HKSAR v. TEH WAN SUANG AND ANOTHER

DCCC 331/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 331 OF 2013

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REASONS FOR SENTENCE

1.  Both defendants pleaded guilty to a charge of conspiracy to defraud.

2.  The charge alleged that, between November 2008 and March 2010, they, together with two other persons, Gan Song Chun (Gan) and Leung Yuk Ping (Leung), conspired to defraud Polycore Optical (Hong Kong) Limited (POHK), their employers, by dishonestly diverting orders away from POHK and misleading POHK as to the identity of the genuine suppliers of  goods supplied to them.

Background

3.  Polycore Optical (Hong Kong) Limited (“POHK”) was incorporated in Hong Kong in 1998 and is a subsidiary of Polycore Optical Pte Limited (“POPL”), a Singapore-based company.  POPL was embarking on the business of manufacturing and trading of lenses, while POHK would help in distributing and trading lenses manufactured by POPL and other suppliers to customers in Asia-Pacific Region. When POHK received orders for lenses from customers, POHK would ask POPL to send the goods to the customer.  If customers ordered coated lenses, POHK would order coating services from suppliers directly.

4.  Mr Gan Song-chun (“GAN”) was employed by Polycore Optical (M) Sdn Bhd, a subsidiary of POPL in Malaysia on 1 August 1985 and was appointed as General Manager of POHK on 1 March 1999.  As at 19 June 2009, POHK had 3 directors and Gan was one of them until his resignation in January 2010.  At the material time, D1, D2 and Leung (“PW4”) were respectively the Sales and Logistic Manager, Sales Executive and Sales Coordinator of POHK under the supervision of Gan and working closely with Gan.

5.  On or about October 2008, Gan, D1, D2 and PW4 had a meeting in the office of POHK after office hours to discuss the setting up of Gan’s own company, the Lens Optics Technology (LOT).  Gan told them LOT would take over some of POHK’s businesses.  Gan invited them to join his company LOT.  D1, D2 and PW4 all agreed to join.  It was agreed that while all of them were still working for POHK, D1 would run the daily business of LOT with the assistance of D2 and PW4 at the same time.  Gan established LOT on 1 November 2008 with its registered address being the same as the then reported residential address of D1, which was in Amoy Garden, Ngau Tau Kok.  Gan was the sole proprietor of LOT.  None of them disclosed these facts to POPL or POHK.

6.  In late 2008 and early 2009, for the sake of LOT’s business, D1, D2 and PW4 each opened new email accounts, namely lens_optics@ymail.com for D1, may_lens_optics@ymail.com for D2 and cherry_lens_optics@ymail.com for PW4.  To avoid their true identity being disclosed, D1 referred herself as ‘Jenice’, while D2 was ‘May’ and PW4 as ‘Cherry’ in the email correspondences from such email accounts.

7.  D1, D2 and PW4, on behalf of LOT, arranged with GoSmart Group (Asia) Limited (“GoSmart”) for the provision of  secretarial services for LOT which included informing D1 or D2 via their mobile phone when GoSmart received any messages in relation to LOT.  D2 also provided a copy of her Hong Kong Identity Card to GoSmart for their record purpose.

8.  On 18 December 2008, a bank account was opened with Hongkong and Shanghai Bank Corporation Limited in the name of LOT.  Gan, D1 and D2 were the authorized signatories.  A few weeks later, D1 and D2 ceased to be the authorized signatories.  D1 and D2 had never signed any cheque in the period when they were authorized signatories of LOT’s bank account.  However, the cheque book of LOT was pre-signed by Gan and was kept by D1 when Gan was not in Hong Kong.  D1 would use the pre-signed cheques for payments on LOT’s suppliers.  Bank enquiries on LOT showed that at the material time, two cheques of $2,657 and $1,174 drawn on the LOT bank account were paid to D1 for her to reimburse the purchase of office supplies and stationeries for the use of LOT.

9.  Under Gan’s instruction, D1, D2 and PW4, made use of their positions of POHK, firstly, bypassing POHK and diverting the orders of POHK’s clients directly to LOT and secondly, placing POHK’s orders to LOT as if LOT were the genuine supplier.

10.  Gan tendered his resignation on 7 January 2010 with his resignation effective on 3 March 2010.

The Conspiracy to Defraud

11.  In early 2010, after Gan’s resignation, Mr Cheung Wai On (“PW3”), Account and Administration Officer of POHK, discovered that LOT had ordered a special kind of lens from POHK.  In the past, this type of lens would only be ordered by a Japanese customer of POHK but the said customer had placed less orders with POHK since February 2009.  PW3 found it very suspicious. Subsequently, the auditor of POHK discovered Gan’s proprietorship of LOT.

12.  In the presence of POHK’s lawyer, PW3 questioned D1, D2 and PW4 about LOT.  All three denied knowing anything about LOT.  However, PW4 apologized for what she had done without giving any reason.  The employment of D1, D2 and PW4 were terminated by POHK in late March 2010.  The case was then reported to the ICAC.

13.  Enquiry revealed that Hong Kong Optical Lens Company Ltd (“HKO”) and Swiss Lens Laboratory (HK) Ltd (“Swiss”) have been POHK’s customers since 1996 and 2003 respectively.

Diverting business

14.  In about 2009, Mr Luk Wing Cheong (“PW14”), Assistant to Director of Swiss, asked Gan if POHK could supply “CR39 85mmSV” lenses, a semi-finished lens product.  Gan claimed that POHK had no stock but agreed to produce the lenses for Swiss.  Subsequently, ‘Jenice’ and ‘May’ (ie D1 and D2) of LOT followed up the orders placed by PW14 of Swiss and communicated with Swiss by their new email accounts.  PW14 did not notice the emails were sent from LOT. He believed that LOT was the associate company of POHK because Gan, at the material time, as an employee of POHK, had been liaising with PW14 in relation to the orders, PW14 placed their orders with LOT instead of POHK.  Gan also informed PW14 that all semi-finished lenses would be provided by LOT in the future.  Mr Jimmy Sumargo (“PW15”), Director of POPL, confirmed that POPL possessed the technology to produce this semi-finished lens and could provide the lenses to POHK.

15.  Mr So Siu Wah (“PW13”), an  Executive Director of HKO, confirmed that  HKO was also one of POHK’s customers.  PW13 usually contacted D1 and D2 when he placed orders of lenses with POHK.  On 15 December 2008, PW13 had a meeting with Gan who later sent PW13 an email stating that several types of lenses which had been previously supplied by POHK would now be supplied by LOT with immediate effect in January 2009 but Gan did not give any reasons.  As Gan had all along presented himself as the employee of POHK during his communications with PW13, PW13 believed LOT was an authorized lenses supplier of POHK.  On one occasion, PW13 had spoken to Gan about the poor packing and lens quality of the products supplied by LOT.  Gan told PW13 that POHK would follow up the matter when there were problems with the orders he placed with LOT.  There is no evidence showing that D1 knew about his complaint.  Since then, PW13 placed orders directly with LOT and made payment to LOT.  Before HKO started placing orders directly with LOT, upon Gan’s instruction, D1 and D2 had already diverted the some of the orders of HKO with POHK to LOT.

Genuine supplier

16.  In respect of the coating services placed by the customers with POHK, D1, D2 and PW4 placed these orders to LOT instead of the genuine suppliers.

17.  According to PW4, starting from early 2009, LOT became POHK’s coating service supplier.  After POHK received orders from its clients, D2 and PW4 would input the information of orders into computer and then informed Gan. Then D1, D2 and PW4 would receive emails from Gan who instructed them to subcontract the POHK’s order to LOT.  D2 would also monitor PW4 to make sure the orders were placed with LOT but not to the usual suppliers that POHK had been using.

18.  D2 also instructed PW4 to place orders with LOT via POHK’s email account, with ‘Jenice’ or ‘May’ as the contact persons of LOT.  Then, on behalf of LOT, D1 and D2 would give a reply to POHK and issued Performa Invoices to POHK.  Then, D1 would follow up LOT’s orders and transactions.  She would send emails together with Commercial Invoices to POHK asking POHK to make payment. When LOT received POHK’s orders, D1 would prepare the relevant invoices for LOT and send them to POHK in order to get the payment.  On the other hand, D1 would also place orders at Mellan Opto Electronic Tech Co Ltd (“Mellan”) for LOT. Mellan is a mainland lenses supplier which POHK had sourced for services before.  After POHK paid LOT, the goods would be sent to POHK.  However, in order to cover up the genuine sources of the goods, when D1, D2 and PW4 received the goods from the genuine suppliers, they would remove the goods from the boxes which bore the names of the genuine suppliers and place them into plain boxes before they sent the goods to POHK.

19.  According to Mellan, whether the orders were placed by LOT or POHK, they would still charge the same price for same goods and services.  According to the calculation by PW3, in respect of those POHK orders which LOT then subcontracted to Mellan, LOT charged POHK about 2-3 times more than the money LOT paid Mellan.  At the same time, according to PW4, LOT had done nothing for POHK in the course of those transactions.

20.  Among the transactions with POHK, LOT had represented to POHK that LOT was the genuine supplier of the good and services for the orders POHK placed with them but in fact LOT was not the genuine supplier.  Had POHK known that LOT was owned by Gan, that LOT was not the genuine supplier for the goods and services they ordered and that LOT had charged them much more than the genuine suppliers, POHK would not have placed the orders with LOT.

21.  As to the financial loss suffered by POHK, ICAC investigation revealed the followings:-

(i) Between January 2009 and February 2010, Swiss had placed lenses orders of US$1,502.5 (HK$11,720) with LOT.

(ii) Between December 2008 and March 2010, HKO had placed orders with LOT, involving over HK$1.7 million, of which the lenses were previously supplied by POHK.

(iii) At the material time, POHK had placed coating orders involving over HK$220,000 with LOT.

22.  During their employment with POHK, D1 and D2 had failed to disclose Gan’s interest or benefit in LOT to POHK.  On 24 April 2012, D1, D2 and PW4 were arrested.  When interviewed under caution, all of them remained silent.

Mitigation

D1

23.  D1 has a clear record. She is 33 years-old and is a Malaysian citizen. She is a university graduate in economics.

24.  She is the eldest of three siblings. Her parents are in their 60’s and she financially supported both of them until she became unemployed since June 2012. She has two younger brothers one of whom is working and the other is a student. Prior to coming to Hong Kong she worked as a customer services executive for Panasonic AVC Network in Kuala Lumpur.

25.  D1 started working for POHK in August 2008 and received a monthly salary of HKD25,000. Her employment visa in Hong Kong was supported by POHK

26.  D1 was arrested by the ICAC on 24 April 2012 and on 8 June 2012 was required to surrender her Malaysian passport . Thereafter she was not allowed to leave Hong Kong. She has no family and no friends in Hong Kong.

27.  D1 maintained that she had no financial gain from her participation in the conspiracy.

28.  Both defendants have paid HKD25,000 each by way of  compensation for the losses incurred by POHK in respect of the orders for coated lenses placed with LOT.

D2

29.  D2 has a clear record. She is aged 33, single and educated to Form 5 standard. She is currently unemployed and used to earn HKD14,500 per month as a sales administrator but resigned from that position because of the current proceedings. She earned HKD13,000 per month when she worked for POHK.

30.  The defendant has 9 siblings. Her father is 72 and suffers from hypertension. She cohabits with her boyfriend who is a lorry driver.

31.  A number of letters of support from family, friends and her previous employer were submitted to the court. She is regarded as a highly responsible and helpful person. Her family in particular are most concerned about the enormous pressure and anxiety  these proceedings have caused her.

32.  D2 maintained that her only benefit from her involvement in the conspiracy was a payment of HKD10,000 in February 2010. She said that Gan  offered her and the others shares in LOT and a future for her and the other co-conspirators if  LOT was successful.

33.  D2 pleaded guilty at an early stage and offered to be a prosecution witness against D1 and Gan if he is arrested. D2 was interviewed by the ICAC on 5 occasions over a period of 16 hours. Her non-prejudicial statement  is 50 pages long with 3 appendices. Her statement provides much more detailed and cogent evidence than those of PW4 against both D1 and Gan. After her non-prejudicial statement was served on lawyers representing D1, it was indicated to the court that D1 would be changing her plea to guilty.

34.  Both defendants have voluntarily made restitution to the victim company. I bore this in mind when deciding on the appropriate starting point for sentence. Voluntary restitution is something to be encouraged and weight must be given to it as a mitigating factor.

Sentencing considerations

Delay

35.  It was urged upon the court by both counsel that in deciding the appropriate sentence consideration should be given to the fact that there had been delay in bringing the proceedings. Neither counsel sought to blame the prosecution and accepted that investigations of this kind of offence are time –consuming and the prosecution were hindered by the disappearance of  Gan who took with him many of the books of account. The accounting irregularities were discovered by POHK in early 2010 shortly after Gan’s resignation on 7 January 2010. The employment of D1 and D2 was terminated  in March 2010 and they were interviewed by the ICAC in December of that year. Formal charges were not brought until March 2013.  I accept that both defendants have been under considerable pressure and suffered great anxiety during this period and some allowance should be made to reflect this factor in the sentence imposed. D1, who has no family or friends in Hong Kong and has been out of work for some time, was required to remain in Hong Kong pending these proceedings.

Roles of the Defendants

36.  I accept that the fraudulent scheme was initiated by Gan and that  he was the person principally involved in its execution. Gan was the sole proprietor of the company. The registered address of the company was the residential address of D1. According to D2, she maintains that she was initially told the LOT would be taking over some unwanted business of POHK. However, whatever they were told initially, it became apparent at an early stage that the purpose of LOT was to defraud POHK by diverting  business from the company and by placing orders for coating services with LOT rather than with genuine coating suppliers causing POHK to pay 2-3 times more than they would pay to the genuine suppliers. Whilst working for POHK D1 ran the daily business of  LOT assisted by D2 and PW4. None of this was disclosed to POHK.

37.  In late 2008 and early 2009, for the sake of  LOT’s business, D1, D2 and PW4 agreed to open new e-mail accounts using the names Jenice, May and Cherry to avoid disclosing their true identities in correspondence. D1, D2 and PW4 engaged with Gosmart to provide secretarial services for LOT. The mobile phone numbers of D1 and D2 were supplied to Gosmart for dealing with any messages in relation to LOT.

38.  I noted that when the bank account for LOT was opened in December 2008, Gan, D1 and D2 were the authorized signatories although a few weeks later D1 and D2 ceased to be authorized signatories and signed no cheques. D1 had  possession of cheques that were pre-signed by Gan and used two of them to reimburse the purchase of office supplies and stationary for LOT.

39.  The fraud perpetrated on POHK could not have occurred without their knowledge and assistance.

Losses suffered by POHK

40.  I was told that because of Gan’s disappearance with many of the accounting books it was not possible for the court to be supplied with accurate figures.

41.  The ICAC investigation revealed that between January 2009 and February 2010, Swiss had placed orders for lenses with LOT for HKD11,720. HKO had placed orders with LOT involving over HKD1.7 million. POHK had placed coating orders with  LOT involving over HKD220,000.

42.  With regard to the losses suffered by POHK in respect of  orders placed with LOT, the loss suffered by POHK amounts to HKD100,000 and the defendants each paid compensation of  HKD25,000.

43.  I have been referred to the case of HKSAR v. Cheung Mee Kiu [2006] 4 HKLRD 776. That case asserts that in respect of theft cases involving breaches of trust the sentencing principles laid down in the English case of  R v. Clark (1998) 2 Cr App Rep 137 should be followed in Hong Kong.

44.   The current case cannot be conveniently pigeon-holed into one the bands for sentencing set out in Cheung as an accurate assessment of  the loss suffered by POHK cannot be madebecause of  Gan’s disappearance with the books of account. I accept that Gan was the ringleader in this criminal enterprise. He not only defrauded the company but went to some lengths to conceal his fraudulent activities as outlined above.  He also brought other employees into his fraudulent scheme. I take the view that a sentence of at least 3 years imprisonment would have been appropriate in his case.

45.  The defendants were employees of  POHK at the material time and their actions constitute a serious breach of trust

46.  I accept the D1 and D2 played lesser roles in the conspiracy and would have been influenced by Gan who was the general manager of the company.

47.   I have taken into account the restitution made by each of the defendants.

48.   D1 was the company’s Sales and Logistics manager and earning nearly twice the salary of  D2. D1 ran the daily business of  LOT with the assistance of D2 and PW4. The registered address of  LOT was her residential address.

49.   Taking everything into account, in respect of D1 I take the view that a sentence of 21 months imprisonment is an appropriate starting point and I reduce the sentence  by one third to reflect her guilty plea. I also reduce the sentence by 1 month in respect of the anxiety she has suffered due to the delay in proceedings. She will go to prison for 13 months.

50.   As regards D2, taking into account what has been urged upon me in mitigation and her more junior role in the company, I take the view that 18 months is an appropriate starting point. This will be reduced by 6.5 months in view of her plea and assistance to the prosecution. The sentence will be reduced by a further 1 month in view of the delay. D2 will go to prison for   10 months and 2 weeks.