SECRETARY FOR JUSTICE v. DING SHAOXIONG

HCCP 22/2022

[2022] HKCFI 3379

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS (CRIMINAL) NO 22 OF 2022

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D E C I S I O N

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Introduction

1.  This is an application by the Secretary for Justice (SJ), under Order 117, Rule 3A of the Rules of the High Court, Cap. 4A, for a confiscation order pursuant to section 8 of the Organized and Serious Crimes Ordinance, Cap. 455 (OSCO), against DING Shaoxiong, the Respondent (“R”), as an absconder. 

Background facts

2.  The facts in support of the application are set out in the statement of Detective Inspector of Police TAM LOK YAN (TLY) dated 22 December 2021, made pursuant to section 10 of OSCO (S10 Statement), with supporting documents.

3.  Briefly stated, in October 2015, a Taiwanese woman fell victim to an investment fraud via FaceBook and she remitted USD75,100 into 3 accounts between 16 October 2015 and 4 November 2015.  USD35,000 was transferred on 23 October 2015 into an account number 848-745295-838 (the Account) held with the Hong Kong and Shanghai Banking Corporation Limited (HSBC) in the name of Hongjia International Holdings Co., Ltd (HIHCL).  A report was subsequently made to the Hong Kong Police.

4.  The victim obtained a Garnishee Order (DCCJ 204/2016) to recover the defrauded amount of USD35,000 together with interest and fixed costs from the Account.  After releasing the fund to the victim, the latest credit balance left in the Account was HK$662.12 (in debit), USD2,109,712.91, GBP6.43, EUR0.02 and CNY1 as at 29 September 2020.

5.  Investigation showed that R, who is a PRC citizen, visited Hong Kong 8 times between 1 June 2015 and 27 October 2016.  He came to Hong Kong to open the said Account on 19 June 2015.  He last left Hong Kong on 30 August 2016 and had not returned since.

6.  Companies Registry check shows that HIHCL was incorporated in Hong Kong on 3 January 2011 and R was the company’s sole shareholder and director until 21 July 2015 when the ownership of all the share capital of HIHCL were transferred to one Huang Cheng Xiang (Huang), who then became the sole shareholder and director.  However, R remains the sole authorized signatory of the Account and the bank was not informed of the change of shareholding and directorship.

7.  Fund flow analysis showed that between 17 July 2015 and 27 January 2017, large amounts of money were deposited with parallel withdrawals.  There were 246 deposits totalling USD119,889,150.2 and 494 withdrawals totalling USD117,709,407.43 (excluding all interests and bank charges).

8.  According to the tax return record of the Inland Revenue Department, neither R nor HIHCL had filed any tax return.

9.  On 4 June 2020, a warrant of arrest for the offence of dealing with property known or believed to represent proceeds of an indictable offence (money laundering), contrary to section 25(1) of OSCO was issued against R by a Magistrate in Hong Kong.  The warrant has not been executed.  R was put on the Police Wanted list and the Immigration Watch list.

10.  On 12 January 2021, SJ obtained a Restraint Order (RO) against both HIHCL and R.  The RO was continued on 22 February 2021. R did not appear for the RO hearings despite notices sent to him at his address in the Mainland and the registered address of HIHCL kept on the record of HSBC, and notices posted in the newspapers.

11.  On 14 February 2022, Hau, Lau, Li & Yeung (HLL&Y), solicitors for R filed a Notice to Act and on 17 February, Mr Lawrence Pang, counsel for R, successfully applied for an adjournment so that R, who was (and still is) in the Mainland could file an affirmation in opposition to the application.

12.  On 22 April 2022, Ms Elaine Yuen, a solicitor of HLL&Y filed an affidavit enclosing a copy of R’s affirmation and exhibits, explaining that she witnessed R signing the affirmation via WeChat Video call on 21 April 2022, and that due to the total lockdown in JinJiang, R was not able to have the affirmation notarized immediately.  The said affirmation was properly notarized on 29 April 2022.

13.  TLY filed a second S10 statement [1]in response and I heard submissions on 30 May 2022.

14.  As a result of queries raised in relation to various parts of R’s affirmation, leave was granted for R to file a supplementary affirmation and for TLY to file a further S10 statement in response.

15.  On 13 June 2022 Ms Elaine Yuen filed a second affidavit enclosing the R’s second affirmation, which was formally notarized on 20 June 2022.

16.  I will set out R’s position as deposed from both affirmations.

17.  In gist, R deposed that he was in the shoe-manufacturing business, having set up 晉江新東佳鞋服實業有限公司 (晉江新東佳) in 2000 with his ex-wife.  He had overseas buyers and traded with them through import/export company (進出口公司).  He set up HIHCL in January 2011 in Hong Kong [2]as a “direct channel” for doing business with overseas buyers.  He was the sole shareholder of the 10,000 shares[3].

18.  R deposed that he had never used HIHCL for trading and continued to use the import/export company as he was unfamiliar with international business and he failed to employ qualified professional staff.

19.  R was in Hong Kong on or about 19 June 2015 and he opened the Account with HSBC and he was the authorized signatory.  In the opening mandate R gave his reason for opening the Account as follows[4]: “many clients of HIHCL also held accounts with HSBC and the expected monthly inflow would be around HK$400,000 being international payments mainly from US clients.”  

20.  Since on R’s own admission, he had never used HIHCL to do business, the reason given to HSBC could not be true.  R explained in his affirmation that he meant to refer to the overseas clients of 晉江新東佳 who had told him they used HSBC.  He could not open an account in the Mainland as there was no HSBC branch in his hometown at the time.  As to the description of “clients of HIHCL” on the opening mandate, R explained that the bank staff who had entered the details for him had misunderstood him when he was referring to his clients of his Mainland company, ie 晉江新東佳, not HIHCL.

21.  Towards the end of June or beginning of July 2015, he sold HIHCL to Huang after learning that the latter desired to have a Hong Kong registered company during a tea gathering[5].  R deposed that as he was not doing any business with HIHCL himself, he decided to help Huang.  He also claimed that it was easy enough to set up another company in Hong Kong if required at a later stage.

22.  The Bought Note and Sold Note were dated 21 July 2015 [6]and the company registration document reflected the change in the Annual Return dated 3 January 2016 [7](ie that Huang became the 100% shareholder and the sole director of HIHCL).

23.  Although the official transfer was done on 21 July 2015, R deposed that on the very next day after he and Huang reached an oral agreement to transfer the company, he had already passed the control and information of the Account to Huang, including the cash withdrawal card and the PIN[8].  It should be noted that there was no mention of any passing over of online banking password to Huang (and the bank statements showed many transactions were done online).

24.  R stressed that after he sold the company to Huang and gave Huang all information and authority concerning the Account, he did not own the Account and he knew nothing about the dealings.  The money in the Account did not belong to him but he opposed the present application because it was brought on the basis that he could have been convicted of the money laundering offence, which he adamantly denied.

25.  R explained that he had never received any account statements from the bank and he knew nothing of the deposits and withdrawals until he received the documents from the Department of Justice (DoJ) in March 2021[9]. He said the bank statements were sent to his company address and while those delivering posts knew his name or the name of his company 晉江新東佳, they did not know the name of HIHCL and he never received any statements from the bank.

26.  R said the documents from DoJ were sent to his home address in his name.  Even so, according to R, he did not receive the documents at his home address, but that a neighbour found the letter containing the documents among some advertising material and brought the letter to his attention.

27.  R deposed that after he learned of the application for a Confiscation Order and that large sums of money had gone through the Account, he contacted Huang who told him that the Account was lent to another person named Chen Shui Kee (Chen) and that Chen had admitted having operated the Account, but that Chen had claimed the sums were legitimate business deals.

28.  R maintained the view that it was for Huang to effect change of particulars for the bank, referring to the legal opinion of a Chinese lawyer.  R was given to understand that Huang did not do so due to two reasons[10]: (a) Huang’s application for approval to have foreign loans had not been approved by the Mainland banks; and (b) Huang’s relative was ill and later passed away.

29.  According to R, Huang had explained that since he (Huang) had not used the Account, when Chen asked Huang to lend him the Account, Huang did as Chen requested.  Huang did not know the Account had been allegedly used for the purpose of money laundering.

30.  R was unable to get either Huang or Chen to confirm by way of affirmation what R had been told.

31.  R stressed that he did not own HIHCL and even though he remained the authorized signatory, he was not aware of the dealings in the Account.  If the Account had been used for money laundering, it had nothing to do with him.

32.  R stressed that he did not come to Hong Kong after learning of the application for a confiscation order because he was stopped by the Chinese authorities to leave as a result of a civil claim of which he was the defendant as he owed debt to the other party, referring to copy of the decision from the People’s Courts in Fukien[11].  He did not purposely stay away from the Hong Kong jurisdiction.

The Absconder Proceedings

33.  There is no dispute as to what conditions the Applicant SJ has to prove for a confiscation order against absconded persons (see Secretary for Justice v Lee Chau Ping & Anor [12], and Secretary for Justice v Fang Jinan [13]):

(1)  The application is made by the SJ;

(2)  Proceedings for one or more specified offences have been instituted against them;

(3)  Those proceedings have not been concluded;

(4)  They have absconded;

(5)  Six month have elapsed from the date they absconded;

(6)  Their exact whereabouts are not known and reasonable steps have been taken to give them notice of the proceedings;

(7)  They could have been convicted of a money laundering offence or offences;

(8)   They benefited from the money laundering.

Core issues

34.  The core issues identified by Mr Pang are as follows:

(1)  Whether proceedings for one or more specified offences have been instituted against R but have not been concluded;

(2)  Whether R has “absconded” and not less than 6 months had lapsed from the day he absconded;

(3)  Whether R could have been convicted of the money laundering offence;

(4)  Whether R has benefited from the money laundering offence; and

(5)  Whether the standard of proof that R has absconded is one of balance of probabilities, or that in the absence of statutory provision stating otherwise, the standard is beyond a reasonable doubt. 

Standard of proof

35.  I will first deal with the issue of standard of proof.  There is no dispute that section 8(8B) of OSCO provided that the following issues are to be proved on a balance of probabilities: (1) whether the respondent has benefited from the specified offence/organized crime; and (2) the amount to be recovered from him in pursuance of a confiscation order.  As to whether a person could have been convicted for the alleged offence, the applicable standard of proof is also on a balance of probabilities (see Lee Chau Ping).

36.  Mr Pang submitted that since section 8(8B) did not provide the requisite standard of proof in proving that a person has “absconded”, the appropriate standard of proof should be a criminal one, ie beyond reasonable doubt.

37.  I see no basis to support Mr Pang’s submission that the standard of proof in proving a person has absconded should be different from the standard of proof of the other elements.  I rule that the same standard of proof applies to the issue of whether R has absconded, and whether R could have been convicted of money laundering.

Could R have been convicted of money laundering in all circumstances?

38.  I will first consider whether R could have been convicted of money laundering in all the circumstances before I consider if R has absconded rendering proceedings not having completed.

39.  I bear in mind that the Applicant SJ only needs to prove, on a balance of probabilities that R could have been convicted of the offence of money laundering.

40.  Mr Pang submitted that there is insufficient evidence for the court to draw an inference, on a balance of probabilities, that R dealt with property known or believed to represent proceeds of money laundering. There is no evidence that R dealt with the money in the Account.

41.  Having carefully considered R’s case, I do not find his version of the events credible.  He came to Hong Kong specifically to set up a company (HIHCL) so that he could trade directly with his overseas clients.  Yet for years after he set up HIHCL he did not use it for any business dealing at all.  Then out of the blue he came to Hong Kong to open the Account in 2015, specifically stating on the opening mandate his reason for opening the Account was that “many clients of HIHCL also held accounts with HSBC and the expected monthly inflow would be around HK$400,000 being international payments mainly from US clients.”.  I do not accept his explanation that he was talking about his shoe-manufacturing business.  He must have known that he was asked for the reason to open the Account for HIHCL, not his Mainland company.  What is even more suspicious is that within days of him having opened the Account, he sold the company to Huang and passed bank information to Huang, even before the Bought Note and Sold Note were effected.  His explanation that he was helping out a friend, and that it was easy enough to set up another company in Hong Kong is unconvincing.

42.  Though R stressed that he expected Huang, being the new shareholder of HIHCL, to inform the bank about the change, ie R was no longer a director or shareholder of HIHCL, there is no good reason for Huang not to have arranged with HSBC for the removal of R as the only authorised signatory for the Account if R really has nothing to do with the Account.  The explanation given: that Huang did not get the relevant permission and that a relative was ill and had passed away, are hardly reasons for anyone having acquired a new company not to make sure that the former shareholder is unable to deal with any money in the Account, leaving R remain the only authorized signatory to deal with the Account.

43.  There is no information as to when internet banking was applied for the Account.  However, as the bank documents only showed R as the one and only authorised signatory, it is impossible for anyone else to apply for internet banking facilities except R.

44.  There is no mention by R of having applied for internet banking either before he sold HIHCL to Huang or after.  As a sophisticated businessman, there is no way R did not know the significance of allowing someone else to operate the account via internet banking.  For the same reason, there is no way Huang would have left R remain the only authorized signatory when R could deal with money in the Account.  The version given by R as to what had happened to the Account is simply not credible.

45.  I am satisfied that, on a balance of probabilities, R would have been convicted of money laundering.

Has R absconded?

46.  Mr Lucas Lai for the Applicant submitted that proceedings for money laundering have been instituted against R as a Warrant of Arrest has been issued by a Magistrate against R in respect of the offence (section 2(15) (a) of OSCO).

47.  Mr Lai submitted that in all the circumstances of this case R has absconded, and since six months have passed from the date R has absconded (ie the last time he left Hong Kong), the proceedings have not concluded.

48.  Mr Pang submitted otherwise.  He placed heavy reliance on the case of Secretary for Justice v Tam Kit I [14].  In that case the Court of Appeal was presented with an appeal which sought to overturn Campbell Moffat J’s refusal to discharge a restraint order (under HCMP 54/2011) after having dismissed the application for a confiscation order (under HCMP 1207/2014).

49.  Mr Pang prayed in aid the fact that the Court of Appeal recited Campbell-Moffat J’s reasons for refusing to grant the confiscation order even though the appeal itself did not concern the correctness of that part of Campbell-Moffat J’s decision.

50.  Mr Pang submitted that the key rulings of Campbell-Moffat J in dismissing the confiscation order application appeared to be as follows:

(1)  A person must have been previously arrested or charged before he/she could be said to have “absconded”.  Some steps towards the prosecution must have taken place even only in the form of police bail instead of court bail.

(2)  The interpretation is supported by the fact that an absconder proceeding could only be commenced when “proceedings for one or more specified offences have been instituted against a person” under section 8 of OSCO.  The “proceedings” must have been instituted at the time of the absconding act, and not just at the time of the making of the confiscation order application.  

(3)  Further (or alternatively) to (1) above, an absconder must have gone away “suddenly and secretly” in anticipation of imminent action by the prosecution authorities.  Knowledge of an imminent action and an intention to evade arrest is required on the part of the absconder.

51.  Mr Pang submitted that R’s position was highly analogous to that of Madam Tam in the case before Campbell-Moffat J.  In that case Tam entered Hong Kong as a visitor and left Hong Kong lawfully.  She was never arrested by the police prior to her departure.  There was no evidence she was in anticipation of imminent action by the prosecuting authorities when she left.  Tam could not be regarded as having “absconded” and the application for a confiscation order against her failed.

52.  Mr Pang submitted that in R’s case, R is also not a Hong Kong permanent resident, having entered and left Hong Kong lawfully. At the time of R’s departure, there was no warrant issued against him.  The warrant was issued some 3½ years later on 4 June 2020.  R was not arrested or charged when he last left Hong Kong.  There is no evidence that R fled in anticipation of some actions by prosecuting authorities, let alone an imminent one.

53.  Mr Pang also relied on the meaning of “abscond” considered by the English Court of Appeal in R v Bestel [15]:

“… There is no statutory definition of the word ‘abscond’. … In ordinary usage a person who absconds flees, runs away or escapes. In our judgment, in the context of the administration of criminal justice, the phrase ‘a defendant absconds’ implies that, at least, the defendant has sought to place himself beyond the reach of the court for the purpose of escaping judgment. Mr Bestel did not abscond in this sense. We note that in R v Jones (Anthony) [2003] 1 AC 1 the House of Lords considered the article 6 requirements of a criminal trial which took place in the absence of defendants who had ‘absconded’ by not surrendering to bail. They had not been found by the time trial was due to take place and the judge decided to continue in their absence. The House of Lords was agreed that, whether or not the defendants could be held to have waived their right to attend trial (about which there was a difference of opinion), the court should satisfy itself that a defendant would receive the basic elements of a fair trial notwithstanding his absence. Absence which constituted the waiver of a right to attend would count strongly in favour of continuing with the trial. This, in our view, was the effect of the finding made by the judge in the present case: Mr Bestel had deliberately failed to attend hoping that the confiscation hearing would be postponed but knowing of the risk that the court would proceed in his absence; but he remained at his known address, had been communicating with his solicitors and with the prosecution; and he had not attempted to escape the reach of the court. In our judgment he did not abscond within the meaning of section 27.” (emphasis by Mr Pang)

54.  Mr Pang submitted that there were no proceedings instituted against R when he departed Hong Kong on 30 August 2016 as the warrant of arrest was not issued until 4 June 2020.  In accordance with the legislative intent, proceedings having been instituted is required before the triggering events (of death (under section 8(1)(a)(ii)(A)) and of absconding (under section 8(1)(a)(ii)(B)).  Proceedings in relation to the offences must have been instituted against that person prior to death or the absconding act.

Discussion

55.  Section 2 of OSCO defines “absconded” as follows:

“Absconded (潛逃), in relation to a person, incudes absconded for any reason whatsoever, and whether or not, before absconding, the person had been-

(a) Taken into custody; or

(b) Released on bail.”

56.  It is not necessary that an absconder has been charged or taken into custody before he is regarded as having absconded (See Secretary for Justice and Fang Jinan[16],).  I respectfully agree with this interpretation.

57.  One must not lose sight of the fact that the legislature intended to adopt draconian measures to deal with specified offences and organized crimes.  It is not uncommon for culprits to come to Hong Kong from other jurisdictions, opened bank accounts in order to launder money, and then left Hong Kong before any money laundering activities are discovered (which may be months or even years after the culprit has left town.). 

58.  Despite the very forceful argument presented by Mr Pang and the judgment of Campbell-Moffat J cited, I do not accept that proceedings have to be instituted before R absconded.  If the evidence shows that R knew or believed that the Account he opened was going to be used for money laundering and he kept himself away, to hide from justice, to flee from the jurisdiction of Hong Kong, he has absconded.  The fact that R left Hong Kong lawfully in the sense that he gone through the proper channel does not mean that he has not escaped from justice. 

59.  As I have already found that R could have been convicted of money laundering, I am satisfied, on a balance of probabilities, that he stayed away from the Hong Kong jurisdiction after his last departure here, knowing or believing that the Account would be used for money laundering.

60.  There is no direct evidence as to who or when internet banking was set up for the Account.  However, as R remained (and still remains) the only authorised signatory of the Account, he has to be the only person who could have applied for internet banking from the bank.

61.  I find R’s assertion that he had never received any bank statements, and the reasons he gave for such failure, unbelievable.  His explanation of how he only came to obtain the official documents about the application for confiscation order but not the restraining order was also not credible.  

62.  While it is indeed the case that R was prohibited from leaving Mainland China in January 2017, there is no evidence if the restriction still applies (even though R claims that was still the case).  In any event, I am satisfied that even if R was not prohibited from leaving the Mainland, he would not have come to Hong Kong as he either knew or believed that the Account was used to launder huge amounts of money. 

63.  As R was the sole authorized signatory to operate the Account, I am satisfied, on a balance of probabilities, that not only he could have been convicted of the money laundering offence, I am also satisfied, again on a balance of probabilities, that he had benefited from money laundering.

64.  The application before me is for confiscation of the money in the Account, which is the account of HIHCL.  HIHCL is not made a party to these proceedings, though it was (and still is) a party to the RO.

65.  It is trite law that a company is a separate legal entity (see Salomon v Salomon & Co [17]).  On the evidence before me, there is prima facie evidence that R controls the company as he remains the sole authorised signatory who was (and still is) in a position to deal with the vast sums in the Account.  Further, the company HIHCL has clearly been used for crime and R benefited from the Account.  I am satisfied that it is appropriate to lift the corporate veil and to treat the money held in the Account as property held by R (see Lee Chun Ping and Re H and others (Restraint Order: Realisable Property) [18]cited therein).

Conclusion

66.  I am satisfied all the conditions have been met and I make the Confiscation Order as follows: The chose in action as represented by the credit balance held in the Account which is subject to the effective control of R, be confiscated and be paid to the HKSAR.

[1] Dated on 6 May 2022

[2] See Exhibit marked as DSX-1 in affirmation of DING Shaoxiong

[3] See Exhibit marked as DSX-2 in affirmation of DING Shaoxiong

[4] See Exhibit marked as TLY-5 in S10 statement of TLY

[5] See paragraph 16 in affirmation of DING Shaoxiong

[6] See Exhibit marked as DSX-4 in affirmation of DING Shaoxiong

[7] See Exhibit marked as DSX-5(5) in affirmation of DING Shaoxiong

[8] See paragraphs 23 & 24 in affirmation of DING Shaoxiong

[9] See paragraph 12 in the 2^nd affirmation of DING Shaoxiong

[10] See paragraph 33 of affirmation of DING Shaoxiong

[11] See Exhibit marked as DSX-10 in 2^nd affirmation of DING Shaoxiong

[12] [2000] 1 HKLRD 49

[13] HCMP 599/2016

[14] CAMP 543/2021, [2022] HKCA 454

[15] [2014] 1 WLR 457

[16] HCMP 599/2016

[17] [1897] AC22

[18] [1996] 2 All ER 391