HKSAR v. ZHENG ZHI LONG

CACC 167/2018

[2020] HKCA 105

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 167 OF 2018

(ON APPEAL FROM DCCC 971 OF 2017)

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REASONS FOR JUDGMENT

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1.  On 29 May 2018, the applicant was convicted after trial before Deputy District Court Judge R Wong (“the judge”) of the offence of dealing with the proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455 in respect of a sum of US$5,000,000. He was subsequently sentenced to 5 years and 3 months’ imprisonment on 4 June 2018.

2.  The applicant filed a Notice of Application for Leave to Appeal against both conviction and sentence.  At the hearing of the application I refused it and said I would hand down my reasons for doing so at a later date.  These are my reasons.

The charge  

3.  The charge alleged that the applicant had between 2 February 2016 and 9 March 2016 in Hong Kong, knowing or having reasonable grounds to believe that a sum of US$5M in an HSBC account 048-866834-838 held in the name of Excellent Century Holdings Limited (“Excellent Century”), in whole or in part directly or indirectly represented the proceeds of an indictable offence, dealt with this sum of money.   

4.  It was not disputed that the applicant was the sole director and shareholder of Excellent Century, and that he, having received the money, dealt with it by making various withdrawals and transfers.

5.  The issues at trial were whether the prosecution could prove that the US$5M represented the proceeds of an indictable offence, and whether the applicant knew or had reasonable grounds to believe that the money he dealt with represented the proceeds of an indictable offence. 

The prosecution case

6.  The prosecution case was that the US$5M transferred into Excellent Century’s HSBC account on 2 February 2016 represented the proceeds of a fraud but one to which the applicant could not be linked or in respect of which he could not be proven to have any knowledge.  The case against him was based on “reasonable grounds to believe”. 

7.  The underlying fraud was proven by PW1, Dr Frederick William De Jacma Jr, who was the director of two Hong Kong companies specialising in matching overseas investors to business opportunities in Mainland China.  On 18 December 2015, he received an email from a Peterjohn Boshoff detailing an investment opportunity offered by a Met Bawi.  Under the terms of that investment, the investor would provide US$5M and at the end of 45 days the investor would be repaid US$40M.    

8.  PW1, being a middleman, referred this investment to one of his investors who agreed to put in funds.  An agreement was signed in respect of this deal.  It was specified in the agreement that the US$5M was to be credited to Excellent Century’s bank account for the benefit of “Met Bawi and assigns”[1]and the investment would be fully protected by an insurance wrap.  This agreement between PW1 and his investor became Exhibit P5 and was dated 29 January 2016.  In it the investor was stated as being “John C Nock”.

9.  At this time PW2, a Joe Nip, lived in Hong Kong and ran a business assisting non-residents to establish companies here of which he would then become company secretary.  One of the companies he set up was called Wealth Mark International Investment Limited (“Wealth Mark”).  PW2 was a director and an authorised signatory for the corporate bank account of Wealth Mark.  He had also been asked by another person, a Mr Alexander Ituma, to set up a company called Smart Jobs Limited (“Smart Jobs”).  PW2 became the company secretary and Chief Financial Officer and was also an authorised signatory of its bank account.  

10.  On 11 December 2015, 10 million Euros were remitted from the United Kingdom to the bank account of Wealth Mark.  These monies were held with Hang Seng Bank pursuant to a separate funding agreement, Exhibit P8.  It was the prosecution case that this transfer was the proceeds of PW1’s overseas investor but there was no evidence from PW1 to this effect except that he found out later that the money came from Europe.  The link to PW1 came only from circumstantial evidence. 

11.  On 30 January 2016, PW2 attempted to transfer US$5M of the 10 million Euros from the Hang Seng Bank account of Wealth Mark to Excellent Century’s bank account.  The transfer was rejected by the bank as there was no connection between the two companies. 

12.  PW2 then transferred US$5M from the Hang Seng Bank account of Wealth Mark to the HSBC account of Smart Jobs and from this account the money was transferred to Excellent Century’s bank account.  This latter transfer, being an intra-bank transfer, was accepted by the bank on 2 February 2016. 

13.  PW1 lost contact with Met Bawi from mid-February 2016 and never received any payment from him under the agreement.  It was an admitted fact that Exhibit P6, the insurance wrap, was a fraudulent document and had never been issued. 

14.  The police investigation revealed that Excellent Century was in fact a BVI company incorporated by the applicant on 8 August 2011.  The applicantwas the only director and sole shareholder of the company, and its bank account was a multicurrency account, to which he was the sole signatory and which was opened by him on 26 September 2011. 

15.  Bank records showed that since the opening of Excellent Century’s bank account the transactions on the account were normally of no more than a few thousand Hong Kong dollars until the second half of 2014 when transactions of larger amounts started to appear more frequently but by the end of 2014 the balance was only HK$20,633.67.  Thereafter, the transactions remained rather insignificant and the balance in January 2016 was only HK$883.24 until in February 2016 significant deposits were made to this account, including the US$5M remitted from Smart Jobs. 

16.  Out of the US$5M deposited into the account on 2 February 2016, the applicanttransferred US$3,200,000 to a law firm in the USA, US$435,000 to accounts of his personal creditors and US$328,000 to his personal bank account.  In addition, between 2 February and 9 March 2016, the applicant made 9 cash withdrawals totalling US$408,598.53 from the account. 

17.  The total amount of money with which he dealt was US$4,397,378.87.

18.  On 5 July 2017, the applicant was intercepted and arrested at Lo Wu Control Point.  On the same day a video record of interview[2]was conducted with him in which he said:

(1)  he was born in Mainland China and had migrated to Australia in 1990.  He was a middleman for the import and export of commodities and he profited from the difference in prices;

(2)  he was the only member of Excellent Century.  Its bank account was opened by him in Hong Kong and he was the only person who had access to it;

(3)  on 2 February 2016, US$5M was deposited into this account but he did not know by whom this was done.  He exercised his right of silence regarding the purpose of the transfer;

(4)  on his mobile phone he received from Met Bawi the photo of a receipt regarding the US$5M deposit showing that the money did not come from Smart Jobs but from another company;

(5)  he admitted knowing the name of Met Bawi and had previously contacted him on Skype, but he could no longer be reached.  When asked how he had come to meet Met Bawi he exercised his right of silence;

(6)  he did not know PW1, John Nock or Peterjohn Boshoff;   

(7)  he did not know Smart Jobs or anybody in it, but admitted that he had conducted a check on the company that sent him US$5M (which was not Smart Jobs) and was aware that PW2 was the director of that particular company.  He was aware that the transfer came from the Hang Seng Bank account of that company;

(8)  payment was made from Excellent Century’s account to a lawyer in United States.  However he did not actually know that firm.  He exercised his right of silence when asked about the purpose of the transfer;

(9)  he held a savings account in his own name with HSBC and he was the only person who operated it.  He agreed that he had transferred money from Excellent Century’s account to his own personal account in February and March 2016 and he saw “no difference” in them as both accounts were held by him and he had used the money in his personal account;

(10)  payment was also made from the account to one Huang Guoshen as he was repaying a personal debt owed to Huang, details of which he refused to disclose.  He said Huang was his classmate from junior secondary school in China;

(11)  payment was also made from the account to one Elena Salikova for the translation service provided by her as he wanted to start some “oil business”.

19.  The police found in the applicant’s phone a photo of a record of the unsuccessful attempted transfer of US$5M made by PW2 on 30 January 2016 which included a message “for the attention of Met Bawi being the ultimate beneficiary”.      

The defence case

20.  The defence took issue with PW1’s credibility but the evidence of PW2 was not disputed. 

21.  A no case to answer submission was unsuccessfully made after the close of prosecution case, after which the applicant chose not to testify and not to call any witness. 

Verdict

22.  The judge found PW1 and PW2 to be honest and credible witnesses and he accepted and relied on their evidence.  He also attached full weight to the contents of the applicant’s video record of interview.

23.  The judge made a finding that the US$5 million was deposited into Excellent Century’s account as a result of a fraud administered on PW1 and was, therefore, property representing the proceeds of an indictable offence.

24.  On the critical issue of whether the applicant knew or had reasonable grounds to believe that the money he dealt with represented the proceeds of an indictable offence, the judge identified the following 10 matters:

“(a) As mentioned in paragraph 31 above, from 2012 to January 2016, the amount of transactions in the Account of Excellent Century varied mainly from a few hundred to a few thousand dollars. There were only several occasions of deposits up to HK$180,000. The maximum balance had once up to HK$1,730,000.

(b) A deposit of US$5 million into the Account was huge and extraordinary.

(c) The defendant admitted he received a receipt from Met Bawi, that was the bank record (P30) of the unsuccessful transfer of US$5 million from Wealth Mark to Excellent Century.

(d) The defendant had checked with the company and found that Nip Joe (PW2) was the director of the company.

(e) The defendant had some contacts with Met Bawi by using Skype, telephone and email.

(f) Shortly after the deposit of US$5 million, he made a number of cash withdrawals and transfers to other accounts including his personal bank account.

(g) The defendant spent the money for his own use.

(h) By the transfers to other accounts, he paid for consultancy services and even repaid his personal debt owed to another.

(i) The defendant made a transfer of huge amount of US$3.2 million to a lawyer account in USA without giving any details or reasons for that.

(j) All along, he had not made any enquiries with the bank or Nip Joe as to the deposit of huge amount of money.”[3]

25.  The judge then found that the applicant did have reasonable grounds to believe the money he dealt with represented the proceeds of an indictable offence and convicted him as charged.

The sentence

26.  Having set out the background of the case as found by him and the applicant’s personal background, the judge referred to a number of sentencing cases by the Court of Appeal.

27.  He identified the following features as being present in this case that were relevant to his assessment of an appropriate sentence:

“(a) The amounted involved was very substantial, namely about HK$39 million.

(b) Defendant received a receipt from Met Bawi. That was the bank record (P30) dated 30 January 2016 showing US$5 million was transferred from Wealth Mark to Excellent Century but this transaction was unsuccessful. As such, defendant was aware of this transfer before he dealt with the money from his company’s account on and after 2 February 2016.

(c) Obviously defendant had gained a great profit in dealing with the money in the company account.

(d) The money involved arose from an offence of fraud.

(e) It involved an international dimension.”[4]

28.  The judge adopted a starting point of 5 years and 6 months’ imprisonment, which was then reduced by 3 months for the applicant’s clear record.  This resulted in a final sentence of 5 years and 3 months’ imprisonment.

The Perfected Grounds of Appeal Against Conviction

29.  The applicant was represented by Ms Maggie Wong SC leading Mr Victor Lui at the leave hearing.  The applicant relied on 3 principal grounds of appeal against conviction, namely:

(1)  the judge failed to apply correctly the law as laid down by the Court of Final Appeal in respect of the phrase “having reasonable grounds to believe”;

(2)  the judge erred in finding the applicant had reasonable grounds to believe that the US$5M deposit represented the proceeds of an indictable offence; and

(3)  the judge erred in finding that the deposit of US$5M into Excellent Century’s bank account was the result of a fraud administered on PW1. 

30.  Ms Wong relied on detailed written submissions filed in support of each ground of appeal and to which she spoke.  It is not necessary to set out these submissions.

31.  She commenced her oral submissions in support of the first and second grounds of appeal by stating that her case boiled down to the following question:

“If someone transfers US$5M to your account with a request to transfer a not insignificant part to a USA law firm, does that necessarily constitute reasonable grounds to believe that this sum is the proceeds of an indictable offence?”

32.  Ms Wong submitted that the answer to this question had to be “No”.  She relied on the following contextual matters in support of her argument:

(i)  the request was to transfer the money to a law firm and this would have cloaked the request with the appearance of legitimacy;

(ii)  the applicant investigated Wealth Mark and confirmed it was a Hong Kong firm and that PW2 was an identifiable person.  Again, these facts would have cloaked the transaction with the appearance of legitimacy.

33.  These matters, she argued, had not been properly analysed by the judge when determining whether there existed reasonable grounds to believe.

34.  In respect of the third ground of appeal, her point was a narrow one, namely there was nothing in the evidence of PW1 to prove that part of the 10 million Euros that were transferred to the Wealth Mark account were monies transferred on behalf of his overseas investor pursuant to Exhibit P5.

The Perfected Grounds of Appeal Against Sentence

35.  Ms Wong complained on the applicant’s behalf that his sentence was manifestly excessive and/or wrong in principle.  She submitted that:

(i)  the judge was wrong in taking into account the transfer of US$3.2M to Abbott & Abbott, a law firm in the United States, in sentencing the applicant;

(ii)  the judge, whilst having considered few sentencing authorities in passing, failed to evaluate the facts of those authorities or to explain how he had reached at the notional starting point of 5½ years; and

(iii)  the judge erred in finding that the US$5M were the proceeds of a fraud.    

The respondent’s submissions on conviction

36.  Ms Vinci Lam, for the respondent, also filed detailed written submissions in support of her opposition to the application.  She asked the court to particularly note:

(i)  the contrast between the size of the deposit of US$5M with the pattern of previous transactions that had taken place in the Excellent Century account;

(ii)  as the applicant had chosen not to testify and had exercised his right of silence in respect of key questions in the video record of interview he could not complain that the judge had failed to take into account the beliefs allegedly held by him, if any;

(iii)  the facts identified by the judge should be read and considered collectively and not separately, as contended by the applicant;

(iv)  it was irrelevant that the US$3.2M had been transferred to an account of a law firm in the United States as the whole purpose of money laundering is to route illegitimate money through different accounts in order to launder it;

(v)  there was sufficient circumstantial evidence to justify the judge finding that the US$5M was deposited into the Excellent Century account as a result of the fraud administered on PW1. 

The respondent’s submissions on sentence

37.  Ms Lam submitted that the judge was right to take into account the transfer of US$3.2M in passing sentence.  These monies were part of his dealings with the deposit of US$5M and no reason was provided by him for the transfer. 

38.  As to the appropriateness of the notional starting point adopted by the judge, Ms Lam submitted that the amount of illicit money involved was very substantial (equivalent to HK$39M), 88% of which was dissipated in only one-month time and the applicant clearly benefitted from it.  Ms Lam relied on the comments by the Court of Appeal in HKSAR v Hsu Yu Yi[5], as endorsed in the subsequent authority of Secretary for Justice v Wan Kwok Keung as being applicable to the applicant:

“…The sentencing starting point is 3 years or so where the “black money” involved is between $1 million and $2 million, 4 years or so where it is between $3 million and $6 million, and could be over 5 years where it is above $10 million.”[6]

39.  Ms Lam submitted that the notional starting point of 5 years 6 months’ imprisonment that was adopted by the judge was within the range of sentence approved by the Court of Appeal.  The 3 months’ reduction granted by the judge for the applicant’s clear record was generous.  The resulting sentence of 5 years 3 months’ imprisonment after trial could not be said to be manifestly excessive or wrong in principle. 

Discussion: Conviction

Ground 1: The judge’s application of the “reasonable grounds to believe” test

40.  The test for “reasonable grounds to believe” was reformulated by the Court of Final Appeal in HKSAR v Harjani Haresh Murlidhar[7]as follows:

“26.  … We remain of the view that the Seng Yuet Fong test correctly represents the law.  In the interests of clarity, however, we would reformulate the test as follows:

  (i)  What facts or circumstances, including those personal to the defendant, were known to the defendant that may have affected his belief as to whether the property was the proceeds of crime (‘tainted’)?

  (ii)  Would any reasonable person who shared the defendant’s knowledge be bound to believe that the property was tainted?

  (iii)  If the answer to question (ii) is ‘yes’ the defendant is guilty. If it is ‘no’ the defendant is not guilty.”

41.  In cases like the present where the applicant did not give or adduce evidence, the Court of Final Appeal laid down the following approach:

“29.     Applying these principles in practice will normally be relatively straightforward where the defendant does not give or adduce evidence. The court has first to find what relevant facts or circumstances were known to the defendant and then decide whether those facts or circumstances would have led any reasonable person to believe that the property in question was tainted. If the answer is ‘yes’ the defendant will be convicted. When the judge comes to sentence he or she will be likely to do so on the basis that the defendant must also have believed that the property was the proceeds of crime.”

42.  In the present case, the applicant exercised his right of silence in respect of key questions asked of him in his video record of interview and elected not to testify.  Consequently, in deciding what facts or circumstances were known to the applicant and which may have affected his belief, the judge could only consider the few answers given by him in his video record of interview.  But those answers did not provide any explanation of, or justification for, the US$5M deposit or the subsequent transfers and withdrawals. Such answers as the applicant gave were summarised by the judge who said he gave full weight to them.  In so doing the judge answered the question posed by paragraph (i) of the Court of Final Appeal’s reformulated test set out at paragraph 40 above.  The judge then went on to, in effect, address paragraph (ii) of the reformulated test when he listed out the 10 matters which led him to answer the paragraph (ii) question in the affirmative. 

43.  I can find nothing in the judge’s Reasons for Verdict which would indicate that he misapprehended the law or applied it incorrectly.

44.  In my view this ground is not reasonably arguable.      

Ground 2:  Whether the judge erred in finding the applicant had reasonable grounds to believe

45.  I have examined the 10 matters that the judge identified in his Reasons for Verdict and I do not agree with the applicant’s approach of examining each one separately as though each constituted on their own a reasonable ground to believe.  They are simply relevant contextual matters to which the judge was entitled to have regard when answering the second of the Court of Final Appeal’s reformulated questions in the reasonable grounds to believe test.

46.  In respect of the transfer to Abbott & Abbott there was simply no evidence from the applicant as to any fact or circumstance that may have informed his belief in respect of it.  The mere fact that a transfer that is being made is to a law firm does not, by itself, establish the legitimacy of the transfer or provide a foundation for believing that the money being transferred must itself be untainted by criminality and have a legitimate origin. 

47.  I agree with Ms Wong that her case boils down to the question she posed and which I have set out at paragraph 31 of this judgment.  But, this question must be answered not in a factual vacuum but within the contextual circumstances of this case.  Those circumstances are:

(i)  the applicant is not a naive, innocent person, unfamiliar with the ways of the business world.  He is an international commodities trader;

(ii)  the applicant was approached by a person, Met Bawi, whom he did not know and whom he had never met face to face, and with whom he at all times had contact only by Skype phone calls.  This stranger requested the applicant to make available to him his corporate bank account to receive a deposit and to transfer a not insignificant part of that deposit to a firm of American lawyers and in return for this service he would be paid;

(iii)  the amount of the deposit was US$5M, the amount of the transfer was US$3.2M and the amount of the payment to the applicant for his services was an extraordinary US$1.8M; and

(iv)  the applicant had no knowledge of the USA law firm and did not disclose the purpose in transferring US$3.2M to it in his video record of interview.

48.  When these contextual circumstances are added to Ms Wong’s question then in my view the only answer to it is a resounding, entirely unequivocal, “Yes”.

Ground 3: Whether the judge erred in finding the underlying fraud proven

49.  In my view the circumstantial evidence allowed the judge to conclude that the fraud on PW1 was the origin of the funds transferred by PW2 from the account of Wealth Mark to the account of Smart Jobs and finally to Excellent Century’s account.

50.  First, there was a coincidence of timing in respect of the transactions to which PW1 and PW2 testified. This extended to PW1 emailing Met Bawi on 2 February 2016 and informing him that the funds had been credited to his account.[8] This was, of course, the day that PW2 successfully transferred the US$5M from the account of Smart Jobs to the account of Excellent Century, in compliance with the payment terms stipulated in Exhibit P5.

51.  Secondly, there was a coincidence of amount as both PW1 and PW2 were concerned with a US$5M payment into Excellent Century’s account.

52.  Thirdly, there was a coincidence of involvement by Met Bawi.  PW1 was dealing with Met Bawi and trying to credit funds for his benefit whilst, at the same time, PW2 was also trying to credit funds to Met Bawi’s benefit. 

53.  Finally, PW2 was able to say that all his actions flowed from instructions he received from Alexandra Ituma, the owner of Smart Jobs, and this person would often mention the need to discuss matters with a John Nock.  Thus, the evidence established that there was a John Nock behind PW1 in providing the funds and a John Nock behind PW2, via Alexandra Ituma, and this John Nock behind PW2 was being consulted in respect of what instructions Alexandra Ituma should give PW2 in respect of these funds.

54.  On these primary facts, the only reasonable inference is that the incoming funds from Smart Jobs were connected with the fraudulent investment scheme to which PW1 testified.    

55.  In my view Ground 3 is not reasonably arguable.

Discussion: Sentence

56.  As has been noted by this court on many occasions, there are no sentencing guidelines for this kind of offence because of the variety of circumstances in which this offence can be committed and the widely different roles played by those participating in the offence. 

57.  In Hsu Yu Yi, the amount of “black money” was identified as the “major consideration” and I cannot see why this should not be the case here.  There is no justification to carve out the US$3.2M transfer to Abbott & Abbott and the Judge was entitled to take it into account in assessing the appropriate starting point for his sentence.   

58.  In addition to the substantial amount of “black money” involved, the judge also noted that there was the presence of an international element and the fact that the predicate offence was identifiable and was a serious fraud.  Both are factors relevant to the assessment of a starting point.  The starting point of 5 years 6 months’ imprisonment that was adopted by the judge is in line with the authorities.   

59.  I was not satisfied that it is reasonably arguable that this sentence is manifestly excessive or wrong in principle. 

Disposition

60.  For these reasons I refused the application for leave to appeal conviction and sentence.  I advised the applicant of his right to renew his application and, should he do so and should the Court of Appeal consider there is no merit in the renewed application, of the power of the Court of Appeal under section 83W(1) of the Criminal Procedure Ordinance, Cap 221 to order loss of time.    

[1] Appeal Bundle, page 257.

[2] The admissibility of this interview was not challenged. 

[3] Reasons for Verdict, Appeal Bundle, pages 36K-37R. 

[4] Reasons for Sentence, Appeal Bundle, page 45E-P.

[5] [2010] 5 HKLRD 545

[6] [2012] 1 HKLRD 201, 205 at [15].

[7] [2019] HKCFA 47

[8] Appeal Bundle, page 253.