HKSAR v. CHAN WAI MING

DCCC137B/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 137B OF 2011

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Reasons for Verdict

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Introduction

1. D2 is facing two charges: the 2nd charge and the 3rd charge, contrary to section 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap.455.  The offence is commonly known as money laundering.  The 2nd charge involves US$1,005,100 while the 3rd charge involves HK$16,002,175.60.  D2 is alleged to have dealt with these amounts of money together with Choi Chun-yin (“Choi”) when the moneys were being held in the Bank of China accounts (“the BOC accounts”) of the Chun Shing Investment Company. 

2. Choi was originally the 1st defendant in this case.  He has been convicted of two charges, Charge 1 and Charge 3, in the latter he was jointly charged with D2. 

The Prosecution Case

3. In a nutshell, the prosecution says there was movement of large sums of money into and out of the two BOC accounts under the control of D2.  If there is no reasonable explanation, D2 must have dealt with the moneys, having reasonable grounds to believe that the moneys represented proceeds of an indictable offence.  However, as D2 gives evidence as explanation in court, if the court accepts D2’s explanation that the money was used in the business of obtaining cross-border vehicle permits, then D2 was committing a conspiracy to defraud the PRC authorities.  The moneys were received and used as a tool to deceive.  It was received in connection with the commission of an indictable offence.  It falls within the definition of “proceeds of an indictable offence” under section 2(6) of Cap.455.  D2 is guilty of dealing with property, knowing that it represented the proceeds of an indictable offence.

The Prosecution’s Evidence

4. Undisputed evidence shows that on 5 June 2007, an application was received by the Inland Revenue Department for business registration in respect of the Chun Shing Investment Company (Exhibit P1). Choi was named as the sole proprietor of the company.  In June 2008, one Lau Wai-kuen was added as a partner.  On 13 May 2009, Choi retired as a partner.  Lau Wai‑kuen became the sole proprietor of the company.

5. On 27 June 2007, Choi opened two accounts: one multi‑currency account and one Hong Kong dollar account with the Bank of China in the name of the Chun Shing Investment Company (the BOC accounts).  At first, Choi was the only signatory on those accounts.  On 1 November 2007, D2 also became a signatory for both accounts.  After this date, the accounts could be operated by either Choi or D2. 

6. D2 filed a tax return with the Inland Revenue Department each year between 2004/2005 and 2009/2010.  In each of these years, he reported that he was a stipendiary shareholder of the Wai Chi Company, earning $216,000 per year. 

7. A copy of the application for business registration in respect of the Chun Shing Investment Company (Exhibit P2) and two forms for notifying the Inland Revenue Department of a change of partners of the company (Exhibit P3 and P4) were found during a police search of Wai Chi Company.  

8. D2 was arrested by PC51167 on 23 November 2010.  After he was arrested, he was interviewed in the presence of his legal representative.  He stated under caution that he had no relationship with Choi and that he held no position with the Chun Shing Investment Company.  He offered no explanation for the fund flows in the BOC accounts.  No doubt this was his right.  It is admitted that his answers in the interview were voluntary. 

9. No tax returns have been filed with the Inland Revenue Department on behalf of the Chun Shing Investment Company for the tax years from 2007 to 2010.

10. The witness statement of PC2386 is admitted as evidence under section 65B of Cap.221, and the accompanying tables and flowcharts are produced as Exhibit P15.  This officer’s investigation of the money movements in the two BOC accounts of the Chun Shing Investment Company can prove the following matters.

The Multi-Currency Account (2nd Charge)

11. Between the date of opening of the account and 15 October 2008, a period of three weeks, a total of US$1,005,100 was transferred into the account in six separate deposits.  On the same day that each deposit was made, withdrawals were made of precisely the same amount so that by 15 October 2008, the entire amount deposited had been withdrawn and the account balance was 0.  The money withdrawn from the account was sent to the account of a metal products company in Jiangmen on the mainland.  After the last withdrawal on 15 October 2008, the account remained dormant until it was closed on 30 May 2009. 

The Hong Kong Dollar Account (3rd Charge)

12. This account remained dormant from the date of opening until 1 November 2007 when a total of HK$8 million was deposited into the account in two separate transfers.  On the same day, $8 million was transferred out in a single transaction to the account of a company in Shenzhen.  The account remained dormant until 25 January 2008 when a total of HK$8 million was deposited into the account in three transfers.  On the same day, $8 million was transferred out of the account in three transactions to the account of a company in Shenzhen.  All these withdrawals were made by D2.  Thereafter, this account remained dormant until it was closed on 30 May 2009.

13. A summary of the fund flow can be seen at annex IV and V of PC2386’s witness statement, which is annexed to this Reasons for Verdict for easy reference.

14. It is admitted that D2 has a clear record.

Choi’s evidence

15. Choi gives evidence for the prosecution as PW3. His evidence was not challenged on the main points.  Choi says in 2007 he was working for a motor company called Get Bingo Motors when his boss, one Dickson Cheung (“Cheung”), told him that he was going to get involved in obtaining cross-border vehicle permits.  He told Choi to set up a company and open bank accounts in the name of the company.  Choi set up Chun Shing Investment Company as its sole proprietor.  The company existed only on paper and had no premises or business.  Choi was then introduced to D2 by his boss. 

16. Choi handed all the documents relating to the two BOC accounts to D2 for him to operate by Internet banking.  On 1 November 2007, he added D2 as a signatory at his request.  Choi says he knew nothing about the process of applying for the cross-border vehicle permit.  He only knew that an account in Hong Kong was needed and $8 million had to be deposited into his company account and then transferred back to the mainland. He further says he was only aware of one transaction of vehicle permit.  

17. In respect of the documents, Exhibit D1, produced by D2 in court, his evidence is that he knew nothing about the solicitors’ fee.  He has never seen “the Letter of Undertaking and Agreement” at D1 (page 31 and 32).  The signature on it was not his.  He has not seen the identity documents of a mainlander, Chan Wai-kit or Chen Weijie (“Chan”), nor has he borrowed money from Chan.  He does not know that Chun Shing Investment Company has invested in a Shenzhen company called Shenzhen Chun Shing Tung Apparel Design Company Limited.  Nor is he aware that he has been registered as the legal representative of this Shenzhen company.  Moreover, the signatures on Exhibit P1, P2, P3 and P4 were not his.  Choi denies that he has been given any reward.  He says he only did it for free as requested by his boss, Cheung.

The Defence Case

18. In a nutshell, D2 says the large sums of money deposited into and transferred out of the accounts under his control were used in his co-operation business with the mainlander Chan in obtaining cross-border vehicle permits.  The moneys were provided by Chan.  He believed that it was a legitimate business.  He believed that Chan was a legitimate businessman and the moneys came from legitimate source.

D2’s Evidence

19. D2 has a clear record.  He says he received education up to Form 5.  He had worked as a Hong-Kong-China cross-border driver for some years before setting up Wai Chi Company in 1996.  The company is in the transportation business.

20. In 2006, D2 saw an advertisement on a newspaper of a person named Wong Man-nam (“Wong”) who offered help to people to obtain a Hong-Kong-mainland cross-border vehicle permit.  Wong explained the procedure to him, saying that a company had to be set up in China and a capital investment of $8 million was required.  Although D2 did not have $8 million for the investment, he allowed Wong to make all the arrangements.  He successfully obtained a cross-border vehicle permit for his private car at the price of $280,000. 

21. During the process of getting his own permit, D2 gained knowledge of the application requirement and procedures.  He came to know that there was a policy in the mainland that an overseas company, including a company from Hong Kong, is entitled to get one cross-border vehicle permit if it invests in a mainland company for $8 million or its equivalent in foreign currency.  He wanted to get into the business.  Through one Lam Pik-hung who assisted D2 in his own application for the permit, D2 learnt that Chan was the person responsible for the application procedures in the mainland, providing the $8 million capital to satisfy the investment requirement.

22. In late 2006, Lam made arrangements for D2 to meet Chan at Chan’s office in the mainland.  D2 was impressed by Chan’s office and factory and believed that Chan was a rich man.  He proposed to join the business but was declined by Chan.  Later, as D2 offered help to Chan’s wife to give birth to a baby in Hong Kong, D2 and Chan became good friends in 2007.  They started their joint venture in the business of obtaining cross‑border vehicle permits and Chan agreed to provide the investment capital of $8 million as a loan to D2 in each application for the permit.

The First Application

23. In 2007, D2 managed to get his first client for the cross-border vehicle permit through the boss of Get Bingo Motor Company, Cheung.  Cheung said he wanted to get a cross-border vehicle permit for his fung shui master named Lau Wai-kuen.  D2 discussed the matter with Chan who agreed to provide the registered investment capital of $8 million as a loan.  D2 would have to be the personal guarantor.  D2 had to pay Chan 2 per cent of the loan amount, i.e. $160,000.  D2, Cheung and Chan reached an agreement and started the co-operation business.  Afterwards, Chun Shing Investment Company and the Shenzhen company were established.  Choi opened the bank accounts in the Bank of China. 

24. In support of his explanation in court, D2 produced the Undertaking Agreement (Exhibit D9), Loan Agreement (D10), Investment Verification Report (D1, page 9), and the relevant registration and approval documents which were exhibited in D1.  It is noted that D1 only consists of photocopies.

25. D2 says Exhibit D9 was drafted by him and signed by all three parties as the record of the initial agreement.  The document states that Chan would be responsible for advancing the loan of HK$8 million and handling the registration matters in China while D2 would be responsible for personally guaranteeing the loan as a security to Chan.

26. D2 further says that to make sure there would be no problem and nothing illegal with the funds, he specifically inserted a clause stating that Chan was to advance the loan from legitimate source of fund and that the loan must not be used in illegal activities.

27. The Undertaking Agreement (D1 at page 32) was designed as an acknowledgement by Choi to show that he knew clearly that he must not withdraw or transfer the money in the bank accounts.  However, D2 did not witness the signing of Choi as he only handed the document to Cheung for Choi to sign.  Investment capital deposits were received and remitted out accordingly on 1 November 2007 which could be confirmed in the Investment Verification Report with deposit slips shown in Exhibit D1.

28. After all the requirements were met, D2 went to Guangzhou with Choi to complete the application which was made in Choi’s name.  A cross-border vehicle permit was successfully obtained.  It was later sold for $300,000 by way of a transfer of ownership of Chun Shing Investment Company. After deducting the costs and Chan’s share, D2 and Cheung each received $40,000, and it was his knowledge that Choi also received a remuneration of $20,000.

29. In relation to the BOC accounts, D2 explained that he became a signatory because Cheung told him that Choi might take a vacation in early November and would not be able to remit the money as he was the sole signatory. 

The Second Application

30. The second application was made on behalf of a Wong Kwai-ming who was a client introduced by Chan.  Same as the first application, companies were registered in Hong Kong and the mainland.  The permit was successfully obtained in early 2008 and was subsequently transferred to a company which was held by Wong.  A Hong Kong company was set up for this purpose in the English name of Chun Shing Investment Company but with a different Chinese name.  This arrangement was made so that the Chun Shing Company account could be used again for deposits and remittance as agreed by all parties in the agreement.  

31. D2 explains this was done for convenience to save time and costs since no new bank account handling fee and initial deposit would be required and also for minimising the risk of the capital.  As his involvement in making this application was not so much as the previous one, D2 and Cheung each received only $20,000.

The Third Application

32. The permit was obtained in November 2008 on behalf of a Lam Hing-kwok and subsequently sold to Wong Tai-loi.  D2 received $50,000 which need not be shared with Cheung as Cheung had gone bankrupt and disappeared.  In this application, the new Hong Kong company was also registered in the same English name as Chun Shing with a different Chinese name. 

Source of Money

33. It is D2’s evidence that the investment capital was provided by Chan and D2 had never suspected that the money might have come from some illegal sources as it was his understanding that Chan was a rich man who would be able to raise the investment capital required for the business.  D2 thought it was a fair deal for Chan to provide the capital at an interest rate of 2 per cent, bearing in mind the money would be remitted to Chan within a few days’ time.  Thus, it had never caused any suspicion to D2.

34. D2 further says to safeguard his interest, he had introduced some restrictions in the business arrangement.  He required that the money be deposited and remitted through the Chun Shing Company accounts only and that the accounts were to be used solely for the purpose of making those applications.  He also refused cash payment because he learnt from some government advertisements that transactions made in cash might be suspicious and he did not want problems to occur in the business.

The Arrest

35. It was D2’s evidence that upon his arrest by four police officers at his home, he told one of them that he was in the business of helping people to get cross-border vehicle permits.  D2 explained to him all the details involved which was recorded by a rather mature-looking officer.  However, it was D2’s impression that the police officer did not understand.  It is noted that this is against the prosecution’s case and it was not suggested to PW3 when he was cross-examined.

36. Upon cross-examination, D2 agrees that the policy of the Chinese Government was to issue cross-border vehicle permit as a way of encouraging overseas investment.  The requirement was for an overseas investor to set up a genuine business in the mainland.  D2 also admits that moneys were transferred into Chun Shing accounts opened by Choi, knowing that another two Hong Kong companies were not the rightful holder of the account in relation to the second and third applications.  However, D2 denies having any intention to deceive the bank.  He denies that the co-operation was a deceptive scheme.

The Issues

37. There are four issues in the case:

(1) whether the court accepts the evidence of D2 that the movement of funds in the BOC accounts was connected with his business in obtaining cross-border vehicle permits;

(2) whether D2’s business was a fraudulent scheme to deceive PRC authorities;

(3) whether the money used as a tool in the deception scheme should be properly regarded as the proceeds of an indictable offence and therefore D2 knowingly dealt with the proceeds of an indictable offence; and

(4) in any case, whether D2 had reasonable grounds to believe that the moneys in whole or in part represented the proceeds of an indictable offence.

Evaluation of Evidence

38. The evidence adduced by the prosecution is not seriously challenged.  The movement of funds in the BOC accounts is admitted. 

39. I find that Choi’s evidence cannot help the prosecution much.  Choi’s evidence is not challenged on the main points, and there is no dispute that he established a local company, opened the BOC accounts and let D2 have control of the accounts.  Indeed, this part of evidence is relied upon by the defence.  Whether Choi signed the signatures on Exhibit P2 to 4, whether he was aware of the Shenzhen company and the second and third applications, and whether he received $20,000 as a reward are unimportant insofar as the issues are concerned.

40. The conflicts of evidence between D2 and Choi only relate to the degree of knowledge and involvement of Choi in the scheme. It is noted that Choi is cross-examined on the foundation of his plea of guilty to Charge 1, with which D2 is not facing.  The evidence relating to Charge 1 is unrelated and irrelevant to the charges which D2 is facing with. 

41. However, as a result of the cross-examination, the court has raised the issue as to whether Choi’s plea of guilty is equivocal.  Counsel for Choi has been alerted on this issue.  Nevertheless, that is a separate issue to be resolved in due course but irrelevant insofar as D2’s trial is concerned.  As I said before, the conflicts in evidence between Choi and D2 are immaterial.  In whatever way the conflicts are resolved, the result of this case will not be affected.  However, for what it is worth, I shall also deal with it.

42. First, I note that Choi is an accomplice.  He may have his interest or motive to serve.  Apparently, he gives evidence, hoping to get a lenient sentence.  I warn myself to exercise special care in considering his honesty and reliability, and I remind myself that D2 has a clear record. 

43. Choi gives me the impression that he is trying to minimise his role and benefit in the case.  Although pleading guilty to two charges of money laundering (Charge 1 and Charge 3), his evidence appears to be inconsistent with his plea to the two charges. 

44. On Charge 1, he says the moneys he received were reimbursement of expenses that he had paid in advance for his boss in social gathering and entertainment and expenses he had paid in advance in car insurance and repairs for his clients when he worked in a motor company.  He says the moneys were not proceeds of crime.  He only pleaded guilty because he did not have proof to prove his innocence.

45. Charge 3, on which he was jointly charged with D2, involves about $1.6 million which should be, according to his evidence, related to two applications for cross-border vehicle permits. However, his evidence is that he is not aware of the second and the third applications.  There may be the suggestion that he only dealt with half of the amount in Charge 3.  D2 also says he received no reward at all.  However, his evidence is that he took all the troubles to establish a company, to open bank accounts for others to use it and, further, he went to Guangzhou Vehicle Permit Office to choose the vehicle permit number.

46. I find it difficult to believe that he did all these for free.  I have doubts whether his evidence is credible.  I have doubt whether Choi is reliable on the part of the evidence challenged by D2 and I shall attach no weight to it.

First Issue

47. Coming back to the first issue, on the unchallenged evidence of Choi and D2, I would accept D2’s version of how he and his associates operated a scheme to get cross-border vehicle permits and the moneys in the BOC accounts were deposited into and transferred out for the purpose of meeting the 8 million overseas investment requirement. 

48. This finding appears to be unopposed by the prosecution.  Therefore, I will not discuss in details the result had I made a different finding.  For the sake of completeness, suffice it for me to say that, on the admitted facts, I would have found that D2 had reasonable grounds to believe that the moneys were proceeds of an indictable offence.

Second Issue

49. I now turn to the main issues.  The second issue is whether the business was a fraudulent scheme to deceive PRC authorities.  It was the case of D2 that there was a policy in the mainland to issue cross-border vehicle permits to investors from overseas, including Hong Kong, in order to attract foreign investment.  Overseas investors who invest for HK$8 million or about US$1 million would be entitled to the issue of a cross-border vehicle permit (see Exhibit D1, page 4).  To qualify for this purpose, an overseas investor has to set up a mainland company and invest his stipulated capital amount into the mainland company.  Applications for the vehicle permits submitted to the PRC Vehicle Control Office must be supported by various documents, including accountant’s Investment Verification Report and bank confirmation letter proving that the overseas investment has been received from overseas.

50. It is not disputed that the moneys particularised in Charge 2 and Charge 3 were deposited into and transferred out of the two BOC accounts under the control of D2 who therefore dealt with the property.  The moneys were deposited into and transferred out of the accounts on the same day to prove that the overseas investment capital was received.

51. Upon cross-examination, it is admitted by D2 that when the investment capital was remitted back to a mainland bank account, the money would be kept in the account just for a few days.  It would be returned to Chan when the Investment Verification Report had been prepared by a public accountant to prove that the capital investment of $8 million had been received.  For the loan of $8 million, Chan charged 2 per cent of the loan amount, i.e. $160,000.  The $8 million loan had to be repaid upon completion of the verification of the investment report.  According to D2 and evidenced by the loan agreement produced by him, D2 had to pay a severe daily penalty charge, i.e. 0.15 per cent of the loan, if he failed to repay on time.   

52. On the evidence of D2, the following features in his business are noted:

(1) At first, all his clients needed to establish a dummy company which, after registration with the Inland Revenue Department, had no business at all.

(2) All his clients used the same BOC account opened by Choi for channelling of the funds to prove the overseas investment.

(3) The investment capital all came from the mainland, purportedly from a mainlander Chan.

(4) When money was deposited into the BOC account, it would be transferred out from the account on the same day and remitted back to a bank account in the mainland.

(5) As admitted by D2, the money remitted back to the bank account of the mainland company would be returned to Chan when an accountant’s Investment Verification Report had been prepared. The report was used to prove that the stipulated 8 million overseas capital had been received.

(6) In other words, the 8 million capital money would only stay in the mainland company’s account for a few days before the money was returned to Chan. Apparently, as the capital money went back to Chan after a few days, no money was invested in the mainland company.

(7) The amount of money transferred back to the mainland company’s account was just enough to qualify for a cross-border vehicle permit.

53. On this evidence, the only reasonable and irresistible inferences that can be drawn are: the sums of the $8 million or equivalent in US dollars were not genuine overseas investment.  Its source was from the mainland instead of Hong Kong.  They were deposited into and transferred out of the BOC account in order to fabricate evidence and make false representation that overseas investment had been received.  The co-operation business between D2 and his associates in the mainland was a dishonest scheme to deceive PRC officials, who were responsible for issuing the cross-border vehicle permits, to act contrary to their public duty.  It is implausible that had the Chinese officials known the true situation, they would still issue the three permits to D2 and his associates.

54. D2 claims that he was honest, believing that it was a legitimate business.  Mr Leung, counsel for D2, submits that D2 was only taking advantage of the loopholes in the Chinese legislature or policy which was not an offence.  On the overwhelming evidence, in my judgment, it is inconceivable that D2 did not know what he was doing was a deception scheme. On his own evidence, he knew the Chinese policy was to attract overseas investment.  He also knew that investment capital money would only stay in the mainland company’s account for a few days and had to be returned to Chan when the accountant’s verification report was ready.

55. It is clear that when sufficient evidence in support of the application had been fabricated, the money would be taken out from the mainland company’s account.  If D2 genuinely believed he was doing a legitimate business, one would ask these rhetorical questions: why did he not go into the Guangzhou Vehicle Permit Office with Choi but chose to remain outside the office to wait for Choi?  Why did he arrange three Hong Kong companies with the same English name?  Why did he use Choi’s accounts to channel the investment capital for the second and third licence applications when he must know the local companies in the second and third applications were not entitled to use the bank account not belonging to their companies?  Choi was his associate in the business.  Yet, why D2 said he had no relationship with him?

56. All these evidence, in my view, support the only reasonable inference that D2 knew he and his associates were operating a scheme to deceive.  They had the intention to deceive the Chinese authorities.

57. Mr Leung further submits that no expert evidence from the Chinese authority has been adduced to prove that it was an offence in Chinese law or that Chinese officials would not have issued the permits had they known the truth. 

58. Whether a certain conduct amounts to an offence in a foreign jurisdiction is a question of fact which has to be proved normally by legal expert of that jurisdiction (see HKSAR v Tam Hung CACC127/2010 and HKSAR v Mak Pui Cheung CACC185 of 2011).

59. In this regard, the prosecution relies on section 25(4) of Cap.255.  This section provides that “references to an indictable offence include a reference to conduct which would constitute an indictable offence if it had occurred in Hong Kong.”  Burrell J in HKSAR v Lok Kar Win [1999] 4 HKC 789 had this to say:

 “Section 25(4) is specific and unambiguous and caters exactly for the situation where there has been conduct abroad and not where there has been the commission of a foreign offence abroad.”

60.  The prosecution therefore submits that the determining factor is the conduct complained of as judged by Hong Kong law, not whether that conduct is an offence in the foreign country where that conduct took place. If the argument is correct, D2 and his associates’ conduct in the mainland would be a fraud if it took place in Hong Kong. However, in the light of the subsequent decision of the Court of Appeal in Tam Hung and in view of my finding that there is an offence of conspiracy to defraud in Hong Kong, I do not think that it is necessary to consider Lok Kar Win further here. Notwithstanding whether the prosecution’s argument on section 25(4) is correct or not, I find that the common-law offence of conspiracy to defraud the PRC officials with acts done in Hong Kong in pursuance of the agreement is itself an offence in Hong Kong. It does not matter whether the agreed conduct can be proved to be an offence in the mainland.

61. It is also my judgment that it would be too imaginative to suggest that the Chinese officials would still issue the permits had they known the truth.  Without evidence from PRC officials, the only reasonable and irresistible inference must be that they would not issue the permits had they known the truth.

62. In my judgment, accepting D2’s evidence of the scheme, the conduct of D2 and his associates amount to an agreement and conspiracy to defraud the PRC authorities which is an indictable offence in Hong Kong.  Obviously, they had the intention to defraud and their conducts are no doubt dishonest, applying the Ghosh two-stage test (see definition of the offence in HKSAR v Mo Yuk Ping [2007] 3 HKLRD 750). 

63. For the reasons given, I find that expert evidence on mainland law is not necessary. 

64. I find that D2 knew that he was committing the crime; he knew the moneys were used to facilitate the commission of the crime. On the evidence of D2, the only conclusion one can come to is that D2 and his associates were guilty of the offence of conspiracy to defraud.

Third Issue

65. It is on this basis of finding that the prosecution argues on the third issue that the sums of money which passed through the BOC accounts, being used to facilitate the conspiracy to defraud, were payments received by him “in connection with the commission of that offence” and falls within the definition of “a person’s proceeds of an offence” under section 2(6) of Cap.455.

66. Mr Dunn, counsel for the prosecution, relies on R v Gertrude Osei [1988] 10 Cr App R(S) 289 and Shing Siu Ming v HKSAR (No. 2) [2003] 3 HKC 83.  In these two cases, the court was deciding applications for confiscation of proceeds of drug trafficking offence. 

67. It is noted that the definitions for “a person’s proceeds” in Cap.405 and 455 are identical and also basically identical to the wordings of section 2(1) of the Drug Trafficking Offences Act 1986. 

68. Section 2 of the Drug Trafficking Offences Act 1986 provides:

“(1) For the purposes of this Act-

(a) any payments or other rewards received by a person at any time (whether before or after the commencement of section 1 of this Act) in connection with drug trafficking carried on by him or another are his proceeds of drug trafficking.”

69. Section 4 of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap.405 provides:

“(1) For the purposes of this Ordinance-

(a) a person’s proceeds of drug trafficking are-

(i) any payments or other rewards received by him at any time (whether before or after 1 December 1989) in connection with drug trafficking carried on by him or another.”

70. Section 2 of the Organised and Serious Crimes Ordinance, Cap.445 provides:

“(6) For the purposes of this Ordinance-

(a) a person’s proceeds of an offence are-

(i) any payments or other rewards received by him at any time (whether before or after 2 December 1994) in connection with the commission of that offence.”

71. Osei was a judgment of the English Court of Appeal.  The appellant in that case pleaded guilty to importation of dangerous drug.  She was stopped by customs officers at Heathrow Airport and found to be carrying two packages of dangerous drugs. She was sentenced by way of imprisonment and a confiscation order made under Drug Trafficking Offences Act 1986 for £2,500 which was found in her possession.  The appellant claimed that the money had been given to her by those who had arranged for her to import the drugs to show to immigration officers to enable her to pass through immigration.  The English Court of Appeal held that proceeds of drug trafficking included the support money given to the appellant in order to deceive the immigration officer.

72. The interpretation was followed by Lugar-Mawson J in Shing Siu Ming No. 2.  Applying the English Court of Appeal’s interpretation, proceeds of a crime is not necessarily a payment or reward received after a crime has been committed.  I would respectfully agree with the interpretation of the English Court of Appeal and Lugar-Mawson J.

73. Section 4(1) of Cap.405 and section 2(6) of Cap.455 both provide the same definition for “a person’s proceeds” on identical terms.  Both sections talk of “at any time” and “in connection with the commission” of an offence.  These two phrases are in plain and simple language.  In my view, the scope of section 25(1) of both Cap.405 and 455 is wide and far‑reaching.  The definitions of “proceeds” in these two ordinances were deliberately drafted to catch a wide scope of criminal activities.

74. Applying the plain meaning of the statutory definition for “proceeds” and the intention of the legislature, I am of the view that “proceeds” can cover payment of money received and used in the course of commission of a crime.  It is not confined to a property derived only after the commission of a crime.  If it were the intention of the legislature, it could have qualified the definition by adding a simple phrase such as “after the commission of that offence” and deleting the phrase “at any time.”

75. Mr Leung disagrees, citing the Court of Appeal’s decision in HKSAR v Wan Yet Kwai CACC372 of 2008.  At paragraph 26 of the judgment, the Court of Appeal says:

 “Section 25(1) looks to the source of identified property, not to its intended use. Accordingly, if a common-sense, right-thinking member of the community would consider that on the evidence there could only be grounds for one reasonable belief, namely, that the identified property was from a lawful source but was intended for investment in crime, then there would be no offence under section 25(1).”

76.  That was an obiter opinion of the Court of Appeal when it dismissed the appellant’s application. The case can be distinguished. The scenario in our present case is entirely different. D2 did not only receive the money. He also transferred the money to the mainland. He did not intend for investment in crime. He was indeed using it as a tool in the commission of a crime. D2 was disguising the mainland source as overseas investment. Moreover, he received the money not from a legitimate source but from his associates who had, in his evidence, been in this trade of deception for a long time. It cannot be said that there were only grounds for one reasonable belief that the money was from lawful source.

77. I reject D2’s evidence that he believed the money came from legitimate source.  I find that the sums of money deposited into the BOC accounts were all proceeds of an indictable offence.  I am satisfied beyond reasonable doubt that D2 dealt with the property particularised in Charge 2 and Charge 3, knowing that the property represented proceeds of an indictable offence. 

Fourth Issue

78. If I were wrong in the interpretation of “proceeds of an indictable offence,” the fourth issue will arise.  At closing submissions, I raise this issue to alert Mr Leung whether there are reasonable grounds for D2 to believe that the sums of money, in whole or in part, came from previous profits derived from the conspiracy and therefore represented proceeds of an indictable offence.

79. It is now established law that the prosecution does not have to prove that the offence of conspiracy to defraud has been committed nor is it necessary to prove that the defendant actually knew that it was the proceeds of an indictable offence.  The prosecution is not required to prove that the property which the defendant dealt with was proceeds of indictable offence.  What has to be proved is that the defendant dealt with the property, either knowing that it was the proceeds of an indictable offence or having reasonable grounds to believe that it was. 

80. To determine whether the defendant had reasonable grounds to believe that the property he dealt with was the proceeds of an indictable offence, the court must apply a two‑stage test.  First, it must decide if there are grounds that a common-sense, right-thinking member of the community would consider sufficient to lead a person to believe that property was the proceeds of an indictable offence.  Second, subjectively, it must be proved that those grounds were known to the defendant. 

81. Objectively viewed, the following grounds are apparent:

(1) The PRC authorities would not have issued the cross-border vehicle permits had they known the truth.

(2) The deception scheme was a lucrative business. Chan earned at least $160,000 in each fraudulent transaction.

(3) Chan had been operating the fraudulent scheme for some time before D2 joined the scheme.

(4) Knowing that it was a fraudulent scheme, D2 initiated to join the scheme.

(5) Because of the handsome profit, D2 and Chan would want to process cross-border vehicle permit applications as many as possible.

(6) To support more fraudulent applications, large amount of money would be required to disguise as the overseas investment money.

(7) Having derived handsome profits and believing that the business was a profitable one, the irresistible inference is that Chan would reinvest his illicit profits into the scheme.

(8) The money would be recycled to provide more funds to support more transactions.

82. The $8 million disguised money therefore may have come at least partly from the illicit profits from previous fraudulent transactions.  The prosecution does not have to prove this.  It is only required to prove that D2 had reasonable grounds to believe that part of the funds had that origin (see HKSAR v Ching Kun Kin CACC192 of 2008).

83. In my judgment, on any reasonable objective assessment, a common-sense, right-thinking member of the community would consider sufficient to lead a person to hold the belief that the sums of money deposited into the BOC accounts at least partly represented proceeds of an indictable offence.  Of course, D2 was aware of all these grounds.  The subjective and objective tests are met.

84. Mr Leung argues that the prosecution is not proceeding with the case on that basis. 

85. A trial judge is not bound to follow the case put forward by the prosecution.  If, in the light of the evidence as it develops, a defendant may have committed the offence on a different basis, the trial judge is not debarred from leaving the original basis of prosecution.  Of course, the trial judge needs to consider the fairness of the case, including the prejudice which might have been caused to the defendant (see Hau Tung Ying & Another v HKSAR FACC2&3 of 2010 reported in [2011] 2 HKLRD 782).  

86. In this case, the two charges D2 is facing allege that D2 “knowing or having reasonable grounds to believe.”  So both limbs of section 25(1) are alleged and relied upon by the prosecution.  In the opening of the prosecution, the prosecution did not specify which limb was relied upon or that the prosecution only relied upon one of the two limbs.  It is only when D2 has given his evidence that at closing submission, Mr Dunn says the prosecution relies on the first limb if D2’s evidence is accepted by the court.

87. This is not a case that the prosecution is trying to retract its election.  In my judgment, knowledge and having reasonable grounds to believe only reflect different degree of recognition. These two limbs of recognition are not mutually exclusive or substitutional (see paragraph 35 of the judgment of Court of Appeal in HKSAR v So Ching Chung & Others CACC308 of 2010). 

88. It should be noted that Mr Dunn has in cross-examination put to D2 that the money was going round in circles.  I have also specifically alerted Mr Leung at the time of closing submission of the possibility of conviction on this basis.  I cannot see any prejudice caused to D2.

The Conclusion

89. For the reasons I have given, D2 is convicted of the 2nd charge and the 3rd charge on the re-amended charge sheets.