on 17 October 1997
ITEM FOR FINANCE COMMITTEE
HEAD 151-GOVERNMENT SECRETARIAT : SECURITY BUREAU
Subhead 700 General other non-recurrent
New item "Sharing of confiscated drug trafficking proceeds with the United States Government"
Members are invited to approve the creation of a new commitment and supplementary provision of $21,148,000 in 1997-98 for paying the United States Government a 50% share of assets at a value of $42,296,000 which the Hong Kong Government has confiscated from an absconding drug trafficker in 1994.
The United States Government (USG) has made a formal request for a 50% share of the assets confiscated by the Hong Kong Government (HKG) from an absconding drug trafficker named CHAN Ching-wai in 1994.
2.The Secretary for Security (S for S) proposes to create a new commitment and supplementary provision of $21,148,000 in 1997-98 for making the payment to the USG.
USG's Assistance in the Case of CHAN Ching-wai
3.The USG first initiated in the United States (US) investigations into CHAN Ching-wai's drug trafficking and money laundering crimes. In November 1989, we arrested CHAN Ching-wai in Hong Kong. He skipped bail in December 1989 and has not been apprehended since. Despite HKG's restraint of CHAN Ching-wai's assets, the Administration encountered difficulty at that time in making a domestic confiscation order against Chan's assets as the then Drug Trafficking (Recovery of Proceeds) Ordinance had not provided for confiscation of the assets of absconding defendants.
4.The Ordinance, however, provided for confiscation of assets through external confiscation orders. To resolve the stalemate over Chan's case, the HKG requested the USG to make an external confiscation order against Chan's assets in Hong Kong. This would require the USG applying for a civil forfeiture order based on CHAN Ching-wai's illicit activities in the US, and filing a civil action in the US seeking forfeiture of CHAN Ching-wai's assets located in Hong Kong. In 1992, the USG accepted the HKG's request. Action by the USG provided the HKG with a sufficient basis to maintain the restraint order against persons in control of CHAN Ching-wai's assets in Hong Kong. The restraint order has deprived CHAN Ching-wai of the use of those assets and prevented the assets from being transferred out of Hong Kong. In September 1993, the HKG successfully registered, on the USG's behalf, the forfeiture order the USG had obtained as an external confiscation order under the Drug Trafficking (Recovery of Proceeds) Ordinance. In late 1993, we commenced confiscation of Chan's assets in Hong Kong pursuant to the external confiscation order. The proceedings were completed in 1994 with total assets valued at $42,296,384 confiscated.
Request for Sharing of Confiscated Assets
5.The USG made a formal request in 1996 for a 50% share of the assets confiscated by the HKG in the case of CHAN Ching-wai. In view of the assistance given by the USG as outlined in paragraph 4 above, the Committee on Asset Sharing is of the view that we should favourably consider the asset-sharing request of the USG, on the following grounds -
Ratio of Sharing
- forfeiture procedures brought by the USG have led to the confiscation and realisation of the drug trafficker's assets in Hong Kong;
- the USG is likely to attach higher priority to breaking drug rings through international co-operation involving governments which are willing to share confiscated assets with them; and
- other countries have agreed to share confiscated assets with the US in similar circumstances.
6.The Committee on Asset Sharing also accepts the request of the USG for a 50% share of the confiscated assets. It is difficult to quantify the administrative costs incurred by the relevant US authorities in this case. However, resources devoted to this case on our side were believed to be far less significant than those of the USG, as we were involved mainly in establishing and maintaining contacts with the US authorities in the process. We therefore propose to accept the USG's request of a 50% share of the gross confiscated assets.
7.We have already credited into the General Revenue the proceeds of $42,296,384 from assets confiscated in CHAN Ching-wai's case. We propose to make a lump-sum payment of 50% of the confiscated assets to the USG, i.e. $21,148,192, rounded to $21,148,000. Subject to Members' approval, we shall offset the supplementary provision required in 1997-98 by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 789 Additional commitments.
8.We adopt the following policy and arrangements on the sharing of assets confiscated from drug traffickers -
- a Committee on Asset Sharing, chaired by S for S or his representative and comprising representatives of concerned government bureaux and departments will decide on requests for asset sharing in cases involving assets valued above HK$10 million. We will not entertain any request for a share of assets where the total value is HK$10 million or less; and
- under the Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order made in 1995, we will hold the confiscated assets in a Deposit Account for a period of five years, or until they are shared, whichever is the shorter, before transferring them to the General Revenue.
9.The Committee on Asset Sharing, having considered the circumstances of CHAN Ching-wai's case, agreed in February 1997 to accept the request from the USG for a 50% share of Chan's assets confiscated in Hong Kong. However, as the assets of CHAN Ching-wai were confiscated in 1994, before the Deposit Account arrangement was introduced, we have already credited the proceeds from Chan's assets amounting to $42,296,384 to the General Revenue. We therefore need to create a commitment under the General Revenue Account for paying the USG its share of the confiscated assets.
10.Hong Kong has co-operated with the US on 15 drug cases which have resulted in drug assets amounting to about $360 million being frozen or confiscated in Hong Kong. The USG has so far made two requests to us for sharing of confiscated assets. The present case is one of them and we are considering the other request.