HKSAR v. Chau Kin

DCCC 1176/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1176 OF 2012

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REASONS FOR SENTENCE

1.The defendant pleads guilty to six charges of fraud, contrary to section 16A of the Theft Ordinance, Chapter 210 (charges 1, 3-6 & 21); one charge of attempted fraud, contrary to section 16A of the Theft Ordinance and section 159G of the Crimes Ordinance, Chapter 200 (charge 7) and nine charges of forgery, contrary to section 71 of the Crimes Ordinance (charges 8, 10, 12-14, 16-17 & 19-20).

2.In summary the defendant was employed by Headline Products Limited (“Headline”) as a shipping clerk.  HSBC granted loan facilities to Headline including Clean Import Loans.  In July 2009 HSBC found irregularities with one application which is the subject of charge 7.  The bank retrieved twelve other applications made between February and July 2009 some of which were also found to have irregularities. The charges relate to nine of these applications.  By letter dated 30 October 2009 HSBC cancelled all banking facilities with Headline and eventually made a report to the police in March 2010.

3.All nine applications for Clean Import Loans were fraudulent in that there were no genuine transactions and the supporting documents, including the bill of lading were forged.  The defendant forged all the bills of lading as particularised in paragraph 6A of the admitted facts.  The amount of the nine loans varied betweenapproximately $290,000 and $1.2million with a total amount of about $4.7 million.  All the loans were repaid by Headline on the due dates or shortly thereafter.

4.The defendant was arrested in January 2011.  Under caution the defendant admitted that acting on the instructions of her supervisor, Sunil Datwani, she prepared the forged bills of lading because Headline was under pressure to make payments to their suppliers.

5.In passing sentence I have carefully considered the submission of Miss Crebbin together with the letters of mitigation and the background report.  I take into account the defendant has pleaded guilty to the charges after agreement was reached with the prosecution prior to trial.  I also take into account that the defendant has no previous convictions; she has a young family to look after and has made some charitable donations. 

6.The submission of forged documents to a bank in support of an application for a loan undermines the integrity of the banking system, which relies on the genuineness of the documents.  The whole system of documentary credit depends entirely on trust.   Money is paid out, not upon an examination of the goods, but upon the documents themselves.  Fundamental to the system is the truthfulness and accuracy of the documents.  Those who forge such documents can expect to go to prison (see R v Chan Kam Chuen [1995] 2 HKCLR 257).

7.Miss Crebbin on behalf of the defendant submits the circumstances of the defendant’s offending are exceptional whereby this court can suspend the sentence of imprisonment.  In particular Miss Crebbin relies on the fact that the defendant was an employee of Headline, holding a lowly position in the company from which she stood to gain nothing by forging the bills of lading save to ensure she kept her job.

8.Miss Crebbin in her written submission details the circumstances the defendant committed the offences.  In summary the defendant says she acted on the instructions of her supervisor Sunil Datwani who told her to forge the bills of lading.  The forgery was based on an old bill of lading for a genuine transaction with the same supplier to whom the loan related and which transaction Headline had not settled.  

9.Datwani assured the defendant that there was no real problem in acting in this way as there was a genuine shipment on the way which would be used to settle the loan from HSBC once the end buyer had paid Headline.  Given this assurance the defendant, although knowing the practice was wrong, believed HSBC would always be repaid and therefore would suffer no loss. 

10.In these circumstances and feeling under pressure to keep her job the defendant agreed to do as requested by Datwani.  The defendant believed that if she did not do as instructed by Datwani she would lose her job.  The defendant at the time was pregnant with twins and was very much concerned with the financial well being of the family as at that time she was the main breadwinner of the family.  Having been dismissed from a previous employment because of pregnancy the defendant felt under great pressure to do as requested by Datwani.

11.At the trial of Mr Mulani (D1), the owner of Headline, Mr Mulani said that he was unaware of the fraud practised on HSBC and that the day to day running of Headline was left to Datwani.  On the evidence placed before me at trial I proceeded on the basis Datwani was in fact running Headline.  Similarly I proceed to sentence on the basis that the defendant acted on the instructions of Datwani and was not the instigator of the fraud.

12.Miss Crebbin also makes the point that Datwani, although arrested, was never charged (see paragraph 31 of the written submission).  No doubt this is because there was no direct evidence implicating him in the fraud and without the defendant or any other employee of Headline giving evidence implicating Datwani the prosecution have been unable to proceed against him.  This is perhaps not surprising considering the staff of Headline, including the defendant now work for Headdstart, a company controlled by Datwani.

13.In passing sentence I nevertheless take into account that Datwani, the apparent instigator of the fraud, has not been brought before court and that the defendant is the only person convicted of any offence arising from the fraud practised on HSBC.  The conviction has to a high degree been greatly assisted by the defendant’s admission to the police that she was the one who forged the bills of lading. Mr Tracy fairly accepts that without this admission the prosecution case would have been dependant entirely on circumstantial evidence arising from documentation seized by the police.

14.The fact that the loans were all repaid on the due dates or very shortly thereafter is perhaps fortunate for the possibility of loss was real if anything went wrong in the shipment that was on the way or the end buyer decided not to pay Headline (see for example HKSAR v Kwong Shing Cheong Stephen CACC 555/2002).  I do however take into account that the bank had from Mr Mulani more than sufficient security for the loans regardless of whether any goods existed or not.  The existence of such security would however require enforcement procedure to be taken without guarantee of recovering the monies owed.

15.I accept the defendant did not financially gain from forging the bills of lading save to ensure she kept her job.  However the fact the defendant received no benefit does not mean a prison sentence is not appropriate.  In HKSAR v Kwong Shing Cheong Stephen the defendant prepared and submitted false invoices and cargo receipts in order to obtain payments from the bank so as to try and help a longstanding friend overcome financial difficulties.  The defendant received no benefit for helping his friend.  The court viewing the case as a quite bad case involving three transactions of almost $7.8 million, all of which was repaid, said a sentence of 2 years imprisonment was very lenient.  A similar approach can be seen in HKSAR v Cheung King [2001] 3 HKLRD 68, where immediate imprisonment was upheld for a person described as “small fry used by other people to make up all the documents in support of the bogus transaction” and who derived no financial benefit from a single transaction involving US$891,000, all of which was repaid to the bank. 

16.Acting on instructions of her supervisor puts the defendant in a very different category of offender to the defendants in Kwong Shing Cheong Stephen and Cheung King, who were either the owner or director of the companies applying for the letters of credit.  As director/owner they could quite easily have refused to become involved in such illegality.  Whilst the defendant acted in the way she did because she felt under pressure to keep her job she too could have refused.  However being an employee puts in context the scope and extent of her involvement in the fraud and places her culpability towards the lower end of this type of fraud. 

17.Taking into account the role of the defendant and that this was a course of conduct over a period of about 6 months; the amount involved; and that there has been no loss to the bank I am satisfied that the proper starting point after trial on each charge is 21 months imprisonment.  Giving the defendant full credit for her plea of guilty reduces the sentences to 14 months imprisonment.

Delay

18.The defendant was arrested in January 2011, released from police bail in November 2011 and rearrested and charged in November 2012.  A chronology of events has been supplied by the prosecution.  Miss Crebbin very fairly does not seek to place blame on the prosecution.  Clearly the investigation involved a number of enquiries with various suppliers.

19.Having conducted the trial of Mr Mulani and Miss Mathews the case cannot be said to be complex.  Whilst time was required for investigation over two and a half years from when the case was referred to the police handling the investigation to the time of charge appears to be unduly long.  There is nothing in the chronology which appears to justify the taking of almost 22 months from arrest to charge.  The case could reasonably have been brought to court earlier than it was (see HKSAR v Wong Ka Wah CACC 260/2006).

20.Whatever the reason for the delay no fault can be attributed to the defendant who admitted her role when first arrested by the police in January 2011.  Throughout this period the defendant has continued to work, albeit at first with Headline and since earlier this year Headdstart, a company controlled by Datwani.  Having been arrested by the police, albeit not yet charged, the seriousness of her acts must have by then only been too apparent.  It is therefore somewhat surprising that the defendant continued to work for Headline.

21.This matter has been hanging over her head now for some two and a half years. Although the defendant was at one stage released from police bail having admitted forgery it was only a matter of time before the police would re-arrest her.  Indeed Miss Crebbin says the defendant knew she would ultimately be charged.

22.In the circumstances I am satisfied by reason of the time taken to bring the case to court the sentences should be reduced by 2 months to 12 months imprisonment.

Suspended sentence

23.Whilst those who forge documents used to apply for loans can expect to go to prison there are no guidelines for this type of fraud.  Each offence will depend on its own circumstances including the amount of money involved; the period over which the fraudulent act was committed; the size of the potential risk to the bank and whether the bank in fact suffered any loss; and the role played by the defendant (see for example HKSAR v Dai Chi Wai [2011] 4 HKLRD 534 and HKSAR v Yao William [2002] 3 HKLRD 397).

24.Accepting the defendant may well have believed there was no real risk to HSBC from what Datwani told her and that she would not have acted in this way if she thought HSBC would have suffered loss the position of the bank was clearly prejudiced by the forging of documents for non-existent transactions.  This mitigation is similar to that put forward in R v Chan Kam Chuen, although factually a very different case not least because there was considerable loss to the bank of over US$140,000.  The court reducing the sentence from two years to one of 18 months imprisonment rejected the plea for a suspended sentence.

25.Not only are there no guidelines there is little authority concerning low ranking employees such as the defendant as opposed to owners, directors or senior managers who invariably are the ones who instigate, implement and often but as seen not always benefit from the fraud.

26.In HKSAR v Leo Yee Sang Patrick CACC 494/2004 reference is made to a shipping manager who was convicted after trial and sentenced to undergo community service.  I have had the benefit of reading the reasons for sentence in that case.  Altogether four of nine defendants convicted after trial received community service. 

27.Of particular relevance is the case of D7 who was a shipping clerk.  The judge (the late Judge Mackintosh) described her role as completing the letters of credit, typing up and sending out the application forms and relevant documentation knowing that no goods were actually being transacted and often inventing the list of goods set out in the application forms so as to match the amount of money required.  The judge regarded the role of the defendant as essentially clerical but more than just a typing job the defendant being the contact person for the bank.  This description is very much similar to the role played by the defendant.

28.Judge Mackintosh was satisfied regarding her role and taking into account that during the delay in bringing the case to trial the defendant had continued to work and had rehabilitated herself, that the circumstances were sufficiently exceptional to impose a community service order.  In this regard I note that whilst the defendant left the employment where the offences took place she then worked for a company owned by D1 in that case, who was sentenced to 4 years and 3 months imprisonment for his involvement in the fraud. 

29.Taking into account the role of the defendant in the fraud; her plea of guilty; her clear record; the long period of time taken to charge the defendant during which time the defendant can be said to have rehabilitated herself; and all the monies were repaid to HSBC (albeit not by the defendant) I find after very careful consideration and not without a degree of hesitation that I am satisfied there are exceptional circumstances warranting suspension of the sentences.

30.The defendant is convicted and sentenced to 12 months imprisonment concurrent on each charge and suspended for 2 years.