HKSAR v. Yan Suiling

FACC No. 6 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 6 OF 2011 (CRIMINAL)

(ON APPEAL FROM CACC NO. 435 OF 2009)

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BETWEEN

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J U D G M E N T

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Chief Justice Ma:

1.At the conclusion of the hearing, we allowed the appeal, quashed the appellant’s conviction and ordered that she be paid her costs before this Court and before the Court of Appeal, save and except those costs in respect of her unsuccessful application to the Court of Appeal to certify a point of law of great and general importance. Our reasons for allowing the appeal now appear in the judgment of Mr Justice Chan PJ.

Mr Justice Chan PJ:

2.The appellantand another defendant (“D1”), both Mainland residents, were each convicted in the District Court of one count of money laundering, contrary to s.25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455. Her appeal to the Court of Appeal was dismissed. She now appeals to this Court on the substantial and grave injustice ground.

The prosecution case

3.The evidence adduced by the prosecution was not seriously challenged. In February 2009, there was a fraud on the Fubon Bank: a rogue obtained a loan of $8.6 million from that bank which purported to be secured by a mortgage on a flat using false title deeds, forged documents and the identity card of the true flat owner which had been lost the year before. On 26 February 2009, the loan was drawn down and paid into the account of the handling solicitors. After deducting the necessary fees and expenses, $8,591,000 was transferred into a bank account with the Fubon Bank opened by the rogue in the name of the true flat owner. Within a few days, a total of $6.28 million was withdrawn from that account by cash cheques. On 2 March 2009, another cheque for $2.3 million was drawn and paid into D1’s bank account with the HSBC. On 3 March 2009, a cheque for $2,361,335 (“the cheque in question”) was drawn on D1’s account and paid into the appellant’s bank account with the HSBC. On 6 March 2009, the appellant transferred $2 million from her account into her sister’s bank account. It is not disputed that the appellant and D1 did not know each other and had had no previous dealings with each other.

4.It is quite clear from these facts that the cheque in question was traceable to the mortgage fraud on the Fubon Bank. There was no evidence that the appellant knew of or was involved in the mortgage fraud, or that she knew or had reasonable grounds to believe that the cheque was part of the proceeds of that fraud. However, it is not necessary for the prosecution to prove such specific knowledge or belief. The offence under s.25 requires only proof that the accused has dealt with property which he knew or had reasonable grounds to believe represented the proceeds of an indictable offence. (See Lam Hei Kit v HKSAR (unreported) FAMC No 27 of 2004; and Oei Hengky Wiryo v HKSAR (2007) 10 HKCFAR 98.)

5.The prosecution relied on the receipt of the cheque in question by the appellant as constituting the actus reus of the offence, which is the “dealing with property” as provided in the section. That was not disputed. The case which the prosecution sought to prove against the appellant was that in the circumstances of this case, she had reasonable grounds to believe that the cheque she received represented the proceeds of an indictable offence.

The appellant’s defence

6.The appellant’s defence was that she did not know and had no reasonable grounds to believe that the cheque in question received by her represented the proceeds of an indictable offence. It was her case that she received it pursuant to an underground currency exchange arrangement which she used to exchange large sums of Renminbi (“RMB”) for Hong Kong Dollars (“HK Dollars”) in connection with her share investments in Hong Kong.

(i) Evidence of D1

7.Apart from the appellant, D1 also testified in his own defence. We are not concerned with his case in this appeal. But insofar as it is relevant to the appellant’s case, D1’s evidence was this. Because of the currency restrictions in the Mainland, he had engaged the services of an underground currency exchange agent, Madam Chu, in connection with his business in Shenzhen. He would pay HK Dollars into an account designated by Madam Chu in exchange for RMB which would be paid into his accounts in the Mainland. The $2.3 million cheque was received by him from a customer as part payment for the purchase of computer components and since he had to pay his suppliers in RMB, so, as directed by Madam Chu, he paid the cheque in question into the appellant’s account which was named by Madam Chu to get RMB in the Mainland. He did not know the appellant and had had no dealings with her before.

(ii) Evidence of the appellant

8.The appellant’s evidence was to this effect. She resided in the Mainland with her family. She had a degree in accountancy and had various businesses in the Mainland, previously she was in the restaurant business and was now selling Amway products and insurance policies. She had invested in the stock market in the Mainland for some years and since 2007, she also invested in the Hong Kong stock market using her account with the HSBC which she opened in May 2007. The bank records showed that she had conducted active trading in securities and shares and there were large amounts of deposits and withdrawals into and out of that account.

9.In 2004, because of the currency restrictions, she began to engage in underground currency exchange, initially through a Mr Ting who was a manager in a Mainland bank to obtain foreign currencies including HK Dollars and US Dollars. Later, Mr Ting asked her to deal with his wife Madam Chu. Whenever she wanted HK Dollars or other currencies, she would tell Madam Chu and Madam Chu would ask her to deposit an equivalent amount of RMB into named accounts in the Mainland. Madam Chu would then cause to be paid HK Dollars (or the requested currency) into the appellant’s account with the HSBC. The appellant did not know any of the holders of the accounts named by Madam Chu or the drawers of cheques deposited into her HSBC account. She produced bank documents to support her evidence in relation to some of these transactions.

10.On 3 March 2009, she caused her mother in the Mainland to pay RMB $3 million into a Mainland account in the name of one Cheuk Yin Mui which was given to her by Madam Chu. On the same day, she received 6 cheques (including the cheque in question) and 2 cash amounts which were paid into her HSBC account. She did not know the drawers of these cheques. On 5 March 2009, there was another cash remittance of $150,000 into her account. The total of all these sums was $3,511,355 which was in exchange for the RMB $3 million she gave Madam Chu through her mother’s account. Even after March 2009, she still engaged Madam Chu in currency exchange and she produced documents showing such transactions.

11.The appellant’s sister asked her for a loan and so, on 6 March 2009, she transferred $2 million to her sister’s HSBC account and two other sums of $1 million each on 30 and 31 March 2009 respectively. Her sister repaid her in full in May 2009 and this was shown in the bank statements. 

Trial judge’s Reasons for Verdict

12.The judge accepted that if the appellant’s evidence about this currency exchange arrangement was true or might be true, she was entitled to be acquitted. He considered that there were matters in the evidence which tended to support her evidence. He accepted that the appellant’s bank statements showed that her HSBC account was very actively used in share trading and that the high level of balance and her share activity were “far from being the common feature displayed in the usual cases of money laundering” (paras 102 to 104 of the Reasons for Verdict (“RV”)). He also accepted that the active share trading in Hong Kong supported her assertion that “it was necessary for her to engage in currency exchange” (para.105 of the RV). Further, the sums deposited into her HSBC account involved odd figures and this, the judge said, was “consistent with it being the result of currency exchange” (para.106 of the RV).

13.However, the judge considered that the appellant’s evidence was unreasonable and unbelievable. He gave two broad reasons for rejecting her evidence.

14.First, the risk involved in the underground currency exchange arrangement as described by the appellant was too great and no ordinary and reasonable person would have engaged such arrangement to deal with large sums of money: the appellant did not know whether Madam Chu was licensed to perform currency exchange services (para.109 of the RV); the arrangement in the transfer of funds was inherently risky in that she had to remit large sums of RMB to accounts of persons unknown to her without first ensuring that she would be repaid HK Dollars (paras 110 and 113 of the RV); funds deposited into her account were in separate sums and she did not even ask Madam Chu why (para.114 of the RV); and she did not seem to be very much concerned with the exchange rates (para.116 of the RV).

15.The second reason given by the judge for rejecting the appellant’s evidence was that the operation described would require “an incredibly high degree of coincidence or a high degree of coordination or both, for Madam Chu to be able to make arrangement with different parties to come up with the right amount to deposit” (para.115 of the RV). He also found this to be unbelievable.

16.It should be mentioned that for the same reasons, the judge also rejected D1’s evidence on the underground banking operation. However, it must be pointed out that he also refused to accept D1’s evidence that the $2.3 million cheque received by him was part payment for the goods sold by him to his customers.

17.Having rejected the appellant’s evidence, the judge proceeded to convict her, taking the view that she had knowingly received a cheque of a substantial sum from a person she did not know and about whom she made no enquiries, that those circumstances would cause a right thinking member of the community to have reasonable grounds to believe that such money represented in whole or in part, directly or indirectly, the proceeds of an indictable offence, and that the only reasonable inference was that when the appellant received the cheque in question, she must be aware of those grounds.

Court of Appeal’s judgment

18.On appeal, one of the appellant’s main grounds of appeal was that the judge’s reasons for rejecting her evidence were flawed in that he had placed undue weight on the risk of engaging in the underground banking operation.

19.With regard to the existence of the underground banking operation, the Court of Appeal found it difficult to understand why the judge rejected the prosecution’s assertion that there was such an operation. However, the Court of Appeal took the view that the judge’s rejection of the appellant’s evidence “was not based on a finding that such a system did not or could not exist, rather it was on the basis that a combination of factors, specific to the evidence relevant to the applicant’s case, of risk and the extraordinary coincidence as to the exactly matching amounts of money deposits rendered her evidence incredible” (para.23 of its judgment).

20.Having referred to the evidence and the comments made by the judge, the Court of Appeal, in dismissing the appeal, apparently considered that the judge was entitled to reject the appellant’s explanations on these two grounds.

Issues in this appeal 

21.In this appeal, Mr Wong Man Kit SC, leading Ms Amanda Li for the appellant, contends that the judge was wrong to have rejected the appellant’s evidence, in particular, the evidence on the underground banking operation and that the Court of Appeal, having accepted that the judge had erred about the existence of such operation, failed to fully analyze the evidence and to correct the judge’s error. It is his submission that if the appellant’s evidence is true, it is not open to the judge to find she had reasonable grounds to believe that the cheque she received represented the proceeds of an indictable offence.

22.On the other hand, Mr Kevin Zervos SC DPP, leading Mr Edmond Lee, submits that the judge was right in rejecting the appellant’s evidence and that in the absence of any credible explanation from her, the only reasonable inference was that she had reasonable grounds to believe the cheque in question represented the proceeds of an indictable offence.

23.Two questions arise for consideration in this appeal. The first is whether the judge’s reasons for rejecting the appellant’s evidence can be upheld. If he was not entitled to reject her evidence, that is, if her evidence was true or might be true, it could not be concluded that she had reasonable grounds to believe the cheque she received was the proceeds of crime. The second question is that even if he was entitled to reject her evidence, whether in the absence of a credible explanation, the only reasonable inference was that she had reasonable grounds to believe the cheque she received represented the proceeds of crime.

The significance of the appellants’ evidence

24.In her evidence, the appellant sought to explain how she came to receive the cheque in question and more importantly, why she had made no enquiry when she received the cheque. If this explanation was true or might be true, this would support or tend to support her claim that there was no reason for her to make enquiry and she had no reasonable grounds to believe that the payment she received was the proceeds of crime. The judge accepted that in that case, she should be acquitted. However, for the reasons given by him, he rejected her evidence and drew the irresistible inference that she must have reasonable grounds to believe the money was the proceeds of crime. Since the rejection of her evidence was a necessary step in his decision to convict, his reasons for doing so must therefore be closely examined.

The judge’s reasoning flawed

25.The appellant’s defence depended mainly if not wholly on her evidence of the underground currency exchange arrangement. At the trial, prosecuting counsel seemed to have accepted that as a matter of fact, there was an underground banking operation in the Mainland. At least, it was not put to the appellant that such a system did not exist. The judge however said he “take(s) no heed of it since there is no evidential basis” for saying so (para.96 of the RV). While he might have been making this comment in the course of rejecting D1’s allegation that he (D1) was engaged in underground banking activities in connection with his legitimate business, the Court of Appeal did not think there was any basis for the judge taking such a view. As the Court of Appeal remarked, “it is common experience that foreign exchange restrictions or currency controls beget underground banking.” (para. 22 of the judgment)

26.Notwithstanding this observation made by the judge, the Court of Appeal considered that this did not affect the soundness of his rejection of the appellant’s evidence as his conclusion was based on his views on the risks and the extraordinary coincidence and co-ordination involved in such an operation. With respect, this is difficult to understand. The risks and the coincidence and co-ordination mentioned by the judge are part and parcel of the underground banking operation. His reliance on these two factors in rejecting the appellant’s evidence strongly suggests that his assessment of her evidence might have been coloured by his reluctance to acknowledge that the underground banking operation existed and that quite arguably, this had affected his assessment due to the lack of a proper understanding of this underground banking operation. This can also be illustrated by the fact that the judge did not seem to have given adequate consideration to the documents adduced by the appellant in support of her evidence.

Risks involved in the underground banking operation

27.It can hardly be disputed (and the prosecution accepted) that this underground banking operation was, as a matter of fact, in existence. If the judge had refused to accept this, he was not being realistic. These activities inevitably involved risks, such as the risk that the agent or customers might fail for whatever reasons to perform his or her part of the deal and the risk of losing large sums of money. For example, as the judge pointed out, Madam Chu, the alleged agent, ran the risk that D1’s cheque deposited into the appellant’s HSBC account might not be honoured after she had paid him RMB in the Mainland (para.91 of the RV); similarly the appellant ran the risk that after she had remitted RMB 3 million from her mother’s account into an account designated by Madam Chu, she might not be paid in HK Dollars (para.92 of the RV). But these are risks which are inherent in such activities. The characteristics of what the judge described as incredible or unusual are nothing more than the common features of underground banking activities. Inevitably, anyone taking part in this type of activity would have to take these risks.

28.The judge considered that the risks were too great and repeatedly posed the question whether an ordinary reasonable person would have taken such risks. If by this, he was expressing the view that no ordinary reasonable person who is law abiding would have taken part in such underground activities, he was certainly correct.

29.But the real question he had to resolve in this case was whether it was true or might be true that the appellant was prepared to and did take these risks in engaging such services. The judge himself acknowledged that the appellant’s active share trading in Hong Kong “supports the assertion that it was necessary for her to engage in currency exchange” (para.105 of the RV). One can easily understand why. It was common ground that the exchange for HK Dollars into RMB or vice versa was restricted to RMB 20,000 per day and thus it was not surprising that a person (like the appellant) who was heavily engaged in stock trading would find it necessary to engage such underground services and would be prepared to take the risks involved. It does not help in resolving the real question by asking whether an ordinary reasonable person would have taken such risks.

30.The judge queried whether it was reasonable to engage such services without knowing whether the agent was licensed or not. But for this type of underground banking operation, it is not surprising, in fact it is more likely than not, that the agent is not properly licensed. This fact would probably be known to the customers but certainly would not be something over which they would be too worried and in any event, this is part of the risks which the customers have to take if they want to engage such underground services.

31.According to the appellant, she had previously used this underground banking system through Mr Ting and his wife Madam Chu who told her to transfer RMB into designated bank accounts in the names of persons unknown to her. She had done this with Madam Chu before this incident giving rise to the present charge and had continued to do so after the incident. The documents (to which we will return later) tended to support her allegation in this respect. There was thus a reason for her to trust Madam Chu. The judge did not seem to have attached sufficient weight to this factor.

32.The size of the funds alleged to have been transferred or remitted pursuant to this underground arrangement was also a risk factor which had apparently caused the judge to reject the appellant’s evidence. But this is also not easy to understand. Such risks are inherent in this underground banking operation.

33.The judge also relied on the appellant’s apparent lack of interest in knowing the exchange rates as one of the reasons for doubting her evidence. In this respect, it is sufficient to note that exchange rates vary from time to time and depend on the size of the sums involved. One would expect that a difference between the official rate and the underground rate, provided it is not excessive, would normally be acceptable.

Coincidence and coordination

34.Both D1 and the appellant gave a description of the underground exchange arrangement they had with Madam Chu. According to them, customers were asked to deposit payments and cheques into accounts designated by her and customers would name the accounts into which they would like to be paid. It was not necessary for the customers to know the account holders or the drawers of the cheques deposited. The banking documents suggest that from time to time there were what appeared to be cash top up amounts either in lump sums or in odd figures. What was described does not seem to be a very sophisticated operation.

35.In rejecting their evidence, the judge reasoned that such operation required “an incredibly high degree of coincidence or a high degree of coordination or both, for Madam Chu” and he did not think that Madam Chu was capable of doing this (para.115 of the RV). There was no evidence on the scale of Madam Chu’s underground operation or how popular it was. It is not clear on what basis the judge formed such a view. In any event, the arrangement alleged to have been engaged in this case does not seem to be so unbelievable as described by the judge.

The banking documents

36.The judge took the view that the evidential value of the documents produced by the appellant was limited as they could support only some of the exchange transactions and even then fell short of proving that money did go to Madam Chu (para.112 of the RV). With respect, this is neither a fair nor correct conclusion. While there was no evidence that the transfers of RMB went to Madam Chu directly, they were said to have been made into accounts designated by her. It is also true that the documents produced by the appellant could not prove all the transactions she had undertaken, but they were more than merely matters in favour of the appellant. They strongly support her evidence. Upon a closer examination of the banking documents, a number of important features can be noticed.

37.First, the bank statements show that apart from using this HSBC account for her share trading transactions, the appellant had only used it for the deposits of cash payments and cheques which she said came from Madam Chu pursuant to the currency exchange arrangement. This supports her claim that it was necessary for her to engage in currency exchange in connection of her share trading activities.

38.Secondly, the documents also show that there was a pattern in these deposits: cash payments and cheques were deposited in groups, and in each group, they were deposited on the same date or on dates close to one another. Each group of deposits matched a reciprocal transfer of RMB into a bank account in the Mainland at more or less the same time or period. This pattern of deposits and transfers strongly suggests that they were exchange transactions. This is not a phenomenon which is the result of “cherry picking” the figures as contended by the prosecution. It is a pattern which can be worked out from a study of the figures based on more than 5 transactions.

39.Thirdly, when the sum total of cash payments and cheques deposited in each group is compared with the amount of RMB of the corresponding transfer, the ratio (roughly between 0.85 to 0.89) closely resembles the exchange rate between HK Dollars and RMB. This is consistently the case for all the groups of “deposits and transfers” and suggests that the ratios could well be the agreed exchange rates. Again, this cannot be explained by cherry picking the figures appearing on the statements.

40.Fourthly, the source of the RMB transfers is traceable to Mainland accounts either in the name of the appellant or her mother. The Mainland account into which these transfers were made was in the name of Cheuk Yin Mui when it was HK Dollars which were deposited into the appellant’s HSBC account and in the name of Tong Tong when it was US Dollars which were deposited in her account.

41.Fifthly, some of the cheques deposited into the appellant’s HSBC account were in odd figures and coming from different sources, but there were always cash payments either in odd figures or round figures. This strongly suggests that they were top-up payments to make up the total amount required.

42.Sixthly, all the cash payments and cheques deposited into the appellant’s HSBC account were supported by HSBC bank documents while the 5 transfers from the appellant’s account or her mother’s account into designated bank accounts in the Mainland as listed in the Appellant’s Case were also supported by documents.

43.It is clear that far from being of limited evidential value (as the judge seemed to think), these documents strongly support what the appellant said about the underground currency exchange arrangement which she had engaged for some years even before she received the cheque in question. However, they were only referred to generally in the judge’s Reasons for Verdict and it is not clear whether he had undertaken a close analysis of these documents. None of these matters were referred to in the Court of Appeal’s judgment.

The only reasonable inference?

44.For these reasons, we take the view that the judge’s reasons for rejecting the appellant’s evidence cannot be supported. Although he was aware of matters which he considered were in favour of the appellant, it would seem that he had failed to properly assess her evidence or adequately consider the documentary evidence. So did the Court of Appeal. This constitutes a serious departure from accepted norms to the prejudice of the appellant. If the appellant’s evidence and documents were properly and fairly considered, it would have provided compelling grounds for concluding that her explanation as to how she came to receive the cheque in question at least might be true and that would have created a reasonable doubt in the prosecution case. The judge should not have proceeded on the basis that the receipt of the cheque was unexplained. It follows that he could not have concluded that there was an irresistible inference that she had reasonable ground to believe the cheque was the proceeds of an indictable offence.

45.But even if the judge was right to reject the appellant’s evidence, that is, even if the receipt of the cheque was unexplained, we are not satisfied that in the circumstances of this case, the only reasonable inference is that the appellant must have reasonable grounds to believe that the cheque in question represented the proceeds of an indictable offence.

46.In the present case, the prosecution relied only on the receipt of the cheque in question (and not any other deposit or transfer of money) as constituting the dealing with property on the part of the appellant. There was a reference to a sum of $2 million withdrawn and paid to her sister’s account on 6 March but it was not alleged that this formed part of the money laundering exercise. In fact, the appellant could show by her documents that after receipt of the cheque in question, she had lent $4 million to her sister (which included this $2 million) and her sister had since repaid her in full. The judge accepted that “there is nothing in the evidence which is sufficient to disprove this assertion” (para.134 of the RV). In respect of all other transactions appearing in the appellant’s HSBC account, the judge also said that he did not hold that they were not legitimate (para. 135 of the RV).

47.Money laundering usually involves a scheme whereby the proceeds of crime are “laundered” by transforming them into other types of property so that they are clothed with legitimacy and their origin is concealed. This did not seem to have happened in the present case. While this is not something which needs to be proved to substantiate the charge, it is a matter which applying common sense, one would bear in mind when considering all the circumstances of the case.

48.In this case, even if the appellant’s evidence were properly rejected, what was left in the prosecution case was the mere fact that a large sum of money was deposited into the appellant’s bank account by someone unknown to her and that she did not make any enquiry. The situation was certainly unusual but there could be a number of explanations and possible consequences of her inaction. The money might have come to her by mistake and she might be held answerable in a civil action for its return. She might even be liable for prosecution in respect of some other offence(s). However, we do not think that without more, an unexplained receipt points irresistibly to money laundering. We are not satisfied that on the facts as proved, there is sufficient evidence to draw the irresistible inference that she must have had reasonable grounds to believe the money represented the proceeds of crime. Neither the judge nor the Court of Appeal provided any justification for reaching that conclusion.

Conclusion

49.For the reasons given above, this appeal must be allowed and the conviction must be quashed.

Mr Kevin P Zervos, SC, DPP and Mr Edmond Lee SADPP (Ag), of the Department of Justice, for the respondent

Mr Wong Man Kit, SC and Ms Amanda W M Li instructed by Cheung, Fung & Hui, for the appellant