HKSAR v. HARJANI HARESH MURLIDHAR

CACC 352/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 352 OF 2015

(ON APPEAL FROM DCCC 1047 OF 2014)

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REASONS FOR JUDGMENT

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1.  The applicant was charged with “Conspiracy to deal with property known or believed to represent proceeds of an indictable offence”, contrary to section 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap 455 and sections 159A and 159C of the Crimes Ordinance, Cap 200.

2.  He appeared in the District Court where he pleaded not guilty and was tried by Judge J Lam.  On 4 August 2015 he was convicted of this offence and on 7 October 2015 he was sentenced by the judge to 3 years 9 months’ imprisonment. 

3.  He subsequently applied for leave to appeal against both his conviction and his sentence.  At the hearing of these applications I granted leave to him to appeal against his conviction on one of his four grounds of appeal and I refused him leave to appeal against his sentence.  I said I would hand down my reasons for so ordering at a later date and this I now do.

The charge

4.  The particulars of the charge alleged that the applicant, between 26 April and 21 July 2014, conspired with Castelino Brian Mario, Diallo Ibrahima and other persons unknown, to deal with property, being the sum of USD539,375.  In the original charge there was only one named co‑conspirator and this was Castelino Brian Mario.  The other named co‑conspirator, Diallo Ibrahima, was added to the charge in the course of the trial.  This person was in fact a prosecution witness, called as “PW10” in the prosecution case.  Prior to calling him the prosecution appears to have lost confidence in him as a witness worthy of belief when shown records of conversations that he had with the applicant and which were stored in the applicant’s computer.  Nevertheless, at the request of the defence the prosecutor tendered him for cross-examination. After he had given evidence in the trial the prosecutor concluded that he had conspired with the applicant and thereafter applied to amend the charge sheet to include him as a named co-conspirator.    

The prosecution case

5.  The prosecution case concerned an email fraud relating to a genuine transaction.  A company by the name of Dragon Asia Fertilizer Limited (“Dragon Asia”) contracted to buy fertilizer from Dohigh Trading Limited (“Dohigh”) which is a subsidiary of Sinochem Fertilizer Ltd (“Sinochem”).  Sinochem was the supplier of the fertilizer but it was routing all contractual payments through Dohigh.  Dragon Asia was not the end user of the fertilizer and was in fact on-selling it to a company in Bangladesh and so Sinochem was required to ship the fertilizer from China to Bangladesh.  The value of the contract was USD10,788,000.  Under the terms of the contract Dragon Asia was required to make a down payment of 5% of the contract sum, USD539,400, with the balance to be paid by means of a letter of credit. 

6.  By hacking the email account of Sinochem the fraudsters were able to deceive Dragon Asia into paying the required deposit to a bank account of Sino Investment and Trading Limited (“SIAT”) and nominating SIAT as the beneficiary of Dragon Asia’s letter of credit.  SIAT was incorporated in Hong Kong in 2012 by the applicant and the named co-conspirator Castelino Brian Mario. 

7.  The applicant arrived in Hong Kong on 12 July 2014 but at all times Castelino remained out of Hong Kong.  The amount of the down payment, less bank charges of USD25, was deposited into a bank account of SIAT (referred to at trial as “Account A”) on 9 July 2014.  This came to USD539,375 and between 9 July and 17 July 2014 Castelino transferred USD327,175 out of Account A.  A further USD38,500 was transferred to another account of SIAT (referred to at trial as “Account B”) and between 15 July and 18 July 2014 the applicant made withdrawals from Account B.  It was when he was attempting to withdraw some of these monies on 21 July 2014 that he was arrested. 

8.  The prosecution case consisted of only 5 witnesses, whose evidence was not in dispute, admitted facts and the applicant’s two video records of interview.

9.  In his record of interview the applicant claimed that he had come to know an agent called Daniel and he provided the police with Daniel’s mobile phone number and email address which began with the identifying name “coolsaintt”.  He maintained that it was Daniel who introduced him to the fertilizer contract and it was Daniel who made all the contacts with Dragon Asia.  He claimed he was providing a legitimate business service of inspecting the fertilizer at the time of its shipment and handling the documents for the letter of credit.  He said SIAT would get 15% of the invoice value, 12% for itself and 3% for Daniel, and the USD539,375 that he received as the down payment was part of his 15% if the deal went through.

10.  When PW10 was called the applicant’s counsel, Mr T Beel, who also appeared on this application for leave to appeal, revealed to the prosecutor a larger number of Skype and email records of communications with Daniel that had been stored in the applicant’s computer.  At the end of PW10’s evidence the prosecutor disavowed any reliance on PW10 and added him to the charge as a named co-cospirator.

The defence case

11.  The applicant gave evidence in the defence case and did not dispute that Dragon Asia and Sinochem had been deceived by fraudsters but claimed that he had also been a victim of the fraud.  The applicant claimed to be a legitimate businessman who had been deceived by PW10 into believing that he was engaged by PW10 to provide assistance in the fertilizer transaction. 

12.  He said he would ultimately get 12% of the value of the contract for confirming that the fertilizer had been successfully loaded in China for shipment to Bangladesh, obtaining all the documentation required under the letter of credit, negotiating the letter of credit and receiving the proceeds of the letter of credit into SIAT’s bank account before finally disbursing the monies to the supplier.  He said the supplier would have its own reasons for nominating SIAT as the beneficiary of the letter of credit and although the applicant did not know what they were, he felt no need to enquire further about this from Daniel. 

13.  All the monies under the contract, both the down payment and the proceeds of the letter of credit were to be paid to SIAT’s account and the applicant would, after deducting his 12% commission and forwarding to Daniel his 3% fee, remit the balance of the monies to the supplier. 

14.  In support of his defence the applicant relied on the contents of the Skype conversations and emails with Daniel that were stored in his computer.  These were proven by Further Admitted Facts and adduced as exhibits in the defence case.

15.  The applicant said he would only disburse the money when he had received from Daniel an authorization from the owners of the money.  Because he never received such an authorization he kept the money.  The applicant did not dispute the transfers of monies out of SIAT’s accounts.  He said he and his partner, Castelino, treated the money as part of their 12% fee and used it to pay debts, cover their operating expenses in respect of their businesses and also cover some personal liabilities.

The judge’s Reasons for Verdict

16.  The judge concluded that PW10 was the person Daniel who was known by his Skype address as “coolsaintt” or “saint cool”.  He inferred that PW10 knew there was a fraud taking place and that was why he could not expose his true identity to the applicant.  The judge believed that the applicant had, in respect of certain past transactions, been a legitimate businessman and genuinely wanted to set up an office in Hong Kong for his company.  He accepted that the applicant had engaged in many businesses including what the applicant called confirming-house business. 

17.  However, the judge also found that the applicant was willing, for reward, to lend his bank accounts to others so that money could be transferred into them.  He said there was ample evidence of this in his Skype and email communications with Daniel, under his pseudonym “coolsaintt”. 

18.  The judge rejected the defendant’s explanation that his correspondence with “coolsaintt” related to providing confirming-house business for him.  He said there was nothing in the email exchanges in which the purchasing of merchandise was discussed.  The judge referred to the service that Daniel was seeking as money-conduit business. 

19.  The judge concluded at paragraph 180 of his Reasons for Verdict that:

“180. It is apparent from their Skype and email communication that Defendant offered different accounts in different places for reward upon coolsaintt’s request. I do not accept Defendant’s explanation in court that it was for the buyers in confirming-house business to send in money for the merchandize. There was no discussion at all of who was to buy what. … I am sure in those Skype and email discussions Defendant and coolsaintt were talking about money conduit or money moving for reward. In this case, the two had reached an agreement, which was for Defendant to use his SIAT account to receive the down payment and the L/C money as the named beneficiary of the Contract and the L/C. Then Defendant had to transfer the money (after deduction of 12% for SIAT and 3% for coolsaintt) to other accounts according to coolsaintt’s instruction. …”

And at paragraph 182 he found:

“182. … I am sure it was only because Defendant could offer SIAT’s account as available for coolsaintt’s side to use that account to receive money for conduit. That was the reason (and the only reason) why SIAT was named as beneficiary on the Contract and the L/C. I am sure Defendant was aware of such reason.”

20.  The judge could not be satisfied that the applicant was one of the fraudsters responsible for deceiving Dragon Asia but he was satisfied that PW10, if not himself one of the fraudsters, was at least their knowing agent.  As a consequence of not being satisfied that the applicant was one of the fraudsters the judge held that the applicant could not be proven to know that the USD539,375 represented the proceeds of any indictable offence.  He then went on to address the question of whether the applicant had reasonable grounds to believe that this property was the proceeds of an indictable offence.

21.  In doing so he referred to the defence contention that the applicant believed the money was legitimate.  In respect of this claim the judge said, at paragraph 202:

“202. … The whole situation here is, however, so questionable that it calls for immediate rigorous proof or due diligence enquiry. Someone for no good reasons wanted to use SIAT’s name on the Contract and the L/C as beneficiary and required SIAT’s account to receive the down payment and the L/C money. A huge and totally disproportionate reward (12% of USD10,778,000) was offered to Defendant. Defendant in such circumstance ought to think or dig deep into the matter. Yet, he did not but simply turned a blind eye to the situation. He chose not to perform any due diligence enquiry. He was unreasonably contented with the scarce information he had of the highly suspicious deal coolsaintt brought him. His belief that the money was legitimate was, therefore, ill-founded.”

22.  The judge then went on to discuss the reasonable grounds to believe test and, as relevant to the application of that test, the belief of the applicant.  At paragraph 203 he said:

“203. The ‘having reasonable grounds to believe’ test is anyone looking at the grounds Defendant had would believe the property Defendant dealt with represented proceeds of an indictable offence. Defendant’s belief (even mistaken or fallible) is a ground that has to be taken into consideration. However, it is not an over-riding or determinative ground. I am sure anyone looking objectively at the grounds Defendant had would believe differently from Defendant, who was in fact turning a blind eye to a highly questionable situation which he must have so appreciated. Anyone looking objectively at such grounds Defendant had would believe the money involved represented in whole or in part, directly or in directly the proceeds of an indictable offence. Defendant ought to have known that but he chose not to. He was only concerned with the profit.”

23.  In respect of the person PW10 he said at paragraphs 210 and 211:

“210. … Coolsaintt (PW10) took instruction from these fraudsters. He lured Defendant into letting them to use SIAT’s account (Account A) to receive the money. I am not sure whether coolsaintt was in fact one of the fraud gang but I am sure he was at least a knowing agent.

211. I accept that coolsaintt had not told Defendant the fraud but Defendant in the circumstance as he was aware ought to have known the money he was asked to deal with represented proceeds of an indictable crime.”

24.  Under the heading “Honest and Reasonable Belief” the judge addressed the mens rea of the applicant and the argument advanced by the applicant’s counsel that he could not be guilty of the offence if he honestly held the belief that the money was legitimate, irrespective of how unreasonable that belief might appear to be to others.  It was the applicant’s case that an honest belief would be a defence to both the substantive charge and a conspiracy to commit the substantive charge. 

25.  At paragraph 221 the judge recited the prosecutor’s disagreement with this proposition and argued that only an honest and reasonable belief could be a valid defence to the charge.  The judge then referred to the decision of the Court of Final Appeal in Yan Suiling[1] and said:

“223. In that expression in Yan Suiling, the highest court was deciding whether the trial judge was unreasonable not to accept that defendant’s belief. That was clearly a matter of fact finding. The highest court was not saying if a defendant was found to hold an honest belief, then he/she must be acquitted. That cannot be the right interpretation. Otherwise, the test propounded in Pang Hung Fai (FACC 8/2013) would be watered down to a purely subjective test. The approved test on ‘having reasonable grounds to believe’ is that the jury should consider such grounds the accused had for believing and that anyone looking at those grounds objectively would believe the property represented proceeds of an indictable offence. An alternative interpretation is whether the accused ought to have known the property represented proceeds of an indictable offence.

224. The accused’s belief is certainly a ground that must be considered but it is just one of the grounds. It is not to be deemed as an over-riding or all-decisive ground. Justice Spigelman NPJ in Pang Hung Fai had this to say, ‘That does not mean that any such ‘perception or evaluation’, to use the words of the ground of appeal, is entitled to weight, let alone determinative weight.’ (Para 83 of the judgment.)

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226. In the present case, Defendant pleads he had a sincere belief of the nature of the fertilizer deal and thus the source of the money and the L/C.

227. As said in para. 202, Defendant’s so-called ‘belief’ was ill-founded. It was no more than a thought casually held as a result of lack of due diligence enquiry, which enquiry a person in Defendant’s position and with his capability ought to have made and could have made. Defendant in the circumstance ought to have come to alert as early as coolsaintt offered him the 12% reward. It was unreasonably lucrative and highly suspicious. Defendant ought to have known there was something highly irregular in the deal and, therefore, he ought to have known the USD539,375 represented in whole or in part, directly or indirectly the proceeds of an indictable offence.

228. … In the present case, I find Defendant’s so-called ‘belief’ was just ill-founded and equivalent to turning a blind eye to obvious suspicion. It, therefore, could hardly be said to be sincere or in good faith.”

26.  The judge thereupon proceeded to convict the applicant as charged.

The judge’s Reasons for Sentence

27.  The judge noted that as a result of the e-mail deception Dragon Asia was deceived into depositing USD539,375 into SIAT’s bank account.  This was equivalent to approximately HK$4.2 million.  The judge then set out his findings which were relevant to his assessment of the applicant’s culpability. He said:

“3. In the trial, I find Defendant was a businessman based in Sri Lanka doing many businesses in different places. However, he would for reward lend bank accounts under his control to a person nicknamed coolsaintt to conduit money. The real name of coolsaintt is Diallo Ibrahima. He is one of the conspirators named in the charge. 

4. I find coolsaintt knew the email fraud but he did not tell Defendant. Coolsaintt asked Defendant to use SIAT’s Account A to first receive the 5 per cent down payment and later the 95 per cent LC payment when the LC was executed. Defendant was promised a reward of 12 per cent of the money he helped to receive with SIAT’s Account A.

5. I find Defendant did not know the fraud, so he did not know the money coming into SIAT’s Account A was proceeds of an indictable offence. However, he ought to have known that given the highly suspicious circumstance of the task coolsaintt gave him. Defendant just eyed on the mega profit and turned a blind eye to the situation. He chose not to enquire from coolsaintt why it was so. I find anyone looking objectively at the grounds Defendant had would believe the USD539,375 going into SIAT’s Account A represented proceeds of an indictable offence. Defendant had agreed with his business partner Brian, coolsaintt and the unknown fraudsters to receive such money with SIAT’s Account A.”

28.  In sentencing the applicant the judge said:

“24. In this case, the scam perpetrated by the fraudsters was well organised but I find Defendant was not part of that gang. Defendant’s criminality lies in his letting others to use SIAT’s Account A to receive the money coming from a highly suspicious offer which he accepted blindly. However, Defendant was not, as his counsel puts it, a duped victim himself. The communication records between Defendant and coolsaintt reveal that Defendant was always willing and ready to offer bank accounts under his control in different places for coolsaintt’s clients to deposit money. I reject Defendant’s explanation that it was for confirming house business. I find that Defendant offered different accounts for money-conduit dealing. The present case demonstrates Defendant blindly accepted whatever the agent coolsaintt told him. Defendant chose not to exercise any scrutiny or judgment which he was capable of rendering if he wanted to.

25. Counsel says the circumstances pertaining to Defendant’s committing the crime were so exceptional that a short and suspended sentence can be passed. I disagree. The facts of the present case are not exceptional. In many a case, the masterminds of money laundering would simply make use of those who were negligent or who did not even care about the source of the funds. Defendant was of the latter category. Defendant is not as culpable as the fraudsters or as coolsaintt, who knew the fraud. Defendant is culpable as he cared not about the source of the funds.

26. Counsel says there are no aggravating factors in this case. I also disagree. There is at least one such factor, ie Defendant came from overseas to follow up on the disposal of the money that had gone into SIAT’s Account A.”

29.  The judge then referred to the case of HKSAR v Ivanovs Eriks[2] where the trial judge had adopted a starting point of 4½ years’ imprisonment in respect of a foreigner who had come to Hong Kong to open a bank account for others and those others had subsequently used the account to launder USD604,582.  A single judge of the Court of Appeal said that the starting point was within the range of appropriate sentences for an offence of this seriousness.

30.  The judge then sentenced the applicant saying:

“33. Defendant had many businesses but one of those was holding out accounts to conduit money for others. It is always these people that would be recruited to launder money. Defendant is the maker of his own incarceration.

34. The predicate offence was a well organised and serious fraud. Defendant had no knowledge of it. The money deceived and went into SIAT’s Account A was USD539,375. It was in one deposit. Because Defendant and his partner Brian had taken out some of the money for their own needs, Defendant was only to disperse the money pursuant to coolsaintt’s instruction when he (Defendant) had enough money to pay it out. Due to Defendant’s stalling, coolsaintt terminated the conspiracy after two weeks. The conspiracy only lasted from around 3 July 2014 to 17 July 2014. Now, about USD210,000 odd remains in Account A. Another amount equivalent to USD8,000 is in Account B. The two Altop companies associated with Defendant each has USD5,000 in their account.  The money that had gone into SIAT’s Account A is now short of about USD310,000 and there is no hope of recouping any part of it now. That missing amount is equivalent to HKD2.4 million.

35. I regard the starting point for such serious conspiracy to launder money in the said circumstances should be one of 4 years’ imprisonment. I take into account Defendant has a previous clear record and he in the trial agrees to all of Prosecution’s evidence except that of PW10 (which Defendant has rightly challenged). I would reduce the starting point by 3 months. There are no other factors that justify further reduction of sentence. I thus send Defendant to prison for 3 years and 9 months.”

31.  The prosecutor had asked for an order disqualifying the applicant from acting as a director of a company pursuant to section 166D and 168E of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  The applicant objected to such an order being made on the basis that he had not been found to have acted fraudulently or dishonestly but of only having turned a blind eye to a highly suspicious set of circumstances.  In refusing to make this order the judge said he agreed with the applicant’s submission, saying:

“38. I agree. Defendant had turned a blind eye in his money-laundering activity. He is convicted on that basis. In law, that is not a fraudulent or dishonest act.  The words ‘fraudulent’ or ‘dishonest’ cannot be given wider meanings than they should have. I find the basis of Prosecution’s application is misconceived. I have to refuse that application.”

The grounds of appeal against conviction 

32.  There are four grounds of appeal.  Mr T Beel indicated he would not be pursuing grounds 2 and 4.

33.  The first ground of appeal complains that the judge erred in finding that although the applicant had not acted dishonestly he nevertheless had the requisite reasonable grounds to believe on the basis that the applicant’s belief was not objectively reasonable and that the applicant had failed to conduct due diligence.  The judge’s statement that the applicant had not acted dishonestly was made in his Reasons for Sentence when he explained why he was refusing to accede to the prosecutor’s application that the applicant be disqualified from acting as a director of company.  

34.  The third ground of appeal asserts that the judge erred in taking into account uncharged criminal conduct pre-dating the charged offence and on the basis of that evidence then improperly finding that the applicant had been committing de facto criminal offences on those occasions and then used this finding to the prejudice of the applicant.  It was Mr Beel’s argument that the communications between Daniel and the applicant constituted uncharged criminal acts as the judge found that in these communications Daniel was soliciting the use, for reward, of bank accounts to which the applicant had access and the applicant had indicated a willingness to entertain Daniel’s requests.  

The grounds of appeal against sentence

35.  In respect of his appeal against sentence the applicant advances only one ground, namely that the sentence is manifestly excessive.  However, there are separate particulars in support of this ground.  As originally drafted the ground had only three particulars but at the hearing of the application leave was given to the applicant to add a fourth particular.  As amended the particulars of this ground of appeal are that the judge wrongly:

(i) took into account the uncharged criminal conduct;

(ii) found that the fact the applicant came from overseas was an aggravating factor;

(iii) found that notwithstanding the applicant was not dishonest, his culpability was serious; and

(iv) found that the applicant did not care about the source of the funds.

The respondent’s submission

36.  Ms V Lam, Senior Assistant Director of Public Prosecution, for the respondent, submitted that the judge, when dealing with the guilt of the applicant in his Reasons for Verdict, never said that the applicant had not been dishonest and the applicant was taking this comment by the judge, from his Reasons for Sentence, out of context.

37.  Ms Lam further submitted that the judge had correctly directed himself on the law and the comments by the Court of Final Appeal in HKSAR v Yeung Ka Sing Carson[3] did not assist the applicant.  The judge disbelieved certain parts of the applicant’s evidence and, by a proper application of the law, found that he had the requisite reasonable grounds to believe.

38.  In respect of the application for leave to appeal sentence Ms Lam informed me that the monies in SIAT’s account that had not been dispersed by the applicant or Castelino had now been returned to Dragon Asia. It amounted to HKD2.4 million.

39.  As to the sentence Ms Lam submitted that the judge had not erred when assessing the culpability of the applicant and his sentence was within the guideline set out by the Court of Appeal in Secretary for Justice v Wan Kwok Keung[4]where the Court of Appeal said at paragraph 15:

“The sentencing starting point is 3 years or so where the “black money” involved is between 1 million and 2 million dollars, 4 years or so where it is between 3 million and 6 million dollars, and could be over 5 years where it is above 10 million dollars.”

Discussion

40.  Ground 1 of the Perfected Grounds of Appeal Against Conviction, in essence, deals with the judge’s treatment of the beliefs of the applicant and the impact of his beliefs on the proof of the mens reaelement of the offence.  I am of the view that it is reasonably arguable that the judge, not having the benefit of the Court of Final Appeal’s further elucidation of this issue in the Yeung Ka Sing Carson case, misapplied the law. 

41.  In respect of ground 3 I am not persuaded that it is reasonably arguable.  I do not agree that the conduct revealed by the Skype and email correspondence constitutes uncharged acts of other criminal offences.  The conduct never amounted to the commission of a criminal offence. But it was certainly relevant evidence.  It was relevant in two ways.  Firstly, it showed the kind of service PW10 was seeking, namely access to bank accounts of others for the purpose of transferring funds into and out of those accounts; what the judge called money-conduit business.  Second, it was relevant as showing a willingness by the applicant to entertain a request for the provision of such a service.

42.  Being relevant for both these purposes it was probative of the guilt of the applicant.  In my view it is not reasonably arguable that the evidence was not admissible or that the judge could not rely on it for the purpose of determining the guilt or innocence of the applicant or that in making use of it he was required to give himself any special directions. 

43.  In respect of the appeal against sentence it is clear that the judge’s starting point was within the range for a money laundering offence involving HKD4.2 million in respect of which the offender is convicted on the reasonable grounds to believe basis.  I cannot find any error in the judge’s analysis of the applicant’s culpability and am not persuaded that any of the particulars of the ground of appeal against sentence are reasonably arguable. 

Conclusion

44.  For these reasons I granted leave to appeal against conviction in respect of ground 1 only and I refused leave to appeal against sentence.  As Mr Beel indicated he may wish to amend ground 1 of his Perfected Grounds of Appeal Against Conviction I gave him leave to do so and gave further directions in respect of the time in which any Amended Perfected Grounds of Appeal Against Convictionshould be filed and consequential directions in respect of the filing by both parties of written submissions.