Firm Principal Speaks Before The Legislative Council On New Anti-Money Laundering Legislation

For Immediate Release. May 24, 2010.

Timothy Loh, Managing Principal, spoke on behalf of the Law Society of Hong Kong before the Legislative Council on the proposed new anti-money laundering legislation on Monday, May 24, 2010. The full text of his speech is set out below.

NEW ANTI-MONEY LAUNDERING LEGISLATION FOR FINANCIAL INSTITUTIONS

Hon. Chairman Chan and members of the Panel on Financial Affairs:

Thank you for your invitation today to appear before you as you review proposed new anti-money laundering legislation for financial institutions.

Hong Kong is a global financial centre, a position earned at least in part through its rule of law and its compliance with international expectations on financial market regulation.

To maintain this position, proposals to enhance customer due diligence and record keeping requirements for financial institutions must strike the right balance between preventing money laundering on the one hand and facilitating financial transactions on the other hand and the right balance between individual rights and efficient enforcement.

One area of the current proposals which raises particulars concern and which I would like to address today is the abrogation of the right of silence in the course of an investigation.  As I understand it, as proposed, a regulatory authority may compel a person to answer a question. Whilst the answer to the question may not be used against him in criminal proceedings, answering the question does not bar criminal proceedings or regulatory proceedings. The answer to the question may be used against him in regulatory proceedings and evidence derived from the answer may be used against him in criminal proceedings.

The right of silence is a fundamental right.  It is a right which is integral to the presumption that each person is innocent until proven guilt.  Without the right of silence, a person under investigation is forced to prove his innocence against allegations of wrongdoing.

The right of silence goes equally to basic concepts of fairness.  There are many reasons why an innocent person may wish to keep silent.  He may wish to protect another person.  He may have some personal circumstance which he finds embarrassing to disclose. He may be scared and unsure of what to say.

The abrogation of the right of silence places each person under investigation in an impossible situation. If he refuses to speak, he commits a criminal offence. If he lies for reasons unrelated to the alleged wrongdoing, he commits a criminal offence.  If he tells the truth, he may give up his personal integrity, pride or reputation.

In our society today, there is a creeping tendency in commercial matters to abrogate the right to silence.  The Companies Ordinance and the Securities and Futures Ordinance provides for such an abrogation in investigations initiated thereunder.

The reasons given for abrogating the right to silence in these laws are varied. Some say that the right of silence need not apply to investigations as investigations decide nothing.  Whilst it is true that investigations themselves decide nothing, an interrogation of a person may determine whether a regulatory authority will initiate criminal proceedings against the person.  At the same time, a regulatory authority may ask for the whereabouts of the proverbial smoking gun and whilst a response giving the whereabouts may not itself be used in criminal proceedings, the smoking gun itself may be.  In summary, an interrogation has serious consequences for the person being interrogated.

Some say that the right of silence is an insurmountable barrier to investigations of complex commercial matters. But if a person is suspected of murder, do we as a society dispense with his right of silence on the basis that the investigation is made more difficult by this right of silence?

Some say that the right of silence has no role to play in regulatory infractions as such infractions are not criminal offences.  It is true that those who carry on a regulated activity do so as a privilege.  But once that privilege has been granted, the consequences of disciplinary action can be no less damaging than those arising in criminal proceedings.  Does the man on the street understand the difference between regulatory enforcement action and criminal enforcement action? Is the loss of livelihood or the right to carry on a business no less distressing than a fine handed out by a criminal court?

Governments and regulators elsewhere may rightly expect that enhanced customer due diligence and record keeping requirements are put in place and enforced in Hong Kong.  Does this mean that there is any expectation that fundamental rights such as the right of silence must be surrendered to meet these expectations?

Mr. Chairman and members of the Panel, thank you for this opportunity to address this issue. I look forward to any questions you may have.

About the Firm

Founded in 2004, Timothy Loh LLP is an internationally recognized Hong Kong law firm focused on mergers & acquisitions, litigation and general financial markets and financial services matters. The firm is a leader in banking, financial regulation, corporate finance, capital markets and investment funds as measured by its rankings and those of its lawyers in leading independent editorial publications. The firm routinely acts for Fortune Global 500 companies. For more information, visit www.timothyloh.com.