Introduction
The Court of Appeal (the "CA") recently handed down its decision inHKSAR v Lam Kit Wai & Others[2025] HKCA 429, revisiting legal principles on when it is appropriate to draw irresistible inferences of the existence of proceeds of crime in money laundering cases.
Brieffacts
Prosecution's case
Before the CA is an application for leave to appeal against conviction by 5 of the defendants who have been sentenced at the Court of First Instance for imprisonment ranging from 45 to 60 months. The charge against the defendants wasundersection 25 of the Organized and Serious Crimes Ordinance (Cap 455) ("OSCO") for having reasonable grounds to believe that they were dealing with tainted money (crime proceeds). Back in 2012, a police raid was conducted in the premises rented by a company owned by the 1stDefendant in which large scale betting operations were carried out, seizing a total of 298 Hong Kong Jockey Club ("HKJC") betting accounts deposits slip with a face value of over HK$115 million which showed deposits by some defendants into the HKJC betting accounts of other defendants. Between 2009 and 2012, these accounts showed substantial inflows and patterns suggestive of "layering", a hallmark of money laundering as suggested by the Prosecution's expert witness. The Prosecution further demonstrated that the large cash movements mainly originated from untraceable sources in Mainland China and eventually entered betting channels.
Defence's case
The Defence, on the other hand, by and large argued that the inflow and outflow of money should not, in isolation, be treated as indicative of money laundering. While each Defendant maintains a different perspective of events, each of them maintained that such use of the accounts has legitimate explanations. For instance, the 1stDefendant alleged that he acted in accordance with the instruction of his father who helped their mainland friends place bets in Hong Kong, and the 7thand 8thDefendants alleged that the monies came from legitimate loans for business purpose and had no reasons to believe they were tainted proceeds.
First instance ruling
After considering each defendant's case separately, the judge of the First Instance (the "Trial Judge") found an irresistible inference as to a reasonable groundtobelieve the monies were tainted stemmed from the very fact that they entered the accounts in a surreptitious manner or through "underground banking", as there was no evidence of the source of loans being legitimate.
Thelaw
Pursuant to section 25(1) of theOSCO, which criminalizes money laundering, a person commits an offence if he deals with property knowing or having reasonable grounds to believe that it represents proceeds of crime. At the First Instance, the Trial Judge made a remark that the prosecution had relied on the second limb of the mental element of the offence, i.e. that defendants had reasonable grounds to believe that the monies were tainted and the court has to draw inference of the existence of the proceeds of crime. The Prosecution is not required to prove the proceeds were actually sourced from an indictable offence and knowledge could be inferred from circumstantial evidence. This interpretation is endorsed by the CA. The question before the CA is hence, whether the Trial Judge has rightly drawn such inference and convicted the Defendants on this basis.
Ruling of the CA
The CA concluded that the convictions should be upheld after considering the following compounding factors:
- The Judge observed a complex web of financial dealings involving multiple bank accounts, with transactions totalling hundreds of millions of Hong Kong dollars. The volume, regularity, and scale of these movements was designed to make tracing and identifications of the funds more difficult.
- The entire arrangement was "structured and purposeful". Funds were not only transferred between various local accounts but also cycled through betting accounts, a tactic recognized as a hallmark of money laundering. This "layering" served both to distance illicit funds from their source and to inject a layer of anonymity for the beneficiaries, particularly when using accounts with the HKJC, even though some of the funds in the HKJC accounts were lost on bets.
- The Court noted that the large sums handled originated predominantly from untraceable sources in Mainland China. The lack of transparency and legitimate documentation regarding the origin of funds was a decisive consideration. There was no evidence that the industrial scale of the transfer from the mainland was from any "friends". Although taken in isolation, the use of the underground banking system in the present case could be a neutral factor,the CA opined that the evidence here overwhelmingly pointed to a primary purpose of concealing criminal proceeds.
Takeaways
This case highlights the serious risks individuals face when dealing with substantial sums of money from unknown sources, especially when multiple banking platforms and layers of transactions are used to obscure the origin of funds. Such patterns can allow the Court to draw an irresistible inference of the existence of the proceeds of crime, regardless of claims of innocence or neutrality. Therefore, anyone faced with transactions involving unclear origins or multi-layered financial movements should exercise heightened caution. If in doubt, it is always safe to err on the side of prudence and seek legal advice before proceeding.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
