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Helping out a friend in money transactions could land you in jail

2021-01-31

Summary

In the commercial world, it is not uncommon for people to become business partners with friends and acquaintances who share similar visions and business ideas. However, one should always exercise caution when considering whether to accept business relations with another. In the recent case of HKSAR v Man Yiu Pun [2020] HKCA 344, the District Court (the “Court”) held a person “helping a friend out with his business” to be guilty of two money laundering charges.


Facts

At trial in the Court, Mr Man (the “Applicant”) was charged with two related charges of conspiracy to deal with property known or believed to represent proceeds of an indictable offence contrary to section 25 of the Organized and Serious Crimes Ordinance (Cap 455) (the “Ordinance”) and sections 159A and 159C of the Crimes Ordinance (Cap 200). He was convicted and was sentenced to a total term of 4 years and 5 months’ imprisonment. The Applicant subsequently appealed against both of the convictions as well as the sentences.

The first charge is related to the following. The Applicant came to know D4 a few years ago, and D4 allegedly told him that he was engaged in trading in Hong Kong back then. D4 wished to establish a company in Hong Kong for expanding his businesses in shipments, but could not register the business since he was a foreigner and could not produce proof of residence. He therefore asked the Applicant to help him register the business (the “Business”) and to open a business bank account for him (the “Bank Account”). Within a few months after the Bank Account was opened by the Applicant, a total sum of over HK$7 million was deposited into it and then withdrawn shortly afterwards by way of ATM withdrawals and multiple cheques issued to personal savings accounts, including that of D1. As the account holder, the Applicant was the drawer of the cheques and retained custody of the cheque book.

Apart from dealing with the Bank Account, the Applicant was also charged with conspiring with D4 to deal with a sum of around HK$520,000 which had been remitted to the Applicant’s personal savings account (the “Second Charge”). The Applicant alleged that D4 told him that these monies were deposited by D4’s customers and would have to be withdrawn for payment of goods. The Applicant subsequently withdrawn HK$560,000 from the same account.

Although the Applicant claimed that all of his abovementioned acts were simply to help out a friend to engage in genuine business trading, and that he had no knowledge nor suspicion about the legitimacy of all the remittances in question, the Court still found him guilty of conspiring to launder money. In reaching this conclusion, the Court observed from HKSAR v Wong Chor Wo & another that in the normal course of events, if a man allows another person to use his bank accounts to deposit and withdraw funds, in the absence of evidence to the contrary, the inevitable inference will arise that the holder of the bank account has “reasonable grounds to believe” that the funds passing through the account represent the proceeds of an indictable offence.

In respect of both charges, the Court also took into account several factors to convict the Applicant including: (a) the fact that the Applicant did not declare any income for himself or the Business to the Inland Revenue Department during the period in question (the “Lack of Declaration Factor”), (b) the monies in question were all deposited into an account controlled by the Applicant and then remitted away shortly after, and (c) the inherent improbability that buyers of goods would remit payment for goods to a company / a personal savings account of someone who they had no dealings with (the “Inherent Improbability Factor”). As such, the only reasonable inference to draw was that the transfers in question were to conceal and disguise the true recipient of the monies passing through the accounts.


Grounds of appeal against convictions

The Applicant appealed to the Court of Appeal (the “CA”) on two grounds. The first being, in respect of both charges, the trial judge “erred in law and/or did not properly and safely determine when finding that the Applicant had entered into a conspiracy, what if any, at the time of the Applicant’s agreement with D4, were the grounds that were known and reasonable for the Applicant to believe that any money was in whole or in part, directly or indirectly representing any proceeds of an indictable offence and thereby an agreement to do an unlawful act.” It was submitted in support of this ground that the Court had taken into account irrelevant factors in reaching its decision against the Applicant. The second was that the trial judge erred by “failing to evaluate in a safe and proper manner or if at all the Applicant’s evidence and in particular the Applicant’s belief and perceptions in conjunction with all the surrounding evidential circumstances and thereby wrongly rejected the Applicant’s evidence on the basis of credibility and inherent improbabilities.”


Leave to appeal against convictions granted

The CA first rejected the second ground of appeal. The CA’s reasons were that the Applicant, as an experienced businessman, allowed himself to be a party to a fraud on the Inland Revenue Department and the bank by D4, being a foreigner with whom he occasionally socialised and about whom he harboured a certain amount of distrust. Yet, not knowing D4 well, and being commercially wary of him, the Applicant did not make enquiries about the underlying reasons for D4 to be needing his help, but instead responded in a totally trusting and unquestioning way to all of D4’s requests. Hence, there was basis for the trial judge to find the Applicant’s evidence incredible and/or inherently improbable.

However, the CA accepted the first ground of appeal that the trial judge had taken into account irrelevant factors in convicting the Applicant. The CA expounded that notwithstanding that the Second Charge occurred some six weeks before the Business was even set up, the trial judge repeated the Lack of Declaration Factor in a “cut and paste” approach, yet its reference to the Business can have no relevance to the Second Charge. Furthermore, it was conceded by the respondent (the prosecution) that the Inherent Improbability Factor was irrelevant.

As a result, leave to appeal was granted on the ground that in determining that the Applicant had “reasonable grounds to believe”, the trial judge may have erred in the matters to which he had regard and in the weight which he gave to those matters.


Conclusion

The money laundering offence of “dealing with property known or believed to represent proceeds of indictable offence” under section 25 of the Ordinance has a fairly wide scope. A person may commit the offence even if he does not actually know but has reasonable grounds to believe that the property he deals with represents proceeds of an indictable offence. To steer clear of this offence, it is imperative that once a person knows or even has any doubt or suspicion that any property represents proceeds of an indictable offence, one should not deal with it in any way, and should disclose such knowledge or suspicion as soon as reasonable to the Joint Financial Intelligence Unit in accordance with section 25A of the Ordinance. It is always advisable to exercise caution when one is asked by a friend or not to handle monies that belong to another person, especially when the amount is substantial.




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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021


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