In the first of a three-part series, lawyer Edmund Lam gave an introduction to white-collar crime and shared examples of money laundering and signing of false certificates.
In this article, he provides illustrations of the criminal breach of trust, corporate fraud and corruption and bribery.
Illustrations of white-collar crimes
Criminal Breach of Trust
In 2001, the City Harvest Church (“CHC”) decided to embark on a project that used popular music for evangelism (“the Crossover”). The Crossover, which was first launched in Asia, involved Ms Ho Yeow Sun (“Sun Ho”) using secular music to evangelise. Around 2004, the Crossover expanded into the United States of America and required a significant increase in the amount of funding within the next few years. This led to CHC entering into a series of complex transactions between 2007 and 2009 with a number of entities led by persons (“Involved Persons”) who were involved in various capacities in the leadership and administration of CHC including its founder pastor, Kong Hee, who was also Sun Ho’s husband. After the Commercial Affairs Department (“CAD”) commenced investigations into the affairs of CHC, these Involved Persons were convicted of three categories of charges (in various permutations).
The first category was the criminal breach of trust by agent under section 409 (reduced to section 406 on appeal) of the Penal Code (Cap. 224) for entering into sham investments by using CHC’s funds to purchase bonds which were not in substance investments but means devised to take out funds from the Building Fund (a specific use fund) to use on the Crossover. As part of these sham investments, transfers of $11 million were made, of which about $7.56 million was used for the Crossover whilst $2.5m was used by an Indonesian businessman and also a member of CHC for his personal expenses.
The second category was the criminal breach of trust by agent under section 409 (reduced to section 406 on appeal) of the Penal Code (Cap. 224) committed through “round-tripping” for the purpose of creating the appearance that some of the bonds had been redeemed. When considered as a whole, the round-tripping transactions were to perpetuate a fraud to use CHC’s funds for unauthorised purposes.
The third category was account falsification under section 477A of the Penal Code (Cap. 224) pertaining to the entries recorded in CHC’s accounts for the transactions that were the subject of round-tripping. The accounting entries were false as they did not reflect the substance of the underlying transaction and the true purpose of the various payments and transfers.
On appeal, the appellate court allowed the Involved Persons’ appeal in part by reducing the convicted charges, criminal breach of trust by agent under section 409, to a less serious offence of criminal breach of trust simpliciter under section 406 of the Penal Code (Cap. 224). In practical terms, this reduction brought about reduced overall sentences for the Involved Persons. The appellate court had held that notwithstanding that directors of companies could be agents of the company vis-à-vis certain acts that they did on behalf the company, the relationship between the directors and their company was an internal one. However, an “agent” under section 409 is an agent who made his livelihood by offering business services of an agent to the community at large and has a relationship with the company that is external in nature. In an Attorney-General’s Criminal Reference to the Court of Appeal on this point of law, the Court of Appeal agreed with the appellate court that a director is not an agent for the purposes of section 409.
The majority of the appellate court did recognise that there was no sinister and malicious attempt on the Involved Persons’ part to strip CHC’s funds for their own purposes. None of them could have been said to have gained anything from what they did other than pursuing the objects of CHC. They were acting in what they genuinely believed to be in CHC’s interests (but do read the dissenting appellate judge’s views). Their fault lay in adopting the wrong means. They acted dishonestly as they intended to put CHC’s funds to uses which amounted to wrong uses of those funds with the knowledge that they were not legally entitled to do so. Furthering altruistic ends through unlawful means did not right that wrong. That said, the noble intentions behind their conduct were accepted by the majority of the appellate court as mitigating circumstance during sentencing.
The aggregate terms of imprisonment meted out on the Involved Persons were reduced on appeal and ranged from 7 months to 3 years and 6 months (originally 21 months to 8 years).
Lessons – This is one of the most controversial cases amongst a slew of criminal cases where well-respected religious leaders were found to have been on the wrong side of the law.
The Involved Persons had resorted to the use of complex legal structures in order to keep the use of certain funds for the Crossover confidential from CHC’s auditors, lawyers, board of directors and members. Those plans were devised and proposed by the Involved Persons to the CHC board and were approved by the innocent directors together with the guilty directors. However, that approval did not absolve the Involved Persons of criminal liability. In a similar vein, the relevant Involved Persons were found to have been entrusted with CHC’s funds notwithstanding the fact that the drawdowns had to be authorised by signatories who were independent of the Involved Persons.
In the final analysis, the Involved Persons had resorted to deceit and lies to hide the true nature of the transactions because they feared that questions would be asked even though they genuinely believed that they were pursuing the objects of CHC. When a person is discovered to have deliberately hidden the truth, it is human nature to assume the worst even if that was not the case. Two of the Involved Persons were clearly spiritual leaders of CHC as their pastors. Moral leadership will be expected of anyone who is entrusted with funds. If the Involved Persons had instead taken the route of good corporate governance and openly put forth the Crossover project to the CHC congregation for approval and financial support/donations in a transparent manner before embarking on it, the outcome could have been very different.
Corruption and bribery
Officers of ST Marine made corrupt payments to secure business, by bribing the employees of ST Marine’s customers, who sought ship repair services, to induce those employees to provide more ship repair services business to ST Marine. These officers of ST Marine acted with the approval of key members of ST Marine’s senior management team. Records seized from ST Marine revealed that at least $24.9 million in bribes were paid over 11 years.
The Corrupt Practices Investigations Bureau (“CPIB”) investigations found that bribes were paid in cash using ST Marine’s funds and referred to as ‘cash commissions’. After obtaining management approvals for the payment of such cash commissions, petty cash claims for those amounts were submitted without any supporting receipts or invoices and was described as ‘entertainment expenses’ which deviated from the usual practice relating to genuine claims for entertainment expenses. To avoid raising suspicion, bribes exceeding S$5,000 were split into a series of smaller petty cash claims. “Pay Orders”, which falsely reflected the nature of those payments as reimbursement of ‘entertainment expenses’, were issued to obtain cash cheques from the Finance Department. After the cash cheques were encashed, the corrupt ‘cash commission’ payments would be given to the member of staff who would acknowledge receipt of the cash handed over. The cash was then handed to the employees of ST Marine’s customers. ST Marine did not inform their customers that they were paying ‘cash commissions’ to their respective employees.
The Group Financial Controller (“GFC”), did raise a concern when she was transferred to ST Marine and was informed that these were ‘cash commissions’. She was then provided with a written document prepared several years earlier which set out the Finance Department’s role in the processing of these payments with specific instructions on how to avoid detection and informed that this practice was previously approved by the President of ST Marine (“Approving President”). She raised this to the new President of ST Marine (“New President”) who took over a year later but he did not put a stop to this practice and this practice continued.
The members of the ST Marine’s senior management (including the Approving President, the New President and the GFC) who were complicit to the ‘cash commissions’ were charged. They were convicted for various offences (in different permutations) under section 477A of the Penal Code (Cap. 224) for making false accounting entries, section 6(b) of the Prevention of Corruption Act (Cap. 241) for corruptly giving bribes and section 157(1) of the Companies Act (Cap. 50) for breaching their duty as directors to act honestly and use reasonable diligence. They received aggregate sentences of fines from $80,000 to $300,000 and/or terms of imprisonment from 2 weeks (Short Detention Order) to 10 months imprisonment.
Lessons – Committing offences of corruption (that said, or any other white-collar crime) can snowball to other white-collar crimes as accounting entries with the description “payment of bribes” are highly unlikely to be a viable option.
Even those not involved in the corrupt conduct got implicated by helping to cover up suspicious payments through the breach of the financial procedures or failing to put a stop to it. For the GFC, the court accepted that that she did not know of the illegal nature of those payments and held that the crux of her offences was her failure to exercise her duty at the apex position of financial control by standing up to her superiors to put a stop to a highly questionable and irregular practice that was institutionalised with some level of sophistication into internal operating procedures. Hiding behind her senior management by reporting the matters to the succeeding New President did not exonerate her from criminal liability. However, it was sufficient to be a mitigating factor for her to avoid a custodial sentence. For the New President, he failed to raise any queries as to the legality of these payments and the procedures involved after being informed by the GFC. Although he did not have direct knowledge of such corrupt payments, he was more culpable and was given a Short Detention Order sentenced by virtue of his more senior position and his failure to stop the practice after being informed.
Great power comes with greater responsibilities. When such things happen, there is an understandable temptation to not rock the boat and risk putting one’s career on the line. Yet inaction may also lead to adverse consequences. What would be the right thing to do and would you do the right thing if you were in such a dilemma?
Corporate fraud
Ong was an accountant in a company where he was entrusted with pre-signed cheques and telegraphic forms to make payments on behalf of that company. Ong used these pre-signed cheques and forms to issue payments to himself. He then forged invoices and payment vouchers to cover up his deeds. The total amount misappropriated by him was $1.2 million.
After Ong’s employment was terminated, he joined another company. This company made him an authorised signatory to its bank account in 2011. He then made use of the opportunity to misappropriate company funds again. Ong deceived the directors into signing cheques totalling $419,324. To cover his tracks, he forged the company’s bank statements by pasting amended figures on the statements and making photocopies. The originals were then shredded. Only after the company discovered that Ong had been remanded in prison than it engaged another accountant to look into its accounts, leading to the discovery of his further misdeeds.
Ong pleaded guilty to 24 of 107 charges of criminal breach of trust, forgery and cheating and was sentenced to an aggregate of 87 months’ imprisonment.
Lessons – This is a classic case of an employee stealing from his employer; a story worth repeating as these same stories keep recurring time and again through the ages. Entrusting employees with pre-signed cheques and telegraphic forms is nothing less than a bad idea and can cost you dearly. In this case, none of the stolen monies was recovered. Good practices, checks and controls are essential as pilfering employees will also have tricks up their sleeves to cover their tracks.
Stay tuned for the last part of this series where Edmund shares illustrations on insider trading, corruption and bribery, multi-jurisdictional jeopardy & resolution and deferred prosecution agreements.
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This article is written by Edmund Lam from LHM Law Corporation and edited by Leanne Cheng from Asia Law Network.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.