A Hong Kong court has jailed two men for up to 55 months for their roles in a HK$260 million letter of credit (L/C) fraud based on non-existent commercial transactions.

Chen Xun was found guilty on five counts of conspiracy to defraud and was jailed for 55 months while Lau Ka-ping - who had already pleaded guilty to two similar conspiracy offences - was jailed for 32 months.

Shareholders

Both men were shareholders of Senox Investment and Go On Yue Fung Industry (GOYFI), while Chen was also a shareholder of Group Yield Enterprises.

The court heard that between August 1994 and March 1996 the pair conspired with others to defraud the then Kincheng Banking Corporation.

Chen and Lau dishonestly caused Senox and GOYFI to apply to Kincheng for the issue of 24 L/Cs payable to Max Rise Industrial.

False documents

Chen and Lau obtained the L/Cs by submitting to Kincheng false documents that apparently showed genuine underlying commercial transactions between the two companies and Max Rise. In reality, there were no such transactions.

Nevertheless, the then Kwangtung Provincial Bank - the advising bank of Max Rise - was duped into releasing HK$128 million to Max Rise under the L/Cs.

More deception

Chen also caused Group Yield to apply to Kincheng, Kwangtung and the Bank of China between September 1994 and June 1997 for the issue of 26 L/Cs payable to Max Rise.

Again Chen persuaded Kincheng, Kwangtung and the Bank of China that there were genuine commercial transactions between Group Yield and Max Rise even though there were no such transactions.

Proceeds

This deceived Kwangtung into releasing a total of more than HK$137 million to Max Rise under the L/Cs.

The L/C proceeds were subsequently channelled into the bank accounts of Senox, GOYFI and Group Yield.

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