HKSAR v. CHING KUN KIN

CACC 192/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 192 OF 2008

(ON APPEAL FROM DCCC NO. 870 OF 2005)

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BETWEEN

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R E A S O N S   F O R   J U D G M E N T

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

Introduction

1.  On 28 April 2008, following a trial in the District Court before Deputy Judge M Chow, the applicant, Ching Kun Kin, together with his two co-defendants, was convicted of conspiracy to keep a vice establishment, contrary to s.s. 139(1)(a), 159A and 159C of the Crimes Ordinance, Cap. 200. The applicant was further charged with and convicted of six counts of dealing with property known or believed to represent the proceeds of an indictable offence, contrary to s.25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap. 455. The applicant was sentenced to a term of imprisonment of six years and three months.

2.  The applicant initially sought leave to appeal both conviction and sentence. However, during the course of the hearing, he was granted leave to abandon his application in respect of sentence.

3.  In respect of the application to appeal his convictions, having heard submissions from the applicant’s leading counsel, Mr Martin Lee SC, we refused leave, saying that we would give our reasons later. We do so now.

Background

4.  In 2002, the police began an investigation into the financial activities of the applicant. The investigation bore the name Operation Abrogate. One of the reasons for the investigation was a concern that the applicant may be, or may have been, involved in money laundering activities with an underworld figure, Cheung Tze Keung, known as ‘Big Spender’.

5.  The investigation revealed that the applicant had sole control of three companies which in turn controlled three sauna businesses known as the Blossom Lake, the Hawaii and the Big Spender Saunas. The investigations further revealed that sexual services may be offered at all three saunas.

6.  It was determined that investigations should continue, the focus being on the activities in the three saunas. In this regard, in early June 2004 an undercover officer obtained employment at the Blossom Lake Sauna where he remained for about a year. This officer was to be the principal prosecution witness at trial.

7.  During his year at the sauna, the undercover officer kept a diary which he filled out in a safe house, recording matters that he considered to be relevant to the investigation. When he testified, refreshing his memory from the diary, the undercover officer said that customers of the sauna were encouraged to purchase sexual services. These services were offered in three packages, the cost of the packages increasing as the nature of sexual services varied. The officer further testified that the sales of these packages were recorded in code in an accounting ledger and that from time to time he would be responsible for making such entries in the ledger.

8.  The officer further testified that, when sexual activity was taking place in a cubicle, it was customary for the attending masseuse to hang a towel over the entrance. He said that from time to time he had heard the sounds of sexual arousal coming from cubicles and that he had seen used condoms dumped in a waste bin. He further testified that, when the sauna was being checked by the licensing authorities, in order to hide any suggestion of vice activities, it was his job to remove towels from the entrances to the cubicles. He said that, when doing this, he had on a number of occasions seen sexual activity taking place in the cubicles.

9.  The evidence of the undercover officer was supported by the evidence of three other police officers who visited the Blossom Lake Sauna posing as customers. Each of them was offered a choice of three packages of the kind described by the undercover officer and each testified that, in their cubicle, the masseuse would hang a towel over the entrance before commencing sexual conduct.

10.  Police officers also visited the Hawaii and Big Spender Saunas posing as customers. When they did so, they were also offered three packages by the sauna staff, the packages being the same or very similar to the packages offered at the Blossom Lake Sauna. When each agreed, once inside a cubicle, the masseuses began to engage in sexual activity with them, each officer then ending the encounter with a suitable excuse.

11.  When the three saunas were raided by police in June 2005, aside from used condoms (five being found in a waste bin at the Blossom Lake Sauna) relatively substantial stocks of unused condoms were found in each place. Female contraceptive film or jelly was found at the Blossom Lake and Hawaii Saunas.

12.  As to the applicant’s involvement in the vice activities, the undercover officer testified that the applicant came to the Blossom Lake Sauna on a fairly regular basis. Indeed, the two employees of the sauna who were responsible for management had a code word for his arrival and departure. The applicant was not therefore merely an ‘arm’s length’ investor.

13.  Importantly, the officer had a record in his diary of a number of conversations which took place in the Blossom Lake Sauna in which the applicant, by what he said, made it plain not only that he had knowledge of the vice activities but that he well understood the importance of those activities to the profitability of the sauna. In respect of these conversations, the officer testified that the applicant had either been present and witnessed them or that he had been one of the participants. The officer spoke of a conversation in which the applicant emphasised to his staff the central importance of the vice activities, saying that they constituted some 70% of the takings. He spoke of another conversation which took place after he had been working at the sauna for several months. In that conversation, the applicant had instructed him that, if there were complaints from customers to the effect that any masseuse was being perfunctory in providing sexual services, he should pass on that complaint as it was important to retain the customers.

14.  After his arrest, the applicant chose, as was his right, not to give a cautioned statement. At trial, he declined to give evidence. Nor did he call any witnesses. In the result, therefore, the judge was denied the benefit of any explanation of material events and circumstances by the applicant or by any person called by him both as to the level of his involvement in the management of his sauna businesses and his dealings in the funds flowing from those businesses.

15.  The applicant’s defence emerged from the matters which defence counsel attempted to elicit during the course of cross-examination of the prosecution witnesses and the propositions put to those witnesses.

16.  In respect of the charge of conspiracy to manage a vice establishment, the applicant’s defence was that of a bare denial, namely, that he did not accept that vice activities were taking place at any of his sauna businesses and had no involvement in the management or promotion of such activities. It followed therefore that any assertion by the undercover officer that he had witnessed or taken part in conversations in which the applicant had made plain his involvement in the vice activities had to be false.

17.  As the defence case emerged, it came to be suggested that the case officer, Inspector Lau, together with the undercover officer, having targeted the applicant on the basis that he was an associate of a known underworld figure, must have been determined to obtain a conviction against him by the creation of false evidence.

18.  In respect of the charges of dealing with the proceeds of an indictable offence, it was the applicant’s defence that he had no reasonable grounds to believe that the funds flowing from the sauna businesses were – in any part – the proceeds of vice activities; in addition to which a number of the accounts identified by the prosecution held funds which could equally have come from his other business interests.

19.  For the judge, therefore, the issue was simple enough; it was to determine whether, on a consideration of all the evidence, she could be sure that the testimony of the prosecution witnesses was truthful and sufficiently reliable so that she could be sure it proved the offences charged. Her Reasons for Verdict were structured accordingly.

20.  The judge went through the evidence of each prosecution witness, particular emphasis being given to the testimony of Inspector Lau and the undercover officer. She concluded in respect of each prosecution witness that, in all major respects, she could rely on their testimony as being truthful and reliable. It followed, without the need for stating the fact, that the judge rejected any allegation that evidence had been exaggerated or invented in order to secure the wrongful conviction of the applicant.

The basis of the appeal

21.  The grounds of appeal advanced on behalf of the applicant were based on a single foundation, namely, that the judge had found against him without demonstrating, in the light of the defence case, that she had evaluated to the appropriate degree, or at all, significant inconsistencies and conflicts in the prosecution evidence.

22.  It is well settled that, where there is a duty to give reasons, it must be discharged by giving adequate reasons. What is adequate will be determined by the circumstances of each case.

23.  On behalf of the applicant, it was submitted that in a number of important areas the judge had failed to demonstrate that she had taken the defence case into account and, in the light of that case, had resolved unsatisfactory features of a significant nature in the prosecution evidence.

The operational order

24.  Mr Lee, in the course of his submissions before us, said that evidence arising out of the cross-examination of Inspector Lau concerning an operational order prepared by that officer was of central importance to the defence case at trial. He submitted that, in the course of cross-examination of Inspector Lau, it became apparent that there were ‘suspicious circumstances’ surrounding the creation of the order which must have raised a reasonable doubt that the Inspector was a man to be trusted as a witness of the truth.

25.  On a plain reading, it is apparent that an operational order is intended to define the objects of a police investigation, the manner of its execution and how logistical issues are to be managed. In the present case, the order, a classified document, bore the heading: ‘Deployment of Undercover Officer: Operation Abrogate’.

26.  One of the principal matters raised in cross-examination was the fact that the order, dated 26 August 2004, was worded in the future tense even though the undercover officer had commenced his employment at the Blossom Lake Sauna more than two months earlier. It was asserted that the use of the future tense, together with other suspicious matters, had to raise a reasonable doubt that Inspector Lau had attempted in bad faith to distort the report to conceal the full picture from senior officers.

27.  During the course of argument before us, Mr Lee submitted that Inspector Lau had as good as admitted deliberate concealment on his part.

28.  We do not agree. While the Inspector accepted that, by referring to the operational order alone, his senior officers would not see that the undercover officer had already been deployed, he testified that they would know of that fact by other means.

29.  This explanation by the Inspector was condemned by counsel as ‘ludicrous’. Again, we disagree. It was never suggested, nor could it have been, that the operational order was the only document concerning the investigation or that there had been no face-to-face liaison concerning the investigation between the Inspector and his colleagues, including his senior officers in the same unit. Indeed, as the judge noted, the undercover officer had already been deployed for over two months when Inspector Lau took over the responsibility of case officer.

30.  In any event, a document was placed before the judge by the defence which stated in the clearest terms that an operational order was not the single commencing document of an undercover operation. The document to which we refer is a further classified document, a directive dated January 1999 concerning undercover operations.

31.  During cross-examination, it was put to Inspector Lau that this directive would have governed his management of the undercover operation at the Blossom Lake Sauna. Inspector Lau said that he had never seen the directive before and had no knowledge of it. Despite this denial, and despite the failure of the defence to lead any evidence as to the nature, currency and reach of the directive, defence counsel was permitted to cross-examine Inspector Lau at length on his failure to comply with the directive. The apparent basis for the cross-examination, to employ the words of defence counsel, was the assumption, for that is all it could have been, that the directive “was a genuine internal guideline the police used in so far as undercover operatives are concerned”.

32.  Insofar as the directive was given any weight, it stated that, to avoid more than one undercover operation taking place in respect of the same investigation, an Assistant Commissioner must be consulted before the institution of an undercover operation, in short that any unit intending to launch an undercover operation must discuss the matter with an Assistant Commissioner and obtain his consent to that operation. The directive then went on to state that an operational order of the kind written by Inspector Lau was to be compiled only after such approval has been obtained.

33.  As we have indicated earlier, an operational order is clearly a formal document which sets out the parameters of an operation. There is nothing in the directive to suggest that, once an undercover operation has been approved, there can be no deployment until a formal operational order has been drawn up and distributed. Indeed, with the need to commence many operations with the minimum of delay, it would be surprising if there was such a direction.

34.  As for the wording of the operational order in the future tense, the judge noted that in a number of instances the shorthand for undercover officer in the order included provision for more than one such officer, the shorthand being: ‘UC(s)’. In this regard, the possibility of there being a second undercover officer deployed was specifically canvassed in para. 24 of the operational order. Indeed, Inspector Lau testified that that was one of the reasons why he had employed the future tense. In addition, he said that he had used the future tense in order to state what the duties of the existing undercover operative (and any future operative) would be.

35.  We would add that the directive on the deployment of undercover officers contained an aide memoir on the drafting of operational orders which itself was couched mainly in the future tense.

36.  In her Reasons for Verdict, the judge rejected any suggestion that the operational order had been drafted by Inspector Lau in order deliberately to conceal the full picture from his senior officers. Importantly, as we have indicated earlier, she observed that Inspector Lau had only taken over the investigation in August 2004, well after the deployment of the undercover officer. Such a finding, of course, raised the inevitable question: why would Inspector Lau wish to conceal the deployment of an undercover operative from his senior officers when he had not even been the case officer at the time of that deployment?

37.  The judge stated that she was also satisfied that Inspector Lau would not have been able to cover up the continued deployment of the undercover officer from his senior officers in his unit, that is, from the officers who would have had daily liaison with him.

38.  In our judgment, read in the context of the Reasons for Verdict as a whole, we have no reason to doubt that evaluation.

39.  A further criticism raised of Inspector Lau’s evidence was that in the course of his testimony he had denied knowing anything of the directive on the deployment of undercover officers despite the fact that in his operational order he had written the following: “The UC has been briefed on the laws pertaining to vice and Force guidelines in working as an undercover officer in vice activities.” Indeed, Inspector Lau said that, in all the undercover operations in which he had been involved, he had never been shown any “black-and-white guidelines” on the rules that had to be followed. All his knowledge had come from his past experience. No evidence of any kind was put forward to contradict him in this respect.

40.  The judge, who had the benefit of observing Inspector Lau during the course of his cross-examination, had no apparent difficulty in accepting the inspector’s “subjective view” that the undercover officer would have received the necessary training concerning the laws of vice at the police training school and that, if any instruction was necessary, it could have been given in no more than 10 minutes.

41.  That Inspector Lau had denied any knowledge of the directive was criticised before us as being “wholly inconceivable”. But the document, as we have said, was introduced by the defence and used as a basis for cross-examination on an assumption only that it was genuine and was applicable directly to the responsibilities of Inspector Lau. Nothing was known of the nature and reach of the document or even whether it was still current. Evidentially, the directive itself had no value. As it was, the judge was satisfied that the inspector was being truthful when he said that he had never seen or heard of the directive before. That being the case, we fail to see how it must follow that the credibility of the Inspector was materially undermined by his failure to adhere to a document which the court accepted he had never seen.

42.  A further subject of cross-examination focused on the objectives set out in the operational order prepared by Inspector Lau. The order set out five areas of evidence that the ‘UC(s)’ would attempt to establish, for example, what sexual services were offered at the saunas, what charges were levied and the like. In cross-examination, Inspector Lau was asked if he had briefed the undercover officer on these specific objectives. He said he had not. This answer was criticized as being inherently improbable or of indicating a failure by the Inspector to follow his own order. In her evaluation of the evidence, however, the judge observed that -

“There is a ‘need to know’ basis in the police force. Inspector Lau said that [the undercover officer] had no access to the order and he was not told to target anyone. This was consistent with [the undercover officer’s] answer that he was not told to target anyone in the sauna, his duty was to collect information.”

The undercover officer’s evidence

43.  Cross-examination of the undercover officer was based substantially on his alleged failure to record in his diary all and every happening which indicated vice activity, no matter how common that activity became, and his failure on each and every occasion to record in his diary when he had been given the duty of completing in code the sauna ledger (the customer list, as it was called).

44.  According to the undercover officer, before commencing his undercover deployment he had received an initial briefing from his designated handler, a detective sergeant, that, if he was able to obtain employment at one of the saunas, he was to collect information concerning loan-sharking and usury; in short, that he was to seek information of a financial nature.

45.  During the course of cross-examination, however, the undercover officer accepted that, prior to this, he had also received what he described as a preliminary briefing from a police inspector who told him that he had to pay attention to the nature of the work carried out by other staff at the sauna and whether there was any indication of vice activities taking place.

46.  It was Mr Lee’s submission that, if this was truly the case and if the undercover officer, during his year at the sauna, had done his best to record all activities indicating the occurrence of vice and illegal financial activities, there could not have been the number of inexplicable failings on his part to make relevant records that emerged during the course of cross-examination.

47.  The judge was aware of this aspect of the defence case. For this reason, before turning to consider individual issues of significance, she took into account the general challenges facing the undercover officer during the course of his year-long deployment:

“… it was essential for [the undercover officer] to keep his identity unknown to the sauna staff. Besides his job as an undercover, he also had his duties assigned by the sauna. Effectively, he had two jobs in one working place. I appreciate that this was not an easy task.”

48.  One of the major issues raised during the course of cross-examination was the apparent failure of the undercover officer to record on every occasion the fact that white towels were hung over the entrances to the cubicles when vice activities were taking place. It appears he made a note of this in his diary on only five occasions. It was submitted that, knowing the significance of the hanging of towels, surely the undercover officer, if he was acting diligently and honestly, would have made a note of that activity on every occasion that he saw it.

49.  The undercover officer accepted that he could not remember why he had not made a note on each and every occasion. When pressed on the issue, he said that the hanging of towels became for him such a normal practice that he hardly noticed it happening.

50.  This explanation was accepted by the judge on the basis that “it was so common to see white towels hung over the entrances as curtains that it became nothing special to him.” She went on to qualify this by noting that, as the officer worked in one particular part of the sauna, namely, the rest area, and had to maintain his cover, he would not go out of his way to inspect the cubicles.

51.  The undercover officer was also cross-examined on the fact that, during his year at the sauna, he had only made 30 entries in his diary concerning the discovery of used condoms in a waste bin located in the laundry area of the sauna.

52.  Again, the judge accepted the officer’s explanation as an understandable and rational one, namely, that if he had occasion to go to the laundry and if he found used condoms, or if he saw one of the masseuses throwing a condom away, then he would make a record but he did not purposively go out of his way to search the waste bin in the laundry area.

53.  The undercover officer was further cross-examined for his failure to record in his diary each and every occasion that he had filled out the ledger using a code which identified the different packages of sexual services on offer. While it was accepted that the undercover officer had made six entries in his diary in the first months of his employment recording the fact that he had made entries in the ledger in code, and despite the fact that there was no suggestion that the code was ever changed, he was criticised for his failure to record in the diary each and every occasion that, according to him, he had been given the job of making such entries. In response, the officer said that, having already recorded in his diary how the code system worked, it had not crossed his mind to make an entry on each and every occasion that he used it.

54.  It is clear that the judge did not consider this particular criticism to be sufficiently important to warrant a specific evaluation. In this regard, there was other evidence – evidence from officers who had posed as customers – as to the charges for the different packages promoted by the sauna and the fact that those charges were paid and the records themselves supported the officer’s testimony.

55.  In looking generally to the manner in which the undercover officer gave his evidence under cross-examination, the judge stated that she was satisfied that he had demonstrated himself to be an honest and credible witness who had given straight-forward, clear answers.

56.  The judge’s assessment of the undercover officer must be considered, of course, within the context of her full Reasons for Verdict. In this regard, the judge considered the testimony of each of the police officers who posed as customers at the Lake Blossom Sauna, their testimony directly supporting the undercover officer’s evidence as to the nature of the packages offered by the sauna staff and the manner in which white towels were hung over the cubicle entrances before sexual activities were commenced.

57.  The officers who posed as customers also testified to the fact that it was the masseuses who produced unused condoms, this evidence explaining a matter which the judge specifically took into account, namely, the presence of a stock of unused condoms in the Lake Blossom Sauna and the other two saunas.

58.  The judge unsurprisingly came to the conclusion that there was overwhelming evidence that the Blossom Lake Sauna was a vice establishment, a finding which Mr Lee conceded could not be challenged.

59.  Taking into account the evidence of the almost identical manner in which the Big Spender and Hawaii Saunas were managed in the supply of sexual services, the judge drew the only reasonable inference open to her, namely, that these two businesses were operated as vice establishments too.

The charges of dealing with property known or believed to represent proceeds of an indictable offence

60.  The basis upon which the judge came to her determination that the applicant was guilty of all six counts of dealing with property known or believed to represent the proceeds of an indictable offence was clearly defined in her Reasons for Verdict. By way of an overview, she found as a fact that all three saunas were vice establishments and that the applicant, as the effective owner of all three, knew of this. As a consequence, the applicant, in dealing with the earnings of the three saunas by channelling them into accounts controlled by himself, knew or had reasonable grounds to believe that part of the least of those earnings were the proceeds of indictable offences.

61.  In coming to her determination, the judge was assisted by the evidence of a financial expert. The mandate of the expert had been to review the bank accounts of the companies which managed the three saunas and in addition to review certain personal accounts of the applicant, taking into account the movement of funds between the accounts.

62.  The judge undertook a painstaking analysis of the flow of funds, coming to her findings on the basis of that analysis.

63.  Before us, it was submitted that the judge failed to summarise the critical elements of the defence case or the main arguments developed in support of it. We do not agree. Looking to the Reasons for Verdict as a whole, we are satisfied that the judge came to her findings either in light of, or in a manner which dealt directly with, the main arguments of the defence case. It is not always necessary to specifically state the elements of a defence when, in the development of a judgment, it is evident that those elements have been taken into account.

64.  A number of criticisms of the judge’s findings were put before us. For example, it was submitted that there was no evidence to support the judge’s finding that the applicant had reasonable grounds to believe that at least part of the earnings were the proceeds of indictable offences. There was nothing to this point. There was ample evidence.

65.  It was submitted that there was no evidence to show that the earnings of the saunas were substantially larger than would be the case if they had been managed entirely lawfully. Again there is nothing to this point. The judge came to a finding of fact that all three saunas were managed as vice establishments and that the applicant was aware of that fact. In light of those findings, whether they were more profitable than legitimate saunas was irrelevant.

66.  It was further submitted that the judge was guilty of a material misdirection when she found as a fact that certain cash deposits found in the applicant’s personal accounts were the proceeds of the sauna businesses when the expert witness who had analysed all the accounts would only put this down as a possibility. We do not agree. The mandate of the expert was different from that of the judge. The expert spoke to only a portion of the evidence, the judge had an overview of it all.

67.  As to the specific findings of the judge in respect of the cash found in the personal accounts, she took account of the fact that the applicant in his tax returns had declared an unusually low monthly average income. Yet, the evidence showed that he was very clearly cash rich, large amounts of cash being found in each of the saunas, on his person, at his home and in his personal accounts. As to the large amounts of cash found in the saunas – over $170,000 being seized from Blossom Lake and over $148,000 from the Big Spender Sauna – the judge was satisfied on the evidence that the cash generated by the three businesses was not paid regularly into the accounts of the managing companies but was held back. The cash from the saunas was, on all the evidence, and in the absence of any explanation from the defendant, held by the judge to be the major source of the cash found in his possession, including his personal accounts. In opening his personal accounts, the judge noted that the applicant had not used his Hong Kong identity card number which was easily traceable but instead had chosen to give details of his United States re-entry permit.

68.  But even if the judge was wrong in concluding that all of the cash came from the sauna businesses, it is to be remembered that, to establish a conviction, it was not necessary for the prosecution to prove that there were reasonable grounds to believe that all of the funds found in any particular account came from vice activities in the saunas provided the judge’s findings of fact correctly established that there were reasonable grounds to believe part of the funds had that origin.

Conclusion

69.  As we have said earlier, the principal basis of the application for leave to appeal was the assertion that the judge had failed, in the light of the defence case, to demonstrate that she understood the elements of the defence case and that she had evaluated all significant inconsistencies and conflicts in the prosecution evidence.

70.  We accept that some of the judge’s reasoning might ideally have been fuller and more clearly defined. We are satisfied however that, when the Reasons for Verdict are read as a whole, they demonstrate, first, that the judge was aware of the major elements of the defence and, second, that she resolved inconsistencies and conflicts in the evidence not merely by making conclusory remarks, as counsel for the applicant submitted, but by making a substantive evaluation of the relevant evidence and coming to findings that, in our view, were entirely warranted.

Hon Stock VP:

71.  In case an intimation by the trial judge in her sentencing remarks has currency, I wish to add a word about sentence in this case even though the application was, with the Court’s leave, abandoned.

72.  The judge stated in the course of her sentencing remarks that the “the norm is in the region of 3 to 5 years for the offence of money laundering”. This may explain why the overall sentence for the first six charges, each of money laundering, amounted to no more than five years imprisonment.

73.  This is not the occasion to examine in any detail sentences passed on previous occasions for offences of money laundering. The facts of those cases and how they might properly be distinguished between themselves and from this case need not now be rehearsed. It suffices to stress that there is no rule of thumb that sentences for money laundering must range between three to five years imprisonment. It should be remembered that the maximum term of imprisonment for this offence prescribed by the legislature is one of 14 years imprisonment. There will be cases – and this was one of them – that will call for a sentence in excess, perhaps substantially in excess, of the range there suggested.

74.  The amount laundered in the charges was in the order of $57 million. The money was an ongoing operation that continued for a considerable period. The applicant was not some mere acquaintance who was given a few thousand dollars if he allowed his bank account to be used. The applicant himself ran the illicit business from which the money flowed.

75.  In our judgment, the sentences imposed in this case did not properly reflect the criminality revealed by the facts of the case.