HKSAR v. CHAN CHIN PANG AND ANOTHER

DCCC700/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 700 OF 2011

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Reasons for Sentence

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The Charges

1.  The charge sheet of this case contained a total of 8 charges.

2.  The 1st Defendant pleaded guilty to the following :

(a) “offering an advantage to a public servant”, contrary to sections 4(1)(c) and 12(1) of the Prevention of Bribery Ordinance (“POBO”), Cap. 201 (“the 1^st charge”); and

(b) “conspiracy to defraud”, contrary to common law ("the 2^nd charge).

3.  He pleaded not guilty to two charges of “dealing with proceeds” (the 3^rd and 4^th charges).

4.  The 2nd Defendant also pleaded guilty to the 2^nd charge, the conspiracy to defraud, which was laid against him and the 1st Defendant jointly. In addition, the 2nd Defendant pleaded guilty to the following :

(a) one charge of “dealing with proceeds” (“the 7^th charge”); and

(b) one charge of “public servant accepting an advantage” (“the 8^th charge”), contrary to sections 4(2)(c) and 12(1) of the POBO.

5.  The 2nd Defendant pleaded not guilty to two other charges of “dealing with proceeds” (“the 5^th and 6^th charges”).

6.  For those charges in respect of which “not-guilty” pleas have been entered, the prosecution applied for them to be left on the court file and not to be proceeded with without the leave of the court. It was so ordered.

The Facts

7.  The 1st Defendant was a businessman engaging in, inter alia, the business of supplying audio/video and computer equipment.

8.  The 2nd Defendant was an employee of the Chinese University of Hong Kong (“CUHK”), which is a Public Body under the POBO. The 2nd Defendant joined CUHK as a technician in 1981, and was, at the time of these offences, a senior technician responsible for, inter alia, all matters relating to the purchasing and maintenance of audio-visual and computer equipment for CUHK’s School of Journalism and Communication (“SJC”).

9.  The 1st Defendant had known the 2nd Defendant for over 20 years. At the time of these offences, the 1st Defendant was aware that the 2nd Defendant was an employee of CUHK.

The 2^nd Charge – the Conspiracy to Defraud

10.  The modus operandi which was agreed by the Defendants pursuant to this conspiracy charge was this : the 1st Defendant was to submit quotations for the supply of audio/video goods required by SJC based on the particulars provided to him by the 2nd Defendant. The 2nd Defendant would then arrange to secure the contracts for the companies controlled by the 1st Defendant. However, the 1st Defendant was not required to supply the goods. The orders would be fulfilled by the 2nd Defendant as he would obtain the goods from other sources.

11.  In order to avoid successful bids being always given to just one company, the 2nd Defendant instructed the 1st Defendant to use two companies when submitting the quotations : DMN Technology Limited (“DMN”) and Sino Smart Technology Limited (“SSTL”). At times, the 2nd Defendant would also instruct the 1st Defendant to put in quotations by using both DMN and SSTL in order to satisfy CUHK’s procedural requirements.

12.  The 1st Defendant owned 40% of the shares of DMN and was the director of the company. SSTL was set up by the 1st Defendant’s wife. However, the 1st Defendant was the de facto owner of SSTL. The 1st Defendant’s wife only acted on his instructions in respect of the movements of SSTL’s funds.

13.  After being granted the contracts by CUHK, and upon receipt of the relevant payments, the 1st Defendant would, based on his agreement with the 2nd Defendant, deduct 5-8% as “commission” for the preparation of documents. The remaining 92-95% of the money would then be paid to the 2nd Defendant for him to carry out the contracts.

14.  Between 6 October 2008 and 27 October 2009, and pursuant to the Defendants’ agreement, SSTL and DMN were respectively awarded 10 and 3 contracts by CUHK on the recommendations made by the 2nd Defendant to his senior officers. The 10 contracts given to SSTL involved a total sum of HK$1,186,620 while those 3 given to DMN involved a total sum of HK$541,250.

15.  Through these transactions, the 1st Defendant had made a total profit of about HK$180,000. However, the prosecution was unable to ascertain the gain made by the 2nd Defendant pursuant to the conspiracy he had with the 1st Defendant.

16.  Mr. Chow Him (“Chow”) was the owner of AMT Distribution Limited (“AMT”), which was the sole agent of the equipment developed by “Canopus”. The events came to light when in December 2008 and April 2009, the 2nd Defendant approached Chow to purchase “Canopus” equipment. On each of those occasions, the 2nd Defendant placed orders with AMT verbally and received the goods at SJC personally. Payments in settlement of the invoices were also made direct into AMT’s account by the 2nd Defendant instead of by cheques issued by CUHK.

17.  Since Chow was a regular supplier of goods to CUHK, he noticed that the procedures adopted by the 2nd Defendant departed from CUHK’s practice. He therefore informed his friend in CUHK. A report was then made to the ICAC.

The 1^st and the 8^th charges – the Offering and Accepting of Advantage

18.  On 15 November 2008, DMN submitted a quotation to CUHK for the supply of audio/video equipment. However, on this occasion, as the 1st Defendant was familiar with the supplier of the goods and could obtain the items at a low price, he agreed with the 2nd Defendant that he would be responsible for the said purchase after the contract was successfully awarded to DMN at a price determined by the 2nd Defendant. Eventually, the 1st Defendant was able to obtain the goods at the cost of about HK$300,000. Yet, the 2nd Defendant instructed the 1st Defendant to submit the quotation to CUHK at the price of HK$482,000.

19.  Through the efforts made by the 2nd Defendant, the contract was awarded to DMN. On 10 February 2009, the 1st Defendant paid to the 2nd Defendant HK$50,000 for the 2nd Defendant’s assistance in securing the contract for DMN. In this transaction, DMN had made a profit of HK$40,000 while the 1st Defendant himself had made a gain of about HK$90,000.

The 7^th Charge – the Money Laundering

20.  Between 12 December 2008 and 10 February 2009, the 2nd Defendant, through his personal bank account, had received 5 payments totalling HK$550,650 from the bank account of the 1st Defendant’s wife. These payments were received by the 2nd Defendant in relation to the agreement he had with the 1st Defendant, that is, these sums were the balances from CUHK’s contract payments received by the 1st Defendant after he had deducted his “commission”. The payments also included the HK$50,000 given to the 2nd Defendant by the 1st Defendant on 10 February 2009.

Mitigation – the 1st Defendant

21.  The 1st Defendant is of a clear record. He is married with two children and is now aged 52. The 1st Defendant completed his education in Morrison Hill Technical School, and as detailed in the Summary of Facts, he was a businessman at the time of these offences, earning about HK$30,000 per month.

22.  The 1st Defendant, because of the current prosecution, is suffering from adjustment disorder and is now seeking professional help.

23.  In 2008, the 1st Defendant’s wife suffered from a stroke. In mitigation, it was said that she is heavily dependent on the 1st Defendant, both financially and emotionally. Both the 1st Defendant’s children are, at present, living with the family. The 1st Defendant’s daughter is already working while his son is still studying in the university. Letters written by the 1st Defendant’s immediate family members were given to the court. They all speak very highly of the 1st Defendant, saying that he is a loving husband and a caring father, doing all his best for the family.

24.  Mr. Wong for the 1st Defendant urged the court to give full credit to the 1st Defendant for his early co-operation with the ICAC in that he had given a full account of the events after his arrest. Later, the 1st Defendant also provided a statement to the authority and confirmed that he would testify against the 2nd Defendant. The 1st Defendant’s assistance, it was said, was instrumental in bringing the 2nd Defendant to face the reality and to plead to the charges.

25.  In respect of the 1^st charge, Mr. Wong submitted that it was more like a “technical breach”. The reasoning is that this transaction was originally no different from the other transactions carried out pursuant to the conspiracy in the 2^nd charge. It was submitted that if not because the 1st Defendant happened to know the supplier well and was able to get a really low price, this transaction would have followed the same modus operandi and would not involve the 1st Defendant offering any advantage to the 2nd Defendant. It was also submitted that as the price of HK$300,000 was only feasible because of the connection the 1st Defendant had with the supplier, CUHK would not have been able to obtain such a low price anyway. In other words, it was said that CUHK had suffered no real loss in this transaction.

26.  In respect of the 2^nd charge, Mr. Wong emphasized that what the 1st Defendant did pursuant to the conspiracy was to lend the names of his companies for use in the quotations. It was also submitted that since, on some occasions, SSTL or DMN was the only company responding to the invitations for quotations, CUHK could be said to have suffered no disadvantage.

27.  Mr. Wong further told the court that the 1st Defendant had all along been prepared to make restitution of the profit he had gained. However, he did not know to whom the payment should be sent and therefore, no actual restitution had taken place at the time of the mitigation. Nevertheless, Mr. Wong informed that the 1st Defendant had already put together the money and payment could be made at any time.

28.  In view of all the mitigating factors put forth, Mr. Wong asked this court to take the exceptional course of obtaining a CSO report.

Mitigation – the 2nd Defendant

29.  The 2nd Defendant is also of a clear record. He is married with two children and is now aged 55. His wife is a housewife and his daughter is currently out of job. Both his wife and daughter reside with the 2nd Defendant. However, for reasons not particularly mentioned, the 2nd Defendant was said to be the one attending to his 81-year-old mother-in-law who is also living with the 2nd Defendant’s family and who is suffering from lung cancer.

30.  As the 2nd Defendant’s son is in the United States and is living away from the family, it was said that once the 2nd Defendant is imprisoned, his family has no income.

31.  Prior to being dismissed by his employer, the 2nd Defendant has worked for CUHK for 29 years. He was originally entitled to a provident fund of more than HK$600,000 upon his retirement at the age of 60. However, in view of the current prosecution, the 2nd Defendant’s provident fund would probably be forfeited.

32.  It was said that the 2nd Defendant had made donations and had performed voluntary work. Certificates relating to the 2nd Defendant’s assistance and support given in the “flag days” held on 17 August 2011 and 10 September 2011 were provided to the court.

33.  In addition, Mr. Lau for the 2nd Defendant told the court that since his arrest, the 2nd Defendant has been suffering from various ailments including depression, insomnia, and numbness of the limbs. The 2nd Defendant is now seeking medical treatment for these.

34.  In mitigation, Mr. Lau said that insofar as the conspiracy charge is concerned, the 2nd Defendant, originally, only intended to secure better quality goods for use by the students. It was, however, admitted that as time went by, this objective was diluted. Mr. Lau, nevertheless, emphasized that there is no evidence that the goods purchased were of inferior quality.

35.  Mr. Lau also pointed out that the prosecution was unable to specify any profit made by the 2nd Defendant from the fraudulent scheme. He invited the court’s attention to the particulars of the 2^nd charge which basically centred on the concealment of the true identities of the suppliers rather than any profits or benefits gained by the 2nd Defendant.

36.  Mr. Lau also submitted that it was through the 2nd Defendant’s efforts that the 1st Defendant was prepared to take a commission of 5-8% only. At times, e.g. in respect of the 6^th transaction, the 2nd Defendant was also the one who urged the 1st Defendant not to deduct any commission.

Sentencing Considerations & the Starting Points

37.  These are serious offences. The Court of Appeal has repeatedly said that corruption offences should be deterred and such deterrence is required even in the case of a first offender. Likewise, a conspiracy to defraud practised on one’s employer involves a breach of trust and such conduct should also be deterred.

(1) The 2^nd Charge – the Conspiracy to Defraud

38.  The facts revealed a protracted conspiracy lasting for one full year. It was a conspiracy which sought to circumvent CUHK’s equipment procurement procedures. No doubt, CUHK has put in place such procedures in order to ensure fair competition amongst the suppliers of goods and in order to better protect the interests of CUHK. For the purchases of equipment, it is obvious that the price aside, the quality of the goods and the standard of the maintenance services to be provided by the suppliers would also be of concern to CUHK. In this connection, it is not difficult to see that the true identity of a bidder or supplier is of significance in CUHK’s procurement procedures. Yet, the two Defendants, through their conspiracy, sought to mislead CUHK as to the true suppliers of the goods. There was, of course, also the concealment from CUHK of the fact that the 1st Defendant’s companies would take 5-8% as “commission”.

39.  The 2nd Defendant was the prime mover of this scheme. According to the facts, he was the one who was responsible for all matters relating to the purchasing of equipment required by SJC; he was the one who provided to the 1st Defendant the particulars for inclusion in the quotations; he was the one who instructed the 1st Defendant to use two different companies for bidding in order to avoid arousing suspicion; he was the one who recommended to his senior officers to award the contracts to SSTL and DMN; and he was the one who was ultimately responsible for getting the goods required from the unknown sources.

40.  I should say that although paragraph 19 of the Summary of Facts referred to the 2nd Defendant alerting the 1st Defendant of an inspection from the staff of CUHK and referred to the assistance rendered by the 2nd Defendant to the 1st Defendant on this matter, I have not taken such into account when deciding on the sentence in respect of the 2^nd charge as such conduct happened at a time outside the period of the conspiracy particularized in the charge.

41.  Mr. Lau submitted that there was nothing in the Summary of Facts which pointed to any profit received by the 2nd Defendant. However, on any view of the matter, it makes absolutely no sense for the 2nd Defendant to have gone into all these troubles and to have put in so much effort if he were not to gain from the conspiracy.

42.  Nonetheless, I do not need to make any finding on this as, even assuming it were true that the 2nd Defendant himself did not get any profit, it was an admitted fact that the 1st Defendant would take 5-8% as “commission”. Such was part and parcel of the conspiracy and the 2nd Defendant was fully aware of the extent of the benefit to be obtained by the 1st Defendant. Therefore, the 2nd Defendant had, on the facts, entered into a conspiracy, knowing full well that such would involve defrauding his employer and providing financial benefits to the 1st Defendant.

43.  I also do not accept the submission that the 2nd Defendant’s criminality should be lessened as he had kept the 1st Defendant’s commission at 5-8% and had, at times, asked the 1st Defendant not to take any commission at all. To put forth such as a mitigation factor is to ignore the fact that the 2nd Defendant was the instigator of the conspiracy. One simply could not devise, or be a party to, a scheme to defraud his employer and then turned around to say that he had mitigated the damage caused.

44.  I now turn to the 1st Defendant. I do not accept that he simply lent the names of his companies for the 2nd Defendant to use. It was admitted that he had to prepare the relevant quotations and to receive the payments from CUHK. It was also admitted that the 1st Defendant then had to transfer the money to the 2nd Defendant for purchasing the goods involved.

45.  The submission that at times, SSTL and DMN were the only companies responding to the invitations is of no assistance in mitigation. It was the 1st Defendant and the 2nd Defendant’s agreement that the 2nd Defendant would arrange for the contracts to be awarded to the 1st Defendant’s companies. Once such contracts were awarded, the 1st Defendant would then get his “commission”. Therefore, whether SSTL and DMN were the only respondents did not alter the fact that CUHK would, because of the Defendants’ conspiracy, have obtained goods at a price which had included in it the 1st Defendant’s “commission”.

46.  In view of the facts of this case and the seriousness of the offences, the CSO sought by Mr. Wong is clearly not an appropriate sentencing option.

47.  Having considered all the relevant facts, I take the view that an immediate custodial sentence with a starting point of 30 months is appropriate in respect of the 2^nd charge for the 2nd Defendant. As I have said, he was the prime mover of this conspiracy and was the one who had acted in breach of his employer’s trust.

48.  However, the 1st Defendant’s role was not much less and he was fully aware that the 2nd Defendant was CUHK’s employee at the time when he joined in the conspiracy. In the circumstances, I consider a starting point of 27 months to be appropriate in the case of the 1st Defendant.

(2) The 1^st and 8^th Charges – the Offering & Accepting of Advantage

49.  Although Mr. Wong submitted that this was more like a “technical breach”, it remains the fact that the 1st Defendant, being fully aware that the 2nd Defendant was an employee of CUHK and that the 2nd Defendant would be able to arrange for the relevant contract to be awarded to DMN, offered HK$50,000 to the 2nd Defendant in order to get the contract. It does not matter much whether CUHK would be able to obtain the goods at the cost of HK$300,000 because the primary evils of this corruption were the disruption caused to CUHK’s procurement procedures and the offering of the bribe to the 2nd Defendant.

50.  On the facts, a total of HK$180,000 was gained from this transaction. Apart from the HK$50,000 paid to the 2nd Defendant, the 1st Defendant himself had pocketed about HK$90,000 whereas DMN had retained a sum of HK$40,000.

51.  Having taken into account all the relevant facts, I consider 12 months to be the appropriate starting point for both the 1^st and the 8^th charges.

(3) The 7^th Charge – the “Money Laundering” Charge

52.  The amount involved in this charge was a sum of HK$550,650. In this case, it was known that these proceeds derived from the “conspiracy to defraud” charge and the “acceptance of an advantage” charge.

53.  Having considered all the relevant facts, I take the view that a starting point of 2 years is appropriate for this charge.

Sentencing the Defendants

The 1st Defendant

54.  I have carefully considered all that was said in mitigation on the 1st Defendant’s behalf. Taking into account his pleas, his frank admissions made to the authority after his arrest, and his considerable assistance which resulted in the 2nd Defendant’s pleas, I am going to reduce his sentence by 45%. 

55.  In a case of this nature, the absence of previous criminal convictions is not of much use to the 1st Defendant. While the court is sympathetic over his wife’s situation, the 1st Defendant’s personal predicament is not a mitigating factor. He should have thought long and hard before committing these offences.

56.  As regards his health problem, it is well settled that medical grounds will seldom, if ever, be a basis for reducing the sentence for crimes of some gravity. In any event, the 1st Defendant is not suffering from very ill health and I trust that he is going to receive the medical attention he needs while he is detained in the prison.    

57.  The 1st Defendant has now, through his solicitor, made a restitution of HK$180,000 to CUHK, the receipt of which has been confirmed. For this, I am going to give him a further reduction of 3 months which will be reflected in the overall term.

58.  For the 1^st charge, 12 months reduced by 45% is a term of 7 months. For the 2^nd charge, 27 months reduced by 45% is a term of 15 months.

59.  Although these two offences were committed against the same background, they were distinct charges and related to different incidents. Therefore, the terms in respect of the 1^st and 2^nd charges should, in principle, be served consecutively. However, applying the totality principle, I am of the view that an overall term of 17 months should sufficiently reflect the 1st Defendant’s culpability in these two offences.

60.  I have indicated that I am going to give the 1st Defendant a further reduction of 3 months in recognition of the restitution made by him. The overall term is therefore reduced to one of 14 months.

61.  To achieve this result, I order that 7 months of the 15-month term in respect of the 2^nd charge are to run wholly consecutively to the term imposed in respect of the 1^st charge, making a total of 14 months’ imprisonment.

The 2nd Defendant

62.  The 2nd Defendant pleaded guilty to the charges and he would receive a one-third reduction in sentence. Other than this, I do not find anything in his mitigation which would warrant any further reduction in sentence.

63.  Pursuant to section 12(1) of the POBO, I initially had to order that the advantage of HK$50,000 received by the 2nd Defendant had to be returned to CUHK. However, the prosecution has now confirmed that such payment has already been made by the 2nd Defendant.

64.  The payment came about in this manner. There was initially no mentioning of any voluntary restitution or payment of the HK$50,000 when Mr. Lau mitigated for the 2nd Defendant. Afterwards, when the question of possible reduction in sentence in relation to the 1st Defendant’s restitution was raised and when the prosecution and counsel for the 1st Defendant were given time to ascertain how the money lodged by the 1st Defendant with his instructing solicitors for restitution purposes was to be handed over to CUHK, Mr. Lau then informed the prosecution that the 2nd Defendant might also wish to make “restitution”.

65.  It was against such a background that the payment of HK$50,000 was eventually made by the 2nd Defendant to CUHK. Therefore, any mitigation advanced in relation to this payment must be viewed in this context. Moreover, as I have mentioned above, the court has the power to make an order pursuant to section 12(1) of the POBO for the 2nd Defendant to repay the sum of HK$50,000 to CUHK.

66.  In the circumstances, and having considered all the relevant matters, I am not persuaded that the payment made by the 2nd Defendant should be rewarded with any reduction in sentence.

67.  Now, as in the case of the 1st Defendant, the absence of previous criminal convictions is of little use to the 2nd Defendant in a case of this nature which calls for deterrent sentences. The 2nd Defendant’s family plight and his medical condition are also not matters which could be taken to reduce his sentence. Again, I trust that the 2nd Defendant would receive the medical attention he needs while he is detained in the prison.

68.  Given the types of offences involved here, the 2nd Defendant’s potential loss of the provident fund is of no assistance to him in mitigation. It is disheartening to see the 2nd Defendant falling from grace and standing to lose his provident fund after 29 years of service with CUHK. However, the 2nd Defendant should have considered all possible consequences, including the risk of losing his employment and retirement benefits, before committing these offences against the interest of his employer over such a protracted period of time. He has brought this upon himself and cannot now use such to assist in his mitigation.

69.  For the 2^nd charge, 30 months reduced by one-third is a term of 20 months. For the 7^th charge, 2 years reduced by one-third is 16 months. For the 8^th charge, 12 months reduced by one-third is 8 months.

70.  The 2^nd and the 7^th charges arose from the same set of facts and it is appropriate to order concurrent terms of imprisonment. However, the 8^th charge related to a separate incident and was a different charge. This term should, in principle, be served consecutively to the terms imposed in respect of the 2^nd and the 7^th charges.

71.  However, applying the totality principle, I consider that an overall term of 23 months should sufficiently reflect the 2nd Defendant’s culpability in these three charges. I therefore order that the terms in respect of the 2^nd and the 7^th charges are to run wholly concurrently while 3 months in respect of the 8-month term for the 8^th charge are to run wholly consecutively to the terms of the other charges, resulting in a total term of 23 months’ imprisonment.