HKSAR v. PANG HUNG FAI

CACC 34/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 34 OF 2012

(ON APPEAL FROM DCCC NO. 895 OF 2011)

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JUDGMENT

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Hon Stock VP

1.  Hon McWalters J gives the first judgment.

Hon McWalters J

Introduction

2.  On 16 January 2012 the applicant was convicted after trial in the District Court by District Judge Douglas Yau of dealing with property known or believed to represent the proceeds of an indictable offence contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO”).

3.  On 17 January 2012 the applicant was sentenced to two and a half years imprisonment.

4.  On 20 January 2012 the applicant filed an application for leave to appeal his conviction and sentence.  On 31 May 2012 he was granted bail pending appeal by Tang VP (as he then was).  He subsequently abandoned his appeal against sentence which was thereupon marked dismissed.

5.  At the hearing of the appeal the Court reserved its decision.

The Prosecution Case

6.  The prosecution case was based upon an allegation that a Mr Kwok Wing (“Kwok”), who was a personal friend of the applicant and was a successful and wealthy businessman, perpetrated a fraud on Tack Fat Group International Limited (“Tack Fat”) the publicly listed company of which he was the Chairman and a major shareholder.  This fraud resulted in Kwok stealing a total of HK$14,049,380 from this listed company. In order to launder these monies and remove them from Hong Kong he obtained the agreement of the applicant to deposit them in an account operated by the applicant on the understanding that when later requested to do so the applicant would transfer them to an account nominated by Kwok.

7.  It was not contended by the prosecution that when the applicant was approached by Kwok he knew of his fraudulent conduct or knew that the monies he was being asked to receive were the proceeds of an indictable offence.  The prosecution case was based entirely on the second and alternative limb of the mens rea element of the offence, namely that the applicant had reasonable grounds to believe that the property with which he dealt represented the proceeds of an indictable offence.

8.  Consequently, at the applicant’s trial proof of the predicate offence was not contested nor was the fact that the applicant dealt with the property the subject of the charge nor the fact that this property represented the proceeds of an indictable offence.  Because of the way the offence provision is drafted and because the prosecution presented its case on the second limb of the mens rea element relying on facts unconnected with the commission of the predicate offence, it was not strictly necessary for the prosecution to prove either the predicate offence or that the property dealt with by the applicant represented the proceeds of the predicate offence, but the prosecution did so in any event.

9.  On the basis of the established authorities, proving the guilt of the applicant on the basis of the second limb of the mens rea provision meant that the prosecution had to satisfy the judge beyond reasonable doubt that:

(i) there existed grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to believe that the property with which he dealt represented the proceeds of an indictable offence; and

(ii) those grounds were known to the applicant. (HKSAR v Shing Siu Ming [1999] 2 HKC 818)

10.  In proof of these two elements of the mens rea the prosecution proved the banking transactions of the monies coming into the account of one of the applicant’s companies, Mickles International Limited, and being later remitted to Kwok’s account in Cambodia.  The Admitted Facts contained the following:

“6 In late July 2008, Kwok Wing asked the Defendant to keep some monies for a very short time. The Defendant agreed because they were friends. On 29 July 2008 Kwok Wing issued a receipt to the Defendant in which KWOK Wing stated that he would make payments to Mickles account and the sum would be returned to him KWOK Wing.

7. On August 2008 HK$7,582,150 and HK$6,467,230 were transferred to Mickles’ Standard Chartered Bank Account No. 435-0-473306-5 (opened at Cheung Sha Wan Branch on 15^th May 1980) from the Chong Hing Bank Limited bank accounts of GUO and PAN upon the instructions of KWOK Wing.

  8. Upon KWOK Wing’s request on 27^th August 2008 the Defendant remitted the total sum of HK$14,049,380.00 (less bank charges of HK$200.00) to KWOK Wing’s company in Cambodia, namely Asia World Agricultural Development (Cambodia) Limited bank account no. 01‑00-306-028018.  This account was maintained with Canadia Bank Limited in Cambodia.”

11.  The persons GUO and PAN were Mainland employees of Tack Fat.  At a meeting of the Board of Directors of Tack Fat which was chaired by Kwok it was decided to grant to each of these employees a share option of 20 million shares in Tack Fat.  The share options were exercised but the cheques received in payment for them were kept by Kwok and never deposited.  Consequently, Tack Fat never received any payment for the issue of these shares and all of the shares were subsequently sold on the stock market through trading accounts operated in the name of GUO and PAN with Bank of China Securities.  It was the proceeds of these share sales that Kwok asked the applicant to hold for him.

12.  It is apposite to note at this time that the applicant’s dealing with the property as averred in the Particulars of Offence was his remittance of HK$14,049,380 on 27 August 2008 to Kwok’s company in Cambodia.  Thus, in determining the guilt or innocence of the applicant the court was required to focus on his mens rea as at this date.

13.  In addition to proving the bare transactions the prosecution adduced the video interview of the applicant, which contained his explanation of how he came to deal with these monies.  As the applicant gave evidence and as that evidence was consistent with what the applicant said in his video interview, the judge, when he came to discussing the evidence in his Reasons for Verdict, not surprisingly focussed on what the applicant had said in his testimony at trial.  It should be noted, however, that the applicant produced at his interview a document signed by Kwok and addressed to Mickles International Limited and which became exhibit P55 at trial.  This document was dated 29 July 2008 and it simply said:

“I will remit a sum of HK$14,049,380 to your company on the 1^st day of August 2008. Please receive (it) for (me). (I) will inform you of the information of the bank account later to have (the money) transferred back to me.”

14.  This document had, in fact, been prepared for the applicant by his bookkeeper so that Mickles International Limited would have an accounting record of this transaction.  The fact that such a document was created was relied on by the applicant as exhibiting an openness and transparency in relation to the transaction that evidenced his perception that there was nothing untoward about it.

15.  There are other matters in the applicant’s record of interview that are also worth noting.  One such matter is the applicant’s confirmation that he had never previously received a request of the kind that Kwok had made of him. Another is the reaction of the applicant to Kwok’s request and this can be seen from the following exchange in the video record of interview.  It took place after the applicant had confirmed that apart from knowing Kwok he knew nothing about the parties remitting the money into his account, the total amount that would be deposited, the period he would have to keep it or the company in Cambodia to which he was remitting the money at Kwok’s request.  In this excerpt from the transcript “A” and “B” are the interviewing officers and “C” is the applicant:

“332. A: Well, er, did you ever ask KWOK Wing the reason for transferring money in this way?

333. C: No, (I) didn’t ask him.

334. A: Mm.

335. C: He just asked me to, er, receive the money on his behalf first, [noise] the money—er, was remitted to him for (his) friends.

336. A: Mm.

337. C: I simply received (it) temporarily.

338. A: Did (you) suspect (anything)? [Noise]

339. C: I didn’t suspect (anything). Had I suspected or known (anything), I would not have received (it) for him.

…

342. B: That is, for [noise] what he asked (you) to do, you never suspected him (of anything). “Er, why is it so funny that you don’t receive (it) yourself [C: Mm, mm] but ask me (to do so) instead)?” Something like that. [C: Mm, mm.] You didn’t (do so), right?

343. C: (No, I) didn’t.”

16.  In terms of proving that there existed reasonable grounds to believe the prosecution relied upon evidence:

(i) of the amount of money involved;

(ii) of the transnational character of the transaction (ie money coming from two Mainlanders, transiting a Hong Kong bank account and then being remitted out of Hong Kong to Cambodia);

(iii) that the obvious and only reasonable inference that a purpose of the transaction must have been to avoid the use of Kwok’s bank account, yet he was the owner of the money;

(iv) that the applicant held HK$14 million for 26 days; that allowed of the only reasonable inference that it was more important to the owner of the money to conceal his possession of it than to have the money available to him for use and profit;

(v) that the reason for the unusual request was never sought by the applicant and never revealed by Kwok;

(vi) that the applicant never sought any details in respect of the background to the request, thereby depriving himself of any information that might enable him to assess its legality; and

(vii) that this was the first time Kwok had made such a request of him.

The Defence Case

17.  The defence case consisted of the evidence of the applicant, an employee of the applicant, Ms Ma, who carried out the applicant’s instructions in respect of the monies the subject of the charge, and a retired solicitor, Mr Frederick Lam, who gave character evidence.

18.  The applicant’s evidence in respect of the consideration he gave Kwok’s request is reflected in the following passages from the transcript:

“I just promised without giving it a second thought …

Because he was doing a big business.  If we were talking about 10-odd million dollars, to him, it’s not a big amount.”

19.  After agreeing that he asked no questions of Kwok to elicit from him details of the underlying transactions he was asked in cross‑examination:

“Q. Yes, so simply no questions from you whatsoever.

A.   Because it never occurred to me his money has anything to do with any criminal offence.”

Then, later in cross-examination:

“Q.   And it never crossed your mind for a second “why Kwok Wing put over 14 million in my account for three weeks.”

A.   I did not think of anything.”

And finally, at the end of the cross-examination, when the prosecutor put his case:

“Q. And I suggest to you that questions would have been raised in your mind as to why Kwok Wing wanted this $14 million not handled by his own companies.

A. This question has never crossed my mind.

Q. Put it the other way. I suggest to you the question did cross your mind about why he wanted this sum handled by you and not by his own company or his own people.

A. I did not consider this question.

Q. I suggest to you that you chose to ignore these question marks, these questions in your mind because of your friendship with Kwok Wing.

A.   Not true.  If he was doing something against the law, I would not agree with it.”

20.  The evidence of the bookkeeper, Ms Ma, also suggests that no concern was ever created in the minds of the applicant, or Ms Ma, about Kwok’s request and that the applicant was quite uninterested in knowing more.  In the course of cross-examination she said:

“Q. Right. Now, in July 2008, you say one day Mr Pang said there would be money coming in.

A. Yes.

Q. Right, and the nature of this money Mr Pang didn’t know.

A. Correct.

Q. Right. He even said to you he didn’t know the nature of it.

A. Correct.

Q. Right, and did he tell you that he didn’t know the nature of it himself or was that as a result of you asking him what was the nature of it?

A. I asked him where did the money come from, and he said he did not know.

…

Q. Did he tell you who the person or persons were going to be who would send the money?

A. No.

Q. No, and did you ask?

A. I did ask him who was or were going to send the money to the account, and Mr Pang said he did not know.

Q. At that point, did he indicate that the money was Mr Kwok Wing’s?

A. He told me that Kwok Wing was going to remit some money to the account.

Q. Right. And in this conversation in late July, did Mr Pang say how much it was going to be?

A. No.

…

Q. Well, weren’t you concerned to ask him roughly how much it was?

A. I did ask, but Mr Pang said he did not know.

Q. All right. Did it worry you at all that Mr Pang didn’t know from whom the money was coming?

A.   No.”

21.  In his closing written submission at trial Mr Bruce SC, counsel for the applicant described the applicant’s case in the following way:

“14. What is critical is that where the prosecution, as here, fixes on the second limb of the offence created by section 25 of the Ordinance, is that only the facts known to the accused can be taken into account in determining whether there was reasonable grounds to believe that the property the subject of these proceedings was in whole or in part the proceeds of an indictable offence …

The accused is a person not just of clear record but (sic) of obvious and positive good character …

Important (sic) and relevant to whether it was reasonable for him to believe that the property the subject of the charge sheet was the proceeds of an indictable offence is not only that he is a trusting person but that he trusted Kwok Wing implicitly. Such trust was not the naïve belief of one person. It was supported by a person of experience and substance, Mr Frederick Lam the retired solicitor. The evidence in court supported is strongly, it is submitted, by the version that he gave to the police in his video recorded interview and later on arrest when he was cautioned speaks clearly of that trust. It is submitted that on what was known to him at the time of the conduct of the subject of the charge that this implicit trust was perfectly reasonable. The uncontradicted evidence was that Kwok Wing was a very wealthy and highly successful businessman. There was evidence that the accused knew of a substantial investment by Kwok Wing in what appears to be a very large factory in Cambodia. …

The court heard from the accused of his knowledge of the investments in real property and property for manufacturing in China including the purchase in around 2007 of 1000 acres of land for building of the factory and in 2008 having the need of plans for a water treatment plant …

Mere wealth or even the vast wealth is not the complete answer.  It is the combination of that together with the belief on the part of the accused that Kwok Wing was an honest and honourable man which is the critical component of the case for the accused.  The wealth of Kwok Wing becomes relevant to the amount of the money which was transferred.  If a person of modest means – perhaps no matter how trustworthy – moved $14 million, that is fundamentally different to a person of the apparent great wealth of Kwok Wing moving that amount of money.”

22.  Mr Bruce supplemented this written submission by an oral submission in which he explained how the defence case was essentially composed of three elements, operating in combination, namely the applicant’s friendship with Kwok over a period of 30 years which gave him a knowledge of Kwok’s character, the applicant’s knowledge of Kwok as a successful and very wealthy businessman and finally, as a result of the first two elements, the applicant’s trust in Kwok.  He described how these factors operated on the applicant’s mind as reflected in his response to the police at the time of his arrest.  Mr Bruce said:

“And so I submit the reasonable man has to know all of that and if he does then ultimately what it comes to is what the accused said to the police on arrest. You’ll remember, and I’ve quoted it, I don’t invite you to turn it up but I’ll read it out:

‘I have known Kwok Wing for over 30 years. Kwok Wing has been a scrupulous’,

- Interesting choice of word,

“merchant all along. I had no reason to suspect this sum of money was obtained from an offence”,

- not just badness but an offence.

And the question is as your Honour has pertinently, respectfully I say, posed, was that a reasonably held belief.  All I can say is when you look at all the circumstances there are positive grounds to take that view.”

23.  In submitting that the question that needed to be posed was whether what the applicant believed was a reasonably held belief, Mr Bruce was repeating a submission he had earlier advanced orally before the judge when he argued that the objective test has to be applied from the viewpoint of the applicant so that the test became whether on the facts known to the applicant it was reasonable for him not to form the belief required by the section.  The following exchange took place between the judge and Mr Bruce:

“Court: I suppose this case it’s basically just down to one thing …

Mr Bruce: Yes.

Court: … as you obviously would have pointed out in your submission that it’s whether the reasonable man of the community knowing the facts that are known to the defendant would come to a conclusion that there was reasonable grounds to believe if there is a doubt.

Mr Bruce:     Well, I put it more positively than that in the sense that it’s for the prosecution to prove that it was a belief not reasonably held by the accused, I think that is technically the correct way to approach it. And a reasonable man, if he is to, he or she is a reasonable person is to be interposed in this knows the same fact as the accused and this is in my submission a highly fact-specific case.”

24.  Thus, even at trial the defence sought to re-interpret the objective component of “having reasonable grounds to believe” and transform it, in its application, into a subjective test which focussed on the applicant’s state of mind rather than the state of mind of the reasonable person.

The Reasons for Verdict

25.  The Reasons for Verdict is a detailed document of 30 pages and consisting of 110 paragraphs.  Under the heading “Issues” the judge succinctly describes the cases of the prosecution and the defence.  The prosecution case is that the facts, as proven, when viewed objectively, are reasonable grounds to sustain a belief that the property with which the applicant dealt represented the proceeds of an indictable offence.  The defence case is that when these same grounds are viewed subjectively they are not.  By subjectively I mean by viewing the grounds through the eyes of the applicant.  Thus, the judge described it as follows:

“The defendant’s case is that, given the long history of friendship between the defendant and Kwok, given their mutually trusting relationship, given the defendant’s perception of Kwok’s financial might, given the fact that there is no evidence that the defendant had any idea about the later financial difficulties Kwok was going through a ‘common sense, right-thinking member of the community’ would not consider that there are any reasonable grounds to believe that the $14 million was the proceeds of an indictable offence.”

26.  He then described the issue that he had to resolve in the following way:

“The issue therefore is whether the ‘common sense, right-thinking member of the community’, based on the facts in the case have reasonable grounds to believe that the $14 million represented proceeds of an indictable offence. If the answer is positive, then whether those facts were known to the defendant at the time of his dealing with the money.”

27.  The judge went on to discuss the evidence, most of which was admitted.

28.  In the course of so doing he referred to the statements made by the applicant under caution subsequent to his arrest.  These were that he had known Kwok for more than 30 years and that Kwok had all along been a scrupulous merchant and that he, the applicant had no reason to suspect that the money of Kwok had anything to do with any criminal offence.  He also noted that the applicant cooperated with the police throughout their investigation, even to the extent of voluntarily producing to them documents which they did not have.

29.  He then recited in some detail the evidence of the applicant relevant to the issue he had to decide, conscious that “the facts known to the defendant at the material times is relevant to the eventual finding as to whether there were reasonable grounds for a common sense, right-thinking member of the community to believe that the HK$14 million wholly or in part represented proceeds of an indictable offence”.

30.  The evidence of the applicant included his background and his knowledge of and past dealings with Kwok, all of which caused him to have no reason to regard Kwok as dishonest or dishonourable.

31.  He also testified about the request that Kwok had made of him at the end of July 2008 to receive money on his behalf and of the explanation Kwok gave for making this request.  The judge described the evidence as follows:

“On the phone, Kwok said there were 2 friends in Mainland China who were going to return some money to Kwok and asked the defendant to give Kwok the defendant’s account number. Kwok said he will let the defendant keep the money for him …

Kwok did not give further details about the 2 mainland friends. Kwok did not give any information about the nature of the transaction between those 2 mainland friends and Kwok. The defendant did not ask Kwok about the nature of that transaction …

Kwok did not tell the defendant how long the money was to remain with the defendant or under what circumstances.  There was also no indication to the defendant as to where the money might go in the end.  There was no indication of the amount or amounts as to the money that was going to be placed with the defendant, all that Kwok said was it involved 2 sums, each would be several million dollars.”

32.  The applicant informed a staff member of his accounts department of Kwok’s request, that Kwok would be contacting her in due course and that when he did so she was to provide him with details of an account belonging to one of the applicant’s companies which was then going through a period of slow business activity.  On 1August 2008 HK$14 million was deposited to this account.  Around the end of August Kwok called the applicant and asked him to remit the money to Cambodia.

33.  The judge also referred to the other defence witnesses, Ms Ma, the applicant’s former bookkeeper who carried out his instructions and a retired solicitor who gave character evidence for him.

34.  The judge then directed himself on the applicable legal principles, quoting the two stage test set out in HKSAR v Shing Siu Ming [1999] 2 HKC 818.  He took this two stage set as also setting out an order in which each of the stages should be considered.  He said:

“The prosecution has firstly to prove all the circumstances that they consider would lead “a common sense, right-thinking member of the community” to have reasonable grounds to believe that the property was the proceeds of an indictable offence.  If the prosecution fails to prove the circumstances or that the court finds that the circumstances would not so lead, then the defendant must be acquitted.

If the circumstances are proved and that the court finds that they would so lead, it is then for the prosecution to prove that those circumstances were known to the defendant at the time of the offence.  The prosecution however do not have to prove that the defendant did in fact hold such a belief, all that is required is that the defendant knew of the circumstances.”

35.  The judge then made his findings.  It not being contested, the judge had no difficulty finding that the applicant dealt with the money.  He found all the witnesses, including the defence witnesses, to be honest and reliable – he found the applicant to be a mostly honest and reliable witness, but disbelieved his claim that he did not give any thought as to whether the money that Kwok had asked him to receive might have represented the proceeds of an indictable offence.  His reason for disbelieving the applicant on this aspect of his evidence was because, he said:

“… it is impossible for anyone to not give any thought to the matter given the huge amount of money. Not even for someone as well off as the defendant … The money that Kwok asked the defendant to receive was 1.75 times that figure (i.e. the net annual profit of the applicant’s company) at $14 million. Coupled with the fact that Kwok never told the defendant how the money came about and why Kwok needed the defendant to receive it for him, I find that it is impossible that the defendant did not give any thought as to the propriety of the money when he was told the amount.”

36.  The judge went on to say that even if the applicant did not lie about thinking about the propriety of the money he would have found, for the same reasons, that the applicant turned a blind eye to the propriety of the money from the moment he became aware of the amount of it.  The judge then referred to the decision of this Court in HKSAR v Wan Yet Kwai CACC 372/2008; unreported, 5 May 2009, and quoted paragraphs 32 and 33 of that judgment where this Court in effect said that a person could not “‘turn a blind eye’ to a reasonably held belief that certain property represents the proceeds of an indictable offence by being able to focus instead on some alternative reasonably held belief as to its provenance”.  He then directed himself as follows:

“Therefore, whether the defendant was lying or turning a blind eye, the question is still whether a common sense, right-thinking member of the community with the facts available would have reasonable grounds to believe that the money represented proceeds of an indictable offence.”

37.  The judge then applied the two limbed mens rea test to the facts.  He noted that Mr Bruce, for the applicant, had submitted that the court should apply the two limbs in reverse order from the way in which had come to be applied since Shing Siu Ming.  That is, he was asked to first determine what facts were known to the applicant and then consider whether those facts would cause the common sense, right-thinking member of the community to believe that the money represented the proceeds of an indictable offence. He declined this invitation, finding that there was “a subtle but real difference between the two approaches” but not explaining what was that real difference.  Clearly the judge must have been referring to the attempt by Mr Bruce to persuade him to cover the eyes of the reasonable person with a veil made up of the subjective perceptions of the applicant.

38.  In respect of the first limb of the test he said:

“The objective interpretation of the available facts by the common sense, right-thinking person is the key element of the first limb of the test.”

In applying the objective limb of the test he concluded that the reasonable person would not regard HK$14 million as small change, and would, given such a large sum being involved, “be put on immediate alert as to its source and propriety”.  He also concluded that a reasonable person when receiving such a request as was made of the applicant by a person of such a successful business background as Kwok “would immediately be put on alert” and ask himself why such a request was being made of him.  The fact that the money was not coming from Kwok but from two friends of his in Mainland China was of significance to the judge.  The judge was of the view that this fact would immediately put the reasonable person on alert and prompt him to wonder why Kwok did not ask his friends to make the deposits directly into Kwok’s own bank account.

39.  Then, when the reasonable person became aware that the amount was HK$14 million and that he had no idea how long he was to hold on to this money he would become really worried.  When the reasonable person became aware that the money was to be transferred to Cambodia he would again be put on alert because he would know that Kwok had businesses there and could himself have easily transferred the money there.  The judge concluded that “the right-thinking person would, by this stage, definitively be very doubtful about the pending remittance” and that the cumulative effect of all these facts would cause the common sense, right-thinking member of the community to have reasonable grounds to believe that the money he was being asked by Kwok to remit to Cambodia represented wholly or in part, directly or indirectly, the proceeds of an indictable offence.

40.  As the judge also concluded that these facts were known to the applicant he, therefore, found him guilty of the charge.

The Grounds of Appeal

41.  The grounds of appeal against conviction are threefold.

42.  The first ground of appeal asserts that the District Judge applied the wrong test in determining whether or not there were reasonable grounds for the applicant to believe that the property with which he dealt represented the proceeds of an indictable offence.

43.  The second ground of appeal is that the judge failed to give adequate reasons for his decision.

44.  The third ground is pleaded as an alternative to the first ground of appeal and is that the interpretation and application of the section 25(1) offence is inconsistent with the principle of legal certainty protected by Article 39 of the Basic Law and Article 11(1) of the Hong Kong Bill of Rights.

Ground 1:  Having reasonable grounds to believe

45.  The applicant argues that in determining whether there were reasonable grounds to believe the District Judge failed to:

(i) assess the facts through the eyes of the applicant rather than those of the objective reasonable man (the “context” issue);

(ii) recognize that the prosecution had to prove the likelihood of only one belief by all reasonable men (the “range of reasonable beliefs” issue);

(iii) appreciate that the grounds must be sufficient to induce belief and nothing less (the “standard for belief” issue); and

(iv) distinguish between those grounds that would cause the belief required by the section and those grounds that would merely point to the proceeds being the product of other improper conduct (the “provenance of the property” issue).

The applicant maintains that the test which the appellate courts have said trial judges should employ, because of the way it is formulated, contains within it, inherent risks that in applying it the trial judge will be led into error in a number of different ways.  All these risks are concerned, in one way or another, with the way trial judges assess the facts proven to their satisfaction at the end of the trial.

46.  Under the “context” issue the applicant argued that the well established test for determining the mens rea element of the offence incorrectly reverses the order in which the proven facts are considered.  In the way it has come to be applied the test involves the court in determining first whether those facts would cause a right thinking person to believe that the property dealt with was the proceeds of an indictable offence and then, secondly, and only if there is a positive answer to the first question, whether those facts were known to the defendant.  It is submitted by the applicant that the court should first look to what facts are proven to be known to the defendant and then go on to consider whether those facts would cause a right thinking person to believe that the property the defendant dealt with represented the proceeds of an indictable offence.

47.  The risk inherent in reversing this order, it is argued, is that the court will fail to view the facts through the eyes of the defendant and will see them instead only through the eyes of a reasonable person without the defendant’s appreciation and understanding of those facts.  Once this contextual element is resolved then the reasonable person can consider the reasonableness of a defendant’s actions through the prism of his “contemporaneous subjective understanding of the material facts”.  Without this contextual information facts which may have legitimately not appeared as suspicious to the defendant may appear suspicious to the reasonable man.

48.  The applicant illustrates the difference in the present case by reference to the value of the property with which the applicant dealt, namely HK$14 million. Viewed objectively, through the eyes of a reasonable person, this may be thought to be a substantial sum and was so characterised by the trial judge. But viewed through the eyes of the applicant with his belief, albeit erroneous, as to the wealth of Kwok, it did not seem a particularly significantly amount and certainly not an amount which, in the context of his knowledge of Kwok, would or should have set off any money laundering alarm bells in the applicant’s mind.  Thus, the probative force of the proven facts will depend on the context in which those facts are viewed and by reversing the order of the issues to be addressed in the mens rea element of the test the court is led into viewing those facts through the context of the reasonable person rather than the context of the defendant.  The proven facts, it is argued, must first be analysed through the eyes of the defendant before assessing the impact that these facts would have on the right thinking person.

49.  Under the second issue, the “range of reasonable beliefs” issue, the applicant argues that a conviction may only be sustained under section 25 if all reasonable persons furnished with the defendant’s knowledge and understanding of the facts would believe that the property was the proceeds of an indictable offence.  It is not enough, it is said, that their exists grounds reasonably capable of founding a belief; these grounds must be such as would rationally be bound to induce belief.

50.  Under the third issue, the “standard for belief” issue, the applicant argues that because the standard is “belief” there must be a certitude of conviction as to a state of affairs that did not admit of any real doubt and that the certitude envisaged by section 25 is certitude that the property in question represents the proceeds of an indictable offence.  If the set of facts would ground an alternative competing belief then, so Ms Montgomery QC argues, the statutory test cannot be satisfied as the level of certitude required to constitute belief will not be established.  The reasonable man, she says, cannot simultaneously hold two conflicting beliefs.  She asserts that if the decision of this Court in Wan Yet Kwai, cited earlier, suggests otherwise then it is wrong.  Counsel for the applicant invites us to overrule the judgment of this Court in HKSAR v Yam Ho Keung CACC 555/2001; unreported, 24 October 2002, as, she says, it is in conflict with Shing Siu Ming which she asserts lays down a test of whether there are grounds which the common sense, right‑thinking person would consider sufficient to lead a person to believe, not that there are grounds which such a person could or may consider sufficient.

51.  Under the “provenance of the property” issue the applicant contends that there was a failure by the judge to consider whether the belief that the reasonable grounds would induce in the mind of a right thinking person was a belief that the property with which the applicant dealt was the proceeds of an indictable offence.  It is argued that the judge’s repeated references to the “propriety” of the money suggest he was not focusing on the real issue of whether it was the proceeds of crime.  When these comments are taken in conjunction with the judge’s references to the question marks hanging over the pending remittance it is apparent, according to this argument, that the judge was looking to the future use of the money with which the applicant dealt rather than its source.

52.  The second ground of appeal attacks the adequacy of the judge’s Reasons for Verdict.  It is argued that there was a lack of analysis by the judge in the conclusions he reached, specifically by the judge not explaining why he was relying on, or what weight he was giving to, certain facets of the evidence and by him not adverting to particular facts supportive of the applicant.  These findings impacted upon the inferences which the judge drew that were adverse to the applicant.  Attack is made on the judge’s finding that the applicant had either lied or was deliberately turning a blind eye when he said he had not considered the provenance of the money.

53.  The third ground of appeal is alternative to the first ground and only arises if this Court holds that the test as applied by the trial judge was the correct one.  This ground has three limbs to it.  The first limb argues that the test applied by the trial judge, by requiring that the court first determine what a reasonable person would believe, is constitutionally uncertain. Part of the basis for this attack on the offence focuses on its width. However, in addition to using the width of the offence as the basis for a submission that it is legally uncertain, which is a ground of appeal, Ms Montgomery also uses the width of the offence as the basis for submission that it violates the presumption of mens rea and the presumption of innocence, neither of which latter two submissions are included in her Amended Grounds of Appeal and nor are they addressed in her written submission.

Discussion

54.  The offence with which the applicant was charged is created by section 25(1) of OSCO.  However, in order to understand section 25 of OSCO and specifically how to construe the phrase “having reasonable grounds to believe” that is employed in section 25(1), some history of Hong Kong’s anti-money laundering (AML) legislative regime is helpful.

55.  The first legislative attempt to deal with this significant area of criminal activity was the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 (“DTROP”) which was enacted in 1989.  It was followed by OSCO in 1994 and both were amended in 1995.  For both ordinances the AML provisions were contained in their respective section 25 with the OSCO section 25 being modelled on the existing DTROP section 25.  Because the construction of the phrase “having reasonable grounds to believe” first occurred in respect of the 1989 DTROP provision and because the seminal case of A - G of Hong Kong v Lee Kwong Kut & Others [1993] A.C. 951 dealt with that provision it is helpful to know how the original section 25 was drafted.  Because the two sections were for all intents and purposes identical I shall only set out the original section 25 of OSCO.  In its original form there was no section 25A and section 25 provided as follows:

“25. Assisting a person to retain proceeds

of indictable offence

(1) Subject to subsection (3), a person who enters into or is otherwise concerned in an arrangement whereby—

(a) the retention or control by or on behalf of another (“the relevant person” (有關的人)) of the relevant person’s proceeds of an indictable offence is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or

(b) the relevant person’s proceeds of an indictable offence—

(i) are used to secure funds that are placed at the relevant person’s disposal; or

(ii) are used for the relevant person’s benefit to acquire property by way of investment,

knowing or having reasonable grounds to believe that the relevant person is a person who has committed or has benefited from an indictable offence, commits an offence.

(2) In this section, references to any person’s proceeds of an indictable offence include a reference to any property which, in whole or in part, directly or indirectly, represented in his hands his proceeds of an indictable offence.

(3) Where a person discloses to an authorized officer a suspicion or belief that any funds or investments are derived from or used in connection with an indictable offence or any matter on which such a suspicion or belief is based—

(a) if he does any act in contravention of subsection (1) and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if the disclosures is made in accordance with this paragraph, that is—

(i) it is made before he does the act concerned, being an act done with the consent of the authorized officer; or

(ii) it is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it;

(b) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by contract or by rules of professional conduct; and

(c) he shall not be liable in damages for any loss arising out of—

(i) the disclosure;

(ii) any act done or omitted to be done in relation to the funds or investments in consequence of the disclosure_.

(4) In proceedings against a person for an offence under this section, it is a defence to prove—

(a) that he did not know or suspect that the arrangement related to any person’s proceeds of an indictable offence; or

(b) that he did not know or suspect that by the arrangement the retention or control by or on behalf of the relevant person of any property was facilitated or, as the case may be, that by the arrangement any property was used as mentioned in subsection (1); or

(c) that—

(i) he intended to disclose to an authorized officer such a suspicion, belief or matter as is mentioned in subsection (3) in relation to the arrangement; but

(ii) there is reasonable excuse for his failure to make disclosure in accordance with subsection (3)(a).

(5) A person who commits an offence under this section is liable—

(a) on conviction upon indictment to a fine of $5,000,000 and to imprisonment for 14 years; or

(b) on summary conviction to a fine of $500,000 and to imprisonment for 3 years.

(6) In this section, references to an indictable offence include a reference to conduct which would constitute an indictable offence if it had occurred in Hong Kong.” (Emphasis added)

56.  In Lee Kwong Kut at page 964 D - F Lord Woolf described how the equivalent DTROP provisions were intended to operate:

“The language of section 25 makes the purpose of the section clear.  It is designed to make it more difficult for those engaged in the drug trade to dispose of the proceeds of their illicit traffic without the transactions coming to the knowledge of the authorities.  Once a person has knowledge or has reasonable grounds to believe that a relevant person carries on or has carried on drug trafficking or has benefited from drug trafficking, then it will be an offence to become involved with “the relevant persons” in any of the wide-ranging activities referred to in the section, unless the activity is reported in accordance with subsection (3) or the person who engages in the activity is in a position to establish the defence provided for in section 25(4).  The section therefore creates an offence, which involves an absolute prohibition on engaging in the activities referred to in the section with someone whom you know or have reasonable grounds to believe is a person who carries on or has carried on or has benefited from drug trafficking, subject to an exception contained in section 25(3) and a special defence contained in subsection (4).”

57.  As to the defence in section 25(4), the Privy Council held it was a reverse onus provision but was nonetheless justifiable in the context of the war against drug trafficking.  In respect of the mens rea of the offence in section 25(1) Lord Woolf said at page 964 G - H:

“Furthermore the only “mens rea” which the prosecution is required to establish, if mens rea is an appropriate description of the necessary mental element, is that the defendant should know or have reasonable grounds to believe that the relevant person is connected with drug trafficking.  This mental element can exist, even if the defendant does not have the required belief, if there are reasonable grounds for his holding the belief.  The offence is therefore a Draconian one.”

58.  It was presumably because of this endorsement by the Privy Council in 1993 in Lee Kwong Kut of the section 25 DTROP provisions that the Legislature enacted section 25 of OSCO in identical terms.

59.  Then in 1995 both ordinances were amended.  The current section 25 of OSCO is as follows:

“25. Dealing with property known or believed

to represent proceeds of indictable offence

(1) 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.

(2) In proceedings against a person for an offence under subsection (1), it is a defence to prove that—

(a) he intended to disclose to an authorized officer such knowledge, suspicion or matter as is mentioned in section 25A(1) in relation to the act in contravention of subsection (1) concerned; and

(b) there is reasonable excuse for his failure to make disclosure in accordance with section 25A(2).

(3) A person who commits an offence under subsection (1) is liable—

(a) on conviction upon indictment to a fine of $5,000,000 and to imprisonment for 14 year; or

(b) on summary conviction to a fine of $500,000 and to imprisonment for 3 years.

(4) In this section and section 25A, references to an indictable offence include a reference to conduct which would constitute an indictable offence if it had occurred in Hong Kong.” (Emphasis added)

60.  There is very little difference between this section 25 and the current section 25 in DTROP.  This section 25 has subsection (4) which is not in DTROP and the italicised words in subsection (1) became “drug trafficking” in section 25(1) of DTROP.  Otherwise the two sections are identical.  Both are made “Subject to section 25A” and so both are intended to operate in conjunction with the statutory provisions laid down in that new section.  This is particularly relevant to the way the statutory defence was revised.  The old section 25 had three limbs to the statutory defence.  Two of them related to the defendant’s knowledge or suspicion in respect of the “arrangement” and the third limb was that he intended to disclose his suspicion to an authorized officer and had a reasonable excuse for his failure to do so.  In the revised statutory defence only this third limb is retained.

61.  The new section 25A provides as follows:

“25A. Disclosure of knowledge or suspicion

that property represents proceeds

etc. of indictable offence

(1) Where a person knows or suspects that any property—

(a) in whole or in part directly or indirectly represents any person’s proceeds of;

(b) was used in connection with; or

(c) is intended to be used in connection with,

an indictable offence, he shall as soon as it is reasonable for him to do so disclose that knowledge or suspicion, together with any matter on which that knowledge or suspicion is based, to an authorized officer.

(2) If a person who has made a disclosure referred to in subsection (1) does any act in contravention of section 25(1) (whether before or after such disclosure), and the disclosure relates to that act, he does not commit an offence under that section if—

(a) that disclosure is made before he does that act and he does that act with the consent of an authorized officer; or

(b) that disclosure is made—

(i) after he does that act;

(ii) on his initiative; and

(iii) as soon as it is reasonable for him to make it.

(3) A disclosure referred to in subsection (1)—

(a) shall not be treated as a breach of any restriction upon the disclosure of information imposed by contract or by any enactment, rule of conduct or other provision;

(b) shall not render the person who made it liable in damages for any loss arising out of—

(i) the disclosure;

(ii) any act done or omitted to be done in relation to the property concerned in consequence of the disclosure.

(4) In the case of a person who was in employment at the relevant time, this section shall have effect in relation to disclosures to the appropriate person in accordance with the procedure established by his employer for the making of such disclosures as it has effect in relation to disclosures to an authorized officer.

(5) A person commits an offence if, knowing or suspecting that a disclosure has been made under subsection (1) or (4), he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first-mentioned disclosure.

(6) In proceedings against a person for an offence under subsection (5) it is a defence to prove—

(a) that he did not know or suspect that the disclosure concerned was likely to be prejudicial in the way referred to in that subsection; or

(b) that he had lawful authority or reasonable excuse for making that disclosure.

(7) A person who contravenes subsection (1) commits an offence and is liable on conviction to a fine at level 5 and to imprisonment for 3 months.

(8) A person who commits an offence under section (5) is liable—

(a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 3 years; or

(b) on summary conviction to a fine at level 6 and to imprisonment for 1 year.

(9) Information obtained under or by virtue of a disclosure referred to in subsection (1) may be disclosed—

(a) by any authorized officer to the Department of Justice, the Hong Kong Police Force, the Customs and Excise Department, the Immigration Department, and the Independent Commission Against Corruption, for the purpose of combating crime; and

(b) by any authorized officer to the authorities or persons responsible for investigating or preventing crime, or handling the disclosure of knowledge or suspicion on property relating to crime, of any place outside Hong Kong which the authorized officer thinks fit, for the purpose of combating crime. (Added 21 of 2004 s. 24)

(10)   Subsection (9) is without prejudice to any other right to disclose information obtained under or by virtue of a disclosure referred to in subsection (1) that may exist apart from subsection (9).”

62.  Section 25A creates a legal obligation on persons who know or suspect that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence or was used in connection with or is intended to be used in connection with an indictable offence, to disclose that knowledge or suspicion to an authorised officer.  Not to make the disclosure required by section 25A is itself an offence under section 25(A)(7) and is punishable by a fine at level 5 and to imprisonment for 3 months.

63.  If a person with section 25A knowledge or suspicion makes the disclosure required by the section then he does not commit an offence under section 25(1) if, acting in conformity with the section, he subsequently deals with the property the subject of his section 25A disclosure.

64.  In this way the two sections work in tandem.  Section 25A imposes a quite stringent disclosure obligation as it arises merely on the existence of suspicion.  If a person does have a section 25A suspicion, but does not disclose and then deals with the property in respect of which he has the suspicion then he commits an offence under section 25(1) but only if when dealing with the property there existed reasonable grounds to sustain a belief of the same kind, that is, that the property represented a person’s proceeds of an indictable offence.

The mens rea of section 25(1)

65.  The mens rea component is represented by the phrase “knowing or having reasonable grounds to believe”.  There is no difficulty with the word “knowing” and its construction and application are not the subject of this appeal.  It is the phrase “having reasonable grounds to believe” with which this appeal is concerned.

66.  As I have demonstrated, this phrase “having reasonable grounds to believe” was taken from the offence provision in the DTROP.  The first judicial elucidation of its ambit was made in the context of the offence contained in the DTROP and was by Mayo JA in HKSAR v Shing Siu Ming [1999] 2 HKC 818.  He said at page 825 H - I:

“Knowledge if proved would simply resolve the matter. Difficulty, however, arises from the use of the words ‘having reasonable grounds to believe’. This phrase, we are satisfied, contains subjective and objective elements. In our view it requires proof that there were grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to believe that the person being assisted was a drug trafficker or had benefited therefrom. That is the objective element. It must also be proved that those grounds were known to the defendant. That is the subjective element”.

67.  At page 829 A - B and H - I he went on to elaborate:

“The prosecution is not called upon to prove actual belief. It would be sufficient to prove reasonable grounds for such a belief and that the defendant knew of those grounds …

He (the judge) has similarly placed too high a burden on the prosecution as regards the objective element, i.e. the belief of the reasonable man.  The jury did not have to be satisfied that a reasonable person would have held such a belief but only that such a person would be satisfied that there were grounds sufficient to sustain such a belief.”

68.  It should be noted however that in Shing Siu Ming Mayo JA did not stipulate the order in which each of the two components should be addressed.  But, in explaining each of them in the way he did, first the objective and then the subjective, an order became assumed.

69.  The approach identified in Shing Siu Ming has been consistently applied by trial courts and upheld by courts of appeal as representing a correct statement of the way this phrase should be understood and applied. That the objective limb of the test was truly objective in nature was clearly the view of the Appeal Committee of the Court of Final Appeal in Seng Yuet Fong v HKSAR [1999] 2 HKC 833.  At page 836 E - F Litton PJ said:

“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.”

70.  This statement resonates with what was said by the High Court of Australia in its judgment in George v Rockett (1990) 170 CLR 104 at 112:

“When a statute prescribes that there must be “reasonable grounds” for a state of mind – including suspicion and belief – it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.”

For an accurate and succinct expression of the legal position it is, in my view, difficult to improve upon this statement.

71.  But, of course, this statement begs the question of what contextual information is possessed by the reasonable man.  He is not a one‑dimensional person living remotely in a world divorced from the reality of the defendant’s world.  This was made clear by this Court in HKSAR v Lung Yun Ngan & Anor CACC 482/2010; unreported, 24 May 2011, when, at paragraph 56, it said of the ‘reasonable man’ test:

“It is fundamental that the test, hypothetical in nature, requires that the ‘reasonable man’ knows what the defendant knows subject of course to the fact that the ‘reasonable man’ fashions his actions in the light of that knowledge in a manner that, in the present case, a ‘common sense, right-thinking member of the community’ would do.”

72.  This is something I discuss in greater detail at paragraphs 78 ‑ 122 of this judgment.

73.  The next case to consider this phrase in detail was HKSAR v Ma Zhujiang [2007] 4 HKLRD 285, where it was unsuccessfully argued that the phrase “having reasonable grounds to believe” required proof that the defendant did, in fact, hold the requisite belief.  The approach taken by this Court, differently constituted other than the Vice-President, in dealing with the argument advanced before it repays careful study.

74.  This Court examined the statutory history of both the OSCO and DTROP offences, saying of them at page 294, paragraph 32:

“As we have said both the terms and the amendment histories of s.25 (1) of the Ordinance and s.25(1) of the DTROP were virtually identical, with the obvious exception that the latter Ordinance dealt exclusively with the proceeds of drug trafficking rather than of indictable offences generally.  It was accepted for the purposes of argument before us that the history and terms of the provisions of s.25(1) in each Ordinance, and the Ordinances generally, are so similar that the phrase “reasonable grounds to believe” contained in each must have the same meaning.  We agree that must be so.”

75.  The court went on to consider the comments of Lord Woolf in A - G of Hong Kong v Lee Kwong Kut & Others [1993] 2 HKCLR 186 at 193, which, I have explained, was a decision on the original unamended DTROP.  Although amendments to OSCO and DTROP were made in 1995 and although the AML scheme was altered, the phrase “having reasonable grounds to believe” in the section 25(1) offence provision was retained.  In light of the amendments, the court was invited to depart from the decision of Shing Siu Ming and subsequent authority which construed this phrase in their pre-amended legislative incarnations.  The court declined to do so, saying at page 296, paragraph 43:

“We disagree. First, the phrase “reasonable grounds to believe” itself remains unchanged. It is difficult to imagine that would be so if the Legislature intended it to have a different meaning within the amended section. We bear in mind in this regard that the judgment in A - G of Hong Kong v Lee Kwong Kut & Others [1993] 2 HKCLR 186 was reported in 1993 and had attributed the meaning to that phrase which we have excerpted above. That must have been known to the Legislature at the time the amendment were made in 1995 and in our view by using the same phrase considered in A - G of Hong Kong v Lee Kwong Kut & Others it must have been the intention of the Legislature to incorporate that same meaning into the phrase as it is presently contained within the amended s.25(1) of the Ordinance.”

This decision confirmed the explanation given in Shing Siu Ming of the nature and ambit of the ingredient of mens rea, in particular that it operated in its first limb in an objective way and confirmed that the defendant’s actual belief was not a matter that had to be proven by the prosecution and that the fact that the defendant did not hold the belief of the section would not, by that fact alone, enable him to escape conviction.

76.  All that section 25(1) of the Ordinance required was, said McMahon J at paragraph 47, that “reasonable grounds to form a belief exist, regardless of whether any such belief is in fact held”.

77.  Against this background of the legislative history of the AML regime and the judicial construction of the section 25(1) offence the grounds of appeal fall to be considered.

(i)  Ground 1: the “context” issue

78.  This ground of appeal is concerned with the order in which the Shing Siu Ming questions for determining mens rea should be asked and the extent to which, if at all, a defendant’s subjective view of his contextual situation should be taken into account by the reasonable man in determining whether reasonable grounds to believe exist.  The applicant’s arguments under this ground are set out earlier in this judgment at paragraphs 45 - 48.

79.  Under the first ground of appeal it is not suggested that there are not objective and subjective components in the mens rea phrase of “having reasonable grounds to believe”.  Nor is it suggested that the explanation of this phrase by Mayo J in Shing Siu Ming is not, so far as it goes, accurate.  Rather the thrust of the applicant’s complaint is directed at the application of the objective component.  It is argued that if trial courts apply the objective and subjective elements in the wrong order then there is a risk that the trial judge in determining whether reasonable grounds existed sufficient to sustain the requisite belief, may do so without taking into account how the facts which make up those grounds were viewed by the defendant. The applicant says that the question of whether the grounds can, objectively, sustain a section 25(1) belief should only be determined by looking at the grounds subjectively, through the eyes of the defendant.  The reasonable man has to stand in the shoes of the defendant and examine the facts through a prism of the defendant’s “contemporaneous subjective understanding of the material facts”.  The effect of the applicant’s submission is to inject a subjective element into what has hitherto been held to be a purely objective test.

80.  Such a hybrid form of objectivity in relation to the mens rea of the section 25(1) offence was specifically rejected by this Court in its judgment in the Lung Yun Ngan case.

81.  But the applicant wants to go beyond Lung Yun Ngan and other areas of the criminal law where the concept of a reasonable man possessed of certain characteristics of the defendant is employed.  It is not enough that the reasonable man is a person of the same age, sex and relevant experience of the defendant; the applicant wants the reasonable man to also be clothed, or perhaps more accurately, limited, by the defendant’s belief, understanding and appreciation of the circumstances with which he is dealing.

82.  Notwithstanding that appellate authority specifically on the offence is squarely against him, the applicant refers for support to the way principles relating to mens rea have developed in respect of other offences.  However, as the respondent points out, the section 25(1) mens rea is not the same as in other areas of the criminal law where proof of mens rea is by recourse to objective and subjective states of mind.  It is also different from a reasonable belief mens rea where the focus is on whether the reasonable person would have the belief.  Consequently, in terms of construing the mens rea of this offence it is of no great help to have regard to other offences.

83.  The task of this Court is to construe a phrase in this piece of legislation and in doing so the court will primarily look to the legislation itself to see whether some meaning, other than that which is apparent from a plain reading of the words, was intended.  That is why phrases employed in other pieces of legislation which at first seem similar to “having reasonable grounds to believe” may receive a different construction.  Examples of such phrases can be found in the judgment in the Ma Zhujiang case where this Court held that the phrase in OSCO should be given its plain and literal meaning.

84.  That the issue is ultimately one of statutory construction was recognized by this Court in Ma Zhujiang.  In addressing an argument that the trend of the criminal law in recent years was to do away with objective mens rea the court said at page 301, paragraph 62:

“Whether or not that is so as a general proposition it is still a matter within the remit of the Legislature to determine the nature of the mens rea to be established as against an offender under a particular provision. That is so even for serious offences. ... Where the nature of the mens rea contained in a particular provision is clearly intended by the Legislature to be of a certain sort, then subject to any overriding principle of law to the contrary, that is the construction which must be given it by the courts.”

85.  In Ma Zhujiang the court construed the section 25(1) OSCO phrase in the same way that it had construed the same DTROP phrase in Shing Siu Ming.  That such a construction is correct is also apparent from the legislative changes that were made in 1995 to the AML regime.  In Lee Kwong Kut Lord Woolf explained at page 973 E - H how the unamended regime was designed to operate:

“However once the defendant knows or has reasonable grounds to believe that the relevant person is a person who carries on or has carried out drug trafficking or has benefited from drug trafficking, then the defendant knows that he is at risk of committing an offence and that he can only safely deal with that person if he is in a position to satisfy section 25(3) or (4). If the defendant chooses not to take the precautionary action under section 25(3) then he knows he can only safely proceed by relying on section 25(4). To be able to achieve this the defendant will have to take any steps necessary to ensure that he does not have the knowledge or suspicion referred to. An example would be, by insisting on seeing documents establishing the untainted source of the funds. If the defendant has done this then he will be aware of the relevant facts and it is reasonable that he should be required to establish them.”

86.  As Lord Woolf pointed out earlier in his judgment the legislature was dealing with a very important social issue and quite deliberately chose to address it in a way which was different from the way mens rea is normally expressed.  There is no reference to the intent of the offender and no requirement for him to be possessed of a certain state of mind.  That is why he said of it “if mens rea is an appropriate description of the necessary mental element” and characterised it as Draconian.  It was Draconian precisely because the offence contained exclusively an objective mens rea.  That is, the offence was committed on proof of the existence of grounds known to the defendant, irrespective of the actual belief of the defendant.

87.  However, in order to prevent injustice, and at the same time to encourage the reporting of suspicious transactions, it created a mechanism for dealing with the property in a way which would not incriminate the dealer.  This mechanism was the origin of what ultimately became a legal obligation of disclosure.  However, pre-1995 the effect of the provisions in section 25 was not to impose on persons a legal obligation to disclose to authorised officers suspicious transactions; it merely created a disclosure mechanism to which recourse could be had as a precautionary measure.  Adopting this precautionary measure and disclosing “a suspicion or belief that any funds or investments are derived from or used in connection with an indictable offence or any matter on which such a suspicion or belief is based” in effect decriminalized any subsequent dealing by the person with the suspect property.  For those who chose not to avail themselves of this precautionary measure the only defence was that set out in subsection (4), one limb of which was that the person did not know or suspect that the arrangement related to any person’s proceeds of an indictable offence.

88.  What the 1995 amendments achieved was to transform what was previously a voluntary precautionary measure into a compulsive legal obligation.  Failure to comply with this disclosure obligation became itself an offence, punishable by a fine.  Compliance with the disclosure obligation had the same effect under the new regime as it did under the old, that is, it rendered any subsequent dealing with the property, in conformity with the provisions of section 25A, not a breach of section 25(1).  Non‑compliance with the disclosure obligation rendered a person subject to the offence in section 25(1) if he subsequently dealt with the property.  The only defence to the section 25(1) offence was that contained in section 25(2), namely that the defendant intended to disclose his knowledge or suspicion to an authorized officer and has a reasonable excuse for his failure to do so.

89.  The 1995 amendments were, in fact, very substantial ones to Hong Kong’s AML regime, affecting greater changes to it than may at first have been recognized. They did more than just make disclosure compulsory, a significant policy shift in itself, they elevated the disclosure obligation into a core part of the AML regime.  Any construction of the section 25(1) phrase “having reasonable grounds to believe” must take account of these changes and of the much greater increase in importance that the disclosure obligation has in the amended regime and how that obligation dovetails with the section 25(1) offence.

90.  In the pre-1995 legislation the mens rea of the section 25(1) offence related to the fact that “the relevant person is a person who has committed or has benefited from an indictable offence”.  So the focus was not on the property that was the proceeds of an indictable offence but the person owning those proceeds, ie the person requesting the defendant to deal with the property.

91.  The section 25(4) defence focussed on the dealing (called the arrangement) and the defence was that the defendant did not know or suspect that the dealing related to the proceeds of an offence or would facilitate a person’s retention of such proceeds.

92.  So the offence focussed on the defendant’s knowledge of facts relating to the relevant person and the defence related to his state of mind in respect of the act of dealing – what property it related to and what consequence it might have in respect of this property.

93.  The new regime under section 25 and section 25A is completely different.  In order to understand how they work in tandem it is necessary to start with section 25A.  It imposes under section 25A(1) a legal requirement on a person to disclose a knowledge or suspicion that he has that property is the proceeds of a criminal offence.[1]

94.  Under section 25A(2) a disclosure made under section 25A(1) will enable any subsequent dealing with the property not to be a breach of section 25(1).  That is why section 25(1) commences with the words “Subject to section 25A …”  But the defence in section 25A(2) does not, for the purpose of section 25(1), cater for persons who have not made the section 25(1) disclosure, other than to render them, prima facie, in breach of section 25(1).  Hence, the need for section 25(2) which provides the only other defence to the section 25(1) offence.  That defence is that the person dealing with the property intended to disclose, but did not and has a reasonable excuse for his failure to do so.

95.  So the new offence not only changed the focus of the mens rea from the relevant person to the property the subject of the dealing, it linked the offence to the disclosure obligation so that the offence effectively became dealing with property in respect of which reasonable grounds to believe existed and in respect of which no disclosure had been made.  In this way the compulsory disclosure regime became an integral part of the new offence provision.

96.  Thus, the new AML regime had a stepped approach to the criminalization of money laundering conduct.  The first step was to criminalise the non-disclosure of suspicious property.  The penalty is not a severe one but the offence plays the important role of putting people on notice that a legal obligation exists and they must take it seriously.  But it is the link to section 25(1) that really gives the disclosure obligation teeth.  The section 25(1) offence carries a very heavy penalty of 14 years’ imprisonment and a conviction for that offence can, effectively, only be avoided by compliance with the disclosure obligation.

97.  I note that under the new regime the previously existing statutory defence that was available to a defendant who established on the balance of probabilities that he did not know or suspect that the arrangement related to any person’s proceeds of an indictable offence was removed.  I do not know why.  It may have been thought that as the obligation to disclose only arises if a person knows or suspects property to represent the proceeds of an indictable offence, it would be counter‑productive to the effectiveness of the new compulsory reporting regime to continue to have a defence to the section 25(1) offence based on the same mens rea.  If the defence continued to exist, the compulsory disclosure regime could easily be undermined by a person not making disclosure and simply saying “Notwithstanding the existence of those grounds I did not suspect”, thereby avoiding conviction for the section 25(1) offence.  By removing the former statutory defence that was in section 25(4) and replacing it with the new defence in section 25(2), the compulsory reporting regime and the section 25(1) offence work in tandem more effectively, with each providing support to the other.

98.  There is no doubt that the removal of the section 25(4) defence provides a meaningful incentive to persons to comply with the disclosure requirement but there is equally no doubt that it adds width and severity to the section 25(1) offence.  Whether these considerations were what prompted the removal of the section 25(4) offence I cannot say but the removal of that defence, for whatever reasons, does not alter the nature of the duty that reposes in this Court, namely, to construe a phrase in a piece of legislation; or the approach to the performance of that duty, namely to give to the words their plain and literal meaning where such a meaning is apparent on the face of the words, is consistent with the context in which the words are employed and where such a meaning advances the objects of the ordinance.

99.  Given that the phrase, as construed, involves an objective assessment of the facts should that assessment be carried out through the eyes of the defendant?  The answer depends upon what is meant by “through the eyes of the defendant.”  If by that phrase is meant upon the facts known to the defendant, then the answer is yes.  If by that phrase is meant as processed and assessed by the defendant, the answer is no for that is to transform the test from an objective one to a subjective one which would be contrary to the legislative intention.

100.  But that is not to say that certain facts are ignored.  For example, in the present case the reasonable man takes into account that, on the undisputed evidence, the request comes from a person who enjoys a reputation of being a very successful businessman and about whose character nothing bad is known.  Furthermore, this person has been in business for many years and the scale of his business activity and his personal wealth would mean he is accustomed to dealing with large sums of money.  All of these are relevant facts that any objective analysis of the evidence would properly take into account.

101.  Nor does the determination of whether there are reasonable grounds to believe ignore information or facts which may be personal to the defendant.  For example, the reasonable man would take account of the fact the request of the applicant came from a close personal friend whom the applicant had known for many years.  Also, a relevant fact is that the applicant had never had an experience of Kwok that would cause him to doubt Kwok’s integrity or throw up question marks about his character.  But also relevant would be the fact that Kwok had never made such a request of this nature before.

102.  Identifying the relevant facts, however, is quite distinct from processing them.  The applicant and the reasonable person may process them quite differently because the reasonable person though possessed of all of the relevant facts, is not, in processing them, influenced by the personal beliefs, perceptions or prejudices of the applicant.

103.  Here, because the applicant is also a personal friend of Kwok and regularly socialized with him the applicant would, quite naturally, not want to think ill of him and not want to suspect him of being involved in anything dishonest or improper.  A desire not to think ill of a friend or a wish to view his conduct through rose-coloured glasses may operate as blinkers on the applicant’s assessment of the conduct or facts known to him.  But these blinkers are not worn by the reasonable man who, unconstrained by emotion, stands back from the facts and considers them dispassionately.  This does not involve him in removing the facts from their context and analysing them in a meaningless isolation which inevitably and unfairly skews his assessment of them.  It simply means that the personal beliefs, perceptions or prejudices of the applicant are removed from the assessment process.

104.  Thus, in respect of the HK$14 million the applicant said that, in his perception of Kwok, such an amount would have been of no consequence to him.  As I have already said the facts that Kwok was believed to be a successful and honourable businessman of many years standing who would be accustomed to dealing in large amounts of money would be relevant facts to take into account.  But the applicant’s own perception of this amount or his belief of its significance to Kwok would not.  Those subjective elements are removed so that they do not adulterate what has to be an objective assessment.

105.  In my view the explanation of the meaning of “having reasonable grounds to believe” as set out in Shing Siu Ming, is correct and the order in which that two stage test has come to be applied does not unfairly prejudice a defendant in the way the applicant contends.

106.  As I have mentioned earlier, the judgment in Shing Siu Ming seems to have been taken to have established an order in which the two questions it posed should be addressed, even though that court was not specifically addressing that issue.  Ms Montgomery argues that the order in which the questions are asked should be reversed.  But her reason for reversing the order is to achieve what, in my view, is an impermissible means of determining the mens rea ingredient of the offence.  It is precisely to prevent the risk of such an application occurring that the respondent opposes changing the order of the questions.  The respondent argues that the order in which the test is currently formulated lessens the risk of transforming the test into one of “reasonable belief” rather than one of “having reasonable grounds to believe” and also lessens the risk of importing into its application the mistakenly held beliefs of the defendant.

107.  I do not agree that reversing the order would, realistically, present such a risk.  However, it seems to me that the risk that might be encountered by employing this order is that the first question, the objective question, might be answered by reference to what the prosecution has proven rather than by what the prosecution has proven was known by the defendant.  By reversing the order this risk is eliminated.  Consequently, I am of the view that the more logical approach is first to ask the question: what were the facts known to the defendant and the objective factual circumstances in which he found himself and of which he was aware at the time at which he dealt with the property which is the subject of the charge?  It is for the prosecution to establish the facts and circumstances relied upon.

108.  The second question then is this: do those facts and circumstances provide reasonable grounds to believe that that property in whole or in part represented the proceeds of an indictable offence?

109.  Examined in the context of the present case, a test framed in that way is likely to answer the concern advanced on behalf of the applicant – a concern that the objective test may become divorced from the realities of a case at hand – whilst at the same time not converting the statutory provision into one which requires proof that the particular defendant himself believed the monies were the proceeds of an indictable offence.

110.  The first step in determining whether a defendant had reasonable grounds to believe is to identify all the facts known to the defendant that relate to the dealing with property that is the subject of the charge.  These facts may, depending on the circumstances of each case, extend beyond those relating to just the dealing with the property and include facts known to the defendant about other persons or circumstances linked in some way to the dealing.

111.  In this case the facts and circumstances which would objectively be examined are these:

(i) there is a person Kwok who has known another person Pang for many years and the two are close personal friends;

(ii) both Kwok and Pang are adults aged … and 66 years respectively and are experienced businessmen;

(iii) Pang is engaged in the same industry as Kwok who has been at least as, if not more than, successful in that industry as Pang;

(iv) Kwok is a very wealthy man accustomed to dealing with large sums of money;

(v) Kwok has, before the material date, never asked Pang to act unlawfully or has disclosed to Pang any conduct of his own that is unlawful; nor does Pang know anything adverse of Kwok;

(vi) [the facts]: Kwok asks Pang to deal in certain property on his, Kwok’s, behalf; and

(vii) Pang was told nothing about the property, its provenance, why Kwok wanted the money to go through his, Pang’s account and why Kwok did not use his own account.

112.  The second step is to process these facts through the mind of the common sense, right-thinking member of the community and determine whether this person, possessed of these facts, objectively would consider them sufficient to lead a person to believe that the property in question constitutes the proceeds of an indictable offence.  When this reasonable person considers these facts objectively it means he does so uninfluenced by the personal beliefs, perceptions or prejudices of the defendant.

113.  The question that would be posed to a jury would run as follows: “On those facts and in those circumstances, did the defendant have reasonable grounds to believe that the property was the proceeds of an indictable offence?  The question is not whether the defendant believed the property to be the proceeds of an indictable offence, still less whether the property was in fact the proceeds of an indictable offence.  The question is whether he had on all those facts and circumstances known to him reasonable grounds so to believe.”

114.  I see no difficulty with such an approach for it addresses all the facts known to the particular defendant and the circumstances and framework in which that knowledge came to him.  It allows the finder of fact to distinguish between the significance, in the context of a section 25 charge, of $1 million dollars to X and Y who are men of very limited means and of the significance of such a sum, in the context of a section 25 charge, to men of considerable wealth; and it allows the finder of fact to take into account the particular relationship and history of trust (if there be such a history) that prevails in the particular case.

115.  There may be cases where the reasonable grounds to believe must be assessed against the background of a mistake of fact.  So, for example, if X makes a false representation as to his business or as to the provenance of the property, the fact of that representation and its operative effect on Y is part of the factual matrix to be addressed.

116.  Although I have said that the order of the Shing Siu Ming question should be reversed that is not what the judge did; in fact he specifically declined an invitation to do so.  Does it make a difference to his determination of whether the prosecution had proven beyond reasonable doubt the element of “having reasonable grounds to believe”?

117.  Apart from the risk I have mentioned, it should not ordinarily, matter in which order the two questions are asked.  However, in declining the invitation to reverse the order the judge said that there was “a subtle but real difference between the two approaches” but did not explain what he perceived that difference to be.[2] Ms Montgomery made much of this comment arguing that if the subjective element was considered first “it was necessary to take into account the applicant’s particular appreciation or understanding of the facts in context and in his specific circumstances in order to form a just conclusion about the facts as they would have appeared to him or to any right-thinking man”.  She referred to the judge’s treatment of the amount of money, $14 million, with which the applicant dealt as illustrative of the difference in practice that flows from the order in which the two questions are asked.  Here she was referring to a comment by the judge to the effect that notwithstanding that the applicant had said that from his experience of Kwok he believed that such an amount would be regarded by Kwok as only small change, to the reasonable man it would not.  It is suggested that the judge has accorded the amount of money an exaggerated importance in the reasonable man’s mind; exaggerated precisely because the reasonable man has viewed the amount from the perspective of the ordinary person and not a person of the wealth of Kwok and the applicant.

118.  Though initially troubled by the judge’s failure to explain what real difference he perceived there was between the two possible orders in which the questions may be asked, and by the comment he made in respect of the money, I am not persuaded that he erred when he came to answering either of the two questions.

119.  The difference he perceived is, as I explained at paragraph 37 of this judgment, a difference created by Mr Bruce in seeking to add a subjective gloss to the way the objective component of the mens rea element should be determined.  A subjective gloss, I might add, which Ms Montgomery herself advanced on this appeal and which I have rejected.

120.  As to the judge’s comment about the amount of the money involved I note that immediately after making that comment he said:

“The defendant knew that Kwok was a very successful business man, owning and running many companies in various countries and even chairman of at least one listed company in Hong Kong. The common sense reasonable person when asked by such a successful person to receive money on his behalf would immediately be put on alert. Why doesn’t Kwok receive the money himself? Given the fact that Kwok’s business empire is also expansive, why can he not receive the money in any one of his own or his company’s bank accounts? Why does he need someone who has no business dealings with him to hold the money for him? Why doesn’t Kwok tell me why he needed me to hold the money for him? What is going on? These are the inevitable questions that the common sense, right-thinking person would ask.”

121.  He similarly analysed the evidence of other matters which, cumulatively, constituted, in his view, the grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to have the requisite belief.  In doing so he correctly took account of facts known to the applicant in respect of Kwok’s wealth and business standing.

122.  Consequently, although the judge posed the questions in what, in my judgment, was the less helpful sequence, he did not err in his approach to answering those questions.

(ii)  Ground 1: the “range of reasonable beliefs” issue

123.  This aspect of the first ground of appeal is set out at paragraph 49 of the judgment and argues that it is not enough that a reasonable person would conclude that the facts known to the defendant provided reasonable grounds to believe; rather those facts must be such as would rationally be bound to induce belief in all reasonable men.

124.  The applicant submits that the judge directed himself in terms of whether there were grounds that might induce the requisite belief rather than what the applicant claims is the correct test, namely whether the grounds would inevitably cause all and any reasonable men to hold the required belief.  Ms Montgomery asserted that the correct test was as expounded by this Court in HKSAR v Lung Yun Ngan and Ors, (cited earlier) at paragraph 52:

“… on the facts found to be proved, there are grounds that a common sense, right-thinking member of the community would consider sufficient to lead a person to believe that the property in question constitutes the proceeds of an indictable offence …”

125.  But this test does not support the argument that Ms Montgomery advances.  This test focuses, and, with respect, rightly so, on the sufficiency of the grounds to form the requisite belief and not, as Ms Montgomery contends, on whether the grounds must inevitably lead to the formation of that belief.  What the court there said was that the grounds had to be such that a common sense, right-thinking member of the community “would consider sufficient” and not “would lead a person to believe”.  The two are quite separate issues and should not be confused.

126.  Ms Montgomery argues that to require that the grounds only be capable, in terms of their sufficiency, of grounding the section 25(1), belief rather than compelling that belief, lessens the standard of proof on the likelihood of the belief being induced.  I do not agree. Just as the test is not concerned with whether the defendant has the requisite belief in respect of the property, it is likewise not concerned with whether the reasonable man has it or would have it.  Rather it is concerned with whether he would regard the facts as sufficient to ground the section 25(1) belief. This latter issue still has to be proven to the criminal standard like any other element of the offence.  The fact that the mens rea element of the offence is expressed in this way widens the scope of the offence but it does not impact on the standard of proof.

127.  This argument was also advanced in HKSAR v Lung Ming Chu [2009] 3 HKC 137 where Hartmann JA in giving the judgment of the court on a charge of conspiracy to commit the section 25(1) offence said at paragraph 48:

“To support his argument that mere ‘belief’ was insufficient in law, Mr. Bruce submitted that any standard less than ‘having reasonable grounds to be sure’ would violate the applicant’s constitutional right ‘to be presumed innocent’. This submission, however, was not supported by any direct reference to authority. We do not see how it can be said that a test of ‘having reasonable grounds to believe’ in respect of one element of an offence, when the offence itself must be proved beyond a reasonable doubt, undermines any right to the presumption of innocence. The burden of proof remains at all times on the prosecution, the defendant being given the benefit of the doubt. There is nowhere any form of reverse onus. To the contrary, the burden rests on the prosecution at all times to prove a set of facts and circumstances of sufficient cogency to meet, first, the objective test of ‘reasonable grounds to believe’ and then to establish that the defendant and at least one other party were aware of those facts and circumstances.”

I agree with what was said by that court.

128.  As to the argument that different reasonable men may reasonably reach different beliefs from the same set of facts I agree with the respondent that there is no multitude of reasonable men but only one reasonable man.  The applicant has not referred to any authority which suggests otherwise.  The purpose of the reasonable man concept is to establish a standard – a multitude of reasonable men all behaving reasonably but differently in response to a set of circumstances defeats the very purpose of having such a concept.  There is no merit in this argument.

(iii)  Ground 1: the “standard for belief” issue

129.  Under this part of the first ground of appeal Ms Montgomery argues that the word “belief” connotes a level of certitude of conviction that would not allow for the existence of other competing beliefs.  Her argument is set out at paragraph 50 of this judgment and is twofold.  First, it is that the grounds must be sufficient to sustain one belief only, namely, grounds that would lead the reasonable man to believe.  Secondly, because belief involves a greater certitude of conviction there is no scope for the existence of competing beliefs.  These, or very similar, arguments were rejected by this Court in HKSAR v Yam Ho-Keung CACC 555/2001; unreported, 24 October 2002.

130.  As the respondent points out this argument also assumes that the test is concerned with what the reasonable man would believe from a set of facts.  It is not.  As I have said the mens rea is not concerned with what the reasonable man might or would believe but rather with what he could believe.  What beliefs could reasonably be formed from a set of facts will always be dependent on those facts.  Could a set of facts reasonably allow of more than one belief and perhaps even of competing beliefs?

131.  The answer to this question depends on what is meant by belief. Ms Montgomery asserts it is a conviction as to a state of affairs that does not admit of any real doubt; a certitude that the property in question represents the proceeds of an indictable offence. However, she is not able to refer to any case authority which supports her assertion that the meaning of belief in section 25(1) should be construed as requiring such a high level of conviction.

132.  Concepts of suspicion, belief and knowledge are well known to the criminal law and phrases such as that which is found in section 25(1) and other phrases involving knowledge or suspicion are commonly found in legislation dealing with the criminal law or the powers of law enforcement agencies.  There is no reason, in my view, to give the word “belief” in the section 25(1) phrase any different meaning than is given to it in other legislation.  This is especially so given the use of the concept of suspicion in section 25A.  In determining what each of these words means the courts of Hong Kong have repeatedly had recourse to the statement by the High Court of Australia in George v Rockett (1990) 170 CLR 104.  At pages 115 to 116 the following oft-recited passages can be found:

“Suspicion, as Lord Devlin said in Hussien v. Chong Fook Kam (63), “in its ordinary meaning is a state of conjecture or surmise where proof is lacking: ‘I suspect but I cannot prove.’” The fact which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for the suspicion must be shown …

The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof.  Belief is an inclination of the mind toward assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce the inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.”

133.  These passages make it clear that belief is something more than suspicion and, implicit in what is said, something less than knowledge.  It is not even proof on the balance of probabilities.  It is certainly not of that level of certitude or conviction for which Ms Montgomery contends.  She is saying, in effect, that the grounds are required to be so strong that they would satisfy the reasonable man that the property represented, beyond all reasonable doubt, the proceeds of an indictable offence.  There is no warrant for reading such a high level of certitude into the word “belief” as it is used in section 25(1).  An argument that a higher level of certitude should be imported into the phrase “having reasonable grounds to believe” was expressly rejected by this Court in HKSAR v Lung Ming Chu [2009] 3 HKC 137.

134.  Interestingly, Canadian case law is not dissimilar.  The proper characterization of the reasonable grounds to believe standard was discussed by Dawson J of the Federal Court of Canada in Re Jaballah [2011] 2 F C R 145.  In his judgment Dawson J traversed Canadian jurisprudence on this phrase, noting that the Supreme Court of Canada had held, in language that very much echoes our own jurisprudence, that “the standard requires something more than mere suspicion but less than the standard applicable in civil matters of proof on the balance of probabilities … In essence reasonable grounds will exist where there is an objectives basis for the belief which is based on compelling and credible information”.  Dawson J himself commented at paragraphs 43 - 44:

“The standard connotes a degree of probability found on credible evidence, although the required degree of probability is less than a balance of probabilities …

If the evidence establishes a probability, that is, anything more likely than not, this would preclude reasonable grounds for belief of the contrary.”

135.  The possibility that a set of facts could give rise to two conflicting beliefs is, I believe, more theoretical than real.  If a set of facts afforded reasonable grounds for a common sense, right-thinking person to form a belief other than that required by section 25(1) in respect of particular property then it seems to me that it would be most unlikely that the same set of facts would sustain a section 25(1) belief in respect of the same property.  That would not be so if the state of mind required by section 25(1) was only suspicion; but it is not and even though belief cannot be equated with proof it is, in the words of the High Court of Australia “an inclination of the mind towards assenting to, rather than rejecting, a proposition”. (Emphasis added)

(iv)  Ground 1: the “provenance of the property” issue

136.  The argument in support of this aspect of the first ground of appeal is set out at paragraph 51 of this judgment.  In a nutshell the applicant contends that that judge was focusing on the future use to which the monies might be put rather than their source.

137.  The starting point for a consideration of this limb of the first ground of appeal is to identify the dealing with which the applicant was charged.  The dealing was that which took place “on or about the 27^th day of August 2008” according to the Particulars of Offence.  That was the date the applicant transferred the sum of HK$14,049,380 from the account of one of his companies to Kwok’s private company in Cambodia.  It was, therefore, this remittance which was the dealing.  Consequently what the prosecution had to prove was that at the time the applicant caused this remittance to be made (ie dealt with the property) he possessed the requisite mens rea to render him guilty of the section 25(1) offence.

138.  But of course not everything relevant to the issue happened on 27 August 2008.  The dealing on that date was just the culmination of a set of circumstances which began with the request that Kwok made of the applicant to use one of his bank accounts to receive and temporarily hold monies to be paid to him by two Mainland friends.  In this situation it is not surprising that the judge considered how, over the intervening period leading up to the 27 August, the evidence accumulated so that it reached the stage where, by that key date, it could sustain a section 25(1) reasonable grounds to believe.

139.  Clearly, this is precisely what the judge was doing by the analysis conducted in his Reasons for Verdict.  He started with the request and examined the unusual nature of it:

“… when Kwok first asked the defendant to receive money for him, Kwok said “there were two friends in mainland China who were going to return some money” to Kwok and asked the defendant to give Kwok the defendant’s account number.  The common sense right-thinking person would note that the money will be coming from Kwok’s friends and not Kwok himself and wonder why Kwok did not ask his friends to make the deposits directly into Kwok’s own bank account.  Given the perceived wealth of Kwok, it is unthinkable that he would not have a bank account in Hong Kong to receive the money from his friends.  Again, the reasonable person would immediately be put on alert.”

140.  Earlier the judge had identified the obvious questions that flowed from that alert:

“Why doesn’t Kwok receive the money himself? Given the fact that Kwok’s business empire is so expansive, why can he not receive the money in any one of its own or his company’s bank accounts? Why does he need someone who has no business dealings with him to hold the money for him? Why doesn’t Kwok tell me why he needed me to hold the money for him?”

141.  Then, the judge proceeded to consider the stage at which the applicant said that he had first learned that the two actual deposits came to over $14 million in total, namely on receipt of the money:

“… as soon as the reasonable person found out about the amount of money involved, he would be put on immediate alert as to its source and propriety.”

Further, he noted that even after receipt of the money Kwok did not tell the applicant how long it was that he was to hold on to the money. Noting that at that stage the applicant had complete control over $14 million, yet had no idea of its source, the judge found:

“Any reasonable person would be really worried by that time.”

142.  Finally, the judge considered the evidence that eventually the applicant was asked to transfer all of the money through a bank account in Cambodia.  First, the judge noted that the request to transfer the money came 26 days after the money was deposited into the bank account controlled by the applicant. Of the fact that the requested remittance was to a bank account in Cambodia, having noted that the applicant testified that he was aware that Kwok was active in the garment business in Cambodia, the judge said:

“… why didn’t Kwok arrange for Guo and Pan to deposit the money directly into the Cambodia account? Nothing was done to or with the money while it sat in the defendant’s account so there was no particular reason that Kwok needed the money to be deposited with the defendant first before remitting it to Cambodia. The right-thinking person would, by this stage, definitely by very doubtful about the pending remittance.”

143.  That the judge had regard to all of those surrounding circumstances in addressing the issue of whether or not at the time of the remittance to Cambodia, namely 27 August, the applicant had reasonable grounds to believe that the monies were the proceeds of an indictable offence is made clear by his concluding findings:

“I find that the cumulative effect of the facts referred to above is to leave the common sense, right-thinking member of the community to have reasonable grounds to believe that the money he was asked to receive for Kwok and then remitted to Cambodia represented wholly or in part directly or indirectly proceeds of an indictable offence.” [Italics added.]

144.  Clearly, that analysis addressed a consideration of the available evidence as to the provenance, not the future use, of the monies.  That approach of the judge was not only legally unimpeachable but also sensible and appropriate.

145.  I am satisfied that nothing turns on the use by the judge of the word “propriety” to describe the money.  It was simply used by the judge as a convenient and shorthand way of describing the legal character of the money, namely, that in whole or in part, directly or indirectly, it represented a person’s proceeds of an indictable offence.

146.  Furthermore, by his conclusion, the judge makes it clear beyond any doubt at all that he is focusing on the source of the monies and not their future use.  When referring to the remittance of the monies the judge is simply relying on the fact of the remittance request, together with the surrounding circumstances, as further reasonable grounds to sustain the requisite belief.  It was the fact that Kwok himself had business activities in Cambodia that made the request unusual and this circumstance was known to the applicant.  Thus, at the time he received the remittance instruction the applicant knew that Kwok had used him to cause monies to be paid to him, possibly out of Mainland China, via Hong Kong, to Cambodia.  The only reasonable inferences to be drawn were that Kwok did not want these monies to be traced back to his two Mainland friends; he wanted to conceal the fact that he was receiving money from these two friends; and, that this particular money came from them.  These inferences were part of the facts constituting the reasonable grounds and strengthened the further inference that the only reason the applicant was being made use of by Kwok was so that Kwok could conceal the source of these monies.

147.  Because it is clear that in convicting the applicant the judge had regard only to the provenance of the monies and not their future use and because of the conclusion I reach in respect of this limb of the first ground of appeal it is not necessary for me to consider whether the statement by a differently constituted court in Wan Yet Kwai is erroneous.

The Second Ground of Appeal – The Adequacy of the Reasons for Verdict

148.  The arguments in support of this ground of appeal are set out at paragraph 52 of this judgment and attack what is claimed to be a failure by the judge to explain why he attached weight to particular pieces of evidence and a failure to refer to evidence supportive of the applicant.  Criticism is also made of the judge’s conclusion that the applicant either lied or was “deliberately turning a blind eye” when he said that he had not considered the provenance of the money.  Finally, it said that the failure by the judge to give adequate reasons or consider relevant evidence affected the accuracy and reliability of the inferences he drew and the inferences he concluded would be drawn by the reasonable man.

149.  The applicant accepts that the judge referred to all the matters on which he, the applicant, relies in support of this ground of appeal but he says that it was in an earlier part of his Reasons for Verdict and when it came to his findings of fact and conclusions that the judge did not appear to consider them.  These are set out in paragraph 83 of the applicant’s skeleton. They concern the applicant’s knowledge of Kwok and his business and the openness of the applicant’s attitude in carrying out Kwok’s request and the way he documented it, spoke openly of it to his staff and spoke frankly of it to the police.

150.  However, I agree with the respondent that it does not follow that a failure to refer back to these matters means that the judge did not bear them in mind.  Indeed it is rather the reverse.  The very fact that he specifically mentioned them would suggest that he did have them in mind.  Furthermore, I am not concerned with appearances but with reality and the reality is that it is quite apparent from these detailed and thorough Reasons for Verdict that the judge did, in fact, have all of these matters very much in mind when assessing and analysing the evidence prior to making his findings of fact and conclusions in the case.

151.  Quite apart from this it is important to note that much of the applicant’s arguments in support of this ground of appeal depend for their force on the assumption that the mens rea is concerned with how the applicant processed the facts known to him.  Thus, it is said that the way the applicant behaved in relation to the request suggested that he saw nothing wrong with it and never thought that the monies may have had an illegal taint to them.  Ms Montgomery points to the openness with which the applicant complied with the request by involving his bookkeeper, keeping records of what was being done and requiring documents to be obtained and retained in respect of the transaction.  Indeed even the applicant’s open and frank cooperation with the police suggest that he may never have turned his mind to the question of whether the monies were the proceeds of crime and whether he was being used by his friend to launder those monies.

152.  This, of course, dovetails with Ms Montgomery’s submission that in assessing the facts known to the applicant in order to determine whether they provide reasonable grounds to believe, the reasonable man must do so from the subjective perspective of the applicant.  It also dovetails with the applicant’s case that he is the victim of a friendship abused.

153.  But the fact that Kwok may have abused his friendship with the applicant and taken advantage of the applicant’s too trusting nature does not, on its own, provide the applicant with a defence to the charge.  The way that it can assist the applicant is that when the judge comes to assessing how the reasonable man would process these facts and whether they would lead him to form the requisite belief in respect of them, the judge would certainly take into account that these facts include the fact that Kwok was a close personal friend of the applicant of many years’ standing and in respect of whom nothing adverse was known.  But that was less relevant here because the applicant’s case was not that he gave consideration to what was being asked of him and after assessing the known facts concluded that there was no reason to be suspicious or anxious about the request.  Rather, his case was that he had not considered the provenance of the money.  That, if true, may well have been because he was too trusting or because he could not bring himself to think ill of a friend. But these subjective characteristics of the applicant are not possessed by the reasonable person who, as I have said, looks at the facts unblinkered by the personal beliefs, perceptions or prejudices that might be possessed by the applicant and which might hinder him in assessing the facts presented to him.

154.  It is against the backdrop of the legal position as I have explained it that the complaints of the judge’s Reasons for Verdict have to be assessed.

155.  In my view the judge adopted a structured, chronological approach to his analysis of the evidence and his determination of whether reasonable grounds existed.  This was the kind of case where the issues of what the grounds were and whether those grounds were known to the applicant were not in dispute.  The only issue was whether those grounds were sufficient to sustain the requisite belief in the reasonable man.

156.  That is why, as I have pointed out, the response of the applicant to those grounds and whether he genuinely believed that they gave no cause for money laundering alarm or whether he was deliberately turning a blind eye to the grounds are matters that are of very limited relevance.  But on the facts of this case where the defence was not asserting that the applicant made a considered response to the request, these issues are, with respect, red herrings.

157.  Ms Montgomery complains that the failure by the judge to give adequate reasons affected the accuracy and reliability of the inferences drawn by the judge and the inferences he concluded would be drawn by the reasonable man.  She refers to the legal principles relating to the drawing of inferences.  But this in fact never was an inferences case.  The prosecution was not relying on the drawing of inferences to prove facts not proven by direct evidence.  All the facts in this case that constitute the grounds to sustain the belief were proven by direct evidence.  What Ms Montgomery is really referring to are not inferences drawn from these facts but rather the assessment of the impact of those facts on the mind of the reasonable man.

158.  There is no merit in this ground of appeal.

The Third Ground of Appeal - The Constitutionality of Section 25(1)

159.  This ground of appeal is set out at paragraph 53.

(i)  Legal certainty

160.  The principle of legal certainty was enunciated by the Court of Final Appeal in Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386 at 410, paragraph 61:

“A criminal offence must be so clearly defined in law that it is accessible and formulated with sufficient precision to enable the citizen to foresee, if need be with appropriate advice, whether his course of conduct is lawful or unlawful. It is, however, accepted that absolute certainty is unattainable and would entail excessive rigidity. Hence it is recognised that a prescription by law inevitably may involve some degree of vagueness in the prescription which may require clarification by the courts.”

161.  In the context of this principle, the complaint is that the offence provision is formulated with insufficient precision to enable the citizen to foresee whether his course of conduct is lawful or unlawful.

162.  In support of her contention that the offence is insufficiently precise Ms Montgomery relies on the three complaints previously mentioned.  The first complaint echoes the arguments advanced by her under the first ground of appeal, namely that the facts might be such as to allow a reasonable person to form more than one belief about the property being dealt with or that a majority of reasonable men would not believe that the property was the proceeds of crime.  I have already addressed these issues when dealing with the first ground of appeal and for the reasons set out in that part of this judgment I do not accept that the difficulties assumed by Ms Montgomery for the purpose of this submission do in fact exist.

163.  The issue was addressed by this Court, in the context of section 25 of OSCO, in HKSAR v Lung Ming Chu [2009] 3 HKC 137.  In responding to a submission that the objective test of the common sense, right-thinking member of the community was inherently imprecise and difficult to apply by judges and juries the court said at paragraphs 49 - 50:

“It is accepted that difficulties can be presented in ascertaining the standards of such hypothetical persons, equally with the ‘reasonable man’, but, to employ the phrase used by Sir Anthony Mason NPJ in Shum Kwok Sher v HKSAR (2002) 5 HKCFAR 381 (para 94), it is none the less a task which is not so imprecise or vague as to violate the requirements of the Basic Law or the Bill of Rights. Nor can it be characterised as an arbitrary standard.

50.  A high degree of definition in respect of burdens and standards of evidence is often simply unattainable.  But it does not follow that the concept cannot be understood and sensibly and accurately applied, in the context of a particular set of facts, by both judges and juries.”

164.  To require the individual to pause in response to an inexplicable request of the kind made to this applicant and to consider why he is being asked to allow his account to be used and whether the facts known to him might cause the reasonable person to form the belief required of the section is not to impose on him either an impossible task or an unreasonably onerous burden. The very purpose of a provision as severe as section 25(1), operating in conjunction with section 25A, is to create a culture of wariness and questioning when faced with such unusual requests.  If the request made of this applicant had come from a person he did not know so well, then he would no doubt have raised a questioning eyebrow in reaction to it.  The law requires that this reaction not be displaced simply because the person is better known to the defendant; a desire not to offend, a desire not to think ill of a friend or a desire to trust a friend, even in the face of obviously suspect circumstances, cannot be allowed to become a justification for money laundering.

165.  In demanding this level of alertness, caution and prudence from individuals who are asked to deal with property not their own, the law does not require more of an individual than the principle of legal certainty would allow.  As the Court of Final Appeal said in Winnie Lo v HKSAR [2012] 1 HKC 537 at paragraph 21:

“And where the welfare of the public is concerned, it is not necessarily offensive to legal certainty that being safe from falling foul of the law sometimes means staying well within the prudent side of the line between legality and illegality.”

166.  It must be remembered that the principle of legal certainty does not mandate that requirements of accessibility and foreseeability of the law be satisfied without the citizen needing assistance.  If they can be satisfied by the citizen receiving appropriate advice then the principle is not infringed.  I am in no doubt that such uncertainty as any citizen might face in knowing whether he might be breaching section 25(1) can be removed by appropriate advice; and I see no difficulty faced by the legal adviser in advising in such cases what it is that the reasonable man will make of a given set of circumstances.

(ii)  The presumption of mens rea

167.  The applicant asserts that the common law requires that serious criminal offences, as a norm, should have an element of mens rea and that the mens rea element should describe a culpable or morally blameworthy state of mind.  In support of this assertion Ms Montgomery relies on the decision of the Court of Final Appeal in Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142.

168.  The following statements from the judgment of Ribeiro PJ in Hin Lin Yee summarise the principles relating to the presumption of mens rea. They are taken from paragraphs 39 - 42 of the judgment:

“What, if any, mental state is required is a matter of statutory construction …

The possible difficulty, in cases like the present, arises because the provision which creates the offence is silent or ambiguous as to the state of mind required. …

In such a situation, it is generally accepted that the starting point is that the statute must be construed adopting the presumption that it is incumbent on the prosecution to prove mens rea in relation to each element of the office.

… application of the presumption of mens rea involves requiring the prosecution to prove the state of mind appropriate to the external (that is to say, non-mental) element of the offence in question.  Thus where the offence prohibits a particular act, the presumption of mens rea generally requires the statute to be read as requiring voluntariness and intention or recklessness in the performance of that act.  And where criminality is dependent upon that act being done in specified circumstances, the provision is construed as requiring it to be shown that the defendant knew of or was reckless as to the existence of those circumstances.”

169.  Underlying the concern of the common law for offences to contain a culpable mens rea is that persons whose conduct is not blameworthy should not be convicted of serious criminal offences.  This was explained by Ribeiro PJ at page 181, paragraph 105 of the judgment:

“To convict a person regardless of the mental state accompanying his conduct, even if he can show that he acted in a reasonable, diligent and socially unblameworthy manner is contrary to the fundamental values of the common law. As we have seen, Lord Reid (when dissenting) decried a regime which tolerates ‘the public scandal of convicting on a serious charge persons who are in no way blameworthy.’”

There is no doubt that section 25(1) is a serious criminal offence as it carries a maximum punishment of 14 years’ imprisonment and, invariably, offenders are sentenced to some period of imprisonment.

170.  Ms Montgomery submits that the section 25(1) offence breaches the presumption of mens rea precisely because it is so wide that it is capable of convicting persons who have no morally blameworthy state of mind.  It is her position that the only mens rea that is required is an intention to deal with property and this, she says, is a wholly innocuous mens rea as the act of dealing with property per se carries with it no moral blameworthiness.  This limited form of mens rea she says is not sufficient to prevent the morally blameless being caught by the offence.  Finally, she says, if there is no true mens rea element in the offence then that absence has to bejustified.

171.  Applying Hin Lin Yee requires that the offence provision be examined with a view to identifying the elementsof theoffence and ascertaining what, if any, mens rea is prescribed in respect of each element.  The elements of the section 25(1) offence are:

(i) a person does an act amounting to a dealing;

(ii) the dealing is with something which is property; and

(iii) at the time of this dealing the person had reasonable grounds to believe that the property represented the proceeds of an indictable offence.

172.  So essentially there is only one act of the actus reus, or one external, non-mental act, namely, a dealing with property.

173.  At first glance the offence, once broken down into its constituent elements, may appear to have no mens rea other than the most basic, and non-culpable one, of intentionally dealing with property.  I accept that, as Ms Montgomery submits, this type of mens rea is common to most offences and, in the way the section 25(1) offence is drafted, does not require a morally blameworthy state of mind.

174.  But, because of the way in which the courts have construed the reasonable grounds to believe element of the offence, there is in fact a second mental element of the offence.  This second element is that when the defendant intentionally deals with the property he knows certain facts.  The respondent argues that this further element of mens rea brings a fault component to the offence and that is that at the time he deals with the property the defendant is possessed of knowledge of facts, which facts would constitute reasonable grounds to believe but, notwithstanding this knowledge, he continues to deal with the property.

175.  But this is all.  Although these facts have to be capable of causing the reasonable man to form a certain view about how a person would regard the property, the defendant himself does not have to form any view about the property nor does he have to form any view about how a reasonable person might view the property. He can have no view about the property, a neutral view about the property or a positively innocent view about the property and still be convicted.  In these circumstances can it be said that the presumption of mens rea has been displaced?

176.  This is the fundamental question, for recourse to the “half-way house” of Hin Yin Lee is dependent upon finding that the presumption of mens rea has been displaced.  If it has not and it is clear that in enacting the offence provision the legislature has deliberately chosen a primarily objective form of mens rea with a very narrow scope for a subjective aspect to it, then it is not to the point that this form of mens rea is of a kind that may not be commonly encountered in serious criminal offences.  The presumption of mens rea is nevertheless satisfied.

177.  What the legislature has enacted by section 25 and 25A is an AML regime which has at its core a legal obligation to report suspicious transactions.  Supporting compliance with this obligation is not just a summary offence for failure to report but an indictable offence that carries severe maximum penalties for any subsequent dealing by a person with this property.  As I have said earlier in this judgment the AML regime provides a stepped approach to the criminalization of conduct which undermines it and seeks to defeat it.  The section 25(1) offence is not simply a stand-alone offence; it should be seen as part of an overall AML regime in which it plays a role in enforcing the section 25A reporting obligation.  This is evident from the statutory defence in section 25(2).

178.  What the legislature has done in this AML regime is to say to persons in Hong Kong:

(i) you must disclose suspicious property and failure to comply with this legal obligation will subject you to prosecution (section 25A(1) and (7));

(ii) you shall not deal with property about which you harbour the requisite suspicion unless you have reported this property (sections 25(1), and 25A(1) and (2); and

(iii) if you deal with property knowing facts that would sustain the belief required by section 25(1) you commit an offence to which the only defence is that you intended to report your suspicion about the property and have a reasonable excuse for your failure to do so.

179.  This structured AML regime requires proof by the prosecution beyond reasonable doubt that at the time a defendant dealt with property there existed facts which were known to that defendant that would sustain the requisite belief in the mind of the common sense, right-thinking member of the community.  Arguably, this is a form of mens rea, though it may not be the form that is commonly encountered or the form that the applicant would like.  It is certainly more than just an intention to do an act as it requires that the act of dealing with the property be accompanied by knowledge of facts which possess a certain character.  It is this knowledge of facts of a certain character which can be said to create moral blameworthiness and transform a mere intention to do an act, that is, deal with property, into a culpable intention.

180.  However, assuming for the moment that Hin Lin Yee principles are engaged, what remedy would these principles provide?  Ms Montgomery submits that if the “half-way house” mistake of fact defence is read into section 25(1), then a defendant could avoid liability if he proved, on the balance of probabilities, that he did not know or reasonably did not suspect that the property was the proceeds of an indictable offence.

181.  But would that in fact be the nature of the Hin Lin Yee defence?  I raise this question because it seems to me that general principles dictate that the mistake must be of a fact and that the mistake must be of a kind which conforms with the structure of the offence and of its external elements.  This much is apparent from the way Ribeiro PJ phrased the question with which the Hin Lin Yee case was concerned at paragraph 34 of his judgment:

“This appeal therefore raises the general question of principle whether, under Hong Kong law, performing an act prohibited by statute in the mistaken but honest and reasonable belief that the circumstances associated with that act are such that, if true, no liability would attach, constitutes a common law defence to that offence (or alternatively means that a requisite mental element of the offence has not been established.” (Emphasis added)

Thus, the presumption of mens rea relates to the commission of the actus reus including any circumstances relevant to that actus reus.

182.  Here the actus reus is dealing with property knowing, at the time of dealing, certain grounds which have a particular character.  It is not an aspect of the actus reus that the property is in fact the proceeds of an indictable offence.  The problem with Ms Montgomery’s formulation of the defence is that it does not appear to be in conformity with such an actus reus.  The offence is not concerned with whether property is, in fact, the proceeds of an indictable offence and indeed, as the authorities make clear, it need not be and even if it is not a person can still be convicted of the offence, as for example can occur in a law enforcement agency’s undercover sting operation.[3]

183.  The structure of the offence arguably suggests that the mistake of fact would have to relate to the defendant’s appreciation of how the reasonable person would react to the known grounds ie an assertion by the defendant that he honestly and reasonably did not believe that the grounds of which he knew would be considered by a common sense, right-thinking member of the community to be sufficient to lead a person to believe that the property with which he dealt represented the proceeds of an indictable offence.

184.  Such a mistake of fact in order to be credibly asserted may well require the defendant to give some thought to the facts surrounding the requested dealing which make up the known grounds.

185.  I have raised these issues without resolving them and necessarily expressed my views in respect of them rather tentatively.  This is because I do not see that resolution of them is necessary to this appeal.

186.  The reasons I say that this issue does not need to be resolved on this appeal is because of the evidence the applicant gave at trial and because of the findings that the judge made in respect of the applicant.  The defence is set out at paragraphs 17 - 20 of this judgment and it is clear that it was not that the applicant was labouring under any form of mistake as to any fact; it was simply that because the request came from a friend whom he trusted, he gave no thought to it.

187.  As to the adverse findings the judge said of the applicant:

“… the defendant is not telling the truth when he said that he did not give any thought as to whether the money that Kwok had asked him to receive might have represented proceeds from an indictable offence. The reasons I so find is that it is impossible for anyone to not give any thought to the matter given the huge amount of money. Not even for someone as well off as the defendant …

… Even if we suppose the defendant was not lying about it, for the same reasons, I find that the defendant was deliberately turning a blind eye as to the question of propriety latest when he was informed that the amount received from Kwok’s friends was $14 million.”

He summarised these findings in his Reasons for Sentence when he said:

“As I explained in my reasons for verdict, the defendant turned a blind eye to all the grounds that would have pointed to the conclusion that the money was from an indictable offence.”

188.  What the judge is clearly saying in these passages is that the applicant was aware of the suspicious features of the transaction and deliberately chose to ignore them.  These findings were, in my view, findings that, on the evidence, were reasonably open to the judge to make.  Thus, given the evidence adduced by the applicant and given the findings of the judge, a Hin Lin Yee defence of mistake of fact, in whatever form it might take, would not have availed the applicant.

189.  I, therefore, reject the applicant’s argument as a basis for allowing the appeal.

(iii)  The presumption of innocence

190.  The applicant refers back to his attack on the width of the offence as exemplified by the decision of this Court in Wan Yet Kwai. The effect of that decision, it is submitted, is that an innocent person can be convicted because the prosecution does not have to prove that the facts known to a defendant can only sustain one reasonable belief.  If the facts can sustain the belief required of the section then notwithstanding that those same facts can also sustain an exculpatory belief a defendant will still be convicted.  The effect of this, it is said, is to impose a lesser burden on the prosecution.  As to the presumption of innocence, the respondent says that as section 25(1) does not contain a reverse burden and is not an offence of absolute liability, the presumption of innocence is not engaged.

191.  Ms Montgomery accepts that an infringement of the presumption of innocence may be justified but says that no such justification has been placed before the court.  This is hardly surprising given that this attack formed no part of her ground of appeal and did not feature in her written submission.

192.  I have already indicated earlier in this judgment why I do not think that the possibility suggested by Ms Montgomery is ever likely to eventuate.  It is a theoretical possibility based upon legal semantics and divorced from reality.

193.  I find no merit in the third ground of appeal.

Conclusion

194.  I, therefore, would grant leave but dismiss the appeal against conviction.

Hon Lunn JA

195.  I have had the benefit of reading the judgments in draft of Stock VP and McWalters J.  I too agree that the appeal against conviction should be dismissed.  I agree with the reasons given in the judgments of Stock VP and McWalters J for dismissing the appeal.

196.  For my own part, I wish only to add some observations to those made by Stock VP as to the issue of mens rea, in particular whether there should be read into the offence creating provision a halfway house defence.  Stock VP (paragraph 204) describes that as operating so that, given the proof of reasonable grounds to believe that the property was the proceeds of an indictable offence nevertheless, on the defendant discharging the burden of proof, it would be a defence that the defendant honestly and reasonably did not suspect the property to represent the proceeds of an indictable offence.  Of course, such a person would be morally blameless.  I agree with his observation (paragraph 214) that it would be “unattractive” to conclude that the legislature intended such a person to be caught by the offence.

197.  Whether or not such a position might arise from the evidence in a particular case clearly, in my judgment, it does not arise in the instant appeal.  Accordingly, a consideration of those issues is better left to the appropriate case.

198.  I agree with Stock VP’s observation (paragraph 214) that in circumstances where it has been proved that, on the facts known to the defendant, reasonable grounds to believe that the property is the proceeds of an indictable offence is established “there will be little room left” for a defendant to establish an honest and reasonable lack of suspicion.

199.  In his Reasons for Verdict, the judge said (paragraph 91):

“... I specifically find that the defendant is not telling the truth when he said that he did not give any thought as to whether the money that Kwok had asked him to receive might have represented proceeds from an indictable offence. The reason I so find is that it is impossible for anyone to not give any thought to the matter given the huge amount of money. Not even for someone as well off as the defendant.” [Italics added.]

200.  In making that finding, it is clear that the judge was rejecting the various statements that the applicant had made in his testimony that he gave the matter no thought or suspected nothing, for example:

(i)  Evidence in chief

(Transcript, page 239 D - E)

“Q. Did it ever occur to you that this might have been either an illegal transaction or a transaction which was the proceeds of something illegal?

A.   This idea had never occurred to me.”

(Transcript, page 243 C - E)

“Q. Did anything occur in that time which caused you to question this transaction?

A. No.

Q. All right. Just to make absolutely sure, did anything occur or were you told anything or did you receive any information that might have caused you to question the honesty or integrity of Mr Kwok?

A.   I never heard and I never suspected.”

(ii)  Cross-examination

(Transcript, page 261 C)

“Q. And it never crossed your mind for a second ‘Why Kwok Wing put over $14 million in my account for three weeks’?

A.   I did not think of anything.”

201.  I agree with Stock VP (paragraph 215) that in the Reasons for Verdict the judge clearly rejected the applicant’s testimony that went to the issue of whether the applicant honestly and reasonably did not suspect the property represented the proceeds of an indictable offence.  In my judgment, for the reasons he gave, the judge was entitled to do so.

Hon Stock VP

202.  There are two issues in this appeal which have concerned me.

203.  The first is the question of mens rea; by which I mean whether there should be read into the statutory scheme a halfway house defence, the burden of which is on a defendant to discharge, that notwithstanding the establishment of reasonable grounds, he nonetheless honestly and reasonably did not suspect the property to represent the proceeds of an indictable offence.

204.  The issue was neither pleaded as a ground of appeal nor addressed in the written submissions on behalf of the applicant; so leading counsel for the respondent was left to address the issue on the run, as it were.  With the benefit of hindsight, we ought not to have permitted the argument on such an important and difficult issue to proceed as it did.  We ought at least to have adjourned the matter for the presentation of full written submissions.  Given the regrettable passage of time since the hearing of the appeal, we have considered the issue as best we can and have also decided that, on the facts of this case and given the findings of the judge, such halfway house defence, if available, was in any event not discharged.  Nonetheless, in light of the importance of the issue, I offer some consideration of the point of law.

205.  In Attorney General v Lee Kwong Kut [1993] 2 HKCLR 186, Lord Woolf said of section 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance, upon which as McWalters J has explained in his judgment, section 25 of the predecessor to the present section 25 of OSCO was modeled, that:

“ ... the only mens rea which the prosecution is required to establish, if mens rea is an appropriate description of the necessary mental element, is that the defendant should know or have reasonable grounds to believe that the relevant person is connected with drug trafficking. This mental element can exist, even if the defendant does not have the required belief, if there are reasonable grounds for his holding the belief. The offence is therefore a draconian one.”

206.  But under the statute as then drawn, it was a defence in proceedings against a person for that offence (and similarly in the previous section 25 of OSCO) for that person to show, on the balance of probabilities, that he did not know or suspect that the arrangement related to any person's proceeds of drug trafficking or that he did not know or suspect that by the arrangement the retention or control by on behalf of the relevant person was facilitated.

207.  How much more draconian therefore is the present section 25 of OSCO where no such defence is expressly provided if in the practical application of the provision there is room for rendering liable up to 14 years imprisonment a person who can show that honestly and for sound reason, he did not even suspect that the property with which he was asked to deal represents the proceeds of an indictable offence.

208.  The seminal judgment on the issue of the presumption of mens rea is, in this jurisdiction, that of Ribeiro PJ in Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142.  Reference is made (at page 168) to B (A minor) v Director of Public Prosecutions [2000] 2 AC 428 and it is a passage from Brend v Wood (1846) 62 TLR 462 at 463, referred to in B at page 443 in that merits repetition:

“It is of the utmost importance for the protection of the liberty of the subject the court should always bear in mind that, unless the statute, either clearly or by necessary implication, rules out mens rea as a constituent part of a crime, the court should not find a man guilty of an offence against the criminal law unless he has a guilty mind.”

209.  Hin Lin Yee is replete with the same theme.

210.  Yet, so it seems to me, that may be the result of section 25 in its present form unless:

(a)     it be presumed that the legislature intended to provide a defence by which a defendant is entitled to be acquitted if he shows that he honestly and reasonably did not suspect the property to represent the proceeds of an indictable offence; or

(b)    the practical effect of the legislation as presently drawn is to preclude a conviction in such circumstances.

211.  The potential lacuna in the legislation as expressed - by which I mean the gap through which a morally blameless person may find himself convicted - may readily be illustrated.

212.  Emphasis has been laid on the fact that by virtue of section 25A a person to whom property is given in circumstances where there are reasonable grounds to believe the property to represent the proceeds of an indictable offence, may escape liability by virtue of section 25A by disclosing his knowledge or suspicion to an authorised officer.  Two aspects require emphasis:

(1)    Once the relevant facts are proved to have been in the possession of the accused, the “reasonable grounds” limb requires a wholly objective test - it does not require proof that the accused actually believed the proceeds to be those of an indictable offence.

(2)    Section 25A only ‘kicks in’ - that is to say the disclosure obligation only arises, and the defence to section 25 only applies - once the person knows or suspects the property to be the proceeds of or has been or is intended to be used in connection with an indictable offence.

213.  The question then becomes this: what if the accused person is able to show that he honestly and on reasonable grounds did not suspect the property to be the proceeds of an indictable offence?  He could not pray in aid, as a defence to a section 25 charge, compliance with the section 25A obligation for if there is established a true lack of suspicion and a reasonable basis for the lack of suspicion, there is no suspicion to report.

214.  The answer may be that once a tribunal of fact concludes, by reference to all the facts known to the suspect and the circumstances in which he found himself when he dealt with the property, that the reasonable person would be satisfied that those facts and circumstances constituted grounds to sustain the requisite belief, there will be left little room for the accused to establish a true and reasonable lack of suspicion.  Put the other way round, it is likely that if there are facts which show and explain a reasonable and honest lack of suspicion on the part of a defendant, it is unlikely that the prosecution could establish that there were, nonetheless, reasonable grounds not merely to suspect but to believe the property to be the proceeds of an indictable offence.  Yet whilst it seems clear enough to me to conclude that, by reason of the policy behind the legislation and the emphasis on reasonable grounds to believe, the legislature intended, for section 25 (as opposed to section 25A) purposes, to displace mens rea in the sense that it did not require the prosecution to prove that the suspect himself nurtured the belief, it is unattractive to conclude that the legislature intended to preclude the suspect from exculpating himself by showing that he was free of fault.

215.  These are, so it seems to me, important questions that will require determination in the appropriate case.  For immediate purposes, the question is whether in this case the failure by the judge to address the ‘halfway house’ issue (though not raised before him) matters.  It seems to me on a realistic reading of the Reasons for Verdict, that the judge found that either the applicant must have nurtured suspicion or that he turned a blind eye to the obvious. It was impossible, he concluded, for anyone, including the applicant, not to give thought to the question, given a series of unusual circumstances, each inherently odd, of which circumstances the applicant was aware; and the judge posed a series of questions which, in the light of all the relevant facts known to the applicant, would obviously be asked by the commonsense reasonable person, the combination of which gave rise to reasonable grounds for the requisite belief.  And it seems to me sufficiently clear (especially from paragraphs 91 – 93 and 103 ‑ 104 of the Reasons for Verdict) that the judge rejected such suggestion as may have been implicit in the applicant's testimony, that he honestly and on reasonable grounds did not suspect that the property represented the proceeds of an indictable offence.

216.  The second matter which concerned me arises from the judge’s application of the two limb test.

217.  He said at paragraphs 99 - 100:

“99. It is Mr Bruce’s admission that the court should first consider what facts were known to the defendant himself at the time dealing and then find whether those facts would cause the commonsense, right-thinking member of the community to believe that the money represented proceeds of an indictable offence.

100.  I find that although Mr Bruce’s proposition seems not much different to the two-stage test as set out in Shing Siu Ming and referred to above, there is a subtle but real difference between the two approaches.  I find that the proper approach is to decide first whether there are facts to cause a right-thinking person to have reasonable grounds to believe, and then to decide on whether those facts were known to defend.  The objective interpretation of the available facts by the commonsense, right-thinking person is the key elements of the first test.”

218.  McWalters J has explained why we prefer the stages suggested in Shing Siu Ming to be reversed.  The question which has to be addressed is whether the judge in saying what he did, isolated the commonsense reasonable man from the individual attributes and history of the parties (as opposed to their subjective beliefs) to which attributes and history, in my judgment, central attention of the reasonable person should always be directed.  But in the event, I am persuaded that, reading the Reasons for Verdict as a whole, he has not done so.

219.  Accordingly I agree that the appeal should be dismissed.

220.  I wish to add that I endorse the suggestion by McWalters J that the order of questions proposed in Shing Siu Ming should be reversed, to the effect described by him at paragraphs 107 and 108 above.

Result

221.  In the result although we grant the applicant leave to appeal and treat the hearing of the application as the appeal, the appeal is dismissed.

[1]       It actually goes beyond this and extends it to knowledge or suspicion that any property was used in connection with or is intended to be used in connection with an indictable offence.

[2]       See paragraph 36 of this judgment.

[3]       See HKSAR v Wong Ping Shui & Anor [2001] 1 HKC 600 (Court of Appeal); (2001) 4 HKCFAR 29 (Appeal Committee of the Court of Final Appeal).