HKSAR v. Tong Kam Sun and Another

DCCC 72/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 72 OF 2015

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Reasons for Sentence

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1.D1 faced a total of 18 various counts of conspiracy to defraud, fraud and using a false instrument. He pleaded guilty to 10 counts and was convicted accordingly. The remaining eight charges, namely, Charges 2, 5, 8, 9, 10, 11, 16 and 18, were left on the court file. D1’s sentence was adjourned to 7 August 2015 upon the conclusion of D2’s trial. D2 was convicted of the 18th charge on 7 August. I called for a CSO report on D2. As regards D1, I called for a background report. The sentence of both defendants was adjourned to today, 26 August. I have made it clear to D2 that by calling a CSO report, it does not mean I would not consider custodial sentence. In respect of D1, I stressed that a custodial sentence is inevitable.

2.D2 was only involved in one count of conspiracy to defraud (Charge 18) in which D2 was asked by D1 to sign the declaration section of an insurance application form.  D2 had not met the client in question and did not witness the client signing the form.  The application form was dated 28 November 2010.  D2 transferred all the commission money he received from Zurich back to D1.

3.In relation to D1, the facts of the 10 charges that he pleaded guilty to are as follows. 

4.Zurich Life Insurance Company Limited (Zurich) is an authorised insurer in Hong Kong.  Up till December 2013, the products of the company were sold through its own agents.  At the material time, D1 and Lam Wai-kei (Lam) were employed as insurance agents by Zurich and were responsible for promoting and selling insurance products of Zurich.

5.D1 was employed by Zurich as an associate team manager in August 2005 and became a team manager in January 2011.  D2’s employment with Zurich was terminated on 3 April 2012.  Lam Wai‑kei Jody (Lam) was employed as an agent with the title of consultant between 13 August 2007 and 5 November 2008 and was the down-line agent of D1.

6.In the normal course of business, an insurance applicant or proposer is required to complete a policy proposal or application form (the Form) either by himself or with the help of an agent in Zurich’s employ and, via his handling agent, submit the same with relevant supporting documents to Zurich.  The applicant is required to sign the Form to confirm that the information provided is true and correct.  The insurance agent is required to sign in the declaration section of the Form to declare that he has explained the contents of the Form and the information therein and also has witnessed the applicant signing the Form.  The Form so completed would then be submitted by the handling agent to Zurich for processing and approval.  Policy number will be assigned to a policy so granted.

7.To consider if a policy is to be approved, Zurich relied on the accuracy and the truthfulness of the information provided by the applicant and the handling agent’s declaration as contained in the Form.

8.Once the insurance application is approved, Zurich would pay a commission to the handling agent and an overriding commission to that agent’s up-line manager.  Under certain circumstances, the handling agent would also be paid a monthly allowance.

9.In addition, the handling agent will be credited with a Total Annual Premium (TAP) based on the amount of annual premium paid by the insured person and an annualised first-year commission (AFYC).  The team to which the handling agent belongs will also be credited with the same amount of TAP and AFYC, called Team TAP and Team AFYC.  These TAP and AFYC do not result in actual cash payments but the amounts so credited will be used in assessing the performance of the agent and the team, and hence the prospect of promotion of various stakeholders.

10.If false information was provided in the application or the policy was taken out without the knowledge and consent of the policyholder, Zurich would not approve the application and would also rescind the policy so obtained.  In that case, no commission, overriding commission, TAP and AFYC would be given to the agent and his team.

Charge 1 - Conspiracy to Defraud

11.After joining Zurich in August 2007, PW4 Lam had only secured three insurance policies - two for himself and one for his friend.  In October 2007, D1 proposed to Lam that D1 could name Lam as the handling agent when selling insurance policies to his clients, and in return, Lam would have to share the commission and allowance with D1.  Lam agreed to take part in this scheme and allowed D1 to use Lam’s name as the handling agent in those insurance policies in which Lam played no actual part.

12.Since then, Lam sold no other insurance policies for Zurich.

13.Between 18 December 2007 and 22 July 2008, Zurich received a total of 17 insurance applications purportedly made by Lam and seven other applicants.  The details of the applications were listed out in paragraph 10 of the Summary of Facts.

14.Lam’s name and his signature appeared in all these policy applications as the handling agent.  Zurich approved all these applications.

15.As a result of the approval of these insurance policies, Lam received commission from Zurich totalling $27,733‑odd and was credited with TAP and AFYC totalling $197,640 and $82,521 respectively.  Being Lam’s up-line manager, D1 received an overriding commission totalling $7,173-odd and was credited with TAP and AFYC totalling $197,640 and $82,521 respectively.  The details of these payments were tabulated in paragraph 12 of the Summary of Facts.

16.As Lam’s purported performance in these policies met the requirement for Lam’s entitlement to a monthly allowance of $10,000, Zurich released such an allowance to Lam for 12 months from August 2007 to September 2008.

17.Lam confirmed that he had not sold these insurance policies for Zurich other than the three policies abovementioned. The other seven policyholders also confirmed that they had not taken out any of the insurance policies with Zurich.

18.The premium payments of the said 17 policies were made by D1 through bank transfers from his own bank account to Zurich’s bank account.

19.Zurich confirmed that had they known the abovesaid 17 policy applications were not genuine and that the policies were taken out without the knowledge and consent of the policyholders, Zurich would not approve the applications and hence would not pay the commission and allowances to and credited various amounts of TAP and AFYC with the account of Lam and D1.

20.Upon receipt of the commissions and allowance from Zurich, between 26 November 2007 and 17 November 2008, Lam transferred various amounts of money totalling $99,965 to the bank account of D1’s wife, Lai, on 11 occasions.  Lam made the transfer in accordance with D1’s instructions.  Lam also deposited cash into this account on several occasions.

Charges 3 and 4 - Fraud

21.In November 2010, Zurich received two insurance applications with proposals numbered 1374681 and 1374699, both dated 24 November 2010, allegedly made by PW11 Wong Pak-kei (Wong) with D1 as the handling agent.

22.D1 signed the agent’s declaration in section I of the form, declaring that he had explained the contents of the application to the proposer who had signed the application in his presence and that he had gone through all the questions and information as stated in the application with the proposer.

23.Wong, who had known D1 since 1998, confirmed that the said two policies were taken out without his knowledge or consent. The signature of the applicant was not his.  Some of the personal particulars in the Form were either outdated or incorrect.

24.The premium payments of these policies were made by D1 through bank transfers from his own bank account.

25.Zurich approved the said applications and paid commission totalling $2,295-odd to D1 and credited D1 with TAP and AFYC totalling $21,862 and $13,773 respectively.

Charge 6 - Using a False Instrument

26.In October 2010, Zurich received an application for a request for policy loan in relation to an insurance policy numbered 2368731 under the name of PW12 Li Yiu-wah (Li).  It was purportedly signed by Li and requested to withdraw $9,000 from the said policy and deposit the same into the bank account of D1’s wife.

27.D1 was the handling agent of this application. The application was rejected by Zurich because of a new rule.  Li confirmed that he had no knowledge of the request and did not sign the application form. He did not know the bank account of D1’s wife nor the name of the recipient.

Charge 7 - Using a False Instrument

28.In February 2012, Zurich received another request for policy loan application relating to the insurance policy numbered 2368731 purportedly signed by PW12 Li.  It was an application to withdraw $6,242 for the purpose of paying the premium of the said policy and another policy numbered 7814291 under Li’s name.

29.D1 was the handling agent of this application. Zurich approved the application and withdrew $6,242 from the policy and used the same to pay the premium of these two policies.

30.Li confirmed that he had no knowledge of this request, and the signature therein was not his.

Charge 12 - Fraud

31.In November 2011, Zurich received a request for policy loan application in relation to an insurance policy numbered 2597209 with PW13 Suen Tak-kwan (Suen) as the insured person.  It was an application to withdraw $20,000 from this policy and use the same to pay for the premium of a new policy (proposal number 1379739) allegedly taken out by Suen.

32.D1 was the handling agent of this policy. Zurich approved the loan application and carried out the instruction.

33.Suen confirmed that he had no knowledge of the loan application and did not make such a request.  The signature on the application is not his.

Charge 13 - Attempted Fraud

34.In November 2011, Zurich received an insurance application allegedly made by PW13 Suen with the proposal number 1379739.

35.D1 was the handling agent.  D1 signed the agent’s declaration in section I of the Form.  Suen confirmed that the said policy application was made without his knowledge and consent.  The particulars therein were not correct and the signature is not his.

36.Zurich did not approve the policy because the applicant failed to attend a medical examination.  As Zurich had already withdrawn $20,000 from Suen’s policy numbered 2597209, Zurich then issued a cheque for $20,000 which was dated 16 December 2011 and made payable to Suen.  The cheque was given to D1 but Suen did not receive the cheque.  The cheque was not presented for payment.

Charge 14 - Using a False Instrument

37.In February 2012, Zurich received a letter purportedly written by PW13 Suen to use this cheque for $20,000 abovementioned for repayment of a policy loan and a payment indication form dated 17 February 2012 from D1 indicating that the said cheque was to be used for loan repayment in respect of policy numbered 2597209.

38.Zurich then credited the policy numbered 2597209 under the name of Suen with $20,000.

39.Suen confirmed that he had no knowledge of this letter and had never made such a request.  The signature in the letter was forged.

Charge 15 - Using a False Instrument

40.In April 2010, Zurich received a request form, commonly known as the surrender form, dated 1 April 2010 which was purportedly signed by PW14 Lau Chau-ming (Lau) in relation to a policy numbered 7666730. It was a request for surrendering the policy and transferring the value of the policy to a false policy numbered 1148354.

41.D1 was the handling agent and was designated as the agent responsible for making the transfer.  Zurich then carried out the surrender request and transferred the value of the policy totalled $3,549-odd to a new policy on 12 April 2012.

42.Lau confirmed that he had no knowledge of this surrender form, and the signature appended thereon was forged.  He also has no knowledge of the false policy.

Charge 17 - Fraud

43.In April 2010, Zurich received an application allegedly made by PW14 Lau for the issuance of an insurance policy (proposal number 1148354).

44.D1 signed the agent’s declaration in section I of the Form.  Zurich approved the application and eventually paid a commission of $56-odd to D1 and credited D1 with TAP and AFYC in the sum of $5,192 and $3,271 respectively.

45.The premium payments of the said policy were made by D1 through bank transfers from his own bank account.

46.Lau, who has known D1 for a number of years, confirmed that he had no knowledge of the policy and the signature in the Form was forged.

Mitigation

47.D1 is aged 52 and was married with one grown-up son.  He was the breadwinner of the family and had been an insurance agent with Zurich and later with Sun Life.  He was remorseful and was willing to make retribution to Zurich.  D1 submitted a total of 14 mitigation letters which were written by the defendant, his wife, D1’s relatives, former classmates and colleagues.  Defence counsel categorised the 10 charges into different groups. Defence counsel singled out Charge 1 which was involved a total of 17 false insurance policies.  Charge 1 covered the period from October 2007 to July 2008.  Defence counsel said there was some delay in bringing prosecution against D1, even though he would not say the delay could be said as an inordinate delay. 

48.Zurich knew of the existence of these offences but only referred the matter to the ICAC as late as in 2012.  In any event, it was submitted that there should be further discount in this charge.  D1 was “punished” by Zurich for the wrongful acts that he did.  Zurich demoted D1 back to associate team manager while PW4 Lam was fired.  D1 was required to pay $35,000 back to Zurich in 2008.  D1 considered the subject matter of the 1st charge “closed”, and that was a “reasonable expectation” on D1’s part.  Now, “the old scar was reopened”.  

49.In fact, it was submitted that the reasons that D1 committed these acts were because of the quota system in the insurance business and his need to make both ends meet.  D1 did not make much profit or gain from these acts.  He had to pay the costs of secretarial services and the premiums of various false insurance policies.  It was submitted that these false policies did not pose a real financial loss to Zurich but just put Zurich at risks as Zurich would terminate the policies when the falsity thereof was discovered. 

50.It was submitted that D1 committed Charge 2 because of the fierce competition and quota system.  It was a vicious cycle for D1 as he had to pay the premium even though he also received some commission from the policy.

51.Charges 3 and 4 can be taken as one group.  D1 was not better off.  The policies were generated so as to boost D1’s sales volume.

52.Charge 7, it was submitted, arose from Charge 6 as it involved the same application.  It was submitted that the client settled the premium by giving cash to D1.  However, D1 attempted to withdraw money from the policy in order to settle the premium. 

53.Defence counsel submitted that Charges 12, 13 and 14 belonged to another batch.  D1 did not derive any benefit from the acts. 

54.The last batch of the charges, that is, Charges 15 and 17, related to another policy, and D1’s ill-gotten gain amounted to only $56-odd.  What D1 did was to sustain his insurance business and to increase his chance of promotion.  D1 did not get much gain in real terms.

55.In April 2012, D1 was dismissed by Zurich.  D1 was sorry for what he did.  Defence counsel urged this court to consider CSO and/or pass a lenient sentence.  In mitigation today, counsel for D1 accepted the background report and reiterated that D1 was a hardworking family man. This court was urged to sentence D1 as leniently as possible.

56.Counsel for D2 in mitigation submitted that CSO report is a good one.  It is submitted that apart from his stupidity, D2 was having a kind of “misplaced sense of loyalty” to his former boss, D1.  It is unlikely that D2 will re-offend.  Counsel urged this court to adopt the recommendation of the CSO report.

Sentence

57.This case vividly demonstrates the harshness of the insurance business.  Unscrupulous insurance agents, despite having passed the professional examination and have the requisite insurance agents’ licence, made every attempt to shoot up or improve his or her trade records and performance in order to get the commissions, allowance, professional status and/or to be promoted as the team leader.  For those who could not survive, like Lam in this case, he has to quit or might have to be subdued by his colleague or seniors to do some unlawful acts.  In this case, D1, being the team leader of a reputable insurance company and has been in the industry for some years, manipulated the rules and acted in serious breach of trust, not just towards his employer, Zurich, but also to his friends like PW11 Wong, PW12 Li, PW13 Suen and PW14 Lau.

58.D1 had eight previous convictions of using a false instrument in July 2000.  He was sentenced to 6 months’ imprisonment and was discharged from prison in November 2000.  When asked, counsel for D1 informed the court that the previous convictions related to false insurance claims filed by D1.

59.D1 in his mitigation letter said he was deeply remorseful.  D1 said that he voluntarily disclosed Charges 6, 7, 12, 13, 14, 15 and 17 to Zurich when he left the company as he felt he was accountable to his clients.  The investigation lasted more than three years, and the incident was a burden, both financially and mentally, upon D1 and his wife.  D1’s wife in her letter said they had been married for 33 years.  His wife said D1 is a caring husband and father.  D1 was the breadwinner of the family and he would face the consequence of his dishonest act.  D1 was remorseful and that explained why D1 reported his wrongdoings to Zurich.  He pleaded for leniency. D1’s relatives, friends and former colleagues all praised D1’s sense of responsibility and good personality.  They said D1 was remorseful, and all asked this court to pass a lenient sentence.

60.While I accepted the truthfulness of these mitigation letters, the content of these letters seems to neglect the fact that D1 had been imprisoned for six months back in 2000 when he filed false insurance claims.  I asked and was told that at that time, D1 was a licensed insurance agent already.

61.It is not difficult to see that D1 had not treasured the chances that he could have reformed himself and turned a new leaf when D1 was discharged from prison in November 2000.  But that was not the end of the story.  D1 failed himself again back in 2009 when Zurich discovered D1’s irregular activities and wrongful acts.  D1 was demoted back to associate team manager in March 2009 and was ordered to pay $35,000 while PW4 Lam was fired and also was ordered to retribute.

62.It is clear that D1 and PW4 Lam had perpetrated criminal offences by making and using false instruments.  I have reservations as to the way Zurich chose to handle the subject matter of Charge 1. Strictly speaking and to some extent, Zurich might have been concealing the commission of offences by others, but I would not comment on this any further. Zurich did not fire D1 in 2009, and D1 was able to reinstate his status as a team manager in January 2011.  That allowed D1 to perpetrate further crimes.

63.D1 again did not treasure what he had achieved, and committed further offences.  D1 cannot put the blame on quota system and the competitiveness of the insurance business.  That is the reality, and it cannot and should not provide justification for D1 to commit wrongful acts.  D1 has no one to blame but himself.  He committed criminal wrongs in 2000 and apparently did not find the lesson bitter enough.  He perpetrated further crimes between 2007 and 2008 (subject matter of Charge 1) but was only disciplined by Zurich.  Again D1 did not learn from this lesson nor did he treasure the chance given by the company.  D1 committed further crimes which are the subject matters of the remaining charges.

64.D1 manipulated the system and sharpened his skill in furtherance of his scam.  That can be seen in Charges 14 and 17.  D1 abused his position as a senior and enlisted PW4 Lam and D2 to expand his malpractice.  D1 had no hesitation to forge others’ signature and filed false applications, be they insurance application forms, payment indication form, letters from client and surrender form, etc.

65.The background report of D1 stated that D1 appeared to be a family man and has been taking good care of his family and son.  It stated that D1 was unable to learn from the past experience, and he committed the present offence.  D1 attributed the present law infringement to his greediness, recklessness and flimsy law-abiding concept.  D1 promised to reform himself and be a law-abiding citizen in future.  D1’s family members are ready to render full support to him.  They asked for a lenient sentence.

66.All in all, given the nature of the offences which is basically a kind of insurance fraud, I would adopt a global approach to the charges that D1 pleaded guilty to, except Charge 1 which was, in the terms of counsel for D1, “an old scar”.  But it is apparent that Zurich, by taking some sort of internal disciplinary action, to some extent paved the way for D1 to perpetrate further crimes in future.

67.Charge 1 involved 17 insurance policies with a time span of about six months and with eight alleged applicants.  In HKSAR v Lai Wai Ho, CACC 392 of 2006, the Court of Appeal passed a sentence of 3 years’ imprisonment for the offence of conspiracy to defraud in that false insurance policies were taken out and there were no genuine policyholders.  In that case, the applicant was sentenced to a total of 3½ years for committing another count of using a copy of false instrument.

68.In the present case, for Charge 1, after considering all other factors, I would adopt a starting point of 3 years, and with his plea, I reduce the sentence to 2 years.

69.The remaining charges covered a period starting from April 2010 to February 2012.  False instruments were used and false insurance applications were filed.  These offences were committed after D1 was given “a chance” by Zurich and yet he did not treasure this chance to reform himself and turn a new leaf.  The scam got more sophisticated.  I would adopt a starting point of 3½ years for all the remaining changes and, with his plea, the sentence is reduced to 28 months.  And all the sentences under this category are to be served concurrently.

70.I have to consider the principle of totality and order that 2 months of the first sentence is to be served consecutively to the second sentence, making it a total of 30 months’ imprisonment for D1.

71.D2 is aged 31, single and has finished his secondary education.  He had been an insurance agent with Zurich from March 2010 to July 2011.  In my view, D2 deserved to have a different consideration for sentencing purposes, even though he was convicted of the charge after trial.  As far as the prosecution is concerned, D2 was involved in a one-off incident and was not the mastermind.  D2 was a licensed insurance agent at the material time.  I do not accept that D2 committed Charge 18 purely because of his “misplaced sense of loyalty” to D1.

72.That said, in light of D2’s background, the nature of the offence and D2’s culpability, I called for a CSO report.  The CSO report suggested that D2 had a distant relationship with his parents and younger sister.  D2 has marriage plan with his current girlfriend and they have been cohabiting since 2008.  D2 admitted to have violated the law due to his recklessness, negligence and flimsy law-abiding concept.

73.I have considered D2’s mitigation and his criminality in Charge 18.  He was not the mastermind of the scam and was only “picked” by D1 to facilitate D1’s insurance fraud.  I accept that D2 did not pocket the commission of the policy, even though he still got some benefits from having certain business.  I believe that D2, with the support of his girlfriend and family members, will reform himself and will not reoffend again. 

74.In these circumstances, I accept the recommendation of the CSO report and order that D2 to perform 200 hours of community services.  D2 is required to report to the probation officer of the District Court at Room 335 on the 3rd Floor of the Wanchai Tower at 11 am on 31 August 2015, that is, next Monday.