HKSAR v. LAW KA YAT AND ANOTHER

DCCC 517/2018

[2019] HKDC 1061

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 517 OF 2018

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Reasons for Verdict

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1.  The case concerns an allegation of money laundering arising out of a fraudulent mortgage transaction. There are three charges concerning the two defendants.

2.  The 1st defendant was the agent for a wanted person (described as “WP”) who fraudulently obtained mortgage funding from a loan company.  The 1st defendant received by cheque some HK$2.5 million from the wanted person, which was placed in an account of a company held in his mother’s name. The two defendants, who are mother and son, subsequently took out cash of 1.5 million and transferred 1 million to the 1st defendant’s HSBC account. 

3.  A further cheque of $3 million was paid to the 1st defendant but was not honoured.  That features in the charges as an attempt to deal.

4.  These transactions are charged as what I describe as money laundering offences by the 1st and 2nd defendant.  That is dealing with or attempting to deal with property known or believed to represent proceeds of an indictable offence.

5.  The issue disclosed in this hearing is whether the 1st and 2nd defendant had any reasonable grounds to believe that, in any of the transactions where they dealt with the money from WP, that the monies were in fact the proceeds of an indictable offence.

6.  The 1st defendant is the 2nd defendant’s son. The 1st defendant works in financial services as what has been described as an intermediary.  The 2nd defendant is a sole shareholder and director of a company called “Reliance”.  The company was formed in 2014.  The 1st defendant introduced clients to obtain loans.  One of these companies which extended loans was called “Gain Global”. 

7.  In March 2016, the 1st defendant had introduced WP to Gain Global.  WP wished to obtain a loan as a mortgage on his property in Pacific View, Tai Tam.  WP had apparently lost money in gambling in Macau.  D1 forwarded documentation from WP to Gain Global in support of WP’s application for a loan.  There is no dispute all this documentation is forged.  However, based on this documentation, Gain Global approved a loan of 10 million-odd dollars to WP.

8.  On 15th March 2016, the 1st defendant accompanied WP to Gain Global for the processing of the loan.  WP said he had lost the title deeds of the property.  Solicitors for Gain Global prepared a statutory declaration for WP to sign.  Eventually the loan agreement was signed and approved, the amount being 10 million.  After deductions, a cheque of $9,873,630 was paid to the account of WP. 

9.  Repayment of the sum was to be by 12 instalments at 14 per cent per annum.  Gain Global were provided with six post-dated cheques.  The second cheque defaulted.  After this, it was then found that WP’s application was entirely fraudulent.  WP had impersonated the owner of the premises, PW1.  All the documentation supporting the application was forged. 

10.  The cheque for $9,873,630 issued by Gain Global for WP was deposited into an account in PW1’s name, who WP was masquerading as.  That was in a Dah Sing Bank on the day the cheque was issued (that is, 15th March 2016).  This account had been opened on 8th March 2016 by WP.

11.  On 16th March 2016, two cheques were issued from this account.  One cheque for 2.5 million was deposited to the account of D2’s company, Reliance.  A second cheque for $3 million was issued to the personal account of D1; this cheque was not honoured through insufficient funds.

12.  On 17th March 2016, D2, accompanied by D1, withdrew 1.5 million in cash from Reliance.  That is the first charge.

13.  On 17th March 2016, a cheque for $1 million was issued by Reliance and paid to D1’s personal account.  That is Charge 2. 

14.  The cheque for 3 million, which was not honoured, formed the basis of Charge 3.

15.  None of these facts were disputed and were proved by agreement or unchallenged witness evidence.

16.  As far as the defence case and their evidence was concerned, both defendants gave evidence. 

17.  D1 is a financial intermediary.  He was introduced by a friend to two strangers, “Ah Dee” and “Ho Gor”, who ran gambling trips to Macau.  WP owed them gambling debts.  WP wanted to repay them.  WP wanted to do this by arranging a mortgage loan against his own property in Hong Kong.  This was the property in Stanley area at Pacific View. They met on 11th March, where the copied paperwork was provided. 

18.  D1 said they reached the following agreement - it was agreed that his fee, D1’s fee, would be $1 million; “Ah Dee” and “Ho Gor” would receive $1.5 million - and D1 had met all the parties prior to going to Gain Global.  The total fee (that is, 2.5 million) would be paid in a $2.5-million tranche to D1.  D1 would then pay “Ah Dee” and “Ho Gor” in cash from that sum.  A fee arrangement form was signed by WP to reflect this transaction (that is Exhibit D10).  D1 was later told by WP that the title deeds were lost and this was subsequently dealt with by Gain Global.

19.  D1 had agreed with “Ah Dee” that the commissions of himself and “Ah Dee” should be paid by WP to Reliance in that sum of 2.5 million and then D1 would recompense “Ah Dee” his share in cash.  The payment to “Ah Dee” in cash had been because he was not Hong Kong resident and did not have a bank account.  D1 also agreed around that time to receive HK$3 million payment for repayment to “Ah Dee” in his personal account.  This was said to be for repayment of WP’s gambling debt to “Ah Dee”.  D1 later agrees he withdrew the 1.5 million in cash for “Ah Dee”. 

20.  He agreed to receive the $3 million on 16th March 2016.  He gave them details of his personal account for paying this cheque.  He said he and D2 withdrew 1.5 million in cash from Reliance on 17 March 2016.  1 million was paid to his personal account with HSBC.  D2 authorised the payment. 

21.  After the cheque for $3 million was deposited, D1 concluded that it was not appropriate for him to collect that money.  He said he called HSBC to stop the processing of the cheque.  HSBC said it could not be done.  He called “Ah Dee”, who said they could sort it out by reducing the balance in the account.  It is known the cheque was not honoured due to insufficient funds.

22.  D1 said D2 had, in effect, nothing to do with Reliance.  He had set the company up to avoid a conflict of interest with his employers and clients. D2’s position was entirely nominal, but she was of course required to authorise cheques and sign them.

23.  The 2nd defendant in her evidence agrees with all this.  She has never taken part in running a business.  She is a housewife.  She set up Reliance at D1’s request.  She did not know the nature of his business.  The money paid into the Reliance account was by cheque.  She was involved at her son’s direction in distributing that money.  She had no suspicions as to any of the transactions.

24.  As far as the legal requirements are concerned, of course the prosecution brings the case; they must prove the case beyond all reasonable doubt.  The defendants are charged with dealing or attempting to deal with property known or believed to represent proceeds of indictable offence. 

25.  In this case, there is no dispute as to the fact that the defendants either dealt or attempted to deal in the proceeds of an indictable offence.

26.  They must, however, do that with the requisite mens rea.  They must either know these monies are the proceeds of the indictable offence and/or have reasonable grounds to believe that the monies are proceeds of an indictable offence.  There must, as I say, be grounds for that belief.  Those grounds must be reasonable.  That is, anyone looking at those grounds objectively would so believe.  The court must take into account the facts and circumstances known to the defendant.

27.  The prosecution properly concede that neither the 1st defendant or 2nd defendant can be said to have known at the time when they dealt with the money that the monies were the proceeds of an indictable offence.  As I have said earlier, the question is if they have reasonable grounds to believe they were dealing either directly or indirectly with the proceeds of an indictable offence.

28.  The objective grounds the prosecution refer to are that the loan was firstly negotiated for strangers.  They say that the 1st defendant’s fees, on a single transaction of $10 million, at $1 million are high and unrelated to the actual work necessary for the transaction; that the payments of 1.5 million and the undertaking to receive the 3 million in cash for payment on to “Ah Dee” would make a reasonable person take notice that the transactions were those representing dealing in an indictable offence; that a combination of the high fees and cash withdrawals and payments would put D1 and D2 on notice as to the suspicious nature of this transaction; that the 1st and 2nd defendants turned a blind eye to the nature of this transaction and they ought to have known that the transaction was fraudulent.

29.  The defence points out that the fraudulent nature of the transaction in respect of Gain Global was only discovered months later.  Nobody suspected anything dishonest or fraudulent at the time or around the time the transaction took place, that the 1st defendant was entitled to rely on Gain Global’s due diligence.  They were happy to go ahead with the transaction, even after the title deeds could not be produced, that, in fact, there is no evidence that D1’s fee was excessive or that “Ah Dee” was not trying to get his $3 million back off WP. 

30.  They say there is no evidence that the payment of fees in cash in transactions such as this is not entirely normal in the loan industry, that there exists no real basis at the time of the charged transactions for anyone to consider or have grounds to believe that any of the funds involved represented the proceeds of an indictable offence, especially as the money received by the 2nd defendant and then processed by the 1st and 2nd defendant originated by way of a cheque from a supposedly legitimate source. 

31.  It was known that the origin of WP’s money was from the cheque paid to him by Gain Global.  It is said, how could a person with that knowledge know or ought to have known that the money paid to him would be the proceeds of an indictable offence?  The defence say the prosecution is bringing this charge with the benefit of hindsight, which is said to always provide the clearest of visions.

32.  I find the issue can be resolved quite simply. In summary, the prosecution say of D1 and D2, they would have had reasonable grounds to suspect the origin of the money due to the extensive cashback payments to be made to the Macau partners, the excessive remuneration of D1 and the Macau partners, which would amount to some $5.5 million.

33.  There is said to be further suspicion raised by the fact that the agreement made between WP and D1 as to the charges overstates D1’s actual charge by 1.5 million and also the 1st defendant mis-described the $2.5 million fee to his account whilst drawing up his tax return. 

34.  It must be said that the determination of the existence of the reasonable grounds and the nature of the reasonable grounds must be proved beyond reasonable doubt.  It cannot be a matter of speculation or comment. 

35.  I consider the evidence surrounding the 1st defendant’s tax returns is purely speculative, as is an allegation made by the prosecution that the service charge document was created at a later date. There is simply no identifiable evidence to prove these matters and they remain speculation.

36.  Thus, the prosecution are left with what I will describe as the cashback element of 5.5 million on a $10-million transaction to provide evidence of reasonable grounds to believe that the entire 10-million loan was suspect at the time it was entered into.

37.  The problem with this is that, as I have said before, there is no evidence that anyone tasked with investigating the loan application at the time thought the application was suspect.  It passed Gain Global’s own due diligence.  The monies paid to D1 must have originated from Gain Global. 

38.  If it is conceded, and it is quite properly, that D1 was not part of the predicate offence, then it must be shown somehow by the subsequent distribution of the proceeds that he had grounds to form that belief such an offence would have been committed.  Otherwise, the only grounds to believe he would have had, that the monies were sourced from Gain Global in a legitimate transaction. 

39.  Ostensibly, the payment by Gain Global to WP appears clean.  It is two months later that D1 or anyone else comes to know the money is, to use a colloquial expression, dirty.  D1’s fees, on an objective appearance, appear high and unexplained, but there is no evidence as to what a normal fee level is on a transaction such as this.  It does appear to me that a transaction based on gambling debts must be a risky one and the element of risk may well be determinative of the fee levels. 

40.  As to the cancellation of the 3-million cheque, there was no evidence to counter the 1st defendant’s assertion it was done by “Ah Dee” after D1 indicated he thought it would not be appropriate to be paid into his personal account. 

41.  So, from my finding, it is that D1 would not, on the basis of the evidence I have heard, have the grounds to form the necessary reasonable belief nor would a reasonable person in his position.

42.  Furthermore, the 2nd defendant could only have known that the money she dealt with came by way of a cheque from PW1, those monies originating from Gain Global.  She would appear to me to have no grounds for which a reasonable person could form the belief the funds she dealt with were the proceeds of an indictable offence.

43.  For these reasons, the charges will be dismissed.