HKSAR v. YAN CHEUK FUNG JONATHAN

DCCC 702/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 702 OF 2012

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Reasons for Verdict

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1.  The defendant faces six charges alleging that, being an agent, he used a document with intention to deceive his principal, contrary to section 9(3) of the Prevention of Bribery Ordinance.

2.  The six offences are alleged to have occurred between October 2010 and January 2011, inclusive.

3.  At the material time, the defendant was a Premier Relationship Manager working in the Kowloon City branch of HSBC.  Part of his duties as a Premier Relationship Manager involved promoting financial products of the bank, including insurance policies issued by the bank’s subsidiary, HSBC Life International Limited (which I shall refer to as “HSBC Life”).

4.  At the material time, he was responsible for handling the account of an elderly customer, Chung Fook-lee, who is now deceased, but who in 2010 was aged 73. 

5.  On six occasions during the period in question, the defendant submitted applications to HSBC Life for insurance policies known as ‘RetireIncome Annuity Plans’.  HSBC Life relied upon the defendant as its agent to ensure that the application forms were filled in accurately. 

6.  The application forms gave the names of the proposed insured as a Mr Chong Wong-tang and were submitted on or about the dates referred to in the six charges before the court.

7.  At the relevant times, the policies were open only to people under 65 years of age. 

8.  After a policy was taken out, there would be a savings period of eight years.  At the end of the savings period, the policy holder would receive a bonus payment and could then opt to receive a monthly annuity for 10 years or could withdraw the annuity sum at once.  If at any time during the insured period the insured person died, then the beneficiary would receive the relevant compensation.

9.  Despite the fact that the name of the proposed insured was given as “Chong Wong-tang”, the premium for each policy was paid by way of a one-off payment made by a transfer withdrawal from the HSBC account of Mr Chung Fook-lee, handled by the defendant.  The premia for the six applications amounted to a total of US$1,632,816 (or approximately HK$12,736,000).

10.  The name of Chung Fook-lee, the payor, did not appear anywhere in the application forms.

11.  Under part B of each application form, there was a box headed “Details of the policyholder (if other than the proposed insured)”, which was left blank or crossed out, leading to the inevitable inference that the policy holder was Chong Wong-tang.

12.  Part C of each form was headed “Details of beneficiaries.  If it is left blank, the policyholder will be taken as the beneficiary”.

13.  In each case, this part of the form was either left blank or expressly filled in with the name of Chong Wong-tang, the inevitable inference being that Chong Wong-tang was the beneficiary of all six policies.

14.  There was nothing in the six application forms, which were all similar, to indicate that the payor of the premia was other than Mr Chong Wong-tang, the proposed insured.

15.  In part F of each form, headed “Premium payment”, the space following the sentence “if payor is other than the proposed insured or the policyholder, please state relationship between the payor and the policyholder” was left blank.

16.  It is the leaving of this space blank in part F that forms the basis of the charges against the defendant.

17.  The prosecution’s allegation on each charge is that the defendant, as an insurance agent of HSBC Life, with intention to deceive HSBC Life, used the application forms, being documents in respect of which HSBC Life was interested, which contained statements that were defective in a material particular (namely, failure to declare the premium payor was other than the proposed insured or the policyholder) which to his knowledge was intended to mislead HSBC Life.

18.  The prosecution case - which was supported by the evidence of Loretta Luk Ka-wai (PW4), the branch manager of the Kowloon City branch where the defendant worked, and Cyln Ng Ka-yee (PW5), a manager in the New Business and Underwriting Department of HSBC Life - was that by leaving the relevant space in Part F blank, it would be assumed by HSBC Life that the payor of the premium was the same person as the proposed insured or policyholder.

19.  Since, according to the application form, both the proposed insured and policyholder were the same person (namely, Chong Wong-tang), HSBC Life would assume that he was also the payor of the premium.

20.  The prosecution allege that the defendant would have been aware that that was the case and, despite knowing that Chung Fook-lee was the payor, submitted the application forms with intent to deceive HSBC Life.

21.  The prosecution called five witnesses:

(1) Madam Angelica Arayon Chung (PW1), the wife of the deceased, Chung Fook-lee;

(2) Ringo Wong Hau-cheung (PW2) and Anny Lee Lai-mei (PW3) of the Financial Crime Investigation section of HSBC, who had been involved in the investigation of these applications and interviews with the defendant on 17 February 2011 and 23 February 2011;

(3) Loretta Luk Ka-wai (PW4), the branch manageress of Kowloon City branch since January 2011; and

(4) Cyln Ng Ka-yee of HSBC Life, to whom I have already referred.

22.  At the time of these alleged offences, the defendant was aged 33. 

23.  Apart from a brief period when he had been transferred to the Hang Seng Bank, he had worked for HSBC since 17 May 2004.  He had been employed in various positions within the bank, and during the period of his employment, had taken examinations and obtained the insurance qualification which are set out in Exhibit P1.  Since 2006, he had been a registered licensed insurance agent and since November 2009 a Premier Relationship Manager at the Kowloon City branch.

24.  He was, therefore, someone well qualified in matters of insurance.

25.  As one would expect from someone working in such a position with the bank, he was of previous good character.

26.  That is a matter to which I have had regard, both in regard to his credibility in so far as his interviews with Mr Ringo Wong are concerned, and in considering whether he would commit offences such as the ones alleged against him in this trial.

27.  Chong Wong-tang, the man in whose name the insurance policies were taken out, although about three years younger than the defendant, would appear to be a person close to the defendant.

28.  The address given for Chong in the first two application forms in October and November 2010 was the address of the defendant held in the bank’s personnel records, suggesting that the two men were or may have been living together.

29.  It was the unchallenged evidence of Madam Chung (PW1) that it was the defendant who introduced Chong Wong-tang to her husband, Chung Fook-lee, with a view to him assisting her husband to collect rent for one of his properties in Tam Hung Road.  Although Madam Chung in evidence-in-chief gave evidence that this introduction occurred after Chinese New Year in 2011, (which would have meant that her husband was not introduced to Chong until after all six applications were submitted) when it was suggested to her in cross-examination that the introduction occurred in the summer of 2010, she said she could not be sure.

30.  In any event, it is not suggested that Chong was someone who had had a long acquaintanceship with Chung Fook-lee.

31.  Evidence was given by Ringo Wong of explanations given by the defendant to him relating to these applications in interviews on 17 February 2011 and/or 23 February 2011.

32.  I admitted that evidence after a voir dire as to its admissibility.  I was satisfied that there was nothing in the manner or circumstances in which the interviews were conducted that would affect the weight of what the defendant is alleged to have said.

33.  Ringo Wong’s evidence was that during the first interview, he had sought an explanation from the defendant as to the relationship between Chung Fook-lee and Chong Wong-tang, since Chung Fook-lee had paid the premia for the policies in respect of which Chong Wong-tang was the person insured.

34.  Ringo Wong said that the defendant’s response was that the policies actually belonged to Chung Fook-lee, but could not be taken out in his name because his old age rendered him ineligible.  The defendant had said that the policies would later be changed into the name of Chung Fook-lee.

35.  The defendant went on to say that Chong Wong-tang was dealing with rental matters for Chung Fook-lee.

36.  When asked why Chung Fook-lee had taken out so many policies, the defendant had said that he was on very good terms with Chung Fook-lee.  As Chung Fook-lee was a wealthy man, he did not mind taking out so many policies, “to some extent, to help” the defendant.

37.  Either in that interview or in the second interview, the defendant had said that, initially, Chong Wong-tang had taken out his own policy, but that that had had to be cancelled because Chong could not afford the premia.  On hearing about this, Chung Fook-lee had shown interest in taking out such a policy or policies.

38.  No contemporaneous note was taken of what was said by the defendant in the first interview, although a note was taken by Anny Lee of what was said in the second interview.

39.  Ringo Wong was not able to give evidence of the actual words used by the defendant, but no suggestion was put to him in cross-examination that his account did not represent the explanation given by the defendant.

40.  I accept that this did represent the explanation given by the defendant.

41.  As with any other criminal charge, the prosecution must establish each element of the offences charged beyond reasonable doubt.

42.  In respect of each charge, it has not been in dispute that the defendant was an agent of HSBC Life, that the relevant application forms were documents in respect of which HSBC Life was interested and that the defendant “used” these documents by submitting them to the bank.

43.  It is also not in dispute that the application forms failed to declare that the premium payor was other than the proposed insured or the policyholder.

44.  I am so satisfied.

45.  The issues ultimately for this court are, firstly, whether or not the applications contained a statement that was false or erroneous or defective in a material particular and if so, secondly, whether the defendant intended to deceive HSBC Life by such a false, erroneous or defective statement.

46.  (1) Whether the application contained a statement that was false, erroneous or defective in a material particular.

47.  Insofar as this first issue is concerned, I am satisfied that the application forms did contain a statement that was defective, in that by omitting to declare any relationship between the person paying for the policies and the proposed insured or policyholder, Chong Wong-tang, the inevitable implication was that Chong Wong-tang was also the payor.

48.  It is clear from the explanation given by the defendant - that Chong had been unable to pay the premium on his policy and that, on hearing this, Chung Fook-lee had become interested in such policies - coupled with the magnitude of the premia involved that there was never any contemplation that the payor would be other than Chung Fook-lee.

49.  However, I would also have to be satisfied that this omission to state the name of Chung Fook-lee was an omission of a material particular in the application form.

50.  Mr Harris for the defendant has laid great stress on paragraph 16.2.1 of the Agency Manual of HSBC Life, which relates to “initial premium payment”. 

51.  It specifies the three methods of initial premium payment:

(1) the first is where payment is effected by “pay-in slip, by cash/account transfer at branch”, which is the method of payment adopted in respect of the six applications in question;

(2) the second payment is by “credit card/direct debit from HSBC account by INHK”; and

(3) the third method is by cheque.

52.  Whereas under the sections referring to the first method it is stated that such payment “provides a good control and monitoring of funds source”, in the section referring to the second method, it is stated “if the payor is other than the proposed insured or policyholder, the relationship between the payor and the policyholder must be stated in section ‘Direct Debit Authorisation’ of the application form”, and it goes on to specify “acceptable relations”.

53.  In the section referring to the third method, it states that the payor has to have “an acceptable relationship as mentioned above”.

54.  The section “Direct Debit Authorisation” referred to is in part G of the application form, not part F, the part with which we are primarily concerned in this trial.

55.  Paragraph 16.2.1 of the Agency Manual makes no reference to part F.

56.  Nonetheless, it is clear from the evidence of Miss Cyln Ng (PW5) that the relevance to HSBC Life of the relationship between the payor and the policyholder and insured relates to the possibility of money laundering.

57.  However, Miss Ng was firm in rejecting the contention put to her in cross-examination that the requirement to state the relationship between the payor and the policyholder and insured did not apply if the premium was paid by bank transfer from an HSBC account.  The anti-money laundering guidelines still had to be complied with by HSBC and HSBC Life.

58.  It was clear from her evidence that the stating of particular relationships in section F could generate further enquiries as to the nature of the relationship and if HSBC Life discovered that the payor was not the policyholder and that that had not been declared then the policy would not be issued until the relationship had been clarified.

59.  I have no doubt that Miss Ng’s evidence is correct.

60.  I am satisfied that the need to state the relationship between the payor and the policyholder or insured, if they were not the same person, was a material particular in the form.

61.  (2) Whether or not the defendant intended to deceive HSBC Life.

62.  The defendant, as is his right, elected not to call evidence in his defence.  He had, however, been interviewed by Mr Ringo Wong, as I have mentioned.

63.  In considering the defendant’s state of mind, a matter of crucial significance is the fact that if the situation had been as the defendant described it to Mr Wong in his interviews, then there would be no apparent reason for submitting applications in the form that they were submitted.

64.  On the evidence which I accept, Chung Fook-lee’s advanced age was only an impediment to him taking out these policies as the insured person.  His age was no bar to him becoming the policyholder, the beneficiary or the payor of these policies.

65.  As an experienced and qualified licensed insurance agent, the defendant would have been well aware of this.

66.  There would be no obvious advantage to Chung Fook-lee in taking out a policy with Chong Wong-tang as the insured person, policyholder and beneficiary, and later Chong assigning the policy back to him. The assignment could only make Chung Fook-lee the policyholder and/or the beneficiary; it could not make him the insured person.

67.  The same result would have been achieved by the original applications naming Chong Wong-tang as the insured person and Chung Fook-lee as the policyholder and beneficiary.

68.  The defendant, who would have been aware of the circumstances and who bore responsibility for ensuring that the applications were completed honestly, has offered no explanation as to why that course was adopted.

69.  The prosecution allege that, despite the fact that Mr Chung Fook-lee admitted that his signature appeared on the withdrawal slips when the defendant was taken to Mr Chung’s clinic by Ringo Wong and Anny Lee and Miss Luk on the afternoon of 17 February 2011, the defendant must have been a party to an attempt to defraud Mr Chung of the premia or proceeds of the policies.

70.  The prosecution point to a number of features, including:  the closeness of the relationship between the defendant and Chong Wong-tang; the huge benefits that would accrue to Chong Wong-tang; the fact that no attempt had been made by 17 February 2011 to reassign any of the policies to Chung Fook-lee; as well as Chung Fook-lee’s wife’s evidence that he was a thrifty man, which would make it highly unlikely that he would take out so many policies just to benefit the defendant.

71.  While I consider that the evidence gives rise to strong suspicion that this may be the case, I find I cannot exclude the possibility that applications were submitted by the defendant to HSBC Life in this form because it was feared that if the true situation was declared and, in particular, that Chung Fook-lee was the payor, it might provoke enquiries by HSBC Life, which might lead to disclosure that Chong Wong-tang’s life was not an insurable interest for a policy held by Chung Fook-lee.

72.  I am satisfied the defendant would have been well aware that the applications were designed to conceal the true position from HSBC Life and deceive that company.

73.  However, I have ultimately to decide whether the only reasonable inference is that the defendant was submitting a document which he knew would deceive HSBC Life by failing to declare that the premium payor was other than the proposed insured or policyholder.

74.  I am satisfied that that is the only reasonable inference.

75.  There was nothing in the forms themselves to suggest to the defendant that the section of the form which stated “if the payor is other than the proposed insured or the policyholder, please state relationship between the payor and the policyholder” did not need to be filled in.

76.  There has been no evidence from the defendant himself that he was misled by a passage in the Agency Manual, which refers to a different part of the application forms, into thinking that there was no need to fill in this part of part F in the form.

77.  Indeed, I am satisfied that the defendant would have been aware that truthfully disclosing that the payor was different from the policyholder and insured might lead to enquiries which would prejudice the applications.

78.  In reaching this conclusion, I have borne in mind that there was some possibility that the bank’s internal controls might identify problems with these applications.

79.  I have also borne in mind the fact that the counter withdrawal forms signed by Chung Fook-lee and bearing his name would appear to have been entered into the bank’s computer system by a teller and that copies of the forms were found on the files of HSBC Life, apparently submitted to HSBC Life by the defendant.

80.  I do not accept that the defendant would have believed that there was any substantial possibility that a teller would be concerned to investigate or, indeed, have any interest in a transfer which he or she had been asked to make by a Premier Relationship Manager.

81.  Insofar as the submitting of copies of the withdrawal slips to HSBC Life is concerned, I accept the evidence of Miss Ng (PW5) that an agent in the defendant’s position would have been aware that policies were issued on the basis of confirmation from the bank’s Intranet that payment had been made and would know that there was no need to submit copies of the counter withdrawal slips to HSBC Life.

82.   The policies would have been issued without regard to copies of the withdrawal slips sent to HSBC Life and the copy of the withdrawal forms would simply have been filed on HSBC’s files without being checked.

83.  There are a number of reasons why the defendant might have submitted the copy of counter withdrawal slips to the bank when he knew it was unnecessary to do so.

84.  From the point of view of the defendant, he would have known that if there was any enquiry into these policies, then the bank could ascertain that the funds had come from the account of Chung Fook-lee.

85.  Conversely, if there had been any enquiry as to the destination of funds leaving Chung Fook-lee’s account, then the bank would be able to ascertain that the money had gone in payment of the premia of these policies.

86.  The presence of these withdrawal slips signed by Chung Fook-lee on the files of HSBC Life would enable the defendant to claim, as he did, that Chung Fook-lee had authorised the transactions.

87.  Other possibilities are that the defendant was simply submitting the forms to cover his tracks in case an allegation such as that made in the current trial are made against him or to cover the possibility that Chung Fook-lee denied ever having authorised these policies.

88.  I am satisfied that the presence of these withdrawal forms on the records of HSBC Life do not indicate that the defendant was not concerned to conceal the relationship between the payor and the policyholder and insured.

89.  It is always the duty of a court to consider each count separately.  In this case, I am satisfied that there is no significant distinction between the six charges before the court and that they stand or fall together.

90.  I am satisfied that the prosecution has established the elements of all six charges beyond reasonable doubt and I find the defendant guilty of all six charges.