HKSAR v. LEE WAI YIU AND OTHERS

CACC 100/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 100 OF 2006

(ON APPEAL FROM DCCC NO. 1280 of 2004)

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JUDGMENT

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Hon Wright  J (giving the judgment of the Court):

1.  On 11 May 2003 the police raided domestic premises in Pat Heung, New Territories.  The three applicants (D2, D3 and D4 respectively), together with a fourth male (D1), were inside the premises at the time.  All four were arrested for the offence of bookmaking.  As a consequence of these events the financial affairs of the four males were investigated.

2.  The four were subsequently charged, jointly, with a single charge of bookmaking on 11 May 2003, contrary to section 7(1)(a) of the Gambling Ordinance, Cap. 148.  Each was additionally charged, individually, with one charge of dealing with property knowing or reasonably believed to represent proceeds of an indictable offence contrary to s. 25(1) and (3) of the Organised and Serious Crimes Ordinance, Cap. 455, to which we shall refer as the money laundering offence:  in each instance the offence was said to have occurred between 12 May 1997 and 11 May 2003 and to relate to identified bank accounts operated by the respective person.

3.  After a trial in the District Court before Deputy Judge T S Jenkins D1 and D3 were convicted of the charge relating to bookmaking, D2 and D4 were acquitted of that charge and each defendant was convicted on the money laundering offence. 

4.  Each of the three applicants seeks leave to appeal his conviction on the money laundering offence.  D2 and D4 each also seeks leave to appeal the sentence imposed on him on that charge.

CONVICTION

5.  Sec. 25(1) of the Organised and Serious Crimes Ordinance provides:

(1) Subject to section 25A, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person's proceeds of an indictable offence, he deals with that property.

6.  The prosecution opened and prosecuted its case on the basis that:

23.  The money laundering charges arose because the police, in the course of their investigation, identified significant and unexplained money flows in and out of bank accounts controlled by one or other of the defendants which appeared to relate to their bookmaking and gambling activities.

...

25.  In essence, the allegation made against each of the defendants is that over a number of years, between 12 May 1997 and 11 May 2003, they used their bank accounts to launder the proceeds of illegal bookmaking and illegal gambling.

7.  In his reasons for verdict the Judge found that:

72.  … there is an irresistible inference to be drawn that the defendant in each case knew that the substantial moneys passing through their accounts was wholly or in part the proceeds of an indictable offence, namely bookmaking.  The charge in each case has been proved as against each defendant beyond all reasonable doubt…

8.  The grounds of appeal are fundamentally the same for each defendant and conveniently may be summarised thus:  first, having found that each defendant knew, as opposed merely to having reasonable grounds to believe, that the moneys concerned were wholly or in part the proceeds of an indictable offence, it was incumbent upon the Judge to make a finding that those moneys were, as a fact, the proceeds of an indictable offence, in this instance bookmaking, yet he failed to make that finding;  and, second, that the evidence, especially that emanating from the two expert witnesses, Sergeant LING Sai-ki, a gambling expert, and Roderick Sutton, a forensic accountant, did not justify the drawing of the inferences relied upon by the Judge.

The knowledge of the defendant

9.  In relation to the money laundering charges the Judge said:

66.  Turning to charges 2 to 5, the prosecution is not under any duty to prove the monies dealt with by D1 to D4 were, as a fact, the product of an indictable offence by proving that the indictable offence occurred.  What the prosecution is required to prove is that the defendant in each case either knew or had reasonable grounds to believe that the moneys or part of the moneys that they dealt with represented proceeds of an indictable offence.

10.  That statement accurately reflects the law in Hong Kong:  see Oei Hengky Wiryo vs HKSAR (No. 2) [2007] 1 HKLRD 568 paras. 96 to 109.  It is the state of mind of each defendant that is at issue, not the status of the property.

11.  The issue of whether the prosecution need prove the predicate offence was first considered by the Appeals Committee of the Court of Final Appeal in HKSAR vs WONG Ping-shui and Another (2001) 4 HKCFAR 29.  In rejecting the application the Court observed, at p. 31:

The applicants seek leave to argue in the first place that, contrary to a decision of the Court of Appeal, this is an offence that requires the prosecution to prove that the property dealt with by the defendant did in fact represent the proceeds of an indictable offence.  This was an argument that the Court of Appeal rejected in HKSAR v LI Ching [1977] 4 HKC 108.

…

We do not consider that point reasonably arguable.  It proceeds on a false premise.

…

…s. 25(1) of Cap. 455 does not define the actus reus is dealing with the proceeds of an indictable offence.  It defines it as dealing with "property" which the defendant knows or has reasonable grounds to believe represents the proceeds of an indictable offence.  The quality of the goods being such proceeds is therefore an element in the mens rea but not the actus reus.

12.  Subsequent to that decision the English House of Lords in R vs Montilla and others [2004] 1 WLR 3141 decided that the correct interpretation of the English legislation under consideration required the prosecution to prove the predicate offence.  McHugh NPJ in Oei Hengky Wiryo noted that "the terms of [s. 25(1) of the Organised and Serious Crimes Ordinance] stand in sharp contrast to the language, context and history of…” the English legislation which was considered in Montilla.

13.  In Montilla Lord Hope, when delivering the opinion of the Committee, observed:

A person may have reasonable grounds to suspect that property is one thing (A) when in fact it is something different (B).  But that is not so when the question is what a person knows.  A person cannot know that something is A when in fact it is B.  The proposition that a person knows that something is A is based on the premise that it is true that it is A.  The fact that the property is A provides the starting point.  Then there is the question whether the person knows that the property is A.

14.  A similar argument was advanced in Oei Hengky Wiryo.  The Court of Final Appeal thus revisited the issue of whether it is necessary, in Hong Kong, to prove the predicate offence.  In rejecting the argument the Court found, at para. 106, that:

"... powerful as the argument is, it cannot overcome the structure and plain words of s. 25(1)." 

15.  The Court continued:

Moreover, in practice, it is likely that the first limb of section 25(1) - the "knowing" limb - can seldom be used unless the prosecution proves that the property did in fact represent a person's proceeds of an indictable offence.  But that is a different matter from requiring the prosecution to prove in all cases brought under that section that the property did in fact represent a person's proceeds of an indictable offence

16.  It is upon this short passage that the defendants base their submission that the Judge erred in holding that they knew that the substantial moneys passing through their accounts were wholly or in part proceeds of an indictable offence, namely, bookmaking, without first deciding whether those proceeds were, as a matter of fact, proceeds of bookmaking.

17.  It is correct that the Judge did not say, in terms, that he was satisfied that the moneys passing through the various accounts represented the proceeds of an indictable offence but it is axiomatic that, by having drawn the inferences to find that the state of mind of each defendant was such that he “knew” the moneys to represent the proceeds of an indictable offence, the Judge was finding them to be such.

18.    To draw those inferences the Judge relied upon the information which was or would have been available to each defendant and was before him.  On that basis he drew the inference that each defendant knew that the moneys were the proceeds of indictable offence.

The inferences drawn

19.  Counsel for each defendant has performed a detailed and helpful exercise in analysing the evidence of the two expert witnesses.  Each submits that the Judge erred in relying upon the evidence of Mr Sutton because that evidence was based on a misinterpretation of the financial records placed before him. 

20.  The keystone of the submission is the evidence of the gambling expert during his evidence in chief:

Q.  So do I take it that it is common practice that gambling of this nature, bets, is done on credit?

Y.  Correct

...

Q.  ... in your experience how is the money dealt with... how is it paid and collected?

A.  Firstly, when placing bet, a person does not need to give out any money first... it would be done when the match was finished and after calculating the number of goals advantage given away, then we'll know who wins, who loses.  Then the money will be dealt with.  The simplest and most usual way was... by adopting a transfer at a bank account.  Because this way is the most convenient way for the person who receives bets and for those persons who place bets.

Q.  ... are you saying that he bookmaker would have the punters a bank account number?

A.  Yes, this is very usual.  In fact, apart from bank account numbers usually both parties will have the other party’s telephone number.... in many cases those people who received bets, we will find on the some documents receiving bets.  And some documents, which were the record of persons, a lot of persons’ names, a lot of bank account numbers and telephone numbers. 

Court: ... both the losing and receiving the money is basically done through... respective bank accounts, you say?

A.     Yes

[emphasis supplied]

21.  The defendants submit that Mr Sutton’s opinions are flawed because he has taken into account cash transactions in the various accounts when the effect of Sergeant LING’s evidence is that he should have had regard only to transactions effected by way of bank transfers, ignoring deposits and withdrawals of cash:  were this course to be followed, the picture that emerges is radically different from that painted by Mr Sutton and the Judge would not have been justified in drawing the inferences he did.

22.  That such an approach would have a substantial effect upon Mr Sutton's evidence is correct.

23.  The problem with the submission is that it assumes that because Sergeant LING said that the “most usual way” of settling the outcome of wagers is by way of transfer between bank accounts, only transactions effected in this manner should be taken into account and that transactions conducted in cash should be ignored.  We disagree.  That is not a construction which can sensibly be placed on his evidence. 

24.  It is implicit when he describes inter-account transfers as being the "most usual way" that there exist other methods.  Amongst them, as a matter of commonsense, would be the deposit and withdrawal of cash, a method which has the added obvious advantage to those involved in illegal conduct of creating no paper trail.

25.  Consequently in our judgment the approach adopted by Mr Sutton was correct:  it follows that the Judge was entitled to rely upon Mr Sutton's analysis of the financial records.

26.  We turn now to the individual submissions made on behalf of each defendant although the observations which we make in regard to the further submissions of D2 largely also apply to D3 and D4, they having adopted those arguments where appropriate.

D2’s further submissions

27.  D2 further contends, based on the evidence of Sergeant LING and Mr Sutton, that three characteristics of what is called “a typical bookmaker's account” may be expected to occur.  The contention is that these characteristics are absent insofar as, at least, the D2’s accounts are concerned.  These are hypothetical characteristics which were neither put to nor accepted by either Sergeant LING or Mr Sutton during the course of the trial. 

28.  The first characteristic claimed is the amount of inter-account transfers as opposed to deposits into accounts:  this falls away in view of our acceptance of the correctness of Mr Sutton's approach.

29.  The second characteristic which is suggested would be revealed is the regularity of transactions with the same identifiable third party bank accounts:  the calculations to support this aspect were available to the Judge at the trial and need no further comment now.

30.  A further contention in support of the second characteristic is that taking into account the evidence of Sergeant LING as to how bets are settled between a bookmaker and a punter the Judge should have found that the limited number of regular transactions between D2 and identifiable third party accounts was a substantial factor against the inference that his accounts were those of a bookmaker.  This submission perpetuates the misinterpretation of the evidence of Sergeant LING.

31.  A further factor is advanced in these terms:

It is further submitted that, although D2 was arrested in premises used for bookmaking by D1 and D3 (both of whom were convicted of the bookmaking charge), there was no evidence linking D2 to that premises on any other day and, more importantly, the limited financial relationship between D2 and the other defendants provides the factual basis for an inference that D2 had not previously involved himself with bookmaking activities of D1 and/or D3.  The limited amount of bank transfers between D1 and D2 is accounted for by the fact that D1 was a chip roller in Macao working under D2 - evidence which was accepted by the learned deputy judge.

32.  It is correct that there was no evidence which linked D2 to those premises on any day other than 11 May 2005 and that the evidence showed a limited number of banking transactions between the various defendants.  The Judge, having on the same occasion acquitted D2 of charge of bookmaking, would have been abundantly aware of each of these factors.

33.  The assertion that the limited amount of bank transfers between D1 and D2 "is accounted for" by D2’s apparent occupation is neither supported by the evidence nor the manner in which the Judge dealt with it.  It is correct that a witness was called for the defence who was a general manager of a casino operating in Macao:  he testified that D4 had been a chip roller under his direct supervision since the mid-1990s and that his " understanding" was that D2 was one as well, with D1 working for him.  What the Judge said about this witness’ evidence was:

I was prepared to accept DW1's evidence but found it was only indicative that D1, D2 and D4 had a source of income by way of commission during the charge period but DW1's evidence did not shed light on the substantial deposits and withdrawals in the bank accounts during the charge period.

34.  The third characteristic which it is contended would be present in a “typical bookmaker's bank account" is the pattern of the transactions which occurred in that they could be expected to occur on the next working day following a scheduled race meeting, what is referred to for convenience as a “settlement day”.  Mr Sutton's evidence in this regard was criticised in two respects:  first, that there was no basis for such a hypothesis;  second, that his analysis of the transactions, in the D2’s account in any event, did not support the hypothesis.

35.  When cross-examined concerning the validity of his assumption that bets would be settled on the working day next following a race meeting Mr Sutton explained:

... the relationship I draw is the transactional activity to Hong Kong and indeed Macao race meetings and then when a subsequent transaction occurs.  Here in Hong Kong you have established pattern of race meetings that happens on particular days and we have matched those transactions against the banking days and there appears to be a relationship.

and further:

I believe that there is a relationship between the transactional activity that is occurring following a course raising event.  We have matched day-to-day to the Monday Wednesday and Thursday value days, bank open days after Hong Kong and Macau race meetings.  And that transactional activity to me suggests some type of relationship.

although he accepted, sensibly, that as he was not a gambling expert he was unable to testify as to when credit bets would be settled.

36.  Calculations were produced on behalf D2 and D3 to demonstrate that when the number of transactions which actually were conducted through the various bank accounts were averaged out over the number of potential settlement days throughout the full period of the charge, the number of transactions was so low as to have no probative value. 

37.  The very results of those calculations demonstrate the flaw in this approach.  They result in an impossibility as there cannot be a fraction of a transaction which is the result those calculations.  The calculation also ignores the fact that it never has been the prosecution’s case that the defendant dealt with the proceeds of bookmaking on every potential occasion, that is every race, throughout the charge period.

38.  Mr Sutton, in cross-examination, explained that insofar as his calculations were concerned:

... the key is the day of the week and that is the value date.  So what we have done is then matched that against an actual scheduled for race meetings in Hong Kong and Macau.  We have not lumped in every Wednesday, Thursday and Monday.  We have done an exact match of the race meetings... all deposits that we have identified are deposits on Wednesday, Thursday and Monday which are the first banking day after an actual race meeting, not simply a Wednesday or Thursday and Monday.

39.  The Judge was entitled to accept Mr Sutton's evidence in this regard and did so.  There was no evidence to gainsay it.  The hypothesis, it may be fairly said, has a strong ring of commonsense to it.

40.  It was Mr Sutton's evidence that, in value terms, 72% of all deposits and 73% of all withdrawals occurred in D2’s accounts on a settlement day.  Once again, his analysis is erroneously attacked on the basis that cash transactions should have been excluded.  The Judge was entitled to accept Mr Sutton’s evidence in this regard:  he correctly regarded it as a significant feature.

41.  Over and above the value of transactions effected on a settlement day, details of the number of transactions effected on those days were before the Judge.  The analysis of those transactions appears in annexure 5 to Mr Sutton's report in respect of D2, annexure 6 in respect of  D3 and annexure 7 in respect of D4.

42.  In regard to this aspect of his evidence, Mr Sutton accepted that he was not able to express an opinion as to whether D2's account had been used to settle bets.  He was only able to draw a relationship between race days and the account activity.  It was, of course, the function of the Judge to determine whether those coincidences were of probative value.  He found they were, and we are satisfied that he was correct in doing so.

43.  It is correct that D2 was acquitted on the bookmaking charge.  The Judge was aware of that and made specific reference to it in his reasons for verdict.

D3’s further submissions

44.  In addition to adopting D2’s submissions on the issue of knowledge, with which we have already dealt, D3 advanced effectively three further grounds: first, that there was no evidence of anything which would alert D3 to the fact that the moneys passing through his various accounts might be the proceeds of an indictable offence; second, that the Judge in effect reversed the onus by referring to the large sums of money passing through D3’s accounts and saying that there was no explanation for them; and, third, that as at May 2002 offshore betting became illegal which coincided with a change in the pattern of transactions in D3’s bank accounts, the overwhelming majority of transactions on which the prosecution relied having occurred prior to May 2002.

45.  The authorities to which we have been referred in support of the first submission are of little assistance.  It is a question of fact in each particular matter whether there is sufficient direct evidence or sufficient evidence from which an inference may be drawn.  In this matter the Judge plainly relied upon the volume and value of the transactions, their coincidence with race days and the fact that D3 was convicted of the bookmaking offence which occurred on 11 May 2003.

46.  The Judge did not reverse the onus.  He was well aware that the onus lay on the prosecution to prove the commission of the offence.  He was fully entitled to take into account the value of the transactions as well as the number of transactions: he was entitled to have regard to the amount of money passing through D3’s bank accounts as being very substantial.  He was also entitled to take into account the fact that, save for an amount of some $5.3 million which was disclosed as income in returns to Inland Revenue over the period, there was no explanation for the sums which flowed into and out of D3’s accounts.

47.  We accept that there was an appreciable change in the pattern of usage of D3’s accounts during the period May 2002 to May 2003 when activity in those accounts is compared with the charge period prior to May 2002. It was suggested that this was a particularly significant feature in view of the fact that in June 2002 the football World Cup took place and that, were D3 a bookmaker, it would be reasonable to anticipate an increase in activity in his accounts at that time, not a demonstrable decrease.

48.  It was also submitted that, as offshore gambling was not illegal in Hong Kong prior to May 2002, the moneys flowing through D3’s account may have been the product of his own lawful offshore gambling activities and not of bookmaking.

49.   These points were made to the Judge at trial.  It would have been preferable for him to have addressed this specific issue in his reasons for verdict but that he did not do so does not impact on his decision.

50.  We say this for two discrete reasons:  first, there was no evidence before the Judge that the change in legislation in May 2002 making offshore betting illegal in fact in any way played a role in the change of account activity, the submission that that might be an explanation being no more than speculative;  second, the immutable fact remains that D3 was apprehended, on 11 May 2003, in the actual act of bookmaking.

D4’s submissions

51.  D4 advanced no grounds other than those that are we have already covered.  He also had the advantage of having been acquitted of the bookmaking offence, a fact of which the Judge was fully aware.

Summary

52.  The Judge found, on the evidence before him, that:

in respect of D2

his bank accounts reflected 1,950 deposits totalling $180,645,850 and 1,467 withdrawals totalling $180,026,453; 72% of deposits and 73% of withdrawals in value terms occurred on the next banking day following a race meeting in Hong Kong or Macau; in each instance withdrawals exceeded deposits; a significant percentage in value terms of the transactions were in cash; he had filed no income-tax returns with Inland Revenue throughout the period of the charges; and he was found in a gambling establishment in which D3 then was carrying out bookmaking

in respect of D3

his bank accounts disclosed 1,762 deposits totalling $49,931,824 and 2,561 withdrawals totalling $50,056,358; 65% of deposits and 72% of withdrawals in value terms occurred on the next banking day following a race meeting in Hong Kong or Macau; in each instance withdrawals exceeded deposits; a significant percentage in value terms of the transactions were in cash; he had filed income-tax returns with Inland Revenue which disclosed income of $5.3 million from employment throughout the period of the charges; and at the time of the arrest on 11 May 2003 he was in fact carrying out bookmaking

in respect of D4

his bank accounts disclosed 3,965 deposits totalling $358,279,443 and 4,659 withdrawals totalling $356,056,327; 77% of deposits and 84% of withdrawals in value terms occurred on the next banking day following a race meeting in Hong Kong or Macau; in each instance withdrawals exceeded deposits; a significant percentage in value terms of the transactions were in cash; he had filed no income-tax returns with Inland Revenue throughout the period of the charges; and he was found in a gambling establishment in which D3 then was carrying out bookmaking.

53.  The Judge was fully entitled, in the absence of any evidence to the contrary,  to draw the irresistible inference that he did - that each defendant knew that those moneys, in whole or in part, directly or indirectly represented the proceeds of an indictable offence, namely bookmaking.

54.  Each application for leave to appeal against conviction is dismissed.

SENTENCE

55.  D2 was sentenced to a term of three years imprisonment whilst D4 was sentenced to a term of four years imprisonment.  Each applies for leave to appeal the sentence imposed upon him on the ground that it is manifestly excessive.

56.  D2 has been convicted on five occasions between 1982 and 1990, four of which were for gambling offences and the fifth for engaging in bookmaking.  In each instance a fine was imposed on him.  D4 has one previous conviction, in 1996, for gambling: he, too, was fined.  Given the ages and the nature of the offences concerned, neither record justifies an enhanced sentence.

57.  The Judge had regard to the comments of this court in XU Xia-li and Another vs HKSAR CACC395/2003 and went on to say

By dealing in the proceeds of bookmaking, the defendants in each case were facilitating the settling of bets.  They were increasing the risk that the bookmaking proceeds would be untraced and increasing the risk that these proceeds would be used to fund other unlawful activities.

I accept in this case that not all the moneys deposited into the respective bank accounts reflect or are in fact the proceeds of bookmaking...

I am also satisfied in this case that there has been some double-counting.  What I mean by this is that in fact where the forensic accountant has looked at the deposits he has included deposits where money was transferred from one account of the defendant to another account of the same defendant.  In the 2^nd defendant's case, this is a significant sum.  It is some $80 million in his case.  It also of course is similarly reflected in the other defendants’ accounts to a lesser degree.  I factored this into the sentencing in each case.

Notwithstanding those observations, however, quite clearly a substantial proportion of the moneys going through the bank accounts of the defendants in each case were the proceeds of an indictable offence, namely bookmaking.  Those activities had been conducted over a considerable period of time.

So far as the figures themselves and even, as I say subtracting the figures which I have referred to, the amounts are substantial in each case, and in the 4^th defendant's case, in fact the amount he has in fact dealt with is more than 1^st to 3^rd defendant put together.

58.  Yeung JA in HKSAR v Javid Kamran CACC400/2004 observed:

30.  Money laundering is a very serious offence as it is an attempt to legitimize proceeds from criminal activities.

31.  Serious criminal offences are very often motivated by financial gains and those who assist criminals in laundering money, indirectly encourage them in their criminal activities. This is even more so when the laundered money is the proceeds from drug trafficking activities as it is often commented: “Those who launder money from drugs are nearly as bad as those who actually deal in them. It is merely one step along the line.”

32.  Successful deterrents against money laundering could be effective measures against crime.

33.  The maximum sentence for a money laundering conviction on indictment is a fine of $5 million and 14 years’ imprisonment, which is perhaps a reflection of how such an offence is viewed.

34.  On the other hand, it is not feasible to lay down guidelines for sentence of money laundering offence, as there is a very wide range of culpability.

35.  Other factors include the nature of the offence that generated the laundered money, the extent to which the offence assisted the crime or hindered its detection, the degree of sophistication of the offence and perhaps the defendant’s participation, including the length of time the offence lasted and the benefit he derived from the offence.

59.  Bookmaking itself is an offence which, when conducted on a meaningful scale, attracts an immediate custodial sentence.  It is a very substantial industry and those who assist bookmakers by providing a conduit for the large sums of money that are generated provide the bookmakers with an invaluable facility. 

60.  Even allowing for the fact of double-counting and the possibility that some of the funds passing through the defendants’ accounts were legitimately sourced, the sums handled by D2 and D4 may justifiably be regarded as huge.

61.   The submission is made that it was not open to the judge to find that a "substantial proportion" of the moneys that passed through the accounts, even allowing for double-counting, were the proceeds of bookmaking.  With respect, in the absence of any evidence of a legitimate source or sources of even a portion of those funds it seems to us that that was an approach which the Judge was entirely justified in adopting.

62.  Whilst the evidence does not disclose any particular sophistication in the execution of the offences, indeed it could be suggested that the very simplicity of the scheme contributed substantially to the defendants conviction, there was an element of organisation involved.

63.  The offences were committed over a long period: the charges covered a period of six years during which there were thousands of transactions through each defendant's bank accounts.

64.  A review of other cases in which sentences have been considered demonstrates that the quantum of the moneys laundered is a factor which may properly be considered for the purposes of the sentence.  Although the Judge makes no reference to any reason for the differences in the sentences imposed on D2 and D4, it must be that he took into account both the level of their involvement, in the sense of the number of transactions conducted, and the value of those transactions when arriving at each sentence.

65.  In our judgment he was justified in adopting that approach and in determining the sentences which he imposed.  Each application for leave to appeal against sentence is dismissed.