HKSAR v. BALANI ATMARAM PARSHOTAMDAS AND ANOTHER

DCCC 835/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 835 OF 2013

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Reasons for Sentence
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1.  I have adjourned to today the mitigation and sentence of both the 2nd and the 3rd defendants. The 2nd defendant pleaded guilty before trial to two charges: Charges 2 and 4. The 3rd defendant was found guilty after trial of Charges 1 and 2. The 1st and 4th defendants were acquitted after trial.

2.  Charge 1 is a conspiracy to falsify the accounts of Anglo Starlite.  Charge 2 is a conspiracy to defraud the Commissioner of Insurance by dishonestly and falsely representing that the accounting records of Anglo Starlite were accurate.  Charge 4 is a charge of using false instruments.

3.  I do not intend to repeat the facts of this case.  I gave full details in my verdict.  However, in short, Anglo Starlite Insurance Company Limited was an insurance company incorporated in 1975, as an insurer mainly dealing with motor vehicle insurance.  The 2nd defendant started this family-owned-and-run company and was at the helm of this company at all material times.  I found he controlled all financial aspects of the company.

4.  The 3rd defendant was his secretary but had started at the company as an accounts clerk.  It was not until 2006 when she became the 2nd defendant’s secretary.

5.  As an insurance company, Anglo was subject to the regulations of the Office of Commissioner of Insurance (OCI).  It had to keep a required level of cash assets in accounts where the OCI was also an authorised signatory.  That way, the Commissioner could ensure assets and solvency levels were maintained.  The Office had to ensure the insurance company could cover all claims and remain solvent.  It had the power to require such companies to make capital injections as well as comply with many regulatory measures to protect consumers. 

6.  Anglo clearly got into financial difficulty in or around 2006.  The 2nd defendant decided to hide this from the Commissioner.  The only way to do this was to falsify the accounts to make the company look solvent and cash-rich in the form of fixed time deposits and capital injections.

7.  To show these in accounts, there had to be a paper trail, and false fixed deposit confirmation advices were made and passed off as genuine.  ICICI Bank letterhead stationery was made up or printed up and used to make these false DCAs.  In addition, some capital injections were created by circular fund flow movements which meant the injections were not authentic but money taken out, circulated and reinvested into Anglo. 

8.  More false supporting documents were created. Once time deposits matured, false documents were created to deal with this, and they were either “renewed” when matured or sums were disposed of according to the false documents and entries. 

9.  The nature of fixed time deposits meant the document trail had to be perpetuated to keep up the conspiracy.  The prosecution allege a conspiracy between the 2nd defendant and other employees of Anglo.  After trial, the only other conviction was that of the 3rd defendant.  There was evidence in the form of an accomplice giving evidence under immunity who implicated only the 2nd and 3rd defendants. 

10.  PW7, a computer programmer in Anglo, gave evidence.  The 2nd defendant instructed him to make false DCAs using ICICI Bank letterhead and later repeated those instructions on numerous occasions.  He would give him an amended DCA.  Amendments included dates, amounts and interest rates, and asked him to create new documents accordingly.  His evidence was that on some 20-odd occasions, the 3rd defendant asked him to do the same thing, acting on the 2nd defendant’s instruction.  The 3rd defendant also arranged PW7 to contact a printer on behalf of the 2nd defendant. That printer printed ICICI Bank letterhead stationery on at least two occasions.

11.  I accepted PW7’s evidence which proved that the 3rd defendant had knowledge of the false DCAs and was involved in the agreement to falsify accounts and defraud the Commissioner of Insurance.

12.  The 2nd defendant’s motive is obvious, the 3rd defendant’s less.  I see no evidence of any real benefit except that she kept her job until May 2009.   

13.  The conspiracy came to light when the OCI received complaints that Anglo was not honouring claims awarded.  This rang alarm bells in the OCI when on paper Anglo was solvent and had sufficient funds on deposit to cover those awards.  This caused the OCI to investigate.  They asked Anglo for proof of the fixed time deposits and an explanation.  At the same time, they approached ICICI Bank and were told that Anglo had no substantive fixed time deposits as claimed.  OCI did not tell Anglo of this finding but asked for DCAs to be produced.

14.  The 1st defendant went to a meeting at the OCI’s office and passed DCAs to the OCI for inspection.  Later, the 2nd defendant produced the same DCAs on demand in his office, the subject matter of Charge 4. 

15.  Once the OCI was sure Anglo had misled the Office and clearly falsified their accounts, they took over the office of Anglo on 5 May 2009.  The Commissioner instructed joint managers from PricewaterhouseCooper to take over Anglo’s affairs.  The police were also informed. 

16.  Anglo was placed into liquidation not long after, which meant the Motor Insurance Bureau (MIB) was duty-bound to take over all claims liability from Anglo due to its insolvency status.  According to the prosecution, the MIB has to date paid out $862,401,311.  That is a vast amount of money.  Even if the 3rd defendant’s mitigation that Anglo had over $200 million in time deposits with the Insurance Authority and presumably taken to set off payments made by MIB, that would still be over $600 million MIB has had to pay out.  I cannot ignore such a significant amount or liability foisted on the MIB.   

17.  The 2nd defendant was arrested on 5 May 2009, the 3rd defendant about a month later.  The charges were not laid until 19 March 2013, and the first day of trial was 20 April 2015. Nearly six years passed from arrest to trial.  The reasons for this time lapse have been provided today by way of a chronology, MFI13.  It explains delay, and I accept offences of this nature are often so complex that investigation is lengthy. 

18.  However, here six years have passed between arrest and trial.  The defendants are six years older, the 2nd defendant’s health has deteriorated, and the 3rd defendant has established a family with two young children reliant on her.  There is no evidence that the defendants caused any of the delay.  I am sure the delay here is caused by the complexity of the case and the fact two teams of investigators were involved one after the other.  That would naturally lead to a delay and is undesirable.

19.  There are gaps in the chronology not explained fully.  For example, a gap of 25 months between material from Macau banks received pursuant to the Mutual Legal Assistance Unit of the Department of Justice and a further request for missing documents and details.  The investigation was not dealt with in a timely manner.

Mitigation of the 2nd Defendant

20.  The 2nd defendant is now 72 years old.  I have been told that he suffers from multiple health issues, but at the moment his health is stable.  He is not suffering from any chronic or terminal condition.  The first medical report I called for is marked MFI9 and when that was not sufficient in detail, I called for a second report, MFI10.  That includes a medical report from Queen Mary Hospital and Queen Elizabeth Hospital.

21.  Whilst in remand, the defendant has had to make several hospital visits.  Nonetheless, his condition is deemed stable.  His medical problems include hypertension, diabetes, heart disease, sleep apnoea, a prostate issue, and he has previously had heart surgery with stents inserted. Although his condition is said to be stable, clearly, a term of imprisonment will bring added hardship to the 2nd defendant because of his physical condition and health issues.  

22.  I have heard full mitigation on behalf of the 2nd defendant.  He previously had a clear record.  I have been shown letters of support from charitable organisations which demonstrate the 2nd defendant is a generous man with charitable tendencies.  There are also letters of mitigation indicating the 2nd defendant is a respected member of the local and the Indian community in Hong Kong.  All those letters are in MFI11.  

23.  Mr Lau has said all he can on behalf of the 2nd defendant.  His plea does indicate remorse and, obviously, he will be accorded the usual discount for his plea.  Mr Lau has set out what is relevant to consider for sentence.  Those factors include the defendant’s previous good character, the delay in prosecuting the 2nd defendant, and the 2nd defendant’s health condition as it is now.  Mr Lau explains that the 2nd defendant committed these offences to keep the company going as it was his whole life and also to secure his employees’ employment.  It clearly was a situation that once created snowballed.  There was no stopping the deception, conspiracy or fraud once started unless there had been a very large capital injection.   

24.  The 2nd defendant accepts that he is the mastermind and regrets bringing others trouble.  He certainly stood to gain the most.

25.  Despite his regret and remorse, I cannot ignore the stark fact that his actions threatened many and put at risk claims legitimately expected to be honoured.  Regulations governing insurance companies are strict and extensive for a reason: they protect consumers.  The 2nd defendant displayed a blatant disregard to the law and his obligations.  When it was necessary to cover up deficits or boost assets, he did it by fraudulent means designed to pull wool over the eyes of the Commissioner.  Sadly, the 2nd defendant has suffered a massive fall from grace.

26.  I turn to mitigation of the 3rd defendant. The 3rd defendant has a clear record and is now 44 years old.  She began working at Anglo in 1998.  She is married with two children.  Her first child was born in December 2008 and is now 6, and her second child is now 4.  I accept the 3rd defendant was not the instigator or mastermind nor did she stand to benefit substantially. 

27.  She is in a very different position to the 2nd defendant.  I have been told that the 3rd defendant is a very hands-on mother, no longer works but is heavily involved in her children’s school, their activities and certain charitable causes.  I have been told she is a devoted mother, wife and daughter-in-law.  Her mother-in-law is wheelchair-bound and visited daily by the defendant.  I have seen photographs of her family and drawings from her children.  I will not ignore the fact that since the offences began, the defendant has had two children, and her second child was born after she was arrested.  The situation now is very different from what it was in 2006.

28.  Mr Surman on the 3rd defendant’s behalf has said it is very relevant to consider her previous good character, her conduct since her arrest, her change in the family circumstances since the offences began and her arrest as well as the delay in prosecuting the 3rd defendant.  Mr Surman has urged the court to consider a suspended sentence.  He has done his utmost to convince me that it would be appropriate.

29.  However, I cannot ignore the fact that the defendant was convicted after trial.  I cannot ignore the fact that the consequences of the conspiracy and fraud led to payouts of over $800 million by MIB.  I found the defendant had full knowledge and assisted in perpetuating the offences for several years.  This is not a case of one false document on a single occasion.  I have considered the authorities produced and referred to by Mr Surman to support his submission.

30.  Sentencing is not an exact science but it is a balancing act, and I am well aware that the loss of one’s liberty is amongst the worst of consequences that can happen to any person.  I have to consider punishment against rehabilitation.  I am sure neither defendant will reoffend.

31.  Where the 3rd defendant is concerned, I have thought long and hard over the past week whether a suspended sentence is appropriate, and in all the circumstances of this case and as sympathetic as I am to the 3rd defendant as a mother and her children, I cannot find a suspended sentence appropriate.

32.  There are no guidelines for these offences. These facts are unusual, and I am sure no insurance company again in Hong Kong will go under in such a spectacular manner with such far-reaching consequences.  I have taken into account all mitigation put forward, both defendants’ backgrounds, family situation and health conditions. I will consider delay as relevant and a powerful consideration. 

33.  Accordingly, where the 2nd defendant is concerned, Charge 2, I will take a starting point of 5 years’ imprisonment.  The 2nd defendant has pleaded.  He is entitled to a discount of one-third, and after that discount, for Charge 2, 2nd defendant is sentenced to 3 years and 4 months.

34.  Charge 4, I take a 3-year starting point. After a discount of one-third, the 2nd defendant is sentenced for Charge 4 to 2 years’ imprisonment.

35.  I have considered the totality principle, and I order 6 months of Charge 4 to run consecutively to Charge 2 and the balance concurrent.  Therefore, the total sentence is 3 years and 10 months.

36.  For the 3rd defendant, for Charges 1 and 2, I take a starting point of 2 years’ imprisonment.  Both will run concurrently. Defendant is sentenced to 2 years’ imprisonment.  

37.  As I have said, I find delay although not in itself a mitigating factor but warranting here a further reduction in the sentence.  I take into account that in that period of delay, the 2nd defendant’s health deteriorated, as I said earlier, making any term of imprisonment more of a hardship than if he was in better health.  I take into account the 3rd defendant’s change in family circumstances in that period of delay, and although her two young children have their father to continue to care for them, an act of mercy in the form of a discount for the delay is appropriate in my view. 

38.  Accordingly, I will discount the defendant’s sentence I have just imposed by a further 9 months.  The 2nd defendant therefore is sentenced to 3 years and 1 month, and the 3rd defendant’s total sentence is 15 months.