HKSAR v. NG YUET FEI AND ANOTHER

DCCC 1381/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1381 OF 2011

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REASONS FOR VERDICT

1.  The defendants pleaded not guilty to all the charges. They are cohabitees.

2.  Charge 1 alleged that D1 laundered HKD4,107,353.77 through three bank accounts held by him with the Hongkong and Shanghai Banking Corporation (HSBC) between 1 January 2004 and 4 June 2011.

3.  Charge 2 alleged that between January 2004 and May 2011, D2 laundered HKD6,587,805.87  through 5 bank accounts held by her, three with HSBC and two with the Hang Seng Bank (HSB).

4.  Charge 3 alleged that D1 and D2, between 29 April 2010 and 18 June 2011, laundered HKD10, 123,609.04 through 11 bank accounts held by them in their joint names or in the names of companies controlled by them. Six of the bank accounts were with the Wing Lung Bank (WLB), two with the Standard Chartered Bank (SCB) , two with the Nanyang Commercial Bank (NCB) and one with the Dah Sing Bank (DSB).

5.  Charges 4 to 6 alleged that the defendants managed as vice establishments  the premises referred to in the charges.

Background

6.  A police operation was conducted in respect of the three premises referred to in charges 4-6. On 14 September 2011 a number of undercover police officers visited each of the premises posing as customers. On each occasion the officers were offered sexual services by mainland prostitutes.

7.  Each of the premises was divided into rooms. A mainland prostitute was working in each of the rooms visited by the undercover police officers. In each of the premises there was a CCTV system connected to a separate control room where video equipment was found. The cameras were placed in the corridor areas inside each of the premises.

8.  CCTV coverage showed the defendants visiting the three premises on a number of  occasions in  August and September 2011.

9.  The premises referred to in charge 4  are jointly owned by D1 and D2. The premises referred to in Charge 6 are owned by a company called China Genius Investment Limited (China Genius), a company controlled by D1 and D2. A notebook  with the right thumb print of D1 was recovered from the premises referred to in Charge 5.

10.  The police discovered that there were 19 bank accounts controlled by D1 and / or D2 or by companies controlled by them. Over the relevant period  millions of dollars flowed through these accounts. Many of  the payments into the accounts were by way of small cash payments, many of which were in the sum of HKD3,000, deposited into the accounts at cash deposit transfer machines. According to the bank evidence, up to 30 notes can be deposited in this way at any one time. On many occasions, there were several deposits of HKD3,000 made on the same day.

11.  On 16 September 2011 the defendants were arrested for offences of managing vice establishments and money laundering  and subsequently interviewed under caution. The interviews were video recorded. No issue was taken as to the admissibility of the records of interview. D1 answered questions asked of him by police officers whereas D2 made no comment.

12.  It was submitted by defence counsel in relation to charges 4 to 6 that there was insufficient evidence to prove that the premises referred to were being used as vice establishments. It was further submitted that,  even if the court were satisfied that the premises were being so used, the prosecution had not established to the required standard that the defendants were involved in the management of such establishments.

13.  In relation to charges 1 to 3 it was submitted that there was insufficient evidence to establish that the defendants knew or had reasonable grounds to believe that the monies in their various accounts represented the proceeds of an indictable offence. It was submitted that the prosecution case was that the monies were the proceeds derived from their management of vice establishments. It was submitted that if the court agreed that the premises referred to in charges 4 to 6 were not vice establishments, then the monies could not be the proceeds of an indictable offence. It was not in dispute that, during the periods covered by charges 1 to 3, there was no evidence of any vice activities at the three premises referred to in charges 4 to 6.

14.  It was also submitted that D1 gave  credible explanations as to the source of the monies going through the various accounts.

Directions

15.  I reminded myself that the prosecution is required to prove each and every ingredient of each offence against each defendant beyond reasonable doubt. The defendants have nothing to prove.

16.  They elected to remain silent. They are entitled to do so and no adverse inference can be drawn against them for remaining silent. D2 made no comment to any of the questions put to her when interviewed by the police. I reminded myself that she had the right to remain silent and no inference could be drawn against her for electing to do so.

17.  D2 has a clear record. She elected not to give evidence and made no comment when interviewed by the police. I bore in mind that her clear record is relevant to the issue of propensity.

18.  I reminded myself that any exculpatory statements made by D1 in his record of interview are admissible as evidence of their truth.

19.  I reminded myself that any incriminating statements made by D1 in relation to D2 in his video recorded interviews were inadmissible against D2. I also reminded myself that any exculpatory statements made by D1 in relation to D2 in the interview records were admissible as evidence of their truth.

20.  I bore in mind that, if I were to reject what D1 said in his records of interview, that does not mean he is guilty of any of the offences charged. If I were to reject his evidence, I would have to consider the evidence I did accept and determine if that established the guilt of the defendant on any of the charges beyond reasonable doubt.

21.  I reminded myself that a court can only draw an inference from circumstantial evidence where the facts supporting such an inference are proved beyond reasonable doubt and that such an inference is the only inference that can be reasonably drawn from such facts.

Law

Managing a Vice Establishment S.139 (1) (b) Crimes Ordinance Cap 200

22.  S. 117(3) provides that premises shall not be treated as a vice establishment unless they “are used wholly or mainly by two or more persons for the purposes of prostitution or… in connection with the organizing or arranging of prostitution”. According to Archbold Hong Kong  2012 para 21-256 this is “ an issue of  fact: whether premises…were kept as a vice establishment is primarily a matter of looking at the nature of the use of the premises, although the proportion of time for which such premises are used for that purpose is also relevant”.

23.  At paragraph 21-258 of Archbold Hong Kong it states that “ it must be proved that the defendant knew the premises were a vice establishment….Managing means exercising operational control over the operation of the vice establishment. The fact that a person was in charge or exercising control over the premises is evidence he was managing the premises: R v. Tam Wing Kwong [1988] 2 HKLR 313 applying R v Cheong Luen Shing [1994] HKLY 338.

Dealing with the proceeds of an indictable offence

24.  Section 25(1) of the Organized and Serious Crimes Ordinance, Cap. 455, provides:

“… 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".

25.  In HKSAR v. Wong Ping- shui and Another (2001) 4 HKCFAR 29, the Appeal Committee held that, in a prosecution under this section, the prosecution does not have to prove that the property represents the proceeds of an indictable offence.  The Appeal Committee held that the actus reus of the offence is dealing with property.  The status of the property is only an element of the mens rea of the offence.

26.  The mens rea of s.25(1) has two parts, “knowing” and “having reasonable grounds to believe”. “Know” includes evidence of the person’s involvement with the commission of the indictable offence, or by admission that he knew that the property was the proceeds of an indictable offence: Seng Yuet-fong v. HKSAR [1999] 2 HKC 833 836D. “ Reasonable grounds to believe” contains objective and subjective elements: (a) 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 represented any person’s proceeds of an indictable offence; (b) subjective element – requires proof that those grounds were known to the defendant: HKSAR v. Shing Siu-ming and Others [1999] 2 HKC 818 at 825H.

27.  The Court of Appeal in HKSAR v. Yam Ho-keung CACC 555 of 2001 affirmed the reasoning of the trial judge that where there are reasonable grounds for believing in a number of scenarios which might give rise to the property being dealt with, the defendant holds reasonable grounds for believing in them all. If one of those scenarios is related to an indictable offence, that is sufficient basis to convict. The essential point is whether the defendant was aware of those reasonable grounds, not the nature of the actual belief he had formed on the basis of those grounds.

28.  “Dealing” is broadly defined in section 2(1) of the Ordinance and includes receiving, concealing, disposing or converting property. The limited defence provided by s. 25(2), that the defendant intended to disclose his suspicions about money laundering to an authorized officer, does not arise in this case.

Evaluation of the Evidence

29.  The prosecution evidence was undisputed. Most of the evidence was admitted under the provisions of 65B or 65 C of the Criminal Procedure Ordinance Cap 221.

30.  Six undercover police officers, PW’s 1 to 6, gave unchallenged evidence about being offered sexual services on visits to the three premises referred to in charges 4 to 6 on 14 September 2011.

31.  Each of the premises is subdivided into self-contained rooms with en-suite bathrooms. Each room has its own doorbell. In each case the officers were admitted by a mainland female who offered sexual services for HKD350. Inside each of the rooms there were condoms and lubricant jelly. Each of the rooms was equipped with  a CCTV screen providing video footage of the corridor outside the rooms. These screens were connected to video recording equipment housed in a separate control room at each of the premises.

32.  The premises referred to in Charge 4  were purchased by D1 and D2 in December 2009. The property referred to in Charge 6 was purchased in November 2010 by  China Genius, a company controlled by D1 and D2.

33.  Once the police operation became overt, the three premises the subject of charges 4 to 6 were searched by police officers and they siezed the video recordings of images captured by the closed circuit television cameras together with the exhibits listed in Admitted Facts 273 (2) which refers to the Exhibit List dated 28 June 2012.

34.  A substantial number of condoms were found at each of the premises. From the photographs produced these all appeared to be of the same “Inno” brand. Many tubes of lubricant were recovered.

35.  From Room 1 of the premises on 2/F 168 Shau Kei Wan Road ( Charge 4) 17 sets of what are described by the police as “working dresses” were recovered, six sets in black, six in red and five in white. These consisted of two piece, intimate, transparent and very flimsy items of lingerie.

36.  Photographs of the three premises were produced as Exhibit P274. Photograph 274 -3-41 shows a set of the red two-piece clothing recovered from the storeroom of  the premises referred to in Charge 4. The place where the sets of working clothes were located is  shown in photograph P274-5-22.

Evidence relating to CCTV recordings made at the three alleged vice establishments

37.  Statements made by 5 officers who had viewed the CCTV tapes were produced under the provisions of s.65 B Criminal Procudure Ordinance Cap 221 [ Exhibits 275 (1) to (6)]. They established that between 15 August and 14 September 2011 the defendants  regularly visited each of the three suspected vice establishments. The defendants are seen, inter alia, to enter various rooms, carry various items to and from the rooms, deal with the laundry, hand out items of clothing. D1 in particular is seen sweeping floors and disposing of garbage.

38.  For example, PC 34652 observed CCTV footage for 12 September 2011  which recorded activities on the second floor of 168 Shau Kei Wan Road ( Charge 4). His statement was admitted as Ex P275(5). In paragraph 4 of his statement he refers to the following events:

  ·At 1033 D2 rang the doorbell of Room 10. A female, Female A, wearing black two-piece underwear covered by two pieces of white transparent gauze opened the door and D2 entered.

  ·At 1035 Female A walked out of the room and entered Room 5 and then returned to Room 10. Another female, Female B, wearing white short-sleeved clothes and black panties walked out from the direction of Room 1 and 2 and entered Room 3.

  ·At 1037 a female wearing identical clothing to Female B and whom he believed to be Female B walked out of Room 3 and walked towards Room 8 while D1 was outside the entrance to Room 8 and he looked into Room 8

  ·At 1038 D1 and a female believed to be Female B entered Room 3

  ·At 1043 D1 opened the storeroom and entered Room 7 holding in his hand a black two-piece underwear set

  ·At 1122 D1 entered Room 10, then left the room and walked to the storeroom. He left the storeroom with underwear which he carred to Room 5

  ·At 1136 D1 entered Room 8 and then he entered Room 5. He left Room 5 with black underwear which he took to Room 8.

39. I noted that it was from Room 1 of these premises that the police recovered the 17 sets of ‘working clothes” referred to above.

40. It was admitted that Schedule 1 to the Admitted Facts accurately sets out the times of arrival and departure of D1 and D2 at the three premises referred to in the charges as depicted in the CCTV recordings.

Bank Accounts of the defendants

41. The defendants controlled 19 bank accounts between January 2004 and June 2011. Three belonged to D1, five to D2 and 11 were held jointly by D1 and D2 or companies controlled by them. It was not disputed that during the relevant period HKD17.7 million was deposited by way of cash into these accounts.

42. Breakdowns of the monthly cash deposits into these accounts were produced as Schedules 2 to 4 of the Admitted Facts Exhibit 273(1)

Properties owned by the defendants

43. D1 and D2 jointly owned the premises referred to in charge 4 . They jointly owned one other property. D2 owned 2 properties in her own name. China Genius, a company controlled by D1 and 2, owned 4 properties. These included the property referred to in Charge 6 and three other properties purchased in 2011.

Tax Records of the defendants

44. D1 had not filed any tax returns to the Inland Revenue Department (IRD) for the years between 2004/5 and 2008/9. For the fiscal year 2009/10 his declared income was HKD180,000 as a leasing officer at a company called “Chun Sum Property Development Limited” ( Chun Sum). D1 declared to IRD that the property jointly owned by him and D2 was not rented out during the fiscal year 2009/10. For 2010/11, D1 declared a rental income of HKD22,000, being half the monthly rental in respect of a property owned by him and D2 in Tsuen Wan. The total annual income declared between 2004 and 2011 was therefore HKD202,000.

45.45. When D1 was interviewed by the police he said that he was self-employed earning HKD220,000 per month.

46.  D2 had filed no tax returns between 2004 and 2009. For the fiscal year 2009/10 her declared income was HKD108,000 as an administrative assistant at Chun Sum. She declared that the property jointly owned by her and D1, the property referred to in Charge 4, was not rented out during the fiscal years 2009 to 2011.

47.  For 2010/11, like D1, D2 declared an income of HKD22,000 for the property in Tsuen Wan. The total declared income therefore for D2 between 2004 and 2011 was HKD130,000.

Video Recorded Interviews of D1 Ex 136-7

48.  In his video recorded interview, D1 explained the source of funds in his personal bank accounts and his joint bank accounts with D2. He explained that his income in the 7 years from 2004 was from the following sources:

a) Renovation work

b) Salary as director of a company called Wise Success Engineering Limited (Wise Success).

c) Rental income from property

d) Investment in stock market

e) Investment in real property

49. D1 listed his income from the various properties. He said that all the rents were collected in cash by himself, D2 or a Mrs Wong on their behalf. He claimed also that his monthly income ranged from hundreds of thousands to a million dollars. He said he did not have any records of his business and had not declared his income to the IRD because he thought he was only required to declare income paid to him by a company but not from other sources.

50.  D1 stated that the total monthly income from letting out 7 of the 8 properties owned by D2, and by himself and D2, was HKD195,000.

51.  D1 said  that the income from the properties was as follows:

Property 1 : Flat G, 21/F, Block 2, Crystal Park,50, Ma Tin Road, Yuen Long – HKD8,000 per month.

  It was an admitted fact that this property was purchased by D2 in November 2005. No income was declared to the Inland Revenue for this property

Property 2 : 4/F No. 215, Reclamation Street, Kowloon – HKD15,000 per month.

This property was purchased by D2 in April 2006.

Property 3: 2/ F, 168 Shau Kei Wan Road ( Charge4) – HKD90,000 per month.

  This property was purchased by D1 and D2 in December 2009. No income was declared in respect of this property to the Inland Revenue and it was claimed that this was their residence

Property 4 : Flat 8, 4/F, Cheuk Ming Building, 22-26 Chuen Lung, 10,14,16,20 and 22 Tsuen Wan Market Street, Tsen Wan – HKD27,000 per month.

  This property was purchased by D1 and D2 in September 2010. In 2010/11 a rental income of HKD44,000 was declared to the IRD.

Property 5 : Flat E, 2/F, 76, Sai Wan Ho Street, Hong Kong – rental income HKD15,000 per month.

  This property was purchased in the name of China Genius. There was no declaration of income made to the IRD.

Property 6 : Shop No. 1, 1/F, Coronet Court, King’s Road ( Charge 6) – HKD24,000 per month.

  This property was purchased in the name of China Genius in November 2010.There was no declaration of income made to the IRD

Property 7: 5/F, 434 Shanghai Street – HKD16,000 per month. This property was purchased in April 2011 in the name of China Genius. This was purchased beyond the fiscal year 2010/11.

Property 8 : Flat B, 21/F, Tower 6A, Imperial Cullinan Kowloon.

This property was purchased in July 2011in the name of China Genius and is under construction.

52. D1’s total income declared to the IRD for the years 2004 to 2011 was HKD202,000. On 10 April 2010 and 20 May 2011, D1 declared to IRD that Property 3 was not rented out. In his interview he said the property had been rented out for 2 years for HKD90,000 per month. D1 and D2 declared that in 2010/11 the total income from Property 4 for the period between October 2010 and April 2011 was HKD44,000. D1 said in interview that the rental was HKD27,000 per month. The various declarations made to the Inland Revenue are not only incorrect, they undermine the assertion made by D1 when interviewed that he thought he was only required to declare to the IRD income paid to him by a company and not from other sources.

53. The total monthly rental income as stated by D1 from the seven properties owned by D2 and D1 and D2, would have varied from HKD8,000 per month starting in November 2005, when only one property was owned, to HKD195,000 from April 2011 to the present when they held 7 properties.

54. D1 stated that all rents were collected in cash. It was admitted that Schedules 2-4 of the Admitted Facts are accurate monthly breakdowns of cash deposits into the 19 bank accounts controlled by the defendants.

55. Schedule 2 shows that the total monthly cash deposits into D1’s three bank accounts increased from approximately HKD20,000 before August 2009 to HKD75,400 in August 2009 and as much as HKD270,000 in April 2010.

56. Schedule 3 shows that the total monthly cash deposits into D2’s five bank accounts increased from less than HKD10,000 before September 2005 to HKD397,800 in January 2010.

57.  Schedule 4 shows that the total monthly cash deposits of D1 and D2  into the 11 joint bank bank accounts ranged from HKD48,500 to HKD1,722,220 during the 15- month period that the joint accounts were opened, making an average cash deposit of HKD639,350 per month.

58.  The amount of cash received by D1 and D2 into their personal and joint accounts does not match the rental income claimed by D1. According to schedules 2-4, the total cash deposits received by D1 and D2 for the month of August 2009 were HKD75,400 and 281,200 respectively whilst the rental income for the month should be HKD8,000 from Property 1 only. For the month of April 2010 the total cash deposits received by D1 and D2 into their personal and joint accounts were HKD270,000, 143,900 and 48,500 respectively making a total cash deposit of HKD462,400. Yet the rental income for the month should have been HKD98,000 from Properties 1 and 3. For the month of April 2011, the total cash deposits received by D1 and D2 into their personal and joint accounts were HKD37,400, 54,000 and 1,270,300 respectively making a total of HKD1,361,700. Yet the rental income for this month should be HKD195,000 from 7 of their properties.

59.  The vast majority of cash deposits  into the  three personal accounts of  D1 and into the five personal accounts of D2 from July 2009 to April 2010 were in sums of HKD3,000. On two occasions 15 deposits were made by each of them in one day (17 March 2010 for D1  and 28 November 2009 for D2). It was an admitted fact that, at the automatic teller machines (ATM) operated by the HSB and HSBC, a deposit of cash may only be made in the form of banknotes with a maximum of 30 notes at any one time being of denomination of HKD10, 20,100, 500 and 1000. D1 said that he used the ATMs so as to avoid having to queue up at the banks.

60.  It was admitted that Schedule 5 to the Admitted Facts sets out accurately those days upon which at least 5 cash deposits  were made into the Instant Deposit Machines of the 19 bank accounts controlled by the defendants.

Renovation Work

61.  D1 claimed that his monthly income from renovation work might be up to a million dollars per month. He was unable to produce any documentation, records or invoices in this regard and it had never been declared to the IRD as a source of revenue. He claimed he did not know he had to declare it. He was unable to recall any work in hand.

Directors’ Salary

62.  It was an admitted fact that D1 and D2 were directors of  Wise Success and China Genius. According to bank statements D1 and D2 have been receiving monthly salaries of HKD30,000 and 25,000 respectively since 3 January 2011 from China Genius. I noted that, in his record of interview, D1 claimed he was receiving a salary from Wise Success. Neither D1 nor D2 declared  any income from China Genius in their 2010/11 tax returns.

Investment in Real Property

63.  D1 claimed in his VRI that part of his income was from investment in real property. He was unable to produce any documentation to support his contention.

Findings

Charges 4 -6

64.  The evidence of PW’s 1 to 6, the decoy officers, was unchallenged. I accepted their evidence that on their visits to the three premises (the subject of charges 4 to 6)  on 14 September 2011 they were offered sexual services by the female occupants of the rooms for the sum of HKD350. Inside each of the rooms there were condoms and tubes of lubricant.

65.  The ladies the officers dealt with at the premises were clearly working as prostitutes.

66.  The premises the subject of charges 4 and 6 had been owned by D1 and D2 since December 2009 and November 2010 respectively. There was CCTV evidence of the visits by D1 and D2 to the premises referred to in Charge 5 and the fingerprint of D1 was found on a notebook recovered from these premises.

67.  I noted that the individual rooms inside the three premises were self-contained in that each room had its own doorbell and en-suite bathroom. The main doors to each of the premises were kept open. There was no evidence of any vice activities taking place when the defendants were at the premises. The transactions between the prostitutes and their clients were handled directly and there was no evidence of shared earnings between the prostitutes.

68.  CCTV video recordings made at the three premises on various dates in August and September show  visits by  D1 and D2 to each of the three premises. Not only do they assume responsibilities for such matters as cleaning the corridors, rubbish disposal and laundry collection, they go into the various rooms and interact with the scantily dressed women inside the rooms. On a number of occasions they are seen to hand underwear and other items to the women. Boxes of condoms and sets of underwear are found in storerooms. I took into account the layout of the three premises and the contents of the rooms. I considered the photographs produced – Ex 274.

69.  I had no doubt that D1 and D2 knew that the three premises were being used for the purposes of  prostitution.

70.  Bank records were produced in relation to 19 bank accounts controlled by the defendants. I noted that the bank records produced stopped in June 2011. During the periods D1 and 2 owned the premises the subject of charges 4 and 6 there are numerous and regular cash payments into various bank accounts controlled by them. A significant number of such deposits were in the sum of HKD3,000. The maximum number of notes that can be deposited at any one time into the ATM’s of HSBC and HSB is 30. On numerous occasions there are five or more deposits made in quick succession.

71.  Taking into account the totality of the evidence, I was irresistably drawn to the conclusion that the 3 premises  the subject of charges 4 to 6 were run as group operations and were vice establishments. I also had no doubt that both D1 and D2 were managing such establishments.

Charges 1-3

72.  It was not disputed that during the period referred to in the charges, HKD17.7 million was deposited by way of cash into the 19 bank accounts controlled by D1 and/ or D2.

73.  I examined carefully the evidence set out in the Bankers Affirmations and the monthly breakdowns of  cash deposits made into defendants’ accounts as set out in Schedules 2 to 4. Numerous cash deposits were made by ATM  in sums of HKD3,000 and often there were several deposits made consecutively on the same day. I considered the frequency of the deposits, the times of such deposits and the amounts involved.

74.  During part of the relevant period, the defendants owned and managed two properties which were used as vice establishments and they were managing a third property which was used as a vice establishment.

75.  In his records of interview, D1 gave explanations concerning the source of the funds going through their bank accounts. I found many of his explanations vague, lacking in detail and he was unable to produce any documentation whatsoever to support his contentions. For example, D1 was asked questions about the several hundred thousand to  a million dollars a month he claimed to earn from his renovation business. He had no receipts or records of the costs and income and said he gave a portion of the total cost of  projects to a person he knew only as Master Wong. He said he wrote notes to confirm such payments but they were thrown away. He was unable to say at which flats he had worked the previous month or even the previous week.

76.  I did not believe what he told the police as regards the source of the funds going through the accounts. I reminded myself that if  I rejected his assertions that does not mean he is guilty of  any of the offences.

77.  I took into account the evidence set out in the IRD returns and assessments in relation to both  D1 and D2, Exhibits P216-230. I noted that the declarations made by D1 were inconsistent with what he told the interviewing officers and that, in respect of each of the defendants, the declarations were inconsistent with the deposits being made into their accounts.

78.  Taking into account the  totality of the evidence I had no doubt that the monies paid into the bank accounts of  D1 and/ or D2 or into the accounts of companies they controlled were the proceeds of indictable offences and that both D1 and D2 knew that they represented the proceeds of such indictable offences.