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Money-laundering: Professionals' Potential Criminal Liability in Handling Clients' Money

2014-09-01

On 25 August 2014, Solicitor Wu Wing-kit (“Wu”) of Fred Kan & Co was convicted after trial of a charge of money-laundering.[1] The money involved amounted to HK$68.95 million. This article discusses Wu’s offence of money-laundering.

The Law on Money-laundering

Section 25(1) of the OSCO
Wu was charged under sections 25(1) and (3) of the Organized and Serious Crimes Ordinance (Cap. 455) (“OSCO”).  Section 25(1) provides that “a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence, he deals with that property.”

Guilty Act
The necessary guilty act under section 25(1) of the OSCO is “dealing”. Under section 2(1) of the OSCO, “dealing” includes various acts such as receiving or acquiring the property, concealing or disguising the property, as well as disposing of or converting the property.  The prosecution is not required to prove the crime leading to the proceeds,[2] to specify the crime leading to the proceeds,[3] nor to prove that the property is the proceeds of the crime.[4]

Guilty Intention
Regarding the guilty intention, the offence requires proof of knowledge or having reasonable grounds to believe.  The defendant would be convicted if (i) objectively “reasonable grounds” existed for the “belief” that the property handled by the Defendant represented the proceeds of a serious crime, and (ii) subjectively he was aware of those reasonable grounds.[5]

Background
Jack Chen (“Chen”) was the executive director and joint chairman of Natural Dairy (NZ) Holdings Limited, a company listed on the Main Board of the Stock Exchange of Hong Kong (“Listco”).  In or around 2008, the Listco, through Chen, negotiated a deal with May Wang (“Wang”) for the acquisition of a company indirectly owned by Wang in New Zealand, i.e. UBNZ Assets Holdings Limited (“UBAH”). Under the deal, the Listco would pay NZ$100,000,000 for the purchase of 20% shareholding of UBAH, with an option to purchase the remaining 80% at NZ$400,000,000. The Listco would also provide financial assistance to UBAH.

It later transpired that part of the proceeds of sale in relation to the acquisition of UBAH and/or financial assistance to UBAH (approximately HK$73.7m) was remitted into Goldmate Securities (USA) Limited (“Goldmate”), a company in which Chen was the majority shareholder and director. Chen and Wang were subsequently charged with 1 count of conspiracy to offer advantage to an agent and 1 count of money-laundering. It was alleged that Chen accepted, among other things, the HK$73.7 million above from Wang as reward for procuring the Listco to acquire UBAH.

Prosecution’s Case against Wu
The evidence prosecution brought forward showed that after Goldmate received the HK$73.7 million, Chen caused Goldmate to transfer HK$68.95 million into the client account of Wu’s law firm, Fred Kan & Co (“FKC’s Client Account”).  Acting on Chen’s instructions, Wu transferred the money to Ye Fang (“Ye”), Chen’s wife and the 2nd defendant in this case. Wu was the solicitor for Wang and Chen at the crucial junctures.

Against the above background, the prosecution’s stance against Wu was that when Wu dealt with the money of HK$68.95m, he had the knowledge that it, in whole or in part, directly or indirectly represented proceeds of an indictable offence, or alternatively, he had reasonable grounds to believe that the money was of this nature.  The prosecution relied on the following highlighted evidence to prove Wu’s knowledge or belief:-

1.         Wu told her secretary that Chen would put some money into FKC’s Client Account.  He told her to transfer the money to Ye;

2.         Wu signed the payment voucher, classifying the money as “costs and disbursements refund to client”;

3.         HK$68.95 million was a huge amount rarely made for costs and disbursements for initial public offer, acquisition of company or any work handled by Wu; and

4.         Part A of Practice Direction P issued by the Law Society of Hong Kong required a solicitor to: (i) obtain information on the nature and intended purpose of the transaction; and (iii) obtain information on the source of funding.

Wu’s Defence
Wu denied knowledge or belief in any money-laundering transactions.  Wu was informed that a deposit of HK$68.95 million was “in the process of coming into” FKC’s Client Account from Chen, so Wu contacted Chen.  Chen told Wu over the phone that there was an agreement to purchase Ye’s entitlement to receive the proceeds by investor behind Chen.  Wu told Chen that he could not represent the investor behind Chen since he found a conflict of interests.  Wu asked Chen to take away the money but Chen asked Wu to transfer the money to Ye instead.  Chen said the investor wanted a solicitor to witness the transfer of the money to Ye.  Therefore, Wu agreed to help Chen.

Verdict and Sentence
The Court held that the prosecution had proved all elements of the charge of money-laundering against Wu. In this regard, the Court found, among other things, the following facts against Wu:-

1.         Wu knew that the amount was unusually huge in his professional practice.  He must have recognized immediately that a preliminary payment of HK$68.95 million at such a short notice would be an unusually large proportion of the purchase price.  It was also unusual for such a preliminary payment to be paid before the parties had decided on the terms of the agreement;

2.         Wu knew that Chen’s instruction was unusual since the money was intended to go from a husband’s company’s bank account to the wife’s account the following day via FKC’s Client Account.  Wu knew that the money actually came from Chen’s investor, but Wu did not ask the investor’s identity.  Chen said that the investor wanted a solicitor to witness the transfer of the money to Ye.  However, Wu did not tell Chen that the bank record would itself be solid evidence of the payment without the involvement of a solicitor; and

3.         Wu knew that Practice Direction P expected a solicitor in his situation of dealing with client’s or potential client’s money to make enquiries to obtain information on the nature and intended purpose of the transaction, and the source of funding.  However, at any time before or after he dealt with the money, he had never attempted to do so.  It was a deliberate choice not to make such enquires.  It was not an error of judgment, negligence or inadvertence.

The Court held that Wu, possessed of the above facts, would objectively consider them sufficient to lead a person to believe that the money constituted proceeds of an indictable offence.  As a result, Wu was convicted of money-laundering and sentenced to 6 years imprisonment.

Conclusion
Professionals deal with client’s money on a day-to-day basis. Very often, client’s money is transferred from one party to another party upon client’s instructions without the professional making further inquiries as to the nature and source of funds and the purpose of transfer. However, as this case shows, professionals “turning a blind eye” in dealing with client’s money may already be sufficient to be convicted of the offence of money-laundering.



[1]     HKSAR v WU Wing-kit & YE Fang DCCC 1022/2012 [2]     HKSAR v Li Ching [1997] 4 HKC 108 [3]     Lam Hei Kit v HKSAR (unrep., FAMC No. 27 of 2004) [4]     Oei Hengky Wiryo v HKSAR (No.2) [2007] 1 HKLRD 568 [5]     HKSAR v Shing Siu Ming [1999] 2 HKC 818


For enquiries, please contact our Litigation & Dispute Resolution Department:

E: criminal@onc.hk

W: www.onc.hk

T: (852) 2810 1212

F: (852) 2804 6311

IMPORTANT: The law and procedure on this subject are very specialized 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.

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Sherman Yan
Sherman Yan
Managing Partner
Ludwig Ng
Ludwig Ng
Senior Partner
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