HKSAR v. Chan Tat Chee

DCCC661A/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 661A OF 2006

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Reasons for Sentence

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1.On 4 September 2006, D1 Chan Tat-chee pleaded guilty to six counts of offence in the charge sheet, namely, Charge 1, 6, 10, 14, 16 and 18. The remaining charges were left on court file and not to be proceeded with without leave. D1, also admitted to the admitted the Summary of Facts read out in court by the prosecutor.

2.On 8 April 2008, the first day of trial for the remaining three defendants in DCCC611/2006, for the sake of convenience, I granted leave to split the charge sheet into two, namely, DCCC661A and DCCC661B/2006.  

3.D2 to D4 in the old charge sheet were relabelled as D1 to D3 in DCCC661B, as shown in the Re-re-amended charge sheet dated 18 March 2008. 

Brief facts - Background

4.Central China Enterprise Limited (CSCP) was a publicly listed company in Hong Kong.  In February 2004, D1 Chan acquired 52.6 per cent or 29.5 million shares in CSCP through Aimstar Holdings which was owned by D1 Chan and his wife. 

5.D1 Chan was appointed as chairman of CSCP on 10 February 2004.  In November 2004, Hon Ming-kong, that is D2 in DCCC661A or D1 in DCCC661B, replaced D1 Chan as the chairman of CSCP and D1 Chan became the executive director. 

6.In June 2005, Hon Ming-kong acquired the remaining 62 per cent in shares of Aimstar from D1 Chan and D1’s wife.  In November 2004, D1 Chan replaced Hon Ming-kong as chairman of China Conservational Power Holdings Limited (CCPH), while Hon remained as the executive director.

Charge 1

7.Money laundering of HK$11.18 million-odd or RMB$12 million. 

8.In July 1998, Central China IT Limited (CCIT) and Henan Cable TV Network Centre (Henan Cable TV) set up a joint venture called Henan Zhongzhou Radio and Television Information Network Company (Henan Joint Venture).  CCIT was a wholly owned subsidiary of CSCP in Hong Kong and it spent RMB$80.85 million in this joint venture and acquired 49 per cent of its equity. The remaining 51 per cent was held by Henan Cable TV.

9.In January 2004, CSCP agreed to sell its shares in this joint venture to Henan Cable TV for RMB$58.8 million.  It was agreed that the payment would be made in four instalments in 2004.  Upon instruction of CSCP, Henan Cable TV paid RMB$17.64 million as the second instalment to Guangzhou Sharpo Limited on 1 April 2004.

10.Guangzhou Sharpo was a subsidiary of CSCP in Guangzhou.  The sum was equivalent to approximately HK$16.64 million-odd.  Guangzhou Sharpo received this sum from Henan Cable TV on 1 April 2004.  Out of this sum of money, D1 Chan caused HK$11.18 million (or equivalent to approximately RMB$12 million) remitted to Hong Kong and deposited into the bank account of the Sino Push with the Wing Hang Bank on 6 April 2004.

11.D1 Chan was the one who controlled the bank account of Sino Push.  D1 Chan, who knew the money was part of the sale proceeds of the joint venture due to CSCP, dealt with the money by disbursing the same to various parties for his own benefit between 6 and 13 April 2004.

Charge 6

12.Conspiracy to steal a sum of HK$4 million with Hon Ming-kong, Chow Ho-tung and Kan Lai, the other three defendants in DCCC661B.

13.Sharpo Solutions was a company registered in British Virgin Island and was a subsidiary of CSCP.  Through the introduction of Kan Lai, Michael Pang was employed as the sales manager of Sharpo responsible for daily operation.  Michael Pang would report to Kan Lai if Sharpo was in need of funds or experiencing cash flow problems.

14.At the material time, D1 Chan and Chow Ho-tung were directors of Sharpo and Michael was the signatory to the bank account.  In early January 2005, Chow Ho-tung instructed Cannie Chan of CSCP to prepare a cheque for HK$4 million to Sharpo purportedly as working capital of the company.  The money in fact was used by D1 Chan for personal purpose.  The cheque was signed by D1 Chan and Hon Ming-kong.  Chow Ho-tung also instructed Cannie Chan to prepare relevant false supporting documents.  Accordingly, Cannie Chan created or caused to be created false accounting vouchers request for funds and the Minutes of Board meetings of CSCP approving the loan of $4 million to Sharpo.

15.It was D1 Chan who signed the accounting vouchers and also the minutes of meetings.  Hon Ming-kong and Chow Ho-tung also signed the minutes.  The cheque was deposited into the account of Sharpo on 7 January 2005.  It was Kan Lai who told Michael Pang of the fund transfer from CSCP to Sharpo and told Michael that the money was for D1 Chan’s personal uses. Kan Lai also instructed Michael Pang to made a false purchase order to cover up the embezzlement.

16.D1 Chan also asked Chow Suk-fun of Well Glory for assistance.  A bogus purchase order was generated purportedly to show that Sharpo was to buy 1,000 pieces of certain computer components for a total value of US$590,000.  An official receipt for a deposit of $4 million was issued by Well Glory.

17.Michael Pang then transferred HK$4 million from Sharpo to the bank account of Well Glory.  D1 Chan instructed Chow Suk-fun to withdraw $4 million from the account of Well Glory and to deposit HK$3.9 million and HK$100,000 into the bank accounts of Sino Push and Abba International Garment respectively.  Both companies and their bank accounts were controlled by D1 Chan, and these companies had nothing to do with CSCP and Sharpo.  D1 Chan then issued two cheques drawn from the bank accounts of Sino Push and Abba International Garment and deposited the proceeds into his personal bank account with the Wing Hang Bank. 

18.The proceeds were split between D1 Chan and Hon Ming-kong.  D1 Chan pocketed HK$2.35 million and Hon Ming-kong got HK$1.65 million.  The money was never returned to CSCP.

19.Well Glory had no business dealings with CSCP and Sharpo.  Cannie Chan, Chow Suk-fun and Michael Pang confirmed that they created the false documents to cover up the embezzlement and there was no genuine underlying transaction in this matter.

Charge 10

20.Theft of HK$10 million belonging to CSCP.  

21.Abba China Holdings (Abba China) was a wholly owned subsidiary of CSCP.  In August 2004, D1 signed a letter of intent on behalf of Abba China with Beijing Yuk Chak Enterprises (Yuk Chak) for acquisition of 32.8 per cent of the share in Beijing China Sciences General Energy and Environmental Limited (Beijing China Sciences). 

22.Abba China would deposit HK$10 million into the account of Beijing Yuk Chak.  D1 Chan then instructed Cannie Chan to transfer HK$10 million to Telegoal purportedly for this deposit payment.  D1 Chan signed the relevant minutes of the board meetings and the payment instruction to the accounting department of CSCP.  D1 Chan and Chow Ho-tung signed the accounting vouchers.  D1 Chan and Cannie Chan signed the funds transfer application form effecting the transfer of the sum of HK$10 million from CSCP to the bank account of Telegoal on 28 August 2004.

23.The major shareholder of Telegoal is a friend of D1.  Acting on D1’s instruction, Telegoal transferred the money to six different bank accounts designated by D1 Chan.  The proceeds were then used by D1 to meet his personal liabilities.  Beijing Yuk Chak confirmed that the company had never received the money from CSCP or from its subsidiary.  CSCP gave a notice of termination of the letter of intent to Beijing Yuk Chak on 10 November 2005 and it did not receive any refund of such a deposit payment.

Charge 14

24.Conspired with Hon Ming-kong and Chow Ho-tung to defraud CSCP and its shareholders by means of a loan of HK$25 million.  

25.When it came to the end of the financial year in December 2004, D1 Chan together with Hon Ming-kong, Chow Ho-tung and Cannie Chan had discussions on various occasions to see how to obtain funds to cover up previous embezzlements of the corporate funds before the annual report of CSCP was published.

26.Chow Ho-tung instructed Cannie Chan to transfer HK$25 million from the account of CSCP to Wong Kim-chung, a money remittance agent, purporting that the money was for a short term loan of Guilin China Sciences Conservational Power Limited (the Guilin Joint Venture), a joint venture established by CSCP in China.

27.D1 Chan, Hon and Chow signed the relevant Minutes of Board meetings to approve the granting of the said loan.  It was Hon who instructed Sun Xiaojun, the then general manager of the Guilin joint venture, to sign two letters stating that the Guilin joint venture required CSCP to offer a short term loan of RMB$26.5 million (approximately HK$25 million) and to deposit the said loan to the bank account of Wong Kim-chung.

28.The wife of D1 and Chow Ho-tung signed the interbank fund transfer application to effect the payment of HK$25 million from CSCP to Wong Kim-chung on 22 December 2004.  Chow instructed Wong Kim-chung to revert the money back to CSCP through other remittance agents.  Chow also instructed Cannie Chan to make false accounting entries and to use the money to cover up part of the previous embezzlements of fund of CSCP by D1 Chan and Hon Ming-Kong.

29.Chow asked Cannie Chan to obtain a receipt from Hon who then instructed Cannie to approach Hon Yik-kong (Hon Ming-kong’s elder brother).  Hon Yik-kwong who represented CSCP in the operation of the Guilin joint venture asked Cannie Chan to make up a receipt and send the draft to him. Subsequently, Hon Yik-kwong forwarded to Cannie Chan a receipt purportedly issued by Guangxi Jiangong Construction Engineering Group First Construction Engineering Company (Guangxi Jiangong), which was a contractor of the joint venture.  It acknowledged the receipt of RMB$30.21 million (equivalent to HK$28.5 million).  The receipt of the money was used to account for the said HK$25 million and another two sums of money totalling HK$3.5 million paid out by CSCP.

30.Chow Ho-tung then instructed Cannie Chan to alter the accounting records of the Guilin joint venture to show that the joint venture had received the sum of HK$25 million and to inform Hon Yik-kwong of the alternation.  The Guilin joint venture and Guangxi Jiangong confirmed that they did not receive either HK$25 million or HK$28.5 million from CSCP.

Charge 16

31.Conspired with Hon Ming-kong and Chow Ho-tung to defraud CSCP and its shareholders in relation to a sum of HK$8 million.

32.In order to cover up previous embezzlements of funds of CSCP committed by D1 Chan and Hon Ming-kong before the publication of its annual report 2004, Chow Ho-tung instructed Cannie Chan to issue a cheque for HK$8 million, which was purported to be a payment of earnest money to Sino Profit International Limited for a waste incineration and processing project in Meizhou.

33.Chow ho-tung further stated that the money would be reverted back to CSCP and he signed the accounting voucher approving the payment.  A memorandum of understanding (MOU) dated 24 December 2004 was filed with CSCP to support the payment.  It purported to show that Abba China Holdings, a wholly-owned subsidiary of CSCP, and Sino Profit intended to enter into negotiation in relation to an establishment of a joint venture on the waste incineration and processing business in Meizhou.

34.D1 Chan signed the MOU on behalf of Abba China, while Chan Chun-kuen was the representative of Sino Profit.  D1 Chan, Hon Ming-kong and Chow Ho-tung signed the minutes of the board meetings which approved the signing of the MOU.

35.On 24 December 2004, D1 Chan and Chow signed the cheque for HK$8 million which was payable to Chan Chun-kuen and drawn on the account of CSCP.  Subsequently, Chan Chun-kuen transferred about HK$3.7 million back to CSCP of which HK$2.4 million was used to offset a previous loan taken from CSCP by Chan Chun-kuen. 

36.Cannie Chan falsified the accounting records of CSCP to conceal the fact that the money was siphoned off from CSCP at the false pretext of having the Meizhou project.  Chow told Cannie Chan that the remaining sum of about HK$4.3 million was retained by others.  Cannie Chan then made records to show the sum of HK$8 million was used to cover up the embezzlement of the funds.  She passed the records to D1 Chan, Hon Ming-kong and Chow Ho-tung on various occasions between the end of 2004 and early 2005.  Copies of the records were recovered from the residence or office of D1 Chan, Hon Ming-kong and Chow Ho-tung.

37.Later, Cannie Chan discovered that the relevant announcement published by CSCP stated the director of Sino Profit was Pang Kwok-chung, and there was no mention of Chan Chun-kuen.  She then asked Chow Ho-tung how to handle the matter.  Later a new set of MOU dated 6 December 2004 was prepared.  D1 Chan and Pang Kwok-chung signed on behalf of Abba China and that of Sino Profit respectively.  The new MOU was passed to Cannie Chan to replace the original MOU.

Charge 18

38.Conspired with Hon Ming-kong, Chow Ho-tung and Kan Lai to defraud China Conservational Power Holdings Limited (CCPH) by causing and permitting Hong Tong Hai Capital Limited to provide an unsecured loan of HK$5 million to Kan Lai.

39.To cover up previous embezzlements, Chow Ho-tung instructed Cannie Chan that Kan Lai would borrow a loan of HK$5 million from Hong Tong Hai Capital (HTH), a subsidiary of CCPH.  The money would then be transferred to CSCP.  Chow instructed Cannie Chan to contact Kan Lai, who would issue a cheque for HK$4.45 million to CSCP upon receipt of the money.  Kan Lai would also pass the remaining sum of HK$550,000 in cash to Cannie Chan in the office of CSCP.  Cannie Chan acted accordingly.

40.On 28 December 2004, Hon Ming-kong on behalf of HTH signed the loan agreement with Kan Lai.  D1 Chan and Hon also signed the payment instrument directing the accounting department to transfer HK$5 million to the bank account of Kan Lai.  This unsecured loan was granted, despite the written warning of Kenji Chan, the then financial controller of CCPH.  Hon Ming-kong and Lee Yu-leung, an executive director of CCPH, signed a fund remittance application form to effect the payment of HK$5 million from the account of HTH to Ken Lai on 29 December 2004. 

41.Kan Lai transferred HK$4.45 million to the account of CSCP and brought the balance of HK$550,000 in cash to Cannie Chan, who then handed over the cash to Chow Ho-tung.  The said loan of HK$5 million to Kan Lai was never repaid to CCPH.

42.Acting on Chow’s instruction, Cannie Chan used the sum of HK$4.45 million to cover up the previous embezzlements and falsified the account records of CSCP, by stating that the money was received on behalf of Sharpo for the refund of deposit relating to certain purchase of goods. Cannie Chan made the records and passed the same to D1 Chan, Hon Ming-kong and Chow Ho-tung on various occasions between 2004 and early 2005.  Copies of these records were later recovered from D1 Chan, Hon Ming-kong and Chow Ho-tung.

Mitigation

43.Mr Lawrence Lok SC, started off the mitigation by saying that D1 Chan was arrested in September 2005, since then D1 Chan has changed to a completely different person while he was “waiting in guilt and remorse without ends and suffering constantly from the rumination of his stupid wrongdoing”.  

44.D1 suffered from severely depressed mood, insomnia, anorexia etc. and developed severe depressive illness.  The medical report of Dr Ip on D1 Chan was tendered.  On the other hand, part of the contents of the mitigation letters written by artists, producers in the entertainment business, various associations and one LegCo member was read out.  In addition letters from his former employees and his friends were tendered, except D1 himself.

45.All of them speak highly of D1 Chan and praised his sense of responsibility and generosity.  A total of 17 mitigation letters were tendered.  It was also submitted that D1 has a deep sense of remorsefulness. It was further submitted that D1 Chan had spent some 48 days in box and his evidence was accepted by this court, which is inevitably strengthened the case against the other culprits.  D1 was declared bankrupt in November 2010. 

46.Two cases namely, Z v HKSAR, [2007] 2 HKC 265 and AG v Ling Kar Fai (No.2) [1997] 2 HKC 651 were referred to.  It is urged that a lenient sentence should be imposed on D1 Chan as it is another story of “a Hong Kong history becoming a Hong Kong tragedy”.    

Sentence

47.Undoubtedly, the offences disclosed a large scale misappropriation of company money by its directors and their associates, and falsification of the various accounting documents to cover up the wrongdoings.  The interests of the public listed companies and its shareholders were totally ignored.  A number of local companies were involved or made use of by the accused, and they also used some of the companies incorporated in Mainland China.

48.D1 Chan is now 64 years old.  He attained primary school in China and later attended some English courses in Hong Kong after he settled in Hong Kong in 1960 at the age of 14.  In his background report, D1 Chan maintained that he attributed all this to his placing trust in and his intent to help the parties concerned.  He pleaded guilty to these charges in September 2006. He went bankrupt in November 2010 and various civil litigations are still ongoing.  D1’s wife expressed that D1 was trapped into the present offences.  She regarded D1 a clever, confident person and was helpful to friends.  After being arrested, D1 was suffering from depression and social withdrawal with sleeping and eating problems.

49.Whether D1 was trapped or had misplaced his trust on others is not central to the issue.  D1’s culpability of misappropriating the company funds and his involvement in the falsification of accounting documents showed that he and other directors treated a public listed company as their own personal property and manipulated all sorts of funds transfer to paint a good picture in the account books and/or the annual report.

50.I cannot see a strong sense of remorsefulness from the background report.  D1 worked as a garment factory worker in 1970s and through his hard work and assistance from relatives, he was able to climb up the social ladder and diversified to entertainment business which eventually earned him the reputation as the father of concerts in Mainland China. 

51.Now at the age of 64, D1 Chan experienced a drastic plunge in his career.  Not only is he a bankrupt, he also has to    face the consequences of his criminal wrongdoings, in addition to his being involved in various civil litigations.  It is sad to see a previous successful businessman ended his career in this way, even though it might not be his final destination as D1 can be successful again.

52.This case may well be one of the stories of the so-called Hong Kong tragedy, but it is not difficult to see that the origin of this tragedy is one’s greediness and his insatiable desire for money and social status.  Taking all factors into consideration, I now impose the sentence on D1 Chan as follows:

Charge 1

53.There is no sentencing guideline for the offence of money laundering.  The proceeds effectively can be regarded as the stolen proceeds and the money was not related to any kind of very serious crimes or trans-national organised crime.  In my judgement, reference can be made to the cases of HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776 and HKSAR v Ng Kwok Wing [2008] 4 HKLRD 1018, which were related to the offence of theft involving breach of trust.  The Court of Appeal has helpfully converted the “Clark” bands into Hong Kong dollars bands with the guideline that for the band between HK$3 million to HK$15 million, the staring point is 5 to 10 years.   

54.The proceeds in this charge involved a sum of about HK$11.18 million.  Taking all the circumstances of this case and D1’s mitigation into account, I will take a lenient attitude.  I would adopt a starting point of 7 years.  I will deal with the discount and the totality principle at the end of these Reasons for Sentence.

Charge 6

55.The subject matter of this offence of conspiracy to steal was HK$4 million.  Three other co-conspirators were related.   False accounting records or vouchers, purchase order, receipts and the Minutes of Board meetings were created.

56.Several companies were used to made the funds transfers looked legitimate and valid.  The proceeds were split between D1 Chan and Hon Ming-kong who took $1.65 million.  In fact, it is clear that the substantive offence of theft was committed.  Following the guideline in Cheung Mee Kiu and Ng Kwok Wing, I will adopt a starting point of 5 years.   

Charge 10

57.The charge related to a theft of HK$10 million. Companies like Beijing Yuk Chak and Telegoal were involved.  The proceeds were used by D1 Chan to meet his personal liabilities.  Taking the circumstances of this case into account, I have to make certain adjustment along the guideline in Cheung Mee Kiu and Ng Kwok Wing, I would adopt a starting point of 6 years.

Charge 14

58.This charge of conspiracy to defraud involved a sum of HK$25 million.  Various documents in accounting records were generated to make the transaction looked valid and genuine.  The interest of the company and the shareholders were jeopardised.  The money was used to cover up previous embezzlements and to window-dress the annual report.

59.If I followed the guideline above-said, then the starting point should be about 10 years or more.  However, I have to consider the circumstances of this charge and the use of the stolen proceeds in order to set the starting point.  In my view, the money was used to window-dress the accounting books and the annual report of the company.  As such, I would start the sentence with 7 years.

Charge 16

60.This time the money involved was HK$8 million. Most of the money was used to cover up previous money transactions.  I would use 4 years as the starting point.

Charge 18

61.The proceeds involved amounted to HK$5 million. Cash in the sum of $550,000 was passed to Chow while the remaining sum was returned to CSCP to cover up the previous embezzlements.  I would use 3 years as the starting point.

Other considerations in sentence

62.I accepted that D1 Chan has been cooperative with the ICAC soon after his arrest.  He gave non-prejudicial statements to the ICAC officers and was willing to come forward to testify in court.  D1 Chan had been cross-examined extensively by defence counsel for many days and he was recalled once.

63.Various applications made by counsel also dragged the proceedings of DCCC661B further, and by now the trial has passed its third anniversary.  As far as D1 Chan is concerned, the case is approaching the sixth anniversary since his arrest, and about the fifth anniversary of his formal plea in court.  With the case hanging in the air for such a long time, I accept and do believe that D1 suffers a lot, both mentally and psychologically as reported in Dr Ip’s medical report dated 22 June 2010.

64.I have imposed the starting point of various offences in preceding paragraphs.  I am duty bound to consider the totality principle and the discount to be given for his testimony against other accused. 

65.First of all, I would order all the sentences imposed are to be served concurrently.  That makes it a total of 7 years.

66.I have considered the case Z v HKSAR. Taking all the mitigating factors into account, I am going to treat D1 Chan with leniency.  I give D1 Chan 50 per cent discount for his guilty plea and his willingness to testify in court.  The sentence is henceforth reduced to 3½ years.  As this case has been dragged on for so long, I will exercise my discretion to further reduce his sentence by 6 months.  Accordingly, I sentence D1 Chan to 3 years imprisonment.  During the period of imprisonment I would advise D1 Chan to have continued psychiatric treatment and/or medication as and when necessary.

67.In addition to the imprisonment term, as applied by the prosecution, I would impose a disqualification order under Section 168D of the Companies Ordinance, Cap.32.  The maximum period of disqualification that can be imposed by a District Judge is 10 years: see Section 168E. 

68.In my view, the period of disqualification should also reflect the fact that D1 is being imprisoned.  Taking the circumstances of the whole case into account and the role played by D1 Chan, I will disqualify D1 from being a director of a company for 8 years and he shall not be in any way, whether directly and indirectly be concerned or take part in the promotion, formation or management of a company: see Section 168D(1)(a) and (d).              

69.That concludes my Reasons for Sentence on D1 Chan Tat-chee in DCCC661A.     

70.As suggested by counsel for D1 Mr Lok, I would be recommend D1 Mr Chan Tat-chee be remanded in protective unit in CSD.  Thank you.