HKSAR v. LU DAYONG AND OTHERS

DCCC 127/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Criminal Case No. 127 of 2005

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REASONS FOR SENTENCE

1.  The 3 defendants are convicted as follows after trial:

(a)  D1 and D2 are convicted of Charge 1 – conspiracy for an agent to accept advantage, contrary to sections 9(1)(a) and 12 (1) of the Prevention of Bribery Ordinance, Cap 201, and sections 159A and 159C of the Crimes Ordinance, Cap 200;

(b)  All 3 defendants are convicted of Charge 2 – conspiracy to defraud, contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance, Cap 200.

Particulars of the offences are set out in the charge sheet and the court is not going to repeat them here now.

Facts Found by Court

2.  According to the facts found by the court during the trial D1 was the Chairman of Nanyang Brothers Tobacco Company Limited (“Nanyang”), which is a subsidiary of the publicly listed Shanghai Industrial Holdings Limited (“SIHL”).  He was a married man but he and D2 were lovers.

3.  In respect of Charge 1, ZHENG Songming (“ZHENG”) and PAN Shaobin (“PAN”) were directors and shareholders of Golden Leaf International Development (Hong Kong) Limited (“Golden Leaf”).  Under the direction of D1, Golden Leaf became a distributor of Nanyang and was allowed to purchase Double Happiness cigarettes from Nanyang for resale.

4.  D1 conspired with D2 to accept illegal commissions from ZHENG and PAN which were paid into a bank account of Fortune Star Overseas Limited, a BVI company owned by ZHENG, and were managed by D2 for the benefit of D1.  The illegal commissions were paid in accordance with the formula of $150,000 for every container of BM Double Happiness cigarettes Nanyang sold to Golden Leaf and the total amount paid was $6.9m.

5.  Illegal commissions were also paid by Golden Leaf in form of monthly salary of $50,000 to D2 from January 2003 to January 2004 on the pretext that she was employed as its financial controller, a job which she did not do.  The total amount paid was $650,000.

6.  All these illegal commissions were paid to D1 as an inducement to, reward for or otherwise on account of him to cause or permit Golden Leaf to become a purchaser of the Double Happiness cigarettes produced by Nanyang and/or to supply the Double Happiness cigarettes to Golden Leaf.

7.      In respect of Charge 2 Hang Chun Trade Development Limited (“Hang Chun”) was set up by LIN Jianding (“LIN”) and D3 on 1.2.2003 with a shareholding of 90% and 10% respectively.  The shares of LIN were later transferred to D2 voluntarily while those of D3 were transferred to his wife, Ms ZHUANG Yixuan.

8.  It is the finding of the court that although Hang Chun was run by D2 and D3, D1 had interests in and control of it and was its real boss.  Hang Chun was one of the companies allowed to purchase Double Happiness cigarettes from Nanyang, but the 3 defendants conspired to conceal from or not to disclose to Nanyang D1’s relationship with Hang Chun.

9.  The cigarettes Hang Chun bought from Nanyang were purportedly sold and shipped to the Philippines and Vietnamese buyers, the principal buyer being Metatrans International Trading Corporation in the Philippines.  These buyers were, however, in name only and the real buyer was LIN.  To the knowledge and agreement of the 3 defendants, the cigarettes were smuggled by LIN to Guangdong Province for sale, in contravention of the prohibition imposed by Nanyang.

Criminal Record

10.  All 3 defendants have a clear record.

Background Reports

11.  The court obtains the background reports of D2 and D3 before sentencing. 

12.  According to the report, D2 is aged 40 and was brought up in China.  Her parents who have now retired were government news officials of China.  She received education up to Form 4 level in China and had after leaving school worked as a clerk and a secretary.  She set up her own business to deal in red wine in 1995.

13.  She married a Hong Kong man in 1992 and came to live in Hong Kong in 1997.  The two divorced in 1998.  She worked as a finance manageress of Golden Leaf in 2003.  She set up Hang Chun in 2004 which did well in business.  She paid profits tax of over $1 million in 2005.  She maintains that she is innocent of the offences.

14.  The senior counsel representing D2 points out that the background report is wrong in a number of aspects:

(a)  D2 came to know CHENG Chung Ming (ZHENG Songming), the boss of Golden Leaf, 10 to 20 years ago instead of in 2002;

(b)  she was employed by CHENG to receive PRC clients instead of contacting them;

(c)  she came to know D1 through working with Golden Leaf instead of through working for CHENG;

(d)  she came to know D3 through friends in the 1990’s instead of through working with Golden Leaf;

(e)  D3 was never her driver.

15.  According to the background report, D3 is aged 37 and is married with 4 children aged 13, 12, 11 and 2 respectively.  His wife and children live in Shenzhen.  D3 was brought up in China in a big poor farming family.  After graduating from senior secondary school he had worked as a sales assistant.

16.  He came to settle in Hong Kong in 1991 and has since been in stable employment.  He worked for a tobacco company from 1998 to 2003 and became a shareholder and manager of Hang Chun in December 2003.  His family has no income over the past half year because of his involvement in the present case and is in serious financial hardship.  D3 maintains his innocence.

17.  The senior counsel representing D3 points out that the background report of D3 is wrong in saying that he came to know D2 through his work in the tobacco company.  They in fact came to know each other through their friends before D2 began to work for Golden Leaf.

Mitigation

18.  The senior counsel points out that D2 and D3 were arrested in February 2004 and during the past 5 years they had been subject to exceptionally heavy stress, anxiety and worries.  During the trial the defence of D2 and D3 is conducted in a fair and reasonable manner and no time has been unnecessarily wasted. The 2 defendants choose to remain silent and have not perjured themselves in the witness box.  They also have a clear record.

19.  As a result of the conviction Nanyang has cancelled the contract with Hang Chun and D2 stands to lose her business.  D2 and D3 are now jobless and D2 is in poor health.

20.  The senior counsel asserts that in respect of Charge 1 there is no evidence that D2 received any benefit apart from the amount of $650,000 paid to her in form of monthly payment of $50,000.

21.  In respect of Charge 2 there is no evidence of D2 receiving any benefits at all while D3 was paid 10% of the profits of the company.  D2 used her own money to run Hang Chun and had so far not been reimbursed.  There is also no evidence as to the quantity of cigarettes smuggled to China pursuant to the conspiracy.

22.  The senior counsel points out that D3 is only convicted of Charge 3.  He did nothing to conceal D1’s interests in Hang Chun from Nanyang because he did not deal with Nanyang at all.  He only played a passive role in the running of Hang Chun.

23.  The senior counsel asks the court to take the totality principle into consideration and to pass partly concurrent sentences on the 2 charges D2 stands convicted.

24.  The senior counsel submits to court mitigation letters of D2 written by her mother and a justice of peace.  They describe D2 as a good-natured and kind-hearted person who is always ready to help others.  The mother also describes D2 as a filial daughter.  A letter of appreciation issued by the Children’s Thalassaemia Foundation to D2 for her donation of $5,000 in December 2008 is also submitted to court.

25.  Mitigation letters written on behalf of D3 by his wife, elder sisters and brother-in-law and a district councillor are submitted to court.  The sisters and brother-in-law and the district councillor describe D3 as an upright, responsible, kind-hearted, filial, generous, law-abiding and hardworking person.  The wife advocates for the innocence of her husband and sets out the serious financial hardships the family is facing because of the present case.

Sentence

Charge 1

26.  It was said by the Court of Appeal in one case that corruption struck at the heart of commercial and public life.  Despite the prosperity, the good law and order and the peace of life Hong Kong now enjoys, the city was once of rampant corruption, both in the private and public sectors.  After fighting against corruption with painstaking efforts for 35 years Hong Kong has now become one of most corruption-free places in the world.  This is no doubt one of the important factors which has contributed to the success of Hong Kong as a world-renowned commercial and financial centre.  We certainly cannot allow a handful of unscrupulous individuals to ruin our hard-won achievements by offering or accepting bribes.

27.  D1 was the Chairman of Nanyang and was generously remunerated by the company.  According to evidence adduced in the trial the total salary, allowances and bonuses paid to D1 in the years of 2001 to 2003 were $5,651,904, $2,640,803 and $5,373,308 respectively.  He, however, still made use of his senior position in the company to accept illegal commissions.  The amount of illegal commissions was substantial and in a period of about 1 year 3 months a total of $7.55 million was involved.  No doubt the scheme of corruption would have continued to operate had it not been neutralised by the ICAC.

28.  D2 was the lover of D1 and she managed the corruption money for the benefit of D1.  The court, with due respect, does not accept the mitigation of the defence that the benefit of D2 was confined to the $650,000 paid as monthly salary to her.  With the closed and intimate relationship she had with D1 and the role she played in the conspiracy it is of no doubt that she would be able to enjoy the illegal commissions together with D1.

29.  In the case Secretary for Justice  v Kwan Chi Cheong CAAR 1/1999, the Court of Appeal said (at page 6):

“The Prevention of Bribery Ordinance provides the sanctions necessary to deal with breaches of this kind. The Ordinance was intended to be draconian in its effect. Bribery, whether in its acceptance or by the offering of an advantage, is an evil which can strike at the heart of commercial and public life if it is left unchecked. A punishment that fails to deter will produce all the wrong signals just as sentences which act as a deterrent will reinforce this community’s efforts to rid itself of corruption.

For these reasons, even the first offender charged with an offence of corruption under the Ordinance, unless it is merely a technical breach, must usually expect a deterrent sentence. This will almost invariably involve a sentence of immediate imprisonment.”

30.  The conspiracy in the present case was a well-planned one and some degree of sophistication was involved in that a BVI company was used to conceal the corrupt payments and D1’s interests in them.  The corrupt scheme also lasted for over a year and, as pointed out above, only came to an end due to ICAC’s arrest action.  All these add gravity to the offence.  Having considered the whole circumstances the court adopts a starting point of 3 years 3 months imprisonment for D1 and 2 years 6 months imprisonment for D2 in respect of Charge 1. 

31.  There are authorities saying that in a case of such a serious nature the clear record and personal circumstances of an offender carry very little weight, if any, in mitigation.  The court, however, accepts that the considerable length of time taken for the present case to be concluded has put the defendants under much anxiety and stress.  For this reason and without putting any blame on the prosecution or the defence, the court is prepared to give them some discount.  The court therefore sentences D1 to 3 years imprisonment and D2 to 2 years and 3 months imprisonment for Charge 1.

Charge 2

32.  D1 was not only an employee of SIHL but was also the chairman of the board of directors of Nanyang.  He owned a fiduciary duty to Nanyang.  He made use of Hang Chun as a vehicle to purchase cigarettes from the company and resell them to LIN knowing full well that they or part of them would be smuggled to and sold in China in contravention of the contracts between Hang Chun and Nanyang.  He had not only defrauded the company but was also in serious breach of his fiduciary duty.  This is no doubt a blatant case of breach of trust.

33.  D2 managed Hang Chun as a cover for D1 while the major role of D3 was to act as the liaison between Hang Chun and LIN.  The work of D3 was important in relation to the smuggling of the cigarettes to China.  The court therefore does not accept the submission of the defence that D3 played a passive role in the scheme.

34.  The court accepts that there is no evidence as to the quantities of cigarettes which were smuggled to China.  Judging, however, from the evidence during the trial that there might be a price war of the cigarettes in China because of an oversupply of the cigarettes in Guangdong, it is of no doubt that the amount of cigarettes smuggled to China must be substantial.

35.  A high degree of sophistication was also involved in the conspiracy.  The cigarettes were first shipped to the Philippines and, possibly, to Vietnam as well, before they were smuggled to China.  Various companies and contracts were made use of to give an appearance that the cigarettes were legitimately exported to the Philippines or Vietnam and were to be sold there.  Remittance agents were also used to make payment for the cigarettes.  All these were no doubt designed to make it more difficult for the authorities to discover the illegal scheme.  They add gravity to the offence.

36.  Although there is no evidence of how much benefits D2 had derived from the conspiracy, it is the finding of the court that with her intimate relationship with D1 she would have been able to enjoy the money made pursuant to the conspiracy together with D1. 

37.  Having considered all the circumstances the court adopts a starting point of 3 years imprisonment for D1, 2½ years imprisonment for D2 and 2 years 3 months imprisonment for D3 in respect of Charge 2.

38.  The court has much sympathy for the financial hardships the family of D3 suffers because of the present case which will no doubt intensify upon incarceration of D3.  This however does not constitute a valid ground for mitigation.

39.  The only mitigation the 3 defendants have is the anxiety and stress they had suffered because of the long time taken for the case to be disposed of.  Giving them discount for this the court sentences D1 to 2 years 9 months imprisonment, D2 to 2 years and 3 months imprisonment and D3 to 2 years imprisonment in respect of Charge 2.

40.  Taking the nature of the case and the totality principle into consideration, the court orders 1 year 6 months in the sentence of D1 in Charge 2 to run consecutively to his sentence in Charge 1, making a total term of 4 years 6 months imprisonment.  The court also orders 1 year 3 months in the sentence of D2 in Charge 2 to run consecutively to her sentence in Charge 1, making a total term of 3 years 6 months imprisonment.   As D3 only faces one charge he is to go to prison for 2 years.