Hong Kong's Independent Commission Against Corruption (ICAC) has secured two more convictions of fraudsters in its clamp down on letter of credit (L/C) fraud. The case is particularly significant because of the involvement of a mainland Chinese company.

A company director and a businessman were respectively jailed for two years and one year by a Hong Kong court for conspiring to defraud two banks out of L/Cs worth HK$14 million.

Guangdong connection

Cheng Man-to, a director and shareholder of Oriental Hero Industries Limited (OHIL), and Chan Chin, the sole proprietor of Post Metal Works (PMW), were found guilty on one count of conspiracy to defraud after trial.

OHIL is among a group of companies owned and operated by the municipal government of Shek Kit Town of Dongguan City, Guangdong Province on the Chinese mainland. Its main business is in the trading of metallic raw materials, including steel sheets.

Breach of trust

The trial judge said custodial sentences were imposed on the defendants to serve as a deterrent, since the offences involved were a serious breach of trust and an abuse of Hong Kong's banking system.

The court heard that Cheng and Chan had conspired with other persons to defraud the Nanyang Commercial Bank and the National Commercial Bank over eight applications of L/C facilities between 1 April 1997 and 31 October 1998.

False documents

The court also heard that the pair submitted false documents to the banks purportedly evidencing genuine underlying commercial transactions involving the sale and purchase of sheet metal between OHIL and PMW, causing the banks to release about HK$14 million to PMW under the L/Cs.

The case originated in a corruption complaint that alleged the defendants might have bribed bank officers to obtain L/Cs through dishonest means. Subsequent ICAC enquiries revealed no bank staff involvement.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.