CRIMINAL CASE NO. 40 OF 2010
COURT: Both of you have been convicted by a jury of 14 counts of fraud. In order to save your ailing computer business and financial difficulty, D2, you manufactured and produced to banks false invoices and purchase orders in order to obtain invoice financing loans. A total of 14 banks had been cheated on 301 occasions. In the course of your planning, you recruited D1, the 1st defendant, into this fraudulent scheme.
D1, for 0.2 per cent commission, you not only permitted D2 to use your company to manufacture false invoices and purchase orders but also allowed D2 to operate your company’s bank account for transfer of monies. Without your co-operation, this scheme could not take off the ground. Your role could, therefore, not be described as unimportant or insignificant. In a period of slightly over six months, a total of 153 million of such invoice financing loans had been advanced by banks.
D2, you were the major beneficiary of these monies. The only consolation in this case is that not all of the 153 million have been lost. Having said that, 21.47 million could hardly be described as small figures. D2, you were the mastermind behind this fraudulent scheme: You, recruiting D1 into the scheme, creating all false documents, negotiating facilities with banks and signing on all individual applications. Your so-called business expansion programme was nothing more than a sham.
Although you have a clear record, in a case as serious as the present one, your lack of criminal conviction in the past counts very little. Although this case is not a case involving the use of letters of credit, comments made by the higher court regarding the use of letters of credit are equally applicable. The operation of invoice financing similarly requires the same degree of trust that the bank placed on their clients. The operation becomes vulnerable when false documents are introduced.
Although there are no sentencing guidelines, the Court of Appeal, in HKSAR v Dai Chi Wai CACC84/2010, a case involving letter of credit fraud, points out various factors that a sentencing court should take into account. These include the amount of the loans, the number of banks, the period, the role of each defendant and the actual loss to the bank.
In the case of Dai Chi Wai, the Court of Appeal also makes reference to another case, HKSAR v Law Chi Man, Kenneth CACC356/2006, a case involving the use of false documentation in fictitious transactions.
In Law Chi Wai, Kenneth’s case, the appellant conspired with another person to make false representation to three banks in the form of false documentation purporting to show that the company was in active trading where, in fact, the company conducted no operations whatsoever. The total loan facility obtained was 15.6 million and the total loss to the bank was 9.8 million.
The Court of Appeal took the view that 6 years was not manifestly excessive.
In HKSAR v Lee Kwok Yun & Others CACC117/2004, the 1st appellant, who over a period of 10 months assisted other to obtain from various banks 334 million credit by using 19 letters of credit and resulting in the banks a loss exceeding 88 million, was given, on a plea, of 6 years’ imprisonment. The Court of Appeal was of the view that the starting point of 9 years was not manifestly excessive. It is worth mentioning that the 1st appellant in that case was only rewarded with approximately HK$320,000, 0.1 per cent of the handling fees.
The total amount of loans in the present case is 153 million and the total loss to the bank is 21.4 million. Amongst the 14 banks, Citic Ka Wah Bank suffers most (6.8 million). In terms of monies advanced (17.5 million) and the number of transactions (33) Citic Ka Wah ranks No. 4.
The next in line is Industrial and Commercial Bank of China. ICBC suffers 6.4 million loss and in terms of monies advanced (25.7 million) and number of transactions (46), ICBC ranks No. 1.
Having considered all the circumstances, in particular D2’s role in this case, the appropriate sentence for these two counts should be one of 5 years’ imprisonment each. In relation to other frauds, given the smaller amount in loans and in loss, D2 will receive a sentence of 4 years’ imprisonment each.
In order to reflect the overall criminality, 3 months each from Count 1 to Count 8, Count 10 to Count 14 are to be served consecutively to the 5 years imposed on Count 9. The total sentence for D2 is, therefore, one of 8 years and 3 months’ imprisonment.
Although D1 played a lesser role, his part was an essential and integral part of the fraudulent scheme. The only “mitigating circumstance” is that he benefited less. For that, his sentence on Count 9 and Count 3 will be reduced to one of 4 years’ imprisonment each. As to other counts, D1 will receive a sentence of 3 years’ imprisonment each. Likewise, 3 months each from Count 1 to Count 8, Count 10 to Count 14 are to be served consecutively to the 4 years imposed on Count 9. The total sentence for D1 is, therefore, one of 7 years and 3 months’ imprisonment.
In conclusion, for the crimes that D1 and D2 committed, they are sentenced to prison for 7 years 3 months and 8 years and 3 months respectively.