HKSAR v. TSANG YIU KONG

[English Translation – 英譯本]

CACC 77/2022, [2024] HKCA 1062

On appeal from: [2022] HKDC 588

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 77 OF 2022

(ON APPEAL FROM DCCC 805 OF 2017 AND 601 OF 2018 (CONSOLIDATED))

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REASONS FOR JUDGMENT

Hon Pang JA (giving the Reasons for Judgment of the Court):

1.  In the present case, there were initially three defendants (D1, D2 and D3), who were respectively charged with the offences commonly known as “money laundering”. Three counts of those charges (the 1^st, 2^nd and 3^rd charges) were against D1, another three counts (the 4^th, 5^th and 6^th charges) were against D2 and the remaining one (the 7^th charge) was against D3. They were all convicted as charged after trial. The trial judge, Judge Stanley Chan of the District Court, sentenced the three of them to imprisonment for 3 years and 6 months, 3 years and 9 months and 3 years respectively. Feeling aggrieved, and having been granted leave and bail, D2, the appellant, formally lodged an appeal against sentence. His appeal was finally allowed and these are the reasons and the disposition.

Overall background

2.  D1 to D3 were respectively charged with three counts, three counts and one count of “money laundering”, and the corresponding bank accounts opened and held by the respective defendants were as follows: accounts 1, 2 and 3 in D1’s name, accounts 4, 5 and 6 in the appellant’s name and account 7 in D3’s name. D1 to D3 were charged as the co- defendants in the same case because there were records of transfer among all these accounts. There was no evidence in the case showing D1 to D3 knew each other.

Subject matters of the charges

3.  The following are the subject matters of the charges concerned.

Charge 4:    Money in account 4 amounted to a sum of HK$3,740,585.60 in total and the relevant period was between 17 August 2007 and 14 June 2010.

Charge 5:    Money in account 5 amounted to a sum of HK$5,265,910.85 in total and the relevant period was between 1 September 2007 and 7 June 2010.

Charge 6:    Money in account 6 amounted to a sum of HK$3,585,915.99 in total and the relevant period overlapped with that in charge 5.

4.  The prosecution alleged that the appellant knew or had reasonable grounds to believe that the said three sums totalling HK$12,590,000, in whole or in part, were proceeds of crime or originated from proceeds of crime.

Prosecution evidence

5.  Quite a lot of facts of the case were admitted, including all relevant information and account transactions in relation to accounts 4, 5 and 6 (see below); the appellant’s tax position (that he had never filed any tax return or paid any tax in the capacity of an individual or a company); and the appellant’s record of real property registration (showing that he did not own any land or real property throughout the relevant periods).

6.  In addition, the prosecution’s expert witness, a forensic accountant of the Police Force (PW1), also analyzed accounts 4, 5 and 6 by deconstruction. PW1’s report revealed that apart from the deposits and withdrawals involving outsiders, there was money being transferred from both accounts 4 and 5 to D1’s accounts and also inter-account transfers among accounts 4, 5 and 6. The details are as follows[1]:

“44. …

(4) D2’s Hang Seng Bank account (account 4)

The examination covered the period from 17 August 2007 to 14 June 2010. During this period, there were altogether 327 deposits involving $3,740,585 odd and 353 withdrawals involving $3,740,103 odd. The expert opined that the average rate of flow of funds was 0.8 day, and the average monthly deposit was $110,017.

Regarding deposits, they were mainly made by way of ATM transfers which constituted 62.7%, while 29.4% were in cash (including ATM deposits). Regarding withdrawals, 83% were made by way of ATM transfers while 12.3% were in cash (including ATM withdrawals). There were 7 deposit transactions relating to D2’s account and D1’s account 2, and there were 12 times from his accounts 5 and 6. As to withdrawals, there were 194 times relating to D2’s account and his account 5, while there were 7 times relating to D2’s account and his account 6.

The cash deposits ranged from $100 to $68,800 while the withdrawals from $500 to $20,000.

(5) D2’s Hang Seng Bank account (account 5)

The examination covered the period from 1 September 2007 to 7 June 2010. During this period, there were 387 deposits involving $5,265,910 odd and 627 withdrawals involving $5,306,499 odd. The deposits were withdrawn [in] 5.1 days on average. As to deposits, 74.4% were made by way of ATM transfers and 21.1% were in cash (including ATM deposits). Regarding withdrawals, 49.1% were made by way of ATM transfers while 40.7% were in cash (including ATM withdrawals). There were a total of up to 300 cash deposits received from Tsang’s accounts 4 and 6, constituting 77.5% of the transactions. Withdrawals for making payment into D1’s account 2 constituted 2.8%. There were up to 23 times relating to Tsang’s accounts 4 and 6, constituting 3.7% of the transactions. Concerning other accounts in question, there were up to 308 entries, constituting 49.1% of the transactions. The cash deposits ranged from $700 to $140,000 while the withdrawals from $400 to $60,000.

(6) D2’s Hong Kong Bank account (account 6)

The examination covered the period from 1 September 2007 to 7 June 2010. During this period, there were a total of 254 deposits involving $3,585,915 odd. There were also 311 withdrawals involving $3,586,421 odd. The deposits were withdrawn within 1.3 days on average. 68.6% of the deposits were made in cash (including those at ATM). Deposits made by way of ATM transfers constituted 11.4% while withdrawals made by way of ATM transfers constituted 71%. Withdrawals in cash (including at ATM) constituted 28.9%. As to deposits, there were 24 entries generated from Tsang’s accounts 4 and 5. Concerning withdrawals, there were 117 entries generated from Tsang’s accounts 4 and 5. The cash deposits ranged from $700 to $63,900 while the cash withdrawals from $500 to $20,000.”

7.  Another common feature among accounts 4, 5 and 6 is that “the majority of the funds were withdrawn in various ways soon after they had been deposited” and “the total sum of withdrawals closely approximated to the total sum of deposits”[2].

Defence case

8.  The appellant remained silent under caution but elected to give evidence at trial. The content was more or less the same as the information provided and declaration made by him to the police in compliance with a court order after his arrest: During the relevant periods, he, together with his friends, operated a hotpot restaurant in Shenzhen. The beef slices and most of the kitchen supplies were purchased by him with cash in Hong Kong. At the same time in the mainland, he also re-sold the mobile phones he acquired in Hong Kong and ran a grocery store which provided the so-called commission-drawing mahjong tables as well. Profits were made from both the hotpot restaurant and the phone business. Further to that, he helped the customers of the hotpot restaurant exchange money so that they could gamble conveniently. The customers would pay him back in Hong Kong by depositing cash into his accounts. He did not care about who made the deposits. He did not know D1 and knew nothing about D1’s accounts. Being a person who was in debt, he would withdraw money from his accounts to repay the finance companies. He resided in Shenzhen and did not own any property in Hong Kong.

Verdict after trial

9.  In rejecting the appellant’s evidence in its entirety, the trial judge gave the main reasons as follows: It was against common sense to buy beef in Hong Kong and transport it to Shenzhen; the purported phone business was not supported by any document whatsoever; and there were no explainable purposes for the movements of money among accounts 4, 5 and 6. Having considered the operations of the relevant accounts and the forensic accountant’s analyses, the trial judge was sure that the appellant did have reasonable grounds to believe the money involved in the case was black money.

Sentencing after trial

(Mitigation submission)

10.  The appellant was aged 65 at the time of sentence. He was born in Hong Kong, received education up to primary six and married with no children, had three previous records of gambling and was diagnosed with prostate cancer three months prior to his sentence. The appellant has all along worked as a driver and started to set foot in the mainland in the 90s of the last century, having engaged in businesses including the three areas mentioned at trial. The defence emphasized that the appellant was arrested in 2013 and was subsequently released on conditional bail, yet his trial did not commence until 2022, putting him under considerable pressure. The money from unknown sources only made up a part of those sums particularized in the charges while the rest was in fact related to the transfers among the three accounts concerned as well as the appellant’s personal loans transactions. The defence urged the trial judge to order the sentence of all three charges to run concurrently.

(Actual sentencing)

11.  As pointed out by the trial judge, the Court of Appeal had already set out in the authorities the sentencing considerations in relation to “money laundering”, such as the length of time over which the crime was committed, the degree of sophistication and organization of the modus operandi, whether a cross-border dimension was involved and whether the defendant had benefited from the crime and so on. (See HKSAR v Boma Amaso [2012] 2 HKLRD 33; Secretary for Justice v Wan Kwok Keung [2012] 1 HKLRD 197; and HKSAR v Hsu Yu Yi [2010] 5 HKLRD 536[3].) He indicated that according to the authorities, if the black money involved in the case was between $1,000,000 and $17,000,000, the starting point would be between 3 years and 5 years and 8 months[4].

12.  When discussing the appellant’s personal circumstances, the trial judge nonetheless had the following observations and imposed the final sentence (by adopting a starting point of 4 years and 3 months and then deducting six months by discretion to 3 years and 9 months)[5] below:

“23. The defence submitted that D2 suffered from prostate cancer. During the trial, D2 had admitted the majority of the prosecution case. It was submitted that D2’s ‘money laundering’ activities had lasted for 2 years and 10 months, which could be regarded as a series of activities arising from the same criminal act, involving three accounts in the transfer transactions. The defence also submitted that there had been serious delay in the case and that the trial, while in progress, had also been affected by the social violent events in 2019 and the COVID pandemic.

24.       D2 faces charges 4 to 6 which cover the period from August 2007 to June 2010 and involve a total amount of $12,590,000 odd. D2 is convicted after trial. Likewise, there is no mitigation in law. However, I do take into consideration the length of time between investigation and the arrest as well as the delay caused to the trial, which has spanned over 10 years. I also take into account the various factors and D2’s sickness and decide to adopt a starting point of 4 years and 3 months for each of the offences. Although D2 is convicted after trial, as he has admitted the majority of the prosecution case, I decide to deal with him leniently by exercising my discretion and reducing the sentence by 6 months. In other words, D2 is sentenced to 45 months’ imprisonment for each of the offences, all of which shall run concurrently.”

The present appeal

(Procedural history)

13.  The first hearing of the present appeal commenced after the appellant had been granted leave by a single judge. At that time, he relied on the issue of “double-counting” as his only ground of appeal (see paragraph 14 below). We, however, would like to be better assisted and so adjourned the hearing for the parties to prepare for further submission in respect of the issue. The development that followed was that Mr David Leung, SC was instructed as an additional counsel for the appellant while the respondent sought to file Superintendent Fung Pui- kei’s affidavit dated 16 August 2024 as new evidence. The new evidence was intended to reply to our core concern and question as follows: While double-counting should be avoided, would it aggravate the defendant’s culpability if money was transferred in and out among the accounts under his control (hereinafter referred to as “cross deposit-and-withdrawal”)? We were of the view that the new evidence fulfilled the requirements under section 83V of the Criminal Procedure Ordinance and thus allowed Superintendent Fung’s affidavit to be admitted as evidence.

(Grounds of appeal)

14.  As mentioned above, the appellant’s only complaint is that the trial judge has adopted $12,590,000, the total sum of the amounts particularized in the three charges, as the basis for sentencing. The appellant considers that the trial judge, in taking such an approach, has erred in two respects.

The main error:

PW1 pointed out in his report[6] that for the $12,590,000, only $8,000,000 was of unknown sources and the remaining $4,600,000 odd was in fact from the inter-account transfers among the three relevant accounts. The trial judge, however, failed to take that into consideration or give any corresponding discount, thereby resulting in double-counting. As to how to deal with the cross deposit-and-withdrawal, one should make reference to the following two authorities: HKSAR v Oei Hengky Wiryo, CACC 109/2005 and HKSAR v Lee Wai Yi[u], CACC 100/2006.

The other error:

The documents produced by the appellant during the trial showed that the transfers included funds pertinent to his personal loans and repayments relating to two financial institutions in the amounts of $245,435 and $95,749 respectively, which was mentioned by the defence in the mitigation submission, but the trial judge just did not exclude them.

15.  On the question of whether cross deposit-and-withdrawal would aggravate culpability, the appellant’s position is that it can hardly be resolved in one stroke. It depends on whether or not the prosecution is capable of proving that such activities were carried out for the purpose of making investigation more difficult or other undue reasons. Cross deposit-and-withdrawal may, but not necessarily, aggravate the defendant’s culpability. One example of the latter is that the defendant transfers the black money to his personal account which is designated for paying for expenses. The appellant also takes the view that if all the relevant accounts are with the banks within the Hong Kong territory, belong to the defendant alone and do not involve converting money into other financial instruments - namely the same as the appellant’s circumstances in the present case - the law enforcement authority will encounter no difficulties in its investigation.

16.  The appellant emphasizes that as the bottom line, even if the court considers that the appellant should also be held criminally liable for the cross deposit-and-withdrawal, there is actually only about $7,700,000 having unknown sources (i.e. by deducting $245,435 and $95,749 relating to the appellant’s personal loan transactions from $8,000,000), which is even less than the $8,130,000 dealt with by D3 through one account without involving any cross deposit-and-withdrawal[7]. Therefore, even if the sentence is to be enhanced, it should in no way substantially exceed D3’s sentence (3 years’ imprisonment after reducing 6 months by discretion from a starting point of 3 years and 6 months[8]).

(Respondent’s response)

17.  The respondent submits that there is in fact no definite answer as to how the cross deposit-and-withdrawal should be handled. Both Oei Hengky Wiryo and Lee Wai Yi[u] can only reflect the approaches adopted by certain sentencing judges. The Court of Appeal, however, has yet had in-depth discussions on the issue concerned in these two cases. Conversely, technically speaking, every transfer can amount to money laundering, and the repetition of such act is referred to by the experts in the related field as “layering”.

18.  By reference to Superintendent Fung’s affidavit, the respondent emphasized the evil nature of layering as follows: It is a typical procedure of money laundering, intending to conceal and mask the origins of funds so as to facilitate the predicate offences or the money laundering activities per se. As a result, the police have to carry out investigation and analysis of more than one level of transaction, leading to confusion and delay, thereby causing practical difficulties in successfully detecting the predicate offences and the money laundering activities. As soon as money is deposited, it is transferred to elsewhere in a whole sum or after breaking down into smaller sums. Such “quick dissipation of fund”, as the industry calls it, makes it practically difficult to prevent the crime proceeds from draining away. If there is another account which is blended with third parties’ funds or other black money, the situation will become all the more confusing and obscuring. No matter whether the same bank is involved, any cross deposit-and-withdrawal among the accounts belonging to the same person will lower the vigilance of the bank staff, so that they may not be able to smell a rat and thus fail in discharging their reporting obligations as required by the law, thereby increasing the difficulty in tracking and stopping the crime in time and the risk that the victims are unable to recover their losses.

19.  The respondent submits that if only one transfer has been made, the defendant concerned may not be charged with more than one count of money laundering. However, if it has been more than that and the characteristics of layering have been identified, the prosecution would then lay additional charge(s) based only on the amounts transferred in (rather than money transferred out). As far as the present case is concerned, since the number of cross deposit-and-withdrawal involved was huge and the pattern of quick dissipation of fund was seen, the appellant was, undoubtedly, engaging in the layering exercise. He therefore has to bear greater criminal liability for the layering exercise, which has to be reflected in the sentence.

20.  Lastly, the respondent refers to Wan Kwok Keung and points out that in Hsu Yu Yi, according to the Court of Appeal’s review of a number of authorities, for cases involving $3,000,000 to $6,000,000, a sentence of 4 years’ imprisonment would normally be imposed while $10,000,000 above, 5 years’ imprisonment. In light of this, even computing on the basis of $7,700,000 as suggested on behalf of the appellant, the starting point for the appellant should be 4 years and 4 months, which is 1 month more than the 4 years and 3 months adopted by the trial judge.

Analysis and discussion

21.  As submitted by the respondent, money laundering, as an independent offence, is highly specific in nature, and in brief, it aims at combating the act of creating distance between the proceeds of crime and the predicate offence for the purpose of laundering money. The Court of Appeal had the relevant observations in HKSAR v Chan Kim Chung Nelson [2012] 2 HKLRD 263 (paragraph 13 of the judgment) as follows:

“13.   What most people understand as money laundering, however, is where the proceeds of crime are dealt with for a specific purpose, namely, to create distance between the crime and the profits it generates so that no link between the two can be detected.  This, necessarily, involves acts of dealing with the proceeds of crime but the acts of dealing are directed at a particular end and may involve multiple “dealings” designed to create a number of layers between the crime and the profits it has generated.  By a process of transferring the money between accounts, both domestic and international, converting the monetary profits into other forms of property or washing the money through legitimate businesses, a series of layers are created that conceal the origin of the criminal proceeds and that they are in fact the proceeds of crime.  This renders detection of the crime and the recovery of its proceeds the more difficult. This we shall refer to as a dealing with the proceeds for a money laundering purpose.”

22.  Following the same line of reasoning, an inevitable conclusion is that the layering exercise will aggravate culpability. Furthermore, the more the number of times and complicated it is, the higher the culpability will be and the longer the corresponding sentence will result.

23.  On the question of double-counting, it is true that the Court of Appeal did not go further into the issue in both Oei Hengky Wiryo and Lee Wai Yi[u]. The Court of Appeal merely expressed no disagreement[9] to the judges’ ticking the cross deposit-and-withdrawal amounts off in the two cases. Nevertheless, such silence is absolutely resounding. It demonstrates that the Court of Appeal did not think that ticking the cross deposit-and-withdrawal amounts off must be in conflict with the specific nature of the offence of money laundering. Otherwise, there is no reason that the Court of Appeal did not point it out.

24.  Indeed, the number of layering and the degree of sophistication vary from case to case. A sentencing approach which is on the one hand the most well-ordered with the most predictable result while, on the other hand, the fairest without rendering the sentence disproportionate is: (1) ticking the cross deposit-and-withdrawal amounts off; (2) determining the starting point according to the actual amount of the black money; and (3) increasing the term with regard to the seriousness of layering in an individual case to reflect the defendant’s true culpability. Regarding the result achieved from this approach, one cannot rule out the possibility that the outcome may be closer to the sentence applicable to the case where cross deposit-and-withdrawal is a feature, but it may also be closer to the one where cross deposit-and-withdrawal has been ticked off. It all depends on the seriousness of layering in an individual case.

25.  It, of course, also works if the sentencing judge takes the above steps in the other way round and makes a downward adjustment to the sentence applicable to the case where cross deposit-and-withdrawal is a feature. What is crucial is that the sentence arrived at is not disproportionate and can reflect the defendant’s true culpability.

26.  Coming back to the present case, according to the range of starting points identified in Hsu Yu Yi, $3,000,000 to $6,000,000 normally attracts a sentence of 4 years while for $10,000,000, 5 years. Therefore, in the appellant’s case where $7,700,000 is involved, the suggestion that the starting point should be no less than 4 years is, in our view, correct. As the layering exercise in the present case is serious, this starting point should be further adjusted upward. The problem is that D3’s case involved $8,130,000 and no layering exercise, where the trial judge only adopted a starting point of 3 years and 6 months (which was too low) in sentencing. In the circumstances, the appellant cannot be sentenced with a starting point substantially higher than that in D3’s case, or injustice will be done to the appellant.

27.  Being bound by the above circumstances, we can only reduce the appellant’s sentence to 3 years and 9 months, and according to the trial judge’s intention, we give a discount of six months by discretion and arrive at a sentence of 3 years and 3 months. Since there is no information indicating that the appellant will not be given a one-third discount for his good behavior in prison, 3 years and 3 months will then be reduced to 26 months. Furthermore, as he has already served 23 months in prison between the date of conviction and the time he was granted bail, only three months of the prison term are left.  In view of this fact, and having regard to the appellant’s health condition as well as the impact brought to him by the re-incarceration after being admitted to bail, we are ultimately convinced to exercise our discretion to spare those three months.

Disposition

28.  The appellant’s appeal is allowed. The original sentence is set aside and substituted with a term of imprisonment that enables the appellant’s immediate release.