HKSAR v. GAVISH OMER

DCCC 1033 & 1036/2012 (A)
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1033 & 1036 OF 2012 (A) (Consolidated)

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REASONS FOR SENTENCE

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1.  Defendant, you are convicted after trial for a single charge of “dealing with property known or reasonably believed to represent the proceeds of an indictable offence”, contrary to section 25(1) and (3) of the Organised and Serious Crimes Ordinance, Chapter 455 (“OSCO”).

Charge 1

2.  This charge is more commonly known as “money laundering”.  You and the other two defendants (D1 & D3) are all three Israelis appeared before me in this trial.  The other two defendants, Mr Hen Yoav (D1), and Mr Fadlon Daniel (D3), have already pleaded guilty to their respective charges at the outset of the trial.

3.  The particulars of Charge 1 alleges that you and D1, between 1 May and 7 May 2012, both dates inclusive, in Hong Kong, together with D3, knowing or having reasonable grounds to believe that property, namely, 342 pieces of 1-kilogram gold bars, in whole or in part, directly or indirectly represented proceeds of an indictable offence, dealt with the said property.

4.  In the normal course of event, the sentences of D1 and D3 will only be dealt with together after the trial and the verdict was reached in your case. However, due to the fact that a new judgment on money laundering was just released by the Court of Appeal a few days before the original date of the verdict on 4 June, I have to invite counsels for both parties to make further submission on this new case.  Because of that and also because Mr Hemmings, your counsel, will not be available until the 21st of this month, I decided to proceed to hear the mitigations and sentence the other two defendants first principally because I was told by their legal representatives that their family members had already flown all the way from Israel to Hong Kong and they were eagerly waiting for their sentences.

5.  That is why, a lot of things that I am going to say to you was already what I have already said during the time when I sentenced the other two defendants.  However as you were not there at the time when I sentenced the other two defendants, I therefore have to repeat once again what I have said when I am dealing with the reasons for your sentence.

The facts

6.  In this trial, a lot of the prosecution case was not in dispute. According to the Summary of Facts which you have admitted, the 342 pieces of 1-kilogram of gold bars were purchased from Metalor Technologies Hong Kong Limited (“Metalor”) which is a Swiss-based precious metal processing company with an office in Kwai Chung during the period between November 2008 and June 2011 by two companies, including Southern Ace Limited and GX Port Limited.  Each of the gold bars sold by Metalor to these companies had a serial number and was also recorded. 

7.  When you were arrested together with D3 on 7 May 2012 inside a hostel at Chungking Mansions, the police found five bags containing a total of 161 1-kilogram gold bars with approximate value of HK$66 million and that is part of the subject matter of Charge 1.

8.  According to the police investigation, what happened was really that on the few days before you were arrested and that is between 2 and 3 May 2012, D1 first accompanied an unidentified male using the name Gordo, a holder of a Philippine passport, went to the office of Metalor and sold to them a total of 85 and 32 1-kilogram gold bars respectively.

9.  On 4 May 2012, D3 also went with Gordo and sold to Metalor another batch of the gold bars.  These sales were all done in the name of Cycom Tech Limited (“Cycom”).  The total amount of the sale of gold bars to Metalor during these three days is HK$73 million.  Putting these two values of the gold bars altogether, the total value of the 342 pieces of gold bars is therefore approximately HK$139 million.

10.  According to the financial investigation by the police, the proceeds of the sale of the gold bars, namely, HK$73 million, were received into Cycom’s bank account at HSBC.  Between 4 and 8 May 2012, HK$5.4 million was transferred to the bank account of one East Asia Escrow Limited and HK$16.7 million was transferred to Cycom’s another securities bank account.

11.  Further investigation revealed that in fact the companies that bought the gold bars from Metalor earlier were in fact all controlled by another Israeli passport holder by the name Shulman and he was already arrested by the police back on 30 April 2012. 

12.  Between January 2010 and April 2012, Shulman visited Hong Kong on 21 occasions.  He entered as a visitor.  Apart from the companies that I have mentioned earlier, Shulman altogether controlled 7 other companies in Hong Kong and 9 of these 10 companies had opened bank accounts here.  Funds were regularly transferred between the bank accounts of these companies in significant amount.

13.  Between 2 January 2010 and the arrest of Shulman on 30 April 2012, these 9 companies’ bank accounts controlled by Shulman received a total of HK$1.7 billion approximately.  During the same period, HK$2.7 million approximately was received in Shulman’s 6 personal accounts with HSBC and Citibank and the amount remaining in his personal bank account at the time when he was arrested was approximately HK$170,000.  Shulman was, however, described only as a student in his personal account documentation.

14.  Police investigation further revealed that actually in August and September 2010, Shulman also purchased two village houses, one situated in Yuen Long (House A) and one situated in Sheung Shui (House B), using the names of two companies under his control for a total sum of HK$7.7 million approximately.  The title deeds and keys of both houses were later found by the police at Shulman’s office and his residence following his arrest.  The police also found bankcards and e-banking tokens relating to bank accounts of these companies under his control in his apartment.  It is obvious that these two village houses were bought with the purpose of storing and concealing the gold bars.

15.  According to the admitted facts, it is further revealed that the Inland Revenue Department confirmed that during the period, only 7 out of the 10 companies controlled by Shulman had submitted profit tax returns for the past year and for those companies which had filed tax return, each stated that there is no gross profit received.  Cycom even stated in its 2010 and 2011 tax return that it had not yet commenced business.

16.  There are also a number of persons who have been arrested by the police in connection with the case.  The one which is particularly important to your sentence is one Philippine passport holder, Santos Jason Perez.  He is a director of East Asia Escrow Limited.  He was intercepted by police at the airport on 11 May 2012 when he was attempting to leave Hong Kong.  The police found in his person 10 telegraphic transfer forms which were for the remittance for a total US$7.8 million from Cycom’s bank account to a number of other bank accounts.  This person Santos was arrested but he jumped police bail afterwards.

17.  Your involvement with the gold bars was directly coming from what you have told the police after you were arrested.  You were interviewed by the police on 7 and 8 May 2012 by the police under caution.  In the interviews, you explained how you came to be found together with the gold bars in the Chungking Mansion and your dealings and involvement with Shulman, D1, D3 and some other persons.  Both in those interviews and in court, you told me that you came to Hong Kong from Israel for the first time on 30 January 2012 for a job which you learnt only through your friend called Noam on the Facebook in the Internet.  Noam later introduced you to another man called Razi Berger who forwarded Shulman’s email address for direct contact.

18.  Razi told you that Shulman worked for a Dutch businessman.  The job Shulman offered to you was to come to Hong Kong to keep a watch in a house and live in there and for which you were promised to be paid a monthly salary of US$3,000 in cash together with the return airfares.  There was, however, no written contract entered.

19.  After you arrived in Hong Kong, you met up Shulman in Kowloon Station and you were immediately taken to House A by Shulman.  When you asked questions about the details of your job and the house owner, Shulman told you that it was better for you not to ask for whom you were working.  You were also specifically told by Shulman not to open the door or a locked room in the house. 

20.  You then told the court that you were the only person who stayed in the House A during your first initial stay in Hong Kong until 24 April 2012 when your tourist visa came to be expired and you had to leave Hong Kong for Philippines in order to renew your passport there.  Shulman paid for your air tickets for this trip and you returned to Hong Kong in the early hours of 1 May 2012.  According to you, however, when you returned to the house, you found D1 for the first time inside the house.  You were told by D1 that he had come to replace you in the house while you were away.  Both you and D1 were unable to contact Shulman.

21.  Yesterday when I convicted you, I said that from the days followed until your arrest, you had acted in concert with D1 and later D3 to firstly remove the gold bars from the two village houses to the three different hostels situated inside Chungking Mansion for storage and concealment and then also for the purpose of converting more than half of the gold bars by selling them back to Metalor and transfer the proceeds of sale to the bank account of Cycom.

22.  In the trial, you disputed that you had knowledge of the content of the safe and that is the gold bars, when you first came to the job.  I found that when you came to the job, you were at least told by Shulman that you were responsible for guarding valuables in the safe in the village house.  The knowledge was strengthened because, as I found, you were also instructed by Shulman during that period to go to the company and to arrange for the installation of an iron gate and also iron bars in the village House A.

23.  From what you have told the police, you admitted that in the morning of 2 May 2012 going together with D1 to locate an equipment store and purchase metal-cutting tools which were later used for the purpose of cutting open the safe in the Village House A.  You told the court that the reason you did so was because D1 told you that he got the instructions from the house owner to cut open the safe by force.

24.  You were also later told by D1 to proceed to House B, and there you met another male Din.  You had met Din before, almost a week ago in Manila, and you saw him in House B also using a metal cutter to cut open another safe.  In both occasions, however, you told the court that you still did not witness any gold to there because you were told or practically sent away by both D1 and Din before the gold bars were retrieved from both safes.  You were told by Din to carry luggages which you believed to be clothing to the Chungking Mansions.

25.  I did not believe your account.  I find from that by the time you agreed to go along with D1 to locate the metal store and went to both houses and witnessed the cutting-open process of the safe indicated that at that time already, you knew that gold bars were already there.

26.  I gave reasons for that because it was impossible for people like D1 and Din later to show you the gold bars in the Chungking Mansions if they would keep you in the dark about the existence of gold bars in the very first place.

27.  What you did in the days after you have moved to the hostels at Chungking Mansions, you were involved with others to go to Yuen Long to look for another village house which you knew was for the purpose of storing the gold bars.  You also acted under the instructions of Din to go to the secretarial company of Cycom situated in Central to obtain the company chop albeit it was unsuccessful.

28.  We now all know that the company chop was actually later used to try to transfer the funds in the Cycom’s bank account into other jurisdictions because, according to what I have said earlier, the Filipino male Santos was actually found with 10 telegraphic transfer forms to transfer the funds to the bank accounts in other jurisdictions.

29.  I also found as a fact that you were also responsible for watching over and guarding the gold bars whilst you were inside the hostel before you were arrested. 

The background of the defendant

30.  You are now aged 26.  You have received higher secondary school education in Israel, and after you had completed your education in Israel in 2005, you were drafted into the military as a soldier for the service for three years.  After you finished your compulsory military service in 2008, you were employed first as a security officer working under the contract in various tourist vessels between 2008 and 2010, which is operated by an Italian company.  Between 2010 and 2012, you came back to Israel and you worked as a gardener first and later a construction site worker.  At the time when you were arrested, of course you came to Hong Kong and worked in House A.

31.  You are the second son in the family.  Your father is now aged 60.  He is a truck driver while your mother is aged 58, a kindergarten teacher. 

Mitigations

32.  This morning, your counsel, Mr Hemmings, submitted principally that in the whole scenario, you really have assumed a lesser role such as a messenger when compared with the roles assumed by the other defendants in this case.  Mr Hemmings submitted that what you really have done was that you did not think carefully enough and distance yourself from all these people and premises apparently when you found out that there was a large number of gold in the village houses. 

33.  In particular, Mr Hemmings reminded the court that in the whole events between 1 May and 7 May, unlike the other defendants, you did not involve with the physical carrying of the gold from the village houses to the Chungking Mansions and also not responsible, more importantly, for carrying the gold from the Chungking Mansions to the office of Metalor to sell the gold and convert the gold into chose in action.

34.  Lastly, Mr Hemmings also reminded me that the principal offender in this case, Shulman, who was originally D1 in this case (but his case was severed earlier at the outset of the trial), should assume the major responsibility in this case.  However, because of the Department of Justice’s decision to choose the venue of trial in the District Court, the maximum sentence that Shulman could receive for his role in this case would only be 7 years which is the upper jurisdiction in the District Court.

35.  Mr Hemmings therefore urged the court to consider the significant disparity of the roles assumed by Shulman and you in this case and therefore to impose a sentence sufficiently enough to reflect the difference of the severity of the role played by the principal offender and a person like you who he described as only a messenger.

Sentencing considerations

36.  When I come to sentence you, I have borne in mind the facts as I found in this case, the facts that you have admitted, the nature of the offence and also all the matters which have been urged on your behalf by Mr Hemmings.  I am aware that there is no sentencing tariff for the offence of money laundering because of the infinite variety of circumstances that may exist which lead to offences of this kind.

37.  In response to Mr Hemmings’ submission, in passing sentence, I have also borne in mind all that is said by the Court of Appeal in HKSAR v Leung Pui Shan CACC 317/2007 of the need for individual justice.  I find as a fact of course that you had no knowledge of the original offence.  You also had no knowledge of the existence of the companies which I have referred earlier in the facts which were under the control of Shulman and also you were not aware of the fund-flow situation of these companies.

38.  But as I found, you were caught in very suspicious circumstances that no reasonable man would fail to consider that the gold bars were associated with criminal activities.  I have said in my reasons for verdict for so many times that effectively you have turned a blind eye to the situation. 

39.  In HKSAR v Lung Yun Ngan CACC 482/2010, it was held:-

“Money laundering flourishes when persons are prepared to turn a blind eye to the true nature of the funds with which they are dealing. It not only corrupts the individuals, it threatens the integrity of our banking and financial services.”

40.  In HKSAR v Xu Xia Li & Another CACC 395/2003, the Court of Appeal has said in paragraph 18 of the case:-

“The prohibition of the offence is in order to strike at those who gave assistance to criminals to dispose of or retain their ill-gotten gains as if they were derived from legitimate activities. Without the assistance of money launderers, it would be more difficult for criminals to clothe their illegal proceeds with the same respect as lawful gains and the chances of law enforcement detection of illegal activity that produce monetary benefit would be enhanced. Money laundering is therefore treated as a serious offence. If money-laundering activities were allowed to be carried out in Hong Kong with impunity or treated lightly with minor penalties, it would mar Hong Kong’s reputation as a world-class financial and banking centre.”

41.  Like I said about both defendants when I passed the sentences on them, you were already 26 years of age.  You have working experience and you have joined the military. You are by no means young and immature and you have life experience.  Even you claimed to me that you did not know exactly the nature of the origin of the gold bars, it is impossible for you to turn a blind eye and took the risk to choose to deal with them as you did in this case.  As I have said in the case of the other two defendants, “now that you were caught, you just have to face the consequences of what you have done”.

42.  The Court of Appeal has said in the past few years the relevant factors for sentencing money-laundering cases.  Firstly, in the Secretary for Justice v Wan Kwok Keung [2012] 1 HKLRD 201, the Court of Appeal has said this in paragraph 12 to paragraph 15, and I repeat it here:-

“Money laundering is a serious offence for not only does it encourage criminal activities indirectly, but also attempt to legitimise the proceeds of the crime. In order to crack down on serious crimes and to prevent offenders from getting financial gains, it is necessary to deter and prevent the offenders from getting financial gains. It is necessary to deter the commission of the money-laundering offence. Generally, the sentence for money-laundering offence should mainly reflect the amount of the black money laundered and not the benefit obtained by the defendant or others, the reason being that it is very difficult to prove the benefit concerned, and in most money-laundering cases, there may not be evidence to show from what indictable offence the black money is in fact derived. Of course if there is information to prove that the black money originated from a serious crime, including drug trafficking, kidnap and blackmail, illegal human trafficking and other organised crimes, etc or the defendant’s benefit is huge, then the sentence should be adjusted upward. This court has, in a number of other similar cases, also listed other factors relevant to the sentence to be imposed, including the number of the offence, the length of the time the offence lasted, the degrees to which the defendant participated in the offence involving the black money and whether or not it was an organised and sophisticated crime.”

43.  In HKSAR v Hsu Yu Yi [2010], Cheung JA has set out the amounts of money involved and again sentences passed in a number of money-laundering cases.  The sentencing starting point is 3 years or so where the money involved is between $1 million and $2 million, 4 years or so where it is between $3 million and $6 million, and could be over 5 years where it is above $10 million.

44.  In this case, the gold bars were valued at approximately HK$139 million.

45.  In HKSAR v Boma CACC 335/2010, a more recent case, Stock VP held that the first three factors to which any sentencing court should have regarded are the maximum penalty available, the need for deterrence and the question of amount of the money laundered.  His Lordship pointed out that the court should take into account, apart from the three factors that I have outlined, some of the other significant features, including:-

(a) the nature of the predicate offence;

(b) the state of the offender’s knowledge;

(c) where the operation involved an international dimension, this will be a significant aggravating feature;

(d) the sophistication of the offence, including the degree of planning;

(e) where the offence was committed by or on behalf of an organised criminal syndicate would be an aggravating feature;

(f) whether there was one transaction or many and the length of the time over which the offence was committed;

(g) whether the offender continued to launder the funds after he had discovered the nature of the funds were proceeds of an indictable or a serious offence was involved; and

(h) the role of the offender and the acts performed by him.

The list was said to be non-exhaustive.

46.  When I sentence you, defendant, you should know that the maximum penalty for money laundering is one of 14 years’ imprisonment, and here in the District Court, you can be sentenced up to 7 years’ imprisonment which is the maximum jurisdiction. 

47.  It is important that Hong Kong’s reputation as an international financial and banking centre must be closely guarded and it is necessary to deter money-laundering activities in Hong Kong. 

48.  It is true that in this case, the nature of the predicate offence is not known and I have said yesterday the prosecution case was not based on the limb that you had knowledge that the property you dealt with represented the proceeds of an indictable offence.  Rather, it was proceeded on the second and alternative limb that you had reasonable grounds to believe that the property you dealt with represented proceeds of an indictable offence.

49.  Anyone who reads the facts of this case would realise that the money-laundering exercise in this case is indeed very sophisticated in its nature apparently due to the huge amount of the money involved and laundered. We can see that there was a high degree of planning: the setting-up by Shulman for about at least 10 companies in Hong Kong and the opening of 9 company bank accounts to facilitate the passing of the funds or the black money.  The black money was later used to convert and to purchase gold bars and also two village houses in Yuen Long and Sheung Shui in order to store and conceal the gold bars. 

50.  After Shulman was arrested by the police on 30 April 2012, what we can see happened between 1 May to 7 May was that the gold bars were hastily removed from the safes of the two houses by people like D1 and Din with your assistance.  As a result, the gold bars were successfully removed from both safes in the village houses to Chungking Mansions and during this period, more than half of the gold bars were successfully sold back to Metalor and converted to chose in actions, and that is credit balance in Cycom’s bank account. 

51.  The company chop which you attempted to collect on behalf of Cycom from its service company was to transfer the funds there into other bank accounts in the other jurisdictions.  The whole operation was obviously manned by an overseas organised syndicate, and there is a high degree of international dimension.  The three defendants in this case were Israelis and we also know that in this case, it involved a lot of people coming from different nationalities, such as the Philippines, Netherlands and even country like South Africa. 

52.  When I come to sentence you, I bear in mind that there is no evidence that you clearly knew the nature of the underlying offence.  However, that does not mean that the culpability can be therefore significantly reduced although I bear in mind that you will be sentenced on the facts of the money-laundering charge only and not the facts of the underlying offence.

53.  You have not pleaded guilty in this case.  You were convicted after trial.  So unlike the other two defendants, you would not be entitled to the one-third discount that they have because of their pleas and their indications of remorse. 

54.  In Boma, Stock VP at paragraph 40(2)(a) has pointed out that:-

“In such a case, it must be recognised that a defendant is nevertheless assisting in the original crime whether with knowledge or with a blind-eye knowledge of it. The scheme and the purpose of the legislation is to ensure care and honesty in the handling of other people’s money and those who are prepared to handle money on other people’s behalf and turn a blind eye to the source of that money do so at their own risk. So the person who is aware of the fact that he is dealing with the proceeds of an indictable offence but deliberately chooses not to ask question is barely less culpable than the person who asks or who is told.”

55.  There is an obvious need therefore for me to consider a deterrent sentence in this case based on the authorities.  As I also said when I sentenced D1 and D3 in the earlier occasions that a message has to be sent out by this court to other people, especially to fellow Israelis and other people from other jurisdictions who may be lured by monetary rewards or whatever reasons and are contemplating whether to turn a blind eye and choose not to ask questions whenever they are called upon to come to Hong Kong to deal with a property which is believed to be proceeds of indictable offence.

56.  As I said, the property laundered in Charge 1 is approximately HK$139 million.  I can only describe these sums as huge or enormous.  I accept that there is no evidence that you derived any profit from participating and engaging in the assistance of the others in laundering of this case other than the remuneration that you were promised by Shulman but one has to bear in mind that the gravamen of the money-laundering offence is still the amount of the money laundered and not the amount of profit to the defendant. 

57.  In two of the cases which were relied by the prosecution, in HKSAR v Chen Zhen Chu, the sum involved HK$73 million remitted in a 13-month period by over 1,500 remittances from Australia to banks in Hong Kong.  The Court of Appeal identified 7½ years’ imprisonment as the appropriate starting point and imposed that sentence. 

58.  In another case, Secretary for Justice v Herzberg [2010], there are five charges of money laundering and the sum involved was over HK$683 million remitted through four BVI accounts over 21 months.  The Court of Appeal replaced the original global starting point of 5½ years’ imprisonment by a global starting point of 9 years’ imprisonment.  That is why I decided that after taking into account the huge amount of money involved and the need for imposing a deterrent sentence, for a defendant who had assumed a major role in the laundering process in this case, the starting point could well be as high as 8 years’ imprisonment.

59.  Of course, as it turned out, I only sentenced both D1 and D3 to 6½ years’ imprisonment.  It was because I accepted that both defendants had each assumed a lesser role, and I held that clearly there was another mastermind or even masterminds behind the whole scheme.  I passed a shorter sentence for these two defendants also because the duration of their dealings of the property is short, and the benefit that they have received was also small as compared to the money laundered.

60.  While I recognise that their roles were small or limited, I still said when I sentenced them that the roles played by them and the acts performed by them were very important.  It is because without the assistance and the participation of people like them, it is difficult for a director of a money-laundering operation or scheme to execute his plan to launder the money.

61.  As the Court of Appeal has said in Boma:-

“The director of a laundering operation or scheme should attract a greater sentence than a person engaged by him although sentences should be sufficient to deter those who might be prevailed upon by directing minds.”

62.  It is clear therefore that the Court of Appeal told the lower court that while there is a difference between the roles assumed by the major player and the lesser player, when considering passing a sentence, the sentence must be still sufficiently serious to deter the defendant and also other people who are contemplating of committing the similar offences.

63.  In your case, defendant, I have given thought to the mitigation urged on your behalf by Mr Hemmings.  I accepted that your role when comparing with the other two defendants (D1 & D3) was even lesser.  You did not involve yourself principally with the conveyance of the gold bars from the two village houses to the hostels and you were also not there with the Filipino male Gordo in the process of selling back the gold bars to Metalor.  However, I consider that you were a valuable helping hand to this group of people.  You have assisted in the looking of the village house for the storage of the gold bars which you should know full well that, if successful, the gold bars would be stored in the new village house on a more permanent basis.  

64.  Also, you have decided to go together with D1 to locate an equipment store and successfully purchased the metal-cutting tools which were most important for the breaking-open of the safe in House A.

Conclusion

65.  Taking all these factors into account, I decided that the proper starting point in your case is therefore 5½ years’ imprisonment.  You did not plead guilty and therefore you enjoy no discount whatsoever.  I can see no other factor exist which can further mitigate your crime.  In the end, for Charge 1, you are sentenced to 5½ years’ imprisonment.