HKSAR v. Lau Hon Keung

CACC 426/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 426 OF 2011

(ON APPEAL FROM DCCC NO. 1280 OF 2005)

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BETWEEN

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Before: Hon Cheung CJHC, Yuen JA and McWalters J in Court

Date of Hearing: 21 August 2012

Date of Judgment: 8 November 2012

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JUDGMENT

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Hon McWalters J (giving the judgment of the court):

Introduction

1.At the conclusion of the hearing of the application for leave to appeal we reserved our decision.  This is our judgment.

2.On 20 September 2011, the applicant was convicted by District Court Judge S. D’Almada Remedios of two counts of dealing with property knowing or having reasonable grounds to believe represented the proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crime Ordinance (Cap 455)(“OSCO”). Charge 1 alleges that the applicant dealt with $9,366,642.11 between 21 October 2004 and 13 June 2005.  Charge 2 alleges that the applicant dealt with $8,087,939.87 between 28 October 2004 and 13 June 2005.  On 21 September 2011, he was sentenced to 2 years imprisonment on each count to be served concurrently.

3.The applicant seeks leave to appeal these convictions.

The Prosecution Case

4.The charges concern funds that were generated by two sauna massage businesses known as Temple Street Sauna (TSS) and New Crystal Spa (NCS) which were operated by Brilliant Day Limited (“Brilliant Day”) and Goldkeep Development Limited (“Goldkeep”) respectively.

Proof of vice activity

5.On 16 November 2004, two undercover police officers separately visited NCS.  The staff of NCS approached and offered each of them sexual services.

6.On 13 June 2005， the Police raided NCS and seized from the masseuses’ restroom large quantities of opened boxes and packets of condoms.

7.On the same day, the Police raided TSS.  Eighteen masseuses were on the premises and sixteen of them were found to be in possession of unused condoms.  A total of 467 unused condoms were found.  Most of the masseuses had condoms in both their working bags and in their lockers.  Sixteen of the masseuses were found to be in possession of lubricant jelly and most of them had lubricant jelly in their working bags.  A rubbish bag containing used tissue papers were found immediately outside the premises. There were also found at the reception a notebook entitled “Customers’ Complaint Book” which kept a record of complaint by customers for poor sexual services, and another notebook entitled “Happy Happy Events Book” which kept a record of the menstrual cycles of the masseuses.  Open packets of condoms were also found in a rubbish bin immediately outside the fire exit.

8.The prosecution was also able to prove that there were links between the two businesses.  Surveillance cameras on the premises of TSS could be accessed by the computer in the manager's office at NCS and surveillance cameras on the premises of NCS could be accessed by computer in the manager's office at TSS.  Furthermore Brilliant Day’s cheque book was found in Goldkeep’s office and documents seized from NCS referred to salaries and tips at both NCS and TSS.

9.It was the prosecution's case that the two sauna massage businesses offered sexual services to their customers and thus the funds deposited into their bank accounts represented in whole or in part directly or indirectly the proceeds of vice activities.  The prosecution alleged that the applicant dealt with the funds in the bank accounts knowing or having reasonable grounds to believe that they represented the proceeds from sexual services offered at the premises of the two sauna massage businesses.

10.The prosecution called the two undercover officers and a member of the police raiding party to prove that the two sauna massage businesses were being run as vice establishments.  In addition there were admitted facts and documentary exhibits.

11.It can be readily seen that there was an abundance of evidence to prove that the premises of the two sauna massage businesses were in fact being operated as vice establishments and, for the purpose of the appeal, counsel for the applicant did not contend otherwise.

Proof of the applicant’s mens rea

12.There was no dispute that the applicant in fact dealt with the proceeds of the sauna massage businesses.  That was, after all, precisely what, on his case, he was employed to do.  The question then became, what evidence was there to show that he knew or had reasonable grounds to believe that the monies with which he was dealing, ie the funds generated by these two businesses, were the proceeds of an indictable offence.

13.The answer to this question is that there was no direct evidence that the applicant knew that the sauna massage businesses were being operated as vice establishments.  Proof of this element of the offence could only be by inference and the primary facts from which the prosecution invited the court to draw this inference all related to the role of the applicant vis-à-vis the companies that operated these businesses and the businesses themselves - his duties in respect of them, the powers given to him to carry out these duties and his actual actions in doing so.

14.A bank account for Brilliant Day was opened at Bank of East Asia in April 2003 and the applicant and two others were signatories to it.  Eighteen months later on 21 October 2004, that was changed and the two others were removed and another person by the name of Lau Ming Shum was added.  A similar situation occurred with the Goldkeep account that was opened with the DBS bank in February 2004. The applicant and one other were the authorized signatories of this account but on 28 October of that year the other signatory was replaced by Lau Ming Shum.

15.Notwithstanding that there was another signatory to these two accounts it is clear that the operation of the accounts was dominated by the applicant. It was an admitted fact that in the period 21 October 2004 to 13 June 2005 an amount of $9,819,552.22 was withdrawn from Brilliant Day’s BEA account by means of 1,455 cheques and it was the applicant who signed 949 of them and these 949 cheques amounted to $9,584,154.88.  None of the other cheques exceeded $2,000 in value.  In the same period the applicant withdrew $974,147.50 by way of cash cheques.

16.The position was similar with respect to Goldkeep’s DBS account.  Between 28 October 2004 and 13 June 2005 the applicant was the sole signatory on 762 cheques amounting to $7,933,658.27 in value that were part of total withdrawals of $8,400,114.01.  In the same period the applicant withdrew the sum of $379,628.50 by way of cash cheques from the Goldkeep account.

17.In this period neither Brilliant Day nor Goldkeep filed any tax return with the Inland Revenue Department; neither reported the applicant to the Department as an employee and the applicant did not disclose any income from either of these companies in his personal tax return for this period.

The Defence Case

18.The defence case was that the applicant was a mere employee of the two companies and was assigned with the single task of signing cheques in respect of payments out from the funds in the bank accounts.  Within the charge periods, he was neither a director nor shareholder of either companyand there was no evidence to show that he was part of the management or the person in charge of either of the two massage businesses.  He was only an employee on a wage similar to his colleagues and worked from an accounting office at a separate location.  It was asserted that the mere fact that the applicant handled such proceeds could not prove that the applicant either knew or had reasonable grounds to believe that they were generated by vice activities.

19.The evidence that the applicant was a “mere employee” was an inference that the defence asked the District Judge to draw as the applicant elected not to testify and did not call any defence witness.  This inference, it was submitted, was one that could reasonably be drawn from the primary fact that on 11 occasions Brilliant Day paid $5,000 to the applicant.  This occurred in November 2004 (1 payment); December 2004 (2 payments), January 2005 (1 payment); February 2005 (1 payment) and March - May 2005 (2 payments in each month).  The fact of, and regularity of, these payments, the consistency of the amount of the payments, the dates of the payments and the presence of the Chinese character “choi” on some of them were relied on for the purpose of persuading the judge to draw this inference.  Apart from these payments, there was no other evidence of any other monies being paid to the applicant for his personal benefit.

20.There was no evidence that the applicant had ever visited the premises of either sauna massage business and there was no proof of the applicant's attendance in the massage area at either of the premises or the masseuses’ restroom at NCS where the condoms and lubricants were found.  This, it was said, meant that no inference could reasonably be drawn that he knew of the presence of these items on the premises or of the vice activities taking place at them.  Thus it followed that all the evidence adduced by the prosecution to prove the predicate offence, such as the discovery of condoms and lubricants from the masseuses themselves and/or from their lockers, was not relevant to proof of the mens rea of the offence.

21.A reasonable person, it was said, would not conclude beyond reasonable doubt that the facts known to the applicant were sufficient to lead such a person to believe that the proceeds from the two establishments were generated by vice activities.

The Submission of No Case To Answer

22.In submitting that the applicant had no case to answer counsel argued on his behalf that the prosecution had failed to prove that in the charge period the two sauna massage businesses were being kept or managed as vice establishments and that the evidence did not prove the mens rea element of the offence.

23.For the purposes of this appeal the applicant no longer contends that there was no case for him to answer in respect of the prosecution proving that the premises of the two sauna massage businesses were in fact being kept as vice establishments.

24.The judge found a case to answer, there was no defence case and so counsel made their closing speeches.  The judge did not give reasons for finding a case to answer but these are apparent from her Reasons for Verdict.

The Reasons for Verdict

25.The judge identified three issues as central to the case.  The first issue was the credibility of the prosecution witnesses.  The judge found their evidence to be honest and reliable notwithstanding that searching cross-examination by defence counsel brought out some matters of concern.

26.The second issue was whether the sauna massage businesses operated as vice establishments ie did they provide sexual services to their customers during the period particularised in the charges?  The judge found that they did.

27.The third issue was whether the applicant knew or had reasonable grounds to believe that at least part of the money he dealt with were proceeds from the sexual services offered at the premises of these businesses.  As it is only this third issue that is being challenged on appeal we shall set out her reasons only on this issue.

28.Nevertheless it is crucial to an understanding of the judge’s reasons for convicting the applicant, to appreciate that the evidence of the operation of the premises of the two businesses as vice establishments provided an important contextual backdrop for the judge when she came to deciding what inferences she could draw relevant to the mens rea element of the offence.  In this respect it must be noted that she did not find that sexual activity was engaged in as an occasional sideline by a few rogue masseuses but rather that it was “rampant” at the premises.

29.Next she turned to the applicant’s role in the companies that operated these massage businesses and made a finding that, given the powers he had over the monies generated by the businesses and given the heavy involvement by him in their financial affairs he was far from being a mere employee tasked with relatively menial duties but was in fact a part of the core management of them.

30.Having rejected the defence position that the applicant’s relationship with the companies was as a mere employee of them, the trial judge turned to consider what the evidence did reveal of his association with them.

31.In considering what the applicant’s core management role might involve the trial judge took into account a number of matters amongst which were the fact that the applicant had a previous association, in an operational way, with entertainment businesses in the Mongkok area.  She concluded that in order to properly perform his core management role in respect of the massage businesses there must have been occasions he visited their premises.

32.When it came to standing back and looking at the evidence as a whole the trial judge concluded that she was satisfied beyond reasonable doubt that when the applicant dealt with the incomes of these businesses “he knew or at least had reasonable grounds to believe that they were proceeds of an indictable offence”.

The Amended Perfected Grounds of Appeal

33.There are four grounds of appeal:

(i) the judge erred in law in finding that the applicant had a case to answer;

(ii) the judge erred in drawing inferences against the applicant;

(iii) the judge erred in law in failing to distinguish and to apply properly the separate tests of whether the applicant knew or had reasonable grounds to believe that the money with which he dealt was the proceeds of an indictable offence; and

(iv) in all the circumstances, the convictions of the applicant are unsafe and unsatisfactory.

34.Ground 1 is linked to Grounds 2 and 3 as the applicant submitted that had the judge not committed the errors particularised in Grounds 2 and 3 she would have found no case to answer.

Discussion

Ground 1:  Case to answer

35.One of the key issues at trial and the only factual issue on appeal is whether the evidence adduced by the prosecution, together with such inferences as might be available from it, was capable of establishing beyond reasonable doubt the element of the applicant “knowing or having reasonable grounds to believe [the property with which he dealt] represented the proceeds of an indictable offence”.  The District Judge found this element proven and so in attacking the sufficiency of evidence on this issue the applicant also attacks the judge’s reasoning, the inferences she drew and the directions she gave herself.  These are all the subject of the second ground of appeal.  Clearly if the District Judge was correct in drawing the inference she did and reaching the conclusion that she did in respect of the mens rea element of the offence then it follows that she would not have been in error in finding a case to answer.  We shall, therefore, address Grounds 2 - 4 first and return to Ground 1 only if necessary to do so.

Ground 2:  Improper Inference

36.In the second ground of appeal the applicant argues that the judge erroneously drew a number of inferences which contributed to her drawing the ultimate inference that the applicant knew or had reasonable grounds to believe that the money he dealt with came from vice activity.

37.Ground 2 effectively complains about the inferences the judge drew in respect of the applicant’s:

(i) physical association with the premises of the two businesses (Ground 2(a) and (f));

(ii) knowledge of the two businesses being used for the purpose of vice activity (Ground 2(b) and (i));

(iii) position in the management of the two businesses (Ground 2(e) and (h)), including that he was not a mere employee of the companies that operated these businesses (Ground 2(c) and (d); and

(iv) state of mind in respect of the money generated by the two businesses (Ground 2(g) and (j)).

38.When drawing inferences of fact which contribute to the drawing of the ultimate inference of guilt, a judge should adopt a holistic view of the evidence and consider its totality as a whole.  In such a situation the judge is not necessarily required to determine whether each individual piece of primary fact on which the inference is based has been proven beyond reasonable doubt.  Rather, the totality of the evidence should be considered in determining whether an inference of guilt can be drawn.

39.The correct approach is set out in HKSAR v Au Hau Ching CACC 146/2008, where Wright Jin giving the judgment of the  Court of Appeal said at pages 8A - 9E:

“16. We are unpersuaded that the course suggested by Mr Macrae would have been the proper one for the judge to have followed. We do not suggest that there is no need for a judge to consider individual aspects of the evidence and how it may impact on the overall result but it is far from uncommon to find, when standing back and looking at the evidence in the round, that the sum is greater than the whole of its parts: this is particularly true where the prosecution presents circumstantial evidence from which the judge is required to draw an inference or inferences. The judge’s approach was, in our opinion, the only appropriate course.

17. Judges are urged too often on behalf of an accused person to consider the different facets of evidence in isolation one from the other: this is an unrealistic approach for it is the duty of the judge to determine whether the prosecution has discharged the onus on it, to the requisite standard, on the totality of the evidence before him.

18. We adopt what was said by McHugh J in the decision of the High Court of Australia in Shepherd v R [1990] 170 C.L.R. 573 at 592:

“If an inference of guilt is open on the evidence, the question for the jury is whether the inference has been proved beyond reasonable doubt - not whether any particular act has been proved beyond reasonable doubt.”

and, at 593:

“The cogency of the inference of guilt is derived from the cumulative weight of circumstances, not the quality of proof of each circumstance.

In a particular case, an inference of guilt beyond reasonable doubt may not be able to be drawn unless each fact relied on to found the inference is established beyond reasonable doubt. This is likely to be the case where the incriminating facts relied on to establish the inference are few in number. But the more facts that are relied to found the inference of guilt, the less likely it is that each or any fact will have to be proved beyond reasonable doubt to establish guilt beyond reasonable doubt. Consequently, even when guilt beyond reasonable doubt cannot be inferred unless certain facts are proved, it may still be open to infer guilt beyond reasonable doubt even though each fact is not proved to that standard.” (Emphasis added)

40.The defence position at trial, and as initially advanced on appeal, had more than a touch of unreality to it.  That position assumed a number of matters as the background or context against which the drawing of inferences should be made.  They were:

(i) the two sauna massage businesses were perfectly legitimate businesses where, unknown to management, a few rogue employees were offering sexual services as a sideline to the legitimate massage services they were engaged to provide; and

(ii) the applicant was only a mere employee of these businesses, and a fairly low-ranking one at that, whose duties were limited to just signing a few cheques.

41.But the judge declined to draw these inferences.  Instead, standing back and looking at the evidence as a whole, she had no difficulty in finding that:

(i) vice activity was rampant at the business; and

(ii) the applicant was senior or core management within these businesses.

42.Given the evidence in the case it is hardly surprising that she made both of these findings.  In fact the first finding is no longer being challenged by the applicant.  It is therefore unnecessary to review the finding of vice activity being rampant but, as we have already emphasized, it was an important contextual element which clearly informed the District Judge’s decisions when she came to the drawing of inferences.  In this respect it is worth noting that the evidence clearly established that this rampant vice activity was known to and regulated by those involved in the management of the businesses on a daily basis.  For example, as previously mentioned, there was evidence that management kept a register that recorded the menstrual cycles of all the masseuses.  There is no doubt that the prosecution had proven that these premises were vice establishments masquerading as legitimate sauna businesses.

43.In respect of the second finding Mr Marash relied on the evidence of payments by Brilliant Day on eleven separate occasions of $5,000 as allowing of an inference that:

(i) these payments were salary;

(ii) as salary they showed the applicant was a “mere employee”; and

(iii) given the duties of the applicant he was not a very high‑ranking employee of the organisation.

44.Given the duties of the applicant, the unlimited powers entrusted to him to carry out these duties, the fact that he was never listed as an employee of either establishment with the Inland Revenue Department and the fact that he never disclosed in his tax return that he was employed by either establishment, it is not surprising that the District Judge declined to draw the inference that these payments were salary and that the applicant was just a mere employee of the massage businesses.  It must also be remembered that in considering this question the trial judge did not enjoy the advantage of having any evidence from the applicant on his status within the businesses or the reason for the payments to him.

45.In respect of this second finding we note that Mr Marash conceded on appeal that the inference that the applicant occupied a senior management position within the businesses, effectively as the Chief Financial Controller of them, was one that was available to the judge on the evidence.  However, he continued to maintain that the applicant’s purely financial management role would not have provided him with any knowledge of the operational aspects of these businesses.

46.So if the applicant was not a “mere employee” of the two companies, what did the evidence reveal of his association with them and with the two massage businesses that they operated?  The applicant had, in the early days of Goldkeep, been a shareholder of it, indicating a position of ownership of it as opposed to being “a mere employee” of it.  The duties he performed for Brilliant Day and Goldkeep were effectively those of a financial controller – but not just any financial controller.  He was a financial controller with total and absolute access to and control over the financial affairs of the two companies.  There were no limitations on his powers and he acted in relation to the financial affairs of the companies as though he was their owner and this extended to withdrawing large amounts of cash from time to time.  He was no mere bookkeeper engaged to sign a few cheques and pay a few bills as Mr Marash sought to portray him at trial.

47.There were also the facts that the applicant was not listed as an employee, shareholder, director or occupant of any post or formal position within the companies; was not reported by the two companies to the Inland Revenue Department as its employee and the applicant himself did not report the receipt of any income from these companies in his own tax return, but did report income from three other entertainment businesses that he managed.  The fact that a person of such importance to the companies and the businesses they operated, at least in terms of their financial administration, was rendered invisible was seen by the District Judge as a deliberate attempt to conceal the applicant’s involvement with them.  That was an inference she was entitled to draw.  Such an inference however goes beyond showing just that the applicant was no mere employee; it, together with the other evidence, allows of the further inference that the applicant effected this concealment because he knew that the saunas were engaged in illegal activity.

48.As previously mentioned the judge also analysed the evidence in order to see if there was anything that pointed to him being involved in or associated with the operational side of the businesses.  Firstly, she examined his background.  There was no evidence that he was by training and employment history an accountant or bookkeeper who provided financial administration services to persons in need of them.  What was known about his background is that he was the manager of three entertainment premises - two nightclubs (one of which he was also the sole proprietor) and a foot massage sauna.  One of the nightclubs was in the same area (Jordan/Mongkok District) as the two sauna massage businesses.  The judge found it unlikely that a person of such a background would confine his involvement in businesses that generated such large amounts of money as these two massage businesses to sitting in an off-premises office and signing a few cheques.

49.Secondly, there was the fact that the applicant withdrew almost all the funds from the bank accounts; thirdly, the cheque books of which he was the effective sole signatory were kept at the Goldkeep office opposite to TSS; fourthly, the applicant's phone number appeared on the contact list at the reception desk of TSS; and fifthly the monthly bank statements for both companies were posted to the sauna premises.  On this evidence it was reasonably open to her to draw the inference that the applicant must have made regular visits to the sauna premises as a normal part of performing his core management duties.

50.In concluding that the mens rea element of the offence had been proven she was drawing an inference based upon the findings she had made in respect of the applicant’s position within the companies, the likely contact he would have had with the premises as a result of that position and the likely knowledge of the sauna massage businesses’ affairs that he would have acquired as a result of that position.  In drawing these inferences the judge did so against the background that:

“…. sexual activities were prevalent and rampant in both premises and that such activities were permitted and known by the management and or by persons in charge that is the defendant.”

Standing back and taking the evidence in the round, it was open to the judge to draw the inference of guilt and convict the applicant.

51.Ground 2 is therefore rejected.

Ground 3:  Knowing or having reasonable grounds to believe

52.This ground of appeal complains that the trial judge, in her Reasons for Verdict, did not identify on which of the two mens rea limbs she based her convictions and insofar as she relied on the second limb, which the applicant suggests it appears she did, she did not properly explain in her Reasons how the objective and subjective elements of this limb were satisfied.

53.The mens rearequirement for Section 25(1) has two limbs: “knowing” and “having reasonable grounds to believe”.  The legislative and legal history of this phrase is clearly set out in the decision of this Court in HKSAR v Ma Zhujiang [2007] 4 HKLRD 285 which was predominantly concerned with the construction of the second limb.  In this case this Court adopted and applied to section 25(1) of OSCO the construction of an identical phrase in section 25(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 by this Court in HKSAR v Shing Siu Ming [1999] 2 HKC 818.  Mayo JA in delivering the judgment of the Court said at page 825 H:

“This phrase, we are satisfied, contains subjective and objective elements. In our view it requires proof that there were grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to believe that the person being assisted was a drug trafficker or had benefited therefrom. That is the objective element. It must also be proved that those grounds were known to the defendant. That is the subject element.”

54.The Court went on to say that this mens rea limb, as so construed, did not require proof that the defendant actually believed that the property with which he dealt was the proceeds of drug trafficking.  Thus even if a defendant does not hold the actual belief that the property in question constitutes the proceeds of an indictable offence, the necessary mental element can still exist as long as it is proven that he knows of the grounds upon which such belief is objectively and reasonably based.[1]

55.In respect of the first limb of knowing the property was the proceeds of an indictable offence, the Court of Final Appeal said in Oei Hengky Wiryo v HKSAR (No. 2) (2007) 10 HKCFAR 98 at pages 136 G - 137 B, paragraph 106:

“There is considerable force in Mr Caplan QC’s submission - invoking Lord Hope’s reasoning - that “one cannot know that property represents any person’s proceeds of an indictable offence” unless it does represent it …… Moreover, in practice, it is likely that the first limb of s. 25(1) - the “knowing” limb - can seldom be used unless the prosecution proves that the property did in fact represent a person’s proceeds of an indictable offence.”

56.In order to evaluate the complaint underlying this ground of appeal it is necessary to trace the comments of the prosecutor and defence counsel on this aspect of his case.  In order to understand those comments it is also necessary to bear in mind that the applicant had previously been tried and acquitted of a charge of conspiracy to keep a vice establishment, namely the premises of these sauna massage businesses, which were the source of the monies that he was now on trial for laundering.

57.Starting with the opening address of the prosecutor it is clear that he never presented his case as being confined to only one of the two limbs.  He concluded his opening address with the following comments:

“19. As to the Defendant’s involvement, from the banking evidence, it can be seen that the Defendant has almost exclusive control of the income and the funds going out of the two establishments’ accounts. Being the sole signatory of hundreds of cheques to a total value of millions of dollars, and having personally withdrawn a total of almost $1.4 million cash, the only reasonable inference is that he was part of the management of the two establishments and he must be aware of what was being conducted in them to generate the income and/or expenditures.

20. On that basis, and in the absence of evidence to the contrary, the prosecution says that there were reasonable grounds for the Defendant to believe that the income of the two companies were proceeds of an indictable offence.” (Emphasis added)

58.What can be ascertained from these opening comments is that the prosecution was alleging that:

(i) the applicant can be inferred as having had a role in the management of these sauna businesses;

(ii) as a consequence of his management role he must have been aware that vice activity was taking place in the course of their operation (ie he knew - the “knowing” limb); and

(iii) his involvement in management and his awareness of what was going on provided the applicant with reasonable grounds to believe that the income generated by the two businesses were the proceeds of an indictable offence (ie the second limb of the mens rea element of the offence).

59.What the prosecutor appears to be saying is that the reasonable grounds to believe flow from or are constituted by the same matters that vest the applicant with knowledge of the source of the monies with which he dealt.

60.As is well established in the case law the prosecution does not have to prove the predicate offence and that the monies that were dealt with were in fact the proceeds of an indictable offence.  Indeed the reality may be that the money launderer has no knowledge of the source of the monies, only reasonable grounds to believe that they are the proceeds of an indictable offence.  Even in respect of those reasonable grounds to believe it matters not that the money launderer is completely mistaken in his belief and that there is no illegality surrounding the source of the money.

61.But here the prosecutor chose to prove the predicate offence and then adduced circumstantial evidence all of which went to linking the applicant to an involvement in the commission of that offence.  Notwithstanding the prosecutor’s intention to rely on both mens rea limbs this prosecution bore all the hallmarks of a prosecution under the first limb, the “knowing” limb, of the mens rea element of the section 25(1) offence.

62.That this trial was not the kind of factual scenario typical of second limb mens rea cases appears to have been recognized early in the trial. In the course of Mr Marash replying on his submission of no case to answer the following exchange took place with the trial judge:

“Mr Marash: …. It’s all very well for my learned friend to say that they don’t have to prove that the money came from vice activities, they don’t, but that’s their case and there is no other case. They’re not saying “This is a case of unexplained money that came from”, like that case where I think the fellow said “Can I just put some money in your bank account” and the chap didn’t ask any questions.

Court: That’s why I, in the beginning of this trial, this is a very different type of case ….

Mr Marash: This very different type of case, yes.

Court: …. than the usual money laundering type of case where ….

Mr Marash:  Yam Ho Keung’s got nothing to do with this case, nothing at all.  This is a case where they say he knew or a person looking at the facts that he knew would have reason to believe this money came from vice activities, not from drug trafficking or trafficking in women or ….”

63.Thus it is clear that, by this time, everyone was aware, or should have been aware, that this was a money laundering trial where the prosecution was proving the predicate offence and the applicant’s involvement in it, precisely in order to prove the mens rea element of the offence.  In this situation the relevant limb of the mens rea element is the “knowing” limb but the prosecutor appears to have adopted a strategy of relying on both limbs.

64.Of course the involvement of the applicant in the commission of the predicate offence was alleged by the prosecutor to be in the form of an unspecified, senior management role in the sauna massage businesses.  This appears to have come as a surprise to Mr Marash who, at the beginning of his no case submission stated his understanding of the prosecution case on mens rea. He said:

“It is not the prosecution case that because the defendants signed cheques on the two bank accounts relating to Temple Street and New Crystal Spa he was management. The prosecution case, as we perceive it, is that the defendant either believed that that the proceeds in the two bank accounts came from the activities in the two vice establishments knowing that that’s what they were or a reasonable man, knowing what the defendant knew at the time he dealt with the money in the two bank accounts, would have reason to believe that it came from vice activities, to use the loose phrase, in other words a vice establishment.”

65.Mr Marash appears to have thought that the applicant’s acquittal of the charge of conspiracy to keep a vice establishment would prevent the prosecution in this trial from asserting that the applicant had a management role in the running of the two businesses.  The following exchange took place between Mr Marash and Mr Wong for the prosecution in the course of Mr Wong responding to the no case submission:

“Mr Wong: …. We most certainly are saying that he’s part of the management and in that sense, therefore, he’s managing them but its not the same as saying that the prosecution therefore would have to prove that he was a manager for the offence of keeping or managing a vice establishment, its an entirely different test, if I am making myself clear there, your Honour ….

Mr Marash: What Mr Newman Wong told the court. He said “Our case is there were reasonable grounds”, not that he knew but we’re relying on the reasonable grounds test. And secondly, he’s been acquitted of the charge of conspiracy to manage the premises so I don’t know how Mr Wong can stand there now and tell you that’s his case.

Mr Wong: That’s our case, yes, we say he had grounds to believe.

Mr Marash: Exactly, that’s why I wrote those thing.

Mr Wong: Yes.

Mr Marash: You’re not saying he managed the premises.

Mr Wong: Well he’s part of the management.

Mr Marash: But he’s been acquitted.

Mr Wong: He’s part of the management we still say ….”

66.Notwithstanding that Mr Marash appears to have thought this was a shifting of ground by the prosecution he did not make any real complaint about it until he came to his closing address.  By then the prosecutor had firmed up on his stance that the applicant was part of the “core management” of the businesses and as such must have known, or at least had reasonable grounds to believe that the monies from the two businesses were the proceeds of vice activities.  In his closing address Mr Wong said:

“The prosecution further submits that as the core management the only reasonable inference is that the defendant knew of the operation of Temple Street Sauna and thus knew, or at least had reasonable grounds to believe that such income of Temple Street Sauna in whole or in part, directly or indirectly, represented the proceeds of the vice activities which were so rampant at the sauna.”

He made the same submission in respect of NCS.

67.In his closing address Mr Marash attacked the prosecutor’s reliance on his assertion that the applicant was part of core management.  He said:

“I want your Honour to focus on knowledge because if you look at my learned friend’s closing you’ll see over and over again, “He must have known. He must have known. He must have known. Why must he have known? Because he is core management”. You’ll see that phrase “Core management - core management - core management”.

Now, my learned friend has got a problem.  The defendant was charged in a previous trial based on the same evidence minus, as you know, one undercover officer otherwise the evidence was the same largely.  He was charged with - and I’ll read it to you, your Honour - “Conspiracy to keep a vice establishment contrary to section 139(1)(a), 159A and 159C of the Crimes Ordinance.  And the particular of that charge read “Lau Hon-keung …”

After an exchange with the judge he continued:

“Now, given that acquittal we don’t believe the prosecution are in a position to say that he is core management. Because if he’s core management and he’s been acquitted of conspiracy to keep on the same evidence, he’s effectively been acquitted of that charge. What the prosecution could say is somebody else was keeping or managing the premises and the defendant knew that they were being managed as vice establishments and dealt with the money. That would be a legitimate way to approach the case. That’s the way I understood the case was being approached before my learned friend filed his second opening address, that was the first time he had alleged that he was part of the core management.”

68.Nothing was said by the trial judge in response to this submission by Mr Marash.  Later in his closing address Mr Marash repeated this point, saying:

“Your Honour, we go back to this allegation of core management which we say is improper given the acquittal but let’s deal with it.”

Mr Marash then went on to submit why, on the evidence, a finding that the applicant was core management was one that the trial judge should not make.

69.Beyond these statements no arguments took place on whether, as a matter of law, given the applicant’s acquittal of the offence of conspiracy to keep a vice establishment, the prosecution was entitled to seek a conviction of the money laundering offence on a finding that the applicant was part of the core management of these businesses.  Nor did Mr Marash seek the recall of any prosecution witness or an adjournment to consider his position in respect of what he perceived as a variation in the prosecution position on mens rea.  As Mr Marash did not formulate his objection in legal terms, whether as an argument based on autrefois acquit or an abuse of process, the judge did not rule on it and seems to have ignored it.

70.Likewise on this appeal the applicant has not sought to argue that the District Judge could not, by virtue of the applicant’s previous acquittal, rely on inferences she may draw as to the applicant’s involvement in the management of the sauna massage businesses in determining his guilt or innocence of the money laundering charge.  Perhaps this is not surprising since the offence of which he was acquitted was not a substantive offence but a conspiracy offence and it was not in respect of managing a vice establishment but rather of the alternative of keeping a vice establishment.

71.Be that as it may, since Mr Marash did not pursue on appeal his argument that the prosecution could not rely on the management role of the applicant in the sauna massage businesses for the purpose of proving the mens rea element of the charge it has no relevance now other than to shed light on how the prosecution case on mens rea developed in the course of the trial and to understand the points counsel were making on this issue.

72.There is no legal impediment to the prosecution relying on both limbs as it did here.  Much will depend on the circumstances of each case.  In Seng Yuet Fong v HKSAR [1999] 2 HKC 833 the Appeal Committee of the Court of Final Appeal explained how the mens rea element operated in respect of an applicant who was appealing her conviction for money laundering under section 25(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 and who was the sister of D1 who was convicted of drug trafficking, in the same trial.  It said at page 836 C - E:

“If the applicant knew that D1 had carried on drug trafficking or had benefited from drug trafficking, then of course the crime was complete. What if the evidence did not go as far as to establish positively that she knew (such as, for example, by proof of her involvement in his drug trafficking, or by admission that she knew), but it was established that she had reasonable grounds for believing that D1 was so involved? The answer quite simply is that in terms of s 25(1)(a), she was equally guilty, unless she was able to show, on a balance of probabilities, that she did not know or suspect that the remittances to her account related to proceeds of drug trafficking: s 25(4)(a), or that she did not know or suspect that, by such arrangement, the retention or control of such proceeds by D1 was facilitated: s 25(4)(b). To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.”

73.The approach taken by the prosecutor in this case was:

(i) prove the predicate offence to show that the income from these two businesses was in fact the proceeds of an indictable offence;

(ii) in proving the predicate offence also seek to prove that the applicant had an involvement in its commission and ask the court to infer that by virtue of that involvement the applicant knew that the property with which he dealt was the proceeds of an indictable offence; and

(iii) alternatively, argue that even if the court cannot infer knowledge (because, for example, the applicant’s acts of involvement with the predicate offence were not sufficiently inculpatory) then the court can nevertheless find that there exists reasonable grounds that a common sense right-thinking member of the community would consider were sufficient to lead a person to believe that the property with which he was dealing were the proceeds of an indictable offence and these grounds were known to the applicant.

Although there is nothing wrong with the prosecutor adopting this approach he must clearly articulate that that is what he is doing so both the applicant and the court know how he intends to prove the mens rea element of the offence.

74.Of course the fact that the prosecutor is adopting an approach to proof of mens rea that involves reliance on both limbs does not absolve the trial judge from analysing the evidence and clearly indicating in her Reasons for Verdict which limb she finds proven and why.

75.Unfortunately that didn’t happen in the present case but that is not surprising given the way that both counsel throughout the trial blurred the distinction between the two limbs and by so doing treated them as though they were one unified element.  This helps to explain why, in referring to the mens rea issue, the trial judge mentioned both limbs.  She was in fact only reflecting the way both counsel addressed her on the issue.

76.Consequently in describing the prosecution case the judge said:

“The basis of the prosecution’s case for the defendant’s knowledge or belief was their allegation that he was either the person in charge of the saunas or someone superior in its operation and management and therefore the only inference to be drawn was that the defendant knew or had a reasonable belief the income was generated from the offer of or provision of sexual services.”

77.She continued this reference to both limbs when, just before expressing her conclusion, she said:

“The two saunas were operated so strikingly similar and were inextricably connected in all respects that the only inference to be drawn is that the same type of sexual service was offered at TSS which the defendant knew or had reasonable grounds to believe.” (Emphasis added)

She then concluded her Reasons for Verdict with the following:

“... There was clear evidence to show that the defendant as the person in charge or a person at the top or as a key in the core management of the sauna must have known or at least had reasonable grounds to believe that that sexual services were offered.

In the circumstances I was satisfied beyond reasonable doubt that the defendant dealt with the earnings from the sauna which he knew or at least had reasonable grounds to believe that they were proceeds of an indictable offence.” (Emphasis added)

78.Notwithstanding this recital of the two limbs it is apparent from the Reasons for Verdict that she found the first limb proven and that the applicant was actually aware of the funds being the proceeds of vice activities.  Towards the end of her Reasons for Verdict she said:

“It is implausible to believe that the only person (in this instance the defendant) who deals in almost all the funds in the companies account is divorced from the knowledge of how these funds are generated.” (Emphasis added)

which she then followed with:

“I did not accept that the defendant knew nothing at all about the sexual services offered... I do not believe that with the defendant’s experience in business that he was ignorant of how the earnings were made and that the masseuses were offering sexual services.” (Emphasis added)

and several paragraphs later with:

“Given that NCS and TSS were operating and running in a very similar pattern and operation it is incomprehensible that the defendant failed to know that the two saunas were offering sexual services.” (Emphasis added)

79.Given the inferences which the judge drew, the reasoning in drawing these inferences and the statements of the judge to which we have referred, it is clear to us that the judge adopted the first limb, ie actual knowledge of the criminal source of proceeds and that she provided adequate reasons for doing so.

Conclusion

80.In view of our conclusion that the judge was entitled to draw the inferences she did and to make the findings she did that the mens rea element of the offence had been proven beyond reasonable doubt, it is not necessary for us to address the first ground of appeal concerning whether there was a case to answer.

81.However we accept that there was a failure of the judge to specify which of the two mens rea limbs she found proven.  But, as we have demonstrated, this case was presented by the prosecution on both limbs and in order to prove the “knowing” limb the prosecution proved the predicate offence.  If this was not clear from the outset, it certainly became clear by the end of the prosecution case.  Because the prosecution was relying on both limbs, everyone in court, counsel and judge, developed the unfortunate habit of referring to them both when discussing the element of mens rea. Notwithstanding that in referring to the mens rea element of the offence she quoted the language of section 25(1) in respect of both limbs, it is nevertheless clear to us that she convicted the applicant on the “knowing” limb and that she articulated her reasons for doing so.  In these unusual circumstances it is not a material irregularity for her to have not specifically identified which of the two mens rea limbs she found proven.

82.That being so we are satisfied that the conviction is not unsafe or unsatisfactory and we dismiss the application for leave to appeal.

Mr William Tam Yiu-ho DDPP, of the Department of Justice, for the respondent

Mr Daniel Marash SC and Mr Jenkyn-Jones, Toby R.W, instructed by Messrs Haldanes, for the applicant