HKSAR v. CHEN C F JAMES AND OTHERS

CACC 377/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 377 OF 2005

(On Appeal From District Court Criminal Case No. 212 of 2005)

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J U D G M E N T

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Hon Cheung JA (giving judgment of the court) :

Appeal against conviction

1. The three applicants were convicted after trial by Deputy District Judge M.C. Jenkins of two charges.  The first was for using a copy of a false instrument.  The second was for possession of a false instrument.  They were sentenced to two years’ imprisonment to be served concurrently in respect of each of the charges.  They now apply for leave to appeal against conviction. 

Facts

2. It is the prosecution’s case that the three applicants worked together to ask local banks to store forged ‘US Federal Reserve Bonds’ for them and issue a ‘safekeeping receipt’ in respect of those forged bonds.

Deutsche Bank

3. The events unfolded in September or October 2004 when the 1^st applicant approached Deutsche Bank and asked Mr. Andrew Lo, one of its vice-presidents, whether the bank would store bonds for him and provide a receipt for the bonds.  Mr. Lo felt suspicious of the authenticity of the bonds.  He refused the request. 

Brinks

4. The next event that happened was that the 1^st and 2^nd applicants asked a security firm, Brinks Asia Pacific Limited (‘Brinks’), to deliver bonds to a bank and the bank was to provide a safekeeping receipt. 

5. A meeting was arranged with Mr. Guy Bullen, a director of Brinks on 10 November 2004.  Brinks at this time had alerted the police of the request and an undercover police officer, Senior Inspector Jacqueline Yao (‘Inspector Yao’) of the Commercial Crime Bureau was present together with a member of the United States Secret Service.  The 1^st and 2^nd applicants together with a Miss Chien were present at the meeting.  At this meeting, the 2^nd applicant told Mr. Bullen that an international organization had a number of United States government bonds which he wanted Brinks to deliver to a bank for safekeeping.  The 2^nd applicant produced at this meeting a number of copy documents which were the subject matter of the first charge.  The documents were :

(1) Federal Reserve Bond Inventory List.

(2) Federal Reserve Bond of United States of America (the front side), face value One Hundred Million Dollars, s/n : A66679008A.

(3) Federal Reserve Bond of United States of America (the front side), face value One Hundred Million Dollars, s/n : A66678760A.

(4) Federal Reserve Bond of United States of America (the reverse side).

(5) Bank Certificate of Federal Reserve Bond, s/n : A-66678758A.

(6) Insurance Certificate of Federal Reserve Bond, s/n : A-66678758A.

(7) Global Immunity of Federal Reserve Bond, s/n :  A-66678758A.

(8) Gold Bullion Certificate of Federal Reserve Bond, s/n : A-66678758A.

(9) Treasury Certificate of Federal Reserve Bond, s/n : A-66678758A.

(10) Federal Reserve Guarantee Certificate of Federal Reserve Bond, s/n: A-66678758A.

(11) Five pieces of Green Card of Federal Reserve Bond, s/n : A-66678758A.

6. The 2^nd applicant said that there were 250 such bonds and after this delivery there would be another one involving an even larger quantity.  Mr. Bullen told the applicants that he had very serious reservations about the proposed transactions.  He stated that the bonds were likely to be counterfeit in view of their unusually high face value.  He also told the 2^nd applicant he should contact a bank directly to store the bonds. 

7. After this meeting the 1^st or 2^nd applicant repeatedly contacted Mr. Bullen about the proposal and suggested that J P Morgan Chase Bank (‘J P Morgan’) be used to deposit the bonds.  Mr. Bullen, however, told them that Brinks was not interested as there was doubt over the authenticity of the bonds. 

J P Morgan

8. At the meantime Inspector Yao had maintained contact with the 1^st and 2^nd applicants.  On 19 November 2004 she arranged a meeting for the 1^st and 2^nd applicants to meet another undercover police officer who pretended to be from J P Morgan to discuss the storage of the bonds.  At this meeting Inspector Yao was present together with other police officer from the Commercial Crime Bureau, namely, Senior Inspector Watkin (‘Inspector Watkin’).  The 1^st, 2^nd and 3^rd applicants were present at this meeting together with their lawyer, one Mr. Wong.  Earlier when Inspector Yao was arranging the meeting, the 2^nd applicant informed her that apart from him and the 1^st applicant, a representative of the owner of the bonds and a lawyer would be present at this meeting.

9. At this meeting the 2^nd applicant repeated to Inspector Watkin what he had said earlier at the Brinks meeting about the background of the bonds.  Inspector Yao told the applicants that no matter which bank was to be entrusted with the task, it would have to be proved that the bonds were legitimate. 

10. Shortly after this meeting, another meeting was held between Inspector Yao and the 1^st and 2^nd applicants.  The 2^nd applicant told her that the 3^rd applicant did not wish to deal with J P Morgan as the 3^rd applicant had been cheated by them in the past.  The 2^nd applicant asked her to approach HSBC. 

HSBC

11. The police arranged a meeting with HSBC on 10 December 2004.  The 1^st, 2^nd and 3^rd applicants together with a Miss Michelle Wong attended HSBC.  They were met by Ms Wendy Tsui (‘Ms Tsui’), the Business Banking Manager and her boss, Mr. Kelvin Au (‘Mr. Au’).  At this meeting the 2^nd applicant stated that they had 250 United States government bonds, each with a face value of $100 million.  They wished to deposit these bonds with the bank and the bank would have to issue a receipt to them confirming the deposit of the bonds.  A draft receipt was produced by the 2^nd applicant who said that he hoped the draft would be used by the bank.

12. Mr. Au told the applicants that his department did not provide such a service and suggested that the private banking service of HSBC might have such a service.  He said he would refer the matter to that department. 

13. On 18 December 2004 Ms Tsui met the 1^st and 2^nd applicants and Miss Michelle Wong again at HSBC.  Apart from Ms Tsui a Mr. RingoWong (‘Mr. Wong’) of the bank’s Security Department and an undercover police officer, Police Constable Chan (‘Constable Chan’) were present.  When asked to produce the original bonds Miss Michelle Wong explained that the person who had the bonds should be coming from Taipei but his plane had been delayed.  Mr. Wong said that the bank had to see the originals before they could do anything.  Miss Michelle Wong and the 2^nd applicant stated that the bank had already seen copies of the bonds. 

14. Two days after this meeting Miss Michelle Wong telephoned Ms Tsui that they now had the original bonds.  A meeting was arranged for 22 December 2004.  At this meeting the 1^st, 2^nd and 3^rd applicants were present.  Miss Wendy Tsui and Mr. Kelvin Au were also present.  The 3^rd applicant took out three original bonds with a face value of US$100 million each.  He claimed that they were the original bonds.  These were the subject matter of the second charge.  Mr. Au then asked Ms Tsui to contact the security department of the bank.  He asked the applicants to return in an hour. 

15. After one hour the meeting resumed.  By this time Mr. Wong and Constable Chan were also present.

16. The 2^nd applicant explained that the JuHuilong Investment Company was established in 1934.  It had lent a large amount of gold to the United States government during a bad period of the United States economy.  In return for the loan the United States government had issued the bonds by way of security and the 3^rd applicant was responsible for managing the bonds.  It should be pointed out that earlier at the meeting on 10 December 2004 the 1^st applicant produced a name card describing himself as the Vice General Manager of Huilong Finance Investment (Group) H.K. Limited (‘Huilong’) while the 2^nd applicant produced a name card bearing the name and address of the same company.  His title was stated to be a Special Assistant.  At the meeting on 18 December 2004, the 1^st and 2^nd applicants produced name cards which contained the names of Huilong and that of another company, namely, JuHuilong Financial Investment Group (H.K.) Company Limited.   

17. The 1^st applicant then produced what appeared to be a power of attorney from the JuiHuilong Company authorizing the 1^st applicant to deal with what was described as special instruments.  Constable Chan asked why it was necessary to deposit the bonds with the bank.  The 2^nd applicant replied that the time was right because the United States economy was in good shape.  The applicants were then told that the bank would contact them later and the bonds were returned to them.

The arrest

18. When the applicants reached the outside of the bank’s building they were arrested by police officers.  The three bonds which had been produced at the meeting were found on the 3^rd applicant.  After the arrest the 2^nd and 3^rd applicants were interviewed by the police.  The records of their interview were produced as evidence at the trial.

Applicants did not give evidence

19. All three applicants did not give evidence at the trial.

Agreed false instruments

20. The applicants were represented by lawyers at the trial. According to the admitted facts agreed by the parties pursuant to section 65(C) of the Criminal Procedure Ordinance Cap. 221, the documents referred to in the two charges were false instruments. 

Knowledge and belief

21. In this appeal, the 1^st applicant was represented by Mr. Peter Duncan, SC and Ms Jane Ho.  The 2^nd and 3^rd applicants were not represented by lawyers. 

22. The main thrust of the 1^st applicant’s case, which was also relied upon by the 2^nd and 3^rd applicants, was that the judge was wrong to find that they knew or believed that the documents were false which is an essential ingredient of the offence.  The test is a subjective one.

23. There was, of course, no direct evidence as to the state of mind of the applicants.  It was their right to choose not to give evidence but this means that there was no evidence of them taking any steps to verify the authenticity of the bonds.

Circumstantial evidence

24. In our view there was ample circumstantial evidence to show that the applicants knew fully that the bonds were false instruments. 

25. To begin with the face value of each bond was of a very high value of US$100 million and when the 3^rd applicant produced the three bonds to HSBC, they would have a value of about HK$2.34 billion.  250 of these bonds would be in the value of HK$195 billion.  These are astronomical figures and would have alerted any person with some commonsense that they were too good to be true.  In other words the bonds could not have been genuine ones.  As a matter of fact both Deutsche Bank and Brinks had expressed their views that the bonds were not genuine.  Despite this the applicants had persisted in asking two other banks (i.e. J P Morgan and HSBC) to store the bonds and to provide a storage receipt for them.  This can only indicate that they knew the bonds were false. 

The receipt

26. The bonds had by then matured but the applicants had chosen not to cash or negotiate them or simply deposit them in a safe deposit box of a bank.  Their sole aim clearly was to get a receipt from a bank evidencing that the bonds were in their custody.

27. The terms of the draft receipt produced to HSBC is revealing.  It provided further evidence on the purpose of the applicants’ conduct and their state of knowledge.  The terms of the draft were :

“WE, THE UNDERSIGNED, BEING DULY AUTHORIZED OFFICERS OF _____________ BANK HEREBY CONFIRM WHICH (sic) FULL BANKING RESPONSIBILITY, THAT WE ARE HOLDING THE BELOW MENTIONED ASSETS, WITH (sic) ARE GOOD, CLEAN AND LAWFULLY EARNED OF NON-CRIMINAL ORIGIN OF THE VALUE OF US$25,000,000,000.00 (TWENTY FIVE BILLION UNITED STATES DOLLARS) AS PER SUPERVISORY REPORT DELIVERED TO US DEPOSITED IN SAFEKEEPING AS INSTRUCTED UNDER SAFEKEEPING NO. _________.  ON BEHALF AND FOR THE BENEFIT OF.

—————

INSTRUMENT	:	US FEDERAL RESERVE BOND ISSUED BY BANK OF BOSTON SERIES 1934
FACE VALUE	:	US$100,000,000 (ONE HUNDRED MILLION UNITED STATES DOLLARS) EACH
QUANTITY	:	250 PIECES
TOTAL VALUE	:	US$25,000,000,000.00 (TWENTY FIVE BILLION UNITED STATES DOLLARS)
SC	:	XX-XX-XX
SN	:	X-XXXXXXXXX
BOX NO.	:	XXXXXXXX
PADLOCK NO.	:	XXX

AS PER IRREVOCABLE WRITTEN INSTRUCTION OF OUR CUSTOMER WE WILL BLOCK THESE ASSETS FOR _______ MONTH FROM DATE OF THIS SAFEKEEPING RECEIPT.  THEREFORE THEBLOCKAGE IS EFFECTED FROM _______ UNTIL ________ THE ASSETS WILL BE RETURNED ACCORDING TO THE IRREVOCABLE INSTRUCTIONS OF OUR CUSTOMER FREE AND UNENCUMBERED WITHOUT SET OFF AND FREE AND CLEAR OF ANY DEDUCTIONS.  CHARGES FEES OR WITHHOLDINGS OF ANY NATURE NOW OR HEREINAFTER IMPOSED, WITHHELD OR ASSESSED OF ANY GOVERNMENTAL OR POLITICAL SUBDIVISION OF AUTHORITY HEREOF OR THEREIN AFTER ________ MONTH FROM THE DATE OF ISSUANCE OF THIS SAFEKEEPING RECEIPT UPON PRESENTATION OF THE SAME.  IT IS OUR CLEAR AND FIRM RESOLVE TO PROJECT (sic) THE ASSETS BEING ENTRUSTED TO OUR CARE AND UNDERSTAND THAT ABSOLUTELY NO ONEOUTSIDE OF BENEFICIARY HAS THE RIGHT OR THE ABILITY TO REMOVE SAID ABOVE ASSETS.

REMOVE CAN ONLY BE ACHIEVED ACCORDING TO THE IRREVOCABLE WRITTEN INSTRUCTION BY PRESENTATION AND SURRENDER OF THIS SAFEKEEPING RECEIPT TO THIS BANK.

AUTH. SIGN.        AUTH SIGN”

Purpose of the receipt

28. The draft emphasised the lawful nature of the bonds.  This in our view is a rather unusual specification if articles were simply entrusted to a custodian for safekeeping.

29. The judge said the safekeeping receipt would have served some purpose.  In our view it is legitimate to infer from the circumstances of the cases that the applicants knew that the bonds were not genuine and the purpose of securing a bank to safekeep these instruments was to obtain the receipt from a reputable and internationally renowned bank so that they might use it as some kind of guarantee of good financial standing.  After all, so it could then be represented, a bank had certified that it kept some highly valuable bonds of a lawful nature for the customer.  It is not difficult to appreciate that such a guarantee would most likely be used to entice people (be they sophisticated or gullible) to lend or advance money to the applicants.  They would rely on the strength of the receipt for their advances.  In other words the task of getting the banks to store the bonds and to provide a receipt with an emphasis on the lawful nature of the bonds was part of a fraud scheme and the applicants knew that the bonds were not genuine ones.

30. While the prosecution had not advanced this purpose, it does not mean that the court was not entitled to draw such an inference based on commonsense and its knowledge of commercial dealings.

The folly argument 

31. Mr. Duncan argued that if the applicants knew that bonds were not genuine, it would be foolish for them to approach the banks who might examine the bonds and discover they were not genuine documents.  In this case the 3^rd applicant had gone as far as to produce three original bonds to HSBC.  Mr. Duncan submitted that this indicated that the applicants did not know or believe that the bonds were false instruments.  Furthermore, according to the draft receipt there was a reference to a supervisory report.  This suggested that HSBC would have carried out its own investigation on the genuineness of the bonds before it would accept them for safekeeping. 

32. In our view, this argument which sounds attractive at first brush was not a matter of substance.  We do not accept that this will seriously challenge the finding on the knowledge or belief of the applicants on the falsity of the bonds.  In the first place, there was no indication that the supervisory report referred to in the draft receipt was to be obtained by HSBC itself.  It could well be something to be supplied by the applicants in their task to secure HSBC to safekeep the documents.  In any event in the discussions with the bank officers there was no mention of this supervisory report or that the applicants would allow HSBC to have a verification of the bonds. 

33. In our view there is no such thing as a fool-proof fraud.  By its nature a fraud consists of falsities which might be detected sooner or later.  What the fraudsters were doing was to take a deliberate risk with the hope that their fraud scheme would not be discovered too soon.  Hence the idea of showing HSBC the original bonds does not indicate that the applicants knew or believed that the documents were true.  They knew unless they have to satisfy HSBC with this request first before they could get it to safekeep the bonds.

34. In any event the argument proceeds on the basis that HSBC would have carried out an examination on the authenticity of the bonds before it would agree to undertake the task and that the applicants would also have agreed to this requirement.  This in fact had not happened before the applicants were arrested by the police.

35. In our view the knowledge or belief of the falsity of the documents on the part of the applicants was clearly established.

Joint Enterprise

36. All three applicants were clearly part of a scheme in which false instruments were used.  With a deception scheme of this nature, it would be naive to think that the 1^st and 2^nd applicants would only ask a stranger (i.e. the 3^rd applicant) to join after the scheme had already begun. 

37. The 1^st and 2^nd applicants were present at the various meetings starting with Deutsche Bank to the time when they were arrested after the meeting with HSBC. 

38. The 3^rd applicant of course did not appear at the meeting with Deutsche Bank or Brinks and only appeared in the meeting with the purported officer of J P Morgan and the subsequent meetings with HSBC.  We are also satisfied that the 3^rd applicant was also involved with the Brinks incident which was the subject matter of the first charge.  His appearance in this case took place very shortly after the Brinks meeting of 10 November 2004 when he attended the meeting of 19 November 2004 with the purported officer of J P Morgan. 

39. J P Morgan was not asked to handle the safekeeping because according to the 2^nd applicant, the 3^rd applicant did not want J P Morgan to be instructed as he had been cheated by them before.  This evidence was clearly admissible against the 3^rd applicant as a statement in furtherance of a joint enterprise.  Furthermore, according to the representations made by the 2^nd applicant, the 3^rd applicant was the representative of the owner of the bonds.  According to the 3^rd applicant’s own admission to the police, he had closely identified himself with the organisation which held the bonds : he had worked in that organisation for almost 20 years and his duty was to manage a certain part of the documents.  In our view, the judge was correct to find all three applicants guilty of the two charges.

Entrapment

40.  The 2^nd applicant had also argued that the judge had failed to consider entrapment by the police who arranged the Brinks and HSBC meetings without which the original bonds would not have been eventually produced.  Entrapment was clearly not a valid defence in law : see R. v. Sang [1980] AC 402.

Others

41. The 2^nd applicant had also relied on the supervisory report argument which we had dealt with earlier. 

42. The judge in his Reasons for Verdict referred to the evidence that bonds were issued to the JuHuilong Company in 1934.  He said this was absurd given the fact that the company was only incorporated in Hong Kong on 21 January 2004.  It is not necessary for us to determine whether the judge had misunderstood the evidence in this regard.  The date of incorporation was a very insignificant matter which does not need to be relied upon in the finding of guilt against the applicants.  There was overwhelming evidence pointing towards their guilt. 

Conclusion

43. Accordingly we will dismiss the application.