HKSAR v. CHAN YIU KI

DCCC779/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 779 OF 2010

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Reasons for Sentence

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1.  Defendant, you pleaded guilty to four offences of fraud each contrary to section 16A of the Theft Ordinance, Cap. 210. You admitted the brief facts and I convicted you.

2.  Briefly, the facts are as follows.  You were the sole proprietor of World Wide Toys Design Company which is engaged in trading and manufacturing toys.  Since 1990 the company has held an account at HSBC and you are the only authorised signatory.  In July 2004 HSBC granted WWT a credit facility named Clean Export Loan with a credit limit of $1 million.  CEL is offered to a company that had supplied goods to customers but could only receive payment from its customers after the expiry of a credit period.  Under CEL the borrower of the facility submitted supporting documents including copies of invoices and delivery notes together with a CEL application form to HSBC.  Upon approval, a loan equivalent to the total face value of the invoice is submitted and not exceeding the approved credit limit will be credited to the borrower’s account.  Repayment of a CEL should be made by the expiry of the credit period which the borrower had offered to its customers.  Repayment together with interest will be debited by means of automatic transfer from the loan receiving account held by the borrower and the bank. 

3.  For application forms for CEL dated the 6th and 19 February, 17 March and 17 April respectively were submitted by WWT to HSBC.  Attached to each of these applications forms were copies of invoices purportedly issued by WWT to its customers.  A total of nine customers were involved and the 86 invoices attached to the four application forms.  For loans each with amounts equivalent to the sum of the invoices attached to the respective application forms were subsequently credited to WWT’s account.  Details of the four loan applications are as follows:-

- Charge 1, loan 1, 16 invoices, total amount $218,300 credited to WWT’s account on 14 February 2008;

- Charge 2, loan 2, 25 invoices, total amount $306,750 credited to WWT on 20 February 2008;

- Charge 3, loan 3, 29 invoices, total amount $272,700 credited to WWT on 17 March 2008;

- And charge 4, loan 4, 16 invoices, total $181,000 credited to WWT on 18 April 2008.

        The total number of invoices involved was 86 and the total amount was $978,750. HSBC staff would not have approved any loan had they known any of the invoices attached to the CEL application form was false. WWT has never repaid any of the loans to HSBC.

4.  On 14 May 2008, a staff member of HSBC discovered that WWT’s account had overdue unsettled CEL loans.  You could not be located.  A further member of HSBC’s staff contacted some of the companies who were the purported recipients of the invoices produced by WWT for the CEL application and discovered there were discrepancies between the invoices that HSBC possessed and those possessed by the respective companies.  The matter was reported to the police. 

5.  The nine companies which were the purported recipients of the 86 invoices submitted by WWT to HSBC for the four CEL applications were contacted to ascertain the validity of the 86 invoices.  Only two of those invoices relating to loan 3 were found to be genuine.  The other 84 were either non-existent or had their details modified.  Records show that you departed for China on 2 May 2008.  On 3 June 2010, you were intercepted and arrested at Lo Wu by PC1298.  In subsequent video-recorded interviews you admitted inter alia the following:-

a) You were the proprietor of WWT and had started to make CEL applications to HSBC a few years ago. The approved loans would be credited to WWT’s account;

b) The CEL application forms submitted to HSBC for the four loans were filled in by you in person and submitted by you to HSBC;

c) As WWT was then experiencing cash flow problems, you had altered the details of some invoices or made them up with non-existent transactions and submitted them with the CEL applications. You believed you would be able to repay HSBC after three months from the date of each loan approved, however you were unable to do so and WWT eventually closed down. You stayed in the mainland to avoid the debt;

d) Whilst you could not now recall the parts you had altered, your modus operandi was to alter the date, unit price and description of an invoice or simply make up an invoice with non-existent transactions.

6.  Ms Fok has clarified the situation today to tell me that in relation to charge 3, the two genuine invoices total some $20,000, so the total fraud is one of just under a $1 million.  You are a man of hitherto clear record.  In view of this and other facts I called for a Probation officer’s background report prior to sentence.  That report is now before me and has been considered by me.  Ms Lam informs that apart from one minor matter which has been corrected, you accept that report.  Generally the report is positive. 

7.  On your behalf Ms Lam entered mitigation.  She confirmed to me that the offence resulted from the recent financial turmoil when the company which you had established and run successfully since 1989 had run into difficulties.  Prior to this, the CEL’s had been repaid properly and on time.  I am told, and this is confirmed by the Probation officer’s background report, that you are now separated from your wife and two children with whom you have lost contact due to your stay in the mainland.  I do note the presence of two of your younger sisters in court to offer their support. Ms Lam stressed your clear record and your plea of guilty.  Whilst realistically accepting that the only possible sentence could be one of immediate custodial sentence, leniency was asked for.

8.  I was referred to and have taken into account the contents of three letters, one written by you and two by friends or colleagues.  I turn now to the sentence.

9.  Whilst there are four offences, in reality this is one course of conduct over about three months.  Measured in financial terms the fraud is just under $1 million.  There appears to be no prospect, nor have you made any offer to repay that.  You have expressed your remorse and I note that you of hitherto clear record.  I accept that the offences did result from the financial world turmoil and that had it not been for that you would have continued to run your company properly and profitably.  However, I do note that the frauds were well-planned and well executed.  I note also that you fled to the mainland to escape the consequences of your acts but this however is remedied to a large extent by your voluntary return and surrender to police in June of this year.  I also note that having surrendered to the police you were entirely co-operative and admitted what you had done.  I also note the positive comments in the Probation officer’s report and the letters of support.  Whilst I do have some sympathy for you, these are serious offences, they were a deliberate fraud on the bank in an effort to save your business.  It seemed to me there was no realistic prospect of ever repaying this amount. 

10.  I am treating this, as I said, as a course of conduct over a period.  Taking all factors into account, I take as a starting point 3 years’ imprisonment.  Your plea of guilty entitles you to one-third discount, therefore that will reduce to 2 years’ imprisonment.  You will go to prison for 2 years concurrent on each of the four offences, that is a total of 2 years’ imprisonment.