HKSAR v. Chau Kong Lung and Others

DCCC1087/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1087 OF 2010

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Reasons for Sentence

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1.Each of D1, D3 and D5 was convicted after trial of Charges 1 to 14. Charge 1 was for the offence of conspiracy to deal with property known or reasonably believed to represent proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organised and Serious Crimes Ordinance, Chapter 455, and sections 159A and 159C of the Crimes Ordinance, Chapter 200. Charges 2 to 14 were each for the offence of fraud, contrary to section 16A of the Theft Ordinance, Chapter 210. They are to be sentenced today for their respective offences.

Facts

2.D5 was at all material times the sole director and shareholder of Kingsway (HK) Limited (“Kingsway”).  D3 formerly worked as the financial controller of Kingsway, but he resigned in January 2007 and set up his own financial consultancy company called the Xenbond Consultants Limited (“Xenbond”) on 23 January 2007.  D3 continued to provide at all material times the same financial services to Kingsway through Xenbond under a consultancy agreement made on 1 March 2007.  D1 was at all material times the sole director and shareholder of Welly Fortune Limited (“Welly”). 

3.The facts proved at the trial show D3 had on behalf of Kingsway negotiated with the East West Bank (“the Bank”) and secured the agreement of the Bank to grant credit facilities to Kingsway on 8 November 2009.  One of the credit facilities provided by the Bank to Kingsway was “invoice financing on invoices issued by vendors acceptable to the Bank after 90 days”. 

4.Between 22 November 2007 and 4 September 2008, Kingsway had made 13 applications to the Bank for invoice financing on the basis that Welly had supplied it with goods.  All applications were supported by Welly’s invoices and Kingsway’s cargo receipts.  The Bank approved all 13 applications and deposited money in the total sum of $15,967,300 into Welly’s account.

5.At the trial, the prosecution has proved beyond reasonable doubt on the basis of the evidence admissible against each defendant that there was no sale of goods transaction between Welly and Kingsway underlying each one of these 13 invoice-financing applications, and that each defendant was aware of their falsities.  The prosecution has also proved beyond reasonable doubt that D5 instructed the authorised signatories of Kingsway’s account with the Bank (including D3, for the applications that formed the subject matter of Charges 2 to 9) to apply to the Bank for invoice-financing loans and falsely represented to the Bank that there were genuine sales between Welly and Kingsway.

6.The prosecution has also proved beyond reasonable doubt that D1 had allowed the account of Welly in Bank of China to receive money from the Bank when the Bank granted Kingsway’s applications for invoice-financing loans, and that D3 had followed up with each invoice-financing application (including those applications signed by him personally as Kingsway’s authorised signatory or those signed by D2 who was his employee) in that he directed D1 to draw out cash cheques to pay over the money deposited by the Bank and instructed PW3 and PW4 to collect cash cheques from D1, cash them and dispose of the proceeds of the cheques in the manner he directed.  The only reasonable and irresistible inference was that they had entered into an illegal agreement to deal with the loans deposited into Welly’s account by the Bank which were the proceeds of the 13 offences of fraud, knowing or believing they were proceeds of such offences.

7.Upon liquidation of Kingsway, the Bank was not repaid by Kingsway of the last five loans and suffered a loss of $4,363,800. 

Criminal Record

8.D1 has one minor previous criminal conviction which was not similar to the present offences.  In 1980, he was fined $100 for gambling in a gambling establishment.  D3 and D5 have a clear criminal record.

Personal and Family Backgrounds

9.D1 is 55 years old, married, living together with his son aged 14 and his elder sister aged 60.  His wife, aged 45, is living in the mainland China.  His father is 84 years old and is now living in a home for the aged.  His mother left the family when D1 was young, and her whereabouts are unknown.  D1 has also one elder brother aged 57, living apart. D1 started working at the age of 15 when he completed Form 2, and he managed to finish Form 3 education in evening school.  D1 had worked as a goldsmith apprentice, a factory worker and a construction worker.  Between 1980 and 1996, he worked as a renovation worker and later project manager in building hotels, shopping malls in China, Macau and Singapore.  Between 1997 and 2003, D1 worked as a renovation worker in Hong Kong.  From 2004 onwards, he set up his own business, including Welly, which was his second company.  After his arrest in 2009, D1 worked as a project-based renovation worker earning about $20,000 per month.

10.D3 is 49 years old.  He divorced in 1997.  He has no child.  His father is 100 years old and is now living in a residential care home.  His mother is 90 years old and is living with a domestic helper apart from D3.  D3’s elder sister has just passed away.  He now has two elder brothers and one sister in Hong Kong and an elder brother in Canada.  D3 is now living in a place provided by his brother-in-law together with his nephew who is now 27 years of age. 

11.D3 completed his Form 5 education in Hong Kong and obtained a Bachelor Degree in Science in 1986 in Canada.  He then worked in a foreign exchange broker firm and a garment factory in 1986 and then in the Kwangtung Provincial Bank between 1987 and 1999.  He then worked as a financial consultant for half a year and later operated his own garment trading company in year 2000, but the business was terminated in October 2001 when an overseas client refused to make payment and D3 was made bankrupt.  In June 2002, D3 became freelance financial consultant.  Between 2003 and 2006, he worked for Kingsway.  In January 2007, he set up Xenbond to provide financial consultancy accounting services.  He earned about $100,000 a month before these offences.

12.D5 is 47 years old, married but divorced his wife in 2006.  He has two sons now aged 14 and 10, and both of them are students.  His father has already passed away.  His mother is now 78 years old.  D5 has three elder siblings and one younger sister.  He completed Form 5 education.  He had once studied a three-year post-secondary course in electronic engineering at the Hong Kong Polytechnic, but he dropped out in the second year.  He worked as a sales engineer for two electronic parts companies until 1989 when he set up his own electronic parts trading company, firstly known as Kingsway Enterprise which was renamed to the Kingsway (HK) Limited in 1993.  He became bankrupt in 2009.  He resumed to work as a purchase consultant at a cellphone company in mid-2010, earning about eighty thousand to hundred thousand dollars a month.  He quitted his job in May 2011 pending the resolution of this trial.  D5 was employed by Mexon International Enterprises Limited to work as a project manager since 1 June 2010.

Mitigation

13.Miss Lee, counsel for D1, submitted that D1 was involved in this case because he wanted to help Kingsway which was one of his important clients.  Miss Lee submitted that although D1 provided a blank invoice to D5, he did not know what D5 would do with the invoice and he just trusted D5.  Miss Lee pointed out that D1 was not involved in the preparation and the submission of the false invoices to the Bank, and that D1’s culpability in the offences concerned with his letting Welly’s bank account to be used as a platform for receiving money from the Bank and then drew all the money out except leaving a small sum as his own commission.

14.Miss Lee stressed that D1 was not the prime mover of the fraudulent scheme and that D1 did not play a “very significant role” though his role was significant in the sense that without the involvement of D1 and his company, the scheme could not succeed.

15.Miss Lee pointed out that D1 received a benefit of only sixty thousand to seventy thousand dollars according to his cautioned statement.  Miss Lee also referred to the loose banking procedure in the loan applications in that the Bank accepted fax documents in support of the applications.  Miss Lee said that the loose procedure amounted to an implied encouragement to people to make this kind of application.

16.On the personal side of D1, Miss Lee informed me that D1 had been undergoing enormous pressures since his arrest. He is now suffering from insomnia.  He does not have a happy marriage because his wife lives separately from him physically.  His only hope is on his son. D1 is now in debt of some $350,000 because of the legal fees.  Miss Lee asked this court to be as lenient as possible in light of D1’s role in the offence, his emotional and financial difficulties. 

17.Miss Lee has submitted the mitigation letters written by D1 to ask for mercy because he needs to take care of his son and elderly father.  And Miss Lee also submitted mitigation letters from three of his friends.  All of them said D1 was kind, reliable, willing to help others and working hard to support his family.   

18.Mr Chung, counsel for D3, submitted that D3 had not been living a smooth life, first with his marriage and then with his career.  Mr Chung pointed out that D3 had once been bankrupt which was caused by the failure of one client to pay, but that caused the collapse of his whole business.  Mr Chung submitted that D3 had been a man of integrity, a filial son and a responsible person to all those who looked up to him for a living, including all his employees.

19.Mr Chung pointed to D3’s mitigating letters and submitted that despite D3’s present predicament, what occupied in his mind were only his aged parents and his employees.  Mr Chung stressed that D3 had no personal gain in these offences.  He just helped anyone who needed assistance wholeheartedly. 

20.Mr Chung pointed out that all 14 offences arose out of the same incident that lasted for several months, during which D5 had repaid the Bank regularly.  He pointed out that D3 had been co-operative during the trial by agreeing to complicated documents, thereby shortening the trial.  He also referred to the receipts that evidenced various donations made by D3 to charitable organisation as evidence of D3’s positive good character.

21.Mr Chung submitted mitigation letters written by D3’s elder brother and friends who include prominent members of the society, including a retired senior police superintendent, accountant, solicitors and his staff members.  According to them, D3 has been filial, honest, reliable, responsible and generous to his friends and employees. 

22.Mr Tang, counsel for D5, submitted D5’s letter for mitigation in which D5 explained why he committed the offences.  D5 said he was immature and silly when he committed these offences.  He said that he had cash flow problem at the material times because of the financial tsunami in year 2007 and year 2008 and because of the change in the labour law in the mainland.

23.Mr Tang stressed that D5 still ensured that all his employees were appropriately paid before Kingsway was wound up, and it showed that D5 was not a person who acted out of greed.  Mr Tang also submitted mitigating letters from D5’s two elder sisters, seven of his former employees, his latest employer and the colleagues of his last job.  In summary, all of them inform this court that D5 is a person of good character, a filial son, good father, considerate employer, an efficient and effective staff and a generous colleague.

24.Mr Tang pointed out that D5 had tried very hard to build up his business but, unfortunately, he had gone through difficult moments in his life one after the other, including bankruptcy, divorce and now criminal proceedings.  He said D5 just wanted to take care of his sons and his family as soon as possible.  Mr Tang pointed out that D5’s latest employer was willing to take him back.  Mr Tang stressed that D5 only mishandled his business.  He urged this court to take into account D5’s clear record, his co-operation in the investigation and his personal circumstances so as to be as lenient as possible.

Reasons for Sentence

25.The offences committed by these defendants were serious offences.  In my judgment, each defendant was well aware that there was no genuine sale-of-goods transaction between Welly and Kingsway, but the Bank had been deceived into granting invoice-financing loans on 13 occasions to Kingsway.  The gravity of these offences was illustrated by the following points:

(1) The total amount of these 13 loans amount to $15,967,300.

(2) The offences were committed with the aid of false documentations. For each application, a false Welly invoice bearing just a photocopied authorized signature of Welly was used, and the cargo receipt issued by Kingsway was also false because Kingsway did not actually receive goods from Welly.

Miss Lee made the point that since the Bank allowed fax documents to be used in support of the invoice-financing application, it amounted to an implied invitation that false documents might be used. This submission has to be rejected. The Bank was just allowing its client to make the application in a way that was most convenient to him, and the fact that the Bank provided the client with a better service could not be regarded as a ground for reducing the gravity of the offence. On the contrary, the Bank was reposing its trust on its client.

(3) The offences spread over a period of 11 months from November 2007 to September 2008, and the Bank was put at risk whenever it granted each loan.

(4) Not only was the Bank put at risk, the risk also materialised in that D5 was unable to repay the last five loans amounting to $4,363,800, and the Bank has suffered that real loss.

(5) The offences were not opportunistic scheme which was adopted and put into place. There was clear division of labour in that D5 made the invoice-financing application through his staff and subordinate by making use of false documents. D1 was to receive the money from the Bank once D5’s application was approved and drew out the money less his commission and pay the money over to D3, and D3 had followed up each application, including those signed personally by him and those signed by D2 as authorised signatures of Kingsway, by directing D1 to pay out the money and by instructing PW3 and PW4 to collect cash cheques from D1 and to dispose of the proceeds of the cheques in the manner he instructed them after they had cashed D1’s cheques.

26.Owing to the gravity of these offences, there is no doubt that the only appropriate sentencing option is imprisonment.  As to the starting point of the prison term, Miss Lee referred me to the case of HKSAR v Chu Wai San [2008] 4 HKLRD 18.  That case involved a letter-of-credit fraud involving a sum of $22.5 million.  False documentation had been used and the offence lasted for about 11 months.  The Court of Appeal held that the starting point adopted by the trial judge of 5 years’ imprisonment was not manifestly excessive.

27.For the offence of conspiracy to deal with property known or believed to represent the proceeds of an indictable offence, the Court of Appeal in HKSAR v Hsu Yu Yi [2010] 5 HKLRD 545 has listed out a number of previous cases which show the quantum of sentence. It appears that if the proceeds involved were between one million to two million dollars, the starting point would be 3 years’ imprisonment.  If the amount was between 3 million to 6 million, the starting point would be 4 years.  If the amount was more than $10 million, the starting point should be over 5 years.  (Hsu Yu Yi was cited by the Court of Appeal with approval in Secretary for Justice v Wan Kwok Keung CAAR13/2010.) 

28.I agree with Mr Chung, counsel for D3, that the consequences of the offence flowing from Charge 1 were the offences in Charges 2 to 14.

29.Having considered these authorities and the facts of this case, I shall sentence each defendant for these 14 charges on a global basis and adopt 4 years and 6 months as a starting point for the overall prison term. 

30.I shall deal with the case of D5 first.  There is no doubt that he was the main beneficiary of these offences.  He obtained the loans from the Bank to ease his cash flow problem and to purchase goods from whoever he wanted though he was well aware that the Bank would only grant loans to Kingsway if Kingsway purchased goods from a seller acceptable to the Bank. He obtained the benefit of the 13 loans totalling nearly $16 million, and he caused a net loss of around $4.3 million to the Bank.  I see no reason to adopt a lower starting point in his case.

31.I note all the good words said by all the people around him.  I have no doubt that he was the kind of person described by them, but the fact of the matter was he was just too involved in his own business and forgot that he should not deceive the Bank to provide him with the working cash to sustain his business.

32.I note that his family, especially his two sons, will suffer a lot financially and emotionally when D5 has to serve his prison term.  However, family suffering is normally not a mitigating factor: see HKSAR v To Yiu Cho [2009] 5 HKLRD 309. 

33.D5 pleaded not guilty.  It is his right but he cannot now be given any discount that might have been given to him upon a guilty plea.  The only mitigating factor is clear record, and on this ground, I reduce his sentence by 4 months.  I note that he had been co-operative in the trial in the sense that he had agreed to most of the evidence.  I reduce his sentence by another 2 months on this ground.  There is no other ground upon which his sentence can be reduced further.  D5 is therefore sentenced to a term of 4 years’ imprisonment for each of Charges 1 to 14.  All sentences are to be served by him concurrently.

34.In the case of D1, there was no doubt that his role was significant in the commission of the offence.  If he did not allow Welly’s account to be used to receive money from the Bank and if he did not faithfully pay out the money so received according to D3’s instructions, the offences would not have occurred or at least some of these offences might not have occurred.  D1 got real benefit in that he received a sum equivalent to 0.5 per cent of the total amount deposited into Welly’s account, and the illegal gain he had obtained after deducting $130 bank charges amounted to $79,706.55.  He earned this sum of money through no hard work but by just signing 34 cheques.  It is, however, in my judgment wrong to impose the same sentence on him as D5’s, bearing in mind that his personal gain was less than $80,000 as aforesaid while D1 had the benefit of using nearly $16 million.

35.In the case of D5, I adopt 3 years and 6 months as a starting point for his overall prison term.

(Discussion re identity of defendant being sentenced)

36.I am now dealing with the sentence of D1.  I say that it would be wrong to give him the same sentence as D5, bearing in mind that his personal gain was less than $80,000 while D5 had the benefit of using nearly $16 million.

37.In the case of D1, I adopt 3 years 6 months as the starting point of his overall prison term.  In the case of D1, I also note all the good words said by those around him.  I note his personal and family obligations especially towards his elderly father and young son.  I note the heavy burden is now on the shoulder of his elder sister who has to look after D1’s son, but she is also suffering from depression.  However, as indicated to D5, family suffering can hardly be a mitigating factor.

38.I note that D1 has said that his son will not apply for comprehensive social security assistance to support his living because they want to make a living out of their own hands and they do not want to rely upon others.  Well, however, this is not the right attitude to adopt. This society provides financial assistance to the needy, hoping that these needy can go through their difficult times as soon as possible and then make themselves available as a contributing member to the society.  Obtaining CSSA as opposed to abusing the CSSA benefit is two different matters which D1 must understand and get his son to understand.  In any event, whether or not D1’s son or the elder sister or other family member will apply for CSSA is a matter of their own choice, and that decision plays no part in altering the sentence. After all, I am sure that the social welfare officer will look into the welfare situation of D1’s son.

39.D1 pleaded not guilty.  He lost the benefit of a guilty plea.  D1 challenged the admissibility of his statements made under caution.  He lost the benefit of being co-operative in the course of trial.  He has one minor record which was not similar in nature.  I treated him as a person having clear record.  On this factor, I reduce his sentence by 4 months.  There is no other mitigating factor.  For each of Charges 1 to 14, D1 is sentenced to imprisonment for 3 years and 2 months.  All sentences are to run concurrently.

40.In the case of D3, D3 played a very important role in these offences in that he obtained the credit facilities for Kingsway and he followed up with each application and was instrumental in getting all money deposited by the Bank into Welly’s account and disposing of these monies. There is no direct evidence as to how much benefit he has personally gained, and Mr Chung informed me that he had made no personal gain.  It is difficult for this court to assess whether this allegation is true because D3 has not said anything under caution and he has not testified in this trial.  Of course, this is his right and I do not draw adverse inference against him.

41.However, the evidence shows that by providing Kingsway with financial consultancy and accounting services, Kingsway would pay Xenbond $200,000 a month, and on top of that, Kingsway would pay Xenbond a commission equivalent to 5 per cent of the net sum of the financial credit facilities granted to Kingsway less the cash deposit maintained by Kingsway with the Bank: See the consultancy agreement.

42.There is no evidence whether D3 has ever received such a commission, but the opportunity for earning the commission was there according to the evidence.  If D3 wanted this court to sentence him on the basis that he had no personal gain, this was a matter that needed to be substantiated by evidence but there was none.  The burden was on the defence to point to evidence, whether from the prosecution or otherwise, to substantiate matter urged upon in mitigation.

43.In the case of D3, despite the important role played by D3 in the offences, in the absence of evidence on his personal gain or no gain, I can conclude that he did not have the use of the nearly $16 million as in the case of D5, but it seems that he gained more than D1 at least in the sense that he had been continuously employed by Kingsway throughout the offence period of 11 months, during which Xenbond got paid $200,000 per month providing all kinds of services, all of which were legal except D3’s involvement in the present offences.  

44.The sentence to be imposed on D3 should therefore reflect these differences.  Having taken these matters into account, I adopt 4 years’ imprisonment as a starting point for D3’s overall sentences. As in the case of other defendants, I note every good thing that has been said of D3.  I note that his parents are already 100 and 90 years old and that would be a great blow not only to the parents but also to D3 for not being able to take care of the parents or to stay with them as much as possible during the last phase of their lives.

45.However, again these matters can hardly be mitigating factors and are just the usual cost for committing a crime.  D3 is not entitled to discount for a guilty plea because he was convicted after trial.  He is a man of clear record.  On this ground, I reduce his sentence by 4 months.

46.Evidence has been put before me that between 2005 and 2008 that he had donated money to charitable organisations to support children’s living and education.  The amount he donated was not particularly large, but I regarded his charitable donations as evidence of positive good character.  On this ground, I reduce his sentence by another 2 months.  As the case of D5, I reduce his sentence by another two months to reflect his co-operation in the trial in the sense that he agreed to most of the evidence. There is no other ground upon which his sentence can be further reduced.  D3 is therefore sentenced to a term of 3 years and 4 months’ imprisonment for each of Charges 1 to 14.  All sentences are to be served by him concurrently.