HKSAR v. Luo Zhiheng and Another

DCCC 66/2024 & 1105/2023 (Consolidated)
& DCCC 556/2024 (Heard together)

[2024] HKDC 1359

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1105 OF 2023 AND 66 OF 2024 (CONSOLIDATED)

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 556 OF 2024

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REASONS FOR SENTENCE

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1.DCCC 1105/2023 and 66/2024 are now consolidated into one case, the two defendants are now named as D1 and D2 respectively. D1 also committed another case in DCCC 556/2024. As a matter of convenience, he will continue to be referred as D1.

	Defendant	Date of offence	Offences	Victims
DCCC 66/2024 & 1105/2023 (Consolidated)
Charge 1	D1	10/5/2023	Fraud ($500,000)	PW1
Charge 2	D2	15/5/2023	Fraud ($200,000)	PW2 and PW3
Charge 3	D2	15/5/2023	Perverting the course of justice
DCCC 556/2024
Charge 1	D1	15/11/2023	Keeping a divan
Charge 2	D1	15/11/2023	Trafficking in dangerous drugs

2.D1 pleaded guilty to all the charges in DCCC 1105/2023 and DCCC 66/2024 (Consolidated)  and DCCC 556/2024.

3.D2 pleaded guilty to Charge 2 in DCCC 1105/2023 and DCCC 66/2024 (Consolidated).

4.Charge 3 in DCCC 1105/2023 and DCCC 66/2024 (Consolidated)  against D2 is now ordered to leave in court’s file and not to be proceeded with without the leave of the court.

Summary of fact of DCCC 66/2024 & 1105/2023 (Consolidated)

5.All the victims in Charge 1 and 2 were engaged in trading of USDT (泰特幣).

6.PW1 saw an Instagram post in promoting exchange of USDT. PW1 contacted WP1 for exchange of USDT while PW2 was invited to join a WhatsApp group in which WP2 would publish USDT exchange rate.

7.Both PW1 and PW2 were told by WP1 and WP2 to attend the shop for such transactions respectively. PW2 sent PW3 to handle the transaction.

8.In their respective dates, PW1 and PW3 attended the shop for the transactions with D1 and D2 were in the counter in those separate occasions.

9.D1 and D2 had shown the “practice kung coupons” which resembled $1,000 banknotes to PW1 and PW3 separately and respectively.

10.Both D1 and D2 said under caution that they did not receive their reward as promised after they were arrested.

Charge 1

11.On 10 May 2023, PW1, in the shop, transferred 63,775 USDT (worth about $500,000)  to a cryptocurrency wallet as specified by WP1, but D1 did not give him any money. PW1 followed D1 when he walked away from the shop.

12.D1 told PW1 to let him go as he was only paid $500 to work there.

13.Police arrived and arrested D1 and he said that he was just following orders to do the job.

14.Keys were found from D1, which could open the doors of the shop. There were stacks of “practice kung coupons” looked like $1,000 banknotes; a cash-counting machine and a calculator were found.

15.Under caution, D1 said that: -

(a)  In March 2023, Peter gave him $500 for signing the tenancy agreement of the shop.

(b)  In May, Peter told him to work in the shop for $10,000 as a customer would come to exchange some cryptocurrency. D1 also knew the “practice kung coupons” in the shop were fake banknotes.

(c)  Around a week later, Peter asked D1 to do the same job again. D1 referred D2 to contact Peter and gave D2 $300 cash together with keys to the shop.

Charge 2

16.As in D2’s case, at the material time, D2 handed a mobile phone to PW3 to talk to man. PW3 left the shop, as he felt suspicious of the situation. Very soon afterwards, WP2 whatsapped PW3 to return to the shop. PW3 transferred 25,477.7 USDT (about HK$200,000)  to a cryptocurrency wallet after D2 showed him the stack of “practice kung coupons”.

17.D2 did not pay PW3 who then called the police.

18.D2 sat behind the counter to tear up the “practice kung coupons.”

19.In D2’s phone, a record of $400 had been deposited into an Alipay QR code.

20.D2 said under caution that the Ah Keung referred him to do the job for $500. D2 picked up a plastic bag which contained keys and some “practice kung coupons” in a park in Hunghom.

21.After the arrest, he did not receive any reward and could not contact Ah Keung anymore.

Summary of facts of DCCC 556/2024

22.On 15 November 2023, at around 8:05 am, D1 opened the door when the police came to the premises to execute a warrant. There were 16 people inside the flat. (450 square feet)

23.There was a price list on the wall of the living room. There were also 4 tables in the living room. On one of the tables, drugs in question were found and $5,300 cash were found inside a drawer.

24.Aluminum foil and lighters were found on the other 3 tables.

25.In a record of interview, D1 said that: -

(a)  He had worked in the premises for 2 days with a daily wage of $1,200.

(b)  He was responsible for selling dangerous drugs to the customers.

(c)  He started to work at 7 am that day, but had not yet sold any dangerous drugs.

(d)  He knew the 16 persons in the premises were to buy drugs and to consume there.

26.The total market value of the drugs was $12,582.18: -

(a)  Cocaine - $1,002

(b)  Ice - $476

(c)  Heroin - $810

(d)  Midazolam - $48 per tablet

Criminal record of D1 / D2

27.Since 2009 to 2021, D1 has 4 criminal convictions: -

(a)  2009 – possession of dangerous drugs;

(b)  2012 – assault occasioning bodily harm;

(c)  2021 – (i)  keeping a divan – 8 months;

(ii)  Trafficking dangerous drugs – 9 months – 4 months consecutive to divan keeping charge.

28.He was released on 25 May 2022.

29.From 1986 to 2015, then followed in 2023– D2 has 19 criminal convictions. They are generally offences involving elements of dishonesty related offences (theft, robbery and 8 burglary offences)  and drugs related offences.

Mitigation / background of the D1 / D2

D1

30.He is now 46 years old. He is married with no children. His wife lives in China. D1 used to work as a driver, but since 2019, due to the Hong Kong situation and with the onset of the pandemic, D1 lost his job and became a casual worker with a daily wage of $1,000. At the time of offence, he was unemployed.

31.He committed the present offences due to financial hardship. He now feels remorseful and is determined to stay clean and become a law-abiding person.

D2

32.He is now 53 years old and was unemployed at the material time. He relies on CSSA for living. He lived alone in a public housing unit. He has a son who is 27 years old, but he has lost contact with him. He also has to look after his elderly father who lives alone.

33.The defence said that D2 played a minor role and it is a simple deception scheme and suggested a starting point of around 2 years.

Sentence

DCCC 66/2024 & 1105/2023

34.As to these 2 charges of fraud, the maximum sentence is 14 years’ imprisonment.

35.There is no sentencing guideline for this type of offence.

36.Both defence counsel have referred me to a large number of cases, including one of my previous decisions in HKSAR v 王嘉富 DCCC 900/2021. This case also involved: -

(a)  The transaction of USDT in a sum of about $3,800,000;

(b)  The transaction took place in a vacant shop, which appeared to be previously operated as money exchange business.

(c)  Involved at least two persons.

37.The defendant was convicted after trial and was sentenced to 4 years 6 months’ imprisonment. The defendant appealed against conviction and sentence, but were both dismissed, I refer to HKSAR v 王嘉富 CACC 133/2022.

38.As to the rest of the cases, I have read them all and do not propose to recite all of them except 2 of the following cases: -

(a)  HKSAR v Wu Tin Long, Mike DCCC 44/2023:

This case was also in similar nature, which took place in a shop with a 200,000 USDT transaction (about HK$1.56 million). The starting point was 3 years 3 months.

(b)  HKSAR v Li Suet Ying DCCC 980/2023:

A cryptocurrency transaction of US$127,145.6 (close to HK$1 million). The starting point is 36 months.

39.In the present case: -

(a)  Charge 1 and 2 each involved one single transaction;

(b)  Charge 1 involved one victim while Charge 2 has 2 victims;

(c)  In each of the 2 charges, there were other persons involved. There were wanted person 1 and 2 for the 2 charges respectively;

(d)  D1 received $500 to sign the tenancy agreement of the shop. I have opportunity to look at the photos of the shop. Anyone comes into the shop will be impressed by its set up as it was well presented; it has a counter and has a cash counting machine. I viewed this as a premeditation and disagree with the defence that it was a simple deception case. In fact, it was a calculated plan to deceive the victims.

(e)  Fake money was used to deceit the victims;

(f)  D1 also recruited D2 to commit the offence after his arrest in Charge 1 incident;

(g)  Both D1 and D2 were not mastermind in this case;

(h)  Charge 1’s amount was about $500,000 while Charge 2 was about $200,000;

(i)  The lost USDT in both charges could not be recovered;

(j)  There is no doubt that the offences were well planned and organized.

40.Although both defence counsel referred me to the case of HKSAR v Cheung Mee Kiu CACC 99/2006 and HKSAR v Ng Kwok Wing CACC 398/2007, but they both accepted that it is not a breach of trust case. It is neither an internet fraud.

41.Although the defence said that D1 was acting as a foot soldier and D2 only played a minor role, without their participation in the scheme, which was an important part of the scheme, Peter would not be able to cheat the victims to transfer those cryptocurrencies to the designated accounts.

42.Apart from the amount in Charge 1 was 500,000, I consider that D1’s role is more serious than D2 for the following reasons: -

(a)  He was responsible for signing the tenancy agreement of the premises. As said before, it was premeditated and well planned.

(b)  D1 recruited D2 to commit the offence as he was just arrested for Charge 1 a few days before.

43.The defence also accepted that there is an aggravating factor as D1 committed the offence of Charge 1 in a year after his release from prison.

44.Taking all the matter into consideration, I take 2 years 6 months as the starting point for Charge 1, enhanced the sentence for 3 months for the aggravating factor, it arrives at 2 years 9 months given 1/3 discount, the sentence is reduced to 22 months.

45.As to Charge 2, considering all the relevant factors, the appropriate starting point should be 2 years. D2 also has numerous convictions records, with 10 of them involved element of dishonesty; I therefore enhance the sentence by 3 months. It arrives at 2 years 3 months. After 1/3 discount, it becomes 18 months.

DCCC 556/2024 (D1)

46.Charge 1 – Keeping a divan.

47.Charge 2 – Trafficking in dangerous drugs, there were 4 types of drugs found: -

(a)  0.63 gramme of a solid containing 0.52 gramme of cocaine;

(b)  2.67 grammes of a crystalline solid containing 2.67 grammes of ice;

(c)  12 grammes of a mixture containing 9.7 grammes of heroin; and

(d)  20 tablets containing 0.26 gramme of midazolam.

Charge 1: -

48.There is no sentencing guideline for Charge 1. However, according to HKSAR v Lam Lai Chu Patsy CACC 56/2003 that the general sentence is from 1 to 2 years.

49.The flat was about 450 square feet, with 4 tables to accommodate 16 persons in the living room, D1 knew they were there to buy drugs and to consume there. There were 4 different types of drugs to be supplied to these customers together with apparatus for consuming drugs, such as straws, aluminum foil and 2 glass apparatus with straws inside.

50.I am told that there were 23 chairs in the living room. That means the flat could accommodate at least 23 customers for this illegal business.

51.In such circumstances, I consider that 21 months as the appropriate starting point. I reduce to 14 months after 1/3 discount.

Charge 2 – Trafficking in dangerous drugs

52.The sentencing guidelines for cocaine and heroin are the same. AG v Rojas [1994] 1 HKC 342 refers.

53.The aggregated amount of both heroin and cocaine is 10.22 grams:

(a)  Heroin: 9.7 grammes

(b)  Cocaine: 0.52 gramme

Total: 10.22 grammes

54.According to HKSAR v Lau Tak Ming [1990] 2 HKLR 370, trafficking in 10.22 grammes of heroin / cocaine falls into the sentencing bracket of 5 to 8 years’ imprisonment. It attracts a sentence of 5 years as a starting point.

55.According to the sentencing guideline for trafficking of ice in HKSAR v Tam Yi Chun [2014] 3 HKLRD 691 that for the narcotic content up to 10 grammes it falls into the sentencing bracket between 3 to 7 years, as to the narcotic content of ice is 2.67 grammes, it attracts a sentence of 4 years 1 month.

56.As to quantity of midazolam in the present is insignificant, it carries little or no impact on sentencing. I therefore do not need to take it into consideration.

57.The defence accepted that the combine approach is appropriate for sentencing considerations.

58.In HKSAR v Wan Lau Mei CACC 389/2013, the court having considered the ratio of the quantity of different drugs involved: -

(a)  Namely 24.89 grammes of heroin and cocaine – that accounts for 65% of the total quantity of drugs in question.

(b)  While ice only accounts for 25% of the total weight of the drugs.

59.Even though the potency of ice (25%)  is more severe than that of heroin / cocaine (65%), ice should not be used as the base drug for the purpose of calculation.

60.In the present case: -

(a)  Ice accounts for 20.71% of the total weight of drugs.

(b)  Heroin / cocaine accounts for 79.29% of the total weigh of drugs.

61.As such, heroin / cocaine should be used as the base drug for the calculations of the 3 tests. The defence and the prosecution agree the results of the following calculations: -

(a)  Absurdity test: - 62 months’ imprisonment

(b)  Ratio test: - 66.96 months’ imprisonment

(c)  Conversion test: - 66.39 months’ imprisonment

62.Taking into account of the above calculations, I take 60 months as the starting point and increase the starting point by 6 months to take into account of the quantity of ice. The total sentence becomes 66 months.

63.As we have discussed during the mitigating advanced by the defence that there are aggravating factors: -

(a)  D1 committed the present offence while on bail of DCCC 66/2024.

(b)  His last convictions in 2021 were also keeping a divan and trafficking dangerous drugs. Clearly the previous sentence serves no deterrence purpose on him.

(c)  There were four types of different drugs, which can cater for a wider market.

64.As such, I enhance the sentence by 9 months.

65.The sentence for Charge 2 is now becomes 75 months’ imprisonment (66+9). Given the usual 1/3 discount, it becomes 50 months. (4 years and 2 months’ imprisonment)

66.Sentence for DCCC 556/2024: -

(a)  Charge 1 – 14 months

(b)  Charge 2 – 4 years and 2 months.

67.I order 6 months from Charge 1 to serve consecutively to Charge 2, it arrives at a total of 4 years and 8 months.

Totality for both case against (D1)

68.I order 10 months from charge 1 of DCCC 66/2024 and 6 months from charge 1 DCCC 556/2024 to run consecutively to Charge 2 of DCCC 556/2024.

Case number	Charges	Defendant	Starting point	1/3 discount	Totality
DCCC 66/2024	1 (Fraud)	D1	2 years and 9 months	22 months	10 months consecutive to Charge 2 of DCCC 556/2024
DCCC 1105/2023	2 (Fraud)	D2	2 years and 3 months	18 months
DCCC 556/2024	1 (Keeping a divan)	D1	21 months	14 months	6 months consecutive to Charge 2 of DCCC 556/2024
	2 (Trafficking in Dangerous Drugs)	D1	75 months	50 months
					(Total: 16 months)

Sentence

(i)  The total sentence for D1 is 66 months’ imprisonment.

(50+10+6)

(ii)  D2 is to serve a period 18 months.