HKSAR v. LUNG HON LAM AND ANOTHER

CACC 260/2024 [2025] HKCA 522

On appeal from [2024] HKDC 1816

and [2024] HKDC 2053

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 260 OF 2024

(ON APPEAL FROM DCCC NO 452 OF 2023)

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J U D G M E N T

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1.  The 1^st applicant (D1 at trial) and the 2^nd applicant (D2 at trial) were jointly charged with conspiracy to deal with property known or reasonably believed to represent proceeds of an indictable offence (Charge 1). D2 was also charged with the substantive offence as an alternative to Charge 1 (Charge 2), and an additional substantive offence of dealing with property known or believed to represent proceeds of an indictable offence (Charge 3).

2.  On 1 November 2024, following a trial before Deputy District Judge David Cheung (the judge), D1 was convicted of Charge 1, and D2 was convicted of Charges 1 and 3.

3.  On 12 December 2024, D1 filed a notice of application for leave to appeal against conviction and sentence on Charge 1. With regard to his conviction and sentence, D1 complained that the judge failed to consider the evidence comprehensively and that the conviction was unsafe; and that the sentence was excessive. On 7 April 2025, D1 filed perfected grounds of appeal signed by counsel, which was followed by an application for bail pending appeal. On 24 April 2025, I refused the bail application but intimated that there was a reasonable argument as to whether HKSAR v Wong Chor Wo[1](a person lending the use of their bank account to another) was correctly applied, and whether the evidence against D1 supported the judge’s findings that the applicant entered into the conspiracy alleged against him and that the company involved was a sham business in circumstances where the prosecution did not seek to prove a predicate offence.

4.  On 19 May 2025, D1 filed a notice of abandonment of appeal against sentence on Charge 1, which was duly marked dismissed.

5.  D1 is represented by Mr Joe Chan, Mr Schweitzer Wong and Mr Oscar Tam in his leave application against conviction.

6.  On 6 December 2024, D2 filed a notice for leave to appeal against conviction and sentence on Charges 1 and 3. In a letter dated 19 March 2025, she made a number of complaints against her convictions. D2 appears in person in her leave application against conviction and sentence, having had legal aid refused.

The brief facts

7.  The prosecution case in respect of Charge 1 was that between 1 November 2016 and 13 January 2017, D1 and D2 conspired together with Leung Ka Hei (referred to as Tai B) and Lam Yin Kai (referred to as Michael Lam) to deal with the sum of HK$6,376,964.78 in the bank account numbered 012-887-0-018809-2 held in the name of United Gold Trading Limited (UGTL) at the Bank of China (Hong Kong) Limited (BOC).

8.  The prosecution case in respect of Charge 3 was that between 29 December 2016 and 22 June 2017, D2 dealt with the sum of HK$12,097,771.87 in the account of U.G. (UG) with the Bank of East Asia (BEA).

9.  D1, together with Tai B, held a half share in UGTL, and the other half was held by Michael Lam with his girlfriend, D2. When UGTL was set up, one share was held by a secretarial company, 4,999 shares by D1, and 5,000 shares by D2. D1 and D2 were appointed directors of the company and signatories of the BOC account, which was opened on 6 June 2016. However, it appears that the BOC account did not become operational until 1 November 2016. During the period from 1 November 2016 until the account was closed on 13 January 2017, there were 101 deposits totalling HK$6,376,964.78, of which 99 deposits totalling HK$6,146,964.78 were in cash. All cheque withdrawals were made by D2, who also made 4 cash withdrawals totalling HK$560,000. Withdrawals were made on the same day as the deposits or shortly afterwards to multiple unknown parties.[2] The Inland Revenue records of the company during the relevant period did not disclose any business or receipt of any income or profit.

10.  On 15 October 2016, D2 registered the business name of UG and set up a bank account with BEA. She was the sole signatory for the bank account.

11.  D1 did not give evidence in his defence. He relied on the answers he gave in his video recorded interview. He stated that he invested in a gold trading business of UGTL through a friend, Tai B, who introduced him to Michael Lam. The business was divided into two halves, and each party contributed HK$600,000. Michael Lam and D2 held one half, and Tai B and D1 held the other half. D1 contributed HK$120,000, and Tai B contributed the balance of HK$480,000. D1 was to be a salesperson, but did not work in that capacity in the company. He was to receive a basic salary of HK$5,000 per month, but it was never paid. He attended the company offices but had no idea what the cold calls were about or how the company operated, including how price differences in gold trading commissions were calculated. There were about 10 staff, and he only saw them making telephone calls. He opened a bank account, which could only be used by D2 and himself. Both of them signed the company cheques but D2 kept the cheque books and ATM cards. He believed all payments received were for legitimate business purposes. He explained that as the company was losing money, he withdrew his shares in UGTL and terminated the BOC account in November 2016. He said he lost about HK$300,000. He claimed that he did not know about the company’s financial transactions and did not read the bank statements.

12.  In summary, D1’s case was that he was an investor in UGTL through Tai B but had little, if any, involvement in its operation, other than it traded in London Gold, despite being a shareholder and director of the company and a signatory to the BOC bank account. He terminated his involvement in UGTL because it was not making any profit and was incurring losses. He claimed he was not aware of the details of the financial transactions taking place through the BOC account. D2 held the cheques and the ATM cards of the account. He further claimed that he was not involved in any of the financial transactions of the BOC account, nor did he receive any funds from it. He was only involved in UGTL for a short period of time, and after he left the company, it continued to operate through another bank account.

13.  D2 elected to give evidence at the trial. She said that after some months of operation, the BOC informed her that UGTL’s bank account might be closed. Michael Lam and Tai B had a meeting and decided to open a second bank account, but they could not do it with the same company name. They decided to use a sole proprietorship to open another bank account in the business name of U.G. with the BEA. It does not appear that D1 was involved in the arrangement.[3] When the BOC made enquiries about the UGTL bank account, she attended the bank to explain the accounts. She mainly dealt with Michael Lam and Tai B about the business and had little involvement with D1.[4] She confirmed that the company’s trading operations were handled by Michael Lam and Tai B.[5]

14.  The main issue at trial was whether there was an agreement to commit money laundering, as alleged by the prosecution, and whether D1 and D2 were parties to such an agreement.

15.  The judge, in his reasons for verdict, found on the evidence that the alleged gold trading business of the company was a sham.[6] He held that the funds transacted in the bank account were proceeds of an indictable offence and that D1 conspired with D2 and others, having reasonable grounds to believe, that the bank account would be used for the purpose of receiving, concealing or disguising the proceeds of an indictable offence. He found D1’s exculpatory account in his interview was not credible. He ruled that D1 was not an investor in the company but rather a sham director and shareholder. He rejected D1’s claim that he was a director in a non-executive capacity and was unaware of the financial transactions of the company.

16.  The judge explained that D2’s involvement in UGTL was considerably greater than that of D1. He noted her evidence that she mainly dealt with the financial transactions of the company, but did not keep records of the cash payments she claimed were made to the agents. He also noted that some months after the business had started, BOC informed her that they were going to close the bank account. She claimed that the accumulated expenses led the company to make losses which eventually resulted in D1 and Tai B leaving the business. She said that a few days before 13 January 2017, she was handed 7 sets of documents which related to the gold trading business with 7 clients. She used these documents to persuade BOC not to close the bank account. The judge noted that D2 had no idea of who was doing the trading since the operation of the company was handled by Michael Lam and Tai B. The judge found that D2 was aware that BOC wanted to know the source of the deposits and the purpose of the transfers from the account, which was not answered.

17.  The judge found that D2 would have appreciated that a legitimate gold trading business involved “client funding movements” and “actual market side buying and selling transactions on gold and gold stocks”. He found that the 7 sets of client documents lacked supporting details, such as accounting records and fund flow records, questioning their authenticity. He further found that D2 should have known that the 7 sets of clients documents showed no details regarding the purpose of withdrawal nor the transfer of the money from the BOC account.

18.  Although UG was established on 15 October 2016, the judge found that it was set up as a contingency to the operations of UGTL. He found that D2 was knowingly involved in the unexplained flow of funds in and out of the bank account of UG. The judge did not believe that D2 had brought the 7 sets of clients documents to BOC for explanation and found that the alleged gold trading business was a sham business, in which D2 was heavily involved.

D1’s leave application against conviction

19.  There have been various iterations of the perfected grounds of appeal, which were finally formulated in the following four grounds:[7]

(1)  Ground 1 argues that it was not open on the evidence for the judge to find that UGTL was a sham business and that D1 was a sham shareholder or director of UGTL, given that the prosecution did not seek to prove that there was any predicate offence or that UGTL was created for an illegitimate purpose.

(2)  Ground 2 complains that the judge failed to adequately take into account, inter alia, some or all of the following matters: (i) D1 was involved in UGTL for a short period of about 2½ months; (ii) D1 was not involved in any financial banking transactions of the BOC account, other than as a signatory to that bank account; (iii) D1 terminated his directorship on 19 December 2016 and closed the BOC account of UGTL on or before 13 January 2017; (iv) D1 did not receive any of the funds transacted in the BOC account; (v) after D1 terminated his involvement in UGTL, UGTL continued to operate, and a new bank account was opened with the BEA by D2; (vi) the exculpatory evidence in D1’s VRI, including his lack of knowledge regarding the transactions in the BOC account; and (vii) there was no evidence proving that UGTL was established for any illegitimate purpose or that there was any predicate offence.

(3)  Ground 3 refers to the particulars of Ground 2, alleging that the evidence did not support the finding that D1 agreed with the requisite mental element to launder the proceeds of an indictable offence with the other named conspirators.

(4)  Ground 4 avers that the judge wrongly applied HKSAR v Wong Chor Wo, in that he wrongly equated the prosecution’s case against D1 as if a “lending-out” of a personal bank account.

Grounds 1, 2 and 3: the finding that UGTL was a sham business and the failure to take into account exculpatory matters

20.  The judge, in his reasons for verdict, gave a comprehensive overview of the relevant legal principles and outlined a detailed analysis of the evidence and issues in addressing the case against D1 and D2.

21.  The essence of D1’s challenge to his conviction is the judge’s findings that he was not a genuine investor in a legitimate gold trading business but a sham director and shareholder in UGTL. Mr Chan argues that at the trial, the prosecution never alleged that the underlying gold trading business of UGTL was a fraud in which D1 was involved. The judge rejected D1’s account in his VRI, stating that he played a passive role in the company and did not know how profits were generated through price differences and commissions in the gold trading business. He reasoned that as an investor and salesperson, he would have known how the business operated.[8] Mr Chan argues that this finding was not available on the evidence and was contrary to the prominent role played by Michael Lam and Tai B, and the limited role played by D1. The judge also rejected D1’s account in respect of the timing and manner of his withdrawal from UGTL. There was an issue as to whether D1 withdrew his shares during the period between October and November 2016. The judge did not accept that D1 was a non-executive director of UGTL and that he did not attend BOC in November 2016 to terminate the BOC account.[9] Mr Chan argues that this finding is primarily based on a mistaken answer given by D1 in his VRI and ignores that D1 withdrew his shares, while the operation of the business continued without him. There was also the evidence of D2, whose evidence showed that D1 played a minimal role in the operation of the bank account and withdrew after a relatively short period. Mr Chan submits that even though the judge rejected D2’s evidence, the evidence overall showed a limited involvement by D1 in the operations of UGTL.

22.  Mr Chan submits that the prosecution did not allege a predicate offence but merely that there were reasonable grounds to believe that the funds in the BOC account were the proceeds of an indictable offence. However, the judge found that the operation of UGTL was a sham business and the money transacted in the BOC account qualified as the proceeds of an indictable offence.[10]

23.  Whilst the judge rejected D1’s explanation that he extricated himself from the business of UGTL because it was losing money, he mainly relied on the evidence against D2, which was far more extensive, basically due to her role and duration in the operations of UGTL and UG. It appears the prosecution presented its case against D1 and D2 without adducing any evidence that proved that UGTL’s business was illegitimate.[11] However, the judge found that the gold trading business was a sham, which appears to have been based mainly on the findings against D2.[12]

24.  In my view, there is an arguable ground regarding the Judge’s finding that the business was a sham when the prosecution were not alleging or seeking to prove that the gold trading business was fraudulent. It raises the issue of whether there was evidence that it was a sham business when it was not part of the prosecution case. It appears that the prosecution case was based solely on the unexplained financial transactions taking place through the BOC and BEA bank accounts, and that D1 and D2 were culpable because they were parties to establishing and operating these bank accounts. As already noted, D1’s involvement in the BOC bank account was limited, whilst D2 was heavily involved in the operation of the BOC and BEA bank accounts.

Ground 4: the wrongful application of Wong Chor Wo

25.  In finding D1 and D2 guilty of the conspiracy charge for money laundering, the judge reasoned that the business of UGTL was a sham and that D1 and D2, together with others, had agreed to use the BOC account to receive and transfer money for UGTL. He explained that he drew the inference that D1 and D2 (in D2’s case she had testified of her involvement in the activities of both UGTL and UG) had conspired with the others having reasonable grounds to believe that the BOC account would be used for the purpose of “receiving, concealing or disguising the proceeds of an indictable offence” and that those grounds were reasonable. He further explained that he based his findings on Wong Chor Wo, which concerns a case where a person has allowed their bank account to be used to launder illicit monies.[13]

26.  I consider there is a reasonable argument as to whether Wong Chor Wo was correctly applied (Ground 4), and whether the evidence against D1 supported the Judge’s findings that D1 entered into the conspiracy alleged against him and that UGTL was a sham business in circumstances where the prosecution did not seek to prove a predicate offence (Ground 1). This also applies to D2 but to a lesser extent. The case against her was stronger, because of the nature and degree of her involvement in the operations of both UGTL and UG.

D2’s leave application against conviction

27.  D2 complains that (1) the judge repeatedly copied the prosecution closing submissions; (2) the judge did not have reasonable grounds to suspect the authenticity of the 7 sets of client documents she produced and did not verify whether they were false; (3) the judge did not accept that the UGTL client documents had been submitted to the BOC in order to persuade the bank not to close the account; (4) the judge did not accept that the monies remitted into the BOC account originated from legitimate gold trading business (the prosecution adduced no evidence to rebut the defence case); and (5) the judge did not accept that she brought the 7 sets of documents to BOC for explanation and wrongly considered the gold trading business to be a sham.

28.  D2 also complains that her sentence was excessive. D2’s complaints against her conviction can be dealt with in respect of the following matters.

29.  The respondent submits that there is no basis for D2’s complaints against her conviction for the following reasons. First, D2 alleges that the judge repeatedly copied from the prosecution closing submissions. Whilst the judge did refer and incorporate parts of the prosecution closing submissions, he did the same in respect of the defence closing submissions. The judge carefully considered the submissions of the parties and did not fail in his duty to objectively evaluate and analyse the evidence at trial. He properly assessed D2’s case and made relevant findings, addressing the issues and the elements of the offences under consideration.

30.  Secondly, D2 complains that the 7 sets of client documents were not properly assessed by the judge. In his reasons for verdict, the judge referred to the submissions of D2’s counsel regarding her defence, including the client documents.[14] The judge rejected D2’s evidence, including the nature and purpose of the client documents. The respondent notes that the judge had nevertheless considered the available objective evidence, such as the transaction records, but he questioned the authenticity of these documents.[15]

31.  Thirdly, D2 complains that the judge was wrong to find that the business of UGTL was a sham. The judge was entitled to reject D2’s evidence that UGTL operated a legitimate gold trading business. As found by the judge, the evidence did not support the defence submissions. There were no records or any legitimate indication that the gold trading was taking place by UGTL.

32.  As I have already explained, there is a reasonable argument as to whether there was evidence to support the conclusion that the business was a sham, particularly when the prosecution were not seeking to prove that the underlying business was a fraud. The prosecution case rested solely on the banking transactions in the two accounts, submitting that this came within the Wong Chor Wo principle.

D2’s leave application against sentence

33.  D2 was sentenced to a total of 4 years and 8 months’ imprisonment on Charges 1 and 3. The judge referred to the sentencing authorities in determining the role and culpability of D1 and D2 in this fraudulent scheme. He reduced the sentence by 3 months for the delay in bringing the prosecution against the defendants. He also reduced the sentence by 1 month for D2’s clear record. The judge adopted a starting point of 4 years’ imprisonment on Charge 1, which he reduced by 4 months to 3 years and 8 months’ imprisonment, and 4 years and 6 months’ imprisonment on Charge 3, which he reduced by 4 months to 4 years and 2 months’ imprisonment. Upon applying the totality principle, he made 1 year of the sentence on Charge 3 consecutive to the sentence on Charge 1, arriving at a sentence of 4 years and 8 months’ imprisonment.

34.  I am not persuaded that the sentences imposed on D2 for the criminality involved were inappropriate and leave is refused. However, this is based on the case as found by the judge.

Conclusion

35.  For the reasons stated, I find that D1 and D2 have reasonably arguable grounds on the question of the judge’s finding that the underlying business of the two bank accounts was a sham and that the alleged money laundering in this case was as identified in Wong Chor Wo, where a person lends their bank account to another for the transaction of illicit funds.

36.  There is an additional matter that was not raised in the submissions. Under Charge 1, D1 and D2 were charged with a conspiracy to commit the substantive offence of dealing in the proceeds of an indictable offence, whilst under Charge 3, D2 was charged with the substantive offence. The basis of the conviction against D1 and D2 under Charge 1 was that they entered a conspiratorial agreement to deal with property, having reasonable grounds to believe that it was the proceeds of an indictable offence. D2’s conviction under Charge 3 was similarly on the basis that she dealt with property, having reasonable grounds to believe that it was the proceeds of an indictable offence. There is an issue whether the element of “having reasonable grounds to believe” was adequately analysed, given the prosecution’s reliance on Wong Chor Wo.

37.  In summary, the following three grounds of appeal against the conviction of D1 and D2 are reasonably arguable:

(1)  Ground 1: The Judge may have erred in finding that the underlying business of the two bank accounts was a sham, particularly as the prosecution did not specifically allege or prove that the relevant entities were engaged in fraudulent or illegitimate activities. There may be insufficient evidence to support such a finding, and this issue was not central to the prosecution’s case, which could render the convictions open to doubt.

(2)  Ground 2: The Judge may have misapplied the principle established in Wong Chor Wo by treating the present case - where D1 and D2 were said to have operated business bank accounts - as analogous to cases involving the lending of a personal bank account for the transaction of illicit funds. This approach may have led to inferences of guilt which were not fully supported by the evidence.

(3)  Ground 3: The Judge may not have sufficiently analysed or addressed the essential element of “having reasonable grounds to believe” that the property dealt with was the proceeds of an indictable offence, both in relation to the conspiracy charge (Charge 1) and the substantive offence (Charge 3). In particular, there may have been insufficient consideration of whether the evidence established, to the requisite standard, that D1 and D2 had reasonable grounds to believe that the funds were the proceeds of an indictable offence.

38.  I grant D1 and D2 leave to appeal against conviction on the above grounds. I do not find any of the complaints advanced by D1 or D2 outside these grounds to be reasonably arguable. I also grant D2 an appeal aid certificate for the purpose of being legally represented at her appeal against conviction.