HKSAR v. LAU CHI CHIU

DCCC 98/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 98 OF 2013

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Reasons for Sentence

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1.  Defendant, you have pleaded guilty to one offence of theft, contrary to section 9 of the Theft Ordinance, Cap 210, and to one offence of fraud, contrary to section 71 of the Crimes Ordinance, Cap 200. Another offence that you faced was an alternative charge and that was access to a computer with criminal or dishonest intent, contrary to section 161(1)(b) of the same ordinance and was an alternative charge, as I said, to Charge 2.

2.  You admitted the facts and I convicted you on those facts.  I do not refer to the Brief Facts because they were lengthy and necessarily lengthy.

3.  What happened is as follows.  Thales Transport & Security (HK) Limited is a contractor of the MTR Limited responsible for the maintenance of the Octopus card value adding machines at MTR stations along the West Rail.  The maintenance includes replacement of malfunctioning components and repairing components at Thales’ workshop in Tsuen Wan.  Apart from the hardware components, every machine is installed with an authentication device, namely a DSM card, paired with a hard disk to authenticate every value adding transaction to the Octopus card. 

4.  Transaction details including card number, added value, date and time would be automatically uploaded to the server of the Octopus Cards Limited and the hard disk will also keep the transaction details as backup.  Every DSM card has its own unique authentication number for recording every value adding transaction to the Octopus card.  Every value adding transaction to the Octopus card can be traced back to the DSM card that has authenticated the transaction.

5.  The DSM card is a smart card like device for which the workshops of Thales at Nam Cheong Station and the workshop in Tsuen Wan are equipped with a cloning machine to produce a replacement card if the DSM card is out of order.

6.  According to Thales’ project manager, there are 12 maintenance staff responsible for about 100 machines.  They would change in the workshop at Nam Cheong Station where the spare components of the machines are stored.  When the maintenance staff found any of the components out of order, they could get the spare components from the workshop without prior approval. 

7.  Regarding the DSM card, any repair or replacement would require filling in a repair form for verification by the supervisor.  To maintain operation of the machine, maintenance staff would get the replacement DSM card to replace the out-of-order DSM card in the workshop and reproduce a new DSM card bearing the same serial number as the out-of-order one by using the duplicating machine in the workshop.  The newly reproduced DSM card would then be placed in the workshop as a spare component. 

8.  I refer now to the incident.

9.  In December 2011, the MTR received the monthly statement from Octopus of the monthly payments of the value adding of Octopus cards received by the MTR.  The accounts department of the MTR noticed a discrepancy of $38,000 which exceeded what the MTR had actually received by Octopus cards value adding service, involving 11 Octopus cards, with each value adding transaction ranging from $850 to $1,000.

10.  The technical manager of the MTR was assigned to follow this up.  He found that the Octopus cards value adding transaction involved the authentication by two DSM devices, Serial No 070383 and 070387, which should be in the custody of Thales for maintenance and repair. Suspecting staff of Thales might be making use of the DSM devices to fraudulently add value to the Octopus cards, a report was made to the police in December of 2011.

11.  On 18 January 2012 one more DSM device, Serial No 07032D, was identified as being involved in the fraudulent value adding transactions of Octopus cards.  Examination revealed that the three DSM devices could not be operated in the workshop, therefore the transactions were not carried out in Thales’ workshop.

12.  Analysis of the fraudulent transactions as well as the 21 Octopus cards identified as being involved was carried out.  The senior revenue manager of the MTR found an Octopus card, Serial No 15769318 (Card A) involved in the fraudulent value adding transactions had been used frequently in taking the MTR trains at Kam Sheung Road MTR station and it was also used for purchasing from the station 7-Eleven. 

13.  CCTV captured the user of Card A to be a female who was subsequently found out to be your wife, defendant.  As the DSM cards involved in the fraudulent value adding transactions were used along the MTR West Rail under the maintenance of Thales, their maintenance staff was checked resulting in you being identified.  Your home address was in Kam Sheung Road and your staff Octopus card, Serial No 99903174 (Card B) had a corresponding pattern of accessing Kam Sheung Road MTR Station as Card A. 

14.  Besides, in comparing the entry records of Card B, there were matching time of purchase records at the MTR stations in 26 of the 61 Octopus cards which had subsequently been involved in the fraudulent value adding transactions.

15.  You had been employed as a maintenance technician by Thales since 10 February 2010.  You were trained on the structure, operation and maintenance of Octopus card value adding machines. You had been issued a booklet of the machine maintenance as well as a staff Octopus Card B by the MTR for work travel.  You had resigned in February 2012.

16.  Analysis of the 21 Octopus cards showed they had been mainly used for relatively high amount purchases close to the maximum stored value of the Octopus card, that is $1,000, at shops in the Yuen Long and Tuen Mun areas.  Some were used to pay for your parking fees, for your two vehicles which are KD 1414 and NN 8776. 

17.  A stock check of the workshops at Nam Cheong Station on 21 February showed that a number of components of machines in the value of $218,885.01 to be missing.  A report was made to the police.  It was suspected that fraudulent value adding transactions to the Octopus cards in question might have been made by company maintenance staff of Thales using the missing components of the value adding machines. 

18.  On the morning of 6 March 2012, police carried out an operation in the Yuen Long area where most of the purchases by the Octopus cards had taken place.  At 1144 hours, a private car, KD 1414, was found at car park L2 at Sun Yuen Long Centre by DPC 5150 and 58398.  At 1148 you appeared, opened the car door and you were intercepted. 

19.  You were searched and two Octopus cards, Exhibits 1 and 2, were found in your trouser pocket, also three cans of milk powder, Exhibit 5, a blackcurrant juice, Exhibit 6 and a Park’n Shop receipt for $848.50 issued at 1144 hours that day were recovered from a bag, Exhibit 3, carried by you.

20.  You confessed you had used the components of the machines kept at home to add value to Octopus cards to make purchases.  Arrested and cautioned, you repeated your confession.

21.  You and the private car were taken to Yuen Long Police Station.  The car was searched and six packets containing 59 Octopus cards, Exhibits 12 to 76, a number of receipts from different shops, Exhibit 78 to 82, a receipt of Wellcome dated 6 March 2012 at 1120 hours, three cans of milk powder, Exhibit 87, two handcarts, Exhibit 86, and a key wallet containing your home keys in Kam Hing Wai, Exhibit 85, were found.

22.  Using the seized key, police entered your home and conducted a search in the presence of your wife and your elder sister.  A number of items were found including the components of the machines, Exhibits 98 to 132, and 26 cans and two boxes of milk powder, Exhibits 90 to 97.

23.  The registered owner of KD 1414 was AceScore Industries Limited at an industrial building in Kwai Chung (Location B).  So these premises were searched under a warrant, Exhibit 164.  Your father allowed police access.  Police found 78 cans and seven boxes of milk powder, Exhibits 134 to 140.  Your father said that he let you store the milk powder there believing that you were in the business of buying it for resale. 

24.  At 1220 hours on 6 March 2012, you were arrested and cautioned at the car park, you confessed using the components of the machine kept in a suitcase at your home to fraudulently add value to the Octopus cards to purchase milk powder. 

25.  At 1320 hours you were further cautioned and Exhibits 12 to 88 were seized from KD 1414.  Under caution, you admitted you fraudulently added value to the 59 Octopus cards found to purchase milk powder including the three cans found in the car. 

26.  You were taken to your home and cautioned at 1426 hours regarding Exhibits 89 to 133 seized there.  You repeated your admission that you used the components of the machine kept inside the suitcase to add value to the Octopus cards.  The cans and boxes of milk powder recovered were purchased using the Octopus cards. 

27.  At 1810 hours that day you were again cautioned at your father’s company premises for the cans and boxes of milk recovered from there.  You confessed to purchasing them by using the fraudulently value added Octopus cards. 

28.  A video-recorded interview under caution was conducted on 6 March between 2239 hours and 2338 hours.  You made the following confessions:

(a) when shown the components recovered from your home that you had stolen them from the company and used them to fraudulently add value to the Octopus cards, but you had forgotten when you had stolen them;

(b) you had connected the components and the DSM card when at home alone;

(c) the packet of cash containing ten $100 and two $50 notes, Exhibit 129, was used to add value to the Octopus cards and you recorded the dates of the value adding on the yellow labels attached to the banknote acceptor, Exhibit 107. Also that you had opened a hole at the banknote vault (BNV) connected to Exhibit 107 in order to retrieve the notes accepted;

(d) you usually added value of less than $1,000 to the Octopus cards because that was the maximum;

(e) you bought the cards in the ticketing offices of MTR stations, that is those found in the glove compartment of KD 1414 and you would record the remaining value on the yellow labels attached to the Octopus cards;

(f) you kept the Octopus cards in the glove compartment of KD 1414 and you were the only person who had a key;

(g) you had fraudulently added value to 61 Octopus cards including the one that you had been using for years;

(h) you used the fraudulently value added Octopus cards to purchase cans or boxes of milk powder for resale by posting adverts on the internet;

(i) your family had no idea of the fraudulent schemes; you told them milk powders were bought for resale and stored at Location B;

(j) you confessed to using the Octopus card shown, No 45438677, to purchase three cans of milk from Park’n Shop, Sun Yuen Long Centre, shortly before arrest;

(k) you gave one Octopus to your wife who had no idea of the fraudulent value adding transactions;

(h) you knew it was illegal to add value to the Octopus cards using the stolen components.

29.  A second video-recorded interview under caution was taken on 7 March 2012 between 0015 and 0034 hours.  You made the following admissions:

(a) that the cans or boxes of milk powder found from your home in Location B were purchased using fraudulently value added Octopus cards;

(b) you usually bought milk powder from chain retail shops in Yuen Long and Tuen Mun;

(c) the receipts, Exhibits 77 to 82, recovered from KD 1414 related to milk powder purchased between 27 February 2012 and 6 March 2012 by Octopus cards;

(d) the DSM cards you used in the fraudulent value adding to the Octopus cards were DSM cards which had been disposed of and you had stolen from the company;

(e) no one else was involved;

(f) you kept the printouts of retail shop locations inside a file jacket, Exhibit 88, for easy reference in the purchase of milk powder.

30.  Using the two receipts, Exhibits 4 and 27, recovered from you and the car, the cashiers of Park’n Shop at Sun Yuen Long Centre and the cashier of Wellcome at Kam Tin Road were located.  They confirmed the cans of milk powder were purchased using Octopus cards, the numbers of which were noted.

31.  Attached to the Octopus cards recovered from you were yellow labels, each with handwritten figures in blue or black pen.  As you explained in your first video-recorded interview, you had taken down the remaining value to facilitate your choosing which Octopus card to use.  For instance, 291111 and 948.1 meant 29 November 2011 with remaining value of $948.10.

32.  A comparison of the yellow labels and the transaction printouts obtained from Octopus Cards Limited was conducted.  The last or second last entry of the 59 out of 61 yellow was found matching with the latest remaining stored value of the Octopus cards as recorded by Octopus Cards Limited.

33.  A total of 18 yellow labels, Exhibit 108, were attached to one of the two banknote acceptors (BNA), ie Exhibit 107.  The figures written there were in the same format as the yellow labels attached to the Octopus cards.  They showed the same information. 

34.  Components of the machines, Exhibits 99 to 100, 102 to 107, 109 to 113, 115 to 117, 119 to 121, 123 to 125 and 129 to 133, recovered from Location A were identified.  These were components of machines which were unique in nature with a special barcode label attached, and they were confirmed to be missing components from Thales’ workshop at Nam Cheong MTR Station.

35.  The system engineer of MTR conducted a similar operation.  He used the same type of components of the machines recovered at Location A and successfully completed the value adding transactions to the Octopus cards. 

36.  As a hard disk would be used to keep the transaction data of authentication of the DSM card, three hard disks, Exhibits 115, 119 and 123, were delivered to Technology Crime Division for duplication and forwarding.  The data of the backup hard disks showed that the value adding transaction records of the 61 Octopus cards kept by Exhibit 115, 119 and 123 matched the gap transactions, that is fraudulent value adding transactions, as identified by Octopus Cards Limited.

37.  In gist, a hard disk, Exhibit 123, was paired up with DSM card Serial No 7032D, Exhibit 125, where a total of 183 gap transactions were found to have been made to 20 Octopus cards, Exhibits 1, 35 to 44, 68 to 76.  The amount of the 183 gap transactions was $166,400.

38.  A hard disk, Exhibit 115, was paired up with DSM card Serial No 70383, Exhibit 117.  There were 242 gap transactions from Exhibit 115 which were made to 21 Octopus cards, Exhibits 2, 13 to 22, 24 to 33.  The total amount of the 242 gap transactions was $211,200.

39.  A hard disk, Exhibit 119, was paired up with DSM card Serial No 7038D, Exhibit 121, with a total of 92 gap transactions amounting to $80,300.  These 92 gap transactions were made to 20 Octopus cards, Exhibits 46 to 55, 57 to 66.

40.  The senior manager of Octopus Cards Limited produced the transaction records of 61 Octopus cards from their computers. They showed the total amount of fraudulent value adding transactions to be $434,350.  A simple calculation of the purchases made by the 61 cards less the $100 initial stored value paid by you, D, when you first purchased them and the remaining stored value showed $426,541.40 mostly used to purchase milk powder.

41.  60 sale receipts, Exhibit 127, and 60 Octopus cards recovered from your home were compared with the records of Octopus Cards Limited.  The particulars of the 60 cards were the same as those shown in the sale receipts.

42.  In this case the MTR Corporation suffered a financial loss of $434,350 which was the total amount it paid the Octopus Cards Limited on 27 September 2012 as a result of the fraudulent value adding transactions.  Subsequently, MTR had been compensated by your employer, that is Thales Transport & Security (HK) Limited.

43.  After your arrest, police recovered a total of 119 either cans or boxes of milk powder worth about $28,700, but these passed their sale by date. 

44.  You are a man of clear record.

45.  Initially, I adjourned the case for a probation officer’s background report and two psychiatric reports as to your suitability for the making of a hospital order.

46.  Those reports are now before the court and do recommend a hospital order for a period of 6 to 9 months.  The bases being that you are assessed to be suffering from paranoid schizophrenia. 

47.  On your behalf, Mr Woon entered mitigation.

48.  Prior to this, I have read and considered various letters in support of you and as synopsis of your background.  This of course is in addition to the three reports that I have considered.  Initially, I indicated to Mr Woon my willingness, subject to any representations to be made, I would consider a hospital order as recommended by the two doctors, you being diagnosed as suffering from paranoid schizophrenia.  However, Mr Lam for the prosecution referred me to the Court of Appeal decision of HKSAR v Yu Ting Cham Criminal Appeal No 129 of 2002 which is untranslated and unreported.

49.  In that case the Court of Appeal laid down guidelines for the imposition of a hospital order whilst upholding the making of such an order without specified time limit for an offence of wounding with intent, contrary to section 17 of the Offences against the Person Ordinance, Cap 212.  As I understand it, basically that case is authority to say that for a serious case, imprisonment with recommendation for psychiatric treatment may be more appropriate.  The case does not define what a serious case is.  The conclusion I can draw is that the Court of Appeal came to the conclusion that a section 17 wounding with intent was not so serious as to preclude the making of a hospital order.  That decision being untranslated, I am grateful to Mr Lam for his help in that matter.

50.  On your behalf, Mr Woon responded urging me to follow the recommendation there being no definition of serious offence and pointing out that sentencing guidelines as applicable to the 1st charge put the period of imprisonment under 2 years being related to a breach of trust under $250,000, namely 218,000, and that is the case of HKSAR v Cheung Mee Kiu, Court of Appeal, Criminal Appeal No 99 of 2006.

51.  In respect of the 2nd charge, Mr Woon submitted there were no guidelines.  He made the point that section 17 wounding with intent often involved a starting point of about 4½ years’ imprisonment.

52.  He said you are 27 years of age, of clear record and you have pleaded guilty.  He said that the offences were unsophisticated and related to your mental condition.  Initially, you had taken the components in order to practise your maintenance skills but became greedy when you found you were able to add value to Octopus cards.  All the cards had been used at local shops, the MTR or car parks for the family car. 

53.  You are a married man, living at home with your parents.  He referred me also to your education standard and your history of employment.  He made the very valuable point that the probation officer’s report is extremely favourable, that you accepted the contents of the report.

54.  And today he has added a further matter which is of extreme importance and that is that you or your family are prepared to compensate in full for any loss, that the components relating to Charge 1 have been recovered and restored, the figure of $434,350 can be paid within 14 days, so no one would have lost anything in this case. 

55.  From the facts, it would seem that that compensation is in fact due to your employers Thales, not to the MTR, MTR already having been compensated.

(Confirmation from prosecution re compensation)

56.  I turn now to the sentence.

57.  I do take into account the authority referred to by Mr Lam and the representations that Mr Woon has made to this court.  I note your offer to fully compensate your employer for the loss.  I have also considered the letters of support; they have been placed before me. 

58.  I have looked for guidance into the excellent book of Cross and Cheung’s Sentencing in Hong Kong, 6th edition, Chapter 27.  I made the following comments.  A hospital order is intrinsically rehabilitative. However, it does involve enforced loss of liberty and to that extent is also punitive.  The punitive nature being coincidental thereto.

59.  I note the case of R v Lam Yuet Siu [1993] 2 HKC 272 to 274 which said if a hospital order of fixed duration can properly be made, a court should not equate its length to the sentence of imprisonment it would have imposed had such an order not been appropriate.

60.  There is much mitigation in the present case.  You are 27 years of age, of clear record and you enjoy strong family support from your parents and from your wife.  There is an offer of full compensation in this case.  I note that you had a difficult upbringing having to abandon your studies at a private school in the UK as the family business had been destroyed at the time of SARS.  You returned to Hong Kong and here you worked hard to obtain your qualifications.  It would seem from the report that throughout your life, you have maintained regularly albeit not highly remunerative employment.

61.  I note also that you have regularly contributed to animal charities and performed public voluntary service for needy members of the society such as young disabled people, the elderly and the homeless.  That reflects well upon you as a citizen and as a person.  A number of letters speak very well of you.  It is also clear to me that you have suffered from psychiatric problems for a number of years.  However, since the end of 2012 things have deteriorated. 

62.  I have one matter of issue with Mr Woon and that is when he said the offences were unsophisticated, it is quite the opposite.  You stole the components, built a sophisticated machine and methodically you used the Octopus cards for dishonest ends.  This shows a surprising degree of ability, planning and cunning.  On the other hand, it does demonstrate that you have ability, mechanical ability which, if used correctly, could make you a very useful member of society once you are cured of your mental problems.  

63.  Paranoid schizophrenia is a terrible disease.  The doctors are clear that you need treatment and can be helped and recommend a not insubstantial period for this to be effected.  You yourself have indicated that you wish to have such assistance and by implication you have the support of your family.

64.  In my opinion, whilst these offences cannot be said to be trivial, they are not so serious in my opinion as to preclude you being dealt with by means that would, in my assessment, help you, help your family and society as a whole.  Therefore, I do intend to follow the recommendation and impose a hospital order for 9 months on each offence concurrently under section 45 of the Mental Health Ordinance, Cap 136, for your detention and treatment at Siu Lam Psychiatric Centre.  

65.  In addition, you will put right what you have done wrong by repaying $434,350 within 14 days to Thales Limited.