HKSAR v. CHOI YUK KWONG

CAC C 261/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 261 OF 2010

(ON APPEAL FROM DCCC NOS. 810 AND 1228 OF 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Hartmann JA (giving the Reasons of the Court):

Introduction

1.  On 24 June 2010, following a trial in the District Court before Judge Albert Wong, the applicant was convicted of two offences of what is commonly called ‘money laundering’; more accurately, dealing with property known or believed to represent proceeds of an indictable offence, contrary to s. 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap. 455.

2.  In respect of the first charge, the applicant was sentenced to three years and nine months’ imprisonment.  In respect of the second, he was sentenced to three years’ imprisonment.  The two sentences were ordered to run concurrently, making for a total sentence of three years and nine months.

3.  The applicant sought leave to appeal both his conviction and sentence.

4.  The application was first due to be heard on 11 March 2011 but was adjourned to enable the applicant to obtain legal representation.  In the result, the matter came before us on 18 October 2011.

5.  Having heard submissions, we dismissed the application for leave to appeal against conviction.  We said we would give our reasons later and do so in this judgment.

6.  By agreement, the application for leave to appeal against sentence was adjourned to a date to be fixed.  This was done because at the time another division of this Court was considering whether it was appropriate to give further guidance in respect of sentencing in money laundering offences.

Background

7.  The applicant was the sole proprietor of two businesses, the first called Golden Ray, the second called Winslow Trade.

8.  Golden Ray operated a bank account with the Hang Seng Bank.  Winslow Trade operated a bank account with the Bank of China.  The applicant was the sole authorised signatory of both accounts.

9.  Between June 2008 and mid-January 2009 sums of money totalling some US$376,000 and AU$209,000 passed through the Golden Ray account.  Between mid-November 2008 and mid-May 2009, sums of money totalling some US$36,500 passed through the Winslow Trade account.

10.  The first charge of which the applicant was convicted related to the Golden Ray account, the second charge to the Winslow Trade account.  It was the prosecution case that the applicant had dealt with the funds passing through the accounts having reasonable grounds to believe that, in whole or part, directly or indirectly, they represented the proceeds of indictable offences.

11.  At trial, it was accepted that the funds were the proceeds of serious criminal offences, that is, of sophisticated frauds perpetrated against persons in various parts of the world.  It was never the prosecution case that the applicant had been a party to these frauds nor that he had actual knowledge of them.  The issue was simply whether the applicant had dealt with the funds passing through the two accounts having reasonable grounds to believe that they represented the proceeds of indictable offences.

12.  Central to the determination of this issue was how it was that the two accounts came to be opened by the applicant and how it was that they were managed during the period of time when the funds passed through them.

13.  The applicant testified that he was a businessman of some 30 years experience.  He said that during that time he had been involved in a number of successful commercial enterprises.  He asserted however that he could be too trusting.

14.  He said that in June 2008 a friend by the name of Chan put a business opportunity his way by introducing him to a one-time business colleague of Chan, a Mainland resident by the name of Liang.

15.  A meeting took place in Zhuhai.  The applicant said that he attended the meeting with Chan while Liang attended with another man, a Singaporean by the name of Lok.

16.  Liang and Lok said that they worked for substantial companies that dealt in vehicle accessories and electrical and mechanical appliances.  However, the two were seeking to strike out on their own.  They planned to set-up a business in the same field in the Mainland and elsewhere in Southeast Asia and were looking for an investor.

17.  Chan, who testified as a defence witness, said that he advised the applicant that, if everything was what it was said to be, the intended business appeared to be viable.  The applicant testified that, on the basis of this advice, he agreed to participate in the venture.

18.  According to the applicant it was agreed that the three of them – Liang, Lok and himself – would enter into a partnership agreement, each having a one-third share.  The partnership business was to be called Golden Ray.  The business was to be managed by Liang and Lok.  The applicant’s role was that of an investor only.

19.  Although, according to the applicant, his sole involvement was that an investor, his initial investment being RMB100,000, he said that he did not consider how much more money may have to be invested in the partnership business in the longer term.

20.  Although a business of some size was planned, it was the defence case that Liang and Lok did not want the business to be registered as a limited liability company.  This was because the start-up capital was small and they were concerned that third parties who had to deal with the company may feel that it lacked sufficient substance.  Instead it was agreed that the business would be registered in Hong Kong with the applicant as the sole proprietor, this despite the fact that neither Liang nor Lok lived or worked in Hong Kong and despite the fact that the intended operations of the company would be outside of Hong Kong.

21.  The partnership agreement, said the applicant, remained entirely oral.  Nothing was reduced to writing even though Liang, Lok and the applicant had never met before.

22.  As to the applicant’s investment of RMB100,000, he said that he did not wait to deposit this sum into the bank account of Golden Ray once it was opened but instead passed the cash to Chan for onward transmission.  He said that he did not ask for a receipt.  

23.  What then of the bank account opened in the name of Golden Ray?  The applicant said that it was agreed that he would be the sole signatory even though the day-to-day management of the account would be conducted by Liang and Lok.  To bring about this state of affairs, the applicant took two steps.  First, he obtained authority to operate the bank account by way of the internet.  Second, he passed the electronic key and password which enabled internet operation to Liang and Lok.

24.  The result was that Liang and Lok were able to operate the bank account without having to reveal their identities.  Put simply, they were able to do so secretly.

25.  As an investor only, it was the applicant’s evidence that he was not involved in the management of the bank account.  He saw no reason therefore to keep a duplicate electronic key nor even to keep a record of the password.  As for the bank statements, he said that, while they were addressed to him, they were never opened by him but simply passed on.  Even though he was a partner in the enterprise, the applicant said that he did not bother to look at the accounts because, without a broader knowledge of what was happening in the business, he would not have understood them.

26.  The applicant testified that, as an investor, it was his intention to leave matters until the business had been running for about a year before attempting to discover how well or badly his investment was doing.

27.  The judge observed that, as to his supposed lack of knowledge of the fortunes of Golden Ray, the applicant had imposed upon himself a restriction that prevented him from knowing anything about the operations of the business of which he was supposedly a one-third partner and more particularly about the operations of the bank account itself which, as an experienced businessman, he must have known would give a good indication of the fortunes of the business.

28.  When the applicant was arrested, the business chop for Golden Ray was discovered in his possession.  No records of the business (in paper form or electronic) were found in his possession.

29.  Concerning the registration of Winslow Trade as an unincorporated business and the opening of a bank account in the name of that business, the applicant testified that this resulted from a further agreement entered into between Liang, Lok and himself.

30.  The applicant said that in or about September 2008 he was invited to invest in a second business, this business was to be in the field of manufacturing motor coaches.  Having discussed matters with his friend, Chan, the applicant said that he agreed to be a one-third partner in this new business, again on the basis that he would be an investor only, his initial investment again being RMB100,000.

31.  Again, said the applicant, even though this business was of a very different nature and on one view was likely to be far more capital intensive, he did not put his mind to how much more he may be called upon to invest.

32.  Again, according to the applicant, his investment was paid in cash, there being no receipt.  Again, the partnership agreement was entirely oral.  Again, he surrendered management of the business bank account to Liang and Lok.  Again, he saw no reason to keep a duplicate electronic key nor a record of the password.

33.  Despite distancing himself from the accounts of Golden Ray and Winslow Trade, the applicant accepted that, in respect of both accounts, Liang had telephoned him from the Mainland on a couple of occasions to say that his computer was malfunctioning and asking him to perform certain transactions in the accounts.  The applicant said that the necessary information to perform these transactions was given to him by Liang.  The applicant recalled that the transactions included a number of remittances to companies which were not known to him.

34.  By way of summary, if the applicant was to be believed, in respect of the two businesses he had placed himself in the following precarious position.

35.  First, if either business fell into difficulty, his liability for debts incurred was unlimited.  He did not even have the cold comfort of a written agreement of partnership to be used as a basis for seeking a contribution from Liang and Lok, two men who were, for all practical purposes, strangers to him.  Second, having abandoned any interest in how the businesses were progressing and having distanced himself from any knowledge of the two bank accounts, he was in all respects at the mercy of Liang and Lok as to their dishonest manipulation of either or both accounts.

36.  As to the operation of the bank accounts, even though it was the applicant’s assertion that he had surrendered the operation of both to Liang and Lok, he never at any time sought to have them made authorised signatories.  

The findings of the judge

37.  On a consideration of all the evidence, the judge was prepared to accept that the applicant may have had dealings with persons he called Liang and Lok; in short, they were not entirely fictitious persons. However, he rejected as untrue the exculpatory testimony of both the applicant and his witness, Chan, as to the true nature of the dealings with Liang and Lok and why it was that the accounts had been set-up.

38.  As to the operation of the two accounts, the judge acknowledged that there was no evidence that the applicant had himself been responsible for all the dealings in the accounts.  He was prepared to accept what the applicant himself had admitted, namely, that he had surrendered the operation of the two accounts to Liang and Lok.

39.  Even though the applicant had surrendered the operation of the two accounts, the judge was satisfied that he had nevertheless ‘dealt’ with the funds that passed through them.  Correctly in our view, he came to this finding on the basis that the applicant had not only set-up the two bank accounts with himself as the sole authorised signatory but thereafter had taken the necessary steps to enable the two accounts to be operated by Liang and Lok “through the backdoor”.  The judge was satisfied that the applicant would only have done this in contemplation of the fact that the bank accounts were to be used for the receiving and disposal of moneys.  As the judge expressed it in respect of the Global Ray account:

“I am sure that by what he did the defendant must have acted in joint enterprise with the others [Liang and Lok] to deal with the property, namely, to use the Global Ray account to receive and dispose of the property.”

40.  In addition, of course, as the applicant himself conceded, he had on a number of occasions conducted transactions in respect of the Golden Ray and the Winslow Trade bank accounts, directly dealing in the funds in the accounts at the time.

41.  It was then for the judge to determine whether he could be satisfied that the applicant had reasonable grounds to believe that the property, that is, the moneys passing through each account, represented the proceeds of one or more indictable offences.  This required proof of two matters.

42.  First, on an objective basis, the judge had to be satisfied 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 funds passing through each account, in whole or in part, were the proceeds of one or more indictable offences.  Second, on a subjective basis, the judge had to be satisfied that those grounds were known to the applicant.  As it was expressed by Mayo JA in HKSAR v Yam Ho Keung (unreported) CACC 555/2001, the two elements are:

“… whether, objectively, reasonable grounds existed for the belief, and if so, whether subjectively the defendant was aware of the existence of those reasonable grounds.”

43.  The judge rejected the applicant’s evidence that he believed the accounts were being operated to manage the finances of two bona fide businesses.  Thereafter, taking into account the manner of the registration of the two businesses in the sole name of the applicant, the setting-up of the bank accounts for each business followed by the extended surrender of those accounts to enable Liang and Lok to operate them secretly and without constraint, that is, as they wished and for whatever purpose they wished without any form of monitoring, the judge was satisfied that there were sufficient grounds to lead a reasonable person to believe that the funds passing through the accounts, in whole or in part, must be the proceeds of indictable offences.  He was further satisfied that the applicant – on his own admission, being responsible for setting-up the arrangement – must have been aware of those grounds.

44.  As to the volume of funds passing through each account, the judge noted that, in involving himself in certain of the transactions, the applicant must have been aware that the stream of funds in each account was substantial.

The grounds of appeal

45.  The applicant’s leading counsel, Mr Graham Harris, SC, submitted that the applicant’s conviction was unsafe and unsatisfactory.  In support of this, he sought to advance three grounds.

46.  The first two grounds were misconceived and without merit.  They were based on fundamental misunderstandings of certain matters said in the judge’s Reasons for Verdict.  When the Reasons for Verdict were accurately read, as Mr Harris conceded, both grounds fell away.

47.  The remaining ground was to the effect that the judge’s rejection of the exculpatory version of events put forward by the applicant and his witness, Chan, was flawed in the following respects, namely:

(a) in expressing his concern that the alleged Golden Ray and Winslow Trade partnership agreements were oral and not reduced to writing, the judge disregarded the fundamental principle of the law of partnership that such agreements may lawfully be oral;

(b) his reasoning was illogical and based on a number of impermissible assumptions;

(c) he failed to give any, or any sufficient, weight to various factors consistent with and supportive of the defence case.

Ground (a)

48.  This ground was again based on a fundamental misunderstanding of the judge’s Reasons for Verdict.  The matter before the judge was whether he could give any weight to the applicant’s version of events, namely, that the applicant had at all times believed that each bank account was being used by Liang and Lok for the receipt, holding and transfer of funds lawfully earned in the operation of two genuine partnership businesses.

49.  In determining this issue, one of the matters taken into account by the judge was the complete lack of documentation in respect of what were asserted to be substantial business agreements between three persons residing in different jurisdictions (the applicant in Hong Kong, Liang in the Mainland and Lok in Singapore), persons who were not well-known to each other and, so it was asserted in respect of Golden Ray, had had no previous business dealings together.  The lack of documentation related not only to the partnership agreements themselves but also to the manner in which the two bank accounts were to be operated and the applicant’s asserted payment of investment moneys into each business.  

50.  The issue therefore was not whether an oral partnership agreement was enforceable at law.  It can be taken that the judge would have known of such a trite principle.  The issue instead turned on a determination of whether, if the applicant had genuinely believed that he was committing himself to two substantial business enterprises in which he was to be a principal investor, he would have been prepared to do so without seeking some form of written agreement or similar record.  In determining that issue, as he was entitled, the judge took into account that the applicant had some 30 years experience in the world of business.  On the basis of his own history, the applicant could therefore be expected to have some common prudence in matters of business even if he was, so he asserted, too trusting.  It was within this context, and not on the basis that oral partnership agreements were unknown to law, that the judge took into account the applicant’s assertion that there was no written record of the partnership agreements.

Ground (b)

51.  It was submitted by Mr Harris that in his consideration of the applicant’s evidence, the judge drew inferences not from primary facts proved but from assumptions only, indeed from assumptions that had no basis in the evidence.  In support of his submission, Mr Harris referred us to a number of different passages in the Reasons for verdict.

52.  Having considered the criticised passages, we found nothing impermissible or illogical in the judge’s approach.  It is sufficient to go to just two of the passages to illustrate why it was, in respect all the passages, we found no substance in Mr Harris’s criticisms.

53.  The two passages in question were interrelated, both part of the reasoning of the judge in rejecting the applicant’s testimony that, when he was asked to be a principal investor in the second business enterprise – that of coach manufacturing – and asked only for RMB100,000, the applicant never turned his mind to whether, in respect of such a business, that would be a sufficient investment or whether more money would have to be invested.

54.  In approaching this issue, the judge noted that, while the applicant was a businessman of considerable experience, on his own admission he was essentially ignorant of the dynamics of coach manufacturing.  As the judge observed, the applicant did not know the cost of manufacturing a coach and was unable himself to give specific evidence as to how the business was to be set-up and operated.  It was within this context that the judge found it wholly improbable that the applicant, who was being asked to be a principal investor, would have been made no enquiry even as to the level of his investment obligations.

55.  In this regard, the first passage criticised by Mr Harris was one in which the judge observed:

“To any ordinary person, rightly or wrongly, the business of manufacturing of coaches is one requiring a capital well beyond the humble sum of RMB100,000.”

56.  The second passage was one in which the judge went on to conclude that he did not believe the applicant would be –

“… so naïve as to believing a coach manufacturing business could be started with a capital of RMB100,000.”

57.  As to the first passage, Mr Harris said that the judge’s observations constituted a pure assumption, one which the judge himself recognised was possibly an incorrect assumption but which he nevertheless used against the applicant.

58.  As to the second passage, Mr Harris submitted that the judge fell into error in making the assumption, without any evidential basis upon which to do so, that no coach manufacturing business could be set up for just RMB100,000.

59.  These criticisms misunderstood the judge’s approach.

60.  The judge did not come to a finding that coach manufacturing must cost more than RMB100,000 to set-up.  He did no more than make the commonsense observation that, to a person with some knowledge of commerce but otherwise uninitiated in the dynamics of the coach manufacturing business, it would surely appear at first blush – whether rightly or wrongly – to be a business far more demanding of capital than might be the case in respect of other businesses.  There was nothing impermissible in that approach.  Yet the applicant, if he was to be believed, even though he was to be a principal investor in this manufacturing enterprise, made no enquiries as to whether his initial investment would be sufficient or whether more would be needed and, if so, how much.

61.  In another criticised passage, the judge adopted a similar approach when considering the applicant’s apparent disinterest in seeking in some way to advance his own business interests in the field of logistics (of which apparently he had considerable experience) when being informed of the nature and extent of the intended Golden Ray operation, an operation that would itself require logistical support.

62.  In the criticised passages, the judge was looking to the applicant’s evidence which, if it was to be believed, was marked by remarkable passivity and lack of enquiry on his part despite the fact that he was being asked to invest in two business enterprises which, aside from the opportunities they presented, must also had their inherent risks.  The judge found the applicant’s evidence in this regard to be so wholly improbable that he rejected it.  There was nothing impermissible in that approach.

Ground (c)

63.  It was submitted that the judge failed to give any, or sufficient, weight to various factors supportive of the defence case, for example, that there was no evidence that the applicant had benefitted nor that he had any knowledge of the fraudulent schemes.

64.  In our judgment, however, even taking such factors into account, on a consideration of all the evidence, it was inevitable that the judge would reject the applicant’s evidence that he believed he was an investor in two bona fide business enterprises.

65.  In HKSAR v Wong Chor Wo and Another CACC 314/2006, 16 June 2008, (unreported), this Court, differently constituted, commented (para 108) that:

“In the normal course of events, if a man allows another person to use his bank accounts to deposit and withdraw funds, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank accounts has reasonable grounds to believe that the funds passing through the accounts represent the proceeds of an indictable offence.”

66.  In the present case, there being no evidence to the contrary, that same inevitable inference arose.

67.  The applicant, on his own admission, so arranged matters in respect of the two bank accounts that he surrendered their operation to others who were able to carry out those operations in secret.

68.  As was also said in HKSAR v Wong Chor Wo and Another:

“From the fact that the transactions are concealed, in the absence of evidence to the contrary, the inference inevitably arises that some offence has been committed in relation to the transactions that requires to be concealed.”

Conclusion

69.  On a consideration of the evidence as a whole, the case against the applicant was a strong one.  It was, in our view, inevitable that the applicant’s testimony as to the circumstances in which he set-up the two bank accounts and surrendered their operation would be rejected as incredible.  While certain of the judge’s findings may have been stronger than others, we are satisfied that they were all properly made.  There was no material misdirection.  In summary, the conviction was neither unsafe nor unsatisfactory.