A company director was sentenced in November to three years imprisonment by a Hong Kong court for her part in defrauding several banks of US$54 million in bogus letter of credit (L/C) transactions involving the mainland Chinese food group Guangnan and its subsidiaries (see Guangnan Fraud Update, 20 August 2000).

Leung Hiu-ling, director of Cheun Thai International Development Limited, pleaded guilty to 20 charges of conspiracy to defraud in the L/C scams, allegedly masterminded by assistant general manager of Guangnan, Li Ruihua.

Directors knowledge

Justice Jackson who presided over the case said he believed that Guangnan's board of directors had full knowledge of the fraud. The charges accused Leung of conspiring with another director and shareholder of Cheun Thai, Jiwatuwinan Witthaya as well as Li Ruihua and others to defraud a total of 16 banks between April 1997 and December 1998 by dishonestly:

- causing Guangnan to apply and utilise credit facilities, in the form of L/Cs, from the banks;

- submitting to Guangnan and the banks concerned false documents which purported to provide evidence of genuine commercial transactions between Guangnan and Cheun Thai;

- causing the banks to release about US$54,197,199 in total to Cheun Thai under such L/Cs.

The court heard that since April 1997, the defendant and Li had begun to prepare fictitious sales contracts that purportedly showed that Cheun Thai was to sell Thai rice to Guangnan or its subsidiaries. Based on these bogus transactions, Li had caused Guangnan to apply for a total of 20 L/Cs with 16 banks.

False documents

The court was told that between April 1997 and December 1998, the defendant submitted to such banks various false documents, including cargo receipts, commercial invoices and packing lists, to support the L/C applications. The banks subsequently released a total of US$54,197,199 to Cheun Thai's bank account.

After keeping US$88,958 as her reward, the defendant then transferred the remaining funds to the bank accounts of Guangnan or that of Grade China. As a result of the scams, Guangnan had to repay the banks 17 of the 20 L/Cs, while the banks still suffered bad debts totalling US$5.7 million. Hiu-ling's co-conspirators, Kai-cheung and Li Ruiha have skipped bail and disappeared.

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