Conspiracy to deal with proceeds of an indictable offence

Conspiracy to Deal with Property Known or Believed to Represent Proceeds of an Indictable Offence

Introduction

With a view to establish rapport or to secure business deals, it is common for people and companies to assist others by opening and operating bank accounts, or allowing their bank accounts be used to receive and effect payments.

Applicable law

Under section 25 of the Organized and Serious Crimes Ordinance (Cap. 455) (OSCO), a person commits an offence is he or she deals with property knowing or having reasonable grounds to believe that such property in whole or in part directly or indirectly represents any person’s proceeds of an indictable offence.

Separately, a person commits an offence with a conspiracy to deal with property known or believed to represent proceeds of an indictable offence under sections 159A and 159C of the Crimes Ordinance (Cap 200), if that person agrees with any other person or persons that a course of conduct shall be pursued which, if the agreement is carried out in accordance with their intentions, either (a) will necessarily amount to or involve the commission of any offence; or (b) would do so but for the existence of facts which render the commission of the offence or any of the offences impossible.

Analysis of evidence

When an individual or company whose accounts have been used by fraudster for remittance, and charged with conspiracy to deal with property known or believed to represent proceeds of an indictable offence, the burden of proof is on the prosecution to prove each element of the offence beyond reasonable doubt.

In deciding the matters, the Courts would look at, among others:

the nature of funds involved, in particular, whether the funds in question were revenue earned by the relevant entities/individuals from its genuine business activities;
whether the defendant has a genuine belief that that funds were derived from legitimate business activities; and
whether the funds were transferred to the defendant’s bank account in the normal course of business.

When determining what would qualifies as ‘proceeds of an indictable offence’, there must exist a relationship of ‘reward’ linking the payment and the commission of the offence under section 2(6)(a) of the OSCO. Payment must derive from or be generated by, or be received on account of, commission of the offence. Money which is not paid or received in the nature of a reward in connection with commission of the predicate offence does not qualify as proceeds of such an offence for the purposes of section 25(1) of OSCO. The Court of Final Appeal in HKSAR v Li Kwok Cheung George (2014) 17 HKCFAR 319

Further, reference should also be made to a UK decision in R v Gabriel [2007] 2 Cr. App. R. 11, where the English Court of Appeal held that profits made from trading in legitimate goods, without declaring profits to the Inland Revenue or the Department for Work and Pensions, could not in any circumstances convert the profits in to ‘criminal property’ for the purposes of the Proceeds of Crime Act 2002.

Recent court case

HKSAR v LIN Tzu-chia (D1); and TSAI LU Chin-Lin (D2)

Background

D1 and D2 are Taiwan residents. They faced a joint charge of ‘conspiracy to deal with property known or believed to represent proceeds of an indictable offence’.

D1 and D2 were arrested by HK police on 18 February 2008 and 25 March 2008, respectively. They were charged with ‘money laundering’ on 28 June 2010. Bail was granted to both defendants, and both were allowed to travel to Taiwan, provided that they keep the HK Police informed. Both defendants failed to attend a mention hearings, and warrants of arrest were issued against them.

Following extradition procedures, D2 was escorted from Peru to Hong Kong on 3 October 2021.

Prosecution case

In gist, there was undisputed evidence (i.e. evidence not challenged by Mr. Tsoi, but D1 was absent in this trial) that local bank accounts controlled by D1, D2 and other named co-conspirators have received or “channelled” funds transferred by “uniquely named parties” (UNPs) from all over the world (mainly from the United States, Australia and Malaysia). The companies which held those bank accounts were Found Talent, Rich Intensify, Denton and Spread Eagle. They are offshore companies registered in Belize, Samoa or the British Virgin Islands.

Defence case

D2 elected not to give evidence or call any witness.

D2 was an employee of a Taiwanese company named Sol Young (formerly known as Young Fast). Young Fast/Sol Young engaged in international trading. The matter arose from Young Fast/Sol Young selling goods to buyers in Nigeria and then sending its revenue back to Taiwan.

Legitimate bills of lading were given to demonstrate that Young Fast/Sol Young had engaged in trading activities in Nigeria.

D2 believed that the funds in transferred to the accounts of Found Talent, Rich Intensify, Denton and Spread Eagle were made by remittance agents from Nigeria.

Analysis of evidence

A total of 357 UNPs transferred a total sum of approximately US$18.7 million to the bank account of Found Talent during the offence period, out of which a total sum of approximately US$17.8 million was transferred to various bank accounts held by Young Fat/Sol Young in Taiwan. At the same time, a total of 170 UNPs transferred a total sum of approximately US$11.4 million to the bank account of Rich Intensify during the offence period; out of which a total sum of approximately US$10 million was transferred to various bank accounts held by Young Fast/Sol Young in Taiwan.

Denton and Spread Eagle did not receive any payments directly from UNP, but each of them has respectively transferred a total of approximately US$8.7 million and US$1.6 million to Young Fast/Sol Young in Taiwan.

The prosecution contended that each of UNP payment looks dubious because it did not come from Nigeria or any customer of Young Fast/Sol Young.

The Defendants claimed that they believed that it was how the Nigerian remittance agents transferred the Naira to Hong Kong. The Defendants further believed that the funds received by Found Talent and Rich Intensity were Naira belonging to Young Fast/Sol Young converted into US Dollars.

The Court considered that the revenue gained by Young Fast/Sol Young in Nigeria appears to be legitimate, and the revenue in Naira had to be remitted to Taiwan in some way. The Court further considered that regardless of the use of remittance agents and methods used by remittance agents would not change the nature of the funds – which were revenue generated by Young Fast/Sol Young from its trading activities.

The Court held that there was insufficient evidence to support the proposition that Young Fast/Sol Young were part of the scam, or had any nexus with UNPs. On the other hand, the Court held that there was evidence that show that Young Fast/Sol Young was engaging in legitimate trading in Nigeria and earning Naira legally. Accordingly, the Court considered that it was highly unlikely that D1 and D2 had any knowledge of any scam.

Decision

The Court held that the prosecution has not proved its case against D1 and D2 beyond reasonable doubt, as such the Court found D1 and D2 not guilty of conspiracy to deal with property known or believed to represent proceeds of an indictable offence.

Key Takeaways

We understand that in some situations, you may need to help your family or business partners, who may not have a bank account or need financial assistance; or arrange for funds to be transferred to another company’s bank account to facilitate remittance purposes. However, such action may not only lead to suspension or closure of the bank account, as well as legal and reputational damage, it may put you at risk of being charged with conspiracy to deal with property known or believed to represent proceeds of an indictable offence. No actual knowledge is required for this offence. Furthermore, the relevant responsible officers of the company that holds the account may also be subject to investigation and face similar charge.

If you would like to find out how we can help or any issues raised in this article, please contact us.

Alfred Leung, Partner (E: alfredleung@hkytl.com; T: 852 3468 7202)