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 Verdict
in respect of D1
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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).  D2 and D3 plead guilty whereas D1 denies the charges.  This is the Judgment in respect of D1 upon completion of his trial. 

The case against D1

2.D1 was the younger brother of D2.  They took up the operation of Yue On Offset Printing Factory Company Limited (“Yue On”) from the hands of their father, the founder.  D2 was responsible for its Hong Kong office whereas D1 was responsible for its factory in Dongguan, China.  The shareholding ratio for D1, D2 and the father was 7:6:7.   

3.Wing Hang Bank was the bank used by the company.  Yue On was granted a standing credit line of up to $2,200,000.  Upon receiving goods from its supplier, it could submit the invoice and the bank’s loan application form duly filled out for the bank to decide 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 loan to the bank.  Yue On had to rely on these loans because its supplier would often demand payment from it before it in turn received payment from its customer. 

4.The 10 charges mirror 10 loans in October to December 2011 that the bank had granted to Yue On upon 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 D3’s company, Royal Richly Trading Limited (“RRT”). D3 was the younger brother of D2’s common law wife.  In fact all 10 transactions were bogus.  There were no goods supplied by D3 or received by Yue On.  RRT soon returned the majority of the monies received in its bank account to the order of Yue On.  Yue On would use the monies to pay its business debts or expenses.   

5.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.    

6.D1 was present during a lunch meeting with D2 and PW2, who is the immunity witness then working as the accounts clerk.  In the meeting, D1 and D2 discussed the setting up of the dummy company to be run by D3, from which funds would come back to Yue On.  After the meeting, D1 twice told PW2 to keep an eye on how D2 used the money which would come back to Yue On from the company run by D3.  Later PW2 kept D1 informed by sending him the spreadsheets which showed precisely how the money coming back from the invoice financing loans was being used to the benefit of Yue On. 

7.According to PW2, before October 2011, D1 had been expressly suspicious of D2’s misconduct in respect of D2’s dealings on behalf of Yue On with 2 companies, Wing Lok and Sunray respectively.  D1 held discussions with PW2 as to what steps to take.  D1 also told PW2 that he (D1) had also discussed with their father.  PW2 provided copies of invoices relating to Wing Lok and Sunray to D1 for his internal investigation.  D1 reported the Wing Lok and the Sunray matters to ICAC on 21 January 2012.  However, D1 did not reveal to ICAC any of his suspicion of D2 defrauding Wing Hang Bank with RRT until 6 March 2012. 

8.Insofar as the monies redirected from RRT to Yue On were concerned, PW2 had in turn sent 4 timely emails to D1 and D2 with attachments of spreadsheets setting out how RRT’s monies were applied to the order of Yue On in settlement of the latter’s business debts and expenses. Subsequent to the emails, PW2 had met and spoken to D1 about the spreadsheets. D1 did not express any problem with them.

D1’s role

9.I find PW2 an honest and reliable witness despite her being an immunity witness.  She has given a fair account of D1’s role in the events surrounding the conspiracy. 

10.There is no doubt that the fraud was to the benefit of Yue On.  Being a 7/20 shareholder of Yue On, D1 would likewise benefit from it.  D1 was most concerned to ask PW2 to monitor what D2 was doing with the money coming back to Yue On from D3’s company.  There is evidence that by virtue of the spreadsheets emailed to D1 from time to time, D1 had been updated of how money coming from RRT had been applied, item by item, to the order of Yue On.  PW2 said emailing D1 was a regular way to notify D1 of affairs in Yue On.  PW2 had also met D1 and spoken about the spreadsheets.  D1 did not express any problem with them.  If D1 had not received or understood the spreadsheets, D1 would have make accusations against PW2 and D2 there and then.  I reject the defence argument that D1 might not have received or read the spreadsheets when they were emailed to D1.

11.According to the evidence of ICAC Investigator Alfred CHAN (PW5), at an interview on 12 March 2012 at ICAC office, D1 admitted that he had first become aware of the 10 fraudulent loan applications in mid-October 2011 when PW2 told him so.  The defence argues that such admission had not been properly recorded.  I find PW5 an honest and reliable witness.  In my view, the crux of his admission had not been missed by CHAN. 

12.Be that as it may, there is no evidence of any part D1 had agreed to take, or had taken, in the conspiracy except the request to be informed of the development. 

13.Mr. Dunn for the prosecution refers me to the case of R v Alford Transport & Ors [1997] 2 Cr App R 326 cited in Hong Kong Archbold 2015 at para 17-18 for the proposition that “[i]nactivity may exceptionally found liability for aiding and abetting, where knowledge of the principal’s offence, plus an ability to control his actions, coupled with a deliberate decision not to exercise such control is proved”.   I think it absolutely clear that no part of the loan application, ie the false representation, to the bank would involve D1’s concurrence.  D2 could have made out, and did make out, the loan application, ie the false representation without D1’s concurrence.  D1 may warn the bank before or after the loan application, but he would have no “ability to control [D2’s] actions” when the actions, consisting of filling out and signing the forms in D2’s own name, are in the course of taking place.    

14.It is most suspicious on D1’s part that he reported only the Wing Lok and the Sunray matters to ICAC on 21 January 2012. After all, he was most committed to unfolding evidence against D2 at all material times.  As he was regularly emailed the spreadsheets in time, he would be in a position to report the RRT fraud not later than January 2012.  There was no plausible reason for his delay to inform ICAC of it until 6 March 2012. He provided copies of the 10 loan applications to ICAC on 8 March 2012.  

Verdict

15.D2 and PW2 might have thought D1 was their co-conspirator.  However, D1’s purpose in participating in the discussion with D2 in the setup of D3’s company was to benefit from it without putting his foot in it.  He was most high-handed in getting D2 to stick out his (D2’s) own neck on the 10 loan applications whilst he sat back and reaped from the proceeds. He had known of the conspiracy from the outset but not taken any role in it. His conduct throughout has been highly suspicious but in terms of proof in order to convict, the prosecution has not proved that he had agreed to do anything in the conspiracy.  He is acquitted of all 10 charges.