whether a person should be criminally liable for a genuinely held (albeit objectively unreasonable) view?

Written by: Jonathan Midgley, Senior Partner; Christina Ma, Associate & Tiffany Pong, Trainee Solicitor