HKSAR v. WU YUI YUEN AND OTHERS

DCCC 659/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 659 OF 2010

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REASONS FOR SENTENCE

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1.  The defendants were convicted after trial of charges of conspiracy to defraud committed between May 2005 and February 2008. The first two charges had been preferred jointly against D1 and D2. Charges 3 and 4 had been preferred against defendants D2 and D3. The charges related to 27 transactions which took place during the relevant period. In respect of each transaction the defendants knowingly caused applications for bank loans to be made in respect of bogus purchase orders supported by false documentation.

Background

TPL and DIL

2.  At the material times, D1 was a director and shareholder of Tai Ping Circuits Technology Limited (TPL) and Deltary International Limited (DIL). TPL and DIL were circuit board manufacturers. D1 and D2 are long term friends.

3.  Between 2005 and 2007, in the form of invoice financing or import loan applications, TPL applied and obtained various loan facilities from four different banks in Hong Kong including DBS Bank ( Hong Kong) Limited (DBS), Citibank N. A., Hong Kong branch ( Citibank), the Hong Kong and Shanghai Banking Corporation Limited ( HSBC) and the Dah Sing Bank Limited ( Dah Sing). In August 2007, DIL also obtained loan facilities from HSBC in the form of import loans.

PCL

4.  At the material time, D2 was a director and shareholder of Plentiful Chemical Limited (PCL) which engaged in the business of trading dyes. Between 2006 and 2007, PCL applied for and obtained various loan facilities in the form of letters of credit from the Hang Seng Bank Limited (HSB) and Wing Hong Bank Limited (WHB).

YFL

5.  At the material time, D3 was a bank signatory of Yee Fung Company Limited (YFL) which was also a company trading in dyes. He had been put forward to the banks as a manager of YFL. Between 2006 and 2008, YFL had obtained loan facilities from Citibank in the form of invoice financing and HSBC in the form of import loans. D3 signed all relevant documents. He is the son of Lau Man Kit (Liu Min Gin in bank documents) who is the founder of YFL and ran the company at the relevant time. Lau is a long term, close friend of D2.

Applications for loans under the loan facilities

6.  All applications for loans had to be submitted together with relevant purchase invoices, delivery notes or cargo receipts and trust receipt if appropriate, in support of the underlying commercial transaction.

Signatories to Companies’ Bank Accounts

7.  At the material time, D1, D2 and D3 were the authorized signatories of the bank accounts of the relevant companies. They had signed the application forms, purchase invoices, delivery notes or cargo receipts and trust receipts, if appropriate, to support the loan applications the subject of the charges.

Charge 1

8.  Between 26 May 2005 and 4 July 2007, under the instructions of  D2, staff of  PCL prepared false invoices and delivery notes and issued them to TPL purporting to show that TPL had purchased goods from PCL. Upon receiving the false invoices and delivery notes issued by PCL, D1 instructed his staff to prepare and submit 5 false loan applications to draw down the loan facilities granted by DBS, Citibank, DS Bank and HSBC, using the false invoices and delivery notes.

9.  Pursuant to the applications, a total sum of HKD3,891,005, was released to PCL. PCL in turn issued cheques signed by D2 to D1 or TPL to revert the funds in whole or in part to D1 or TPL.

Charge 2

10.  Between 7 August 2007 and 9 August 2007, on the instructions of D2, his staff  prepared a false invoice which was issued to DIL purporting to show that DIL had purchased goods from PCL. Upon receiving the false invoice issued by PCL, D1 instructed employees of DIL to prepare and submit false loan application supported by the false PCL invoice to draw down a loan under the loan facilities arrangement made with HSBC.

11.  Pursuant to the false application HKD1,801,800 was released to PCL. PCL then issued cheques signed by D2 to revert the money to DIL

Charge 3

12.  Between 10 March 2006 and 20 February 2008 under the instructions of D2, staff of PCL prepared false invoices and delivery notes issued to YFL purporting to show sales of goods by PCL to YFL. These documents were used to support 15 false loan applications in the sum of HKD24,307,040 to PCL. The funds received by PCL were later returned  in whole or in part to YFL.

Charge 4

13.  Between 14 May 2006 and 23 May 2007 , D2 and D3 had conspired to issue false TFL invoices and delivery notes purporting to show the purchases of goods by PCL from YFL. These documents were used to support 6 false loan applications from HSB and WHB to release a total sum of HKD6,973,000 to YFL.

14.  The three defendants were arrested on 11 February 2009.

15.  In respect of each of the 27 transactions loans were applied for purportedly in relation to the purchase of goods by the applicants from suppliers referred to in the applications.  There were invoices supplied to support the applications. In many cases, within a short time of the purported suppliers bank accounts being credited for the amount applied for, the supplier returned the loan amount to the applicant. Sometimes the amounts differed slightly because of bank charges. In some cases the amounts returned are split into two or more amounts. In some of the transactions, a sum is kept by the beneficiary and the loan funds only partly returned. In relation to some transactions the amount of the loan was returned by the beneficiary after taking out his own false loan naming the original applicant as the beneficiary. The main purpose of the loan applications was not to fund the commercial transactions described in the bogus documentation supplied to the banks, but to provide cash flow, capital, which the applicants could use for their own purposes.

16.  In each case, PCL was either a beneficiary of a loan or an applicant for a loan. PCL was the beneficiary in 21 of the 27 transactions.

17.  The  bogus loan applications were made by TPL in the sum of  HKD3,891,005,  for DIL in the sum of HKD1,801,800, for YFL in the sum of  HKD24,307,040 and for  PCL in the sum of HKD6,793,000.

18.  All the monies together with interest and bank charges were repaid to the relevant banks before these proceedings were commenced

19.  The defence contended that the loan applications related to genuine transactions which took place on the mainland between companies owned by the Hong Kong companies involved in these proceedings. D2 produced documentation in relation to each of the 27 transactions which purported to support that contention. I was satisfied so that I was sure that there were no genuine underlying transactions on the mainland and that the documentation produced by D2 was prepared for the purpose of these proceedings.

20.  On behalf of D3, who was not a director of any of the companies concerned, it was submitted that there was insufficient evidence to connect him with either of the conspiracy charges he faced.

21.  All the defendants had clear records.

Background of the defendants

D1

22.  D1 is now 63. He was born and educated in Hong Kong to Form 5 level. He is married with two children aged 35 and 32. He has a detached retina and cataracts.

23.  TPL was established in 1975 and DIL in 1980. Because of this case business turned bad and both companies have now collapsed. D1 was obliged to sell his matrimonial home to repay his debts and legal expenses. He now owes a considerable amount of money to friends and relatives.

24.  Three references were supplied to the court, one from one of his children and two from respected members of the business community who have known the defendant for a long period of time. They both speak highly as to the good reputation held by the defendant in the business community and the detrimental effect these proceedings have had upon him.

25.  It was urged upon the court that any period of imprisonment will be lengthy for a person of the defendant’s age. I was reminded that many facts had been admitted by the defendant during the course of the trial.

D2

26.  D2 was born in Taiwan in 1950 and his family moved to Hong Kong when he was aged 2. He was the fourth of 7 children and educated to form 2 and left school at age 16. He then worked as an office boy and later became a maintenance engineer in a textile factory studying part –time in the evenings. He was sent to Taiwan to work in a mill factory and progressed through the ranks. He returned to Hong Kong and took up employment with YFL working for the father of  D3 for over 20 years. In 1987 he migrated to Australia with his first wife and two sons who are now in their late 30’s. He now has a stepson of 14 by his second marriage.

27.  Counsel submitted that although the amount involved in the 27 transactions totaled in excess of HKD30 million, at any one time the banks’ exposure to risk was less than one tenth of that amount as fresh loans were taken out to retire previous loans.

28.  I was informed that as regards the  two PCL  banks involved, they had been provided with collateral security in respect of loans. With regard to the HSB account a time deposit of over HKD6 million had been pledged in addition to a property valued at HKD1.2 million. As for the WHB, this was secured by a property worth around HKD8 million which was subject to a mortgage of HKD3.2 million.

29.  I was informed that at the earliest opportunity, D2 had let the prosecution know that much of the prosecution case was not in dispute and a substantial part of the prosecution case was agreed.

30.  It was urged upon the court that from humble beginnings, D2 had built up a substantial business which in 2000 employed about 1000 persons. PW5 described D2 as a really nice man and a character witness was admitted during the trial. D2 has been made substantial charitable donations and held political influence on the mainland.

D3

31.  D3 is now aged 42. He  emigrated to Australia  with his family as a youth and graduated in Civil Engineering in 1995. He worked as a civil engineer until 2001 when as a result of an accident he broke his arm which took 6 months to recover. He is a licenced stock broker and traded stocks until 2009.

32.  D3 is married with 2 sons aged 4 and 2.

33.  In relation to the offences, counsel urged upon the court that although bank documents described the defendant as a manager, the company was run by his father and his brother was a director.  PW5, who had dealings with YFL only dealt with a YFL clerk called Lorin Sue, not the defendant. There was no evidence that he benefitted from the enterprise.

34.  D3 admitted most of the prosecution case and there was very limited cross-examination of any of the prosecution witnesses on his behalf.

The offences

35.  Clearly the charges are serious and involve substantial sums of money. The whole system of documentary credit depends entirely on trust.  All such credit frauds are serious. The integrity of the whole documentary credit system would be undermined if a firm response was not taken towards such frauds and substantial sentences of imprisonment imposed on offenders.

36.  To facilitate the movement of funds between the three companies involved in this case, there must have been a high degree of consultation, planning, trust and cooperation between the three companies.

37.  All the monies were repaid to the banks concerned together with bank charges and interest. The offences were committed over a period in excess of two and a half years and there were a total of 27 transactions.

38.  The honesty and integrity of PW3 and PW5 and other accounting staff involved in the preparation of the bogus documentation was substantially compromised. There was no suggestion that they had ever benefitted from the fraud. There would appear to have been a cynical assumption by the conspirators that such staff  would participate in this illegal scheme and simply follow the instructions of their bosses.

39.  Unlike D1 and D2, D3 was not a director of  the company on whose behalf  he signed documentation. His father ran the company and his brother was a director. He was described in bank documents submitted to the relevant banks in May and June 2005 as a manager. Over a period of  nearly two years, he signed relevant bank documentation for all the transactions involving YFL and he was also the contact person for most of the transactions covered by charge 3. He has been educated to tertiary standard.

40.  I took account inter alia of the repayment of all the monies, the amount of  the banks’ exposure to loss at any one time, the ages of D1 and D2 and that D3 was not a director of  YFL.

41.  There is no tariff for these offences.

Sentences

42.  As regards the first charge I take the view that a sentence of three years is appropriate and I impose that sentence on D1 and D2.

43.  With regard to charge 2, I impose a sentence of 2 years imprisonment on D1 and D2 and order that it should run concurrently with the sentence on Charge 1.

44.  With regard to Charge 3, I impose s sentence of 4 years on D2 and three and a half years on D3. For charge 4, I impose a sentence of three and a half years on D2 and three years on D3 and order that such sentences shall run concurrently with the sentences imposed on Charge 3.

45.  I have considered the question of totality in relation to D2 who was involved in all 27 transactions. I have decided that 18 months of the sentence on charges 3 and 4 shall run consecutively to the sentences imposed on charges 1and 2. The total sentence to be served by D2  will therefore be four years and six months.

46.  D1 will go to prison for three years and D3 will go to prison for three years and 6 months.

47.  I have decided not to exercise my discretionary power under the Companies Ordinance to impose a period of disqualification on the defendants becoming company directors.