HKSAR v. BERNARD GOETZMAN AND ANOTHER

DCCC 306/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 306 OF 2013

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REASONS FOR VERDICT

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1.  This is a case about investment frauds and money laundering.  In a nutshell the case against the 1^st defendant (D1) was that he was personally involved in the investment fraud on the victims (PW2 and PW3).  D1 cheated the investors.  Instead of using the money deposited by the investors for investments, D1 and another Myers used the money for his/their own or others benefit.  In dealing with the funds he was thus dealing with the proceeds of crime, a fraud and hence money laundering.

2.  Part of the funds deposited by investors were transferred by D1 to the second defendant (D2).  There was no evidence of D2 having any connection to the investment fraud however similarly the prosecution allege that D2 was money laundering as he had reasonable grounds to believe the money transferred to him were crime proceeds. 

3.  Overview

At least two victims (PW2 and PW3) were defrauded into making cash deposits into a company by the name of Triad Global Limited (Triad Global) bank account for the purposes of investment. D1 was a party to the contract which provided for the investment of their funds.

4.  The investors had been promised a ten-fold return above their principal within 21 days from their deposit.  The funds deposited by the victims were however never invested as contracted but were withdrawn by D1 and another Myers, either for their own personal gain or for others.  The withdrawal of the funds was unbeknown to the investors.  Their consent for withdrawal of the funds as stipulated in the contract was never sought.  After the 21 days, D1 led PW2 and PW3 to believe that their funds were invested and they would receive their returns and principal investment soon.  However the return or the principal funds were never returned to the investors as promised. 

5.  It was the prosecution case that D1 was involved in the predicate offence of fraud upon PW2 and PW3.  It was their case that all the money deposited into Triad Global’s bank account that came from overseas were victims of fraud.  D1 had dealt with the money knowing the funds were the proceeds of an indictable offence.

6.  D1 had transferred and D2 received part of the funds deposited by the investor victims.  D1 made the transfer from Triad Global’s bank account where the investment funds were deposited to D2’s personal bank account.  D1 and D2 were friends.  D2 had set up a company in Macau called Power Avenue Macau (PAM) at the time the investment fraud had begun.  D2’s company PAM and a company which D1 had links with in Hong Kong called Power Avenue Asia (PAA) were of very similar names and were probably connected.

7.  It was suggested that it was by no coincidence that these two companies had similar names.  D1 and D2 were therefore connected through these companies and were not only friends.  It was not alleged that D2 was in any way involved in the investment scams.  However in view of D2’s background, low level of education, being a man with no apparent means, with no documented income or business the comparatively large amount of money transferred from D1 to D2 were funds that D2 had reasonable ground to believe that the proceeds represented the proceeds of an indictable offence. 

8.  D1’s case

D1 accepted that he was a party to the contract with the investors PW2 and PW3. However it was his case that he was not involved in the soliciting of the funds from the investors. He did nothing to hide his identity when he was dealing with the investors PW2 and PW3. He took responsibility to communicate with PW2 and PW3 after the funds had been dissipated although all the other participants ie Myers had disappeared. D1’s case was that he was honest all along and was not a party to the fraud.

9.  D2’s case

D2’s case was that the USD$147,000 transferred to him was legitimate funds to pay for his work done. The transfers were for reimbursement in relation to expenses that he advanced in respect of work on projects connected with D1 and another called CW Fok (CW). He had set up a company called Power Avenue Macau (PAM) so that he could deal with work on these projects on the directive of CW. He believed CW was involved with Power Avenue Asia Hong Kong (PAA). He believed D1 was involved with PAA. The two companies PAA and PAM were jointly involved in the projects.

10.  D2 did not know D1 had transferred the money to his account nor did he know that the money had been transferred from Triad Global’s bank account.  He believed the reimbursement was made from CW probably via the bank account of PAA.  He had no idea about any investment fraud and had never heard of Triad Global.

11.  Charges

The defendants are each charged with an offence of dealing with property known or believed to represent the proceeds of an indictable offence contrary to section 25(1) and (3) of the Organised and Serious Crime Ordinance (OSCO) Cap. 455. This offence is otherwise commonly known as money laundering.

12.  The 1^st charge is against D1 only. It relates to all funds deposited into Triad Global’s bank account in a period of about 2½ months between 6 March 2010 and 25 May 2010 held in Hong Kong and Shanghai Bank (HSBC).  It alleges that D1 dealt in the amounts of US$2,499,939.00 and Euro €2,098,994.00 which were wholly or in part crime proceeds.  A total sum of approximately HK$40 million ($19 million + $21 million respectively)

13.  Charge 2 against D2 related to the sums that D1 transferred from Triad Global’s bank account to D2’s personal HSBC bank account.  It alleges that he dealt in US$147,000.00 in a period of about two months between 8 March 2010 and 6 May 2010 which were wholly or in part crime proceeds.  A total sum of approximately HK$1.1 million.  The majority of evidence against D2 was from his statements made under caution.

14.  Issues

(i) Was D1 involved in the investment fraud,

(ii) Have the prosecution proved beyond a reasonable doubt that the proceeds in whole or in part were proceeds of investment fraud,

(iii) Did D1 know or have reasonable grounds to believe that the money in whole or in part directly or indirectly represented the proceeds of an indictable offence,

(iv) The credibility of D2’s case,

(v) Did D2 know or have reasonable grounds to believe that the money in whole or in part directly or indirectly represented the proceeds of an indictable offence.

15.  The trial

The defendants admitted the majority of the prosecution case. They were inter alia, the transactions in the bank accounts including the deposits and withdrawals.

16.  There were 3 sets of Admitted Facts.  In particular, Admitted Facts (2) was the agreement to the bankers’ affirmation and all the annexes, and the charts and tables summarizing the contents of this exhibit.

17.  The witness statements of all the prosecution witnesses were read into the record under s65B Criminal Procedure Ordinance.  The defence did not require the tendering of all but two (PW2 and PW3) of these witnesses for any cross-examination.

18.  PW2 and PW3 testified in court.  They were cross examined by D1.  

19.  D1 elected not to give evidence which was his right.  I drew no adverse inference from his election to remain silent.  He is of clear record.  D2 elected to give evidence.  Both D1 and D2 called no defence witnesses. 

20.  The facts

Triad Global was a BVI company. Its principal shareholder was Michael S. Myers (“Myers”). Triad Global had an HSBC bank account in Hong Kong which it opened on 8 October 2008.

21.  In the bank account opening mandate, the care-of address of Triad Global in Hong Kong was the registered address of ‘Tryfon Holdings Limited’ (“Tryfon”) had no actual business since its incorporation in 1998 and ceased to operate in 2008.  The alleged registered address of Tryfon written in the said opening mandate was a secretarial company.

22.  There was no Companies Register record, Business Registration record, Inland Revenue Department (IRD) record or MPF record regarding Triad Global in Hong Kong.  

23.  All the funds deposited into Triad Global’s bank account as from 6 March 2010 to 25 May 2010 came from overseas.  

24.  At least two of the deposits made (PW2 and PW3) were by investors who were victims of an investment fraud.  They were called to give evidence in the trial and were PW2 (“Rideaux”) and PW3 (“Sheldon”).

25.  D1 is German.  He was added as an authorized signatory of Triad Global’s bank account on 9 February 2010, i.e. less than a month before funds started to be deposited into Triad Global’s bank account.  

26.  D1 opened his own personal HSBC bank account on 8 March 2010,  he was the sole account holder and signatory.  The opening of his account was two days after the deposit of the first of the funds into Triad Global’s account.  It was the same date he changed his signature for Triad Global’s bank account.  

27.  There was no IRD record or MPF record relating to D1.  D1 was not an employee or self-employed person or a person running business in Hong Kong.  

28.  There was no Business Registration record, Companies Register record of PAA.  Nor was PAA ever enrolled as an employer into any MPF schemes.  The registered shareholder of PAA was one Rocco Guarnaccia (Rocco).  He was also one of the persons registered as residing at Harbour View and in the same room as D1. 

29.  In March 2010 D1 met with an estate agent and viewed the offices at the International Commerce Centre (ICC) at Austin Road, West Kowloon.  In about June 2010 D1 signed a tenancy agreement on behalf of PAA to rent business premises at ICC for HK$492,505.00 per month.  However despite the rental of the premises no renovation was done.  Eventually as a result of default of payment of rent the lease was terminated in January 2011. 

30.  As for D1’s residence in Hong Kong.  D1 resided in the same room as Rocco.  He Rocco, Myers and others all resided and were individually registered at Harbour View Place at 1 Austin Road, West Kowloon.  The leasee of the rooms they rented was PAA.  The commencement of the rental of three rooms was from 4 February 2010.  D1 was the person who rented the rooms on behalf of PAA.  Later when the other persons no longer resided at Harbour View, D1 continued to rent a room there but in his own name.  Eventually D1 defaulted on the rental payments and the lease was terminated. 

31.  Deposits into Triad Global’s bank account

I have adopted below the very helpful charts drawn up by Ms Jessie Sham Public Prosecutor in showing the sums deposited into Triad Global’s bank account and the sums withdrawn. All sums in the bank account were withdrawn by either D1 or Myers.

32.  In the two month period from March to May 2010 (as stated above in charge 1) 9 deposits in the sums of US$2,499,939.00 and Euro €2,098,994.00 were made from overseas persons or companies.  By 26 June 2010 at the close of the account the balance was $0.

33.  The deposits into Triad Global bank account were as follows:-

Deposits into Triad Global
(USD)	(EUR)
(Mindy) USD999,982.26 (2010-03-06) (Sheldon) USD 299,982.25 (2010-03-09) (Jack) USD999,992.25 (2010-03-15) (Darrell) USD 199,982.26 (2010-04-23) Total = USD$2,499,939.02	(Maria) EUR149,994.12 (2010-04-28) (Herbert) EUR1,000,000 (2010-05-06) (Francisco) EUR200,000 (2010-05-12) (Proventure Capital Limited) EUR 300,000 (2010-03-11) (Morgan Stanley DW Inc.) EUR449,000 (2010-05-25) Total = EUR$2,098,994.12

34.  D1 and Myers were the only two authorized signatories of the Triad Global’s bank account.  They had dealt with the deposits in their own ways. 

35.  D1 had dealt with a significant amount of the victim’s money in Triad Global’s bank account.  Putting aside intra-account currencies-conversions (i.e. not taken out of Triad Global), the proportion of deposits dealt with by D1 versus Myers are as follows:

36.  Among the recipients from the above transactions were these companies:-

Best Synergy (Cayman Islands):	D1 was one of the three authorized signatories of this company’s bank account in the amount of HK$200,000.00  [The Company Registry records had a Best Synergy Holdings Limited (i.e. HK Company) where D1 was the director/secretary.]
Best Winner:	this was the owner of HarbourView Place. D1 had rented 3 rooms at the HarbourView Place either through a company Power Avenue Asia Limited in Hong Kong or in his own capacity. Myers, D1, Yau Pik-ki and others were occupants of these rooms. Payments for HarbourView Place were made by D1 out of Triad Global’s Bank Account in the amount of HK$900,799.86.
Sun Hung Kei:	owner of ICC, where D1 was involved in the viewing and renting of offices thereat under the name of Power Avenue Asia Limited in Hong Kong. Payments for the ICC offices were made by D1 out of Triad Global’s Bank Account HK$561,076.85.
Hau, Lau,Li & Yeung:	this was the solicitor firm through which D1 paid the cashier orders from Triad Global’s Bank Account to Sun Hung Kai for renting the ICC offices an amount of HK$2,568,069.05.
D2	To D1’s HSBC bank account the amount US$147,000 deposited in three trenches of US$50,000, US$72,000 & US$25,000 on 8 March, 9 March and 6 May 2010 respectively
Yau Pik-ki Irene	One of the registered guests at the Harbour View residences.  A sum of HK$350,000

37.  D1 had withdrawn cash from Triad Global’s bank account in the total sum of HK$1,567,611.00 between the 6 March 2010 and 18 June 2010. 

38.  From the time of D1’s HSBC personal bank account opening to the time to the closing of the account, there were only 5 deposits (4 USD + 1 HKD) made to D1’s Bank Account.  

39.  The most significant sum was the deposit of USD$100,000 on 8 March 2010 (i.e. the account-opening date) from Triad Global’s bank account.  

40.  After the receipt by D1’s bank account of the USD$100,000 from Triad Global, the spending of this USD$100,000 in D1’s Bank Account were not for investments.  Basically, since the deposit on 8 March 2010, they were continuously withdrawn (i) in USD by cash/ATM/EPS or (ii) converted into HKD for withdrawals or (ii) being used to pay for expenses (e.g. Smartone-vodafone), until the whole balance was used up. As at 2 August 2010 the balance was $0.

41.  None of the USD$100,000 from Triad Global was invested. At no time was the USD$100,000 from Triad Global maintained in a separate client account/trading account so as to invest the money for the victims as contracted.  There was also no accounting record of that USD$100,000 from Triad Global given back to the victims. 

42.  D2

D2 is a resident in both Hong Kong and Macau but lives in Macau. D2 received the sum of US$147,000 from Triad Global’s bank account in three trenches. Those were on the 8 and 9 March and 6 May 2010 in the sums of US$50,000, US$72,000 and US$25,000. The day or the day after the deposits D2 immediately exchanged the US$ into HK$. By 3 July 2010 all the money had been withdrawn by D2 leaving a balance in his account of HK$34.34.

43.  Submissions

I have not reiterated the submissions made by defence counsels Mr Oliver Davies for D1 or Mr Ching Wan Fung for D2. The fact that I do not refer or mention any evidence or submissions does not mean I have not considered them in my decision. I have taken into account all the evidence and submissions when arriving at my verdict.

44.  I turn now to deal with the prosecution case against D1.

45.  Was D1 involved in the investment fraud

There was no dispute from both the defendants that PW2 and PW3 were victims of an investment fraud. The only issue was if D1 was involved in the fraud. Neither PW2 nor PW3 had ever met or seen D1. All communications with him were either by telephone, e-mail or voice only skype.

46.  PW2 and PW3 were honest and reliable witnesses. It was eventually not disputed by D1 that D1 had communications with PW2 before the contract was signed with PW2.  PW2 said the person identifying himself as Bernard Goetzmann (D1) had a heavy German accent.  D1 is German.  D1 was a party to the contract of investments.  D1 did not dispute that he was the one in communication with PW2 and PW3 even after the dissipation of funds.  From the evidence it goes beyond doubt that D1 was involved in the investment fraud in relation to PW2 and PW3. 

47.  For the sake of completeness I set out the evidence of PW2 and PW3.  My analysis at arriving at the conclusion is set out below.  PW2 and PW3 both set out clearly what the terms of their investment were.  The terms were expressed in the contracts as exhibited.  D1 and Myers had withdrawn the monies wholly contrary to the contract terms of investment and no investments nor returns were made.  The principal was guaranteed under the contract and no withdrawal of the principal sum invested could be withdrawn without the consent of the investor.  The whole of the principal was withdrawn and neither PW2 nor PW3’s consent was requested for the withdrawal of their principal.  Contrarily they did not even have any knowledge of the withdrawal of their principal.

48.  PW2’s evidence

According to Darrel Walter Rideaux (PW2), a Thomas Kopec introduced the investment scheme to him. Thomas Kopec also introduced Myers Michael Steven as the chief executive and D1 as the trader of Triad Global. D1 and Kopec explained to PW2 the contents of the investment and that PW2’s money would be kept in a segregate account for investment.

49.  When PW2 agreed to invest through Triad Global, he was given by a Rikel Hoffman (who introduced himself as the compliance officer of Global Triad) a contract [Refer: DWR-01 ‘Asset Management Mandate’ (with D1’s name and signatures on it)] and various documents to sign.  After signing this contract and pursuant to Thomas Kopec’s instructions, on 22 April 2010 PW2 instructed the First Republic Bank to transfer USD$200,000 from his company The Rideaux Group Inc to Triad Global’s bank account.  This USD$200,000 was received by Triad Global bank account on 23 April 2010.  Subsequent to the transfer, PW2 received various documents regarding his investment, including:

DWR-02: ‘Confirmation Letter’ (with D1’s name, passport number and signature on it);

DWR-03: ‘Notarized repatriation and dissemination letters’;

50.  However, when the 21 banking days expired, PW2 did not receive his investment principle nor any yield of return as promised, despite D1’s assurance by a conference call on 2 June 2010.  The excuse provided by D1 on the non-release of funds was that the fund was blocked by HSBC Hong Kong.  D1 reassured PW2 the repatriation of money invested by PW2.  PW2 continued to have numerous telephone conversations with D1 thereafter.  However, since November 2011, PW2 lost contact with D1 and Thomas Kopec.  PW2 made a report to the police, and provided the police with information of D1 that he received when negotiating the investment, including D1’s passport (bearing D1’s photograph in it) [DWR-04] and D1’s residential address at the ‘Harbour Ville Place at Austin Road, West Kowloon’.  PW2 had been deceived of his investment money.

51.  Bank records [Bankers’ Affirmation, Section C at p.750-751] confirmed that there was a deposit by THE RIDEAUX GROUP INC to Triad Global’s Bank Account USD$200,000 on 23 April 2010.   Correspondingly, the bank records of Triad Global also confirmed that there was no repayment of money from Triad Global back to THE RIDEAUX GROUP INC.

52.  PW2 also testified that he was given a copy of D1’s passport with D1’s photo on it by Hoffman in the verification of D1’s existence. He had also called the Harbour Ville reception to ask for D1 at Room 5118 (i.e. the room D1 was staying in), and PW2 had also called D1’s phone number 37188220 and 92227083 (i.e. the same phone numbers used by D1 at the opening of D1’s Bank Account under ‘home phone’ and ‘mobile phone’ respectively. Refer: Bank records at p.880).  During all these phone calls, the person answering the phone after the transfer from the reception or on the mobile phone was of the same consistent voice of German ascent as the person who talked to PW2 about the investment. 

53.  Evidence of PW3

I set out below the evidence of PW3. According to Dr. Sheldon G. Wald (PW3), an Amy Wong introduced the investment scheme to him but he negotiated the details with a Rikel Hoffman. On 4 March 2010, Rikel Hoffman sent PW3 an ‘Asset Management Mandate’ [SGW-01] for signing, and he later received by email a copy purported to be signed by D1. Pursuant to the ‘Asset Management Mandate’, PW3’s investment of USD$300,000 would give a yield of return of ‘10 times return in 21 banking days. Original deposit held for 21 international banking days’. On 8 March 2010, PW3 transfer USD$300,000 from his company Emess Investment SA to Triad Global’s bank account. The transfer was confirmed by a ‘Confirmation Letter’ (with D1’s name, passport number and signature on it) [SGW-02]. However, when the 21 banking days expired and despite various communications between the parties [SGW-03 – SGW-07], PW3 did not receive his investment principle nor any yield of return as promised. Finally in December 2010, Rikel Hoffman gave PW3 D1’s email and telephone contacts [SGW-08]. Upon speaking with D1, D1 assured PW3 the investment had been cleared for disbursement but nothing was returned to PW3. In May 2011, PW3 lost contact with D1. A report was made to the police. PW3 had been deceived of his investment money.

54.  Bank records [Bankers’ Affirmation, Section C at p.742] confirmed that there was a deposit by EMESS INVESTMENTS SA to Triad Global’s bank account USD$300,000 on 8 March 2010 (i.e. recorded by the bank on 9 March 2010 in HK).  

55.  Under cross-examination by Mr Davies, it was suggested to PW3 that instead of ‘everything had been cleared up’, D1 only presented to PW3 that everything would be cleared up’.  PW3 was not certain on the term used, but if the term ‘would be’ had been used, PW3 would follow up to ask for the estimation of time it would take for the money to be released from the escrow attorney.  PW3 explained that he always had to initiate correspondences after the fund was not returned.  PW3 never got any response from D1 from email or telephone calls.  That was why PW3 sent to D1 the email as in Exh. SGW-09(2) attached in his witness statement. 

56.  PW3 believed in the end D1 and Triad Global were fraudsters / cheats for reason that : (i) there had never been any bank statements or acknowledgement of funds deposited by PW3 and (ii) the funds had gone out of the Triad Global Bank Account without PW3 authorizing or approving for the release.  Quite surprisingly PW3 only learnt that all the money he had deposited was gone when he was giving evidence in court. 

57.  Conclusion

The evidence above showed that D1 was involved in the predicate offence of the fraud. D1 knew the money deposited to the Triad Global Bank Account were from overseas victims who were lured into making investments that were not honoured nor executed. The fact that the mobile phone number called by PW2 matched with the mobile phone number recorded in D1’s opening mandate affirmed the identify of D1 as the predicate offender.

58.  There was no repayment of the principle nor any investment return and given that the bank records revealed there was in fact no investment made at all showed that the overseas victims had all been deceived.  Hence the funds that were deposited into the Triad Global Bank Account were in fact proceeds of an indictable offence.

59.  Triad Global

I was satisfied from the evidence that Triad Global did not have any business in Hong Kong. There was no companies register record or MPF. From the evidence before me I concluded that Triad Global was a company set up as part of a scam to defraud overseas victims. I drew the irresistible inference that all the funds deposited in Triad Global came from overseas victims who were defrauded to deposit funds into Triad Global’s bank account, thinking that there would be genuine investments of those funds through Triad Global when in fact there was not.

60.  D1’s involvement

D1 did not challenge the fact that he had signed the contracts and D1 was involved in the transactions with PW2 and PW3.

61.  From the evidence of PW2 and PW3, the Prosecution have proved the involvement of D1 in the following:-

(i) D1 was fully aware of the contracts that PW2 and PW3 were entering into, particularly that he had explained to PW2 how to fill in the contract, the contract was emailed back with D1’s signature on it, and D1 did not challenge his personal information and signatures appearing on the contracts were his;

(ii) According to the contract terms, funds deposited were to be kept in a segregate account and not to be withdrawn unless with the authorization of the depositors;

(iii) D1 had acknowledged his awareness of the deposits made by PW2 and PW3 through the correspondences;

(iv) D1 had also reassured PW2 and PW3 of the repatriation of funds, at that time he knew there were no funds in the account;

(v) However, as the funds were not returned to PW2 and PW3, D1 made up excuses to explain why the funds were not released (e.g. withheld by HSBC or not ready to be released from escrow account);

(vi) To pacify PW2 and PW3 and to prevent them from making prompt report to authorities, D1 through other persons provided his passport and contact numbers to PW2 and PW3 to assure them everything was alright;

(vii) Eventually D1 cut off contacts with PW2 and PW3;

(viii) D1 never told the PWs what investment was made, nor provided any bank statement or accounting records concerning uses of those funds;

(ix) Bank records show there was in fact no investments made;

(x) Instead the funds were withdrawn and dissipated by Myers and D1 from the Triad Global account;

(xi) Some funds had even gone to D1’s personal account and were never returned to Triad Global bank account;

(xii) PW2 and PW3 never knew they funds had gone out of the Triad Global account and that the funds had been dissipated.

62.  I do not accept Mr Davies submission that the rogue (Myers) and actual participant in the fraud got away but the honest one, D1 stayed behind to deal with PW2 and PW3.

63.  As can be seen from the evidence D1 had a close relationship with Myers and Triad Global.  It was evident that D1 was involved in renting an office space at ICC and that was paid for by Triad Global. Triad Global also paid for the rental of the residences at Harbour View for D1 and Myers and others to stay whilst they were in Hong Kong.  I would be blind if I were to accept that Myers was the only rogue and not D1.

64.  In these dealings, D1 held out himself to be a representative of Triad Global and PAA.  He also showed that he had authority and control over both companies.  D1 by residing in Harbour View had benefitted from the use of the funds from Triad Global.

65.  Mr Davies cross-examination for D1 had taken two totally different stances. Regarding PW2, D1 claimed there was someone else who had impersonated him on the phone calls and it was not D1 who was involved in the contracts; versus PW3, D1 claimed he was involved in the contracts, but he did it in good faith.  These contradictory claims were inconsistent and were not credible.  As D1 had however retracted his original suggestion that someone was impersonating him, PW2 was recalled so that the change of stance that no one was impersonating D1 but it was D1 who was speaking and contracting with PW2 could be put to PW2.  Naturally PW2 agreed that he was speaking to and contracting with D1 as was his evidence all along.  

66.  The defendant elected not to give evidence as was his right.  However in electing to not to give evidence as was submitted by Mr Davies there was no evidence from D1 to undermine, contradict or explain the evidence put by the prosecution.  I wholly rejected D1’s case put in cross examination that he had acted in genuine good faith in the investments for PW2 and PW3.  They were simply no investments made but withdrawal of funds for purposes other than investments.  

67.  Moreover, had D1 made the investments in good faith, why was the money withdrawn without PW2 and PW3’s consent? Why was some of the money deposited into D1’s personal account and other accounts and used to pay for renting of offices and residences of which D1 and others were renting? Why was there no bank record or record to support any investments being made? On the contrary, bank records showed that the funds had been withdrawn and dissipated until the Triad Global bank account had no money in it.  There was no trading facility in the Triad Global bank account for the investments.  The funds deposited were not put in segregate accounts as capital-protection for the funds.  There was no credit line investment as promised to PW2 and PW3.  There was no return on investment either.  None of these factors could support D1’s claim that he had invested the funds for PW2 or PW3 nor could they support D1’s case that he acted in good faith.   

68.  Defiantly when PW2 and PW3 asked about the funds they had invested D1 never told them the funds were no longer in the account.  No real honest trader or person not involved in the dissipation of the funds would need to cover up.  If he were not involved he would not have to make excuses.  The reason for him making up the excuses was that he knew the money had been dissipated by himself and Myers for their own or others benefit and gain. 

69.  On the all the above evidence I was satisfied beyond all reasonable doubt that D1 was involved in the fraud of PW2 and PW3 and was therefore involved in the predicate offence. 

70.  Have the prosecution proved beyond a reasonable doubt that the proceeds in whole or in part were proceeds of investment fraud

I was satisfied beyond a reasonable doubt that the proceeds in part (PW2 and PW3 deposits) were proceeds of investment fraud. I drew an irresistible inference that the remainder of the overseas deposits were also the proceeds of investment fraud. All the deposits were from overseas from sources unrelated to Triad Global. There was no reason why the deposits were made. There was no business between Triad Global and the overseas depositors. Triad Global had no business or operations in Hong Kong. Although offices were rented at ICC they were never occupied or used for any businesses. It was never decorated. Within a few months the rent was not paid, the tenancy was eventually terminated with rents in arrears. Therefore, even if Triad Global seemed to have rented an office place for business, effectively it was just a façade without any real business in Hong Kong. The money paid by the solicitors firm for the rent at ICC was a way to make the money look ‘clean’ where a solicitor firm was used to spend a part of the money laundered. How could this have been a genuine business if the monies were used for another purpose other than that given?

71.  D1 was made an authorized signatory of the Triad Global account about a month before the fraud began.  Once D1 was made a signatory a flurry of deposits was made by overseas investors.  There was almost the immediate withdrawal of sums.  The closing of the account with a zero balance within 2 months of active deposits with no further activity is evident of an account used for the purposes of money laundering. 

72.  D1’s role

Apart from defrauding the victims.

a) D1 and Myers were the only two authorized signatories of Triad Global’s bank account. They had control of the money in the account.

b) D1 was heavily involved in dealing with the money in Triad Global’s bank account, including numerous transactions and withdrawals where D1’s names and signatures etc were recorded in the bank records.

c) There were also cash and ATM withdrawals by D1 from Triad Global’s bank account.

d) D1 was a direct beneficiary of the money laundered, as he received the laundered money in his personal account and in a bank account held by a company called Best Synergy (Cayman Islands) where D1 was an authorized signatory and had control of Best Synergy’s bank account in HK.

e) D1 was also an indirect beneficiary of the money laundered, as some money was used by Triad Global to rent D1’s residence at Harbour View.

f) D1 was also involved with Triad Global affairs including D1’s role in renting of ICC office and in renting the Harbour View rooms, which all payments were made by D1 from Trial Global’s Bank account using the victim’s deposits.

73.  Did D1 know or have reasonable grounds to believe that the money in whole or in part directly or indirectly represented the proceeds of an indictable offence

D1 knew the source of the funds. He knew they were funds from the victims of a fraud. He withdrew money and dealt with the money otherwise than for investment purposes.

74.  The irresistible inference was that the opening of D1’s personal bank account on the particular date was for the purpose of receiving the proceeds of crime from Triad Global.

75.  I could arrive at no other conclusion other than that D1 knew he was dealing in crime proceeds.  I was satisfied beyond all reasonable doubt that D1 had the knowledge that the funds were crime proceeds from an investment fraud.  He dealt with the funds deposited into Triad Global’s bank account in whole or in part directly or indirectly which represented the proceeds of an indictable offence. 

76.  D1’s absence from trial after hearing the evidence

D1 failed to appear at the adjourned hearing date for submissions after all the evidence was heard at the trial. His lawyers were unable to contact him and were unable to explain his absence. A warrant was issued for his arrest, no bail was granted to him. Up until D1’s absence D1 had appeared daily and had been complying with his police reporting conditions. He had I was informed even reported to the police the day before the hearing on submissions. I had informed both defendants during the trial that should they not appear at any adjourned hearing with no good or acceptable reason I would continue with the trial in their absence until the conclusion of the hearing. D1 had failed to appear with no good reason. This is the course I have followed. I would like to make it very clear that D1’s absconding from trial has had no bearing whatsoever on my decision on his culpability in the present offence.

77.  D2’s case

I now turn to deal with D2.

78.  D1 had transferred from Triad Global bank account to D2’s personal HSBC account in Hong Kong a total sum of US$147,000 in three trenches.  They were as follows:-

 8 March 2010 a sum of US$50,000

 9 March 2010 a sum of US$72,000

 6 May 2010 a sum of US$25,000

79.  The above sums were, I was satisfied crime proceeds.  The question was then have the prosecution proved that D2 knew or reasonably believed the funds to be crime proceeds. 

80.  Pol.857 & VRI

Subsequent to D2’s arrest, D2 had attended two cautioned interviews. D2 did not challenge the voluntariness and accuracy of the records of his interviews. D2 in his Examination-in-chief affirmed both the accuracy and the contents of his Pol.857 (exhibit P10) and the Video recorded interview (VRI) transcripts (exhibit P16).

81.  Summary of D2’s case

D2’s case was that he had absolutely no knowledge, nor suspicion, that any part of the three sums paid into his personal bank account were obtained through illegal means or that they were crime proceeds. He had never heard of the company Triad Global, nor had D1 or others ever mentioned any of the investors such as Rideaux or Sheldon, or any other names of investors, to D2.

82.  The deposits into his account were he believed reimbursements to him from a man called CW Fok of all the fees paid for and advanced and incurred by him when promoting multiple projects that he worked on together with CW and D1.  He had no idea that the money was transferred from Triad Global.  The amount to be reimbursed was calculated using more than five hundred invoices and receipts that D2 handed over to CW in a face-to-face meeting.  As he had handed over all the receipts, he had no copies that he could produce in court.  The multiple withdrawals and transactions that D2 subsequently made from those deposits were primarily used to pay back the debts he had incurred to various parties when D2 had borrowed to pay for the expenses incurred in his work on these multiple projects.

83.  D2’s Evidence

D2 elected to give evidence. He called no defence witnesses.

84.  D2’s Background

D2 was born in Macau and lived there with his family. He is a resident of Macau as well as a permanent resident of Hong Kong. He has been self-employed as an Investment Consultant throughout his career. Specifically, D2’s job is to find ideal and suitable projects within China that can be invested in, and then passes this information on to investors, a similar role to a ‘Middle-Man’. If a project is successfully completed, D2 receives commission on the entire project, which is the source of his entire income. He does not have a fixed salary or income.

85.  In March 2010, D2 was hired by a company called Power Avenue Asia Limited (PAA).  He was to set up and create a new company called Power Avenue Macau (PAM) in Macau.  He received a corporate resolution, dated the 22 April 2010, in which the company authorized him to conduct any activities necessary on behalf of the company to create this new one.  He produced business registration documents and records of an application for organization costs for setting up the company.  There were two shareholders of PAM, they were himself and one Pat Io Weng.  PAM was incorporated in March 2010. 

86.  D2’s relationship with D1

D2 first met D1 at a business meeting in London, United Kingdom in 2006. This meeting consisted of three parties; D1, D2 himself, and a 3^rd party, identified as ‘the boss’ Wong Charles Choi (Wong), and it was Wong who introduced D1 to D2. Wong and D2 were representing the China side of the meeting, and D1 the other side. This meeting was commercial in nature, and was discussing the project of restructuring China Travel Trust based in Mei Xian, Guang Dong, China. D2 claims that it was successful meeting which allowed D2 and D1 to establish a connection between them.

87.  D2 further met D1 on a number of occasions to discuss other business projects.  The first time D2 met D1 in Hong Kong was in 2009. At that time D1 was accompanied by Fok Chen WA (CW).  In this meeting, there were many business projects discussed such as setting up a new Deer Farm, to acquire and restructure China Travel Trust, an Eavesdropping Communication Techniques project, to acquire a hotel in Chong Qing, and finally a Sewage Purification project; however, they did not come to a concrete plan to execute any of these projects.

88.  D2’s involvement in projects

Late in 2009, D2 was hired by D1 and CW to set up a company in China, to be known as Power Avenue Macau (PAM). The purpose of this company was to manage all the future projects mentioned at the 2009 meeting that were to be conducted in China. On top of this, D2 made reports concerning the projects which he then sent over to D1 and CW by email, presumably, this was to report to D1 and CW the suitability of certain locations and projects. In reply, D1 and CW told D2 they had to wait for funds to arrive after looking over and approving D2’s reports. D2 claims that although he knew that D1 had a role in supplying these funds, he knows no details at all of how they raised the funds, nor did D1 or CW ever tell him.

89.  D2 states that because his job was to locate good investment opportunities in China, he had to regularly travel to China for all of the projects mentioned above.  The expenditure that incurred was to initially be paid for by D2 himself, and if the proposed projects were successful or the investor funds had arrived, D2 could ask to be reimbursed by PAA.

90.  For each of the previously mentioned projects in China (excluding the Sewage Purification project) there was no progress into any of them because D2 claims that the funds from investors never arrived.  On each of these projects, D2 claimed that he had incurred a lot of expenditure in promoting these projects.  This included transportation costs, food and beverage costs, entertainment costs (such as entertaining Government officials), and investigation fees (such as D2 having to pay local government departments to verify the authenticity of documents D2 needed). D2 kept records (notes/invoices/receipts) for all the expenditure costs of the multiple projects.

91.  The Sewage Purification Project

The idea of the Sewage Purification project was raised by D1 in 2010. However, it was not until 2012 did D1 give D2 information about it because there were other patents involved. Like the previous projects, D2 incurred heavy expenditure when promoting the project which came to a total of HK$930,000 or US$120,000. From previous discussions between him and CW, PAA was supposed to bear the expenditures. This sum was eventually paid to D2 by CW.

92.  D2 had sent two emails.  An e mail dated 12 April 2010 was an email sent to CW asking D1 and CW to deposit money into D2’s personal bank account, which he opened “not before 15^th March 2010.” This was the same month and year that he was hired by Power Avenue Asia to set up Power Avenue Macau.  

93.  After working for just under two months on the projects D2 was then gradually kicked out of the projects by CW because D2 wrote D1 a letter dated 8 May 2010 (exhibit D8b), warning him that CW was not very good (not focusing on the project) and to be careful with him.  Later D2 learnt that D1 had shown this letter to CW, which is what prompted his gradual exclusion to PAA and the projects by CW.

94.  Despite D2 having no further business with PAA and PAM had completely ceased all operation in 2010, D2 did not de-register or close PAM .  

95.  The funds deposited into and withdrawn from D2’s account

D2 claimed that the funds deposited were for reimbursements and the sums withdrawn were to pay back debts he had incurred.

96.  Reimbursements

D2 claimed that from the multiple projects in which he worked on under CW and D1, he kept all the receipts to the expenditure he incurred, which came to a total of more than HK$1 million. He had kept more than 500 receipts and invoices. CW told D2 that he could be reimbursed for all his costs, therefore D2 handed over all the receipts and invoices to prove the amount what he had spent. As he had handed over the receipts he explained he had no records of his expenditure as he kept no duplicate copies. D2 said he gave these invoices to CW in a face-to-face meeting in Elements, Hong Kong in late February 2010. In this meeting, CW told D2 that he would be notified after the money had been transferred. D2 understood that it would be PAA who would transfer the reimbursement into D2’s personal bank account. It was D2’s own idea to use his personal bank account. He had no other accounts in Hong Kong.

97.  Regarding the  three deposits made into D2’s account, D2 claimed that for 8 March 2010 sum of US$50,000, CW notified him face-to-face in Elements, HK of this transaction (this meeting took place on at 2pm).  As soon as D2 was notified by CW, D2 immediately went to the bank to check.  The next morning, D2 told CW that he had not transferred enough money, which is why on 9March, a sum of US$72,000 was deposited into D2’s personal bank account. Once more, this took place in a face-to-face meeting between D2 and CW in Elements.  Using the same procedure as before, D2 learned of the final deposit of US$25,000 when CW notified him by phone call, in which CW expressly told D2 that this deposit was for the settlement of PAM.  CW never mentioned that the three sums were transferred from Triad Global and D2 never asked as D2 stated that this was a matter for the senior management of the company, it was not D2’s position to ask. These seniors were D1 and CW as identified by D2. 

98.  Withdrawals

The transfers out of D2’s bank account were all made by him. They were identified as his repayment to his younger sister, in 3 transactions, totalling HK$120,000. He had borrowed money from her since 2007 because of a lack of success in his own work career. Another transaction of HK$18,500 was transferred on the 1 March 2010 to Freeway Finance Company Limited, as a repayment of mortgaging D2’s father’s property that D2 inherited when his father passed away. Further, there were 6 separate withdrawals from D2’s personal account amounting to HK$720,000 that D2 claims that was partly to repay a debt and part of it was to be carried into China to deal with the China Office of PAM in Zhu Hai. D2’s debt was to Cheung (Cheung) Wai Ha’s husband. D2 borrowed money from Cheung’s husband because he owed three months payment to Freeway Finance Company limited for his father’s premises that he mortgaged. The company was going to confiscate his premises if he did not pay what he owed; he borrowed HK$700,000 from Cheung.

99.  No tax returns or employment in Hong Kong

D2 explained that he did not have any personal accounts or any MPF schemes because D2 did not live in, nor did he work in Hong Kong. This is also why D2 did not file any tax returns from 2007-2013 with the Inland Revenue Department.

100.  Credibility of D2’s evidence

There were numerous and material inconsistencies in D2’s record of interview (pol 857), his VRI and oral testimony. Ms Sham has set out in detail the inconsistencies in her closing submissions. I shall not reiterate them but they show a lengthy and detailed number of material inconsistencies.

101.  The crux of D2’s case was that the funds were transferred to him for reimbursement for expenses advanced by him.  He then withdrew the money to repay loans.

102.  Were the funds reimbursements for expenses advanced by D2 for work on projects?

I shall deal with this topic immediately but also bear in mind other matters mentioned below.

103.  Regarding the three sums totalling US$147,000 deposited into his bank account D2 gave materially inconsistent accounts of what those sums were reimbursements for. In his cautioned statement (pol 857) and VRI he mentioned that the funds were for reimbursements of expenses only for the sewage project.  In his pol 857 he initially said the sums were paid in advance of expenses to be incurred, later on he said it was for expenses already incurred.  In his testimony he said it was not only for the sewage project but a multitude of projects such as deer farming and eavesdropping communications (as mentioned above).  He altered his account once again in his evidence in chief when he said only the first two sums deposited were for reimbursements while the third sum paid for the running of PAM.  

104.  Moreover D2 mentioned for the first time under cross-examination that the last payment of US$25,000 was not in fact a reimbursement for his expenses he had advanced but a payment to acquire a gambling licence in Macau for his partner in PAM (Pat Io Weng). 

105.  If the deposits were legitimate D2 would not have given so many contradictory accounts for the reimbursements which were in any event devoid of any credibility.  Moreover if the reimbursements were for the numerous projects as he said in his testimony why were these never mentioned in his pol 857 or VRI?

106.  No receipts for reimbursements

D2 did not produce a single copy of any of the receipts or invoices that he had used to ask for the reimbursement. D2 was claiming over HK$1 million for expenses advanced by him. For such a large sum of money it is inconceivable that D2 would not have kept copies. However even if copies were not kept, it would have been prudent for any reasonable man owed such a large amount of expenses to have kept a summary of the expenses or even some sort of record for his own convenience to know how much money he was owed and for what. This D2 did not have.

107.  Bizarrely despite D2 applying for reimbursement of his expenses which were all in different Asian currencies (HK$, RMB and Macau patacas) D2 was repaid for these expenses in American dollars.  On the evidence it was seen that D2 had almost immediately upon receipt of the US$ converted the money into HK$.  Why would a repayment of money be in a wholly different currency then those claimed? Why in US$ and not HK$ since this is where payment was made?  Why after the first payment did D2 not ask his reimbursements to be in HK dollars since that was what D2 had wanted? When asked about this anomaly D2 was unable to give any explanation or reason but replied that is what CW chose to do and he had no problem with that.

108.  Why if CW told D2 that his claim for reimbursement could be made did CW not pay D2 the full amount in one go? D2 had otherwise submitted his expenses for HK$1 million.  Why did D2 have to call him and tell him that the reimbursement was insufficient? If this was a genuine reimbursement the repayment would have been repaid in one transaction and not in three and over a period of about one month.

109.  Sums not paid into PAM bank account but into D2’s bank account

These alleged expenses claimed by D2 were related to the numerous projects that D2 was involved in on behalf of his role in PAM. PAM’s bank account in Macau had been opened at the time he received the money in Hong Kong in his personal bank account. If the money was paid for PAM or its running expenses or more particularly the third payment was to be paid to his partner for a gambling licence in Macau on behalf of PAM, why were the sums or at least the third sum of US$25,000 not transferred to PAM bank account but to D2’s personal account? It was not done, as it was not for purposes as D2 stated at all.

110.  Background and experience of D2

D2 was a man with no income or stable employment. He said he was an ‘investment consultant.” He was reliant on the success of the projects for remuneration. It was his evidence that not one of the projects he had worked on was successful. It was his case he took loans, even mortgaged his father’s house to pay for his expenses in these projects.

111.  I reject D2’s evidence that a man with little or no means would advance over HK$1 million on expenses for projects with no guarantee of any return.  According to D2, CW and D1 were wealthy individuals yet he never requested them for funds in advance to pay for his expenses.  I do not accept nor believe that if D2 was working for CW and/or D1 that D2 would not ask for an advance of money to him first rather than him advancing money from his own pocket in the manner he allegedly did.  It was not as though the expenses incurred by D2 were for a few hundred or a few thousand dollars which a man of his means could arguably afford but instead he was advancing sums far over his affordability. 

112.  D2 was not even sure the projects would be successful and that he would ever get paid a commission.  The evidence was that D2 would be reimbursed once the funds from the investors had arrived.  What if there were never funds by investors? D2 said none of the multitude of projects that he was involved in had ever been successful and hence he has never been paid a commission or reward.  When cross-examined and asked why when all the previous projects had failed D2 still invested in the sewage treatment project, D2 replied merely to “buy a future.”  Given the background of D2 and the multiple failure of projects, I found this wholly unworthy of belief.

113.  I do not believe a man with D2’s background, worth or income would expend the money he is alleged to have spent would do so with the risk of never being reimbursed.  It is implausible that D2 advanced over HK$1 million in expenses. 

114.  Credence of projects, D2’s reward from his involvement in the projects

D2 claimed he would be paid 3% of RMB50 billion if the sewage project was completed in his pol. 857. He further said under cross-examination that he would get 0.1 % commission from D1 on completion of the project. D2 was a ‘middleman’ doing menial legwork. The sums of money he would have received had the projects been completed were astronomical in any terms. They were wholly disproportionate to his role as middle man. There was no time projected for the completion of the projects or when D2 would be rewarded. D2 agreed that the sewage project scale was so vast covering almost the whole of Mainland China that there was effectively no date in sight for completion. How then would D2 have received his commission? Would it even have been in his lifetime? There were no written terms for the reward it was all based on trust.

115.  Incredulously despite the alleged multitude of projects D2 was involved in there were no records or documents in support of such projects.  Each project was worth millions if not billions of dollars.  Each in a different area of trade expertise.  It is inconceivable that parties would enter into such huge projects based on trust.  There was no contract, no record of each party’s role, no record of expenses, no record of any sharing or distribution of profit no identity of any party involved. 

116.  I reject any truth in the allegation that a man with D2’s background and education (form 2) with no expertise in any of the projects would ever be involved in such projects in the manner D2 has described. I found unbelievable D2’s claim of such a mammoth reward for the small part he played in doing his leg work. 

117.  The alleged projects were too far-fetched in its scale and in the money involved to be handled by D2.  I reject D2’s explanations for the causes of deposit of the US$140,000 into his bank account.  I was satisfied that D2 was  fabricating his evidence in an attempt to justify his receipt of the funds from D1.

118.  D2’s Relation with D1 and CW and Power Avenue Asia (PAA)

Apart from the implausibility of the projects and the reimbursements, I found D2 deliberately lied to the police when he was first interviewed about his relation with D1 and PAA. He denied any knowledge of D1’s business or his connection with PAA.

119.  D2 gave inconsistent accounts on his relationship with D1 and PAA.  In D2’s pol 857 D2 said he knew D1 however he distanced himself from D1 and denied knowing much about D1 and his business or the company PAA.  Contrarily in his testimony D2 associated himself with D1, knew of some of D1’s business and PAA.  His incompatible accounts were such that his evidence was unreliable and he was deliberately misleading the police.

120.  The below table sets out the inconsistencies in his evidence.

Pol 857 Q- questions by police officer A – D2 answer	VRI	Oral Testimony
Q48: In Hong Kong, there is also a “Power Avenue Asia Ltd” whose shareholder is Rocoo Guarnaceia.  Do you have any knowledge of (it)? A48: I do not know the company and the person. Nor is it related to my Power Avenue Asia Ltd in Macau.		D2 knows of Power Avenue Asia Limited and mentions D1 and CW being involved in PAA. He also suggests that Power Avenue Asia was related to Power Avenue Macau as CW had asked him to set up PAM for the purposes of investment projects in China.  D2 mentioned that PAA was responsible for funding-raising and for reimbursements.
Q15: Did Gotzmann (D1) run any business? A15: Do not know.		D2 had knowledge of D1’s business as he described projects that D1 and CW were involved in China related projects
Q17: You mentioned that Gotzmann had set up “Profit Train Investment Ltd”.  Did Gotzmann have any other companies, business other than that? A17: Do not know.  (Signed) (Illegible)		D2 had knowledge of D1’s other companies he was involved in such as PAA
Q18: Do you know if Gotzmann was employed by any companies or acted as consultant in any companies? A18: Do not know.  (Signed) (Illegible)		D2 knew that D1 was involved in a multitude of projects and had connections with PAA.
	In respect of the sewage project D2 says CW sacked him instantly. All payments were stopped. He was no longer required to follow up on anything.	D2 says CW sacked him gradually.

121.  It was not purely coincidental that the two Power Avenue companies in Hong Kong and Macau were linked.  It is clear from the evidence of D2 that PAM and PAA were linked and were controlled by the same group of people.  Although D1 was not formally named on the company registry it can be seen on the admitted evidence that he was clearly involved with PAA (see exhibit PA1 para 22).  D1 had signed the tenancy agreements for the rented office units in ICC and was present at the viewing of them all on behalf of PAA, the Harbour View residences were also rented by PAA and signed by D1.  D1 resided with PAA’s shareholder Rocco.

122.  D2’s apparent termination from his work on behalf of PAM was unbelieving.  D2’s relaxed and smiling attitude as is seen in the VRI at being kicked out instantly of the whole project that was going to bring him mammoth rewards was bizarre.  No one who had lost an opportunity that D2 would have received would have smiled when they would have lost such a mammoth reward.  If D2’s letter had been the cause for such a termination surprisingly there was no evidence of D2 trying to repair the breakdown of the relationship.  Surely someone in D2’s position would try and apologise to CW and repair whatever damage he had done to their relationship and not accepted it like he apparently had.  He did not even look to his good friend D1 to assist. 

123.  Surprisingly PAM still exists today, despite the termination of work with PAA, despite it carrying on no business and despite the termination of his relation with CW.  D2 said all business had stopped in May 2010 after the last payment.  That was now some three years ago from today.  Why keep the company going at all if it has ceased business? Why incur further expenses of keeping the company going? More so especially when D2 is a man of limited means or no means?  D2’s explanation that he has not de-registered PAM because he is waiting to return PAM ‘back’ to CW is absurd, according to him he has lost all contact and does not even know the whereabouts of CW.  How was D2 going to return PAM to CW?  Although there is no evidence as to the reason for set up of PAM I am left in no doubt that D2 had connections with PAA and D1 for undefined purposes other than the alleged projects. 

124.  D2’s bank withdrawals in relation to the funds of US$147,000 deposited

125.  D2 once again gave materially inconsistent versions about the withdrawals of the money from his account.  In his pol 857 he said the money was needed for the running of PAM.  CW had transferred the money to him after he had provided a report to him.  He would withdraw the money for the outgoings of PAM.  He also said some money was repaid to his sister.  In the VRI he altered his explanations and said he had withdrawn money to pay a Madam Cheung Wai-ha because Cheung had previously helped him exchange money.  She was an underground money exchanger and he had repaid her $200,000. In D2’s oral testimony he changed his account again and said that the money paid to Cheung was actually a repayment to Cheung’s husband for a loan of $700,000 odd he had borrowed.  D2 was searchingly cross examined on his inconsistencies and was unable to explain or resolve the different versions in his account.  His dealings with the sums withdrawn were not plausible.

126.  The sums allegedly borrowed by him were significant amounts.  In any event D2 provided no proof of any loans he had either from his sister, Cheung or from Cheung’s husband.  I reject D2’s account that the withdrawals of sums by him were mostly for repayments of loans. 

127.  From the facts of this case D1 and D2 were friends, they were well known to each other.  They were linked through the companies PAA and PAM.  When D1 was arrested he brought the police to D2’s flat for a house search saying that D2’s residence was also his place of residence.  D2 received money from D1 through Triad Global.  D2’s role was mainly that he was a ‘second-layer’ recipient of the money laundered from Triad Global’s bank account.  

128.  I was satisfied that there was an obvious and material connection between the two the defendants, however on the evidence before me there was no evidence that D2 was involved in the investment scam. 

129.  The law

The mens rea of dealing with the proceeds of an indictable offence has two parts, that is knowing or having reasonable grounds to believe that the funds were proceeds of an indictable offence. The prosecution case against D2 is different from that of D1. Their case is that D2 had reasonable grounds to believe whilst the case against D1 is that he knew the funds were proceeds of an indictable offence.

130.  In a very recent case of HKSAR v Pang Hung Fai CACC34 of 2013 the Court of Appeal considered the objective and subjective elements of the phrase of “having reasonable grounds to believe.”  The court affirmed the earlier decision in HKSAR v Shing Siu Ming [1999] 2 HKC 818.  Where Mayo JA said this at page 825 H - I:

“Knowledge if proved would simply resolve the matter. Difficulty, however, arises from the use of the words ‘having reasonable grounds to believe’. This phrase, we are satisfied, contains subjective and objective elements. In our view it requires proof that there were grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to believe that the person being assisted was a drug trafficker or had benefited therefrom. That is the objective element. It must also be proved that those grounds were known to the defendant. That is the subjective element”.

131.  McWalters J in the Court of Appeal in Pang at para 107 and 108 went on to say :-

“I am of the view that the more logical approach is first to ask the question: what were the facts known to the defendant and the objective factual circumstances in which he found himself and of which he was aware at the time at which he dealt with the property which is the subject of the charge? It is for the prosecution to establish the facts and circumstances relied upon.

The second question then is this: do those facts and circumstances provide reasonable grounds to believe that that property in whole or in part represented the proceeds of an indictable offence?”

132.  Did D2 have reasonable grounds to believe

Did D2 have reasonable grounds to believe that the monies were proceeds of an indictable offence? The facts which I found were known to D2 was that he set up a company called PAM which was connected with D1 and PAA. He knew that US$147,000 was deposited into his account. There was no explanation why there was a sudden windfall of money deposited in his bank account as I have rejected D2’s story. At about the same time as he set up PAM he received about HK$1 million. His explanations as to withdrawals of the sums were beyond belief. D2 was a man of little means or no means with no income, living on loans. All of a sudden he was in a receipt of a comparatively large sum of money within a short time of about a month. Those facts and circumstances would provide a common sense right thinking member of the community to consider it sufficient to believe that the funds were proceeds of an indictable offence. I was satisfied on those facts that the defendant would also have reasonable grounds to believe that the funds in whole or in part were directly or indirectly represented the proceeds of an indictable offence.

133.  Conclusion

On the evidence before me I was satisfied the prosecution has proved both charges against D1 and D2 beyond all reasonable doubt and I convict them accordingly.