HKSAR v. LIU PONG HEI AND ANOTHER

DCCC 332/2019

[2019] HKDC 1559

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 332 OF 2019

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REASONS FOR SENTENCE

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1.  D1 pleaded guilty to 28 charges of fraud[1] (Charges 1 to 28), and D2 pleaded guilty to 2 charges of dealing with property known or believed to represent proceeds of an indictable offence[2], commonly known as money laundering (Charges 29 and 30).

Outline of facts

2.  D1 is the son of D2.

Charges 1 to 28: D1

3.  Over a period of about 6 months, D1 offered on different online social and communication platforms mobile phones for sale (an Apple Watch in the case of Charge 28).  D1 never delivered the phones as promised, despite receiving and appropriating the money from the victims, thus defrauding them.

4.  In Charge 26, D1 created a money exchange company Facebook page.  The victim contacted D1 to make use of the service as advertised and was told to deposit HK$905 into a bank account whereupon RMB800 will be credited to the victim’s electronic wallet.  The victim made the deposit but never received the Renminbi.

5.  The payments made by the various victims were either by way of electronic transfers to D1’s electronic wallet or deposits into bank accounts.  The total amount of money involved is $144,255.  None of this sum was ever recovered.

Charges 29 and 30: D2

6.  Two of the bank accounts that received those payments were held in the name of D2, who helped D1 by withdrawing the payments in cash and either handing them over to D1, or making deposits into D1’s electronic wallet.

7.  D2 had reasonable grounds to believe that the money she was dealing with was proceeds of an indictable offence.  The total amount of money laundered is $125,455.

Previous convictions

8.  D1 was convicted of assault occasioning actual bodily harm (“AOABH”) in 2006 when he was 11 years old and was sentenced to 18 months’ probation, which he later breached and the order was extended on 8 February 2007.

9.  7 days after the said order was extended, D1 was convicted of AOABH again and was sentenced to another period of extended probation.  D1, however, breached this order as well and as a result the previous probation order was discharged and he was ordered to be detained in a reformatory school on 24 November 2008.

10.  D1 was in breach of the rules of reformatory school and was ordered to be detained in a training centre on 15 June 2009.

11.  3 months later, on 4 September 2009, the defendant was given a concurrent sentence of detention in a training centre for insulting behavior to a magistrate (by throwing a shoe).  D1 was 14 and a half years old at that time.

12.  D1’s next conviction is dated 28 May 2015 when he was 20 years old.  He was sentenced to 15 months’ probation for the possession of dangerous drugs.

13.  About 3 years later, on 26 March 2018, D1 was sentenced for 2 charges of criminal damage and one charge of possession of arms (air guns) without a license to 160 hours of community service.

14.  He was in breach of the order and was also found to have been gambling in a gambling establishment.  He was fined for the gambling, but ordered to be imprisoned for 2 months for the breaches on 13 December 2018.  He was 23 years and 9 months old.

15.  The date of commission of Charge 1 in the present case is 9 to 11 June 2018.  Counsel for D1 conceded that D1 must have committed Charge 1 whilst he was supposed to be serving his community service sentence, and that this is an aggravating factor at least for Charge 1.

16.  D2, the mother, is of previously clear record.

D1’s mitigation

17.  D1 is 24 years and 8 months old.  He was found to present with symptoms of Attention Deficit and Hyperactivity Disorder as a child, and had received treatment from 2004 to 2011.

18.  D1’s mother had two marriages and he was born into the second one in 1995.  That marriage lasted until D1 was 10.  D1 had been living with his mother thereafter.

19.  According to his background report, D1 was referred to a school for social development when he was in primary 4 because of behavioral problems.  He attended a different secondary school upon graduation in 2006 but had to leave when he was ordered to be put on probation and to stay at a boys’ home in 2007.

20.  The two assault convictions were as a result of conflicts with his schoolmates.  When the defendant was eventually ordered to stay at a reformatory school, he ran away twice and was then ordered to be detained in a training centre in 2009.

21.  The defendant had been in gainful employment since March 2009.  He had been working as a casual transportation worker since 2016, earning up to about $23,000 per month when fully employed.

22.  In 2015, the defendant was found to have been in possession of cocaine and was put on probation.  He managed to behave himself this time and completed his probation in August 2016.

23.  The possession of arms and criminal damage convictions in 2018 was as a result of the defendant shooting out some corridor windows with his air gun.  He was ordered to perform 160 hours of community service, but was dismissed after completing 3 hours of work for smoking at the work place.

24.  He disappeared for a while but was located after he was arrested for gambling.  He was then sentenced to 2 months’ imprisonment and has been in custody since then for the present case.

25.  The defendant met his wife in Shenzhen when he was 18.  They got married in January 2018 in Fuqing city.  He does not remember her telephone number nor WeChat account and so the probation officer was not able to contact his wife.

26.  D1 admitted to spending a lot on clothing and entertainment.  He had borrowed around $60,000 from banks and other financial institutions.

27.  D1 claimed to have committed the present offences purely to support his spending.  Since his bank account had been frozen, he decided to us use his mother’s account.  He does regret dragging his mother into his criminal endeavors.

28.  Counsel for D1, in his very helpful written submissions in mitigation, informed the court that the defendant has spent all the money he had defrauded.  He offers to repay the victims by instalments by paying $12,000 every month after his release from prison.

29.  In the case of R v Kwok Lai Ling, CACC 253/1988, a 21 year old woman pleaded guilty to 20 charges of false accounting.  Prior to sentencing, her counsel informed the judge that she had been able to borrow money from her friends and relatives and the full amount she had misappropriated had been deposited with the solicitors with the intention of a full restitution.

30.  The case was adjourned for reports and the applicant was sentenced to 12 months’ imprisonment.  Meanwhile, the relatives had demanded their money back, a fact that the applicant never informed the sentencing judge of.

31.  On appeal, the Court of Appeal was told that the applicant had since paid $50,000 as initial repayment, and that she would continue to make restitution by monthly instalments of $3,000 after her discharge from prison.

32.  In rejecting the applicant’s submission for a discount based on restitution, the court stated this:-

“11. Whatever the earlier arrangements might have been, it is plain that on sentencing day, the total amount that had been misappropriated was not in the hands of the applicant's solicitors in readiness for restitution to her employee. Indeed none of it was. However, had it in fact been available, we do not consider that the judge was under any, obligation to take that into consideration for the purposes of sentencing. The significant fact was, that restitution had not been made. A mere promise to make restitution may be broken as easily as it is made. However, actual restitution made voluntarily before criminal proceedings have commenced, or while they are in their earliest stages, may have some relevance to sentencing as evidence of remorse. On the other hand, where it appears to have been made merely in the hope of obtaining a reduction in sentence, it can no longer be seen in that light. The courts do not make bargains with the convicted which have the effect of allowing them to buy themselves out of the penalty for their crimes.”

33.  Given the nature of D1’s mere promise of restitution, I find that there should not be any discount given on this basis.

34.  Lastly, it is Mr Chong’s submissions that “in all the circumstances of D1’s case, in totality, the overall sentence should be imprisonment for around 30 to 36 months as a starting point.”

D2’s mitigation

35.  D2 is 56 years old, educated to Form 1 level in Hong Kong.  Given the slightly unusual circumstances of the case, with D2 being the mother of D1, background reports were ordered to be prepared.

36.  D2 had to stop going to school after form 1 because of family financial difficulties.  She met one Mr Liu when she was 16.  Hoping to make more money to join him in England, she worked in a night club but was arrested for being underage.  She was remanded in a girls' home and so was unable to join Mr Liu.

37.  D2 eventually married her first husband in 1983 after getting pregnant by him.  Their daughter was born in 1984.  D2 suffered post-natal depression and had to receive in-patient treatment for a month.  It took two years for her to fully recover.

38.  Meanwhile, the said Mr Liu had returned from England and re-connected with D2, who decided to end her marriage with her first husband.  An application for divorce was filed and custody of the daughter was given to the father.

39.  D2 married Mr Liu in 1989.  Their son, D1, was born in 1995.  This second marriage also did not work out.  D2 indulged in excessive consumption, resulting in her bankruptcy in 2002.  Upon discovering that Mr Liu was having an extra-marital affair in 2005, D2 decided to seek a divorce, which was granted in 2006.  D2 took care of the then 10 year old D1 single-handedly.

40.  D1 suffered from Attention Deficit Hyperactivity Disorder, and D2 found it extremely trying in bringing him up alone.  Even when D1 has grown up, he had never contributed any money to the family.  D2 did not even know that he was married.

41.  In relation to the present offences, as far as D2 was aware, it was because D1 was in debt and his bank account had been frozen that he needed to use her account for his transactions.  D1 told her that the money was his salary from casual work.

42.  When D1 asked her for the use of her bank accounts, she had no choice but to let him because to her mind, not to do so would result in her losing his son.  She did what most mother would have done and gave in.

43.  D2 was honest in her report and said she actually thought the money being deposited into her accounts was from trafficking in dangerous drugs since D2 had been convicted of possession of drugs before.  Despite that belief, she decided that her only option was to do whatever D1 demanded of her in order to keep him by her side.

44.  D2 has worked hard all her life.  She started working in restaurants in 1997 and had steadily worked her way up from being a dim sum server to a waitress and lastly as a cashier.  It must be pointed out that, the holding of the post of cashier in a restaurant is an indication of the trust that her employer has in D2.

45.  D2 has been working for the same employer for the past 7 years.  According to her supervisor Ms Yuen, D2’s work performance has been outstanding throughout.  She would help others out even though she was the cashier, by taking orders, serving table and assisting in banquet arrangement.  Although D2 quit before the present hearing, Ms Yuen told the probation officer that they would have no hesitation re-employing her and are looking forward to having her back at the restaurant.

46.  In 2013, upon learning that her daughter was pregnant, D2 got in touch and reestablished contact with the daughter she considered she had abandoned.  About 2 years ago, D2 started to help taking care of her two grandchildren in the day time and after work.

47.  D2’s daughter is grateful for her mother’s help since she is not able to afford domestic help.  She has forgiven her mother for leaving her when she was three and understands why she made that decision.  She would be in some difficulties if D2 is incarcerated and will have to find a way to have her two young kids looked after.

Sentence

48.  The maximum sentence for both the offences of fraud and money laundering on conviction upon indictment is imprisonment for 14 years, with an added maximum fine of $5 million for the latter offence.

Enhancement of sentence

49.  The prosecution applies for the enhancement of sentence against both the defendants pursuant to s 27 of the Organized and Serious Crimes Ordinance, Cap 455.

D1: Electronic shopping fraud

50.  In the case of HKSAR v Leung Yiu Fai (梁耀輝), CACC  100/2014, the applicant was convicted after trial of one charge of fraud.  There the applicant advertised online tickets for sale.  A total of 36 victims paid a total of $63,180 for tickets that never materialized.

51.  The applicant had 2 conviction records involving 16 thefts and 3 frauds and was sentenced to perform community service on both occasions.

52.  The court upheld the learned trial judge’s starting point of 30 months’ imprisonment.  A 3-month discount was granted for the applicant having admitted to most of the facts at trial.  This 27 months’ imprisonment was then enhanced by one-third pursuant to s 27 of the Organized and Serious Crimes Ordinance, resulting in the final sentence of 3 years’ imprisonment after trial.

53.  In their discussion of the applicant’s appeal against his sentence, the court recognized that the seriousness of the frauds lie in the fact that the general public is the target and they may suffer huge losses.  The frauds have a very serious negative impact on online buying and selling, affecting the rights of those who carry on an honest online business.  Online frauds are easy to imitate and conducted and must be deterred.  Online trading did not require parties meeting in person, the perpetrators can mask their identity in different ways making investigation difficult.  Lastly, it is usually extremely difficult for the victims to recover their loss.

54.  In relation to the enhancement of sentence under s 27, the Court of Appeal found that the applicant’s conduct was a classic case of internet sales fraud, and found that the figures provided by the prosecution were sufficient to prove that such frauds are prevalent and that the trial judge was entitled to enhance the sentence accordingly.

55.  As to the amount of enhancement, the court found that it should be left to the sentencing judge to decide after taking into consideration the relevant circumstances.  The one-third enhancement applied in that case was not lenient, but not so severe as to require the intervention of the appellate court.

56.  In the case of D1, the prosecution says that electronic shopping fraud on a customer to customer basis or “e-shopping Fraud - C2C” is prevalent and that the nature and extent of any harm, whether direct or indirect, caused to the community by recent occurrences of the offence require the sentence to be enhanced.

57.  As the Court of Appeal pointed out in the said case of Leung Yiu Fai, internet commerce is becoming more and more popular and it is important to ensure that this modern convenience not be exploited by those with ill intent.  Those who so exploit must be sufficiently punished, and the sentence must also carry a strong enough deterrent effect.

58.  The harm of internet fraud cannot be understated.  Unlike conventional fraud cases, as DCIP Chu set out in his affirmation, lack of face to face contact makes visual identification of the culprit impossible.  Perpetrators frequently use fake online identities or anonymous techniques to frustrate any possible investigation.

59.  The ability to use fake identities also means that the same perpetrator can target multiple victims, making the correlation of cases committed by the same culprit or the tracing of the real identity more difficult.

60.  The culprits would also use third-party bank accounts or accounts of other digital payment methods to receive funds.

61.  Unlike physical documents, the victims might not be alert enough to preserve the digital footprints for the tracing of the culprit.  Such tracing will require the preservation of log records by the service providers of the online platform and the Internet Service Provider of the Internet Protocol (IP) address used by the culprit during the commission of the crime, which takes time and the retention of those information is not guaranteed.

62.  Given the difficulties in the investigation of e-shopping frauds, if they are not curbed, the harm to the community will be serious and lasting. 

63.  As to prevalence, according to the affirmation of DCIP Chu, the number of e-shopping fraud C2C related cases has shown a clear upward trend since 2016, with the amount of loss in 2017 at $17.8 million and $41.9 million in 2018.  As at September 2019, the number of reported cases are at 1540 and the loss at $12 million.  Furthermore, the proportion of overall technology crime involving e-shopping fraud -C2C is at 28.1% in 2017 and 26.8% in 2018.  As at September 2019, the proportion stands at 33.7%.

64.  Even though there was a dip in the number of e-shopping fraud in 2016, the figures has since climbed up in the following 2 years.  In the case of HKSAR v Xu Mai Qing (徐麥清), CACC 464/2005, it was argued that a downward trend of street deception cases since its peak in 2002 indicated that the offence was no longer prevalent in 2006.  The Court of Appeal disagreed and held that under section 27(11) of OSCO, “what the prosecution has to prove is the prevalence of the offence, not the increase in the number of such offences.”

65.  The number of reported e-shopping fraud cases is staggeringly high.  As at September 2019, there have been 1540 reports, which average out as 171 reports per month, or roughly 5 cases per day as it was in the whole of 2018.

66.  Based on the affirmation of DCIP Chu, I find that the prosecution has proved beyond reasonable doubt that, based on the prevalence of the offence of e-shopping fraud and the nature and extent of the harm caused to the community through the commission of this type of offence, the court should pass a sentence that is more severe than the sentence it would, in the absence of the said two matters, have passed.

D2: Money laundering

67.  In the case of D2, the prosecution says that the offences of money laundering in the context of assisting the commission of “e-shopping Fraud” is prevalent and that the nature and extent of any harm, whether direct or indirect, caused to the community by recent occurrences of the offence require the sentence to be enhanced.

68.  It is the prosecution’s case that the money laundering is an integral and essential part of the e-shopping frauds and the court must, therefore, also consider the prevalence of the frauds and harm stemming from them when deciding whether the sentences for this particular type of money laundering should also be enhanced.

69.  It is for the prosecution to prove beyond reasonable doubt that the use of someone else’s bank account to receive the money is prevalent and that there is resulting harm.

70.  In the commission of an electronic shopping fraud, it is essential for the perpetrator that there be no direct face to face contact with the victim.  The most apparent reason is that there is no goods to be delivered and the buyer can withhold payment seeing that there is no goods being delivered.  The other, possibly more important reason must be to conceal the identity of the perpetrator.

71.  Given that it is paramount to the perpetrator that there be no contact in person, the use of a bank account or other form of electronic payment is the only solution that would not raise suspicion on the buyers’ part, unlike, say demanding the sending of cash by post or leaving it somewhere for collection.

72.  Since even in cases of electronic payments, the e-wallets are almost invariably linked to a bank account, the use of a bank account by a perpetrator of electronic shopping fraud is almost inevitable.  The requirement of a bank account for the completion of the fraud makes it part and parcel of the underlying fraud.

73.  It follows then that the prevalence of e-shopping fraud must be directly linked to this particular type of money laundering. I find, therefore, that it is open for the court to take into consideration the prevalence of the underlying e-shopping fraud when deciding on the prevalence of this type of money laundering.

74.  Since it is for the court to consider the same set of figures for e-shopping fraud, I will adopt the same analysis set out above and find that it is the only reasonable inference that this particular type of money laundering is prevalent, given that it is essential and integral to the commission of such frauds.

75.  As for the harm element required under section 27(2)(d) in this type of money laundering, again, based on the same analysis above, I find that it is also directly linked to the nature and extent of the harm caused to the community by the commission of e-shopping frauds.

Should there be enhancement

76.  Since the prosecution has proved beyond reasonable doubt the requirements under s 27, I find that the sentences should be so enhanced.

Degree of enhancement

77.  As held by the Court of Appeal in Leung Yiu Fai, the degree of enhancement is to be decided after taking into consideration the relevant circumstances.

78.  Taking into consideration all the circumstances of the commission of the frauds and the money laundering, in particular the substantial number reported cases of e-shopping frauds, I find that the enhancement for both the fraud and the money laundering should be set at 25% so that the desired deterrent effect may hope to be achieved.

Sentences

D1: Charges 1 to 28

79.  The individual fraud committed by D1 each involved a relatively small amount of money.  There is some planning and organization in their commission but nothing other than is ordinarily expected of a small time fraudster.  For each of the 28 frauds, I adopt a starting point of 18 months’ imprisonment.

80.  In the case of charge 1, given the aggravating factor of D1 planning and committing this offence while he was supposed to have been serving his sentence of community service, I will enhance this sentence by 1 month, taking the sentence of charge 1 to 19 months’ imprisonment.

81.  D1 had entered timely pleas for his offences and is granted the full one-third discount, leading to sentences of 12.6 months’ imprisonment for charge 1, and 12 month’s imprisonment for charges 2 to 28.

D1’s totality

82.  D1 has had a difficult life.  He started getting into trouble at school shortly after his parents’ divorce.  He was diagnosed as suffering from ADHD only two years before that.  I find that it can be inferred that his condition and the divorce had made a big impact on him and that he was incapable to cope, which led to his subsequent wayward behaviours.

83.  Having said that, ADHD is not an untreatable condition and he was so treated for about 7 years.  Neither his condition nor his family situation can be used as excuses for his commission of the present offences.  He must bear the full consequences of his actions.

84.  Taking a step back, I order that 11.4 months of the sentence in charge 2 be served consecutively to the sentence in charge 1.  The balance and sentence of the remaining charges be served concurrently, leading to an overall sentence of 24 months’ imprisonment for the 28 charges after plea.

85.  This overall sentence is then enhanced by 25%, resulting in the final sentence of 30 months’ imprisonment for the 28 charges.

D2’s sentence

86.  The amount of money involved is small, with the added fact that D2 received no benefits from the dealings.

87.  The defendant did assist and, in her very passive way, support her son in the defrauding of others.  The dealings took place over a period of about 5 months with multiple withdrawals.  The defendant’s level of participation, in this one man defrauding business, is relatively high.

88.  It is noted that deterrence is a paramount objective when sentencing for this offence, although it is doubtful whether a mother would have resisted the son’s request even knowing that she may end up in jail for helping him out, especially in this particular case with all the background circumstances.

89.  The frauds committed by D1 are not sophisticated, although there is some degree of planning and organization required, such as setting up a Facebook page or online advertisement.  These are, however, easily done over the internet and would take very little time.

90.  There is no suggestion that the frauds were committed by or on behalf of an organized criminal syndicate.  On the contrary, the whole operation is literally a family business involving mother and son.

91.  The role of D2 is important because D1 did not have a bank account to receive the money since his were frozen.  It would appear that D1 utilized his mother’s accounts because she was the first person available, and whom D1 knew would not refuse his request.  D1 was not using someone else’s bank account to avoid detection, merely out of necessity and availability.

92.  There is no evidence that D2 had tried to do anything to avoid detection or to cover her tracks, despite believing that the money was from her son’s criminal activities.  D2’s withdrawals and deposits were unsophisticated and did not require any planning.

93.  The amount of money involved in charge 29 and 30 are, respectively, $70,600 and $54,855.  These are small figures compared with other money laundering cases at the District Court level.

94.  I will adopt a starting point of 12 months’ imprisonment for both charges.  This is discounted to 8 months upon D2’s timely pleas of guilty.

Totality

95.  Taking a step back, I order that 4 months of the sentence in charge 30 be served consecutively with the sentence in charge 29, the balance concurrently, leading to an overall sentence of 12 months’ imprisonment after plea.

Enhancement

96.  This sentence is then enhanced by 25%, resulting in the enhanced sentence of 15 months’ imprisonment.

Suspension of D2’s sentence

97.  Given the circumstances of D2’s commission of the offences, I proceed to consider whether her sentence should be suspended.

98.  In doing so, I am fully aware that the usual sentence for money laundering is an immediate custodial sentence: Secretary for Justice v Choi Sui Hey [2008] 6 HKC 166, at paragraph 33, and that there must be exceptional circumstances for the sentence to be suspended.

99.  This sentencing principle is confirmed in the case of Secretary for Justice v Siu Yun Yee (邵潤儀), CAAR 6/2016 where the court granted the review application and stated at paragraph 46 of the judgment that “…it is clear that it was necessary that the judge be satisfied that there were “exceptional circumstances” to impose a sentence other than an immediate custodial sentence on the respondent.  That is the effect of the judgment of this Court, following its review of the authorities, in Secretary for Justice v Wade[3]. ”

100.  D2 committed the offence out of the fear of losing her son.  According to Ms Cheng’s written submissions in mitigation, when her son asked to borrow her bank account, she at first thought that he had made a change in his life and had found a job.  It was when she saw the frequency and amount of the deposits, and his son visiting her work place many times to demand her withdraw the money immediately that she started to realize something was not right.  Yet, it was her son asking for her help and she considered she had no choice but to passively comply.

101.  Having been through the present ordeal, I find the risk of D2 re-offending low.

102.  D2 has been a law abiding citizen for the past 50 odd years.  She has been in gainful employment for over 14 years and has been working for the same restaurant for the past 7 years, who are willing to re-employ her upon her release.

103.  D2 has been helping out her reunited daughter to look after her children after work, so that the daughter can continue to work to earn a living.

104.  If D2 is sent to jail, it is not sure whether she will be able to get her job back upon release given the social and economic climate at present.  Her daughter will suffer from not having someone look after her children and may result in her having to quit her job and rely on social assistance.

105.  On the other hand, if D2 is granted a chance, she will continue to be employed, at least for the time being, and will be able to assist her daughter.  It would be in the best interest of the daughter and society.

106.  D1 suffered from ADHD and it must have been extremely difficult for D2 to bring him up as a single parent after her second divorce.  To be working in a restaurant, which demands long hours, and raising a young son would have caused anyone to want to give up.  D2 did not.  She soldiered on, despite all the trouble her son was causing.

107.  Not only did she not give up on herself, she did not give up on her son, thinking that if she kept him near her he will eventually turn around his life.

108.  The defendant’s son will be sentenced to a lengthy term of imprisonment, this in itself will be a severe blow to D2, given her love for her son.

109.  After careful consideration, I find that the above factors when considered collectively do amount to exceptional circumstances and would justify the imposition of a suspended sentence of imprisonment for the two offences.

110.  I, therefore, exercise my discretion and order that D2’s sentence of 15 months’ imprisonment be suspended for a period of 2 years, pursuant to the provisions under s 109B(1) of the Criminal Procedure Ordinance, Cap 221.

111.  Pursuant to s 109B(3), I have explained to D2 in ordinary language her liability under section 109C if, during the operational period, she commits an offence punishable with imprisonment.