HKSAR v. WU WING KIT AND ANOTHER

DCCC 1022/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1022 OF 2012

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REASONS FOR VERDICT

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ABBREVIATION

CHARGES

1.  D1 pleads not guilty to Charge 1.  D2 pleads not guilty to Charges 2-18.  All the 18 counts are money laundering charges.  Prosecution proceed all the charges on the ‘having reasonable grounds to believe’ limb.

2.  Charge 1 is about D1’s receiving HK$69.85M with his solicitors’ firm (FKC) client account on 11 March 2010 and then paying out the same amount to D2’s HSBC account on the next day.

3.  Charges 2-18 are about the following deposits in D2’s HSBC account: -

Charge	Date	Amount (HK$)	Form	Source
2	2010.3.12	68,950,000.00	cheque	FKC
3	2010.6.22	250,000.00	transfer	Chung Tung Co
4	2010.6.22	500,000.00	cash	Chan Sik Ying
5	2010.6.22	450,000.00	cash	Yip Kin Fai
6	2010.9.2	50,000,000.00	cheque	SHK
7	2010.12.7	1,000,000.00	cheque	Goldmate
8	2011.1.18	24,221,420.00	cheque	NRL
9	2011.1.18	8,769,982.09	cheque	Jack Chen
10	2011.2.14	5,859,594.50	remittance	JLD
11	2011.2.14	5,849,992.50	remittance	JLD
12	2011.3.25	2,364,552.50	remittance	Lo Mei Ko
13	2011.3.25	1,653,120.50	transfer	WLE
14	2011.3.25	1,599,992.50	remittance	WHM
15	2011.3.25	3,103,334.50	remittance	AAC
16	2011.4.4	22,000,000.00	Cheque	Goldmate
17	2011.7.8	9,999,792.50	Remittance	Ye Mei
18	2011.10.19	1,000,000.00	Transfer	Walter Shum Wan Wah

FKC - Fred Kan & Co

Jack Chen - D2’s husband

SHK - Sun Hung Kei Investment Services

Goldmate - Goldmate Securities (USA) Limited

NRL - Natural resources Limited

Chan Sik Ying - remittance agent

Yip Kin Fai - remittance agent

Lo Mei Ko - remittance agent

JLD - Jim Lei Dat (remittance agent)

WLE - Wui Lee Exchange Company (remittance agent)

WHM - Wai Hing Money Exchange Company (remittance agent)

AAC - Asia Aquatic Company (remittance agent)

Ye Mei - D2’s sister

Walter Shum Wan Wah - a director of NRL

INTRODUCTION

4.  D1 was a solicitor of FKC.

5.  Jack Chen was a businessman.  D2 was his wife.

6.  Jack Chen had been D1’s client since 2005/2006.

7.  May Wang was a New Zealand businesswoman. She was acquainted with Jack Chen. She had been D1’s client since 2008.

8.  In May 2009, Jack Chen caused a Hong Kong listed company ‘462’ to agree with UBTL (May Wang’s company). 462 would purchase UBAH (UBTL’s subsidiary).  This was a very substantial acquisition (VSA-1).

9.  The total purchase price was NZ$500M. A condition of the deal was that UBAH had to acquire certain targeted farms in New Zealand. 

10.  Under VSA-1, 462 were to buy first 20% of UBAH shares from UBTL for NZ$100M (the Sales Shares Completion) with an option to purchase the other 80% shareholding for NZ$400M (the Option Shares Completion).

11.  In VSA-1, D1 was May Wang’s solicitor in Hong Kong.

12.  426 did not have the money to execute the deal.  They issued convertible notes to pay the vendor and to raise working capital for the company.

13.  Convertible Notes of Types A, B, C and D (CN-A to CN-D) were issued. An optional bond was also issued. 462 had to obtain approval from SEHK for the issuance.

14.  SHK was responsible for the placement of CN-C. Between December 2009 and September 2010, CN-C raised HK$842M. 

15.  Between 21 December 2009 and 2 February 2010, HK$692.27M (equivalent to NZ$125.6M) of the CN-C money was remitted to the account of Knight Coldicutt, the solicitors’ firm representing 462 in New Zealand.  Such money was to be held in escrow and to be released on 462’s instruction.

16.  On 10 February 2010, UBTL transferred 20% of UBAH shares to 462.

17.  Between 11 February 2010 and 15 February 2010, Knight Coldicutt remitted NZ$25,262,070.17 to UBTL.

18.  On 17 February 2010, UBTL’s bank account was debited NZ$13,682,776.50.  This money arrived at Goldmate’s current account on 20 March 2010 as HK$73,736,242.56. [Goldmate was formerly known as Shenlong International Investment Limited, incorporated in Hong Kong in 1997.  Jack Chen was the controlling shareholder and director.]

19.  On 2 March 2010, Goldmate transferred HK$73.7M to its saving account.

20.  On 11 March 2010, Goldmate transferred HK$69M from its saving account to current account.

Charge 1 (against D1 only)

21.  Jack Chen issued a Goldmate cheque in the amount of HK$68.95M payable to FKC.  That sum was transferred to FKC’s client account on 11 March 2010.

22.  A day or two earlier, D1 had informed his secretary Flora Tam that Jack Chen would send forth US$10M and the money was to be paid back the next day to the client.  D1 told his secretary to mark it as ‘costs and disbursements’ and to designate it to his miscellaneous file.

23.  The next day (12 March 2010), FKC transferred HK$68.95M from its client account to D2’s HSBC account. [D2 was Jack Chen’s wife.] 

Charges 2-18 (against D2 only)

24.  Prosecutor Ms Draycott SC divides these 17 deposits in D2’s account into two types.

25.  TYPE ONE consists of eight deposits (Charges 2, 6, 7, 8, 9, 16, 17 and 18).  Prosecution say these eight deposits were connected with Jack Chen one way or the other:-

(a) from Jack Chen [Charge 9];

(b) from Goldmate [Charges 7 and 16 respectively];

(c) from Goldmate via FKC [Charge 2];

(d) from Lisa Du (wife of Zhang King - major shareholder of 462) [Charge 6];

(e) from NRL (462’s subsidiary) [Charge 8];

(f) from ShumWan Wah Walter - a director of NRL [Charge 18];

(g) from Ye Mei (D2’s sister) [Charge 17].

26.  TYPE TWO consists of nine deposits (Charges 3-5 and 10-15).  They were all remittances from China. 

27.  Charges 3-5 occurred on 22 June 2010; Charges 10-11 on 14 February 2011; and Charges 12-15 on 25 March 2011.

28.  Prosecution allege Jack Chen, May Wang and others conspired to defraud 462 in VSA-1.  The particulars of the purported fraud have never been clearly spelt out.  There is allegation that the CN-C money was misused.

29.  Prosecution say D1 and D2 were not complicit in VSA-1. However, the two defendants are said to have reasons to believe the HK$68.95M in Charges 1-2 had come from the CN-C money, which should only be used for acquiring the targeted farms in VSA-1.  [Prosecution concede they cannot prove the HK$68.95M actually came from the escrowed CN-C money released by Knight Coldicutt to UBTL in New Zealand.]

30.  Prosecution say the money in the eight TYPE ONE deposits was somehow related to the alleged fraud committed by Jack Chen in VSA-1. There is no similar allegation regarding the nine TYPE TWO deposits, which Prosecution say they were inexplicable remittances from China and D2 had reasons to believe these remittances represented indictable crime proceeds.

31.  Despite alleging VSA-1 as fraud, Prosecution do not seek to prove it really was.  Nor do they seek to prove Jack Chen and May Wang were guilty of any crime.  In this trial, no predicate offence is proved for any of the 18 charges.

32.  Ms Draycott SC states she only seeks to prove the circumstance of VSA-1 to show how both defendants were familiar with Jack Chen’s questionable integrity and what they were aware of the dubious aspects of VSA-1.  She makes it clear that such evidence of VSA-1 is not evidence of uncharged acts, bad character or propensity to commit crime against either defendant.

33.  Ms Draycott SC says she can prove D1 in Charge 1 and D2 in Charges 2, 6, 7, 8, 9, 16, 17 and 18 (the eight TYPE ONE charges) had reasonable grounds to believe the money represented in whole or in part directly or indirectly the proceeds of the alleged VSA-1 fraud, in which the escrowed CN-C fund was misused.  She also says if such VSA-1 correlation cannot be proved, the circumstance pertaining to the defendants’ handling of the money in these charges can still prove D1 and D2 had reasonable grounds to believe the money in the respective charges represented the proceeds of an unproved indictable crime.

34.  In relation to the nine TYPE TWO deposits, Ms Draycott SC makes it clear that she does not rely on any correlation to Jack Chen or VSA-1.

35.  Thus, in relation to D1 in Charge 1, Prosecution point at D1’s knowledge of Jack Chen; D1’s involvement in VSA-1 and his failure to comply with the Law Society’s Practice Direction P (Guidelines on Anti-Money Laundering and Terrorist Financing, which required lawyers to be vigilant on money laundering suspicion when handling clients’ money).

36.  In relation to D2’s TYPE ONE deposits (Charges 2, 6, 7, 8, 9, 16, 17, an d 18), Prosecution point at D2’s knowledge of her husband Jack Chen and her awareness of VSA-1 (through another very substantial acquisition called VSA-2), the financial strength of the couple and D2’s HSBC account activities.

37.  In relation to the TYPE TWO deposits (Charges 3-5 and 10-15), Prosecution only point at the couple’s financial strength and D2’S HSBC account activities.

38.  There is no evidence of admission or explanation made to the investigating authority by either defendant.

39.  In the trial, there is little dispute on facts between Prosecution and Defence but much divergence over interpretation of evidence and law. Both defendants argue that the reasonable grounds they had would not have led them to believe the money they handled represented indictable crime proceeds.

40.  Mr. Owen QC for D2 submits there is no case for D2 to answer on Charges 2-18.  I reject that application. [See Ruling on 6 April 2017 – Annex 1.] I rule D2 has a case to answer on each of Charges 2-18.

41.  D1 has no submission to make at the mid-stage. I rule he has a case to answer on Charge 1.

42.  Both defendants elect to remain silent. They call no witnesses.

43.  There are certain defence exhibits from D1 and D2. [See paras 224-225.]

PROSECUTION CASE

44.  Prosecution call the following witnesses:-

PW1 Flora Tam	D1’s secretary in FKC
PW2 Katherine Chan	Chairwoman of 462 between April 2009 and January 2010
PW3 Rachael Fong	Account Clerk in FKC
PW4 Joseph Tong	CEO of SHK
PW6 Andrew Ning	Co-head of Legal and Compliance Division of CCBI
PW8 William Wong	Assistant Vice President of SEHK

45.  There are prosecution exhibits P1-P349.  (Some numbers are not in use.  In this judgment, where it is necessary to refer to a particular exhibit or part of which, only the relevant pagination number will be mentioned as E xxxx.)

46.  P334, P335, P336, P337, P348, P342 and P349 are Agreed Facts (1) – (7) respectively.

47.  Prosecution have made copies of certain exhibits to constitute three core bundles (CB1-CB3).

462

48.  Linfair Holdings Limited had been listed in the Stock Exchange of Hong Kong since June 2005.  The listing number was ‘462’.

49.  The company changed its name to China Jin Hui Mining Corporation Limited in March 2008.  It was further renamed as Natural Dairy (NZ) Holdings Limited in October 2009.

50.  In the trial, this listed company is simply called ‘462’.

Jack Chen

51.  Jack Chen and D2 were married in 1992 in the People’s Republic of China.  They migrated to New Zealand in 2002. They also resided in Hong Kong.

52.  Since 2005 or 2006 Jack Chen had become D1’s client. [D1 was a partner in a Hong Kong solicitors’ firm called Fred Kan & Co.]

53.  Jack Chen was the controlling shareholder and director of Goldmate. [Goldmate was previously known as Hong Kong Shenlong International Investment Group Limited (formerly known as Shenlong International Investment Limited).  It was incorporated in Hong Kong in 1997.  It changed its name to Goldmate on 6 May 2009.]

54.  In PRC, Jack Chen controlled a Shanghai-listed company – Fujian Shenlong Development Company Limited (Shenlong Development).  Its major shareholder was Fujian Shenlong Enterprise Group Company Limited (Shenlong Group), which also controlled a number of companies including Redolent Biology, Lude Trading and Fuqing Xinlong Food Development Company Limited (Xinlong Food). [CSRC call these companies related parties.[1]]

55.  Shenlong Development was adjudged by CSRC to have involved in fraudulent account/tax statements and failed to disclose information in time.  On 16 September 2004, Jack Chen and others were given administrative sanction by the Enforcement Bureau of CSRC in Case [2004] No 12 and also by the Administrative Sanction Committee in Case [2004] No 34.  The Enforcement Bureau prohibited Jack Chen from holding positions of senior management in any listed company or institution engaging in securities business for three years.  The Committee also fined Jack Chen RMB100,000.[2]

56.  On 7 May 2009, Jack Chen was named CEO, executive director and joint chairman of 426.  However, there were complaints about his integrity. SEHK intervened. Jack Chen later resigned from 462 on 15 September 2009.  Nevertheless, he still had influence and was much involved in VSA-1. [Between 28 August 2009 and 15 September 2010, he remained as a director of NRL (a subsidiary of 462).][3]

57.  Jack Chen was first arrested by ICAC on 16 December 2010 for alleged fraudulent involvement in VSA-1. He was arrested at home and D2 was there.[4] [May Wang and Katherine Chan were also arrested.]

58.  In late October 2011, ICAC applied for Restraint Order against Jack Chen, D2 and May Wang.[5]

May Wang

59.  May Wang controlled the UBNZ group in New Zealand. The group included UBNZ Trustee Limited (UBTL, also known as UTCL), UBNZ Funds Management Limited (UBFM) and UBNZ Assets Holdings Limited (UBAH).  [UBTL held 100% shareholding of UBAH.]

60.  May Wang had been a client of FKC since 2008.  D1 was her solicitor in Hong Kong in VSA-1.

VSA-1

61.  Katherine Chan first met Jack Chen in business around 2004.  She later visited his winery in China.

62.  Katherine Chan became chairwoman of 462 in April 2009.

63.  In April or May 2009, Jack Chen called Katherine Chan and introduced a lot of people to her, including D1.  Jack Chen told her D1 was one of his best lawyer-friends. 

64.  Jack Chen introduced a New Zealand dairy project to Katherine Chan.  The vendor was a wealthy woman called May Wang.

65.  Katherine Chan found it difficult to contact May Wang. Jack Chen said it would be easier for him to talk to May Wang on behalf of 462.  He requested Katherine Chan to make him co-chairman and executive director of 462.  His wish was granted.  462 appointed Jack Chen to the board.[6]  However, the announcement made no mention of his CSRC record.

66.  Katherine Chan says she then frequently saw Jack Chen, who liaised on behalf of 462 with the Vendor in VSA-1. She also met D1 several times a month, who was often with Jack Chen.

67.  On 22 May 2009, 462 and UBTL signed the VSA-1 agreement.[7]

68.  Under VSA 1, 462: -

(i) would purchase from UBTL 20% of the shareholding of UBAH for NZ$100M (the Sales Shares Consideration);

(ii) had an option to purchase from UBTL the remaining 80% of UBAH shares for a further NZ$400M (the Option Shares Consideration).

69.  The agreement stipulated that the Sales Shares Consideration would be satisfied firstly by net proceeds from bank borrowing or raised funds. Any amount not satisfied was to be satisfied by 462’s issuing Convertible Notes B (CN-B) to UBTL. [Clause 3.1][8]

70.  The Option Shares Completion was conditional upon, among other things, the Sale Shares Completion having occurred and the New Zealand’s Overseas Investment Process Office (OIO) granting approval to VSA-1. [Clause 4.4][9]

71.  The  Option Shares Consideration  would  be satisfied in this order : -

(a) 462’s issuing Convertible Notes A (CN-A) worth NZ$50M in favour of UBTL;

(b) bank borrowing and fund raising;

(c) 462’s setting off such Financial Assistance provided to UBAH pursuant to Clause 7.5[10];

(d) 462’s issuing further CN-A up to NZ$215M less the amount in (a)-(c) above;

(e) 462’s issuing further CN-B up to NZ$285M less the amount of CN-B already issued as the Sales Shares Consideration and less the amounts in (a)-(d) above.

72.  Clause 4 of the agreement provides for ‘Conditions Precedent’.[11]

73.  Clause 4.1 states 462 shall “…conduct review of the assets, liabilities operations, and affairs of the Group as it may reasonably consider appropriate including but not limited to being satisfied with all Properties (it being acknowledged that a complete list is still to be provided), being satisfied regarding any approvals required from the Overseas Investment Process Office…”[12]

74.  Clause 4.2(vi) stipulates that Sales Shares Completion is conditional upon “all necessary consents, approvals and authorizations having been obtained from any other third parties and all relevant authorities in New Zealand …”[13]

75.  Clause 4.2(vii) says “all the property, assets, and rights for used in the conduct of the Business including, but without limitation (a) the Goodwill; (b) the Properties; (c) the Fixed Assets; (d) the Stocks; and (e) the benefit of the Contracts shall have been owned by the group on or before the Sale Shares Completion.”[14]

76.  “Business” is defined in Clause 1 as “the business of cattle and dairy cattle breeding in New Zealand and production, sale and distribution of livestock and milk fat solids, to be carried on by the Group on or before Sales Share Completion including the ownership of the Properties set out in Schedule 2A [targeted farms] and the ownership of the Fonterra Shares”.[15] [Fonterra is a listed company in New Zealand.]

77.  Under Clause 7.5, subject to compliance of applicable law, rules and regulations, 462 “shall, prior to the Option Completion Date, use its reasonable endeavour to provide financial assistance in any form that the Listco considers appropriate (“Financial Assistance”) that may be required by the Company”.[16]

78.  In VSA-1, 462 had K&L Gates (KLG) as their legal representative in Hong Kong.  The handling solicitor was Mr Navin Aggarwal.  [When Katherine Chan later had to deal with the complaints concerning Jack Chen, May Wangand VSA-1 and to answer SEHK, she would seek advice from Keith Lam Lau & Chan  (KLLC) and Y S Lau & Partners (YSL).]

79.  In New Zealand, the solicitors’ firm Knight Coldicutt acted for 462.  The handling solicitor was Mr Kerry Knight.

80.  In Hong Kong, FKC was the process agent of UBTL in VSA-1.  D1 was the handling solicitor.

Escrow

81.  It was originally a condition precedent that UBAH shall own the targeted farms on or before the Sale Shares Completion [Clause 4(vii) of VSA-1]. Katherine Chan says Knight Coldicutt suggested that such condition precedent should be changed to condition subsequent in order to get the deal going for OIO’s approval.

82.  In a heated meeting, Mr Aggarwal (462’s lawyer in Hong Kong) objected to the change. D1 acting for UBTL rendered no opinion. 462 at last approved changing the said condition precedent to condition subsequent on condition that the CN-A and CN-B issued in favour of UBTL were to be held in escrow by FKC and any money sent to New Zealand would be held in escrow by Knight Coldicutt. The VSA-1 parties signed a Deed of Undertaking to that effect on 13 November 2009.[17] 462 announced the change on 3 December 2009.[18] 

83.  According to Clause 3.1 of the Deed, FKC and Knight Coldicutt “shall only release the escrowed property pursuant to Clause 1.1 and 2.3 to UTCL (UBTL) after receipt of written acknowledgement from the Company ” and “the release is for the purpose of fulfillment of the condition set out in Clause 4.2(vii) of the Principal Agreement (as varied aforesaid)”.[19] [That is to say, the release of escrowed money should be for the purpose of acquiring the targeted farms.]

84.  Completion of VSA-1 was conditional upon fulfillment of a number of conditions including complying with all necessary consents, approvals and authorizations, including but not limited to OIO.  In the event the necessary consents could not be obtained, 462 shall have the right to terminate the VSA-1 agreement, according to 462’s announcement on 4 June 2009.[20] 

Convertible notes

85.  462 did not have much money.  It issued convertible notes to pay for the acquisition of the UBAH shares in VSA-1.

CN-A

86.  CN-A were issued in favour of UBTL as the Option Shares Consideration.  They were assignable and transferrable.  The conversion price was HK$2.5; the maturity period was 7 years from the date of issue without interest.

87.  462 had issued CN-A to UBTL in an aggregate amount of HK$276,078,000, which could be converted to 110,431,200 shares.

88.  On 1 September 2010, 100,431,000 CN-A shares were converted by UBTL. UBTL sold the remaining 10M CN-A to Zhan King.  Zhan King converted them into 10M shares on 13 August 2010.

89.  SEHK later raised concerns because the targeted farms had not been injected into UBAH. 462 then froze those CN-A shares that had been released to UBTL.  The sale proceeds of the 10M CN-A sold to Zhan King was held in escrow by SHK.[21]

CN-B

90.  CN-B were issued in favour of UBTL as the Shares Option Consideration.  They were assignable and transferrable.  The conversion price was HK$2; the maturity period was 10 years.

91.  462 had issued and released to UBTL CN-B in an aggregate amount of HK$552,155,999 (equivalent to 276,077,999 shares).

92.  UBTL converted part of its CN-B to 90,077,999 shares and sold the rest to investors for HK$372M.[22]

93.  Due to SEHK’s concern, 462 later froze all CN-B shares.

94.  Because 462 had provided to May Wang’s side “Financial Assistance” of HK$314.17M from the CN-C proceeds, UBFM/UBTL assigned HK$314.17M of their CN-B proceeds held in escrow by the farm receiver’s lawyer to 462.  In the event the Farm Agreement in New Zealand failed, that escrowed HK$314.17M would be paid to 462 as repayment of 462’s “Financial Assistance” earlier rendered to UBTL.[23]

CN-C

95.  On 4 December 2009, 462 entered a placing agreement with SHK over the issuance of CN-C up to HK$951M. CN-C were transferrable. Their conversion price was HK$1.  The maturity period was 2 years with interest at 3% per annum payable semi-annually.  If all CN-C were taken up and converted, it would represent 1.95 times of the existing capital.

96.  By issuing CN-C in four tranches, SHK raised a total of HK$842M for 462 between December 2009 and July 2010.

97.  462’s announcement (2 February 2011) said of the use of the CN-C (or CB-C) fund: -[24]

“The Company had raised a gross amount of HK$842 million through the placing of the CB-C during the period from December 2009 to July 2010. As at the date of this announcement, the breakdown of the use of the gross proceeds before the receipt of the OIO Decline is as follow:

(i) approximately HK$692.3 million (equivalent to approximately NZ$125.6 million) were remitted by SHKI to the escrow trust account managed by the NZ Lawyers which were applied as follows:

(a) approximately HK$29.2 million was remitted to NZND Media Limited, an indirect wholly-owned subsidiary of the Company incorporated in New Zealand on 29 January, 2010, as working capital, of which NZ$0.6 million was used to purchase an office premises in New Zealand;

(b) approximately HK$314.17 million was remitted to UTCL on 14 February, 2010 as provision of the $314.17M Financial Assistance pursuant to the Agreement;

(c) approximately HK$346 million was remitted to the Receivers' Lawyers as escrow funds for the purchase of the 16 Crafar farms;

(d) approximately HK$1.3 million plus proceeds raised by the CB-D in the amount of HK$40 million as legal fees and OIO consultant's fees were paid to NZ Lawyers and others;

(e) a balance of approximately HK$1.6 million continues to be held in escrow by the NZ Lawyers for the Company for deduction of related fees and costs;

(ii) approximately HK$89 million was remitted by SHKI to the subsidiaries of the Company namely Nation Resources, Nation Yield and Jiangxi Natural Dairy, as working capital;

(iii) approximately HK$8.73 million was paid to SHKI as placing fees in respect of the fund raising exercises for the CB-C, the CB-D and the Optional Bond;

(iv) HK$412 was paid as bank remittance fees for remittance of funds to New Zealand;

(v) an aggregate amount of approximately HK$52 million were applied as the part payment of the deposit of NZ$21 million for UHT Milk pursuant to the Manufacturing Agreement.

After the OIO Decline, the Company instructed the NZ Lawyers to release funds in the aggregate amount of approximately NZ$65.3 million (equivalent to approximately HK$365.4 million) on 13 January, 2011 to various parties as follows:

(i) NZ$15 million (equivalent to approximately HK$85.5 million) was released and remitted to Jiangxi Natural Dairy as payment of its registered capital. However, the Company was informed by SAFE that the capital injection was not provided by Nation Yield, the parent company of Jiangxi Natural Dairy, and thus such funds in the amount of HK$85.5 million was remitted back to the NZ Lawyers. The said amount will be remitted to Jiangxi Natural Dairy again as Nation Yield's contribution to Jiangxi Natural Dairy's registered capital;

(ii) NZ$2.3 million (equivalent to approximately HK$13.1 million) was released and remitted to NZ Natural Dairy Limited (the Company's subsidiary in New Zealand) as working capital;

(iii) NZ$23 million (equivalent to approximately HK$131 million) was released and remitted to UBFM, of which (i) NZ$2.77 million was as payment for the remaining deposit payable by Jiangxi Natural Dairy under the Manufacturing Agreement; and (ii) NZ$20.23 million as the part payment for the purchase by Jiangxi Natural Dairy of 40 million packs of UHT Milk, being the 3 months’ UHT Milk orders (in the total amount of NZ$28 million); and

(iv) NZ$25 million (equivalent to approximately HK$135.7 million) to Nation Resources, with approximately HK$99.7 million for the working capital of the Company’s Hong Kong office and approximately HK$36 million for the part payment to UBFM for the purchase of 40 million packs of UHT Milk from UBFM, being the 3 months’ UHT Milk orders.

The Company would also like to clarify that as at the date of this announcement, payment in an aggregate amount of HK$109 million for part of the CB-C sold and issued (but not released) to independent third parties and convertible into 109,000,000 Shares at the price of HK$1.00 per Share (the “Unpaid CB-C”), remains outstanding and unpaid. The Unpaid CB-C that have not been released are currently held by SHKI. Accordingly, the Company intends to cancel the said Unpaid CB-C as soon as practicable if the said parties fail to pay-up on or before 28 February, 2011.

The Company will make further announcement(s) on the risks relating to the recoverability of the $314.17M Financial Assistance that the Company provided to UTCL in due course.”

CN-D

98.  Also on 4 December 2009, 462 agreed with CCBIAM over issuance of CN-D to the amount of HK$64.4M.  The conversion price was HK$0.7. The maturity date was 31 March 2010.  CN-D had no interest and could not be transferred without 462’s consent.

99.  If all the 92 million CN-D shares were taken up and converted, it would represent 18.91% of the existing capital.

100.  462 raised HK$64.4M through CN-D.  HK$40M of which was remitted to New Zealand on 4 May 2010 for lawyers to hold in escrow.  The money was subsequently released for the purpose of paying legal fees and OIO consultant’s fees incurred by 462 there.  Approximately HK$24M was remitted to NRL on 23 April 2010 as working capital.[25]

Optional Bond

101.  462 also allowed CCBIAM to subscribe an Optional Bond to the value of HK$49M.

102.  The HK$49M raised was paid to UBFM on 16 June 2010 as partial payment for the deposit of a dairy business.[26]

103.  In summary, CN-A and CN-B were issued to the vendor as payment for consideration in VAS-1; CN-C, CN-D and the Optional Bond were to raise funds for 462.

104.  462 had 428,834,000 shares.  If all available CN-A and CN-B were issued and converted into 1,096,228,750 shares, it would be about 2.55 times of the existing shareholding. It can be easily seen that the new shareholders under CN conversion would gain control of 462 due to the large stake they held.

Development of VSA-1

105.  On 10 February 2010, UBTL transferred 20% of UBAH shares to 462.

106.  On 5 July 2010, 462 applied to OIO for approval of the transfer of the remaining 80% of UBAH shares.[27]

107.  OIO declined the application in December 2010.[28]

108.  Katherine Chan considers VSA-1 as a failure but she cannot tell the court much about what happened further in VSA-1 and inside 462 after she had left the board in January 2010.

109.  462’s Annual Report 2011 has this to say of VSA-1: -[29]

“After New Zealand OIO declined the Group's application to acquire the UBNZ AHL which was in relation to the farms purchase by UBNZ AHL last December. The Group then discussed with the vendor and extended the Long Stop Date to 30 September 2011. Recently, the Company and the Vendor agree to continue with the acquisition of the remaining 80% of share capital of the UBNZ AHL before the Long Stop Date. The acquisition will be completed on the basis that the Target company will continue to deliver the assets at the promised value prior to the completion. The Company will announce further development in the regard.”

110.  There is no clear evidence of how VSA-1 was further developed or wound up.

VSA-2

111.  Sometime after the VSA-1 agreement was struck in May 2009, Jack Chen proposed to sell 462 some production lines to facilitate the dairy production that was to come under VSA-1.  Katherine Chan was not keen then because VSA-1 was yet to materialize.

112.  Later, Jack Chen made the proposal again.  462 finally agreed to buy three production lines and to lease certain trademarks from Global Food.  This was another very substantial acquisition.  In the trial, it is called VSA-2.

113.  Global Food was incorporated in Hong Kong in 1997.  It acquired the present name in November 2005.  Jack Chen was shareholder and director at times.[30] May Wang was also a director between 14 April 2009 and 23 June 2009.[31]

114.  Since April 2009, a BVI Company Dragon Joy had become Global Food’s major shareholder through its holding in three New Zealand companies: RCQ Holdings Ltd, MLC Trustee Ltd and Universal Horizon Trustee Ltd.  D2 owned those three New Zealand companies through her representative Graham Chin and thus beneficially held 83.92% of Global Food shares.[32]

115.  On 16 November 2009, Katherine Chan of 462 and Zhang Ling (director of Global Food) signed VSA-2.[33]

116.  KLG was 462’s lawyer; FKC acted for Global Food.

117.  Under VSA-2, 462 was to issue up to 37,500,000 shares to Global Food as partial consideration for the trademarks licence, and up to 32,500,000 shares for the production lines.  The issue price was HK$0.8 per share.

118.  There were conditions precedent (Clause 13)[34], which allowed 462 to conduct review on the production lines including access to the relevant financial books, documents and so on. [Katherine Chan says 462 could opt out if they did not find the deal satisfactory.]

Valuation

119.  Before signing VSA-2, 462 had commissioned JJL to produce a valuation report on the plant and machinery they would purchase from Global Good under VSA-2.[35] They were three production lines, equipment under construction-in-progress (CIP) and other designated machinery. The property actually belonged to Fuqing Xinlong Food Development Co, Ltd (Xinlong Food) in PRC. [Xinlong Food was a subsidiary of Shenlong Development, which was part of Jack Chen’s Shenlong’s Group in PRC.[36] ]

120.  462 also commissioned JJL to produce a valuation report on the trademarks to be leased under VSA-2.[37] The valuers said the trademarks belonged to Global Food, which held a subsidiary called Fuqing Food (apparently this was Xinlong Food but wrongly spelt in the report as Xinglong).

121.  The trade marks to be leased under VSA-2 had names including Lude and Redolent. There were subsidiaries in Jack Chen’s Shenlong Group in PRC bearing the same names.[38] It is quite obvious that the production lines to be sold and the trademarks to be leased under VSA-2 were Jack Chen’s assets in his Shenlong Group in PRC, only to be sold under Global Food of which his wife beneficially held majority interest.

122.  JJL valuers went to Fuqing for the above inspections between 29 June 2009 and 1 July 2009 to evaluate the production lines and trademarks. 

123.  As at 31 May 2009, the plant and machinery were valued at RMB24,074,000 (or HK$27,329,000) subject to the extraordinary assumptions in the report[39]; the trademarks were worth RMB70,680,000[40].

124.  A director of 462, Ms Chan Mei Mei, had also gone to China for site visit.  She came back to tell Katherine Chan what she saw, albeit briefly.

Development of VSA-2

125.  Katherine Chan says VSA-2 depended on VSA-1. However, she cannot tell much about the progress of VSA-2 because she left 462’s board as early as January 2010.

126.  462’s Annual Report 2011 has this to say of VSA-2: -[41]

‘As announced on 10 December 2009, the Group intended to acquire the production lines and the license of “eSweet”, “綠得” and other trademarks of Global Food Holdings Limited (“Global Food”). Global Food, a beverage and sweet rice congee manufacturer, owns “eSweet”, “綠得” and other trademarks with 20 years of history and its sweet rice congee products enjoys nationwide popularity. The acquisition will enable the Group to introduce a sales platform for its dairy and non-dairy beverage products and strengthen the vertical business consolidation, in particular the commencement of nationwide branding.

As announced on 31 May 2010, the Group has applied to the Stock Exchange for a waiver from strict compliance with the requirements under Rules 14.48, 14.38A and 14A.69 of the Listing Rules in order to further extend the dispatch date of the relevant circular. In view of the fact that the Group needs more time to finalize the relevant circular, the Group announced on 30 June 2011 that the dispatch of the circular is further delayed to on or before 31 December 2011.’

Complaints and SEHK’s enquiries

127.  462 appointed Jack Chen as director on 7 May 2009.  Later, SEHK received a complaint on Jack Chen’s integrity. It related his CSRC record in 2004.  In early July 2009, SEHK queried 462 on their appointment of Jack Chen to the board.[42]

128.  Katherine learnt about the complaint and was aware of Jack Chen’s record only then. She spoke to Jack Chen, who told her he had been wronged due to the accountant’s fault. Katherine Chan did not doubt Jack Chen’s words.

129.  462 then engaged KLLC to reply to SEHK.[43]  Jack Chen made a statement to the lawyer to explain his Shenlong business in PRC.  He said there had been libels against him for some years. KLLC reported Jack Chen’s statement to 462 .[44]

130.  KLLC replied to SEHK by a letter dated 14 July 2009.[45]  It was admitted Jack Chen had been sanctioned by CSRC.  462 told SEHK they would issue an announcement as soon as possible.

131.  462 announced on 15 July 2009.[46]  It admitted Jack Chen had that 2004 CSRC record. It said Jack Chen in the past had held shareholding in Shenlong Development through Shenlong Holdings but the latter had already disposed of its shareholding in Shenlong Development in 2008.  462 opined that Jack Chen had a good record apart from that single CSRC sanction.  The board believed he had the character, experience and integrity to act as a director of the company. [47]

132.  In preparing such announcement, 462’s company secretary Kim Chan had emailed KLLC’s draft to Katherine Chan, Jack Chen and May Wang.  May Wang forwarded that to his solicitor D1 for comment.  D1 advised May Wang that the draft had no problem.[48]

133.  Later, SEHK issued a letter to 462 on 3 August 2009.  It referred to Jack Chen’s being found by CSRC for understatement of short-term loans and interest expenses plus overstatement of profit before tax through fictitious transactions with connected persons.  Despite 462’s satisfaction, SEHK did not consider Jack Chen to be a suitable person to act as director of a listed company in Hong Kong. It asked 462 to rectify the situation within 3 months.[49]

134.  On 10 August 2009, SEHK sent another letter to 462.  This time, there were complaints regarding VSA-1.[50] The allegations were that VSA-1 was a fraud, May Wang was a crook and Jack Chen was partnering with May Wang. 

135.  SEHK asked 462 to verify the allegations and to find out if there was any existing or prior relationship between Jack Chen and May Wang, and whether there was any prior arrangement or understanding between the two to render VSA-1 a connected transaction.  SEHK required all 462’s directors to attend to the matter and confirm the reply to be given as true and complete.

136.  Katherine Chan says Jack Chen and May Wang denied they were partners in VSA-1. She believed their words. On 20 August 2009, Katherine Chan replied to SEHK.  She explained how VSA-1 came about and maintained that 462 had no valid reason to doubt VSA-1 was a connected transaction between Jack Chen and May Wang.

137.  SEHK received another complaint letter by the end of that month (31 August 2009).[51] It was brought to 462’s notice on 2 September 2009.  The company engaged YSL to handle.  The solicitor replied to SEHK on 7 September 2009 as follows: -[52]

“...

It has now come to the knowledge of the Board that Ms. Zuo Li Hua, an executive director of the Company, has concocted with other related person to raise issues which are irrelevant to the functioning of the Company with intent that the Company should suspend its trading. Her misconceived allegations against the Company are in abuse of her role as a director of the Company.

In fact, such unfounded allegations which were made intentionally has caused immense damages to the Company and has adverse impact on the reputation of the Company. That is why the Board has taken such drastic measures by resolving that she is not fit and proper to further act as a director of the Company.

The Board is of a view that such resolution is most fair and made bona fide and is acting in the best interest of the Company.

The Board has already instructed lawyer to take issues against Ms. Zuo and take whatever legal actions against Ms. Zuo for such outrageous misconduct, if thought fit.”

138.  Nevertheless, 462 issued an announcement on 14 September 2009 to declare that Jack Chen would resign on 15 September 2009 due to personal commitment and that he intended to pursue a political career.[53]

139.  Jack Chen did resign from 462 but between 28 August 2009 and 15 September of the next year (2010), he remained as a director of NRL, one of 462’s subsidiaries.[54]  [NRL was not a listed company.]

140.  SEHK was not happy with 462’s omission to relate SEHK’s earlier decision on Jack Chen’s character.  It asked 462 to confirm if the announcement was accurate and complete. 

141.  Katherine Chan brought that to Jack Chen’s attention by email.[55] Jack Chen forwarded it to May Wang, who further forwarded it to D1 for comment.  D1 replied to May Wang with this: -[56]

“Dear May,

The following is the suggested answer: -

The Company has further consulted Mr. Chen on his reason for resignation and he reiterated that the reason disclosed in the announcement is his genuine reason. The Company is in no position to doubt the truthfulness of the reason and in reliance thereof, the Company confirms that the announcement is accurate and complete and does not consider it not necessary to make further announcement.

Regards,

Wu Wing Kit

Fred Kan & Co.”

142.  On 16 October 2009 SEHK wrote to 462 again, saying it had received a complaint relating to VSA-1. The complainant alleged Jack Chen and May Wang were closely connected and shared two premises in New Zealand.  It was also alleged that May Wang had financial problems.[57]

143.  SEHK asked 462 to verify the allegations as true or not, whether there was any existing or prior relationship between Jack Chen and May Wang, and whether there was any prior arrangement or understanding between the two on VSA-1 to render VSA-1 as a connected transaction.

144.  May Wang was notified of such enquiry.  On 19 October 2009, she forwarded it to D1.[58]

145.  462 had consulted their lawyer Matthew Chan of KLLC.  Matthew Chan discussed with May Wang and drafted a reply to be sent SEHK.  462 first sent the draft to May Wang for confirmation.  May Wang on 10 November 2009 emailed it to D1 for his comment.[59]

146.  The draft explained on the issues of shared addresses and May Wang’s financial state.  It also said Jack Chen and May Wang had no pre-existing relationship or prior arrangement/understanding on VSA-1 to render the deal as a connected transaction.[60]

147.  On 10 November 2009, D1 replied to May Wang that Matthew Chan’s draft was in order.[61]

148.  462 approved Matthew Chan’s draft and sent it to SEHK.

149.  On 20 November 2009, SEHK wrote to 462 on a complaint relating to the receivership of the targeted farms in New Zealand.

150.  On 26 November 2009, 462’s lawyer in New Zealand Knight Coldicutt responded to the complaint.[62]  The New Zealand lawyer stated the settlement of the 20% share sale before completion was necessary in part to show the financial trail as required by OIO. [For 100% completion of VSA-1, OIO’s consent was necessary.]

151.  On behalf of 462, KLLC replied to SEHK that all directors were aware of the matter and confirmed the receivership situation would not have a “material adverse impact”. It adopted Knight Coldicutt’s opinion and told SEHK that the 20% share sale was necessary to show OIO the financial commitment by 462.[63]

152.  On the next day, KLLC sent another submission to SEHK, saying 462 “entered into the Deed so that the OIO approval process can be commenced forthwith and run simultaneously with the process of the Acquisition” and “in the event that the Properties and Fixed Assets shall not be owned by the Target Group by 1 March 2010, all such convertible notes and cash will be returned to the company”.[64] 

153.  May Wang forwarded this KLLC correspondence to D1 on 28 November 2009.[65]  It is not known if D1 ever responded to it.

154.  KLLC further corresponded with SEHK.

155.  462 prepared a draft announcement dated 3 December 2009. It was circulated to a number of people including the other lawyer of 462 (KLG) and May Wang’s lawyer (D1).[66] Katherine Chan and May Wang made no comments.

156.  On 3 December 2009, 462 published that announcement. It said the board knew of the receivership and had conducted due diligence over the targeted properties.  It believed VSA-1 was not affected by the receivership and that “it is still in the interests of the Company and its shareholders as a whole to proceed with the Acquisition”.[67] 

157.  On the next day (4 December 2009), 462 entered into CN-C agreement with SHK and also reached agreement with CCBIAM over CN-D plus the Optional Bond.

158.  Around 9 December 2009, CCB received an anonymous letter dated 6 December 2009.[68] The letter said VSA-1 was a sham.  It accused Jack Chen as a crook and that he manipulated 462 in VSA-1 to cause 462 to buy assets at over-price.

159.  CCB brought the complaint to 462’s attention.

160.  Katherine Chan emailed the complaint to May Wang and D1.[69] She also emailed the same to Jack Chen, who forwarded it to D1 too.[70]

161.  On 11 December 2009, 462’s lawyer KLG drafted a reply refuting each allegation of the complaint. KLG asked May Wang and Jack Chen to comment on the draft.  It was also c.c. to D1 and Katherine Chan.[71] [Katherine Chan agrees it was normal for D1 as May Wang’s lawyer to be notified.] 

162.  KLG finally sent the reply to CCB and SHK.

163.  Knight Coldicutt also wrote to CCBB and SHK on 15 December 2009 explaining on allegations relating to the target farms. The New Zealand lawyer said there were people looking to blame others.  Knight Coldicutt reiterated the 20% share sale was necessary to show the financial trail as required by OIO as part of the application to allow the company to buy 100% of the target assets.[72]  

164.  A dispelled director Zuo Lihua wrote to CCB on 21 December 2009 to attack Jack Chen and VSA-1 in the same lines as that complaint letter dated 6 December 2009.[73]

165.  462 was notified of Zuo’s letter and sent it to May Wang on 7 January 2010.[74] May Wang forwarded it to D1. [As said, Katherine Chan agrees it was normal for D1 and other parties/lawyers in VSA-1 to be notified of the various correspondences.]

166.  Katherine Chan believes there were people collaborating behind those repeating malicious complaints.

167.  462 issued an announcement on 18 December 2009 to address on the complaint issues.[75]

168.  462 did not consider the complaints to be of substance.  Nor did SHK and CCB.  SHK continued to place CN-C for 462; CCBIAM purchased all CN-D and the Optional Bond.

169.  SHK actually issued CN-C in four tranches.  Despite the many complaints, SEHK granted approval to all CN-A, CN-B, CN-C, CN-D and the Optional Bond.  

170.  SHK not only helped 462 to issue CN-C, it also bought a portion with a view to gain. [SHK was still holding its stake when 462 shares were suspended on 7 September 2010.]

171.  Andrew Ning of CCB says his bank was a state enterprise and finally had to be concerned with reputation.  CCB later sold all CN-D to May Wang. The bank actually made a profit of several million dollars.

Katherine’s resignation

172.  Katherine says she was keen to announce clearly over the many complaints and queries but Jack considered that as hindering VSA-1.  Katherine knew from a major shareholder Zhan King siding with Jack Chen that she was not liked. She eventually stepped down in January 2010.  A banker Yip Kean Mun succeeded her.  [Katherine Chan says Yip was introduced to 426 by Jack Chen.]

173.  On 7 January 2010, 462 announced that Katherine Chan resigned from the post of executive director to become non-executive director. It stated she need to concentrate on personal matters.[76]

174.  Katherine Chan stopped to be non-executive director on 24 January 2010. She also resigned as co-chairperson on 25 January 2010.

CN-C fund

175.  Of the HK$842M CN-C money raised by SHK, 462 remitted to Knight Coldicutt HK$692.27M as follows: -

(a) 2009-12-21	HK$202,120,000
(b) 2009-12-22	HK$326,100,000
(c) 2009-12-29	HK$64,350,000
(d) 2010-1-4	HK$29,700,000
(e) 2010-2-2	HK$70,000,000

[It is to be noted that (a)-(d) took place while Katherine Chan was still on 462’s board as Chairperson.]

176.  Katherine Chan says the remitted fund was solely for the dairy project in VSA-1 and Knight Coldicutt would hold the money in escrow. 

177.  There was a later announcement by 462 on 2 February 2011, explaining the status of CN-A to CN-D. In relation to CN-C, it confirmed approximately HK$692.3M was remitted to Knight Coldicutt.  It said that before OIO’s declining the application for acquisition, the CN-C money was applied as follows: -[77]

“(a) approximately HK$29.2 million was remitted to NZND Media Limited, an indirect wholly-owned subsidiary of the Company incorporated in New Zealand on 29 January, 2010, as working capital, of which NZ$0.6 million was used to purchase an office premises in New Zealand;

(b) approximately HK$314.17 million was remitted to UTCL on 14 February, 2010 as provision of the $314.17M Financial Assistance pursuant to the Agreement;

(c) approximately HK$346 million was remitted to the Receivers' Lawyers as escrow funds for the purchase of the 16 Crafar farms;

(d) approximately HK$1.3 million plus proceeds raised by the CB-D in the amount of HK$40 million as legal fees and OIO consultant's fees were paid to NZ Lawyers and others;

(e) a balance of approximately HK$1.6 million continues to be held in escrow by the NZ Lawyers for the Company for deduction of related fees and costs;”

178.  462 said in the announcement that after OIO’s declining VSA-1, the company instructed Knight Coldicutt to release approximately NZ$65.3M (equivalent to about HK$365.4M) on 13 January 2011 as follows: -[78]

“(i) NZ$15 million (equivalent to approximately HK$85.5 million) was released and remitted to Jiangxi Natural Dairy as payment of its registered capital. However, the Company was informed by SAFE that the capital injection was not provided by Nation Yield, the parent company of Jiangxi Natural Dairy, and thus such funds in the amount of HK$85.5 million was remitted back to the NZ Lawyers. The said amount will be remitted to Jiangxi Natural Dairy again as Nation Yield's contribution to Jiangxi Natural Dairy's registered capital;

(ii) NZ$2.3 million (equivalent to approximately HK$13.1 million) was released and remitted to NZ Natural Dairy Limited (the Company's subsidiary in New Zealand) as working capital;

(iii) NZ$23 million (equivalent to approximately HK$131 million) was released and remitted to UBFM, of which (i) NZ$2.77 million was as payment for the remaining deposit payable by Jiangxi Natural Dairy under the Manufacturing Agreement; and (ii) NZ$20.23 million as the part payment for the purchase by Jiangxi Natural Dairy of 40 million packs of UHT Milk, being the 3 months’ UHT Milk orders (in the total amount of NZ$28 million); and

(iv) NZ$25 million (equivalent to approximately HK$135.7 million) to Nation Resources, with approximately HK$99.7 million for the working capital of the Company’s Hong Kong office and approximately HK$36 million for the part payment to UBFM for the purchase of 40 million packs of UHT Milk from UBFM, being the 3 months' UHT Milk orders.”

179.  462 also said it would make announcement in due course on the risks relating to the recoverability of the HK$314.17M financial assistance 462 had provided to UBTL. (There is no further announcement, if any, included in the exhibit bundles.)

Knight Coldicutt paid UBTL

180.  On 10 February 2010, UBTL transferred 20 % of UBAH shares to 462.

181.  Knight Coldicutt paid UBTL as follows: -

2010-2-11	NZ$10,679,265.25
2010-2-15	NZ$14,548,522.50
Total:	NZ$25.2M (approx)

182.  Prosecution say they cannot get the account books from Knight Coldicutt, so they concede they cannot prove Knight Coldicutt paid UBTL out of the escrowed CN-C money.

UBTL paid Goldmate

183.  On 17 February 2010, UBTL’s bank account in New Zealand was debited NZ$13,682,776.50.  An equivalent sum in HK$73,736,242.56 arrived at Goldmate’s current account with ICBC in Hong Kong. On the same day, HK$73.7M was transferred from that current account to Goldmate’s saving account.

Goldmate paid FKC

184.  On 11 March 2010, Goldmate transferred HK$69M from its saving account to the current account.  The current account transferred HK$68.95M to FKC’s client account.

FKC

185.  D1’s secretary Flora Tam says a day or two before 11 March 2010, D1 told her that Jack Chen would be sending forth US$10M to the firm and the money was to be refunded to the client.

186.  On 11 March 2010, Flora Tam was notified that Goldmate had deposited HK$68.95M into FKC’s client account.  She caused Rachael Fong of FKC’s Account Department to transfer an equivalent amount to the bank account of Jack Chen’s wife (D2) by cheque payment on the next day.

187.  D1 signed the cheque.

188.  Flora Tam says she had asked D1 how to mark the sum. D1 told her to mark it as ‘costs and disbursements’ and to designate it to his miscellaneous file.

D1

189.  D1 has been a solicitor in Hong Kong since 1981.  At all material times, he was a partner in FKC.  Flora Tam says D1 was busy and specialized in commercial corporate matters.

190.  D1 has a clear record.

191.  Jack Chen had been D1’s client since 2005 or 2006, while May Wang had been D1’s client since 2008.

192.  D1 was May Wang’s solicitor in VSA-1; his firm also acted for Global Food in VSA-2.

193.  D1 had assisted Jack Chen and May Wang to form a number of companies.  He was director or even shareholder of some of the companies including Global Food (director: 2007-2009); and Dragon Joy (director: 2007-2011; shareholder: 2007-2009).[79]

D2

194.  D2 was born in PRC. She was married to Jack Chen in PRC in 1992.  They have children. The couple later migrated to New Zealand and also resided in Hong Kong.  It is agreed they had properties in New Zealand and Hong Kong.[80]

195.  In 2005, D2 applied for Hong Kong Identity Card.  She stated herself as “Housewife”.

196.  In 2007, D2 opened an integrated account with HSBC.  She also claimed herself as “Housewife”.[81]

D2’s HSBC account

197.  Prosecution have only obtained the records of D2’s HSBC account for February 2009 – October 2011.[82]   There is also information of the account’s portfolio for the few months prior to February 2009.  The records reveal D2’s account portfolio at the beginning of each month as follows: -

Month	HK$
Oct 2008	1,132,002.33
Nov 2008	1,004,120.26
Dec 2008	1,173,134.88
Jan 2009	909,107.78
Feb 2009	1,070,496.25
Mar 2009	994,168.79
Apr 2009	827,706.06
May 2009	731,873.60
Jun 2009	1,209,831.50
Jul 2009	1,121,829.32
Aug 2009	1,112,375.20
Sep 2009	937,918.84
Oct 2009	928,560.87
Nov 2009	2,245,381.82
Dec 2009	1,733,372.35
Jan 2010	2,073,972.14
Feb 2010	1,542,924.22
Mar 2010	3,676,402.77
Apr 2010	72,044,510.55
May 2010	71,927,495.84
Jun 2010	69,872,024.45
Jul 2010	65,996,551.74
Aug 2010	62,991,491.62
Sep 2010	61,280,383.08
Oct 2010	43,688,794.13
Nov 2010	37,230,726.82
Dec 2010	33,140,485.76
Jan 2011	22,176,933.45
Feb 2011	53,311,434.59
Mar 2011	40,185,805.31
Apr 2011	48,915,014.05
May 2011	71,378,910.68
Jun 2011	79,308,518.86
Jul 2011	79,286,894.11
Aug 2011	66,920,144.17
Sep 2011	52,291,236.82
Oct 2011	45,214,747.61
Nov 2011	12,700,324.02

198.  The bank statements show the account’s activities between February 2009 and October 2011.  The followings were transactions of HK$100,000 or above (or NZ$ equivalent) between Feb 2009 and Oct 2011 :-

Date	In (HK$)	Out (HK$)	Remark
2009-2-17	100,000.00		Cheque
2009-4-1	2,577,840.00		Gold/exchange credit
		2,500,000.00	Remittance
[2009-4-1	NZ$600,000.00		Deposit]
[2009-4-1		NZ$600,000.00	Withdrawal]
2009-5-16	447,740.00		Gold/exchange credit
		400,000.00	Cash
[2009-5-16		NZ$100,000.00	Withdrawal]
[2009-5-18	NZ$200,000.00		Deposit]
[2009-6-1		NZ$50,000.00	Withdrawal]
2009-6-1	247,920.00		Gold/exchange credit
2009-8-21	261,070.00		Gold/exchange credit
[2009-8-21		NZ$50,000.00	Withdrawal]
2009-10-13	1,000,000.00		TT transfer
2009-10-20	400,000.00		Cash
	200,000.00		Cash
2009-11-6		500,000.00	Transfer to UN KN HOU*
2009-11-10		400,000.00	Transfer to LAM MEI CHE
	499,850.00		Remittance
2009-11-11	174,200.00		Credit
2009-12-17	1,000,000.00		TT remittance
2009-12-18		1,200,000.00	Transfer to current a/c
[2009-12-22	1,200,000.00		From saving account]
[2009-12-22		1,164,000.00	Cheque out]
2009-12-22	900,000.00		Cash
2009-12-31		150,000.00	Cash
2010-2-8		220,000.00	Cash
	3,390,000.00		Cheque
2010-2-9		800,000.00	Cash
2010-3-12	68,950,000.00		Cheque (Charge2)
2010-3-18		220,000.00	Transfer to current a/c
[2010-3-18		200,000.00	Cheque out]
2010-3-31		500,000.00	Term deposit
2010-4-1		1,000,001.00	Unit trust
2010-5-25		1,800,000.00	Transfer to current a/c
[2010-5-26		1,776,161.00	Cheque to insurer AIA]
2010-6-4		160,357.20	Credit card
2010-6-14		3,428,570.00	JEM LET DAT
2010-6-22	500,000.00		Cash (Charge 4)
	250,000.00		Chung Tung Co (Charge 3)
	450,000.00		Cash (Charge 5)
2010-6-25		1,300,000.00	Cash
2010-6-30	500,018.70		Term deposit
2010-7-6		120,000.00	Transfer to current a/c
[2010-7-7		100,000.00	Cheque out]
2010-7-7		170,000.00	Cash
2010-7-20		850,000.00	Transfer to current a/c
		1,300,000.00	Transfer to current a/c
[2010-7-20		819,99.00	Cheque out]
[2010-7-21		600,000.00	Cheque to So Chau Hong]
[2010-7-21		710,870.00	Cheque to So Chau Hong]
2010-7-24		100,000.00	Transfer to current a/c
[2010-7-26		104,000.00	Cheque out]
2010-7-30		150,000.00	Transfer to current a/c
		150,000.00	Debit
2010-8-4		131,074.12	Credit card
[2010-8-5		100,000.00	Cheque out]
2010-8-20		100,000.00	Transfer to current a/c
2010-8-30		1,200,000.00	Cash
		50,000,000.00	Debit (to SHK)
2010-9-2	50,000,000.00		Cheque (Charge 6)
2010-9-6		2,000,000.00	Cash
2010-9-13		5,000,000.00	Debit (to NRL)
2010-9-16		500,000.00	Debit (to NRL)
2010-9-16		5,000,000.00	Debit (to NRL)
2010-9-27		5,000,000.00	Debit (to NRL)
2010-10-5		150,005.43	Credit card
2010-10-26		100,000.00	Debit
		1,000,000.00	JEM LEI DAT
2010-10-29		5,000,000.00	Debit (to NRL)
2010-11-4		148,729.10	Credit card
2010-11-5		1,000,000.00	Debit (to NRL)
2010-11-17		2,721,420.00	Debit (to NRL)
2010-12-7	1,000,000.00		Cheque (Charge 7)
		8,786,981.00	Debit (to Haiting International Securities Co. Ltd.)
2010-12-16		1,000,000.00	Cash
2010-12-17		200,000.00	Transfer to current a/c
		2,000,000.00	Cash
2011-1-4		200,640.08	Credit card
2010-1-5		200,000.00	Debit
[2011-1-11		165,000.00	Cheque out]
2011-1-12		200,000.00	Transfer to current a/c
2011-1-18	8,769,982.09		Cheque (Charge 9)
	24,221,420.00		Cheque (Charge 8)
		1,000,000.00	Debit
2011-1-27		200,000.00	Debit (to credit card)
2011-2-14	5,849,992.50		JEM LEI DAT (Charge 11)
	5,859,594.50		JEM LEI DAT (Charge 10)
		100,000.00	Transfer to current a/c
2011-2-17		12,663,500.00	Gold/exchange Debit
		10,000,000.00	Term deposit
[2011-2-17	NZ$2,150,000		Deposit]
[2011-2-17		NZ$2,150,000	Withdrawal]
2011-2-24		2,000,000.00	To credit card
2011-3-3		10,000,000.00	Debit (to DU Lisa)
2011-3-25	2,364,522.50		LO MEI KO (Charge 12)
	1,599,992.50		WAI HING MONEY EXCHANGE (Charge14)
	3,103,334.50		ASIA AQUATIC CO. (Charge 15)
		1,000,000.00	Unit trust
	1,653,120.50		WUI LEE EXCHANGE (Charge 13)
2011-4-4	22,000,000.00		Cheque (Charge 16)
2011-4-11		100,000.00	Transfer to current a/c
[2011-5-16	10,000,000.00		Credit in current a/c]
2011-5-23		200,000.00	Debit (to credit card)
2011-5-31	2,880,675.00		Gold/exchange credit
[2010-6-3		1,770,656.00	Cheque for insurer AIA]
2011-6-21	8,000,000.00		Credit from current a/c
2011-7-6		10,000,000.00	Remittance (to YE MEI)
2011-7-7		10,000,000.00	JEM LEI DAT
2011-7-8	9,999,792.50		Remittance (Charge 17)
	5,752,802.17		Term deposit
2011-7-26		2,421,400.00	JEM LEI DAT
2011-7-28		5,000,000.00	Securities
2011-7-29		200,000.00	Transfer to current a/c
2011-8-2	1,074,253.40		Securities
2011-8-3	982,336.95		Securities
2011-8-4		283,888.83	Credit card
2011-8-11		2,430,135.00	JEM LEI DAT
2011-8-30		10,000,000.00	Debit
		200,000.00	Debit (to credit card)
2011-9-2		115,770.98	Credit card
2011-9-3		1,250,000.00	Debit
2011-9-15		6,000,000.00	Debit
2011-10-4		290,937.90	Credit card
2011-10-13		500,000.00	Transfer to current a/c
[2010-10-14		500,000.00	Cheque out]
2011-10-17		15,000,000.00	Debit (to LONG ASIA TRADING CO.)
		2,000,000.00	Transfer to current a/c
		15,000,000.00	JEM LEI DAT
[2010-10-18		2,000,000.00	Cheque to Walter Shum]
2011-10-19	1,000,000.00		Credit from Walter Shum (Charge 18)
2011-10-21		1,000,000.00	Cashier Order (HKSAR)
		2,000,000.00	Cashier Order (HKSAR)
		2,000,000.00	Cashier Order (HKSAR)
2011-10-24	2,000,000.00		Credit
	2,000,000.00		Credit

*[ ] means transactions in the current account or the foreign currency

account of D2’s integrated account.

Forensic accountant’s report

199.  ICAC’s forensic accountant Mr Cheng Chi Tao has analysed the activities of D2’s bank account. The report is P345.  Its contents are not disputed by D1 or D2.  Nor is Mr Cheng’s expertise as a forensic accountant challenged.

200.  Mr Cheng studies D2’s account with a view to: -

(a) Trace the source of fund of a deposit of HK$68,950,000 on 12 March 2010 in the HKD Savings account within the Bank Account;

(b) Calculate the total deposits in the HKD Savings account within the Bank Account during the relevant Period; and

(c) Analyse and summarize the sources of the deposits and applications of the withdrawals for all of the accounts within the Bank Account during the Relevant Period.

201.  There were 10 sub-accounts (Account 1 - Account 10) under the Bank Account during the Relevant Period: -

Sub-account	Account No	Account Type
1	812-004570-888	Integrated Savings (HKD)
2	812-004570-001	Integrated Current (HKD)
3	812-004570-888	Integrated FCY Savings (USD)
4	812-004570-888	Integrated FCY Savings (NZD)
5	Deposit No 001	Time Deposits (NZD)
6	Deposit No 002	Time Deposits (NZD)
7	Deposit No 003	Time Deposits (HKD)
8	Deposit No 004	Deposit Plus
9	Deposit No 005	Deposit Plus
10	Deposit No 006	Deposit Plus

202.  Mr Cheng has compiled a table (Table 2 in P345) to show the movement of money among Account 1 - Account 10 during the Relevant Period: -

Table 2: Movements of the Bank Account during the Relevant Period

	Account 1	Account 2	Accounts 3 to 10	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Opening balances	2,830	8	569	3,407
Deposits (Table 3)
-  others	213,774	10,000	108	223,882
-    intra-account   transfers	17,134	8,356	50,777	76,267
	230,908	18,356	50,885	300,149
Withdrawals  (Table 4)
-    others	(197,142)	(10,205)	(12,513)	(219,860)
-    intra-account transfers	(31,520)	(8,000)	(36,747)	(76,267)
	(228,662)	(18,205)	(49,260)	(296,127)
Ending balances	5,076	159	2,194	7,429

Note: The numbers in brackets as shown in the above table represent withdrawals

203.  Mr Cheng says in his report: -

“35. The HKD Savings account (Account 1) is the most active account within the Bank Account in terms of the number of transactions and the value of transactions. Most of the deposits and withdrawals, including the HK$68,950,000 deposit from FKC, occurred in the HKD Savings account. In respect of the HKD Current account (Account 2), except for a HK$10,000,000 received from 林仁輝 on 16 May 2011, the deposits in this account were all funds transferred from the HKD Savings account for financing the cheque payments. Out of the HK$10,000,000 received from 林仁輝, HK$8,000,000 was transferred to the HKD Savings account on 21 June 2011. The transactions in the other Foreign Currencies Savings and Time Deposits accounts (Accounts 3 to 10) were mainly transfers between these accounts and the HKD Savings account, and a remittance payment of HK$12,473,771 to a Frank Sing Trust Account in New Zealand.”

204.  Regarding the deposits in Account 1 - Account 10, Mr Cheng has compiled Table 3 of P345.

Table 3: Deposits

Source	HKD Savings (Account 1)	HKD Current (Account 2)	FCY Savings/ Time Deposits (Accounts 3 to 10)	Paragraph
	HK$’000	HK$’000	HK$’000
Deposits from CHEN/Goldmate
Goldmate (via FKC)	68,950			37 and 38
Goldmate	23,000
Individual- CHEN	8,770
Subtotal (A):	100,720
SHKIS	50,000			43 to 46
NRL	24,221			47 to 48
Money Exchange Companies	14,963
Individual – 林仁輝		10,000
Individual- YE Mei	10,000			49
Repurchase of Cashier Orders	4,000			50
Asia Aquatic Company	3,103
Individual- LO Mei-ko	2,365
Investment Fund- Sell	2,056			51
Individual- SHUM Wan-wah	1,000
Cash Deposits	950
Others	396		108
Intra-account transfers	17,134	8,356	50,777
Subtotal (B):	130,188	18 356	50,885
Total (A) + (B)	230,908	18,356	50,885
Number of transactions:	69	29	30

205.  For Account 1 (HKD Savings sub-account), the total deposits during the Relevant Period is HK$230,907,804.25.

206.  Of the HK68,950,000 deposit, Mr Cheng says in his report: -

“24. In order to further trace the source of fund of HK$68,950,000 from Goldmate, relevant ICBC bank accounts of Goldmate were reviewed. Extracted in Appendix 2 are those transactions amount of HK$1 million or above in the ICBC Current and Savings accounts of Goldmate, which occurred immediately before the issuance of the HK$68,950,000 cheque to FKC on 11 March 2010.

25. On 2 March 2010, Goldmate received a remittance of HK$73,736,242.56 from UBTL in Auckland and this amount was deposited into Goldmate’s ICBC Current account numbered 718-010-00175-9 [ICAC Ref.: ICBC/GSL/4]. The remark as stated on the Remittance Advice was “Investment Consultancy Fees”.

26. Before the receipt of fund from UBTL on 2 March 2010, Goldmate maintained only a small balance of HK$145,619.33 in its Current account [ICAC Ref.: ICBC/GSL/2] and HK$30.95 in its Savings account [ICAC Ref.: ICBC/GSL/3]. Except for intra-account transfers between the Current and Savings accounts of Goldmate, the HK$73,736,242.56 deposit from UBTL was the only deposit in Goldmate's Current and Savings accounts maintained with ICBC between 2 March 2010 and 11 March 2010 (date of issuance of a HK$68,950,000 cheque, by Goldmate to FKC, paragraph 20 refers).

27. On the same date of 2 March 2010, Goldmate transferred HK$73,700,000 from its ICBC Current account numbered 718-010-00175-9 to its ICBC Savings account numbered 718-030-00228-8 [ICAC Ref.: ICBC/GSL/5].

28. Two days later on 4 March 2010, HK$3,500,000 was transferred from Goldmate’s ICBC Savings account numbered 718-030-00228-8 back to its ICBC Current account numbered 718-010-00175-9 [ICAC Ref.: ICBC/GSL/6]. On the same date, the same amount of HK$3,500,000 was paid by Goldmate to an individual named NG Hung-ming through a cheque signed by CHEN [ICAC Ref.: ICBC/GSL/7).

29. On 11 March 2010, HK$69,000,000 was also transferred from Goldmate’s ICBC Savings account numbered 718-030-00228-8 back to its ICBC Current account numbered 718-010-00175-9 [ICAC Ref.: ICBC/GSL/8], leaving a remaining balance of HK$200,030.95 in its Savings account [ICAC Ref.: ICBC/GSL/3]. On the same date, a cheque in the sum of HK$68,950,000 drawn on the ICBC Current account was issued by Goldmate (signed by CHEN) to FKC [ICAC Ref.: ICBC/GSL/9]. This HK$68,950,000 received by FKC was subsequently paid to the Bank Account of YE by cheque on 12 March 2010 as mentioned in paragraphs 19 and 20.

30. Based on the flows of fund as mentioned in paragraphs 19 to 29, it is concluded that the HK$68,950,000 deposit in the HKD Savings account within the Bank Accoùnt of YE on 12 March 2010 was sourced from the HK$73,736,242.56 remittance from UBTL in Auckland on 2 March 2010 and the sum went through various bank accounts of Goldmate (accounts controlled by CHEN) and FKC before it reached the Bank Account of YE, the wife of CHEN.”

207.  Mr Cheng also says in his report: -

“39. The total deposit of HK$230,907,804 in the HKD Savings account was made up of 69 deposits. Out of the 69 deposits, 44 deposits were mainly of smaller amounts and mainly derived from investment and interest income and these deposits were included in the value of “Others” of HK$395,466 in Table 3. Most of the other sources of deposits set out in Table 3 above were each made up of one or two transactions, except for the deposit of HK$14,962,700 from Money Exchange Companies and the Cash deposit of HK$950,500 which were made up of 4 transactions and 3 transactions respectively. Or, in other words, 18 transactions made up a total deposit of HK$214,599,138 in this Account 1.

40. As mentioned in paragraph 35, expect for a HK$10,000,000 received from林仁輝on 16 May 2011, all the deposits in the HKD Current account were funds transferred from the HKD Savings account for financing the cheque payments. There were 28 such deposit transfers from the HKD Savings account totaling HK$8,356,000.

41. The 30 deposits in the other FCY Savings and Time Deposits accounts included 22 deposits arising from interest income and exchange rate translation totalling HK$108,253 and 8 deposit transfers from HKD Savings and HKD Current account totaling HK$50,777,063.”

208.  Regarding withdrawals in Account 1 - Account 10, Mr Cheng has set out in para 42 of his report: -

Table 4: Withdrawals

Application	HKD Savings (Account 1)	HKD Current (Account 2)	FCY Savings/ Time Deposits (Accounts 3 to 10)	Paragraph
	HK$’000	HK$’000	HK$’000
SHKIS	50,000			43 to 46
Money Exchange Company	34,286			53
NRL	24,221			47 to 48
Long Asia Trading Company	15,000
Frank Sing Trust Account			12,474
Account Numbered 048-844989-001	11,250
Individual Withdrawal – DU Lisa	10,000
Individual Withdrawal – YE Mei	10,000			49
ATM/Cash Withdrawals	9,721			54
Haitong international Securities	8,787
Purchase of Investment Fund	7,000			51
Individual Withdrawal – YE Qiong	6,000
Credit Card Payment	4,560			55
Purchase of Cashier Orders	4,000			50
Insurance Company		3,547		57
Individual Withdrawal – SHUM Wan-wah Walter		2,000		57
Miscellaneous Cheque Payments (each less than HK$150,000)		1,481		57
Individual Withdrawal – SO Chau-hong		1,311		57
Account Numbered 047-886387-833	1,000
HKSAR Government	1,000
Others	317	1,866	39	57
Intra-account transfers	31,520	8,000	36,747
Total:	228,662	18,205	49,260
Number of transactions:	211	154	11

209.  In para 46 of his report, Mr Cheng says: -

“46. According to Table 2, before the deposit of HK$68,950,000 from FKC on 12 March 2010, YE had an opening balance of HK$2,830,110.64 only in the HKD Savings account of the Bank Account. As revealed from Appendix 3 which lists out all transactions in the HKD Savings account during the Relevant Period the source of fund for the withdrawal of HK$50,000,000 to SHKIS on 30 August 2010 as mentioned in paragraph 43 was from the deposit of HK$68,950,000 from FKC on 12 March 2010 (paragraph 19).”

210.  In para 48 of his report, Mr Cheng states: -

“… the total withdrawal of HK$24,221,420 to NRL was considered to be sourced from the deposit of HK$68,950,000 from FKC on 12 March 2010.”

211.  Mr Cheng further says in his report: -

“52. Most of the applications of withdrawals set out in Table 4 above were each made up of one or two transactions, except for the following applications: -

Application	HKD Savings (Account 1)	Number of withdrawals	Paragraph
	HK$’000
Money Exchange Company	34,286	7	53
ATM/Cash withdrawals	9,721	110	54
NRL	24,221	7	47
Purchase of Investment Fund	7,000	3	51
Credit Card Payment	4,560	20	55
Others	317	21
Intra-account transfers	31,520	31	56

53. All 7 withdrawals to Money Exchange Company were made to “Jem Lei Dat Co” and apart from a small amount of HK$5,974, the other withdrawals ranged from HK$1,000,000 to HK$15,000,000.

54. Out of the 110 ATM/Cash withdrawals, 99 withdrawals were through ATM and each withdrawal was mainly HK$10,000 or HK$20,000. The cash withdrawals were of larger amounts on 5 occasions ranging from HK$1,000,000 to HK$2,000,000 and of smaller amounts on 6 other occasions ranging from HK$20 to HK$200,000.

55. A total of 20 withdrawals were made to settle the same credit card payment on a regular basis. The smallest withdrawal was HK$5,000 while the largest withdrawal was HK$2,000,000. The remaining withdrawals ranged from HK$28,945 to HK$290,937.

56. Out of the 31 withdrawals for intra-accounts, 28 withdrawals totalling HK$8,356,000 were made to the HKD Current account to finance its cheque payments while the other 3 withdrawals totalling HK$23,163,500 were made to the FCY Savings/Time Deposits accounts.

57. There were a total of 154 withdrawals in the HKD Current Account. Two withdrawals each of approximately HK$1.7M were made to an insurance company. Other major cheque payments included one payment of HK$2,000,000 to an individual Shum Wan Wah Walter and two payments totalling HK$1,310,870 to another individual So Chau Hong. There were other 123 withdrawals totalling HK$1,480,694 concerning miscellaneous cheque payments ranged from HK$56 to HK$104,000. Excluding a transfer of HK$8,000,000 to the HKD Savings account, the remaining 25 withdrawals totalling HK$1,866,913 included 7 withdrawals to some known parties totalling HK$1,865,999 and 18 withdrawals relating to bank charges totalling HK$914.

58. As mentioned in paragraph 35, there was a withdrawal of HK$12,473.771 for remittance to a Frank Sing Trust Account in New Zealand. Apart from this and 2 unknown withdrawals totalling HK$38,791, other withdrawals were 3 intra-accounts transfers back to the HKD Saving account totaling HK$9,113,496 and 5 transfers within the FCY Savings/Time Deposits accounts totaling HK$27,613,563.”

212.  Mr Cheng summarizes in his report: -

“59. Based on the flows of fund as mentioned in paragraphs 19 to 29 and set out in Appendix 2, it is concluded that the HK$68,950,000 deposit in the HKD Savings account within the Bank Account of YE on 12 March 2010 was sourced from the HK$73,736,242.56 remittance from UBTL in Auckland on 2 March 2010 and the sum went through various bank accounts of Goldmate (accounts controlled by CHEN) and FKC before it reached the Bank Account of YE, the wife of CHEN.

60. A list of all transactions in respect of the HKD Savings account within the Bank Account for the Relevant Period is prepared at Appendix 3. The total deposits amounted to HK$230,907,804.25.

61. The sources and applications of the deposits and withdrawals in the Bank Account during the Relevant Period are summarized in the cashflow summary in Appendix 4 and analyzed and discussed in paragraphs 34 to 58. A list of the individual deposit and withdrawal transactions within the Bank Account, sorted by the sources and applications of funds, is set out in Appendix 5.

62. Out of the total deposits of HK$230,907,804.25 in the HKD Savings account, Chen individually and through Goldmate, had made a total deposit of HK$100,719,982 (paragraph 37). The other significant deposits of HK$50,000,000 from SHKIS and of HK$24,221,420 from NRL were repayments of amounts drawn from the HKD Savings account earlier which were sourced from the HK$68,950,000 from Goldmate (paragraphs 45 to 48).

63. Ye was a "Housewife" and the sole signatory of the Bank Account as stated in the account opening form. During the Relevant Period, her Bank Account had numerous transactions of significant values with various parties. These include: -

(a) HK$100,719,982 from her husband Chen, individually and through Goldmate (paragraphs 37 and 38) including HK$68,950,000 sourced from UBTL in Auckland (paragraph 30);

(b) HK$50,000,000 to/from a securities account in the name of DU within 4 days (paragraphs 43 and 44);

(c) HKS24,221,420 to/from NRL, on behalf of NDNZ, a listed company as loans advanced and repaid (paragraph 47);

(d) HK$14,962,700 from and HK$34,286,079 to Money Exchange Companies (paragraphs 39 and 53);

(e) HK$15,000,000 to Long Asia Trading Company (paragraph 42);

(f) HK$12,473,771 to a Frank Sing Trust Account in New Zealand (paragraph 42);

(g) HK$11,250,000 to an account numbered 048-844989-001 (paragraph 42);

(h) HK$10,000,000 to DU (paragraph 42);

(i) HK$10,000,000 from an individual named 林仁輝(paragraph 36); and

(j) HK$10,000,000 to/from Ye Mei within 3 days (paragraph 49).”

Jem Lei Dat (remittance agent)

213.  TYPE TWO charges (Charges 3-5 and 10-15) were all remittances from China.  The two largest amounts involved a licensed remittance company called Jem Lei Dat. This remittance agent was also involved in some uncharged transactions in D2’s account. [See para 198 above.]

214.  Prosecution submits the statement of one of JLD’s licensees, Mr Choi Fo Yuen.[83]

215.  In his statement, Mr Choi says around 2007, Ms Shiu Ming of Goldmate started asking Jem Lei Dat to remit money to China.  Mr Choi refers to the following transactions: -

Date	Remittance	Recipient in China
2009.12.28	RMB3,500,000 (HK$3,957,038)	叶能志 (transliterated as Yip Nang Chi)
	RMB2,500,000 (HK$2,826,456)	吳能坤 (Wu Neng Kun)
	RMB10,946,571 (HK$10,946,571)	叶运生 (Yip Wang-sang)
2010.7.30	RMB28,578,000 (HK$32,000,000)	阮康玲 (Yuen Hong ling)
2011.10.17	RMB12,292,500 (HK$15,000,000) [in two sums]	叶玫 (Yip Mui or Ye Mei)

216.  Mr Choi says all along it was the same Shiu Ming of Goldmate giving instruction to him.  He does not know D2 Ye Fang (叶芳).

D2’S SUBMISSION OF NO CASE TO ANSWER

217.  Mr Owen QC for D2 submits that Prosecution fail to prove VSA-1 as fraud and also fail to prove any predicate offence.  He says D2 cannot be fixed with any guilty knowledge in relation to the various sums in Charges 2-18.  She can at most be viewed as a wife duped by her husband, who had presented himself to the world at large as an established businessman with substantial wealth. D2 would not be suspecting her husband.

218.  Counsel submits that for Charges 2-18, Prosecution cannot reject all realistic possibilities consistent with innocence. Therefore, the court should rule D2 has no case to answer on all those 17 charges.

219.  Prosecution oppose the application. Ms Draycott SC says there is clear evidence for the jury to consider a proper verdict on each of the 17 counts.

220.  After hearing argument from both sides, I refuse Mr Owen QC’s application. I find D2 has a case to answer on Charges 2-18. (That ruling dated 6 April 2017 is attached to this judgment as Annex I.)

221.  Mr Blanchflower SC for D1 has no submission to make at the mid-stage. I find D1 has a case to answer on Charge 1.

DEFENCE CASE

222.  Both defendants elect not to testify or call any witnesses.

223.  It is agreed that both defendants have clear record.

224.  For D1, there are defence exhibits admitted as Bundle D1 (Tab 1 - Tab 3).

225.  For D2, there are defence exhibits admitted as Bundle D2 (Tabs 1-3). There are also D2/Tab 4 - Tab 12 admitted under Agreed facts P342, and D2/Tab 13 - Tab 21 admitted under Agreed facts P349.

FINAL SUBMISSION

226.  All parties have made detailed written submissions, which are elaborated further in court.

Prosecution

227.  Ms Draycott SC reiterates that she is not seeking to prove VSA-1 or VSA-2 as fraud, or Jack Chen and May Wang as fraudsters.  She does not accuse D1 and D2 of being complicit in VSA-1 and VSA-2. However, they knew of Jack Chen’s questionable character and still assisted him to handle the money in question (D1’s Charge 1 and D2’s eight TYPE ONE charges).

228.  Ms Draycott SC says D1, for all he knew of Jack Chen and VSA-1/2, had reasonable grounds to believe Jack Chen had received misused CN-C money from May Wang. Thus, when Jack Chen later entrusted D1 with HK$68.95M only to be forwarded through FKC’s client account to his wife, the circumstance would have led D1 to believe the money had come from the misused CN-C fund and it was Jack Chen’s fraudulent gain in VSA-1. [Charge 1]

229.  Ms Draycott SC submits that D1 blatantly breached the Law Society’s Practice Direction P on money laundering. It was an indication that D1 was laundering money for Jack Chen.

230.  Regarding D2, Ms Draycott SC points out D2 was the beneficial owner of Global Food (the Vendor in VSA-2).  As VSA-2 was closely related to VSA-1, D2 must have known enough of VSA-1 for her to have reasonable grounds to believe Jack Chen had benefitted fraudulently in VSA-1.  Thus, when Jack Chen later put a sizable sum of HK$68.95M into D2’s account, the circumstance would have led her to believe the money represented the proceeds of an indictable crime committed by her husband. [Charge 2]

231.  Prosecution allege that when D2’s account received further inexplicable sums from Jack Chen or his company Goldmate [Charges 7, 9, 16], D2 again had reasonable grounds to believe the respective sums represented indictable crime proceeds.

232.  Ms Draycott SC says the other four TYPE ONE deposits [Charges 6, 8, 17 and 18] were related to Jack Chen’s deposits in D2’s account and the money was circulated for no good reasons, indicating it was all money laundering.

233.  As to the nine TYPE TWO deposits (Charges 3-5, 10-11 and 12-15), Prosecution say they were all remittances from China of unexplained sources and inexplicable purposes.  D2 thus had reasonable grounds to believe they represented indictable crime proceeds.

234.  Prosecution reject defence suggestion that Jack Chen and D2 were a rich couple.  She submits Jack Chen had reported limited income in Hong Kong and D2 was a mere housewife.

D1

235.  Mr Blanchflower SC points out that VSA-1 was not proved as fraud.  He says many other professionals were involved in the matter, as well as 462’s board of directors but the others were not alleged to have believed VSA-1 as fraud.  There is no reason for Prosecution to view D1 differently.

236.  Counsel says D1 is a person of good character.  He had been in the solicitors’ practice for 28 years.  He was just agnostic in performing his duties towards his clients Jack Chen and May Wang.  If D1 wrongly dealt with the HK$68.95M, he might have overlooked the Practice Direction P on money laundering. It might be a wrong judgment but not a breach of the law. 

237.  Counsel points out the processing of the HK$68.95M in FKC was all open and everything was duly recorded.  

238.  Counsel submits that there is no irresistible inference to be drawn against D1 that he had reasonable grounds to believe the HK$68.95M represented the proceeds of the alleged VSA-1 fraud or any indictable offence.

D2

239.  Mr Owen QC repeats his no case submission and says Prosecution cannot prove to exclude reasonable hypotheses consistent with innocence in respect of the 17 charges against D2.

240.  Counsel emphasizes on the relationship between D2 and Jack Chen, i.e. they had been married since 1992 and had children.  D2 as the wife would repose trust and confidence in her husband.  Furthermore, Jack Chen had presented himself to all as an established and trustworthy man. Thus, it was unlikely that D2 would be suspecting of her husband or the money he put in her account.

241.  Counsel points out that according to PRC law, any property accrued during marriage is joint property of the couple.  Thus D2’s account can be regarded as a matrimonial pot.  It is not strange for the husband to put money there.

242.  Counsel says the couple had substantial assets and means to generate income.  So, D2 should not be expected to suspect her husband of depositing crime proceeds into her account, particularly when Jack Chen was expected to gain heavily for having brokered the massive deal of VSA-1.  There was also the substantial deal of VSA-2 in the pipeline.

243.  Counsel says D2 was distant from VSA-1. She knew little and was not complicit in it. In any event, VSA-1 was not proved as fraud.  And VSA-2, as Prosecution accept, was no crime at all.

244.  Counsel submits that it is not proved the HK$68.95M in Charge 2 represented the proceeds of any indictable offence.  Nor is such proved of the other sums in Charges 3-18.

245.  Counsel says there is no proof from the forensic accountant or anywhere that the transactions in D2’s account bore hallmarks of money laundering.  Those transactions could be for legitimate reasons.

246.  Counsel also says even if Jack Chen was a fraudster making use of D2’s account illegally, it is for sure D2 was deceitfully manipulated by her husband.  In that case, she would still be innocent.

247.  In summary, Counsel submits that the court cannot draw the only irresistible inference against D2 that she had reasonable grounds to believe the money in Charges 2-18 respectively represented the proceeds of an indictable offence.

DISCUSSION

Evidential difficulty

248.  In this trial, Prosecution raise a number of allegations in respect of VSA-1, Jack Chen and May Wang.  But those allegations remain as allegations to the end because Prosecution do not seek to prove the alleged fraud of VSA-1, or the alleged guilt of Jack Chen and May Wang.

249.  Prosecution also do not seek to prove the money Knight Coldicutt paid UBTL came from the escrowed CN-C money.  In fact, Prosecution concede they cannot prove that.

250.  A lot of documents relating to 462’s activities are placed before the court but they are not sufficiently explained or not explained at all by witnesses.  Katherine Chan is an honest witness. (So are the other witnesses.) However, she knew little of what happened after she had left 462’s board in January 2010.  Many documents in the evidence bundles arose after that date. None from 462’s board – executive director or independent non-executive director has been called to explain the company’s business/decisions/acts after Katherine Chan’s resign.

251.  As a result, many allegations relating to VSA-1, Jack Chen and May Wang remain vague and unproved in this trial. 

252.  In a criminal trial, anything unproved of its truth beyond reasonable doubts is no truth.  The standard of proof has not been lowered for money laundering offences merely proceeded on the ‘having reasonable grounds to believe’ limb.

Prosecution’s position

253.  Ms Draycott SC makes it clear: -

(a) Charges 1-18 are proceeded only on the ‘having reasonable grounds to believe’ limb.

(b) Prosecution do not seek to prove any predicate offence for the 18 charges.

(c) Prosecution accept D1 and D2 were not complicit in VSA-1 and they were not in any fraudulent conspiracy with Jack Chen or May Wang.

(d) VSA-1 and VSA-2 are to show the defendants’ affiliation with Jack Chen in relation to D1’s Charge 1 and D2’s Type One charges (Charges 2, 6, 7, 8, 9, 16, 17 and 18). VSA-1/2 evidence is not brought forth to point to any uncharged acts, bad character or propensity of to commit crime against either defendant.

(e) Prosecution concede they cannot prove Knight Coldicutt paid UBTL out of the escrowed CN-C money. Thus the money UBTL remitted to Goldmate, out of which HK$68,95M went from Goldmate to FKC and then to D2 cannot be proved to have come from the allegedly misused CN-C fund.

VSA-1 and VSA-2

254.  Prosecution allege VSA-1 was a fraud and Jack Chen worked in combination with May Wang as fraudsters.  It is not so proved in the trial.  This court, therefore, would not view VSA-1 as fraud or treat Jack Chen/May Wang as fraudsters.

255.  Originally, Prosecution allege VSA-2 was used by the fraudulent party of Jack Chen as a vehicle to extract money from 462.  Such allegation has been withdrawn.

256.  Prosecution accept D1 and D2 were not complicit in VSA-1 or VSA-2.  They also accept VSA-1/2 evidence is not evidence of any uncharged acts/transactions, or evidence of bad character, or evidence to show the defendants’ propensity to commit crimes.  VSA-1/2 evidence, therefore, can only serve as evidence of context and setting.

Re: D1

257.  Prosecution criticize D1 for his persistence to assist Jack Chen and May Wang despite hearing many complaints about the two and VSA-1.

258.  Many of those complaints, however, were from anonymous sources or someone with animosity such as Zuo Lihua (an ousted executive director and wife of Duncan Cheung, a rival of the then chairwoman Katherine Chan).  As Joseph Tong of SHK says, complaints like these are not uncommon in fund-raising exercises.

259.  Prosecution emphasize that Jack Chen was not a person of integrity because he had that CSRC record in 2004. However, at the material times, that was the only record he had. Katherine Chan said Jack Chen pleaded he had been wronged by the accountant.

260.  It is true BOCI pulled out of the fund-raising exercise in VSA-1 because of their concern over Jack Chen. But SHK took up CN-C placement and even bought part of the notes; CCBIAM also subscribed all CN-D and the Optional Bond. Both SHK and CCB were aware of the complaints against Jack Chen, May Wang and VSA-1.

261.  SEHK was aware of the many complaints and also Jack Chen’s CSRC record. Nevertheless, they granted approval to all convertible notes and the Optional Bond. That means they accepted Jack Chen and 462’s replies, or at least gave them the benefit of doubt then.

262.  Prosecution say D1 knew more of Jack Chen and May Wang than SEHK and the other professionals involved in VSA-1. 

263.  Jack Chen had been D1’s client since 2005/2006 and May Wang had been D1’s client since 2008. D1 had done a lot of work for them.  But D1 was a busy lawyer and had been in the practice for 28 years.  He must have a lot of clients and business.  One can hardly expect such a lawyer to know all his clients well and be able to assess each and every client correctly.  After all, lawyers should adopt an agnostic approach towards their clients.  [In any event, Jack Chen and May Wang have not been proved to be bad characters or guilty of anything in this trial.]

264.  The CSRC record was there. But Jack Chen told Katherine Chan that he was wronged; it was the accountant’s fault. Katherine was an astute and seasoned businesswoman. She believed his words. Presumably, Jack Chen would tell the same to others. There is no evidence that D1 learnt something different from Jack Chen.

265.  Ms Draycott SC comments D1 for his assisting Jack Chen and May Wang to give untrue replies to SEHK and in 462 announcements, and also not disclosing full and frank about his two clients.

266.  Those comments are not justified.

267.  D1 did not hide Jack Chen’s CSRC record from 462. D1 asked his secretary to print the record and to have it attached to Form B. As a result of D1’s instruction, Flora Tam typed on Form B “and I further enclose two decisions of China Securities Regulatory Commission dated 16^th September 2004 herein”.[84] The documents were sent to 462’s Company Secretary Kim Chan.[85]  Kim Chan is not called to explain why Katherine Chan was not notified of the matter. Maybe Kim Chan considered the disqualification as already expired and therefore insignificant.  D1 had not hidden Jack Chen’s CSRC record.  It would be obvious to anyone reading Form B that Jack Chen had a CSRC record. The responsibility for omitting to inform SEHK and Katherine Chan in time remained with Kim Chan.

268.  Likewise, D2’s beneficial interest in Global Food in VSA-2 was not hidden by D1. He unreservedly informed Katherine Chan.[86]

269.  Prosecution’s criticism that D1 had helped Jack Chen and D2 to form a complex but commercially meaningless corporate structure is purely subjective. In commercial reality, there are numerous complex structures involving off-shore companies for control and tax purposes.  The meaning is for the perpetrators; outsiders may not understand.  But that does not equate illegality.  For example, 462 itself was registered in Cayman Islands. Katherine Chan also held her 462 shares through a BVI company.

270.  As to the manner of disclosing Jack Chen’s reason for resigning, whether Jack Chen had any relation with May Wang and thereby partnering in VSA-1, and whether the two had use of common addresses in New Zealand,  there were a few set of lawyers acting for 462 to reply to SEHK.  D1 was May Wang’s lawyer.  While one might criticize D1 for being over agnostic at times, he cannot be condemned to guilt for that.  For example, when Katherine Chan resigned, 462 also coined a reason to say the outgoing chairwoman needed to focus on her own matters, rather than revealing she had lost power. It can be regarded as diplomatic expression rather than cover up.

271.  Ms Draycott SC accuses at times that D1 behaved dishonestly in VSA-1. Such accusation is inconsistent with her declaration that D1 was not collaborating fraudulently with Jack Chen and May Wang. Also, Prosecution agree not to use VSA-1/2 as evidence of uncharged acts, bad character or propensity to commit crimes against either defendant.

272.  When Prosecution expressly accept D1 and D2 were not complicit in VSA-1 or VSA-2, the two transactions cannot be used as inculpatory evidence against the defendants.  The evidence merely serves as background. Such context evidence reveal that D1 had adopted a very agonistic approach towards his clients May Wang and Jack Chen at a time when all (including other lawyers, bankers and the board of 462) were enthusiastically driving business forward.

Re: D2

273.  In the case of D2, there is no proof she was involved in VSA-1.

274.  Prosecution say D2 must be knowledgeable of VSA-1 because VSA-2 was related to her substantial beneficial interest in Global Food and hinged on VSA-1.

275.  In VSA-2, Global Food was the vendor. However, the production lines to be sold and the trademarks to be leased were actually properties of Xinlong Food under Jack Chen’s control. It is doubtful whether D2 was keen to know all or really knew much about the deals.

276.  Prosecution say D2 would know her husband had a CSRC record through 462’s announcement on VSA-2.

277.  One cannot assume D2 must have read the announcement and paid much attention to that sentence “Mr Jack Chen, the spouse of the major beneficial owner of the Vendor, was held to be in breach of certain securities regulation in the PRC in 2003 and 2004.”[87] That sentence was brief and hardly informative of what the breach was.

278.  Actually the due process of the CSRC enquiry and sanction was unknown. It is not proved in this court what procedures had been adopted by the PRC regulating body for the 2004 decisions against Jack Chen. The standard of proof is also not known.

279.  On the merit side, Jack Chen told Katherine Chan that he was wronged by the accountant. Katherine believed his words. We do not know if Jack Chen told his wife the same. It cannot be presumed that D2 must have known something different.

HK$68.95M

280.  462 remitted much of the CN-C fund to Knight Coldicutt to be kept in escrow. Katherine Chan’s understanding is the money was only for the acquisition of the targeted farms in New Zealand. 

281.  According to 462’s records, part of the CN-C fund was used to provide Final Assistance to UBTL as allowed under Clause 7.5 of VSA-1. [See para 77 above.]

282.  SEHK’s Vice President William Wong says 462 should seek SEHK’s approval to change the use of raised funds. However, it is not clear in what situation 462 should provide Financial Assistance to the Vendor. Thus it is debatable whether 462 had changed the use of CN-C. Even if 462 did and failed to obtain SEHK’s approval beforehand, it might be a mere breach of listing rules rather than a crime.  In this trial, it is not proved any CN-C money was misused. It is not clear in what circumstance 462 instructed Knight Coldicutt to pay UBTL. Anyway, Knight Coldicutt paid UBTL after the Sales Shares Completion in VSA-1.

283.  Prosecution fail to get hold of the necessary ledgers from Knight Coldicutt. They concede they cannot prove the money UBTL paid Goldmate had come from the escrowed CN-C money. Nevertheless, they ask the court to find D1 and D2 had reasonable grounds to believe so.

284.  Prosecution need not prove the source of the fund if they do not allege any offence of particular nature.  But if they do, it is their duty to prove the source rather than to rely on D1’s or D2’s belief to prove that as a fact.

285.  In any event, Prosecution fail to prove the defendants had reasonable grounds to believe the HK$68.95M they dealt with had come from the CN-C fund.  D2 certainly knew the money was from her husband but there is no evidence to show she knew its original source. For D1, the last proof of his knowledge of the escrowed money was from the email by 462’s CFO (Prime Law). The CFO emailed to a number of parties including D1 on 3 February 2010.[88] There is no evidence that D1 was further informed on the escrowed money or that he had further communication with anyone on the fund-flow. D1’s was May Wang’s lawyer in Hong Kong. She had another set of lawyers in New Zealand. One cannot assume D1 advised May Wang on all matters or be informed/consulted by May Wang of everything.

Jack Chen

286.  Prosecution allege Jack Chen was a fraudster but they do not seek to prove it as a fact.

287.  It is agreed that at the material times of Charges 1- 18, Jack Chen is a man of clear record in Hong Kong and in New Zealand. It is not known whether he has any record in PRC apart from that CSRC sanction.

288.  In 462’s announcement on 7 May 2009, the following was said of Jack Chen with the approval of the board chaired by Katherine Chan: -[89]

“Mr. Chen, aged 41, is a successful entrepreneur and investment expert. He received an award of Ten Outstanding Young Persons in Fujian Province and was the president of the Association of Young Entrepreneurs of Fujian Province. He has been the council advocate of the New Zealand Chinese Business Roundtable Council since 2007. The biographical details of Mr. Chen are as follows:

1. MAJOR ACHIEVEMENTS:

Chairman of the board of directors of 福建省神龍乳品飲料有限公司 (1990)

Chairman of the board of directors of Fujian Fulian Co., Ltd. (1998-2001)

Chairman of the board of directors of 香港神龍國際集團有限公司 (1997-2002)

Mr. Chen immigrated to New Zealand in 2002 and has been participating in community services in New Zealand since then. He later established the New Zealand Chinese Business Roundtable Council, which serves as a channel for the co-operation and communication between Chinese entrepreneurs and the entrepreneurs and politicians in New Zealand. As such, he has made significant contributions to the business affairs and operations of Chinese entrepreneurs in New Zealand and the promotion of Chinese entrepreneurs' social status in New Zealand. Mr. Chen's national and social contributions to New Zealand were recognized by the ruling party and Phil Goff, the current leader of the ruling party, was invited to be the patron of the council.

Mr. Chen also gained a deep understanding of the local dairy industry and market in New Zealand. He later set up the dairy brand of “澳牛”and introduced New Zealand dairy products to the China market with success.

In 2008, Mr. Chen was approved as and granted the certificate of a registered listing sponsor for the New Zealand Stock Exchange after years of considerable efforts. He was also appointed as the chairman of 新西蘭高美證券集團.

2. HONOURS AND AWARDS:

“Reputable Enterprise with AAA ratings in 1997” by the Fujian

branch of Agricultural Bank of China (農業銀行福建分行授予「97年AAA級」信譽cultural Bank of企業稱號)(1997)

“Credible and Trustworthy Business Unit in Fujian Province” (福建省重合同、守信用單位稱號)(1997-1998)

“Top Ten Excellent Private Enterprises in Fuzhou" (福州市十強私營企業稱號)

“Quality Education Award" by the Fuzhou City Committee and the Fuzhou Municipal Government (福州市委、市政府授予「優育事業教育奬」稱號)

“Outstanding Person Award” in the “National Campaign of Reviving 1000 Small and Medium-Sized Enterprises” (「全國振興千家中小企業」先進個人稱號)(1998)

“Ten Outstanding Young Persons in Fuzhou” (福州市十佳青年稱號)(1997)

“Outstanding Young Entrepreneurs in Fuzhou” (福州市優秀青年企家稱號)(1997)

“The 2nd Fujian Ten Outstanding Young Entrepreneurs Award” (第二屆福建省十大傑出青年企業家稱號) (1999)

“Pioneer (Role model) of the New Long March of Fujian Province” (福建省新長征突擊手標兵稱號)(1999)

3. MAJOR COMMUNITY DUTIES IN THE PAST:

Member of the All China National Industry and Commerce Association (中華全國工商業聯合會會員)

Standing member of the China Young Entrepreneurs Association (中國青年企業家協會常務理事)

Member of the All China Youth Federation (全國青年聯合會會員)

Vice-president of All-Shanghai Association of Entrepreneurs Residing in Shanghai (上海各地駐滬企業家協會副會長)

President of the council of The 9th Fujian Young Entrepreneurs Association (福建省青年企業家協會第九屆理事會會長)

Member of the Committee of the Chinese People's Political Consultative Conference of Fuzhou (福州市政協委員)

Supervisor of Administrative Efficiency of the Fuzhou People's Government (福州市人民政府行政工作效能監督員)

Senior Research Officer of the Corporate Strategic Research Center of Fujian (福建企業戰略研究室高級研究員)

President of the Fuzhou Young Entrepreneurs Association (福州青年企業家協會會長)

Vice-president of the Association of Domestic and Foreign Entrepreneurs of Fujian (福建省中外企業家聯誼會副會長)

Council member of Hubei Federation of Returned Overseas Chinese (湖北省歸國華僑聯合會理事)

Council advocate of the New Zealand Chinese Business Roundtable Council (新西蘭華人華商圓桌議會主席)”

289.  D1’s secretary Flora Tam opines Jack Chen was not rich because he had a number of outstanding bills with FKC.  However, it is not clear why those bills remained outstanding.  Apparently, D1 allowed that to happen. Otherwise D1 would not continue providing service to Jack Chen and befriend him. Thus, the fact that Jack Chen had not paid a number of bills with FKC is not indicative of his financial strength.

290.  Jack Chen and his wife were connected to China, New Zealand and Hong Kong at the material times.

291.  In Hong Kong, Jack Chen only reported an income of HK$4,445,000 (“Gain realized under Share Option Scheme”) in the tax year of 2009/2010.[90] Prosecution, however, make no enquiries of his and his wife’s income in PRC and New Zealand.

292.  The couple indeed owned the following properties in New Zealand: -[91]

(1) 3 Fairfield Lane, Dannemora, Howick, Auckland was purchased in the name of D2 and Jack Chen on 14 February 2002 at a Consideration of NZD780,000 and sold on 10 September 2003 at a Consideration of NZD780,000. This property was subject to mortgage dated 14 February 2002 in the amount of NZD552,000, which was discharged on 10 September 2003.

(2) 23 Del Mar Court, Howick, Auckland was purchased in the name of D2 and Jack Chen on 24 September 2002 at a consideration of NZD1,180,000 and sold on 7 August 2006 at a Consideration of NZD1,353,000. This property was subject to mortgage dated 24 September 2002 which was discharged on 15 October 2003; it was subject to another mortgage dated 15 October 2003 which was discharged on 7 August 2006.

(3) 61 Grove Road, Takanini, Papakura, was purchased in the name of D2 and Jack Chen on 3 August 2006 at a Consideration of NZD4,477,000 and sold on 19 September 2007 at a consideration of NZD5,871,375. This property was subject to mortgage dated 3 August 2006 in the amount of NZD4,000,000 which was discharged on 19 September 2007.

(4) Units 35 A-G, 1 Courthouse Lane, Auckland, which consists of 7 property units with 7 car park spaces, were purchased in the name of D2 and Jack Chen on 22 October 2003 at a consideration of NZD3,000,000 with a mortgage in the amount of NZD2,925,000. Specifically in relation to each unit:-

(a) Units 35A, 1 Courthouse Lane, Auckland, was subject to mortgage dated 22 October 2003 which was discharged on 23 January 2007. The property was sold on 23 January 2007 for a consideration of NZD1,570,000.

(b) Units 35B and C combined, I Courthouse Lane, Auckland, was subject to mortgage dated 22 October 2003 which was discharged on 3 April 2007. The property was sold on 13 April 2007 for a consideration of NZD638,000.

(c) Units 35D and E combined, 1 Courthouse Lane, Auckland, was subject to mortgage dated 22 October 2003 which was discharged on 21 March 2007. The property was sold on 21 March 2007 for a consideration of NZD665,000.

(d) Units 35F and G combined, 1 Courthouse Lane, Auckland, was subject to mortgage dated 22 October 2003 which was discharged on 28 June 2006. The property was sold on 28 June 2006 for a consideration of NZD1,170,000.

(5) 26 Somerville Road, Howick, Auckland, was purchased in the name of D2 and Jack Chen on 6 July 2007 at a consideration of NZD1,380,000 and continues to be owned by them. This property was subject to mortgage dated 6 July 2007 which was discharged on 19 September 2008; it was subject to another mortgage dated 19 September 2008 which was discharged on 23 February 2011.

(6) 28 Somerville Road, Howick, Auckland was purchased in the name of D2 and Jack Chen on 7 April 2008 at a consideration of NZD618,500 and continues to be owned by them. This property was subject to mortgage dated 7 April 2008 which was discharged on 19 September 2008; it was subject to another mortgage dated 19 September 2008 which was discharged on 23 February 2011.

(7) 16 Bridgewater Road, Parnell, Auckland, was purchased in the name of D2 and Jack Chen on 14 July 2010 at a consideration of NZD4,460,000 with a mortgage loan of NZD3,680,000 and continues to be owned by them.

(8) 12 Magnolia Place, East Tamaki, Auckland, was purchased in the name of Jack Chen on 1 October 2008 at a consideration of NZD428,500 with a mortgage loan of NZD342,800 and continues to be owned by him.

293.  In Hong Kong, on 1 March 2006 Jack Chen purchased Flat A, 28^th Floor of Tower 1, Harbourfront Landmark, Kowloon with a consideration of HK$23,880,000.  The property was subject to mortgage dated 28 August 2007 of HK$11,940,000 which was discharged on 13 April 2011.[92]

294.  Katherine Chan knew Jack Chen in 2004/2005.  She later visited his business in China, including a winery.

295.  The CSRC record in 2004 revealed Jack Chen was in control of the sizable Shenlong business in PRC with a number of subsidiaries, including Xinlong Food, Lude Trading and Redolent Biology. [These names were related to the properties for sale or lease in VSA-2.]

296.  JJL’s valuation reports show that just the production lines and trademarks under VSA-2 had a combined worth of about HK$100M. The properties actually belonged to Xinlong Food, which was one of the subsidiaries of Jack Chen’s Shenlong Group in PRC. The whole stake of assets under Jack Chen’s control must be greater than that; the exact figure is unknown. Jack Chen had only reported income once in Hong Kong in the tax year of 2009/2010 but this court cannot agree with Prosecution that he only had limited means and income. It is fair to say the couple’s wealth is uncharted or unfathomed.

D2

297.  D2 has been Jack Chen’s wife since 1992.

298.  D2 has a clear record.

299.  It is not in dispute that D2 claimed herself as “Housewife” when applying for HKID in 2005 and opening the HSBC account in 2007. Prosecution thus allege D2, like her husband Jack Chen, was of limited means. 

300.  The assets belonging to Jack Chen’s Xinlong Food to be sold/leased through Global Food in VSA-2 were valued to be worth HK$27,329,000 and RMB70,680,000 respectively.[93] D2 owned 83.29% of Global Food.

301.  Prosecution comments the valuation of the production lines was based much on the information supplied by the owner.  Thus it was unreliable.

302.  While the Plant and Machinery Report did qualify the valuation of the production lines as subject to some extraordinary assumptions[94], the valuers certified that: -[95]

- Information has been obtained from sources that are believed to be reliable. All facts which have a bearing on the value concluded have been considered by the valuer(s) and no important facts have been intentionally disregarded.

- The reported analyses, opinions, and conclusions are subject to the assumptions as stated in the report and based on the valuer(s)’ personal, unbiased professional analyses, opinions, and conclusions. The valuation exercise is also bound by the limiting conditions.

- The reported analyses, opinions, and conclusions are independent and objective.

- The valuer(s) have no present or prospective interest in the asset that is the subject of this report, and have no personal interest or bias with respect to the parties involved.

- The valuer(s)’ compensation is not contingent upon the amount of the value estimate, the attainment of a stipulated result, the occurrence of a subsequent event, or the reporting of a predetermined value or direction in value that favours the cause of the client.

- The analyses, opinions, and conclusions were developed, and this report has been prepared, in accordance with the International Valuation Standards published by the International Valuation Standards Committee.

- Richard Zhang and Jing Wu have made personal inspection of the property that is the subject of this report.

- The under-mentioned persons provided professional assistance in the compilation of this report.

303.  JJL is a renowned international valuation firm.  In the absence of evidence to the contrary or proof of sham, their valuation must be accepted as reliable.

304.  At the time when VSA-2 was entered, 462 was still in the control of Katherine Chan with a board of executive directors and independent non-executive directors.  They accepted the production lines as valued were worth buying with the issuance of 32,500,000 shares at HK$0.8 each (equivalent to HK$26,000,000).[96] That was after one of the directors Chan Mei Mei had gone for a site visit of the assets in Fujian and reported back, albeit briefly.

305.  With the trademarks, there was no “extraordinary assumptions” concern. The valuation was carried out on a fair value basis. The valuers explained that ‘fair value’ meant “the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction” and they further stated: -[97]

“We have conducted our valuation in accordance with International Valuation Standards issued by the International Valuation Standards Committee (“IVSC”). We planned and performed our valuation based on the information and explanations which we considered necessary in order to provide us with sufficient evidence to support our opinion of the subject asset. We believe that the valuation procedures we employed provide a reasonable basis for our opinion.

In conducting our valuation, we have reviewed information from several sources, conducted interviews and discussions with the management and conducted research using various public sources and publications to verify the reasonableness and fairness of the information provided.

Based on the results of our investigation and analysis outlined in the report which follows, we are of the opinion that the fair value of the Trademarks as at 31 May 2009 is reasonably stated at: RMB70,680,000.”

306.  Katherine Chan says as 462 would only lease the trademarks rather than buying, they also asked for advice from people in the field.  After due diligence, 462 was willing to pay substantially for the lease of the trademarks.[98]

307.  On credible evidence, I accept D2’ Global Food had worthy assets (properly valued by JJL) to sell/lease to 462. The assets were in fact owned by Xinlong Food, which was just one of a number of subsidiaries in Jack Chen’s Shenlong Group in PRC. Jack Chen apparently had control of the business at the material time so he could push VSA-2 through his wife’s Global Food.

308.  D2 might be conveniently called a housewife but she had substantial joint assets with her husband. The scale of their wealth is uncharted or unfathomed.

D1

309.  D1 has been a solicitor since 1981.  He was a senior partner of FKC and specialized in commercial corporate matters.  Jack Chen had been his client since 2005/2006, and May Wang as his client since 2008. The VSA-1 evidence reveals he adopted a very agnostic approach towards these two clients.

310.  D1 has a clear record.

311.  The Law Society of Hong Kong had published Practice Direction P on money laundering.[99] It was published on the internet and circulated to all members of the Law Society. It was applicable at the time of Charge 1. However, it is not known how much of its content D1, a corporate lawyer, had born in mind at the time of Charge 1.

The law

312.  After Pang Hung Fai[100] and then Yeung Ka Sing Carson[101], the law on money laundering is clearer.

313.  On the ‘having reasonable grounds to believe’ limb, the applicable standard is whether on the grounds available to the defendant, he would have been led to believe the property he dealt with represented in whole or in part directly or indirectly proceeds of an indictable offence.  Such grounds must be reasonable, i.e., anyone looking at those grounds would so believe.[102]  This is called the Seng Suet Fong[103] formulation.

314.  The defendant’s statement of mind must be examined on evidence available for two purposes.[104]

315.  The first is inculpatory.  The defendant’s state of mind is assessed for the inculpatory purpose of asking whether, on the reasonable grounds proven to have been available to him, he would have been led to have the requisite belief. His knowledge or appreciation of the circumstances which supply such grounds provide the element of moral blameworthiness.[105]

316.  The second is exculpatory.  The court has to assess matters fit readily within the concept of a “ground”, which the defendant can be said to have “had” and which may be such as to exclude a culpable state of mind.  Such matters/grounds should include the defendant’s beliefs, perceptions and even prejudices.[106]

317.  If the defendant provides no evidence at all of his beliefs and perceptions, etc, the court is left to draw whatever proper inferences based on the prosecution’s evidence.  Such evidence will no doubt be intended by the prosecution to be inculpatory as establishing the indicia on money laundering. But such evidence may also of course be exculpatory, casting doubt on whether the accused had the guilty mens rea, i.e. whether he had the necessary reasonable grounds to believe.[107]

318.  If the defendant testifies or calls evidence as to his state of mind but is entirely rejected, it does not automatically mean he must be convicted.  It remains necessary for the court to be satisfied that the case against him has been proved beyond reasonable doubt.  Acquittal is called for if there is evidence inconsistent with him having reasonable grounds to believe.[108] The case of Yan Suiling[109] is a good illustration. In that case, Chan PJ said even if the defendant’s evidence was rejected, there were still more than one reasonable inference to be drawn regarding the defendant’s mens rea; the defendant was thus acquitted. Chan PJ reminded the trier of facts to apply common sense in considering all the circumstances of the case.[110]

319.  The same analysis of evidence for inculpatory grounds and exculpatory grounds should be made even when the defendant elects not to give evidence or call any witness.

320.  The ultimate question to ask in a money laundering case must be whether the defendant was really laundering money, and under what limb.

321.  If the court finds the defendant holds an innocent belief or perception but which would strike others as excessively naive, gullible or foolish in the light of objective facts known to the defendant, the defendant is still not guilty.[111] Even the ‘having reasonable grounds to believe limb’ requires a high degree of moral obloquy to justify conviction.

322.  The Court of Final Appeal also says in Yeung Ka Sing, Carson that negligence is not a basis for conviction.  The phrase ‘ought to have known’ in Pang Hung Fai should not be invested with any greater significance.  It adds nothing more to the Seng Yuet Fong formulation, which will usually be all that is required.[112]

323.  Ms Draycott SC emphasises the existence of grounds and says the court need not posit or dwell on the actual or possible belief of the defendants.  On the other hand, both Defence Counsel submit that any reasonable ground must be examined as to whether it would have led D1/D2 to believe the property he/she dealt with represented the proceeds of an indictable offence. In counsel’s words, ‘grounds’ must not be decoupled from ‘belief’.  The court is to examine ‘grounds which would have led the defendant to the requisite guilty belief’; NOT ‘mere grounds’ or ‘grounds sufficient for the defendant to so believe’. I agree.

324.  Another argument is how inference should apply. 

325.  Ms Draycott SC relies on that stream of cases including Yam Ho Keung ,[113] Wan Yet Kwai[114] and Tam Lap Shek[115] to say in money laundering cases the defendant can be convicted even if the reasonable grounds for belief could simultaneously have led to the requisite guilty belief as well as some non-guilty beliefs. She says it would be sufficient to convict if one of the beliefs involved was the requisite guilty belief provided it was the most obvious one.

326.  Both Defence Counsel disagree. They refer to Winnie Lo[116], which states the court can only convict a defendant on inference if the drawn inference is from clear primary facts; the inference is logical and the only irresistible one available.[117]

327.  Winnie Lo is certainly the authority on drawing and applying inference. The stated principle would apply in all criminal situations, including money laundering cases proceeded on the ‘having reasonable grounds to believe’ limb. [Without averring to Winnie Lo, the case of Yan Suiling demonstrates the principle.[118]]

328.  Mr Blanchflower SC submits that a person cannot be said to have believed A and non-A at the same time. 

329.  I agree.  A person could form suspicion of different kinds under certain grounds even if those suspicious thoughts might be contradicting or mutually exclusive. But belief is a different thing.  It is illogical to say one would hold contradicting or even mutually exclusive beliefs simultaneously.  In a money laundering case, the defendant being aware of certain reasonable grounds either would have believed the property he dealt with represented indictable crime proceeds, or he would not have so believed.  The requisite guilty belief and any non-guilty belief (A and non-A) cannot co-exist.

330.  It is obvious cases like Yam Ho Keung, Wan Yet Kwai and Tam Lap Shek relied upon by Prosecution should be regarded as obsolete in the light of Pang Hung Fai and Yeung Ka Sing Carson, since the applicable consideration now for the ‘having reasonable grounds to believe’ limb is ‘would’ rather than ‘could’. [In fact, Yan Suiling can already show that. See para 327 above.]

Charges 2-18

331.  It makes more sense to deal with D2’s Charges 2-18 first.

332.  Prosecution allege D2 used her HSBC account to launder money.

333.  Charges 2-17 are arranged chronologically.  (It is worthwhile to note that Charges 8-18 took place only after Jack Chen was first arrested by ICAC on 16 December 2010.  D2 witnessed the arrest.[119]  I shall discuss about that later.)

334.  Prosecution divide the 17 charges into two types:-

TYPE ONE - eight deposits alleged to have come from Jack Chen, his company Goldmate, or be connected with Jack Chen one way or the other:

- Charges 2, 7, 9 and 16 (deposits from Jack Chen or Goldmate);

- Charges 6, 8, 17 and 18 (deposits said to be related to Jack Chen one way or the other, involving Lisa Du, NRL, D2’s sister Ye Mei and Shum Wan Wah Walter respectively).

TYPE TWO - nine remittances from PRC; no allegation that they were related to Jack Chen whatsoever:

- Charges 3-5 (all on 22 June 2010);

- Charges 10-11 (all on 14 February 2011);

- Charges 12-15 (all on 25 March 2011).

TYPE ONE

(A) Charges 2, 7, 9 & 16

335.  Charge 2 was a HK$68.95M deposit from Goldmate via FKC on 12 March 2010.

336.  Charge 7 was a HK$1M deposit from Goldmate on 7 December 2010.

337.  Charge 9 was a HK$8,769,982.09 deposit from Jack Chen’s personal account on 18 January 2011.

338.  Charge 16 was a HK$22M deposit from Goldmate on 4 April 2011.

(B) Charges 6, 8, 17 & 18

339.  Prosecution suggest Jack Chen deposited money in D2’s account and manipulated its operation, leading to the transactions in Charges 6, 8, 17 and 18. It is alleged these four TYPE ONE B deposits were circulated money for laundering.

340.  Apart from the charged acts, Prosecution also highlight transactions relating to three uncharged sums going from D2’s account to an NRL employee So Chau Hong (HK$600,000 plus HK$710,870; both on 21 July 2010) and Lisa Du (HK$10M on 3 March 2011), saying they were also related to Jack Chen one way or the other. [As they are uncharged sums, they can only serve as evidence of D2’s account activities like all other uncharged transactions in the account but no more than that.]

Circulated money

341.  It would be helpful to look at Charges 6, 8, 17 and 18 first to see whether they were really circulated for money laundering.

HK$50M from Lisa Du on 2 September 2010 [Charge 6]

342.  Lisa Du was the wife of Zhan King. The latter was a major investor in CN-C.  Katherine Chan says Zhan King was on Jack Chen’s side.

343.  Due to VSA-1, 462’s shares was suspended from 12 February 2010.  It resumed trading on 30 August 2010.  The share price was on the rise.[120]

344.  Lisa Du and her husband Zhan King held many 462 shares. 

345.  On 30 August 2010, D2’s account transferred HK$50M to SHK, where Lisa Du had a margin securities account.  D2 stated to SHK that she was a business partner of Lisa Du.[121]

346.  On the same day, Lisa Du through SHK bought over 30 million 462 shares.  The cost was HK$61M odd.  These shares gained around HK$2.4M in one day as 462 share price rose.[122]

347.  On 2 September 2010, Lisa Du instructed SHK to debit her account to return HK$50M to her ‘business associate’ D2.[123]

348.  Prosecution label the above in and out transactions as circulation.  I do not agree.  Obviously, it was a short-term loan from D2 to Lisa Du for the latter to buy heavily in 462 shares at a time when the share price was on the rise.  Lisa Du did gain substantially.

349.  One may ask why no interests were paid by Lisa Du to D2.  The return money was the exact borrowed amount of HK$50M. 

350.  Lisa Du and D2 had stated themselves to be business partners/associates.  They probably would share the profit gained.  That answers the interests query. 

351.  It is not right to hold the HK$50M in and out as circulated money for laundering; the transactions did seem to have a legitimate purpose.

HK$24,221,420 from NRL on 18 January 2011 [Charge 8]

352.  Six loan agreements were found at the home of Jack Chen and D2.[124] The same were found in 462’s office.[125] D2 transferred the six loan amounts (seven sums altogether as Loan Two was split into two payments) to NRL, a subsidiary of 462:-

2010.9.13	HK$5,000,000 – Agreement 1
2010.9.16	HK$5,500,000 – Agreement 2
2010.9.27	HK$5,000,000 – Agreement 3
2010.10.29	HK$5,000,000 – Agreement 4
2010.11.5	HK$1,000,000 – Agreement 5
2010.11.17	HK$2,721,420 – Agreement 6
Total:	HK$24,221,420

353.  All the six loan agreements had the same format.  It was stated the loans were for business development, for a tenure of 6 months and interest-free.  The borrower was 462 in each case but the money was paid from D2’s account to NRL’s account. Miranda Ng (an executive director of 462) signed all the six agreements.  In Agreement 4, there was also a witness called Lee Kit Lai Michelle.[126]

354.  On 18 January 2011, NRL paid back the borrowed total of HK$24,221,420 to D2’s account.

355.  Prosecution say the loans and return were sham, only to effect circulation for money laundering.

356.  Circulation for money laundering usually involved layering and cover up. Here we see none. The loans were clearly documented. They were signed by 462’s executive director Miranda Ng. In Agreement 4, there was also a witness Lee Kit Lai Michelle.

357.  One might query why Jack Chen’s wife (D2) would lend so much money to 462 for no interests. 

358.  At the material times, 462 was clearly in the control of Jack Chen and his party. They of course would like to sustain 462’s operation. It is not strange Jack Chen would lend to 462 from the money he had put in his wife’s account. It is also not surprising that Jack Chen would waive interests for all the loans if he was seeking bigger profits by propelling the company’s business or trying to drive up 462 share price.

359.  Prosecution allege the six loan agreements were sham.  However, ICAC found some board minutes relevant to Loan 4[127] and Loans 5-6.[128]  The latter board minute dated 26 November 2010 evidenced query raised by an independent executive director Mr Kerr. Miranda Ng explained in the meeting about the use of Loan 5 and Loan 6. The minute recorded “Mr Kerr eventually agrees to borrow money from Ye Fang but suggests repaying the 2 Short Term Loans in full to Ms Ye Fang by 31 May 2011”.

360.  In another board meeting held on 12 January 2011, there was indeed a resolution that 462 would return loans of HK$24,221,420 to D2, HK$30,500,000 to Super Worth International Limited and HK$10,000,000 to Goldmate.[129]

361.  NRL did pay out the three said sums on 18 January 2011.[130] Goldmate’s account did not have record of that HK$10,000,000 deposit. But on the same day, Jack Chen transferred from his personal account HK$8,769,982.09 to D2 [Charge 9]. Most likely, that came from NRL’s repayment of Goldmate’s loan to Jack Chen.

362.  It is never alleged the HK$10,000,000 loan by Goldmate and the HK$30,500,000 loan by Super Worth, and the repayments of which were make-believe arrangements. It is thus arbitrary for Prosecution to say D2’s lending to NRL in the total of HK$24,221,420 was sham and the repayment was laundered money in circulation.

363.  It is wrong to label the six loans from D2 as sham. I, therefore, would not hold 462’s paying back D2 through NRL in one go as circulation for money laundering. 

HK$9,999,792.50 from Ye Mei (D2’s sister) on 8 July 2011[Charge 17]

364.  D2 remitted HK$10M to her sister Ye Mei on 6 July 2011.  Two days later (8 July 2011), D2 received HK$9,999,792.50 from Ye Mei. The two sums were very close in amount.  It is accepted by parties that the difference was due to deduction of a remittance charge (200 odd dollars).

365.  The return of practically the same amount after two days might look suspicious. It also seemed D2 had charged Ye Mei no interests and thus had to bear 200 odd dollars of remittance charge herself. 

366.  However, Ye Mei was D2’s sister as different from a stranger.

367.  If the HK$10M out and the almost whole amount in were for money laundering, one would expect the return to be made at a later time, or even in different batches on different days and through different sources for disguised layering rather than having the sister’s giving back D2 virtually the same amount two days later.

368.  Actually, by that time Jack Chen had been arrested by ICAC for 6 months. He and his wife must know they were being investigated intensively. It did not require a wise person to realize the couple’s assets (including their accounts) had been under watch by the authority closely. If D2 must dare continuing money laundering in that circumstance, one would expect the HK$10M to stay with Ye Mei in PRC, or be sent further elsewhere for concealment rather than being returned by the sister in two days’ time.

369.  Many inferences can indeed be drawn.  One suggestion by Mr Owen QC is that it was a lending by D2 to her sister in PRC for the latter to show good credit balance to others for a proper purpose.  Then the money was returned. This was possible as it did happen at times for some in reality.

370.  The said in and out transactions between D2 and her sister were not like money laundering.

HK$1,000,000 from Walter Shum on 19 October 2011 [Charge 18]

371.  Walter Shum was a director of NRL between 29 September 2010 to 31 October 2011.[131] Most likely, he was familiar with Jack Chen and D2.

372.  D2’s account paid out HK$2M to Walter Shum on 18 October 2010.  A day later (19 October 2010), Walter Shum credited HK$1M to D2’s account.

373.  Looking at the two figures, the latter amount was no doubt half of what D2 paid out to Walter Shum a day earlier.  There is no evidence to say what the sums were for. If the HK$1M was just a return by half of the earlier HK$2M amount, then it called for explanation. But that HK$1M could also be a payment relating to a separate matter. There can be many interpretations indeed.

374.  The event in Charge 18 took place 10 months after Jack Chen’s first arrest on 16 December 2010. Again, if D2 must still launder money and dared in the circumstance, one would expect the HK$2M should stay with Walter Shum, or be sent further elsewhere for concealment rather than being returned on the next day.

375.  After all, a deposit of HK$1M was not a huge amount. There were no clear hallmarks of money laundering.

Four deposits of over HK$100M

376.  The four deposits in Charges 2, 7 9 and 16 altogether amounted to slightly over HK$100M.

377.  D2 certainly knew the four sums were from her husband. But she might not know which sum came from Jack Chen’s own account, and which was from Goldmate. There is also no evidence D2 knew the HK$68.95M in Charge 2 had gone through FKC.

378.  Prosecution proceed on the basis that Jack Chan was a conman, VSA-1 was a fraud and the sum of HK$68.95M would have been believed by both defendants to come from misused CN-C money. However, all these allegations have not been proved as facts. Nor is it proved that either defendant had reasonable grounds to so believe.

379.  Prosecution also build their case on the ground that Jack Chan only had reported earnings of HK$4M odd in the tax year of 2009/2010, while D2 was a mere housewife. So, the couple could not have proper money for all the charged transactions.

380.  On the evidence available, I find Jack Chen and D2 did have assets, the scale of which was not fully charted or fathomed but certainly well above what Prosecution argue it was. [See paras 286-308 above.]

381.  In Charge 2, Jack Chen transferred the HK$68.95M to his wife’s (D2) account through FKC. Apparently, Jack Chan would like to make the transfer formal by asking his solicitor-friend (D1) to process the HK$68.95M through FKC. Why was it necessary and why such large sum? Jack Chen of course knew why but there is no evidence he had told anybody.  

382.  It cannot be presumed that Jack Chan must have told all to his wife. In fact, if Prosecution say Jack Chen was a conman, it would be more likely than not that he would not speak the truth to either D2 or D1, who are not alleged to be in any fraudulent conspiracy with Jack Chan.

383.  It cannot be presumed that D2 as the wife must be clear of what her husband was doing all the time. [Nor can the same be expected of D1 as a solicitor to know well of his client-friend Jack Chen.]

384.  On the other hand, I agree with Mr Owen QC that in the long marital relationship between D2 and Jack Chen, it can be presumed that D2 would repose trust and confidence in her husband[132], particularly when Jack Chen had impressed people as a successful and trustworthy person.

385.  The evidence suggests Jack Chen was an established businessman with a number of honours and awards. Even if he was in fact not, he did present to others that he was so.

386.  The CSRC record was a black mark for Jack Chan. However, he explained to Katherine Chan that he was wronged. He put the blame on the accountant. Katherine Chan appears as a smart witness in court. She no doubt was an astute and seasoned businesswoman. She believed Jack Chan and cooperated with him, until she began to lose power in 462 and was finally ousted from the board. It was likely that Jack Chen would convince others of the same. There is no evidence that D2 knew anything or much of her husband’s CSRC record and what was behind.

387.  It is not known when D2 was aware of that deposit of HK$68.95M. There is no evidence that she was aware the sum had gone through FKC before landing in her account.  There is also no evidence that D2 knew, believed or had grounds to believe the money came from the HK$73.7M UBTL gave Goldmate earlier and that further back in time UBTL had received the money from Knight Coldicutt.

388.  Similarly, there is no evidence that D2 knew where his husband got the money in Charges 7, 9 and 16.

389.  The HK$1M (Charge 7) came from Goldmate when it had HK$18.9M in its account.[133] The remaining HK$17.9M went elsewhere. It was before Jack Chen’s first arrest. If at this time he was using D2’s account for money laundering, one would expect the much larger remainder would also go to the wife’s account. It did not.

390.  As pointed out earlier, the HK$8,769,982.09 (Charge 9) probably came from NRL’s paying back Jack Chen the HK$10M Goldmate loan. There is no evidence to show that loan was sham or the money was circulated. Furthermore, by this time Jack Chen had first been arrested for a month. One wonders if he dared continuing laundering money with the same account of his wife, when he and D2 must realize ICAC were watching them closely.

391.  The HK$22M (Charge 16) was from the accumulation of HK$4.35M and HK$19.12M Goldmate had received in late March 2011.[134] It is not clear what those two earlier deposits were. Again, Charge 16 took place after Jack Chen was first arrested by ICAC on 16 December 2010. It was 4 months afterwards. If he must dare laundering money, why would he not use another account to escape ICAC’s watch?

392.  The inculpatory grounds for the eight TYPE ONE charges are of course the manners of the respective transactions and the large amounts involved. But for D2, there are also exculpatory grounds as follows: -

(a) Whatever Jack Chen really was, he presented himself to the world at large as a successful and trustworthy businessman with means.

(b) At the material times, Jack Chen was a man of clear record.

(c) D2 had married Jack Chen since 1992. They had children. She would repose trust and confidence in her husband, particularly when he appeared as (a) above.

(d) Assets accrued during the subsistence of their PRC marriage were joint property of the couple, according to PRC law. Jack Chen and D2 were entitled to view the money in either one’s account as joint property.

(e) The exact wealth of Jack Chen and D2 in Hong Kong, New Zealand and China is uncharted/unfathomed. They had a number of real estate assets (most as joint properties) in New Zealand and in Hong Kong. They also had assets in PRC. For Global Food/Xinlong Food alone, the production lines and trademarks to be sold/leased under VSA-2 were properly valued at about HK$100M.

(f) The couple had assets and they were connected to three places (PRC, New Zealand and Hong Kong). It was not strange that they at times would move assets of scale from one place to another. It could be for legitimate reasons.

(g) D2’s account maintained most of the money for much of the time, even after Jack Chen’s first arrest. [See para 197 above.]

(h) D2 is of clear record at all material times. She is to be viewed as a person of good character, which further means she is less likely to commit crimes.

(i) Five of the eight charges in TYPE ONE (Charges 8, 9, 16, 17, 18) and six of the nine TYPE TWO counts (Charges 10-11 and 12-15) arose only after 16 December 2010, the date when Jack Chen was first arrested at home in the presence of D2. The couple would certainly realize that ICAC had been investigating or would investigate their assets and accounts intensively. It is inconceivable that they should continue money laundering of scale for another 10 odd months through the same account of D2’s, if that account had been used for laundering money at all.

393.  The ultimate question to ask is when D2 dealt with the money in Charges 2-18, would the circumstance on each occasion have led her to believe the money represented indictable crime proceeds?

394.  Jack Chen and D2 were married in China. Mr Owen QC points out with the assistance of two PRC law experts that money gained during the currency of their marriage was indeed joint property for the couple wherever it was put.[135]

395.  It is pointed out that the couple did jointly own a number of properties in New Zealand and Hong Kong. They also had assets of scale in PRC. Just Global Food/Xinlong Food alone had production lines and trademarks worth at least about HK$100M.

396.  Jack Chen’s transferring so much money in Charges 2, 7, 9 and 16 to D2’s account might look suspicious. Mr Owen fairly concedes that one possible theory is that those transactions were related to money laundering. But he says that is not the only inference. He submits a possible inference is not sufficient to convict unless it is the only irresistible inference.

397.  I agree. There are indeed a number of inferences that can be drawn in the circumstance apart from the possibility that Jack Chen was trying to hide crime proceeds by transferring the money to D2’s account.  It could be that he was merely shifting his lawful assets to avoid tax. (We know Jack Chan only declared income once in Hong Kong in the tax year of 2009/2010.) Or he might be trying to use his funds to sustain 462 – a listed company which he had much interest in and his party had finally gained control through substantial shareholding.  But Jack Chen had to hide behind the screen for fear of SEHK’s intervening.  This is quite possible given his unhappy encounters with SEHK, when SEHK would not accept him as 462’s director at the outset and continuously queried whether he was behind the screen in VSA-1 and 462’s operation.

398.  D2 elects not to give evidence.  The court is not to speculate a defence for her.  However, the court has a duty to consider reasonable inference from cogent evidence in the prosecution case.

399.  Ms Draycott SC does not stipulate possible defence hypotheses and then reject them one by one.  She does not have to.  But her closing submission does suggest there can be more than one inference to be drawn.  She deals with that by saying if the most obvious inference is the defendant laundered money on the ‘having reasonable ground to believe’ limb, the court can convict.

400.  With respect, that submission is wrong.  The law on inference for money laundering (even only on the ‘having reasonable grounds to believe’ limb) is no different from other offences.  To convict a defendant, the court must be satisfied beyond reasonable doubts that there was only one irresistible inference of guilt to be drawn according to the Winnie Lo principles.

401.  Having considered the inculpatory and exculpatory grounds relating to the eight charges of TYPE ONE, I find Prosecution have not proved beyond reasonable doubts that D2 on each of those eight occasions had reasonable grounds to believe the sum deposited in her account represented in whole or in part directly or indirectly the proceeds of an indictable offence.

402.  D2 is acquitted of Charges 2, 6, 7, 8, 9, 16, 17 and 18 accordingly.

TYPE TWO

Charges 3-5 & 13-15

403.  These nine remittances were from China on three days: -

22 June 2010	Charge 3		HK$250,000
	Charge 4		HK$500,000
	Charge 5		HK$450,000
	Total:		HK$1,200,000
14 February 2011	Charge 10		HK$5,859,594.5
	Charge 11		HK$5,849,992.5
	Total:		HK$11,709,587
25 March 2011	Charge 12		HK$2,364,522.5
	Charge 13		HK$1,653,120.5
	Charge 14		HK$1,599,992.5
	Charge 15		HK$3,103,334.5
	Total:		HK$8,720,970

404.  The inculpatory grounds were that there were respectively two, three and four remittances on three different days. Some were in millions. Were they generated by crimes?

405.  Remittances from China were not uncommon.  The source might be legitimate or illegitimate. But if the sources here had anything to do with crimes or money laundering, one would expect the various sums to be remitted on more diverse days for less suspicion rather than having respectively two, three or four remittances in a day.

406.  There can be many reasons why remittances from PRC, even if legitimate, were not grouped as one but sent separately within a day. One reason might be to avoid currency control. Another, for example, was that the funds were from different legitimate origins.

407.  The nine sums amounted to around HK$21.62M. Individually or collectively, they were not incommensurate with D2’s uncharted or unfathomed wealth as discussed above. As D2 and her husband were connected with PRC and Hong Kong (as well as New Zealand), remitting money or receiving remittance of scale from one place to another does not give rise to irresistible inference of money laundering.

408.  Charges 3-5 were actually of relatively small amounts.  There were already some remittances of similar scale or even larger magnitudes before the date of D2’s first charge, i.e. Charge 2 (12 March 2010) [See para 198 above].  There are no allegations against those previous transactions.  It is thus arbitrary for Prosecution to say the sums in Charges 3-5 must be related to money laundering.

409.  Charges 10-11 and Charges 12-15 were of larger amounts but still commensurate with the wealth of D2.  One also has to bear in mind that Charges 10-11 and Charges 12-15 arose all after 16 December 2010 -- the date when Jack Chen was first arrested by ICAC.  Thus the exculpatory ground (i) in para 392 above would apply to these six charges alongside the other exculpatory grounds (e)-(h); for Charges 3-5 that occurred before 16 December 2010, the exculpatory grounds (e)-(h) would apply.  

410.  Prosecution allege D2 used her account to launder money on the ‘having reasonable grounds to believe’ limb between 12 March 2010 and 26 October 2011. In other words, it is said D2 and her husband continued to launder money with the same account for another 10 odd months after the husband was first arrest by ICAC on 16 December 2010.  That sounds extraordinary.  It defies common sense that the couple should continue money laundering for that long with the same account when they knew for sure they were being watched by ICAC. One would think if they were really laundering money there, the account would be emptied in a short time and any criminal activity there would also stop soon after 16 December 2010.  That was not the case here. One has to doubt seriously if that account of D2’s was really used by the couple for money laundering.

411.  Prosecution say D2’s account was gradually emptied nevertheless.  We know one of the hallmarks of money laundering is that money would go out of the laundering account soon, sometimes almost as soon as the money arrived.

412.  But looking at the state of D2’s account (para 197 above), that does not seem to be the case.  In fact, much of the money stayed in the account for quite long there. The maximum portfolio was around HK$79M in June and July of 2011. That was already 6 months after Jack Chen was first arrested by ICAC on 16 December 2010.

413.  Ms Draycott SC points out there was not much left in D2’s account around late October/November 2011. 

414.  The balance was indeed much reduced at that late stage. But I agree with Mr Owen QC that it is understandable that the couple would take out as much as they deemed appropriate from the account, which they knew would be subject to a restraint order soon. Money launderers would do that. But normal people would also do the same after knowing their money would be frozen soon. Nevertheless, the account was not emptied. The remaining portfolio by early November was HK$12.7M (consisting of HK$5.2M, NZ$0.48M [equivalent to HK$2.99M] and unit trusts of HK$4.4M).[136] One would not expect Jack Chen and D2 to leave so much in the account if they were really laundering money with that account. Money launderers would have taken all out before the restraint order was imposed.

415.  Prosecution also take issue with the ATM withdrawals and point out that between 12 March 2010 and 26 October 2011, a total of HK$1.725M cash was withdrawn by such means, averaging about HK$90,000 per month.

416.  This, however, must be viewed side by side with D2’s credit card spending, which at times was a multiple of that average ATM monthly withdrawal figure. [See para 198 above.]  Such credit card spending and withdrawals were perhaps more reflective of life style than money laundering.

417.  As said, the ultimate question to ask is when D2 dealt with the money in Charges 2-18, would the circumstance on each occasion have led her to believe the money represented indictable crime proceeds?

418.  Mr Owen fairly concedes that one possible theory is that any suspicious activity in D2’s account might be related to money laundering. But he also says that is not the only inference to be drawn and a possible inference is not sufficient to convict.

419.  D2 elects not to give evidence.  That is her right. The law on money laundering, though stringent, has not imposed any burden of proof on the defendant.

420.  Having considered the inculpatory and exculpatory grounds relating to the nine charges of TYPE TWO, I find Prosecution have not proved beyond reasonable doubts that D2 on each of those nine occasions had reasonable grounds to believe the sum deposited in her account represented in whole or in part directly or indirectly the proceeds of an indictable offence.

421.  D2 is acquitted of Charges 3, 4, 5, 10, 11, 12, 13, 14 and 15 respectively.

Charge 1

422.  Basically, Ms Draycott SC alleges:

- D1 knew Jack Chen as a person of questionable integrity;

- D1 heard many complaints about Jack Chen, May Wang and VSA-1 but still assisted them in VSA-1;

- D1 got involved in complex corporate arrangement for Jack Chen and May Wang;

- D1 knew 462 had deposited a huge amount of money with Knight Coldicutt in New Zealand in escrow only for VSA-1 and not for Jack Chen’s or May Wang’s own gain;

- D1 failed to follow the Law Society’s Practice Direction on money laundering.

423.  I have already considered the significance of VSA-1/2 evidence in relation to the alleged money laundering. Prosecution have not proved beyond reasonable doubts that D1 had reasonable grounds to believe the HK$68.95M was from the misused CN-C fund or any indictable offence.

424.  Nevertheless, there are suspicious circumstances surrounding Charge 1.  Jack Chen could have transferred the HK$68.95M directly from Goldmate to his wife’s account.  Why should he do that through FKC?  The only reasonable explanation is that Jack Chen would like to give the transfer a formal status.

425.  But was it intended to provide layering for the sake of laundering money?  If so, in an alleged laundering crime of such scale, one would expect the perpetrators to create some cover-up or fake documents to conceal the illegality.  Here we see none.

426.  Prosecution say D1 asked his secretary to designate the sum as ‘costs and disbursements’ and that was sham. However, such simple instruction can also be interpreted as D1 never designed on the matter. 

427.  As an experienced solicitor and a senior partner in FKC, D1 could have easily made up papers to label the money differently to justify the transfer, if he would have believed the money represented indictable crime proceeds.  There was nothing of that sort. D1 simply told his secretary that Jack Chen would send FKC a huge sum of money and the money was to be returned to the client the next day.  D1 just asked his secretary to designate it as ‘costs and disbursements’ in his miscellaneous file.  He did not coin a story or fake documents to make the money look like, say, a deposit or transaction capital of a fictitious property/commercial deal and then let the invented deal be cancelled to facilitate ‘proper’ return of the money.

428.  Nor did D1 instruct Flora Tam or Rachael Fong that the documents related to the in and out transactions should be restricted of circulation.  Everything was thus processed in the usual way -- open for all to see that the HK$68.95M ‘costs and disbursements’ came from Goldmate and then went to D2. Records were properly filed and there was no concealment of trails.

429.  As everything about the money in and out was clearly documented and filed, many could and would check, e.g. the auditors. D1’s acts must come to light sooner or later.

430.  Furthermore, D1 did not give specific instruction to his secretary or the account staff that the pay-out cheque of HK$68.95M could only be signed by him. The cheque was indeed signed by him but Rachael Fong says if D1 was not in the office, another authorized signatory in the firm could sign including the head of the firm Kan Ka Chung.  That means, if D1 was not there to sign the cheque, another senior lawyer including Mr Kan would have to attend to the matter. That handling lawyer could easily spot the huge ‘costs and disbursements’ and might report such abnormal situation.

431.  If the circumstance of Charge 1 had really led D1 to believe the money represented indictable crime proceeds but he still went on with it in such highly exposed manner, he was indeed a very foolish money launderer.

432.  D1 had been a solicitor for 28 years.  He specialized in the corporate commercial field.  That was no simple business.  He and other lawyers had been drafting complicated agreements and announcements in relation to VSA-1/2.  Lots of thoughts were required of D1. He had that meticulous ability, no doubt. I do not think D1 would disregard the danger of being discovered, if he was really laundering money for Jack Chen of such magnitude. I do not think if the circumstance would have led D1 to believe the money he transferred for Jack Chen to his wife represented indictable crime proceeds, he would do that in such risky way without make-up or cover up.

433.  The Law Society issued the revised Practice Direction P (Guidelines on Anti-Money Laundering and Counter Terrorist Financing) on 1 December 2008.[137] Charge 1 took place 15 months later in March 2010. It is not clear by then how much of that guideline content D1 had born in mind.  One cannot expect any solicitor to read or remind himself of all kinds of practice directions every day. A solicitor would have many things to read and to attend daily. Flora Tam says D1 was very busy and often had to respond quickly to requests from clients and other lawyers.

434.  D1, as a solicitor, would be expected to know there was an offence called ‘money laundering’. But it was never an easy law to understand, particularly under the ‘having reasonable grounds to believe’ limb. After all, D1 was a commercial corporate solicitor, not a criminal lawyer.

435.  No doubt, D1 had breached the Law Society’s Practice Direction on money laundering, which he ought to have complied with carefully and strictly. However, his non-compliance might be due to ignorance of the guidelines content or being careless in handling or over-trust of his long-term client/friend Jack Chen (who represented himself to all as a trustworthy and successful businessman).

436.  D1 elects not to give evidence. That is his right. The burden of proof is not on him.

437.  I agree to Prosecution’s submission that consideration under the ‘having reasonable grounds to believe’ limb is not on the defendant’s actual belief but on the ‘reasonable grounds’ which the defendant had. 

438.  However, I also agree with Defence Counsel that it should not be consideration on ‘pure grounds’ but ‘such reasonable grounds that would have led the defendant to the requisite guilty belief’.

439.  D1 has a clear record. Joseph Tong of SHK says he is an honest person.

440.  There is no evidence D1 had any gain in helping Jack Chen to transfer the money to his wife. Why would a long serving solicitor suddenly become a money launderer and handled the HK$68.95M in such a daring and risky manner?

441.  The circumstances, though suspicious, do not indicate for sure that the reasonable grounds D1 had at the material time would have led him to believe the money represented in whole or in part directly or indirectly the proceeds of an indictable crime. The case rather looks like D1 was simply and perhaps too naively doing a favour for his long-term client/friend Jack Chen, who appeared trustworthy to him.

442.  After balancing the inculpatory and exculpatory grounds, I give the benefit of doubt to D1 and acquit him of Charge 1.

Annex I

DCCC 1022/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1022 OF 2012

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HKSAR

v

WU WING KIT (D1)

YE FANG (D2)

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RULING

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D2’s application of no case to answer

1.  Mr. Owen QC, Counsel for D2, makes no-case submission with respect to the 17 charges D2 is facing, i.e. Charges 2-18.

2.  The 17 charges can be classified into 2 types according to Prosecution.

The first type

3.  The first type comprises Charges 2, 6, 7, 8, 9, 16, 17 and 18.  In these charges, the deposits into D2’s personal bank account are said to have come from Jack Chen (D2’s husband), his company Goldmate or persons connected to Jack Chen and 462.  Prosecution say Jack Chen had induced 462 to agree with a New Zealand vendor on a very substantial acquisition (VSA-1) and orchestrated its execution. 462 issued convertible notes for VSA-1 and managed to raise a large sum of money  to be used for the carrying out of VSA-1.

4.  Prosecution also allege Jack Chen had caused 462 to agree to buy production lines and to lease trademarks from Global Food. D2 held major beneficial interest in Global Food. It is said the purpose of VSA-2   was to extract money from 462.  

5.  VSA-1 did not go through eventually; VSA-2 did not come to fruition either. Prosecution allege Jack Chen had improperly gained from VSA-1 and the funds in the first-type charges might have come from a fraud relating to VSA-1. Yet, Prosecution do not seek to prove VSA-1 was indeed a fraud. They only say the circumstances against D2 (including her role in the correlated VSA-2, her relationship/knowledge of Jack Chen, the couple’s financial position and the in’s and out’s of D2’s integrated bank account) would constitute reasonable grounds for D2 to believe those funds in whole or in part, directly or indirectly, represented the proceeds of an indictable offence.

The second type

6.  The second type is composed of Charges 3-5 and Charges 10-15. Prosecution say these deposits into D2’s bank account were made by persons of unknown role, or by remittance agents from sources unknown.  It is not alleged these funds were related to Jack Chen, VSA-1 or 462.

Defence submission

7.  Defence Counsel’s written submission and attached cases are  in Bundle N. 

8.  Counsel points out Prosecution fail to prove VSA-1 (or VSA-2) as fraud, or the deposits in Charges 2, 6, 7, 8, 9, 16, 17 and 18 actually came from VSA-1 or any predicate offence.  There is no proof these funds were proceeds of an indictable crime.

9.  Counsel says the first-type charges would fail if Prosecution try to prove the money had come from the alleged VSA-1 fraud.

10.    Counsel submits that even if Prosecution do not contend the deposits had come from any predicate offence, the first-type charges would still fail at the mid-way stage because D2 was a woman of means herself and more importantly, she was the wife of Jack Chen as a rich man. 

11.    Counsel also says as Prosecution allege Jack Chen manipulated his wife D2, it can be hypothesized that D2 was just a manipulated innocent wife and such possibility cannot be dispelled. He relies heavily on what the Court of Appeal said in R v Goddard and Fallick:-^[138]

“… the  exercise of  deciding  that  there  is  a case to answer does involve the rejection of all realistic possibilities consistent with innocence.”

12.    Counsel says the second-type charges, i.e. Charges 3-5 and Charges 10-15, would also fail for the innocent wife hypothesis because Prosecution cannot exclude a possible inference consistent with innocence, i.e. D2 was duped and had no belief that the funds were crime proceeds.  Therefore, she would not be considered by a reasonable jury to have grounds to believe the money in whole or in part, directly or indirectly, represented the proceeds of an indictable offence.

Prosecution submission

13.    Prosecutor’s reply and attached cases are in Bundle O. 

14.    Ms Draycott SC for Prosecution maintains that the law does not require proof of any predicate offence. She does not seek to prove VSA-1 as a fraud. Nor does she seek to prove any predicate offence for any charge. She seeks to prove the circumstances of VSA-1 and VSA-2 merely to establish, where appropriate, the defendants’ involvement and thus knowledge in them and the defendants’ collaboration with Jack Chen. 

15.    As to the test for no-case consideration, Prosecutor states she is not advancing any test different from Galbraith.^[139]  It is always the same test but the elements of the offence would matter to the consideration.

16.    Prosecutor reminds everyone that all the charges are prosecuted on the ‘having reasonable grounds to believe’ limb.  D2’s  belief (if any) is to be gleaned from evidence rather than from hypothesis. And any belief is only one of the grounds to be considered by the jury for the final determination of guilt or innocence.

Ruling 

17.    I bear in mind Charges 2-18 are money laundering allegation proceeded only on the ‘having reasonable grounds to believe’ limb.

18.    I also bear in mind that Prosecution, while seeking to prove the circumstances of VSA-1 and VSA-2, have not sought to prove either agreement as fraud or Jack Chen as fraudster.  Still less have Prosecution proved the funds in the first-type charges or the second-type charges came from any predicate offence.

19.    Nevertheless, Oei Hengky Wiryo^[140] and Yeung Ka Sing Carson^[141] state unequivocally that Prosecution do not have to prove the property was crime proceeds.  For money laundering under the ‘having reasonable grounds to believe’ limb, the mens rea is ‘having reasonable grounds to believe the property in whole or in part, directly or indirectly, represented the proceeds of an indictable offence’; the actus reus is ‘dealing with the property’.  It is not necessary to prove the property was really generated by a crime. 

20.    Defence Counsel’s complained lack of proof of any predicate offence is not fatal to any charge of the first type or the second type.

21.    As to the test for no-case consideration, there is only one test albeit expressed in different manners by various courts locally and overseas.  The most cited case would be Galbraith, where Lord Lane CJ said at page 1042:-

“How then should the judge approach a submission of “no case”?  (1) If there is no evidence that the crime alleged has been committed by the defendant, there is no difficulty. The judge will of course stop the case.  (2) The difficulty arises where there is some evidence but it is of a tenuous character, for example because of inherent weakness or vagueness or because it is inconsistent with other evidence.  (a) Where the judge comes to the conclusion that the prosecution evidence, taken at its highest, is such that a jury properly directed could not properly convict upon it, it is his duty, upon a submission being made, to stop the case.  (b) Where however the prosecution evidence is such that its strength or weakness depends on the view to be taken of a witness’s reliability, or other matters which are generally speaking within the province of the jury and where on one possible view of the facts there is evidence upon which a jury could properly come to the conclusion that the defendant is guilty, then the judge should allow the matter to be tried by the jury.”

22.    Defence Counsel has advanced his manipulated and innocent wife hypothesis. At this stage, that is no more than a counsel’s hypothesis. A reasonable jury, however, have to act on evidence rather than hypotheses, conjectures, assumptions, etc.

23.    In paras. 24-25 of Attorney General v Li Fook Shiu, Ronald,^[142]Kempster JA elaborated the Galbraith principle:-

[24] …In relation equally to primary facts and to inferences to be drawn from such facts, his concern is not with present proof to his satisfaction but with potential future proof to that of a jury.  Both primary facts and the inferences therefrom are “matters generally speaking within the province of the jury” in the language of Galbraith.  Both can critically be affected by later evidence or lack of evidence from the defence.  Assuming all proper directions, the test is not what the judge thinks the jury, and still less he, “must” conclude at the moment: but what a jury “could, may or might” properly conclude in the future.

[25] If elaboration of the approach explained in Galbraith is called for we are of the opinion that a judge faced with a submission of “no case” or an application for discharge in circumstances where the Crown’s case depends, as it usually does, upon an inference or inferences from primary facts, may ask himself:-

(1) Is there some evidence that the crime has been committed?  If not, the judge will rule no case or discharge the count in question.  If there is;

(2) Is the evidence of primary facts of a quality permitting a jury to accept it?  If not, the judge will stop the case or discharge the count.  But, if such evidence is of appropriate quality;

(3) Could, may or might a jury properly directed be satisfied beyond reasonable doubt of such inferences as have to be drawn if all the elements of the prosecution case are to be established?  If he concludes that a jury could, may or might so be satisfied, he will rule against the submission or application.”

24.    In the present trial at this stage, in relation to D2, I find:-

(a) There is prima facie evidence on each of Charges 2-18 regarding the state of D2’s bank account and her financial position which are to be examined against the various questionable deposits.  There is also prima facie evidence of circularity of some of the funds. In relation to the money coming from Jack Chen or related to him, there is prima facie evidence of Jack Chen’s financial position.  And there is also prima facie evidence of the couple’s involvement in VSA-2, which was correlated to VSA-1 (in which Jack Chen was very much involved).

(b) Such prima facie evidence is of appropriate quality to be placed before a jury for them to consider for or against D2 on Charges 2-18 respectively.

(c) A jury properly directed could, may or might be satisfied beyond reasonable doubts of the evidence and the inferences that need to be drawn for proper determination of Charges 2-18 respectively.

25.    I rule D2 has a case to answer on each of Charges 2-18.