HKSAR v. XU XIA LI AND ANOTHER

CACC 395/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL APPEAL NO. 395 OF 2003

(On Appeal from DCCC 273/2003)

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J U D G M E N T

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Hon Woo VP (handing down the judgment of the Court)

1. This is an application by the two applicants for leave to appeal against sentence, they having earlier abandoned their application for leave to appeal against conviction.

Background

2. Each of the applicants was convicted by Judge Wright in the District Court of a single charge of conspiracy to deal with property known or believed to represent the proceeds of an indictable offence, contrary to section 159A of the Crimes Ordinance, Cap 200 and section 25(1) of the Organised and Serious Crimes Ordinance, Cap 455. The judge sentenced each applicant to a term of 3 years' imprisonment.

3. The particulars of offence against each applicant was that between 15 October and 24 October 2001, she conspired with Kwong Wa-po ("Kwong") and other persons unknown, to deal with a sum of money, knowing or having reasonable grounds to believe that the sum of money, in whole or in part directly or indirectly, represented a person's proceeds of an indictable offence. The offence is commonly known as money laundering. The sum in which the 1st applicant was involved was found by the judge to be $11 million whereas the judge found the 2nd applicant to have laundered $3 million.

4. The judge found the following facts occurred in the period set out in the charge. On 14 October 2001, the 1st applicant flew back to Hong Kong. She opened a bank account in Hong Kong to deposit in it a cheque for $11 million from Kwong. She then left Hong Kong for Canada and stayed in the 2nd applicant's house. The 2nd applicant had been a cohabitant with Kwong for over 5 years. She was then living in a house in Canada provided by Kwong. The 2nd applicant came to Hong Kong together with the 1st applicant on 22 October. She received transfers from Kwong's account into her bank account and effected a total of 12 transactions involving 6 bank accounts for the purpose of dissipating the money provided by Kwong. The judge found the sums of money that she received from Kwong totalled $3 million. In the same period, the 1st applicant effected a total of 16 transactions in 5 bank accounts to dispose of the $11 million. The applicants were arrested when they were leaving for Canada on 25 October 2001.

5. As to the involvement of the applicants, the judge found:

"...each Accused was perfectly willing to lend her assistance to a scheme that would result in funds derived from criminal activities being dealt with in such a manner so as to result in the proceeds being delivered into KWONG's hands, in Hong Kong or overseas, or to others acting on his behalf."

Grounds of Appeal

6. On behalf of the applicants, Mr James McGowan raises five grounds of appeal.

Ground (1)

7. Ground (1) alleges that the judge erred in selecting 3 years' imprisonment as the starting point for each applicant, particularly given his finding that the applicants themselves lacked the specific personal mens rea required for the offences. This ground is based on what the judge said in paragraph 6 of his Reasons for Verdict, as follows:

"6. It can do no harm to emphasize at this early stage that, there being no proof beyond reasonable doubt of actual knowledge, the issue is not whether each Accused believed that the property she would handle represented the proceeds of an indictable offence but whether there were reasonable grounds for the holding of such a belief. See Seng Yut Fong v HKSAR [1999] 2 HKC 833 @ 837E where the Appeal Committee of the Court of Final Appeal was dealing with an identical provision in the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap. 405. The test has been considered on a number of occasions. It involves answering two questions "namely whether, objectively, reasonable grounds existed for the belief and, if so, whether subjectively the defendant was aware of the existence of those reasonable grounds." Per Mayo, VP in HKSAR v YAM Ho-keung CACC 555/2001."

8. Mr McGowan relies heavily on the judge's conclusion in the Reasons for Verdict, albeit expressly regarding the 2nd applicant, that was applicable to both applicants:

"51. There can only be one inference, the irresistible inference, that can be drawn from the facts that I have outlined, particularly that she came especially to Hong Kong to move large sums of moneys out of her accounts and dealt with funds which, on her evidence, could not have been hers - that she had reasonable grounds to believe a number of scenarios at least one of which must have been that the moneys were the proceeds of crime."

9. When addressing us, Mr McGowan clarified that this ground does not mean that each of the applicants lacked the mens rea required for the offence, but rather that her mental culpability of "having reasonable grounds to believe ... that the moneys were the proceeds of crime" as found by the judge, was less than that of a money launderer who actually knew that the funds were proceeds of crime.

10. Mr McGowan has referred us to five cases of money laundering in support of the five grounds of appeal in the present case. In these five cases there were findings by the courts regarding the crimes that produced or were supposed to produce the proceeds which had been laundered. These authorities are set out chronologically according to the date of decision:

(1) In HKSAR v Hui Kam, HCMA 778/2000 (27 September 2000, unreported), the appellant pleaded guilty before a Magistrate to having laundered $6.5 million on behalf of her elder brother that represented proceeds of bookmaking activities on Hong Kong horseracing. Deputy Judge Chu (as she then was), on appeal by the appellant, held that 15 months was the appropriate starting point. Taking into account that the appellant committed the offence at the behest of her elder brother, her clear record and that she did not have any personal gain, the Judge further reduced the sentence of 10 months (a 1/3 discount having been given for the guilty plea) to 6 months' imprisonment.

(2) In HKSAR v Wong Ping Shui, Adam and Anor, CACC 251/2000 (15 December 2000, unreported), both applicants were sentenced to terms of 5 years' imprisonment for a conspiracy to launder money. The offence was exposed by an ICAC undercover agent who represented that the funds to be laundered were from protection or extortion and prostitution activities in Russia. The plan suggested by the applicants to the agent was for the transfer of substantial sums of money from such activities to casino operators in Hong Kong and Macau who were to take a 9% commission before returning the balance of the money duly laundered. While the application for leave to appeal against sentence was abandoned at the hearing before the Court of Appeal, the Court stated that the sentence of 5 years' imprisonment was "not one day too long".

(3) In HKSAR v Mak Shing, CACC 322/2001 (18 September 2002, unreported), the applicant was convicted of 3 counts of money laundering and was sentenced to 4 years' imprisonment on each count, concurrent. He had been approached by an acquaintance to launder proceeds of smuggling cigarettes in China. The amounts involved totalled $1.5 million, but they were in fact proceeds of thefts which had occurred on the Mainland.

(4) In HKSAR v Lam Hei Kit, CACC 84/2003 (9 January 2004, unreported), the applicant was convicted after trial in the District Court of two offences dealing with property known or believed to represent the proceeds of an indictable offence and two offences of possessing unlawfully obtained travel documents. He was sentenced to concurrent terms of 2 years' imprisonment in respect of the two money laundering offences and 3 years' imprisonment in respect of the travel documents offences, two years of which were made consecutive. Although the Court of Appeal only dealt with the applicant's application for leave to appeal against conviction, it can been seen from the judgment that the money laundering offences involved 9 cash deposits totalling HK$1.78 million and 19 cash deposits totalling sum US$120,000.00. The sums seemed to have come from the applicant's elder brother, obtained from smuggling of illegal immigrants.

(5) In HKSAR v Cheung Kam Lun, CACC 15/2003 (2 April 2004, unreported), which was also a case involving an undercover agent, the applicant was found guilty of entering into a conspiracy with certain persons whom he understood to be in the business of smuggling illegal immigrants. He proposed a method to launder the monies, said to total $5 million, through Macau casino operations for earning a commission of 2% of the amount laundered. The Court of Appeal refused to interfere with the sentence of 3 years' imprisonment adopted by the trial judge, which was imposed on the applicant. The Court of Appeal said:

"It must be remembered that in the present case the Applicant was to play a pivotal role in the execution of the scheme, one which, to repeat the observations of the trial judge, was sophisticated in its nature, difficult to detect and inter-jurisdictional."

11. It can be seen from the 5 cases cited above that the accused in each either knew or believed that the money they laundered or conspired to launder came from or was believed to have come from different criminal activities. It appears that no particular significance was attached to the kind of criminal activities which produced the proceeds. The offence of which the accused persons were convicted was the same as that of which the applicants before us were found guilty. It related to laundering money which the defendant knew or had reasonable ground to believe came from an indictable offence. By the nature of the offence itself, in our judgment, the nature of the indictable offence from which the money was derived should be of no particular significance in sentencing, save that if the defendant knew that the money was derived from very serious crimes, it would be an aggravating feature to be taken into account in sentencing.

12. However, Mr McGowan contends that the mental culpability of a money launderer based only on reasonable belief of the source of the money should be less serious than that based on actual knowledge.

13. Mr Robert Lee, for the respondent, submits that section 25(1) of the Organised and Serious Crimes Ordinance does not attach different culpabilities to the two types of mens rea, and that the provision is intended to cast a wider net in order to be able to combat such an insidious evil more effectively. Moreover, if a money launderer is clever enough not to seek to be apprised of the source of the money to be laundered, there should not be any reasonable justification for him to be punished more leniently than one who had asked and got to know. We agree.

14. Further, in his Reasons for Sentence, the judge said:

"4. The evidence clearly establishes that each Accused had reasonable grounds to believe, from the outset, that the moneys which she was being asked to process emanated from criminal activities. I accept that there was no direct evidence as to just what indictable offence it was from which each believed the proceeds which she handled to be derived but the circumstances in which the moneys were made available to them as well as the amounts of money themselves would have made it perfectly plain that these were substantial offences."

15. We do not accept Mr McGowan's contention that the judge was not justified in this observation in the light of what he said in paragraph 51 of his Reasons for Verdict (cited in para 8 above). The judge did not need to make any finding of the indictable offence from which the monies laundered by the applicants were derived in convicting them, and he did not take into account the nature of such indictable offence in sentencing. We do not see anything wrong with that. Ground (1) fails.

The starting point

16. It is convenient at this juncture to deal with the starting point of 3 years' imprisonment adopted by the judge in the present case. As was said in Mak Shing, "There are no guidelines for offences of this nature. The reason for this being that the circumstances of each case may vary almost infinitely."

17. It will be noted that the starting point of 15 months' imprisonment adopted by Deputy Judge Chu was the most lenient sentence imposed on money laundering, as compared with the four other cases. That was a sentence imposed in September 2000. In December 2000, in the case of Wong Ping Shui, for a conspiracy to launder substantial amounts believed to derive from protection or extortion and prostitution in Russia through the use of casino operations, for a 9% commission, the starting point of 5 years' imprisonment was used. The other 3 cases that were decided subsequently showed the range between 2 years and 5 years as the starting point. It is to be noted that in Lam Hei Kit, the 2 years starting point was adopted in a case where the applicant was also charged with possession of travel documents unlawfully obtained, which separately attracted a term of 2 years' imprisonment consecutive to the 2 years imposed on the laundering offences. One cannot, therefore, say that the starting point adopted by the judge in the present case of 3 years' imprisonment was out of line with the cases cited.

18. The prohibition of the offence is in order to strike at those who give assistance to criminals to dispose of or retain their ill-gotten gains as if they were derived from legitimate activities. Without the assistance of money launderers, it would be more difficult for criminals to clothe their illegal proceeds with the same respect as lawful gains and the chances of law enforcement detection of illegal activities that produce monetary benefits would be enhanced. Money laundering is therefore treated as a serious offence. If money laundering activities were allowed to be carried out in Hong Kong with impunity or treated lightly with minor penalties it would mar Hong Kong's reputation as a world-class financial and banking centre. We consider that the sentence of 3 years' imprisonment after trial imposed by the judge cannot be criticised for being too harsh in the circumstances or against principle or in any way manifestly excessive.

Ground (2)

19. Ground (2) alleges that the judge erred in failing to ascribe any, or sufficient, credit for the applicants' close personal relationship with Kwong, their alleged co-conspirator.

20. As we said before, the judge did find that the 2nd applicant had been for 5 years a cohabitant of Kwong and that the 1st applicant was a close acquaintance of Kwong and the 2nd applicant. Mr McGowan tells us that the 1st applicant's brother was married to Kwong's sister.

21. Reliance is placed by Mr McGowan on what Deputy Judge Chu said in Hui Kam as follows:

"I consider that a starting point of 15 months is both just and proper. Allowing a 1/3 discount for the guilty plea and further reductions to reflect the Appellant's clear record, strong family support and the fact that she was made use of by her brother and she derived no personal gain from the offence, the appropriate sentence is one of 6 months' imprisonment."

22. Apart from Hui Kam's case, where Deputy Judge Chu took into account the fact that the appellant was made use of by her brother, Lam Hei Kit's case was also one where the applicant laundered the illegal monies from his elder brother. However, in Lam Hei Kit, no credit was given for that matter in sentencing.

23. In our judgment, the relationship between that the defendant and the person who conspired with him or directed him to launder the money should normally not feature as a mitigating factor in sentencing, unless the relationship is such that the defendant was subjected to undue influence or influence close to that. Rather, the commission of a laundering offence for the purpose of personal gain, such as the situation in Wong Ping Shui (9% commission) and Cheung Kam Lun (2% commission), or as a commercial operation, should be considered as an aggravating factor in sentencing.

24. Here although the judge appears to find that the 1st applicant committed the offence for personal gifts from Kwong, either past gifts or expected future gifts, he had not taken into account that matter to impose a heavier sentence. This point does not inure to the benefit of the 1st applicant. Regarding the 2nd applicant, there is no evidence that she was subjected to any pressure or undue influence from Kwong to commit the offence.

25. Ground (2) fails.

Ground (4)

26. Ground (4) complains that the judge erred in failing to take into account the effects of the civil proceedings brought by the Bank of China on "the applicants' past, present and future".

27. This ground is cryptic but for the explanation given in Mr McGowan's skeleton arguments. The applicants are named defendants together with Kwong and the 1st applicant's elder brother in actions brought by the Bank of China in Hong Kong and Canada seeking the recovery of the monies allegedly stolen by the 1st applicant's elder brother and others, damages and costs. Moreover, Mareva injunctions have been obtained in Canada and Hong Kong effectively freezing all the applicants' assets in both jurisdictions, and indeed worldwide. These matters had been mentioned to the judge in mitigation, but the judge did not take them into account in sentencing.

28. Mr McGowan has moved this court to admit evidence of the Mareva orders and a statement of claim of the Hong Kong action, which were not before the judge. We have read them de bene esse.

29. Mr McGowan's point appears to be that the applicants will be blighted for the rest of their lives as a result of the civil actions, and that this should be a matter of hardship to be taken into consideration to reduce sentence. He refers us to the statement of claim whereby a claim for almost $8 million was made against the 2nd applicant and a claim for $11 million was made against the 1st applicant. The $8 million claim covered a longer period than that of the conspiracy charged in this case. The contention seems to be that as the applicants had dissipated the money, their having to face the civil claim should be considered as hardship justifying a certain reduction in sentence.

30. In our judgment, the simple answer to ground (4) is no. There can be no justification for the applicants to say or feel that their lives or monetary affairs have been affected. The monies that the applicants had laundered did not belong to them and that is the basis for the injunctions and civil claims. The civil claims will be determined, in due course, in accordance with their own merits. The applicants have to face the claims because of what they had done to the moneys, and this cannot be regarded as a mitigating factor in sentencing.

31. Ground (4) has no substance and is rejected. On this basis, the motion to admit the new evidence is denied.

Grounds (3) and (5)

32. Ground 3 complains that the judge gave no credit in sentencing for the clear records of the applicants. Ground 5 alleges that the judge failed to give any credit for the manner in which the defence was conducted at trial.

33. Regarding these two matters, the judge said:

"There was agreement in respect of portions of the evidence: It was, of course, in the Accused's own interests to conclude those agreements. None of this is a factor which warrants specific reduction from the proper starting point."

"The 1st accused has a clear record. The 2nd accused has two previous convictions, totally unrelated to the present matter, which occurred years ago when a juvenile. It may be a generous approach but, given the nature of the offences, the lapse of time and the age when the offences were committed, I propose to disregard that record. This is a matter which I take into account in determining the starting point."

34. Mr McGowan pointed out that in Hui Kam, Deputy Judge Chu gave credit to the appellant before her for his clear record. In para 34 of Cheung Kam Lun's judgment, the Court of Appeal recorded the fact that the trial judge in that case deducted 3 months from the starting point of 3 years' imprisonment in recognition of the applicant's ill health and clear record. In Mak Shing, the Court of Appeal accepted that the trial judge appeared not to have taken into account the applicant's previous good character in passing sentence. The Court of Appeal took into account the applicant's personal characteristics, that he had voluntarily gone to the police and provided them with the particulars of what had transpired about his activities, and the conduct of the defence to give a discount of 1 year from the appropriate staring point of 4 years' imprisonment. The conduct of the defence in Mak Shing was such that all the basic facts were agreed and the defence was confined to legal arguments whether the applicant could avail himself of the saving provisions in section 25 of the Organised and Serious Crimes Ordinance.

35. Although the admitted facts, consisting of five sets, were substantial in the present case, most of these facts related to the transactions involving the applicants' accounts that had gone through the banks. The applicants were defended by counsel at the trial and the issues they raised on behalf of the applicants involved mens rea as well as the admissibility of the 2nd applicant's record of interview. The issues were much wider than the limited issue in Mak Shing.

36. Mr Lee refers us to HKSAR v WU Pak Cheung, HCMA 261/2002 (28 June 2002, unreported), where Deputy Judge McMahon (as he then was) observed:

"7. In R. v. Vy Van Kien and Pham Van Hoa (1999) 1 HKLR 422, Penlington JA said at 427D that the questions to whether the savings of time and public expense representing a mitigating factor was essentially something for the sentencing magistrate to determine. That must be right. It may well be that a considerable shortening of the length of the trial of an offender by way of that offender agreeing much of the prosecution case can be a proper basis for mitigating his sentence when convicted.

8. But as said by Penlington JA, it is essentially a matter for the trial judge or magistrate. That is because the cooperation of an offender given at trial may well depend on a wide range of factors. For example, it may be that the prosecution evidence is effectively unchallengeable, such as often occurs in cases involving primarily banking documentation, or it may be, as seems to be the present case, that an offender presents his defence by way of an explanation contained either in his evidence or in a cautioned statement made by him to the police, or both, so that there is no challenge to the prosecution evidence."

37. Mr Lee submits that the bulk of what the applicants in the present case had admitted were bank documents which could in any event have been admitted by way of bankers' affidavits.

38. However, we are of the view that the agreement to the banking transactions did have the consequence of saving at least some time for the prosecution to proffer evidence on the same and also the time of the court in having to resolve any issue that may be raised on such evidence. Certain credit should be given on this score while the judge seemed to have disregarded it altogether. He merely stated that it was in the applicants' own interests to conclude the agreement of admitted facts, without specifying the reason why no credit in sentence should be given. Although the judge mentioned that he took into account the clear record of the applicants in determining the starting point, no specific credit was given. All in all, under these two grounds, relating to clear record and shortening of the trial by reason of the conduct of the defence before the judge, we consider that a discount of 3 months should be given.

Conclusion

39. For the reasons given above, we grant leave to appeal, on the basis of the matters raised in grounds (3) and (5). We treat the application as the appeal and allow the appeal. As said before, we reduce the sentence imposed on each of the applicants by 3 months. The sentence of 3 years on each applicant is therefore reduced to 2 years and 9 months' imprisonment. To that extent only, their appeal succeeds.