Theft (Amendment) Bill
Proposed Offence of "Fraud"
Retention of Conspiracy to Defraud
The Administration is asked by the Bills Committee to justify the retention of the common law offence of conspiracy to defraud, along with the proposed statutory offence of fraud, an offence limited to fraud occasioning economic or proprietary loss or gain or the risk thereof.
View of D of J
2. The Department of Justice are firmly of the view that there is full justification to retain the common law offence of conspiracy to defraud.
The Statutory Offence - the element of 'deceit'
3. In the proposed section 16A(1) of the Bill, fraud is defined as follows : -
"(1) If any person by any deceit (whether or not the deceit is the sole or main inducement) and with intent to defraud induces another person to commit an act or make an omission, which results either -
- in benefit to any person other than the second-mentioned person; or
- in prejudice or substantial risk of prejudice to any person other than the first-mentioned person, commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years." [emphasis added]
4. Accordingly, it is essential for the commission of the statutory offence for the act or omission of the person who has been deceived, to have been [induced] [by deceit], and that that act or omission must result in a benefit to some other person or prejudice or the risk of prejudice to some other person.
5. In order to prove the statutory offence, it is necessary for proof of all elements, and the need to prove a connection between those elements - in a given case there may be deceit and a benefit may be gained or prejudice or risk of prejudice occasioned, but one element may not have led to the other.
The Statutory Offence - Economic or Proprietary benefit or prejudice only
6. Under the proposed section 16A(3) the terms "benefit" and "prejudice" will be defined as follows : -
7. Despite having been prevailed upon to include fraud by which a person is caused to act contrary to his public duty, in the statutory offence, the Bills Committee is of the view that the statutory offence should follow the Law Reform Commission recommendation and be confined to fraud occasioning economic or proprietary loss or gain. (Quaere - how to deal with public duty conspiracy if common law offence of conspiracy to defraud were not to be retained ?)
Cases that would not have proceeded if the statutory offence applied
8. There have been a considerable number of cases, many of which have been high profile, which would not have proceeded if the statutory offence of fraud alone, was all that was available at that time; these would include:-
- The Kevin HSU case - this was a cheque kiting offence, in which bank officials were aware of the true nature of HSU's conduct.
- Ka Wah Bank Case - the LO brothers were directors of the bank and approved the sometimes fictitious loans.
- Hang Lung Bank case - another cheque kiting case in which bank officials were compromised (it led to the collapse of the bank)
- OTB Bank case - similar to 3.
- Overseas Union Bank - a case of letter of credit fraud. The bank officials were aware of the fraud and no deceit was practised.
- Conic Investments Cases - a case of falsification of company accounts. The company directors were all involved in it and there was no deceit.
- BMFL Case (George Tan, Lorraine Osman etc) - Osman, Saniman and Shamsuddin were all directors of the parent bank. They were not deceived.
- World Trade Centre Case - again there was deceit, but no economic loss or gain.
- Chim Pui-chung - there was deceit but not economic loss or gain.
9. In each of the cases mentioned above, any substantive offence that may have been available, such as false accounting, would have been wholly inadequate properly to reflect the criminality involved. Moreover, it is not always possible to establish that each and every conspirator was involved in the activity which might constitute a substantive offence, whereas it is obvious that they were involved in a wider conspiracy to defraud in which the commission of substantive offences may or may not have been contemplated by all. In this regard, the accused, Mr George Tan, would have walked completely if there had not been available to the prosecution a charge of conspiracy to defraud as there was no substantive offence for which he could have been charged.
Extradition and MLA Treaties
10. The concept of 'double criminality' is a pre-requisite that must be met under both the Surrender of Fugitive Offenders Ordinance, Cap. 503, and the Mutual Legal Assistance in Criminal Matters Ordinance, Cap. 525. This rule requires that before assistance can be rendered by Hong Kong to a foreign jurisdiction, the conduct underlying the offence for which the fugitive is wanted, or the offence under investigation or prosecution in respect of which mutual legal assistance is requested, must constitute an offence under Hong Kong law if the same underlying conduct had occurred in Hong Kong.
11. The effect of the Bill in its present form, and if conspiracy to defraud at common law is not retained, will mean that Hong Kong may not be able to provide assistance to many jurisdictions, including most other common law jurisdictions, which maintain a wider notion of fraud under their respective laws. In those cases where conspiracy to defraud is alleged by the requesting jurisdiction but the underlying conduct discloses no element of deceit or of economic loss or gain, Hong Kong will not be able to provide assistance under either Cap. 503 or Cap. 525, because double criminality will not be met. In such cases assistance could only be provided if the conduct disclosed an alternative offence under Hong Kong Law (e.g. false accounting).
12. Although such requests may not be common, as most of our international agreements, particularly for the surrender of fugitive offenders, specifically include conspiracy to defraud as a scheduled offence in Cap. 503, the failure of Hong Kong to comply with the request could lead to formal complaints from the requesting jurisdiction. One of the results is that Hong Kong will become a *heaven* for international fraudster.
Why has England retained the common law offence?
13. In 1977 the Criminal Law Act was introduced in England, which had the effect of abolishing conspiracies at common law, and creating a statutory offence of conspiracy. However because the legislators recognised the value of the offence of conspiracy to defraud the new law specifically preserved this particular variant of common law conspiracy. Nevertheless because of the way the legislation was drafted, considerable difficulties were experienced in applying its provisions whenever conspiracy to defraud was charged, and a number of cases found their way to the House of Lords.
14. The House of Lords interpretation of the legislation was to the effect that the new legislation creating statutory conspiracies meant that a statutory conspiracy and a conspiracy to defraud were mutually exclusive and conduct which amounted to the former could not be charged as the latter. As a consequence the usefulness of conspiracy to defraud was severely limited.
15. The problems created by these House of Lords decisions were examined by Lord Roskill who was commissioned by the Government to prepare a report. As a consequence of comments made by him in his report and of concerns expressed by those involved in the administration of the criminal justice system, the Government amended the Criminal Justice Act
in 1987 to restore the full usefulness of the offence of conspiracy to defraud.
16. For a long time now the English Law Commission has been reviewing all offences involving dishonesty and has deferred making a final recommendation on conspiracy to defraud until that review has been completed. Our fraud legislation, the Theft Ordinance, Cap. 210, is virtually identical to the English Act. The results of their review would be of great relevance to us and it would seem only sensible to, like the English, preserve the offence of conspiracy to defraud until such time as we have had a chance to examine the conclusions they reach in the review they are presently conducting.
17. Annexed hereto is a summary of fraud offences in other jurisdictions.
18. To conclude :-
- it is most important to bear in mind the limitations of the proposed statutory offence of fraud brought about by the nature of the elements of this offence and of the need to prove the connection between those elements - this could result in some offenders not being prosecuted;
- in the international arena Hong Kong has legal responsibilities under various treaties, which it cannot compromise without endangering its own reputation - Hong Kong must not become the refuge of the international fraudster;
- the usefulness of conspiracy to defraud, has been proven over the years and this can be seen in (i) the case examples quoted (mostly major and high profile commercial crime cases); and (ii) the fact that many common law jurisdiction have retained it.
Hong Kong should learn from the mistakes of others, not repeat them.
Department of Justice.