XCHRX SECRETARY FOR JUSTICE v. MING WAH TRADING CO. AND ANOTHER

HCMP 4979/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.4979 OF 1998

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J U D G M E N T

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1. I have before me two summonses : one an inter partes summons dated the 15th of October 1998 consequent upon an ex parte order granted by Saied J on 12th October 1998, seeking the restraint of a sum of US$110,000 held in an account with the Hongkong & Shanghai Banking Corporation ("the Hongkong Bank") in the name of the 2nd Respondent and varied by an order made by Nguyen J. on the 29th of October 1998 and the other a summons dated the 24th of October 1998 taken out by the 2nd Respondent seeking an order that the Restraint Order in respect of the said sum of money held in the Hongkong Bank in the name of the 2nd respondent be discharged. Both summonses were heard together.

2. The history of this matter is this. In February 1998, civil forfeiture proceedings in rem were instituted in the United States of America in respect of sums of money which were claimed to be the proceeds of drug trafficking and alleged to be drug monies dealt with by Oscar Armando Saavedra, Gustavo Chavarriaga, Victor Manuel Alcala-Navarro and their agents. By a Request for Mutual Assistance ("the Request"), the US Department of Justice, on 22nd May 1998, requested assistance to freeze the property of those persons that I have named above identified in the Schedule attached to that request.

3. The power of the court to make restraint orders is conferred by s.9(1) and s.10(1) of the Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order Schedule 3 ("the Order"). Section 9(1) reads :

" (1) The powers conferred on the High Court by sections 10(1) and 11(1) are exercisable where-

(a) proceedings have been instituted in a designated country;

(b) the proceedings have not been concluded; and

(c) either an external confiscation order has been made in the proceedings or it appears to the High Court that there are reasonable grounds for believing that an external confiscation order may be made in them....."

The rest of that particular section has no application to this case.

4. I am satisfied on the evidence before me that proceedings have been instituted in a designated country, those proceedings being a complaint for forfeiture in rem which have been received by this court under seal of the appropriate court in the United States which is a designated country. Secondly, I am satisfied, upon the affidavit of Lynda Mary Allison Shine which is before me, that the proceedings have not been concluded. I am further satisfied from the same affidavit that there are reasonable grounds for believing that an external confiscation order may be made in those proceedings.

5. Mr Lam argues that in respect of my decision as to whether a restraint order should be made covering the sum of US$110,000 paid into the bank account of the 2nd Respondent, I should take into account the matters referred to in the affidavit of Lam Hang Yee Elaine of the 2nd Respondent who affirms that the monies received by her company were received in the ordinary course of business and that neither she nor her company have any knowledge of drug trafficking, nor that the monies forwarded to them were the proceeds of unlawful drug trafficking.

6. Notwithstanding Mr Lam's argument that this court is not a rubber-stamp with which I agree, I do not consider that the powers conferred in s.10(1) of the Order to which I have referred, exercisable in the manner set out in s.9(1) of the Order, permit me to consider the merits of the case for the 2nd Respondent as to the circumstances in which the money was received and it's knowledge of the money when considering whether a restraint order should be made. I am satisfied that the power to restrain is exercisable when the matters set out in Section 9(1) of the Order have been satisfied and accordingly there must be an order in terms for the Applicant in respect of its summons dated 15th October 1998 that all the monies in Account No.459-071684-001 with the Hongkong Bank held in the 2nd Respondent's name be restrained.

7. That is, however, not the end of the matter. Once an order of restraint has been made, s.10 of the Order, Schedule 3, subsections (5) and (6) provide :

" (5) A restraint order-

(a) may be discharged or varied in relation to any property; and

(b) shall be discharged when the proceedings in relation to which the order was made are concluded.

(6) An application for the discharge or variation of a restrain order may be made by any person affected by it."

It is clear therefore that whilst the legislature contemplated that the power of the court to impose a restraint order was exercisable upon the narrow basis set out in s.9 of the Order, once a restrain order has been made, then there is a power in either party to seek its discharge or its variation. And, indeed, a variation of the order of Saied J made ex parte to restrain the property, which is subject to the matter before me, was made by Nguyen J on 29th October 1998. I must, therefore, consider the application before me by way of summons dated 24th October 1998 for the discharge of the Order dated 12th October 1998 by Saied J as varied by the Order dated 29th October 1998 of Nguyen J.

8. The evidence of the Applicant in respect of the sum of US$110,000 transferred to the account of the 2nd Respondent is to be found in the affidavit of Ms Shine and the exhibits thereto. The declaration of Anne Littleton dated 18th May 1998 in support of the Complaint for Forfeiture in Rem sets out the manner in which the proceeds of drug sales are channelled to a number of brokers whose function is to launder the money so as to make its tracing more difficult and to preserve the profits of the illegal sales. One of the persons to whom she refers as such a broker is the man Gustavo Chavarriaga to whom I have referred above. The information and analysis in her declaration is supported by reference by her to meetings between that man and special agents of the United States Government working undercover who spoke with Chavarriaga concerning these matters. Two exhibits to the declaration of Anne Littleton are of importance. The first is Exh.B which sets out the sums of money known to have been received by Chavarriaga between 18th November 1997 and 26th February 1998 and totalling the sum of US$8,303,544. The second is Schedule D to her declaration where she sets out where the monies collected by Chavarriaga were sent by wire transfer. On 18th February 1998 she declares the sum of US$110,000 was transferred by Chavarriaga, or his criminal associates, to Account No.469-071684-001 with the Hongkong Shanghai Bank in the name of Kitaro (HK) Limited.

9. I cannot go behind the affidavit of Ms Shine and the annexures thereto and I must be satisfied, upon the evidence set out, that Chavarriaga is a broker for a drug cartel in Columbia and that his function is to receive the proceeds of drug trafficking and to take such steps as are open to him to launder that money so that the proceeds are protected, and that monies he received from the cartel as drug proceeds were sent to various international bank accounts and that one of those accounts to which he sent the sum of US$110,000 was the account of the 2nd Respondent.

10. Mr Lam points to the affirmation of Miss Lam Hang Yee Elaine which, with great thoroughness, sets out the background of the 2nd Respondent, Kitaro (Hong Kong) Ltd. Again, I accept from that affirmation that this is a company with a lengthy history in Hong Kong, that it genuinely trades in watches and that it has a history of trade with a company named Importadora Mauros Ltda, a Columbian company which is owned by a man called Pinzon and which the 2nd Respondent has dealt with for quite a number of years.

11. The 2nd Respondent accepts that on 19th February 1998, by a telegraphic transfer, the account of the company was credited with the sum of US$110,000, and by conducting an accounting exercise, it has deduced that the sum was received from the company Importadora Mauros Ltda to settle the price for watches sold under Invoices No.1136, 1144 and 1150 of the 2nd Respondent. Documents were produced as annexures to Miss Lam Hang Yee's affirmation setting out the invoice, packing list, air waybill, certificate of insurance and export declaration in respect of watches which makes up those invoices, and upon which Mr Lam argues they were genuine sale transactions and that monies totalling US$110,000 was due to the 2nd Respondent in respect of those invoices. From this he argues that the 2nd Respondent, being a reputable company and having no knowledge upon the affirmation of Miss Lam of drug proceeds or drug trafficking, and having traded genuinely in a real product, the monies received by them are their entitlement pursuant to their contracts for sale and purchase and that this Restraint Order should be discharged. In the alternative, he argues that even were drug money to have been used in the purchase of watches, the Restraint Order ought to be in respect of the watches themselves and not of the sum of money which has passed into the innocent hands of the 2nd Respondent.

12. Attractive though these arguments might be, they do not address the fact that the sum of US$110,000 was, on the evidence of the declaration of Anne Littleton as an exhibit to the affidavit of Ms Shine, transferred to the account of the 2nd Respondent not by an innocent company in Columbia, but by Chavarriaga or his criminal associates. The test I must apply at this time is whether upon the balance I am satisfied, on the evidence before me, that the 2nd Respondent has made out a case for a discharge of the Restraint Order in respect of these monies.

13. Whilst Mr Lam has made out a case for the honest trading of 2nd Respondent and their relationship with the purchaser in Columbia, he has not satisfied me that this particular sum of money falls within the innocent activities of either company.

14. The summons of the 2nd Respondent dated 24th October 1998 is dismissed.