I. Criminal Asset Recovery

1. Identification/Tracing of assets

Hong Kong, China may provide assistance in response to a formal request by the foreign State to locate/trace and restrain proceeds of a foreign offence or property of a person suspected or accused of committing a criminal offence of corruption. The legislation of Hong Kong, China provides for the mechanism of using financial measures to deter, detect and disrupt the crime of laundering the proceeds of the underlying criminal conduct through local financial intermediaries.

2. Freezing/Seizure of assets

a. Execution of formal request for a precautionary seizure of assets/property

The laws of Hong Kong, China permit the requesting State to submit a formal request to provide assistance to seize/restrain proceeds of a foreign offence or property of a person suspected of committing a criminal offence of corruption. Upon receipt of the request, application is made to the Court of First Instance for a restraint order without notice to defendants.

An interim order is made pending a 'return date'. The defendants must be notified. On the return date, an order granted until further order of the court is issued. The restrained assets stay frozen pending the making of a final confiscation order in the requesting State.

b. Seizure of assets during domestic criminal proceedings

Within the context of the criminal investigation, the provisional measures will be undertaken as it may be necessary to enable temporary seizure of assets supposedly linked to crimes for the purpose of eventual confiscation.

The DTROPO and OSCO provide for the restraint of assets/property or charge of property to preserve it for the purpose of satisfying a confiscation order. A restraint order prohibits any person from dealing with the property under restraint. An item of property under restraint may also be seized by an authorized officer for the purpose of preventing realizable property from being removed from Hong Kong, China. A charging order imposes a charge on the property for securing the payment of money to the Government in an amount equivalent to the value of the property (and, after a confiscation order has been made, in an amount not exceeding the amount payable under the confiscation order). Charging orders are applied to the beneficial interest held by the accused in land in Hong Kong, China or securities (Schedule 3 of the OSCO and Schedule 2 of the DTROPO).

These orders against a person's property can be made by the Court of First Instance after proceedings for a 'drug trafficking offence' or 'specified offence' have been instituted and the judge is satisfied that there is reasonable cause to believe that the person has benefited from the relevant offence. The orders are broad as they apply to all the realisable property of the accused (i.e. property which may be used to realise a confiscation order) and not only property traceable to the relevant offence.

Once a restraint order is made, the court can appoint an interim receiver to take possession of realizable property and manage and deal with the property. Private accounting firms have typically been appointed as interim and enforcement receivers. Charging orders are enforceable in the same way as equitable charges.

3. Confiscation/Forfeiture

a. Definition of proceeds of crime for the purpose of forfeiture/confiscation

The MLACMO defines the proceeds sought to be confiscated/forfeited in a broad manner. It provides that the objects or assets subject to forfeiture include direct proceeds ('payments or other rewards received in connection with an offence') and indirect proceeds ('property derived or realized, directly or indirectly, from direct proceeds'). Where or to the extent that no direct confiscation is possible, a forfeiture of an equivalent sum of money is provided instead. Confiscation in order to deprive a person of a pecuniary advantage obtained in connection with an offence is also covered. The proceeds, however, must relate to a predicate offence that is punishable in the requesting State by death or imprisonment of at least 24 months.

Similarly, under Section 2 of the OSCO, "proceeds of offence" is defined as any payments or other rewards received by him any time (whether before or after 2 December 1994) in connection with the commission of the offence; any property derived or realized, directly or indirectly, by him from any of the payments or other rewards; and any pecuniary advantage obtained in connection with the commission of that offence. The value of the person's proceeds of the underlying offence is the aggregate of the values of the payments or other rewards; that property; and that pecuniary advantage (Section 2 of the OSCO).

At the same time, Section 102 of the Criminal Procedure Ordinance (Cap 221) excludes certain types of property from forfeiture. Please see the respective provisions.

b. Execution of foreign confiscation orders

Hong Kong, China may execute a foreign request for confiscation of assets of evidently criminal origin after initiation of the mutual assistance procedure, whereby the Central MLA Authority determines whether mutual assistance may be granted and to what extent. A legal basis for the execution of foreign confiscation requests is provided for in the MLACMO, Section 27 'Requests to Hong Kong for enforcement of external confiscation order' and in the DTROPO, Section 28 'Enforcement of external confiscation orders' for drug trafficking offences.

The status of foreign proceedings may affect whether Hong Kong, China can execute a request for restraint or confiscation. A restraint order may be obtained in Hong Kong, China. Restraint orders are available if proceedings have been instituted (or are about to be instituted) and are on-going in the requesting State. Also, restraint orders are available if a confiscation order has been made or there are reasonable grounds to believe such an order will be made. Restraint orders are also available if proceedings will be instituted in the requesting State and confiscation may be ordered in those proceedings.

Hong Kong, China may also execute foreign confiscation orders in the context of mutual assistance proceedings. Foreign confiscation orders must be made under the law of the requesting State for the purpose of recovering payments or other rewards in connection with an external serious offence, property derived or realized, property used in connection with; depriving person of pecuniary advantage. Requests for confiscation may be executed only if a court in the requesting State has ordered confiscation and the order is not subject to appeal. There is no requirement that a person be finally convicted of an offence in the requesting State. The person in respect of whom the order was made must have received notice.

The regulation on registration of external confiscation orders is provided for under the MLACMO, Section 28 and under DTROPO, Section 29 (for drug trafficking offences), 'Registration of external confiscation orders'. Foreign confiscation orders may be enforced through direct registration in Hong Kong, China. Foreign confiscation orders may be directly registered with a Court of First Instance in Hong Kong, China. It allows the order to become enforceable in Hong Kong, China like a domestic court order. There is thus no need to apply for a second court order in Hong Kong, China.

Under Section 28 para 1 of the MLACMO and Section 29 para 1 of the DTROPO, the foreign confiscation order must meet the following requirements in order for the Court of First Instance to declare it admissible for registration. First, the court has to be satisfied that at the time of registration the order is in force and not subject to appeal. Secondly, the court has to be satisfied, where any person against whom, or in relation to whose property, the order is made does not appear in the proceedings, that he received notice of the proceedings, in accordance with the law of the place outside Hong Kong concerned, in sufficient time to enable him to defend them. In other words, defendants must be informed of registration. Finally, the court must be of the opinion that enforcing the order in Hong Kong would not be contrary to the interests of justice.

Under Section 28 para 4 of the MLACMO, the Court of First Instance may cancel the registration of an external confiscation order if it appears to this court that the order has been satisfied by the following means. First, the foreign confiscation order has been satisfied with payment of the amount due under it or by the person against whom it was made serving imprisonment in default of such payment. Secondly, the foreign confiscation order has been satisfied by recovery of property specified in it (or the value if such property) or by the person against whom it was made serving imprisonment in default of such recovery. Thirdly, the foreign confiscation order has been satisfied by any other means.

Under Section 29 para 3 of the DTROPO, the Court of First Instance may cancel the registration of an external confiscation order if it appears to this court that the order has been satisfied by payment of the amount due under it or by the person against whom it was made serving imprisonment in default of such payment or by any other means.

Lastly, Section 29 of the MLACMO provides for requirements concerning the proof of orders and judgments of court in the requesting State. In the case of DTROPO, such requirements are provided under para 4 of DTROPO (Designated Countries and Territories) Order (Cap. 405A). 

c. Confiscation in the context of domestic criminal proceedings

The confiscation proceedings under domestic legislation of Hong Kong, China is another option for the competent authorities to proceed with confiscation of the proceeds of crime. In this case there is no need for the requesting State to issue a confiscation order. However, the authorities would have to be satisfied that there was a suitable offence that had occurred in the jurisdiction of Hong Kong, China. The two legal instruments, the DTROPO and the OSCO, provide for the legal basis for the criminal confiscation of the proceeds of drug trafficking and organized or serious crimes respectively. The Ordinances apply to property situated either in Hong Kong, China or elsewhere (Section 2(3) of the DTROPO and Section 2(4) of the OSCO). Enforcement against property abroad is made through the MLA procedures.

The OSCO applies when a person is convicted of a "specified offence" listed in Schedules 1 and 2 of the OSCO or an organized crime under Schedule 1 only. They include common law offences (murder, kidnapping, false imprisonment, conspiracy to prevent the course of justice, manslaughter, conspiracy to defraud) and statutory offences. Among indictable statutory offence, the OSCO mentions the offence of 'dealing with property known or believed to represent proceeds of indictable offence' (see Section 25(1) of the OSCO); the offences of 'bribery of public servant', 'bribery for giving assistance, etc. in regard to contracts', 'bribery for procuring withdrawal of tenders', 'bribery of agent' (see Prevention of Bribery Ordinance (CAP 201), Sections 4(1), 5(1), 6(1), 9(2) respectively); the offence of 'fraud' (Section 16A (added 45 of 199 section 6) of the Theft Ordinance (Cap 210); the offences of 'obtaining property by deception', 'obtaining pecuniary advantage by deception', 'procuring false entry in certain records', 'false accounting', 'handling stolen goods' (Sections 17, 18, 18D, 19, 24(1) of the Theft Ordinance (Cap 210)). It should be noted that the OSCO does not include tax evasion as an organized crime or specified offence.  It however may be possible in appropriate circumstances for a charge of conspiracy to defraud or money laundering (Section 25(1) of the OSCO) to be used in respect of tax evasion cases.  Tax evasion is an indictable offence under Inland Revenue Ordinance (Cap. 112) and is punishable by penalty and imprisonment.  Confiscation of tax undercharged is not applicable.

The list of statutory offence as provided for in Schedules 1 and 2 of the OSCO is not exhaustive though as far as the scope of confiscation is concerned. Confiscation of the proceeds of the money laundering offence is possible under Section 8 of the OSCO. Section 25 of the OSCO provides that if a person deals with any property which he knows or having reasonable grounds to believe to represent the proceeds of an indictable offence, he commits the offence of money laundering. Therefore, if the money laundering offence of the criminal proceeds of an indictable offence is committed, it may fall within the scope of the OSCO's confiscation provisions. For that reason, the money laundering offence indirectly extends the scope of the confiscation provision of OSCO.

Confiscation of proceeds of serious crimes is a court-ordered confiscation. The prosecution may apply as part of sentencing in the Court of First Instance or District Court for a confiscation order to be made in personam against the offender and not against any particular property. Under Section 8 of the OSCO and Section 3(12) of the DTROPO, the prosecution needs only to prove the preconditions to confiscation on a balance of probabilities. Similarly to Section 3 of the DTROPO, confiscation is possible under Section 8 of the OSCO where proceedings against the defendant for one or more specified offences have been instituted and the defendant has been convicted of that / those specified offence(s).

Under Section 8 para (1)(a)(ii) of the OSCO, application for a confiscation order can also be applied for instituted proceedings where the defendant has absconded for 6 months or died and that he could have been convicted had he been before the Court.

The prosecution applies for a confiscation order upon the announcement of the conviction of the defendant but before his sentence and applies for a determination whether the specified offence is an organised crime. The court will make such a determination and determine whether the defendant has benefited from the specified offence. If the Court determines that the defendant's proceeds of the specified offence(s) are in total at least HK$100,000 (about US$12,820) (as specified in Section 8(4) of the OSCO), then subject to Section 11(3), the amount to be recovered under the confiscation order will be the amount assessed under Section 11(1). However, if the Court is satisfied that the amount that might be realised at the time of the confiscation order is made is less than the amount the Court has assessed to be the value of the defendant’s proceeds, then the amount to be recovered under the confiscation order shall be the amount appeared to the Court to be so realized. 

Where the Court makes a confiscation order, the Court shall also make an order:

• fixing the period within which the amount the defendant is liable to pay under the confiscation order shall be duly paid; and
• fixing a term of imprisonment which the defendant is to serve if any of that amount is not duly paid within that period under Section 13 according to the following table.

TABLE: Maximum term for amount not duly paid

d. Third party forfeiture

The DTROPO and the OSCO do not specifically address the issue of third party interests and claims to property. In particular, the laws do not provide for an innocent owner defense. Still, it should be noted that although these laws do not set out third party protections, in practice, where there is a victim who can prove title to the restrained property, the Department of Justice is in principle prepared to discharge the restraint order to permit the victim to re-possess the property, they also do not provide for victims of crime to be paid out of confiscated funds. It should be noted that under Section 15(6) of the OSCO and Section 10(6) of the DTROPO where a restraint order has been made by the Court to prevent the dissipation of assets, an application to discharge or vary the restraint may be made by anyone affected by it; and this is commonly understood to include third parties who dispute that some or all of the property is owned beneficially by the defendant and so, can make such application where agreement on ownership cannot be reached with the Department of Justice. It is in the best interest of the third parties to make the application before confiscation order is issued by the Court.

The sentencing court has no discretion to reduce the amount of a confiscation order to benefit third parties because once all the preconditions are satisfied the confiscation order is mandatory. Thus, third party interests are not normally considered at the confiscation stage. The Court of Appeal has noted that this inflexibility can cause difficulties for third parties, as otherwise they must initiate their own proceedings (See HKSAR v Lung Wai Hung [1999] 1 HKLRD 598 at 606 (CA)). After the confiscation order is imposed, if the convicted person does not pay, a second proceeding must be initiated to recover property from the offender for the purposes of satisfying the confiscation order. In this proceeding, third parties with an interest in the property to be realised will have an opportunity to be heard. This is yet another opportunity for third parties to have their interests recognized under the OSCO and DTROPO, but in this case, after a confiscation order is made.

Both Ordinances allow for applications to the Court of First Instance for compensation to property holders where proceedings against the offence in question were not instigated; or where the instigated proceedings did not lead to conviction of the individual; or where conviction was subsequently squashed (Section 29(1) of the OSCO, Section 27(1) of the DTROPO). However, the threshold test for obtaining compensation is high as it requires proof of "some serious default" on the part of the police or prosecution. (Section 29(2) of the OSCO, Section 27(2) of the DTROPO).

e. Asset sharing

Hong Kong, China may share assets if there are applicable bilateral or multilateral agreements. Confiscated funds are paid into a court and held for 5 years. Overseas places may make a request to share. Each request for asset sharing will be considered on its own merits. If no sharing occurs, confiscated assets are considered as general revenue.

The MLACMO permits the sharing of proceeds of crime recovered under external confiscation orders.

4. Repatriation

The repatriation of the confiscated proceeds of crimes is regulated under the MLACMO. The Ordinance allows the Secretary for Justice to liquidate property that has been confiscated. The Secretary may direct that all or part of the confiscated property (and the proceeds from its liquidation) be provided to the government of a requesting State that is a 'prescribed place'. The latter term refers to a place outside Hong Kong, China to or from which MLA may be provided or obtained pursuant to prescribed arrangements. The law of Hong Kong, China makes no provision for the repatriation of assets to a country that is not a 'prescribed place'. Conditions may be attached. Reasonable expenses incurred during the asset recovery process may also be deducted.

State parties to the UNCAC constitute 'prescribed places' under the MLACMO. Accordingly, the discretion of the Secretary for Justice in disposing of assets that are confiscated pursuant to a request under the Convention will be exercised in accordance with Convention obligations In particular, embezzled public funds (including embezzled funds that have been laundered) must be returned to a requesting State Party. For other offences covered by the Convention, confiscated assets must also be returned to a requesting State Party that reasonably establishes its prior ownership of the property, or if Hong Kong, China recognizes damage to the requesting State Party as a basis for returning the confiscated property. In all other cases, Hong Kong, China is required to give priority consideration to returning confiscated property to a requesting State Party, returning such property to its prior legitimate owners or compensating the victims of crime.

II. Civil Asset Forfeiture

A comprehensive civil forfeiture regime with regard to crime-tainted property is not available in Hong Kong, China. However, specific types of civil forfeiture mechanisms exist under a variety of ordinances such as restitution (including in bribery cases), property seized by police in connection with an offence, forfeiture of drug cash seized entering or leaving Hong Kong, China and freezing and forfeiture of terrorist property. There are a variety of other less significant forfeiture provisions scattered amongst context-specific ordinances, including closure orders in relation to vice establishments and the seizing of motor vehicles.

III. Civil Law Suits

Hong Kong, China may implement the provision of Art. 53 of UNCAC requiring signatories to permit other states to bring civil proceedings to recover assets acquired through the commission of offences under the Convention.