HKSAR v. Ip Kin Man and Another
Read the full judgment text of DCCC 153/2010 on BabelCite. This District Court judgment was delivered on 25 November 2013.
1. This case concerns 11 charges of “Conspiracy to Defraud” (Charges 1 to 11) and 2 of “Dealing with Proceeds”.
Cites 1 case
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DCCC 153/2010 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CRIMINAL CASE NO 153 OF 2010 ----------------------
---------------------------------- REASONS FOR VERDICT ---------------------------------- Introduction 1.This case concerns 11 charges of “Conspiracy to Defraud” (Charges 1 to 11) and 2 of “Dealing with Proceeds”. 2.Charges 1 to 11 each concerns one letter of credit (1st to 11th LC). It is the Prosecution case that the defendants concerned, D1 to D3 for Charges 1 to 10 and D1, D4 and D5 for Charge 11, conspired in Hong Kong to defraud the issuing bank of the LC concerned by the application for the issue of the LC and the falsification of documents required for the negotiation of the LC and of causing payment to be made to the beneficiary under the LC pursuant to such negotiation when there was no genuine underlying commercial transaction relating to the LC concerned. 3.Charges 12 and 13 concern the dealings with the proceeds of the LC fraud by the defendants involved, D2 and D3 for Charge 12 and D4 and D5 for Charge 13. The Pleas 4.D1 pleaded guilty to Charges 1 to 11 and admitted the facts pertaining to those charges. 5.The Prosecution offered no evidence against D2 in relation to all charges against her; hence all charges against D2, ie Charges 1 to 10 and Charge 12 were dismissed against D2. 6.D4 pleaded guilty to Charge 11 and admitted the facts pertaining to those charges. The Prosecution offered no evidence against D4 on Charge 13; Charge 13 was dismissed against D4. 7.D3 and D5 pleaded not guilty to all charges laid against them. 8.This trial concerns:-
The Particulars of Offence 9.Charges 1 to 11 are similarly worded, each charge alleges that the defendants concerned, during the periods or on the dates pleaded, in Hong Kong conspired together to defraud the bank as particularized, by dishonestly:-
where there was no underlying commercial transaction relating to the said LC. 10.Wing Fai Construction Company Limited (“Wing Fai”) was the applicant company for all 11 LCs. 11.Famous Capital Enterprises Limited (“Famous Capital”) was the beneficiary under the 1st to 10th LC. 12.King Capital Engineering Limited (“King Capital”) was the beneficiary under the 11th LC. 13.It is the Prosecution case that D3 worked in the Accounts Department of Wing Fai at the relevant period. 14.D3 was a director of Famous Capital during 2000, 2001 and 2002. 15.D5 was a member of the Senior Management Staff of China Rich Holdings Limited (“China Rich Holdings”), according to the Annual Report of China Rich Holdings; Wing Fai was a subsidiary company of China Rich Holdings. 16.D5 was a director and shareholder of King Capital, he was also an authorized signatory of King Capital’s current account with DBS Kwong On Bank. The Admitted Facts 17.The document titled “Admitted Facts” sets out those facts that are admitted between the Prosecution, D3 and D5 pursuant to s 65C of the Criminal Procedure Ordinance. 18.The admitted facts deal with matters relating to:-
19.With the aforesaid Admitted Facts and the evidence produced under the Evidence Ordinance, the Prosecution called a total of 8 witnesses to testify. They are:-
20.After Mr Turnbull closed the case for the Prosecution, Mr Chan made a submission of no case in relation to Charge 11, after hearing submissions from Mr Chan and Mr Turnbull, I ruled that D3 and D5 each had a case to answer on all the respective charges against them. 21.Both D3 and D5 elected to give evidence. No defence witness was called. 22.The Prosecution’s written closing contains a summary of the evidence of the live witnesses, subject to a few corrections pointed out by Mr Chan. 23.The Prosecution case, in a nutshell, is that for each of the “Conspiracy to Defraud” charge, the defendants concerned conspired together to defraud the issuing bank by applying for the issuing of a LC and collecting payment under the LC when the underlying transaction did not even exist. 24.The Prosecution says the 11 underlying transactions were all fictitious and D3 and D5, both employees of Wing Fai, were made directors of Famous Capital and King Capital respectively. 25.As said, Wing Fai was the applicant for all 11 LCs, Famous Capital was the beneficiary under the 1st to the 10th LC whereas King Capital was the beneficiary under the 11th LC. 26.The Prosecution says the 11 underlying transactions were fictitious because:-
27.The 2 counts of dealing with the proceeds of an indictable offence concern “the receipt and movement of funds obtained by third parties (companies and individuals) as a result of the fraudulent LC transactions”, said Mr Turnbull in paragraph 4 of the Prosecution’s closing. 28.The Defence says there is a possibility that some of the construction materials under the 11 LCs had been delivered to China for the PRC projects undertaken by China Rich Properties, a subsidiary of China Rich Holdings; it is also possible that some of the materials had been delivered to the construction sites undertaken by Wing Fai in Hong Kong. As Mr Chan put it, the Defence does not have a positive case that the materials had in fact been delivered to China for use by China Rich Properties or to the sites undertaken by Wing Fai in Hong Kong, the Defence says all possibilities exist and the Defence puts the Prosecution to strict proof on these matters. 29.The thrust of the defence for D3 and D5 is that all along they trusted their employer. D3 and D5 were asked to become directors of Famous Capital and King Capital respectively and they saw nothing unusual in it. All along, D3 was told Famous Capital was a subsidiary of China Rich Holdings; D5 was told King Capital was a subsidiary of China Rich Holdings. Both D3 and D5 believed in what they were told. 30.In the case of D3, she says she did not understand much English and all the paperwork in relation to the 10 LCs of Famous Capital had been prepared by others before she was called upon to sign. All along she trusted China Rich as it was a listed company. She was told Famous Capital was involved in the purchase of construction materials. 31.For the cheques signed by D3, D3’s case is that before she signed the cheques in question, she would look at the attached vouchers to make sure that approval had been given. She could not read the contents of the description columns of the vouchers as they were in English. 32.For ease of reference, the relevant cheques can be found in the Cheques Bundle. For cheque no. 3 payable to Fitzroya, cheque no. 9 to Wing Fai, cheque no. 11 payable to GreaterChinaherbs.com and cheque no. 28 payable to Ivy Fund, D3 thought they were reallocation of funds within China Rich Holdings. 33.For cheque no.1 payable to Pacific Challenge Securities and cheque no. 2 payable to Christfund Securities, they were issued for the purchase of shares of China Rich Holdings by D3 on behalf of a Mainland contractor who did works for China Rich Properties in Shungde, China. With the consent of Mr Yip Kwong, monies payable to the contractor were paid to the securities firms instead. 34.For 2 cash cheques, cheque no. 6 and 24, they were issued and given to D3 to reimburse D3 for the money that D3 had advanced on the contractor’s behalf in the purchase of shares of China Rich Holdings. 35.For cheque no. 4 payable to a Godfrey Mak, a colleague of D3, cheque no. 5 payable to BOCI Securities, cheque no. 7 payable to Leung Siu Wah, cheque no. 26 payable to Wu Chia Ling and cheque no. 27 payable to Morgan Stanley, D3 did not know the reason for the issuing of these cheques, she says the reasons should be apparent on the payment vouchers. 36.In the case of D5, he had received tertiary education in the United States. He was asked to become a director of King Capital. He was told the setting up of King Capital was for the purpose of helping the sub-subcontractors of Wing Fai who had difficulties in paying for the construction materials. As in the case of D3, D5 all along trusted China Rich Holdings. He agreed to become a director of King Capital and a signatory to its bank account as he believed it was only a normal and necessary procedure for the company to operate. 37.D5 was not involved in the daily operation of King Capital, he would be asked to sign documents of King Capital from time to time. 38.For cheque no. 29, a cheque in the sum of $3.5million, D5 says when he signed the cheque, there was a piece of paper attached to the cheque giving an explanation that the cheque was about dealing with the shortage of funds of contractors/sub-contractors of Wing Fai. DISCUSSION General Matters 39.I have considered all the evidence and submissions. As said, Mr Turnbull and Ms Lo have already summarized the evidence of live witnesses in the Prosecution’s closing, subject to some corrections by Mr Chan. The fact that I have not dealt with each and every piece of evidence does not mean the same has escaped my attention; I say the same about the matters raised in the submissions made by counsel. 40.I have borne in mind it is for the Prosecution to prove beyond reasonable doubts all the elements of the offences under complaint. 41.I give myself a full Berrada direction on propensity and credibility as D3 and D5 each has a clear criminal record. Evidence of Live Witnesses PW1 Ip Ngai Man 42.PW1’s evidence that D3 was one of her colleagues in Wing Fai is consistent with paragraph 10 of the Admitted facts and hence credible and reliable. 43.PW1 identified D3’s signature on the collection documentation and Famous Capital’s invoices. In my judgment, PW1’s identification of D3’s signatures is credible and reliable. It is an admitted fact that D3 signed the collection documentation. D3, in her evidence, admits the signatures on Famous Capital’s invoices are hers. 44.I accept PW1’s evidence that the 11 LCs, the subject of the charges, were prepared by PW1 with hand-written information supplied to her by D1. The applications were then given to D1 and Kam Shing to sign. I accept PW1’s evidence the way the 11 LC applications were prepared was not in accordance with the normal procedure. The normal procedure for making applications for LCs was that PW1 would receive documents, invoices from her colleagues in the Accounts Department; for the LCs in favour of Famous Capital and King Capital, PW1 received hand –written information from D1, the Financial Controller. 45.I accept also the evidence of PW1 that after receipt of the invoices she would prepare the Trust Receipts for the banks relating to the LCs. The Trust Receipts would then be given to D1 and Kam Shing for signing before they were sent to the banks. 46.It should be noted that when D3 was cross-examined about the contact person for Famous Capital, ie “Ye” in the collection orders, D3 said PW1 is also surnamed Ip. In as much as PW1 shares the same surname “Ip” with D3, it has never been put/suggested to PW1 that she was the contact person for Famous Capital “Ye” in the collection orders or that PW1 worked for Famous Capital. PW2 Mr Lo Sek Chiu 47.I find PW2’s evidence credible and reliable. He joined Wing Fai in December 1993 and by August 2001, he had been with Wing Fai for over 7 years. He was a director of Wing Fai at the material time. I accept PW2’s evidence that his duties involved looking after all the construction works, which included making tender, buying construction materials, site management and supervising progress at site. 48.I accept PW2’s evidence that he was familiar with the 5 government projects undertaken by Wing Fai at the material time. PW2’s evidence on this subject is consistent with the evidence of Mr Chim (PW5). 49.I accept also PW2’s evidence on the subject of the suppliers of concrete mix, asphalt and steel bars. PW2 is able to provide the court with the names of the suppliers of these materials engaged by Wing Fai at the time. His evidence is supported by the evidence of PW5. For the complaints made by Mr Chan about the witness statements of PW2, I accept PW2’s explanation that when he gave his statement, his memory was still fresh and he gave his answers based on his recollection, not as Mr Chan suggested, PW2 just went along with the suggestion by the police. 50.I accept PW2’s explanation that he did not mention the identity of the asphalt suppliers in his 2 statements because the invoices shown to him were about concrete mix and steel bars; the police did not ask him about asphalt hence he did not mention the asphalt suppliers. Mr Lo’s explanation makes good sense to me. 51.I accept Mr Lo’s evidence that at the material time in 2001 and 2002, apart from the 5 government projects, Wing Fai had only some small projects which were still active, but these small projects were basically completed and what remained were only some minor works. Mr Lo’s evidence in this regard is supported by Mr Chim. 52.I accept Mr. Lo’s evidence that he had never heard of Famous Capital and King Capital and Wing Fai had never ordered concrete mix, steel bars and asphalt from these 2 companies. PW1’s evidence on this matter is supported by the evidence of Mr Chim, and to a lesser extent by the evidence of PW6, the Government Engineer. Given the uncontested evidence that suppliers of building materials for government projects had to be approved by the Government, it really defies common sense that if Famous Capital and King Capital were amongst the authorized suppliers of building materials in Wing Fai’s projects, they would escape Mr Lo’s attention. 53.It is clear from Mr Lo’s evidence that all the projects undertaken by Wing Fai were in Hong Kong, Wing Fai had no reason to order building materials in Hong Kong and transport them to the Mainland. China Rich Properties or other subsidiaries of China Rich might have construction projects on the Mainland which required the use of concrete mix, steel bars and asphalt but Wing Fai was not involved in these transactions and had no reason to apply for the LCs in question. 54.Mr. Lo’s evidence about the technical or physical impossibility or impracticality of transporting concrete mix, asphalt and steel bars from Hong Kong to the Mainland makes a lot of good sense to me but the more important evidence of Mr Lo’s evidence is that all the projects of Wing Fai were projects in Hong Kong, government projects or otherwise. It has never been suggested to Mr Lo that Wing Fai had any construction projects on the Mainland, hence to some extent, Mr Lo’s evidence about the technical or physical impossibility or impracticality of transporting materials to the Mainland, is academic to a large extent. 55.I am aware that Mr Lo did not mention it in his witness statements the absence of important details in the invoices of Famous Capital and King Capital, for the reason that the focus of the statements was whether Wing Fai had ordered materials from Famous Capital and King Capital, not the absence of important information that one would normally expect to see in an invoice from a supplier of Wing Fai. In my judgment, the observations made by Mr. Lo are all valid. 56.I accept the evidence of Mr Lo that he had not heard of situations that China Rich Holdings would purchase construction materials for its subsidiaries’ construction projects in Hong Kong. The procedure was the one as stated by Mr Lo in his evidence, ie Wing Fai would be the purchaser of the construction materials; as for the suppliers, they had to be approved by the government. PW5 Mr Chim Kam Fai 57.Mr Chim’s evidence that D3 was not part of the Accounts Department of Wing Fai is not consistent with paragraph 10 of the Admitted Facts. 58.Mr Chim’s evidence about the suppliers to Wing Fai is consistent with the evidence of Mr Lo, the names of the government approved suppliers of concrete mix, asphalt and steel bars recited by Mr Chim are consistent with those mentioned by Mr Lo. I find Mr Chim’s evidence on the subject credible and reliable. I accept Mr Chim’s evidence that he had never placed any order in relation to the projects he handled on behalf of Wing Fai with Famous Capital and King Capital. 59.I accept Mr Chim’s evidence that if Wing Fai ordered construction materials which were not approved by the government, those materials could not be used in the government projects undertaken by Wing Fai, hence Yip Kwong would definitely informed the site agents like Mr Chim and Mr Lo so that they could apply to the government for approval to use those materials. The evidence of Mr Chim not only makes good sense, it is also consistent with the evidence of Mr Lo. 60.Mr. Chan criticized Mr. Chim for failing to mention in his statements that Pioneer and Ling Wui were suppliers of concrete mix to Wing Fai. I accept PW2’s explanation that due to mergers of companies he had not mentioned all the names though he knew them all. 61.I accept Mr Chim’s evidence that the Mainland construction projects of China Rich were not projects of Wing Fai. There is no suggestion from the defence that Wing Fai had any construction project on the Mainland. 62.Whether China Rich Holdings or its subsidiaries had construction projects in China at the material time is one thing; whether Wing Fai had ordered construction materials for projects in China is a different matter. It seems to me PW5 is able to recollect clearly Wing Fai did not have any project in China and it had never ordered any construction materials from Famous Capital and King Capital. 63.PW5’s evidence as to how Wing Fai chose its suppliers for government projects is consistent with the evidence given by Mr Lo: Yip Kwong did not have the final say completely, the management would make recommendations and Yip Kwong would listen to their views before he made his final decision. Furthermore, the suppliers had to be approved by the government. 64.Mr Chim was somewhat evasive when asked about the financial position of Wing Fai before it was taken over by Mr. Chim. He accepted with some reluctance that the financial position of Wing Fai was not in good shape when Mr Chim took over in April 2002. It seems to me Mr Chim was reluctant to admit Wing Fai was financially unsound as he still has a business stake in the company. PW3 Mr Lai Kam Kwong 65.The evidence of Mr Lai is simple and straightforward. I accept Mr Lai’s evidence that he could not find any record, in paper or in electronic form, that Anderson Asphalt ever having done business with Famous Capital or King Capital. It should also be noted that Anderson Asphalt in the years 2000 to 2002 inclusive had not delivered any asphalt to the Mainland. 66.I am aware that Anderson Asphalt was not the only asphalt supplier of Wing Fai. PW6 Mr Ip Kwok Leung 67.I accept PW6’s evidence that contractor who undertook contracts from the Drainage Services Department had to use suppliers approved by the government in writing. The records produced by PW6 (P20 to P32) show that Famous Capital and King Capital were not amongst the approved suppliers of construction materials in the contracts of Wing Fai, as far as the Drainage Services Department was concerned. The records support the evidence of Mr Lo and Mr Chim that Famous Capital and King Capital had never been suppliers of Wing Fai. PW4 Mr Lam Chuen Kee 68.Before Mr Lam took the witness stand, Mr Chan objected to Mr Lam’s evidence on the ground that according to section 4(3) of the Inland Revenue Ordinance, Cap 112, the return document in relation to Famous Capital should not be produced in court. Mr Chan relied on section 4(3) only when he made his objection. 69.I asked for written submissions and invited the parties to look carefully into the Organized and Serious Crimes Ordinance, Cap 455. 70.At the resumed hearing, Mr Chan further drew my attention to section 3 and 4 of the OSCO. He submitted that despite section 3 and 4, the IRD return is still not admissible in court. I pointed out to Mr Chan that section 6 of the OSCO is relevant. After hearing submissions, I ruled that reading section 4(3) of the Inland Revenue Ordinance and sections 3, 4 and 6 of the OSCO as a whole, the returns that the Prosecution sought to produce are clearly admissible pursuant to section 6 of the OSCO. Section 6 clearly contemplates the obtaining of IRD information for the purpose of criminal prosecution; section 6 would be made nugatory if IRD information could only be obtained but not produced as evidence under a production order. 71.The tax documents of Famous Capital are produced together with the relevant Production Order. PW8 Mr Chiu Chi Kai Walker 72.Pursuant to a production order, PW8 of the IRD caused a search to be made of the IRD’s records to find any record of King Capital but none could be found. PW7 PC52290 73.PW7 gave his evidence in a straightforward manner. I have no difficulty in accepting his evidence as true and reliable. I accept PW7’s evidence that he searched D3’s residence in Mongkok on 14 May 2008. He found and seized 5 cheque books, ie a DBS cheque book of King Capital, a HSBC cheque book of Famous Capital, a Wing Hang Bank cheque book of Famous Capital, 2 Standard Chartered Bank cheque books of Ivy Fund, 2 company chops, one relating to Famous Capital and one relating to Ivy Fund, some company documents relating to Famous Capital and some corporate documents relating to Ivy Fund and a metal stamp for Ivy Fund. The aforesaid items were found in a paper box covered by a piece of plastic wrap in a room. D3 Ms Ip Kin Man 74.I have considered D3’s evidence carefully, bearing in mind the good character direction. The Admitted Facts 75.D3’s evidence that she was an employee of China Rich Properties, a subsidiary of China Rich Holdings, is contradictory to paragraph 10 of the Admitted Facts, which states that D3 worked in the Accounts Department of Wing Fai. Why D3 was Chosen 76.I find it inherently improbable that D3, be she an employee at the Accounts Department of Wing Fai or as D3 testifies, an accounting clerk of China Rich Properties, would be asked to become a director of Famous Capital in the circumstances depicted by D3. From the evidence of D3, there was very little that D3 could contribute to Famous Capital, she did not know about the operation of Famous Capital, other than that the company was to buy construction materials for projects of China Rich. She was a junior employee of China Rich Holdings, be it Wing Fai or China Rich Properties. She had no expert knowledge in the field, she did not even know the English word for asphalt. If Famous Capital was set up for the bona fides purpose of purchase of construction materials for construction projects in China, it really defies common sense that someone like D3 would be asked to become a director. Unreasonable Explanation 77.In my judgement, all the aforesaid inherent improbabilities must be known, and were known to D3 at the material time. I reject as unreasonable the explanation put forward by D3, ie she agreed to be a director because she trusted the company and if she did not agree she might lose her job. It must be obvious to D3 that if Famous Capital was set up for the purpose of buying construction materials for projects of China Rich Properties, the appropriate candidates for the company directorship must be those who had experience in construction projects and/or procurement of construction materials, not someone like D3 who professed to know nothing about the matter. Vague Recollection of Important Details 78.D3’s recollection of the circumstances under which she was asked to be a director of Famous Capital was vague and unreliable. She cannot recall who it was in the senior management who asked her to become a director of Famous Capital; she cannot even recall the gender of the asking party. D3 did not even ask why she was chosen. Ignorance Claimed by D3 79.D3 tried to portrait herself as a person who was ignorant about many matters; she was not clear about her duties as a director of Famous Capital; she signed the documents and cheques without questioning; for the cheques she signed, she would only look at the voucher to make sure that approval had been given by someone. She did not read the contents of the documents as they were in English, yet she had never asked others in the company about the contents of the documents that she was asked to sign. I do not believe D3 would continue signing documents contents of which she did not understand and cheques purposes for which she did not know. 80.When D3 was questioned about her signing of the IRD documentation, she had to admit that she knew a person would be responsible for a document she signed. Subsidiaries of China Rich Holdings 81.D3 fails to explain why she believed Famous Capital and Ivy Fund were subsidiaries of China Rich Holdings. The Vouchers Accompanying the Cheques 82.When asked about the reasons for issuing the cheques in question, D3 kept saying the reasons should be apparent in the payment vouchers that accompanied the cheques. Yet not one voucher was produced as evidence and we only have the evidence of D3 which is unsatisfactory on this issue, since according to D3, she did not read the reasons, she just looked at the approval. The Purchase of Shares for Mr Cheung 83.For the 2 cheques issued to Pacific Challenge Securities (cheque number 1) and Christfund Securities (cheque number 2) and the 2 cash cheques (cheque number 6 and 24), D3 said they were all related to the shares that she purchased on Mr Cheung’s behalf, and it was done with the consent of the company, hence contract sums due to Mr Cheung were paid instead to the securities firms or in the form of cash cheques. 84.I find D3’s account most convoluted and unreasonable. D3 has to concede that it would be much simpler for Mr Cheung to deal with Mr Ip Kwong directly. Furthermore, I see no reason why D3 would agree to purchase shares for Mr Cheung, someone who she knew just “average”, using her own word. As D3 says, she would not have lost her job even if she were to refuse to buy the shares for Mr Cheung. 85.If cheque number 6 was issued to reimburse D3 for the money she had paid on Mr. Cheung’s behalf, I do not understand why a cash cheque was issued. I find D3’s explanation unconvincing. The Contact Person “Miss Ye” in the Collection Orders 86.A Miss Ye was put forward as the contact person of Famous Capital. D3 agrees that the contact numbers on the collection orders signed by her was that of Famous Capital; she also agrees that Ye is the Mandarin spelling of Ip. D3 was quite evasive when asked if there could be another Miss Ip/Ye in Famous Capital. She even suggested PW1 is also surnamed Ip, hence PW1 might be the Miss Ye referred to in the collection orders. During Mr Chan’s cross-examination of PW1, Mr Chan put to PW1 and she agreed she was the Miss Ip, ie the contact person of Wing Fai in all 11 LCs. In my judgement, it is inherently improbable that PW1 would be made the contact person both for Wing Fai and Famous Capital. No suggestion was put to PW1 that she was the contact person of Famous Capital. 87.D3 in her evidence says the telephone number in the collection orders was one of the numbers in the office, it is obvious that the use of Miss Ip in the applications of Wing Fai and the use of Miss Ye in the collection orders was a measure to make sure that PW1 would be reached when there were queries for Wing Fai and D3 would be approached when there were questions for Famous Capital to answer. 88.D3 says if anyone from the bank called and made enquiry, she would pass the telephone enquiry to other colleagues of the Accounts Department, if Famous Capital and Wing Fai had different office addresses, as the documents show, I do not see how D3 could pass the telephone to her colleagues. 89.In my judgement, D3 signed all the documents of Famous Capital at China Rich’s premises at Connaught Road West when the documents of Famous Capital state that its office was at Great Eagle Centre is consistent with the Prosecution case that the there was a concerted effort to deceive the bank into believing that the buying and selling party for the 1st to the 10th LC were unrelated entities. Mandy Ip as the contact person in the IRD Document 90.If D3 was ignorant about the affairs of Famous Capital, I do not understand why she would be put forward as the person to answer any queries from the IRD (Pg 2889 and 2890). The Seizures of Items Related to Famous Capital and Ivy Fund at D3’s Residence 91.There is not a ring of truth in D3’s evidence that the items found and seized were left over by the company when her brother in law purchased the flat form a subsidiary of China Rich Holdings, it is too much of a co-incidence that cheque books in relation to Famous Capital and Ivy Fund were found inside the premises occupied by D3. Evasive and Contradictory Evidence 92.I find D3 an evasive witness. She was evasive on numerous occasions and was unwilling to give straightforward answers to simple questions. For example, when Mr Turnbull suggested to her that as one of the signatories of the bank account, D3 should know where the money came from, D3 said these were all company matters, she suggested to Mr Turnbull that he should go and ask D2. On another occasion, D3 said the question put to her should be answered by Yip Kwong. 93.Her evidence is also self-contradictory at times, for example, In the early part of Mr Turnbull’s cross-examination, she was asked if she was able to read the English words “junior secretary” in her employment letter when she was offered the job in 1993 (Exh D1), she answered “Yes”. When she was later asked if she knew the English word “secretary” in the account opening document of Famous Capital with Chekiang First Bank, D3 answered “No” The Credibility and Reliability of D3’s Evidence 94.Despite the fact that D3 has a clear record, I find D3’s evidence both unreliable and not credible. D5 Mr Lo Wah 95.I have borne in mind D5’s clear criminal record when I assess his evidence. How D5 was asked to become a director of King Capital 96.D5’s recollection of the circumstances under which he was asked to be a director of King Capital was vague, he could only say it was a manager of the Accounts Department. 97.D5 admits that he was not clear about the management matters of Wing Fai at the head office and he had no knowledge in the finance and accounting matters about Wing Fai and China Rich Holdings, his background was essentially interior design and he was new to construction works, there was no logical reason why D5, a foreman of Wing Fai at the time, would be asked to be a director of King Capital, which was represented to D5 as a subsidiary of Wing Fai, when in fact it was not. The Reason for the Setting Up of King Capital 98.D5 said the manager told him King Capital was established because the shortage of funds problem suffered by the sub-contractors of Wing Fai often led to delay, suspension and even abandonment of works. King Capital was set up to help the sub-contractors to solve their problem of shortage of funds. 99.I do not see how the setting up of King Capital could help to ease the shortage of funds problem faced by the sub-contractors. Wing Fai ordered construction materials from the suppliers and contractually Wing Fai was the one who had to pay the suppliers for the construction materials it ordered. Even if the sub-contractors had to pay for the construction materials used in the projects undertaken by Wing Fai, King Capital was not even on the list of government approved suppliers, I do not see how the setting up of King Capital could help the sub-contractors with the problem of shortage of funds in the acquisition of materials. The Cheque of $3.5million 100.For the cheque of $3.5 million, the subject matter of Charge 13, D5 was asked, to his understanding, where the money came from. D5 said as King Capital was a subsidiary of China Rich Holdings, definitely it would be given funds to operate though he had no idea as to the details of the fund flow. If the money for the cheque came from China Rich Holdings, as D5 suggested, then there was no need to set up King Capital at all, China Rich Holdings could have simply advanced the sum to the sub-contractors. 101.D5 said the purpose of the $3.5 million cheque to Ivy Fund was to solve the problem of funding, according to what was written on the piece of paper that accompanied the cheque. But the facts remain: D5 did not know the company Ivy Fund at all; he would not know what Ivy Fund did and he did not know how Ivy Fund processed its fund flow. Matters Not Put to Witnesses 102.If it is D5’s case that the shortage of funds problem on the part of the sub-contractors had led to delay, suspension in Wing Fai works, and even abandonment of works at the sites, these matters must be within the knowledge of Mr Lo and Mr Chim. At no time did Mr Chan put these matters to the witnesses during Mr Chan’s cross-examination of Mr Lo and Mr Chim. Assessment of D5’s Evidence 103.Despite the fact that D5 has a clear record, I find his evidence both unreliable and not credible. FINDINGS Conspiracy to Defraud Were Famous Capital and King Capital Suppliers of Wing Fai? 104.I accept the evidence of Mr Lo and Mr Chim that they had not heard of Famous Capital and King Capital and these 2 companies had never supplied concrete mix, asphalt and steel bars to Wing Fai. Given Mr Lo and Mr Chim’s positions in Wing Fai and their experience with the company, I am sure that they know who were among the suppliers of Wing Fai at the material time. 105.The IRDs’ records of Famous Capital and the absence of record in relation to King Capital go some way to support Mr Lo and Mr Chim’s evidence that Wing Fai did not have any dealings with Famous Capital and King Capital. 106.The records kept by the Drainage Services Department support Mr Lo and Mr Chim’s evidence that Famous Capital and King Capital were not Wing Fai’s suppliers for the projects of the Drainage Services Department. 107.I accept Mr Lo and Mr Chim’s evidence that Famous Capital and King Capital were not on the list of government approved suppliers. Wing Fai had no reason to order materials could not be used at its 5 government projects. For the small works that remained at the material time. They would not require use of large amount of concrete mix, asphalt and steel bars. 108.As Wing Fai did not have any construction project on the Mainland at the material time, it is impossible that Wing Fai would order the construction materials of the 11 LCs and transport them to the Mainland, the issue of technical feasibility apart. 109.I find as a fact Famous Capital and King Capital were not, and had never been suppliers of construction materials to Wing Fai. Did the Underlying Transaction relating to the 11 LCs exist? 110.It follows from the preceding discussion that the underlying transactions relating to the 11 LCs did not exist, in other words, the 11 transactions were all bogus in nature. Economic Loss/Risk of Economic Loss/Non-economic Loss 111.I do not agree with the Prosecution’s submissions that the issuing banks had suffered economic loss in that the banks had been deprived of the use of the funds which, but for the fraud, would have been available for use by the banks. Given the fact that all the 11 LCs had been settled and the banks had charged and received interest payment for the credit facilities used by Wing Fai, I do not think it can be said that the banks had suffered economic loss. 112.I find that as the underlying transactions were bogus and the goods referred to in the 11 LCs did not exist, the economic interests of each of the issuing banks were put at risk. I accept as true the contents of the bankers’ affirmations that the banks would look to the goods, the subject of the LCs, in the first instance to secure repayment of the funds advanced under the LCs. If the goods did not exist, the banks’ economic interests were put at risk in that they might not be able to secure total reimbursement of the funds owed to them. 113.I appreciate that construction materials, like concrete mix, asphalt and steel bars, once used, cannot be seized by the issuing banks. The very nature of concrete mix, asphalt and steel bars makes the risk more apparent and realistic in that, without the goods, the issuing banks could only resort to collaterals put up by the applicant. 114.I agree, therefore, with the Prosecution’s submissions that the fact that the banks suffered no loss does not mean that at the time the LCs were issued and payment made thereunder they were not at risk of economic loss. The collaterals and guarantees put up by China Rich Holdings would only be as good as they were at the time of the enforcement. There was no guarantee that China Rich would remain in a sound financial position, after all we are concerned with risk of economic loss, not actual loss to the issuing banks. On the part of Wing Fai, the applicant of the LCs, its financial situation was not in good shape when it was sold in April 2002. In July 2002, a winding up petition was presented by its creditor. 115.I find that each of the issuing banks had also suffered non-economic loss as a result of the fraud practiced on the banks; the banks’ rights had clearly been prejudiced. A state of affairs had been brought about as a result of which each of the issuing banks was deceived into acting to the prejudice of its rights. As a result of the fraudulent acts in the course of the application, negotiation and payment procedure in relation to each LC, the issuing bank concerned had acted to the prejudice of its rights by the issue of the LC, the acceptance of the negotiation and the payment made thereunder. Had the true state of affairs been known to the issuing bank, it would not have issued the LC, accepted negotiation and made payment under it when called upon to do so. Dishonesty 116.In my judgement, an agreement which involved:-
where there was no underlying commercial transaction relating to the said LC, must be dishonest according to the two-stage test as set out in Ghosh. Intent to Defraud 117.In my judgement, a person who participated in an agreement to do the overt acts in the preceding paragraph with the knowledge that there was no underlying commercial transaction relating to the LC intended to practice a fraud on the issuing bank in question, that person also intended to act to the prejudice of the rights of the issuing bank. Agreements to Defraud the Banks (Charges 1 to 11) 118.For the 11 LCs relating to Charges 1 to 11, a fraud had successfully been practiced on the issuing bank concerned. In my judgement, a fraud like the ones in this case could not be practiced single-handedly by a person. Each of the 11 LCs required the use of a beneficiary company, Famous Capital for Charges 1 to 10 and King Capital for Charge 11. Each fraud also required the use of an applicant company, ie Wing Fai for all 11 LCs in question. Each fraud, in order to succeed, required participation by and co-operation between at least one person from Wing Fai, the applicant company, and one from the beneficiary company. 119.I have no doubt that for each of the 11 fraudulent LC transactions, D1 was a participant, she caused applications be prepared by PW1 Miss Ip and she signed on Wing Fai’s documentation, eg the application forms and the trust receipts. I am sure that D1, as the Financial Controller and Deputy Chairman of China Rich Holdings, and one of its Executive Directors, was aware that the underlying transactions for all 11 LCs were all bogus in nature. From the evidence before me, I have no doubt that at the material times for Charges 1 to 11, D1 had participated in each of the 11 agreements to defraud the issuing banks and she remained in all the agreements throughout. 120.I am sure that the participant(s) from the beneficiary company for each of the LCs, be it Famous Capital or King Capital, must be trusted with the knowledge that there was no transaction throughout. If the handler of the beneficiary company thought all along the transactions were genuine, and handled the LC applications as if they were genuine, there was every chance that he or she might find out the true colors of the transactions and report the fraud to the police. 121.I am sure that for each of the 11 LCs, it was a fraud committed by at least 2 persons, not by a lone fraudster. 122.I am sure that for each of the fraud, there was an agreement to defraud the issuing bank in question Was D3 a Party to Any Agreement to Defraud the Banks (Charges 1 to 10)? 123.The evidence of D3 reveals that she had contact with D1 after she joined Wing Fai. D3 says she was employed by China Rich Properties but paragraph 10 of the Admitted Facts states that she worked in the Accounts Department of Wing Fai. D3 admits D1 had given her instructions in the past. 124.D3 was a director of Famous Capital and a signatory to Famous Capital’s bank account. D2, the daughter of D1, was also a director of Famous Capital and a signatory to Famous Capital’s bank account. 125.D3 could sign singly on the bank account. She signed a total of 28 cheques of Famous Capital relevant to Charges 1 to 10. 126.In respect of the 1st to the 10th LC, the Application for Bills of Collection or Negotiation for each of them was signed by D3 on behalf of Famous Capital. D3 also signed the invoices on behalf of Famous Capital. 127.I reject D3’s claim that she did not understand the contents and nature of the documents she signed. I agree with the Prosecution’s submissions at paragraph 87(d) of its closing submissions that “If she did not have such knowledge it could be possibly disastrous for the co-conspirators if an honest person was unknowingly participating in the scheme may discover the criminal activity half way through. This may cause the scheme to unravel and result in matters being reported to the authorities…” 128.I agree with the Prosecution’s submissions that it would be inconceivable for D3 to be put forward as the person to whom the IRD should make enquiries if they so wished concerning the matters of Famous Capital if D3 was ignorant about the affairs of Famous Capital, as she sought to portrait in her evidence. 129.In my judgement, D3 was the contact person “Miss Ye” in the collection forms. D3 was the only person in Famous Capital with the surname “Ip”. “Ye” is the Mandarin word for “Ip”. In my judgement, a Miss “Ye” was put forward as the contact person in the collection forms because PW1 Miss Ip Ngai Man was made the contact person for Wing Fai in the LC applications; For the purpose of diverting any enquiry telephone call to the right person and not to cause any suspicion, it was necessary to differentiate between the two contact persons, ie PW1 for Wing Fai and D3 for Famous Capital, hence, the use of “Miss Ye” for Famous Capital. For the correspondence between the IRD and Famous Capital, there was no need to differentiate between the Ips, therefore the name of Mandy Ip was used. 130.Looking at the fund flow set out in paragraphs 34 to 48 of the Admitted Facts, one can see that some of the proceeds were used to pay for the purchase of the shares of China Rich Holdings by D3, a person named Wong Hon Wah and D1(paragraphs 19 and 46 of the Admitted Facts). 131.Godfrey Mak, one of the payees, was one of the two authorized signatories to GreaterChinaherbs.com’s bank account with Standard Chartered Bank. D1 was the other authorized signatory (D1 and D3 were authorized signatories to GreaterChinaherbs.com’s bank account with DBS Kwong On Bank). 132.For Ivy Fund, one of the payees, D2 was a director of Swift Finance Limited, which was the sole director of Ivy Fund. D2 was also the sole authorized signatory of Ivy Fund’s bank account. After the cheque in the sum of $1.9 million to Ivy Fund was deposited into its account, D2 signed a cheque in the sum of $1.4 million in favour of Asia Land. From paragraphs 14 and 22 of the Admitted Facts, one can see that D1 was a director of Asia Land and an authorized signatory of Asia Land’s bank account. 133.Two cash cheques were deposited into D3’s bank account with Hang Seng Bank (Paragraphs 39 and 46 of the Admitted Facts). 134.9 cheques were issued in favour of Wing Fai. Famous Capital, the seller, was paying money back to Wing Fai, the buyer of the construction materials. 135.4 cheques were issued to Fitzroya, a wholly owned subsidiary of China Rich Holdings. D1 was one of the two directors of Fitzroya. D1 and D3 were the authorized signatories of Fitzroya’s current account with DBS Kwong On Bank. D2 was also one of the authorized signatories of Fitzroya’s accounts with the Kwangtung Provincial Bank. 136.From the evidence, I find that:-
137.The use of the proceeds of the LCs to pay for shares purchased in D1 and D3’s name shows that they were acting in concert. D3 had benefited financially from her participation in the fraudulent scheme. 138.In my judgement, D3 who signed all the cheques in question, had to know why the cheques were issued and the use of the funds. 139.The fact that cheque books, documents and chops of Famous Capital and Ivy Fund were found in the residence of D3 supports the Prosecution case that D3 was a party to each of the conspiracies to defraud the issuing banks in relation to Charges 1 to 10. D3 was not only trusted with the important task of signing the collection documents and invoices for the LC transactions, she was also trusted with the documents and chops of Famous Capital and Ivy Fund. 140.The only inference I can draw from the evidence is that D3 was a trusted employee of China Rich Holdings, and she was so trusted by D1 that she could be relied upon to carry out instructions concerning the LCs under which Famous Capital was the beneficiary. 141.I further draw the only irresistible inference that she had knowledge why Famous Capital had been established and what she was required to do in relation to Famous Capital. She knew that the underlying transactions for the 1st to the 10th LC did not exist. She was not an innocent agent used by other fraudsters. She participated in the falsification of documentation, ie invoices of Famous Capital, used in the negotiation of process. She also caused and permitted payments to be made under the LCs by submitting the collection orders to the banks. All along D3 was not in the dark, instead, she was in the know. 142.I find it proved that D3 was a party to an agreement with D1 and D2 to defraud the issuing banks as specified in Charges 1 to 10. Dealing with Proceeds of an Indictable Offence (Charge 12 against D3) 143.It is an admitted fact that the 28 cheques of Famous Capital referred to in paragraphs 39 to 47 of the Admitted Facts were all signed by D3. 144.The Admitted Facts show that the aforesaid 28 cheques moved the proceeds of the negotiation of the 1st to the 10th LC from the current account of Famous Capital to the accounts of the various payees, saved for some cash cheques. 145.In my findings, D3 had dealt with the proceeds of the negotiation of the 1st to the 10th LC. 146.I find that the proceeds of the negotiation of the 1st to the 10th LC were proceeds of an indictable offence (I am aware that the sum total of the 28 cheques signed by D3 includes proceeds of some LCs which were not made subject matter of any LCs charged). 147.Given my findings that D3 was a party in the conspiracies to defraud the issuing banks for the 1st to the 10th LC, D3 had dealt with the proceeds of an indictable offence with knowledge. Was D5 a Party to an Agreement to Defraud Standard Chartered Bank (Charge 11)? 148.The Prosecution concedes in its closing submissions that there is no evidence that D5 was involved in either (i) causing and permitting the making of the application for the 11th LC or (ii) causing and permitting the falsification of documentation required for the negotiation of the 11th LC. 149.The Prosecution relies on the fact that D5 was a director of King Capital, the beneficiary under the 11th LC and that he was one of the 2 joint signatories to the bank account of King Capital. The Prosecution argues that D5 can be held responsible for causing and permitting payment be made to King Capital pursuant to the negotiation of the 11th LC. 150.In my judgement, there is insufficient evidence to prove that D5 knew that King Capital was involved in any LC application or that King Capital was a beneficiary under any LC. There is insufficient evidence to prove that D5 knew that the $3,508,739.97 that went into the bank account of King Capital was the proceeds of the negotiation of the 11th LC. There is insufficient evidence to prove that D5 knew that the money in the bank account of King Capital was proceeds of a LC. 151.Bearing in mind the high burden of proof that the Prosecution has to discharge, on the evidence before me, I cannot be sure that D5 was a party to an agreement to defraud Standard Chartered Bank. Dealing with Proceeds of an Indictable Offence (Charge 13 against D5) 152.As I cannot be sure that D5 had taken part in a conspiracy in relation to the 11th LC, on Charge 13, it cannot be proved that D5 had knowledge that the property he dealt with, ie the cheque in the sum of $3.5 million, represented proceeds of an indictable offence. The Prosecution, in order to succeed, must prove that D5 had reasonable grounds to believe the property was criminal proceeds. Dealing With Property 153.I have no difficulty in accepting that D5 had dealt with the property in question; it was D5 who signed the cheque in question which moved $3.5 million from King Capital’s bank account to that of Ivy Fund. Proceeds of Indictable Offence 154.I further find that the underlying transaction for the 11th LC did not exist and the transaction was a bogus one. From the evidence of Mr Lo and Mr Chiu, I am sure that King Capital had never supplied construction materials to Wing Fai. 155.I accept the evidence of Mr Lo and Mr Chim that Wing Fai had no construction projects on the Mainland hence it had no reason to order construction materials and transport them to the Mainland. It is clear from the evidence that King Capital was not on the list of government approved suppliers, so Wing Fai had no reason at all to order construction materials from King Capital, knowing the same could not be used in the government projects in Hong Kong. For the other unfinished small projects of Wing Fai, they did not call for purchase of large quantities of concrete mix, asphalt and steel bars for these small projects had basically been completed, subject only to some minor works. The fact that no record of King Capital could be found in the records of the IRD supports the finding that King Capital had not carried on any business. 156.From the evidence before me, I have no difficulty in finding that there was an agreement between D1 and D4 to defraud Standard Chartered Bank and the $3.5 million was proceeds that flew from the negotiation of the 11th LC. Facts and Objective Factual Circumstances known to D5 157.I find that the following facts and circumstances were known to D5 at the material time:-
The Objective Element 158.Processing the aforesaid facts and objective factual circumstances to the mind of a commonsense right-thinking member of the community, in my judgement, this person possessed of the aforesaid facts and objective factual circumstances, objectively would consider them sufficient to lead a person to believe that the cheque in the sum of $3.5 million constitutes the proceeds of an indictable offence. 159.I agree with the Prosecution’s analysis that one of the possibilities that would have crossed the mind of a right-thinking member of the community is that the setting up of King Capital in the circumstances, be it a subsidiary of China Rich Holdings or otherwise, involving the appointment of relatively low ranking staff members of Wing Fai to become directors with signing rights to bank accounts to solve money problems may involve illegal activity. 160.D5 emphasized in his evidence that he trusted China Rich Holdings as it was a listed company. In my judgement, when China Rich Holdings embarked on the aforesaid course, D5 must have detected the anomaly. It must have crossed the mind of D5 that, the company which he acted as a director and one of the signatory to its bank account, was involving in some criminal activities, hence a puppet like D5 was used to fill the directorship and perform the task of cheque-signing. Conclusion 161.For the reasons given, I find D3 guilty of Charges 1 to 10 and 12. 162.I find D5 not guilty of Charge 11 but guilty of Charge 13.
Please refer to CACC445/2013 for the relevant appeal(s) to the Court of Appeal. | |||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under DCCC 153/2010