HKSAR v. SZE MEI MUN AND OTHERS

DCCC 3/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 3 OF 2011

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Reasons for Verdict

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1.  The five defendants in this case face a joint charge, that is Charge 1, of conspiracy to export unmanifested cargo, contrary to section 18(1)(b) of the Import and Export Ordinance, Cap.60 and section 159A of the Crimes Ordinance, Cap.200, Laws of Hong Kong. The particulars being that they between 31 May 2009 and 1 February 2010 conspired together and with Cheng Kam-shui, Feng Jiu, Chen Ruihong, Huang Shunping, Shi Rubin and others unknown to export unmanifested cargo, namely marked oil.

2.  Charges 2 to 8 are all charges of dealing with property known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap.455, Laws of Hong Kong.

3.  Charge 2 alleges that D1 and D2 during the prosecution period, that is between 31 May 2009 and 1 February 2010, dealt with the sum of $2,623,226,783, knowing or believing it to represent, in whole or in part, the proceeds of an indictable offence. 

4.  Charge 6 is a similar charge against D1 and D2 and alleges that they on 3 May 2010 dealt with the sums of RMB7,141,300 and HK$9,812,800, knowing or believing it to be, in whole or in part, the proceeds of an indictable offence.

5.  Charges 3, 4 and 5 are individual charges against D3, D5 and D4 and allege that they during the prosecution period dealt with the sums of $117,836,926, $46,151,014 and $103,802,315, respectively in whole or in part, knowing or believing these sums to be the proceeds of an indictable offence.

6.  Charge 7 is a joint charge against D1, D2 and D3 and alleges that they on 3 May 2010 dealt with the sum of $627,000, knowing or believing it to represent, in whole or in part, the proceeds of an indictable offence.

7.  And, finally, Charge 8 is a charge against D5 only and alleges that she on 3 May 2010 dealt with the sum of $3,050,000, knowing or believing it, in whole or in part, to represent the proceeds of an indictable offence.

8.  Broadly stated, all of the abovementioned charges arise out of the investigations into the affairs of a company called Chi Sing Development Ltd who I will refer to throughout this ruling as “CSDL” and surveillance of its officers by personnel from the Investigation Unit and Special Task Force of the Customs & Excise Department.

9.  CSDL is a privately run family business whose principal business activity is the trading of maritime gasoline, commonly known as red oil or marked oil.  D2 and D3 are the sole directors of this company in which each of them have a 50 per cent shareholding.

10.  There are two signatories to the bank accounts of CSDL held at HSBC and the Bank of China, and they are D1 and D2 who is the husband of D1.  D3 is D2’s brother-in-law whilst D4 is the son of D3 and is an employee of CSDL.  D5 has no connection with CSDL; she, however, is the wife of a Cheng Kam-shui who, the prosecution allege, was the major mastermind behind the alleged conspiracy.

11.  Putting the matter in a nutshell, it is the allegation of the prosecution that sometime between the middle and late 2009, four mainlanders, that is Feng Jiu (PW197), Chen Ruihong (PW198), Huang Shunping (PW199) and Shi Rubin (PW200) were recruited by Cheng Kam-shui to steer four fishing vessels to Hong Kong from the mainland, each of which had their oil tanks enlarged to accommodate more than 100,000 litres of marked oil.  They were instructed to collect the marked oil from the three oil barges, Chi Shing, Chi Shing 18 and Chi Shing 28, moored at Pak Shek Kok.  The captains of the vessels were given enormous sums of money up to half a million RMB which was passed on to the staff on board the oil barges in exchange for the marked oil.

12.  There is no dispute that the oil barges in question, that is Chi Shing, Chi Shing 18 and Chi Shing 28, were owned by Super Success (HK) Limited, Right Kit Limited and Chi Shing Development (HK) Limited respectively.  Each of these companies was incorporated in Hong Kong and had two directors being D2 and D3.  The three oil barges were in fact hired by Chi Shing Development Ltd from Chi Shing Development (HK) Limited.

13.  During the course of this lengthy trial which lasted some 3½  to 4 months, over 50 prosecution witnesses were called to give oral testimony.  This included the evidence of the four PRC captains whose evidence was taken at the Shenzhen Intermediate People’s Court pursuant to letters of request proceedings.  Those proceedings alone lasted some 11 days.

14.  In addition, 7 sets of Admitted Facts were produced pursuant to section 65C of the Criminal Procedure Ordinance, Cap.221, dealing with matters not in dispute, such as, inter alia, bank accounts, ownership of properties, ownerships of barges, result of house searches and cash deposits made by the defendants, D1 to D4, at HSBC in January 2010, amongst other things.  Those admitted facts were marked as Exhibits P637, P638, P674, P678, P679 and P616. 

15.  It is worth mentioning at this stage that there is no suggestion by the prosecution that CSDL has throughout its existence been involved in the illegal disposal of marked oil.  This company was incorporated in May of 2001 and has since then, save and except the prosecution period, the prosecution suggest, been quite legitimately involved in the trading of marine fuel. 

16.  With regard to Charge 1, it is the prosecution’s case that all five defendants entered into a conspiratorial agreement in the prosecution period with those others mentioned in the charge to export the marked oil being unmanifested cargo.  They suggest that D1 to D5 all had knowledge of and participated in the smuggling activities instigated by Cheng Kam-shui through their close association with CSDL who supplied the oil to the captains of the four fishing vessels.

17.  With regard to the money laundering charges, Charges 2 to 8, these arise, the prosecution suggest, as a result of the monies, either received in the bank accounts of CSDL and the individual defendants over the prosecution period, that is Charges 2, 3, 4 and 5, from premises owned by D1 and D2, Charges 6 and 7, or insofar as Charge 8 is concerned, from money found in a bank deposit box in the name of D8’s daughter. 

18.  Although none of the defendants, as is their absolute right, elected to testify in this case, it is apparent from the way their individual cases were put and from the defence expert who was called on their behalf, DW1, Mr Lai Kam-wing, that they denied ever being involved in any conspiratorial agreement to export unmanifested cargo, nor did they admit dealing in any way with the proceeds, having any knowledge or belief that those monies represented the proceeds of an indictable offence.

19.  Generally put, it is their case that at all times they were involved in the legitimate trading of marked oil which is a business involved in handling massive amounts of money needing a fast circulation of funds to purchase oil and operating at low profit margins.  It is also their case that it is very common for oil traders to sell extremely large quantities of marked oil to the operators of fishing vessels who have had their tanks converted in order for them to fish further afield.

20.  With regard to Charge 1 then, the issues this court has to determine are: firstly, was there ever a conspiratorial agreement during the prosecution period in existence between the five defendants and the co-conspirators named in the charge?  Second, were D1 to D5 members of that conspiratorial agreement?  And, third, did they know and intend that marked oil would be exported from Hong Kong without a manifest?

21.  With regard to them, the remaining charges of money laundering, the issue to be determined is quite simply: did the defendants in relation to each of the individual charges they face, deal in the property that these charges relate to, knowing or having reasonable grounds to believe that it represented wholly or in part the proceeds of the smuggling of marked oil?

22.  Before embarking on a summary of the evidence adduced in this trial, I wish to make it clear that in coming to my conclusions in this case, I have considered each count quite separately and the case for and against each defendant separately on the individual counts they face.  In addition, I am acutely aware that D1 to D4 are persons of good character and I have taken that fact into account in deciding the likelihood or otherwise of whether they have been involved in the commission of each or any of the offences for which they have been charged.

The PRC evidence

23.  Dealing with the evidence taken pursuant to letters of request in the PRC, this came from the four captains of the fishing vessels, PWs 197 to 200.  Each of these witnesses testified under an immunity and each of them were serving prison terms of between 12 and 13 years for smuggling red oil into the PRC.

24.  Collectively, the evidence of the PRC captains was that they received instructions to steer fishing vessels belonging to either Cheng Kam-shui or a person by the name of Hu Ying-gao, from their home port of Au Tou in the mainland to Pak Shek Kok in Hong Kong where they would collect marked oil from oil barges, Bao Shi, Chi Shing, Chi Shing 18 or Chi Shing 28.  They would then return to the mainland for the offloading of the oil.  These instructions came from either Cheng Kam-shui or Hu Ying-gao.  The amount of oil they took on board their oil tanks which had been enlarged to accommodate the volume, varied between some 100,000 litres to approximately 130,000 litres.

25.  The money for the payment of the oil was given to them either before or during the trip to Hong Kong and was given to them in bundles of RMB and, on occasions, Hong Kong dollars, amounting to hundreds of thousands of dollars.  The money was given to them on the instructions of the boss, Cheng Kam-shui. 

26.  Specifically, PW197, who is presently serving 12 years’ imprisonment, said that he was hired by Cheng Kam-shui who he identified by means of a photograph, Exhibit PRC-P3, to smuggle marked oil.  He said he started doing this in about October 2009.  Cheng Kam-shui provided the vessel for him.  He was the master and on board the vessel there were 3 crew members. He was paid 1,500 RMB each month and on each occasion he transported the marked oil, he would be given an extra 250.  His vessel was in Au Tou and he was provided with a mobile phone.

27.  He testified that he would receive phone calls from either Cheng Kam-shui or Hu Ying-gao who would tell him to steer the vessel to Pak Shek Kok in Hong Kong where he would take on board in two tanks oil, normally of 120,800 litres each time.  Only 1200 litres, he said, were required for the round trip from Au Tou to Hong Kong and back.  The money for the payment of oil came from the boss, he said, and it was handed over by him, contained in a black plastic bag at the time that the oil was being pumped into his vessel from the oil barge.

28.  The oil barges he used at the instructions of Cheng, he said, were either Chi Shing, Chi Shing 28 or Chi Shing 18.  The money he paid over was between five to six hundred thousand RMB and it was paid over to someone on the oil vessel.  After payment, he said, he was given a receipt on which he would sign his name Jiu.  One such receipt was shown to the witness who recognized his signature.  This was dated 28 November 2009 and it was produced as Exhibit PRC2 in the PRC proceedings and Exhibit P185E in these proceedings.

29.  After the oil had been pumped on board his vessel and payment made, the witness said that he would make a phone call to the boss who instructed him to go back to Au Tou where the oil was offloaded. PW1 said that he would make such trips to Hong Kong approximately every month. Sometimes he was instructed to go immediately after a trip, or sometimes two days after a trip.

30.  PW198 was Chen Ruihong who is currently serving a sentence of 13 years’ imprisonment for smuggling marked oil.  This witness testified that he used to work as a fisherman in Hong Kong and often would go to Shau Kei Wan; there he got to know Cheng Kam-shui who approached him and asked him to steer a vessel for him to collect marked oil.  After some persuasion, he said, he agreed and the vessel concerned, he said, was called the “Hui Ao 3068” of which he was the captain.  Although the boat was provided to him, he said, in November of 2008, the smuggling did not begin until much later, around September of 2009 as the vessel needed repairs and was often out of order.

31.  In addition, this witness testified to the fact that the tanks of the vessel were modified and enlarged to a capacity of 107 tonnes, which equates to 128,400 litres, from 40 tonnes.  He said this modification was Cheng’s idea.  The witness testified that before sailing to Hong Kong, he would receive a phone call from Cheng Kam-shui telling him to steer the boat to Pak Shek Kok off the coast of Shau Kei Wan.  There, he said, they could obtain oil from any of the oil barges of the Chi Shing Company, either Chi Shing, Chi Shing 28 or Chi Shing 18.

32.  Sometimes, he said, money for the payment of the oil was passed to him by someone on a speedboat.   The money would be, on most occasions, in RMB, but on a few occasions in Hong Kong dollars and in bundles of 100,000 in a black plastic bag.  On other occasions, he said, there would be no cash and he would tell the person in charge of the oil vessel just to settle the payment with the company themselves. 

33.  Usually, the witness said that the amount of oil transferred would be 107 tonnes and after the transfer, the witness would sign on a receipt.  In the event that payment was made by cash, the witness said that after he paid over the cash, he would be shown a book to sign which was in triplicate.  He would be given his copy and after taking a look at it, the instruction from Cheng Kam-shui was to throw it away.

34.  He testified that up until the time of his arrest, he made about 100 trips to and from Hong Kong in the transportation of marked oil.  He also said that he had met Cheng Kam-shui several tens of times, either at his home or sometimes having meals with him and the other captains. He also was able to identify Cheng Kam-shui by means of the photograph, Exhibit PRC-P3. 

35.  With regard to D5, the wife of Cheng Kam-shui, he said he had met her some 20 to 30 times and he was able to identify her by means of a photograph taken from immigration records produced as Exhibit PRC-P8.  With regard to her, the witness testified that she was aware they were smuggling and she would ask him in conversation matters such as, “How many times have you done this for this month?”  He referred to her as “See Tou Por”, translated as lady boss or wife of the boss, and said that prior to their leaving for Hong Kong to collect marked oil, she would buy him and his crew food for cooking.

36.  PW199 was Huang Shunping who is serving a prison sentence of 12 years for smuggling red oil.  He, like the others, was approached by Cheng Kam-shui, who he also called “Lack Chai” or “Lack Gor” in July 2009, to smuggle red oil as he had been engaged in fishing and business was not good.

37.  He said that he was paid a basic salary of 1,500 RMB, but each time he transported red oil, he would receive 250 RMB extra.  Up until the time he was caught, he smuggled red oil into the mainland between 130 to 140 times, sometimes doing as much as two round trips per day.  The witness said that he started carrying out smuggling from roughly July of 2009.  A person known as Hu Ying-gao and Lack Chai would telephone him and he would be told to steer his vessel from Au Tou on the mainland to Pak Shek Kok in Hong Kong and to go to Chi Shing to get the marked oil.

38.  He testified that he could obtain the marked oil from one of three oil barges there, either Chi Shing, Chi Shing 28 or Chi Shing 18.   At first, the witness said that his vessel could only hold some 80,000-odd litres of oil, but in September during a rest period, the oil tanks were modified such they could take 96,000 litres, some 84 tonnes.

39.  Typically, the witness said approximately one hour before he collected the oil from the oil barges, the money for the payment of the oil would be brought to him by a speedboat and the money he handed over belonged to his boss.  The amount of money was not fixed, he said, sometimes 200,000, 300,000 or 500,000, but the highest amount was 2 million when he obtained 96,000 litres.  The money was in bundles of 100 RMB notes and each bundle consisting of 100,000 RMB.

40.  PW199 also testified that it was not on every occasion that they paid over cash for the marked oil, as when there was no cash to be paid, he would sign on an invoice or a note for the oil that was delivered to him.  This witness was able to recognize Cheng Kam-shui from the photo image, Exhibit PRC-P3. 

41.  PW200 was Shi Rubin, he also is serving a prison sentence of 13 years for smuggling marked oil.  He testified that sometime in August or September of 2009 he became involved with the smuggling of marked oil.  The bosses employed him to drive a vessel, one of the bosses being Lack Chai.  The vessel he captained, he said, was called “Hui Ao 2156” and belonged to Hu Ying-gao.

42.  On board the vessel, apart from himself, there were three other crew members.  He testified that he would drive the vessel from Au Tou to Pak Shek Kok in Hong Kong, collect oil from oil barges there, either Bao Shi, but if Bao Shi was not there, then he would go to Chi Shing 18, Chi Shing 28 or what he called the “Big Chi Shing”.

43.  The witness described the process of transferring the oil from the oil barge to his vessel’s oil tanks and he said that sometimes payment was made and sometimes it was not.  When payment was made, he said, money was brought to him by a speedboat and he paid sometimes 400,000, sometimes 600,000, for the marked oil.  When payment was made, he said that sometimes a note or a bill was issued and he testified that he would just take a look at it and then throw it away.  When payment was made, the witness said it was paid in RMB 100 notes, made up into batches of 100,000.

44.  In terms of frequency of trips, the witness said that he would make about 20-odd trips each month or 5 to 6 times in terms of a week and he would collect nearly 83 tonnes of oil on each occasion equivalent to nearly 100,000 litres of oil.  He estimated that for a single round trip from Au Tou to Pak Shek Kok would account for no more than 2,000 litres of oil. 

45.  These four PRC witnesses were thoroughly cross-examined by all counsel for the defendants.  It was generally put to each of them that they had lied, not only in the statements that they had made to the Shenzhen Customs and Anti-smuggling Bureau on 25 February 2010 and 25 March 2010, but they had lied also to the Shenzhen court in the hearing of their respective appeals and that they had lied in their testimony given at the commission hearing.

46.  It was further suggested to them that they had everything to gain by co-operating with the authorities in the hope that they would gain early release from their incarceration.  I will deal with these matters when I come to my findings at a later stage. 

47.  I now turn to deal with the oral testimony called in the course of the trial proper in Hong Kong.  I may say that due to the sheer size of this case and the mountainous documentation involved, it may be that I do not deal specifically with every piece of evidence called.  That does not mean that I have not considered all the evidence in this case.  I have. 

The searches

48.  PW1 was Customs officer 9504.  She was the Customs officer who on 3 May 2010 inside Room 505 Le Meridien Cyberport, arrested the 1st defendant, searched her and found a set of keys to her premises in Bel-Air; they were Exhibits P8 and P9.

49.  It is an agreed fact that on the same day at around 12.10 pm a search warrant was executed and the premises at Bel-Air being Flat C, 41/F, Tower 8, South Towers, known as “Location C” was searched. 

50.  PW5, Customs Officer 9688, testified as to carrying out the search in the presence of D1 and D2.  But, once again, it is an agreed fact contained in paragraph 19 of Exhibit P674 that amongst the items found in the master bedroom were a vast quantity of Hong Kong dollar banknotes and RMB banknotes in bundles mainly contained in red, white and blue nylon bags.  Banknotes found in the master bedroom amounted to a total HK$9,812,800 and RMB7,141,300, which is the subject matter of the 6th charge against D1 and D2.

51.  Amongst the items found in the master bedroom, apart from the cash, were two notebooks, one marked “Lack Chai”, Exhibit P105, and one marked “Mr Kwok”, Exhibit P106.  P106 contains entries from October to January and, P105, entries for January only.  But both contain entries for enormous sums of what appear to be RMB and amounts owing.  The prosecution maintain that the discovery of Exhibit P105 marked “Lack Chai” in the Bel-Air premises, which belonged to D1 and D2, is a direct link to the smuggling activities carried out by the four PRC witnesses on the instructions of Cheng Kam-shui.

52.  Exhibit P608 is a sketch plan drawn by this witness indicating the areas of the master bedroom where the respective exhibits were discovered and Exhibit P607 is a book of photographs, some of which depict the cash found, bound up in bundles and stored in the red, white and blue bags. 

53.  PW10 was Customs Officer 9674.  He testified that on 3 May 2010, a search warrant was executed and he, in the company of other colleagues and in the presence of both D2 and D3, searched the premises at Flat 1, 10/F, Mei Fung Court, Aberdeen Centre. 

54.  It is an agreed fact that these premises are owned by D1 and D2 and is the registered address of Chi Shing Development Ltd. These premises had been referred to as “Location A” in these proceedings. 

55.  By reference to a sketch plan, Exhibit P609, and the book of photographs, Exhibit P610, the witness described how he found inside Room A, which is a bedroom, a number of items which included white invoices for the oil barges, Chi Shing, Chi Shing 18 and Chi Shing 28, for the period from July 2009 to January 2010.  These have all been itemized in Exhibit P674, paragraph 24(i) to (xxi), and have been marked Exhibit P185A through to Exhibit P190A. 

56.  Of particular note is Exhibit P185E which is a white invoice dated 28 November 2009.  This is the very same invoice shown to and recognized by PW197, Mr Feng Jiu, one of the PRC captains who signed on this invoice having paid over half a million RMB for over 100,000 litres of marked oil.  Once again, the prosecution say that this evidence provides a direct link to the smuggling activities carried out by the four captains.

57.  Other items seized by this witness in the Mei Fung Court premises were a number of Bank of China passbooks with the Chi Shing accounts held at 012-713-1-002628-8 which have, once again, been itemized in Admitted Facts, P674, paragraph 24 (xxii-xxviii). 

58.  Inside room B of these premises, the witness testified that inside a wardrobe he found a black bag, Exhibit P203, inside which he found cash in the total sum of $627,000; this was made up of 627 $1,000 notes.  His colleague, Customs Officer 9862, the witness testified, asked Lee Pak-lam, the 3rd accused, if he knew anything about the brief case to which the defendant replied that the bag belonged to him.  The 627,000 found inside this brief case is the subject matter of the 7th charge against D1 to D3.

59.  Finally, inside room C of the premises, the witness testified that he found amongst other things other transaction records and related documents including white invoices for the three oil barges of Chi Shing for the months of January, February and March 2009.  These were all marked as Exhibits P230J, K and L, P231J, K and L, and P232J and K.

60.  It is an admitted fact contained in the Admitted Facts, Exhibit P637, paragraph 7, that on 3 May 2010 the safe deposit box in the name of Cheng Ka-ki, the daughter of D5, and held at the Bank of China was searched and cash in the sum of $3,050,000 was seized. 

61.  An explanation for this is contained in the cautioned statement of the 5th defendant, Exhibit P623, which I will deal with later on in this ruling.  Moreover, the $3,050,000 found in the safe deposit box is the subject matter of Charge 8 against the 5th accused. 

62.  Incidentally, I would like to say at this stage that the 5th accused made two other cautioned statements, Exhibit P622 and Exhibit P624, also referred to in the Admitted Facts, Exhibit P637, which I will also deal with later on in this ruling.

63.  PW30 was Customs Officer 9461.  He testified that on 3 May 2010, he proceeded to premises at Flat No.2, 21/F, Goodview Centre in Aberdeen.  These premises are owned by Chi Shing Development Ltd and have since June of 2007 been the registered business address of Chi Shing (HK), Right Kit and Super Success.   The Good Centre was known throughout these proceedings as “Location B”.

64.  PW30 testified that he executed a search warrant of these premises by reference to a sketch which he had drawn, Exhibit P618. The witness described the location of various items that were found and seized.  He also took photographs inside the premises and these were depicted in the album, Exhibit P619.

65.  At location B1 marked on his sketch, the witness said that he found three piles of transaction records and related documents together with white invoices for the three Chi Shing oil barges for the month of April 2010.  These were exhibited and marked as Exhibit P572A, B and C.

66.  Also found by this witness from the top of the floor cabinet in a tray containing partially filled in VCS forms relating to what the prosecution says are purported sales of oil to fictitious vessels. This tray, the witness said, was located to the left or right of the fax machine.  One possible inference arising being that they were being faxed to the Customs & Excise Department. 

67.  In addition to this, the witness testified, and it is an agreed fact in paragraph 27 of P674, that he found and seized a large number of VCS records together with yellow invoices for the three oil barges from June 2009 through to January 2010. 

68.  PW16 was Customs Officer 98338.  He testified that on 3 May 2010 he was with a party of Customs officers who went to the Goodview Centre premises.  There, he said, D4 was arrested who, he said, was taken back to premises at Flat H, 19/F, Block 5, Uptown Plaza, where he, D4, lived.  He took a number of photographs depicted in Exhibit P611.

69.  The premises were searched and, amongst other items found, a notebook computer, Exhibit P300, was found from room B.  The 4th defendant told the officer that the computer belonged to him. 

70.  It was PW46, a Senior Customs Inspector attached to the Computer Forensic Unit, who on 10 May examined this computer and burned the contents of the hard disk onto an optical disk, Exhibit P664, which contained two Excel files recording sales data for the month of November 2009 which is identical to the daily sales summary attached to the white invoices.

71.  The prosecution suggests that the discovery of this notebook computer which belonged to the 4th accused, together with its contents, links the 4th accused to the preparation of documents relating to the sale of marked oil.  I shall deal with this later on in my findings.

The VCS Scheme

72.  It was PW38, Lo Wing-nin, who in 2010 was a Senior Customs Officer in charge of the Administration and Support Unit of the Customs & Excise Department.  He testified as to the implementation of the Voluntary Control Scheme, VCS, in 2005 which was brought in to combat the illegal use of marked oil. 

73.  This scheme, the witness testified, was brought in with the support and participation of the four major oil suppliers.  Its purpose being that any oil barges that bought oil from any one of the four major oil suppliers would have to register with the Customs & Excise Department and provide to the Customs & Excise Department records of sales and purchases of oil from them in a form which was faxed back to the department.

74.  Blank proformas of the letter introducing the scheme to the oil carriers, the particulars of the oil carriers concerned, the transaction record, questionnaire and a sample were all produced by this witness and exhibited as Exhibit P651A to E.

75.  The witness confirmed that the scheme was entirely voluntary and there were provisions for opting out of the scheme at any time.   With regard to Chi Shing and the oil barges, Chi Shing 18, Chi Shing 28 and Chi Shing, the witness confirmed they were members of the scheme.

76.  PW38 also testified to the fact that in early 2009, he saw the 3rd accused in the office of the Special Tasks Force of the Customs & Excise Department in Kwai Chung.  There the witness said that D3 signed two acknowledgments, one of them, he said, was a letter to the owners or persons in charge of oil carriers, reminding them not to provide marked oil to other oil carriers or users, and the other was a letter explaining the Voluntary Control Scheme.  These documents were marked and exhibited as Exhibit P652 and 653 accordingly.

77.  PW39 was Senior Customs Officer 88190.  He testified as to retrieving the faxed copies of VCS forms that had been received from oil barges, Chi Shing, Chi Shing 18 and Chi Shing 28 and which had been inputted into the Customs & Excise Department’s computer system for the period January 2009 to April 2010.  For this period, he testified that with regard to Chi Shing, 611 forms were received; for Chi Shing 18, 617 forms were received; and for Chi Shing 28, 639 faxes were received.  These were all produced and marked as Exhibits P654 to P659B.

78.  Pausing here, the case for the prosecution is that the importance of the VCS forms is that the sales records contained in the white invoice found at Location A, that is the Mei Fung Court premises, were quite inconsistent with the yellow invoices and VCS forms found at Location B, the Goodview Centre premises and which had been faxed to the Customs & Excise Department.  Generally, the sales figures during the prosecution period, according to the white invoices, exceeded 100,000 litres of oil per transaction each month whilst those for the yellow invoices for the same period of time were about 50 per cent lower, between fifty to one hundred thousand litres for each transaction.

79.  The prosecution say that this was done quite deliberately and indicates an intention to mislead the Customs & Excise Department into believing that a much lower quantity of marked oil was sold for each transaction than was actually the case. 

80.  PW53 was Mr Tse Chi-yan.  He is a shareholder and director of Union Accountancy Services Limited and he testified that he is the person in charge of the company.  His company, he said, provides bookkeeping services for clients, filing of tax returns and assisting with the incorporation of limited companies.

81.  He testified that he is not a qualified accountant but his sister-in-law, Grace Lee, is.  She operates Grace Lee & Company who shares the same business premises as the witness.  Grace Lee & Co, the witness said, did the auditing for CSDL and its associated group of companies whilst his firm did the bookkeeping.

82.  Amongst other things, this witness testified that on 7 June 2010 Customs & Excise Department interviewed him and showed him a pile of accounting documents of Chi Shing.  He was shown and recognized Exhibit P187F which is a batch of white invoices relating to Chi Shing 28 for December 2009 as one of the accounting documents that he needed for bookkeeping purposes.

83.  P603Y which was also shown to the witness and which consists of VCS forms together with the yellow invoices for the month of December 2009, he said he had never seen before the interview with the Customs & Excise Department officer.

The banking evidence

84.  This comes in the form of admitted facts and various bankers’ affirmations.

85.  Exhibit P671 and Exhibit P672, both bankers’ affirmations, support the fact that between 31 May and 1 February 2010 a sum of $2,623,226,783 was deposited into Chi Shing’s account held at the Bank of China account no.012-713-1-00262-88 and HSBC account no. 068-683-663-838.  This relate to Count 2.

86.  It is an agreed fact that on 17 August 2001 D3 opened an account at the Bank of China, account no. 033-671-1-008888-9, and the banker’s affirmation, Exhibit P677, establishes that between May 31, 2009 and 1 February 2010 a total sum of $117,836,926 was deposited into it.  This relates to Count 3.

87.  With regard to Count 4, it is an agreed fact supported by bankers’ affirmations that between 31 May 2009 and 1 February 2010 D5 received a total amount of $46,151,014 into her accounts held at the Bank of China and Hong Kong Bank.  And it is a further agreed fact that from 12 June 2009 to 31 January 2010 D4 had made cash deposits to Chi Shing’s HSBC account in a total sum of $103,802,315 in 100 transactions.  This relates to Count 5.

88.  Banking evidence also came in the form of oral testimony from PW56 to 58 and PW60 to 62, all employees of HSBC, Aberdeen Branch.  They all gave quite similar testimony as to being employed at the Aberdeen Branch of HSBC at the material time and receiving cash deposits from the staff of Chi Shing, D1 and D2, their family members and even sometimes the crew members of the Chi Shing oil barges.

89.  Their evidence under cross-examination consistently suggested that for cash handled by the counter staff, the limit for deposits was $100,000, and in the event of it being larger, a more senior staff member was required to countersign the advice.  Also, transactions over $100,000 required the production of the customer’s ID card, but if the customer was known to the bank, no identification would be required and the initials “KC” meaning “Known to us” would be entered by the bank staff in the appropriate box. 

90.  The witnesses confirmed that HSBC have internal anti-money laundering policies in which HSBC staff had been trained and if anything unusual regarding a deposit was suspected, then this would be reported to the Compliance Department.  The witnesses also confirmed that Chi Shing had cash deposits to its account almost on a daily basis, sometimes twice a day and sometimes in millions of dollars, and the cash would be deposited and carried into the bank in blue, red and white bags with the money already prepared in bundles of between $500,000 to $100,000 in denominations of 1,000, 500 and 100 dollar notes and a note on the top with the total of each bundle, the account number and a signature.  This would be accepted by the bank, to save time, and would be counted later. 

91.  PW60 confirmed that other oil traders had accounts at the Aberdeen Branch of HSBC who would also make similar large cash deposits.  It was also confirmed by the witnesses that larger deposits would generally be made after the weekend or a public holiday and as the staff of Chi Shing who made the deposits became very well known, they would not ask for their identity documents. 

92.  A number of remittance agents and registered money changers testified.  They were PW72 to 78.  The effect of their evidence is that they are registered with the Joint Financial Intelligence Unit of the Hong Kong Government who provide guidelines to them with regard to the prevention of money laundering, one of which is that for transactions exceeding $8,000 or RMB, they are required to keep records recording the identity card and name of the customer with whom they do business.  They do not hold bank accounts in the name of their company but they often do business using their own personal bank accounts when required. 

93.  Generally speaking, when a customer approaches them and requires RMB to be exchanged into Hong Kong dollars, they are able to offer a better exchange rate than banks and obtain their profits on the margins on the difference between the buying and selling price of the currency involved.  In the event of a customer wishing to exchange a large amount of RMB into Hong Kong dollars and the remittance agent does not have sufficient funds to complete the transaction, he would utilize other fellow tradesmen to assist in obtaining the balance. 

94.  PW74, it was, who testified that he had dealings with the 1st accused on over 20 occasions.  Initially, he said the amounts involved were in the region of one hundred to two hundred thousand RMB and on those occasions he would have enough cash for her.  Sometimes the amounts involved were between half a million to 600,000 RMB and he did not have enough ready cash, so bank deposits were made for her either to a Bank of China account or an HSBC account. 

95.  PW77 gave similar testimony of doing business with Madam Sze, the 1st accused, who up to three to four times each month would bring along between one hundred to three hundred thousand RMB in bundles tied together in elastic bands and carried in a plastic bag.  The witness testified that the transaction would be done by him accepting the RMB from her and he doing a bank transfer to an account designed by D1 and later faxing the pay-in slip from the bank over to the 1st accused.

96.  PW73 was another RAMC who testified to the 3rd defendant, Lee Pak-lam, on 21 occasions bringing large amounts of RMB to be exchanged into Hong Kong dollars between July 2009 and January 2010.  He produced records from his company to establish this in the form of Exhibit P644.  The amounts involved exceeding on occasions millions of RMB.  The largest amount being over 6 million RMB in December of 2009. 

97.  PW75, Ng Ching-chan, who is the proprietor of another RAMC company called the Ka Fung Development Company also testified. The witness produced his transaction records for July 2009 to January 2010 as Exhibit P646.  From a perusal of those records and the oral testimony the witness gave, it is clear that for this period D1 and D3 bought in on behalf of Chi Shing over HK$178 million with RMB to be exchanged whilst Madam Lai Sheung, the 5th accused, bought in some $38 million worth of RMB to be exchanged.

98.  I pause here to say that whilst there was quite extensive cross-examination of these RAMCs, it is quite apparent from reading the submissions of counsel on behalf of D1 to D4 that no real issue was taken as to the exchange of RMBs to Hong Kong dollars as all counsel made the point that RAMCs are a necessary part of the oil business for the exchange of these funds.  

99.  Representatives of the four major oil companies testified.  They were PW192 from Shell, PW193 and 209 from ExxonMobil, PW208 from Sinopec and PW194 from Chevron.  These witnesses variously produced their sales records with Chi Shing over the relevant period.  PW192 produced Exhibit P648.  PW209 produced Exhibit P649.  PW208 produced Exhibit P650.  PW194 produced Exhibit P660.

100.  The documents produced show that Shell sold 13.35 million litres of marked oil to Chi Shing 18 and Chi Shing 28 between January 2009 to April 2010 with 8.1 million litres sold during the prosecution period between June 2009 and January 2010.  The highest volume of sales came in the months of October and December 2009.

101.  Exxon sold 83.7 million litres of marked oil to Chi Shing 18 and Chi Shing 28 between January 2009 and April 2010, with 51.1 million litres being sold during the prosecution period.  The highest volume of sales came in January 2010 when 13.6 million litres were sold.

102.  Sinopec sold 226.5 million litres to Chi Shing, Chi Shing 18 and Chi Shing 28 between January 2009 and April 2010, and in the prosecution period sold 103 million litres.

103.  The figures in relation to Chevron are confusing as Chevron has three agents to whom it sells oil, Sinoying Petroleum, Baowin Global and Daihatsu (Hong Kong), and PW194 was unable to say what happened after Chevron sold to its three agents. 

104.  The witnesses were cross-examined on a number of matters concerning the oil trade and it was PW208 who amongst other things agreed that the consumption of oil varies throughout the year; it is affected by the international oil prices, demand and the supply of oil.  He also agreed there was competition between the four major oil companies as to price and oil traders would shop around for the best price.  Speculation amongst oil traders, he said, was common. 

105.  PW208 testified that he knew the 2nd defendant and he had done business with him since 2003.  Indeed, it appears that CSDL, of which D2 is a director, is an agent of PW208’s company, Sinopec.  As such, the witness agreed that if an oil trader wanted to purchase Sinopec oil but had no account with them, that trader must go through one of Sinopec’s agents such as Chi Shing.

106.  The witness also described the system of delivery orders whereby Chi Shing would purchase oil from Sinopec, obtain a delivery order from the company and sell the oil on to other oil traders whose barge hired or owned by the trader concerned would be named in the delivery order.  Using this method, no invoices or VCS forms are involved.  Whilst the witness did acknowledge that Chi Shing did utilize the delivery order system, there is no evidence as to the extent to which they did this. 

107.  The witness also confirmed that oil traders do pay for oil from accounts other than their company account and that during the period when he did business with Chi Shing, he found nothing unusual as to its purchasing habit. 

108.  PW47 was Mr Yim Wai-kwong.  He is an employee of the Agricultural and Fisheries Department.  He testified that he is posted to the Fisheries Credit Section and processes applications for loans for fishermen in order for them to maintain their fishing vessels.  He testified that there are various types of loans and one such loan is called a moratorium loan.

109.  In 2006, the witness said that Madam Lai Sheung and Mr Cheng Kam-shui applied for and were given these loans, one of the conditions attaching to them was that it had to be related to a moratorium imposed by the PRC authorities for fishing in their waters for a particular year.  The policy of moratorium in the mainland, the witness said, came into being in 1999.  For the year of 2009, the witness testified that the moratorium period was from 16 May 2009, 12 noon, to 1 August 2009, 12 noon.

110.  PW51 was Mr Li Bing-sun.  He is a senior technology officer of the Marine Department.  As such, he testified that he has access to the Marine Department’s computer system.  He testified that he was contacted by officers from the Customs & Excise Department to render them assistance into the validity of 1,929 certificates of ownership of local vessels.

111.  On 14 October 2010 he said he carried out two checks, one into 1,929 vessels and, the second, into 113 vessels which was essentially the same as the first check, save that it showed the history of ownership of the 113 vessels.  He printed out the results of the two checks and he signed two computer certificates with the attached printout and they were marked Exhibit P661 and 662.

112.  I pause here just to say that whilst the evidence of the previous two witnesses do not fall into the category of oil companies, their evidence is relevant in the context of the expert testimony to which I will now turn.

The expert testimony

113.  PW312 was Mr Cheung Yuk-lam.  He is a partner in the forensic and dispute services team of Deloittes Touche China /Hong Kong.   He is a qualified chartered accountant and has been specializing in corporate fraud investigation since 2001. 

114.  Despite objections from all counsel for the defendants as to his expertise, I did treat him as an expert and I was satisfied that he did possess relevant expertise in the field of accountancy that was pertinent to the issues that I had to determine in this case.

115.  This witness was crucial to the prosecution case and throughout the course of his testimony he referred to his expert report, Exhibit P711, which he adopted in-chief, together with the various appendices to it.  Objection was taken to some of the matters contained in that report on the basis of hearsay, and I have acceded to the application of the defence to have those various portions deleted, and for the avoidance of any doubt, I say that in coming to my conclusions in this case, I have had no regard to them. 

116.  The witness set out terms of reference as to the matters upon which his opinion was sought by the Customs & Excise Department, and they can be found in paragraphs 1.31(i) and (ii) of his report which included matters such as the accounting practices of the Chi Shing group of companies, the value/quantity of marked oil purchased from the major oil companies and sold to its customers, the quantity of oil sold to its customers based on the declarations contained in the VCS forms, the bank accounts of the group and related persons and the possibilities of money laundering. 

117.  For the purposes of preparing his report, he testified that he relied on a large number of documents supplied to him by the Customs & Excise Department which included records which the Customs & Excise Department had seized as a result of searches conducted at the various premises which included white invoices, yellow invoices, banking documents, delivery notes, etc, together with witness statements and 67 typed bank accounts in the names of the group and/or related persons and transactions that occurred during the review period, the review period being from 1 January 2009 to 3 May 2010.  The review period itself being split into three sections, the pre-prosecution period, from 1 January 2009 to 31 May 2009; the prosecution period itself, from 1 June 2009 to 31 January 2010; and the post-prosecution period, from 1 February 2010 to 3 May 2010.

118.  I should just mention here that all of the 67 bank accounts that the witness referred to are all contained in the bankers’ affirmations exhibited into evidence.

119.  The witness testified and commented in his report that he considered whether the fund flows in the various bank accounts that he examined exhibited any of the characteristics of money laundering and with that in mind, he set out in paragraph 7.1 of his report a number of examples of suspicious transactions which could be indicative of money laundering extracted from the Hong Kong Monetary Authority’s guidelines on the prevention of money laundering as follows:

(i) A substantial increase in cash deposit of any individual or business without apparent cause especially if such deposits are subsequently transferred within a short period out of the account and/or to a destination not normally associated with the customer;

(ii) Customers who deposit cash by means of numerous credit slips so that the total of each deposit is unremarkable but the total of all of the credit is significant;

(iii) Any individual or company whose account shows virtually no normal personal banking or business related activities but is used to receive or disperse large sums which have no obvious purpose or relationship to the account holder and/or his business;

(iv) Matching of payments out with credits paid in by cash on the same or previous day;

(v) Large numbers of individuals making payments into the same account without an adequate explanation.

120.  However, the witness conceded that as he himself was not legally qualified, he did not consider it appropriate for him to say whether the activities and fund flows in the bank accounts illustrated in the various charts in his report were in fact money laundering activities.  He was simply stating some factual observations from an observation and analysis of those accounts.

121.  Dealing, first of all, with the two sets of invoices, white invoices and yellow invoices and the Chi Shing VCS forms and those faxed to the Special Tasks Force of the Customs & Excise Department, the evidence of this witness is that there is no reason for two sets of invoices to be prepared for the same sales transactions.  It was the information based on the yellow invoices that was faxed to Customs & Excise Department by way of the VCS forms to report the transaction of oil sales by the three barges. 

122.  In the chart at paragraph 4.4 and 4.7 of Exhibit P711, the witness has demonstrated that the average sale per transaction for each month during the prosecution period exceeded 100,000 litres of marked oil in respect of the white invoices whilst the yellow invoices and associated VCS forms faxed to the Special Tasks Force only accounted for between fifty to sixty thousand litres per transaction for the same months. 

123.  In addition to this, the witness remarked in paragraph 9.6 of his report that from January 2009 to January 2010 inclusive, but disregarding the months of February 2009 and 8 June 2009 as documents were missing for those months, although the number of transactions in the STF VCS sales records and the yellow invoices on the one hand are more than those recorded in the white invoices, the quantities in the white invoices were consistently higher for all months.

124.  The total litres sold under the white invoices amounted to 688,923,844 litres whilst the yellow invoice totalled 612,117,400 litres.  It was the opinion of the witness that the white invoices appeared to be for the purposes of bookkeeping and accounting, but the nature and purposes of the yellow invoices was not clear.  He concluded that there was no good reason for the preparation of two separate sets of invoices for the same sales transaction and at least one set, and possibly both, did not reflect the actual sales transactions of CSDL. 

125.  The witness noted in his report that from the information that he received from the Customs & Excise Department, yellow invoices were no longer available from 1 February 2010 and this appeared to coincide with the arrest of Cheng Kam-shui, the day before, on 31 January 2010.  In addition, he noted that from this time the information recorded in the white invoices appeared to match the information in the SDF VCS forms.

126.  Pausing here, it is quite clear on the evidence of this witness that there was a significant increase in the volume of sales indicated in both the white and yellow invoices during the prosecution period and this, he remarked, did not appear to have been affected by the fishing moratorium period in South China Sea announced by the PRC Ministry of Agriculture which was from 16 May 2009 to 1 August 2009.

127.  He noted particularly that during the period from April to December 2008 Chi Shing’s sales ranged between HK$38 million and HK$194 million, whilst in the same period of 2009 the sales fluctuated from HK$154 million to HK$454 million, spiking at over 500 million in January of 2010.  There was then a spectacular drop in sales from January 2010 to  February 2010 of 75 per cent which, once again, coincided with the arrest of Cheng Kam-shui.  He also noted the high sales in August 2009 of HK$273 million to be “completely out of sync” with the expectation of low sales during a moratorium period.

128.  In his report, Exhibit P711, the witness referred to the fact that during the review period, excluding April to June 2009 for which there was no data regarding sales, the total deposits to Chi Shing’s bank accounts amounted to HK$3.7 billion which he put it at 228 million more than the sales amount for the same period.  He commented that for a business entity of a size similar to Chi Sing and on the assumption that there are no significant changes in the debtor balances between periods “the vast majority of bank receipts should relate to sales and there should not be significant differences between the overall sales and total receipts over a period of time.” 

129.  In his report, the witness analysed the personal bank accounts of the defendants and, shortly put, noted that there were a large number of business payments and receipts being transacted through them with no apparent justification.  He labelled this highly usual if not suspicious.  He did of course explain that it is not unheard of for directors of companies or even employees of companies to handle small amounts of money through personal bank accounts.  However, his evidence was that the sheer magnitude of these transactions through personal accounts was unusual as it would expose the company to unnecessary risks. 

130.  By way of illustration, the witness stated in tabular form in his report that the payments into the bank accounts of D1, D2 and their family members over the review period totalled over HK$1 billion. There were significant withdrawals from these accounts and most of the transactions involved Chi Shing and oil companies.  However, from the witness’ analysis of D1’s bank account, he noted there was a net flow of funds in her favour from Chi Shing to the tune of HK$19 million. 

131.  With regard to Lee Pak-lam, the 3rd accused, the witness noted in his report from an analysis of his bank account that he received over 191 million into his account over the review period of which HK$101.3 million were deposits from RAMCs.  When cross-examined by counsel for D3, that as D3 may have had a close connection with his clients and therefore they would have a preference to pay into D3’s personal account rather than the Chi Shing company account, the witness responded by saying this would be extremely unlikely as the amounts involved were close to $200 million and assuming the payments were legitimate, it would be “stupid” of the customer to do so. 

132.  With regard to the 4th accused, the witness noted in his report that he received into his bank account the sum of $662,435 over the review period.  When it was suggested to him once again in cross-examination from counsel for D4 that this total sum was consistent with his salary, the witness disagreed indicating that he had looked at the company ledger and was aware that D4 was only earning in the region of between fifteen and twenty thousand dollars per month.

133.  As far as the 5th accused is concerned, PW312 highlighted the fact, once again, in tabular form, from an analysis of her bank account that she paid over a total of $45,761,871 from her account to Chi Shing over the prosecution period.  Over the same period, she paid $2 million to D1. She received into her account total deposits over the prosecution period of HK$45.3 million of which 35.6 million came from RAMCs. 

134.  The witness noted in his report that the prosecution period is a relatively short period of only 8 months and due to the massive flow of money in and out of her account over this short period of time, his opinion was that it suggests that she, D5, was far more than just an ordinary housewife of a fisherman.

135.  In addition to this, the witness opined that he doubted the veracity of D5’s cautioned statement, Exhibit P623, in which she had told the investigating Customs officer that the transactions she had with Chi Shing were for the payment of marked oil for the fishing vessels operated by her husband in China and used for fishing.  He noted that she had said that every time he needed money for the payment of fuel, she told the officer that her husband would arrange for RAMCs to deposit money into her account and then she would deposit money into the account of Chi Shing.  The witness said that he doubted this because between April and December of 2008, the net total outflow to Chi Shing was $10,233,820 equating to $1,137,091 per month whereas for the same period in 2009 the net total outflow to Chi Shing was $43,421,888 equating to $4,824,653 per month, 4.2 times that of 2008. 

136.  In the course of his investigations, the witness became aware of and indeed it is an agreed fact that during the prosecution period, in fact on 22 October 2009, D1 and D2 purchased a property at Flat A, 47/F, Tower A, Bel-Air on the Peak, together with car park space no.9 at a price of HK$34 million.  This was serviced by a mortgage of $15 million.  A withdrawal of $18,104,822 was made from the Hong Kong and Shanghai Bank joint account of both D1 and D2 which the witness noted to be in relation to the purchase of properties.

137.  It is also an agreed fact that on the same day both D1 and D2 purchased two other car park spaces at Bel-Air for $1 million a piece.  In addition to this, the witness also noted that the 3rd accused acquired some half a million HSBC shares at a total cost of 9.985 million in March of 2010.  This transaction was secured by the 3rd accused through his Bank of China securities account. 

138.  Due to the fact that the employer’s return of remuneration for employees for the year 2009 and 2010, Exhibit P676, indicates that the normal salary of D1 was $210,000, D2, $240,000, D3, $240,000, and the annual profit of the company for the year 2006 to 2007 was 4.2 million, 2007 to 2008, 1.3 million and 2008 to 2009, 1.3 million, according to Exhibit P667 to 669.  The prosecution simply posed the question how it was that these three defendants were able to afford these capital assets.

139.  With regard to Charges 2 to 5, the witness explained in his testimony by reference to tables contained in his report how the various sums detailed in these individual charges were arrived at.  These individual sums were never the subject of any challenge by defence counsel and were discerned by the witness examining the relevant bank accounts of either Chi Shing itself or the individual defendant to whom the charge related to during the prosecution period.

140.  So by way of illustration, the witness referred to the table at paragraph 8.4 of his report which shows the total deposits into Chi Shing’s Bank of China account and HSBC Hong Kong dollar account amounting to $2,623,226,783 over the prosecution period.  This relates to Charge 2.

141.  In the same way with regard to Charges 3, 4 and 5, the witness referred to the tables at paragraph 8.5, 8.6 and 8.8 and 8.9 of his report which illustrate the deposits to the accounts of the 3rd, 5th and 4th accused respectively.  

142.  This witness was cross-examined extremely thoroughly by all defence counsel.  It was generally put to the witness that he lacked independence, he had no experience in the trading of marked oil and fishing and he relied upon incomplete data in the preparation of his report. This latter point, the witness readily accepted.  Indeed he made it perfectly clear that whilst inspecting the documents, it became apparent to him that some of the documents and information were incomplete. 

143.  With regard to the question of independence or lack of it, I say without hesitation that I do not accept that this witness lacked independence.  The mere fact that he had been instructed by the Customs & Excise Department and inspected materials supplied by them for the purposes of preparing his report does not, in my judgment, make this witness biased in any way toward them or the prosecution.  He clearly was aware that his purpose of providing a report and testifying in these proceedings was for the assistance of the court and this duty overrode any obligation to those instructing him.  Indeed he signed a declaration to this effect.

144.  Other aspects for the cross-examination of this witness, I will deal with presently when I outline my findings on his reliability. 

145.  Under this heading of expert testimony, this included the evidence of Mr Lai Kam-wing.  I will deal with his evidence in its proper context when I deal with the defence case very shortly.

146.  That then completed the case for the prosecution.  I found a case for each defendant to answer on the respective charges they faced and as is their right, none of them elected to testify.

147.  Whilst the 5th defendant did not testify, I have noted earlier that she did make three cautioned statements, Exhibits P622, 623 and 624, the contents of which are relied on by Mr Donald on behalf of the 5th accused.  The Admitted Facts, Exhibit P637, deals with the contents of those cautioned statements and, in particular, it is paragraph 10 which refers to the certificates of ownership of five fishing vessels.

148.  Pausing here, I should state that according to the certificates of ownership, only one of these vessels is registered in the name of D5.  Nevertheless, paragraph 11 of the Admitted Facts indicates that the 5th defendant had told the investigating officer in the course of one of these interviews that all of these vessels had been sold in March 2010 for a total sum of $3,780,000. 

149.  These Admitted Facts also deal with three sets of joint loan agreement, Exhibits P631 and 633 made between United Asia Finance Limited and D5 and her husband Cheng Kam-shui.  The 5th accused explained in her third cautioned statement that these loans had been used to purchase the fishing vessels, and as the vessels were being looked after by her husband, she did not know what they were being used for. 

150.  With regard to the subject matter of the 8th charge, $3,050,000, the 5th accused recounted in her second cautioned statement how the sum of $3,780,000 was reduced to 3.5 million after the deduction of introduction fees on the mainland.  Of this, she said she deposited $200,000 and $100,000 to the Hong Kong Bank and Bank of China accounts of her daughter, Cheng Ka-ki.  She then kept $150,000 after putting the sum of $3,050,000 into the safe deposit box of her daughter. 

151.  The 5th accused also in the course of this interview described how after her husband Cheng Kam-shui asked money changers to deposit money into her account, that she would then transfer money on her husband’s instructions to Chi Shing for the payment of oil fees used by fishing boats.  Further, she told the investigating officer that her husband had told her that he had acquired the money deposited into her account by selling fish.

152.  Needless to say, the prosecution do not accept the truth of these statements made by the 5th accused in the course of her cautioned interviews. 

The defence’s expert testimony

153.  As I have said, none of the defendants elected to testify, but a witness was called by Mr Blanchflower on behalf of D1 and D2 and adopted by counsel for the remaining defendants.  He was a Mr Lai Kam-wing.

154.  Whilst I allowed this witness to give expert testimony on behalf of the defendants into the marked oil business in Hong Kong and the operations of the fishing industry in Hong Kong, it became clear to me during the course of his testimony that his knowledge of the marked oil industry was quite limited.  He clearly had some knowledge of it as he had previously operated two oil barges selling marked oil to fishing vessels.  However, he accepted that his business was very small and in fact not particularly successful as he made no profit from sales whilst operating these two barges.

155.  Be that as it may, he did testify to the fact that sales of oil are in the hundreds of thousands of dollars to vessels and that there is a need for quick turnover so that RAMCs are an important part of the oil traders’ business.  He mentioned in the course of his testimony the system regarding delivery orders and if the traders who did not have an account with an oil company, they could purchase delivery orders from agents in which case this would not be recorded on the VCS form.

156.  He said that oil sold by barges could be done 24 hours per day, 7 days per week, throughout the year and would only be suspended if a No.3 typhoon signal was hoisted, and he said that the type of vessels to whom marked oil was sold included incoming cargo vessels and also foreign vessels from Southeast Asian countries as well as fishing vessels, pilot vessels and barges.  When an oil trader sells oil, he said that the trader is not required to check the validity of licences of the vessels, neither are they required to check the size of the oil tanks.

157.  He testified to the fact that the sort of people who operated oil barges started off as being fishermen with limited education levels, many of whom do not understand English and no training in the running of a business.  As to the selling of oil, the witness said that the oil is usually paid for in cash, either Hong Kong dollars or RMB, and there is competition between oil traders as to price.  Payment, he said, was also done by way of bank transfer into the account of the oil companies. 

158.  He also testified to the existence of credit arrangements being made available to some customers.  When money was handed over to the crew member or captain on board the barge, it would be counted by means of a money counting machine and kept on board in stashes of $100,000 and kept in a safe before being handed over to the oil trader on land.  If the money was in RMB, it would be taken to money changers to be changed into Hong Kong dollars. 

159.  The witness said he had never heard of private security firms being used to transport cash as this was expensive and also posed a security risk as it attracted attention.  The witness testified that it was common for oil barges to re-stock more than once in a 24-hour period.  He gave an example that for an oil barge with a capacity of 350 tonnes, it could sell more than 1,000 tonnes in a day.

160.  The witness also testified that when money was paid into the bank, it would be done in batches of less than $100,000, this was to avoid the handling fee of approximately $100 on payment of $100,000 or over.  Other matters that the witness testified to included the VCS scheme.  He testified that from his perspective, many traders were of the view that it was rather complicated, crew members whose literary skills were limited were generally responsible for filling them out.  The witness said that when he operated his oil barges, the Customs & Excise Department did not require any supporting documents to be produced. 

161.  Regarding invoices, the witness testified that as far as his oil barges were concerned, when oil was sold to a vessel, invoices would always be prepared.  However, this was not always the case as some fishing vessels would not always ask for a receipt, so the crew members would not prepare an invoice, so when this happened, the details would not be filled in on the VCS forms.

162.  This witness also testified as to the fishing practices in the South China Sea.  This was so because of course the defence case appeared to be predicated on the basis that the four oil barges operated by Chi Shing were never involved in anything other than the legitimate supply of oil to fishing vessels whose tanks may well have been enlarged simply to allow them to engage in lawful fishing activities not only in Hong Kong waters, but also further afield.

163.  Indeed the witness testified that commercial fishing takes place not only in Hong Kong waters, but also in the Pratas Island, the Parasail Islands, the Spratly’s and as far away as Philippines, Indonesia and Fiji amongst others.  He testified as to the fishing fleet practices and that a number of vessels would fish together for a number of days away from port, with one vessel operating as a transportation vessel that brings the catch back to Hong Kong and refills for both propulsion and refrigeration.

164.  He testified as to the various types of fishing such as liner fishing and trawling.  The latter using more fuel as the vessel is trawling non-stop in the sea.  He referred in evidence to the fishing moratorium which applied, he said, to trawling but netting and lining was permitted.  He also testified that despite the moratorium, some fishermen ignored it.

165.  That concluded all the evidence called in this case.

Findings on credibility and reliability

166.  With the exception of the four mainland captains, PWs 197 to 200, and the two experts, PW312 and DW1, no real issue as to credibility or reliability arose.

167.  Dealing with the PRC witnesses first of all, each of whom gave evidence under an immunity, no doubt they are scoundrels, indeed they are co-conspirators and took part in the implementation of the smuggling of marked oil on the instructions and at the behest of Cheng Kam-shui who employed them.  Of this, I have no doubt at all.  Due to their status as accomplices, whilst there is no longer any need for corroboration of their testimony, I have scrutinized their evidence both critically and thoroughly, and despite the shortcomings of their interviews with the PRC authorities which has been pointed out to me and adequately displayed in the Agreed Facts, Exhibit PRC-D16, together with the possibility of earlier release from their prison sentences, I find that I believe them.  I should also say that I dismiss any suggestion of these witnesses being engaged upon a frolic of their own with regarding to the smuggling of marked oil into China.

168.  Quite independent of this, I might say that I find the suggestion that these witnesses were somehow dealt with unfairly by the courts in China who, it is said, operate a system that is inconsistent with that which we are accustomed to in Hong Kong a cheap shot.  It is no part of my duty to criticize other judicial systems and I refuse to do so.  In any event, at no time did any of these witnesses express their non-participation in this illegal activity to me.  Quite the contrary, as I understand it, each of them pleaded guilty.  Their appeals were dismissed.

169.  I have also considered most carefully the fact that there are inconsistencies between the PRC captains’ various written statements made to the PRC and the oral testimony they gave during the commission hearing.  In addition, both PW197 and PW198 admitted that they had lied, whilst PW199 and PW200 had both displayed some reluctance to divulge information to the authorities in the earlier stage of the investigation.

170.  The captains testified that they had been threatened by Cheng Kam-shui not to reveal anything about him or the company. I found that this had a ring of truth about it and provided the explanation which I accept for their initial reluctance to be forthcoming with the PRC authorities, I repeat, I believe the testimony of the four PRC witnesses and I give full weight to it.

171.  With regard to the evidence of the prosecution expert, PW312, I found his evidence to be measured and tailored in the way one would expect of an expert giving unbiased but factual evidence of the numbers he encountered in the multitude of accounts that he examined.  He gave me his opinion and conclusions that he came to having examined those numbers and accounts resulting in the consequential fund flows that appeared in various tables in his written report, Exhibit P711, and I accept his testimony in its entirety.  His evidence was given with poise and care and he remained completely unruffled by the cross-examination that he was subjected to by defence counsel which on occasions from counsel for D3 and D4, particularly, verged on the borders of being discourteous.

172.  It is said, inter alia, due to the fact that some of the data that the witness relied upon in the completion of his report was unavailable, that in some way I should not rely on his report or the fund flows which were illustrated therein.  I disagree.  In a case such this which involves hundreds of millions of dollars and, quite literally, thousands of documents, it is inevitable, I find, that some documents may not have been made available to him for inspection for a variety of reasons.  This does not mean, in my judgment, that when looked at in the round, Exhibit P711 is unreliable and that I should give it no weight.

173.  Additionally, quite apart from the question of the witness’ so-called lack of independence which I have already dealt with, the witness was criticized for relying on hearsay evidence in the preparation of his report.  With regard to the 67 or so typed bank accounts that the witness examined, this, in my judgment, is clearly not hearsay.  All of these accounts and the transactions therein have been covered by bankers’ affirmations, all of which have been admitted into evidence.

174.  Clearly, there are some examples of hearsay in the report, for example, the wholesale price of oil and the reference to paragraph 3.2 of the witness’ report that the Customs & Excise Department had provided him with VCS declaration forms, 308 of them, in relation to eight separate oil barges.  I had earlier ruled this evidence inadmissible, but the witness, whose report had predated my ruling, referred to this and prepared consequential tables at paragraphs 3.3 and 3.4 relating to it.  Clearly, these matters were based on hearsay and I have taken no account of them in coming to my findings in this case.

175.  It is also said that the witness is not an expert into fishing.  This point is misconceived because the prosecution’s case is not that this case is about the fishing industry or fishing practices, but rather a conspiracy to smuggle marked oil into China between the principal officials and a privately run company and others.  Those accounts, that is, those of the company, the principal officials, and D5 were all the subject of scrutiny by the expert and to a large degree result in the consequential fund flows that are illustrated in his report. 

176.  In that regard, due to the fact that the witness had no prior exposure to the red oil business, and this was the first time that he had given evidence in a criminal case before, his methodology was criticized.  For myself, I simply say that I find these criticisms unfair and unfounded and see nothing wrong with his methodology.  The witness is a forensic accountant of a most reputable firm of worldwide accountants, he is perfectly entitled as such to examine the information provided to him and come to his conclusions and opinions based on admissible evidence.  This is what he did and I accept his evidence and attach full weight to his report whilst ignoring those parts that I have referred to which are based on hearsay evidence.

177.  Whilst I treated DW1 as an expert, I have to say that I was not particularly impressed with him as a witness.  He most certainly was not as impressive a witness as PW312.  DW1’s evidence was tailored to the operations of an oil trading company operating legitimately.  To a degree, large parts of his evidence are non-controversial because there was no evidence that Chi Shing was operating illegitimately other than over the prosecution period.

178.  However, having said that, there are two areas of his evidence that I do not accept.  The first is in relation to the use of personal accounts for monies that should properly be designated to that of the company.  DW1’s evidence was that the use of both personal accounts and company accounts was well known in the industry.  Millions of dollars were often needed to purchase oil so that, he said, funds contained in personal accounts were often utilized to top up company accounts.

179.  This evidence is in direct conflict to the evidence of PW312 who in the context of the 3rd accused receiving in excess of $191 million over the review period indicated that in the event of these payments being legitimate, the customers would be extremely stupid to transfer such significant funds to D3’s personal account when they could simply transfer the money direct to the company’s account.  I accept this.

180.  The second aspect of DW1’s evidence that I wish to highlight is that it was his evidence that a number of the accounts of the small to medium oil traders could be messy, VCS forms could very often be filled in by crew members who have a low education level and, as a consequence, forms may not be filled in accurately.  This was commented upon by counsel for D3 and D4 in an attempt somehow to undermine the prosecution’s evidence which was referred to by their expert regarding the two sets of invoices, white and yellow, recording different sales figures for the same transactions, the details of the yellow invoice recording lower sales figures being included in the VCS form and faxed to the Customs & Excise Department.

181.  It was of course the evidence of the prosecution expert that he could see no proper accounting reason for the preparation of two separate sets of invoices relating to the same transaction.  And even DW1 conceded in cross-examination that he had not heard of any trader using two different sets of invoice for the same transaction. 

182.  In my judgment, there is a world of difference between inaccuracies consistently occurring on a VCS form due to them perhaps being filled out sloppily by a crew member rather than being filled out according to the details of an alternative invoice for the same transaction. 

The law

183.  I now turn to deal with the law in relation to the charges and my findings with regard to each of the defendants.

184.  The 1st charge which all defendants face is a charge of conspiracy to export unmanifested cargo, contrary to section 18(1)(b) of the Import and Export Ordinance, Cap.60 and section 159A of the Crimes Ordinance, Cap.200.  Section 18 of the Import and Export Ordinance reads as follows:

(1) Any person who (a) imports any unmanifested cargo; or (b) exports any unmanifested cargo, shall be guilty of an offence and shall be liable (i) on summary conviction to a fine of half a million dollars and to imprisonment for 2 years; (ii) on conviction on indictment to a fine of $2 million and to imprisonment for 7 years.

(2) It shall be a defence to a charge under this section if the defendant proves that he did not know and could not with reasonable diligence have known that the cargo was unmanifested.”

185.  Section 2 of the ordinance provides the following definitions:- 

186.  “Cargo” means any article which is imported or exported other than, amongst other things, the necessary equipment, stores or fuel of the vessel, aircraft or vehicle in or on which the article is imported or exported.

187.  “Export” means to take, or cause to be taken, out of Hong Kong any article.

188.  “Manifest” means a record prepared as a manifest containing the particulars prescribed under section 17 but does not include any record, containing the same or similar particulars, which is not specifically prepared as a manifest.   Section 17 of the ordinance requires all cargo exported from Hong Kong to be recorded in a manifest.

189.  “Conspiracy” which is covered by section 159A of the Crimes Ordinance, Cap.200, reads:

“(1) Subject to the following provisions of this part, if a person agrees with any other person or persons that a course of conduct shall be pursued which if the agreement is carried out in accordance with their intentions, either (a) will necessarily amount to or involve the commission of any offence or offences by one or more of the parties to the agreement; or (b) would do so but for the existence of facts which render the commission of the offence or any of the offences impossible, he is guilty of the offence or offences in question.

(2) Where liability for any offence may be incurred without knowledge on the part of the person committing it of any particular fact or circumstance necessary for the commission of the offence, a person shall nevertheless not be guilty of conspiracy to commit that offence by virtue of subsection (1) unless he and at least one other party to the agreement intend or know that that fact or circumstance shall or will exist at the time when the conduct constituting the offence is to take place.”

190.  The essence of conspiracy therefore is an agreement between two or more persons to commit an unlawful act.  In HKSAR v Wong Chi Hong FACC1/2011, a case of conspiracy to export unmanifested cargo, Chan J, PJ, said this:

“To substantiate a charge of conspiracy, the prosecution must prove that there was an agreement among the conspirators to commit an offence and that at the time of this agreement, they intended to carry their agreement into effect. In the context of this case, it is necessary to show that the appellant knew that there were these smuggling activities and intended to take part (or had taken part) in such activities.”

191.  For perfectly obvious reasons, in the vast majority of criminal conspiracies there is rarely any direct evidence of the conspiratorial agreement itself, the prosecution rather relying on the existence of proven facts capable of establishing an irresistible inference of knowledge of and participation in the agreement to commit the offence.  So it is in this case.  For the 1st charge, therefore the prosecution must prove beyond reasonable doubt the existence of an ongoing conspiracy to export unmanifested cargo; the defendants knew there were these ongoing smuggling activities and they each participated in it; and/or the evidence supports the drawing of an irresistible inference that the defendants were parties to the smuggling conspiracy.

192.  I pause here to comment that in the submissions of counsel for D1 to D4, there is a suggestion, I put it no higher than that, that somehow it is incumbent on the prosecution to establish that there was indeed no manifest on board any of the four vessels which, they say, exported the marked oil during the prosecution period.  This is absolutely not the case. Negative averments are covered by section 94A of the Criminal Procedure Ordinance, Cap.221, which states:

“(1) It shall not be necessary in an indictment, charge, complaint or information alleging an offence to negative any exception or exemption from or qualification to the operation of the law creating the offence.

(2) For the avoidance of doubt, it is hereby declared that in criminal proceedings: (a) it is not necessary for the prosecution to negative by evidence any matter to which this subsection applies; and (b) the burden of proving the same lies on the person seeking to avail himself thereof.”

193.  Subsection (4):

“The matters to which subsection (2) applies are any licence, permit, certificate, authorization, permission, lawful or reasonable authority, purpose, cause or excuse, exception, exemption, qualification or other similar matter.”

194.  Manifest in my judgment clearly comes within Subsection (4) and it is not necessary for the prosecution to prove that there was no manifest.  Quite apart from this, it appears that the case for the defendants is predicated on the fact that if it is established that the four PRC captains did indeed export the marked oil from Hong Kong to China during the prosecution period as is alleged, then the marked oil each vessel carried is not cargo as defined by section 2 of the Import and Export Ordinance and therefore not requiring of a manifest as it fell within the exemption as being stores or fuel of the vessels whose tanks had been enlarged to enable them to carry on fishing activities in distant waters. 

195.  The remaining charges, Charges 2 to 8, are all offences of dealing with property known or believed to represent the proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance,  Cap.455.  Each of these offences relate to either one or more of the defendants.

196.  Section 25(1) of the ordinance provides that:

“A person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part, directly or indirectly represents any person’s proceeds of an indictable offence, he deals with that property.”

197.  The actus reus of this offence is the act of dealing with the property, that is the subject matter of the charge.  “Dealing” is defined in section 2 of the ordinance and includes (a) receiving or acquiring the property; (b) concealing or disguising the property (whether by concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it or otherwise); (c) disposing of or converting the property; (d) bringing into or removing from Hong Kong the property; (e) using the property to borrow money, or as security (whether by way of charge mortgage or pledge or otherwise).

198.  “Property” is also defined in section 2 and includes money.

199.  Pausing here, I believe that there is no issue save with respect to Charge 7 of the act of dealing with the property in question. 

200.  As regards the mens rea of these offences are concerned, whilst it is trite law that there is no onus on the prosecution to prove the specific offence alleged, quite obviously, if the 1st charge is established, then ipso facto so as knowledge. 

201.  Reasonable grounds to believe contains both an objective and a subjective element.  The objective element requires proof that there were grounds that a common-sense right-thinking member of the community would consider sufficient to lead a person to believe that the property in whole or in part represents the proceeds of an indictable offence.  The subjective element requires proof that those grounds were known to the defendant.  Under this test, the reasonable man knows what the defendant knows, subject to the fact that he fashions his actions in the light of that knowledge in a manner that a common-sense right-thinking member of the community would do. 

202.  The prosecution in this case relies on both mens rea limbs, that is knowledge and reasonable grounds to believe.  But if knowledge is proved, the reasonable grounds to believe limb clearly falls away. 

203.  I turn now to deal firstly with whether or not a conspiracy to smuggle marked oil out of Hong Kong and into the PRC ever existed at all and I say straightaway that I am so satisfied to the required standard. This is so because I have indicated earlier, I accept the evidence of the four PRC captains who each testified that they had been recruited by Cheng Kam-shui and employed as master of fishing vessels, who with the assistance of a crew, drove their vessels from their home port of Au Tou on the mainland to Pak Shek Kok in Hong Kong, collect oil from oil barges belonging to the Chi Shing group of companies, either Chi Shing, Chi Shing 18 or Chi Shing 28, PW200 also said a barge called Bao Shi, have the oil transferred from the oil barge to their fishing vessels that had their tanks enlarged in order to cope with the capacity of oil being transferred, up to 120,000 litres, and then drive their vessels back to the mainland where the oil was unloaded.

204.  This happened on a frequent and regular basis of up to two times each day.  The captains’ evidence which I have accepted is that the payment of the oil was given to them either before or during their trip by a speedboat and paid over in hundreds of thousands of RMB or Hong Kong dollars in batches of $100 and $1,000 notes.

205.  The PRC evidence also establishes there was a credit system in place as occasionally it happened that no cash was paid over and simply the captain would sign on an invoice or note, as PW199 had testified, indicating that some prior agreement was in place between Cheng Kam-shui on the PRC side and those in control of Chi Shing barges in Hong Kong.

206.  I might just add here that having accepted the PRC captains’ evidence as to their fishing vessel’s oil tanks having been modified or enlarged to enable them to transport huge quantities of marked oil, I dismiss the proposition that the oil was required by their vessels for the purposes of fishing in far off waters.   They all testified that it was offloaded from their vessels in the PRC. 

207.  Two exhibits which, in my judgment, demonstrate a clear link between the activities of Cheng Kam-shui on the mainland and Chi Shing in Hong Kong are, firstly, Exhibit P105, which is a notebook or ledger marked “Lack Chai” on the front cover.   Lack Chai is, I accept, from the testimony of the PRC captains, the nickname of Cheng Kam-shui, and this notebook contains records of oil sales transactions and was found in the Bel-Air premises belonging to D1 and D2.

208.  The second exhibit, Exhibit P185E, which was Exhibit PRC-2 in the PRC proceedings and dated 28 November 2009, is a receipt signed by PW197 found in the Mei Fung Court premises owned again by D1 and D2 and is the registered address of Chi Shing Development Limited.

209.  From this evidence alone, I am completely satisfied to the required standard, that is beyond all reasonable doubt, that there was indeed an ongoing conspiracy involving CSDL to smuggle marked oil out of the mainland.

210.  Turning now to the involvement or otherwise of each or any of the defendants in this conspiracy.  I wish to deal with D1, D2 and D3 firstly.

211.  As stated right at the outset of this ruling, D2 and D3 are the sole directors of this company CSDL in which each held 50 per shareholding.  There are only two signatories to the bank account of the company, those being D1 and D2 who are husband and wife.  D3 is D2’s brother-in-law. 

212.  D1, D2 and D3 effectively control CSDL and, as such, would have been actively involved in the day-to-day business of the company.  D1 and D2 being the only two signatories to the company’s bank account control the financial affairs of the company.

213.  PWs 73 to 75 were amongst the RAMCs who had testified that between July 2009 to January 2010, D1 to D3 brought hundreds of thousands of RMBs to them to be exchanged into Hong Kong dollars.  And, similarly, staff of the Hong Kong and Shanghai Bank at Aberdeen, PWs 56 to 62, gave similar testimony of D1 to D3 and incidentally D4 making huge deposits of Hong Kong dollars in bundles of notes in denominations from $1,000 dollar notes to $100 notes. 

214.  Whilst taken by itself, I find nothing particularly sinister about these regular massive deposits into the CSDL account as I accept that this may well be a common practice of those involved in the oil trading business.  But it is this together with the matters referred to by PW312 in his report, Exhibit P711, and my acceptance of the PRC testimony that smuggling activities were indeed taking place that put these large deposits and exchanges of RMB into Hong Kong dollars into proper context and goes beyond normal legitimate trading activities.

215.  I have already referred to the evidence of PW312 and some of the matters that he touched on in his report in the body of this ruling, I do not wish to repeat it, save to say that I have accepted his evidence and attached full weight to his report.  It is beyond peradventure, in my judgment, that D1 to D3 holding the positions that they did in the company, could have been unaware of the improper practice with regard to the yellow invoices and the VCS forms faxed to the Customs & Excise Department which quite deliberately under-reported the sales of oil over the prosecution period. 

216.  That being the case and coupled with other factors dealt with by PW312, such as the mixing of personal account and company account, the huge increase in sales of oil during the prosecution period despite the fishing moratorium between May 2009 and August 2009, the total deposits to CSDL’s bank account of HK$3.7 billion, some 228 million more than sales of oil over the same period, and the disparity between their personal wealth on the one hand and modest salaries from the company, together with modest reported annual profit of the company, particularly for the years 2007 to 2008 and 2008 to 2009 on the other, that lead me to draw the irresistible inference, which I do, that D1 to D3 were actively engaged in a conspiratorial agreement to smuggle marked oil.

217.  In relation to D1 to  D3, I find that I am satisfied the prosecution have proved Charge 1 beyond reasonable doubt and I convict D1 to D3 on Charge 1 accordingly.

218.  As far as D4 is concerned, regarding Charge 1, the accounts demonstrate and indeed it is an agreed fact (see Exhibit P679) that between 12 June 2009 to 13 January 2010 he made cash deposits to CSDL’s HSBC account in the total sum of $103,802,350 via 100 transactions.  Moreover, it is quite apparent that the payment stopped immediately after the arrest of Cheng Kam-shui on 31 January 2010 which leads me to come to the irresistible inference that a significant proportion of D4’s deposits were linked to Cheng Kam-shui during the prosecution period. 

219.  Quite apart from this is the fact that seized from the 4th defendant’s premises was a notebook computer, Exhibit P300, containing Excel files recording sales for the month of November, identical to the sales summary of the white invoices which I do find link this defendant to the preparation and creation of accounting documents.

220.  In addition to this, D4 in the financial year 2009 to 2010 earned an annual salary of $225,200.  PW312 highlighted in his report and during cross-examination the deposits into his bank account during the review period, a period of only some 16 months, amounted to $662,435.  This he found to be totally inconsistent with his earnings from CSDL. 

221.  From all of these facts, I find that I am drawn to the irresistible inference that the 4th defendant was indeed an active participant in the conspiratorial agreement to smuggle oil from Hong Kong to China.  Accordingly, I say that I am satisfied the prosecution have proved the 1st charge against D4 beyond all reasonable doubts and I convict him accordingly.

222.  Before dealing with the 5th defendant, I want to deal with the consequential money laundering charges laid against D1 to D4, that is Charges 2 and 6 in relation to D1 to D2, Charge 3 in relation to D3, Charge 5 in relation to D4 and Charge 7 in relation to D1 to  D3. 

223.  As far as Charge 2 against D1 and D2 is concerned, they are the only two signatories of CSDL’s account at HSBC and the Bank of China.  During the prosecution period, these two accounts received a massive sum of $2,623,226,783 in a period of only eight months.  It is beyond peradventure that D1 and D2 being the only two signatories dealt with this money.

224.  I find that it is unnecessary for me to deal with the second limb of this offence of knowing or believing these monies represent the proceeds of an indictable offence as I have convicted them both of the 1st charge of conspiracy to export the unmanifested cargo, they clearly knew.  I find that these monies represented the proceeds of an indictable offence, indeed the smuggling activities.  I therefore say that I am satisfied the prosecution have proved Charge 2 against D1 and D2 beyond reasonable doubt and I convict them both accordingly.

225.  I say exactly the same with regard to Charge 6 which relates to the very large amount of cash both in Hong Kong dollars and RMB found in the Bel-Air premises belonging to D1 and D2, cash in the sum of RMB7,141,300 and HK$9,812,800.  Having found as I have in relation to D1 and D2 in Charge 1, I say that I am satisfied beyond all reasonable doubt that both D1 and D2 knew these monies represented the proceeds of an indictable offence and I convict them both accordingly. 

226.  As regards the 3rd charge against the 3rd defendant, the sum of $117,836,926, being the subject matter of this charge, represents the total deposits made to D3’s bank account over the prosecution period.  The prosecution’s expert has pointed out, and again I accept it, that the vast majority of these monies were transferred by D3 out of his account to CSDL indicating that he received the funds on behalf of CSDL. 

227.  Once again, having convicted the 3rd defendant on the 1st charge, it is unnecessary for me to consider whether this defendant had grounds for reasonably believing that these funds were the proceeds of an indictable offence as, quite clearly, he knew.  I find I am satisfied the prosecution have proved the 3rd charge against the 3rd defendant beyond all reasonable doubt and I convict him accordingly.

228.  Insofar as Charge 5 against the 4th accused is concerned, the $103,802,315 represented the total cash deposits that this defendant made to CSDL’s account at HSBC on 100 occasions between 12 June 2009 and 31 July 2009.  It is no coincidence, I find, that this defendant stopped making deposits to the company account after the arrest of Cheng Kam-shui and, in fact, no further deposits were made.

229.  This defendant, I have found, was actively involved in the conspiracy.  He has been convicted of the 1st charge and accordingly I say that I am perfectly satisfied beyond all reasonable doubt that he knew these monies represented the proceeds of the smuggling activities. Accordingly I convict D4 on Charge 5.

230.  With regard to Charge 7, this is a joint charge involving D1 to D3 and relates to cash in the sum of $627,000 which was found inside the briefcase belonging to the 3rd defendant.  The briefcase itself was found inside the Mei Fung Court premises which is a property owned by D1 and D2.  D3 has admitted that the briefcase belonged to him and whilst there is no admission from him that the money belonged to him or that he knew that it was in the briefcase, I find there is an irresistible inference which arises that with the briefcase being his, that is that of D3, that he must have known that the cash was inside.

231.  That being the case, the 3rd accused had clearly dealt with the money and, once again, as I have convicted him of the 1st charge of conspiracy, I find that it is beyond peradventure that he knew the money was the proceeds of the smuggling activities.

232.  Despite the fact that the briefcase was found inside the Mei Fung Court premises, I do not find that necessarily any inference arise in relation to D1 and D2, and I therefore am prepared to give D1 and D2 the benefit of the doubt that I find arises so far as they are concerned in relation to this charge.  I acquit D1 and D2 on Charge 7.   For the avoidance of any doubt, I say that the prosecution have proved Charge 7 against the 3rd accused beyond all reasonable doubt and I convict him.

233.  That only leaves the 5th accused.  With regard to her, she is in a different position from that of the other defendants because she has no role whatsoever in the operations of CSDL.  In fact, she has nothing to do with the company.  She has, however, made massive deposits to CSDL’s account at the Bank of China over the prosecution period of some $45,761,871.

234.  She has explained these matters during the course of her three video interviews indicating that she believes her husband was engaged in fishing activities and she was told as such by her husband Cheng Kam-shui.  Also, the payments she made, she said, were in respect of oil necessary for the fuel to the five fishing vessels which she owned but were being operated by him.  When he asked her to make payment for the oil, she just followed his instructions after money was transferred to her account by the RAMCs.  She in fact received a total sum of $46,151,014 from RAMCs over the prosecution period and this is the subject matter of Charge 4 against her.

235.  The boats, she explained, were sold for HK$3.78 million and after the deduction of introduction fees, withdrawal fees, deposit of $300,000 to her daughter Cheng Ka-ki and a sum of $150,000 for herself, she was left with a sum of $3,050,000 which she said she kept in the safe deposit box, this is the subject matter of Charge 8.

236.  With regard to Charge 1, the main evidence against the 5th accused is the fact of the deposits made by her to the company’s Bank of China account over the prosecution period, coupled with the fact that according to PW198, he had met her on many occasions, knew her as being the boss’ wife and, according to him, whose evidence I accept, was aware of the smuggling activities and had bought food for the crews before embarking on their smuggling activities. 

237.  Dealing with D5’s cautioned statements, I find them to be mixed statements.  I do not accept D5’s explanation that the payments that she was making were in respect of oil necessary for fuel for the fishing vessels to carry out legitimate fishing activities and I give it no weight.  It makes no sense at all as I see no reason for D5 to be involved in making or receiving payments assuming this to be a perfectly legitimate enterprise.  Cheng Kam-shui could simply have paid CSDL directly in RMB or through RAMCs in order to pay for the oil. 

238.  However, with regard to the sale of the fishing vessels and the resulting $3,050,000 left over in the safe deposit box, whilst I remain extremely suspicious of it, I find that I cannot dismiss this as being untrue.  There does, certainly on the evidence, appear to be some support for the proposition that the vessels or at least four of them had been sold albeit the fact that they were being held in other people’s names.

239.  Having found as I have, therefore, in relation to the 5th accused, I am perfectly satisfied that D5 was not only aware of the smuggling activities but actively participated in them by making these massive deposits to CSDL’s Bank of China account over the prosecution period and also assisted the crew members by purchasing food for them prior to them embarking on their smuggling activities.  I say, therefore, that I am satisfied the prosecution have proved Charge 1 against D5 beyond all reasonable doubt and I convict her accordingly.

240.  Having found as I have in relation to Charge 1, I am satisfied that the 5th accused was well aware of the fact that $46,151,014 with regard to Charge 4 did in fact represent the proceeds of smuggling activities and, as such, I am satisfied the prosecution have proved this charge to the required standard, that is beyond all reasonable doubt, against D5 and I convict her of Charge 4 accordingly.

241.  With regard to the remaining charge against D5, however, that is Charge 8, due to my findings regarding D5’s explanation in relation to this, as I have explained before, I find that I am left in some doubt.  D5 is entitled to the benefit of that doubt and I therefore acquit her of Charge 8.

242.  Those are my reasons for verdict.