HKSAR v. CHAU HANG YU (FORMERLY KNOWN AS AIXINGERO CHAT YUNG)

DCCC 440/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 440 OF 2016

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REASONS FOR SENTENCE

1.  D1 faces 12 charges of "Conspiracy to defraud" (Charges 1 to 12); 1 charge of "Agent accepting an advantage" (Charge 13) and 1 charge of "Agent soliciting an advantage" (Charge 14). Charges 1, 5, 6, 7, 8 and 9 are charges jointly involving D2 (CHOW Chun-yin Steve), whose trial is scheduled to take place in November 2016.

2.  D1 pleaded guilty to Charges 1, 2, 3, 5, 6, 12, 13 and 14.  The prosecution offered no evidence against her in respect of Charges 4, 7, 8, 9, 10 and 11; those charges against her were accordingly dismissed.

Summary of Facts

Background

3.  At the end of June 2010, D1 began her employment with The Hongkong and Shanghai Banking Corporation Limited ("HSBC").  In August 2012, she was promoted from Wealth Management Manager to Associate Relationship Manager.

4.  D2 and Madam LI Lee (PW1) were also employed by HSBC as Wealth Management Managers.  The duties of D1, D2 and PW1 included promotion and sale of various investment and insurance products of HSBC (eg. unit trust funds).  In addition to their basic salary, they would receive a commission called "Sales Incentive" which was calculated based on their sales performance and subject to a monthly ceiling.

5.  In the course of selling investment or insurance products, HSBC requires its bank officers to personally explain the product details and features to the customers and to identify the customers' needs and investment risks.  Bank officers need to sign on the relevant investment subscription or insurance application forms to confirm that they, being the handling sales staff, have explained the above matters to the customers.  Furthermore, sales procedures of investment or insurance products must be carried out in Hong Kong.  Based on the information contained in the relevant forms, HSBC would calculate and award Sales Incentives to the bank officers who genuinely handled the sales.

6.  If HSBC knew that the relevant forms contain information which is false or known to be untrue, HSBC would not accept or process the transactions as the requirements have not been met.  As a result, the handling bank officers would not be granted any Sales Incentives.

7.  As an employee of HSBC, D1 was not allowed to solicit or accept advantages from others, including PW1, in relation to the affairs and business of HSBC.  HSBC does not allow any of its employees to claim Sales Incentives on behalf of another employee by falsely claiming that he/she was the responsible sales staff member when the relevant product was in fact sold by another HSBC staff member.

8.  One day in September 2012, D2 approached PW1 telling her that a friend of his working in the Wanchai branch of HSBC could not receive any extra Sales Incentives because her ceiling was reached, even though that friend would always exceed her target.  D2 suggested PW1 to assist his friend by submitting the sales forms of his friend in PW1's name.  PW1 did not agree with the suggestion immediately, but replied that she would consider it.  Later, D1 contacted PW1 directly and repeatedly requested PW1 to assist her by submitting the sales forms in PW1's name.

9.  PW1 asked D2 whether there was anything wrong with the suggested practice.  D2 told her that he had also done the same for D1 and nothing irregular had happened to him.  PW1 then agreed to assist D1.   

Charge 1

10.  On 20 September 2012, through D2, D1 passed to PW1 an insurance application form for "EarlyIncome Annuity Plan" of a customer named ZHANG.  The form was dated 21 September 2012 and the initial premium was US$169,764.  As instructed by D1, PW1 declared on the form that she handled the sale and had explained the details of the insurance product to ZHANG in person.  HSBC approved ZHANG's application and paid Sales Incentive in the sum of HK$52,400 to PW1 in November 2012.

Charges 2 and 3

11.  One day in late September 2012, PW1 received from D1 2 Unit Trust Subscription Orders of a customer named HUANG.  Both orders were dated 28 September 2012 and the amounts were respectively HK$11,994,855.89 (Deal Nos. P-003253, P-003254 and P-003263; Charge 2) and US$3 million (Deal Nos. P-003349, P-003350 and P-003362; Charge 3).  As instructed by D1, PW1 declared on the subscription orders that she handled the sales and had explained the details of the unit trust funds to HUANG in person.  HSBC approved HUANG's subscriptions.

Charges 5 and 6

12.  On 24 October 2012, through D2, D1 passed to PW1 2 Unit Trust Subscription Orders of a customer named LEE. The dates and amounts of the 2 orders were respectively 22 October 2012; HK$499,990 (Deal No. P-0022468; Charge 5); and 24 October 2012; HK$499,990 (Deal No. P-0023921; Charge 6).  As instructed by D1, PW1 declared on the subscription orders that she handled the sales and had explained the details of the unit trust funds to LEE in person.  HSBC approved LEE's subscriptions.

Charge 12

13.  One day in late October 2012, PW1 received from D1 a Unit Trust Subscription Order of a customer named CY LI.  The order was dated 30 October 2012 and the amount was HK$4 million (Deal No. P-0029369).  As instructed by D1, PW1 declared on the subscription order that she handled the sale and had explained the details of the unit trust fund to CY LI in person.  HSBC approved CY LI's subscription.

Charges 13 and 14

14.  On 26 November 2012, D1 phoned PW1 inviting her for a meeting at a coffee shop and demanding a share of the Sales Incentives received by PW1.  At the meeting, D1, in the presence of D2, accepted cash in the sum of HK$55,000 from PW1 as the reward for D1's referral of a customer, namely ZHANG, to her in September 2012.  This is Charge 13.

15.  On 26 November 2012, over the phone, D1 solicited from PW1 a sum of HK$55,000 as the reward for D1's referral of other customers to her in October 2012.  The sum of HK$55,000 represented part of the Sales Incentives to be released to PW1 in February 2013.  This is Charge 14.

The Truth

16.  PW1 had never met customers ZHANG, HUANG, LEE or CY LI.  She did not handle the sales of the relevant products or explain to them the details of such products.  PW1 simply followed D1's instructions to falsely declare that she was the bank officer responsible for the relevant sales of insurance and investment products to the customers named above.  Had HSBC known that PW1 was not the genuine handling bank officer of ZHANG's insurance application, it would not have released the Sales Incentive in relation to Charge 1 to her.

Termination of PW1

17.  PW1's employment with HSBC was terminated in January 2013.  Owing to the discovery of the fraudulent activities of PW1, D1 and D2, HSBC withheld payment of Sales Incentives to PW1 in a total sum of HK$66,000, which included the Sales Incentives receivable for the transactions in relation to HUANG, LEE and CY LI (i.e. the Sales Incentives in relation to Charges 2, 3, 5, 6 and 12).

Arrest

18.  D1 was arrested on 18 September 2013.  Under caution, she remained silent.

Mitigation & Sentence

19.  D1 is 30 and single. Although she is currently serving a sentence of 12 months' imprisonment (for 2 charges of "Fraud" in DCCC 130/2015), prosecuting counsel Ms. LO confirmed that both DCCC 130/2015 and the present case arose from the same investigation.  I will treat D1 as a person of clear record.

20.  Defence counsel Mr. CHENG informed me that D1 was born in Hong Kong.  Her parents separated when she was young and she has been looked after by her father since the age of 3 or 4.  After completing P4 in Hong Kong, D1 attended boarding school in the mainland.  She completed her tertiary education and returned to Hong Kong to work.  Before joining HSBC, she has worked as an estate agent and an insurance agent.

21.  In mitigation, Mr. CHENG first explained that HSBC sets different sales targets for different levels of bank officers.  If a staff member is able reach his/her target, he/she would be promoted, and would thus be required to achieve a higher target (though with more commission).  Mr. CHENG informed me that D1 did not want to be promoted, because if her new target was not achieved, she would be considered as underperformed. 

22.  Mr. CHENG submitted that D1 foolishly took matters into her own hands, thinking that she was entitled to the "extra" Sales Incentives (which were the fruits of her hard work).  D1 thought it would benefit both her and PW1 if she could transfer some of her "excessive" sales volume to a colleague who might not be performing so well.  Finally, Mr. CHENG submitted that D1 was under tremendous stress during the offence period.  She had to face daily pressure from her seniors to keep doing better; and the management would not leave her alone until she agreed to be promoted.  There is medical evidence of D1 suffering from anxiety disorder from April to December 2012.  A letter written by D1 was also placed before me; its contents are duly noted.

23.  I am not familiar with the banking or financial industries.  As an ordinary bystander, I have difficulty understanding the rationale behind the policy of imposing a ceiling on the monthly sales commission to be received by bank staff.  From the bank's perspective, the sales of financial products must be the more the merrier; and commission is plainly a key motivating factor for the sales staff to push themselves harder.  Then why put a cap on their monthly sales commission?

24.  Without the benefit of any explanation from HSBC, I shall refrain to making further comments; suffice it to say that D1 has my sympathy.  What she did was clearly wrong, and she would be punished accordingly.  What I do not understand is why she was not entitled to receive any commission for the sales which exceeded her monthly targets.

25.  Ms. LO informed me that the repercussion of D1's fraudulent practice is HSBC would have potential liabilities since the forms were false in the sense that PW1 was not the actual sales person.  Be that as it may, assuming that D1 had conducted the relevant sale transactions properly in that she did not mislead HSBC or the customers named in the charges in any other ways[1], I consider it proper and just to sentence her based on the amount of commission which she was not entitled to earn instead of the sales volume.

26.  This case is a classic Barrick type of breach of trust situation.  I have reminded myself of the sentencing guidelines laid down by the Court of Appeal in HKSAR v NG Kwok Wing [2008] 4 HKLRD 1017.  I stress that it is not an easy task and saddens me to send someone like D1, who is not a hardcore criminal, to prison.

27.  For each charge, I adopt a starting point of 15 months' imprisonment.  With the guilty plea, the sentence is reduced to 10 months.  Apart from this, I see no other mitigating factors which warrant any further reduction.  I sentence D1 to 10 months' imprisonment each for Charges 1, 2, 3, 5, 6, 12, 13 and 14.

28.  The total sum of "extra" commission involved in the present case is HK$118,400.  I consider a global starting point of 18 months' imprisonment to be appropriate. With the guilty pleas, the overall sentence is reduced to 12 months.  Hence, I order the sentences to run in the following manner :-

(i) Charges 1, 2, 3, 5, 6 and 12 concurrent; and

(ii) Charges 13 and 14 concurrent; but 2 months consecutive to Charges 1, 2, 3, 5, 6 and 12.

Thus, arriving at a total prison term of 12 months.

29.  Mr. CHENG has informed me that D1 is expected to be released on 23 October 2016 for her existing sentence in DCCC 130/2015.  With Mr. CHENG's consent, Ms. LO has submitted for my reference the relevant papers in DCCC 130/2015 (including the Reasons for Sentence).  Bearing in mind the totality principle, I order 2 weeks in DCCC 130/2015 to run concurrent with the sentences in the present case.