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Money-Laundering: Would I Have Believed I Was Dealing with Dirty Money?

2015-01-01

 

In the recent decision of HKSAR v Pang Hung Fai FACC 8/2013, the Appellant was convicted of money laundering by reason of his having remitted of some HK$14 million from Hong Kong to Cambodia.  Subsequently, the Court of Final Appeal quashed his conviction on the grounds that the lower courts had failed to consider his “perception and evaluation” of the facts and had also adopted an inappropriate test. 


Background

The Appellant was a successful businessman and owned two factories in China.  Kwok Wing (“Kwok”) and the Appellant had been close friends for over 30 years.  Kwok was the chairman and a major shareholder of Tack Fat Group International Limited (“Tack Fat”), a Hong Kong listed company.  Kwok and the Appellant had helped each other with unsecured, interest-free loans on different occasions.

At the end of July 2008, Kwok told the Appellant that two of his friends in China, Guo Jinsheng (“Guo”) and Pan Duanfeng (“Pan”), were going to return some money to Kwok and asked the Appellant for his bank account details so that the money could be remitted to the Appellant’s bank account.  The Appellant agreed without asking why the money had to pass through his bank account.  The Appellant then gave the bank account details of one of his companies called Mickles International Ltd (“Mickles”).

A “receipt” dated 29 July 2008, issued by Kwok to the Appellant, stated that Kwok would make payments into Mickles’ account and that the sums would be returned to him.

On 1 August 2008, remittances in the total amount of some HK$14 million (the “Sum”) made upon Kwok’s instructions by Guo and Pan respectively were received in the Mickles’ account (the “1 August Remittances”).

Subsequently, at Kwok’s request, on 27 August 2008, the Appellant caused the Sum to be remitted to Asia World Agricultural Development (Cambodia) Limited (“Asia World”), a Cambodian company owned by Kwok (the “27 August Remittances”).  Thus, the 1 August Remittances and 27 August Remittances together operated to carry into effect what was stated in the “receipt” dated 29 July 2008. 

The Appellant alleged that he was unaware of anything amiss in connection with Kwok or Tack Fat until September / October 2008 when he was told that the workers in one of Kwok’s factories had not been paid.  It became obvious that Tack Fat was in dire financial straits.  The Appellant had not seen Kwok since late July 2008 and his attempts to contact him were unfruitful.

The prosecution case at trial was that Kwok had conspired with Guo and Pan to perpetrate a fraud on Tack Fat.  Earlier in 2008, at a board meeting, Kwok had caused 20 million Tack Fat share options (the “Share Options”) to be granted to each of Guo and Pan.  Subsequently, Kwok produced two cheques of HK$13 million each, which were issued by Guo and Pan to Tack Fat and purported to represent payment by Guo and Pan for the shares purchased by them in exercising those Share Options.  40 million Tack Fat shares were duly issued to Guo and Pan, but Tack Fat never received any payment from them.  The two HK$13 million cheques issued by Guo and Pan respectively were never presented for payment.

Guo and Pan then sold off the shares in the market in June and July 2008.  The 1 August 2008 Remittances and 27 August Remittances were in fact all derived from the proceeds of those share sales.


The Prosecution’s case

It was the prosecution's case that Kwok had conspired with Guo and Pan to defraud Tack Fat, which amounted to an indictable offence.  The prosecution alleged that the Appellant had reasonable grounds to believe that the Sum represented the proceeds of an indictable offence by pointing out, inter alia, that:

1.        The quantum of the Sum was more than HK$14 million.

2.        The 1 August Remittances were from 2 deposits in 2 Hong Kong accounts held by 2 unknown mainlanders, as opposed to Kwok himself, who was supposed to be the person who would make payment into Mickles’ account.

3.        The 1 August Remittances and the 27 August Remittances constituted a transnational transfer, namely, from China to Cambodia.

4.        The Sum was transferred to Mickles’ account and subsequently remitted to Asia World’s account; that being the case, it would make much more sense for Kwok to transfer the Sum with his own Hong Kong business or personal bank accounts.

5.        When the Appellant’s accounting manager asked the Appellant about the nature of the remittances, the Appellant said he did not know.

6.        Kwok and the Appellant knew each other for over 30 years and were very close friends who used to regularly socialize together.  After Kwok requested the Appellant to hold the Sum for him, they stopped seeing each other.

7.        Without having seen Kwok for almost a month, Kwok called and requested the Appellant to transfer the Sum to Asia World’s account in late August.  Further, without making any inquiry about the identity of Guo and Pan, the Appellant promptly arranged for the 27 August Remittances.


The Appellant’s case

The Appellant’s case was fundamentally that he had trusted Kwok implicitly and had no reason to suspect that the Sum had anything to do with any criminal offence.

The Appellant reiterated that he and Kwok had been close friends for a very long time and he knew that Kwok was the chairman of a listed company and had always found him to be scrupulous, never having known him to have done anything dishonest or dishonourable nor having known his integrity or honesty to have been questioned.  They had implicitly trusted each other with unsecured and interest-free loans which had unfailingly been repaid.  In addition, the Appellant was aware that Kwok’s business was a very big one, with large-scale operations in various different countries.  He had met some of Kwok’s customers who were very substantial and owned hundreds of stores.  He knew that Kwok had purchased a teenage garment brand at the costs of US$100 million.  Therefore, the Appellant had never considered the Sum a large amount, regarding it as “practically small change” for someone as wealthy as he believed Kwok to be.  The Appellant had also believed throughout that Kwok’s business was in good health, never having heard suggestion that it was facing any problems, not until September / October 2008.

The Appellant had not previously received any request from Kwok for money to be remitted into his account.  Just because he trusted Kwok, he had agreed to allow his account to be used without giving it a second thought.  He gave evidence that it had never crossed his mind to ask Kwok why he did not deal with the money through Kwok’s Hong Kong business or personal bank accounts.


The test: “would believe” or “could believe”?

The Court of Final Appeal found that the lower courts erred in entirely omitting the Appellant’s personal beliefs, perceptions and prejudices from consideration.  His “perception and evaluation” of relevant facts constituting or contributing to reasonable grounds for the requisite belief ought to have been considered and his mental processes are also relevant.  All along, the Appellant considered Kwok as an extremely wealthy and honest man. 

While the trial judge referred to the Appellant’s evidence that the Sum would be small “in the eyes of Kwok”, the evidence was immediately dismissed on the basis that “that … is not the case with the reasonable person”.  In making such a finding, the trial judge failed to consider the Appellant’s “perceptions and evaluations” of, inter alia, his trust in Kwok, the close and lengthy personal and business relationship between them and his knowledge that Kwok was a very successful businessman and controlled significant assets. 

Mr. Justice Spigelman NPJ commented that the fact that the Appellant was offered no explanation, and made no enquiry, as to why Kwok could not use one of his own accounts could form the basis of an “irresistible inference” that something untoward was going on, which required Kwok to hide the flow of funds.  However, it is not so apparent that what was untoward involved proceeds of an indictable offence.

In determining whether an accused has “reasonable grounds to believe” that the property dealt with represents proceeds of crime the CFA held that the proper test is the test adopted in Seng Yuet Fong v HKSAR [1999] 2 HKC 833, under which the accused’s grounds for such belief should be identified and the grounds should be reasonable.

When interpreting section 25(1) of the Organized and Serious Crimes Ordinance (“OSCO”), the directly relevant words are “having reasonable grounds to believe”. That is, that anyone looking at those grounds objectively would so believe.  In other words, in determining whether the Appellant’s grounds of belief are reasonable, the test of “would believe”, rather than that of “could believe”, is preferred.  The Court of Appeal had erred in following an earlier case and applying the “could believe” test. 

Based on the above two grounds, the appeal was allowed and the Appellant’s conviction was quashed. The CFA, however refused to order a new trial as it was not in the interests of justice to do so. It was noted that the subject of the charge occurred six years ago, the Appellant was 69 years old and had served four and a half months in custody, the Appellant’s business had suffered due to his conviction, and the prosecution case was not sufficiently strong.


Implication

In the previous money laundering case of HKSAR v Wu Wing-kit [2014] (DCCC 1022/2012), the District Court applied the old test and interpretation in convicting Mr. Wu Wing-kit under section 25(1) of the OSCO. It is noted that if Mr. Wu appeals against his conviction, he will probably rely on the CFA’s clarified guidance and interpretation.




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

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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 © 2015


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