Note: Liu Chenglai, the Branch Manager of the Agricultural Bank of China (Issuing Bank) and Lau Yuet Wah (Fraudster), worked together to cause commercial LCs to be issued whose proceeds were used to fund various investments. The beneficiary was Sherica International Limited (Beneficiary), a company controlled by Fraudster. At the urging of Branch Manager, Lau Yuet Kan (Fraudster's Sister) became a shareholder in Beneficiary because at the time a company was required to have at least two shareholders. Fraudster and Sister then signed declarations of trust for 90 percent of the shares in favor of Branch Manager. Fraudster retained the remaining 10 percent.

From 1996 to 1998, Branch Manager and Fraudster facilitated the issuance and draw down of 31 LCs. 25 of the 31 LCs listed a separate company controlled by Fraudster as the applicant. All 31 LCs listed Beneficiary as the beneficiary, with a validity period of six months or longer. When due, Beneficiary would immediately provide the necessary commercial documents to the negotiating bank. Branch Manager and Vice Branch Manager advised the negotiating bank of acceptance in the name of Issuing Bank. With the exception of one LC, there were no underlying commercial transactions.

Beneficiary used the proceeds for investments in Hong Kong, which ended in a significant loss due to the financial crisis in 1997 and 1998. Issuing Bank discovered the scheme in 1998 when the Vice Branch Manager of the branch in question was transferred to a different branch. The total sum of the LCs were USD 62,067,895.10. After exposure, Issuing Bank recovered USD 17,462,410.08.

Issuing Bank sued Fraudster and Sister for damages for conspiracy to defraud. The High Court of the Hong Kong Special Administrative Region Court of First Instance, Chan, J, gave judgment to Issuing Bank against Fraudster, for USD 44,605,485.02.

The Branch Manager as well as the Branch Vice Manager faced criminal charges in a separate action. Vice Manager fled and was not located by the time of the trial. Branch Manager was sentenced to 15 years of imprisonment for misappropriation of public funds and an additional seven years for illegally using financial instruments.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.