HKSAR v. LEO YEE SANG PATRICK

CACC 494/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 494 OF 2004

(ON APPEAL FROM  DCCC 542/2003 & DCCC 207/2004)

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REASONS  FOR  JUDGMENT

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Hon. Lugar-Mawson, J (giving the judgment of the Court):

Introduction

1.  On 21 July 2005, we dismissed the Applicant’s application for leave to appeal against sentence, we now set out our reasons for that decision.

Background

2.  The Applicant, Patrick Leo Yee Sang (who was the 4^th defendant at trial) was convicted by Deputy Judge MacKintosh in the District Court on 6 October 2004 of four charges of conspiracy to defraud.  On 11 November 2004 he was sentenced to concurrent sentences of 3 years’ and 4 months’ imprisonment in respect of each offence.

Facts

3.  This was a complex letter of credit and documents against purchase fraud involving 10 defendants and eleven charges under which the defendants were variously and jointly charged.

Prosecution case

4.  The case revolved around a listed company called Firstone International Holdings Ltd (FIHL).  D1, Wan Sitt Kam, was FIHL’s Chairman and major shareholder.  FIHL was the holding company for other companies.  The FIHL Group’s main business was the manufacture and sale of electronic parts.  The Group experienced cash flow problems around 1993 or 1994.  It ‘solved’ these by making applications through its principal trading arm, Firstone Electronics Company Ltd (FEL), for letters of credit (LC) or, in some cases, documents against purchase financing (DP), in respect of fictitious transactions purportedly entered into between FEL and other subsidiary or associated companies within the FIHL Group.  The money raised was immediately paid to FEL. 

5.  There were 40 fictitious transactions behind the 11 charges and, although the victim banks’ exposure to risk varied on a daily basis, the total amount of credit fraudulently obtained was around $100 million.  In the end result there was no actual loss for an Indonesian buyer took over FIHL and injected capital into the Group.

6.  The majority of the charges related to LCs obtained by FEL, but two related to other subsidiary or associated companies of FIHL, Firstone Food and Beverage and Centra Intertraco Ltd (Centra) (charges 10 and 11), and three of the charges (charges 7, 8 and 9) related to DPs which involved banks granting TR loans to FEL upon presentation of bogus documents by an alleged seller evidencing a fictitious sale.

7.  Three of the charges (charges 7, 8 and 9) with which the Applicant was charged, related to DP frauds occurring between 15 January 1996 and 31 July 1996, 1 January 1996 and 30 April 1996, and 1 March 1997 and 31 December 1997, respectively.  In one of them a self-company called Duncon Ltd, which the Applicant owned, was used as one of the bogus parties to the transaction.  The other charge he faced (charge 10) related to a LC fraud occurring between 1 April 1997 and 30 September 1997.  The amounts involved in these four charges, were in the region of $40 million.

8.  The Applicant had joined FIHL as a Financial Manager in 1995, after the start of the scam.  He was recruited because of his experience in banking.  It was his job within FIHL to manage the amount of money required on a week-by-week basis.  He worked out the net cash shortage and broke it down into a number of fraudulent LCs drawn on FEL’s bank accounts maintained with a number of  banks.  It was he who introduced the use of DP frauds as an alternative to LC frauds.

9.  Although the Applicant made no personal gain or reward and was not as senior in the management of the Group as some of the other defendants at trial were, he was nevertheless an active participant and played an important role in the scam, and was fully aware of its nature and scope.  As he earned over $35,000 per month from his employment, it was clearly in his interest to keep FIHL afloat so that his employment could continue.

10.  The prosecution’s case against the Applicant was made up of his admissions in four cautioned statements and documentary evidence supporting his involvement.  In addition, PW2, who had been an accounts manager at FIHL, gave evidence of the Applicant’s involvement in creating fictitious ledger entries designed to hide from the Group’s auditors the fact that there was no genuine business behind the transactions.

11.  PW4, a former accounts clerk, said that she gave the Applicant, as well as D1 & D3, weekly cash flow forecasts and also prepared false LCs under his orders.  PW5, another clerk, said that she had made periodic financial reports to the Applicant in respect of Centra to show what its cash needs were and that, based on those reports, the Applicant would obtain the necessary funds.  She also said that the Applicant had told her to type out a false LC application.

Defence Case

12.  The Applicant unsuccessfully challenged the admissibility of his caution statements.  At the trial proper, he tried to suggest he was unaware of the deception that his company, Duncon, participated in. He was disbelieved.

Reasons for sentence

13.  In assessing the level of each defendants’ sentence the Judge relied on R v. Chan Kam Chuen [1995] 2 HKCLR 257, in which this Court said that documentary credit frauds are serious offences.  That is because the system behind them is based on trust and it is therefore fundamental that the documents used in support of the applications to the banks are truthful and accurate, and that the integrity of the whole documentary credit system would be undermined if a firm response was not taken towards such frauds and substantial sentences of imprisonment imposed on offenders.  Similar comments were made by this Court in HKSAR v. Cheung King [2001] 3 HKLRD 68 and HKSAR v. Wu Fat Ming CACC 531/2002 (unreported), both of which cases the Judge also referred to.

14.  The Judge commented that because of the widely different circumstances behind each case and the need to judge each case on its own merits, there are no sentencing guidelines for these offences.   He noted that in HKSAR v. Cheung King, a starting point of 4 years’ and 6 months’ imprisonment was considered appropriate for an applicant who was described as a “small fry”.  Her role had been to prepare false documents to support the bogus transaction in respect of one letter of credit.  The sum involved was US$891,000 (about HK$7 million).  The applicant in that case had derived no personal financial gain from the transaction and the bank had been repaid in full.  From this case, the Judge recognized that the sentencer had to take the scale of the fraud, its complexity and the extent of the offender’s participation into consideration, and that this was a question of judgment, rather than mathematics.

15.  The Judge gave a comprehensive recital of the various factors he took into account generally in sentencing all defendants.  These included, the amount of money involved, the role played by each of the defendants, the bogus nature of all of the transactions, the fact that it was a carefully orchestrated scheme, that there was an absence of personal gain, that the money obtained from the victim banks had been repaid, that there was a significant time lapse between the commission of the offences and the conviction of the defendants and the fact that although the case had gone to trial the defence had, never-the-less, shown a degree of cooperation towards the prosecution.  We deal with the Judge’s approach to certain of these matters later in this Judgment.

16.  In respect of the Applicant himself, the Judge noted his age (45 at the time of sentence) and despite the fact that the Applicant had what the Judge described as “…an ancient and minor conviction” treated him as having a clear record.  The Judge noted, however, that the Applicant was fully aware of the nature and scope of the frauds charged against him and that he played an important role in carrying them out.  He took a starting point sentence of 3 years’ and 6 months’ imprisonment as being appropriate for the Applicant and, after allowing 2 months deduction to reflect his clear record, sentenced him to concurrent terms of 3 years’ and 4 months’ imprisonment on each charge.

Grounds of Appeal

17.  The Applicant’s counsel, Mr. James McGowan advanced 6 grounds of appeal on the Applicant’s behalf in saying that his sentence was both wrong in principle and manifestly excessive.

18.  First he said that the Judge failed to take into account the fact that the credit transactions were ‘local’ rather than ‘international’ in setting the starting point sentence.

19.  Secondly, he said that the Judge erred in his assessment of the Applicant’s position within the FIHL Group when assessing his culpability.  In particular, he says that the Judge wrongly described the Applicant as the FIHL Group’s ‘Financial Controller’ when he was only the ‘Financial Manager’, which was a more junior position with less say in the management of the Group’s finances.

20.  Thirdly, he said that the Judge failed to distinguish the relative criminality of the Applicant and his co-conspirators adequately.

21.  Fourthly, he said that the Judge failed to give the Applicant sufficient credit for delays in both the investigation and the trial.

22.  Fifthly, he said that the Judge failed to give the Applicant any, or sufficient, credit for his rehabilitation since the commission of his offences.  After leaving FIHL the Applicant had set himself up as an independent investment advisor, that business failed after his arrest by the ICAC in connection with this case.

23.  Sixthly and lastly, he said that the Judge failed to give any, or sufficient, credit for the Applicant’s  ‘high degree of cooperation’ with the prosecution during the course of the trial.

Discussion

Ground 1

24.  In his argument in support of the 1^st ground, Mr. McGowan, although accepting that the comity of nations demands that the basis of international trade is preserved and that criminal acts which affect the basis of that trade deserve condemnation, argued that those principles do not apply in this case as there was no international trading purportedly involved.  The LCs in question all purported to finance sales and purchases within Hong Kong and not export sales.  They were in banking parlance ‘local’ LCs and not ‘international’ LCs.

25.  Mr. McGowan said that Mortimer JA’s comments in Chan Kam Chuen, that:

“

On any view, even though the gain to the applicant was small, these offences are very serious. The system of documentary credits is the means whereby international trade has been conducted for hundreds of years. The system depends entirely upon trust. Money is paid out, not upon an examination of the goods, but upon the documents themselves. It is fundamental to the system that the documents should be truthful and accurate. If false documents are circulated, some of which are in effect tile to the goods themselves, the whole system falls apart. That is why courts always regard offences of this nature as very serious.”

- can only be referable to situations where the fictitious LCs or DPs purport to finance export sales.

26.  We did not agree, rather we agreed with Mr. Gavin Shue (for the Respondent) when he said that what Mortimer JA was stressing in that passage was the need for trust in the documentary credit system generally.  That system is vulnerable when false documents are involved.  Any offence involving the creation of false documents within the system must be viewed as being “very serious”, and there is no valid distinction to be made between “local” LC fraud and “international” LC fraud.  The fraudulent misuse of the documentary credit system within Hong Kong could lead to a worldwide loss of confidence in Hong Kong’s banking system as a whole.  Further, many of the banks defrauded in this case were the local branches of overseas-headquartered banks, having banking interests in many countries; that alone adds an ‘international’ element to this case.

27.  We were satisfied that there was nothing in this ground.

Ground 2

28.  Mr. McGowan’s argument in support of the 2^nd ground was that the Judge may have mistakenly believed that the Applicant held a more senior position in the FIHL Group than he did and, by reason of that, taken the view that he should be subject to a higher sentence.

29.  It is true that one occasion in his Reasons for Sentence the Judge referred to the Applicant as the “Financial Controller”.  However, in the admitted facts he is referred to as the ‘Finance Manager’.  He also referred to himself by that title in Exhibit P20, a letter from the Applicant admitted into evidence in which he explains some adverse matters.  Clearly the Judge’s single reference to the Applicant being the “Financial Controller” was a mere slip of the tongue.

30.  There can be no doubt from the Judge’s summary of the evidence of the witness against the Applicant in his Reasons for Verdict, that that he understood the Applicant’s true position in the Group and the major role he played in ensuring the scam’s success.  The judge described PW2, who worked in the same department as the Applicant, as “an accounts manager and later as assistant financial manager.” He then gave a description of the lead the Applicant took in obtaining false loans to cover the Group’s poor cash flow.  PW4 spoke of providing the Applicant with weekly cash flow forecasts and preparing false LCs under his orders.  PW5 spoke of making periodic financial reports about Centra’s cash needs to the Applicant and of him then obtaining the necessary funds.  She also spoke of the Applicant instructing her to type out a false LC application.  We were satisfied that this ground had no merit.

Ground 3

31.  In advancing his argument on the 3^rd ground, that the Judge failed to distinguish the relative criminality of the Applicant and his co-conspirators adequately, Mr. McGowan drew our attention to the case of D6, Ng Pik Uk who was convicted of five charges and sentenced to undergo Community Service Work.  D6 was a shipping manager with FIHL and had worked for FIHL since the early 1980’s.  And to the case of D2, Lee Sau Tong, D1’s wife and a director and shareholder of FHIL, who was convicted of nine Charges and sentenced to 3 years’ and 5 months’ imprisonment (from starting point sentence in her case of 4 years’ imprisonment), which is only one month more than the sentence the Applicant received.  He argued that in comparison with their sentences, the Applicant’s is a heavy one.

32.  These comparisons are not apposite.  The Judge was aware that, D6 was (and we quote from his Reasons for Sentence):

“	…not a manager of the company or an instigator of these bogus transactions; you did not invent the scheme, you merely operated it. You did however exercise a supervisory role over D7. You were a medium ranking employee earning roughly $12,000 -$16,000 a month.”

33.  The Judge described D2’s role as being:

“	… signing the many documents which relate to them (the LCs) knowing there were no underlying transactions and knowing that the purpose was to remit funds to the company or its subsidiaries in order to ease the acute cash flow problems.”

34.  The Applicant’s role certainly went far further than D6’s.  Her role appears to have been limited to no more than signing bogus documents as and when required to do so.  The Applicant on the other hand was recruited to manage the fraudulent applications and he did so.  He introduced a new modus operandi into the scheme - the use of DP financing in place of LC financing.  As the Judge described him, he was the “…co-ordinator of the scheme to revert money to FIHL”

35.  Neither is the comparison with D2 any more apt.  Although as D1’s wife she must have benefited from the scam’s success, her role too appears to have been limited to that of one of the signatories of the bogus documents.

36.  Mr. McGowan laid emphasis on the fact that D2 was involved in the scam from the outset, whereas the Applicant joined it after it had started.  We are satisfied that he cannot take advantage of that distinction, which is more illusory than real.  The Applicant joined the scam knowing that it was in being.  In fact he was deliberately recruited so that he could use his knowledge of the documentary credit system to ensure that it ran smoothly.  And as we have said he used that knowledge to refine the scam by introducing the use of DP financing.

37.  We were satisfied that the Judge distinguished the relative criminality of the Applicant and his co-conspirators adequately.

Grounds 4, 5 & 6

38.  Grounds 4, 5 & 6 may be conveniently taken together.  The Judge was aware that there had been a relatively long time lapse between the commission of the offences and the trial and conviction of the defendants.  He said this about it:

“

There has been a significant time lapse between the commission of the offences and the conviction of the defendants. Save that an element of the delay was the need to arrange a long and complex trial, the reason for this is not to be laid at the door of the defendants. And neither, in all the circumstances, is it the fault of the prosecution. Investigations appear to have started in 1998 or 1999; the defendants were arrested in late 2001. It has taken three years to get them to trial. More particularly, the last of the conspiracies was in 1997. In some defendants’ cases, the subject transactions occurred in 1995, nine years ago. It seems to me that the relevance of this is that the defendants’ lives have substantially moved on since committing the offences and in the case of people of clear record, that is a significant factor to be built into the starting point. They have not offended since and are to be regarded as having rehabilitated themselves to a significant degree.”

39.  We accept that delay can be mitigating factor, particularly if there is a long delay between the end of the investigation and the beginning of the trial.  We were told that the Applicant was charged on 22 August 2002 (as were all the defendants), which may be taken as the effective end of the investigation.  Due to various procedural matters, as well as the need for certain of the defendants’ legal advisors’ to peruse the extensive unused material, the trial (which lasted for 50 days) did start until 2 July 2004.

40.  In a case as complex as this one was, with its voluminous documentation (there were over 2,000 documents in the core bundle alone), there is inevitably going to be some delay.  We cannot say that the 5-year period between the commencement of the investigation and trial, and the 2-year period between charge and trial can in any way be considered excessive or unusual.

41.  In any event, the Judge recognised that there had been a delay and said that he would recognise that fact by building recognition for it into the starting point sentence for all defendants.  This was possibly the wrong approach for him to take.  In HKSAR v. Wong Chui Mei CACC 505/2003 (unreported) where a similar approach to sentence had been taken at trial, Ma CJHC said (at page 7) that this Court: “…would have preferred to see a starting point that did not include the mitigating feature…” (in that case restitution). 

42.  In our view, the better approach would have been for the Judge to have established a starting point for each offence taking into account the amount involved, the number of banks deceived, the period of time over which the frauds were practised, the actual losses to the banks; and the significance of the role played by each defendant in furthering the conspiracies, but ignoring all mitigating factors and circumstances, and then apply to that starting point such discount as he felt able to give to each defendant to reflect both his or her individual mitigating circumstances, as well as the mitigating factors he felt applied to all defendants generally.  Had that approach been taken, rather than the one the Judge took - establishing the starting points after giving credit for the mitigating factors that applied generally and then applying to those starting points a discount to reflect what he saw as each defendant’s individual mitigating circumstances - it would have been easier both for the defendants and this Court to see what discounts had been given for what mitigating factors and circumstances.

43.  As may be seen from the passage in his Reasons for Sentence quoted in paragraph 38 above, the Judge was aware of all of the defendants’ ‘rehabilitation’ since the offences (in the sense that they had committed no further offences and had obtained, or sought to obtain, honest employment since the offences).  He realised that many of the fraudulent transactions to which they had lent their aid had taken place a long time ago, and that this was relevant to show that the defendants’ lives had substantially moved on since then.  As in the case of delay, he built this in as mitigating factor into his starting points.

44.  The Judge was also aware of all of the defendants’ cooperation with the prosecution during the course of the trial.  He said this about it:

“

Despite the not guilty pleas, there has been a high degree of cooperation in the conduct of trial, especially in the form of the admission of very extensive facts. The elements of each of the 40 transactions have been admitted and voluminous documentary evidence adduced by consent. This has saved considerable time and must be recognised in sentence; though again, it is not case for any specific discount. In my view it is more appropriate to take it into account in judging the baseline for sentence in each case.”

45.  Again the Judge built this in as mitigating factor into his starting point.  To some extent he was generous in doing so, for that cooperation amounted to no more than a realistic acceptance by all the defendants, including the Applicant, of various facets of the prosecution’s case and did not prevent the trial from extending over 50 days.  Neither did it extend so far as the Applicant accepting the admissibility of his cautioned statements.

46.  Despite the difficulty the Judge’s approach to the assessment of his starting points caused us, we could not agree with Mr. McGowan that the Judge failed to give the Applicant sufficient credit for delay, rehabilitation or cooperation with the prosecution.  It is clear from his Reasons for Sentence that these matters were well in the Judge’s mind and we were satisfied that the sentences the Applicant received were the appropriate ones for his offences.

Decision

47.  For the reasons we have given we refused the Applicant leave to appeal against sentence.