HKSAR v. CHIU KIT AND ANOTHER

CACC 210 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL 

CRIMINAL APPEAL NO. 210 OF 2009 

(ON APPEAL FROM DCCC No. 761 of 2008) 

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J U D G M E N T

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Hon Yeung JA (giving the judgment of the Court):

Introduction

1.  The applicants, Zhao Hongqing (“Zhao”) and Chiu Kit (“Chiu”), are father and daughter. They appeared before Judge Browne in the District Court on a single charge of  “money laundering”. They pleaded not guilty, but were both convicted as charged. Chiu was sentenced to 5 years’ imprisonment and Zhao to 4 ½ years. They sought leave to appeal against both conviction and sentence. Mr MK Wong SC leading Mr D Lee represented the applicants in connection with their application for leave to appeal against conviction and they acted in person in connection with their application for leave to appeal against sentence.

Background Facts

2.  Zhao, a Mainland resident, was registered as the sole director and shareholder of One Sky International Ltd (“One Sky”) and CFC International Ltd (“CFC”), both incorporated on 20 June 2005 and situated at Unit A, 14/F, Shun On Commercial Building (“the Shun On address”), which was the registered address of a secretarial company called Company Kit Registrations Ltd (“Company Kit”).

3.  Zhao and Chiu were the directors of Success Offshore Incorporations (HK) Ltd (“Success Offshore”), also a secretarial company with its registered office at Unit 11, 9/F, Wayson Commercial Building at Connaught Road West (“the Wayson address”), and Chiu held 99% of its shares.

4.  On 13 June 2005, Success Offshore instructed Company Kit to provide secretarial services to One Sky and CFC, and on 29 July 2005, CFC changed its name to Cober International Ltd (“Cober”).

5.  On 27 August 2005, Zhao resigned as the director and ceased to be a shareholder of One Sky and Cober. Zhang Lanping (“Zhang”), also a Mainland resident with a Shanghai address, succeeded Zhao to become the sole director of both One Sky and Cober.

6.  In February and June of 2006, One Sky and Cober applied to the Companies Registry for de-registration of both companies on the basis that they had not carried on any business. One Sky, CFC and Cober had not filed any tax returns for their business.

7.  On 24 June 2005, Zhao opened accounts with Hong Kong Bank for One Sky (“the One Sky account”) and CFC (Cober) (“the Cober account”), with an initial deposit of $2,000 for each account. Zhao was the sole signatory to both accounts and he gave the Wayson address as the address for both companies.

8.  In the account opening mandates, One Sky and CFC (Cober) were said to be dealers in chemical, with sales to Asia, China and Hong Kong, and to Europe and South Africa respectively. Zhao was said to be a director for 40 years and each company, with 10 staff members, would receive 120 transactions a year amounting to US$0.9 million. It was said that the One Sky and the Cober accounts were required to receive payments in Hong Kong.

9.  Between 4 August 2005 and 24 December 2005, there were 96 deposits into the One Sky account and between 14 September 2005 and 20 January 2006, there were 37 deposits into the Cober account. The total sums paid into the two accounts amounted to about HK$42 million, in various currencies.

10.  Monies were withdrawn or remitted to other bank accounts soon after they were deposited into the One Sky and Cober accounts. The Hong Kong Bank closed the two accounts on 24 December 2005 and 16 June 2006 respectively after receiving complaints from persons who had remitted monies from overseas. After the closure of the One Sky account, the applicants continued to use the Cober account for receipt and remittance of funds of not less than $650,000 over a period of about 6 months until the Cober account was also closed.

11.  Monies withdrawn from the One Sky and Cober accounts were paid into (i) two Hong Kong Bank accounts of two Hong Kong companies, (ii) 15 mainland bank accounts of 10 mainland companies and 5 mainlanders, (iii) one Taiwan bank account of a Taiwanese company, and (iv) one Swiss bank account of a Swiss national. There were also two deposits of US$26,722 and US$957 into Chiu’s personal account, both on 24 November 2005.

12.  Chiu was arrested on 24 April 2006 at the Wayson address. When questioned under caution about the deposits into her account on 24 November 2005, Chiu said her cousin’s boyfriend, Cai Xiaohe (“Cai”), had business in Africa and asked her to set up some business in Hong Kong to transfer money from Africa to Hong Kong and then to the Mainland, as it was not convenient for him to set up the companies himself.

13.  Chiu further said she arranged for her secretarial company in Hong Kong to set up One Sky and open a bank account. Chiu also said the director of One Sky resigned because of his age and a Mainlander she had not met took over the directorship. The Mainlander would sign a number of blank withdrawal forms for her to operate.  Chiu said Cai would fax to her the details of the recipients and the amounts to be remitted and that she would charge $10,000 per annum for the secretarial service.

14.  The police did not find any business documents of One Sky, CFC or Cober. Remittance instructions purportedly signed by Cai were found at the Wayson address.

15.  The police arrested Zhao on 12 August 2008 at the residence of Chiu. Zhao admitted under caution that he signed the registration and bank documents relating to One Sky and CFC, but denied laundering any money. He said he did not read English and did not even know the names of One Sky or Cober. When asked questions about the two companies, their accounts or the withdrawals from those accounts, Zhao sometimes said he could not remember and sometimes said he did not want to answer.

16.  There were records showing that Cai arrived in Hong Kong on 11 February 2006 and left the following day and that he stayed at the Marriott Hotel. According to immigration records, Zhao was physically in Hong Kong between 19 June to 3 September 2005, 11 December 2005 to 16 January 2006, and 2 April 5 to 5 May 2006.

The Prosecution Allegation and Evidence

17.  The prosecution alleged that both Chiu and Zhao had dealt with the monies in the One Sky and the Cober accounts and that they knew or had reasonable grounds to believe that those monies, in whole or in part, directly or indirectly, represented proceeds of an indictable offence.

18.  Apart from admitted evidence, the prosecution called four witnesses, including an assessor from the Inland Revenue Department, the director of Company Kit, and two staff members of the Hong Kong Bank. As it turned out, there was hardly any dispute about the prosecution case as revealed in the background facts. The director of Company Kit denied the suggestion that there was a row with Chiu about a printing mistake and thereafter his service was terminated. It transpired that the instruction to set up One Sky and CFC came from Chiu’s husband.

The Defence Case

19.  The defence case was that both Chiu and Zhao had no reason to believe that the monies paid into and remitted out of the One Sky and the Cober accounts were proceeds of an indictable offence. It was also emphasized that there was no evidence to show that the monies were proceeds of an indictable offence.

20.  Chiu gave evidence, but Zhao did not. They called a witness, an accountant practicing in the Mainland, to give evidence on various financial practices on the Mainland relating to business transactions carried out aboard and the establishment of companies.

Chiu’s Evidence

21.  Chiu confirmed that she was a director and a major shareholder of Success Offshore and it provided services for mainly Mainland businessmen and some shipping companies, including opening bank accounts, receiving correspondence, compliance with government regulations and submitting remittance documents, charging $500 for each transfer or bank deposit. She said her company had more than 100 customers and 99% of them were using offshore companies for remittance services.

22.  Chiu said One Sky and Cober were set up on the instruction of Cai, the boyfriend of Li Ping’s daughter. She said Li Ping, who lived in Shanghai, was her uncle’s wife and they were close.

23.  Chiu said Li Ping ran Dannou Plastics (Shanghai) Company Ltd (“Dannou”) and exported goods to Africa, and that Cai assisted Li Ping as he knew a lot of African buyers. Cai, after breaking up with Li Ping’s daughter, started his own business in Africa and purchased goods from the Mainland to sell to Africa. Chiu further said Cai told her to set up two companies to receive monies for goods sold in Africa and to remit the monies to mainland factories to pay for the goods.

24.  According to Chiu, when Cai said it was inconvenient to him to come to Hong Kong to open bank accounts, she suggested that Zhao, her father, would set up the bank accounts and Cai agreed. It was further agreed that the companies would be transferred to Cai or his family member at a later stage. Chui did not explain why it was necessary to engage Zhao to set up the accounts.

25.  Chiu said she had to use Company Kit to set up One Sky and CFC as Zhao was a director of Success Offshore and therefore Success Offshore could not provide the service. However there was a row with Company Kit over certain printing mistake and she discontinued using its services.

26.  Chiu admitted that she had filed no tax return for One Sky and CFC as she had received no instruction, and the instructions from Cai related to the remittances, sometimes addressed to her husband but mainly addressed to her were given to the police. She said the remittances were sent to Mainland suppliers and she charged $500 for each remittance. She said she did not check where the remittance came from and she never saw or demanded of Cai that he let her view any trade records of One Sky or Cober. She also said she did not bother to look at any bank documents.

27.  Chiu suggested that as the monies remitted to the Mainland were never returned, she assumed that they did not come from illegitimate source.

28.  Chiu said One Sky and CFC (Cober) were transferred to Zhang Lanping without her coming to Hong Kong. However her presence was required to change the signatories to the accounts and it was agreed that Zhao would remain the signatory.

29.  Chiu produced some documents relating to the business of Success Offshore and the transactions of One Sky and CFC (Cober) as well as some documents, relating to goods supplied by Dannou to an African buyer, allegedly provided by Li Ping to support her evidence. Chiu was adamant that she was not suspicious about the payments to the One Sky and CFC accounts as most of the monies were remitted to the Mainland and were never sent back.

30.  Chiu confirmed that the Hong Kong Back closed the One Sky and CFC accounts after telling her that customers were complaining and demanding a refund. She said she mentioned it to Cai but he refused to make any refund and she decided to stop remitting money for him before the accounts were closed.

31.  Chiu said she was persuaded by Cai to set up the companies and their accounts when he told her that it was difficult and expensive to set up a company on the Mainland, and that he was having difficulties with his African remitting agent. Chiu said she had no written agreement with Cai as she treated him as a relative.

32.  Chiu admitted that she had lied about her relationship with Zhao in her cautioned statement, as she was afraid that the police would contact Zhao who was suffering from high blood pressure. She also explained some inconsistencies between her evidence and her cautioned statement.

33.  Chiu also gave evidence on the background of Zhao. She said Zhao, having retired in 1993, started a company with a few friends dealing in chemical materials. Chiu said she just told Zhao to open the One Sky and CFC accounts without telling him the details of their businesses. She then got Zhao to sign some blank transfer forms, which would be presented to the bank for withdrawal or transfer.

34.  Chiu said she thought the remittances into the One Sky and CFC accounts came from Africa. When confronted with documents showing that the remittances came from various places and not Africa, she said she just looked at the figures on the computer, which did not disclose where the monies came from, and she did not look at the bank documents or realize that some of the bank communications could be important. She said she was only aware that the funds did not come from Africa after she was arrested in August 2008.

35.  Chiu was suggesting that she trusted Cai and did not ask him for any trading records. She also said she cancelled the registration of One Sky and Cober, after discussions with Cai, as she found the repeated calls from the Hong Kong Bank troublesome.

36.  The defence witness, Mr Zou Haiyan, described the procedure of Chinese banks receiving money from aboard. He said detailed documents were required otherwise the remitted funds would be returned. He also said it was expensive and complicated to set up companies in the Mainland. Mr Zou produced some documents to demonstrate his points. Mr Zou also said that if banks were not satisfied that the monies remitted from Hong Kong came from legitimate source, they would be sent back.

The Judge’s Findings

37.  The judge pointed out that the remittances into the One Sky and CFC accounts came from USA, Canada, UK, Switzerland, Germany, Australia and other places and that both applicants were not remittances agents, and that it was the first time that Chiu set up companies using the name of her family member.

38.  The judge opined that both applicants were experienced business people, yet incorrect information was supplied to the Hong Kong Bank when opening the One Sky and CFC accounts. The judge found it incredible that Chiu would not tell Zhao and Zhao would not ask what were the businesses of One Sky and CFC.

39.  The judge analyzed the evidence of Chiu, including the discrepancies with what she told the police, and found her evidence not credible and that she was lying. The judge rejected Chiu’s evidence that she did not notice where the funds came from and she never bothered to find out even after the bank started to raise queries following complaints from the overseas senders of the money.

40.  The judge pointed out that on Chiu’s evidence, she opened two bank accounts for a third party that she had never met, about whose business she knew very little and whose existence was concealed from the bank. The judge concluded that the excuses purportedly given by Cai to Chiu could not persuade her to set up the accounts in the manner she alleged. The judge found it ludicrous that Chiu would not look at the remittal notices sent by the bank to One Sky and CFC (Cober), particularly when Cober’s account carried on for another six months after the deregistration of One Sky.

41.  The judge, on the totality of the evidence, concluded that both applicants had reasonable grounds for believing that the monies paid into the One Sky and CFC accounts were proceeds of an indictable offence and the judge therefore convicted them as charged.

Grounds of Appeal

42.  Mr MK Wong SC put forward a number of grounds of appeal. It was suggested that the judge, in rejecting the evidence of Chiu, had failed to consider the evidence of Zou, and had wrongly found that the documents produced by the applicants, D13 to D17, did not relate to any transaction involving One Sky or CFC (Cober).

43.  Mr Wong submitted that the judge was wrong to find that Zhao had lied to the bank and to rely on such lies to convict Zhao, without giving himself a proper lies direction. Mr Wong argued that when Zhao supplied incorrect information to the bank, he could have acted on Chiu’s instruction without himself lying.

44.  Mr Wong further submitted that the judge had made incorrect findings of facts and then relied on such findings to convict the applicants.

Discussion

45.  The applicants set up One Sky and CFC on 20 June 2005, for the sole purpose of setting up bank accounts in their names and 4 days later they opened the One Sky and Cober bank accounts, again for the sole purpose of receiving overseas remittances of very large sums of money. Two months after setting up the companies, the applicants tried to distance themselves from them by having someone else replacing Zhao, but they continued to operate the One Sky and Cober accounts. Despite what was represented to the bank when opening the accounts, neither company had any business dealings.

46.  Both companies and their accounts existed for a very short time. One Sky and Cober were deregistered in February and June 2006, and their accounts closed in December 2005 and June 2006 respectively. During such short periods, large sum of monies, not less HK$42 million, were deposited into the accounts. Shortly after the deposits, the monies were withdrawn or remitted almost in their entirety within a short time. Chiu said she did not check where the remittance came from nor did she ask Cai to look at any trade records of One Sky or Cober. She even claimed that she did not bother to look at any bank documents.

47.  The arrangements were highly suspicious. No one involving in such arrangements could convincingly suggest that he/she had no reasonable ground to believe that the monies originated from illegitimate sources. Chiu’s evidence that she was unaware that the money came from a variety of countries including the USA, Canada, the UK, Switzerland, Germany, Australia and other places and that she had paid no regard to the matter was simply unbelievable. Her evidence relating to the alleged dealings that she had with Cai was also unconvincing.

48.  Zou was called to explain the difficulties in setting up companies and/or a bank account for the purpose of receiving remittances from aboard, in order to support Chiu’s evidence that it was necessary for Cai to seek her help. Even if Zou’s evidence was true and accepted, it did not explain why Cai would have trusted the applicants, whom he hardly knew and had never met, to the extent of allowing them a free hand over $42 million. No one in his right mind would have done that.

49.  One cannot ignore that once the monies were remitted into the One Sky and Cober accounts, the applicants could have full control of the money and could dispose of them as they wished.

50.  Even if Cai trusted the applicants, why would the applicants agree to process such a large sum of money for a mere acquaintance, whom they had never met without any suspicion as to the source of the money. The suggestion that Chiu did so because Cai was the former boyfriend of a distant relative was certainly not a convincing reason either.

51.  The judge was aware of Zou’s evidence, but did not find it necessary to expressly deal with it. Zou’s evidence, far from being “most compelling”, was hardly relevant to the only issue in the case, namely when the applicant dealt with the $42 million, whether they had reasonable grounds to believe that the monies, in whole or in part, directly or indirectly, represented proceeds of an indictable offence.

52.  The judge was entitled to have little regard to Zou’s evidence.

53.  Mr Wong objected to the judge’s finding that the applicants had produced no document in court in relation to any transaction involving One Sky or Cober. He emphasized that D13 and D14 evidenced a remittance of US$99,958 by One Sky to Dannou and D15 to D17 concerned a shipment of melamine tableware valued at US$55,000 by Dannou to Benin.

54.  The documents were not seized from the applicants. Chiu said Li Ping provided them at her request. Chiu had no personal knowledge about those documents and none of the makers of the documents gave evidence. There was no direct evidence supporting the suggestion that Cai in fact had any business dealing with Dannou. The veracity of the documents had not been established.

55.  One must not ignore that $42 million had passed through the One Sky and Cober accounts within a few months. The sketchy documents, relating to one transaction out of over 130, produced by the applicants were hardly relevant to the issue that the judge had to decide.

56.  The judge commented at paragraph 104 of his reasons for verdict, a paragraph to which Mr Wong took particular objection:

“Bank accounts are valuable properties. In this case D1 (Chiu) was arranging the opening of two bank accounts for a third party, a third party she had never met, about whose business she knew only the vaguest details and whose existence is concealed from the bank. The fact that (Chiu) said Cai told her it was inconvenient to come to Hong Kong to deal with this matter and that Cai is the ex-boyfriend of the daughter of her aunt and former employee of her aunt do not appear to me to be persuasive reasons for (Chiu) agreeing to set up these accounts. According to (Chiu), Cai had been working in Shanghai for Li Ping for a few years before setting up his operation in Africa. There was no explanation as to why he would not make proper arrangements before going to Africa. Even if one were to accept what (Chiu) said, from what she was allegedly told by Cai she appeared to have little real understanding of how he traded and she had no documentation whatsoever to confirm that there was any legitimate trading. The only documentation produced in court, D13 to D17 was, according to (Chiu), obtained from Li Ping in Shanghai by someone she asked to collect them from Li Ping. DW1 (Zou) said these were the type of documents which would be required for a mainland account holder to prove that the foreign exchange it received from overseas were payment for goods which it had exported earlier. No documents produced to any banks were produced in court in relation to any transactions involving One Sky or Cober.”

57.  The judge’s comment is perfectly justified. The fact that there was one remittance instruction from One Sky to the Hong Kong Bank to transfer US$100,000 from its account to an account with Agricultural Bank of China, said to be an account of Dannuo, was not important, there being no direct evidence showing that Dannuo in fact had any business dealing with Cai.

58.  In the account opening mandates, One Sky and CFC (Cober) were said to be dealers in chemical, with sales to various parts of the world, and that each company employed 10 staff members. Those matters were clearly untrue. There was no dispute that it was Zhao who supplied the information to the bank. The judge was entitled to infer that when he did so, he knew that he was not giving a true account, particularly when Zhao gave no evidence to explain, undermine or contradict the prosecution evidence against him and when he was interviewed by the police, he said he did not remember opening the accounts.

59.  Mr Wong suggested that Zhao could have relied on what Chiu told him and when he provided the materials to the bank, he might not be lying. However, there was no evidence to that effect. In our view, the judge was entitled to infer that Zhao had lied to the bank.

60.  Mr Wong complained that the judge appeared to have relied on Zhao’s lies to convict him without giving himself a proper lies direction. The judge did not say that he had relied on Zhao’s lies to convict him. Indeed as Miss Lai quite rightly points out, the judge had specifically stated that “the prosecution are obliged to establish each and every ingredient of the offence against each defendant beyond (a) reasonable doubt, the defendants have nothing to prove”.

61.  Even if the judge did rely on Zhao’s lies, he was entitled to do so. The judge is a professional judge and normally it is not even necessary for a professional judge to expressly remind himself on matter of law. “It was not incumbent upon a District Court Judge to set out elementary rules in his judgment. It would be assumed that the judge had the rules in mind unless it were shown clearly that he failed to treat the matters complained of in the proper manner.” (See Sheik Abdul Rahman Bux and Others v R [1989] 1 HKLR 1 and R v Hui Lap-keung and Others [1989] 1 HKLR 261)

62.  The supply of incorrect information to the bank when the One Sky and Cober accounts were opened was inconsistent with the applicants’ suggestion that they believed the accounts were set up for genuine business transactions.

63.  On the facts of the present case, Mr Wong’s complaint would not have affected the safety of the conviction. 

64.  The only issue that the judge had to resolve was whether when dealing with the $42 million remitted into the One Sky and CFC accounts within a four-month period, the applicants had reasons to believe that the money originated from an illegitimate source.

65.  We have no doubt that the judge was right to conclude as he did that both applicants had reasons to believe so. On the evidence, no reasonable tribunal would have come to a different conclusion.

66.  We are not persuaded that there is anything unsafe or unsatisfactory about the applicants’ conviction. Their application for leave to appeal against conviction is dismissed.

Sentence

67.  This court has, on many occasions, repeated the sentiment expressed in HKSAR v Javid Kamran (unreported CACC 400/2004, 12 April 2005):

“Money laundering is a very serious offence as it is an attempt to legitimize proceeds from criminal activities. 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. Successful deterrents against money laundering could be effective measures against crime.”

68.  It is true, as submitted by the applicants, that there was no evidence that the monies in question were related to any particular offence. However, the gravamen of the offence lies in the fact that the applicant dealt with the money when they had reasonable grounds to believe that the money represented proceeds of an indictable offence.

69.  We cannot ignore the fact that it was a well-planned and sophisticated scheme involving the use of two companies and that there was an international element involved. We must also have regard to the fact that $42 million was laundered within a short time. The amount involved is the most important factor relating to sentence in a money laundering case.

70.  Despite the clear records of the applicants and the other mitigating factors put forward by them, we cannot say that the starting point of 5 years adopted by the judge is manifestly excessive. Indeed such a starting point, when compared with other cases involving a similar amount, is a low one, justified perhaps because of the absence of evidence linking the money to a particular offence.

71.  On the other hand, it appeared that Zhao got himself involved because of his blind faith in his daughter. The judge gave Zhao a discount of sentence of 6 months to reflect his advanced age. The judge had not taken into consideration the fact that Zhao was acting under the influence of Chiu and that his role was passive.

72.  We are persuaded that a more significant reduction should be made and we are persuaded that a 2 ½-year sentence is sufficient to reflect Zhao’s culpability.

73.  We dismiss Chiu’s application for leave to appeal against sentence, but grant that of Zhao. Treating his application as the appeal proper, we allow his appeal and reduce his sentence from 4 ½ years to 2 ½ years.