HKSAR v. CHEUNG SUET-TING AND OTHERS

DCCC426/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 426 OF 2008

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Reasons for Sentence

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1.  The 1st, 2nd and 4th defendant pleaded not guilty and the 3rd defendant guilty to a charge of conspiring with others to defraud the Housing Department and a company called KMW property services company limited, KMW, between May 2004 and July 2005. I convicted D1, D2 and D4 after trial.

2.  At the relevant time D1 and D2 were directors of a company called Lee Kwan Cleaning Service Company Limited, [Lee Kwan]. D3 and D4 were foreman employed by Lee Kwan on Kin Ming Estate in Tseung Kwan O.

3.  Lee Kwan commenced its business as a partnership in 1981, the partners being Cheung Sum, Pang Tak-choi and Yuen Yoi. The company was incorporated in February 2003 with the three partners as shareholders and Cheung Sum being the majority shareholder. Cheung Sum and Pang Tak-choi were appointed as directors of the company. The 2nd defendant was the wife of Cheung Sum and D1 was his daughter. Pang Tak-choi is the brother of the 2nd defendant and the father of the 3rd defendant.

4.  In 2004 Cheung Sum was suffering from terminal cancer and died on 6 May 2004. On 1 May 2004, the 2nd defendant replaced her husband as a director of the company. On 11 May 2004, the 1st defendant became a director of the company. The 2nd defendant became an authorised signatory of the company bank account in January 2004 and after the death of her husband was the sole authorised signatory.

Background

5.  On 1 December 2002 the Housing Department entered into a property services contract, the head contract, with KMW in respect of the Kin Ming Estate. On 9 January 2003, KMW sub-contracted the cleaning works in respect to the estate to Lee Kwan. Under both the head contract and sub-contract, it was stipulated that two cleaning foremen and 39 cleaners had to be employed on the estate with a minimum monthly salary of $4,3000 in respect of the cleaners. Under the sub-contract Lee Kwan would receive a monthly cleaning fee of $238,754. It was stipulated that if the number of workers were less than 39 the payment to Lee Kwan would be adjusted accordingly.

6.  In order to claim payments under the sub-contract Lee Kwan was required to provide proof of the 39 workers attendance and payment of their salaries. In order to ensure that the number of cleaners and payments to cleaners conformed with the contracts there were random inspections made by officers of the Housing Department at the estate. The inspectors would randomly select cleaners for interview.

7.  Lee Kwan created false attendance and payment records which they submitted to KMW who would forward them to the Housing Department. When Housing Department inspections were conducted, Lee Kwan would arrange for other employees of the company to pose as cleaning workers on the estate. Lee Kwan created cheques to match figures shown on the false documentation. If the amount was less than the employee was due the employee would receive a further payment in cash or by way of cheque. If the payment was more than the worker was due the worker would refund the balance.

8.  The evidence showed that on average the number of workers used on a monthly basis was 26 not 39 but claims were made for 39 workers. During the relevant period Lee Kwan was overpaid approximately $423,257.

The underlying documents

9.  The evidence established that in order to prove the attendance and payment of the stipulated number of workers, Lee Kwan submitted five types of document to the Housing Department cleaner attendance signing records via KMW. The first type of document was a cleaner attendance signing record. This document purports to set out the name of the employer, the month of work and post in the workplace. Workers were required to sign this when they came on and went off duty. Attendance and salary confirmation records.

10.  Cleaners were required to sign this type of document each month to confirm receipt of salary. The first two types of document were supplied by D3 to the Lee Kwan office where the next three documents were prepared based on the information contained in the first two documents.

The first type of document was a cleaner attendance and leave record. This was a tabular consolidation of the information contained in the first two documents. It was a computer generated document. After the document was sent to KMW it is certified by a certified public accountant who attaches a signature and a chop to the document.

11.   The second type of document prepared in the office was a salary payment certification. This is a schedule purporting to contain the names of each worker on the Kin Ming estate, the days worked and the actual pay. At the end of the document there is an endorsement to confirm that the above staff members had received their wages as stated and the amounts were true and accurate. A company chop was affixed to the document and a signature of an authorised person authorised by the company. From May 2004 until February 2005 the chop of the 1st defendant was affixed by an office staff. After that staff left the documents contained a signature which resembled that of the 1st defendant. After the document is submitted to KMW a CPA signs and certifies the documents before its submission to the Housing Department.

12.  An accountants certificate for payment application. This records the amount of salary paid to each of the cleaners and was submitted to an accountant of KMW for signature before submission to the Housing Department. Cleaners on the Kin Ming estate were paid at the beginning of each month. An invoice for the cleaning fees for each month would be issued by Lee Kwan and sent to KMW. The foreman of the estate, D3, would submit shortly after the end of each month to Lee Kwan office those documents and all the underlying documents would be sent to KMW within 7 days of the submission of the invoice.

13.  After KMW had received payment under the head contract, they would remit $238,754 per month to Lee Kwan under the sub-contract. This would usually take place about 6 weeks after they received the relevant invoice.

Ghost workers

14.  The court received evidence in relation to 13 persons who were put forward by Lee Kwan as being workers on the Kin Ming estate. Some of these persons had worked at the Kin Ming estate but not during the periods and times asserted by Lee Kwan in the documentation submitted by Lee Kwan to KMW. Some of the persons worked at different estates. Most of the signatures on the relevant documentation in relation to the attendance of ghost workers were forgeries. Ghost workers did not receive the salaries stated in the underlying documents for working as cleaners at the Kin Ming estate. Certified copies of certain cheques issued to the ghost workers showed they were cashed by either D1, D3, D4 or other workers.

The split cheque arrangement

15.  In late 2004 the Housing Department requested that in addition to all the documentation already supplied that further proof of payments by Lee Kwan to their cleaners be produced to them. Copy cheques and bank statements were submitted to KMW including cheques payable to ghost workers. Certain of the ghost workers would receive those cheques and there was an adjustment to reflect the actual pay that they were due to receive.

Housing Department inspections

16.  In order to ensure that the number of cleaners and the amount the cleaners were paid conformed with the head contract; Housing Department officers regularly conducted inspections and interviews in the Kin Ming estate and requested interviews with randomly selected cleaners. The evidence showed that a number of ghost workers were asked to go to the Kin Ming estate to pose as cleaners and should they be randomly selected for interview by the Housing Officers, they would lie to those officers about working on the Kin Ming estate and the salaries paid to them for such work.

17.  The evidence established that during the relevant period as a result of false representations made by the conspirators there was an overpayment to Lee Kwan of approximately $423,257 which amount was ultimately paid by the Housing Department.

18.  All the defendants have clear records. As a general point it was made by all the counsel that this was not set up as a fraud in that there was a genuine underlying transaction. It was not disputed that the estate was cleaned. In respect of all the defendants as well there has been put forward positive evidence of good character.

19.  The 1st defendant has a clear record. I was told by counsel on the last occasion, and I accept, that but for the untimely death of her father she would not have been in court in respect of this matter. She is 28 years of age and she was pregnant before her arrest in June 2008 and is now expecting her second child in September of this year. I was told on the last occasion that her husband was not in court as he is frequently away on business and that is not an uncommon situation.

20.  I am told that she has a domestic helper and her mother assisted in caring for her child. It was explained to the court, and the court accepted, that the 1st defendant has had a tragic two years. Her father died, her mother was suicidal, the delay of these proceedings were not the fault of the defendant and the charge relates to matters which occurred between May 2004 and July of 2005, some four years ago. She was arrested on 14 May 2008 and this trial commenced in February of this year.

21.  I have had placed before the court a letter from the Managing Director of German Pool Hong Kong which describes the defendant as being a kind content person with a respect for older people.

22.  In relation to the 2nd defendant, she is 55 years of age and there has been evidence of positive good character during the course of the trial. I was told by her counsel, and I accept, that these proceedings have been a huge strain on her. As with the 1st defendant there are very many members of their family and friend in court showing their support.

23.  The defendant was married in 1980 and was devastated by the untimely death of her husband. At that time she was a housewife and when her husband was very ill she tended to her husband on a daily basis. It was submitted that after the death of her husband she was thrown in at the deep end and did not really want to get involved in the running of the company but was persuaded by others to do so.

24.  As with the 1st defendant she would not have been in court had it not been for the untimely death of her husband. Her positive good character was reinforced by a letter from the police which showed that she had recently returned goods which she had found in the street to the police.

25.  The 3rd defendant is 32 years of age and joined the company in 1997 and was educated to Form 5 standard. He had originally worked in the construction industry and was promoted to foreman and appointed to the Kin Ming estate later on. He accepted from the beginning that he did not act in a legitimate way. He said there was a shortage of cleaning workers available.

26.  As with the other defendants these proceedings have been hanging over him for a considerable period of time but unlike the other defendants he pleaded guilty in February and has been awaiting sentence since February on this matter. I was told that he did not benefit financially; the cash was distributed amongst the workers. It was urged upon me that there was never any complaint about the standards of the cleaning and the work that was required to be done was done. He accepts that he was at the centre of what happened and it was pointed out that he also covered a number of other estates on behalf of the company.

27.  A number of letters were placed before the court to support the plea in mitigation. They were from his current employer, his parents, his wife, a friend of the family, a worker on the estate and a school friend. They all comment on him as a solid, reliable and dependable person. I am told that his wife was in employment but sadly that finished at the end of May as she was diagnosed with having a gynaecological problem.

28.  It was urged upon the court that what he did was foolish and came from a misguided sense of loyalty. I was told that the defendant found himself in a difficult situation occasioned by the ill health and death of his uncle and employer. It was submitted that the defendant is an unlettered and unpretentious person trying to lead a decent life.

29.  As regards to the 4th defendant it was pointed out by her counsel, quite rightly, that unlike the other defendants she was not a relative of the company owners and had the lowest education standard of all. She is aged 49 and has a son and two daughters who are all grown up. I am told that one of the daughters plans to marry in September of this year. I was told that she had had little benefit from the scheme and there was no possibility of her re-offending.

30.  A letter in mitigation was submitted on her behalf from a District Councillor who spoke of her charitable work in her spare time with aged people. A letter was submitted from the daughters describing their mother as a good mother and looked after their interests when they were children. I was informed, and it has been confirmed by medical reports, that the defendant has had a medical history of diabetes mellitus and hypertension and the report and subsequent report submitted go on to deal with various other problems which she has had. I have taken those matters into account when considering what the appropriate sentence should be.

31.  I have taken into account everything that is set out in the background reports. All the reports are favourable and speak in glowing terms of the defendants. Those reports and what has been said to me in mitigation make it all the more tragic that the defendants should involve themselves in this fraud.

32.  This case involves a fraud on public funds in the sum of $423,257. It lasted from May 2004 to July 2005. I accept that the cleaning work on the estate was carried out. However it was quite clear under the contract that in order to qualify for the full monthly payment a stipulated number of workers had to be employed and if the number fell short of the stipulated number, the monthly payment would be adjusted accordingly.

33.  Now this was not simply a condition of the contract, it had to be supported; five different types of documents were required to be submitted to the Housing Department every month. All the documentation supplied contained false information. This was not a case of inventing one or two ghost workers it concerned a third of the required work force on the estate. One of the documents required a declaration by an executive director of the company to the effect that the claim was true and accurate.

34.  In December 2004 the Department made a request for further documents to be submitted to substantiate that salaries had actually been paid to cleaners on the estate and copies of cheques issued to each worker had to be produced together with bank statements from Lee Kwan. In addition to all these measures there were monthly random checks made to ensure the number of workers was as stipulated and workers from other estates and from the office would be required to come to the Kin Ming estate and to lie to Housing Officers. There was a cynical assumption that workers would be prepared to lie.

35.  As everybody accepts this is a serious offence. This kind of offence must attract a deterrent sentence. The money obtained was not inconsiderable and the conspiracy was carried out over a long period of time.

36.  After considering all the factors involved I take the view that a sentence of 2½ to 3 years would be an appropriate starting point for an offence of this kind.

37.  In respect of the 3rd defendant, who, in my view, was the central figure in this conspiracy, in view of the mitigation urged and the fact that he has been waiting for sentence I adopt the lower starting point of 2½ years. He has pleaded guilty to the offence and I therefore propose to reduce that sentence by one-third so that the 3rd defendant will serve a period of 20 months’ imprisonment.

38.  In relation to the 4th defendant, I accept her role was less than that of the 3rd defendant. However, in my view, she was an important part of the conspiracy. The 3rd defendant was frequently absent from the estate. I have no doubt that the 4th defendant was aware of the false documentation being submitted to the Housing Department and that workers from other estates were being brought to Kin Ming to pose as workers on the estate and lie to Housing Department officers. She cashed some cheques payable to ghost workers. Records relating to payments to ghost workers were found in her home. Taking into account all the circumstances I propose to impose a sentence of 18 months in respect of the 4th defendant.

39.  In relation to the 1st and 2nd defendants I accept that but for the untimely death of the 2nd defendant’s husband they would not have become involved in this conspiracy. However, they did become directors of the company and when they did learn of the conspiracy they allowed it to continue and they actively participated in it.

40.  I do not propose to go through my reasons and findings in relation to verdict but after learning of the conspiracy the 1st defendant inter alia continued to allow documentation to be submitted to the Housing Department. Which she knew to be false, and to which her chop was attached. On one occasion she cashed cheques for ghost workers.

41.  The 2nd defendant continued to sign cheques for ghost workers after she became aware of the conspiracy and told one of the office staff to go to the estate to pose as a ghost worker.

42.  In respect of the 1st and 2nd defendant I propose to impose a sentence of 12 months’ imprisonment.