HKSAR v. HARJANI HARESH MURLIDHAR

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Press Summary (Chinese)

FACC No. 17 of 2018

[2019] HKCFA 47

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 17 OF 2018 (CRIMINAL)

(ON APPEAL FROM CACC NO. 352 OF 2015)

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JUDGMENT

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The Court:

Introduction

1.  On 4 August 2015, the appellant, Haresh Murlidhar Harjani, was convicted in the District Court[1] 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 the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO”) and sections 159A and 159C of the Crimes Ordinance, Cap 200.  On 7 October 2015, he was sentenced to 3 years and 9 months’ imprisonment.

2.  Section 25(1) of OSCO provides that:

“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.”

3.  In reaching his decision, the Judge relied upon the judgment of this Court in HKSAR v Pang Hung Fai[2](“Pang Hung Fai”), interpreting the effect of it as requiring a substantial objective element when deciding whether a person had “reasonable grounds to believe” that property represented the proceeds of an indictable offence.  He rejected the suggestion that if it were or might be the case that a defendant honestly believed that the property was not thus tainted, he was entitled upon that basis alone to be acquitted.  Although he found that the appellant did not know that the property represented the proceeds of an offence, he concluded that he had shut his eyes to obvious indicia of illegality and had reasonable grounds to believe that the property was thus tainted.

4.  On 12 September 2017, the appellant’s appeal against conviction was dismissed but the Court of Appeal[3] held that the Judge had adopted an erroneous approach to the question of “reasonable grounds to believe”.  In purporting to apply the decision of this Court in HKSAR v Yeung Ka Sing Carson[4](“Carson Yeung”), the Court of Appeal concluded that it sufficed to mandate an acquittal if a defendant honestly believed, or may honestly have believed, that the property with which he dealt did not represent the proceeds of an indictable offence, even if that belief were, objectively assessed, unreasonable.  However, the court concluded that, notwithstanding the Judge’s erroneous approach to the law, it was apparent from the Reasons for Verdict that he had found that the appellant did not hold that honest belief and, accordingly, dismissed the appeal.

5.  The application for leave to appeal to this Court was restricted to substantial and grave injustice limb of section 32 of the Court of Final Appeal Ordinance, Cap 484.  However, since it was apparent in the light of the Court of Appeal’s judgment that the judgments in Pang Hung Fai and Carson Yeung merited clarification, and that other issues relevant to the application of section 25 of OSCO and section 159A of the Crimes Ordinance presented themselves for consideration, this Court raised a number of questions for argument and determination, namely:

(1)     What is the meaning of “having reasonable grounds to believe that any property … represents any person’s proceeds of an indictable offence” (abbreviated to “the property is tainted”) in section 25(1) of OSCO?

(2)     What is the relevance of the defendant’s actual belief in determining whether the statutory test is satisfied?

(3)     To what extent is “wilful blindness” relevant in determining whether the statutory test is satisfied?

(4)     In the light of section 159A of the Crimes Ordinance:

(a)     given the requirements of subsection (2), can there be an offence of conspiracy to deal with property having reasonable grounds to believe that such property … represents any person’s proceeds of an indictable offence?

(b)     given the requirements of subsection (1)(a), where defendants have reasonable grounds to believe that property is tainted, will they be guilty of conspiracy if they agree to deal with the property notwithstanding that those grounds may not exist at the time of the dealing?

The facts and the charge

6.  The particulars of the charge, as ultimately amended, read as follows:

“HARJANI Haresh Murlidhar, between the 26^th day of April, 2014 and the 21^st day of July, 2014, both dates inclusive, in Hong Kong, conspired with CASTELINO Brian Mario, DIALLO Ibrahima and other persons unknown, to deal with property, namely a sum of $539,375 United States currency in account numbered 076-402-63220051 of State Bank of India held in the name of Sino Investment and Trading Limited, knowing or having reasonable grounds to believe that the said property, in whole or in part directly or indirectly represented the proceeds of an indictable offence.”

7.  The facts which gave rise to the charge were not complex.  A contract was made by exchange of emails for the sale by Dohigh Trading Limited (“Dohigh”) to Dragon Asia Fertilizer Limited (“Dragon Asia”) of a shipment of fertilizer to be shipped from a Chinese port to Bangladesh for US$10,788,000.  Dragon Asia was required to make a down payment of 5% of the sum, with the balance to be paid by letter of credit.  Those emails were hacked and modified so as to deceive Dragon Asia into paying the required deposit into a bank account of Sino Investment and Trading Limited (“SIAT”) at the Hong Kong branch of State Bank of India (“SBI”) and into nominating SIAT as the beneficiary of the letter of credit.  Accordingly, on 9 July 2014, the sum of US$539,375 (representing the 5% deposit less bank charges of US$25) was diverted and paid into the US Dollar bank account of SIAT at the Hong Kong branch of SBI instead of to Dohigh.

8.  SIAT was a company incorporated in Hong Kong by the appellant and one Castelino Brian Mario (“Brian”) in 2012.  Brian, who remained in India throughout, instructed transfers totalling US$327,175 to be made from that account to SIAT’s Hong Kong Dollar account.  The appellant and Brian were the signatories for both bank accounts.  On 12 July 2014, the appellant came to Hong Kong from Sri Lanka and, after he withdrew cash totalling HK$236,000 between 15 and 18 July 2014, he was arrested on 21 July 2014 and charged with conspiracy to deal with the 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 OSCO and sections 159A and 159C of the Crimes Ordinance.

9.  Initially, the charge named the appellant and Brian as the two co‑conspirators.  The prosecution had intended to call as a witness, one Diallo Ibrahima (“Diallo”) with a view to rebutting the appellant’s evidence that he had been asked to handle matters relating to the contract by someone he knew as “Daniel”.  However, when shown defence exhibits consisting of extensive email and skype communications passing between Diallo and the appellant relating to the funds and to use of bank accounts, the prosecution dropped Diallo as their witness.  After Diallo was produced and cross-examined by the defence, the prosecution amended the charge to name Diallo as a co-conspirator along with Brian, the appellant and other persons unknown (such persons being those who had manipulated the emails).  It was the prosecution’s case (accepted by the Judge) that Diallo and “Daniel” as well as the person who used the email or skype names of “saint cool” or “coolsaintt” were the same person.  The Judge also found that Diallo “knew there was fraud going on”.[5]

10.  The appellant admitted that Dragon Asia had been deceived by fraudsters and that the deposits and withdrawals had occurred, as instructed by Brian.  The appellant’s case was that he was a legitimate businessman and that both he and Brian had dealt with Diallo but believed that the latter was an agent acting bona fide on behalf of the principals in the fertilizer deal with the funds in question deriving from a genuine commercial transaction.

11.  The appellant claimed that he was asked to execute the letter of credit and to receive the deposit and the letter of credit proceeds in the SIAT account as an account that had been designated by Dragon Asia, the letter of credit’s applicant.  The reward for so doing and for providing inspection services at shipment would be 15% of the contract price, with SIAT getting 12% (US$1,294,560) and Diallo receiving the other 3% (US$323,640). After deducting this 15%, the balance of the monies would be remitted to the supplier.  He claimed that the US$539,375 was received by SIAT as part of the aforesaid 15% which it would earn if the deal went through, but which would be returned in case it did not.  The fraud came to light on 17 July 2014 when Dohigh informed Dragon Asia that it had not been paid and Dragon Asia revoked the letter of credit.  The diverted deposit amount had to be replaced and the fertilizer shipment was postponed from August to September.  The appellant claimed that he was deceived by Diallo into unwittingly receiving the proceeds of that fraud.

The judgments below and this appeal

12.  The debate in the courts below focussed on the mental element of the substantive offence, in particular on the true construction of the words in section 25(1) of OSCO “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”.  Defence counsel’s submission was that “an honest belief would be a defence to both the substantive charge and the alleged conspiracy”, even if the appellant’s belief was not reasonable due to lack of due diligence on his part.[6] The prosecution’s case was, on the contrary, that “only an honest and reasonable belief can be considered as a valid ground” for exculpation.[7]

13.  The Judge held in favour of the prosecution’s construction, basing his approach on his reading of Pang Hung Fai, which was then the leading authority.  His Honour held that:

“The approved test on ‘having reasonable grounds to believe’ is that the jury should consider such grounds the accused had for believing and that anyone looking at those grounds objectively would believe the property represented proceeds of an indictable offence. An alternative interpretation is whether the accused ought to have known the property represented proceeds of an indictable offence.”[8]

14.  The Judge found that Diallo had not told the appellant about the fraud and that it was not possible to hold that he knew that the US$539,375 represented the proceeds of an indictable offence.  Nonetheless, he was satisfied that the appellant had reasonable grounds to believe that the property was thus tainted.  The appellant was an educated man and an experienced businessman.  He had shut his eyes to the obvious.  There were ample indicia that the funds were from a tainted source.  He said:

“SIAT was only incorporated in Hong Kong in 2012. It had no established business or reputation. It was not an L/C specialist. Why would someone pick SIAT for the job? Why would someone entrust an unrelated company (SIAT) to receive first the USD539,375 and later a much greater sum of over [USD]10M through execution of the L/C? And more puzzling still, why would someone give SIAT 12% (USD1,294,560) and coolsaintt 3% (USD323,640) as commission for such a simple task? I am sure it was only because Defendant could offer SIAT’s account as available for coolsaintt’s side to use that account to receive money for conduit. That was the reason (and the only reason) why SIAT was named as beneficiary on the Contract and the L/C. I am sure Defendant was aware of such reason.”[9]

“Their communication shows that as early as 26 January 2014, Defendant upon request had offered coolsaintt his SIAT account in SBI. Coolsaintt asked Defendant to confirm its correctness on 26 April 2014. … By then, nothing had been mentioned of the fertiliser deal. The first vague reference of the matter appeared in coolsaintt’s email on 3 July 2014 … when he asked Defendant to check if the money had been wired in.”[10]

…

“In his emails to coolsaintt, Defendant complained that he was asked to move money to many accounts. He worried that would arouse the bank to investigate and thus endanger his own account.”[11]

15.  As for the fact that the appellant had never asked coolsaintt why SIAT had been chosen for the job and the appellant’s explanation that he did not feel any need to, it being, as a matter of commercial practice, beyond the role of an agent to do so, the Judge rejected this explanation saying that:

“… I am sure the truth is that Defendant did not want to ask coolsaintt anything which would jeopardize their business. … I am sure Defendant knew he/SIAT was chosen only because of the availability of SIAT’s account to receive the down payment and the L/C money. …”[12]

…

“… The whole situation here is, however, so questionable that it calls for immediate rigorous proof or due diligence enquiry. Someone for no good reasons wanted to use SIAT’s name on the Contract and the L/C as beneficiary and required SIAT’s account to receive the down payment and the L/C money. A huge and totally disproportionate reward (12% of USD10,778,000) was offered to Defendant. Defendant in such circumstance ought to think or dig deep into the matter. Yet, he did not but simply turned a blind eye to the situation. ... He was unreasonably contented with the scarce information he had of the highly suspicious deal coolsaintt brought him. His belief that the money was legitimate was, therefore, ill-founded.”[13]

“… I am sure anyone looking objectively at the grounds Defendant had would believe differently from Defendant, who was in fact turning a blind eye to a highly questionable situation which he must have so appreciated. Anyone looking objectively at such grounds Defendant had would believe the money involved represented in whole or in part, directly or [indirectly] the proceeds of an indictable offence. Defendant ought to have known that but he chose not to. He was only concerned with the profit.”[14]

…

“… In the present case, I find Defendant’s so-called ‘belief’ was just ill-founded and equivalent to turning a blind eye to obvious suspicion. It, therefore, could hardly be said to be sincere or in good faith.”[15]

16.  The Court of Appeal held that the Judge was wrong to require that any genuinely held belief by a defendant must also be reasonably held.  Instead, in purporting to apply Carson Yeung, it held that:

“The correct approach ... is to use those facts that suggest that no reasonable person would believe in the legitimacy of this transaction as part of his assessment of the credibility of the appellant’s claim that he in fact genuinely held beliefs about the legitimacy of the transaction.”[16]

17.  The issue, in the eyes of the Court of Appeal, was:

“... whether the judge used reasonableness in the permissible way as a means of assessing the plausibility of the appellant’s evidence en route to determining whether it was or might be true, or whether he used it in the impermissible way of requiring that his asserted beliefs be not only genuinely held but also be reasonably held.”[17]

18.  This interpretation of the effect of the judgment in Carson Yeung is also evident from the Court of Appeal’s comment upon the Judge’s encapsulation of the contending submissions of the parties in the court below, contrasting the submissions of Mr Beel, counsel for the appellant at trial with those of counsel for the prosecution.  That encapsulation ran as follows:

“In court, Counsel says even if Defendant just honestly (but not reasonably) believed the money was from a legitimate source, that would suffice as a defence to the substantive offence of money laundering as well as to conspiracy to launder money. (Prosecutor disagrees. He says it is only a valid consideration for either offence if Defendant was honest and reasonable in holding his belief of the source of the money as legitimate).”[18]

19.  As to these divergent contentions, the Court of Appeal said:

“This would suggest that Mr Beel was urging upon the judge a correct statement of the law whilst the prosecutor was inviting the judge to apply the law in an incorrect manner.”[19]

20.  After analysing the Judge’s findings, the Court of Appeal dismissed the appeal, holding that:

“... notwithstanding that the judge erred by not applying the correct law to his assessment of how the appellant’s claim as to the beliefs he held impacted upon proof that he had the mens rea of reasonable grounds to believe, the appeal must be dismissed. This is because, by a perfectly proper route, the judge reached a concluded view that the appellant’s claim as to his beliefs was not truthful. Having properly rejected that claim the judge correctly applied the Pang Hung Fai law in finding that the mens rea element of the offence had been proved beyond reasonable doubt.”[20]

21.  The appellant lodged an application for leave to appeal to this Court on the substantial and grave injustice basis, contending that the Court of Appeal did not have any valid alternative basis for upholding the conviction.[21] The Appeal Committee[22] granted leave on this basis and additionally, certified and granted leave on a question of law, held to be one of great and general importance, as to:

“Whether wilful blindness is a sufficient basis for sustaining liability under section 25(1) of the Organized and Serious Crimes Ordinance, Cap 455.”

22.  On 23 November 2018, shortly before the appeal came on for hearing on 27 November 2018,[23] the Court wrote to the parties, noting that this was a conspiracy case and that “a question appears to have been raised as to possible differences in the elements of the offence required to be proved in a case charged as a conspiracy as compared with a case charged as a substantive money laundering offence”.  The Court indicated that it might wish to be addressed “as to whether the aforesaid question concerning possible differences in the elements of the offence arises as a matter of law in the present case, touching on the issue of wilful blindness and on mens rea generally, especially in the light of section 159A(2) [of the Crimes Ordinance, Cap 200]”.

23.  The parties were not ready to deal with these questions at the hearing, so the appeal was adjourned to a date to be fixed, with the Court specifying by letter dated 27 November 2018, the expanded matters on which it wished to be assisted, namely, the questions set out at paragraph [5] above.

Question 1: What is the meaning of “having reasonable grounds to believe that any property … represents any person’s proceeds of an indictable offence” (abbreviated to “the property is tainted”) in section 25(1) of OSCO?

Question 2: What is the relevance of the defendant’s actual belief in determining whether the statutory test is satisfied?

24.  The Court has addressed these questions in Pang Hung Fai and Carson Yeung but the decision of the Court of Appeal in this case shows that clarification is necessary as to the effect of these decisions.

25.  In Pang Hung Fai [24], in a judgment with which all members of this Court agreed, Spigelman NPJ said that on most occasions the test propounded by the Appeal Committee in Seng Yuet Fong v HKSAR[25] would suffice:

“To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.”

26.  In Carson Yeung[26], this Court endorsed that proposition.  We remain of the view that the Seng Yuet Fong test correctly represents the law.  In the interests of clarity, however, we would reformulate the test 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.

27.  Thus the first issue that the judge or jury (“the court”) 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 only in as much as it requires the tribunal to make findings as to the knowledge of the defendant at the time of the relevant transaction.  Where the defendant gives evidence of facts and matters that affected his belief about the nature of the property, the court has to decide whether he is, or may be, telling the truth about the existence of these facts and matters.

28.  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.  This question is objective.  Where the court finds that the defendant was, or may have been, telling the truth about the existence of facts and matters that he claims affected his belief, the court must take those facts and matters into account when answering 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.

29.  Applying these principles in practice will normally be relatively straightforward where the defendant does not give or adduce evidence.  The court 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.  If the answer is “yes” the defendant will be convicted.  When the judge comes to sentence he or she will be likely to do so on the basis that the defendant must also have believed that the property was the proceeds of crime.

30.  Difficulty can arise in practice where the defendant gives evidence that he did not believe that the property was tainted. Although the test in law is objective – “would any reasonable person believe the property was tainted?” – in applying that test the court must give due consideration to the evidence given by the defendant as to what he believed and why.  The court 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?

31.  Normally the court will give the same answer to each question.  If the court concludes that no reasonable person in the position of the defendant could have failed to believe that the property was tainted the court is likely to reject the defendant’s assertion that he did not have this belief.  Applying the statutory test the defendant will be convicted.

32.  Conversely, where the court accepts that the defendant did not believe that the property was tainted, this is likely to be in circumstances where the court has concluded that a reasonable person in the position of the defendant would not necessarily have believed that the property was tainted. Applying the statutory test the defendant will be acquitted.

33.  A rare case may arise where the court concludes that any reasonable person in the position of the defendant would have believed that the property was tainted but nonetheless accepts the evidence of the defendant when he says that he did not have this belief.  This is only likely to arise in circumstances where it is apparent that the defendant lacks the reasoning abilities of the normal person.  In such circumstances, applying the statutory test, the defendant should be convicted but the fact that he did not himself believe that the property was tainted may well be a mitigating factor when he is sentenced.

34.  In the present case, the Judge held[27] that the appellant did not know that the funds that he handled represented the proceeds of an indictable offence and, accordingly, proceeded to consider whether he had “reasonable grounds to believe” that the funds were tainted.  He had no difficulty in finding that this test was satisfied.  He held that the appellant “ought to have known” that the funds were tainted but deliberately turned a blind eye to their provenance[28]. Nowhere did the Judge make an express finding as to the belief of the appellant as to the nature of the funds that were to be paid into his account. On the Judge’s view of the law he did not need to do so.  It sufficed to convict the appellant that he had “reasonable grounds to believe” that the funds were tainted.

35.  The Court of Appeal considered that the Judge had fallen into error in setting out his understanding of the meaning of “reasonable grounds to believe”.  The court further held that the Judge would have erred in law had he convicted the appellant notwithstanding having made a finding that the appellant did not believe that the funds were tainted.  It found, however, on true analysis of his judgment, he had not accepted the appellant’s evidence that he “held a genuine belief in the legitimacy of this transaction”[29]. On this basis the Court of Appeal upheld the judgment.

36.  As we shall explain, it was the Court of Appeal and not the Judge that erred in explaining the test of “reasonable grounds to believe”.  The confusion that is demonstrated by the difference between the reasoning of the Judge and that of the Court of Appeal in this case has its origin in some passages in the judgment of Spigelman NPJ in Pang Hung Fai.

37.  In that case the Defendant ‘Pang’ had permitted a friend ‘Kwok’ to use his Hong Kong bank account to receive and then to remit to Cambodia very substantial funds.  These funds were the proceeds of a fraud perpetrated by Kwok.  Pang was charged with breach of section 25 of OSCO.  The case against him was not that he knew that the sums were tainted but that he had reasonable grounds to believe that they were tainted.

38.  The prosecution case, not untypically, was founded largely on the adverse conclusions that would reasonably be drawn from the nature of the transactions themselves.  Pang gave evidence that he did not suspect that the funds were tainted because “on entirely reasonable grounds, he had trusted Kwok implicitly”[30]. He gave detailed evidence of why he trusted Kwok.  This included the fact that they had been friends for over 30 years, he had always found him to be scrupulous, and had never known him to do anything dishonest or dishonourable nor to have his integrity or honesty questioned.

39.  The relevant issue was whether Pang’s alleged trust in Kwok’s honesty could be taken into account when considering whether he had reasonable grounds to conclude that the funds were tainted.  As to this, Spigelman NPJ held:

“83. I can see no reason why, when applying the words of the statutory formulation, what McWalters J called: ‘the personal beliefs, perceptions and prejudices’ of the accused should be entirely omitted from consideration. That does not mean that any such ‘perception or evaluation’, to use the words of the ground of appeal, is entitled to weight, let alone determinative weight.

84. The error, I believe, is in the reasoning process by which the statutory word ‘grounds’ has been replaced by the word ‘facts’. As I have said above, ‘facts’ is a narrower concept than ‘grounds’. It may be that a ‘belief, perception or prejudice’ is not a ‘fact’. However, such matters fit quite readily within the concept of a ‘ground’, which a particular person can be said to have ‘had’.

85. When assessing the whole of the evidence, the judge or jury can give such weight to an accused’s belief, perception or prejudice as s/he believes is warranted. No doubt, in many cases, that decision maker will entirely discount such evidence of the accused. Nevertheless, they are ‘grounds’ which stand or fall by the test of reasonableness.

…

88. For present purposes, Lord Sumption JSC put it precisely in Hayes v Willoughby [2013] 1 WLR 935, [14]: ‘Reasonableness is an external objective standard applied to the outcome of a person’s thoughts or intentions’.

89. In my opinion, contrary to the conclusion of the Court of Appeal, this approach does not convert an objective test into a subjective test.  …”

40.  We would make the following comments in relation to this passage.  The critical question in Pang Hung Fai was whether any reasonable person with Pang’s knowledge and experience, would have concluded that the funds were tainted.  Pang gave evidence that, prior to the transaction, he believed that Kwok was honest and that the facts of the transaction did not cause him to change that belief.  Spigelman NPJ held that the fact that Pang had believed Kwok to be honest was a relevant “ground” to be taken into consideration when deciding whether, nonetheless, any reasonable person would have concluded that the funds were tainted.

41.  As Spigelman NPJ made plain, however, it did not follow that any weight, let alone decisive weight, should be attached to Pang’s belief that Kwok was honest.  The question remained as to whether, despite having such belief prior to the transaction, any reasonable person would have concluded that the funds were tainted. That was an objective question.

42.  How much weight should be given to Pang’s belief that Kwok was honest depended critically on the grounds for holding that belief.  Had Pang only met Kwok a week before the transaction the fact that he considered Kwok to be honest would have carried little or no weight. What was significant was the long relationship between them before the transaction, which provided grounds to believe that Kwok was honest.  Spigelman NPJ criticized the trial judge for failing to take proper account of these matters[31].  Both Pang’s trust in Kwok and the reasons for that trust should together have been weighed in the balance when deciding whether any reasonable person, having the grounds that Pang had, would have concluded that the funds were tainted.

43.  The grounds that Pang had for believing that Kwok was honest were equally grounds that he had for believing that the funds were not tainted.  Where, as in Pang Hung Fai, a defendant gives evidence that he held a relevant belief or perception at the time of the impugned agreement the appropriate course for the trial judge or the jury is to have regard to all the grounds that the defendant had for holding such belief or perception when considering the fundamental question – “would anyone, looking objectively at the grounds that the defendant had, conclude that the property was tainted?”  As Spigelman NPJ emphasized the test is an objective one.

44.  We turn to consider the decision of this Court in Carson Yeung.  That case also involved charges of contravening section 25(1) of OSCO by using bank accounts to deal with very large sums of money.  A number of issues fell to be considered by this Court.  The relevant issue required the Court to reconsider the meaning of “having reasonable grounds to believe”in the light of the decision in Pang Hung Fai.  In particular, the Court had to consider to what extent the Court had to make findings about the defendant’s state of mind when deciding whether he had “reasonable grounds to believe”.

45.  At paragraphs 110 to 114 the Court gave three examples of cases where it was necessary to consider the defendant’s state of mind.  In each case the reason why it was necessary to do so was to decide whether there were circumstances known to the defendant which would or could have affected his or her belief as to whether the relevant property was tainted.  What was material was not whether the defendant subjectively believed that the property was not tainted but whether the defendant was aware of facts and circumstances that might reasonably lead to the conclusion that the property was not tainted.

46.  The first case considered[32] was HKSAR v Yan Suiling[33]. In that case the defendant’s explanation in respect of the impugned transactions was that they were pursuant to transactions designed to circumvent the Mainland’s exchange control regulations.  Had this been true it would have supported her case that she had no grounds for believing that the relevant funds were the proceeds of an indictable offence.  The Court did not believe her explanation.

47.  The second case considered[34] was HKSAR v Li Kwok Cheung George[35]. In that case it was the defendants’ case that the property dealt with consisted of clean funds provided by a financial services company, albeit that they were intended to be used for the purposes of fraud.  If this was true, as the Court found, there were no reasonable grounds to believe that the funds in question were the proceeds of an indictable offence.  Once again the Court was concerned with the relevant background facts known to the defendants, not whether they subjectively believed that the funds were not tainted.

48.  The third case considered was Pang Hung Fai itself. This Court cited the following passage from the judgment of Spigelman NPJ[36]:

“106. … Although earlier in his judgement, the trial judge sets out the close personal and business relationship between the two men, extending as it did over decades, none of these factors are contained in the list of facts available for consideration by the ‘commonsense, right-thinking member of the community’ at [101]-[107]. Accordingly, even the matters referred to in [102], [103] and [104] are out of context. More importantly, none of these other aspects of the relationship are listed as facts which the ‘reasonable person’ took into account. This error is probably a result of asking the HKSAR v Shing Siu Ming questions in the wrong order.

107. In my opinion the appellant’s contention that the list of grounds considered by the trial judge was too narrow should be upheld.”

49.  This citation exemplifies the point that we have made at paragraph [42] above.  It is the facts and circumstances that a defendant asserts led him to a particular belief or perception that are significant rather than the subjective belief or perception itself.

50.  In Carson Yeung this Court went on to say this[37]:

“If … the evidence provided by the defendant as to what he perceived and believed is accepted as true or as evidence which may be true; and if true would be inconsistent with him having reasonable grounds to believe that the property in question represents the proceeds of crime, an acquittal is called for since an essential mens rea element cannot be established against the defendant.”

51.  The phrase that we have emphasized is of critical importance.  A belief or perception held by the defendant will only be inconsistent with his having reasonable grounds to believe that property is tainted if that belief or perception is itself founded on reasonable grounds. That is why the important question is not merely what beliefs or perceptions the defendant may have had but the grounds advanced by the defendant for holding the alleged beliefs or perceptions.

52.  In Carson Yeung this Court continued as follows[38]:

“No difficulty arises if the defendant’s evidence provides a plausible explanation for his dealing with the property. But what of the situation where the defendant’s asserted perceptions or beliefs, even though believed, would strike others as excessively naïve or gullible or foolish in the light of objective facts known to the defendant which would have led others readily to believe that reasonable grounds existed to believe that the property was tainted? The facts of HKSAR v Pang Hung Fai furnish a possible example. Many people might well have considered it suspicious for Kwok to ask Pang to receive payments into Pang’s bank account and then to remit the funds to Cambodia shortly afterwards for no apparent reason. Kwok, as Pang must have known, undoubtedly had his own bank accounts and, given his substantial business interests in Cambodia, undoubtedly had ample means of transferring funds between Hong Kong and that country. However, given the evidence of his long and particularly close friendship with Kwok described above, if there had been a retrial, Pang might have been able plausibly to claim that he had asked no questions because he trusted Kwok implicitly, believing him to be an honourable and substantial businessman and that he had no reason to suspect that the funds were the proceeds of crime. The principle which requires the focus to remain on whether the defendant had the requisite reasonable grounds to believe dictates that even in such cases, the offence is not made out.”

53.  The Court of Appeal in the present case referred to the passages of Carson Yeung set out above[39].  It went on to advance the following propositions.

“40. As a result of the Court of Final Appeal decision in Yeung Ka Sing Carson the law is now settled on the mens rea element of the section 25(1) OSCO offence.

41. When a defendant gives evidence and testifies as to his perceptions and beliefs in respect of the property with which he dealt, or as here conspired to deal, the court is called upon to determine two issues, namely:

(i) does it accept that the defendant’s evidence is true or may be true; and

(ii) if it does so accept, would that evidence be inconsistent with the defendant having reasonable grounds to believe that the property in question represents the proceeds of crime?

42. If both questions are answered in the affirmative then the defendant will be entitled to an acquittal. The second question will almost inevitably be answered in the affirmative as the whole purpose of the defendant testifying will be to advance a defence which, if accepted, will secure his acquittal.

43. Thus the primary focus of the court will be on the first question. The judgments of the Court of Final Appeal, both in Pang Hung Fai and in Yeung Ka Sing Carson, make it clear that it is for the court to assess the claim made by a defendant as to his perceptions and beliefs and to decide what weight it should give to that claim.

44. In Pang Hung Fai, Spigelman NPJ, in giving a judgment with which the other members of the court agreed, emphasized that having regard to a defendant’s perceptions and beliefs did not mean that those perceptions or beliefs were ‘entitled to weight let alone determinative weight.’ He went on to say at paragraph 85 of his judgment:

‘85. When assessing the whole of the evidence, the judge or jury can give such weight to an accused’s belief, perception or prejudice as s/he believes is warranted. No doubt, in many cases, that decision maker will entirely discount such evidence of the accused. Nevertheless, they are ‘grounds’ which stand or fall by the test of reasonableness.’

45. Thus, as with the testimony of any witness, it falls to the judge to determine whether what the defendant said is true or, where the witness is a defendant, might be true. In performing this task the judge, again as with any witness, has regard to the inherent plausibility of the defendant’s testimony.

46. The more reasonable a defendant’s testimony the more plausible it will be and the more plausible it is the more the court will be inclined to accept that it is or may be true. In this way the reasonableness of a defendant’s claim as to his perceptions or beliefs is relevant to the court’s determination of whether the defendant’s evidence as to his perceptions and beliefs is true and that he did genuinely hold the perceptions or beliefs that he claims he held.

47. However, what the court cannot do is require that the defendant’s perceptions or belief be reasonably held in addition to being genuinely held. This was made clear by the Court of Final Appeal in Yeung Ka Sing Carson at paragraph 119 of its judgment …”.

54.  Thus the Court of Appeal has interpreted Pang Hung Fai and Carson Yeung as imposing a subjective test of belief, so that if the court concludes that the defendant believed, or may have believed, that the property was not tainted he will be entitled to be acquitted, even if that belief was not reasonable.  On this basis the Court of Appeal held (i) that Mr Beel for the appellant was correct to contend that an honest belief that the funds were clean would suffice to establish a defence and (ii) that prosecuting counsel was wrong to submit that only an honest and reasonable belief that the funds were clean could provide a defence.

55.  Whilst we can see how paragraph 119 of Carson Yeung (at paragraph [52] above)might give rise to the interpretation which the Court of Appeal applied, the interpretation of Pang Hung Fai and Carson Yeung is not in fact correct and does not reflect what was intended.  Its starting point in paragraph 42 is that the defendant’s perception or belief is likely to be determinative of the question of whether or not there were reasonable grounds to believe that the property was tainted.  This ignores Spigelman NPJ’s statements, quoted by the Court of Appeal, that the defendant’s perceptions would not necessarily carry any weight, let alone determinative weight.  It is contrary to the observation of Spigelman NPJ that the test is objective, and it conflicts with the second limb of the test in Seng Yuet Fong, approved by this Court in Pang Hung Fai and Carson Yeung (at paragraphs [25]-[26] above).  The Court of Appeal has failed to appreciate the words that we have emphasized in paragraph 119 of Carson Yeung that on the facts of Pang Hung Fai, “given the evidence of his long and particularly close friendship with Kwok …, Pang might have been able plausibly to claim that he had asked no questions because he trusted Kwok implicitly, … and that he had no reason to suspect that the funds were the proceeds of crime” (emphasis in bold added).  These are the words of the application of an objective, not a subjective test.

56.  What this Court was emphasizing at paragraph 119 of Carson Yeung was the need to apply the test of “reasonable grounds to believe”from the viewpoint of the defendant, having regard to all the facts and circumstances known to him, and not from the viewpoint of an objective bystander considering simply the adverse inferences to be drawn from the details of the transaction itself.  This Court was certainly not intending to indicate that the defendant was entitled to be acquitted if he believed, or may have believed, that the property was not tainted, where he did not have reasonable grounds for such belief.

57.  Once the court has determined, having due regard to the defendant’s evidence if he has testified, what facts and matters affected, or may have affected, his belief as to whether or not the relevant property was tainted, including any facts or matters that may have led him to form personal beliefs, perceptions or prejudices, the court must then ask the objective question of whether, any reasonable person, affected by all those facts and matters, would have been bound to conclude that the property was tainted.

58.  In a case such as Pang Hung Fai the court has to weigh the matters of which the defendant had personal knowledge, which would incline a reasonable person to believe that the transaction was clean, against the particulars of the impugned transaction itself, which would incline a reasonable man to believe that the transaction was tainted.  If on balancing all these matters any reasonable person would be bound to come to the conclusion that the transaction was tainted, the defendant will properly be convicted.  If, on balance, a reasonable man might conclude that the transaction was clean, an acquittal must follow.

59.  The interpretation that this Court has given to “reasonable grounds to believe” accords with the interpretation that the Supreme Court of the United Kingdom has recently given in R v Lane[40] to the similar phrase “reasonable cause to suspect”.

60.  Section 17 of the United Kingdom Terrorism Act 2000 provides:

“A person commits an offence if–

(a) he enters into or becomes concerned in an arrangement as a result of which money or other property is made available or is to be made available to another, and

(b)   he knows or has reasonable cause to suspect that it will or may be used for the purposes of terrorism.”

61.  The Supreme Court identified the question raised by the appeal as follows[41]:

“The question which arises on this appeal concerns the correct meaning of the expression ‘has reasonable cause to suspect’ in s 17(b). Does it mean that the accused must actually suspect, and for reasonable cause, that the money may be used for the purposes of terrorism? Or is it sufficient that on the information known to him there exists, assessed objectively, reasonable cause to suspect that that may be the use to which it is put?”

62.  The Supreme Court, after considering the language of the statute and its statutory context, concluded that the latter alternative was the correct one.  In so doing it distinguished, and circumscribed, the effect of the decision of the Supreme Court on mens rea in R v Saik[42] (“Saik”).

63.  The Supreme Court observed that the relevant provision did not create an offence of strict liability,[43] adding the following comment, which is relevant in the context of the present case:

“The requirement that there exist objectively assessed cause for suspicion focuses attention on what information the accused had. As the Crown agreed before this court, that requirement is satisfied when, on the information available to the accused, a reasonable person would (not might or could) suspect that the money might be used for terrorism. The state of mind of such a person is, whilst clearly less culpable than that of a person who knows that the money may be used for that purpose, not accurately described as in no way blameworthy.”

64.  In the present case the Judge rightly preferred the submissions of law made by counsel for the prosecution to those made by counsel for the defence.  He applied the right test to his findings of fact and properly convicted the appellant or would properly have done so had the appellant been charged with the substantive offence of contravening section 25(1) of OSCO rather than with conspiracy.  The effect of charging conspiracy is considered below.

Question 3: To what extent is “wilful blindness” relevant in determining whether the statutory test is satisfied?

65.  The legal doctrine of “wilful blindness” has been used by courts in cases where actual knowledge of a fact or of particular circumstances is an essential ingredient of the offence.  Under the doctrine a defendant is treated as having such knowledge if, having been put on enquiry, he has deliberately refrained from making enquiries that would have resulted in his acquiring the knowledge in question.  The doctrine is controversial inasmuch as it has attracted academic and judicial criticism.

66.  A useful summary of the doctrine whereby, on given facts, the defendant’s wilful blindness can properly be equated with actual knowledge is set out in Simester and Sullivan’s Criminal Law – Theory and Doctrine.[44] The authors put this as follows:

“… This doctrine applies where the defendant intentionally chooses not to inquire whether something is true because he has no real doubt what the answer is going to be. Its effect is to attribute knowledge of the circumstance to the defendant. In other words, where the wilful blindness doctrine applies, the law will treat the defendant as having actual knowledge …, and not merely the reckless knowledge that he otherwise would have.

The conditions under which the doctrine applies are not capable of being stated precisely. Broadly speaking, if there is an obvious way of finding something out and the defendant deliberately shuts his eyes to a risk by failing to find out, he will not be permitted to exculpate himself by claiming that he did not know the truth. Wilful blindness covers the case where D ‘deliberately refrained from making inquiries the results of which he might not care to have’.

…

On the other hand, wilful blindness cannot be invoked just because D should have inquired into the facts, or even if he suspected the truth; otherwise knowledge would effectively be indistinguishable from recklessness. However, the line between recklessness and wilful blindness is a fine one. It appears that the defendant is wilfully blind in two situations. The first is if he shuts his eyes and fails to enquire because he is virtually certain what the answer will be.

…

Alternatively, the wilful blindness doctrine will also apply if the means of knowledge are easily to hand, and D realises the likely truth of a matter but refrains from enquiry in order not to know.

…

It should be emphasised that wilful blindness is a doctrine of substantive rather than evidential law. It imputes knowledge to the defendant for legal purposes where there is not, in fact, such knowledge. Even if the doctrine does not apply, however, there remains the further possibility that a jury may infer actual knowledge on the part of the defendant (i.e. that in fact he accepted the truth and had no serious doubt), from evidence that D recognised the likely circumstances and made no further enquiry.”[45]

67.  Given that the conditions under which the doctrine applies are not capable of precise formulation, counsel have helpfully placed before us a number of citations from various jurisdictions.  They generally support the summary cited in the preceding paragraph but two may be extracted which are succinct and particularly useful.  In The Queen v Crabbe[46], the High Court of Australia approved the following statement by Professor Glanville Williams:

“A court can properly find wilful blindness only where it can almost be said that the defendant actually knew. He suspected the fact; he realised its probability; but he refrained from obtaining the final confirmation because he wanted in the event to be able to deny knowledge. This, and this alone, is wilful blindness. It requires in effect a finding that the defendant intended to cheat the administration of justice.”[47]

68.  In Pereira v DPP, the High Court of Australia sounded some warnings, namely, that the concept does not detract from the requirement to prove actual knowledge; that it is the knowledge of the accused person that must be proved and not that of a hypothetical person in the position of the accused; and that where knowledge is to be inferred, it must be the only rational inference available:

“Even where, as with the present charges, actual knowledge is either a specified element of the offence charged or a necessary element of the guilty mind required for the offence, it may be established as a matter of inference from the circumstances surrounding the commission of the alleged offence. However, three matters should be noted. First, in such cases the question remains one of actual knowledge … . It is never the case that something less than knowledge may be treated as satisfying a requirement of actual knowledge. Secondly, the question is that of the knowledge of the accused and not that which might be postulated of a hypothetical person in the position of the accused, although, of course, that may not be an irrelevant consideration. Finally, where knowledge is inferred from the circumstances surrounding the commission of the alleged offence, knowledge must be the only rational inference available. All that having been said, the fact remains that a combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter. In a case where a jury is invited to draw such an inference, a failure to make inquiry may sometimes, as a matter of lawyer’s shorthand, be referred to as wilful blindness. Where that expression is used, care should be taken to ensure that a jury is not distracted by it from a consideration of the matter in issue as a matter of fact to be proved beyond reasonable doubt.”[48]

69.  Despite the fact that the Reasons for Verdict are replete with findings that the appellant frequently and deliberately turned a blind eye to highly suspicious circumstances, the Judge, having found that Diallo had not told the appellant about the fraud, concluded that the appellant “cannot be held to know the USD539,375 represented proceeds of an indictable offence.”[49]  But he held that the appellant had reasonable grounds to believe that the funds represented the proceeds of an indictable offence.  Since, on one view, it might be said that it was open to the Judge to infer actual knowledge from his findings of wilful blindness, and since the doctrine has not been the subject of analysis by this Court in the context of section 25(1) of OSCO, the Court invited the parties to address the issue.

70.  There is no reason, in principle, why the doctrine may not be applied to the knowledge limb of section 25(1) of OSCO, in other words as a basis from which to infer actual knowledge that the property represents the proceeds of an indictable offence, provided:

(a)     it is proved that the property was in fact the proceeds of an indictable offence, since one cannot know something to be so unless it is in fact so;

(b)     it is remembered that it is actual knowledge that must be proved;

(c)     it is remembered that it is not a question of whether the defendant should have made inquiries or whether the reasonable man would have made inquiries, although the latter issue may be relevant, though not conclusive, in deciding whether the defendant deliberately refrained from making inquiries; and

(d)     knowledge is the only reasonable inference to be drawn from the fact of wilful blindness and the other evidence in the case.

71.  Where, however, an offence is charged under section 25(1) of the OSCO it will normally not be necessary or helpful to apply the controversial doctrine of wilful blindness in order to establish knowledge.  This is because of the statutory alternative basis for conviction of “reasonable grounds to believe”.  Where a person has been “wilfully blind” to the existence of a fact or of particular circumstances, he will almost always have had reasonable grounds to believe that the fact or circumstances in question existed.  Thus it is better to concentrate on the statutory test of whether the defendant had “reasonable grounds to believe” rather than to introduce the doctrine of “wilful blindness”.

72.  In coming to the conclusion that the appellant had reasonable grounds to believe that the funds represented the proceeds of an indictable offence, the Judge itemised various indicia of illegality which must have been obvious to the appellant and his Reasons for Verdict are peppered with references to turning a blind eye to obviously suspect circumstances.  He referred, for example, to a situation which was “so questionable that it calls for immediate rigorous proof or due diligence enquiry,”[50] such that the

“[d]efendant in such circumstance ought to think or dig deep into the matter. Yet, he did not but simply turned a blind eye to the situation. … He was unreasonably contented with the scarce information he had of the highly suspicious deal … . I am sure anyone looking objectively at the grounds Defendant had would believe differently from Defendant, who was in fact turning a blind eye to a highly questionable situation which he must have so appreciated. Anyone looking objectively at such grounds Defendant had would believe the money involved represented in whole or in part, directly or [indirectly] the proceeds of an indictable offence. Defendant ought to have known that but he chose not to. … In the present case, I find Defendant’s so-called ‘belief’ was just ill-founded and equivalent to turning a blind eye to obvious suspicion.”[51]

73.  Wilful blindness also featured prominently in the Judge’s Reasons for Sentence:

“24. … Defendant’s criminality lies in his letting others to use SIAT’s Account A to receive the money coming from a highly suspicious offer which he accepted blindly. However, Defendant was not, as his counsel puts it, a duped victim himself. The communication records between Defendant and coolsaintt reveal that Defendant was always willing and ready to offer bank accounts under his control in different places for coolsaintt’s clients to deposit money. I reject Defendant’s explanation that it was for confirming house business. I find that Defendant offered different accounts for money-conduit dealing. The present case demonstrates Defendant blindly accepted whatever the agent coolsaintt told him. Defendant chose not to exercise any scrutiny or judgment which he was capable of rendering if he wanted to.

25. … Defendant is not as culpable as the fraudsters or as coolsaintt, who knew the fraud. Defendant is culpable as he cared not about the source of the funds.”[52]

74.  While, as demonstrated above, the judge made frequent reference to the appellant turning a blind eye, he was doing so merely to underline his conclusion that the appellant had “reasonable grounds to believe” that the relevant funds were tainted.  He was not applying the legal doctrine of “wilful blindness” to establish knowledge. This is clear from the fact that he made an express finding that the appellant did not know that the property was tainted.

Question 4(a): Given the requirements of section 159A(2) of the Crimes Ordinance, can there be an offence of conspiracy to deal with property having reasonable grounds to believe that such property … represents any person’s proceeds of an indictable offence?

75.  Section 159A of the Crimes Ordinance provides that:

“(1) Subject to the following provisions of this Part, if a person agrees with any other person or persons that a course of conduct shall be pursued which, if the agreement is carried out in accordance with their intentions, either –

(a) will necessarily amount to or involve the commission of any offence or offences by one or more of the parties to the agreement; or

(b) would do so but for the existence of facts which render the commission of the offence or any of the offences impossible,

he is guilty of conspiracy to commit the offence or offences in question.

(2)     Where liability for any offence may be incurred without knowledge on the part of the person committing it of any particular fact or circumstance necessary for the commission of the offence, a person shall nevertheless not be guilty of conspiracy to commit that offence by virtue of subsection (1) unless he and at least one other party to the agreement intend or know that that fact or circumstance shall or will exist at the time when the conduct constituting the offence is to take place.”

76.  By reference to the terms of subsection (2), the question, more specifically framed, is whether criminal liability under section 25(1) of OSCO may be incurred “without knowledge on the part of the person committing it of any particular fact or circumstance necessary for the commission of the offence”.  The question is generated by the phrase in section 25(1) “having reasonable grounds to believe”, since it renders a person liable to conviction when he does not know that the property with which he deals represents the proceeds of an indictable offence, but only has reasonable grounds to believe that it does.

77.  As the Court recently explained in HKSAR v Lai Kam Fat,[53] the genesis of subsection (2) is the decision of the Court of Criminal Appeal in Churchill v Walton[54], prior to which “[c]onspirators charged with agreeing to commit a strict liability offence could be convicted on the mere intention to agree.”[55]  The appellant in that case had been charged with conspiring to contravene a provision of the Customs and Excise Act 1952 which prohibited the use of oils as fuel for vehicles if, in anticipation of domestic use, there had been a rebate of duty unless the amount of the rebate had been paid to the Commissioners of Customs and Excise.  It was an offence of strict liability. The trial judge directed the jury that all that was necessary to warrant a conviction for conspiracy to use the oil in road vehicles where the amount of the rebate had not been paid to the Commissioners, was proof of the agreement to use oil which had not in fact borne the requisite tax and was not going to do so, adding “[i]t does not involve any proof of dishonest intent or of knowledge that such use would cheat the revenue … .”[56]  The House of Lords held this to be a misdirection, since defendants could only be guilty of conspiracy “[i]f what they agreed to do was, on the facts known to them, an unlawful act,” and that “[i]f, on the facts known to them, what they agreed to do was lawful, they are not rendered artificially guilty by the existence of other facts, not known to them, giving a different and criminal quality to the act agreed upon”.[57]

78.  In the subsequent report by the Law Commission (England and Wales) that principle was endorsed:

“What the prosecution ought to have to prove is that the defendant agreed with another person that a course of conduct should be pursued which would result, if completed, in the commission of a criminal offence, and further that they both knew any facts which they would need to know to make them aware that the agreed course of conduct would result in the commission of the offence.”[58]

79.  The rationale for this approach was explained by Lord Nicholls in Saik:

“The rationale underlying this approach is that conspiracy imposes criminal liability on the basis of a person’s intention. This is a different harm from the commission of the substantive offence. So it is right that the intention which is being criminalised in the offence of conspiracy should itself be blameworthy. This should be so, irrespective of the provisions of the substantive offence in that regard.”[59]

80.  Following the Law Commission’s report, the Criminal Law Act 1977 was enacted.  Section 159A(1) of the Crimes Ordinance is in the same terms as section 1 of that Act.

81.  Lord Nicholls’ analysis or explanation of section 1(2) of the Act is, for present purposes, particularly instructive:

“7. Under this subsection conspiracy involves a third mental element: intention or knowledge that a fact or circumstance necessary for the commission of the substantive offence will exist. Take the offence of handling stolen goods. One of its ingredients is that the goods must have been stolen. That is a fact necessary for the commission of the offence. Section 1(2) requires that the conspirator must intend or know that this fact will exist when the conduct constituting the offence takes place.

8. It follows from this requirement of intention or knowledge that proof of the mental element needed for the commission of a substantive offence will not always suffice on a charge of conspiracy to commit that offence. In respect of a material fact or circumstance conspiracy has its own mental element. In conspiracy this mental element is set as high as ‘intend or know’. This subsumes any lesser mental element, such as suspicion, required by the substantive offence in respect of a material fact or [circumstance]. In this respect the mental element of conspiracy is distinct from and supersedes the mental element in the substantive offence. When this is so, the lesser mental element in the substantive offence becomes otiose on a charge of conspiracy. It is an immaterial averment. To include it in the particulars of the offence of conspiracy is potentially confusing and should be avoided.

9. The phrase ‘fact or circumstance necessary for the commission of the offence’ is opaque. Difficulties have sometimes arisen in its application. The key seems to lie in the distinction apparent in the subsection between ‘intend or know’ on the one hand and any particular ‘fact or circumstance necessary for the commission of the offence’ on the other hand. The latter is directed at an element of the actus reus of the offence. A mental element of the offence is not itself a ‘fact or circumstance’ for the purposes of the subsection.

10. This contrast can be illustrated by the offence of entering into an arrangement whereby the retention by another person (A) of A’s proceeds of crime is facilitated, knowing or suspecting A has been engaged in crime: section 93A of the Criminal Justice Act 1988, now repealed. The requirement that the defendant must know or suspect A’s criminal history is an element of the offence, but it is a mental element. The need for the defendant to have this state of mind is not a fact or circumstance within section 1(2). Another ingredient of the offence is that the property involved must be the proceeds of crime. That is a fact necessary for the commission of the offence and section 1(2) applies to that fact.” [60]

82.  It is not clear from the appellant’s submissions whether it is sought to be argued that the fact of the criminal provenance of the property (that is, that the relevant property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence) is a “fact or circumstance” of which an accused must have knowledge for the purposes of section 159A(2).  If this were required, then the answer to the Question posed under this section would have to be “No”, since a person who only has reasonable grounds to believe under the reasonable grounds limb of section 25(1) of OSCO would hardly ever (if not never) be able to have the requisite knowledge or intention. 

83.  However, the law in the United Kingdom relating to money laundering offences differs in a material aspect from the effect of section 25(1) of OSCO.  The relevant offences created by the Criminal Justice Act 1988 and the Drug Trafficking Act 1994 require proof that the property dealt with in fact represents the proceeds of criminal conduct or of drug trafficking, as the case may be,[61] whereas it is not an ingredient of a section 25(1) OSCO offence that the property must be the proceeds of crime.  The criminal provenance of the property is not a “particular fact or circumstance necessary for the commission of the offence”: HKSAR v Wong Ping Shui & another[62]; Oei Hengky Wiryo v HKSAR (No.2)[63]; HKSAR v Li Kwok Cheung George[64]; HKSAR v Yeung Ka Sing Carson[65]. Further, as held in Saik, the “fact or circumstance necessary for the commission of the offence” is “directed at an element of the actus reus of the offence” and “[a] mental element of the offence is not itself a ‘fact or circumstance’ for the purposes of the subsection.”[66]  In the context of section 25(1) of OSCO, the actus reus is the act of dealing with the property whereas “[t]he defendant’s mens rea is ... established if he is shown to know or to have reasonable grounds to believe that ‘any property’ in whole or in part represents ‘any person’s proceeds of an indictable offence’.”[67]

84.  Accordingly, the law in Hong Kong does not require it to be proved under the reasonable grounds limb of section 25(1) of OSCO that the relevant property dealt with was tainted.  It is not, in the language of section 159A(2), a “fact or circumstance necessary for the commission” of that offence.  This being the case, section 159A(2) simply does not apply to the reasonable grounds limb of section 25(1) of OSCO insofar as this fact or circumstance is concerned.  We would add that this was the conclusion reached by the Court of Appeal in HKSAR v Lung Ming Chu.[68]

85.  The answer to this Question is “Yes”.

Question 4(b): Given the requirements of subsection (1)(a) of section 159A, Crimes Ordinance, where defendants have reasonable grounds to believe that property is tainted, will they be guilty of conspiracy if they agree to deal with the property notwithstanding that those grounds may not exist at the time of the dealing?

86.  As seen above, there are two limbs to the offence set out in section 25(1) of OSCO: the “knowing” limb and the “reasonable grounds” limb.  We are in this appeal only concerned with the “reasonable grounds” part of section 25(1).  Notwithstanding that section 159A of the Crimes Ordinance sets out a composite scheme dealing with the requisites to establish the offence of a statutory conspiracy, section 159A(2) has no application as regards the “reasonable grounds” limb of section 25(1), leaving only section 159A(1) to be applied.  It is in these circumstances that we have to consider Question 4(b).  There are two facets to be considered: first, is it possible as a matter of law to have a conspiracy to commit the offence contained in the “reasonable grounds” limb of section 25(1) of OSCO in the first place; secondly, if this is possible, in what circumstances can the statutory conspiracy be committed?  Before these facets can be considered and Question 4(b) determined, it is first necessary to break down the requirements of section 159A(1).

87.  At common law, prior to the passing of the statutory provision, the offence of conspiracy essentially consisted of the making of an agreement between two or more persons to do an unlawful act.[69]  Statute has now made the definition more precise.  Section 159A(1)[70] can be broken down into the following components that have to be proved in order to establish the offence:

(1)     An agreement between two or more persons.

(2)     The future course of conduct agreed under that agreement to be pursued.

(3)     The intentions of the parties under the agreement.

(4)     Finally, it must be shown that if the agreement is carried out in accordance with the parties’ intentions, this will necessarily amount to or involve the commission of an offence by one or more of the parties to the agreement or would do so but for the existence of facts which render the commission of the relevant offence impossible.

88.  The following observations can be made in relation to these components of the offence.

89.  Paragraph [87(1)] causes little difficulty.  The question here is simply: have the parties made an agreement?  How the agreement is proved in a conspiracy is another matter and this aspect will be dealt with later.[71]

90.  The reference in paragraph [87(2)] to a course of conduct means the terms agreed between the parties as to what is to be done in the future under the agreement reached.  The question is: what was agreed to be done under the agreement?

91.  Then comes paragraph [87(3)]: the identification of the intentions of the parties under the agreement.  The course of conduct agreed between the parties under the agreement will obviously be a part of the parties’ intentions.  However, the term “intentions” goes beyond just considering the physical acts agreed to be done under the agreement.  They must relate also to the consequences the parties intend by their agreed acts.  For instance, to take a common example: A and B make an agreement that the following week they will put poison in V’s drink to give to him.  The agreed course of conduct is the physical act of putting poison in V’s drink and giving it to him; the intended consequence is that V will take that drink when it is given to him and is poisoned to death.  That the intended consequences are important to be considered is perhaps an obvious statement to make.  This is also the view of learned academic writers: see Smith, Hogan and Ormerod’s Criminal Law.[72]  Using the poison in the drink example, the authors are of the view that if consequences are not considered but instead only the physical acts comprising the course of conduct, this would be “absurd”.  The passage continues, “To avoid the absurdity, ‘course of conduct’ must be read to include the intended consequences – in this case, the death of V”.  Smith, Hogan and Ormerod take the view that the intended consequences should be regarded as part of the “course of conduct” referred to in section 159A.  Intended consequences may perhaps not easily fit into the words “course of conduct” but they would certainly be part of the parties’ intentions.  It is unnecessary to resolve this semantic debate as long as intended consequences are properly to be taken into account.  The intentions of the parties are however also relevant in considering the element of the offence set out in paragraph [87(4)] above.

92.  Before dealing with the component referred to in paragraph [87(4)] above, we should just make an additional point regarding the consideration of the parties’ agreed course of conduct and their intentions.  It is also necessary in the consideration of these components to look at the facts and circumstances that the parties had in mind in the performance of their agreement.  This is again a matter of common sense – one needs to examine the agreement in context.  Thus, in our murder example, one needs to examine what facts and circumstances the parties had in mind when their agreed course of conduct came to be pursued and carried out in accordance with their intentions.  These may comprise, for instance, the fact that A or B will arrange to meet V, be in a position to put the poison in his drink and make him drink it.  A consideration of the facts and circumstances that the parties had in mind are important in the consideration of whether an offence would necessarily be committed, the aspect referred to in paragraph [87(4)] above.  As Smith, Hogan and Ormerod state:[73] “To consider D’s liability for conspiracy, we therefore have to imagine that the course of conduct he intended was pursued and to ask, would it, when completed, have necessarily amounted to or involved the commission of any offence.”

93.  The essence of a conspiracy being the agreement to commit an unlawful act, the establishment of the unlawful act is the final crucial step.  The course of conduct under the agreement, if[74] this agreement is performed in accordance with the parties’ intentions thereunder, must[75] amount to or involve the commission of a crime by one or more parties to the agreement (or would do so but for the existence of facts which render the commission of the offence impossible).  A number of points can be made in relation to this aspect:

(1)     The particular offence needs to be identified.  All offences triable in Hong Kong are covered: section 159A(3).  In the present case, the relevant offence is the “reasonable grounds” limb of section 25(1) of OSCO.

(2)     In analysing whether or not an offence will “necessarily” be committed, the constituent elements of the particular offence will need to be satisfied.  Even without the requirements of section 159A(2), which as we have held has no application in the present case, there will be a need to satisfy both the actus reus and mens rea elements of the offence.  The actus reus part requires no further elaboration.  On mens rea, apart from the intention to carry out the agreement reached between the parties, the parties’ state of mind must also satisfy the mental ingredients of the substantive offence.  It was put in the following way by Lord Nicholls of Birkenhead in Saik:[76]

“Thus under this subsection[77] the mental element of the offence, apart from the mental element involved in making an agreement, comprises the intention to pursue a course of conduct which will necessarily involve commission of the crime in question by one or more of the conspirators. The conspirators must intend to do the act prohibited by the substantive offence. The conspirators’ state of mind must also satisfy the mental ingredients of the substantive offence.”

Accordingly, it must be shown that at the time the conspiratorial agreement is made, if the course of conduct agreed on were to be performed in accordance with their intentions, which on this analysis would necessarily be in the future a crime would be committed and this would include the necessary mens rea of that crime.

94.  The example used above[78] can be analysed with reference to the requisite components of section 159A(1):

(1)     The agreement is made between A and B.

(2)     The agreed course of conduct is to put poison in V’s drink next week.

(3)     Their intentions are that he will drink the poison and will die.

(4)     If the agreed course of conduct is pursued and the agreement is carried out in accordance with the said intentions, the offence of murder will necessarily be committed.  The requisite actus reus for the offence of murder consists of the act of killing V by putting poison in his drink, which it is intended V will take.  The requisite mens rea consists of the intention to kill V next week, this intention being in existence at the time the agreement was made.

95.  It is important to emphasize that for the purpose of establishing a conspiracy, the relevant time in the analysis is the time the agreement is made.  If the components that must be proved exist at the time the agreement is made, the statutory offence is established.  The offence lies in the making of the agreement and the intention of the parties to carry out that agreement in the future; the offence is established notwithstanding that there may be changes made thereafter or if there are any changes in intention or if the agreement is simply not performed.[79] Moreover, even if the agreement is impossible to perform because circumstances change, an offence is committed: see section 159A(1)(b).

96.  Analysed as above, one can accept that there can be a conspiracy to commit virtually any type of offence. The question for us is however whether it is possible to charge a conspiracy to commit the offence under the “reasonable grounds” limb of section 25(1) of OSCO.  The appellant says it is not possible.

97.  At first blush, it is difficult to see why it is not so possible.  In the context in which that provision operates, being the dealing of property, an agreement to deal with that property (by whatever means) would fulfill the first two components as required by section 159A(1).  As far as the intentions of the parties are concerned, these include the intention to deal with the relevant property at the agreed time.  So much can be accepted.

98.  But is there a problem with the need to show that an offence is “necessarily” committed?  The argument is put in the following way by the appellant in the present case:[80]

“105. But, in the context of the second limb of s 25 of OSCO, where there is an agreement to deal with property at some time in the future such dealing will not necessarily involve the commission of the substantive offence. That is because the question of whether the substantive offence is committed will depend on the state of mind of the person dealing with the property at the time of the dealing. The state of mind of a person at the time of his entering the agreement will not necessarily be his state of mind at the time of the dealing.

106.     It would be artificial and unrealistic to contend that at the time the agreement was entered into the parties knew and intended that at the time of the dealing, the dealer would have reasonable grounds for believing that the property was tainted.”

99.  This submission focuses on the required state of mind for the substantive offence.  As stated earlier,[81] it must be shown that at the time the conspiratorial agreement is made, if the agreement was performed as the parties intended it to be performed, that an offence would necessarily be committed and this would include the requisite mental state for the offence.  In our murder conspiracy example, the requisite mental state would be the intention to kill V the following week and this was the intention of the parties to the agreement at the time it was made.  Where the “reasonable grounds” limb of section 25(1) of OSCO is involved, can it ever be proved that at the time the agreement is made, the parties would have the requisite mental state for the commission of the offence when their agreement was performed?

100.  Conceptually, the answer is “Yes”. For instance, if it can be proved that at the time the agreement is made, the parties had at that time reasonable grounds to believe that the property they planned to deal with was and would remain tainted and they agreed to deal with such property in the future, then an offence – the “reasonable grounds” limb of section 25(1) – would necessarily be committed.  Both the actus reus of the offence (dealing with the property) and the mens rea (having reasonable grounds to believe that the property is tainted) would be established.  Put another way, in this scenario, the analysis can be summarised as follows: “Knowing what I know about the character of the property I will be dealing with (and this includes the reasonable grounds to believe it is and will remain tainted), I intend to deal with that property next week.”  This will be a part of the relevant facts and circumstances envisaged by the parties when the agreement is carried out in accordance with their intentions.  At the time an agreement is made, the parties must have an idea of the nature or character of the property they intend to deal in.

101.  The following may help further illustrate this.  A and B make an agreement that next week, when monies become available from a dubious source, they will be deposited by B into A’s accounts and, after they are deposited, A will then withdraw the monies on B’s instructions.  Both A and B have at the stage the agreement is made reasonable grounds to believe that these monies are and will remain tainted, and with these grounds, they intend to pursue the said course of conduct and carry out their intentions to so deal with the monies.  The constituent components of section 159A(1) are satisfied:

(1)     An agreement is made between A and B.

(2)     The course of conduct agreed to be pursued between the parties consists of dealing with the monies that will materialise the following week by B depositing them into A’s accounts and then A withdrawing the monies on B’s instructions.

(3)     The intentions of the parties as at the date their agreement is made are to deal with the monies in accordance with the course of conduct agreed to be pursued having reasonable grounds to believe that they are and will remain tainted monies.  That is to say, they intend to deal with the monies next week in the way they have agreed having reasonable grounds to believe that they are and will remain tainted monies. 

(4)     If the agreed course of conduct is pursued and the agreement between A and B is carried out in accordance with the parties’ said intentions, this will necessarily amount to or involve the commission of a crime (namely the “reasonable grounds” limb of section 25(1) of OSCO).  The actus reus of the offence (dealing with the monies as aforesaid) and the mens rea (having reasonable grounds to believe that the property is tainted) will be established.

102.  The appellant’s argument[82] proceeds on the basis that the state of mind of the person dealing with the property at the time that person enters into the conspiratorial agreement may be different to the relevant state of mind at the time of the dealing.  This is acutely so when one is dealing with the “reasonable grounds” limb of section 25(1) of OSCO.  The facts available to A at the time of the agreement to suggest there exist reasonable grounds to believe that the property is tainted may change by the time the property is actually dealt with.  How can it then be said that a crime will “necessarily” be committed?  Or, as the appellant also contends, how can it be said that the parties knew and intended that at the time of dealing, the dealer would then have reasonable grounds to believe that the property was tainted?

103.  Superficially attractive though the appellant’s arguments appear to be, they are not with respect sound and cannot be accepted:

(1)     The focus must be on the parties’ intentions at the time the agreement is made.  If the evidence shows that the intention was to deal with the relevant property at the appointed time in the future, knowing the character and nature of that property, a conspiracy is established: see paragraphs [100] and [101] above.  For the avoidance of doubt, although one must focus on the parties’ intentions as at the date of the agreement, it is necessary to demonstrate that the parties had the intention to deal with the relevant property in the future, that property having the nature and character of property which there are reasonable grounds to believe is and will remain tainted property.

(2)     The fallacy of the appellant’s approach is that it does not follow what is required to be considered under section 159A(1).  It is no answer to refer to the fact that circumstances may change after the time the agreement is made and that therefore the state of mind of the conspirators or any of them may not be the same as at the date of the agreement.  It is crucial to look at the matter at the date the agreement is made and not take into account subsequent events: see paragraph [95] above.

(3)     The reference in section 159A(2) to intention and knowledge of facts and circumstances is a reference to the actus reus, not the mens rea, of an offence.[83]  The more important, indeed the critical, inquiry is to identify the intentions of the parties under the agreement they have made and then proceed to assess whether an offence would necessarily be committed.  If they intended to deal with property that had the character and nature of property which they had reasonable grounds to believe was and would remain tainted, an offence is committed.  Thus, if a defendant who has reasonable grounds to believe property is tainted agrees unconditionally with another to deal with that property in the future, pursuing a course of conduct which, if carried out accordingly with this intention, this will necessarily amount to the commission of an offence under the reasonable grounds limb of section 25(1) of OSCO.

104.  From the above, it can now be seen that a conspiracy to commit the offence under the “reasonable grounds” limb of section 25(1) of OSCO is as a matter of law possible, depending on the circumstances.  Naturally, whether or not a conspiracy can be established depends entirely on the evidence.  Here it is worthwhile reminding ourselves how criminal conspiracies are often sought to be proved.  In many ways, there is an air of artificiality about the offence of conspiracy in that while the analysis must be conducted in relation to the agreement reached by the alleged conspirators, the terms thereof and the parties’ intentions thereunder are proved only rarely by adducing direct evidence of the making of the agreement. In a civil case, agreements and their terms are proved by direct evidence of the making of the agreement, whether it is made orally or in writing.  By contrast, in a criminal conspiracy, which is regarded as a continuing offence,[84] the evidence of each of the requisite components in section 159A(1) is often inferred from the overt acts of the parties, usually over a period of time.[85]  As was put by Lord Diplock in DPP v Knuller (Publishing, Printing and Promotions) Ltd[86]: “In most cases of conspiracy, the prior agreement is itself only inferred from the acts which have been done in pursuance of it.”[87]  From such overt acts are also to be drawn inferences going to the state of mind of the parties.[88]

105.  On the facts of the present case, the appellant made available his bank account or accounts as a conduit for funds from and to third parties and in the period leading up to his receipt and transfer of those funds at all material times, he had reasonable grounds to believe that the funds were tainted.  This was a part of the character of the property with which he was to deal.  It is in that factual context that he agreed to make his bank account available.  He now argues that between the time he agreed to make his bank account available for apparently tainted funds and the time the funds arrived, the grounds for belief may change.  And yet if one asks the question what was his intention at the time of the agreement, the answer must be that he intended to make his account available as a conduit knowing the character of these funds.  If he had been asked at the date of the agreement, “will you make your account knowing the character of the funds?”, he would answer “of course I will”.  Why is that not an agreement which, if carried out in accordance with that intention, would necessarily amount to or involve the commission of an offence?

106.  In the present case, the inferences to be drawn against the appellant are strong.  The trial judge found that Diallo knew of the fraud,[89] although he was not satisfied that the appellant did.  The evidence was of a frequent exchange of emails concerning the receipt into a SIAT account of US$539,375 with Diallo asking the appellant to “get the money out the next day if it came through”;[90] of the appellant expressing anxiety that Diallo’s request to move money to various accounts would cause the bank to investigate;[91] of an absence of any discussion between the appellant and Diallo as to who was to buy what;[92] of reasons given by the appellant for the receipt of such a large sum which made no commercial sense; of no questions asked as to why SIAT was chosen to receive the funds;[93] and of a situation which from beginning to end reeked of illegality. In the context of the evidence adduced in the present case, it would be entirely unrealistic to suppose that either Diallo or the appellant contemplated a set of circumstances prevailing at the date of dealing other than one which continued to reek of that illegality. There could be no realistic doubt that those were the circumstances in which they intended to deal. Accordingly, there is no basis, on the facts of the present case, to conclude other than that the course of conduct agreed by the appellant and his co-conspirators would, if executed in accordance with their intentions, necessarily involve the commission of an offence contrary to section 25(1) of OSCO.

107.  A final point should be made.  On the facts of the present case, the knowledge on the part of the alleged conspirators to the agreement – Diallo and the appellant – differ in this respect: in relation to the monies they intended to deal with, while the appellant had reasonable grounds to believe that the property was tainted, Diallo had actual knowledge that the monies were tainted.  Is this difference in the mental state of the conspirators relevant as far as establishing the offence of conspiracy is concerned?  We do not believe it is. In this scenario, both the appellant and Diallo still intended to deal with property that was illicit for the purposes of section 25(1) of OSCO.  In the appellant’s case, he intended to deal with property which he had reasonable grounds to believe was tainted.  In Diallo’s case, he intended to deal with tainted property.  This situation is similar to the example given by Lord Hope of Craighead in Saik;[94] he saw no difficulty in concluding that the equivalent of section 159A(1) was satisfied.  Obviously, if there was a significant mismatch between the intentions of the parties to the agreement, a conspiracy may not be established at all.  For example, in a money laundering situation, if A intended only to deal in clean monies whereas B intended to deal in tainted monies, there is no coincidence of intentions between them.  A conspiracy would not then be proved.  However, that is not the present case.

108.  The answer to Question 4(b) is therefore “Yes”, subject to the discussion in this section above.

The substantial and grave injustice ground

109.  The Judge held that “[t]he ‘having reasonable grounds to believe’ test is anyone looking at the grounds Defendant had would believe the property Defendant dealt with represented proceeds of an indictable offence. … I am sure anyone looking objectively at the grounds Defendant had would believe differently from Defendant, who was in fact turning a blind eye to a highly questionable situation which he must have so appreciated.”[95]  He added, later, that: “In the present case, I find Defendant’s so-called ‘belief’ was just ill-founded and equivalent to turning a blind eye to obvious suspicion.  It, therefore, could hardly be said to be sincere or in good faith.”[96] Accordingly, he expressed himself satisfied that the appellant had conspired to deal with the funds having reasonable grounds to believe they represented the proceeds of an indictable offence.[97]

110.  It will be recalled that the Court of Appeal held that the Judge was wrong to require that any genuinely held belief by a defendant must also be reasonably held but upheld the conviction on the basis that it was evident from the Reasons for Verdict that the Judge had disbelieved the appellant’s claim as to his beliefs.[98]

111.  The contention that there has been substantial and grave injustice is that the Court of Appeal did not have any valid alternative basis for upholding the conviction by which, if we understand the submissions correctly, is meant that there was no valid basis upon which to conclude that the appellant did not believe the transaction in question to be a genuine business transaction and that, in any event, one cannot properly discern from the Reasons for Verdict that the Judge had made that finding.

112.  It is not necessary for present purposes to particularise such of the evidence and those parts of the Reasons for Verdict upon which the appellant relies in support of this ground. It seems to us plainly obvious that the Judge did not believe the appellant’s exculpatory assertions and that there was ample evidence to justify the conclusion he reached as to the suspect facts and circumstances of which the appellant was well aware and that they constituted reasonable grounds to believe the funds to be the proceeds of an indictable offence.  One might add that there was, as it happens, no need for the Court of Appeal to reach for an alternative basis upon which the conviction might be justified. That is because, as we have earlier explained, the court fell into error in its approach to the application of section 25(1) of OSCO. The Judge’s approach accorded more accurately with the tests we have propounded.

Conclusion

113.  Since none of the issues raised in this appeal is resolved in the appellant’s favour, the appeal must be dismissed.