HKSAR v. Pang Hung Fai

CACC 34/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 34 OF 2012

(ON APPEAL FROM DCCC NO. 895 OF 2011)

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BETWEEN

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Before: Hon Tang VP in Chambers

Date of Hearing: 31 May 2012

Date of Decision: 31 May 2012

Date of Handing Down Reasons for Decision: 13 June 2012

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REASONS FOR DECISION

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Background

1.On 17 January 2012 the Applicant was sentenced to 2 years and 6 months' imprisonment and I have granted him bail pending appeal.  He was charged that:

"… on or about the 27^th day of August 2008, in Hong Kong, knowing or having reasonable grounds to believe that property, namely the sum of $14,049,380.00 Hong Kong currency, in whole or in part directly or indirectly represented any person's proceeds of an indictable offence, dealt with the said property."

2.The Applicant is a prosperous business man with 2 factories in the Mainland, employing more than 1,000 workers and a garment factory in Bangladesh, also employing more than 1,000 workers.  Both are profitable.  He also has business premises in Hong Kong with a total area of about 20,000 sq ft, and 50 workers there overseeing his overseas business.  He has known and been friendly with Kwok Wing ("Kwok") for 30 years. Kwok has a factory in the mainland as well as in Cambodia with some 20,000 workers the Applicant had visited.  According to the Applicant, Kwok's business was some 10 times bigger than his, and that Kwok's business Tack Fat became a listed company in Hong Kong in April 2002.  The Applicant's evidence, which was accepted by the learned judge was that he had never heard any suggestion, either from Kwok or anybody else, that there were problems with Kwok's business. 

3.The learned judge said:

"53. As of July 2008, the defendant trusted Kwok, because Kwok's business was doing very well, all the things he purchased were very expensive, an example is Kwok's purchase of the teenage garment brand 'MUD' which cost Kwok US$100 million.

54. Up to that stage, the defendant did not know of anything Kwok had done that was dishonest or dishonourable.  When the defendant heard about the misconduct attributable to Kwok within Tack Fat, he felt very surprised."

4.According to the prosecution and not disputed, this is how Kwok came by the money, the subject of the charge:

"3. On 4^th June 2008 Kwok caused a total of 40 million share options to be granted to 2 mainlanders.  The options were exercised 2 days later by the 2 mainlanders but Tack Fat never received any money for the shares.  Between 16^th June and 29^th July 2008, all 40 million shares in the name of the 2 mainlanders were sold in the stock market.  The defendant had no knowledge of any of the share dealings between Kwok, the 2 mainlanders and Tack Fat.

4. $14,049,380 of the money from the sale of the shares were eventually deposited into the defendant's company bank account on 1^st August.  26 days later, the same amount (less bank charges) was remitted by the defendant to Kwok's company bank account in Cambodia."

5.The learned judge concluded that:

"96. … the only irresistible inference is that Kwok, Guo and Pan had conspired to defraud Tack Fat and its shareholders. …"

6.And that the $14 million odd were part of the proceeds.

7.According to the Applicant, and accepted by the learned judge, this is how the Applicant became involved,

"55. One day in end of July 2008, Kwok called the defendant at his office during ordinary office hours.  It was normal to receive calls from Kwok.  On the phone, Kwok said there were 2 friends in mainland China who were going to return some money to Kwok and asked the defendant to give Kwok the defendant's account number.  Kwok said he will let the defendant keep the money for him.  The defendant then told Kwok to call the defendant's accountant, Ms. Ma (DW1), to get the account number.

56. Kwok did not say where he was calling the defendant from, nor did the defendant notice.  Kwok did not give further details about the 2 mainland friends.  Kwok did not give any information about the nature of the transaction between those 2 mainland friends and Kwok.  The defendant did not ask Kwok about the nature of that transaction.  The defendant explained it was because Kwok said the money would be kept with the defendant for the time being, and because it's not that the defendant was lending money to Kwok, but instead Kwok was putting some money in his place, there was no reason to ask. Besides, Kwok was doing big business.

57. It never occurred to the defendant that the money might have been an illegal transaction or the proceeds were from illegal transactions.  Kwok did not tell the defendant how long the money was to remain with the defendant or under what circumstances.  There was also no indication to the defendant as to where the money might go in the end.  There was no indication of the amount or amounts as to the money that was going to be placed with the defendant, all that Kwok said was it involved 2 sums, each would be several million dollars."

8.The learned judge said he accepted the Applicant's evidence that :

"105. … in the phone call when Kwok first asked the defendant to receive money for him, Kwok said 'there were two friends in mainland China who were going to return some money' to Kwok and asked the defendant to give Kwok the defendant's account number. …"

9.The learned judge convicted the Applicant because he took the view that on the facts the common sense right-thinking member of the community would have had reasonable grounds to believe that the money was the proceeds of an indictable offence.  The learned judge said:

"102. … Although the defendant in his evidence said that he had seen Kwok bought really expensive things and that in the eyes of Kwok $14 million was practically small change, I find that it is not the case with the reasonable person.  It is not the same as $14 or even $1,400 when the reasonable person would think nothing of it.  It is $14 million. …"

10.The learned judge correctly pointed out that what constitutes reasonable grounds depends on the facts of the particular case.  He said:

"29. Because the facts known to the defendant at the material times is relevant to the eventual finding as to whether there were reasonable grounds for a common sense, right-thinking member of the community to believe that the $14 million wholly or in part represented proceeds of an indictable offence, I find it necessary to set out in details the evidence of the defendant that are relevant to the issue."

11.However, when the learned judge came to consider whether the reasonable man had reasonable grounds to believe, he did not attribute to such reasonable man the Applicant's knowledge of Kwok's circumstances, nor that the Applicant had no reason to think or believe that Kwok might be involved in any criminal activity. 

12.The learned judge also found that the Applicant must have been actually suspicious about the source of money or that he had turned a blind eye, because

"… The reason I so find is that it is impossible for anyone to not give any thought to the matter given the huge amount of money.  Not even for someone as well of as the defendant."

Discussion[1]

13.Under section 25 of the Organized and Serious Crimes Ordinance (Cap 455) ("OSCO"),

"… a person commits an offence if, knowing or having reasonable grounds to believe that any property … represents any person's proceeds of an indictable offence, he deals with that property."

14.This is a powerful and valuable weapon against organized and serious crimes.  Naturally, it will be handled with care and collateral damage must be avoided. 

15.The first limb of the offence requires knowledge and presents little difficulty.  The second limb where "reasonable grounds to believe" is sufficient, is less straightforward.  In many cases, the facts are clear cut and they show that a defendant not only has reasonable grounds to believe, he actually believed that the property which he handled represented the proceeds of an indictable offence[2]. HKSAR v Ma Zhujiang and Anor [2007] 4 HKLRD 285 makes it clear that a defendant does not have to believe that the property was the proceeds of an indictable offence, it is sufficient that the defendant had reasonable grounds for such belief.  Also in HKSAR v Lung Yun Ngan and Anor (CACC 482/2010, 24 May 2011, Hartmann JA (giving the judgment of the court (Hartmann JA, Kwan JA and A Cheung J (as he then was)) told us that:

"56. … the test, hypothetical in nature, requires that the ‘reasonable man’ knows what the defendant knows subject of course to the fact that the ‘reasonable man’ fashions his actions in the light of that knowledge in a manner that, in the present case, a ‘common sense, right-thinking member of the community’ would do. …"

16.It is said that even if a defendant honestly and reasonably believes that the property he handled was not the proceeds of an indictable offence, and that his belief is in fact correct, he is guilty if there are reasonable grounds so to believe and that he was aware of such reasonable grounds.  It is also said that provided there are reasonable grounds for the relevant belief it is irrelevant that there are also reasonable grounds which would support a different (and correct) belief.

17.Section 25 of OSCO may be compared with section 25 of Drug Trafficking (Recovery Of Proceeds) Ordinance (Cap 405).  An important point to note for the present purpose is that section 25 Cap 405 requires reasonable grounds to believe that the property represents a person's proceeds of drug trafficking.  Lord Woolf said the required

"… mental element, is that the defendant should know or have reasonable grounds to believe that the relevant person is connected with drug trafficking. …"  AG of Hong Kong v Lee Kwong Kut and Ors [1993] AC 951 at 964H.  [My emphasis]

18.Section 25 of OSCO is not narrowly focused, it requires

"… reasonable grounds to believe … proceeds of an indictable offence …". [My emphasis]

19.I believe little use is now made of section 25 Cap 405 because of the perception that it is easier to secure a conviction under section 25 OSCO.  If so, it is especially important to be careful not to confuse "suspicion" for "reasonable grounds to believe", or to disconnect "reasonable ground to believe" from an indictable offence.  It seems to be thought the fact the relevant person was connected with an indictable offence is an unnecessary detail.  In the present case, although the prosecution had endeavoured to show that the money was the proceeds of a fraud on the listed company controlled by Kwok, it did not appear to be considered relevant to ask whether there were any reasonable ground to believe that the money was the proceeds of such a crime.  It seems to be thought that even if there was no reasonable ground to believe that Kwok was defrauding his company, the defendant could be convicted if it is "proved"[3] that there were reasonable grounds to believe the property might have been the proceeds of any indictable offence.

20.The reasons given by Chan PJ for the Court of Final Appeal in HKSAR v Yan Suiling FACC 6/2011 (unreported, dated 30 March 2012) provide guidance. 

"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."

21.In Yan Suiling the Court of Final Appeal overturned the conviction of the appellant in which:

"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.

……

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)."

22.There, the trial judge considered the appellant's evidence to be unreasonable and unbelievable, and gave two broad reasons for rejecting her evidence.  In that connection, Chan PJ said:

"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."

23.Yan Suiling appears to support the view that if one accepts a defendant's explanation[4] that he had:

"… no reason for (him) to make enquiry and (he) had no reasonable grounds to believe that the payment (he) received was the proceeds of crime."  

he was entitled to be acquitted.

24.Mr Andrew Bruce, SC, leading Mr B. K. Ho and Mr Nelson Lam, for the Applicant, informed me that on the hearing of the application for leave to appeal, the Applicant will be represented by leading counsel from London.  I welcome that.  This case presents a good opportunity for the court to examine the true ambits of section 25. 

25.I am satisfied that the Applicant's appeal has reasonable prospect of success.  Not least because I believe the reasons the learned judge gave for holding that the Applicant was actually suspicious or had turned a blind eye, may, on examination, be shown to be inconsistent with the view expressed by Chan PJ quoted in para 20 above.

26.I am satisfied that the risk of the Applicant absconding is low.  I do not believe he would prefer the life of a fugitive to serving the remainder (just over a year) of his sentence.  To deny him bail means that although he has reasonable prospect of success on appeal, he would have served a substantial part of his sentence by the time his appeal is heard.

Mr. Andrew Bruce, SC, Mr. B. K. Ho & Mr. Nelson Lam instructed by King & Co. for the Applicant

Mr. Raymond Cheng, SPP of Department of Justice for the Respondent