HKSAR v. CHAN SUK YEE, SUKY

DCCC 34/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 34 OF 2014

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REASONS FOR VERDICT

1.  The defendant pleaded not guilty to a charge of "Theft". It is alleged that she has stolen a total sum of $3.3 million from her employer over a period of 6.5 years.

Procedural History

2.  This case was fixed for trial for 7 days commencing on 17 October 2014.

3.  Mr. KONG Koon-sun (PW2) is the key prosecution witness.  He started his evidence on 20 October.  Leading defence counsel Mr. Cheng began his cross-examination of PW2 in the morning on 21 October.  On his 4^th day in the witness box (23 October), PW2 continued to be cross-examined by Mr. Cheng.  After the mid-morning break, PW2 was feeling unwell and wanted to seek immediate medical help.  Permission was granted.  The prosecution interposed other witnesses in the meantime.

4.  The trial came to a halt on 27 October pending the return of PW2 and Mr. LEUNG of Wongs & Tam, CPA (PW6) to be called.

5.  A total of 3 medical reports from a Dr. TAM of St. Teresa's Hospital were placed before me.  In short, PW2 was hospitalized for 17 days since 23 October due to an early stroke, hypertension/heart disease and diabetes.  Dr. TAM discharged PW2 from the hospital on the condition that he must remain at home and avoid stress and strenuous exercises.

6.  The trial resumed on 17 December when PW2 was found medically fit to give evidence again.  All the evidence concluded on the following day.  Time was given for parties to prepare and file written submissions.  Final submissions took place on 23 January 2015.

The Prosecution Case

Factual Background

7.  Panfolio Knitting Factory Limited ("Panfolio") carries on a swimsuit manufacturing business.  The products are sold to buyers in the United States and Europe.  PW2 runs Panfolio and makes all major decisions. Panfolio owns 3 factories in the mainland (namely Yun Joe, Qingxin and Chongyi).

8.  In March 1996, the defendant was employed by PW2 as the accounting clerk for Panfolio. She resigned in March 2013.

9.  Mr. KONG Koon-sang (PW3) is PW2's elder brother.  He assists PW2 in running the 3 mainland factories.  Madam KWAN Chi-may, Krystle (PW4) is the merchandising clerk of Panfolio.  Madam LAM Wai-ling (PW5) is PW2's wife.  She was not involved in the affairs of Panfolio until after the defendant's resignation. PW2 asked PW5 to help sorting out the accounting issues of Panfolio after the defendant's departure.  PW2, PW3 and PW5 are directors of Panfolio.

10.  PW2 has established another company named Yun Joe Limited ("Yun Joe HK") in Hong Kong.  It has 3 directors (namely PW2, PW5 and a Madam YU).  Upon receiving swimsuit orders from clients, Panfolio would pass them onto Yun Joe HK, which would in turn arrange for manufacturing in the mainland.

11.  PW2 also owns a company named Yick Tak Industrial Limited ("Yick Tak").  PW2 and a Taiwanese man (Mr. SO) each own 50% of the shares in Yick Tak.  When Panfolio receives orders, Yick Tak would arrange for swimsuit fabrics to be supplied from 2 Taiwan companies (namely GROUPGNL and Trendy), which are also owned by Mr. SO.  Yick Tak would charge a commission on the purchase of fabrics.

12.  Panfolio has only one bank account, which is with HSBC ("Panfolio's Account"). During the offence period, PW2, PW3, PW4 and the defendant were all authorized signatories of Panfolio's Account.  For cheques up to the sum of $30,000, any two of PW3, PW4 and the defendant could sign.  PW2 has unlimited authorization to operate Panfolio's Account.  For cheques above the sum of $30,000, only PW2 could sign.

The Theft Allegation

13.  Bank records revealed that between 25 September 2006 and 8 February 2013, a total of 66 cheques (amounting to a total sum of $3,332,644.52) were drawn from Panfolio's Account.  According to paragraphs 1 to 4 of the Admitted Facts (Exhibit P20), 4 out of the 66 cheques were used to settle payments of the license fee of the defendant's private car in July 2008, 2009 and 2012 as well as payment of the defendant's tax in January 2012.  Then, as outlined in the table at paragraph 13 of Exhibit P20, the remaining 62 cheques were used to settle the defendant's credit card payments with HSBC, Standard Chartered Bank, American Express and Citibank.

14.  The defence agreed with all the facts stated above.

15.  In fact, it appears that a 5^th cheque was used to settle payment of the licence fee of the defendant's car in October 2006.  Be that as it may, for what purposes the cheques were used is immaterial.

The Video-recorded Interviews

16.  The Police conducted 2 video-recorded interviews with the defendant on 4 June 2013 respectively from 1245 hours to 1434 hours and from 1552 hours to 1732 hours. The respective VCDs and transcripts were produced by consent.  They are marked as Exhibits P17, P17A, P17B, P18, P18A and P18B.

17.  Under caution, the defendant claimed that all 66 cheque payments were authorized by or made with the consent of PW2.  All such payments were given to her as reward(s) for assisting PW2 to evade tax levied on his companies.

The Defence Case

18. The defendant elected not to give evidence or call any defence witness. I drew no adverse inference against her in this regard.

Assessment and Analysis of Evidence

19. The burden of proof is on the prosecution to prove each element of the offence beyond reasonable doubt.

20. The defendant has a clear record. I have directed myself on her good character accordingly.

21. The only issue in this case is whether the defendant's appropriation of the 66 cheques (which were choses in action belonging to Panfolio) was carried out with the consent of PW2. The matter therefore hinges entirely on the credibility and reliability of PW2's evidence.

22. I have carefully considered the evidence of PW2 and observed his demeanour in the witness box. He did not impress me as an honest and reliable witness. I will now explain why.

23. It was put to PW2 that between 2006 and 2013, Panfolio has transferred almost $600 million in total to various individuals, companies and anonymous bank accounts.[1] At the same time, all these money transactions were recorded in Panfolio's books as transactions with its related companies and factories such as Yun Joe and Chongyi. When asked about the recipients of the $600 million, PW2 first claimed that they were "friends" in the mainland. He later admitted that he has never met any of them. He then disclosed that those recipients of Panfolio's money were referred to him through a Madam TSANG. PW2 eventually admitted that he does not know the full name of Madam TSANG and has never met her either. Mr. Cheng suggested to PW2 that he was in fact using the "underground banking system" to remit funds to the mainland. PW2 denied.

24. How PW2 remitted funds to the mainland, legally or otherwise, does not really concern me. What troubles me is his evasive attitude. As the operator of a multimillion-dollar business, he pretended that he does not know where and through what channels the money of his company went. He also pretended that he had no idea of the magnitude of the funds which went to those "friends" whom he had never met. How those transactions were recorded in Panfolio's books also suggests that someone wanted to hide the money trails, which lends some truth in the defendant's assertion of PW2's instructions to "fudge" the books for tax purposes or otherwise.

25. Samples of invoices which appear to have been issued by a company named GROUPGNL to Panfolio (Exhibits D1A and D1B) were supplied to the defence by PW2 during cross-examination. It was put to PW2 that the documents contained in Exhibit D1A are genuine invoices issued by GROUPGNL to Panfolio, whereas Exhibit D1B are invoices forged by the defendant to inflate Panfolio's expenses for the purpose of reducing its taxable income. In short, PW2 was unable to explain the matter. He claimed that only the merchandiser of Panfolio would pay attention to the prices of fabrics. As a juror, I also notice the marked differences in the physical layout of the 2 sets of invoices purportedly issued by the same company within the same period of time. The evidence related to this aspect also lends support to the existence of a tax evasion scheme in Panfolio.

26. PW2 was cross-examined about using Panfolio's money to purchase a $4 million flat in Ma On Shan as a gift to Madam YU, factory manager of Yun Joe in the mainland. Furthermore, the registered owner of the flat is Madam YU. PW2 admitted that he authorized the purchase of the flat as a gift to Madam YU, but claimed that he could not remember if Panfolio's money was used. There is nothing improper to provide housing benefits to employees. But common sense tells me that employers rarely go so far as giving a flat to an employee as a gift. Either PW2 is a genuinely generous employer or there is something more to this. In any event, PW2's generosity, if true, may at least explain why he gave the defendant $3.3 million over a period of 6.5 years as reward(s) for assisting him to "reduce" tax for his companies.

27. After the lunch break on 22 October 2014, Mr. Cheng continued to cross-examine PW2. It was suggested to him that [the transfer of $600 million to various dubious recipients] was a scheme to dissipate a large sum of money to avoid paying tax in Hong Kong. He elected not to answer. Mr. Cheng further suggested to PW2 that in order for "the scheme" to succeed, he needed the defendant's cooperation. He elected not to answer. Finally, Mr. Cheng suggested to PW2 that for the defendant's cooperation in this and other matters, he gave her reward(s) which constituted the 66 transactions [cheques] we are concerned about. He elected not to answer. Again, PW2's evasive attitude caused me concerns.

28. Prosecuting counsel Mr. Sherry stressed that the defendant has at least admitted under caution on various occasions that she has stolen the Saha-Union cheque[2] (in the sum of $339,450). In my view, her "admission" was equivocal. I agree with defence that her words cannot be taken out of context.

29. When she explained what she meant by "greedy", she was referring to her acceptance of the reward(s) for doing something improper.[3] My interpretation is that she was greedy in general by accepting the reward(s) from PW2 for helping him with tax evasion. She was not referring to the allegation of "stealing" a particular cheque. In fact, she tried to clarify by saying "…I was a bit angry why my boss would, [when] I didn't work for him, reduce hospitality to hostility by suing me in return." [4] It seems clear that she was implying PW2 had consented to giving her the reward(s).

30. Furthermore, when the interviewing detective tried to recap the defendant's so-called "admission" in the 1^st video-recorded interview, she immediately challenged his use of the term "dishonest".[5] This reflects at least to a certain extent her subjective view of the honesty aspect of her taking of the reward(s). I would attach proper weight to her responses.

31. Regarding the Saha-Union cheque, the defendant has stated clearly that it was issued with the consent of PW2.[6] She has also explained why she deposited the same amount into Panfolio's Account. It was because she could not accomplish what PW2 had asked her to do.[7] Regarding what the defendant said in her 2^nd video-recorded interview, she has in fact explained that when she took the cheque, she was simply following the same pattern [of accepting "hush money" from PW2 for helping him with tax evasion] as before.[8] In my view, what the defendant claimed she has done and her thoughts were did not involve dishonesty.

32. Based on the reasons stated above, I am not satisfied beyond reasonable doubt that the 66 cheques (as well as the $3.3 million involved) were given to the defendant without PW2's consent. Hence, her appropriation of the 66 sums of money might not have been carried out with dishonesty. On this basis, I find the defendant not guilty.

33. In respect of the statutory alternative offences suggested by Mr. Sherry, I agree with Mr. Cheng that it would be unfair and prejudicial to consider them against the defendant. Those statutory alternative offences have never formed any part of the basis of prosecution in this case. I have raised the issue of laying alternative charge(s) related to tax fraud with both sides before and during trial. The prosecution apparently did not see fit to do so, which is of course a matter entirely for them. In any event, I do not find any of the statutory alternative offences appropriate. For the avoidance of doubt, I find there is insufficient evidence to prove any of those offences.

34. The defendant has given her account of the tax evasion scheme as early as June 2013 when she was arrested by the Police. According the PW1 (DPC 6114), who conducted the video interviews with the defendant, it appears that despite her fairly detailed disclosure of a tax evasion scheme, the Police did not conduct further investigation or verify the defendant's assertions. Perhaps it was an investigative decision then; however, based on the evidence revealed in this trial, I strongly urge the Police (perhaps jointly with the Inland Revenue Department) to investigate the tax evasion allegation against Panfolio. I should say no more, except to mention that it may be wise to immunize a soldier in order to catch the general.