INVESTIGATIONS into the laundering of drug money, now believed to be rampant in Hongkong, can resume following yesterday's Privy Council landmark ruling that the law permitting sweeping inquiries does not conflict with the Bill of Rights. Police and customs officers' powers to counter money-laundering had been severely curtailed since August 4 when Mr Justice Gall struck down the section that made it an offence for anyone to assist a drug trafficker to retain or dispose of drug money, andforced banks to assist investigations. Mr Nicholas Bratza, QC, told the Privy Council during a four-day hearing in March that while the legislation was in force an average of 35 cases of suspected money laundering a month were reported. Since Mr Justice Gall's decision that had fallen to 3.5 cases a month. The Law Lords decision means that section 25 of the Drugs Trafficking (Recovery of Proceeds) Ordinance is not inconsistent with Article 11 of the Bill of Rights, which provides that everyone charged with a criminal offence has the right to be presumed innocent until proven guilty. A senior police source in the Narcotics Bureau said: ''Hongkong can now stand up and say we do have money laundering legislation, and laundering drug proceeds will be a crime.'' The Narcotic Bureau's financial investigation group could now resume work on about 15 cases that had been put on hold, he said. However, he estimated that during the months when section 25 was not enforced, hundreds of millions of dollars in drug money passed through the territory's banks each month. ''Put it this way - taking an average of 40 cases a month, each case worth over $10 million, one can assume we're talking about $400 million per month,'' he said. The secretary for the Hongkong Association of Banks, Mr Steve Troop, said banks would be relieved and pleased with the Privy Council ruling. Some banks had felt torn between the threat of legal action by clients if they made reports, and the recognition that as responsible businesses they should disclose suspicious transactions. In a separate case, the Law Lords ruled that one of Hongkong's oldest laws - unlawful possession - was repealed by the Bill of Rights as it infringed Article 11. In unlawful possession, the defendant had to explain his innocent possession. This reduced the Crown's burden to proving possession and facts from which a reasonable suspicion could be inferred that the property had been stolen - matters which, the judges said, were likely to be formalities. ''It therefore contravenes Article 11(1) of the Bill in a manner which the Attorney-General could not justify,'' the judgement says. But in the money laundering provision, the substance of the offence must be proved by the prosecution. The Law Lords said the purpose of this section was to make it more difficult for those engaged in the drug trade to dispose of the proceeds of their illicit traffic without the transactions coming to the knowledge of the authorities. They said Mr Justice Gall should have had no difficulty on the material before him in concluding that the section did not contravene the Bill of Rights. ''The need to prevent the laundering of the proceeds of drug trafficking is common knowledge. He was entitled to have regard to the policy which the legislature had made clear by enacting [section 25]. ''While the Hongkong Judiciary should be zealous in upholding an individuals' rights under the Bill, it is also necessary to ensure that disputes as to the effect of the Bill are not allowed to get out of hand. The issues involving the Bill should be approached with realism and good sense and kept in proportion. ''If this is not done, the Bill will become a source of injustice rather than justice and it will be debased in the eyes of the public.'' Lord Woolf explained that the prosecution must prove that the defendant has been involved in a transaction involving the relevant person's proceeds of drug trafficking and had the necessary knowledge. If the defendant has taken precautions, such as establishing that the source of the funds is untainted, it is reasonable that he should be required to show this. ''In the context of the war against drug trafficking, for a defendant to bear that onus . . . is manifestly reasonable and clearly does not offend Article 11(1).'' The indictment against Lo Chak-man and Tsoi Sau-ngai, who were accused of assisting Lo's brother, Law Kin-man, to retain the benefits of drug trafficking, which was quashed by Mr Justice Gall, could now either be revived or a new one filed. The ruling on unlawful possession, which was used as a main weapon in law enforcement, means police powers will be curtailed, but it also carries wider implications for hundreds of regulations and ordinances which also require a defendant to prove his innocence and are all now open to challenge. One expert said reverse onus provisions - that is, requiring a defendant to prove something - were now prima facie unlawful unless they could be justified by the Crown as reasonable, rational and proportional. In giving practical guidance to Hongkong's courts when faced with such challenges, the Privy Council said there were situations where it was sensible and reasonable that deviations should be allowed from the principle that the prosecution must prove the defendant's guilt beyond reasonable doubt. They gave an example of someone performing without a licence, saying the prosecution should not have to shoulder the virtually impossible task of establishing a defendant has no licence when it was comparatively simple for the defendant to establish he has a licence. ''Some exceptions will be justifiable, others will not,'' said Lord Woolf. The less significant the departure from the normal principle, the simpler it would be to justify an exception.