On 5 December 2019, the Hong Kong Court of Final Appeal (“CFA”) handed down its decision in HKSAR v Harjani Haresh Murlidhar  HKCFA 47. In its judgment, the CFA reformulated the test for determining whether a person is guilty of money laundering. The decision reminds individuals and businesses of the need to be vigilant as to the legitimacy of the proceeds which they handle.
The appellant (hereafter “Defendant”) was charged with conspiracy to deal with property known or believed to represent proceeds of an indictable offence, contrary to section 25(1) of the Organized and Serious Crimes Ordinance (Cap. 455) (“Money Laundering Offence”).
At first instance, the main issue was whether the Defendant knew or believed that the proceeds withdrawn from his company’s bank account represented the proceeds of an indictable offence.
These proceeds were obtained by co-conspirators in an email fraud. In essence, the Defendant’s defence was that he was a legitimate businessman with the funds in question deriving from a genuine commercial transaction. The Defendant claimed specifically that he was asked to execute a letter of credit and to receive the deposit and letter of credit proceeds in his company’s account. The reward for doing so and for providing inspection services at shipment would be 15% of the contract price, with the Defendant’s company getting 12% (US$1,294,560) and a co-conspirator receiving the other 3% (US$323,640).
The Judge at first instance found the Defendant’s belief to be unreasonable and ill-founded and accordingly convicted the Defendant. In doing so, he held that even if the Defendant held an honest belief that the source of the money was legitimate, in order to establish a defence to the Money Laundering Offence, that belief must also be reasonable.
On appeal, the Court of Appeal held that the Judge was wrong to require an honest belief to be reasonable before the defence can be established. The conviction was, nevertheless, upheld since the Judge had, in the Court of Appeal’s view, correctly reached a conclusion that the Defendant’s claim as to his belief was not truthful.
Decision of the CFA
The CFA unanimously upheld the conviction, further finding that it was the Court of Appeal, rather than the first instance Judge, which had erred in its analysis of the Money Laundering Offence. In particular, even if the Defendant was found to genuinely believe that the money he was dealing with was clean, but if any reasonable person in the position of the Defendant would believe that the property was tainted, the Defendant would be guilty of the Money Laundering Offence.
The CFA was not of the view that its decision was changing the law. However, for clarity, it set out a reformulated test for determining whether a person is guilty of the Money Laundering Offence:
Some commentary has questioned whether the CFA’s approach would unfairly render genuinely gullible people guilty of the Money Laundering Offence. Others have similarly highlighted the fact that the reformulated test only envisages the hypothetical “reasonable person” sharing a defendant’s knowledge, and not that defendant’s reasoning or perception.
There are two points to consider in relation to these concerns:
First, as the CFA pointed out, there are two interrelated questions to address: (i) is a defendant telling the truth when he or she says that the property was tainted; and (ii) could a reasonable person in the position of that defendant have failed to believe that the property was tainted? Practically speaking, the Court will usually give the same answer to both questions.
Second, where the Court accepts that a defendant did not himself or herself believe that the property was tainted but nevertheless convicts – this will be a mitigating factor in sentencing.
In effect, the decision incentivises individuals to ask robust questions when faced with funds of questionable origin rather than take comfort in a defence that he or she had a “genuine” belief in the propriety of the funds. If the money laundering laws are to be effective, this must be the correct approach. There is also an expectation that the Department of Justice will carefully consider its public interest discretion under the Prosecution Code before deciding to prosecute individuals who are clearly of lower than normal reasoning ability.
The takeaways for all businesses (not just financial institutions and professional service firms) are as follows: