HKSAR v. ZHANG XIAOGUANG

[English Translation – 英譯本]
HCMA 24/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 24 OF 2014

(ON APPEAL FROM FLCC 1706/2013)

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JUDGMENT
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1. The appellant was charged with one count of “dealing with property known or believed to represent the proceeds of an indictable offence” (commonly known as “money laundering”), contrary to s 25(1) and s 25(3) of the Organized and Serious Crimes Ordinance, Cap 455 (“the Ordinance”). He pleaded not guilty and was convicted after trial in the Fanling Magistrates’ Court by Deputy Magistrate HUI Shuk Yee Cherry. The appellant was sentenced to 12 months’ imprisonment. The appellant appealed against conviction as well as sentence. Having served the prison sentence, the appellant abandoned his appeal against sentence and only appealed against conviction.

The Prosecution Case

2. The prosecution case is that in June 2011, the email address of Madam K who lived in the USA was hacked. Criminal(s) issued instructions to UBS (France) S.A. where Madam K had account(s), transferring €79,000 from her account to the appellant’s US dollar account No. 457-XXXXXX-XX with the Standard Chartered Bank, Hong Kong. On 22 June 2011, UBS (France) S.A. deposited US$112,564.85 which is the equivalent of €79,000 into that US dollar account.

3. There was no direct evidence in this case that the appellant was related to that email fraud. The prosecution case alleged that knowing or having reasonable grounds to believe that the sum of money above in whole or in part directly or indirectly represented the proceeds of an indictable offence, the appellant dealt with that sum of money.

4. The prosecution mainly relied on the affidavits of the banks of the accounts involved in this case and two videotaped records of interview of the appellant under caution.

5. The undisputed facts were that on 22 June 2011, there were records of the following transactions in the appellant’s account:

(1) The US dollar account received US$112,564.85 deposited from Madam K’s account;

(2) US$1,125 was transferred via on-line banking system from the US dollar account to a Hong Kong dollar account;

(3) US$10,300 was transferred via on-line banking system from the US dollar account to a current account;

(4) HK$80,110 was transferred via on-line banking system from the current account to the Hong Kong dollar account.

6. The registered location of the Internet address that issued the above three on-line banking system instructions was Nigeria.

7. The appellant visited the Sheung Shui Branch of the Standard Chartered Bank on 23 June 2011 and asked to transfer US$76,000 from his US dollar account to another bank account of the Standard Chartered Bank. The holder of that account was Fu Chubin. Bank employees arranged the transfer in accordance with the appellant’s instructions.

8. The records of interview of the appellant showed that he had three Standard Chartered Bank accounts. They were a US dollar account, a Hong Kong dollar account and a current account, all of which could be operated via the on-line banking system. During the incident, both the appellant and Yang Yetao (hereinafter called Mr Yang) knew the password for the on-line banking system and could operate the three bank accounts. Mr Yang began to operate the appellant’s on-line banking accounts from about 16 June 2011 onwards.

9. The records of interview also showed that the appellant had dealt with the property involved in this case. He lent his US dollar account to Mr Yang to receive the sum of money, lent his Hong Kong dollar account and current account to Mr Yang for the purpose of making transfers, and using on-line banking system to check on the banking-in of the sum of money and the status of the transfers afterwards. He also visited the bank in person to make the transfers for Mr Yang.

10. The appellant claimed that Mr Yang was his friend and he was doing business in Nigeria, Africa. He was abroad and needed the appellant to lend him his accounts in Hong Kong to receive sums of money because there was foreign exchange control in Nigeria. The appellant claimed all the money in the US dollar account was banked in by Mr Yang. As to the money in his Hong Kong dollar savings account, apart from HK$8,754 which represented the reward that Mr Yang said he gave the appellant, the rest of the money belonged to Mr Yang.

The Defence Case

11. The defence case was that the appellant had lent his US dollar account to Mr Yang who was doing business in Nigeria for him to receive price money of his goods. The appellant did not know and had no reasonable grounds to believe that the sums of money he dealt with represented property derived from the proceeds of an indictable offence.

The Magistrate’s Verdict

12. The magistrate pointed out that it was not disputed by the parties that the appellant had dealt with the property involved in this case. The only dispute was about the element of mens rea. The magistrate referred to the test for “having reasonable grounds to believe” in the Court of Appeal case of HKSAR v Pang Hung Fai [2013] 4 HKC 366:

“43. In accordance with [the Court of Appeal case of Pang Hung Fai], what the court needed to resolve was whether the appellant had reasonable grounds to believe the property involved in the case was ‘proceeds of crime or black money’ when he dealt with the property. And in determining the issue, the first step the court needed to take was to identify all the facts known to the appellant that related to the dealing of property, including facts known to the appellant about other persons or circumstances linked in some way to the dealing. The second step was to assess these facts in accordance with the mind of a common sense, right-thinking member of the community and determine whether this person, possessed of these facts, objectively would consider them sufficient to lead a person to believe that the property in question constituted the ‘proceeds of crime’. The third step was to determine whether on those facts and in those circumstances the appellant had reasonable grounds to believe that the property was ‘proceeds of crime’.

44. Regarding the test of the ingredient ‘having reasonable grounds to believe’ of the charge in [the Court of Appeal case of Pang Hung Fai], the Court of Appeal was of the view that when considering the test, the proper order was to first consider the ‘subjective’ elements and then move on to the consideration of the ‘objective’ elements. McWalters JA also put forward his opinion that it should not ordinarily matter in which order the two questions are asked. (See paragraph 117 of the judgment.) He just wanted to raise the point that a more logical approach was to consider what was known to the defendant subjectively first.

45. On the other hand, Stock VP in the same judgment also raised the point that there might be a common law half-way house defence to this charge. That is to say it is a defence if the defendant could prove that he honestly and reasonably did not suspect the property to represent the proceeds of an indictable offence. (See paragraph 203 of the judgment.)”

13. The magistrate did not accept that HKSAR v Yan Suiling (2012) 15 HKCFAR 146 was applicable to this case. She was of the view that the facts in that case were totally different from the facts of this case.

14. The magistrate analysed the case of the appellant and came to the view that his case was against common sense and hard to believe. She pointed out that the appellant upon cross-examination agreed that there might be a problem in lending his account. The appellant had his suspicions but did not make enquiries of Mr Yang. The appellant could not give a reasonable explanation either why he lent his personal account for the receipt of money of unknown sources. The magistrate was of the view that if a common sense, right-thinking person knew that the purpose of lending the account was to circumvent foreign exchange control and to receive money of unknown sources deposited through underground banking operations or irregular channels, he or she should have reasonable grounds to believe that the money received partly or wholly represented “proceeds of crime”. The magistrate rejected the explanation of the appellant as incredible and unreliable. She was of the view that the appellant had not told the truth and that these unusual circumstances were sufficient to make a reasonable man to come to the view that the sums of money in question represented the proceeds of an indictable offence. The appellant had reasonable grounds to believe that and continued to deal with that sum of money. She therefore found the appellant guilty.

Grounds of Appeal

15. Mr Wong Man Kit, SC for the appellant, leading Mr Charles Chan, put forward nine grounds of appeal to contend that the conviction was unsafe and unsatisfactory:

1. The magistrate was wrong in saying that the appellant knew that the sums of money in question were of unknown sources;

2. The magistrate was wrong in thinking that Yan Suiling was not applicable;

3. The magistrate wrongly considered facts that were outside of the charge;

4. The magistrate adopted the wrong onus of proof and standard of proof;

5. The magistrate wrongly rejected the evidence of the defence;

6. The magistrate did not apply properly the legal test laid down by the Court of Final Appeal in the case of HKSAR v Pang Hung Fai [2014] 6 HKC 487 (hereinafter called the CFA case of Pang Hung Fai);

7. The magistrate failed to consider the legal principles of HKSAR v Li Kwok Cheung George (2014) 17 HKCFAR 319 (hereinafter called Li Kwok Cheung);

8. The magistrate wrongly relied on the appellant’s lending of his bank account as the actus reus of the charge; and

9. The magistrate was in violation of the principles of proof.

Ground of Appeal 1: The magistrate was wrong in saying that the appellant knew that the sums of money in question were of unknown sources

16. The appellant submitted that it was a wrong basis for conviction for the magistrate to say that the appellant “knew that the purpose of lending the account was to circumvent foreign exchange control and to receive money of unknown sources deposited through underground banking operations or irregular channels” because the appellant’s evidence was that Mr Yang told him that the relevant sums of money were the price money of goods. Mr Yang sold goods to an African customer and that African customer resold the goods to somebody else. The final buyer remitted the price money of the goods to the appellant’s account from France.

17. The appellant thought that the sums of money in question were the price money of goods. The magistrate was wrong in saying that the appellant knew that the money was “of unknown sources”. Moreover, the appellant said he only learned that Mr Yang used underground banking operations after the event and after his own arrest. During the incident, in the mind of the appellant, he only knew that the money was price money of goods.

Ground of Appeal 2: The magistrate was wrong in thinking that Yan Suiling was not applicable

18. The magistrate was wrong in thinking that Yan Suiling was of limited reference value in this case. According to Yan Suiling, receiving money using the service of underground banking operations after currency exchange did not constitute “money laundering”. Receiving money through underground banking operations, and then transferring the money away by itself could not be proof of the mens rea in a “money laundering” charge. Knowing that money was received through underground banking operations was not equivalent to having reasonable grounds to believe that the money was “proceeds of crime”. The appellant relied on Yan Suiling (paragraph 48 of the judgment) and submitted that even where the court rejected a defendant’s defence and the defendant was not able to explain the source of money, on the sole basis of the receipt of money from underground banking operations and even though the defendant did not make any enquiry, the defendant could not be convicted.

19. The appellant criticised the magistrate when she said in paragraph 69 of her Statement of Findings that “having learned that the purpose of lending the account was to circumvent foreign exchange control and to receive money of unknown sources deposited through underground banking operations or irregular channels, a common sense, right-thinking person should have reasonable grounds to believe that the money received into the account partly or wholly represented ‘proceeds of crime’.” The appellant contended that the above view was tantamount to saying that all receipts of money coming from underground banking operations must be “money laundering” and that the knowledge that the money was received through underground banking operations alone would certainly involve a violation of the law. This view was not consistent with the judgment in Yan Suiling.

Ground of Appeal 3: The magistrate wrongly considered facts that were outside of the charge

20. The appellant contended the charge faced by the appellant was specifically about the deposit and withdrawals on 22 June 2011. However, the magistrate in paragraph 55 of her Statement of Findings said that “the crux of this case was that the appellant during the period when he opened the account, lent his account and dealt with the money involved in this case, i.e. from April to June 2011 ……”. She wrongly mixed up other transactions before and after the transactions involved in this case. Since the conviction in this case was based on transactions other than those involved in this case, the conviction was unsafe.

Ground of Appeal 4: The magistrate adopted the wrong onus of proof and standard of proof

21. The appellant contended that both the prosecution and the defence misled the magistrate during the trial on the standard of proof she should adopt when she considered the defence case.

22. The defence in paragraph 11 of its final submission (page 29 of the appeal bundle) wrongly stated that “the standard of proof of the defence evidence is on the balance of probabilities”.

23. The prosecution, on the other hand, in paragraph 5 of its final submission (page 15 of the appeal bundle) stated that according to paragraph 108 of HKSAR v Wong Chor Wo and Another, unreported, CACC 314/2006, 16 June 2008 (hereinafter called Wong Chor Wo), “in the circumstances, unless proven otherwise, there was an irresistible inference to be drawn that the defendant had reasonable grounds to believe that the monetary movements of the account represented proceeds of an indictable offence. The defendant therefore must adduce evidence in rebuttal in order to rebut the above inference. The prosecution agreed that the standard of proof by the defendant is one on the balance of probabilities.”

24. The appellant contended that in this case the appellant in fact did not have any onus of proof. The magistrate did not correct the above mistake both in the oral submission stage and in her Statement of Findings.

25. The appellant contended that although the magistrate in paragraph 48 of her Statement of Findings said that “if a certain claim of the appellant could be true, the court should use such a claim to form the factual basis. The onus of proof was on the prosecution and it was one of beyond reasonable doubt. The appellant did not need to prove anything, least of all to prove his own innocence”, for the above reasons, the magistrate must have mistakenly thought that the claims of the defence had to reach the standard of on the balance of probabilities. Moreover, she did not point out the mistakes committed by both parties, causing one to doubt about the way the court utilise this legal principle and such a doubt could not be discounted.

Ground of Appeal 5: The magistrate wrongly rejected the evidence of the defence

26. The appellant contended that the magistrate rejected the appellant’s oral evidence for the wrong reason. The evidence included:

(1) Mr Yang could come to Hong Kong to open a bank account himself. He did not need to tell the appellant to come to Hong Kong to open an account. The appellant did not make enquiry of Mr Yang and did not have any doubts, either (paragraph 62 of the Statement of Findings);

(2) The appellant was told there would be €79,000 to be deposited into his US dollar account. The appellant did not make enquiry as to the reason why it was not denominated in US dollars, the currency generally used for business settlement (paragraph 64 of the Statement of Findings);

(3) The appellant did not make enquiry of Mr Yang about the use of the “deposit” and the “withdrawals”, adopting an attitude of “couldn’t care less” (paragraph 65 of the Statement of Findings);

(4) The appellant should have understood the potential risks in lending his account to Mr Yang. This could also be related to the evasion of tax (paragraph 58 of the Statement of Findings);

(5) The magistrate thought that Mr Yang should have come to Hong Kong to set up a company and open a bank account. She found it hard to believe that Mr Yang needed to borrow and use the appellant’s account and to ask the appellant to arrange sums of money for him (paragraph 59 of the Statement of Findings);

(6) The appellant’s visa would expire in September 2011 and it was expected that it would not be renewed. The magistrate found it hard to believe that Mr Yang would borrow and use the appellant’s account for the purpose of asking the appellant in future to come to Hong Kong to make transfers (paragraph 60 of the Statement of Findings).

27. The appellant contended that the evidence of the appellant clearly indicated that Mr Yang did business in Africa and because of foreign exchange control in Nigeria and the fact that Mr Yang was physically in Africa, he asked the appellant to lend him the appellant’s account for the receipt of price money of goods. Since there were limits on the amount of money that could be transferred over the Internet, Mr Yang needed the appellant to go to the bank in person to do transfers. The transfer by the appellant to Fu Chubin on 23 June was done at the request of Mr Yang. Mr Yang claimed that Mr Fu was his business partner. The appellant did not adopt a couldn’t-care-less attitude and paid no attention to the use of the “deposit” and “withdrawals”. The appellant in his evidence said he himself was not familiar with the question of setting up a company in Hong Kong to receive money and did not know if Mr Yang was aware of that or not. When the appellant began to lend his account to Mr Yang in April 2011, he still had half a year’s time that he could use his visa to come to Hong Kong. According to the agreed facts, UBS (France) S.A. had converted the €79,000 into US dollars before depositing the money into the US dollar account.

Ground of Appeal 6: The magistrate did not apply properly the legal test laid down by the Court of Final Appeal in the case of Pang Hung Fai

28. The appellant contended that after the Court of Final Appeal had rewritten the applicable legal principles, the magistrate applied the Court of Appeal case of Pang Hung Fai, which was binding on her at the time. The appellant’s conviction was unsafe and unsatisfactory.

29. The appellant put forward that according to the evidence in this case, the appellant had known Mr Yang since they were kids and their relationship was close. The appellant knew that Mr Yang “had been doing business” in Africa and there were past records of that. After borrowing and using the account, Mr Yang operated it on the Internet and would only ask the appellant to assist when the amount was big. The appellant had ample reasons to believe Mr Yang, especially when the appellant was a mainlander and understood in particular the troubles under a scheme of foreign exchange control. He also used underground banking operations when he himself bought a flat. So as far as the appellant was concerned, dealing with remittance from underground banking operations would not make the appellant think that he was dealing with illegal money or proceeds of crime. Moreover, the appellant stated that it was after the incident and his own arrest that he learned from Mr Yang that the money involved in the case was deposited from underground banking operations and that was something the appellant did not know at the time of the incident (22 June 2011).

30. The appellant contended that if the magistrate at the time had looked at things from the appellant’s perspective, all these matters would not have been unusual.

31. The appellant cited the CFA case of Pang Hung Fai (paragraph 112 of the judgment) and submitted that even where the appellant made no enquiry and Mr Yang provided no explanation as to why he needed to use the appellant’s account, those at most could only form the basis of an irresistible inference that the money involved was untoward, but it did not mean that the untoward money represented proceeds of an indictable offence.

Ground of Appeal 7: The magistrate failed to consider the legal principles of Li Kwok Cheung

32. The appellant submitted that the Court of Final Appeal in its judgment in Li Kwok Cheung stated the concept “represent the proceeds of an indictable offence” required the property dealt with to be something which was generated by the predicate offence and must be paid or accepted as a reward in connection with the commission of the predicate offence. If the money itself was “clean money”, i.e. money that was not paid or accepted as a reward in connection with the commission of the predicate offence, then insofar as s 25(1) of the Ordinance was concerned, it was not sufficient to constitute proceeds of those offences.

33. The appellant relied on the two Court of Final Appeal cases, i.e. Yan Suiling and Pang Hung Fai, to emphasize that on the basis that the defendant was not able to explain the money deposited into his account alone, even if the defendant did not make enquiry and did not obtain a reasonable explanation from the payer, it would at most only cause people to think there were some improper acts going on behind the scene. It was not able to make people draw the only reasonable inference that the defendant must have known that the money represented proceeds of an indictable offence.

34. The appellant submitted that when a defendant did not give a reasonable explanation in court why there was money deposited into his account, it could still be possible that the money was being moved to conduct some fake transactions (as in Li Kwok Cheung), or that the payer out of privacy or other unspeakable reasons transferred the asset to the defendant, or that the payer deposited the money by mistake (as in Yan Suiling) and there was a real possibility that the defendant did not tell the court the truth. Because of that, and also because the prosecution was unable to prove what the defendant knew, the Court of Final Appeal therefore in both Yan Suiling and Pang Hung Fai stated unexplained income or asset was not equivalent to the crime of “money laundering”.

35. The prosecution was not able to prove that the appellant had committed the offence charged.

Ground of Appeal 8: The magistrate wrongly relied on the appellant’s lending of his bank account as the actus reus of the charge

36. The appellant relied on the judgment in HKSAR v Salim, Majed and Another [2014] 6 HKC 678 and submitted that the lending of account did not constitute the actus reus of the charge of “money laundering”. Although the appellant did not indicate that he disputed the actus reus of this charge, it did not mean that as soon as the appellant agreed as facts that he “lent his account”, “used Internet banking password to check the deposit status and later the transfer status of the sum of money” and “made the transfers by visiting the bank in person”, then it was equivalent to his accepting that he had committed the necessary actus reus of the crime. Since the “lending of one’s account” did not constitute the offence of “money laundering”, the appellant believed that “checking one’s account” did not constitute “dealing” either. The only act that was relevant and might constitute the act of “money laundering” was the transfer performed by the appellant in person on 23 June but the prosecution had chosen to pinpoint the date of the charge to be 22 June instead.

37. The appellant submitted that the magistrate had never considered whether “lending one’s account” constituted the element of “dealing” and this is a question of law that could not be dealt with by way of agreed facts.

Ground of Appeal 9: The magistrate was in violation of the principles of proof

38. The appellant submitted that the magistrate committed a grave legal error in violation of the principles of proof when she said in paragraph 8 of her Statement of Findings “… the appellant’s evidence was neither credible nor reliable. I did not accept his evidence. He was not telling the truth so I found the appellant guilty …”.

39. The magistrate had never indicated even if she rejected the appellant’s evidence, that did not mean that the appellant was guilty or the prosecution’s case would be proved. The appellant submitted that the magistrate did not say clearly what the basis for her conviction was when she had rejected the appellant’s evidence. The magistrate did not make specific findings about the facts. The conviction was therefore unsafe and unsatisfactory.

The Respondent’s Reply

40. Mr CHAU Tin Hang Anthony, Senior Public Prosecutor for the respondent, replied to the grounds of appeal one by one.

Ground of Appeal 1: The magistrate was wrong in saying that the appellant knew that the sums of money in question were of unknown sources

41. The respondent submitted that the magistrate knew the appellant’s case clearly. The respondent cited from the transcript to say that the appellant clearly admitted that at the time he sensed that the money in question was deposited into his account via underground banking operations or irregular channels. The appellant also admitted that when he lent his account, he knew already that there might be a problem that the account involved in this case was used to receive remittance obtained from underground banking operations.

42. Furthermore, the appellant said he separated the Standard Chartered Bank account from his HSBC account that was opened by him in 2006 because he was afraid that there would be risks involved in using the Standard Chartered Bank account and exchanging (sic) money through underground banking operations or other irregular channels.

43. While the appellant gave evidence that the money involved was the price money of goods, he apparently must have known that the money was deposited into his account through underground banking operations or other irregular channels. The magistrate did not err manifestly.

Ground of Appeal 2: The magistrate was wrong in thinking that Yan Suiling was not applicable

44. The respondent submitted that Yan Suiling did not establish what the appellant claimed to be the general legal principle that “using the service of underground banking operations to receive money converted after currency exchange does not constitute money laundering”.

45. The respondent referred to the facts of Yan Suiling and pointed out that those facts were completely different from the facts of this case. The respondent agreed with the magistrate’s analysis in paragraph 47 of her Statement of Findings and submitted that there was nothing wrong with the magistrate’s view that Yan Suiling had limited referential value.

Ground of Appeal 3: The magistrate wrongly considered facts that were outside of the charge

46. The respondent submitted that the prosecution mainly relied on bank affidavits of the accounts involved in this case and the two videotaped Records of Interview given by the appellant under caution. The above evidence related to the circumstances of the accounts from April to June 2011. Although the charge pinpointed only the date of 22 June 2011, the defence did not oppose in the trial to the production of evidence relating to the accounts from April to June 2011.

47. The respondent cited the case of HKSAR v Egan (2010) 13 HKCFAR 314 and emphasized that the magistrate ought to “evaluates the whole of the evidence; makes its findings of fact; and then states them”. “Appellate courts intervene for errors of substance, and not for inadequacies of expression.” [1]

48. The respondent submitted that the magistrate was entitled to consider the material times during the period of account opening, account lending and the dealing of the money in question.

Ground of Appeal 4: The magistrate adopted the wrong onus of proof and standard of proof

49. The respondent referred to paragraph 48 of the Statement of Findings and submitted that the magistrate was not misled into adopting the wrong onus of proof and standard of proof.

Ground of Appeal 5: The magistrate wrongly rejected the evidence of the defence

50. The respondent referred to the reasons for the rejection of the appellant’s evidence by the magistrate and submitted that the magistrate’s analyses were perfectly reasonable. The decision to reject the appellant’s evidence was not manifestly wrong.

51. The respondent relied on the case of HKSAR v Ip Chin Kei [2012] 4 HKLRD 383 about the legal principles that should be adopted in magistracy appeals, and submitted that the appellate court should not intervene if the findings of fact by the trial magistrate were not manifestly wrong.

Ground of Appeal 6: The magistrate did not apply properly the legal test laid down by the Court of Final Appeal in the case of Pang Hung Fai

52. The respondent relied on the following passage by Hon Litton PJ in the case of Seng Yuet Fong v HKSAR [1999] 2 HKC 833 at 836 E-F:

“To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: that is, that anyone looking at those grounds objectively would so believe. …”

53. The respondent emphasized that the Court of Final Appeal in Pang Hung Fai twice stated the above passage and then emphasized that “in most circumstances, what was stated in Seng Yuet Fong was entirely sufficient”.

54. The respondent claimed that although the magistrate adopted the test criteria of the Court of Appeal case of Pang Hung Fai, in fact she was using the test criteria set out in Seng Yuet Fong, analysing bit by bit the evidence of the appellant. While the magistrate cited a quote by saying the “facts” known to the appellant rather than the “rationale” needed to be found out, but given the oral testimony in this case, it was hard to see there was any significant difference between the “facts” and the “rationale”.

55. The respondent submitted that the magistrate had thoroughly considered the appellant’s evidence. In considering the relevant evidence, the magistrate must have considered the “personal beliefs, perceptions, prejudices and results of his thinking, and tested its reasonableness”.

56. The respondent submitted that in accordance with the new principles laid down in the CFA case of Pang Hung Fai, the magistrate was still able to draw the only inference that the appellant had reasonable grounds to believe that the property he dealt with in this case was “proceeds of crime”.

57. The respondent referred to the case of HKSAR v Ka Yuet Shing, unreported, HCMA 631/2014, 19 January 2015, to support its argument.

Ground of Appeal 7: The magistrate failed to consider the legal principles of Li Kwok Cheung

58. The respondent referred to the cases of HKSAR v Wong Ping Shui & Another (2001) 4 HKCFAR 29, and Au Hau Ching v HKSAR, unreported, FAMC 61/2009, 3 November 2009. The respondent submitted that in “money laundering” cases, the prosecution did not need to prove that the “proceeds of crime” actually originated from “an indictable offence” or there was the actually occurrence of “an indictable offence”. The element of a “money laundering” offence was not the dealing of the proceeds of crime, but rather it was knowing or having reasonable grounds to believe that the property represented the proceeds of an indictable offence. In case the defendant knew or had reasonable grounds to believe that the property that he dealt with represented the proceeds of an indictable offence, it was already sufficient to constitute an offence.

59. The respondent submitted that the evidence in Li Kwok Cheung proved that the money in question came from financial borrowing and there was no evidence to show that the money was illegal. The Court of Final Appeal did not agree with the respondent’s submission that s 2(6)(a) of the Ordinance expanded the concept of “the proceeds of an indictable offence” in s 25(1) to extend the meaning of the money or property in question to include unclean or dirty proceeds accepted and known to be not due to the commission of an indictable offence.

60. The respondent submitted that the facts in Li Kwok Cheung were entirely different from the facts in this case and Li Kwok Cheung was not applicable in this case.

Ground of Appeal 8: The magistrate wrongly relied on the appellant’s lending of his bank account as the actus reus of the charge

61. The respondent submitted that the magistrate did not rely on the lending of account by the appellant as the actus reus of the charge. The appellant knew there was money deposited into the account and he went on the Internet to check the account. This was already sufficient to constitute “dealing” and the appellant did not need to deal with the money in the account involved in person. The respondent referred to the case of HKSAR v Lee Chun Lung, unreported, HCMA 840/2009, 19 February 2010, to support its argument. The respondent also pointed out that the appellant went in person to transfer part of the money in question to Fu Chubin on 23 June, so he obviously had dealt with the money in question.

62. The respondent also cited the case of Salim and submitted that the lending of one’s account was a very significant material fact. It could be used to infer that the account lent would be used later for illegal purposes by the account holder and the third party, and his thinking about the transactions in the account.

Ground of Appeal 9: The magistrate was in violation of the principles of proof

63. The respondent submitted that the magistrate knew the defence case clearly and she pointed out clearly in paragraph 48 of her Statement of Findings that the onus of proof was on the prosecution and it was one of beyond reasonable doubt. The appellant did not need to prove anything, least of all to prove his own innocence. The magistrate pointed out the unreasonable and illogical parts in the appellant’s evidence, and came to the view that the appellant had reasonable grounds to believe that the money he dealt with represented the proceeds of an indictable offence. She did not act against the principles of proof.

My Deliberations

Ground of Appeal 1: The magistrate was wrong in saying that the appellant knew that the sums of money in question were of unknown sources

64. According to the second videotaped Record of Interview taken under caution on 31 May 2012, the appellant only learned from Mr Yang after his own arrest that the money involved was deposited into the account by Mr Yang through underground banking operations. He did not know that beforehand.

65. The appellant under cross-examination claimed that according to Mr Yang, foreign exchange control in Nigeria was even stricter than that in Mainland China.

66. There were the following questions and answers when the appellant was being cross-examined (page 564 A-U of the appeal bundle):

“Q: In fact you already sensed that he wanted to avoid the restrictions of the foreign exchange control, and then he would use some irregular channels to remit money to Hong Kong. Is that right?

A: At the beginning, I did not know what channels he used.

Q: But surely they were not regular channels, right?

A: Right. Should be the case. That’s right.

Q: Okay, that means they must be irregular.

A: That’s right.

Q: Be they underground banking operations, or by whatever names they were called.

A: That’s right.

Q: They were certainly not regular channels.

A: That’s right.

Q: Or else he could have completed the transfers using a bank.

A: That’s right. That’s right. That’s right.

……

Q: In fact, you said at 297 that there was a sum of price money of goods. That was not entirely correct because the account did not receive money, i.e. price money for the purchase of goods, from those African customers, but rather Mr Yang transferred to Hong Kong the money he earned from sales of goods in Africa through underground banking operations. Put correctly, the money was not the price money of goods. Instead, it was money transferred from underground banking operations.

A: At the beginning, he did not tell me so clearly. He just said it was price money of goods. Later, as I said in the video, it was after I had been caught then I pressed for an answer. He then said it was the price money of goods and then afterwards he asked those underground banking operations to change and send over here like that.

Q: You mentioned just now one of the reasons Mr Yang asked you to lend him your account was because of foreign exchange control.

A: That’s right.

Q: That is I need to repeat this.

A: That’s right.

Q: You heard foreign exchange control. In fact you sensed (he) must be using irregular channels to transfer the money over here. Is that right?

A: Mm. Mm.

Q: It was not possible that you did not know those …

A: That is to say I did not know that he …

Q: … In fact it was not regular goods … it was not usual price money of goods?

A: That is to say I did not think there was any problem that he in France or Britain remitted money over here. Right. That is to say if he sold to those African customers, then it would be very simple. The same principle (applies). If I were doing business and sold something to a customer, then he/she needs to pay money. He/She possibly also sells that something to others. Then he/she also directly asks others to remit money over here. I think this is very normal.”

The appellant agreed that “there was risk” in using underground banking operations, and “there was a chance” that money remitted into his account could mix with illegal money or proceeds of crime (page 566 L-N of the appeal bundle):

“Q: So you agreed that earlier you agreed during cross-examination that using underground banking operations carried some risks?

A: That’s right.

Q: The risk was that there was a chance that money deposited into your account, money deposited into your account through underground banking operations was mixed together with money obtained illegally or the proceeds of crime.

A: There was such a chance.”

The appellant did not suspect that the purpose for Mr Yang not using his company name to open an account was to avoid tax (page 568 A-H of the appeal bundle):

“Q: … Regarding using the name of company to open an account, did you suspect that he in fact wanted to avoid tax? That’s why he did not use the name of company to open an account.

A: I did not ask this question.

Q: You did not ask.

A: That’s right.

Q: Could it be actually the case that he did not want to let the Nigerian government to know the money earned by his company there so he asked you to lend him your personal account?

A: This matter I …

Q: To transfer the money out?

A: This matter he did not tell me about it.

Q: You did not ask about it?

A: I did not ask about it.

Q: You did not have such a suspicion, either?

A: I did not.”

Later, the following questions and answers appeared on page 576 D-F of the appeal bundle:

“Q: In fact when you lent your account, you already knew that there was a problem using the account that way to receive money remitted by underground banking operations. Do you agree?

A: That’s right. There might be a problem. That’s right.

Q: That is to say that you agree that there might be a problem receiving (money) this way?

A: That’s right. I agree.” [Emphasis added]

67. It could be seen from the context that the appellant only learned after the incident and after his own arrest that Mr Yang had remitted money into the appellant’s US dollar account through underground banking operations.

68. The prosecution put to the appellant, “In fact when you lent your account, you already knew that there was a problem using the account that way to receive money remitted by underground banking operations. Do you agree?” This saying in fact consists of two questions, or putting two circumstances to the appellant:

(1) When he lent his account, he already knew that it was through underground banking operations; and

(2) He knew that there was a problem using the account to receive money from underground banking operations.

69. Although the appellant agreed that there might be a problem, his answer did not indicate clearly that he agreed with the allegation of the prosecution: When he lent his account, he already knew that Mr Yang made the remittance through underground banking operations.

70. In my view, given the appellant all along insisted that he only knew after the incident that Mr Yang had made the remittance of the money in question through underground banking operations, it is unsafe to rely alone on the answer above elicited by the double-barrelled question or question consisting of two circumstances.

71. Although the appellant said that before the incident he did not know Mr Yang had remitted money through underground banking operations, he also admitted that circumventing foreign exchange control involved using “irregular channels”.

72. The magistrate in paragraph 69 of her Statement of Findings said the appellant agreed “‘there might be a problem’ in lending (his) account”, “the appellant was suspicious” but did not make enquiry of Mr Yang, “the appellant was not able to come up with a reasonable explanation, either, as to why he lent his personal account to receive some money of unknown sources”. The magistrate “is of the view that if a common sense, right-thinking person knew that the purpose of lending the account was to circumvent foreign exchange control and to receive money of unknown sources deposited through underground banking operations or irregular channels, he or she should have reasonable grounds to believe that the money received partly or wholly represented ‘proceeds of crime’”. It appears that the magistrate had determined that money deposited through underground banking operations or irregular channels was money of unknown sources and therefore in paragraph 70 of her Statement of Findings she said she rejected the appellant’s explanation.

73. This also touches on ground of appeal 5. I shall deal with it again in detail when I deal with ground 5.

Ground of Appeal 2: The magistrate was wrong in thinking that Yan Suiling was not applicable

74. The testimony of the appellant, taken at its highest, only indicates that Mr Yang circumvented foreign exchange control and remitted money by using “irregular channels”. However, “irregular channels” do not necessarily mean underground banking operations. The appellant did not admit to knowing at the time of the lending of the account or before the receipt of the money in question the remittance was done through underground banking operations. In my view, Yan Suiling only has limited reference value because the particular facts in that case are indeed completely different from the facts in this case.

75. In spite of that, I still need to consider that money remitted through “irregular channels” into some account does not mean that the recipient has reasonable grounds to believe that the money represents the proceeds of an indictable offence. I still need to consider whether there is other evidence in support of that belief.

Ground of Appeal 3: The magistrate wrongly considered facts that were outside of the charge

76. The appellant was alleged of dealing with the money deposited on 22 June 2011 into his US dollar account. The charge does not involve what happened on 23 June 2011. I am of the view that although the magistrate may consider the “mentality” and “intention” of the appellant in accordance with all the circumstances before and after the date of the incident in order to determine whether there was mens rea, she could not rely on the act of the appellant outside the date of the charge, i.e. when he made transfers, and used that act as the actus reus of the charge.

Ground of Appeal 4: The magistrate adopted the wrong onus of proof and standard of proof

77. The defence in paragraph 11 of its final submission stated that “and the standard of proof by the defence is on the balance of probabilities”. The prosecution in its final submission said in accordance with the case of Wong Chor Wo, the defence must be able to make its rebuttal on the balance of probabilities.

78. Paragraph 108 of Wong Chor Wo states:

“In the normal course of events, if a man allows another person to use his bank accounts to deposit and withdraw funds, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has reasonable grounds to believe that the funds passing through the account represent the proceeds of an indictable offence.”

79. The judgment of Wong Chor Wo was handed down on 16 June 2008. Has the above view been questioned? I shall deal with the issue together with ground of appeal 8.

80. However, Wong Chor Wo does not point out that the defendant must make a rebuttal, let alone the defendant having the onus of proof. Both counsel for the prosecution and the defence erred at the time. Indeed, the magistrate did not correct this error on the part of both the prosecution and the defence. But having considered the reminder the magistrate gave herself in paragraphs 48 and 49 of her Statement of Findings, I do not agree that there existed the doubt contended by the appellant:

“48. I remind myself that when the court needs to draw an inference about a fact, that inference must be the only reasonable and irresistible inference to be drawn. If a certain claim of the appellant could be true, the court should use such a claim to form the factual basis. The onus of proof was on the prosecution and it was one of beyond reasonable doubt. The appellant did not need to prove anything, least of all to prove his own innocence.

49. The appellant does not have any past criminal record. For this reason, in analysing this case, I also bear in mind the guidelines in the case of Berrada. I carefully observed the demeanour of the witnesses when they were giving evidence. I also bore in mind that I must not over-rely on their facial expressions and demeanour during their oral evidence in court.”

Ground of Appeal 5: The magistrate wrongly rejected the evidence of the defence

81. Having considered what the appellant said under caution in his videotaped Records of Interview, his testimony, the analysis and findings of the magistrate, the submissions of the appellant and respondent, I agree with the appellant’s argument.

82. The appellant’s testimony was that since he and Mr Yang were good friends, he came to Hong Kong at the request of Mr Yang to open an account and lent it to Mr Yang for his use so that Mr Yang could circumvent the strict foreign exchange control of Nigeria and remit the price money of goods in his business dealings to Hong Kong. At the beginning the appellant was the only person who could operate the account by using the password. Later in June 2011, he told Mr Yang his password so that Mr Yang could deal with the money in the account on the Internet. Since there was a maximum limit on the amount of money to be transferred and Mr Yang was not physically in Hong Kong, he therefore needed the appellant to come to Hong Kong in person from China to transfer money to people who were doing business with Mr Yang. The appellant was also aware of the existence of foreign exchange control in China (albeit less strict than that of Nigeria). Because of that, he had also used underground banking operations to remit money to Hong Kong for the purchase of real property.

83. As regards the money involved in this case, the appellant said that Mr Yang told him the price money of goods was €79,000. The appellant understood that after goods were sold by Mr Yang, the buyer might resell the goods and the final buyer could be somewhere outside Africa, e.g. France or Britain, so it was normal for payment to be made from places outside Africa. The appellant did not make enquiry as to why it was also all right when it was not US dollar. The appellant had also explained that he made the transfers to Mr Fu for Mr Yang because of business transactions between Mr Yang and Mr Fu. He did not adopt a couldn’t-care-less attitude.

84. The appellant did not suspect possible tax evasion on the part of Mr Yang. The appellant only learned after the incident that Mr Yang remitted money through underground banking operations. It appears that the magistrate indeed did not fully grasp the appellant’s case. The basis on which she rejected the appellant’s evidence was unsatisfactory.

Ground of Appeal 6: The magistrate did not apply properly the legal test laid down by the Court of Final Appeal in the case of Pang Hung Fai

85. Indeed, the test criteria laid down in the Court of Appeal case of Pang Hung Fai have been negated by the CFA case of Pang Hung Fai. As pointed out by the appellant, the Court of Final Appeal was of the view that the Court of Appeal had committed the following three grave errors:

(1) “Facts” did not include all the “grounds”. When compared to the grounds that the law required the court to consider, facts lacked some of the relevant circumstances (paragraphs 45, 84 and 85 of the Court of Final Appeal judgment);

(2) The concept of the right-thinking member of the community diverted the court’s attention away from the perspective that the court should consider, namely the thoughts of the accused (paragraphs 47-51 of the Court of Final Appeal judgment); and

(3) “Will make an ordinary person to have grounds to believe” was tantamount to a reasonable man could believe. That was not the correct test criterion and a lower threshold than the correct test criterion, either (paragraphs 59-77 of the Court of Final Appeal judgment). The correct test criterion was that “anyone looking objectively at those grounds known to the accused would so believe that the property dealt with represented the proceeds of an indictable offence” (paragraphs 52 and 55-57 of the Court of Final Appeal judgment). The court needed to consider “the personal beliefs, perceptions and prejudices” of the accused (paragraph 83 of the Court of Final Appeal judgment).

86. When I dealt with ground of appeal 5 earlier, I pointed out that the magistrate did not fully grasp the appellant’s case. Because of that, when she considered the appellant’s “subjective” elements in accordance with the test laid down by the Court of Appeal in Pang Hung Fai, she failed to correctly consider the personal beliefs, perceptions and prejudices of the appellant. I do not agree with the respondent’s submission that if the magistrate were to adopt the test laid down by the Court of Final Appeal, she would still have arrived at the only inference that the appellant had reasonable grounds to believe what he dealt with was “proceeds of crime”. The case of Ka Yuet Shing referred to by the respondent does not help very much in this case.

Ground of Appeal 7: The magistrate failed to consider the legal principles of Li Kwok Cheung

87. I agree with the submissions of the respondent. The facts in this case are entirely different from those in the case of Li Kwok Cheung. In that case, it was not disputed that the money involved did not originate from funds of an indictable offence. There was also no evidence to prove, that the accused knew or had reasonable grounds to believe that the relevant money represented the proceeds of an indictable offence. On the contrary, the evidence showed that the money involved came from financial borrowing. There was no evidence to prove that the money was illegal.

88. In Li Kwok Cheung, the Court of Final Appeal had to rule on the question: When the funds someone dealt with were known not to have originated from any crime, but have been used to facilitate the offence of money laundering, can that person be alleged to have committed that “money laundering” offence?

89. In the above case, the Court of Final Appeal did not agree with the respondent’s submission that s 2(6)(a) widened the concept of “proceeds of an indictable offence” in s 25(1), extending it to cover money or property already known not to be unclean proceeds accepted as a result of an indictable offence. (paragraph 87 of the judgment in Li Kwok Cheung)

90. In this case, it is not disputed that the money involved originated from the proceeds of an indictable offence (money obtained in an email fraud).

91. There does not exist at all in this case the aspect of the property dealt with not originating from the proceeds of an indictable offence. Li Kwok Cheung does not have much reference value. It is of course another matter whether the appellant had reasonable grounds to believe that the property he dealt with originated from the proceeds of an indictable offence.

Ground of Appeal 8: The magistrate wrongly relied on the appellant’s lending of his bank account as the actus reus of the charge

92. The magistrate stated in paragraph 40 of her Statement of Findings:

“40. I agree there was no direct evidence in this case to show that the appellant had taken part in a cross-border hacking and use of a bank account. However, it was not disputed that the appellant had dealt with the property involved in this case, including lending his US dollar account to accept the sum of money, lending his Hong Kong dollar savings account and current account for the purpose of making transfers, using his Internet banking password to check the deposit status and later the transfer status of the sum of money, and making the transfers by visiting the bank in person.”

93. The magistrate did not just rely on the lending of the account alone to say that it constituted the element of “dealing”. She was saying that the appellant lent his account for accepting the sum of money and used his Internet banking password to check the deposit status and later the transfer status of the sum of money (Of course, I have said in ground of appeal 3 above that the magistrate should not have included the transfers made by the appellant in person on the 23 June as the actus reus of “dealing”).

94. I do not agree with the appellant’s submission that the knowledge of money to be deposited and the checking to make sure that the money was actually deposited did not constitute the actus reus of “dealing”.

95. In the case of Salim, the prosecution’s position was that the two accused accepted money and then opened the bank accounts and lent them to other people in Hong Kong to operate. They must have known that the money in and out of the accounts came from illegal activities. The court could draw the inference that they dealt with the proceeds of an indictable offence. The prosecution relied on HKSAR v Lau Sui Hing and Another, unreported, CACC 111/2008, 21 October 2008 (hereinafter called Lau Sui Hing) to support the argument that “lending an account to another person in itself already constituted the dealing of the property”. The trial judge did not accept that argument. The Court of Appeal agreed with the trial judge’s view.

96. In Lau Sui Hing, the Court of Appeal pointed out that if the accused did lend his account to another person and the accused really did not know for what purposes other people used the account, then the accused did not “deal” with the money in the account and it was not possible for the accused to be guilty. However, when the assertion of the accused was rejected, then since the accused was the account holder, in the absence of evidence to the contrary, an inference unfavourable to the accused could be drawn, i.e. the accused must be responsible for the transactions in the account.

97. In other words, the prosecution in Salim wrongly relied on the evidence of the lending of one’s account alone to constitute the actus reus of dealing with “proceeds of crime”.

98. The facts of this case are different from those in Salim.

Ground of Appeal 9: The magistrate was in violation of the principles of proof

99. The magistrate said in paragraph 8 of her Statement of Findings:

“8. Lastly, I found the evidence of PW1 to be honest and reliable. I accepted PW1’s evidence. And the appellant’s evidence was neither credible nor reliable. I did not accept his evidence. He was not telling the truth. Accordingly, I found the appellant guilty and sentenced him to imprisonment for 12 months in respect of the above charge.”

And in paragraph 70, she said:

“70. I rejected the appellant’s explanation. The appellant’s evidence was neither credible nor reliable. He was not telling the truth. I was of the view that these unusual circumstances were sufficient to make a reasonable person think the money in question came from the proceeds of an indictable offence. The appellant had reasonable grounds to believe so and still dealt with the sum of money.”

Looking at the context, especially what the magistrate said in paragraph 48:

“48. I remind myself that when the court needs to draw an inference about a fact, that inference must be the only reasonable and irresistible inference to be drawn. If a certain claim of the appellant could be true, the court should use such a claim to form the factual basis. The onus of proof was on the prosecution and it was one of beyond reasonable doubt. The appellant did not need to prove anything, least of all to prove his own innocence.”

I do not agree with the appellant that the magistrate was in violation of the principles of proof.

100. The magistrate clearly accepted the prosecution case (including the appellant’s confession under caution in his videotaped Records of Interview) and rejected the defence case. Having done so, in accordance with the Court of Appeal case of Pang Hung Fai that was binding on her at the time, the magistrate was satisfied that the prosecution had proved beyond reasonable doubt that the appellant was guilty of the offence.

Conclusion

101. Although the magistrate wrongly included the transfers which were outside the charge in the actus reus of “dealing with the property” in the charge, since the appellant actually dealt with the money in question on 22 June 2011, I am of the view the magistrate’s error was not unfair to the appellant (especially the prosecution and the defence produced to the court the matter of the transfers in the form of agreed facts).

102. However, I am of the view that the magistrate did not fully grasp the appellant’s case. When she considered the appellant’s “subjective” elements, she failed to correctly consider the personal beliefs, perceptions and prejudices of the appellant. Moreover, the finding that the remittance was made through an irregular channel by itself alone was not equivalent to the defendant having reasonable grounds to believe that the money represented the proceeds of an indictable offence. I cannot say that applying the test laid down by the Court of Final Appeal in Pang Hung Fai, the magistrate would still be able to draw the only reasonable and irresistible inference that the appellant had reasonable grounds to believe that the money he dealt with represented the proceeds of an indictable offence. I am all the more not able to draw the above inference in this appeal (by way of retrial).

103. Accordingly, I rule that the conviction is unsafe and unsatisfactory. The appeal is allowed and the conviction quashed.