Article

73 HKCU 1 (C.A. 2005) [Hong Kong]

Topics: Conspiracy to Defraud; Letters of Credit; Collusion

Note: In order to obtain funds for general operating expenses, Au Kiang Group and Dero Enterprises (Applicants), which were both controlled by Ho Chi Chun, obtained 136 LCs from Hang Seng Bank(Issuer) for a value in excess of HK$490,000,000. However, there were no underlying transactions, the documents presented were false, and several unnamed Beneficiaries recycled the LC proceeds back to Applicants. This scheme resulted in several criminal proceedings, two of which are noted here.

1. HKSAR v. Lam Tze Leung

Lam Tze Leung (Defendant), a senior credit manager for Issuer, was charged with conspiracy to defraud Issuer for facilitating the issuance of letters of credit for Applicants in respect to underlying transactions which he knew to be non-existent and for submitting false documents. He was additionally charged with accepting advantage, or bribes, for facilitating credit arrangements at Applicants' request. Based on a jury verdict that found Defendant guilty on nine of thirteen counts, the District Court, Wright, J. sentenced Defendant to seven years nine months imprisonment. Defendant petitioned for leave to appeal against conviction and sentence. Leave to appeal was denied by Court of Appeals, Stuart-Moor, Stock, and McMahon, JJ.

On appeal, Defendant argued that the trial judge erred in allowing the circumstantial evidence presented by assistant general manager Denis Chan Tak Wing (Issuer's Manager) and subordinate Eddie Tam Hon Hung (Issuer's Subordinate) to be submitted the jury. However, the appellate court stated that this evidence was not improperly used as material evidence to Defendants's facilitation to the crimes, but acted to provide valid support to the prosecution's primary witness, Karen Yin Hueh Lan's (Yin), testimony that Defendant knew of the fictitious nature to the letters of credit.

Regarding the six counts related to fraudulent LCs, Defendant argued that, "whilst he and indeed other bank officials... may have had suspicions that[Applicants] might not have been using the funds from the letters of credit as they claimed, [Defendant] is not party to any agreement that that is what was to be done. At the most, [Defendant] simply did nothing about investigating the suspicions and that that was because his seniors appeared willing to tolerate the situation." Applicant's financial controller Yin, in her testimony as an accomplice, said that Defendant" was fully aware of the scheme and, indeed, gave advice to help the [Applicants] avoid detection and, further, warned them when honest Bank officials...became suspicious."

One such honest Bank official, (Issuer's Manager), "gave evidence that he was concerned about the fact that the [Issuer] had been issuing letters of credit supported by local cargo receipts and that he suspected that there might not have been any goods behind the letters of credit, and he wrote a memorandum to this effect in relation to a report, or proposal, made by the [Defendant]. [Issuer's Manager] said that the [Defendant] was aware that he, [Issuer's Manager], was, in the case of[Applicants], concerned about local letters of credit, cargo receipts, and the poor annual reports of both the companies."

The appellate court also noted "[t]he question of watching out for the suspicions of those honest officers of the [Issuer] who had a say in facilities granted to the [Applicants] was a recurrent theme of Yin's evidence. It was precisely because of warnings of suspicion, that she was advised, so she said, to look for other beneficiary companies. As the[trial] judge commented... '[Yin] said it had been necessary to pay [Defendant] monies throughout the period of the frauds because it was necessary to keep him 'sweet' because he would be the first person to know of any problems with the letters of credit.'"

Issuer's Manager testified to his developing suspicion regarding the legitimacy of the LCs when he took over Defendant's duties while Defendant was on leave. Issuer's Manager sought to have Issuer's Subordinate probe into Applicant's business practices and to research the Beneficiaries. Issuer's Subordinate was also suspicious, as he noted in his testimony that all of the LCs were local and that there was a lack of evidence of other existing LCs having functioned in a manner similar to the suspect ones. Additionally, his inquiry into the repute of the Beneficiaries resulted in the discovery that no one in the same industry even knew the companies existed. The appellate court explained that such evidence supported the idea that the fraud would have been easy to spot for someone with the equivalent of Defendant's banking experience. The appellate court noted that Defendant was actually one of the subordinates that Issuer's Manager had told to pay greater attention to the Applicants account and this created further doubt as to Defendant's ignorance of the scheme.

In addition to the LC fraud, numerous charges against Defendant alleged that he accepted an advantage or bribe. Gifts came in response to loan applications made by Applicant. The first loan was approved in the sum of HK$148,000,000 to purchase the 17th floor of the Convention Plaza in Wanchai and after approval of the loan, gifts in the form of two Rolex watches worth HK$149,000 and cash were made to the Defendant. A second loan for purchase of the twenty sixth floor of the same building followed and again gifts were given. Defendant admitted accepting gifts from Applicant but denied any criminal intent in doing so. However, the court felt that the evidence suggested that the bribes were blatant and the Defendant was only one of several Bank officers to have been corrupted.

2. HKSAR v. Sau Ming

In a related case, two Issuer officials, Corporate Finance Deputy Manager Sau Ming and subordinate, Lo Pui Shing, petitioned for leave to appeal their convictions on charges of accepting advantage as an agent. Charges had also been brought against Ho Sui-hoi, son of Applicant's owner, but no leave to appeal was sought by him. The son faced charges of offering advantage to an agent. The deputy manager also accepted two Rolex watches from the son. The Court of Appeals, Stuart-Moor, Stock, and McMahon, JJ., dismissed the petition and reduced the sentence of the deputy manager to three years and ten months.

Yin also acted as the main witness in this case. On appeal Defendants had objected that Yin was not charged. They claimed that she was "shown by the evidence at the trial or by her own admissions to be guilty of a number of crimes of dishonesty, including conspiracies to defraud the Bank and other banks, letter of credit from her employer [Applicant]." The appellate court noted that the Prosecutor declined to bring charges against her because of her cooperation as a witness and that the trial court gave proper weight to these facts. It quoted the trial judge who said, "I am satisfied beyond reasonable doubt the many discrepancies and changes in details [Yin] made were caused by her trying to remember many past events without any aide memoire. Yet, running through them all, there was a consistency at the core of her assertions which had the ring of truth. What has happened is initially she forgot a pair of watches had been given and she has mixed up events as the payments of December 1994 for the July 1994watches and the payments in August 1995 was thought to have occurred in the summer of 1996, but as to who received the gifts, the officers remain unchanged throughout. I am ultimately convinced [Yin] could not have dreamt up and sustained this edifice of allegations, with the vignettes she attaches in the witness-box, to some events if they had not actually occurred."

[JEB/tjb]

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