HKSAR v. Chan Chi Ming

HCCC 378/2017

[2018] HKCFI 1203

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO 378 OF 2017

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Transcript of the Audio Recording

of the Sentence in the above Case

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COURT:

Chan Chi-ming pleaded guilty before a Magistrate to three charges of fraud, contrary to section 16A of the Theft Ordinance, Cap 210 in the Laws of Hong Kong. He was committed by a Magistrate for sentence to the Court of First Instance.

The essence of the three charges levelled against Mr Chan is that between February and November 2007, he defrauded his employer, Umicore Marketing Services (Hong Kong) Limited, by falsely representing that payments were owed to IB Hong Kong Limited for freight services and induced staff at Umicore to make payments on the strength of certain freight forwarding invoices in the name of IB Hong Kong to that company. The total amount paid was US$172,700 (that is equivalent to about HK$1.34 million).

The 2nd charge alleges that between 1 January 2010 and 31 October 2010, Mr Chan made similar false representations in respect of freight forwarding invoices and, as a result, US$260,200 were paid to IB Hong Kong, and that is equivalent to about HK$2.02 million.

The 3rd charge alleges that between 1 May 2013 and the 3rd day of August 2016, Mr Chan made similar false representations in relation to freight forwarding invoices and, as a result, $2,791,680, in US dollars, was paid by Umicore to IB Hong Kong Limited. That is the equivalent of about 21,775,000.

In those three episodes represented by the three charges, Umicore was defrauded of a total of US$3,224,580, which is approximately equivalent to HK$25.15 million.

In the normal course of business, the procedure in Umicore - and in particular, the Cobalt and Specialty Materials Division - was that where payment was to be made for shipping expenses, the supervisor of that department would sign on the relevant shipping invoice and submit it to Mr Chan for processing. Mr Chan would then prepare a payment voucher as well as an online instruction for the bank of Umicore, which is Credit Agricole. Then Mr Chan would submit the payment voucher, a printed copy of the payment instruction to the bank and the signed invoice to the accounting supervisor and the corporate operation manager for approval, and, for that purpose, for effecting payment online.

The fraud was carried out by Mr Chan forging shipping invoices in favour of IB Hong Kong Limited. IB Hong Kong Limited had no business dealings with Umicore. The fraud was uncovered when it was discovered that the signature of the supervisor of the Cobalt and Specialty Materials Department on certain invoices in favour of IB Hong Kong Limited were forged. That occurred on 3 August 2016. That caused inquiries to be made within Umicore.

On 4 August 2016, Chan Chi-ming was confronted with the suspicions of the management of Umicore and he admitted the forgery. He admitted that IB Hong Kong was in fact owned by his brother-in-law who had no knowledge of the fraudulent scheme. Chan admitted that his brother-in-law passed all the money received by IB Hong Kong to him.

Later in the same day, the police became involved and Chan was arrested and cautioned. In answer to the caution, Chan stated that he had lost money from investment and soccer and horse betting, so he made false documents to deceive Umicore to obtain funds and that the funds were transferred to his brother-in-law’s company. Chan said that his brother-in-law had no knowledge of the matter. Indeed, it is right to note that Chan’s brother-in-law was yesterday acquitted of charges of money laundering arising out of the payments by Umicore on the strength of the forged invoices to IB Hong Kong Limited.

The police searched the workplace of Mr Chan at Umicore and found a pile of forged freight forwarding invoices and seven sets of payment vouchers, all of which were for the payment on the strength of those documents to IB Hong Kong Limited.

I am sure that if this fraud had not been detected by an alert accounting supervisor in Umicore, further fraud may have been perpetrated on Umicore in the same manner.

On 5 August 2016, Mr Chan underwent a video-recorded interview under caution with the police. In that he admitted the process which I have already described and added that he was employed with Umicore as an accountant on a salary of $29,000 a month.

In respect of the 1st count which occurred in 2007, seven transfers amounting to $172,700 were made. In relation to the 2nd count in 2010, transfers amounting to $260,200 were made. In relation to the episode between May 2013 and 2016, which is the 3rd count on the charge, there were 57 transfers amounting to $2,791,680.

On any view, the conduct of Chan Chi-ming was a deliberate and dishonest deceit practised on his employer. He obtained, over the three episodes represented in the charges to which he has pleaded guilty, a substantial amount of money amounting to HK$21.15 million approximately. Mr Chan was a trusted employee and he took advantage of the trust reposed in him. Chan exploited the obvious fact that in a substantial business operation it is unusual for signatures placed on invoices, in the way that the signature was placed in this case, would be checked. Companies such as this operate on the basis of trust and this was a shameless and repeated breach of that trust. That Chan appears to have got away with this fraud on multiple occasions over a number of years, in three episodes, speaks as to the nature and extent of that trust.

The maximum penalty for this offence is 14 years’ imprisonment. That plainly reflects the view that is taken by the community of Hong Kong in relation to fraud. Plainly, the offence can be committed in a multitude of ways and the nature of the conduct which could amount to fraud can vary immensely. The range of sentences imposed reflects that reality. However, cases involving a breach of trust have traditionally and often attracted substantial custodial sentences.

Section 16A of the Theft Ordinance was enacted in 1998. It is one of a family of offences in the Theft Ordinance to deal with, amongst other things, commercial fraud. It was enacted with a view to superseding the common law offence of conspiracy to defraud.

The approach adopted by the courts in Hong Kong to sentencing for this specific offence are guided by sentencing decisions for breach of trust cases in respect of this other group of offences. In Secretary for Justice v Dank and Anor [2008] 4 HKC 4830 the Court of Appeal held that the guidance provided by R v Clark [1998] 2 Cr App Rep 137 and HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776 were relevant for offences involving a breach of trust and section 16A of the Theft Ordinance. Also of importance in this regard is the decision of the Court of Appeal in HKSAR v Ng Kwok Wing [2009] 4 HKLRD 135 which confirmed the approach to which I have just referred.

In HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776, Justice Burrell for the court suggested that for cases involving a breach of trust of more than HK$15 million that was lost, there would be a starting point of 10 years, and such a sentence ought to be considered. HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776 was decided in 2006, and inflation has had an impact on the suggested sentencing bands articulated in that case. However, even if inflation has eroded a value such as $15 million since 2006, the overall amount that we are considering in this case is 25.15 million. The approximate dollar value on each individual count is: Count 1, 1.34 million; Count 2, 2.02 million; and Count 3, $21,775,000. Even if there has been an erosion of the dollar amounts referred to in that case, the sentencing bands suggested are still relevant.

The amounts in the charges here have been calculated on the exchange rate of US$1 being equivalent to HK$7.8. That rate varies over time but is, in a sense, anchored around $1 to $7.8. That is why I have characterised the Hong Kong dollar amounts in each charge as approximate.

Of course, the amount lost in a fraud is an important consideration but is amongst many considerations. In HKSAR v Ho Ka Keung (No 2) [2009] 1 HKC 88, at paragraph 11, the Court of Appeal identified other relevant sentencing factors. Taking that case together with the other authorities, relevant sentencing factors include the nature of the fraud itself, the duration of the fraud, its sophistication, the role played by the convicted person, the effect the fraud may have on the marketplace, whether there are cross-border or international implications, the nature and extent of the risk to the victim’s proprietary interests and the extent of any loss actually sustained.

In this case, the fraud was simplicity itself, and to describe it as unsophisticated runs the risk of missing the point about the scope of deceit and dishonesty displayed by Mr Chan.

Each of the charges is of itself of significant duration. The first two counts are each fraud committed over many months and the 3rd count is a fraud which is committed over the space of three years.

The role played by Chan was solitary and thus central.

Although there is no direct information as to the nature of the company which is the victim of the fraud, a safe and educated guess would suggest that it is a company of substantial size given that it had at least an accounting department and another department as to an aspect of its trading. There is no suggestion that the walls came crashing in on the company as a result of this fraud.

Although the company appears to be an overseas company, I do not regard there to be any cross-border or international implications in this fraud.

The nature of the risk to the victim company’s proprietary interests is the loss suffered by the company. Only part of that can be recovered.

This was not one continuous offence. It had three distinct chapters. Given what the police found at the workspace at Umicore, this fraud would have continued at least for some time. It was only the alert actions of Mr Chan’s superior in the accounting department which brought this fraudulent operation to a halt.

It is a basic principle of sentencing that consecutive sentences should be imposed for, in effect, consecutive conduct. However, it would be obvious that taking a wholly consecutive approach to this sentencing exercise would not produce a just result. The result in respect of each of the three episodes is of itself quite serious. By far the most serious is, of course, the third episode; it is longer and the total amount defrauded is far and away the largest of the three episodes.

Chan Chi-ming was born in 1976 and he is presently aged 41. Prior to his conviction he had no previous conviction. He holds tertiary education qualifications and was married with one child. He is a person who suffers from no relevant physical illness. I am informed, and I accept, that $5.6 million of the $25 million has been recovered. I suspect that further attempts to recover further money would be, to borrow the old phrase, “trying to squeeze blood from a stone”.

The mitigation advanced on behalf of Mr Chan suggests a combination of a serious gambling problem and a misguided wish to make provision for his family and to meet family-related expenses, including paying for the invitro-fertilisation process undergone by Chan and his wife. That is an expensive process, and as well it is a process which creates substantial pain for the woman involved, and endless anxiety and frustration, until finally the implanted egg actually takes hold, produces a viable foetus and then produces the joy of a healthy baby. I cannot ignore that while a wife undergoing this process suffers the physical pain involved in, amongst other things, the extraction of her eggs; where you have, as here, a close and loving family, it must be true that some of that pain is shared by the husband. All of that said, on no account could it be said that all of the money taken in the third episode was spent on the IVF process - some was, a great deal more was not.

It appears plain that Chan’s overall motivation was probably to erase the obvious pain of his difficult and painful background as a child and as a young man, and then to provide a better life and set of circumstances for his family than had been his experience as a child and a young adult. That there is an element of an admirable motive to provide for his family may explain at least some of the money taken. I use “admirable” to convey the sense of his motive viewed in isolation. What it does not do is provide much more than an explanation for his deceitful and dishonest conduct. I am not persuaded that even if some of his motive could be characterised as admirable in the sense I have used the word, that this was the sole motivation for his conduct, especially in relation to the third episode of this case.

Putting the matter plainly, I am satisfied so that I am sure there was also a component of plain old-fashioned greed in this. What I am not able to do is apportion the size of one motivation over the other. In any event, even if the whole of the motive was what I have characterised as admirable, it can only provide the most limited mitigation for these crimes.

Those with the education and background of Mr Chan clearly understand that what he has done is deceitful and dishonest. It strikes at the heart of how business enterprises operate. If every signature in a business such as that of Umicore had to be verified, then business would be substantially hampered. Trust between employees and their employer is a critical component for the smooth and efficient running of almost all business enterprises.

Mr Chan will also have to live with the fact that he has put his brother-in-law and his wife through the anxiety and stress of facing serious money laundering charges in respect of the money they received for him. The fact that they were acquitted after trial does not assist Mr Chan much in this court.

I recognise that Mr Chan and his wife and his son are a close and loving family. They are the proud parents of a baby boy and the IVF process had a happy ending as far as they are concerned. I accept that he is truly sorry for his conduct. There are civil proceedings faced by Mr Chan and possibly his wife. Those will be painful and possibly expensive. I suspect that a vast amount of that which was taken will now be irrecoverable.

Mr Chan pleaded guilty at the earliest possible moment. Immediately on being found out by his employers, he made admissions to them and sought to exonerate his brother-in-law. He made admissions to the police and those were made, for all practical purposes, at the earliest possible moment. This is, on any view, tangible evidence of deep remorse and regret.

To a significant extent, the taking of the money produced by these acts of fraud were designed to solve a world of problems that Mr Chan faced. In the short term, it is probably correct to say they did appear to solve those problems. In the long run, as I am sure Mr Chan is acutely aware, the acts of continued deceit and dishonesty have produced, and will produce, painful consequences for him and his family for a number of years.

This man was hitherto of previous good character. He worked himself up from, if I am not going to put too fine a point on it, pretty much nothing to a person with a profession and a good job. To an extent, he could not have been in a position to commit these frauds unless he had been of good character. It may be that I am guilty of being over generous in the discount I propose to impose on the starting point of the sentence that Mr Chan would have received had this matter gone to trial. Not without some hesitation, for his plea of guilty at the absolutely earliest moment together with a small allowance for his good character, I fix the discount at 35 per cent.

On Charge 1, I fix a starting point of 3 years. On Charge 2, I fix a starting point of 3 years. On Charge 3, I fix a starting point of 10 years. I reduce these sentences by the 35 per cent, which I calculate as resulting in sentences, for Charge 1 and 2 of 1 year and 11 months each, and, in relation to Charge 3, the discounted sentence is 6.5 years.

Chan Chi-ming, please stand up. Doing the best I can to balance justice and mercy, I order that 6 months of the sentence for Count 1 to run consecutively with the sentence for Count 3 and I order that 6 months of the sentence in respect of Count 2 to run consecutively to the sentences for Counts 1 and 3. The total sentence you will face is 7½ years.