HKSAR v. WU WING KIT AND ANOTHER

DCCC 1022/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1022 OF 2012

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Reasons for Verdict

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A: Charges

1. D1 and D2 each deny a separate charge of money laundering.  The 1^st Charge relates to D1’s acts of money laundering on 11 and 12/3/2010.  The 2^nd Charge relates to D2’s acts of money laundering between 12/3/2010 and 26/10/2011. 

B: Prosecution case in brief

2. The facts under this heading are not in dispute[1].

3. D1 is a solicitor practicing in Hong Kong.  D2 is a married woman.  Her husband is called Jack Chen, a client of D1’s. 

4. Jack Chen, Chen Kegen (ie Jack Chen’s elder brother), and Ye Nang-xiang (ie D2’s father) were sanctioned by the China Securities Regulatory Commission (“CSRC”) in 2 decisions, in 2005 and 2007 respectively, for a number of breaches in the nature of false accounting on various occasions in respect of Shen Long Group in China.  D1 was made aware of these when he signed as a witness for Jack Chen on Form B for submission to Hong Kong Stock Exchange (“SEHK”) after Jack Chen was appointed as executive director and joint chairman of China Jin Hui Mining Corporation Limited (“CJHM”), a public listed company in Hong Kong.  Jack Chen and Chen Kegen were prohibited from taking up managerial roles in companies for 3 years and 5 years respectively by CSRC. 

5. Jack Chen introduced May Wang to D1 in 2008.  D1 was a senior partner in Fred Kan & Co. (“FKC”), a solicitors’ firm.  She was the sole shareholder of UBNZ Trustee Limited (“UBTL”).  UBTL held a company, UBNZ Assets Holdings Limited (“UBAH”), which was to acquire 22 dairy farms in New Zealand through UBNZ Funds Management Limited (“UBFM”).  These 3 companies were all in New Zealand. UBTL’s business prospect was expected to be substantially strengthened by the acquisition of the 22 dairy farms.  Jack Chen and May Wang negotiated with CJHM for the latter to purchase May Wang’s interest in the said New Zealand companies.  CJHM was later renamed Natural Dairy (NZ) Holdings Limited (“NDNZ”).  I shall refer to it as “462”, its stock code in SEHK.  An agreement was reached between UBTL and 462 with 2 essential parts.  The first part was that 462 would purchase 20% of the issued share capital of UBTL in UBAH and 20% of the debt owed by UBAH to UBTL at NZ$ 100,000,000.  The second part was that 462 would have an option to purchase the remaining 80% of the issued share capital of UBTL at NZ$ 400,000,000.  For the first part, UBTL would receive convertible notes, CN-B, for the NZ$ 100,000,000.  The maturity date was 10 years after.  The second part was to be subject to the approval of the Overseas Investment Process Office in New Zealand.  462 called this agreement “VSA-1”, meaning very substantial acquisition number 1.  D2 was also engaged in negotiations for selling the interest pertaining to her majority shares in Dragon Joy Limited (“Dragon Joy”), which held the majority shares in Global Food Holdings Limited (“GFHL”).  An agreement was also reached.  462 would purchase GFHL’s production lines at HK$ 26,000,000 and licence to use certain of its trademarks at an initial fee of HK$ 30,000,000 and an annual fee of HK$ 20,000,000 for 30 years.  462 would pay D2 by way of its shares.  462 called it “VSA-2”, meaning very substantial acquisition number 2.  PW4 Wong Chun-ling was the assistant vice-president of the listing division of SEHK.  He testifies on the procedural requirements of public listed companies, such as 462, vis-à-vis the public investors and SEHK.  His evidence is not in dispute.  

6. Jack Chen resigned from his position of executive director and joint chairman of 462.  D1 must have known of this as he had received emails and correspondences to this effect for his advice.  

7. To raise money for UBAH to acquire the 22 dairy farms, 462 first engaged Bank of China Investment Limited (“BOCI”) but BOCI was expressly against Jack Chen’s participation.  BOCI dropped out of the picture and 462 engaged Sun Hung Kai Investment Services Limited (“SHKIS”) as an agent to place convertible notes, CN-C, for subscription by investors.  The placing exercise of CN-C resulted in HK$ 842,000,000 being raised between December 2009 and September 2010.  Out of this money, as instructed by 462, SHKIS remitted to Knight Coldicutt, the escrow trustee of cash for completion of the agreement between 462 and May Wang, the money of HK$ 692,270,000.  PW2 Joseph Tong was the chief executive officer of Sun Hung Kai Finance Group.  He managed SHKIS and handled these transactions with 462.  His evidence is not in dispute.     

8. On 11/2/2010 and 15/2/2010 respectively, Knight Coldicutt remitted NZ$ 25,262,070.17 in total to UBTL.  On 17/2/2010, UBTL remitted NZ$ 13,682,776.50 (equivalent to HK$ 73,736,482.56) to the bank account (‘the First Account”) of Goldmate Securities (USA) Limited (“Goldmate”).  Goldmate was previously Shenlong International Investment Limited.  Jack Chen was the majority shareholder and director of Goldmate.  Owing to some banking error, the money was not credited to Goldmate’s First Account until 2/3/2010.  On the same day, Jack Chen transferred HK$ 73,700,000 from the First Account to another bank account of Goldmate (“the Second Account”).  On 11/3/2010, Goldmate transferred HK$ 69,000,000 from the Second Account back to the First Account.  On the same day, Jack Chen issued a cheque for HK$ 68,950,000 on the First Account in favour of FKC’s Client Account.  Acting on Jack Chen’s instructions, D1 transferred the same money to D2 the following day. 

9. D2 received the money on 12/3/2010 with her account with Hong Kong and Shanghai Banking Corporation numbered 812-004570-888 (“her HSBC Account”).  This is where she received deposits or made withdrawals between 12/3/2010 and 26/10/2011, the period as particularized in the 2^nd Charge.  

10. On 16/12/2010, Jack Chen was arrested by the ICAC at D2’s residence in Harbour Front Landmark, Hung Hom.  D2 was present at that juncture and witnessed a search of the residence.  A bundle of loan agreements were seized[2]. They showed loans made by D2 to a company called Nation Resources Limited (“NRL”).  NRL was a subsidiary of 462.  

11. On 26/10/2011, D2 was arrested for the offence of aiding Jack Chen to accept advantage from May Wang for procuring 462 to acquire May Wang’s company in New Zealand, ie UBAH and for the money laundering, the property being the corrupt proceeds accepted by Jack Chen. 

C: Prosecution stance

12. Based on the involvement of D1 as the solicitor for May Wang and Jack Chen at the crucial junctures, the prosecution says that when D1 dealt with the money of HK$ 68,950,000, he had the knowledge that it, in whole or in part, directly or indirectly, represented proceeds of an indictable offence or, alternatively, he had reasonable grounds to believe that the money was of this nature. 

13. The first money D2 received was the HK$ 68,950,000 from FKC on 12/3/2010 in her HSBC Account.  During the 19 ½ months that followed as particularized in the 2^nd Charge, apart from this money, there were other large deposits into this bank account.  Including this HK$ 68,950,000, HK$ 230,907,804.25 in total was originally particularized but later reduced to HK$ $207,571,781.59 upon the prosecution expressly taking only the 17 largest deposits in her HSBC Account, according to para 117 of the Opening on Behalf of the Prosecution, for the purpose of this trial.  These deposits and withdrawals were not compatible with her station in life.  The prosecution says that when she dealt with the 17 deposits, she had the reasonable belief that they, in whole or in part, directly or indirectly, represented proceeds of an indictable offence.

D: Defence stance

14. D1 and D2 give evidence and call defence witnesses.  They each deny knowledge or belief in any money laundering exercise.  D1 calls 1 character witness[3]. D2 calls 4 witnesses of fact[4]. As D1 and D2 each has a clear record, I remind myself of the need to take a view more favourable to each when addressing the issues of credibility of his or her evidence as well as his or her propensity to commit the offence of money laundering.

E: Common matters relating to D1 and D2

15. There are many common matters relating to D1 and D2.  As the date of D1’s offence preceded that of D2, I shall first cover the case relating to D1.  I do not intend to repeat anything when it comes to the case relating to D2 except to elaborate matters specific to D2. 

F: List of witnesses

16. The respective lists for the prosecution and the defence are in the Annex to this Judgment. 

G: Prosecution case against D1

I: Testimonies of PW3 Flora Tam and PW1 Rachel Fong

17. PW3 Flora Tam was D1’s secretary at all material times.  Her testimony is that D1 told her on a certain day before 11/3/2010 that Jack Chen would put money in the region of US$ 10,000,000 into FKC’s Client Account and the money would be transferred out the following day.  Although he did not mention the purpose of the money, he told her it was to be transferred to D2.  As to the bank account information of D2 for receiving the money, she only took instructions from him because he was her boss.  The defence suggests that he had instructed her to get the information of D2’s bank account from Lulu Shiu Ming (“Lulu”), Jack Chen’s personal assistant.  She denies that suggestion.    

18. From her experience, HK$68,950,000 was a large amount rarely seen for costs and disbursements for initial public offer, acquisition of company or any work handled by D1. The usual range was around HK$1,000,000.  The Official Receipt dated 11/3/2010 was signed by her together with a staff member of the Accounts Department.  The money was there classified as “Costs and Disbursements on Account”[5]. She had invariably sought D1’s instructions each time before telling the Accounts Department how to deal with any money credited into FKC’s Client Account administered by him.  PW1 Rachel Fong Siu-lan was the accounts clerk of FKC who prepared the Official Receipt for this money.  She followed Flora Tam’s instructions to use the term “Costs and Disbursements on Account”.  Her evidence is not in dispute.

19. On 11/3/2010, FKC’s Client Account received HK$ 68,950,000, which she understood to be the money of “US$10,000,000” forewarned by him.  She remembers that he had instructed her to put down “Goldmate” as the name of the client on the Official Receipt.  The defence suggests to her that he had not so instructed her.  She denies that suggestion. 

II: Application of Practice Direction P

20. Published by the Law Society of Hong Kong, Practice Direction P governs what a solicitor shall do when having to deal with money received from a client or potential client to carry out an instruction.  Article 6 provides that every solicitor shall be absolutely bound by all Practice Directions issued from time to time by the Law Society of Hong Kong.  Practice Direction P provides as follows:

(10) These Guidelines apply to all law firms, solicitors and foreign lawyers practicing in Hong Kong and aim to:-

10.1 provide general guidance on the subjects of anti-money laundering and terrorist financing,

10.2 summarise the relevant legislative provisions on anti-money laundering and terrorist financing;

…

10.4 offer useful general guidelines to law firms for developing their own procedures on anti-money laundering and terrorist financing appropriate to their business;

…

(11) These Guidelines do not have the force of law and should not be interpreted as such. However, where provisions are specified as mandatory herein (currently paragraphs 18 – 28), any firm, solicitor or foreign lawyer practicing in Hong Kong that fails to comply with such provisions may face disciplinary action (see Chapter 16 of the Hong Kong Solicitors’ Guide to Professional Conduct. In addition, firms which do not comply with these Guidelines will be exposed to additional risks of being involved in money laundering and terrorist financing activities, with severe consequences of criminal prosecution and significant loss of reputation.

21. In Part B, paragraph 18 is under the heading “Mandatory Requirements”, which provides as follows:

(18) As a basic requirement, law firms must make reasonable efforts to identify and, in an Applicable Circumstance, verify the true identity of all clients (new or existing) requesting the firm’s services. Each firm should carefully consider whether financial transactions should be conducted with clients who fail to provide satisfactory evidence of their identities. Recommended procedures and policies on client identification and verification are set out in paragraphs 85 – 97.

22. Practice Direction P contemplates urgent situations as follows:

(19) In general, law firms should satisfy themselves with the identity of the client and the beneficial owner(s) of a client which is not a natural person at the time of the instruction. In exceptional or urgent circumstances where this is not reasonably practicable, the verification procedure should be made as soon as practicable after the preliminary identification.

23. The law firms shall apply the appropriate level of due diligence as prescribed by Practice Direction P in the following cases:

(20) In addition to the basic client identification and verification measures, law firms are required to carry out different levels of client due diligence as set out in the Table of mandatory requirements under Section A when instructed to act in any of the following activities…:-

20.1 financial transactions such as buying and selling of real estate, business, company, securities and other assets and property;

20.2 managing client money, securities or other assets;

…

20.6 other transactions involving custody of funds by Law firms as stakeholder or escrow agent or transfers of funds through their bank accounts.

24. Part A contains a list of what to do as follows:

i. Obtain information on the nature and intended purpose of the transaction;

ii. Obtain information on the business relationship between the client and the other interested parties to the transaction;

iii. Obtain information on the source of funding; and

iv. Where appropriate, check new client’s name against the published list of terrorist suspects.

25. Paragraph 21 provides for the timing of the due diligence process as follows:

(21) The timing required for conducting client due diligence is similar to that required for client identification and verification (i.e. at the time of the instruction). However, in exceptional or urgent circumstances, where this is not practicable, it would be permissible to have the due diligence process completed as soon as practicable after accepting the instruction. Nevertheless, where the client is considered as high risk, the firm should carefully determine the risks involved in acting for such client before completing the due diligence process.

26. Paragraph 22 provides for the choices open to a solicitor:

(22) Where a solicitor is unable to verify the identity of a client or is suspicious of the relevant transaction after conducting due diligence, the solicitor should carefully evaluate the risks involved and determine whether he should continue to act for the client and, if appropriate, report any suspicion on money laundering or terrorist financing activities to an authorized officer…

27. Mr. Bruce SC submits that what would be required before a breach of Practice Direction P could assist the prosecution is proof that the adverse inference is the only reasonable inference.  Even if a substantial breach of Practice Direction P was established, the prosecution still had to prove that the only reasonable inference is that D1 intended to cover up the transaction of HK$68,950,000 or the nature of that transaction.  If any such breach was negligent or inadvertent, then such inference is not open to the court. 

H: D1’s defence case

I: Testimony of D1

28. D1 has no half-time submissions.  He testifies that he is now 58 years of age.  He is married and has 3 children, aged from 4 to 25.  In 1978, he obtained an LL.B. degree from the University of Hong Kong.  In 1979, he completed P.C.LL. He served as an articled clerk in the solicitors’ firm, Deacons.  In 1981, he was admitted as a solicitor in Hong Kong.  In 1989, he was also qualified to practice law in England.  In 1998, he was appointed a notary public and a China-attesting officer.  He specialized in commercial matters, listing companies, joint venture, merger and acquisition for over 20 years.  He had worked with corporate regulators such as SEHK, the Futures and Securities Commission of Hong Kong.  He was familiar with the Listing Rules of SEHK.  He had to deal with these on a frequent basis.  He speaks English, Cantonese and Mandarin. Nearly half of his clients are Mandarin-spoken.  He communicates with them in Mandarin. 

29. He is and was a senior partner of FKC, a firm of solicitors in Hong Kong.  FKC also has an office in Tokyo.  He had been the director of altogether 8 public listed companies.  He is not the director of any public listed company at the present juncture.  In 2011 to 2013, he was the General Director of Lok Sin Tong Beneficent Society.  He handled its daily affairs, committee membership, education and medical affairs. 

30. He first came to know Jack Chen by introduction of a client.  Jack Chen wanted to list companies in Hong Kong.  He was Jack Chen’s solicitor on listing matters from time to time since 2005.  He knew D2 as Jack Chen’s wife.  He had met D2 as well.  

31. He first became aware of the HK$68,950,000 on the morning of 11/3/2010.  After a meeting with a client, he was informed by Flora Tam that Lulu had phoned to tell her that a deposit of HK$ 68,950,000 was “in the process of coming into” FKC’s Client Account and Lulu had asked her to ask him to phone Jack Chen.  He therefore contacted Jack Chen by phone after about 5 minutes.  The prosecution suggests that the true version of events comes from the testimony of Flora Tam, not D1.  D1 denies that suggestion.  

32. On that occasion of 11/3/2010, Jack Chen told him over the phone that there was an agreement to purchase D2’s entitlement to receive the proceeds under VSA-2 by investor behind Jack Chen.  Jack Chen was representing such investor to purchase D2’s interest in Dragon Joy.  Jack Chen wanted him to represent the investor.  D1 responded that he could not represent the investor as there was a potential conflict of interests.  D1’s worry, which he did not tell Jack Chen in detail, was that there might be a conflict of interests for him either to disclose too little or too much of his prior knowledge of matters concerning D2’s interest in Dragon Joy when he came to draft the agreement if he were really to represent Jack Chen’s investor.   He therefore requested Jack Chen to take the HK$ 68,950,000 away.  Jack Chen asked whether the money could go through FKC’s Client Account to D2 because the investor wanted a solicitors’ firm to witness the money actually received by D2 the following day.  Jack Chen said that D1 was the best person to be the witness as D1 knew of the whole matter.  Jack Chen added that it was a bit urgent and asked D1 to do him the favour.  D1 agreed to help him.  He asked Jack Chen to provide him D2’s bank account information for receiving the money.  Jack Chen suggested D1 to ask Flora Tam to contact Lulu for it.  D1 instructed Flora Tam accordingly.  The prosecution suggests that the true version of events comes from the testimony of Flora Tam, not D1.  D1 denies that suggestion. 

33. There was a side-event concerning Flora Tam’s termination of employment.  Before 11/3/2010, he had already wanted to replace Flora Tam by another secretary because she often arrived late for work.  As a replacement for her, on 10/3/2010 he interviewed a Miss Cheng, who commenced work from 19/4/2010.  Flora Tam was dismissed with wages in lieu of notice in April 2010.  FKC did not give any reason for her dismissal.  

II: Testimony of DW1 Clifford Leung

34. DW1 Clifford Leung Siu-on testifies as D1’s character witness.  He retired 10 years ago.  He was in the business of factory and trading.  He is the second vice-chairman of the Lok Sin Tong charity, the Nominal President of St. John’s Ambulance Cadet Brigade and holds a number of posts in voluntary community services.  A friend introduced D1 as a solicitor to him in 1988.  He was both D1’s client and family friend since then.  He regards D1 as a perfectly trustworthy person.      

I: Prosecution case against D2

I: Immigration Department record of D2

35. D2 made an application dated 29/4/2009 for a Hong Kong Identity Card to the Hong Kong Immigration Department.  The certified true copy shows that in the column “Profession/occupation” it was typed “Housewife” [6].

II: Inland Revenue Department record of D2

36. D2 has not filed any tax return or made any payment or entered into any correspondence with the department for the period between 1/4/2007 and 31/3/2012[7] . 

III: Bank record of D2’s HSBC Account

37. D2 was the sole signatory of her HSBC Account.  This savings account is particularized in the 2^nd Charge.  The account has a subsidiary current account number 812-004570-001.  She described herself as “housewife” as her employment status in the information furnished to the bank[8].

38. On 11/3/2010 her HSBC Account had HK$2,830,110.64.  On 12/3/2010, she received HK$ 68,950,000 from FKC in it[9].

IV: Monies in her HSBC Account

39. During the 19 ½ months particularized in the 2nd Charge, ie 12/3/2010 to 26/10/2011, there were 17 deposits of significant magnitude made into her HSBC Account.  The prosecution has elected to take these 17 deposits as all that she had received in the money laundering exercise for the purpose of this trial.  That is about 90% of the money of HK$ 230,907,804.25 in total as particularized in the 2^nd Charge.  This serves to dispense with the hassle in wrestling with small figures making up the remaining 10% deposit.  The 17 deposits (“the 17 Deposits”), HK$207,571,781.59 in total, were as follows[10]:

Item	Date	HK$	Form	Source
1	12/3/2010	68,950,000.00	Cheque	FKC
2	22/6/2010	250,000.00	Transfer	Chung Tung Co
3	22/6/2010	500,000.00	Cash	Unnamed person
4	22/6/2010	450,000.00	Cash	Chan Sik-ying
5	2/9/2010	50,000,000.00	Cheque	SHKIS
6	7/12/2010	1,000,000.00	Cheque	Goldmate
7	18/1/2011	24,221,420.00	Cheque	NRL
8	18/1/2011	8,769,982.09	Cheque	Jack Chen
9	14/2/2011	5,859,594.50	Remittance	Jem Lei Dat Co
10	14/2/2011	5,849,992.50	Remittance	Jem Lei Dat Co
11	25/3/2011	2,364,552.50	Remittance	Lo Mei Ko
12	25/3/2011	1,653,120.50	Transfer	Wui Lee Exchange Co
13	25/3/2011	1,599,992.50	Remittance	Wai Hing Money Exchange Limited
14	25/3/2011	3,103,334.50	Remittance	Asia Aquatic Co
15	4/4/2011	22,000,000.00	Cheque	Goldmate
16	8/7/2011	9,999,792.50	Remittance	Ye Mei
17	19/10/2011	1,000,000.00	Transfer	Walter Shum Wan-wah

40. Before receiving the 17 Deposits, her HSBC Account showed the following credit balances respectively:

Item	Date	HK$ received	HK$ balance	Remark
1	12/3/2010	68,950,000.00	2,830,110.64	FKC
2	22/6/2010	250,000.00	63,979,641.37	Chung Tung Co
3	22/6/2010	500,000.00	63,979,641.37	Unnamed person
4	22/6/2010	450,000.00	63,979,641.37	Chan Sik-ying
5	2/9/2010	50,000,000.00	9,509,398.94	SHKIS
6	7/12/2010	1,000,000.00	31,332,385.14	Goldmate
7	18/1/2011	24,221,420.00	19,893,800.20	NRL
8	18/1/2011	8,769,982.09	19,893,800.20	Jack Chen
9	14/2/2011	5,859,594.50	51,479,314.34	Jem Lei Dat Co
10	14/2/2011	5,849,992.50	51,479,314.34	Jem Lei Dat Co
11	25/3/2011	2,364,552.50	28,240,306.59	Lo Mei Ko
12	25/3/2011	1,653,120.50	28,240,306.59	Wui Lee Exchange Co
13	25/3/2011	1,599,992.50	28,240,306.59	Wai Hing Money Exchange Limited
14	25/3/2011	3,103,334.50	28,240,306.59	Asia Aquatic Co
15	4/4/2011	22,000,000.00	35,964,829.89	Goldmate
16	8/7/2011	9,999,792.50	48,152,452.38	Ye Mei
17	19/10/2011	1,000,000.00	5,085,837.98	Walter Shum Wan-wah

41. The defence has also adduced a bank record which contains all deposits and withdrawals during the 19 ½ months’ period in table form for ease of reference[11].

J: D2’s defence case

I: Her testimony on personal background

42. She is now 43 years of age.  She is married to Jack Chen.  They have 2 daughters and 1 son, aged from 14 to 19.  She was born and lived in China.  In 2001, she immigrated to New Zealand.  She has a New Zealand passport.  In 2006 she settled in Hong Kong.  At times she goes to New Zealand or China, in particular Fujian where her maiden family is.  His father is Ye Nang-xiang, a very experienced businessman and investor living in China.  He had been the business partner of Jack Chen.  In 1990, her father gave her the capital to set up her own business of a furniture shop in China.  She earned between RMB 1,000,000 and RMB 2,000,000 for the 2 years the shop operated.  From 1992 to 1995, she engaged in low pressure gas business. She earned over RMB 7,000,000.  In 1997 to 2001, she earned over RMB 5,000,000 from the stock market in China. 

43. She described herself as a “housewife” in her HSBC opening application and her application for Hong Kong Identity Card because it was a description suggested to her by her immigration consultant. 

44. She further testifies on the sources of the 17 Deposits and the purpose of various withdrawals from her HSBC Account.  I consider it easier for comprehension to segregate her testimony specific to the deposit or withdrawal in question. 

II: Her testimony relating to Items 1, 6, 8, 15 of the 17 Deposits

a: Monies involved

45. D2 received the 4 deposits, HK$100,719,982.09, as follows due to an agreement to sell her interest relating to Dragon Joy she had allegedly signed with Goldmate:

Item	Date	Amount (HK$)	Form	Source
1	12/3/2010	68,950,000.00	Cheque	FKC
6	7/12/2010	1,000,000.00	Cheque	Goldmate
8	18/1/2011	8,769,982.09	Cheque	Jack Chen
15	4/4/2011	22,000,000.00	Cheque	Goldmate

b: Her interest held on trust

46. By a Declaration of Trust made on 14/4/2009[12], Jack Chen declared himself the trustee of 93 shares in GFHL for the beneficiary, Dragon Joy.  A Deed of Trust was signed on 3/7/2009[13]. It stated that D2 was the sole director cum beneficial majority owner of 3 New Zealand companies (Universal Horizon Trustee Limited, MLC Trustee Limited, and RCQ Holdings Limited) and that the 3 said companies altogether owned around 64% of the shares in Dragon Joy, a BVI company.  Dragon Joy in turn held 99.9% of the shares in GFHL. The Deed of Trust stated that D2 would resign from her directorship and Graham Chin would hold her directorship as her trustee and agent in carrying out her decisions. 

c: VSA-2

47. One of the main purposes of the Deed of Trust was to acknowledge D2’s beneficiary interest in the majority shares in GFHL.  Under VSA-2, 462 would acquire 3 production lines of GFHL and the licence to use 26 trademarks owned by GFHL for 30 years. 462 would pay her in the form of shares in 462. 

d: The Contract with Goldmate

48. D2 testifies that in November or December 2009, Jack Chen began to negotiate with her the purchase of her entitlements to the proceeds under VSA-2.  He told her that UBTL got cash from the placing exercise under VSA-1 and she would get cash from UBTL if she sold her proceeds under VSA-2 to Goldmate.  Goldmate would resell her interest to UBTL.  She did not ask, as she was not curious, how much UBTL was to pay Goldmate in turn.  He told her that both Goldmate and UBTL wanted to pay her through a solicitors’ firm because UBTL worried that it involved husband and wife and D2 would not honour the Contract.  She felt bad about having to go through a solicitors’ firm.  She thought Jack Chen did not trust her because they were not on good terms at that time.  Eventually she did not object to being paid through a solicitors’ firm as she had in mind some investments with the cash.  She had talked to her father, who made no mention of the need for her to seek legal advice or independent valuation.  Thus she did nothing of that sort.

49. D2 describes the circumstances in which the Agreement of Acquisition, Intentions and Equity Transfer dated 8/1/2010[14] (“the Contract”) was signed.  On 1/1/2010, she was aware that the Contract DW2 Wu Xiao-kang brought along had been prepared by Jack Chen’s legal department in China.  She noticed the date columns on the cover page and the first page were in blank when she signed the Contract.  She did not pay much attention to the contents except for the price.  According to Appendix V, the purchase price was HK$110,000,000[15]. 

50. After signing, she retained one of the 2 originals of the Contract.  She gave the original to her father, Ye Nang-xiang. Ye Nang-xiang lost the original when moving office but managed to find a photocopy of it for her to produce to court, ie the present exhibit.  D2/1 is the photocopy of the Contract signed between her and Jack Chen, witnessed by DW2 Wu Xiao-kang, an ex-employee of Jack Chen. 

e: Testimony of DW2 Wu Xiao-kang

51. DW2 Wu Xiao-kang testifies that he witnessed D2 and Jack Chen signing the Contract.  He is 66 years old.  He was born in Fujian.  He had worked for Shen Long Group in China.  From 2003 to 2007, he was the general manager of Fulao Wine Company Limited (“Fulao”).  After working for Fulao, he retired.  Jack Chen was the boss of both Shen Long Group and Fulao at that time.  He knew D2 as Jack Chen’s wife and the daughter of Ye Nang-xiang, who was the shareholder of Shen Long Group. 

52. He knew a friend, Mr. Liu Nan-fang, the secretary to the board of directors in Shen Long Group.  Chen Kegen was the chairman of Shen Long Group at that time.  Liu Nan-fang was aware that Wu Xiao-kang was soon going to Hong Kong.  Liu Nan-fang told him to bring a craft paper bag containing 2 originals of the Contract[16], to Hong Kong for D2 and Jack Chen to sign.  He did not read the papers specifically as they were put in a craft paper bag tied up in a string when he was given them.  He arrived in Hong Kong on 30/12/2009 and made contact with D2 and Jack Chen. 

53. He met them in Harbour Plaza Hotel on 1/1/2010.  He opened the craft paper bag.  It was the first time it occurred to him that there were 2 originals of the Contract[17]. D2 read the Contract in a very serious manner and discussed with Jack Chen the terms in Fuqing dialect.  He did not know their dialect except for some single words.  D2 and Jack Chen each signed on the 2 originals.  D2/1 is a photocopy of the signed Contract.  

54. The Contract was mostly in printed letters but Clause 6.6[18] was handwritten.  It reads:

“Other matters of both parties not included in this Agreement may be negotiated or by signing a supplementary agreement with the same legal effect.”

55. He does not know why Clause 6.6 was handwritten or if it was put down in his presence.  Two weeks before his testimony, D2’s father had asked him to testify as an eye-witness of the Contract being signed by D2 and Jack Chen.  D2’s father had reminded him of the event but made no mention of anything specific to him, not even the fact that it was Liu Nan-fang who gave him the craft paper bag with the Contract.  The Contract was actually signed on 1/1/2010 as reflected in his own handwriting after his signature[19] that he “(witnessed signature of both parties at Harbour Plaza Hotel Hong Kong as at 1 January 2010)”.  At the top of the page, there was this line:

“This Agreement is signed by both parties as on the above date set out at the beginning (of this Agreement).”

56. However, at the beginning of the Contract, both on the cover page[20] and the first page[21], were printed the date “8/1/2010”. At no time did he pay attention to this date being printed “8/1/2010”. He testifies that after all of them signed, he brought both originals of the Contract[22] back to Liu Nan-fang in China.  (This is inconsistent with D2’s testimony that she retained one of the originals of the Contract after signing.)

f: Jack Chen insisted on paying HK$ 68,950,000 through solicitor

57. Her interest in GFHL was the subject of 462’s VSA-2.  Under VSA-2, she would get shares in 462 because 462 did not have cash to pay her.  Whilst waiting for VSA-2 to complete, she on 1/1/2010 instead sold her interest in GFHL to UBTL at HK$110,000,000.  She understood from Jack Chen that UBTL and Goldmate would like to protect their own interest by requesting for the payment of the first lot of installment, HK$ 68,950,000, which represented more than half of the purchase price[23], to be paid to her through a solicitor.  She was unhappy about having a solicitor as a witness because it appeared that he would not trust her. However, she did not object to the arrangement because she was more concerned about getting cash for some investments.  She sought no professional legal advice or independent valuation for the transaction because she trusted him. She supposed he had his own way to do business.

58. From what Jack Chen had told her, it had never occurred to her that May Wang, not UBTL, was to be the ultimate purchaser of her interest.  It was only in May 2010 when out of the blue he showed her his agreement with May Wang that she came to realize that her interest in GFHL was sold to May Wang.  She did not pay much attention to the contents except for the price.  Her ignorance of May Wang’s role explains why she had not negotiated with May Wang directly but only with him for the Contract before January 2010.   

g: Subsequent payments received by her under the Contract

59. The 3 subsequent payments were made to her through either Goldmate’s bank account or Jack Chen’s personal bank account.  She guessed Jack Chen perhaps did not want to hurt her any more when he made the 3 subsequent payments.  After the last payment, Jack Chen presented to her the 3 receipts for the 3 respective payments which she signed in one go.  In total she received HK$100,719,982.09 for all 4 installments.  Goldmate still owes her HK$9,280,017.91 when she testifies because Jack Chen told her he had no more money to pay her.     

60. Here is a table of the 4 payments she received under the Contract:

Date	Amount (HK$)	Form	From
12/3/2010	68,950,000	Cheque	FKC
7/12/2010	1,000,000	Cheque	Goldmate
18/1/2011	8,769,982.09	Cheque	Jack Chen
4/4/2011	22,000,000	Cheque	Goldmate

III: Testimonies of D2 and DW5 Chen Zong-ji relating to Items 2 – 4, 9 – 14 of the 17 Deposits

a: Certificate of Shareholding

61. Chen Zong-ji testifies that he was the sole agent of Fujian Laojiu Wine Co Ltd (“Laojiu”) from 1997 to 2006.  He then became the contractor of Laojiu.  Jack Chen owned Laojiu in the past.  In 2007, he sold it to Wu Chao-yung.  In 2008, Chen Zong-ji established his own company, Fulao, with Wu Zhi-yu.  Chen Zong-ji held 51% whereas Wu Zhi-yu held 49% of the shares in Fulao.  The Capital Verification Report dated 21/3/2008[24] showed a registered capital of RMB 25,000,000 in total in respect of Fulao.  Fulao remains his wine business so far. 

62. In 1995, when he was the sales manager of a wine company in Fuzhou, he came to know D2.  She was working in the financial department of Qilin Beer.  She always lent him money.  When he set up Fulao in 2008, he still owed her more than RMB 5,000,000.  As repayment for her loan of RMB 5,000,000, he suggested that she should accept 20% of the shares in Fulao.  She agreed.  The bit over RMB 5,000,000 was repaid to her in cash.  He signed a Certificate of Shareholding dated 21/3/2008 to evidence the transfer[25]. The document was printed on a paper with the letter head of “Fujian Laojiu Wine Co Ltd”.  He explains that Fulao was newly established and did not have papers with its own letter head.  Despite the date of “21/3/2008” printed on the document, he actually signed it on 22/3/2008 and gave it to her on 23/3/2008. D2 says she witnessed him sign it on 22/3/2008.  Later, after some questions by the prosecution on other aspects, she is asked again but she replies that it was signed on 21/3/2008. 

b: Assets Valuation List

63. In early 2010, he asked her to invest more in Fulao.  She wanted to recoup her investment instead.  They had a discussion for the sale of her investment back to him.  He gave her an Assets Valuation List dated “20/6/2010” for Fulao[26]. They both signed to confirm the contents.  Assets amounted to RMB 161,488,000. Liabilities amounted to RMB 33,000,000.  Net assets amounted to RMB 128,488,000. 

c: Equity Transfer Agreement

64. She signed an Equity Transfer Agreement with him dated “20/6/2010”[27] as evidence of her sale of her 20% shares in Fulao back to him.  They actually signed on a certain date in July 2010.  According to Article 1 para 2, as the transferee of her shares, he had to pay her RMB 1,200,000 within 7 days from the date of signing of the document, and the balance in installment by 30/3/2011.  She had her name and passport number (“LA499160”) printed as the transferor of the shares.  

d: Her passport number on the Equity Transfer Agreement

65. The prosecution cross-examines him as to why she could have entered her future New Zealand passport number, LA499160[28], issued to her on 23/11/2010 on the Equity Transfer Agreement they signed in July 2010.  Her passport as at July 2010 had been “EA270447”[29], not “LA499160”.  He cannot explain. 

66. A matter of days after Chen Zong-ji completed his testimony on 15/4/2014, D2 through her lawyers applied to me in writing to reopen her evidence so that she could explain why there was this future passport number on a pre-existing document. Leave was granted, so she re-opens her testimony on 5/6/2014.  She comes to explain that, when Chen Zong-ji could not give any explanation whilst in the witness-box, she has not yet remembered that he had, after they signed the Equity Transfer Agreement, asked her to sign another Equity Transfer Agreement with the same contents except her passport number.  It was a couple of days after he left the witness-box that she began to remember what really happened. In her testimony which was completed on 9/4/2014, she ought to have produced the earlier Equity Transfer Agreement which had her old passport number[30] rather than the later Equity Transfer Agreement which had her new passport number[31] .  When she is in the witness-box, she has forgotten about the earlier Equity Transfer Agreement because the passport number on a document was least of her concern.  She ought to have produced D2/58 instead of D2/12 in April 2014 when she first testifies. 

67. As to why she had signed 2 Equity Transfer Agreements in turn, she recounts what happened after the earlier one was signed.  In order to receive his further repayments more conveniently, she had asked him to open an account for her in China to receive his repayments.  She believed he could do this as he knew the banks in China very well.  She herself could not do this as she had asked HSBC in Hong Kong.  HSBC advised that it could not help her in this.  Sometime after she had renewed her New Zealand passport in November 2010, she faxed a copy of her New Zealand passport to him to open a bank account for her in China.  However, he reverted to her that such an account could not be opened in this manner.  When she went to China, he suddenly presented her an Equity Transfer Agreement identical to the earlier one except her new New Zealand passport number “LA499160”.  Even the date of the document was the same as the pre-existing one. He told her that there were new investors in Fulao.  He wanted to show them this document but he coincidentally spotted the difference in her passport number.  He requested her to sign it because the earlier Equity Transfer Agreement with her expired passport number would be invalid.  Therefore she signed D2/12.  After she had received all the outstanding amounts from him, she tore up the original of the earlier Equity Transfer Agreement[32] which was kept by her after she signed it.  This copy of D2/58 in court is a photocopy she obtained from Chen Zong-ji to prepare for this trial. 

e: Monies involved

68. In June or July 2010, D2 signed the Equity Transfer Agreement dated 20/6/2010 with Chen Zong-ji.  The Equity Transfer Agreement arose out of the disposal of her shares in Fulao for RMB 20,000,000 in total.  Each time Chen Zong-ji instructed Huang Wen-ping to pay for him.  Each time D2 instructed Weng Guang-jing to receive the cash or the bank transfer for her; there was an instruction letter from her to Chen Zong-ji to this effect[33]. The RMB 20,000,000 in total that Weng Guang-jing received consisted of the following 7 payments: 

Item	Date	RMB	From Huang Wen-ping to Weng Guang-jing
1	22/6/2010	1,200,000	Cash
2	1/12/2010	5,000,000	Bank transfer
3	1/12/2010	5,000,000	Bank transfer
4	1/12/2010	5,000,000	Bank transfer
5	3/12/2010	3,070,500	Bank transfer
6	5/2/2011	300,000	Cash
7	20/3/2011	429,500	Cash

69. Weng Guang-jing remitted to D2 a large part of the RMB 20,000,000 in 9 separate lots, ie HK$ 21,630,587 in total.  Except for D2’s testimony, there is no apparent link between the 7 installments he received and these 9 remittances he made to D2. 

70. These 9 remittances as follows constituted 9 of the 17 Deposits:

Item of the 17 Deposits	Date	HK$	From
2	22/6/2010	250,000 transfer	Chung Tung Co
3	22/6/2010	500,000 cash deposit	Unnamed person
4	22/6/2010	450,000 cash deposit	Chan Sik-ying
9	14/2/2011	5,859,594.50 remittance	Jem Lei Dat
10	14/2/2011	5,849,992.50 remittance	Jem Lei Dat
11	25/3/2011	2,364,552.50 remittance	Lo Mei Ko
12	25/3/2011	1,653,120.50 transfer	Wui Lee Exchange Co
13	25/3/2011	1,599,992.50 remittance	Wai Hing Money Exchange Co
14	25/3/2011	3,103,334.50 remittance	Asia Aquatic Co

f: Mode of payment

71. According to Article 1, clause 2 of the Equity Transfer Agreement, Chen Zong-ji had to pay RMB 1,200,000 within 7 days as the first installment after signing it.  The balance shall be paid by 30/3/2011.  Chen Zong-ji’s testimony is that on 20/6/2010, D2 phoned him to ask him to prepare RMB 1,200,000 cash to be collected by Weng Guang-jing for the first installment.  As he was not in the office, he asked Fulao’s financial officer, Huang Wen-ping, to take the cash from the safe of the office to pay Weng Guang-jing.  Weng Guang-jing issued her a receipt for “Chen Zong-ji” [34]. The company name of the agreement was wrongly written as “Laojiu” and the characters “Jiu Ye” (meaning wine business) were missing.  (There is no record that Chen Zong-ji had ever put up this RMB 1,200,000 in Fulao’s account.)

72. Huang Wen-ping’s bank account had 3 transfers of RMB 5,000,000 in favour of Weng Guang-jing’s bank account on 1/12/2010.  According to Chen Zong-ji, they were subsequent installments under the agreement.  The China Construction Bank issued a receipt for each transfer[35]. (There is no record that Chen Zong-ji had ever put up this RMB 15,000,000 in Huang Wen-ping’s account.)

73. Huang Wen-ping’s bank account had a transfer of RMB 3,070,500 in favour of Weng Guang-jing’s bank account on 3/12/2010.  According to Chen Zong-ji, it was a subsequent installment under the agreement.  The China Construction Bank issued a receipt for the transfer[36]. (There is no record that Chen Zong-ji had ever put up this RMB 3,070,500 in Huang Wen-ping’s account.)

74. There was another receipt, dated 5/2/2011, for RMB 300,000 cash[37]. According to Chen Zong-ji, it was a subsequent installment under the agreement.  He was in the office when Weng Guang-jing came up.  He asked Huang Wen-ping to take cash from the safe of the office to pay Weng Guang-jing.  Weng Guang-jing issued him a receipt[38]. The company name of the agreement was wrongly written as “Laojiu” and the characters “Jiu Ye” (meaning wine business) were missing.  (There is no record that Chen Zong-ji had ever put up this RMB 300,000 in Fulao’s account.)

75. There was another receipt, dated 20/3/2011, for RMB 429,500 cash[39]. According to Chen Zong-ji, it was the last installment under the agreement.  He was not in the office when Weng Guang-jing came up.  He asked Huang Wen-ping to take cash from the safe of the office to pay Weng Guang-jing.  Weng Guang-jing issued to him a receipt[40]. The company name of the agreement was wrongly written as “Laojiu” and the characters “Jiu Ye” (meaning wine business) were missing.  (There is no record that Chen Zong-ji had ever put up this RMB 429,500 in Fulao’s account.)

76. She was satisfied that Weng Guang-jing had received on her behalf all of RMB 20,000,000 due from Chen Zong-ji.  She had no idea why Weng Guang-jing remitted the monies in such apparently random quantum and timing to her. 

IV: Her testimony relating to Item 5 of the 17 Deposits

77. She came to know Lisa Du more than 10 years ago because their children played together. Lisa Du had real estate business in China.  In 2001, she immigrated to New Zealand whereas Lisa Du immigrated to Australia. 

78. On 30/8/2010, Lisa Du phoned her to ask for a loan of HK$50,000,000 to meet some business bill.  At that juncture she happened to have HK$59,509,398.94 in her HSBC Account. It was a coincidence that she had such money when Lisa Du asked for the loan. Lisa Du did not know she had such money.  Lisa Du’s money was tied up in China.  It would take several days to get it.  Lisa Du therefore borrowed from her to bridge the few days.  On 30/8/2010, she withdrew HK$50,000,000 from her HSBC Account as a loan to Lisa Du.  The remaining balance after the withdrawal was HK$ 9,509,398.94[41] in her HSBC Account.    

79. On 2/9/2010, Lisa Du repaid her the same money by a cheque of SHKIS.  There is undisputed evidence that Lisa Du had actually made use of the money to purchase 462’s shares in the few days between the 2 slots of suspension of the trading of 462’s shares.  The prosecution queries why the loan was interest-free and she did not ask Lisa Du for more details of its purpose.  The prosecution suggests that D2 had deliberately made this money available to Lisa Du to purchase 462’s shares before trading was suspended again.  She denies this suggestion.   

V: Her testimony relating to Item 7 of the 17 Deposits

80. On 13/9, 16/9, 27/9, 29/10, 5/11, and 17/11/2010 respectively, D2 remitted 6 loans, HK$24,221,420.00 in total, to 462 through Nation Resources Limited (“NRL”), a subsidiary of 462.  Loan agreements were signed between D2 and 462.  She had such monies to lend to 462 because her sale to Goldmate had brought her HK$68,950,000.  As to the purpose for the loans, D2 says Wu Neng-kun and Miranda Ng, both from NRL, had approached her on several occasions asking for loans to 462.  They told her that 462 was applying for resumption of trading and needed money for operation.  They told her that 462’s funds were locked in a solicitors’ firm and 462 were unable to get loans from the bank.  She did not ask them to elaborate the reasons.  She wanted to charge 2.5% interest on the loans but Miranda Ng later told her that the 462 lawyer had advised that VSA-2 between her and 462 put her in a position of conflict of interests, so she could not charge 462 any interest.  On 18/1/2011, in repayment of all the loans, 462 through NRL issued a cheque for HK$24,221,420.00 to be deposited into D2’s HSBC Account. 

VI: Her testimony on Item 16 of the 17 Deposits

81. On 6/7/2011, D2 remitted HK$10,000,000 to her younger sister, Ye Mei, who was in China[42]. It was a loan to enable the latter to purchase a shop in China.  In mid-June 2011, Ye Mei had expressed an interest in purchasing a shop in China.  The price was about RMB 13,000,000 to RMB 15,000,000.  Ye Mei would make up for the remaining amount.  After the purchase, Ye Mei would mortgage the shop to repay her within a month.  She would not charge Ye Mei any interest as it was for a short-term only.  On 8/7/2011, Ye Mei repaid the money of HK$ 9,999,792.50 to her[43] [E2338].  She understood that the owner insisted on RMB 14,500,000 whereas Ye Mei could only offer RMB 13,000,000, so they failed to reach agreement. 

VII: Her testimony on Item 17 of the 17 Deposits

82. D2 came to know 462’s senior management, including a director Walter Shum Wan-wah (“Walter Shum”), when she negotiated VSA-2 with 462.  Walter Shum was also a director of NRL.  D2 was not familiar with Walter Shum personally, though.  Walter Shum and Jack Chen’s personal assistant, Lulu, had been friends for many years.  On about 16/10/2011, Walter Shum intended to obtain a loan of $2,000,000 for his private use.  It was a significant amount from her point of view.  Walter Shum had approached Lulu and Lulu in turn approached her for the loan.  Lulu was like a middleperson and reassured her that Walter Shum would be trustworthy as a debtor.  No interest was charged.  Lulu said the money would be repaid within a few days.  She decided that if Walter Shum ran off with the money, she would go after Lulu.  Lulu orally promised to repay her if Walter Shum did not. There was neither a loan agreement between her and Walter Shum, nor guarantee agreement between her and Lulu. 

83. On 18/10/2011, she transferred $2,000,000 from her HSBC Account to Walter Shum. On 19/10/2011, Walter Shum transferred $1,000,000 back to her.  For the remaining HK$1,000,000, Walter Shum repaid by cash in RMB in China approximately 2 to 3 months afterwards. 

VIII: Her testimony relating to dealings with Lin Ren Hui

84. 16/5/2011, Lin Ren Hui remitted HK$10,000,000 to D2[44]. This is not among the 17 Deposits singled out by the prosecution because it was a deposit into her current account.  According to her testimony, Lin Ren Hui was returning this money as the same money she had on 2/3/2011 remitted to Lisa Du for an investment pool raised by Lin Ren Hui.  Lin Ren Hui was a former judge in China and close friend of Lisa Du.  D2 also knew him for a while but they were not close friends.  Lin Ren Hui was to collect monies from Lisa Du, D2, and an investor called Wu Rong to invest in a fund held by China Ping An Insurance.  Every investor was to put up HK$10,000,000.  She therefore transferred HK$10,000,000 to Lisa Du, who would in turn pay Lin Ren Hui.  Lin Ren Hui would negotiate with China Ping An Insurance.  She did not know the details of the arrangement because Lin Ren Hui was the organizer.  She heard that the boss of China Ping An Insurance and Lin Ren Hui were very close and they were both living in New Zealand.  She expected to receive 20 to 30% profit in 2 years’ time.  They would first put up HK$ 40,000,000 as deposit.  If the negotiation succeeded, they would put up more money.

85. The investment did not take place because the negotiations between Lin Ren Hui and China Ping An Insurance over the price was unsuccessful.  China Ping An Insurance asked for HK$ 200,000,000 whereas they could only offer HK$ 100,000,000 to HK$150,000,000.  On 16/5/2011, Lin Ren Hui remitted HK$10,000,000 into her current account. 

IX: Testimonies of D2 and DW4 Huang Qiang relating to dealings with Huang Qiang

a: Her loan of RMB 3,000,000 to Huang Qiang in 2010

86. DW4 Huang Qiang was the son-in-law of D2’s paternal cousin.  He was also D2’s good friend.  In 2010, Huang Qiang told D2 that his coal business in China was making large profits.  He was at that particular juncture doing the preliminary work for coal mines.  She was not familiar with coal business.  But she heard that a lot of people in Fujian were investing in the coal mines in Shenzi province.  He wanted to borrow RMB 3,000,000 from her to do some investigation and exploration work for coal mines.  He was like a middleperson for investors in coal mines.  He offered to pay her 2% monthly interest for the loan.  On 14/6/2010, she remitted HK$3,428,570, the equivalent of RMB 3,000,000 to China via Jem Lei Dat[45]. He signed an Acknowledgment of Debt[46], which reads:

Hereby borrows RMB THREE MILLION yuan only from YE FANG at a monthly interest rate of 2% and shall repay in full in 1 year.

Borrower: HUANG QIAN

Date: 14 June 2010

b: Her investment of RMB 6,000,000 in Chaokai Coal

87. He and she signed an Investment Agreement[47] for her investment of RMB 6,000,000 in Shanxi Xinzhou Ningwu Chaokai Coal Limited (“Chaokai Coal”) and entrusted him to supervise the use of her investment funds.  He was also to guarantee the annual return of not less than 10% per year for a term of 3 years.  The principal money had to be returned to her after 3 years.  In case he used the principal money for use other than this investment, he had to compensate her by 20% of the investment fund.  The agreement was made in two duplicates, one for each party.  The date at the end of the document was “21 June 2011”. 

88. After her remittance on 17/10/2011[48], he signed a Receipt for RMB 6,000,000[49], which reads:

HEREBY confirm receipt of RMB SIX MILLION yuan in cash in total from YE FANG for the investment in [Chaokai Coal].

Received by: HUANG QIANG

Date: 21 June 2011

89. She signed an Acknowledgment of Debt[50], which reads:

Hereby borrows RMB SIX MILLION yuan only from HUANG QIANG for the investment in [Chaokai Coal] and shall repay the money in full in 5 months.

Borrower: YE FANG

Date: 21 June 2011

90. Such arrangements were in place because she wanted to invest but had no money to spare because she intended to use the money in her HSBC Account to buy shops, not for coal mine investment.  According to her understanding, he had borrowed money from some people in order to lend her the money.  According to his testimony, he had borrowed the money from, and pay interest to, some boss he knew from childhood. 

c: Her investment of RMB 10,000,000 in Zuoda Energy

91. He and she also signed another Investment Agreement[51] for her investment of RMB 10,000,000 in Shanxi Xinzhou Yuanping Shenda Zuoda Energy Co Ltd (“Zuoda Energy”).  The terms were the same as the Investment Agreement for Chaokai Coal.  The date at the end of the document was “13 August 2011”. 

92. After her remittance on 17/10/2011[52], he signed a Receipt[53] for this RMB 10,000,000, which bears the same terms as the Receipt for Chaokai Coal.  The date at the end of the document was “5 September 2011”. 

93. She signed an Acknowledgment of Debt[54], which reads:

Hereby borrows RMB TEN MILLION yuan only from HUANG QIANG for the investment in [Zuoda Energy] and shall repay in full in 3 months. After he has been requested to deduct RMB THREE HUNDRED made on the 14 June 2010, the actual borrowing amount is RMB SEVEN MILLION.

Borrower: YE FANG

Date: 5 September 2011

94. She was not aware of the mistake in having “RMB THREE HUNDRED” instead of RMB 3,000,000 to be deducted from the RMB 10,000,000 to result in RMB 7,000,000 until she testifies.   

95. Such arrangements were in place because she wanted to invest but had no money to spare because she intended to use the money in her HSBC Account to buy shops, not for coal mine investment.  According to her understanding, he had borrowed money from some people in order to lend her the money.  According to his testimony, he had borrowed the money from, and pay interest to, some boss he knew from childhood. 

d: Her investment of RMB 10,000,000 in Xinjian Coal

96. He and she also signed another Investment Agreement[55] for her investment of RMB 10,000,000 in Xinjian Coal Company Limited of Shanxi Energy Group (“Xinjian Coal”).  The terms were the same as the Investment Agreement for Chaokai Coal.  The date at the end of the document was “5 September 2011”. 

97. After her remittance on 17/10/2011[56], he signed a Receipt[57] for this RMB 10,000,000, which bears the same terms as the Receipt for Chaokai Coal.  The date at the end of the document was “13 August 2011”. 

98. She signed an Acknowledgment of Debt[58], which reads:

Hereby borrows RMB TEN MILLION yuan only from HUANG QIANG for the investment in [Xinjian Coal] and shall repay the money in full in 2 months.

Borrower: YE FANG

Date: 13 August 2011

99. Such arrangements were in place because she wanted to invest but had no money to spare because she intended to use the money in her HSBC Account to buy shops, not for coal mine investment.  According to her understanding, he had borrowed money from some people in order to lend her the money.  According to his testimony, he had borrowed the money from, and pay interest to, some boss he knew from childhood. 

e: Her loan of RMB 3,000,000 to Huang Qiang in 2011

100. In September 2011, Huang Qiang phoned her for a loan of RMB 3,000,000.  He did not specify the use.  He signed an Acknowledgment of Debt[59], which reads:

Hereby borrow RMB Three million Yuan only [￥3000000] from Ye Fang at a monthly interest rate of 2%.

Borrower: HUANG QIANG

19 October 2011

f: Dates of the documents

101. D2 says the dates at the end of various documents relating to Huang Qiang were wrongly written as follows:

(1) The Acknowledgment of Debt for RMB 3,000,000[60] signed by Huang Qiang had it dated “14/6/2010” instead of July 2010. She accepts that she was not in China on 14/6/2010;

(2) The Investment Agreement for Zuoda Energy[61] signed by her had it dated “13 August 2011” instead of September 2011. When she signed it, she was aware of the mistaken date but she thought “13 August 2011”meant the date she had the oral agreement with Huang Qiang. In that sense the date was correct.

(3) The Receipt for RMB 10,000,000 for investment in Xinjian Coal[62] and the Acknowledgment of Debt for RMB 10,000,000 for investment in Xinjian Coal each had it dated “13 August 2011”[63] instead of September 2011, she became aware of the wrong dates after she was charged by the ICAC.

g: Her repayment to Huang Qiang

102. On 17/10/2011, she withdrew HK$32,000,000 from her HSBC Account.  She says HK$ 30,000,000 of this HK$32,000,000 was to repay Huang Qiang’s 3 loans to her for RMB 23,000,000 in total (ie RMB 6,000,000 plus RMB 7,000,000 plus RMB 10,000,000[64]).

103. She says the whole of HK$ 30,000,000 was eventually to go to account/s designated by Huang Qiang.  Her first remittance of HK$15,000,000 was through, Jem Lei Dat Co to 2 accounts in Industrial and Commercial Bank of China to be received by Ye Mei in China.  PW5 Choi Fo-yuen of Jem Lei Dat Co says it was Lulu who gave him instructions to remit the money to China.  D2 says she had to take the flight to Fuzhou on 19/10/2011 to see Jack Chen, whom she heard was hospitalized in China.  She was busy packing up her luggage and had no time to deal with the remittance.  So she asked Lulu, who was her good friend, to help her give remittance instructions to Choi Fo-yuen.  Her second remittance of HK$ 15,000,000 was through Long Asia Trading Company, a remittance agent named by Huang Qiang, to an account in China Construction Bank to be received by Ye Mei’s husband, Weng Guang-jing, in China.  Weng Guang-jing also knew Huang Qiang.  Weng Guang-jing told her that HK$ 30,000,000 was too big to be remitted in one lot.  She understood that Huang Qiang would liaise with Weng Quang-jing for the handing over of the money.  She says she did not make much profit from these coal mine investments.  There are no figures given by her in court.  

X: Testimonies of D2 and DW3 Lin Bin relating to dealings with Lin Bin

a: Her loan to Lin Bin

104. In December 2006, Lin Bin joined Laojiu.  He is presently the deputy general manager of Laojiu.  He knew D2 since 1980s as a family friend.  He treated her like a little sister.  A series of events happened when he was working in Laojiu’s Fuqing branch as the general manager.  He had not seen D2 for many years when one day he coincidentally ran into D2.  They had a meal together.  Laojiu was having a cash flow problem which also affected the Fuqing branch.  The Fuqing branch was dilapidated and urgently required renovation.  Laojiu requested the Fuqing branch to arrange for financing itself.  He therefore was to raise money for the Fuqing branch from familiar people.  He needed RMB 800,000.  She would get 2.5% interest per month.  On that same day, she remitted HK$1,000,000, equivalent to RMB 800,000, through Jem Lei Dat Co to him.  Laojiu issued no written receipt until 29/9/2011[65].

b: Purchasing the land of Fuqing branch

105. In the period between July 2010 and March 2011, he approached her to see if she would be interested in acquiring the right to land use of the Fuqing industrial premises because Laojiu had decided to cease operation at Fuqing and sell the premises. Laojiu and D2 agreed on the total consideration of RMB 25,000,000.  An agreement, the Contract on Transfer of the State-owned Land Use Right dated 29/6/2011 was signed between D2 as the purchaser and him acting for the head company as the seller[66]. He produces a board resolution of the head company which purports to show that Laojiu had agreed to sign the agreement with D2. 

106. The terms included:

(1) D2 shall acquire the use right of the land held by the seller in Liucuo Village and Xiali Village, Yuxi Town, Fuqing City under State-owned Land Use Certificate No.: Rong Yu Guo Yong (97) Zi Di No. 01573;

(2) The total consideration of transfer of the land use right and the ownership of buildings and fixtures erected thereon would be RMB 25,000,000;

(3) D2 shall pay half of the consideration within 1 year of the signing of the agreement;

(4) D2 shall pay the remaining balance within 6 months after the certificate of the right to use the land has been changed into the name of D2;

(5) Laojiu shall deliver the land lots and the buildings erected thereon to D2 under the agreement within 3 months after D2 had made the first payment to Laojiu;

(6) The agreement is made out in quadriduplicate with D2 and the seller each holding two originals. (However, D2 testifies that she had not received any of the originals.)

c: Payments made by her

107. The RMB 800,000 she lent to Lin Bin on 26/10/2010[67] was spent on the renovation.  His secretary had taken 2 photos showing the buildings before and after[68].  This money was to be computed as part of the consideration for D2’s acquisition of Fuqing branch premises under the Contract.

108. The RMB 12,000,000 in total she subsequently lent to Laojiu in 3 lots[69] was credited into the bank account of suppliers for raw materials.  Laojiu owed this supplier money badly.  There was a remaining balance of RMB 12,200,000 of the consideration under the agreement not paid by D2 because Laojiu was still in the process of applying for change of land use from industrial to commercial.  On behalf of Laojiu, when he signed the Contract, he had orally agreed with D2 that Laojiu would have to apply to change the land use from industrial to commercial.  It was a complicated process as it involved several government departments.  Laojiu did not want to wait for the change to benefit itself but would rather sell to D2 for ready cash and apply for the change of land use for D2.  At the time they testify, which was more than 2 years and 10 months afterwards, the process is still incomplete.     

109. As instructed by him, D2 paid the 3 subsequent installments, RMB 12,000,000 in total, to 3 raw material suppliers instead of Laojiu.  Each was through Jem Lei Dat as follows:

(1) 7/7/2011 RMB 8,000,000;

(2) 26/7/2011 RMB 2,000,000;

(3) 11/8/2011 RMB 2,000,000.

110. Together with the RMB 800,000 converted from D2’s loan to Lin Bin, Lin Bin had received RMB 12,800,000 from D2 for the purpose of acquiring the land from Laojiu’s Fuqing branch.   

XI: Her testimony relating to dealings with So Chau-hong

111. On 21/7/2010, she issued 2 cheques from her HSBC Account to So Chau-hong in the respective lots of HK $600,000 and HK $710,870.  So Chau-hong was Jack Chen’s ex-chaffeur, then the chauffeur of NRL.  He still ran errands for her after his retirement. Actually, 1 week or 10 days before she issued the 2 cheques, she had gone to Shenzhen to view the furniture at a shop.  She bought the furniture for shipment to her house in New Zealand.  She went back to Hong Kong and had some urgent matter to deal with.  She did not contact Jem Lei Dat Co but asked So Chau-hong to help her make the payment through Jem Lei Dat Co to the furniture shop in Shenzhen.  He advised to have 2 cheques for such a big amount of HK $1,310,870.  She therefore issued the 2 cheques to him.  She instructed him to remit money to the furniture shop through Jem Lei Dat.  She thought he was a Hong Kong resident and would be familiar with the customs procedure.  She only realizes in the witness-box that his being a Hong Kong resident would have no relevance for exporting furniture directly from Shenzhen to New Zealand.   

K: Half-time submissions by D2

112. Defence counsel submits that although D2 had stated in the bank account application form and Hong Kong identity card application form respectively as a “housewife”, and declared to have no income in her tax returns to the Inland Revenue Department, this might not have been a complete description of her status.  The prosecution has not disproved the possibility of her having substantial income or assets overseas.  I do not agree with this submission as her financial position is apparently not commensurate with the deposit of HK$ 68,950,000 and other large deposits which formed the crux of her charge.   

113. Defence counsel refers to 462’s announcement of VSA-2 in which the target shares stated to be of substantial value were held on trust for D2.  It is submitted that therefore D2 must be regarded as a person of immense wealth.  I do not agree with this submission.  The valuation of her shares, as much as other contents of the announcement, was hearsay. 

114. Defence counsel refers to her husband, Jack Chen, as a successful businessman and investor, who might have made a gift to her of HK$ 68,950,000.  462’s announcement dated 2/2/2011 had referred to an amount of over HK$ 314,000,000 paid to UBTL on 14/2/2010 as “Financial Assistance” for UBTL to purchase the dairy farms[70]. Defence counsel submits that UBTL would be entitled to utilize it to further this end.  There is a bank record of Goldmate first receiving this HK$ 73,000,000[71] as “Investment Consultancy Fees” of over HK$ 73,000,000 from UBTL[72].  Defence suggests, in the absence of evidence one way or the other, that it was possible that the Investment Consultancy Fees were part of the Financial Assistance UBTL paid out.  Hence Jack Chen as the controlling shareholder and director of Goldmate could legitimately allot HK$ 68,950,000 on or before 11/3/2010 so as to deposit it into FKC’s Client Account in favour of his wife. 

115. I consider the evidence adduced so far.  She described herself as a housewife to the bank and to the Immigration Department.  She did not have any taxable income from salaries or properties in Hong Kong.  Her HSBC Account, apparently an active account, did not show any credit balance commensurate with such a deposit or large deposits.  A wealthy husband Jack Chen might have been, she had not been fairly partaking of his wealth.  The evidence reflecting her station in life apparently did not admit of a deposit of this magnitude.  

116. I rule D2 has a case to answer. 

L: My findings in the case against D1

I: D1’s credibility

117. D1 testifies that when he heard that the money was “in the process of coming into FKC’s Client Account” he assumed that the money was already deposited into the account.  He did not clarify it from Jack Chen.  I think it a clear-cut matter that money is either in or not in a bank account.  It is most unusual to say that money is “in the process of coming into the bank account”.  Without clarifying the positions with Jack Chen, he took it for granted at that time that the money was already in FKC’s Client Account. 

118. Mr. Bruce SC submits that D1 had all along identified Jack Chen as the person behind Goldmate, which provided the HK$68,950,000.  However, I note from D1’s own testimony that Jack Chen told him that the money actually came from his (Jack Chen’s) investor.  So he knew Jack Chen was not the one providing the money. He did not ask Jack Chen who was providing the money.   

119. He told Jack Chen that he could not represent the investor behind Jack Chen because he found a conflict of interests.  I think he could have reckoned at once, by his knowledge of the value of VSA-2, that a preliminary payment of HK$ 68,950,000 at such a short notice would be an unusually large proportion of the purchase price.  It would be the more unusual for such a preliminary payment to be paid before the parties had decided on the terms of the agreement. 

120. He asked Jack Chen to take away the money but Jack Chen asked him to transfer the money to D2 instead.  Jack Chen said the investor wanted a solicitor to witness the transfer of the money to D2.  D1’s role was reduced to a bank account holder who let someone use the bank account.  He did not tell Jack Chen that the bank record would itself be solid evidence of the payment without the involvement of a solicitor.   

121. The money was classified as “C & D Refund to client” (meaning costs and disbursements refund to client) in the firm’s Payment Voucher on which he signed[73]. He says he had not bothered much with the details.  I do not believe his testimony.  He was the one to authorize the payment out to D2.  From the meticulous way he had demonstrated in revising various drafts of voluminous documents provided to him by Jack Chen for comments, even when, according to his testimony, he was at various junctures not formally acting for Jack Chen, it had to be a deplorable fall from his regular level of professional vigilance and competence not to heed the abundant mistakes in the Payment Voucher, a document on a single page.  Contrary to the fact he was fully aware of, the money was not “costs”, not “disbursements”, not “refund”, and not back to “client”[74].

122. I do not believe that he was told only at immediate notice by Jack Chen when HK$ 68,950,000 was being deposited into FKC’s Client Account on 11/3/2010.  I do not believe that there was such a conversation between him and Jack Chen to discuss the scope of his retainer on 11/3/2010.  I do not believe his testimony generally. 

II: PW3 Flora Tam’s credibility and reliability

123. Mr. Bruce SC submits that D1 had been working on the termination of Flora Tam for some time due to her lateness for work.  So it is highly unlikely that if D1 had told Flora Tam any advance criminal arrangements to launder money she would be dismissed by D1.  Therefore D1 would not have forewarned her that Jack Chen was going to deposit this dubious money in FKC.  I understand from the undisputed testimony of D1 and Flora Tam that D1 was busy and always multi-tasking.  Flora Tam had to give close secretarial support to D1.  I do not agree with the submission that D1 would not have forewarned her if the money had been related to money laundering.  I think D1’s forewarning was simply to draw Flora Tam’s attention to the soon arrival of such money among her busy tasks.  This was one of the tasks D1 wanted her to perform properly.  It was a long shot from the forewarning to its being interpreted by Flora Tam to be a money laundering exercise. Unless D1 was prepared to do all secretarial tasks by himself in respect of the $68,950,000, he had to let his secretary Flora Tam process the documentation.

124. I find Flora Tam’s testimony credible and reliable.  I reject D1’s testimony where contradicted by hers.  The crux of her evidence, I reiterate here, is that prior to 11/3/2010 D1 had forewarned her of money in the region of US$ 10,000,000 coming from Jack Chen into FKC’s Client Account to be transferred to D2 the following day; D1 gave her the bank account information of D2; it was an unusually large amount in his professional practice.   

III: Relevance of Practice Direction P

125. A person of reasonable prudence is expected to do certain things when dealing with monies on trust coming into his bank account.  Practice Direction P is but a published protocol of what a solicitor is expected to do when dealing with monies on trust coming into his firm’s client account.  Practice Direction P prescribes a common standard all solicitors shall adhere to.  Compliance with such standard is a complete answer to any complaints about the solicitor’s professional conduct.  The failure to comply with such standard is not evidence per se of crime but shall raise commensurate concerns and, in cases serious enough, an inquiry by various bodies such as the disciplinary body and the law enforcement agent into the reason for such failure.  The reason and the circumstances of the failure may become the subject-matter of a criminal charge.  If D1 is not in breach of Practice Direction P, he shall be acquitted of the criminal charge.  If D1 is in breach of Practice Direction P because of innocent error of judgment, negligence or inadvertence, he shall be acquitted of the criminal charge though remain subject to disciplinary charges.  If D1 is clearly and deliberately in breach of Practice Direction P when dealing with the HK$ 68,950,000, then I shall apply the legal principles pertaining to the offence of money laundering to consider the criminal charge against him. 

126. Mr. Bruce SC refers to the agnostic nature of a solicitor taking instructions from a client.  I think this submission is only relevant if the case as presented is that D1 failed to get any helpful answer or useful traits when making enquiries.  Instead the case here is that he did not make enquiries at all. 

M: What has been proved in the case against D1?

127. Mr. Bruce SC submits in substance that as the transfer between Goldmate and D2 through FKC was all documented in the respective names of Goldmate, FKC, and D2, real money launderers would not be so unwise to leave such detectable traits.  I think crimes are detected only because of detectable traits.  This court only sees criminals who have left some detectable traits to lead to their being arrested in the first place.  After all, money laundering is meant to transform or conceal the property so as to complicate detection.  Some steps are more effective than others but each step can contribute to the objective.  In the present case, HK$ 68,950,000 had been transformed through various bank accounts and account-holders into a solicitors’ firm’s client account.  A bank transfer made by a solicitors’ firm with a good reputation is an effective step to transform or conceal the property from a suspicious source.   

128. The prosecution contends that based on his knowledge of the close association between Jack Chen and May Wang in corporate matters, D1 should be imputed with the knowledge that the money was obtained from May Wang through Knight Coldicutt and that D2 had no legal entitlement to it.  I agree with Mr. Bruce SC’s submission that there is no evidence of D1’s knowledge beyond money being kept by Knight Coldicutt to the order of May Wang.  There is no evidence to identify the corpus of money held by Knight Coldicutt as necessarily the source of this money of HK$68,950,000.

129. D1 accepts that he was familiar with Practice Direction P.  Part A thereof requires a solicitor to:-

i. Obtain information on the nature and intended purpose of the transaction;

ii. …

iii. Obtain information on the source of funding; and

iv. …

130. Paragraph 21 thereof provides for the timing of the due diligence process as follows:

(21) The timing required for conducting client due diligence is similar to that required for client identification and verification (i.e. at the time of the instruction). However, in exceptional or urgent circumstances, where this is not practicable, it would be permissible to have the due diligence process completed as soon as practicable after accepting the instruction. Nevertheless, where the client is considered as high risk, the firm should carefully determine the risks involved in acting for such client before completing the due diligence process.

131. At any time before or after he dealt with the money, he had never attempted to obtain any “information on the nature and intended purpose of the transaction”, and “the source of funding”.  There was no apparent reason as to why he did not make such enquiries.  It was a deliberate choice not to make such enquiries.  It had nothing to do with error of judgment, negligence or inadvertence. 

132. Applying the test for mens rea in HKSAR v Pang Hung Fai [2013] 4 HKC 366, the prosecution has to prove as follows:

(1) What were the facts known to D1 that relate to the property the subject-matter of the charge? and

(2) Would D1 possessed of these facts, objectively consider them sufficient to lead a person to believe that the property constitutes proceeds of an indictable offence?

133. McWalters J explained the concept of “belief” in the second step as follows:

132. Concepts of suspicion, belief and knowledge are well known to the criminal law and phrases such as that which is found in section 25(1) [of the Organised and Serious Crimes Ordinance, Cap. 455] and other phrases involving knowledge or suspicion are commonly found in legislation dealing with the criminal law or the powers of law enforcement agencies. There is no reason, in my view, to give the word “belief” in the section 25(1) phrase any different meaning than is given to it in other legislation. This is especially so given the use of the concept of suspicion in section 25A. In determining what each of these words means the courts of Hong Kong have repeatedly had recourse to the statement by the High Court of Australia in George v Rockett (1990) 170 CLR 104. At pages 115 to 116 the following oft-recited passages can be found:

“Suspicion, as Lord Devlin said in Hussien v. Chong Fook Kam (63), “in its ordinary meaning is a state of conjecture or surmise where proof is lacking: ‘I suspect but I cannot prove.’” The fact which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for the suspicion must be shown …

The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind toward assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce the inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.”

133. These passages make it clear that belief is something more than suspicion and, implicit in what is said, something less than knowledge. It is not even proof on the balance of probabilities. It is certainly not of that level of certitude or conviction for which Ms Montgomery contends. She is saying, in effect, that the grounds are required to be so strong that they would satisfy the reasonable man that the property represented, beyond all reasonable doubt, the proceeds of an indictable offence. There is no warrant for reading such a high level of certitude into the word “belief” as it is used in section 25(1). An argument that a higher level of certitude should be imported into the phrase “having reasonable grounds to believe” was expressly rejected by this Court in HKSAR v Lung Ming Chu [2009] 3 HKC 137.

134. D1 knew of many relevant facts.  First, he knew the amount was unusually large in his professional practice.  Secondly, he knew Jack Chen’s instruction was unusual as the money was destined to go from a husband’s company’s bank account to the wife’s account the following day through FKC’s Client Account.  Thirdly, he knew Practice Direction P expected a solicitor in his situation of dealing with client’s or potential client’s money to make enquiries to obtain information on the nature and intended purpose of the transaction, and the source of funding. In my judgment, possessed of these facts, he would objectively consider them sufficient to lead a person to believe that the money constituted proceeds of an indictable offence. 

N: My findings in the case against D2

I: Implications of Items 1, 6, 8, 15 of the 17 Deposits

135. They were received allegedly for her Contract signed with Goldmate.  DW2 Wu Xiao-kang was contacted by D2’s father only 2 weeks before going into the witness box.  He speaks of an event of more than 4 years ago.  He claims to have a clear memory of it.  Tasked as an eye-witness for the signing, he cannot have failed to observe at the venue and then explain in court how Clause 6.6 came into being or why the date of signing was different from the date of the Contract printed on the cover page and the first page.  In light of the distinct reference above the space for signature to the date of the Contract provided at the beginning of the document[75] and the actual fact of having “8/1/2010” printed on both the cover page and the first page[76], he could not have missed the pre-printed dates of the Contract (both being “8/1/2010”).  I agree with the prosecution’s submission that the date of the signing was of vital importance as Clause 3.1 stipulated that the purchaser had to pay 50% of the sale price within 3 months, otherwise the Contract would not take effect.  I do not believe that Wu Xiao-kang was present when D2 signed the Contract. 

136. I do not believe D2’s testimony here, either.  The Contract she signed with Goldmate for HK$110,000,000 was a very substantial transaction to her.  Despite her intention to use the money to buy shops as investment and her knowledge that Jack Chen was to make a profit by reselling her interest in GFHL to UBTL, she did not seek any independent valuation so as to maximize her gain from the transaction.  It is incredible that she was not even curious of what Jack Chen might gain from it. 

137. The first payment, HK$68,950,000, was an off-beat 62.68% of the total price of HK$110,000,000 although the Contract only required 50%, ie HK$55,000,000, for the first installment.  Goldmate had no reason to make this voluntary pre-payment of HK$13,950,000, a very substantial amount, for no apparent purpose. The 3 subsequent payments were of odd quantum and timing.  She says she asked him no questions of such oddities.  For the outstanding balance of HK$9,280,017.91, she says she had asked him and he replied that he had no more money to pay her.  I think this is bizarre because at that juncture Jack Chen had already told her that the purchaser was May Wang and the money came from May Wang.  It is implausible that she had not asked him why May Wang had no money to pay her because Jack Chen had told her before they signed the Contract that UBTL had obtained from VSA-1 the cash to pay her.  I do not believe that the Contract was in existence when she received any of the 4 installments.   When she received them, she was aware that she had no legal entitlement to them.  

II: Implications of Items 2 – 4, 9 – 14 of the 17 Deposits

138. I find her testimony in explaining the presence of her future passport a pack of lies. There was no reason for Chen Zong-ji not to be able to explain it in court as it was his idea to get her to sign another document with the updated passport number so that it could be shown to his investors.  I find it incredible that she would ask Chen Zong-ji to open a bank account for her in China only with a faxed copy of her new passport.  I find it incredible that she would believe Chen Zong-ji when he told her that as there was a change in passport number, she would have to sign another Equity Transfer Agreement which still bore the previous date but with her updated passport number.  Besides, on all 3 separate occasions of cash receipts, the company name was wrongly written.  There was also no record of Chen Zong-ji putting Fulao in funds for the cash from the safe of the office to pay the installments to Weng Guang-jing to the order of D2.  He was the majority shareholder only by a slight margin and he could not have utilized the cash belonging to Fulao for his private purpose without any proper record on Fulao’s books or anywhere.  He could not have made Huang Wen-ping do the bank transfers without putting her in funds, either.  He cannot explain why installments were erratic in terms of their quantum and timing. 

139. I do not believe that the various documentary exhibits, which purportedly reflected the installments, came into existence in the circumstances as alleged in D2’s and Chen Zong-ji’s testimonies.  I do not believe D2 ever held any shares in Fulao, nor there was ever any agreement for the sale of her shares in Fulao to Chen Zong-ji.  I do not believe their testimonies generally.  I find it as a fact that when she received the monies, HK$ 21,630,587 in total, she knew she had no entitlement to receive them. 

III: Implications of Item 5 of the 17 Deposits

140. HK$ 50,000,000 was a very substantial amount to D2.  Her HSBC Account had only HK$ 9,509,398.94 after she lent Lisa Du the money.  I find it incredible that she would lend money without ascertaining the precise date of repayment, without considering the risk of non-repayment, without security, interest, or documentation. Her relationship with Lisa Du was apparently not so close as to admit of such a favourable loan of such a magnitude.     

IV: Implications of Item 7 of the 17 Deposits

141. The deposit of HK$24,221,420.00 comprised very substantial loans from her.  When making the loans, she did not bother to ask Wu Neng-kun and Miranda Ng to explain why they said 462’s money was locked in a solicitors’ firm and why they said 462 was unable to get loans from the bank.  These rejections ought to have warned her of possible defaults by 462 when it came to repay her in future.  She was all prepared to earn interest but only discovered too late that she could not charge any interest because of what they said to be a conflict of interests. It is implausible that she had not consulted anyone such as D1 beforehand or afterwards and but taken what they said as conclusive truth as she could not charge any interest for such unsecured and very substantial loans.  Her relationship with NRL was apparently not so close as to admit of such favourable loans of such a magnitude.     

V: Implications of Item 16 of the 17 Deposits

142. The bank record shows that her remittance was completed on 6/7/2011[77]. She remitted the money before Ye Mei and the owner had reached any agreement. I do not believe that it was a loan to Ye Mei to buy the property.  It must have been for other purpose which she does not want to disclose in her testimony.   

VI: Implications of Item 17 of the 17 Deposits

143. I find it incredible that she would lend HK$2,000,000 interest-free to Walter Shum, not a person familiar to her, without a written loan agreement or guarantee agreement by Lulu.  Walter Shum did not contact her for the loan directly but had to go through Lulu.  She did not ask Lulu of the purpose behind his having to borrow the money from her.  She did not specify when he had to repay her.  She must also have worried if Lulu could not repay as a guarantor.  Her relationship with Walter Shum was apparently not so close as to admit of such a favourable loan of such a magnitude.        

VII: Implications of D2’s dealing with Lin Ren Hui

144. I do not believe D2’s testimony that the HK$10,000,000 transferred by D2 to Lisa Du was for the purpose of investment organized by Lin Ren Hui.  Before she parted with the HK$10,000,000, she had only a very vague idea as to what she was investing in, let alone what risk was involved in such a substantial investment to her. She relied on the oral representation of Lisa Du, who claimed to know Lin Ren Hui very well.  She did not know much about Lin Ren Hui but she was willing to part with HK$10,000,000 without document.  In my judgment, the HK$10,000,000 transferred to her by Lin Ren Hui on 16/5/2011 had no connection with any alleged investment in the China Ping An Insurance fund.  Her testimony is a lie to justify the transfer of HK$10,000,000 out of her HSBC Account and the transfer of HK$10,000,000 into her HSBC Account over a period of 2 ½ months for a purpose she does not want to reveal in her testimony.  

VIII: Implications of D2’s dealings with DW4 Huang Qiang

145. In breach of his bail condition after arrest, Jack Chen failed to report to the ICAC on 17/10/2011 and ended up in a hospital in China.  The prosecution suggests that her testimony of the chain of events relating to her dealings with Huang Qiang and her remittance of the HK$ 30,000,000 to Huang Qiang on 17/10/2011 was to cover up the fact that the money was to go to China when Jack Chen was there on 17/10/2011.  I do not think Jack Chen had to be physically present to receive the money in China when she remitted the money to China. 

146. As regards D2’s own part in any possible scheme of money laundering, I find it incredible that she would invest RMB 26,000,000 in coal mine business, a field with which she was neither familiar nor make effort to become familiar.  D2 and Huang Qiang seek to explain why the documents bore many incorrect dates.  I think it is a simple exercise to date a document and their explanations are concocted. These documents related to very substantial investments but they were so casually worded.  She understood Huang Qiang was the middleperson but the investment agreements did not refer to any such capacity on his part.  The investment agreements were in substance giving Huang Qiang a free hand to use her money subject to a payment of guaranteed return of 10% from the coal mine or 20% from other unrelated investments and the return of the principal money after 3 years.  So it was possible that she could only get 10% by leaving RMB 26,000,000 in Huang Qiang’s hand for 3 years. 

147. I find it incredible that whilst she did not have much money to spare at the material time, she was willing to tie up RMB 26,000,000 for 3 years for a yield of only 10% per year with Huang Qiang[78]. It appears to have escaped her mind that it would be Huang Qiang’s responsibility alone to repay her the principal monies of her investment, RMB 26,000,000 in total, after 3 years.  Huang Qiang had to borrow RMB 3,000,000 from her in June 2010 and borrow another money of RMB 3,000,000 from her in October 2011.  She must have questioned herself as to Huang Qiang’s means to pay her the guaranteed return and the principals in due course.  The forecast could not be optimistic.  After all, if Huang Qiang had regarded the investments to be so profitable, there could have been no reason for him to borrow money for her to invest.  He could have borrowed money for himself to invest.  If she had really believed his claim that investment would be very profitable, there could have been no reason for her not to demand a guaranteed return much higher than 10%. 

148. Huang Qiang’s testimony is basically the same as her testimony.  I find both giving a pack of lies to conceal withdrawals for some purpose which they do not want to reveal in their testimonies.  

IX: Implications of D2’s dealings with DW3 Lin Bin

149. Despite D2’s insistence on the change in land use as a crucial term of the Contract, it was not written into the agreement.  Besides, the board of directors in Laojiu had not expressly authorized Lin Bin to sign the agreement .  He says D2 trusted him, so she wanted him, not Laojiu, to sign.  I do not see why there had to be a written contract signed by D2 and him if trust was what all that they looked to.  In signing the agreement, she had taken a nonchalant attitude in not checking in advance whether it was feasible to change the land use at all and, if feasible, what procedure and time would be involved.  She did not seek any independent valuation, either.  She could not have intended to have RMB 12,000,000 held up indefinitely at the oral promise of endeavours by Lin Bin or at the pleasure of the government officials in China.  At the time she testifies, the application for change in land use, hence her substantial money invested, had been held up for over 2 years and 10 months and there was no sign of progress.  Neither she nor Lin Bin knows what the precise problem for delay was.  It is incredible that she and Lin Bin had entered into such an agreement.  I do not believe the agreement to have existed at that time.  I find their testimonies all concocted. 

X: Implications of D2’s dealings with So Chau-hong

150. As Weng Guang-jing was responsible for handling her financial affairs in China and always had money in his bank account to her order, she can simply phone up Weng Guang-jing to contact the furniture shop to make payment.  She did not have to bother to instruct So Chau-hong.  She had had experiences for Jem Lei Dat Co remitting much larger monies for her in one cheque.  She could tell So Chau-hong that one cheque could do.  I do not believe that the 2 monies were for the purpose as testified by her.  She does not want to reveal the real purpose in court. 

XI: Transformation or concealment of property

151. Mr. Wong SC, counsel for D2, submits[79]  that there is no evidence that D2 had transformed the deposits into other types of property.  In her HSBC Account, the vast majority of the deposits were from known origins and only a small amount is in cash.  This is not a case of money laundering.  He cites the following passage from HKSAR v Yan Suiling (2012) 12 HKCFAR 146:

47. Money laundering usually involves a scheme whereby the proceeds of crime are “laundered” by transforming them into other types of property so that they are clothed with legitimacy and their origin is concealed. This did not seem to have happened in the present case. While this is not something which needs to be proved to substantiate the charge, it is a matter which applying common sense, one would bear in mind when considering all the circumstances of the case.

152. I consider this submission.  Money laundering has to involve people and documents.  No step is traceless.  The most that a successful money launderer can achieve is to obscure the trace as much as possible.  To name but a few methods that he can use conjunctively, he can change the form of the proceeds, re-organise the monies for deposit and withdrawal from bank accounts, transfer monies through different bank accounts held by different custodians in different countries, or procure reputable business or professional entities to issue cheques to represent the proceeds.  Item 1, HK$ 68,950,000, of the 17 Deposits, is a good illustration of some of these methods.  It was originated from the corpus of money, NZ$ 25,262,070.17, kept by UBTL obtained from Knight Coldicutt.  Out of that, UBTL remitted NZ$13,682,776.50 (equivalent to HK$ 73,736,482.56) to the First Account of Goldmate.  Goldmate transferred HK$ 73,700,000 from the First Account to the Second Account of Goldmate.  Goldmate transferred HK$ 69,000,000 from the Second Account back to the First Account.  Goldmate transferred HK$ 68,950,000 from the First Account to FKC’s Client Account.  FKC used its cheque to transfer HK$ 68,950,000 to D2.  These steps had made detection more difficult and time-consuming whereas the resultant cheque issued by FKC appeared above suspicion.  It is a prime example of money laundering among the 17 Deposits. 

153. Items 1, 6, 8, and 15, together with Items 2 – 4, and 9 – 14 (to which I shall refer as the “First Type of Deposits”), were deposits received by D2.  They were new monies received by her.  Items 5, 7, 16, and 17, were deposits each returned to her pursuant to her withdrawal of an identical or almost identical amount beforehand (to which I shall refer as the “Second Type of Deposits”).  They were not new monies received by her.  The position can be summarised by the following table, the First Type of Deposit in bold:

Item	HK$	Form	Source	Remark
1	68,950,000.00	Cheque	FKC	Change custodians and bank accounts, across national border, reputable bank transfer (First Type of Deposits)
2	250,000.00	Transfer	Chung Tung Co	Change custodians and across national border (First Type of Deposits)
3	500,000.00	Cash	Unnamed person	Change custodians and across national border (First Type of Deposits)
4	450,000.00	Cash	Chan Sik-ying	Change custodians and across national border (First Type of Deposits)
5	50,000,000.00	Cheque	SHKIS	Return of money to D2 (Second Type of Deposits)
6	1,000,000.00	Cheque	Goldmate	Different bank account held by different account-holder (First Type of Deposits)
7	24,221,420.00	Cheque	NRL	Return of money to D2 (Second Type of Deposits)
8	8,769,982.09	Cheque	Jack Chen	Change custodians and bank accounts (First Type of Deposits)
9	5,859,594.50	Remittance	Jem Lei Dat Co	Change custodians and across national border (First Type of Deposits)
10	5,849,992.50	Remittance	Jem Lei Dat Co	Change custodians and across national border (First Type of Deposits)
11	2,364,552.50	Remittance	Lo Mei Ko	Change custodians and across national border (First Type of Deposits)
12	1,653,120.50	Transfer	Wui Lee Exchange Co	Change custodians and across national border (First Type of Deposits)
13	1,599,992.50	Remittance	Wai Hing Money Exchange Limited	Change custodians and across national border (First Type of Deposits)
14	3,103,334.50	Remittance	Asia Aquatic Co	Change custodians and across national border (First Type of Deposits)
15	22,000,000.00	Cheque	Goldmate	Change custodians and bank accounts (First Type of Deposits)
16	9,999,792.50	Remittance	Ye Mei	Return of money to D2 (Second Type of Deposits)
17	1,000,000.00	Transfer	Walter Shum Wan-wah	Return of money to D2 (Second Type of Deposits)

154. The Second Type of Deposits was the money predominantly originated from Item 1 of the 17 Deposits.  Despite their being monies withdrawn by D2 and then returned to her, all subsequent dealings, with the new money received by D2 in the course of money laundering are still to be regarded as money laundering.   

XII: D2’s way of managing finance

155. D2’s deposits originated from 2 major sources, the Contract with Goldmate, and the Equity Transfer Agreement with Chen Zong-ji respectively.  These were very substantial transactions but she did not seek any independent valuation.  Besides, she only received HK$100,719,982.09 under the Contract.  Goldmate still owed her HK$9,280,017.91, which is about 8% of the purchase price, at the time she testifies.  She took no action to dun payment because Jack Chen told her he had no more money to pay her.  Goldmate, hence May Wang, would not get the full proprietary interest under the Contract despite having paid about 92% of the HK$100,719,982.09 of the purchase price of HK$ 110,000,000.  It means Jack Chen or May Wang’s investment in this matter had been thwarted by a mere 8% outstanding balance. 

156. She made significant withdrawals from her HSBC Account to make loans to various people or make investments.  She did not take up any security, charge any interest, or specify the date of repayment when making loans of significant magnitude.  The loans were made to NRL, Lisa Du and Walter Shum.  Their relationship with D2 was not so close.  There is no plausible reason why she had to give them such favourable terms of such a magnitude.  Further, at no time in her investment in the coal mine business with Huang Qiang or the Fuqing land with Lin Bin had she take any independent valuation of such investments.  

157. The irresistible inference for her to manage her finance in this manner is that the money coming into her HSBC Account between 12/3/2010 and 26/10/2011 was only held in her name for someone else and did not belong to her.  As she was only its custodian, she showed no interest in the circumstances behind its deposits or withdrawals.  There was no role for her to play in exploring the best deals in the alleged transactions with Goldmate or Chen Zong-ji, as the case may be. She was equally disinterested in the purpose for the withdrawals to NRL, Lisa Du, Walter Shum, Huang Qiang, and Lin Bin.  She was the puppet at the front stage.  The cloaked master was in control of how the monies moved.  The prosecution does not have to prove who this master was.  It suffices that she had allowed her master to use her HSBC Account to move monies whose sources and purposes were unknown to her. 

O: What the prosecution has proved in the case against D2?

158. Applying the test for mens rea in HKSAR v Pang Hung Fai [2013] 4 HKC 366, the prosecution has to prove as follows:

(1) What were the facts known to D2 that relate to the property the subject-matter of the charge? and

(2) Would D2, possessed of these facts, objectively consider them sufficient to lead a person to believe that the property constitutes proceeds of an indictable offence?

159. When she received the deposits in her HSBC Account between 12/3/2010 and 26/10/2011, she knew there were no contracts or agreements she ever made with anyone affording her any legal entitlement to the deposits.  She knew she was not the beneficial owner of the monies.  She knew she was the mere custodian of her HSBC Account. She was willing to, and did, carry out instructions from her master to receive deposits in her HSBC Account without enquiring of the nature and purpose of the deposits and the source of the funding.  She was willing to, and did, carry out instructions from her master to make withdrawals in her HSBC Account without enquiring of the purpose of the withdrawals.  She knew that the deposits allegedly received under the Contract with Goldmate and the Equity Transfer Agreement had provided the funding for her HSBC Account to make subsequent withdrawals to NRL, Lisa Du, and Walter Shum, in return of which her HSBC Account was to receive deposits which were in substance “re-deposits” of the original funding[80]. To sum it up, when she received the deposits or made the withdrawals, as the case may be, she knew of the suspicious circumstances of the nature and intended purpose of the transaction, and the source of the funding.  In my judgment, possessed of these facts, D2 would objectively consider them sufficient to lead a person to believe that the monies constituted proceeds of an indictable offence. 

P: Conclusion

160. On the aforesaid basis, the prosecution has proved all elements of each charge against D1 and D2 beyond reason doubt.  They are convicted of money laundering. 

Annex

List of witnesses

PW1 Rachel Fong Siu-lan

PW2 Joseph Tong Tang

PW3 Flora Tam Pui-shan

PW4 Wong Chun-ling

PW5 Choi Fo-yuen

DW1 Clifford Leung Siu-on

DW2 Wu Xiao-kang

DW3 Lin Bin

DW4 Huang Qiang

DW5 Chen Zong-ji

DCCC 1022/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO. 1022 OF 2012

INDEX OF HEADINGS TO REASONS FOR VERDICT

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