HKSAR v. LUNG HON LAM AND ANOTHER

DCCC 452/2023

[2024] HKDC 1816

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 452 OF 2023

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REASONS FOR VERDICT

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1.  Charge 1 is a “conspiracy” charge against D1 and D2, and they are jointly charged to deal with property known or reasonably believed to represent proceeds of an indictable offence. It was alleged that between the dates 1 November 2016 and 13 January 2017 HK$ 6,376,964.78 was dealt with by D1 and D2 in the Bank of China (Hong Kong)  Limited (“BO C”)  account no 012-887-0-018809-2 (“BOC account”)  of United Gold Trading Limited (“UGTL”).

2.  In addition to Charge 1, D2 also faces 2 charges, namely Charges 2 and 3.  Charge 2 is an alternative charge to Charge 1.

3.  For the aforesaid charges, it was alleged that between the dates 1 November 2016 and 13 January 2017 HK$6,376,964.78 was dealt with by D2 in the BOC account of UGTL (Charge 2), and that between the dates 29 December 2016 and 22 June 2017 HK$12,097,771.87 was dealt with by D2 in the Bank of East Asia Limited (“BEA”)  account no 015-256-68-009275 (“UG account”)  of D2’s sole-proprietorship company UG (“UG”)(Charge 3).

Prosecution case

4.  Prosecution produced two sets of Admitted Facts namely P23 and P27.

5.  In addition to that the Prosecution also called four witnesses in the trial.  The evidence of these witnesses were summarized by Mr Marray in his closing submission.

6.  During the trial, counsel for D1, Mr Chan did not challenge the evidence of these witnesses, and counsel for D2, Mr Khosa submitted that the Prosecution case was largely not disputed by the defence.

7.  The Prosecution case is that UGTL was set up on 6 June 2016 and D1 and D2 were the directors.  Its nature of business was toy trading.  UGTL had a bank account in BOC, namely the BOC account and D1 and D2 were the signatories of the BOC account.

8.  The Company Registry records reveal UGTL was a private company with address of 30^th Floor, One Pacific Centre, 414 Kwun Tong Road, Kwun Tong, and D1 and D2 consented to act as directors on 6 June 2016.  D1 ceased to be a director on 19 December 2016.

9.  UGTL issued 10,000 shares in the amount of HK$10,000, and as at 6 June 2016 D1 held 4,999 shares, whereas D2 held 5,000 shares and easyCorp Nominee Limited held 1 share.  As at 13 June 2017 D2 held 10,000 shares.

10.  D2 signed a special resolution that UGTL would become dormant from 12 July 2017. D2 applied to deregister UGTL on 30 July 2018.  The correspondence address was changed to Room 605-6, 6/F, Kowloon Centre, 29-39 Ashley Road, Tsimshatsui, Kowloon.

11.  Inland Revenue Department records of 2016/2017 showed that D2 reported that UGTL has not commenced any business and received no income or profit.

12.  BOC account was opened on 1 November 2016 and closed on 13 January 2017.  Between 1 November 2016 and 13 January 2017, BOC account received 101 deposits totaling HK$6,376,964.78 of which 99 deposits totaling HK$6,146,964.78 were transferred into the account in cash.  All cheques withdrawal were made by D2 who has also personally made cash withdrawals 4 times amounting to HK$560,000.

13.  The deposits were made in cash or through CHATS and withdrawals were made invariably the same day or shortly afterwards to multiple unknown parties. The amount of funds channeled through the bank account was substantial. BOC account was in operation for a relatively short period of time.

14.  D2 was the registered proprietor of UG that had been set up on 15 October 2016.  According to the Business Register, UG was doing trading business.  It had a bank account in BEA, namely the UG account, and D2 was the sole signatory of the UG account.

15.  The business address of UG was the same as UGTL and no Inland Revenue Department record of UG was found.

16.  The UG account was opened on 29 December 2016 by D2 and closed on 22 June 2017.  The UG account consisted of 5 sub-accounts, namely HKD current account, HKD savings account, CNY savings account, USD savings account and SGD savings account.

17.  Between 29 December 2016 and 22 June 2017, the UG HKD current account received 73 deposits totaling HK$6,677,071.08. Majority of deposits were made by bank transfer (ie 93%)  and 64% of the total withdrawals were made by cheque. A substantial sum was transferred from the UG HKD current account to the UG HKD savings account during the above period.

18.  Between 1 November 2016 and 22 June 2017, the UG HKD savings account received 180 deposits totaling HK$12,712,860.91, of which 54 deposits totaling HK$1,604,366 were transferred into the account in cash.  In turn, HK$12,712,860.84 was withdrawn from the account by way 157 transfers, of which 55 withdrawals were made in cash totaling HK$4,279,983.40.

19.  Between 1 November 2016 and 22 June 2017, the UG USD savings account received 36 deposits totaling US$503,773.46.  In turn, US$503,773.46 was withdrawn from the account by way of 36 transfers.  A substantial sum was transferred from the UG USD savings account to the UG HKD current account or the UG HKD savings account.

20.  Between 1 November 2016 and 22 June 2017, the UG SGD savings account received 6 deposits totaling SGD30,951.58.  In turn, the exact same sum was withdrawn from the account by way of 6 transfers.  Most of the sum was transferred to the UG HKD savings account.

21.  The transaction records show the UG account was used as a temporary repository of funds.  Money deposited into the account was invariably withdrawn within a short period of time, usually the same day or the next day.  The amount of funds channeled through the account was substantial.

22.  There were a large number of transactions carried out each day and the UG account was in operation for a relatively short period of time.

23.  D1 was arrested on 13 May 2020, video-recorded interview (“VRI”)  was conducted and the voluntariness of the VRI was admitted by D1 in the Admitted Facts.  D2 was arrested on 10 March 2021.

24.  According to the Inland Revenue Department record, D1 reported to be a bank salesman in 2016/2017 with monthly salary of HK$18,000, and D1 has not filed any tax returns in 2017/2018.  As to D2, D2 reported to be a marketing manager in 2016/2017 with a monthly salary of HK$15,000, and claimed to be unemployed in 2017-2018.

25.  Both D1-2 did not own any property and vehicles at the material time. Travel Movement record showed that D1-2 were present in Hong Kong for all the bank accounts opening.

26.  There was no half-time submission and it was ruled that D1 and D2 both had a case to answer to their respective charges.

Defence Case

27.  D1 elected not to give evidence nor call any witnesses.  D2 elected to give evidence and had no other witness.  Both D1 and D2 have a clear record.

D1’s case

28.  Voluntariness of the VRI was admitted by D1.  In the VRI of D1 taken between 1406 hours and 1456 hours on 13 May 2020, exhibit P10B (English translation of the transcript), D1 said he came to know D2 around May 2016, and it was about the same time he came to know Michael Lam.

29.  D1 said that when UGTL was set up, it was engaged in gold trading and earned money through price differences and commissions.  There were ten-odd young men and women and also a secretary working there.  Many of them were friends of Tai B.

30.  About the bank account of UGTL, D1 said that the secretary of the company helped him to handle the opening of the BOC account.

31.  D1 went down to a Bank of China branch in Kwun Tong.  He and D2 went in person together to the bank to open the said account because D2 was also a shareholder in UGTL.

32.  D1 said that the bank account they opened was a joint account.  Only he and D2 could use the account.  He admitted that his signature was on the account application form of the BOC account.

33.  D1 also said that D2 kept the cheque books and ATM cards.  But the company cheques were signed by both of them.

34.  About the operation of UGTL, D1 also said that phone calls were made by people working there and those phone calls were cold call but he had no idea about what the cold calls were.  He went to the office and looked around, sitting around and standing around.

35.  D1 also said that he did not know why the money was withdrawn shortly or withdrawn via fund transfer every time after a deposit was made.

36.  D1 said in UGTL, he was also a salesperson but he did not take part in the job and he did not exactly know how price differences and commissions work.

37.  D1 did not know the actual operation of UGTL.  Although he had a basic salary of HK$5,000 each month, he never got his salary as UGTL lost money every month.

38.  D1 withdrew his shares of UGTL because he was not making profit and losing money every month.  He said he withdrew his shares first and withdrew during the period between October and November 2016.  He also cut the company’s account in November but he never read monthly statements of the account with BOC.

D2’s case

39.  D2 said she is 53, born in Hong Kong.  She left school during Form 3 and she is not good at English.  She said after leaving school she had various employments including working in a packaging factory and as a waitress.  At one stage she opened a pet beauty shop which lasted for 2 years.  She also opened a vegetarian restaurant for about 10 years.  For the pet beauty shop she had one partner and for the vegetarian restaurant she had two partners.  She said that the paper works for the businesses were done by her partners.

40.  D2’s boyfriend was called Michael Lam Yin-kai, whom she got to know in 2012 and they cohabited together.  She said that she invested around $200,000 into UGTL.  She said Michael invested $400,000 and Leung Ka-hei (Tai B)  $600,000 so the total investment was $1.2 million.  She said the business of UGTL was investing in gold stock and actual gold.  She had no experience in this business.

41.  Michael said he would like her to open the company and she did so because she trusted him.  When the company opened up, she became the shareholder holding 5,000 shares.  The shareholding was 50% between her and Michael on the one side, and 50% from Tai B on the other side.  But Michael said for all the shares on their side, all the shares shall be held in her name so she could feel more secured.  She said she was not involved in the setting up of the company and the documents were prepared by the company secretary called Rebecca.  She was just asked to sign the forms.

42.  D2 said that she met Tai B once at the company’s opening ceremony before the opening of the company.  She could not recall the exact date but it was in June 2016.  She said that Michael introduced D1 to her at the opening ceremony. D1 was one of the directors representing the side of Tai B.  At the ceremony she also saw some friends and agents, and some computers, notebooks and telephones.  She stayed at the opening ceremony for about half an hour.

43.  The company’s secretary arranged for her to open an account at the BOC.  She went on 24 June 2016 to open the account.  D1 was also arranged to go to open the account.

44.  After UGTL commenced business, she did go up to the office but not frequently because at that time she had another job.  Sometimes Rebecca called her to go back to the office or some other staff called her for signing cheques and other documents.  She signed cash cheques.  She said Michael explained to her the operations of the company.

45.  D2 said initially there were 10 odd agents but that eventually increased to 50.

46.  D2 said not long after the BOC account started operating, she received a phone call from the bank saying “the in and out of our account are too huge” and asked for an explanation from them “where the money coming from and going to”.  A letter was sent from the bank saying their account would be closed.

47.  Michael and Tai B had a meeting trying to open an account at another bank and also “giving an explanation to them concerning our money”.  A few documents were given to her to explain the business to BOC in order to persuade the bank not to close the account.  She did go to BOC bringing with her exhibits D2-2 to D2-8 saying the monies were from legitimate business.

48.  Eventually the BOC account was closed by the bank on 13 January 2017.

49.  D2 said UG was incorporated on 15 October 2016, that was 3 months before the BOC account was closed.  She was the sole proprietor of UG.  UG was set up as a safety measure because they feared that BOC would close the BOC account of UGTL and if that account was closed they could not do business.

50.  D2 said by December 2016, UGTL started to suffer from losses.  She was told by the Bank that it would be more difficult to open an account for a limited company and easier to set up an account for a sole proprietorship.  Because the company was losing money, the side of Tai B was thinking of withdrawing and D1 resigned as a director of UGTL.  She said Rebecca or another company secretary prepared the document for D1 to resign.

51.  D2 said the UG account was opened on 29 December 2016 because BOC called them to say they intended to cancel the BOC account.  The company secretary told her to go to the Bank of East Asia branch in Kwun Tong and she signed the opening documents.

52.  D2 also went through the 7 sets of documents that were given to her.  She said she had no knowledge of how the trading was done but that was the records she was given.  These documents were explained to her by Michael and Rebecca.  When she went to see the BOC manager she explained the documents to the bank staff saying the company was doing legitimate business and asked the bank not to close the account.

53.  D2 said after the BOC account of UGTL was closed on 13 January 2017, the UG account was used.  She said after a period of time in 2017, UGTL was closed down because no bank account could be opened. They then continued to use UG for operation.  She said from the records, UGTL became dormant on 12 July 2017.

54.  D2 also said that the company secretary was responsible for filing the documents.  She said she lost her investment in UGTL of $200,000.  She blamed Michael for losing all the money and they broke up about a year after the closure of UGTL.  She said she did not do the internet banking of UGTL nor UG, that was done by the secretary.  She was not involved in the running of UGTL, that was done by Michael and Tai B.

55.  D2 said the tax return by UGTL stating “the company had not commenced any business” was not written by her and she had not seen it before although she was asked to sign the documents.  She could not remember when or how she signed, she was not told what the documents were about.  She produced some documents relating to the tenancy that she said she signed.

56.  Under Cross-examination, D2 said she was not sure whether she was a director of the company owning the pet beauty shop.  She and her female partner each held 50% shares.  She handed all the setting up matters to the partner and had no recollection.  For the restaurant, she was sure she was not a director nor a shareholder because her boyfriend was running the business with another male friend, and she invested some money.  Her share was equivalent to her boyfriend’s share.  She trusted her boyfriend concerning the operation of the restaurant.

57.  When asked whether she understands a person must present their tax form to the IRD to make the declaration that is truthful, D2 agreed.  However, she was not sure whether a company must tell the truth in filing their tax returns in a general sense.  

58.  D2 was asked about UG.  She admitted she had not filed any tax returns for UG which was “handed to the secretarial company to handle”.  In her personal tax returns of 2016 to 2017 signed by herself at C1-12, she ticked the box “NO” declaring that she had “no proprietorship business with or without business activities throughout the year”.  She said it was because the company had not yet commenced any business.

59.  D2 was also questioned on the bank accounts.  For the BOC account statements, she said she had no knowledge on the deposits and was not sure of the source.

60.  As to the withdrawals, she acknowledged she had withdrawn some cash for the payment of salary to the brokers.  She explained the company paid cash to attract these brokers, that “we would pay salary in cash immediately for handling fees and transaction fees”.  However, she did not have any records of these cash payments to the brokers because she would hand the money to Tai B going back to the company and was not responsible for it.  She was not sure why the company did not pay via internet transaction or cheque.  She met these brokers at the ceremony but did not speak to them.

61.  D2 said that D1 or herself either one of them received the password for internet banking after opening the BOC account.  The password was put in the company.  Both D1 and D2 knew the password and would be able to carry out the transactions in the account.  There were only one ATM card and two cheque books which were all kept in the company.

62.  For the UG account statements, D2 said she is not sure about the cash deposits.

63.  D2 said only she went to BOC to explain the accounts, Michael did not come along because only she was the director, and the bank would only listen to her.  When asked what would happen if the bank asked questions beyond the sets of documents she had brought ie showing the accounts and trading records, and where did the cash deposit came from, she said she would go back to the company and check.

64.  D2 said she went to the other banks on behalf of UGTL to open further accounts, she was told to wait by the bankers and was ultimately rejected after half a year via phone calls.  She did not produce any documentary evidence as she claimed the bank contacted her via phone calls.  When asked if there were any correspondences, she said “not with me”.

65.  Regarding the other people involved in the case, D2 said the second and the third time she met D1 was when she went to BOC for opening the account.  D2 sometimes saw D1 at the company when she went up to sign some documents.  She did not talk to D1 despite they were both directors of the company because she was not at the office so often.  She also did not speak to D1 because he was on Tai B’s side, for the company matters it was usually discussed between Michael and Tai B.  She did not see what D1 was doing as she left the company after signing the documents.

66.  For Michael, D2 last saw him in 2018 and has no idea where he is now.  D2 was asked the reason why Michael did not become a director or shareholder of the company.  D2 said Michael let her do it because she had invested money and that was why she became the director to show she took up in it.  Whereas on why Michael did not also become a director, D2 said it is a private matter between them.  D2 said had she not taken part in this matter, Michael would be the director.  She is not sure where Tai B is now and she made no attempt to contact either Michael or Tai B.

67.  On the 7 sets of documents she had produced, D2 was asked why she knew those are genuine records.  She said she believed so since it was retrieved from the company and the clients had already seen it.  She has no idea who was doing the trading since it was the operation of the company which was handled by Michael and Tai B.

The law

68.  The defendants face charges of money laundering or conspiracy to commit that offence.

69.  I bear in mind the burden is on the prosecution to prove their case beyond reasonable doubt.  Moreover, the case against each defendant is to be considered independently and separately.  In the case of D2 who is facing more than one charge, each of the charges is also to be considered independently and separately.

70.  On the other hand, the defendants are not required to prove anything.  D1 chose not to give or call any evidence.  That is his right and no adverse inference would be drawn because of the exercising of this right.  As regards the evidence of D2, when considering her credibility, the tribunal of fact should not only have regard to that which is true, but also to those facts in the defence evidence which might be true: Lee Fuk Hing v HKSAR (2004)  7 HKCFAR 600. 

71.  Insofar as the Prosecution relies on any inferences to support the charges, such inferences are not to be drawn against any of the defendants unless they are the only reasonable inferences available from the direct facts proved: Kwan Ping Bong & Another v R [1979] HKLR 1. 

72.  The VRI of D1 is “mixed statement” which contains both inculpatory and exculpatory parts: see HKSAR v Yuen Man Tung [2004] 3 HKC 274.  Both the inculpatory and exculpatory parts are evidence for the purpose of determining where the truth lies.  It is trite law, however, that the court, as the tribunal of fact, is entitled to attach different weights to different parts of a defendant’s out of court statements: see generally Criminal Evidence in Hong Kong, by Bruce & McCoy, at V[1203]-[1250].

73.  Furthermore, I remind myself that what one defendant said under caution is not evidence against the other and that the court would not compare out-of-court statements given by different defendants to determine if they are true: see Wong Wai Man & Ors v HKSAR (2000)  3 HKCFAR 322.  On the other hand, under the principle in R v Myers (Melanie) [1998] AC 124, the contents in defendant A’s cautioned statement which were favourable to defendant B could be used in support of defendant B’s defence: see HKSAR v Ho Ching Wah [2010] 2 HKLRD 580, at §§30-32.

74.  Both of the defendants have a clear record.  In the case of D1, even though he did not give evidence, he seeks to rely on what he said in the VRI under caution.  In the circumstances, I give myself the good character direction in favour of him in relation to both propensity and credibility.

Conspiracy

75.  Section 159A(1)  of the Crimes Ordinance[1] defines what a statutory conspiracy is.  It is the agreement to commit an offence and the intention to take part that form the offence of conspiracy: see R v Anderson[2].  A conspiratorial agreement can be expressed or implied or partly expressed and partly implied.  Proof of its existence is generally a matter of inference: see R v Brisac[3]; and Churchill v Walton[4].

Section 25 of OSCO

76.  Monies passing through a bank account are clearly property: see the definition of “property” in s 2, OSCO as read with the definition of “property” in s 3, the Interpretation and General Clauses Ordinance, Cap  1. 

77.  The actus reus of an offence under s 25, OSCO is “dealing” with property.  “Dealing” in relation to property is defined in s 2(1)  of the Ordinance and it includes (insofar as it is relevant to the present case):-

(a)  receiving or acquiring the property;

(b)  concealing or disguising the property (whether by concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it or otherwise); and

(c)  disposing of or converting the property.

78.  The mens rea of an offence under s 25 has two limbs: “knowing” or “having reasonable grounds to believe”.  The court has repeatedly pointed out that the prosecution do not have to prove, as an element of an offence under s 25, that the property concerned in fact represents the proceeds of an indictable offence.  The quality of the property being such proceeds is an element in the mens rea but not the actus reus: see HKSAR v Wong Ping Shui Adam and another[5]; Oei Hengky Wiryo v HKSAR [6]; and HKSAR v Yeung Ka Sing Carson[7].

79.  As to the test for determining whether an accused had “reasonable grounds to believe”, in Carson Yeung’s case the court confirmed their earlier decision in HKSAR v Pang Hung Fai[8] that the test is that propounded by the Appeal Committee in Seng Yuet Fong v HKSAR[9], namely that:-

“To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.”

80.  Moreover, in deciding whether a defendant had reasonable grounds to believe, the applicable standard is whether on the grounds available to him, the accused would have been led to have the requisite belief.  In determining this, the defendant’s beliefs, perceptions or prejudices are to be considered and given such weight as is warranted[10]. The conclusion which a court reaches on the issue of whether a defendant had the relevant reasonable grounds to believe depends on the state of the evidence[11].

81.  As regards the indictable offence on which the money laundering is predicated, in HKSAR v Yang Sigai[12] the Court of Final Appeal stressed that under the second limb, there is no requirement that it must be proved that accused was actually aware of the crime that produced the relevant property dealt with by the accused.  The court also rejected the submission that it must be shown at least the accused knew of the nature of the activity that has brought about the property dealt with.  Reference was made to the following paragraph from Carson Yeung’s case:-

“44. The current offence therefore focuses on the property – “any property” – and on the circumstances surrounding the defendant’s acts of dealing with that property. Obviously, if he can be proven to have known that the property represented someone’s proceeds of an indictable offence, the offence is established. But, if the defendant does not know for a fact that the property represented such proceeds (as is likely to be the case with professional money launderers who would make it their business not to know), it is sufficient for the prosecution to establish that, given the circumstances of which he was aware, surrounding his dealing with the relevant property, the defendant had reasonable grounds to believe that it represented the proceeds of someone’s indictable offence, whether committed in Hong Kong or abroad.”

82.  Lastly, although the Court of Appeal in HKSAR v Salim Majed[13] rejected the submission made on behalf of the respondent that the judgment of the Court in HKSAR v Wong Chor Wo & Another[14] was authority for the proposition that “the lending by an account holder of the use of his account to a third party constitutes, by itself, a dealing with property for the purposes of the offence of money laundering”, it went on to observe:[15]

“That a person lends the use of their account to another is clearly a very important primary fact from which inferences may be drawn, both as to the account holder’s joint participation with the third party in any subsequent criminal use of the account and as to his state of mind in respect of the transactions involved in that subsequent use. However, what inferences can be drawn, and what inferences should be drawn will always be a fact sensitive matter which will vary from case to case.”

83.  The above passage is followed in the judgment of the Court of Appeal in HKSAR v Jariabka Juraj[16] which was decided after the judgment of the Court of Final Appeal in Carson Yeung’s case.

84.  In the present case the prosecution relies upon the second limb of the definition.  The Prosecution asks the court to infer the existence of the proceeds of crime by way of inference.

85.  In HKSAR v Harjani Haresh Murlidhar [2019] 22 HKCFAR 446 stated the following steps :-

(i)  what facts or circumstances including those personal to the defendant were known to the defendant that may have affected his belief as to whether the property was the proceeds of crime (tainted);

(ii)  would any reasonable person who shared the defendant’s knowledge be bound to believe that the property was tainted.

86.  The court also added that the first issue that the judge must address is, what matters the defendant know of that might have affected his belief as to whether the property was clean or tainted.  Where the defendant gives evidence of facts and matters that affected his belief about the nature of the property the court has to decide whether he is or may be telling the truth about the existence of those matters.

87.  The second issue is whether any reasonable person who shared the defendant’s knowledge would have been bound to believe that the property was tainted.  Furthermore, where the defendant does not give or adduce evidence, the court has first to find what relevant facts or circumstances would have led any reasonable person to believe that the property in question was tainted.

88.  Where a conspiracy to commit the offence is charged.  The matters that need to be proved are:-

(1)  an agreement between two or more persons;

(2)  the future course of conduct agreed under that agreement to be pursued;

(3)  the intentions of the parties under the agreement; and

(4)  that if the agreement is carried out in accordance with the parties intentions this will necessarily amount to or involve the commission of an offence by one or more of the parties to the agreement or would do so but for the existence of facts which render the commission of the relevant offence impossible.

89.  Mr Chan for D1 submitted that for the element of the offence of conspiracy, in regard actus reus, the Prosecution has to prove that two or more person, including D1, by physical acts of words, gestures or conduct signified a concluded agreement for the commission of a crime. In regard mens rea, the Prosecution has to prove intention or knowledge that a fact or circumstances necessary for the commission of the substantive offence, that is an element of the actus reus of the substantive offence, will exist.

90.  For the element of the offence of money laundering, which is the underlying offence of the conspiracy charge, the Prosecution has to prove that the accused dealt in Hong Kong with any property, and that the accused knows or have reasonable grounds to believe that any property in whole or in part directly or indirectly represents any persons proceeds of an indictable offence.

91.  Mr Chan further submitted that putting the abovesaid into context, given the charge is conspiracy to deal with property known or reasonably believed to represent proceeds of an indictable offence, the Prosecution must prove the following:

(1)  there exists an agreement between D1 and D2;

(2)  the agreement is to deal with property;

(3)  D1 and D2 have the intention at the time of the forming of the agreement to carry out the agreement knowing or having reasonable grounds to believe that the money to be dealt with is tainted monies;

(4)  the course of conduct of D1 and D2’s agreement, if pursued, would necessarily involve the commission of the substantive offence.

92.  Mr Khosa for D2 submitted that the Prosecution had cited the case of Carson Yeung of its submission and cited the reformulated test.

93.  However, Mr Khosa stressed that all the other cases cited by the Prosecution and the case of Carson Yeung deal with cases where the defendant could not explain the source of the funds but believed that the funds were clean.  The 3-step test is then used to evaluate the explanation offered by the defendant using the “reasonable man” test.

94.  Mr Khosa emphasized that the present case is different from those cases. Those cases do not apply here because the source of the funds can be identified as clean.

Discussion

For D1

95.  The Prosecution submitted that in the VRI of D1, D1 was extremely vague about the business of UGTL and his role within the company.

96.  D1 claimed to be a sales person, though he had not taken part in the job, that he did not do anything.  Even though he was to get a basic salary of HK$5,000, he did not get it.

97.  From the BOC account there are so many unexplained transactions which must have raised alarm bells to an honest director, shareholder, or a signatory to the account.  On the other hand, if it appears to be the case, D1 allowed his bank account as a conduit of funds without ever looking at the bank statements or making any enquiries as to the account, the inference can be drawn.  This is because he knew or had reasonable ground to believe the account in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.

98.  The Prosecution also submitted that D1 was ignoring the large number of cash deposits between the 1 November 2016 to 19 December 2016, and the deposits from overseas but no withdrawals where the money goes overseas.  He was deliberately ignoring.  If these were gold trading, one would expect that the buyers of the gold would at least get some return.

99.  There is no reasonable reason for D1 to be the director and not Tai B.  If D1 only put up $120,000 his share is very small.  There is no logic for Tai B, the major contributor, not to be the shareholder and not to be the director and most importantly not to be the signatories to the accounts.  It is also not credible that D1 would be a co-director and co-signatories to the account with a person whom he hardly knew, namely D2.

100.  The Prosecution also submitted that after cash was deposited into the account the money was withdrawn almost immediately mainly to other BOC accounts.

101.  The Prosecution is of the view that the account was a temporary repository of funds and the account was only opened for a short period of time. If D1 deliberately shut himself off from his responsibilities as a director and signatory to the account, an inference could be drawn that he did so because he knew or had reasonable grounds to believe that the account was to be used in dealing with the proceeds of an indictable offence, and that the situation is similar to a person opening the account and lending it to somebody else.

102.  There is an irresistible inference that D1 conspired with Leung Ka-hei, Lam Yin-kai and D2 to deal with property, knowing or having reasonable grounds to believe that the said property, in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.

103.  Counsel for D1, Mr Chan attacked the Prosecution’s case on various aspects. Mr Chan submitted that throughout the trial up to its closing, the Prosecution failed to suggest when and where were the agreement entered into.

104.  Mr Chan stated that to prove the existence of the agreement the Prosecution must be able to point to the terms of the agreement with some degree of certainty as to its particulars.  However, the only matter that the Prosecution invited the court to draw inference against D1 on this matter is that he is one of the shareholders, directors and account signatories of UGTL.

105.  The Prosecution submitted that “so many unexplained transactions which must have raised alarm bells to an honest director, shareholder, or a signatory to the account”.  Mr Chan is of the view that the Prosecution did not adduce any direct evidence revealing any correspondences between D1 and D2 or plans devised by them.  Evidential documents which are usually relied upon in similar cases, such as minutes of meetings, emails, text messages, letters, and express agreements, are not present.

106.  Therefore, in order for the Prosecution to say that the directorship and shareholding in UGTL necessarily give basis for an irresistible inference, the Prosecution falsely assumed that being director and shareholder per se means that a person needs to know about everything happening in a company or every transaction of the company.

107.  Mr Chan submitted that in corporate world, whilst some director may assume an executive role, others may remain non-executively in the board.  Furthermore, the operation of a business is not necessarily conducted by director, instead in most case there would be employees doing so.  For the bank accounts, D1 is one of the signatories due to its directorship.

108.  Mr Chan also submitted that the evidence of the case suggested that the Prosecution’s presumption is false.  As part of the prosecution’s case, D1 had in the VRI stated to the effect that there were employees operating the business of the company.  There are secretaries handling matters for the company too, and these explains why D1 was in fact assuming a non-executive role in the company.

109.  Mr Chan also submitted that D2’s evidence is also in line with D1’s case.  In both the examination in chief and cross examination of D2, D2 stood firm to say that despite D1 and D2 were the account signatories, they do not have the access machine.  Instead, the company secretary would handle the accounts.  Mr Chan stated that this is reasonable, given that D1 is in non-executive role (and D2 seems to be so too), thus executive matters are being handled by the company staff.

110.  Mr Chan stated that another point on which the Prosecution wrongly suggested irresistible inference against D1’s “conspiracy” is that the Prosecution seems to stir up the case as if D1 held the account in his own name and lend it out.

111.  In this case, the BOC account is held in the name of UGTL, and D1 is merely one of the signatories.  It is submitted that, under the corporate separate legal entity, D1’s absence of knowledge as to the transactions of the account simply suggest nothing illegitimate or suspicious that would burden him with the “reasonable ground of belief”.

112.  Even if D1 and D2 were directors of the company, there is no evidence that they signed on the account opening form at the same time.  As such, the account opening form cannot be regarded as any evidence to show potential D1 and D2 “cooperation or communication”, let alone they conspired to use these two companies’ bank accounts to engage in the practice of money laundering.

113.  Mr Chan also stressed that D1 had withdrawn from UGTL even before any relevant transaction was allegedly dealt with.  As can be seen, in the Fund Flow Table attached to the Prosecution’s closing, UGTL’s account’s cash transaction commenced on 4/11/2016.  However, D1 in his VRI gave evidence that he withdrew his shares during the period between October to November 2016 due to the lack of profit.  D2 also confirmed the same and further stated that it was in about October 2016 that D1 requested to withdraw, the process of documentation was handled by the company secretary and thereafter in November D1 withdrew.  The fact that D1 did withdraw is also not disputed by the Prosecution.  

114.  By reasons of the aforesaid, Mr Chan submitted that there is no basis to find irresistible inference against D1 that when he became the director and shareholder and one of the signatories of the BOC account, he agreed to deal with properties.  There are equally no particulars of alleged “agreement” that warrant prosecution.  On this ground, the Prosecution has failed its burden of proof as to the actus reus of the conspiracy charge.

115.  While Mr Chan accepted that the proof of the substantive offence does not require the Prosecution to prove the money must be tainted monies, or that there exists any predicate offence, Mr Chan submitted that the lack of the same means that the Prosecution cannot prove that D1 knew per se that the property being dealt with is tainted monies.

116.  Therefore, Mr Chan submitted that the first limb of the substantive offence must fail, and the Prosecution can only prosecute on the basis of “reasonable ground to believe” in respect of the mental element.  The Prosecution had also confirmed during the trial that there is no predicate offence.

117.  Mr Chan stated that in relation to the reasonable belief, the Prosecution opened their case based on description of “mirror patterns” in the transactions in the two relevant bank accounts.  In its closing, however, the Prosecution had fairly withdrawn suggestion of comparison of UGTL and UG accounts.  This is most reasonable as D1 is only charged with the conspiracy offence concerning UGTL.  Whatever happened in UG is irrelevant to D1 and cannot and should not be used against D1.

118.  In suggesting grounds for inferring “reasonable ground to believe”, Mr Chan submitted that the Prosecution relies on the directorship, shareholding and the fact that D1 is one of the account signatories, and Mr Chan submitted that this seems to be the only basis that the Prosecution finds to be able to invite this court to draw any inference.

119.  Mr Chan argued that the adverse inference that the Prosecution invited the court to draw is not any irresistible inference.  This is particularly so when D1 clearly on the evidence was only wanting to “make profit from gold business”, and this intention is most manifested when D1 promptly withdrawn from the business when the profit was not coming.

120.  Mr Chan submitted that if there had been any agreement entered into, it was merely for joining UGTL for making profits in gold trading, and at the time for D1 to agree to join, there is no knowledge nor reasonable ground to believe that it is an agreement for money laundering.

121.  Mr Chan further submitted that there is no evidence from the Prosecution justifying any suggestion of “suspicious pattern” or that the transactions are by its nature reflecting “money laundering”.  This is all the more true when the Prosecution witness has also agreed that neither UGTL or UG were being used as front organization to conceal criminal activities, meaning that nothing in the Prosecution evidence can provide the court a convenient foundation to suspect or infer anything of criminality, let alone any criminal agreement involving D1 to do money laundering.  There is no expert evidence nor forensic accountant report showing that the transactions in this case per se give rise to “reasonable ground to believe”.

For D2

122.  For D2, the Prosecution submitted that the explanation given by D2 as to why she was one of the two directors and one of the two shareholders of UGTL is not credible.  She says it is to secure her interest, yet her interest would have been secured if she held a percentage of the shares in accordance with her contribution, $200,000 out of $1.2 million.  That would be 17%.  In this way she would be fully protected.  In the same way, she would be fully secured if Leung Ka-hei and Lam Yin-kai were also directors.  There is no limit to the number of directors.

123.  The Prosecution also submitted that as Lam and Leung were running the business and had secretaries to assist them, and as D2 was working in GET, there is no reason for D2 to be a signatory of an account which had multiple deposits and withdrawals on a daily basis.  This involved making frequent visits to the bank to withdraw cash.

124.  The Prosecution stressed that D2 was not a naive young person.  She is aged 53 and has been in the workforce since a very young age, and has experiences in partnerships in a pet shop and a restaurant.  She would have understood the responsibilities of being a director and the signatory to an account.

125.  The Prosecution is also of the view that the explanation given by D2 that the UG account of which she was the sole signatory should be used to continue the business of UGTL is not credible.

126.  The Prosecution submitted that UG was set up many months before the BOC account was closed.  As BOC had concerns about the account, and other banks would not open an account for UGTL as she said, an inference could be drawn when she set up the UG account she had reasonable reasons to believe the account was used to deal with the proceeds of an indictable offence. Furthermore it makes no sense when everything was just in her name and not including Leung or Lam.

127.  The Prosecution is of the view that there is no evidence at all to suggest the business of UGTL was going down or was even operating. UGTL has not prepared any accounts.  The lack of accounts contravenes both the Companies Ordinance (Cap 622)  and the Inland Revenue Ordinance (Cap 112).

128.  Section 394(1)  of the Companies Ordinance states that, “An auditor must be appointed for each financial year of a company.”

129.  For the Inland Revenue Ordinance, section 51C(1)  states that, “Subject to subsection (2), every person carrying on a trade, profession or business in Hong Kong shall keep sufficient records in the English or Chinese language of his income and expenditure to enable the assessable profits of such trade, profession or business to be readily ascertained and shall retain such records for a period of not less than 7 years after the completion of the transactions, acts or operations to which they relate.”

130.  The Prosecution stressed that it is common sense that a company will prepare and retain those accounts especially as they are dealing with clients’ money.

131.  The Prosecution stated that from the BOC account there were substantially more cash deposits ($3,388,821)  than transferred deposits ($2,758,143.78)  but there is no explanation for it, and that from the BOC account, although there are many transfer deposits overseas, there are no transfer withdrawals overseas.

132.  According to D2’s evidence, she had said that money went to the agents, but there is no evidence of any agents at all and of course there are no accounts.  If a company is making payments to agents, there surely would have been a record setting out who received what and why they were receiving.

133.  In the BOC account, there are withdrawals amounting to $560,000.  This is a large sum of money, one would expect a company to keep records of why they are withdrawing $560,000 in cash.

134.  From the UG account, there were cash withdrawals of $4,415,358.4 which cannot be explained.  Again there are no accounts to show why they were withdrawing such a large sum of money.

135.  One feature of the UG account is the way that money was transferred in the new account.  On 20 January 2017, there was a telegraphic transfer from “HUANG YU QUAN” of 36,991.61USD.  The same day that money was transferred to the savings account with reference no CIB165391, leaving no money in the USD account (A2-1 24).  That sum was deposited into the savings account in the amount of $286,684.98, which can be seen at A2-1 22 with the same reference no CIB165391.  As a result, there was $307,124.01 in the savings account.  But on the same day, 20 January, there was a transfer from the savings account in the sum of $229,348 with reference no CIB165641 (A2-1 22).  The money was then transferred into the current account.

136.  On 20 January 2017, there was a telegraphic transfer from “CHEN HUAN SHENG” in the amount of $99,935 into the savings account.  On 23 January 2017, there was a withdrawal from the savings account in the amount of $95,848 and that sum of $95,848 was deposited into the current account with reference no CIB205160.

137.  That sum of $325,196 was then transferred back to the savings account on 23 January, with reference no CIB215285 (A2-1 23).  On the same day, 23 January, the same sum of $325,196 was withdrawn in cash from the savings account, leaving $0.01 in the savings account (A2-1 23).  The money was moved around in a short period of time and eventually withdrawn in cash.

138.  The Prosecution suggested that it can be seen from the bank statements of both the BOC and UG accounts, the balance was always low.  The money deposited in these two accounts were quickly withdrawn.  It looks like the account was a temporary repository of funds.

139.  The Prosecution stated that UG did not file any tax return with IRD nor prepare any financial statement, and the Prosecution suggested that the reason is because the UG account was deliberately concealed from the IRD as D2 knew or had reasonable grounds to believe the money in the account, whether in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.

140.  The Prosecution also stated that D2 signed the tax returns for UGTL (C1 26-29)  in which it stated that the company had not yet commenced any business, and the Prosecution suggested that was because D2 knew or had reasonable grounds to believe the money in the account, whether in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.

141.  As to D2’s explanation that she was given D2-2 to D2-8 to bring to BOC to explain the business of the company so that the bank would not close the account, the Prosecution opined that it does not ring true.  If she said she was not involved in the business and the bank was concerned about money flows in and out of the account, one would expect the bank to be asking lots of questions.  There is no reason to send someone who did not know the business and not bring Michael or Tai B with her to explain.  Her explanation of going back to check with the staff would be even more damaging to the company.

142.  D2 said the bank told her that it would be easier to set up an account for a sole proprietorship than a limited company.  Surely if the bank finds the transactions suspicious, it would not matter whether it is a limited company or a sole proprietorship.

143.  The Prosecution also stated that D2’s explanation that she signed the tax return for UGTL without knowing the contents does not ring true.  The tax return is an important document.  She is a director of the company and shareholder.  Due to the importance of reporting to IRD, any reasonable person would make some enquiries about the tax form because at the end of the day it is her duty to provide truthful information to the IRD.  Section 51(5)  of the Inland Revenue Ordinance provides that:

“A return, statement, or form purporting to be furnished under this Ordinance by or on behalf of any person shall for all purposes be deemed to have been furnished by that person or by his authority, as the case may be, unless the contrary is proved, and any person signing any such return, statement, or form shall be deemed to be cognizant of all matters therein.”

144.  The Prosecution opined that exhibits D2-2 to D2-8 contain trading account applications from people outside Hong Kong including the application forms and proof of payment to UGTL through bank slips.  There is no evidence of what actually happened to the money.  One may think these documents would not be of much use to BOC in considering whether to close the accounts or not.

145.  There is one exception. For Ng Kee Way in exhibit D2-3, besides the application and record of remittance, there are also trading records. D2 said she knows nothing about the trades.  This could easily be made up by anyone especially when there are no accounting records or documents in support of the trading record.  There is no independent evidence to prove that the three $100,000 cash deposits on 15 November 2016 were from Ng Kee Way.

146.  In fact from the bank record of BOC (A1-1 34)  there were 3 cash deposits on 15 November at 1557, 1559 and 1616 hours which were made by TEL ID 226 for the first two and TEL ID 47750 for the last one.  After the third deposit, there were $303,714.12 in the account.  At 1624 hours there was a CBS transfer of $300,000 to another bank account.  Even if Ng Kee Way had made these deposits, there is no explanation as to what happened to the money.

147.  In giving her evidence, the Prosecution opined that D2 came across as an evasive witness.  When asked why she had ticked the box “NO” declaring that she has “no proprietorship business with or without business activities throughout the year”, she claimed it was because the business had not commenced.  Yet when asked to read out the declaration in Chinese, she took considerable time reading out a simple sentence, which one would think she would understand.

148.  Another instance would be when asked whether she understands the tax returns submitted to the IRD must be truthful.  At first when asked about personal tax returns, she acknowledged those must be truthful.  Yet when asked about businesses’ tax returns in general, she said she was not sure because she was not the one handling the documents.  One would not see any distinction between personal and businesses’ tax return in terms of the truthfulness required.  D2 did not give an answer to the general circumstance.

149.  The Prosecution submitted that looking at the deposits and withdrawals including the cash deposits and withdrawals in the BOC account and UG account, and the transfer in from overseas but not withdrawals to overseas, and where the money was transferred, any right thinking member of the community would have reasonable ground to believe that the property in the two bank accounts in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.  The only reasonable inference to be drawn is that D2 knew or had reasonable grounds to believe that the said property in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence.

150.  Counsel for D2, Mr Khosa in his written closing submission stated that the Prosecution has run this case in a similar way to the typical money laundering cases where the defendant (usually a person)  has (1)  lent his bank account to others and large amounts of money were deposited or withdrawn from the bank account, or (2)  used his own bank account where large amounts of money were deposited or withdrawn from the bank account.

151.  Mr Khosa opined that in these types of cases, the Prosecution usually relies on factors such as (1)  majority of the deposits and withdrawals were in cash, (2)  the source of the deposits could not be identified, (3)  the beneficiary of the withdrawals could not be identified, identical amounts of money were deposited and withdrawn, (5)  the defendant had no good reason to deal with such a large amount of money, etc.  The Prosecution usually exhibits Companies Registry or IRD documents to show that the defendant did not operate any business during the material period nor declare any large income in his personal tax return.  This is to show that the defendant could not legitimately have possessed those amounts of money.  Occasionally there is Treasury Accountant’s Report which analyses the fund flow and points out features which support money laundering activities.

152.  However, Mr Khosa is of the view that the present case is different from those cases, and submitted that in the present case we are not dealing with a personal bank account.  We are dealing with two company bank accounts which were used by UGTL to operate its gold trading business.  There is abundant evidence that almost all of the money that was deposited into the two bank accounts was from overseas persons who transferred the money into the two bank accounts via telegraphic transfer (“TT”)  through their respective banks which can be traced.  Therefore the typical way of analysing the money flow or circumstances of the defendant as mentioned in previous paragraph is unhelpful in the present case.

153.  Mr Khosa listed out the following topics for discussion.

Dealing with proceeds of an indictable offence

154.  Mr Khosa stated that for proceeds which can be readily be connected with a crime, there is no difficulty in concluding that the proceeds are of an indictable offence eg where the defendant was himself a drug trafficker.  That usually falls under the first limb of the offence ie “knowingly dealing”.

155.  But for proceeds which cannot be connected with a crime, the situation is more complicated e.g. cases where large amounts of money go through a bank account but the source of the money cannot be identified.  It is in these types of cases that the Prosecution relies on circumstantial evidence.  This is usually covered by the second limb of the offence ie “reasonably believing”.

156.  Mr Khosa accepted that the Prosecution does not have to prove the underlying offence.  However, Mr Khosa submitted that does not mean the burden shifts to the defendant simply because money had come in or out of the bank account.  The Prosecution still has the usual burden of proving the circumstances why the defendant either “knew” or had “reasonable grounds to believe”, and that it is not sufficient for the Prosecution to only make bald assertions that money was “tainted” or to conclude that the defendant “knew” or had “reasonable grounds to believe” (as is the case here)  without adducing any evidence (direct or circumstantial)  to prove the circumstances that support their assertion or rebut the defence case.

157.  Mr Khosa stressed that no matter which limb it is, the source of the funds is most important because that determines whether the money is legitimate or not, and if the source of the funds is legitimate, then it does not matter how the money is dealt with, the entire chain of the “dealing” from start to finish remains legitimate.  It does not matter that the deposits and withdrawals were transacted through cash, cheque or transfers.

Source of funds

158.  Mr Khosa submitted that if the money was “clean” when it came into the account, all subsequent acts of dealing are legal.

159.  The Prosecution in their closing submissions have spent a lot of time speculating about why there were no records of the gold business, money was moved around between the accounts, money was then withdrawn leaving a small balance, etc..

160.  Mr Khosa submitted that the Prosecution did not make any submission on why or how the money that came into the two bank accounts was illegitimate.  Mr Khosa opined that when there is clear evidence from their own documents (the bank statements of BOC and BEA)  that the bulk of the money was transferred into the two bank accounts properly through the banking system (via TTs)  from persons who held bank accounts with overseas banks, then the Prosecution has a burden to rebut that evidence otherwise the Prosecution fails.

161.  Since all of the money could be traced back to the owners, it is contrary to the objective of “money laundering” which is to hide the source of the money which is why in typical cases cash is used exclusively so that the source cannot be traced.

162.  The Prosecution has presented no evidence which proves that the money coming from these overseas people was “dirty money”.  From the monthly statements of BOC & BEA, from the evidence of D2 and the 7 sets of documents (exh D2-2 to D2-8), there is ample evidence that the bulk of the money was properly transferred (bank to bank)  into the two bank accounts legitimately from overseas persons.  And the Prosecution needs to produce cogent evidence to rebut this evidence, not speculations, not speculative queries as to why this was done or why that was not done.

163.  There are a number of these overseas transfers where the sender states in the bank transfer that the money is being transferred to UGTL and even gives the UGTL client trading account number UGK820165.  There are also instances where the sender transfers money several times over a period of time.

164.  Mr Khosa opined that the only reason a person sends money again and again is because the sender is satisfied that the money is being used for the purpose that he had sent the money, otherwise the sender will stop after the first remittance.  The large number of transfers over this period of time from overseas persons leads to the only irresistible inference that UGTL was conducting a legitimate trading business which was acceptable to those overseas clients.

165.  Apart from this inference, Mr Khosa submitted that there was evidence from D2 and the VRI of D1 where they both say UGTL had employed a number of agents who were conducting the business of gold trading at the rented Kwun Tong office.

166.  Once such evidence was presented by the defence, the burden shifted to the Prosecution to rebut it beyond reasonable doubt.  The Prosecution has failed to do so.

Gold trading business of UGTL

167.  Mr Khosa submitted that UGTL was a properly set up company which initially had the BOC account to operate its business.

168.  UGTL had properly rented an office in Kwun Tong to conduct its business and were paying rent every month until they were unable to pay the rent from March 2017 due to the losses in the business (exhibit D2-9, D2-10 & D2-11). On 6.4.2017 the landlord sent a legal letter to UGTL to demand payment of the outstanding rent and the deposit amount, totalling $603,267.

169.  If this was a sham business or a business to launder money, UGTL did not need to rent such an expensive office.  They could have simply operated the same business using a company secretary address and saved on the rent.

170.  The Prosecution says there is no evidence that UGTL ran any business and they rely on the IRD tax returns which did not report any profit/loss nor attach any audited accounts.  But these tax returns do not prove that no business was done by UGTL.

171.  Rental of the office for so many months, remittance documents saying money is for UGTL, receipt of money from overseas clients over so many months, 7 sets of clients’ documents, evidence from D2 and the VRI of D1 all prove that a business was carried on by UGTL at its Kwun Tong office.  Mr Khosa submitted that the Prosecution cannot make bald assertions that no business was conducted.

172.  Mr Khosa further submitted that the IRD tax returns are concerned with the reporting of a profit or loss, they do not prove whether a business was actually run or not. In any event whether the IRD thought there were any problems with the tax returns or not is not an issue in this trial.  Nor do we have any evidence whether the IRD considered that there was any problem with the tax returns of UGTL, UG or D2.

Setting up of UG

173.  UG was incorporated on 15 October 2016 as a sole proprietorship business, and UGTL was incorporated on 6 June 2016 and it had applied to open BOC account on 24 June 2016 to operate its business.  If things were running smoothly, there was no reason to incorporate UG.

174.  D2 gave evidence that after some months BOC orally informed them that the BOC account might be closed.  Michael and Tai B had a meeting and decided to open a second bank account in case BOC really closed their bank account.  This is exactly what any other businessman would have done.  A business cannot be operated without a bank account, especially when you are receiving overseas investments. D2 gave evidence that they did try to open other bank accounts for UGTL but the banks refused.  D2 said it was difficult for new limited companies to open bank accounts and easier for sole proprietorship companies.

175.  D2 gave evidence that after the other banks refused to open an account for UGTL, they decided to open a bank account using a new company.  They decided to use a sole proprietorship because it was easier to open a bank account.  There is no evidence to contradict the evidence of D2.  Furthermore they had previously incorporated UGTL which is a limited company, there was no reason why they could not have incorporated another limited company.  There had to be a reason why they did not set up a limited company and instead set up a sole proprietorship company.

176.  Mr Khosa submitted that it is riskier for D2 to be the sole owner of UG because D2 would have been personally liable for all liabilities of UG.  But D2 agreed to become the sole owner of UG despite these risks, which shows she had no doubt that the business of UGTL was legitimate.

177.  There is better protection for members of a limited company because they are not personally liable.  So if, as asserted by the Prosecution, D2 and her partners were running a non-existent or sham business, they would have incorporated a limited company to better shield themselves from any liability.  D2 would not have been so stupid to have made herself personally liable.

178.  Mr Khosa stated that although UG was incorporated on 15 October 2016, the UG account was not applied for until 29 December 2016.  This shows that UG was not set up to be used to operate any business as said by D2.  This also shows that D2 and her partners were not in any hurry to use UG or the UG account, but they were adopting a wait and see attitude about whether BOC will close their account.  This accords with D2’s evidence that UG was set up only as an alternative plan.  If BOC did not close the account, they would have continued with it.  There is nothing improper in setting up UG or the UG account.  Any reasonable businessman would have done the same to save his business.

Did UG conduct any business

179.  Mr Khosa stated that D2 was asked in cross examination why UG did not file any tax return and D2 replied it was because UG did not do any business.  Mr Khosa did not agree with the Prosecution that just because money came in and out of the UG account means it had conducted business.

180.  D2 had explained that the business was operated by UGTL but the UG account was used temporarily by UGTL to operate its business until UGTL was able to open its own bank account, and D2 tried to open bank accounts for UGTL with other banks but were unsuccessful.

181.  The fact that UGTL was paying the rent till March 2017 and the fact that the rent demand letter was addressed to UGTL on 6 April 2017 (exhibit D2-11)  proves the business was still run by UGTL and not UG.

182.  On 8 March 2017 M/s Joseph C T Lee & Co Solicitors issued an invoice to UGTL for preparing a lease from 1 March 2017 to 29 February 2020 and charged $15,680 for their professional fees.  UGTL paid this fee using BEA cheque no 000062 of UG (exhibit D2-10).  By this time the BOC account was closed.  This proves D2 was telling the truth when she said the only reason for setting up UG was to allow UGTL to use the UG account temporarily.  The cheque of UG was used to pay for UGTL’s expense.

183.  It can be seen from this lease agreement that UGTL intended to continue business until 29 February 2020.  If the intention was to run the business through UG, they could have openly done it but they did not.  The new lease would be signed in the name of UG but it was not.  But they continued the business under UGTL which proves D2 was telling the truth when she said no business was done by UG.

184.  A resolution was passed by UGTL on 12.7.2017 to dissolve UGTL.  D2 said the business of UGTL was closed in June 2017 and we can see from the BEA bank statements that the last transaction was on 22.6.2017.  All the evidence points to UGTL continuing the business using the UG account after its BOC account was closed.  Allowing a company’s bank account to be used for money transfers or receipts does not mean the company is conducting the business.  The Prosecution has not provided any evidence to show that business was conducted by UG.

185.  Mr Khosa submitted that there is no regulation or law prohibiting a company to use the bank account of another company.  UGTL used the UG account because it had difficulty with its own bank account, there can be no complaint about such a use.  D2 was the signatory of BOC account and she again was the signatory of the UG account.  If there was any sinister intent, UG would have been registered in some other person’s name.

Transactions in the two bank accounts

186.  The Prosecution has prepared two fund flow charts which show the deposits and withdrawals in the BOC account and the UG account.

BOC Account

187.  The entries of the BOC account are from 1 November 2016 to 13 January 2017 (the account was closed on 13 January 2017).  The entries contain:

(a)  payments to the landlord Chiefest Investment Ltd (s/nos 1, 25, 187)

(b)  deposits from overseas persons by TT (s/nos 3, 6, 17, 33, 35, 47, 48, 49, 59, 69, 70, 91, 92, 93, 95, 96, 101, 103, 109, 114, 115, 117, 118, 123, 129, 138, 144, 146, 148, 156, 157, 170, 177, 180, 189, 191, 206, 209, 212 & 214)

b1)  from the above TT transfer deposits, there are multiple deposits from the following persons/entities:

- Chee Guan Hua (s/nos 3 & 47)

- Patrick Tam Chee Tat (s/nos 6 & 33)

- Ng Kee Way (s/nos 17 & 48)

- Tan Chong Yaw (s/nos 69, 92, 101, 109 & 180)

- Voo Cheung Vueng (s/nos 93 & 114)

- P2H (s/nos 115 & 209)

- Singapore LC Link Marketing (s/nos 118 & 177)

- Kho Zhan Wei (s/nos 129 & 157)

- Tan Song Keong (s/nos 144, 189 & 191)

(c)  cash withdrawals by D2 (s/nos 133, 147, 163 & 179)

(d)  only a small percentage of cash withdrawals (8.77%)

(e)  payment to China Light & Power for electricity (s/no 105, 188)

(f)  payments to identifiable individuals (s/nos 1, 10, 25, 134, 187, 198 & 200)

(g)  there were numerous transfer withdrawals to identifiable bank accounts in HK.

188.  From the fund flow charts, it can readily be seen that this was a very normal bank account which contained different modes of deposits and withdrawals, unlike dubious accounts in other cases which only have cash deposits and mirrored cash withdrawals.  There are cash deposits and withdrawals, transfer deposits from overseas, transfer withdrawals to local bank accounts and cheque payments.  The deposits and withdrawals on the majority of occasions did not match.  There were payments to the landlord and payments for electricity bills.  All these support the activities of a normal business operation.

189.  In typical cases of money laundering the participants hide their involvement, the source and destination of the funds so that the participants cannot be traced.  If the participants are doing something illegal, they obviously do not want to be traced.

190.  Mr Khosa submitted that in the present case the majority of the deposits and withdrawals can be traced.  UGTL, UG and the two bank accounts were in the names of D1 and D2 or D2.  In 4 transactions, D2 herself withdrew the cash.  D2 had no fear of being traced.  All these patterns are contrary to how money laundering cases are operated.  The above patterns support a legitimate business operation.

UG Account

191.  The entries of the UG account in the fund flow chart are from 29 December 2016 to 22 June 2017 (the account was closed on 22 June 2017).  The UG account consisted of a HK$ savings account, HK$ current account, CNY savings account, US$ savings account and Singapore$ savings account.

192.  The UG savings account was opened on 29 December 2016 but the first transaction did not take place until 18 January 2017.  The transaction was a transfer deposit of HK$14,935 from a Pang Yee Ching into the savings account.  The second transaction was done on the same day, $11,948 was transferred from the savings account to the current account.

193.  The HK$ current account was opened on 29 December 2016 but the first transaction was done on 18 January 2017 like the savings account, a transfer deposit of $11,948 from the savings account.  This was the second transaction in the UG account.

194.  The CNY account was opened on 29 December 2016 but the first transaction was done on 7 February 2017.  The account consisted only of one overseas transfers deposit from Chung Jih Yen.

195.  The US$ account was opened on 29 December 2016 but the first transaction was done on 18 January 2017.

196.  The Singapore$ account was opened on 29 December 2016 but the first transaction was done on 1 March 2017.

197.  Mr Khosa submitted that the sequence of how UG was incorporated in October but not activated and the UG account was applied for in December but not activated until after the BOC account was closed in January, all these support D2’s evidence that UG and the UG account were their plan B in case the BOC account was closed by BOC.

198.  Mr Khosa also submitted that the type of transactions in the UG account are similar to the BOC account ie varied and diverse.  Like the BOC account, the deposits were mainly from the overseas persons who were identified.  This also appears to be a normal business account.

Analysis of the two accounts

199.  The fund flow charts is not helpful in the present case because in the present case there is a diverse and varied pattern of deposit and withdrawals.  The figures do not provide any pattern consistent with money laundering.  Such information is essentially circumstantial evidence that may allow inferences depending on the evidence of the particular case.  The patterns must be consistent and continuous in order to allow the inference.  Examples where the patterns can be useful are where the cash deposited is immediately withdrawn in cash and the amounts are mirrored.  This is to ensure the entire proceeds that came into the account are withdrawn from the account as soon as possible before the bank account is frozen.  Only cash is used so that the identity of the participants cannot be identified nor can the source/destination be traced.  And the account holder’s financial circumstances often do not commensurate with the amount of money that has passed through the account.  The account holder usually has no connection with the money.

200.  In the present case the two account signatories of the bank accounts were investors in the respective company.  They had a legitimate reason to be associated with the respective bank account.  And the bulk of the money that came into the two accounts can be accounted for and the people who remitted the money were identified and could have been interviewed by the authorities.

201.  Therefore Mr Khosa submitted that in the present case there is no evidence to allow any adverse inference to be drawn.  The money came into the two accounts from overseas through proper banking channels.  Whilst there were cash deposits and withdrawals, there were also transfers to other accounts which could be traced.  Payments were made by cheques to persons or entities which again could be traced.  The two accounts were operated openly and with transparency because there was no need to hide where the money came from and no need to hide where the money went.  There was no need to hide anything because a legitimate business was being run.  The Prosecution has provided no evidence to the contrary.

202.  Mr Khosa stressed that in this case the source of the funds can be identified as clean.  UGTL was properly set up to do gold trading business, UGTL used legitimate banks accounts for its business, the money that came into the bank account was legitimate money transferred legitimately into the two bank accounts used by UGTL.

203.  D2 had given evidence that she “knew” (not “believed”)  that the money that came into the two accounts was money invested by UGTL’s clients in gold trading.  D2 provided 7 sets of documents (exhibit D2-2 to D2-8)  of 7 clients.  The 7 sets of documents contain government identity documents and bank cards of these 7 clients, it is impossible for someone to get these personal and confidential documents unless the person himself has provided them.  They include UGTL gold trading account opening documents and UGTL receipts issued for money received from the 7 clients.  The money received from the 7 clients as shown from the UGTL official receipts in the 7 sets of documents can be cross-referenced to the entries in the BOC account.

204.  In the case of one client, Ng Kee Way (exhibit D2-3), there are several pages of a trading record.  In the 7 sets of documents there are UGTL client account numbers (eg UGK820007)  assigned to each individual investor and these numbers can be seen quoted in the documents themselves as well as the remittance bank documents.  These remittance bank documents are independent documents from the banks and cannot be forged, they are most reliable.

205.  Mr Khosa stated in his submission some examples of the UGTL client account number or the company name “United Gold Limited” quoted in the BEA remittance advices, namely :

Date	Sender	Amount	Remittance Purpose
24.1.2017	Lin Yong Sin	US$30,000.00	UGK820165
26.1.2017	Lin Yong Sin	US$20,000.00	UGK820165
3.2.2017	Lin Yong Sin	US$40,000.00	UGK820165
22.2.2017	Lin Yong Sin	US$50,000.00	UGK820165
27.2.2017	Lin Yong Sin	US$7,000.00	UGK820165
27.2.2017	Lin Yong Sin	US$23,000.00	UGK820165
6.3.2017	Kat Zhi Hao	US$7,990.00	UGK820268 New Account
7.3.2017	Amit Saxena	US$14,977.50	Investing with United Gold Limited
8.3.2017	Lin Yong Sin	US$20,000.00	UGK820287
9.3.2017	Lin Yong Sin	US$30,000.00	UGK820165
22.3.2017	Amit Saxena	US$14,997.50	United Gold Limited
16.3.2017	Sung Pei Yi	US$65,609.62	Account Number is UGK820197

206.  Mr Khosa stated that these 12 remittance advices were attached to the BEA bank statements following the affirmation of Kwan Yuen Kwan.  They were not included in the trial bundle but can be found in the paginated Prosecution bundle pages 114 to 125.

207.  Mr Khosa submitted that all of the above prove UGTL was operating a legitimate business and all the funds were also legitimate in the two bank accounts.

208.  Mr Khosa opined that D2 was telling the truth when she said UG did not conduct any business.  The bank account was only temporarily used by UGTL until it could open its own bank account.  In the above two entries dated 7.3.2017 and 22.3.2017 relating to Amit Saxena, it is clearly stated that the purpose of the remittance was “United Gold Limited”.  For the other remittances, the purpose is stated to be a “UGK” number.  From the 7 sets of documents (exhibit D2-2 to D2-8)  it can be seen that the “UGK” number is the prefix of the UGTL client account numbers assigned to each client.  This clearly shows that after the BOC account was closed, the business was still operated by UGTL and not UG.

Lack of expert evidence

209.  Mr Khosa submitted that in cases where the fund flow presents patterns that can be associated with money laundering activities, the prosecution usually calls an expert (eg the treasury accountant)  to give evidence on the patterns.  In the present case there is no expert evidence.  Therefore any attempt to identify any pattern, analyse such pattern or to make any conclusion regarding the pattern will be mere speculation.

Prosecution submissions

210.  Mr Khosa also submitted that the Prosecution has confirmed that they do not have evidence of any predicate offence.  The prosecution did not adduce any evidence that proved UGTL’s business was illegitimate nor any evidence to rebut D2’s positive case that the source of the money that was remitted to the two bank accounts was legitimate.

Evidence of D2

211.  Mr Khosa submitted that D2’s evidence should be accepted by the court.  D2 gave evidence and explained how she invested $200,000 into the setting up of UGTL.  The idea to set up UGTL came from her co-habitee boyfriend Michael and his friend Tai B.  The total investment was $1.2M of which D2 and Michael will hold 50%.  Michael was an experienced investor and D2 trusted him.  In order to give more security to D2, Michael told D2 that she could be the shareholder, director and the bank account signatory.  D2 was then employed by GET as a marketing manager therefore she was like a silent investor.

212.  D2 did visit the office of UGTL on the day of the opening and on days that she was asked by the secretary, Rebecca, to go back and sign documents or cheques.  D2 met D1 and Tai B on the day of the opening and was introduced that they were the other investors in UGTL.  D2 had no knowledge about gold trading but Michael explained it to her from time to time.  Michael had also accompanied her once to tour the office and briefly explained the workings of the business to her.  She saw stock trading type of information on the screens of the agents but she did not understand the information.  There were 10 odd agents working at the office when it started but the number of agents grew to 40-50 after few months.

213.  The increased expenses led to UGTL making losses and eventually D1 and Tai B withdrew from UGTL in December 2016, leaving D2 and Michael to run it.  At one point Michael asked D2 whether she had more money to invest in UGTL and D2 told him she did not.

214.  Some months after UGTL started business, BOC informed them that they were considering closing the bank account.  Michael and Tai B decided they needed a plan B in case BOC did close the bank account.  It was then decided by them to set up a sole proprietorship company as it was easier to open a bank account for sole proprietorship companies compared with limited companies.  UG was thus set up on 15 October 2016 but no bank account was set up for UG at that time because the BOC account was still working.  It was only in December that BOC confirmed that they will close the bank account.

215.  A few days before 13 January 2017 (BOC account was closed on this day)  D2 went to the office of UGTL and had a meeting with Michael and Rebecca.  They gave her the 7 sets of documents (exhibit D2-2 to D2-8)  which related to the gold trading business of UGTL with 7 clients.  Michael and Rebecca explained the 7 sets of documents to D2 and told her to take these documents to BOC and try to persuade them that UGTL was doing legitimate business and that BOC should not close the BOC account.  BOC was not persuaded and the account was eventually closed.

216.  The UG account was applied for on 29 December 2016 but it was not operated until 18 January 2017.  By this time the BOC account was already closed on 13 January 2017.  UG account was used by UGTL to continue its business until UGTL was able to open a bank account.  In the end UGTL was unable to open its own bank account.  By April 2017 the business of UBTL was still loss making and it could not even pay the office rent.  UGTL received an overdue rent demand letter from the landlord’s solicitors on 6 April 2017.

217.  UGTL’s losses continued and the company was shut down in June 2017.  The UG bank account was closed on 22 June 2017.  It was resolved on 12 July 2017 to dissolve UGTL.

7 Sets of UGTL Client Documents

218.  D2 had taken the 7 sets of documents (exhibits D2-2 to D2-8)  to BOC to persuade them not to close the BOC account.  After going to BOC, D2 went home with the documents.  These 7 sets of documents were prepared by Michael or Rebecca.  They are the originals that D2 had taken to BOC.  They are in colour, there is no reason to suspect their authenticity.  These 7 sets are reliable customer information which was kept by UGTL.

219.  Mr Khosa submitted that the money that came into the two accounts of UGTL were mainly from overseas bank accounts which was legitimate money.  These 7 sets of documents show that the UGTL client accounts were properly documented when they were set up for trading.  Proper receipts were issued after the money was received.  These 7 sets of documents illustrate that UGTL did have proper documents kept at the time it was still trading.  The business was shut down in June 2017 and D2 told us that it was Michael who was responsible for the shutting down process and documentation.

220.  D2 was arrested on 10 March 2021 in connection with this case.  That was 4 years after UGTL’s business was shut down.  Mr Khosa stressed that we are concerned with the money that came into the two bank accounts within the charge period, and not what happened after UGTL was closed which is outside the charge period.

VRI of D1

221.  D1 was arrested on 13 May 2020 and was interviewed under caution.  Mr Khosa submitted that D1’s version corroborates D2’s evidence in that UGTL did operate a gold trading business from the Kwun Tong office.  D1 had gone with D2 to open the BOC bank account.  UGTL had hired ten odd staff who made calls. D1 said UGTL made money through the price difference and commissions which means the investors’ money that came in was invested and treated as UGTL’s profit.  UGTL only made a percentage of the traded amounts and some commission.

Resignation of D1 from UGTL

222.  D1’s withdrawal from UGTL in December 2016 proves there was nothing illegitimate about UGTL’s business.  D1 said he resigned because UGTL was losing money.  Only a legitimate business would lose money.  D2 also gave evidence that UGTL was losing money.  In the end when UGTL was shut down, D2 had lost all the $200,000 that she had invested.  If UGTL was laundering money, it will not lose money.

223.  D2 faces 3 charges of dealing with proceeds of an indictable offence involving two bank accounts.

224.  Mr Khosa submitted that D2 has put forward a positive case that UGTL had operated a gold trading business during the charged period and had received the money into its two bank accounts from legitimate sources for the gold trading business.  D2 gave evidence that she knew the money was legitimate and the business of UGTL was also legitimate.  The Prosecution has adduced no evidence to rebut the defence case.

225.  Mr Khosa submitted that all the answers given by D2 made sense as did the entire version of events, from the time she decided to invest in UGTL until it was shut down in June 2017, therefore the Prosecution has failed to prove the 3 charges against D2 and she should be acquitted of all 3 charges.

Assessment – D1’s account

226.  According to the VRI of D1 and the submission made by Mr Chan, the essence of D1’s case is that UGTL was running a legitimate gold trading business, and if there had been any agreement entered into between D1, D2 and others, it was merely for joining UGTL for making profits in gold trade.

227.  D1, apart from being a shareholder of UGTL, he was also one of the directors of UGTL and signatories of the BOC account.  As submitted by Mr Chan, D1 was assuming a non-executive role in UGTL, and executive matters are being handled by the company staff.

228.  In D1’s VRI, he stated that he withdrew his shares during the period between October to November 2016 due to the lack of profits, and Mr Chan submitted that D1’s version was in line with the evidence given by D2, as D2 also confirmed that it was in about October 2016 that D1 requested to withdraw and thereafter in November D1 withdrew from UGTL.

229.  In gist, the Prosecution in his closing submission stated that in D1’s VRI, D1 was extremely vague about the business of UGTL and his role within the company. D1 claimed to be a salesperson and had a basic monthly salary of $5,000.

230.  My view is that the version given by D1 in his VRI is not credible.  D1 claimed that he was a salesperson in UGTL, and he asserted that UGTL was running a gold trading business by earning money through price difference and commissions (see counters 445-448).

231.  However, D1 did not exactly know how the price difference and commissions work (see counters 450-462).  If D1 was a salesperson and an investor who had invested his money into UGTL, he should know how the price difference and commissions work.  He would definitely know how the business operated.  He should be interested in knowing the contents of the cold calls made by the staffs of the company.  However, though he knew the staff made cold calls, he had no idea about what the contents of the cold calls were (see counters 147-154).

232.  D1 asserted that he had invested money in UGTL and UGTL lost money every month, he therefore never got his $5,000 salary.  This means that not only he lost his investment, he also lost his salary.  He also asserted that he needed to share the loss suffered by UGTL and contribute money according to his share (see counters 210, 217-218, 395-400, 490).

233.  If D1 was a real investor, he would also be eager to read the statements of the BOC account if the business was as simple as he described to earn money through price difference and commissions.  He would definitely want to find out what had happened to the business of UGTL especially he claimed that UGTL lost money every month.

234.  D1 asserted that he did ask Tai B the reason why UGTL suffered loss, and Tai B told him that UGTL had to pay the rent, the utilities expenses and salaries but UGTL had no business transaction (see counters 465-474).  As to why UGTL had no business transaction, he had no idea (see counters 473-474).

235.  My view is that D1 had never invested money in UGTL, otherwise he would not state in his VRI that he had never read the monthly statements of the BOC account (see counters 265- 68).  These assertions are against the normal behaviors of a real investor when he encountered a loss in his business.

236.  I find that D1 is a sham director and shareholder because his assertion that he had invested in UGTL is not credible, and I do not accept that he withdrew his shares in UGTL because he was not making profits and was losing money every month.

237.  In D1’s VRI, he asserted that he withdrew his shares during the period between October and November 2016.  According to the Form ND2A, D1 resigned as a director of UGTL on 19 December 2016 (exhibit P15).  On 13 June 2017, D2 signed Form NARI stating she held all 10,000 shares of UGTL (exhibit P17).

238.  On paper, D1 was a director of UGTL from 6 June 2016 to 19 December 2016, and as a shareholder of UGTL since 6 June 2016 (exhibit P13 and admitted facts).

239.  D1 asserted in his VRI that he wanted to close the BOC account in November 2016.  However, the last transaction in the BOC account was on 13 January 2017.  I find that D1’s assertion of withdrawal of share, termination of the BOC account and transfer of money is not credible.

240.  D1 suggested that the final transaction of the BOC account was made by him in November 2016 and he went to the Mongkok branch of BOC to terminate the BOC account (see counters 276-304).

241.  D1’s version was that not only the bank staff told him that the BOC account was terminated but also D1 had instructed the bank staff to transfer the remaining money in the BOC account to Tai B upon the termination of the BOC account.

242.  Mr Chan submitted that D1 could by mistake provide an incorrect month when he gave his answer in the VRI.  Mr Chan in his oral submission submitted that more importantly, D1 did deliberately go to BOC to close the BOC account.

243.  I do not accept that D1 could by mistake provide an incorrect month in the VRI when he gave his answer.  D1 asserted that he withdrew his shares during the period between October and November 2016.  He could not have mixed up this period and sequence with the other incident which took place in January 2017.

244.  D1 was being asked in the VRI and he answered that in November 2016, he did not want to have any relationship with the BOC account (see counter 281).

245.  If UGTL was doing business and losing money which triggered D1’s withdrawal of his shares in UGTL as asserted by D1, and that he did not want to have any relationship with the BOC account, he would have withdrawn shares and terminate BOC account at around the same time period and he would not wait until 13 January 2017 to terminate the BOC account.

246.  I do not accept D1’s version that he invested in UGTL and withdrew shares because UGTL lost money.  I also do not accept that his role is a non-executive director in UGTL as suggested by Mr Chan.

247.  I find that D1 had never gone to BOC to terminate the BOC account in November 2016 as asserted by him.

Assessment – D2’s account

248.  In gist, D2’s case as to the joint charge she faces with D1 and others, and the other 2 charges she faces alone is that she was at the material time conducting legitimate business in gold trade with D1 and others and the monies entering and leaving the accounts were entirely legitimate.  She had no reason to believe that the persons depositing monies into the BOC account and UG account had conducted any criminal activities.

249.  Mr Khosa submitted that not only the source of funds, namely money coming into the BOC account and the UG account are clean money, D2 also put forward a positive case that UGTL operated a gold trading business during the charged period and money going into the BOC and the UG account were from legitimate sources for the gold trading business, and that the Prosecution adduced no evidence to rebut the defence case.

250.  Mr Khosa stressed that D2 took the 7 sets of UGTL client documents (Exhibit D2-2 to D2-8)  to BOC to persuade BOC not to close the BOC account, and that there was no reason to suspect their authenticity.

251.  Mr Khosa submitted that these 7 sets of documents were reliable customer information which was kept by UGTL, and that these 7 sets of documents illustrated that UGTL did have proper documents kept at the time when UGTL was still trading.

252.  The Prosecution submitted that the explanation given by D2 as to why she was one of the two directors and two shareholders of UGTL is not credible, and that the explanation given by D2 as to why UG account of which she was the sole signatory should be used to continue the business of UGTL is also not credible.

253.  The Prosecution is also of the view that there is no evidence at all to suggest that UGTL had any actual business operation, and there is no evidence of any operating loss.  Also, D2’s explanation regarding her bringing exhibits D2-2 to D2-8 to BOC in order to explain the business of UGTL to avoid the BOC account being closed down is equally not credible.

254.  The Prosecution commented that exhibits D2-2 to D2-8 appeared to contain trading account applications from people outside of Hong Kong, which included application forms and proof of payment to UGTL through bank slips.  For exhibit D2-3, there also appeared to be trading record of Ng Kee Way.

255.  The Prosecution submitted that there are no audit trail for what actually happened to the money after going into the BOC account.  The “trading record” of the account of Ng Kee Way lacked supporting details such as accounting records and fund flow records which made the authenticity of the trading records questionable.

256.  I agree with the observation made by the Prosecution.  The key issue is not merely the money coming in.  The key issue is the money going out and whether the fund flows are compatible with an actual business operation.

257.  My view is that D2’s case is founded on her version that UGTL was doing legitimate gold trading business and that she was a real investor in UGTL.

258.  The foundation of D2’s knowledge on the business of UGTL was based on her investment and involvement in UGTL.  She was one of the shareholders and directors of UGTL on paper.

259.  Her evidence was that she had invested around $200,000, and the business of UGTL was investing in gold stock and actual gold.  She had no experience in this business and had no knowledge about gold trading but Michael explained it to her from time to time.  She trusted Michael because of her relationship with Michael.

260.  D2 said that there were 10 odd agents working at the office when the company started but the number of agents grew to 40-50 after a few months.

261.  D2 said that she had withdrawn some cash from the BOC account for the payment of salary to the agents.  She also said that UGTL paid the agents immediately in cash for their handling fees and transaction fees.  However, she did not have any records of these cash payments to the agents.

262.  Some months after UGTL started business, BOC informed UGTL that they were considering closing the BOC account.  It was only in December that BOC confirmed that they were going to close the BOC account.

263.  D2 also alleged that the accumulated expenses led to UGTL making losses and eventually D1 and Tai B withdrew from UGTL in December 2016, leaving D2 and Michael to run the business of UGTL.  Mr Khosa submitted that D1’s version corroborated with D2’s evidence.

264.  A few days before 13 January 2017, D2 went to the office of UGTL and had a meeting with Michael and Rebecca.  They gave D2 the 7 sets of documents (Exhibit D2-2 to D2-8)  which were related to the gold trading business of UGTL with 7 clients.  Michael and Rebecca explained the 7 sets of documents to D2 and told D2 to take these documents to BOC and try to persuade BOC not to close the BOC account.

265.  D2 said that she went alone to BOC to explain the documents, and Michael did not come along because Michael said that only she was the director, and the bank would only listen to her.  When asked what would happen if the bank asked questions beyond the 7 sets of documents she had brought, she said she would go back to the company and check.

266.  For the BOC account statements, D2 said that she had no knowledge of the deposits and was not sure of the source.

267.  About the 7 sets of documents she had produced, D2 was asked how she knew those are genuine records.  She said that she believed so since it was retrieved from the company and the clients should have reviewed the documents.  She had no idea of who was doing the trading since it was the operation of the company which was handled by Michael and Tai B.

268.  The explanation given by D2 as to why she was one of the two directors and one of the two shareholders of UGTL was that it was to secure her interest. D2, according to the Form NNC1 dated 6 June 2016 exhibit P13, was a founder member of UGTL holding 5,000 of the 10,000 shares, namely 50% of the total shares issued.

269.  I agree with the observation made by the Prosecution that D2’s interest would have been secured even if she held a percentage of the shares in accordance with her contribution, $200,000 out of $1.2 million, namely 17% of the total shares issued.  There is no reason why Michael did not hold certain percentage of shares and be one of the directors, and let D2 who had no knowledge and experience in the trade to be the director.

270.  According to D2’s version, some months after UGTL started business, BOC informed them that BOC was considering closing the BOC account.  D2 said she received a phone call from BOC saying “the in and out of your account are too large” and asked for an explanation as to “where the money coming from and going to”.  A letter was sent from BOC saying the BOC account was going to be closed.

271.  From what D2 had said, she was aware that BOC wanted to know the source of the deposits and also the purpose of the transfer from the account, and that the BOC account was going to be closed by BOC.

272.  According to D2’s evidence, she is aged 53 and had been in the workforce after leaving school, and had experiences in partnerships in a pet shop and restaurant.  She had working experience and running business experience with others.

273.  For the operation of UGTL, D2 said that she saw stock trading type of information on the screens of the agents in the office of UGTL but she did not understand the information.  Since she gave evidence that UGTL was investing in gold stock and actual gold, I am of the view that she should appreciate that relating to the business of UGTL, there should be client funding movements, and there should be actual market side buying and selling transactions on gold and gold stocks.

274.  D2 also gave evidence that BOC asked for an explanation from them regarding “where the money coming from and going to”.  With this understanding, when Michael and Rebecca prepared and explained the 7 sets of documents to her, she should realize that these documents could not meet the requirement of BOC and satisfied BOC’s query.

275.  Because the 7 sets of documents lacked supporting details such as accounting records and fund flow records, it makes the authenticity of the trading records questionable.

276.  Mr Khosa submitted that the 7 sets of documents showed that UGTL client accounts were properly documented and proper receipts were issued after the money was received.

277.  D2 was aware that if BOC did not get a satisfactory answer from UGTL, BOC would close the BOC account and BOC was concerned about both the money flows in and out of the BOC account.

278.  My view is that D2 should know that the 7 sets of documents showed no details regarding the purpose of withdrawal nor the transfer of money from the BOC account.  For Ng Kee Way exhibit D2-3, there appeared to have included trading record, but there was no supporting details such as accounting records or actual market trading documents in support of the trading record.

279.  I agree with the observation made by the Prosecution that even Ng Kee Way had made deposits, there is no explanation as to what happened to the subsequent transfer of the deposits.

280.  If D2 was prepared to bring these documents to persuade BOC as alleged by her, she should also be prepared to explain the trading record of Ng Kee Way.  She should also bring along documents to support the transfer out of the deposits regarding exhibit D2-3 so as to persuade BOC that UGTL was doing gold trading business for Ng Kee Way and be able to show the full picture of the business of UGTL.

281.  Nevertheless, D2 said she knew nothing about the trades.  She had no knowledge of how the trading was done.  For the BOC account statements, she said she had no knowledge on the deposits and was not sure of the source.

282.  D2 did not demonstrate to me that she had any interest in understanding the business of UGTL which she claimed to be a real investor.  Even when she claimed that the business was losing money, it is reasonable to expect a real investor who had invested her own money to show effort to understand money flows and transaction details of the company.  However, D2 did not demonstrate any of such effort and interest.

283.  D2 was aware that BOC was concerned about the money flows in and out of the BOC account and she also knew that she would not be able to explain the money flows and trading record.  If she was a real investor of the business, she would not agree with Michael to go to persuade BOC alone.  Because it was a task that she was not capable to handle.

284.  I found D2’s explanation that Michael told her to go alone because only BOC would listen to her as she was the director is not credible.

285.  My view is that her behaviour was not compatible with a real investor.  In fact, the way D2 acted was like a figurehead or puppet with no concerns to the business of the company and her own investment.

286.  D2 gave evidence that they did try to open other bank accounts for UGTL but the banks refused. D2 said it was difficult for new limited companies to open bank accounts and it was easier for sole proprietorship companies to open bank accounts.  Therefore, they decided to use a sole proprietorship to open a bank account.

287.  Mr Khosa submitted that it was riskier for D2 to be the sole owner of UG because D2 would be personally liable for all liabilities of UG.  According to Mr Khosa, this act showed that D2 had no doubt that the business of UGTL was legitimate.

288.  Mr Khosa also submitted that UG was incorporated on 15 October 2016, but UG account was not applied for until 29 December 2016.  This showed that UG was not set up to be used to operate the business, and that D2 and her partners were not in any hurry to use UG or UG account.  They were adopting a wait and see attitude about whether BOC was going to close the BOC account.  This accorded with D2’s evidence that UG was set up only as a contingency plan.

289.  D2 also explained that UG did not file any tax return as UG did not conduct any business (the business was operated by UGTL).  The UG account was used temporarily by UGTL to operate its business until UGTL was able to open its own bank account.

290.  The evidence shows that UGTL as a newly formed limited company had no difficulties in setting up a bank account with BOC.  The BOC account was set up and it was closed not because UGTL was newly formed.

291.  BOC was concerned about the fund flows in and out of UGTL, and this caused the closure of the BOC account and D2 knew this reason.

292.  My view is that D2 should know that other bank may also adopt the same practice if the bank account appeared to have unexplained huge fund flows in and out.  Instead of making efforts to show the fund flows and give full picture to BOC, she chose to open a bank account for UG before the meeting with Michael and Rebecca regarding her story of the 7 sets of documents.

293.  By using UG and the UG account, she should know that she could not resolve the issue of unexplained huge fund flows in and out of the bank account used, be it a bank account of UGTL or UG.

294.  UG was registered by D2 as a sole proprietorship on 15 October 2016.  The application to open the bank account of UG was made on 29 December 2016 (exhibit P2), which was before D2 had a meeting with Michael and Rebecca for her to understand the 7 sets of documents.

295.  My view is that D2 and Michael expected that the UG account could be used until BEA queried the in and out of the money in the UG account, and that D2 and Michael never intended to give explanation to BOC.

296.  By using a different company and bank account to continue the activities of UGTL, they used a short cut method to get round the immediate problem of explaining the source of funds and fund flows of UGTL to BOC.  That was why the 7 sets of documents lacked the information BOC needed.

297.  I did not believe that D2 had ever brought along the 7 sets of documents to BOC for explanation, and I find that the alleged gold trading business is a sham business, and D2 and Michael would not be able to provide documents in support of the alleged business to BOC, that was why they used the UG account.

298.  The way D2 handled the query made by BOC and her subsequent act of using the UG account as an instrument for UGTL does not change my view that D2’s behaviour was incompatible with a real investor and that the way D2 acted was like a figurehead with no concerns to the company and her own investment.

299.  I also find that exhibits D2-9, D2-10 and D2-11, namely Transfer of Tenancy Right Agreement, Bill dated 8 March 2017 and letter dated 6 April 2017 by itself are not indicator of running a business.  Therefore, these documents by itself would not contradict my finding that the alleged gold trading business alleged by D1 and D2 is a sham business because these documents showed neither here nor there.

300.  I find that both D1 and D2 are sham directors and shareholders of UGTL, and that both of their assertions that they had invested money in the alleged gold trading business are not real.

301.  I find that all the prosecution witnesses are honest and reliable, and I reject the explanation given by D1 in his VRI and the version and explanation given by D2 in court.

Consideration - Charges 1-2

302.  Both Mr Chan and Mr Khosa accepted that the law in Hong Kong does not require it to be proved under the reasonable ground limb of section 25(1)  of OSCO that the relevant property dealt with was tainted.

303.  The Court of Final Appeal in HKSAR v Li Kwok Cheung George (2014)  17 HKCFAR 319 held:-

“32. A relationship of "reward" linking the payment and the commission of the offence must therefore exist before the payment qualifies as “proceeds of an indictable offence” under section 2(6)(a). For a payment to have this character, it has, for instance, to be a recompense or return or remuneration or incentive for or in connection with doing or having done something. In the context of section 2(6)(a), that “something” is the commission of the predicate offence. It follows that the payment must derive from or be generated by, or be received on account of, commission of the offence.

33. ... “Clean money” which is not paid or received in the nature of a reward in connection with commission of the predicate offence does not qualify as the proceeds of such an offence for the purposes of section 25(1).”

304.  Applying the above legal principles, the money in and out of the BOC account related to a sham business of UGTL will qualify as proceeds of an indictable offence after the money deposited into the BOC account.  Likewise the same concept also apply to the UG account.

305.  I find that during the charge period there was an agreement between D1 and D2 together with others for UGTL and the BOC account to be used for receiving and transferring money for UGTL.

306.  For D1, I attached no weight to the exculpatory part of the VRI. I gave full weight to his admission in the VRI.  D1 admitted that he and D2 opened the BOC account for UGTL.  He admitted that he had transferred the money in the BOC account to Tai B (counters 300 and 302).

307.  His admission (from counters 327-366 in the VRI), and in view of all the relevant evidence available relating to D1, based on HKSAR v Wong Chor Wo & Anor, I draw the inference, which I find to be the only reasonable inference, that D1 conspired with Leung Ka-hei, Lam Yin-Kai and D2 having reasonable grounds to believe that the BOC account would be used for the purpose of receiving, concealing or disguising the proceeds of an indictable offence and that those grounds are reasonable.  That is, that anyone looking at those grounds objectively would so believe.  With that state of mind, he agreed with D2 and others to let the BOC account be used for such purpose.

308.  I also gave full weight to D2’s admission in court that she had dealt with money in the BOC account and let others to deal with the BOC account.

309.  I find that given the large sums involved together with the lack of a legitimate explanation, and in view of all the relevant evidence available relating to D2, based on HKSAR v Wong Chor Wo & Anor, I draw the inference, which I find to be the only reasonable inference, that D2 conspired together with D1 and persons known as Leung Ka-hei and Lam Yin-kai to deal with the money in the BOC account having reasonable grounds for believing that the BOC account would be used for the purpose of receiving, concealing or disguising the proceeds of an indictable offence and that those grounds are reasonable.  That is, that anyone looking at those grounds objectively would so believe.  With that state of mind, she agreed with D1 and others to deal with and let the BOC account be used for such purpose.

310.  For the above reasons, I rule that the prosecution had proved beyond reasonable doubt and D1 and D2 are guilty of the offence charged, namely Charge 1.

Consideration – Charge 3

311.  Taking into account of all the relevant evidence available relating to D2, I find that when D2 was dealing with the money in the UG account, in effect she was letting UGTL or others to use her to control the UG account.  This is no different to lending an account to others.

312.  In view of all the relevant evidence available relating to D2 and based on HKSAR v Wong Chor Wo & Anor, I draw the inference, which I find to be the only reasonable inference, that D2 during the charge period dealt with property ie money in the UG account having reasonable grounds for believing that the UG account would be used for the purpose of receiving, concealing or disguising the proceeds of an indictable offence and that those grounds are reasonable.  That is, that anyone looking at those grounds objectively would so believe.  With that state of mind, she dealt with and let others to deal with the money in the UG account during the charge period for such purpose.

313.  Therefore, I find that the prosecution has proven its case against D2 on Charge 3 beyond reasonable doubt. D2 is guilty of charge 3.