HKSAR v. HON MING KONG AND OTHERS

DCCC661B/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 661B OF 2006

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Reasons for Sentence

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1.   This marathon trial commenced in early April 2008.  It lasted for more than 120 days extending over 38 months.  The defendants were convicted after such a lengthy trial.  As far as I am aware of, this case has a number of unusual features.  It is one of the trials lasting for such a long period of time.  It involved several senior counsel and London silk at different stages of the proceedings.  It involved at least two judicial reviews during the proceedings and the defendants applied for Letters of Request for witnesses to testify in mainland China. 

2.   I have delivered the Reasons for Verdict from 20 June to 22 June and called for the background report on the three defendants.  As applied by counsel for D1, the sentence of PW1 Chan (or D1 in DCCC661A) was re-fixed from 4 July to yesterday, 11 July, so that all 4 accused were to be dealt with in one go.  In view of the number of charges and the facts involved, and in order to facilitate the comprehension of the sentences that I am going to impose, I will outline very briefly the gist of the charge before I pass the sentence.

3.   As I have mentioned in the Reasons for Sentence relating to PW1 Chan Tat-chee this case disclosed the widespread unscrupulous and culpable practice in manipulating accounting records and misappropriating company funds by responsible persons in the two public listed companies.  The schemes were designed to suit their financial needs and to conceal the gaps and holes in the accounting books so that the annual report can be published in an unblemished manner.

4.   Again, I will rely on or make reference to the cases of HKSAR v Cheung Mee Kui, [2006] 4 HKLRD 776 and HKSAR v Ng Kwok Wing, [2008] 4 HKLRD 1018 when imposing sentences in these charges.

1st Charge (against D2 and D3)

5.   A conspiracy to steal $1.5 million from Company 351 through Sharpo.

6.   The scheme was designed to provide liquidity to PW1 as he wanted to have $1.5 million.  Sharpo was named as the purchaser of a consignment of goods.  As such, accounting records and purchase order were fabricated.  They prepared documents to show that Sharpo would purchase a consignment of $3 million worth of telephones from California Telecom, and a deposit of $1.5 million was required.  Sharpo transferred the sum of $1.5 million to Sino-Push.   Subsequently, PW1 used the money for his own purpose.

2nd Charge (against D3 only)

7.   Theft of $1 million from Company 351 through Sharpo.

8.   The cheque for $1 million was drawn from the account of CSCP and made payable to D3.  The cheque was deposited into the bank account of D3 who then withdrew $1 million cash on the same day.  PW4 Michael Pang said that he had never seen the invoice from Sharpo which showed the payment of $1 million was a deposit for the purchase of computer components by D3.  He believed that the invoice was not genuine.

3rd Charge (against D1, D2 and D3)

9.   A conspiracy to steal $4 million from Company 351 through Sharpo.

10.   A sum of $4 million was transferred from Company 351 to Sharpo as working capital as recorded in the payment voucher. The $4 million received by Sharpo was transferred to Well Glory.  A composite document comprising the receipt and the letterhead was prepared.  Well Glory transferred $4 million to two bank accounts designated by PW1.  No goods were involved in this bogus transaction.  PW1 gave $1.65 million to D1.  This sum of $4 million was not repaid to Company 351. 

4th Charge (against D1 and D3)

11.   A conspiracy to steal $1 million from Company 351 through Sharpo.

12.   A cheque for $1 million was issued to Sharpo.  D3 instructed PW4 to withdraw $800,000 and deposit $780,000 into the designated account and $20,000 in cash to be given to D3.  Later, PW4 issued another cheque for $210,000 and cashed it.

5th Charge (against D1 and D3)

13.   A conspiracy to steal $1.1 million from Sharpo.

14.   A cheque for $2 million was signed by D1 and PW1, Chan, and it was sent to Sharpo.  The cheque was deposited into Sharpo’s account.  PW4 was told by D3 to deposit $1.1 million of this sum into the account of D1’s brother.  PW4 went to cash the cheque for $1.1 million.  He gave the cash to Hon Wing-kong.  A false purchase order was created to cover up this withdrawal.  PW4 confirmed that there was no such transaction.  The remaining sum of $900,000 was kept in the account.

6th Charge (against D1 and D2)

15.   A conspiracy to steal $3 million from Company 351 by means of a false loan to Wong Kwun-wai.

16.   The cheque for $3 million was signed by PW1’s wife and D2.  It was given to Wong Kwun-wai.  PW2 Cannie said that D2 instructed her to make out the cheque for $3 million and to accompany Wong to cash the cheque.  Then they returned to the office.  PW2 Cannie recalled that the cash was given to D2 and Wong then left.  The loan was never repaid by Wong.

7th Charge (against D2 only)

17.   A conspiracy to steal $2.4 million from Company 351 by means of a false loan to Chan Chun-kuen.

18.   As instructed by D2, PW2 Cannie prepared one cheque for $2 million payable to Chan Chun-kuen and one cash cheque for $400,000.  PW2 went to the bank to deposit the cheque for $2 million into the account of Chan Chun-kuen.  She withdrew $400,000 in cash and took it back to the office of 351.  She could not recall to whom she gave the money, but the receipt voucher was signed by D2.

8th Charge (against D1 and D2)

19.   A conspiracy to defraud Company 351 and its shareholders of $25 million concerning a joint project in Guilin.

20.   The plot was to cause an advance payment of HK$25 million to a joint venture in Guilin.  The money would then return to Company 351 via a remittance agent.  The advance payment of $25 million was sent via a remittance agent Wong Kim-chung, and the fund, in a number of smaller sums, was soon returned to Company 351 through other remittance agents.

9th Charge (against D1 and D2)

21.   A conspiracy to defraud Company 351 and its shareholders by paying $8 million to a joint venture project at Meizhou between 1 December 2004 and 30 April 2005.

22.   This was another scheme to plug the gaps in the books of Company 351.  $8 million would be given to Chan Chun-kuen as an introduction or guarantee fee.  The payment related to a project in Meizhou. The money would then be returned to Company 351.

10th Charge (against D1 and D2)

23.   A conspiracy to defraud Company 351 and its shareholders by falsely representing that a loan of $5 million was given to Sino Profit.

24.   A cheque for $5 million was issued as the working capital for the Meizhou project.  The cheque was made payable to D1 and was deposited into D1’s bank account. 

11th Charge (against D1, D2 and D3)

25.   A conspiracy to defraud Company 290 by means of a false loan of $5 million to D3 through Hong Tong Hai (HTH).

26.   D1 was the person in charge of Company 290 and 351.  HTH was a subsidiary of Company 290.  The $5 million was paid to D3 by a bank transfer.  D3 transferred $4.45 million from her bank account to the account of Company 351 on the same day.  The remaining $550,000 was withdrawn in cash.

12th Charge (against D1 and D2)

27.   A conspiracy to defraud Company 290 by means of a false loan of $8 million to Wong Chi-keung.

28.   Wong Chi-keung was the employee of PW1’s business partner in Guangzhou.  Wong Chi-keung signed a loan agreement with D1.  The cheque for $8 million was paid into Wong’s account and the money was then transferred into the account of Wong Kim-chung, a remittance agent.  On the same day, a sum of $8 million by means of four cheques was remitted back to the bank account of Company 351. 

13th Charge (against D1 and D2)

29.   Publishing false statements in the annual report of Company 351.

30.   The annual report of Company 351 for the year ended 31 December 2004 which was published on 28 April 2005.  The consolidated balance sheet contained in the report was signed by both D1, as the chairman of the board, and D2, as the director responsible for overseeing corporate development and finance matters of the group.  It showed the item of “Trade and Receivables” under current assets amounting $107.5 million odd. 

31.   The prosecution alleged that three of the items listed under the “Trade and Receivables” totalling $55.5 million were, to the knowledge of both defendants, false.  In my Reasons for Verdict, I had ruled that the particulars under (a) and (c), namely $28.5 million to Guilin joint venture and $8 million to the joint venture in Meizhou, were false and deceptive in a material particular.  These two particulars related to the evidence on Charge 8 and Charge 9 respectively.  I found that particular (b) which related to $19 million to Beijing Yuk Chak could not be proved beyond reasonable doubt against D1 and D2.  Hence the false statements so published covered only $36.5 million.

Mitigation

32.   Counsel for D1 at first thought about not making any mitigation on behalf of D1 in light of the sentencing approach I took when PW1, Chan Tat-chee, that is D1 in DCCC661A, was sentenced yesterday. He changed his mind.  A file containing 21 mitigation letters and certificates or documents was tendered on behalf of D1. 

33.   D1 has done quite a number of charitable work.  His elder daughter (aged 11 years old) wrote, also on behalf of her younger sister and brother, to plead for leniency so that their father can return home soon, to attend their graduation ceremony and their birthday party.  D1’s wife regarded her husband as a responsible person, an honest and reliable merchant, a filial son.  They have been experiencing a great torture in the past 6 years, and she pleaded to this court for leniency.  D1’s aged mother also wrote to reveal her anxiety and agony.

34.   D1 is suffering from hypertension, diabetes and obstruction sleep apnoea.  He was diagnosed to have latent TB infection in 2009 and is now on regular close monitoring.  D1 had a clear record.

35.   It was submitted that D1 faced 11 charges out of the 22 charges in the original charge sheet while PW1, Chan, faced 15. The lengthy trial process should be taken as a mitigating feature.  All the applications made by D1 during the proceedings were made properly and under legal advice of senior counsel.

36.   D2 tendered a total of 14 character reference letters.  His 85-year-old mother wrote to say how sad she was and has no idea if she could ever live long enough to see him again.  D2’s wife wrote to say the drastic impact on the family and asked for a lenient sentence. Counsel for D2 also said the trial has made D2 a temperamental person and he consumed alcohol to escape the reality. 

37.   Counsel for D2 said D2 had no role to play in any possible delay in this trial.  In fact, the prolonged proceedings has affected his temper and caused him insomnia and stress.  Since his arrest, D2 did not have a stable employment.  He falls from disgrace and suffers loss professionally.  Although D2 has a key role in those conspiracies, he did not derive much benefit.  He has saved the court’s time by admitting to substantial part of the facts of the case.  D2 also had a clear record.

38.   Counsel for D3 submitted that D3’s conviction of the traffic offence in January 2004 should be ignored for this sentence.

39.   Medical reports by Dr Fong and Dr Yu were tendered.  D3 was suffering from chronic insomnia, anxiety neurosis and migraine.  Dr Yu said D3 has adjustment disorder with mixed anxiety and depressed mood.  The symptoms are of severe intensity and D3 is suicidal.  She requires counselling and medications. 

40.   In mitigation, it is also submitted that D3 is willing to help others.  She helped Michael Pang when the latter and his brother were kidnapped.  She gave assistance to Michelle Chen who wrote one of the mitigation letters.  She made donations to UNICEF regularly.  She is a kind-hearted person.

41.   It was submitted that D3 derived no personal benefit from these crimes.  She occupied a minor role as all the crimes were instigated and planned by other culprits.  She did what she was told.  She gave no serious thoughts about the consequences of her wrongdoing. 

42.   D3’s sister wrote to court to say that D3 is a kind-hearted and caring person who is willing to help others.  The case has caused great pressure and disturbance to D3.

43.   As regards the conduct of the proceedings, it is submitted that D3 did not take any action which prolonged the trial unnecessarily.  The only delay was that when she changed her legal team and that led to some delay of two to three weeks.  It was said D3 was not a party to the recusal application.  D3 also admitted substantial part of the prosecution case which naturally saved court’s time.

Sentence

44.   D1 is aged 43, married with three daughters.  He started to work at the age of 18.  D1 came to Hong Kong in 1978 when he was 11 years old.  He started to work as an assistant in a trading company and later set up a shipping company and their business started to prosper.  This was another successful Hong Kong story. 

45.   In his background report, D1 denied that he had involved in any stealing acts or creating false transactions between 2004 and 2005.  He claimed that he had been framed up by Chan Tat-chee, PW1 in the trial.  The trial proceedings have brought much pressure and worries to his aged mother and family members.  D1 is regarded as a responsible husband, caring father and a filial son to his mother and mother-in-law.

46.   D2 is 50 years old, married with two children.  He went to the UK to obtain a university degree in Economics, Finance and Accounting.  He became a certified public accountant in 1988.  No remorsefulness was shown when D2 was interviewed by the probation officer.  D2 denied that he advised and helped PW1 Chan to steal money from the company and to defraud the company.  D2 said that having the professional qualification and experience, there was no reason for him to commit the offences which were not moral.

47.   D3 is single and aged 40.  She lived with her brother.  D3 met D1 in the early 1990s.  In her background report, D3 maintained that she committed the misdeeds merely with a view to help D1 to solve his difficulties in business.  She thought D1 was a rich person and it was groundless for D1 to make use of fraudulent means for his own advantage or to make use of her at that time.

48.   This case involved misappropriation of millions of dollars posing real and potential risk to investors and the company shareholders.  Several companies were used to carry out the fraud and the extensive fabrication of accounting documents and contracts.  The prolonged culture of dishonesty lasted for more than 12 months, and I believed the charges so laid in the present charge sheet might well be the tip of the iceberg.  Of course, I have to remind myself that I can only sentence the defendants on the charges of which they were convicted.

49.   I note that all three defendants do not show any sense of remorsefulness.  I consider that D1 and D2 were the mastermind who orchestrated the schemes.  In practical terms, I consider that there might well be a slightly different level of involvement.  But I found that the original initiative came from D1 and D2.  I take the view that both D1 and D2 provided the overall fraudulent strategy, and D3 did not really derive much benefit from the embezzlements and/or conspiracy to steal or to defraud, even though D3’s assistance was crucial to the efficacy of the fraudulent strategies.  On the other hand, I have no doubt that D1 was able to exercise considerable influence over D3. 

50.   I have to consider that the length of the period over which the fraud has been perpetrated and the number of persons, both within and outside the company, and that the prime mover had drawn into such dishonesty activity as an aggravating factor. 

51.   In the case AG v Dominic Cheung Kai Man CAAR1 of 1987, the Court of Appeal said,

“By the very nature of things, commercial crime is unlikely to be limited to a single or simple piece of conduct. It is contended that so far as commercial crime is concerned, a much wider approach has been taken by the courts in Hong Kong, which have in effect extended the one-transaction rule to include all transactions which have some sort of connection with each other. The practice of the court, it is said, is not to look at the individual offence, but to assess instead the totality of guilt - we may call it ‘the global fraud’ and pass concurrent sentences accordingly.”

52.   The approach was endorsed by a differently constituted Court of Appeal in HKSAR v Fu Chu Kan and 5 others, CACC104 of 2007.  I accept that the present offences did not fall within the broad band of the worst of its kind, but they constituted fraud of a serious kind in view of the amount of money involved and the extent of the falsification of documents.

53.   In addition to the offence of publishing a false statement in Charge 13, there were a total of 12 charges, namely, six counts of conspiracy to steal, five counts of conspiracy to defraud and one count of theft against various defendants of which they were convicted.  I will group these 12 charges as one group for sentencing purpose.  In view of the number of charges and the nature of the offences, I would adopt a global approach to assess the totality of guilt in order to make the sentencing process less complicated.

54.   As regards D1 and D2, I see the level of their culpability the same.  Given the number of charges and the frequency of these offences, I would adopt 6 years as the global starting point for each and every charge in the second group that they were convicted thereof.

55.   It is not uncommon that convicted defendants in white collar crimes were first offenders and were also caring and responsible persons enjoying a high social status.  While I sympathize family members of the accused, like D1 and D2’s wife and their young children, I have to stress that that is the consequence that culprits need to bear when they perpetrated a crime. 

56.   Both D1 and D2 had a clear record.  They have climbed up the social ladder through their hard work and intelligence.  I would say this is a kind of Hong Kong successful stories turned sour or got rotten.  Insatiable greediness leads to one’s willingness to take the risk to perpetrate crimes to further increase one’s wealth or social status.

57.   Although I see no substantial mitigating grounds to reduce their sentence, I would exercise my discretion to reduce the sentence by 3 months in view of their clear and other personal mitigating factors.  Hence, for this group, I sentence them, D1 and D2, to 5 years and 9 months for each and every charge of which they were convicted, and all the sentences are to be served concurrently, save and except Charge 13 for which I will deal with in subsequent paragraph. 

58.   In passing, I would say that counsel for D1 took a wise move to make the mitigation on behalf of D1, otherwise D1 would not have the benefit of this reduction.

59.   Now, I come to Charge 13.  The maximum sentence for the offence of publishing a false statement is one of 10 years’ imprisonment.  I found that the two particulars to the tune of $36.5 million were falsely presented in the annual report.  It tended to boost the current assets in the consolidated balance sheet of the company.  Such false statements affected the integrity of the corporate business in Hong Kong and the purpose of publishing annual report of listed companies.  Heavy sentence is called for to deter this kind of crime.  

60.   I would adopt 3 years as the starting point and sentence both D1 and D2 to 3 years on this charge.  However, I need to consider the totality principle.  Taking all circumstances into account and in light of the nature of this offence being partly reflected in Charges 8 and 9, I order that 3 months of this sentence is to be served consecutively to the other sentences.  That means I sentence both D1 and D2 to 6 years.

61.   In relation to D3, I accept that there was no evidence to show that she had pocketed or derived benefit from these offences.  In my view, it would be a bit naïve for her to think that it would be groundless for rich people to make use of fraudulent means for their own advantages.  She knew that bogus transactions were created and fund flows were artificially generated.

62.   Considering the number of charges D3 faced, her role in these crimes and the nature of the offences, I would take a lenient stance and adopt 4 years as the starting point for each and every charge that she was convicted thereof.  Of course, these sentences are to be served concurrently.  I would ignore her previous minor convictions for the present purpose.

63.   Similarly, I exercise my discretion to further reduce her sentence by 3 months in light of her personal mitigating factors.   Accordingly, I sentence D3 to 3 years and 9 months’ imprisonment.  During this period of imprisonment, psychiatric treatment would be recommended as and when necessary.  

64.   To recap, I sentence both D1 and D2 to 6 years; and D3 to 3 years and 9 months.

65.   I would also grant leave to the application made by the prosecution under section 168D of the Companies Ordinance, Cap.32.  Under section 168E of Cap.32, the maximum period of disqualification that can be imposed by a District Judge is 10 years.  To give efficacy to this provision, in my view, the period of disqualification should also reflect the fact that the accused are to be imprisoned for a period of time. 

66.   Taking the whole circumstances into account, I will disqualify both D1 and D2 from being a director of a company for 10 years and they shall not be in any way, whether directly or indirectly, be concerned with or shall not take part in the promotion, formation or management of a company under section 168D(1)(a) and (d).