The former chairman of a de-listed Hong Kong company has been jailed for four and a half years' for his part in a HK$94.6 million letter of credit (L/C) fraud based on bogus business transactions.

The former chairman of Yue Fung International Group Holding Limited, Lee Wing-kan, was earlier found guilty of three counts of conspiracy to defraud.

Investigators

The case arose from a corruption complaint brought to the attention of Hong Kong's Independent Commission Against Corruption (ICAC).

Subsequent ICAC enquiries revealed evidence of fraud.

False documents

During his trial, a Hong Kong court heard that between December 1998 and January 2002, Lee conspired with others to defraud several banks by dishonestly causing Yue Fung to apply for 37 L/Cs and six import loans in favour of several companies.

The conspirators submitted false documents to banks in support of these credit applications, purportedly showing genuine underlying transactions in relation to the purchase and resale of electronic parts between Yue Fung and those companies.

Shell companies

Investigators discovered that some of those companies were set up specifically for these bogus transactions. Others had no business dealings with Yue Fung.

Banks taken in by the conspirators released a total of over HK$94.6 million to those companies under the L/Cs and import loans. These proceeds were subsequently channelled to Yue Fung.

Judge's comments

The judge who sentenced Lee commented on the seriousness of these L/C frauds.

"In the practice of documentary credit the banks rely on the documents. Money is paid out, not upon an examination of the goods, but upon the documents themselves. Fundamental to the system is the truthfulness and accuracy of the documents," Deputy Judge David Dufton said.

"The banks would not have made any payment under any of the L/Cs or loans had they known there were no underlying business transactions," he added.

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