HKSAR v. Jariabka Juraj

CACC 321/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 321 OF 2014

(ON APPEAL FROM DCCC 54 OF 2014)

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REASONS FOR JUDGMENT

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Introduction

1.The applicant was charged with incitement to deal with property knowing or believing the property represented the proceeds of an indictable offence, contrary to Common Law and section 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap 455.

2.The Particulars of Offence alleged that between 10 May 2013 and 14 June 2013 the applicant “unlawfully incited Papaleo Antonio Aldo to deal with property, namely the chose in action owed to Vindex (HK) Limited and/or East Ray (HK) Limited by Hong Kong bank, knowing or having reasonable grounds to believe that the property in whole or in part directly or indirectly represented the proceeds of an indictable offence.”

3.The applicant was tried in the District Court by Judge Dufton (“the judge”) and on 8 September 2014 was convicted of this charge.  He was sentenced on the same day to a period of 4 years’ imprisonment.

4.He now applies for leave to appeal against both his conviction and his sentence.  At the hearing of the application for leave to appeal against conviction I granted leave on the 1^st and 2^nd grounds of appeal only and granted the application for leave to appeal against sentence. I said I would hand down my reasons for doing so at a later date and this I now do.

The prosecution case

5.The prosecution case was that the applicant, who is a citizen of Slovakia, contacted an Italian journalist, Papaleo Antonio Aldo (“Papaleo”), living in Slovakia and sought his assistance in acquiring a company in Hong Kong and opening a bank account here for this company.  At the trial the prosecutor clarified that the chose in action were the deposits held by Hong Kong banks in the accounts of Vindex (HK) Limited (“Vindex”) and East Ray (HK) Limited (“East Ray”), and that the reference in the charge to “Hong Kong bank” was not a reference to the well known bank HSBC but to Hong Kong banks generally without specifying a particular bank. 

6.For the purpose of this judgment I shall not describe the evidence in detail but shall refer to only those facts which are relevant to the grounds of appeal that have been filed.

7.The main prosecution witness was Papaleo and he testified he met the applicant in Bratislava on 10 May 2013.  He said he was asked by the applicant to go to Hong Kong to incorporate a company and open a bank account for it for which he would be paid €5,000.  On 14 May 2013 both Mr Papaleo and the applicant arrived in Hong Kong.  Whilst here Mr Papaleo went to Acorn Business Services and Consultancy Limited who assisted him in the incorporation of Vindex and East Ray.  Mr Papaleo, however, did not open any bank accounts for these companies and gave various excuses to the applicant as to why the bank accounts could not be opened, including that the banks required proof of business. 

8.Mr Papaleo and the applicant returned to Bratislava where Mr Papaleo reported the matter to the police who declined to investigate Mr Papaleo’s complaint because, inter alia, they could find no underlying criminal conduct.  At no stage had Mr Papaleo intended to carry out what was required of him by the applicant and Mr Papaleo secretly recorded all meetings he had with him. Mr Papaleo returned to Hong Kong on 11 June 2013 and the applicant returned on 14 June 2013.  After his arrival Mr Papaleo reported the matter to the Hong Kong police and at a pre-arranged meeting with the applicant Mr Papaleo pointed out the applicant to the Hong Kong police who thereupon arrested him.

9.The prosecution case was that Mr Papaleo was told that the business of the applicant was illegal and that after incorporating two companies and opening bank accounts for these companies Mr Papaleo was to hand over the control of the companies and the bank accounts to the applicant.  Mr Papaleo would then be paid €5,000.  The prosecution case was summarised by the judge as follows:

“…the prosecution say that the defendant has incited Mr Papaleo to deal with property by concealing the true identity of the person in control of the bank accounts and thereby the true owner of the monies to be deposited in the bank accounts, knowing or having reasonable grounds to believe that the monies passing through the accounts, in whole or in part directly or indirectly represented the proceeds of an indictable offence.”

The defence case

10.The defence case was summarised by the judge as follows:

“ The defence case in summary is that in May 2013 the defendant entered into an agreement with Jozef Drlicka to incorporate two companies in Hong Kong. One was to trade in LED lighting and the other in publishing. Jozef Drlicka would incorporate the companies and manage the Hong Kong operation but as he did not have a passport Mr Papaleo was asked to go to Hong Kong to incorporate the companies and open the bank accounts on his behalf. Once Jozef Drlicka was able to travel to Hong Kong Mr Papaleo would then hand over control of the two companies and the bank accounts to him. The business of the two companies was genuine and there was no intention of laundering money through the bank accounts.”

11.The applicant was the only witness in the defence case and his evidence was not accepted by the judge.  The judge’s assessment of the applicant’s evidence and his rejection of it are not the subject of any of the grounds of appeal.

The Reasons for Verdict

12.In directing himself on the law that he had to apply the judge said this in respect of the offence of incitement:

“… The prosecution must prove that the defendant incited Mr Papaleo to deal with property intending or believing that if Mr Papaleo so acted Mr Papaleo shall or will do so knowing or having reasonable grounds to believe that the property, in whole or in part, directly or indirectly represented the proceeds of an indictable offence.”

13.After concluding his discussion of the evidence and of the submissions made by the counsel in respect of the evidence, especially of the evidence of Mr Papaleo, the judge said:

“ Notwithstanding a probing cross-examination conducted over three days I find Mr Papaleo to be a credible and reliable witness, who gave cogent and compelling evidence. Having carefully considered all the evidence I find as a fact, inter alia, the following:

(a) Mr Papaleo was a freelance journalist who was interested in investigating financial crime;

(b) Mr Papaleo posed as a corrupt journalist who had serious drug and alcohol problems so he could make contact with the underworld in Bratislava and Prague in order to ‘fish’ for a good story;

(c) posing in this way Mr Papaleo met the defendant through the introduction of Jozef Drlicka;

(d) prior to the first meeting with the defendant on the 10 May 2013 in the Goblin pub in Bratislava Jozef Drlicka told Mr Papaleo that he had a Slovakian friend working in Hong Kong who needed urgent help in order to do his business in Hong Kong;

(e) Jozef Drlicka said the business was illegal but not criminal in that it did not involve guns or drugs;

(f) Mr Papaleo secretly recorded all the meetings with the defendant;

(g) Mr Papaleo was asked to go to Hong Kong to incorporate a company and open a related bank account for the company;

(h) after incorporating the companies and opening the bank accounts the control of the companies and the bank accounts would be given to the defendant;

(i) after Mr Papaleo handed over to the defendant control of the companies and the bank accounts the defendant would pay Mr Papaleo a €5,000 reward;

(j) the defendant paid all the expenses of going to Hong Kong and incorporating the companies;

(k) Mr Papaleo and the defendant went to Hong Kong both arriving in Hong Kong at different times on the 14 May 2013;

(l) in Hong Kong the defendant instructed Mr Papaleo to incorporate two companies giving him the names of the two companies East Ray (HK) Ltd and Vindex (HK) Ltd;

(m) the defendant instructed Mr Papaleo to go to Acorn for assistance in incorporating the two companies and to ask for bank introduction telling Mr Papaleo what to say about the business of the companies and to use the Standard Chartered Bank and not HSBC;

(n) East Ray (HK) Ltd and Vindex (HK) Ltd were incorporated on the 15 May 2013;

(o) the defendant then instructed Mr Papaleo to open bank accounts for these two companies;

(p) Mr Papaleo went to various banks but did not open any accounts giving various excuses to the defendant why accounts could not be opened including making up the bank required proof of business;

(q) Mr Papaleo returned to Slovakia where he was asked by both the defendant and Jozef Drlicka to prepare the proof of business supposedly requested by the bank;

(r) the defendant instructed Mr Papaleo and Jozef Drlicka how to falsify the documents; and

(s) Mr Papaleo prepared four or five letters from companies who did not know of his existence saying they had business transactions with him.”

After having made these findings the judge said:

“ Having carefully considered all the evidence and submissions I am satisfied so I am sure the only inference to draw is that Mr Papaleo was asked to go to Hong Kong and incorporate East Ray (HK) Ltd and Vindex (HK) Ltd and open related bank accounts so that:

(1) the true holder and user of the bank accounts would be unknown; and

(2) the subsequent use of the bank accounts could not be traced to the defendant.

I am satisfied so I am sure the only inference to draw is that the disguising of the true holder and user of the bank accounts was because the bank accounts would be used to launder proceeds of an indictable offence.”

This lead the judge to conclude:

“ By asking Mr Papaleo to go to Hong Kong and incorporate the two companies and open the bank accounts I am satisfied so I am sure that the defendant incited Mr Papaleo to deal with property, Mr Papaleo knowing or having reasonable grounds to believe that the property, in whole or in part, directly or indirectly represented the proceeds of an indictable offence.”

14.The judge then referred to the definition of “dealing” in relation to property that is contained in section 2 of the Organised and Serious Crimes Ordinance, Cap 455 (“OSCO”) and said:

“ I am satisfied so I am sure that opening bank accounts on behalf of someone else facilitates money laundering by disguising the actual holder and user of the bank accounts and thereby the true owner of the monies which would be passing through the accounts. I am satisfied so I am sure that by asking Mr Papaleo to incorporate the two companies and open the company bank accounts, the control of which were to be given to the defendant, the defendant incited Mr Papaleo to deal with property.”

15.On the element of the offence of knowing or having reasonable grounds to believe the judge said that he was sure Mr Papaleo, having being told by the applicant that his business was illegal, knew the bank accounts would be used to launder the proceeds of an indictable offence.[1]  Notwithstanding that the judge made a finding of actual knowledge he went on to discuss the limb of reasonable grounds to believe and directed himself in accordance with the law as set out in the Court of Appeal’s judgment in HKSAR v Pang Hung Fai CACC 34/2012, unreported, 31 May 2013, and HKSAR v Shing Siu Ming & ors [1999] 2 HKC 818.  He also referred to the statement by the Court of Appeal in HKSAR v Wong Chor Wo & anor CACC 314/2006, unreported, 16 June 2008 where the court said:

“In the normal course of events, if a man allows another person to use his bank accounts to deposit and withdraw funds, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account represent the proceeds of an indictable offence.”

He then concluded:

“ The defendant having instructed Mr Papaleo to set up the companies and open the bank accounts for which the defendant would pay Mr Papaleo €5,000 upon control of the companies and bank accounts being handed over to him, I am satisfied so I am sure that the defendant incited Mr Papaleo to deal with property intending Mr Papaleo to act as incited with Mr Papaleo knowing or having reasonable grounds to believe that the monies to pass through the accounts, in whole or in part, directly or indirectly represented the proceeds of an indictable offence.”

The judge thereupon convicted the applicant as charged.   

The Reasons for Sentence

16.After setting out the fact of the case the judge referred to the mitigation advanced on the applicant’s behalf by his counsel, Mr Ross, but said that much that had been advanced carried little weight as the applicant was a visitor to Hong Kong who came here to commit a serious crime.  The judge referred to the need to impose a deterrent sentence for the offence of money laundering.  He then said that there were a number of factors which were relevant to determining the applicant’s culpability, including “the nature of the offence that generated the laundered money and the extent to which the offence assisted the crime or hindered its detection; whether the defendant had knowledge of that underlying offence or has turned a blind eye to the source of the money; whether there was an international element to the commission of the offence; the degree of sophistication of the offence and the level of the defendant's participation, including the length of time the offence lasted and the benefit he derived from the offence; and the amount of money involved.”

17.Of the unlawful act which the applicant incited Mr Papaleo to commit the judge said:

“ The opening of bank accounts for someone else facilitates the laundering of money by disguising the true owner of the money passing through the bank accounts. This makes difficult the detection of crime and at the same time undermines the integrity of the banking system. This is even more so in a case where both the person who opens the account and the true holder of the account are not Hong Kong residents.”

18.The judge then said that taking into account the international dimension and the applicant’s role in inciting Mr Papaleo he was satisfied that the proper sentence after trial was one of 4 years’ imprisonment and this was the sentence he then went on to impose on the applicant.

The grounds of appeal

19.In his Amended Perfected Grounds of Appeal Against Conviction Mr Egan, who appears for the applicant on the applications for leave to appeal, made four complaints.  The first is that he asserts no offence existed that was capable of being incited.  He argues that the property that is the subject matter of the offence, namely the choses in actions as represented by the deposits that would, in future, be made to the accounts once they were opened, at no stage ever existed.  He argues that all Mr Papaleo was incited to do was to open bank accounts in the name of the companies which he had arranged to be incorporated for the purpose of transferring the ownership of these companies and other accounts to the applicant, but this was in fact never done. He argues that taken at its highest what was done was no more than mere preparation to commit an offence.

20.The applicant’s second ground of appeal argues that it has to be proven that the property with which the applicant incited Mr Papaleo to deal is not just the proceeds of any type of crime or illegality but must be proven to be the proceeds of an indictable offence.

21.The third ground of appeal is that the judge applied the wrong test when considering the knowing or having reasonable grounds to believe limb of the mens rea of the money laundering offence. This is because the judge applied the Court of Appeal’s decision in Pang Hung Fai which was overturned on appeal by the Court of Final Appeal in HKSAR v Pang Hung Fai (2014) 17 HKCFAR 778.

22.The fourth ground of appeal is that the applicant did not receive a fair trial because he was denied his request for an adjournment so that evidence could be taken in Slovakia by way of letter of request. 

23.The perfected grounds of appeal against sentence boil down to effectively two complaints.  The first is that in assessing the culpability of the applicant the judge erred by taking into account irrelevant factors and the second ground of appeal is that he erred by sentencing the applicant on the basis of a theoretical worst-case scenario that might have taken place had the applicant succeeded in having the bank accounts opened and in being able to operate them over a period of time.

Discussion

24.The relevant part of the definition of “dealing” in OSCO is:

“‘dealing’ in relation to property referred to in … section 25, includes-

…

(b) concealing or disguising the property (whether by concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it or otherwise);

(c) disposing of or converting the property;

(d)    bringing into or removing from Hong Kong the property.”

25.The prosecution case was that the bank accounts were to be used to receive transfer deposits from overseas of monies which were the proceeds of an indictable offence.  These proceeds were to be brought into Hong Kong, allegedly to either dispose of them or to conceal or disguise their nature, source or ownership.

26.The prosecution case, in terms of the charge, was that Mr Papaleo was incited to, himself, deal with property; not for him to aid and abet others to deal with property.  The property that Mr Papaleo was incited to deal with was not property already in existence.  The property, being deposits that would be made to the accounts once the accounts were opened, would come into existence at future unknown dates when the applicant or his associates transferred monies into these accounts.  These deposits, once made to the accounts, became in law choses in actions, a form of property. 

27.But the prosecution case, in terms of the evidence, was that Mr Papaleo was to have a very limited role in this money laundering scheme; it was confined only to the opening of the accounts and it did not extend and was never contemplated to extend, to the operation of them.  All the applicant and his associates wanted from Mr Papaleo was to use his identity to open the bank accounts so that the applicant could distance himself from them and be able to operate them anonymously. 

28.In HKSAR v Salim Majed & anor CACC 184/2013, unreported, 14 November 2014, the Court of Appeal at paragraph 109 of the judgment, rejected the proposition that simply lending one’s bank account to another to use is itself a dealing with property for the purposes of section 25(1) of OSCO.  The respondent’s argument requires for its support a broad construction of “dealing” that at present has no authority to support it and, arguably, is inconsistent with the Court of Appeal’s decision in the Salim Majed case.

29.The applicant’s first ground of appeal is in my view reasonably arguable and I grant leave to appeal conviction on this ground.

30.The second ground of appeal relies upon an argument that the facts proven by the prosecution do not allow of an inference that the accounts were to be used to launder the proceeds of an indictable offence.  The oral evidence on this matter is somewhat ambiguous.  In their conversations with Mr Papaleo the applicant and Mr Drlicka were happy to describe their business activities which generated the funds to be transferred to the Hong Kong bank accounts as “illegal” or “not legal” but were equally at pains to emphasize that their activities were not criminal, at least in so far as they were not concerned with guns and drugs, and would not give rise to any risk of harm to Mr Papaleo.

31.The respondent concedes that the oral testimony of Mr Papaleo is not, on its own, sufficient for it to be said that the only reasonable inference is that the monies to be deposited into the Hong Kong bank accounts would be the proceeds of an indictable offence.  However, the respondent submits that Mr Papaleo’s testimony on this matter must be taken in conjunction with his testimony as to what the applicant was asking of him, namely to behave dishonestly by deceiving a Hong Kong bank into opening accounts using Mr Papaleo’s identity thereby enabling the applicant to distance himself from these accounts so that he could operate them anonymously.

32.Whether or not there is force in the respondent’s argument is a matter that, I am satisfied, should be determined by the Court of Appeal and I grant leave to appeal on this ground.

33.The third ground of appeal is that the judge misdirected himself in respect of the mens rea element of the offence of “reasonable grounds to believe”.  That the judge misdirected himself by relying on the Court of Appeal decision in the Pang Hung Fai case cannot be disputed. The respondent submits that the judge made it clear that he found actual belief proven and this was his primary basis for finding mens rea proven and that in respect of “reasonable grounds to believe” the judge was simply addressing this aspect of mens rea in the alternative. 

34.This ground as drafted involves a question of law alone and so, under section 82(2)(a) of the Criminal Procedure Ordinance, Cap 221, the applicant does not require my leave to argue it.  Whether, there is merit in the respondent’s submission is not for me to decide.  I make no order in respect of this ground which Mr Egan has indicated he wishes to pursue in the Court of Appeal.

35.The fourth ground of appeal against conviction complains of the refusal of the judge to grant an adjournment to enable a letter of request to be issued so that evidence could be obtained from Jozef Drlicka.  This ground Mr Egan abandoned at the hearing.  He was wise to do so.  In these days of limited judicial resources the comments of Lord Justice Judgein R v Khodr Chaaban [2003] EWCA Crim 1012 are worth repeating.  At paragraphs 35-37 of the judgment he said:

“35. We can now turn to the grounds of appeal arising from the judge’s management of the case. The trial judge has always been responsible for managing the trial. That is one of his most important functions. To perform it he has to be alert to the needs of everyone involved in this case. That obviously includes, but it is not limited to, the interests of the defendant. It extends to the prosecution, the complainant, to every witness (whichever side is to call the witness), to the jury, or if the jury has not been sworn, to jurors in waiting. Finally, the judge should not overlook the community’s interest that justice should be done without unnecessary delay. A fair balance has to be struck between all these interests.

36. … Adjournments have to be justified. If at all possible, they must be avoided. Proper case preparation is required from both sides. When asked to consider an adjournment, the judge must closely scrutinise the application, and, unless satisfied that it is indeed necessary and justified, should refuse it. The decision whether to adjourn or not is preeminently a decision for the trial judge. Sitting in this court we should not, indeed we must not, interfere with it unless it can be demonstrated that the decision to refuse an adjournment was wholly unreasonable and caused real as opposed to fanciful prejudice to the defendant, undermining the safety of the conviction. The contention that an adjournment should have been granted in this case is unsustainable. Where the basis of the application is, as it was here, that the defence needed time to make further speculative investigations which might reveal evidence of possible but unspecified benefit to the defence, we should not begin to consider interfering with the judge’s decision. We should add that, having examined all the material before the trial judge, we simply cannot imagine how the proper exercise of his discretion could have led him to any conclusion other than the one it did.

37.  … nowadays, as part of his responsibility for managing the trial, the judge is expected to control the timetable and to manage the available time.  Time is not unlimited.  No one should assume that trials can continue to take as long or use up as much time as either or both sides may wish, or think, or assert, they need.  The entitlement to a fair trial is not inconsistent with proper judicial control over the use of time.  At the risk of stating the obvious, every trial which takes longer than it reasonably should is wasteful of limited resources.  It also results in delays to justice in cases still waiting to be tried, adding to the tension and distress of victims, defendants, particularly those in custody awaiting trial, and witnesses.”

36.In respect of the application for leave to appeal sentence I am of the view that it is reasonably arguable that incitement, being an inchoate crime, should not necessarily attract the same punishment as for a completed offence.  The sentencing principles for inchoate offences is discussed by the authors of the seventh edition of Sentencing in Hong Kong at pages 371-373.  They cite a number of attempt cases where the courts appear to have said that generally an offender who is convicted of an attempt should be sentenced in the same way as if he had been convicted of the complete offence.  However, the authors note that there are exceptions to this general rule.  They conclude their discussion with the following comment at page 373 of their book:

“That a crime is in its infancy at the time when it is detected, aborted or frustrated, may mean that it can be treated less seriously than would have been possible had the substantive offence been completed.”

37.Rather than try and determine whether there is a general rule to which there are exceptions and then whether a particular offender might be within the general rule or the exception, the better course may be to simply apply basic principles of sentencing and assess the culpability of the offender by reference to the seriousness of his conduct and the harm it has caused, or the potential harm that it could have caused.

38.If that is done, then in each case it will be necessary to have regard to what has been proven with a view to assessing not just the culpability of the defendant’s conduct but also to the actual harm that did flow, and the potential future harm that could be expected would have flowed, from his conduct.  Being an inchoate crime actual harm may be minimal or even non-existent.  But potential future harm had the incitor’s plans materialised may be capable of assessment.  The grounds of appeal relate to the judge’s assessment of that potential harm had the applicant been able to operate remotely and anonymously the two accounts for a money laundering purpose.  I am satisfied the grounds of appeal are reasonably arguable.

Conclusion

39.For these reasons I allowed the application for leave to appeal conviction on grounds 1 and 2 only of the Amended Perfected Grounds of Appeal Against Conviction and the application for leave to appeal the sentence on all the grounds in the Perfected Grounds of Appeal Against Sentence.

40.Mr Egan asked that the appeal be listed for hearing not before September 2016 so that the applicant could receive the benefit of the Court of Final Appeal’s judgment in money laundering appeals to be heard by it in July next year, and I so directed.  I also directed that the transcript of Mr Papaleo’s evidence be included in the appeal bundle.  Mr Egan applied for bail pending appeal for his client and, his application not being opposed, I granted bail subject to conditions.

Mr Jones Tsui SPP, of the Department of Justice, for the respondent

Mr Kevin Egan, instructed by Massie & Clement, for the applicant

[1]  The prosecution’s primary position was that Mr Papaleo had actual knowledge that the bank accounts were intended to be used to launder the proceeds of an indictable offence and in the alternative that there existed reasonable grounds for Mr Papaleo to hold such a belief.