HKSAR v. LAM CHI YUEN

CACC 14/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 14 OF 2014

(ON APPEAL FROM DCCC NO. 370 OF 2012)

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REASONS FOR JUDGMENT

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Hon Lunn VP (giving the Reasons for Judgment of the Court) :

1. The applicant sought leave to appeal against his conviction on 13 December 2013 after trial by District Court Judge Yiu of seven offences of dealing with property, in the overall period of 3 October 2006 to 9 February 2010, known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap. 455. At the hearing, we dismissed the application and said that we would give our reasons for so doing in due course. That, we do now.

The Charges

2. The seven charges concerned the applicant’s dealing with monies in six bank accounts and an account with the Hong Kong Jockey Club.  The Particulars of Offence of each of the charges stipulated the total amount of the monies withdrawn from each of the accounts in the specified periods.  Two of the bank accounts were accounts in the joint names of the applicant and Chun Fat Finance Assurance Company (“Chun Fat”), Charges 2 and 3, whilst the remaining bank accounts and the Hong Kong Jockey Club account (Charge 7) were all in the name of the applicant alone.  Three of the charges concerned bank accounts with the Bank of China (Charges 1-3), two of the judges concerned bank accounts with Hang Seng Bank (Charges 4 and 5) and the remaining charge concerned a bank account with HSBC (Charge 6).

The Trial

3. There was no dispute that the applicant was the sole signatory of the two bank accounts held in his name and that of Chun Fat (Charges 2 and 3), as well as being the sole signatory of all the bank accounts in his sole name.  Further, he was the sole proprietor of Chun Fat.  It was an admitted fact that the applicant’s income in the years 2004/2005, 2005/2006, 2007/2008 and 2008/2009 was nil, as was the tax payable.[1]  Similarly, it was an admitted fact that in the same financial years Chun Fat had a nil income in the years 2007/2008 and 2008/2009, a loss of $18,690 in the year 2004/2005 and a profit of $55,758 in the year 2005/2006.  In all four years the tax payable was nil.[2]

Prosecution case

4. The prosecution case was that in the overall period specified in the Particulars of Offence of the Charges the applicant dealt with about $109 million in total in the six bank accounts and the Hong Kong Jockey Club account.  By contrast, the prosecution pointed to the income declared by the applicant and Chun Fat, together with the fact the total amount of money deposited into and withdrawn from the respective bank accounts and the Hong Kong Jockey Club account for the overall period was nearly the same:

Charge	Deposits-Total	#	Withdrawals-Total	#
1	$8,704,787.29	(663)	$8,696,728.88	(747)
2	$22,144,704.95	(500)	$22,125,376.09	(751)
3	$21,097,854.30	(4399)	$21,135,810.27	(632)
4	$36,472,608.56	(567)	$36,465,802.37	(596)
5	$7,947,250.00	(43)	$7,947,150.00	(55)
6	$8,863,371.76	(533)	$8,869,690.00	(536)
7	$4,413,765.00	(228)	$4,413,450.00	(830)
Total:	$109,640,758.86		$109,711,578.86

5. Further, the prosecution relied on the applicant’s out-of-court statements, made in a record of interview under caution, in which he said that apart from working as a real estate agent in the Mainland he had no other businesses and earned no taxable income, together with his statements that he alone used the Hang Seng Bank account (Charge 4) and did so for dealing with his own savings, albeit that he was unable to describe the source of various deposits made into that account.

The Defence case

6. The applicant elected to give evidence and called 34 witnesses.

7. The applicant admitted having told lies in his statements in the record of interview conducted under caution by a police officer.  In his evidence, he asserted that monies in his Hang Seng Bank savings account were used to repay debt collection companies. 

8. Theapplicanttestifiedthathecontrolled24 companies,

employingnofewer than80staffatitspeak. Through them,he carriedonthebusinessofguaranteeingloansmadebyfinancecompaniesto personswithpoorcreditratingsandthebusinessofcollectingdebts. Forthe formerservice,he charged a percentage, which varied from 15% to 40%, of the loan amount.  In addition, he operated a mortgage referral service for which he charged between 1-3% of the loan.  The persons apparently running those businesses were in fact his staff or friends.  He had resorted to using nominees in that business activity having been frequently disturbed or harassed by the police in his operations of the business of Chun Fat.

9. The applicant testified that in 2006, the total amount of loans granted by finance companies which he guaranteed was about $7 million per month, so that the amount of money received by way of guarantee payments was about $2 million per month.  The latter payments were offset by the debts and expenses of running the companies.  Those expenses included the cost of advertisements, salaries, commission, bonuses, rent and the usual office expenses.  Customers were required to enter into a written agreement, in which the amount of commission for the provision of the guarantee of their respective loan was calculated on their respective risk profile.  Then, customers were accompanied by members of staff to the offices of various finance companies where loan applications were made.  On the occasion of successful loan applications, the customer was accompanied to the bank where the money charged as the payment of the commission for the provision of the guarantee service was paid over to a member of his staff.  In their turn, they would then make cash or transfer deposits to the applicant’s bank account, as directed by the applicant through the supervisor of different companies.  Sometimes payments were made to the applicant directly, in which event he deposited those monies into his Hong Kong Jockey Club account.

10. The applicant testified that, in those cases where his customer did not repay the respective finance company, he became responsible for repayment to the finance company.  For his part, he assigned one of his other companies responsible for debt collection to seek to collect the debt from the customer.  He accepted that there were no written agreements between him and the finance companies.  He explained the absence of other usual business records as arising from police investigations of his various companies which, after seizure of such business records, have resulted in the return of documentary records in disarray.

Other witnesses for the defence

11. Of the many witnesses called in the defence case, 14 were supervisors and 16 were clerks.  They testified that they worked in various companies operated by the applicant.  The witness statements of all but three of those witnesses were admitted into evidence pursuant to section 65B of the Criminal Procedure Ordinance, Cap. 221.  It appears that was done, at the suggestion of the judge, after the first three witnesses had given their evidence orally, to present their evidence-in-chief more expeditiously.  However, they were made available for and were cross-examined by the prosecution.  As the judge noted, their statements and evidence were “very similar, if not the same”.[3]

12. The nub of the evidence of the supervisors was that they held the respective companies, in which they said they appeared to be the owners, for the benefit of the applicant and, at his direction, operated the business.  The applicant was responsible for the payment of expenses and he was entitled to all the profits.  Their salary was about $8,000 to $10,000 per month, plus 3% commission of monthly turnover.  They were prepared to act as they did for the benefit of the applicant because they understood him to have been harassed by the police and because they believed that the business was legitimate. However as the judge noted, in cross-examination, when confronted with the tax returns of their respective companies, which were not consistent with their evidence that they were merely employees, most of the witnesses availed themselves of the rights, of which they were informed by the judge, against answering questions if those answers might be self-incriminatory and declined to answer questions.[4]

13. The evidence of those witnesses who were employed as clerks in the respective companies was to the effect that they worked at the direction of their respective supervisors for a monthly salary of about $7,000.  They were not provided with written contracts of employment.

14. As the judge noted, only one witness was called who was connected with one of the finance companies.  Ms Elaine Leung, together with her sister, was a director of Gain Hero Finance Limited (“Gain Hero”), a licensed moneylender.  She had dealings with the applicant, who transferred monies to the bank account of Gain Hero and to her sister’s personal bank account.  Over $2 million was transferred by the applicant to the latter’s account, whereas she transferred a total of $939,000 to his account.[5]  Also, she produced three loan agreements made between Gain Hero and individual borrowers made on 15 January, 3 July and 27 October 2009, two which were loans of $6,000 and the third for $10,000, of which Mr Leung Ka Yu of Honour City Investment was the guarantor.[6]  The latter was a witness who testified that, at the direction of the applicant, he acted as the supervisor of that company.  However, there was no written agreement between the applicant and Gain Hero.[7]

Reasons for verdict

15. In his Reasons for Verdict, the judge rejected the evidence of the applicant and his witnesses.[8]  In doing so, he noted the “greater disparity” between the income he declared to the Inland Revenue and the “significant deposits” in the seven accounts.[9]  Of the arrangements described by the applicant and witnesses called in the defence case for the operation of the business of providing guarantees to finance companies for loans taken out by customers, the judge determined that they “defied any common sense, commercially or realistically.”[10]  Having regard to the “frequency and fashion” of the use of the seven accounts and noting the substantial sums involved, together with the fact that the closing balances were minimal, the judge determined that the applicant used the accounts as a “repository” and had reasonable grounds to believe that the monies were the proceeds of an indictable offence.[11]

Grounds of appeal against conviction

16. By ground 1, it was submitted that the judge erred in drawing an inference adverse to the applicant, from the absence of any written evidence to support his case advanced in his own testimony that he ran the various companies, albeit that they were managed by other individuals, that offered the service of guaranteeing loans made to customers by finance companies.  The judge erred in inferring that there was illegality involved in the operation of the business and that the applicant had given untruthful evidence, from which lies could be identified.

17. By ground 2, it was contended that the judge erred in finding that, even if the applicant’s version was to be believed “to some extent”, the applicant would nonetheless be guilty of the respective charges because the business in which the applicant was engaged with others in a syndicate included illegal money lending.  First, there was no evidence that the applicant or any other companies of which he claimed he had control was engaged in illegal money lending.  Secondly, it was not open to the judge to find that the commissions and administrative charges levied by the respective companies, which the applicant testified were charges for the provision of guarantees to finance companies for the loans they made to their mutual customers, were a sham to conceal money lending at excessive rates of interest.

18. By ground 3, it was contended that the judge fell into error in concluding that the only explanation for the unusual features of the business activity, in consequence of which the applicant received monies, was that the applicant was dealing with the proceeds of an indictable offence.  Rather, there were many other explanations, such as tax evasion.  It was incumbent on the judge to indicate why he determined that the applicant had reasonable grounds to believe that he was dealing with the proceeds of an indictable offence.  There was no “reverse onus” that required the applicant to prove the contrary.

19. By grounds 4 and 5, it was submitted that, in the absence of expert testimony to explain the permissible inferences to be drawn from the evidence of commercial activity which gave rise to the movement of funds in the accounts, the judge erred in finding that the applicant dealt with the monies having reasonable grounds to believe that they were the proceeds of an indictable offence.

A consideration of the submissions

20. The judge’s observation, in the context of the defence case that the banking transactions in the applicant’s accounts were the normal activity of a loan guarantee business operated by the applicant through multiple companies held in the names of other persons, that “there wasn’t even one single piece of written document which could possibly link the defendant to any of the these companies”[12], was part of a much wider analysis of the evidence, which led him to his ultimate finding that the applicant was guilty of the offences charged.  Very obviously, it was not that fact alone that led to the judge’s ultimate finding.

21. Of the applicant’s testimony “that he was the boss of 24 companies”, the judge said, immediately before his observation as to the absence of a single document:

“ yet, all companies were not held in defendant’s name, as appeared in the business registration records, except Chun Fat, where the defendant was the sole proprietor, but this was also formally ceased in April 2007..”

22. It was in that context, the judge posed a series of rhetorical questions, in which he asked why it was that the persons who became the supervisors of the various companies would have entered that arrangement in which they were presented as the owner and operator of the respective company whereas in fact they were mere employees:[13]

“ …why would any person, just earning perhaps $10,000 to $20,000 per month, be that willing to let their names be used as sole proprietor of a company, both facing heavy legal or commercial burden, even acting as guarantor on papers, example see D44(1)-(3)[14], where Leung Ka-yu as sole proprietor of Honest City, yet also seeing numerous transactions going through their personal accounts. These arrangements, as alleged, clearly defied any common sense, commercially or realistically.

Apart from more serious issue on the tax returns (staff appearing only as sole proprietor but not employees), there also wasn’t any written employment contract nor any employer’s confirmation in writing whatsoever (except some appeared only in early stage of tax returns filed by Chun Fat).  Clearly, there must be more story and details behind were there any actual linkage to the defendant; yet, none had told the whole truth to the Court.”  [Italics added.]

23. Of the evidence of the payment of monies made to the persons, said to be the supervisors and clerks of the applicant’s companies, of what was claimed to be income or commission to members of staff, the judge said:[15]

“ the entries were very irregular and/or intermittent; some by cash, some by bank transfer, some from supervisors, claiming that they would further distribute. Were these just genuine payment of salary or commission? Why would this irregular pattern exist? Why would different account be used? Why would the tax return not tally? Why wasn’t there any formal proof? All these could only suggest secrecy and undisclosed dealings behind, where likewise, none have been willing and prepared to tell the whole truth to this Court.” [italics added.]

24. Of the evidence as to the nature of the business about which the applicant and his witnesses had testified, the judge said:[16]

“ …if these customers were of poor financial background, then why would licensed moneylender approve the loans? If it were said because of the guarantee from the defendant, why wasn’t there any written guarantee agreement between the defendant and the financial companies? Why, then, say for example, the sole proprietor of Honest City, Mr Leung, would then act as the guarantor as said? See D44(1)-(3). Further, defendant said the risk of bad debt was high. If the customer defaulted, he had to repay the loan. If so, why the licensed moneylender would designate a different account for defendant to deposit? Defendant said the moneylenders didn’t want any linkage in papers, but why and what to be afraid of, if these were legitimate and proper, again, the whole plot was clearly left undisclosed and unexplained.” [Italics added.]

25. As Mr Raymond Cheng submitted, although the judge rejected the applicant’s testimony in the defence case that the monies dealt with in the seven accounts had their provenance in the legitimate commercial activities of the various companies which he controlled through his nominees, the judge did not determine that there were no business activities between the respective parties.  Rather, he said:[17]

“ …even if one may say that there could be some pattern of business activities between the parties, the exact nature and details were far from clear and concrete, and no doubt there must be unlawful business engaged, where none would be willing to reveal the whole truth. See also HKSAR v Oei Hengky Wiryo [2007] 10 HKCFAR 98, paragraph 68, McHugh, NPJ of CFA noted the following:-

“ The evidence established that very large sums of money passed between Kam and Oei. That they had a business relationship of some kind is hardly open to doubt. Moreover, the evidence from tax returns indicated that Kam was not involved in any lawful business that could have generated the sums of money that passed between him and Oei. Furthermore, Oei had not filed any tax returns that indicated that he was engaged in any lawful business in Hong Kong. Thus, the evidence proving the transfers of money between their respective bank accounts and others gave rise to the inference that Kam and Oei were probably engaged in an unlawful business of some kind.” ”

26. In that context, the judge had noted earlier that although the total amount of monies deposited and withdrawn from the seven accounts was over $109 million:[18]

“ there was no declared profit nor tax payable for both the defendant and Chun Fat in the charge period.”

In fact, as noted earlier, it was an admitted fact that “The Defendant’s income” for the years 2004/2005, 2005/2006, 2007/2008 and 2008/2009 was “Nil”.  There was no admitted fact in respect of the year 2006/2007.  Similarly, it was an admitted fact that “Chun Fat Finance Insurance Company’s income” for the year 2004/2005 was a loss of $18,690, a profit of $55,758 in the year 2005/2006, and “Nil” in the years 2007/2008 and 2008/2009.  Again, there was no admitted fact in respect of the year 2006/2007.  Although construed strictly the admitted facts state that there was nil income, it is clear that the judge treated it as meaning no income declared to the Inland Revenue.  Given that the primary documents furnished to the Inland Revenue for those respective years had been adduced into evidence in the same admitted facts[19], it is clear that that was a purposeful and sensible way to approach the admissions.

27. Relevant to the judge’s observation that there was no declared profit for the applicant or Chun Fat was his earlier observation that, at the peak of the business described by the applicant, the monthly revenue generated was about $2 million.  Of that, the judge had posed the rhetorical questions [20]:

“ where did the substantial profit go? Amongst 7 accounts, why would eventually the amount of total deposits and withdrawals be so close, if not nearly the same?”

28. In the result, having adverted to the “frequency and fashion” with which the various accounts of the applicant had been used and having noted that the total deposits and withdrawals “were nearly the same with the closing minimal balance in each account of the charging period”, the judge determined that “the defendant clearly had been using these accounts as a repository for funds”.[21]  The judge said that, in consequence, he concluded that the defendant had reasonable grounds to believe that “the funds passing through his seven accounts, in whole or in part, directly or indirectly, represented the proceeds of an indictable offence, and the defendant had dealt with them.”

29. Clearly, having rejected the evidence of the applicant and the witnesses called in to the defence case of the business activity that they testified the applicant conducted, together with the evidence of the Inland Revenue returns made by the applicant and Chun Fat in the material period, the judge was left with no evidence of any legitimate provenance of the monies deposited into the seven accounts.  On the contrary, there was a compelling inference of the illegitimate provenance of the monies.

30. Nevertheless, the judge went on to explore a hypothetical alternative explanation for the provenance of the monies:[22]

“ Lastly, I shall also add that even if the defendant’s version was to be believed to some extent, it would even involve a syndicate by all these companies and moneylender referred in lending money unlawfully and at an excessive rate.” [Italics added.]

Having regard to both the interest rate charged and the guarantee commission levied by those supervisors acting on behalf of the applicant and the various companies, the judge concluded:[23]

“ The whole arrangement was simply a sham to get round the legitimate maximum lending rate, to extort the borrower with weak bargaining power.”

31. Notwithstanding the fact that the judge had been prepared to explore and reject a hypothetical alternative explanation for the legitimate provenance of the monies, it is clear that first and foremost the judge had rejected the testimony of the applicant and his witnesses in respect of their evidence of the business activity that they described as being the legitimate provenance of the monies deposited into the seven accounts and the explanation for the multiple payments made from those accounts.  In making that finding, the judge’s determination was trenchant:[24]

“ I must conclude that the defendant and his witnesses were clearly not telling, nor willing to tell the whole truth to this Court.”

32. Although it was contended before this Court that one possible explanation in respect of the provenance of the monies that were deposited into the seven accounts was that of tax evasion, that was not the applicant’s case at trial.  Further, no such submission was made on behalf of the applicant at trial.  That is not surprising, since tax evasion is itself an indictable offence.[25]

33. In all the circumstances, we are satisfied that, having regard to the litany of improbabilities that were identified by the judge in his analysis of the evidence adduced in the defence case, the judge was entitled to reject that evidence.  Further, in that context the judge’s finding that the witnesses called in the defence case had not been prepared to tell the court the “whole truth” was entirely understandable and justified.  In the result, having regard to those findings, together with the evidence in respect of the tax returns of the applicant and Chun Fat and the pattern of the flow of money in and out of the accounts there was compelling evidence to support the judge’s finding that “the defendant must have reasonable grounds to believe” that the monies passing through his seven accounts for the proceeds of an indictable offence.

Expert evidence

34. There is no merit in the complaint made on behalf of the applicant that, in the absence of expert testimony, the judge was not in a position to make a determination that the applicant had reasonable grounds to believe that monies were the proceeds of an indictable offence.  It followed from the judge’s rejection of the evidence adduced in the defence case, that there was no evidence to suggest a legitimate provenance of the monies deposited into the seven accounts.  On the contrary, for the reasons given above, there was simple and compelling evidence to sustain the finding of the judge that the applicant had reasonable grounds to believe that the monies with which he dealt in the seven accounts were the proceeds of an indictable offence.

Conclusion

35. Accordingly, for the reasons that we have given we dismissed the application for leave to appeal against conviction.

[1] Appeal Bundle; page 29, paragraph 8.

[2] Appeal Bundle; page 29, paragraph 10.

[3] Appeal Bundle; pages 43 F and 44 P, paragraphs 32 and 37.

[4] Appeal Bundle; page 45 N and T, paragraphs 39 and 40.

[5] Appeal Bundle; page 46 O-S, paragraph 44.

[6] Appeal Bundle; pages 46 U - 47 A, paragraph 45.

[7] Appeal Bundle; page 47 A, paragraph 45.

[8] Appeal Bundle; page 52 M-O, paragraph 60.

[9] Appeal Bundle; page 51 S-T, paragraph 58.

[10] Appeal Bundle; page 48 Q, paragraph 50.

[11] Appeal Bundle; pages 53 R - 54 E, paragraph 65.

[12] Appeal Bundle; page 48 H-I, paragraph 49.

[13] Appeal Bundle; pages 48 M - 49 B, paragraphs 50-1.

[14] Exhibits 44(1)-(3) were the three loan agreements between individual borrowers and game hero, of which Mr Leung Ka Yu of Honest City was the guarantor.

[15] Appeal Bundle; page 49 F-J, paragraph 52.

[16] Appeal Bundle; page 49 L-S, paragraph 53.

[17] Appeal Bundle; page 53 H-K, paragraph 63.

[18] Appeal Bundle; pages 51 U - 52 A, paragraph 58. 

[19] Appeal Bundle; page 30, paragraph 15(iii)–Exhibit P 5.

[20] Appeal Bundle; page 50 K, paragraph 56.

[21] Appeal Bundle; pages 53 S - 54 A, paragraph 64.

[22] Appeal Bundle; page 54 I-K, paragraph 66.

[23] Appeal Bundle; page 54 N-P, paragraph 66.

[24] Appeal Bundle; page 52 M-O, paragraph 60.

[25] HKSAR v Kong Wai Chun (CACC 252; unreported, 20 May 2011), page 46 S-T, paragraph 130.