HKSAR v. Ho Wing on, Tony and Others

DCCC 326/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 326 OF 2014

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Reasons for Sentence in respect of D2 and D3

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Charges

1.D1 and D2 face 10 charges of fraud (1^st – 10^th Charges).  D3 faces 1 charge of money laundering (11^th Charge).  D1 denies all 10 charges and is acquitted altogether after trial.  After D2 has completed the evidence of its third defence witness and closed his case, D2 and D3 plead guilty to their respective charges. 

Case against D2 and D3

2.D1 was the younger brother of D2.  Their father, HO Wing-kin, founded a company known as Yue On Offset Printing Factory Company Limited (“Yue On”).  HO Wing-kin had become advanced in age and handed over the operations of Yue On’s office to D2 and of its Dongguan factory to D1 respectively.  The shareholding ratio for D1, D2 and HO Wing-kin was 7:6:7.  

3.Wing Hang Bank (“the Bank”) was the bank used by Yue On.  Either D1 or D2 alone could operate the account.  Yue On was granted a standing credit line of up to $2,200,000 based on a portfolio of real property owned by the family members of D1 and D2.  Upon receiving goods from its supplier, Yue On could submit the invoice and the Bank’s loan application form duly filled out for the Bank to pay the supplier directly.  The Bank would grant such a loan upon being satisfied that it was a genuine transaction and that the goods would stand as the Bank’s security until Yue On had fully repaid the Bank.  Yue On had to rely on these loans because its suppliers would often demand payment from it before it in turn received payment from its customers.

4.In near October 2011, D2 hatched a scheme with Madam LO Kai-wah (PW2) to defraud the Bank.  She was the accounts clerk stationed in the Hong Kong office but also responsible for all accounts in the Dongguan office.  D2 informed her of the setting up of a dummy company to be run by D3, later known as Royal Richly Trading Limited (“RRT”).  The scheme involved D2 making 10 loan applications based on bogus invoices purportedly evidencing transactions of paper materials supplied by RRT to Yue On.  There were actually no paper materials delivered by RRT or received by Yue On. 

5.The 10 charges mirror the 10 loans in October to December 2011 that the Bank had granted to Yue On upon the 10 applications being made by D2 or to D2’s order.  Each purported to be based on an invoice for goods received by Yue On from RRT.  D3 was the younger brother of D2’s common law wife.  D2 put up D3 as the official sole director and shareholder of RRT.  All 10 transactions were bogus.  There were no goods supplied by D3 or received by Yue On.  RRT in turn returned the monies from the Bank received in its Chiyu Bank account to the order of Yue On.  D3 was the sole signatory to that account.  This arrangement enabled Yue On to have its business debts or expenses paid despite its liquidity plight.  Based on the 10 loan applications made by D2 or to D2’s order, the Bank had paid RRT $2,340,853.80 in total.  

6.The Bank would not have granted the 10 loans if it had known that the purported transactions were bogus.  Yue On’s security to the Bank by virtue of the goods, which did not exist, would put the Bank to the risk of losing out on an unsecured loan as a result of being defrauded to believe that the goods were a security in hand.  The Bank did not suffer any actual loss as Yue On had repaid the 10 loans in time.   

7.In order to inform D2 of the flow of monies redirected from RRT to Yue On, Madam LO had in turn sent 4 timely emails to D2 with attachments of spreadsheets setting out how RRT’s monies were applied, in accordance with D2’s instructions, to the order of Yue On in settlement of Yue On’s business debts and expenses. 

8.D2 was the instigator of the fraud on the Bank whereas D3’s role was to permit the false invoices to be prepared and then apply the monies received from the Bank to D2’s order for the discharge of Yue On’s business debts and expenses.   

Personal background and mitigation

9.Mr. Cheung represents both D2 and D3 at trial and in mitigation. 

10.D2 is 56 years of age.  He has a clear record except for a theft in 1974.  As a result, he was cautioned and discharged. 

11.His common law wife is D3’s elder sister. His 2 daughters, aged 20 and 18, are in university whereas his son, aged 11, is in primary school.  Before arrest, his monthly income was about $100,000.  He is the sole breadwinner.  His family will have to live on past savings during his prison term.  

12.Upon his father’s retirement in 2004, Yue On had been run by him and D1.  Their parents were not in good health.  It was the reason why he did not want to worry them about Yue On’s finance.  He had ceased to look for new customers after his arrest.  Business turnover had dropped 80%.  

13.D3 is 44 years of age.  He has a clear record.  He is married and his wife lives in Shenzhen.  After his father’s death, he takes care of his mother, whose eyesight has deteriorated.  His sister had introduced him to D2, who placed him to work for Yue On, when he was 21 years of age.  His last monthly salary in Yue On was $12,000.  He resigned from Yue On so that he could carry out his part of the fraud in the name of RRT.  Upon resignation, there was a balance of employer-contributed MPF in his favour, about $100,000 in total, which he was able to receive not long afterwards from Yue On.  According to the Skeleton Submissions of D2 and D3 in mitigation (MFI-1), at the time he committed the offence, he was earning about $14,000 per month and after his arrest, his salary fell to $6,500 per month. Mr. Cheung has initially informed me that after his resignation, he worked under D2 full-time in Yue On’s Dongguan factory.  The $14,000 per month was not a matter of reward for his part in the fraud or money laundering. 

14.I indicate to Mr. Cheung that this allegation (of continuing to work full-time in Yue On’s Dongguan factory for D2 after resignation) is not consistent with the evidence of the 3 defence witnesses in the witness-box during the trial.  They have been called on behalf of D2 and their evidence has not been challenged by D3.  They consistently say that D3 had not worked for Yue On’s Dongguan factory after his resignation.

15.There are mitigating letters from D2’s and D3’s family members (MFI-2).  D2 is said to be a nice person, caring husband, father and son.  He spends much time with his family.  D3 is said to be a filial son and loving husband.  There is a mitigating letter from D1 praying for a lenient sentence on D2 and D3.  It also alleges that D3 had continued to work full-time in Yue On under D2 after resignation.  It does not specify the location of D3’s post.  Mr. Cheung informs me that it means to the Dongguan factory. 

16.Before receiving D1’s said mitigating letter, which came in after mitigation in court (ie 24 February 2015) but before the return day for delivery of Reasons of Sentence (ie 10 March 2015), I have (on 24 February 2015) asked Mr. Cheung whether we need a Newton hearing to ascertain the state of employment on the part of D3 after his resignation from Yue On.  Mr. Cheung takes instructions from D3 and eventually abandons this allegation.  Today (ie 10 March 2015), I alert Mr. Cheung that this issue of what D3 had been doing after his resignation is highly relevant to my consideration of whether the $14,000 per month received by D3 had been as a reward for his part in the bank fraud.  Mr. Cheung confirms anew that D3 will stick to the same abandonment. 

17.Given that there were regular staff in Yue On working for and under D2 after D3’s resignation, I do not see what kind of work such regular staff could not cover so that D3 would have to do it for and under D2 outside Yue On’s organizational structure.  I will sentence D3 on the basis that he had been receiving $14,000 per month as a reward for his part in the bank fraud.   

18.Mr. Cheung informs me that D2 accepts, as possibly an aggravating factor in sentence, that in attempting to enlist D3’s assistance in the fraud, D2 had worried him about Yue On’s financial plight.  Fearful that his job could not outlive Yue On, he agreed to take part in D2’s fraud. 

Sentencing considerations

19.The prosecution put forward 2 cases, HKSAR v Cheung Mee Kiu [2006] 4 HKLRD 776 and HKSAR v Ng Kwok Wing [2008] 4 HKLRD 1018, which state the sentencing guidelines for theft involving a breach of trust.  For the amount of $1,000,000 to $3,000,000, the starting point is 3 to 5 years.  Our present case does not involve any breach of trust or any major aggravating feature.  The relevance of the sentencing guidelines is perhaps to delineate a starting point which we shall not exceed. 

20.Mr. Cheung asks for a suspended sentence on behalf of D3.  He relies on the case of HKSAR v Chau Kin (D2) DCCC 1176/2012, which he says bears features similar to D3’s case and personal circumstances.  The defendant there pleads guilty to 6 charges of fraud.  She was a shipping clerk.  In a span of 5 months, she had forged bills of lading as supporting documents to procure 9 bank loans, about $4,700,000 in total, for the use of her employer.  The loans were repaid on the due dates or shortly by her employer afterwards.  Her supervisor had instructed her to forge the documents because the employer was under pressure to make payments to its suppliers.  At that time she was pregnant with twins and was the main breadwinner of the family.  She had been dismissed from her previous employment because of pregnancy.  She believed that if she did not do as instructed, she would lose her job.  She did not have or expect any reward for her fraud. After the arrest, she continued to work for her employer. 

21.She was sentenced to 12 months suspended for 2 years.  Mr. Cheung refers to para. 29 of the Reasons for Sentence where the learned judge explained as follows why he suspended the sentence:

Taking into account [1] the role of the defendant in the fraud; [2] her plea of guilty; [3] her clear record; [4] the long period of time taken to charge the defendant during which time the defendant can be said to have rehabilitated herself; [5] 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. (my numbering and underlining)

22.Mr. Cheung accepts that [2], [3], and [5] above do not normally qualify as “exceptional circumstances”.  In respect of [4], the learned judge had already used the element of delay, of 22 months from arrest to charge, to reduce the sentence by 2 months in para. 19 of the Reasons for Sentence.  It is not in plain wording but it seems that the learned judge regarded her continuous employment with her employer after the arrest as a form of rehabilitation.  In the premises, “the exceptional circumstances” must have been factors [1] and [4]. 

Sentencing D2 and D3

23.D2 was the instigator.  He had worried D3 by revealing to D3 Yue On’s financial plight.  The Bank had paid out $2,340,853.80 in total to RRT in 3 months.  As the 10 loans were part and parcel of the same bank fraud, I take a starting point of 3 years for each charge and will order all sentences to run concurrently.  I give him a discount of about 22%, ie 8 months, for his pleas of guilty tendered after the close of his defence case.   As Yue On’s security portfolio looked substantive, there was a low risk to the Bank for default in payment.  The Bank actually suffered no loss. I take 6 months off for this low-risk and no-loss scenario.  On account of children, who will be deprived of the benefit of his fatherly role when he serves his prison term, I take a further 2 months off.  There are no other mitigating factors.  The sentence is 20 months for each charge, all sentences to run concurrently. 

24.In respect of the money laundering charge against D3, I take a starting point of 16 months.  I discount it by 25%, ie 4 months, for his plea tendered before his defence case.  There are no other mitigating factors.  His sentence is 12 months. 

25.There are 3 aspects which set him apart from Chau Kin in addressing the issue of suspended sentence.  First, whilst D2’s instigation could have given him certain pressure, his situation was not as dire or helpless as Chau Kin.  I also note from the mitigating letters for D2 that D2 was universally commended as a nice person.  Alone or possibly aided by his elder sister or the 2 other shareholders, including HO Wing-kin, who wrote in to commend his good character and mitigate for him, he could have reasoned with D2 to abort the scheme. 

26.Secondly, our present case did not remotely feature any element of delay on the part of law-enforcement agents or rehabilitation on his part in the meantime. 

27.Thirdly, as I have already alerted Mr. Cheung as to whether to hold a Newton hearing, absent a plausible explanation of what he had done to earn the $14,000 per month in the offending period, I am inclined to hold that it represented his reward for the fraud and money laundering.  For her part in the fraud, Chau Kin had not received or been promised any reward. 

28.I find no exceptional circumstances to suspend his sentence.