Two company directors have been sentenced by a Hong Kong court for their roles in a HK$9 million letter of credit (L/C) fraud based on bogus business transactions.

The judge said the fraud had seriously compromised the integrity of the banking system that relies on applicants submitting genuine transaction documents in support of applications for L/C facilities.

Jail terms

Kong Lai-wah, the owner of the now defunct Chi Shing Industrial Investment Development Company, was handed down a sentence of four years and six months imprisonment.

Cheung Hing-man, a shareholder and director of Harbour Best Development Limited, received a four-year jail term. The defendants had been found guilty of eight counts of fraud.

The case

The court heard that Harbour Best was a manufacturer of electronic goods, while Chi Shing was a trading company.

In late 2002, Cheung arranged for eight L/Cs totalling HK$9.36 million to be issued by the Bank of China (BOC) in favour of Chi Shing.

False documents

To obtain the L/Cs the defendants presented BOC with false documents including cargo receipts signed by Cheung and commercial invoices signed by Kong.

These documents apparently showed that Chi Shing had supplied substantial quantities of raw materials to Harbour Best although in reality there had been no such genuine transactions.

Funds released

As a result of the scam, BOC released a total of HK$9.36 million to Chi Shing.

Once the proceeds of the L/C funds had been received, Kong transferred these funds from Chi Shing to a company controlled by Cheung.

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