HKSAR v. HUI WAI CHI

DCCC 1068/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1068 OF 2013

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Reasons for Sentence

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1.  The defendant, Madam Hui Wai-chi, a madam of 53 years of age hitherto of clear record, pleaded guilty to me to two charges of fraud, charge 1 and 2. She pleaded not guilty to charge 3, dealing with property known or believed to represent proceeds of an indictable offence. She admitted the facts pertaining to charge 1 and 2. Upon conviction for charge 1 and 2, at the request of the prosecution I ordered that charge 3 be kept on the court’s file and not to be proceeded with without the leave of this court or the Court of Appeal.

2.  The facts reveal that Zodiak International Limited (“Zodiak”) was incorporated in 2002 and was a shoe manufacturing company.  A Mr Au and a Madam Hui are the only shareholders and directors of Zodiak.  As for the defendant, she is in fact the sister of Madam Hui and she worked as the accounting manager of Zodiak.  On 1 August 2007, Zodiak opened three accounts at the Hongkong & Shanghai Banking Corporation Limited (“HSBC”).  I shall refer to these accounts as “Account A”, “Account B” and “Account C”.  The defendant was one of the three signatories of those three accounts.  Zodiak had entered into factoring a loan and import loan agreements with HSBC.

3.  In January 2011, HSBC received a report that there was a problem with the factoring loan applications made by Zodiak.  The bank investigated into the matter and found that after releasing the loan amounts to the listed suppliers of Zodiak, i.e. Valtex and Bingo Shine, by HSBC in 11 transactions pursuant to the Import Loan Agreement between HSBC and Zodiak, there was a circular fund flow back to Zodiak.  The case was reported to the police.

Factoring Loans

4.  According to the factoring agreement between Zodiak and HSBC, Zodiak could obtain 85 per cent cash in advance of the transactions with its customer, i.e. Michael Kors (USA) Inc (“MK”) upon the presentation of the necessary transaction documentations including purchase orders, shipment proofs and invoices.  HSBC would then collect the account receivable from MK on behalf of Zodiak.  After deducting the service charges and the amount of cash in advance provided to Zodiak, the remaining sum would be returned to Zodiak. 

5.  From 25 November 2010 to 5 January 2011, Zodiak had used copies of a total of seven forwarder cargo receipts, Exhibits 1 to 7, purportedly issued by APL Logistics in four applications of factoring loans from HSBC.  The loan applications were signed by the defendant.  In those four applications, it was alleged that the goods stated in the invoices issued by Zodiak which were attached to the Notification of Debts of the application were sold and delivered to MK.

6.  The four factoring loans, i.e. the first to the fourth factoring loans, involved a total amount of over US$776,000, that is over HK$6 million.  Two of the loans in the total sum of over US$361,000, i.e. over HK$2.8 million, were approved and one of them concerning over US$181,000, i.e. over HK$1.4 million,  had already been repaid while US$151,000, i.e. over HK$1.17 million of the other loan were still outstanding. Staff of MK confirmed that the purchase orders submitted for the first to the fourth factoring loans were genuine.  However, staff of APL Logistics confirmed that Exhibits 1 to 7 were forged. 

7.  When the first factoring loan of over US$181,000, i.e. over HK$1.4 million, was approved and deposited into Account B on 26 November 2010, a total sum of over US$173,000, i.e. over HK$1.34 million cash was withdrawn by the defendant from Account B by four transactions in the period from 26 November 2010 to 20 November 2010.

8.  The second factoring loan of over US$180,000, i.e. over HK$1.4 million, was deposited into Account B on 2 December 2010.  From the 3rd to the 9 December 2010, the defendant had withdrawn a total sum of over US$149,000, i.e. over HK$1.15 million from Account B.

Import Loans

9.  HSBC has provided import loan facility to Zodiak since 2007.  Upon providing the invoices, shipment proofs of the listed supplier and the purchase orders of its buyers, Zodiak can obtain loans from HSBC within its credit limit.  The defendant, Mr Au and Madam Hui were the signatories of the import loan service account. 

10.  Between 8 September 2010 and 15 December 2010, Zodiak applied for 11 import loans from HSBC.  All were approved.  The defendant signed on all the loan applications.  Valtex Enterprise Company Limited (“Valtex”) and Bingo Shine Development Limited (“Bingo Shine”) were the alleged suppliers of Zodiak in the underlying transactions stated in the applications.  The 11 import loan applications involved a total of 21 purchase orders purportedly issued by MK, Diva Acquisition Corp (“Diva”) and Phoenix Footwear Group (“Phoenix”) respectively.  The total amount of import loans granted by HSBC to Zodiak was over US$1.34 million, i.e. over HK$10.4 million.

11.  The staff from Diva, MK and Phoenix confirmed that all the purchase orders involved in the aforesaid 11 import loan applications of Zodiak were forged.  HSBC confirmed that if they had found out any of the documents in support of the import loan and factoring loan applications was forged, they would not have approved the loans.

12.  The money of the import loans were directly deposited by HSBC into the accounts of Valtex and Bingo Shine.  Five of the import loans in the total amount of over US$588,000, i.e. over HK$4.55 million were repaid while the remaining six loans in the total sum of over US$755,000, i.e. over HK$5.85 million, were outstanding.

13.  For the loans involving Valtex, whenever HSBC deposited the loans into the account of Valtex in Taiwan, money in a similar amount would be transferred by Valtex’s account to the Hang Seng bank account, i.e. Account D, of Winto International Limited (“Winto”) in Hong Kong shortly thereafter.  Money would then be cashed out and a similar amount of cash would be deposited into the Hang Seng bank account of Zodiak thereafter.  Some of the said cash deposits into Zodiak’s Hang Seng bank account were done at the same bank counter immediately after cash was withdrawn from Winto.

14.  Almost all the loan money deposited into the bank account of Bingo Shine was also transferred to Account D, among which US$3,000, i.e. HK$23,250, was channelled back to Zodiak. 

15.  Between 10 September 2010 and 16 December 2010, the total amount remitted by Valtex and Bingo Shine to Account D was over US$1.34 million, i.e. over HK$10.4 million. 

16.  Winto is a British Virgin Islands company.  According to the opening mandate of Account D, the defendant was the director of Winto and she was the sole signatory of Account D. 

17.  The defendant is 53 years old.  She received education up to Form 5.  She resides with her mother in Ho Man Tin, Kowloon.  Mr Kwan, in mitigation, told me the company in question, Zodiak, was formed in the year 2002.  It was founded by the younger sister of the defendant, Madam Hui Wai-kwan together with her husband, Mr Au Sze-wah.  Zodiak’s main business was to supply shoes to overseas buyers.  Mr Kwan submits that Zodiak had genuine business and it had been in operation since 2002. 

18.  The defendant was also a director of Zodiak and she holds 20 per cent of its shares.  As stated in the summary of facts, the defendant was the accounting manager of Zodiak. She was responsible for preparation of documents and making applications to banks.  Mr Kwan submits that Zodiak was doing well until sometime in 2008. Because of changes in the policies in the PRC in relation to labour law and because of the inflation of Renminbi and increase in rental, the company began to encounter financial problems.  From 2010, the company started to move its production line to Indonesia and its business suffered greatly after it had relocated its production line to Indonesia. 

19.  The defendant tried to save the company by putting in her own investment and out of foolishness the defendant committed the offences in question.  Mr Kwan submits that the defendant had derived no personal gains from the crimes.  All the money obtained from the bank by the fraudulent practices was spent in the company. Approximately, the total amount of outstanding loan owed to HSBC is HK$7 million.  Mr Kwan submits there was no breach of trust involved in the present case. The defendant is now a person of straw but she is willing to compensate the bank with all the bail money she has, i.e. $100,000. 

20.  The prosecution submits the case of HKSAR v Yu Lai Lai, Agnes.   In paragraph 43 of the Judgment, Macrae JA refers to the case HKSAR v Dai Chi Wai CACC 84/2010.  Macrae JA says:-

“As the court stated in HKSAR v Dai Chi Wai, unreported, CACC84/2010 at paragraph 4 in relation to letter of credit frauds which we deem similar for sentencing purposes, although the Court of Appeal has not laid down any sentencing guidelines for fraud by using false documents to apply for a letter of credit, it has stated clearly that the court has to take into account factors including the amount of money involved, the number of banks deceived, the period over which the fraudulent act was committed, whether the banks had suffered any loss and the roles played by each of the defendants.”

21.  In the present case, only one bank was involved, i.e. HSBC.  As for the amounts of money involved, for charge 1, the four factoring loans involved a total amount of over HK$4 million.  The total amount of over HK$2.8 million was drawn down as a result of the fraud practiced by the defendant on the bank.  In relation to charge 2, the total amount of import loans granted by HSBC to Zodiak was over HK$10.4 million.

22.  As far as the period over which the fraudulent acts were committed is concerned, charge 1 took place between 25 November 2010 and 5 January 2011.  Charge 2 took place between 8 September 2010 and 15 December 2010.  Substantial loss was suffered by HSBC. For charge 1, there was a loss of over HK$1.17 million being the amount of the factoring loans still outstanding.  As for charge 2, there was a loss of over HK$5.8 million, i.e. being the amount of import loans still outstanding. 

23.  As for the role played by the defendant, the facts show that all the factoring loan applications and import loan applications were signed by the defendant.  The defendant withdrew moneys from Account B upon receipt of the loans.  She was also the Director of Winto and the sole signatory of Winto’s bank account.  The defendant played a pivotal road in the fraudulent scheme.

24.  Mr Kwan says the defendant has derived no direct gain from the fraudulent acts but the defendant has a financial stake in Zodiak, she has 20 per cent shares of Zodiak. 

25.  I am aware that the defendant has a clear record.  She pleaded guilty to the offences and counsel told me the defendant is willing to compensate the bank with all the bail money she has and that is the best she can do.  Of course the $100,000 compensation is a modest sum compared to the loss caused to the bank. 

26.  What the Court of Appeal said in HKSAR v Dai Chi Wai is also relevant to the present case.  Crimes of this nature if undeterred would undermine the system of documentary trade finance as a whole.  It would also impinge upon Hong Kong’s status as an international banking centre.  A deterrent sentence is called for.

27.  On charge 1, a starting point of 2 years’ imprisonment is appropriate in my judgment.  The defendant pleaded guilty to the charge and she has a clear record.  She is entitled to one‑third reduction.  I will also allow the defendant a further one month reduction for the compensation to the bank.  For these reasons, I sentence the defendant to 15 months’ imprisonment for charge 1.

28.  On charge 2, the starting point of 5 years’ imprisonment is appropriate but for guilty plea and clear record that will bring the sentence down to 40 months’ imprisonment.  I will further give the defendant one month’s reduction for the compensation and that would bring the sentence further down to 39 months’ imprisonment.

29.  I order that the defendant should make a compensation to HSBC for the amount of $100,000 to be taken from the bail of the defendant. 

30.  Taking into consideration the totality principle, in my judgment a total sentence of 39 months should sufficiently reflect the culpability of the defendant, who played a pivotal role in the fraud committed against HSBC over a period of four months with the total loss of over HK$7 million.  The terms are concurrent.