Hong Kong Court of Appeal overturns money laundering conviction of person who used underground currency exchanger

By Christine Duhaime | March 30th, 2012

Surprising Decision

Today, the Hong Kong’s Court of Final Appeal gave its reasons for judgment in the case of HKSAR and Yan Suiling (嚴穗陵).

In a surprising decision, the Court quashed the conviction of Ms. Yan Suiling for money laundering in Hong Kong even though the Appellant, Ms. Yan admitted she engaged in illegal currency exchanges and accepted proceeds of crime into her bank account.

The facts of the case are interesting and shed some light on the underground flow of currency from Mainland China to Hong Kong and the extent to which such activities are accepted as part of the normal way of doing business between China and Hong Kong.

The Facts

Ms. Yan was a businesswoman and accountant who lived in Hong Kong and was originally from the Mainland. She was an active trader of securities.

In 2004, in order to remove undeclared funds from Mainland China, Ms. Yan began using a black market currency exchanger in China. The currency exchanger was a manager at a bank in Mainland China, known simply as Mr. Ting, who later asked Ms. Yan to deal directly with his wife, known simply as “Madam Chu”.

Whenever Ms. Yan needed a currency exchange transaction completed, she would deposit an amount in RMB into unidentified accounts in Mainland China and Madam Chu would then cause to be deposited an equivalent amount in the requested foreign currency into Ms. Yan’s bank account at HSBC in Hong Kong. Ms. Yan never knew or took steps to find out who owned the bank accounts in Mainland China where she deposited funds, or the persons who deposited funds into her bank account.

In March, 2009, Ms. Yan instructed her mother in China to deposit Â¥3 million into a bank account in China designated by Madam Chu. In exchange, Ms. Yan received six cheques and two cash deposits in Hong Kong and two days later, a cash remittance of HKD$150,000 – for a total of HKD$3,511,355 in exchange for her Â¥3 million.

One of the cheques deposited into Ms. Yan’s bank account for HKD$2.3 million was drawn from the account of a man in Shenzhen whom Ms. Yan did not know and it was proceeds of crime resulting from mortgage fraud that had occurred in China. The holder of that bank account was a co-defendant with Ms. Yan at her trial and was also a client of Madam Chu.

The mortgage fraud involved a fraudulent mortgage from Fubon Bank that was secured against an apartment in China. The funds from the mortgage were deposited to a lawyer’s trust account and after deducting fees and expenses, the lawyer transferred HKD$8,591,000 into another bank account with Fubon Bank, opened by the fraudster. The cheque in question for HKD$2.3 million was then deposited from this account into Ms. Yan’s bank account.

Ms. Yan and the co-defendant did not know each other and Ms. Yan had no knowledge of or involvement in the mortgage fraud.

Ms. Yan was charged with dealing with property derived from an indictable offence under §25(1) and (3) of Chapter 455 of the Organized and Serious Crimes Ordinance of Hong Kong. That section makes it an offence to deal with property knowingly or having reasonable grounds to believe that it is proceeds of an indictable offence.

She was convicted and her appeal to the Court of Appeal was dismissed.

Lower Court Judgment

The trial judge accepted that in order to trade in the Hong Kong stock exchange, Ms. Yan had to engage in the underground currency exchange system.

However, he found Ms. Yan evidence unreasonable and unbelievable for several reasons. Those relevant to money laundering are that:

(a)   No reasonable person would have engaged the services of Madam Chu to deal with such large sums of money totaling in the millions:

  1. Without ascertaining whether Madam Chu was licensed as a currency exchanger; and
  2. Given the inherent risk in remitting large sums to accounts of persons unknown to her, without first ensuring that she would be repaid;

(b)  The deposits she received were always in separate sums and she never asked why;

(c)   She was never concerned about the high exchange rates charged; and

(d)  An incredibly high degree of coincidence would be needed for Madam Chu to be able to make arrangements with different parties to come up with exactly matching amounts to transfer to Ms. Yan, time and again.

Ms. Yan appealed the dismissal of the appeal to the Court of Final Appeal of the Hong Kong Special Administrative Region on the ground that she did not know and had no reasonable grounds to believe that the cheque represented proceeds of crime.

The Appeal Decision

The Court of Final Appeal concluded that the reasoning from the trial judge was flawed because there is a well-known underground banking economy in Hong Kong for illegal currency exchanges which involve inherent risks, such as those identified by the lower court. It went on to hold that no “law abiding” person would assume those risks.

The Court of Final Appeal went on to hold that even if the trial judge was right to discredit Ms. Yan’s evidence, there was no basis to conclude that Ms. Yan had reasonable grounds to believe the cheque represented the proceeds of crime from an indictable offence.

The Court noted that money laundering involves knowingly (the mens rea) converting the proceeds of crime into other forms of property to cloak the illicit proceeds with legitimacy and it found that Ms. Yan never knowingly took such steps. The Court of Final Appeal held that there were plenty of other legitimate reasons to explain how untraceable and unidentifiable funds landed in Ms. Yan’s bank account time and time again in the exact amounts exchanged including by accident.

The Court held that “the mere fact that a large sum of money was deposited into the Appellant’s bank account by someone unknown to her and that she did not make any enquiry … is unusual, but there could be a number of explanations and possible consequences of her inaction. The money might have come to her by mistake and she might be held answerable in a civil action for its return. She might even be liable for prosecution in respect of some other offence(s). However, we do not think that without more, an unexplained receipt points irresistibly to money laundering.”

Ms. Yan was acquitted of money laundering and her conviction overturned.

The acquittal is unusual. Ms. Yan testified that she was aware that her currency exchange activities were illegal – that’s why she did it because she could not remove funds legally from China. She was also aware that the exchanged funds in Hong Kong were there by illegal means.

The decision hypothesized that the funds transferred to her bank account in Hong Kong could have been deposited there by mistake.

Only they weren’t. Ms. Yan admitted they were purposely deposited there by Madam Chu as part of Ms. Yan’s underground currency transactions.

The case is available here.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Comments are closed.