Article

Note: When a communally respected Husband and Wife (Beneficiary No.1) experienced serious financial difficulties due to economic downturn they devised a scheme by which they could obtain needed funds. Several companies in their control, including a travel service, were used for the scheme. They convinced the eighty year old General Manager(Applicant) of Nan Lung Travel & Express (Hong Kong) Limited (Beneficiary No.2), a company controlled by Taiwanese investors, to assist them in obtaining funds, promising that Beneficiary No.2would earn commissions or handling fees from the transactions.

Applicant approached several banks, including the Bank of Communications Hong Kong Branch, the Bank of China (Hong Kong) Branch, the National Commercial Bank Limited, Hong Kong Branch to apply for eight LCs with a total value of HK$44,000,000 in which Beneficiaries were Hong Kong Textile Exchange Limited and Sunpride International Limited, both owned by BeneficiaryNo.1. A ninth LC was applied for by Hong Kong Textile Exchange Limited and it was issued in favor of Beneficiary No.2 to return some of the proceeds in order to meet bank obligations.

Beneficiary No.2's primary function was acting as the Hong Kong ticketing office for Southern China Airlines with annual ticket sales of over HK$200,000,000, they had no history of dealing with textiles or other goods. In applying for the eight LCs, Applicant told the banks that "Beneficiary No.2 wished to branch out into the fashion business. Beneficiary No.2 required LC facilities to purchase goods for sale in the Mainland in the fashion sector." Bank records indicated that the bankers were informed that most of the funds would be used to obtain supplies for Southern Airlines and for associated companies in an effort by Beneficiary No.2to broaden its status as a supplier.

At no time were Banks/Issuers informed that there were no goods and that the purpose of the transactions was to effect a loan to Beneficiaries. The appellate court stated that "[t]he bankers said that if they had known that there were no underlying commercial transactions without any goods ever involved, no facility would have been granted. This absence of goods (even though the documents would speak of their existence) was the crux of the deceit."

Applicant and his Deputy Manager signed cargo receipts while the Beneficiary No.1 prepared and signed invoices and other documents that were presented under the LCs. They also received and used proceeds of the LCs.

The Deputy Manager testified that he had "signed the two written agreements and the LC documents because he was told by [Applicant] to do so.[Applicant] had also told him that the whole thing had been approved by the Chairman of the Board, Mr. Wong, who represented the Taiwan interest in Beneficiary No.2."

All four were charged with conspiracy to commit common law fraud. A jury found the Applicant and the Beneficiary No.1 guilty and acquitted the Deputy Manager. The trial court, Pang, J., sentenced the three defendants to terms of four years (Applicant) and four and a half years (Beneficiary No.1).

The High Court of the Hong Kong SAR Court of Appeal, Ma, CJHC, Stuart-Moore, VP, and Woo, VP, dismissed Beneficiary No.1's application for leave to appeal but granted leave to appeal sentence to the Applicant whose sentence was reduced to two and one half years.

The appellate court rejected the Applicant's argument that he had been open about the transaction since it was reflected on Beneficiary No.2's books as a loan and that he had not personally profited from the scheme. It noted his responsibilities to the company and the fact that he had not been open about the absence of any goods and that Beneficiary No.2 experienced a loss of HK$29,390,000. Nonetheless, the appellate court considered his advanced age and the secondary role that he played compared to the Beneficiary No.1 in calculating his reduced sentence.

[JEB/tjb]

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