HKSAR v. Tse Sui Luen and Others

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE No. 350 of 2006

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Before:  HH Judge Browne

Dates of Hearing:  14^th August 2007 to- 7^th March 2008

Date of Judgment:  24^th / 25^th April 2008

Date of Sentence:  9^th May 2008

Offence : Conspiracy to offer advantages to agents & others ( 串謀向代理人提供利益 )

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REASONS FOR SENTENCE

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The Defendants

1.All the defendants were employed by Tse Sui Luen Jewellery (International) Limited, (TSL), at various times during the periods covered by the charges.

2.D1 is the founder of the company which was publicly listed in 1987. D1 was the chairman of TSL until his bankruptcy in September 2000. D1 was never the Chief Executive Officer of TSL. After his bankruptcy he stayed on with the company as a consultant.

3.D2 is the son of D1 and was a director of the company in 1996. After his father’s bankruptcy he took over as its Chairman and Chief Executive. Following certain revelations made at a meeting of the Board of Directors of TSL on the 18^th December 2002, D2 stood down from his position as Chief Executive but he stayed on as Chairman of the company.

4.On the day following that Board meeting, D4 took over as temporary Chief Executive of TSL. He did not sign a contract until the 7^th January 2003. This was a temporary contract for a period of 6 months. According to a prosecution witness Gerald Dobby, PW35, D2 wished to be reappointed CEO of TSL once an investigation into the matters disclosed at the aforementioned Board of Directors meeting had been completed.

5.D3 became the Finance Director of the company on the 28^th August 2000 and remained in that position until May 2003.

6.D5 joined TSL in 1986 and worked in the Jewelry Showroom Division of the company. In 1996 he became the General Manager of the Business Promotion Department of the Showroom Division and in March 2000 he was appointed General Manager of the Showroom Division.

7.Unlike the other four defendants, D5 was never a director of TSL.

8.D2, D4 and D5 were still in position when the ICAC raided TSL offices in April 2005.

The charges

9.I convicted the defendants after trial of the following offences:

10.All the defendants were convicted of charges 1 and 2.

11.Charge 1 alleged that between the 2^nd August 1996 and the 30^th April 2003, the defendants conspired together with others, to offer advantages to agents, namely employees of travel agencies who would arrange tour groups to patronise the showrooms of TSL, as an inducement to or reward for or otherwise on account of the said agents showing or having shown favour to TSL in relation to their principals’ affairs or business, without lawful authority or excuse.

12.Charge 2 alleged that between the same dates, the defendants conspired with other to commit false accounting. The particulars averred that they dishonestly with a view to gain for themselves or another or with intent to cause loss to another, falsified documents required for accounting purposes by making entries therein which were or may have been misleading, false or deceptive in a material particular in that they:

·   Purported to show that commission payments were made to certain overseas companies by TSL for them to promote the business of TSL, whereas the said overseas companies had not in fact provided any promotional service to TSL; and

·   Falsely represented the actual amounts paid to travel agencies and employees of travel agencies which would arrange tour groups to patronise the showrooms of TSL

13.Charges 3 to 8 were alternative charges to charges 1 and 2.

14.I convicted D2, D4 and D5 of charges 9 and 10. These charges were in similar terms to charges 1 and 2. They alleged conspiracies to offer advantages to agents and to commit false accounting. The period covered by these charges was from the 1^st April 2003 to the 19^th April 2005. The prosecution alleged that bribes were paid after channelling monies through local business promotion companies instead of overseas companies.

15.I convicted D1, D2, D3 and D5 of charge 11. This charge alleged that between the 1^st February 2002 and the 31^st July 2002 they conspired with others to steal  $500,000 from TSL.

16.I convicted D2 and D5 of charge 12. This charge alleged that between the 1^st June 2002 and the 18^th December 2002, they conspired with others to steal $882,952 from TSL.

17.I convicted D2 and D3 of conspiring with each other to steal $1,821,954.18 from TSL between the 2^nd April 2002 and the 9^th July 2002. Charges 15 to 18 were alternative charges against D2 only.

18.I convicted D2 and D4 of conspiring with others to defraud officers of the Inland Revenue Department ( IRD) between the 1^st April 2003 and the 11^th January 2005. The particulars averred that they dishonestly conspired to defraud the officers by dishonestly making false representations concerning the promotion fees paid to the overseas companies in order to induce the officer to act contrary to their public duty.

Background

19.TSL was founded by D1. D1 left school with only primary education. At the age of 13 he started work as a goldsmith apprentice. From modest beginnings D1 built up the business and in 1987 it was listed on the Hong Kong Stock Exchange.

20.TSL at its height owned 19 retail shops and 5 showrooms in Hong Kong, manufacturing operations in China, interests in Taiwan, Malaysia and Thailand and was also in the business of jewelry export.

The Showroom Division of TSLJ

21.The tourist showrooms are warehouse type outlets operated by TSLJ in Hong Kong exclusively for the sale of jewelry products to overseas tourists brought by local travel agents to the showrooms by bus in tour groups. TSLJ operated a showroom type business since before 1984. The showrooms are codenamed.

22.The first showroom set up at the TSL headquarters in Hung Hom and was codenamed HO. A showroom code-named HK was established around 1988 in Aberdeen. A second showroom codenamed DY was established in Aberdeen in 1990.

23.The HE and HM showrooms were established in Hunghom, the latter being set up in 1995. The HM showroom closed down in 1997 because of lack of business.

24.The last showroom to be established was the HC showroom which operated in Hung Hom from 1998. This showroom dealt in pure gold items and was aimed at the tourists from the mainland.

25.By 1996, the showroom division was responsible for about 25% of the annual turnover of the TSL group. A letter dated 15 October 2004 to the Inland Revenue from TSL signed by D2 and D4, P1178, stated that at that time showroom revenues represented 34% of TSL Group’s total turnover and was a very important part of TSL Group. The letter went on to state that if the TSL group were forced to close its showroom operation it would financially collapse.

Facts

Charges 1 and 2 - The Overseas Companies D1 to D5

26.These charges are paired conspiracy charges of offering advantages to agents and false accounting covering the period from the 2^nd August 1996 to the 30^th April 2003.

27.They all concern the operation of the Jewelry Showroom Division of TSL. In 1996 TSL operated 5 showrooms in Hong Kong. The showrooms were patronized by tourists brought to the showrooms by travel agencies. In order to encourage travel agents to bring tourists to patronize the showrooms, TSL offered them commission based on the number of tourists brought to the showrooms and the amount of money they spent.

28.In February 1996, TSL showrooms were visited by ICAC officers who searched the offices of TSL and interviewed staff members in relation to alleged illegal commission payments made to employees of a travel agency.

29.Following that visit, a group of senior TSL staff were tasked to look into this issue. They devised a scheme called the “James Bond Project” whereby monies were paid to an overseas company purportedly on the basis that the overseas company would procure tourists for TSL showrooms and be remunerated on a head count basis.

30.I found that this was a bogus arrangement. In reality the overseas company provided no services and was simply a money transfer vehicle. Monies sent to the overseas company would be channelled back to Hong Kong and distributed in cash by showroom staff to agents of travel agencies including payments made without the consent of the principals of such agencies.

31.Thereafter, there were two types of commission payments. Commission paid to travel agencies and their employees and properly documented in the accounting records of TSL were termed “ Commission A”. Commission paid secretly to employees of agencies without the knowledge of their principals was known as “ Commission B.”

32.As a necessary part of the commission B scheme, false accounting documents were created. False invoices would be supplied to TSL by the overseas companies. These invoices would be used for the preparation of payment requisitions by TSL authorising payments to the overseas companies. These records were kept for accounting purposes.

33.A separate computer system was set up to cater for commissions paid via the overseas companies. Internal company documents dealing with commission B payments were all marked “ testing” to distinguish them from documents relating to commission A payments.

34.There would be no record of payments made under the commission B scheme. The arrangement would be commercially advantageous to TSL as the recipients would be more disposed to patronise TSL showrooms than those of other jewelry companies which did not offer this advantage. The false documentation enabled TSL to claim tax relief in respect of the bogus payments purportedly made to the overseas companies. The scheme also had tax advantages for the recipients.

35.Between 1996 and 2003, three overseas companies were used. Between October 1996 and February 2000 TSL used a  company called Worldwide Tour Marketing ( Labuan) Berhad ( Worldwide).  From March 2000 to April 2003 a company called Brighouse Consultancy Ltd ( Brighouse). From June 2002 to April 2003 a company called Cinedell Holdings S.A.(Cinedell) was used in conjunction with Brighouse.

36.At the time of the ICAC visit in 1996, Mr. Leung Yit Kuen, Raymond, PW1 was an Executive Director of TSL and oversaw the operation of the showrooms. He was assisted by Mr Cheung Siu-fai, Allan, PW2, who was the business promotional manager in charge of the three showrooms which catered for Western tourists. These showrooms were codenamed DY, HK and HM. The DY and HK showrooms were located in Aberdeen. D5 was the Senior Business Promotion Manager in charge of two showrooms located in the Hung Hom headquarters of TSL. The two showrooms were codenamed HE and HO and catered for Asian tourists.

37.PW2 set up the first of the overseas companies, Worldwide. It was decided he should be seen to resign from TSL. He moved to an office on the twelfth floor of the Hung Hom Headquarters. Notwithstanding his “resignation” he carried on working for TSL as before.

38.On the 27^th September 1996, as part of the scheme, Worldwide entered into a sham business promotion agreement with Bonaventure ( International) Jewelry Ltd ( Bonaventure), a subsidiary of TSL. The agreement stated that Worldwide was to procure tourists for TSL’s showrooms with its reward to be calculated on a headcount basis. In reality, Worldwide did not perform any services, but was a vehicle for TSL to channel Commission B payments, which were calculated at a certain percentage of purchases made by tourists brought to the showrooms by travel agency staff. D1 signed the minutes of a board meeting of Bonaventure agreeing to appoint Worldwide to provide the business promotional services for the showrooms of TSL. The meeting was held by circulation of minutes. D2 initialled the minutes.

39.The Commission B scheme started on 1 October 1996. Each month, after the Accounts Department of TSL calculated the amount of Commission B payments, PW2 would prepare an invoice of Worldwide. The number of tourists shown in the invoice was fabricated and the invoiced figure represented the amount calculated of the commission B payment plus a 4% handling fee payable to PW2. On receipt of the invoice PW1 would cause a payment requisition to be submitted to the Finance Department. After the payment requisition had been signed and approved by the department arrangements were made to telegraphically transfer the money to Worldwide’s bank account in Malaysia. Thereafter, PW2 would arrange for the monies to be transferred back to Hong Kong to the account of a British Virgin Islands company he controlled, Antonni Business Ltd. The account was operated solely to receive Worldwide remittances.

40.After PW2 had withdrawn the money from the bank account of Antonni, he would distribute it either personally or through D5 to travel agency staff.

41.Between October 1996 and February 2000 TSL paid a total of about HK$51 million through Worldwide.

Project B- Staff Promotional Commissions

42.When the first overseas company was established, it was decided that because the sums of money to be transferred were so large, that some of the monies to be paid to the agents should be disguised as payments of promotional commission to Showroom staff. The showroom staff signed false invoices and were paid 7.5% of the sums recorded in the invoices to cover their extra tax liabilities. This scheme was known as “Project B”. Monies paid to the overseas company was known as “Project A”.

43.This scheme ceased in October 1997. The total amount paid under Project B was $10,869,893 of which $10,054,651 was for Commission B payments. The balance was for paying income tax incurred by the showroom staff.

HC Showroom

44.In 1998, TSL set up a showroom which they codenamed the HC showroom. This dealt in mainly pure gold items and was aimed at the mainland tourist market. As the profit margins for this showroom were relatively small it was decided that illegal payments to agents would not be part of the Project A arrangement. It was decided that secret commission should be disguised as entertainment expenses for D5.

Brighouse

45.The agreement between Worldwide and Bonaventure was terminate by TSL in February 2000. PW1 arranged to  set up a British Virgin Islands Company called Brighouse which would be controlled by his younger brother PW17. The new arrangement was that money would be sent to the overseas company and channelled back to the Hong Kong accounts of three further BVI companies called Griston Management Ltd, Profitful Management Ltd and Evergood Management Ltd. The money was withdrawn from the three accounts by PW17. The arrangement was that PW17 would retain $90,000 per month as a handling fee and pass the remainder to PW1. PW1 would pass on monies to D5 to make the commission B payments in respect of the HE and HO showrooms.

46.A sham business promotion agreement was signed between Bonaventure and Brighouse, purporting to state that Brighouse was to procure overseas tourists for the showrooms of TSL. The agreement was signed in Macau. D1 signed and D2 and PW1 initialled the minutes of a paper meeting of the board of Directors dated the 24^th February 2000 agreeing to appoint Brighouse to provide business promotional services for the showrooms of TSL.

47.Between March 2000 and April 2003, commission payments totalling HK$46,511,221 were made by TSL through Brighouse.

Cinedell

48.D3 joined TSL as the Deputy Chairman and Finance  Director in late August 2000. D2 became Chairman and CEO in September 2000 after his father’s bankruptcy. Soon after D3 arrived, PW1 gave a detailed briefing to D2 and D3 about the commission B system and the scheme for the HC showroom.

49.In May 2002, D3 proposed to PW1 that a further overseas company be used. She was concerned the very large payments to Brighouse might attract the suspicion of the auditors.

50.PW1 had arranged for the setting up of the Cinedell British Virgin Islands company in 1999 and it was arranged that that company would be used as a second money transfer vehicle together with Brighouse. D2 signed and PW1 and D3 initialled the minutes of a paper board meeting of the Bonaventure board of directors dated the 31^st May 2002 engaging Cinedell as a business promoter for TSL. The sham business promotion agreement between the two companies was signed in Macau.

51.As in the case of Brighouse, false invoices were supplied by Cinedell to TSL. TSL would send monies to the overseas bank account of Cinedell and then channelled back to the HK bank accounts of Griston, Profitful and Evergood. PW17 would withdraw the monies from those accounts and pass it on to PW1 who would in turn pass some on to D5 for commission B payments in respect of the HE and HO showrooms.

52.Between June 2002 and April 2003, commission B payments totallingHK$9,205,922 were made by TSL to Cinedell.

The conspiracy to steal charges – Charges 11,12 and 13

Charge 11- D1, D2, D3 and D5

53.This charge alleged a conspiracy to steal TSL funds for the benefit of D1 under the guise of an advance of bonus for D5.

54.In or about February 2002, D3 told PW1 that D1 was in urgent need of money and wanted to take money from TSL. D3 suggested that D5 be paid $100,000 per month in the guise of a bonus payment. D5 would retain $15,000 per month to meet his tax liability and pay the balance to PW1 who would pass it on to D1.

55.Five payment requisitions, each for $100,000 were prepared and approved by D2 and D3. Between the 5^th March 2002 and the 4^th July 2002, a total of $500,000 was stolen from TSL.

Charge 12 – D2 and D5

56.This charge related to a conspiracy to steal funds from TSL between 1^st June and the 18^th December 1998 for the benefit of D2 using funds diverted to a company called Best Joint International Ltd, under a business promotion agreement dated the 2^nd August 2002 between Best Joint and Bonaventure.

57.In June 2002, D2 approached PW1 requesting him to withdraw money from TSL funds for his use. PW1 and D5 devised a scheme whereby Best Joint would purport to take over as the business promoter for the DY showroom and the promotion fee would be boosted from 5% to 10%. The genuine promoter for the DY showroom was PW2 using the company  Well Zen. His promotion fee was 5%. Under the new arrangement, 10% of the net sales of the DY showroom would be paid to Best Joint. Half of that would then be paid to PW2 and the balance to D5 to pass on to D2.

58.Between August 2002 and 3^rd December 2002 TSL paid five sums of promotion fee, totalling HK$1,765,904 to Best Joint of which half was destined for D2. D2 admitted receiving HK$600,000 from Kenny Cheung, the owner of Best Joint, but claimed it was a loan.

Charge 13 – D2 and D3

59.Charge 13 was a conspiracy between D2 and D3 to steal money from TSL under the guise of a bonus payment to the former President of the TSL China division, Paul Wong, PW39.

60.Due to health problems, PW39 tendered his resignation in July 2001 and left TSL formally on the 3^rd October 2001. Under his contract of employment he was entitled to 3.5% of the net profit of the China division. Shortly after his departure, PW39 received a letter from TSL stating that he would be informed of the amount of his bonus. In March 2002 he was informed that he was not entitled to a bonus but a one-off payment of HK$100,000 would be given to him in appreciation of his services.

61.On the 27^th March 2002, TSL convened a meeting of the Remunerations Committee comprising D2, D3 and two independent directors to discuss bonus payments. After the meeting D2 and D3 worked out a breakdown of the bonus due to PW39 in the sum of HK$1,921,955. D3 then contacted PW39 and arranged to meet him in him in his car outside TSL headquarters where she handed to him a cheque for $100,000 in respect of his bonus.

62.On the 2nd April, 3^rd April and 11^th April 2002, D2 approved three payment requisitions in the sum of RMB 500,000, RMB 500,000 and RMB850,000. D2 received the money in cash in Hong Kong dollars. On the 9^th July D3 gave D2 a cash cheque for $140,136 in respect of the purported bonus for PW39. The total  paid to D2 in respect of this purported bonus was $1,821,955. D2 gave the cash cheque to his mother to cash. His mother passed it to her sister-in-law to cash.

Board Room Disclosures

63.In  early  2000, TSL were in serious financial difficulties. The indebtedness of the company at that time was  $150 million. Under the guidance of their financial advisers, Anglo Chinese  Corporate Finance Ltd, Anglo Chinese,  TSL entered into a restructuring agreement with a group of  local and international banks. The company had to sell off retail outlets in Taiwan, Malaysia and Singapore and reduce its borrowing by $24million per annum. TSL were also required to appoint independent non-executive directors to its board and a new finance director, D3, to restore bank and public confidence in TSL.

64.On the 14^th December 2002, D2 visited the home of Mr John Christopher Howe, PW32, a director of Anglo Chinese. D2 was in an emotional state. He told PW32 that he and his father had been receiving money out of the company in cash. He also mentioned that TSL were using overseas companies in relation to commission payments. A further meeting was arranged for the 16^th December attended by PW32, D2 and Mr. Leung Chi-ching, another director of Anglo Chinese. What D2 had told PW32 was repeated at that meeting. A meeting of the board of directors of TSL and its advisers was arranged for the 18^th December. The advisers represented were Anglo Chinese, KPMG and Herbert Smith, Solicitors. D2 told the board what he had told PW32 on the 14^th December. It was resolved that D2 should step down as the Chief Executive of TSL but that he should stay on as its chairman. It was further resolved that KPMG should be commissioned to conduct a forensic investigation into the disclosures made by D2 and the use of the overseas companies in relation to commission payments.

65.The following day, D2 arranged to meet PW39. They met at the Harbour Plaza Hotel in Hunghom. D2 was accompanied by D1. D2 told PW39 about the bonus and suggested they share the money. PW39 said he wanted to consider the matter. PW39 later consulted a solicitor and told D2 that he did not wish to receive any money. PW39 said he felt it was inappropriate and he had not expected to receive any further bonus. D2 subsequently repaid the money to TSL via his solicitors.

66.On the 19^th December, D4 was appointed Chief Executive of TSL. Shortly after his appointment, PW1 saw D4 together with D2. He told D4 that the commission payments to the overseas companies were for the purpose of making secret payments of commission to the staff of the travel agencies. D4 told PW1 to  prepare a flow chart so that the system could be explained to the KPMG forensic investigators. PW1 prepared the flow chart and gave it to D4 to correct the English. He later provided the corrected flow chart to the KPMG Forensic team.

KPMG Forensic Report

67.On the 28^th February 2003 the KPMG Forensic team sent its confidential report to D2, D3, D4, Herbert Smith, Anglo Chinese and the independent directors. The report concluded that the overseas companies used by TSL were money transfer vehicles without any legitimate commercial purpose. The report included extracts from the flow chart provided by PW1 in which he explained the money sent to the overseas companies was channelled back to Hong Kong and secretly distributed in cash to employees of travel  agencies.

KPMG Audit Report

68.KPMG carried out the annual audit for TSL for the financial year 2001/2. The auditors were shown a copy of the KPMG Forensic report at the end of June 2003. The audit report dated the 29^th July 2003 was qualified. The report stated that the TSL management were unable to provide sufficient audit evidence as to the nature of the amounts paid to business promoters amounting to $22 million. The auditors comments on the KPMG Forensic Review Report opined that the Review Report was inconclusive but had identified “ certain internal control weaknesses”.

Public Announcement

69.On the 2^nd October 2003, by order of the Board of TSL, a public announcement was made. The announcement referred to the KPMG Forensic Report and stated that with regard to sales commission payments to travel agents certain internal control weaknesses had been identified. The announcement stated that the committee had considered together with its lawyers and financial advisers, the payments received by D2 the subject of charges 12 and 13 and the payments made to travel agents and concluded that there was no clear evidence either that the company had suffered any losses or that there had been any wrongdoing. 

Charges 9 & 10 - The local promoters –  D2, D4 and D5

70.These charges alleged a pair of conspiracies similar to charges 1 and 2, but by utilization of three local business promoters instead of the overseas companies. The charges cover the period from April 2003 to April 2005. The local companies referred to are Golden Speed Travel Service Ltd (Golden Speed), Best Joint International Ltd (Best Joint) and Well Zen (Hong Kong) Ltd (Well Zen).

71.PW1 told the court that after he told D4 about the use made by TSL of the overseas companies, the payments to Brighouse and Cinedell continued until May 2003.

72.After the receipt of the KPMG Forensic Report it was decided that TSL should not continue to use the overseas companies. There were discussions between PW1, D2, D4 and D5 and it was decided that commission B payments should be made using local   business promoters instead of the overseas companies. In July 2003, business promotion agreements were entered into using Best Joint, Well Zen and Golden Speed. Best Joint and Well Zen were operated by Kenny Cheung and PW2 respectively. Both men had been involved in the distribution of commission B payments to employees of agencies when the overseas companies were used.

73.As with the overseas companies, written agreements were entered into between Bonaventure and the local companies. The agreements are signed by PW1 and D4 on behalf of Bonaventure.

74.Minutes of three paper meetings signed by D2 and initialled by PW1 were produced in evidence. These minutes authorised PW1 and D4 to sign the agreements with the local companies on behalf of Bonaventure.

75.Between May 2003 and March 2005 sums totalling $44,157,304 were paid to the three local promoters. These sums included secret commissions.

Charge 14: Inland Revenue Fraud D2 and D4

76.This charge alleged a conspiracy between 1^st April 2003 and the 11^th January 2005 to defraud officers of the Inland Revenue Department who were conducting an investigation into the true nature of the commissions paid by TSL to the overseas companies as promotion fees.

77.In 1999, the large amount of commission payments made by TSL to local travel agents aroused the attention of the IRD. On the 28^th February 2002, TSL appointed Deloitte, Touche, Tohmatsu, ( DTT) as its tax representative to negotiate with the IRD. Ms Leung Wai-wah, Christina, (PW40) and Ms LO Ka ying, Colleen ( PW42), respectively Senior Tax Manager and Tax Manager of TSL were principally responsible for this task. On the 20^th August 2002, at a meeting between TSL staff including D3 and her subordinate Mr Lai Chi-mo, the then Finance Controller and DTT staff, DTT was informed that promotion fees were paid by TSL to unrelated overseas companies. At a subsequent meeting on the 3^rd April 2003 at which Lawrence Lai and PW’s 40 and 42 were present, DTT was further informed that the promotion fees to the overseas companies were calculated on a head- count basis.

78.On the 29^th July 2003, TSL published its annual report for the year 2002/3, containing a qualified opinion by its auditor, KPMG, stating that $22 million had been paid by TSL to business promoters but the management of TSL had been unable to provide sufficient audit evidence as to the nature of the amounts payable to such business promoters.

79.On the same day, D2 and D4 represented by letter to KPMG that they had reviewed and evaluated the findings highlighted in the KPMG Forensic report and that Brighouse, Cinedell, Best Joint, Well Zen and Golden Speed were not related to TSL.

80.From August 2003, D2 and D4 become more proactive as regards the IRD enquiry. Notwithstanding the findings of the KPMG Forensic report they maintained with both DTT and the IRD that the overseas companies were unrelated to TSL and actually provided the services set out in the sham business promotion agreements entered into between Bonaventure and the overseas companies. PW’s  1 and 2 also maintained in interviews with both DTT and the IRD that the overseas companies were providing genuine services to TSL and were rewarded on  a head-count basis.

81.On the 20^th February 2004, D2 and D4 attended a meeting with the IRD together with their DTT representatives. The notes of the interview were later signed by D2 and D4. The notes record that D4 expressed his surprise that  TSL were requested to pay $1.2 million odd pursuant to the additional protective profits tax assessment for the year 1997/8. He confirmed that all commission and promotion fees were paid to unrelated third parties which did not have any other relationship with the TSL group or management. He opined that the he saw no problems in claiming for such payments. With regard to the qualified opinion expressed in the 2001/2 KPMG audit report, he said that TSL had deserved an unqualified report but had insufficient time to search out the relevant source documents.

82.PW2 was interviewed by the IRD in the presence of DTT on the 3^rd March 2004. He falsely claimed to be the contact person for Brighouse which comprised of many foreigners with whom he had lost contact. He claimed not to know the shareholders and directors of Worldwide. He claimed both performed bona fide business promotion work for TSL as set out in the business promotion agreements.

83.On the 15^th March 2004, DTT sent to IRD a report entitled “Tse Sui Luen, Jewellery, Company Report on Review of Promotion Fees paid to Outbound Promoters”, the Deloitte Report. This report purported to provide detailed information on the payment of promotion fees with Brighouse being used by way of example. Again in this document, TSL attempted to persuade the IRD that the overseas companies were used for legitimate commercial purposes. The information given to DTT and set out in the report is very different to what TSL told the KPMG forensic investigators and to what is set out in their report. The forensic report was never shown to DTT.

84.PW1 was interviewed by the IRD on the 22^nd March 2004, one week after the Deloitte Report had been sent to the IRD. He told the IRD that the overseas promoters were a batch of  middlemen which had been provided promotion services for many years. He falsely represented to the IRD that payments to Worldwide and Brighouse were calculated on a head counts basis.

85.On the 6^th August 2004, IRD visited TSL. PW1 and D4 continued to represent that payments to the overseas companies were genuine payments.

86.After the showroom visit, TSL wrote to the IRD on the 15^th October 2004. The letter was signed by D2 and D4. The letter sought to further explain the purpose of the TSL meeting with the IRD on the 20^th February 2004 and draw the attention of the IRD to matters mentioned during the meeting but omitted from the IRD notes of interview.

87.The letter stated that the main purpose of the meeting was to address the company’s concern as to the slow progress of the resolution of the dispute with the IRD, and D4’s feeling that the IRD did not “ fully understand or appreciate the nature and basic fundamentals which underpin the operations of the showroom business operated by TSLJ ( i.e. the  relationship between revenues and expenses) and therefore the reasons why the expenses [ the IRD were investigating ] are fully deductible……’’

88.The letter went on to explain the financial position of the TSL group and the importance of the showroom business to the group’s liquidity.

89.The letter referred the Restructuring Agreement dated the 3^rd August 2000 between TSL and its creditor banks. It pointed out that as at the 29^th February 2004 the group owed $248 million under that agreement, that as at the 31^st August 2004 the arrears on the instalments amounted to $31.8 million and the group would be unable to meet the further instalment of $6 million due in November.

90.The letter stated that the group had relied heavily on trade creditors and suppliers credit to meet its losses and repayments and that  debt had increased dramatically from $176 million to $346 million. The letter stated that TSL was able to continue its operation due to the support and forbearance of its creditors.

91.The letter pointed out that the showroom business, while only marginally profitable, created desperately needed cash flow to support the group financially and the group cannot survive without this cash flow.

92.The letter stated that “ due to fierce competition from other showroom operators since 1999, the net profit margin of the showroom business had decreased to between 2% and 3% . If any of the TSLJ’s commission payments to travel agents and promotion fees to outbound business promoters are disallowed as a tax deduction, then this business will become unprofitable and so will have to be ultimately closed by the TSL group as it can not make a profit if its major expense in deriving its assessable income is partly or wholly denied as has been suggested by [the IRD].”

93.The letter went on to state that showroom revenues represented 34% of the TSL group’s total “ turnover year to date” and are a very important and necessary part of TSL Group. “For year 2004/5, the TSL Group is budgeting for turnover for showrooms of HK$371 million of budgeted group turnover. If TSL Group is forced to close its showroom business ( due to the disallowance of deductions for commission payments to travel agents and promotion fees to outbound business promoters) then it would financially collapse.”

94.The last bullet point of the letter reads as follows:

“ Part of the current liquidity problems at TSL Group were caused by the fact that the showroom business was closed during SARS last year ( April to July 2003) and, due to the loss of cashflow from this business during that period. TSL Group was not able to repay its banks and had to further extend it credit with suppliers. The closure of the showroom business would just be a rerun of the SARS closure but with a permanent fatal affect on TSL Group’s financial position and that of the banks”.

95.On the 28^th October 2004 DTT wrote to the IRD, P1327, and referred to the site visit and information requested by IRD on that visit. The letter stated that at the meetings in February and August 2004, D4 had fully explained special features of TSL showrooms and the traditional trade customs. Fees paid to promoters were necessary and essential because showroom business needed enormous and constant flow of tourists and all travel agents and promoters were unrelated third parties and payments of commission and fees were carefully monitored by their internal system. The letter stated that their client considers their claims to be valid and legitimate.

Background of  the defendants

D1

96.D1 had minor previous convictions recorded in 1976 for certain immigration offences for which he was fined. I treated him as having a clear record.

97.He was born in Hong Kong in 1936, he is 71 years of age. He was married in 1964 and has two sons and on daughter. D2 is his youngest son. His eldest son lives in Canada and his daughter works as a tutor in Hong Kong.

98.D1 had very modest beginnings. He had only two years of education. He became a goldsmith apprentice at the age of 13 and worked in very harsh conditions. In 1960, with a loan of $3000 he rented his own workshop and worked day and night processing gold products.

99.His counsel said D1’s life was legendary in both local and international scenes. From his humble beginnings he founded TSL in 1971 and it became a huge success. In 1987 TSL became the first ever jewelry company to be listed in Hong Kong. In 1992 it became the first jewelry company to expand to the mainland.

100.D1 was awarded the Hong Kong Enterpriser Honorary Award in 1990. He was the first person of Chinese descent to be granted Honourary Membership of the League of Honour by the international Gemological Institute of America. He took on hundreds of apprentices and provided employment for thousands. He changed the perception that jewerly items were solely for the rich.

101.D1 remained chairman of the company from 1987 to 2000. Investments in real estate brought about enormous financial losses and after protracted litigation he became bankrupt in September 2000. He resigned as Chairman of TSL but stayed on as a consultant earning $50,000 per month. D1 was discharged from his bankruptcy in 2004. Since his bankruptcy he lost everything he earned over the years.

Health Condition

102.A medical report dated the 19^th April 2008 confirmed D1 was suffering from a lingering severe heart condition as well as an anxiety condition for which he has been receiving psychiatric treatment. In 1994 he had a major heart-attack and almost died. Thereafter he took a less active role in the company’s affairs. His doctor and friend, Doctor Patrick Ho, opined that he would not be able to tolerate prolonged imprisonment because of his serious medical condition.

Letters of Mitigation

103.A large number of letters commending D1 and asking for leniency were submitted to the court. The letters came from family members, charitable organisations and institutions, community leaders, friends in the jewelry business, a pastor and a former apprentice. The letters show the high regard in which D1 is held in the community, his commitment to charitable causes and  the love and respect of his family and friends. There was a very touching letter from a Miss Ng whose living expenses he supported during her childhood in Po Leung Kuk. He visited her frequently and attended all the major events in her life.

104.These testimonials make all the more tragic, D1’s fall from grace.

D2

105.I was informed that D2 is now aged 40 and reminded of his positive good character. His counsel described the last 10 years as being somewhat of a roller coaster ride. He became chief executive and chairman of TSL in 2000, a time when TSL was on the verge of collapse and his father had been declared bankrupt. Counsel reminded the court that when D2 took over as chairman and chief executive, the commission B system had been in place for nearly 4 years. There was great commercial pressure to keep the system going. It was urged upon the court that the illegal payment of commissions was widespread in this trade and many others.

106.Counsel told the court that D2’s financial difficulties arose almost entirely because of the steps taken by D2 to buy back the shares pledged by D1 to UBS. The bank statements of D2 show that throughout this period there was only a modest balance in his account.

107.With regard to charge 11 it was urged upon the court that it was not the idea of D2 that monies should be paid to his father. He repaid the monies the subject of charge 13 in January 2003.

108.With regard to charge 14 it was urged upon the court that although D2 did attend meetings with the IRD he took a back seat role in the discussions.

109.I was also urged to take into account that although the defendant did not plead guilty, much of the prosecution case was admitted.

110.I was told D2 was brought up in Hong Kong and obtained undergraduate and post-graduate degrees at American universities. He became a director of TSL when still in his 20’s. He was 32 when he became the chairman of TSL. At that time the company was on the verge of collapse. I was told that the fact the company survived and is now a thriving enterprise is in some measure due to the way in which D2 was able to deal with the many crises faced by the company. His loyalty to and leadership of the company inspired the workforce.

111.D2 is married with 3 young children. His wife attended court every day of the trial. Throughout the trial D2 has had to attend to the affairs of TSL.

112.Many glowing testimonial and reference letters were placed before the court from family, TSL staff, bankers, professionals and persons in the trade. As with D1 they demonstrated the respect and affection in which D2 was held and they urged leniency. A petition signed by 1700 employees of TSL spoke of D2’ s dedication, modesty and caring attitude.

D3

113.D3 is 47 years old, has a clear record and evidence of positive good character was adduced during the trial. D3 is married with four children aged 17, 12 year-old twins and 11. D3’s mother-in –law aged 86 is both physically and financially dependent on D3’s family. Her mother-in-law has heart problems and cannot walk unaided. Outside the home she is wheelchair bound.

114.D3 and her family live in leased accommodation as they were obliged to sell the family home in 2007 to counter her loss of income and expenses arising from these proceedings.

115.D3 was educated in Hong Kong to secondary form 5 and started work as a costs clerk when aged 18. She studied part-time and in 1986 she completed the examinations of the Chartered Institute of Management Accountants. In 1991 she was admitted as an associate Member of the Chartered Institute of Management Accountants as well as the Hong Kong Society of Accountants. In 1998 she was awarded a Master’s Degree in Business Administration by the University of Warwick in England.

116.She has held a number of very senior positions in international companies.

117.In July 2000 she was headhunted by KPMG Executive Recruitment to become the Finance Director of TSL. She was interviewed and approved for the post by representative of the Hong Kong and Shanghai Banking Corporation as co-ordinating bank to the TSL debt re-structuring agreement. She joined TSL on the 28^th August 2000 on a salary of $80,000 per month plus bonus.

118.When she left TSL in May 2003 she became the group financial controller for Elite Industrial Holdings Ltd. After her arrest in 2005 she was seconded to work in America spending only 2-3 days per month in Hong Kong with her family. She is the main bread-winner of the family. Her husband works as a part-time insurance agent but in the past three years has earned only $60,000 per annum.

119.D3 has suffered many health problems. In 2002 she suffered internal bleeding and underwent an emergency hysterectomy. In December 205 she collapsed at Los Angeles International Airport after a diabetic episode. She suffers frequent bouts of dizziness, loss of consciousness, nausea, vomiting, headaches and general lassitude.

120.Testimonial and reference letters were submitted to the court from fellow professionals, bankers, a solicitor, a pastor, and persons with whom she had worked. She is a respected professional and numerous witnesses at the trial spoke of her impeccable credentials, her drive, her application. They told the court they never questioned her integrity or honesty.

121.It was submitted that there was no evidence to suggest that she had profited from the commission B scheme or the conspiracy to steal charges. It was submitted that there was no doubt that in dedicating herself heart, body and soul to TSL she had inevitably and tragically exposed herself to an organisation parts of which were inherently corrupt.

D4

122.D4 is 49, married, with three children aged 7,5 and 4. His mother, whom he supports, is 87 and lives in Australia. He is a Bachelor of Financial Administration and a Chartered Accountant. D4 is the sole bread-winner of the family. Without his support the family will have to relocate back to Australia.

123.His employment record shows that the defendant is a chartered accountant with 26 years experience with exposure to banking, insurance auditing and insolvency areas with an international firm of Chartered Accountants. He has held very senior positions with firms in Hong Kong and Australia.

124.D4 was seconded as CEO to TSL in December 2002 at the request of the Board of Directors following the stepping  down of D2 as CEO due to the internal board crisis at that time. He was appointed as an executive director in March 2003 and deputy chairman in May 2003. D3 took over the company at a time of great crisis and shortly afterwards the company had to undergo the crippling effects of the SARS epidemic. Under the guidance of D4, TSL has recovered. The revenue target in the financial year 2008 is $1.58 billion.

125.D4 held a high reputation in the fields of insolvency and corporate rescue. Many prosecution witnesses spoke of his outstanding reputation and integrity. Many glowing testimonial letters from fellow professionals, friends and acquaintances were place before the court. One letter referred to the his work in assisting in the liquidation of the Bank of Credit and Commerce( Hong Kong ) Ltd in 1992. The letter pointed out the potential hardship to the tens of thousand of investors. D4 worked out a scheme to fully pay out the smaller investors without significant detriment to the larger depositors and eventually all creditors were paid in full. The letter states that D4’s scheme of arrangement was so well regarded it was written into the statutory scheme of insolvency, S 265(1) (db) of the Companies Ordinance.

126.It was pointed out that D4 did not benefit personally from the offences. It was urged upon the court that the commission of the offences by D4 was because of his commitment to rescuing TSL. When D4 joined TSL the commission B scheme had been in place for over 6 years. The value of the payment requisitions relating to Brighouse and Cinedell signed by D4 between January and May 2003 amounted to $6.6 million out of total commission payments of over $100 million.

127.It was pointed out that one of the consequences of D4’s conviction will be his loss of position and professional qualification. His employment will be terminated. He will likely be disqualified as a chartered accountant in Australia. His career as a corporate rescuer will be finished. The humiliation and financial hardship suffered will be ongoing.

D5

128.D5 is 53 and has a clear record. He was born in China and came to Hong Kong when he was four. He married when aged 29 and has 2 daughters at university in the UK. He divorced in 1998 and has a steady relationship with a lady and they have a 10 year-old son. D5 enjoys a harmonious relationship with his ex-wife and pays family maintenance of $18,000 per month.

129.He studied and graduated in Taiwan. He started work as a tour guide taking tourists to jewelry showrooms. In 1986 he joined TSL as a supervisor and later became the business comptroller.

130.6 months after his arrest in April 2005 he was diagnosed with cancer. A letter dated the 4^th April 2008 was submitted from Dr Li stating that D5 has advanced nasopharyngeal carcinoma stage 4A, the highest stage being 4C. The cancer has spread to the left side of the base of skull bone to reach the left eye and has also spread to the neck lymph nodes. He has received radiation and chemotherapy treatment. Dr Li opines it will take at least 5 years before it can be certain that his disease does not recur and that he is cured. The doctor stated that imprisonment will naturally affect his general need for good rest and nutrition which is important for body immunity.

131.A number of testimonial letters were submitted from travel industry colleagues, TSL employees and family members. They speak as to his caring attitude and the good relationships he has formed in the industry. He is a man held in high esteem.

Charges 1 and 2.

132.Following the visit of by ICAC to the offices of TSL with regard to  commission payments to travel agency employees the senior management set about devising a scheme which would enable TSL to continue to make the secret payment of commission to agents. The scheme also enabled TSL claim tax deductions on commissions paid to agents who refused to acknowledge receipt of the commission. I do not accept the submission by counsel for D1 that it was principally an internal tax plan. I was sure from the all the evidence that the principal purpose was to facilitate the payment of secret commissions to agents.

133.Many months were spent by the senior TSL management in devising the scheme. False documents were created. Bogus Business Promotion agreements with the overseas companies were executed at solicitors offices outside Hong Kong. A new system was to be used on the computer. Overseas companies were to be used. Over $100 million was sent to the overseas companies between October 1996 and May 2003. It is not known how much was actually paid to the agents as there no records.

134.These are very serious offences committed over a substantial period of time. Offences of this kind strike at the heart of business probity. What make it worse is that the corrupt scheme was put in place by the management of this publicly listed company and inevitably involved the commission by some of its employees of serious offences. The accounts department were required to put in place a system of false accounting which would conceal Commission B payments from TSL auditors.

135.Project B, whereby Commission B payments were disguised as payments of staff promotional commission, relied on the cynical assumption that showroom staff would be prepared to sign false receipts on a monthly basis over a period of one year. Sadly, that assumption was correct. Under project B just over $10.8 million was paid out of which just over $10 million purported to be paid to agency staff. I reminded myself that ended in 1997, long before D3 and D4 came on the scene. But this scheme is illustrative of the management mentality that prevailed at that time.

136.I was satisfied so that I was sure D3 and D4 became aware of the commission B scheme shortly after joining TSL, allowed it to continue and signed false documentation relating to it.

137.After the KPMG Forensic report disclosed the real purpose of the overseas companies, TSL management and their professional advisers embarked on a cover up. KPMG audit described the commission B system as an internal control weakness. The public announcement made on the 2^nd October 2003 was an announcement made by the TSL board of directors following a review into, inter alia, the system of payments to third party agents for introducing customers to TSL. The announcement states that the Review was conducted with the assistance of the company’s financial advisers, its lawyers and KPMG Forensic. The announcement repeats what was contained in the comments of KPMG Audit, namely, that during the KPMG Forensic Review, certain internal control weaknesses were identified in connection with payments to third party agents.

138.The announcement said the committee had considered with its advisers and lawyers whether the company should take any action and had concluded that in the circumstances there was no clear evidence of any wrongdoing.

139.When dealing with the IRD in connection with the commission B payments, TSL used a different firm of accountants and the management of TSL told them and the IRD a pack of lies. As I said in my reasons for verdict, lying had become a matter of TSL corporate policy.

140.Offences of this kind are extremely difficult to detect and inevitably require enormous commitment from the investigating authorities both in terms of time and manpower. The prosecution of these offences involves huge public expenditure.

141.I have been asked to take into account that these matters have been hanging over the heads of the defendants for a considerable period of time. Most of them were arrested in April 2005. Looking at the circumstances of the case, the number of offences, the number of documents and witnesses, the complexity of the issues, I take the view that there has been no unreasonable delay.

142.In my view, custodial terms are unavoidable. I have given anxious consideration to the length of those terms. In respect of charge one, I take as a starting point for corruption on this scale, a term of four years imprisonment. Some may regard this as lenient.

143.Eloquent speeches in mitigation were made by all defence counsel. I have set out above some of the matters urged upon me.  Counsel for D1 described his client as a legend. His achievements have in deed been most remarkable. He is a man of great generosity. He is well-respected in the community. I have considered the matters set out in the testimonial letters submitted. I have taken into account his lingering heart condition and other medical problems. I note that his heart condition goes back to 1994 when he had a very serious heart attack. This was before the conspiracy started. I have also taken into account his age. As with many other defendants his conviction on these charges represents a considerable fall from grace.

144.I took into account that he vacated his office as chairman in September 2000. It was urged upon me that the commission of the first charge was not for his personal benefit. However he would benefit, as would his company, from the business generated by the corrupt payments.

145.Taking all these factors into consideration I impose a sentence of three years on D1.

146.D2 was not involved in the planning of the commission B scheme. When it started in 1996 he had been with the company for two years and was a director of the company. He initialled the minutes of the paper meeting  which authorised the business promotion agreements entered into with Worldwide and Brighouse. In 2000 he took over the position of chairman and chief executive of the company following his father’s bankruptcy. At that time the company was in dire straits and he had a most difficult role to perform. I had no doubt he was aware of the commission B scheme and participated in it. He signed the minutes of the paper meeting in 2002 authorising the business promotion agreement entered into with Cinedell.

147.The conviction on this charge will be a tragedy for his family. I have considered all the matters urged upon me in mitigation. I can see no reason to depart from the starting point in his case.

148.D3 joined TSL in 2000 as the Finance Director. From all the evidence I had no doubt she was made aware of the commission B scheme shortly after taking up her position. She signed many of the payment requisitions and initialled the minutes of the paper meeting of the Board of Directors held in 2002 authorising the agreement with Cinedell.

149.I have taken into account all the matters urged upon me in mitigation. I have taken into account he health problems and her ongoing medical condition.  As with the other defendants, this conviction is a tragedy for her and her young family. It will finish her professionally and have life long effects.

150.I sentence D3 to imprisonment for three years and 6 months.

D4

151.D4 joined TSL in December 2002. He was informed of the commission B scheme and signed payment requisitions authorising payments of $6.6 million to them before the overseas companies were replaced by local promoters.

152.I have taken into account everything that has been said in mitigation. He is married with a very young family. This is a tragedy as far as they are concerned. They will be required to relocate back to Australia. He has a mother aged 87 who depends on him financially. The defendant is a chartered accountant with impeccable credentials. He has done much for Hong Kong in the field of corporate rescue. There was no direct financial benefit to him. I took into account all that was said in the testimonial letters. I took into account the long term effects the conviction will have on the defendant professionally.

153.I took into account that  he joined the conspiracy in its final months. That having been said he realised he was joining a huge conspiracy, sanctioned by the senior TSL management, which had been going on for many years. D4 is a chartered accountant and was appointed Chief Executive of  this publicly listed company.

154.I impose a sentence of three years on D4.

D5

155.D5 is the only defendant who was not a director of  TSL. At the time of this offence he held a senior position in the showroom management division of TSL and was responsible for the distribution of a large percentage of the commission B monies. He did not participate in the 1996 meetings when the scheme was  discussed.

156.He supports 3 children and two households. He has suffered serious illness for which his treatment is ongoing. Testimonial letters were produced which I considered. He is highly regarded in the jewelry trade. A letter of support has been submitted from TSL employees.

157.I impose a sentence of 3 years and 6 months on D5.

Charge 2

158.This charge is related to charge 1 and I will impose concurrent sentences for this offence.

159.I take the view that a sentence of two years is appropriate for this offence. I impose that sentence in respect of each defendant and order that the sentences should run concurrently with those imposed in respect of charge 1

Charges 9 and 10 D2, D4 and D5

160.These were similar charges to charges 1 and 2. From April 2003 to April 2005 TSL used local promoters instead of overseas companies as money transfer vehicles. The amount of money involved was $44 million. This scheme was put in place after the KPMG Forensic report confirmed what all the defendants knew, namely that the overseas companies were money transfer vehicles set up to facilitate the payment of commission B.

161.Bogus business promotion agreements were entered into with the three business promoters. Unlike the overseas companies the local promoters did actual work and only a relatively small percentage was used for commission B payments. Two of the promoters, PW2 and Kenny Cheung had been used to distribute commission B under the original scheme.

162.I take a starting point of three years and six months for charge 9. I impose sentences of three and a half years on D2 and D3 and three years on D5. I have considered the question of totality and order that 6 months of the sentences shall run consecutive to the sentences imposed in respect of charges 1and 2.

163.I impose concurrent sentences of 18 months imprisonment on charge 10.

Charge 11 Conspiracy to steal $500,000 D1, D2, D3 and D5

164.This charge involved a conspiracy to steal TSL monies for the benefit of D1 between February and July 2002 in the guise of bonus payments to D5. They involve a breach of trust on the part of D2 and D3. I have considered all the mitigation put before the court in respect of this charge. All the conspiracy to steal charges were committed at a time TSL was in very difficult financial straits and struggling to meet its payments under the debt restructuring agreements.

165.I impose sentences of two years imprisonment on D1, D2 and D3 and 18 months on D5.

Charge 12 Conspiracy to Steal D2 and D5

166.This charge involved a conspiracy to steal $882,952 from TSL between June and December 2002 for the benefit of D2 using a business promotion agreement with Kenny Cheung. I took into account D2 was in great financial difficulties brought about by his fathers pledging of TSL shares which he was attempting to get back. I sentence D2 to 2 years and D5 to 18 months imprisonment.

Charge 13 Conspiracy to steal D2 and D3

167.D2 and D3 conspired to steal $1, 821,954.18 from TSL between April and July 2002 under the guise of a bonus payment to Paul Wong, PW39 for the benefit of D2. I impose a sentence of three years on D2 and 2 years on D3.

168.The sentences on charges 11,12 and 13 shall run concurrently but 3 months will run consecutively to offences on earlier charges.
 

Charge 14 Conspiracy to defraud the IRD – D2 and D4

169.D2 and D4 conspired  with PW1 and PW2 between April and January 2005 to induce officers of the IRD to act contrary to their public duty by falsely representing that the payments to the overseas companies were genuine payments for services actually provided by such companies.

170.Correspondence with the IRD about commission payments make by TSL to two agencies had been going on since before 2001 and DTT were appointed tax consultants in 2002.

171.In mid April  2003 the management of TSL told DTT that payments to overseas companies were genuine.

172.It was not until after the qualified opinion  contained in the KPMG audit dated the 29^th July 2003 that the IRD started to enquire about the payments to the overseas companies. After that date D2 and D4 started to become more proactive in discussions with DTT and the IRD. They confirmed the position taken by PW1 and others that the payments were genuine. At meetings thereafter with the IRD D4 took a prominent role in discussions and correspondence and he exerted pressure on the IRD officers to settle the matter, insisting that the payments were genuine and accusing the IRD by their intransigence of putting the future of the TSL group at risk.

173.I have been informed in mitigation that in respect of the additional tax to be paid, by 20^th September 2005, IRD issued assessments totalling $22,712,000 for all the years in dispute, i.e. 1995/6 to 2002/3. TSL has paid the assessments by instalments.

174.As of February 2008 the outstanding amount is $3,277,506. The final amount will be paid by 31 August 2008. TSL will also be liable to penalties imposed by the IRD Commissioner.

175.I have considered all the factors urged upon me mitigation generally and about his particular charge. I impose a sentence of 18 months imprisonment for this offence and order that 3 months of the sentence should run consecutively to the previous sentences.

176.IRD officers Li Mei Foon,  Poon Kwan Keung and Miss Lai Yuen-yee are to be commended for their steadfast refusal to accept the lies being told to the by the TSL management and for resisting the pressure to which they were subjected.

Conclusion

D1

Charge 1  - 3 years imprisonment

Charge 2 - 2 years imprisonment concurrent

Charge 11  - 2 years imprisonment 3 months consecutive

The total period of imprisonment will be 3 years and 3 months.

D2

Charge 1  - 4 years imprisonment

Charge 2  - 2 years imprisonment concurrent

Charge 9  - three years 6 months imprisonment, 6 months consecutive

Charge 10 – 18 months concurrent

Charge 11 – 2 years

Charge 12  - 2 years

Charge 13   - 3 years imprisonment

The sentences on charges 11,12 and 13 will be concurrent but 3 months will run consecutive to the earlier sentences

Charge 14  - 18 months imprisonment, 3 months consecutive

Total period of imprisonment: 5 years.

D3

Charge 1   - 3 years and 6 months

Charge 2  - 2 years concurrent

Charge 11  - 18 months

Charge 13 – 2 years

The sentences on charges 11 and 13 will run concurrently but 3 months will be consecutive to the sentences on charges 1 and 2.

Total: 3 years and 9 months

D4

Charge 1  - 3 years imprisonment

Charge 2  - 2 years imprisonment concurrent

Charge 9  - 3 years and 6 months, 6 months consecutive

Charge 10 – 18 months imprisonment concurrent

Charge 14 – 18 months imprisonment, 3 months consecutive

Total period of imprisonment:  3 years and 9 months

D5

Charge 1   - 3 years and 6 months imprisonment

Charge 2    - 2 years imprisonment concurrent

Charge 9      -3 years imprisonment, 6 months consecutive

Charge 10      -18 months imprisonment concurrent

Charge 11   - 18 months imprisonment

Charge 12 – 18 months imprisonment concurrent with charge 11 and three months of the sentence on charges 11 and 12 to be consecutive to charges 1,2 and 9.

Total period of imprisonment: 4 years and three months.