HKSAR v. FU GUANGMIAO

[English Translation – 英譯本]

HCMA 20/2020

[2020] HKCFI 1783

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO. 20 OF 2020

(ON APPEAL FROM KTS NO. 12266 OF 2019)

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BETWEEN

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J U D G M E N T

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Background

1.  The appellant was convicted after trial by Mr. Joseph To (“the Magistrate”) of an offence of “operating a money service without a licence” [1] and sentenced to a community service order of 100 hours.  The appellant now appeals against his conviction and sentence.

Prosecution Case

2.  The appellant is a scientific officer of The Hong Kong University of Science and Technology (HKUST).  On an online forum of the University for Mainland teachers and students, he expressed to other HKUST teachers and students that he would provide them with a service that would let them deposit money in Hong Kong dollar into his account with Bank of China in Hong Kong, and he would, following their instructions, transfer money in Renminbi from his own Mainland account to the designated recipients’ Mainland accounts. 

3.  The appellant once wrote a post on the forum with the heading “Exchange Renminbi for Hong Kong Dollar”, in which he stated that he wanted to exchange the Renminbi he had for Hong Kong dollars, and his exchange rate would be the middle of the exchange rates offered by Hang Seng Bank.  The Renminbi could be transferred to Mainland bank cards, Alipay of WeChat while the Hong Kong dollars could be deposited into the defendant’s bank card account with Bank of China either in cash or by transfer, or could be handed to him directly on campus.

4.  In the three records of interview taken by the Customs and Excise Department, the appellant admitted to the Customs and Excise Department that during the period specified in the charge, he transmitted funds by the above method some 20 to 30 times, with a total amount of HK$300,000 to HK$500,000.

5.  In the course of investigation, the Customs and Excise Department contacted via “WhatsApp” a party that claimed to be “Kong Yam (transliteration) Finance” (港鑫金融). “Kong Yam Finance” indicated that they could provide the service of remitting Hong Kong dollars from Hong Kong to the Mainland and exchanging them for Renminbi to be deposited in Mainland accounts.  The local bank account provided by “Kong Yam Finance” for deposit was the same account held by the appellant with Bank of China.

6.  The appellant admitted that he did not hold the licence required for operating a money service during the relevant period.

The Appellant’s Case

7.  The appellant did not testify at the trial, nor did he call any witness.

8.  The appellant explained in the records of interview that the online forum of the University was restricted for use by teachers, students and staff of HKUST, and that he resorted to such a method of exchanging the Renminbi he kept on the Mainland for Hong Kong dollars just because his wife was in desperate need of money in Hong Kong dollar for her surgeon’s fees.

9.  The main issues at trial were whether the currency exchange service carried out by the appellant for others in the above manner amounted to “remittance service” under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (the “Ordinance”) and whether the appellant was “carrying on business”.

The Magistrate’s Analysis

10.  The Magistrate made the following analysis in respect of the above issues:

‘9. The crux of this case is whether the defendant had carried on a “business”, the purpose of which was to provide a money service. It is not disputed that the definition of “money service” under the relevant legislation does include “remittance service”.

10. The court considers the prosecution witness completely honest and reliable.  He told the court frankly that he had no idea about the connection between the defendant and the financial institution mentioned in the WhatsApp messages, that he did not know the connection between the defendant and the WeChat web records, and that he had no idea if the defendant had ever used the relevant telephone number.  The court finds the witness entirely truthful and unbiased, and accordingly attaches full weight to the WhatsApp records.

11. The court finds beyond reasonable doubt that the records show the connection between the defendant and the bank account used by the financial institution.  The records also show the use and the purpose of this bank account (no matter if it was the defendant or another person in charge of the WhatsApp account).  If any person inquired about remittance to the Mainland, the defendant’s bank account would be used, the exchange rate would be fixed, and the sender would be instructed to deposit Hong Kong dollars in the defendant’s account for the purpose of exchanging the Hong Kong dollars into Renminbi, which would then be remitted to the designated Mainland bank accounts.

12. Having considered all the evidence, the court finds beyond reasonable doubt the following:

1) The defendant cannot be acquainted with all the people on the forum, and therefore the forum is not the defendant’s “private circle”.

2) The defendant’s behaviour was not the situation where friends helped each other for the sake of convenience.  The defendant admitted under caution that he held a large sum of money in Renminbi on the Mainland that needed to be exchanged into Hong Kong dollars for his use in Hong Kong.  Obviously, he had evaded the Mainland’s foreign exchange control .  Likewise, when his wife was in desperate need of Hong Kong dollars to undergo a surgery, he also evaded the Mainland control by having a large sum of Renminbi exchanged for Hong Kong dollars in the same way. In my view, his gain is obvious, and the “gain” is by no means restricted to pecuniary advantage.  It saves the defendant the trouble of travelling back to the Mainland to exchange the Renminbi for Hong Kong dollars through a bank and to bring them back to Hong Kong.  This cannot be simply described as a matter of convenience, but a huge substantive gain.  Besides, it is another gain to him that he evaded the Mainland’s foreign exchange control by doing what he did.

3) When the defendant received Hong Kong dollars from a sender or a person exchanging currency, he had an earnest legal obligation to deposit an equivalent sum in Renminbi into the designated Mainland account.  And the above transactions were carried out by the defendant via an online platform.  The court takes the view that such an act is itself an organized arrangement.  There is no need for the defendant to contact his acquaintances individually and ask them if they need to exchange Hong Kong dollars or remit any money.  Moreover, the exchange of Hong Kong dollars or remittance by the defendant upon other parties’ instructions was not an isolated or occasional incident .  He [indi]cated under caution that he successfully exchanged a sum of money between $300,000 and $500,000.

13. Taking into account the points mentioned above, the court further drew the only and irresistible inference that the defendant carried on a business during the material time and successfully exchanged a sum of money between $300,000 and $500,000 in the end.

14. In my view, the WhatsApp records submitted by the prosecution, when considered alone, are indeed unable to show the connection between the records and the defendant.  However, when the evidence is considered as a whole, I take the view that no matter if it was the defendant who operated Kong Yam Finance or not, when that [person] received the record of a sender depositing Hong Kong dollars into the defendant’s bank account, the defendant had to know that sum of money was to be dealt with.  Otherwise, there would be an inexplicable sum of deposit in the defendant’s bank account.  Furthermore, the defendant would no doubt be pursued by the sender if the sender’s Mainland account eventually did not receive the equivalent amount in Renminbi.  The court therefore finds beyond reasonable doubt that the defendant did know and give his consent to that financial institution to use his bank account.

15. The defendant chose not to give evidence.  He has such right.  However, there is no evidence before the court in the circumstances to undermine the only reasonable and irresistible inference mentioned above. 

16. Having considered all the defence submissions, I take the view that the primary purpose in enacting the Ordinance was to prevent the sender of remittance from hiding his identity.  In this case, the defendant was unable to provide any record revealing the identity of the senders.  He said under caution that there was no reason for him to keep the records.  In my view, this is precisely the unlawful act targeted by the Ordinance.

17. The last issue raised by the defence was whether the act of the defendant amounted to “remittance”.  The defence submitted that it was not “remittance” as there was no cross-border money transaction.  In my view, even though there was not any cross-border money movement, as a result of the defendant’s act, an extra sum of Hong Kong dollars was made available for his use in Hong Kong while an equivalent amount of Renminbi was made unavailable for use on the Mainland.  In my view, that is remittance, just that it is illegal.’

Grounds of Appeal against Conviction

11.  The appellant’s perfected grounds of appeal against conviction were as follows:

(1) the Magistrate erred in accepting PI, the WhatsApp screenshots, as evidence and attaching full weight to it.  In the absence of evidential basis, he found that the appellant was related to the institution named “Kong Yam Finance”, and that the appellant knew and gave his consent to it to use his bank account (§§ 11 & 14 of the Statement of Findings);

(2) the Magistrate erroneously found that the act of the appellant was “carrying on a business” as in the element of the offence;

(3) the Magistrate, in finding the appellant guilty, took into account the following matters that were beyond the elements of the offence;

a. whether the appellant kept the transaction records;

b. whether the objective of the appellant was to circumvent China’s foreign exchange control and the court’s comity towards China’s judicial system;

c. whether there was a change of position when the appellant carried out the remittance;

(4) in short, the conviction was unsafe and unsatisfactory.

12.  The WhatsApp screenshots mentioned in Ground (1) refer to those of the communication record between the Customs officer and “Kong Yam Finance”.  At trial, the appellant objected to the submission of those screenshots on the ground that the injustice caused to the appellant by the exhibit far outweighed its probative value.

13.  Mr. Tsui on behalf of the appellant submitted that the first prosecution witness, namely the Customs officer who communicated with “Kong Yam Finance”, testified that the telephone numbers and the messaging application account numbers of the appellant and his wife were different from those used by “Kong Yam Finance”.  Nothing concerning “Kong Yam Finance” was found by the Customs officers at the appellant’s home, and no money had ever been deposited by the Customs in the appellant’s Bank of China account.

14.  Mr. Tsui submitted that the Magistrate should have exercised his discretion to reject those messaging screenshots, as it was highly likely that the Magistrate as the fact-finder would take an erroneous view about the contents of the screenshots by thinking that it was the appellant representing “Kong Yam Finance” to communicate with the first prosecution witness on that day.

15.  In respect of these messaging screenshots, the Magistrate clearly stated in paragraph 14 of his statement of findings that he did not “take the view” that it was the appellant representing “Kong Yam Finance” to communicate with the first prosecution witness.  He only stated that no matter if it was the appellant who communicated with the first prosecution witness on that day, given that the account for remittance provided by “Kong Yam Finance” was the appellant’s account, the appellant must know if someone deposited money in that account for remittance purpose.  It is clear from the Magistrate’s analysis that when he took into account those messaging screenshots, the injustice alleged by Mr. Tsui simply did not exist.  The Magistrate’s analysis was well-reasoned.  Accordingly, Ground (1) must fail.

16.  As regards Ground (2), Mr. Tsui made the following submissions:

a. The remittances made by the appellant were for personal needs, not any business purpose.  When his money in Renminbi on the Mainland was all exchanged and his personal needs were fulfilled, he would make no further remittance.  His act did not have the continuity of carrying on a business.        

b. The remittances were made by the appellant alone. They were not organized or sizeable, nor were they in any specific form.

c. Making use of the online forum of HKUST where he worked, the appellant was looking for the teachers and students of the University as targets for remittance.  It was the same as remittance in private among friends and relatives. The forum was not set up or managed by the appellant.

d. Furthermore, the forum was set up in the first place for private transactions among teachers and students to bring convenience to their lives and the appellant was fully aware that only HKUST teachers and students would be given access to the forum for browsing and writing posts.

e. The collection of Hong Kong dollars by the appellant in Hong Kong was only a one-way operation. The appellant exchanged his own money in Renminbi for others via his Mainland account. Had the appellant really carried on a remittance business, he would have conducted two-way transactions, namely also accepting from others the money in Renminbi not belonging to him and exchanging it into Hong Kong dollars for them.

f. The appellant had no intention of making profits out of the remittances, nor was there any actual profits made.  This could be seen from the fact that he adopted the middle of the market rates on the trading day for the transactions he made with the teachers and students.

17.  As the Magistrate stated in paragraph 12 of his statement of findings, the appellant was not acquainted with all the people using the relevant online forum.  The service provided by the appellant was not purely private in nature, as it was open to all the people using that forum.  The service provided by the appellant did not stop in a short time. It carried certain continuity.  Moreover, such service was provided for the purpose of transferring the customers’ Hong Kong dollars in Hong Kong to their Mainland Renminbi accounts, which is precisely remittance. The circumstances of this case are different from those I dealt with in HKSAR v YIP Wai Cheong[2].  In that case, the service provided by the defendant was not for remittance purpose.  It was only in the course of providing other services that remittance was inevitably involved.

18.  In the circumstances of this case, I am of the view that the act of the appellant amounted to operating a remittance service.  The Magistrate is correct in his findings.

19.  Ground (2) must fail.

20.  In respect of Ground (3), as to whether the appellant kept the transaction record, the Magistrate only stated in paragraph 16 of his statement of findings that keeping no record was precisely the act that the Ordinance was meant to prevent, not that keeping no record by the appellant was seen as evidence to prove his guilt.  And for the court’s comity towards China’s judicial system, it was only raised at trial by the Magistrate in his verbal exchange with Mr. Tsui, and it was never mentioned in his oral decision or statement of findings.  I do not think that the Magistrate relied on that as a reason in reaching his decision.

21.  In relation to “change of position”, by mentioning “legal obligation” in paragraph 12(3) of his statement of findings, the Magistrate intended to state that the appellant, upon receipt of a sum in Hong Kong dollar deposited by a customer, did have a legal obligation towards that customer to deposit an equivalent amount in Renminbi in the customer’s designated Mainland account, in order to show that the appellant’s act was earnest and likely for business purpose.  I can see nothing wrong for the Magistrate to raise this point.

22.  I consider that the conviction was not unsafe or unsatisfactory.  There is no merit in the appellant’s appeal against the conviction, which shall be dismissed accordingly.

Appeal against Sentence

23.  The appellant raised the following grounds of appeal against the sentence:

(1) the Magistrate made the following errors of principle:

a. the Magistrate erred in considering that there was a connection between the appellant and “Kong Yam Finance”;

b. the Magistrate failed to have regard to the possibility that the appellant committed the offence out of his “ignorance of the law”, and it was due to his personal and family reasons that he made remittances for the teachers and students of the same university;

c. the Magistrate failed to consider that there was no evidence in this case to show that the appellant’s remittances were in any way related to “money laundering” or “financing terrorist activities”.

In short, it was manifestly excessive to sentence the appellant, as a first offender, to a community service order of 100 hours.

24.  The Magistrate was very brief in his consideration of the sentence:

‘19. The defendant’s motive for committing the offence was his need to exchange a large sum of Renminbi he had on the Mainland to Hong Kong dollars for use in Hong Kong. However, his mens rea, which was clearly known to the defendant when he committed the offence, was to evade the Mainland’s foreign exchange control.

20. It is an international obligation for Hong Kong to prevent herself from becoming a centre for distributing crime proceeds and terrorist funds. The court therefore takes the view that the offence in question is serious.  Moreover, the crime committed by the defendant was not an isolated incident. It lasted for a rather lengthy period involving a considerable amount of money.

21. Taking into account the defendant’s clear record and his background, the court considers a community service order of 100 hours an appropriate sentence.

22. For the offence in question, the defendant is sentenced to a community service order of 100 hours.’

25.  From the transcript of the trial, it can be seen that the Magistrate interrupted when Mr. Tsui was about to start his submission in mitigation, querying him why a custodial sentence should not be imposed.  The Magistrate kept stressing to Mr. Tsui that the offence in question was very serious as Hong Kong was under an international obligation to combat money laundering and terrorist activities.  The way the Magistrate expressed his view would likely give rise to doubts that he had already made his decision on sentencing before hearing the appellant’s submission, which is undesirable.

26.  The Magistrate took the view that, given the aforesaid international obligation, the sentence for the offence in question should be one that would serve as a general deterrent.

27.  In my view, it is not appropriate in this case to consider a sentence of general deterrence.  It is the fact of the case that the appellant carried out the remittances for the purpose of transferring to Hong Kong a sum of money that he obtained from the sale of his property on the Mainland, not for making profit out of the remittance activities.  This is unrelated to money laundering or terrorism.  At most, the appellant’s remittance service would only have lasted until the entire sum of money had been transferred to Hong Kong, and it would not have continued on a long-term basis.  Furthermore, I do not believe that the appellant would be able to obtain an operating licence just for transferring a sum of money to Hong Kong.   The appellant should have transferred the funds via an authorized financial institution and paid the charges required.  What the appellant did in this case, in my view, is not an act specifically targeted by the Ordinance.

28.  It is my view that in passing the sentence, the Magistrate made an error of principle and it is necessary to consider the matter afresh for an appropriate punishment.

29.  In the appeal hearing, both parties were unable to provide this court with other authorities on sentencing apart from the case of YIP Wai Cheong.  In that case, the defendant was fined HK$5,000.  He did not appeal against the sentence.

30.  In the present case, I consider that a fine of HK$20,000 is appropriate.

Order

31.  It is my decision that the appeal against conviction be dismissed and the appeal against sentence be allowed.  The original community service order is set aside and replaced by a fine of HK$20,000.