HKSAR v. CHAN KA WO AND OTHERS

DCCC 16/2022

[2024] HKDC 592

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 16 OF 2022

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REASONS FOR SENTENCE

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1.  This is a case of insurance fraud in which six defendants (D1 to D6) were jointly charged with one count of conspiracy to defraud, contrary to Common Law and punishable under section 159C(6)  of the Crimes Ordinance, Cap 200.

2.  D1, D2 and D4 were convicted after trial and are to be sentenced today.

3.  The particulars of the offence were that the 6 defendants who were employees (manager or agent)  of AXA China Region Insurance Company Limited (“AXA”), between 25 November 2014 and 28 September 2017, conspired together to defraud AXA by dishonestly and falsely representing that the financial consultant’s declarations in the policy application forms were genuinely made, thereby inducing AXA to approve those policy applications and to pay commissions and bonuses to D1 to D4 in connection with the relevant policies.

4.  AXA was at all material times a company offering various insurance products and D1 to D6 were its staff members.  D1 was for most of the relevant times the direct upline manager of D2 to D6.  D4 had become a unit manager since 1 March 2016.

5.  There were altogether 10 policies (“Policies #1 to 10”)  in the name of PW1, PW2, PW3 or PW4 having been applied for and eventually approved and issued by AXA in this case.

6.  The facts, as very briefly summarized, were that one of the defendants would approach a former schoolmate or a friend or an acquaintance to offer the latter free insurance when the premiums were in fact paid by one or more of the defendants.  False representations were made in the relevant application forms by naming uninvolved defendants as the financial consultants, i.e. the handling agents, thereby causing AXA to approve the insurance applications and pay commissions and bonuses to those uninvolved defendants as the handling agents and their upline managers.  This practice of “diverting” policies would enable the defendants to earn commissions and extra bonuses according to the calculation method of the AXA management.

7.  According to PW8 and PW9, both from the management of AXA, bonuses were not solely calculated on one single policy sold but based on a bundle of deals concluded in a month or a quarter.  Bonuses were calculated based on the aggregate number of insurance policies sold by an agent and that the higher the aggregate number of insurance policies sold, the higher the bonuses would be.  By “diverting” policies, the agent who had policies “diverted” to him or her might be able to reach certain performance targets and would as a result receive additional bonuses from AXA.  Further, not only the agent but his or her upline manager would also receive overrides based on the deals completed by the agent. The above explains precisely why AXA strictly prohibited such “diverting” of policies as its interests would obviously be jeopardized.

8.  As to the economic loss suffered by AXA in this case, according to PW8, the commissions and the bonuses paid out by AXA in respect of Policies #1 to 10 were in total $748,866.56.  As the bonuses were to be calculated not only based on these 10 policies alone but also a bundle of other policies sold in a month or a quarter, PW8 worked out the figures of the extra bonuses in respect of Policies #1 to 10 paid out by AXA to D1 to D4 to be $296,030.31.

9.  Another way of considering that issue of economic loss suffered by AXA was to compare the total premium received and the total amount (commissions, bonuses, overrides included)  paid out by AXA arising from these 10 policies in question.  For Policies #1 to 10, AXA had received total premiums of $815,833.15 and had paid out a total sum of $944,802.36 to D1 to D4.  The net loss was therefore $128,969.21.

10.  In addition, there was, as I found in the reasons for verdict, risk of economic loss suffered by AXA arising from any potential claims by the policyholders and/or the beneficiaries in respect of Policies #1 to 10.

Defendants’ Background

11.  D1 was born in 1985 and is now aged 38.  He received tertiary education. He was a branch manager of AXA and ran a furniture business in 2017 to 2021.  He is married with a daughter and a son.  He has a clear record.

12.  D2 was born in 1989 and is now aged 35, single.  He received education up to Form 7.  He was an insurance agent of AXA and later has become a sales manager of a Key Focus Limited since 2020.  He has a clear record.

13.  D4 was born in 1993 and is now aged 30, single.  He received education up to Form 5.  He was a unit manager of AXA.  He has a clear record.

Mitigation

D1

14.  Mr Iu for D1 filed in a set of written mitigation submission.  In addition to the above background information, the defence supplemented that D1 had worked as a real estate agent in 2022 and 2023 making about $40,000 a month.  He has high blood pressure and cholesterol.  His wife is aged 36 and an insurance agent.  The couple’s daughter and son are 3 years old and 2 months old respectively.  D1’s parents are close to 70 years old and both living in the mainland China.

15.  The defence filed in mitigation letters written by D1’s mother and his wife, as well as one from D1’s former secondary school principal and one from his former secondary school friend, speaking on D1’s good character and pleading for mercy on his behalf.

16.  For mitigation, it is submitted that, although having no complaints about delay in prosecution, the offence took place nearly 10 years ago and that D1 has already started a new page in life and has a happy family.  It is submitted that the offence was not complicated and had no international element. The actual benefit obtained by D1 was not significant which was only about $38,000.  The defence accepted that this case involved a breach of the trust but would ask the Court to adopt a low starting point so as to enable D1 to be released earlier to take care of his family as soon as possible.

D2

17.  Mr Cheung for D2 also filed in a set of written mitigation submission.  In addition to the above background information, the defence supplemented that D2’s parents are both 70 years old and he has a younger sister of 33 years old.

18.  It is submitted that D2 committed this offence because of a moment of greed, this case was a single incident and that D2 only acted as an assistant to D1.  This is a case which was not the worst of its kind and that AXA did not suffer great economic loss.  The defence submitted a case HKSAR v Cheung Suet Ting [2010] 6 HKC 249 (a case of a director of a cleaning company defrauding the Housing Department of about $420,000 and was sentenced to 12 months’ imprisonment)  for court’s reference only as it is accepted that each case depends on its own facts.

19.  The defence filed in mitigation letters written by D2’s parents, his younger sister and his partner and ask for leniency from the Court for D2.

D4

20.  Mr Ma for D4 also filed in a set of written mitigation submission.  In addition to the above background information, the defence supplemented that D4 has been in a committed relationship with his girlfriend for 10 years.  Prior to being remanded for this case, D4 worked as a salesperson earning about $5,000 a month.

21.  It is submitted that there are no sentencing guidelines for this offence.  A total of 3 cases (2 Court of Appeal cases and 1 District Court case)  were submitted as reference, they are HKSAR v Lai Wai Ho CACC 392/2006, HKSAR v Ma Ka Chun Simon CACC 263/2007 and HKSAR v Tong Kam Sun & anor DCCC 72/2015.  They are conspiracy to defraud cases involving insurance policies and the sentences ranged from Community Service Order to imprisonment of 3 years.

22.  As mitigation, it is submitted that D4 was a relatively smaller player in this conspiracy than the key figure D1.  The Court is also invited to consider D4’s relatively young age, i.e. 25, at the time of the offence and therefore displayed some degree of immaturity and lack of judgment.  His lack of previous convictions suggests that this is not a pattern of criminal behaviour and that the likelihood of reoffending is low.  It is stressed that D4’s role and his benefit derived from this conspiracy were both comparatively small as he had transferred most of the commissions to D1. It is also submitted that D4 had earned much less when working as a salesperson than what he had with AXA and that he had learnt a lesson from the termination of his intended career in the insurance industry.  The defence would ask the Court to exercise mercy for D4.

Sentence

23.  The maximum sentence for the offence of conspiracy to defraud is 14 years’ imprisonment.  As rightly pointed out by the defence, there are no sentencing guidelines and each case is to be decided on its own facts.

24.  As briefly described in my preceding paragraphs, this is a rather sophisticated conspiracy case of insurance fraud involving 6 defendants, 10 policies, 4 policyholders over a period of 2 years and 10 months.  Apparently, this dishonest scheme of “diverting” policies, as briefly described above and in more detail in my reasons for verdict, required substantial degree of planning and coordination to execute.  From the very beginning of approaching innocent people to act as policyholders, submitting on their behalf application forms with false declarations, paying premiums by the defendants for those policyholders, causing AXA to approve the subject policies and paying commissions and bonuses to the uninvolved handling agents, until the final step of transferring the various sums of money at different stages from the accounts of those agents to D1.

25.  The actual economic loss caused to AXA (excluding the risk of economic loss), which was in the region of about $130,000 to $300,000 depending on different methods of calculation, was just one of the factors to consider in sentencing.  I am of the view that the major criminality lies in the element of the defendants’ breach of the trust placed on them by their employer and more importantly, the sophistication of this dishonest scheme.

26.  Quite clearly, D1 was the key figure and integral to this dishonest scheme.  Not only that he was the upline manager of the other defendants in most of the relevant times, but he was also playing the major role.  To get the scheme started, D1 paid for all the substantial yearly premiums in the subject policies for about $730,000 in total.  By having control over the respective accounts of D2 and D3 as well as receiving transferred payments from D4, D1 was eventually able to recoup close to $770,000, excluding the various cash withdrawals totalling $140,000 from the respective accounts of D2 to D4.

27.  As I found in my reasons for verdict, D1 though playing the pivotal role could not have worked on and executed this dishonest scheme of “diverting” policies alone.  D1 needed and in fact had obtained the cooperation of D2, D3 and D4, in particular but not limited to transferring the commissions and bonuses from their accounts to D1’s.  I found both D2 and D4 knowing and participating parties to this conspiracy and that D3 could possibly be an innocent dupe having been used by D1.

28.  I found D2 a party to this conspiracy and a participant in this dishonest scheme of “diverting” policies, for D2 to lend his name to D1 to falsely represent D2 as the financial consultant in some of the subject policies where D2 in fact had no involvement in order to defraud AXA to pay out commissions and extra bonuses.  D2 also willingly and knowingly provided the bank card to his salary account maintained by AXA to enable D1 to obtain the relevant commissions and bonuses.

29.  I also found D4 a party to this conspiracy and a participant in this dishonest scheme of “diverting” policies, for D4 to assist D1 in submitting those relevant application forms with false representations in the financial consultant’s declarations, to defraud AXA to pay out commissions and extra bonuses.  D4’s role was essential as it included paying for some of the premiums and renewal premiums to cause the subject policies to become effective or continue to remain effective.  In addition to that, D4 also lent his name to become the named financial consultant in one subject policy and named manager in 3 others, as well as leaving his mobile phone number on some AXA’s payment slips to maintain contact and keep track of some of the subject policies.  I therefore found D4 to be the second-in-command to assist D1 in this dishonest scheme.

30.  Having considered all the circumstances of this case, I consider that the appropriate starting point for this case should be one of 3 years’ imprisonment, subject to further consideration of each defendant’s individual role.

31.  D1, D2 and D4 were all convicted after trial.  I have considered all the mitigations put forward by the defence but I am not convinced that there are any substantial mitigating factors.  Their clear record and good family background in general do not constitute significant mitigations and therefore do not lead to discount in sentence.  Nevertheless, in view of these defendants’ good background and the fact that all of them had admitted a lot of documentary evidence thus shortening the length of the trial, I am prepared to exercise my discretion to give each of them a two-month- discount in sentence.

32.  For D1, whom I found to be the key figure, I adopt a starting point of 3 years’ imprisonment, reduced it by 2 months as aforesaid and sentence him to 34 months’ imprisonment.

33.  For D2, whom I found to have a relatively minor role comparing to that of D1 or D4, I adopt a starting point of 27 months’ imprisonment, reduced it by 2 months as aforesaid and sentence D2 to 25 months’ imprisonment.

34.  For D4, whom I found to be the second-in-command assisting the key figure D1, I adopt a starting point of 30 months’ imprisonment, reduced it by 2 months as aforesaid and sentence D4 to 28 months’ imprisonment.