HKSAR v. CHONG CHING-HAM

DCCC1125/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1125 OF 2011

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Reasons for Verdict

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1.  Defendant, you pleaded not guilty to three offences of dealing with property known or reasonably believed to represent the proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap.455.

2.  The prosecution case was as follows.

3.  On 28 May 2009, you were arrested inside premises in North Point for bookmaking.  The premises were an entertainment centre for a clansmen association, of which you were the chairman. 

4.  In August 2009, a financial investigation was initiated into the financial situation of yourself. 

The Bank Accounts

5.  Enquiries showed you to have four accounts with three banks, that is Hongkong and Shanghai Bank, Bank of China and Hang Seng Bank.  The bank statements from January 2003 to November 2009 were examined. The HSBC account was mainly for payment of utility and credit card bills with a turnover of $0.77 million over 43 months.  Nothing suspicious was found.  The other three accounts recorded considerable turnover and suspicious transaction patterns. 

The Hang Seng Bank Savings Account - Account A

6.  This was opened on 4 December 2003 and closed on 17 May 2005 and you were the sole signatory.  The total turnover for this period of 19 months was $13,567,136.30.  The transaction records were as follows.

 Deposits - $6,783,568.15 was deposited. 63.06 per cent, that is $4,277,560 was cash and 36.94 per cent, that is $2,506,000, was by transfer.

Withdrawals - $6,783,568.15 was withdrawn, that is the full amount. 55.52 per cent was in cash, that is $3,766,538.15, and 44.47 per cent was by transfer, that is $3,016,650.

7. A significant Monday and Thursday pattern was observed.

Deposits on Mondays and Thursdays - 87.95 per cent was on Mondays and Thursdays, that is $5,965,960; 89.55 per cent was cash, $3,830,560 on Mondays and Thursdays; 85.21 per cent of transfers, that is $2,135,400, on Mondays and Thursdays.

Withdrawals on Mondays and Thursdays - 86.05 per cent, that is $5,836,800, was on a Monday or Thursday, that is 80.91 per cent of total cash. $3,047,450 were on Mondays and Thursdays and 92.47 per cent of transfers, that is $2,789,350, were also on Mondays and Thursdays.

The Bank of China Savings Account - Account B

8. This was opened on 30 December 1992 and closed on 27 January 2011. You were the sole signatory. The total turnover for the 79 months was $49,301,548.90. The transaction record showed as follows.

Deposits - $24,664,121.74 was deposited; 20.36 per cent, that is $5,021,679.90, was cash; 3.54 per cent, that is $872,653.69, by cheques; and 76.08 per cent, that is $18,765,672.25, by transfer. Transfer deposits of $62,880 were inter-transfers from your Account C.

Withdrawals - A total of $24,637,427.16 was withdrawn. 47.83 per cent, that is $11,785,459, was cash and 43.38 per cent , that is $11,919,268.66, was by transfer. Transfer withdrawals of $2,273,669.66 were to your Account C.

The Bank of China account - Account C

9. This was opened on 15 October 1997 and, like Account B, closed on 27 January 2011. You were the sole signatory. The total turnover for the 76 months of 24 May 2003 to 7 July 2009 was $4,728,949.25. Transactions recorded were as follows.

Deposits - $2,364,389.66 was deposited. 3.3 per cent, that is $78,620, was in cash and 96.16 per cent, that is $2,273,669.66, was by transfer. All transferred deposits were inter-transfers from Account B.

Withdrawals - $2,364,559.59 was withdrawn. 19.38 per cent, that is $458,260 was cash. 70.78 per cent, that is $1,673,599.09, was by cheque and 9.83 per cent, that is $232,480, was by transfer. Transfer withdrawals of $62,880 were inter-transfers to Account B.

10. The account was mainly used by you to transfer funds from Account B and to issue cheques to various beneficiaries.

The summary of the three accounts between 2 May 2003 and 26 November 2009

11. The total turnover for the 79 month period was $67,597,634.45. The transactions were as follows.

Deposits - Total deposits to the three accounts was $33,812,079.55; 27.73 per cent, that is $9,377,859.90, was cash; 2.58 per cent, that is $872,653.69, by cheque; 69.64 per cent, that is $23,545,341.91, by transfers. Transfer deposits of $2,336,549.66 were inter-transfers amongst your accounts.

Withdrawals - $33,785,554.90 was withdrawn from these accounts. 47.39 per cent, that is $16,010,257.15, was in cash; 4.95 per cent, that is $1,673,599.09, by cheque; 44.90 per cent, that is $15,168,398.66, by transfer. Transfer withdrawals of $2,336,549.66 were inter-transfers to your accounts.

The Tax Records

12. You filed no tax returns with the Inland Revenue Department between the fiscal tax years of 2003-4 and 2009-10. For 2002-2003, an employer’s return in respect of you was filed by China Globe Trading Limited, as you were employed as a warehouse attendant and earned $34,000 between 1 April 2002 and 31 July 2002. Between 2002 to 2010, you paid no tax at all.

The Arrest and House Search

13. On 31 January 2011, Sergeant 2478, who is PW1, and PC33905, PW2, and other officers searched your residence, which is Flat 1, 40th Floor, Block D, Tung Yuk Court, Shau Kei Wan under a search warrant. You resided there with your wife, mother, two daughters and a son.

14. You were arrested for money laundering, and under caution you explained there were so much money going in and out of your accounts as you had been Vice Chairman of a clansmen association for many years. In 2007, you were the Chairman of the association so members would settle their winnings and losses of mahjong through your accounts.

15. In your bedroom, PW2 found the following:

(a) two expired Bank of China passbooks for Account B;

(b) four notebooks with lots of numbers and markings on the pages;

(c) a pile of papers, folded in three, consisting of 61 folded bundles, each bundle marked with a date without the year on the first page, with lots of numbers and markings on the following pages; and

(d) miscellaneous bank transaction slips, IDD calling cards, etc.

The Video-Recorded Interview

16. PW1 and PW2 conducted two video-recorded interviews with you in the presence of your lawyer on 31 January 2011. You declined to answer any questions.

17.  The prosecution case comprised the Admitted Facts, which is P31, and live evidence given by Police Sergeant 2478, PW1.  Taken together, they can be summarised as establishing from the facts referred to in opening and producing the exhibits mentioned.  

18.  PW1 was cross-examined.  Inter alia, this established that after arrest and caution for money laundering, you had said the money passing through your accounts was from the proceeds of mahjong given by members of the clansmen association.  PW1 confirmed that at this time he was aware that you had been arrested on 25 May 2009 on suspicion of bookmaking, which led to a financial investigation leading to this arrest.  He confirmed that by the time of this arrest on 31 January 2011 you had no convictions for bookmaking. 

19.  Somewhat surprisingly, the officer confirmed he had not investigated the clansmen association, had not been to its premises and did not know its name.  In short, he had made no enquiries at all. 

20.  The prosecution case was then closed.  There being no submission of no case to answer, I found there was a case for you to answer on each of the three charges and ruled accordingly. 

21.  You, having had your rights explained to you by counsel, elected to give evidence and call four defence witnesses, but in fact you only called three. 

22.  You gave evidence of having come to Hong Kong in 1992, working as a construction worker until 2002 when you became the vice chairman of the Zhuang Zhai Clansmen Association, which has premises currently at North Point.  In 2008 you had become the chairman. 

23.  You said the purpose of the association was to foster communications between the clansmen, most of whom were surnamed Chong. The association facilities included TV, karaoke, computers and the playing of mahjong and cards.  There are about 200 members of the association, all are resident in Hong Kong.  They pay $100 to $1,000 per annum for membership.  Those who play mahjong give tips if they win, the amount is not fixed and purely voluntary. For example, if they win $100,000 to $300,000, they may give $1,000, $2,000 or $3,000, sometimes more and sometimes less.          

24.  You said you collected the tips which you used to pay rent, buy refreshments and for your own use.  You managed the association on a day-to-day basis and you are the keeper of the keys.  You pay the utility bills, also for the contract cleaners.   

25.  A committee runs the association.  Normally there would be 10 to 20 members comprising ex-chairmen, the present chairman and committee members.  It dealt with elections, marriages and deaths of members and donations to the Mainland.  Should you have insufficient funds from mahjong tips, members would make donations.  You said you paid the tips into your bank account.  The amount you took for your own use was not fixed, it came from the tips. 

26.  At the premises, there is one table for mahjong and one for cards.  It was open daily from 3 pm to 4 pm until 4 am to 5 am next morning.  Winning card players also gave tips.  You said at the end of each game you had to collect the losses and pay out the winners.  The losers paid you and you paid the winners.  If a loser had insufficient cash, he had three days in which to pay.  You would give the number of your bank account and the loser would pay cash into it or by transfer, so a winner normally waited three days to be paid.   

27.  Your first account was a Hang Seng account which you opened in 2003 to 2005.  You also had two bank accounts with the Bank of China, one was a current account from which you could issue cheques if you did not have enough cash. 

28.  You said the winnings and losses on any given night varied between $100,000 and $1,000,000, but on an average night it would be $200,000 to $300,000 on mahjong, with $100,000 on cards.  The three-day system operated for cards as well as mahjong.  You referred to P22, page 316.  The counterpart Sze Tung-lam(?), you said you were very familiar with him.  He was not a member of the association but came to play mahjong.  The counterparts were names of clansmen or people who came to play mahjong.  Four people were needed for a game and they need not be familiar with each other.  You identified a withdrawal of $60,000 in cash, which you took out to use to pay out small amounts of winnings.  You kept a cash float. 

29.  You accepted that transactions did increase on Mondays and Thursdays.  You said Saturdays and Sundays were very busy and on Wednesdays many people came to watch horseracing.  Mondays were used for banking as there was no banking on Saturdays or Sundays, otherwise you had no idea why Mondays and Thursdays were busier.  You produced D1, which is 9 photographs of the premises in City Garden, North Point. 

30.  You were then cross-examined by Mr Poots.  You said that about 80 per cent of the members were called Chong, however not 80 per cent of the gamblers were so called as different people came to gamble.  In fact, those named Chong tended to be small gamblers, others gambled for higher stakes.  You accepted that Exhibit 22 showed 50 people gambling but only three were surnamed Chong.               

31.  Between 1992 and 2002, you said you worked as a construction worker with two jobs, so you earned $1,000 a day, even so you paid little tax as you had a wife and three children.  From 2002 to 2009, the association was your only source of income.  This came entirely from tips.  You had to pay to run the premises and you yourself set your own remuneration.  The level of tips was not fixed.  The total income from tips at first was about $40,000 a month, but this increased to $80,000 to $90,000.  You said that towards the end of the period, you were keeping $20,000 to $30,000 per month. You made no declaration to the Inland Revenue Department as you did not know how to. 

32.  You accepted no records of income or outgoings were kept.  Charitable remittances to the Mainland were effected by transfer through money exchanges, not by your bank account.  Debts were not settled there and then because players did not bring so much money.  Also, a lot were not members of the association.  Also, you said that one joined by making a payment.

33.  You accepted that effectively there were no rules of the association, but there were objectives.  Cheques were not used as some people do not have current accounts.  You confirmed that the rule was that losers had to deposit money into your account within three days. 

34.  You did not dispute that almost 90 per cent of the deposits were performed on Mondays and Thursday.  You said the explanation was that neither Saturdays nor Sundays were banking days and that you did your banking on a Monday and a Thursday.  You claimed not to know how to use a cash deposit machine.  Your practice was to withdraw a large amount of money in the form of cash so you could make payouts immediately. 

35.  You agreed many people came to watch horseracing but you said you did not pay attention to whether they gambled.  You agreed that in summer when there was no racing, the number of transactions reduced dramatically, but claimed the 14th day of the sixth month of the lunar calendar was Buddha’s Birthday, so many Chongs went back to their native place in the summer.  They would leave Hong Kong for at least a week or 10 days in July and August.  As Chongs were out of town, friends did not come.     

36.  If a person refused to pay, you said they would be pressed for payment after a time.  The treasurer’s role was to take care of fixed deposits of just over $300,000 in the bank.  You claimed to be unsure if the association had been registered prior to 2007, but thought that it was.  No rules were listed.   

37.  You were then re-examined.  You said one reason for the increased banking on Monday was that the weekends were busy and a Friday ran until 4 am to 5 am on Saturday, so it was too late to bank when you rose. 

38.  I also asked questions of you.  You said that Chong Yan-chi, the then chairman, had authorised you to set and to draw your own salary of $20,000-30,000.  There was no set amount nor requirement to pay tips, but in your experience no winner ever refused to do so.  The association had no formal rules, but you set some requirements being familiar with gamblers to ensure they paid. 

39.  Chong Yan-chi then gave evidence as DW1.  He said he had known you since childhood and had been a member of the association for 20-plus years.  Its purpose was to serve the clansmen in marriages, funerals and communication.  The premises provides for the playing of mahjong, watching TV and gatherings.  He was the chairman/executive officer 2003 to 2008, and was currently a permanent honorary chairman.  He visited the premises every day he was in Hong Kong. 

40.  He confirmed your duties at the association.  That mahjong was played daily by members and also non-members.  Non-members had to be brought in unless they were friends who had been there before.  If the person was not known, he would not be allowed in unless introduced by a clansman.  He himself played mahjong and won or lost $20,000 to $30,000 on any given night, sometimes he settled by cash and sometimes by bank transfer.  He confirmed that players did not settle amongst themselves.  You dealt with unsettled payments by cash or transfer.  Settlement was within two to three days if cash was not paid.  He confirmed there was no fee charged to play mahjong. Winners gave donations but there was no formal rules about that or the amount.

41.  He was then cross-examined.  He confirmed that others played apart from Chongs, mostly guests.  He said he mostly paid by cash or bank transfer, not by cheque.  He gave tips if he won and that there was no set amount.  If he won $20,000, he would $1,000 to $2,000.  Most players were friends and not Chongs.  They could give what they wanted by way of tips and you would collect and keep the money.  The association did not require the keeping of records.  The association was founded in the 1980s and he did not know if prior to 2007 it was registered.  After registration in 2007, there was a personal bank account with two or three persons as signatories.  He said on horseracing days the numbers were like any other day, but a lot of people went on a Saturday and a Sunday.

42.  In re-examination, he said he rarely went there in July or August as he went to the Mainland on the occasion of Buddha’s Birthday.  I asked a series of questions, but there seemed to be some confusion over whether the association had its own bank account.     

43.  Choi Chuk-ching then gave evidence as DW2.  He said he was not a member but went there three to four times a week to play mahjong and other activities.  You are well-known to him.  On any given occasion, he lost or won $40,000 to $50,000 approximately.  If he lost he was not required to pay immediately.  He transferred money to you by cash or transfer.  If he won he was not paid straightaway unless you had cash, usually two to three days later if not paid on the night.  He confirmed he made a donation if he won, sometimes $4,000 to $5,000, but had never been told it was required and he chose the amount.  He too was cross-examined but little emerged from that cross-examination. 

44.  The final defence witness was Lam Chi-ping.  He too was not a member but confirmed and supported the other defence evidence. He would win or lose approximately $50,000 to $60,000 a night.  He gave tips of $1,000 to $1,200 if he won $40,000.  He had never been told he had to give tips nor the amount.  He too was cross-examined but little emerged. 

45.  Mr Richmond then closed the case on behalf of defence.  Both Mr Poots for the prosecution and Mr Richmond for defence made final submissions.  I am obliged to them for the clarity of those submissions.

46.  I turn now to the verdict. 

47.  It is clear beyond peradventure that this clansman association is a complete and absolute shambles.  It existed without rules, without records and without structure.  Its sole reason for existing was to provide a gambling den open to members and any of their cronies.  In my opinion, the association is a front and a mere mirage for this activity.   

48.  As far as you are concerned, defendant, it is the goose that lay the golden egg, providing you with an income without limit or constraint, and you have repeatedly failed to declare your income.  It provides you with a pleasant and congenial workplace amongst friends and acquaintances whilst running your gambling den.  It is highly suspicious that on days following race meetings, that is Mondays and Thursdays, your accounts show a much higher level of activity than on other days.  It is highly suspicious that in the off season for racing the level of activity dwindles dramatically.    

49.  The prosecution case is founded on the huge amounts going through your accounts, being the proceeds of unlawful gambling, that is on horseracing, and that you knew or reasonably believed the money you were dealing with was the proceeds of an indictable offence. 

50.  It is well-established that the prosecution do not need to prove the indictable offence.  First, it is entirely clear that on any test you were dealing with funds.  Those funds are those put through your three bank accounts, A, B and C.  I am somewhat surprised and indeed dismayed that given your explanation on your arrest for those dealings that the investigating officer made no further efforts to investigate. 

51.  There is and I make full allowance for the fact the prosecution do not need to prove the indictable offence, an unfortunate lack of tangible evidence of an offence having taken place.  There are no betting slips, no obvious records, be it computerised or manual.  The prosecution simply ask me to draw irresistible inferences from the volume of the passage of funds, the very high level of activity in Account A, not Accounts B and C, on the days following a race meeting and the slowdown in the closed season. 

52.  Mr Poots, after full consideration, I think this is right, does not seek to argue that even on your version that illegal gambling was taking place, therefore, there was an indictable offence.  As the law stands at the moment, that is right.  This association was nothing short of a social gambling den.  However, I think there is a great lacuna in the law, and that contrary to the intentions of legislation, that gambling both on cards and mahjong:

(a) took place on a social occasion;

(b) they were in private premises of the association;

(c) they were not conducted by way of trade or business;

(d) there was no fixed bank entrance fee to the game, nor any proof or requirement to the pay over the tips, supposedly given freely;

(e) the games were not conducted for private gain, otherwise than to the extent of the winnings of a player; and

(f) your income and that of the association derives from effective gifts by winners.

53.  Given the body of evidence, especially the defence witnesses provided, I am driven to find that the evidence points to these facts being true rather than the alternative scenario, which raises mere suspicions. 

54.  It is therefore clear, despite their unusual lax and worryingly cavalier approach of you and your association, the prosecution has failed to establish to any acceptable level that you knew or reasonably believed the property, that is the funds, that you dealt with represented the proceeds of an indictable offence.  In fact, the opposite appears to hold true.

55.  Therefore, all three charges are dismissed.  I do however direct that the Department of Justice should bring your activities to the notice of the Inland Revenue Department for them to investigate the apparent tax evasion that has taken place. 

56.  And finally I make the point that you yourself can feel no justifiable grievance in finding yourself before the court, given all the circumstances that have taken place and the prosecution has not proved what it needs to prove beyond all reasonable doubt. 

57.  Finally, I would like to record my thanks to Mr Poots for the prosecution and Mr Richmond for the defence for the immense amount of help I have received during the course of this trial.