Article

Note: Cheng Sui Wa, Defendant, was a shareholder, director, and deputy general manager of Createx International Ltd, a subsidiary of Southern Industrial and Trading General Corporation, who was involved in two separate LC frauds.

Between January 1996 and May 1999, Guangnan Holdings Ltd applied for and obtained, on behalf of its subsidiary, Asian Honour Holdings Ltd, five LCs in favor of Createx, issued by the Bank of East Asia Limited, Sakura Bank, Rabobank Nederland (Hong Kong Branch), ABN-AMRO Bank, and the Bank of Tokyo-Mitsubishi. Defendant was acquainted with Madam Tang Wai Na, general manager/deputy general manager of Asian Honour. To assist her, Defendant prepared and presented documents falsely showing sales of goods from Createx to Asian Honour that did not exist, causing Issuers to pay on LCs, the proceeds of which were then channeled back to Applicant, less a fee.

Separately from the above fraud, Createx also applied for six LCs through Sin Hua Bank and the Nangyang Commercial Bank with Fountain Datacom as Beneficiary; the underlying transactions were bogus and the proceeds were channeled back to the Createx less a fee for the purpose of showing profits for Createx. Fountain Datacom was owned by Mr. Yip Hiu-sui, Madam Tang's husband, who presented to the issuing banks the false documents prepared by Defendant.

The sum of the 11 LCs was in excess of HK$120 million (US$15.48 million).

In his defense of the first set of offenses, Defendant argued that there were, in fact, underlying transactions relating to the LCs. Defendant argued that the Chinese military, contrary to Central Government directives, was conducting commercial trade through Southern Industrial, a Mainland company. He claimed that because of the difficulty in trading directly from the Mainland, Southern Industrial used Asian Honour and Createx as middlemen to facilitate the purchase of steel from Kazakhstan.

In defense of the second set of offenses, Defendant argued that the underlying transactions were real, but different from those documented. He claimed that in a scheme to purchase Nokia telephone equipment, Southern Industrial, a Mainland company, used Createx as a middleman to purchase from Fountain Datacom, a Hong Kong company with an import license and business connections to Nokia.

Defendant was convicted of 11 counts of conspiracy to defraud and three counts of knowingly dealing in the proceedings of an indictment offence. For the first group of offenses, involving Guangnan as Applicant, Defendant was sentenced to four years' imprisonment. For the second group of offenses, involving Createx as Applicant, Defendant was sentenced to an additional five years' imprisonment to run consecutive to the first sentence for a total of nine years' imprisonment.

Defendant applied for leave of appeal against conviction and sentence. The High Court of the Hong Kong Special Administrative Region Court of Appeal, Stock, JA., dismissed the application to appeal against conviction. The appellate court granted the application for leave to appeal against sentence, however, noting that the only bank that had not been repaid at the time of sentencing (the Bank of Tokyo- Mitsubishi was owed US$ 2.7 million) had since been repaid. The appellate court accordingly granted both the application and the appeal, reducing the sentence by one year, to a total of 8 years' imprisonment.

[JEB/ees]

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