Commissioner of Police v Cheng

[2016] NZHC 2304

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

CIV 2016-416-12 [2016] NZHC 2304

IN THE MATTER

of an application pursuant to sections 22,

24 and 25 of the Criminal Proceeds
(Recovery) Act 2009

BETWEEN

THE COMMISSIONER OF POLICE Applicant

AND

THOMAS CHENG First Respondent

AND

MASONIC LIMITED Second Respondent

AND

REDOUBT HOUSE LIMITED Third Respondent

AND

ACTION INVESTMENTS LIMITED Fourth Respondent

AND

ACTION INVESTMENT LLP Fifth Respondent

AND

HARVEST PROPERTY LLP Sixth Respondent

AND

MORTGAGE INTERNATIONAL LLP Seventh Respondent

AND

EXPRESS FACTOR LLP Eighth Respondent

AND

WILLIAM CHENG First Interested Party

AND

NYIOH CHEW HONG Second Interested Party

Hearing:	20 September 2016
Counsel:	K R L Guthrie for Applicant A M Simperingham for First Interested Party
Judgment:	28 September 2016

THE COMMISSIONER OF POLICE v CHENG [2016] NZHC 2304 [28 September 2016]

JUDGMENT OF SIMON FRANCE J

Introduction

[1]      Mr Thomas Cheng, the first respondent, has been charged with serious drug offending  (methamphetamine).     Consequent   upon   his  arrest,  Wylie  J   made restraining orders in relation to various property and bank accounts.1    One of the bank  accounts  was  in  the  name  of  Mr William Cheng,  the  father  of  Thomas. Mr Cheng makes an application for the restrained funds, being $74,024.35, to be released.

[2]      The Commissioner seeks to maintain the orders on two separate bases – the funds  are  tainted  property  because  Thomas  made  significant  deposits  into  the account;  alternatively,  there  are  reasonable  grounds  to  believe  the  applicant Mr William Cheng has benefitted from his own significant criminal activity, namely tax evasion.  Accordingly, an order under s 25 of the Criminal Proceeds (Recovery) Act 2009 is appropriate.

Relevant facts

[3]      Mr William Cheng   is   a   Singaporean   businessman   with   interests   in New Zealand.  There are six commercial properties in the Gisborne area owned by five corporate entities with which he or his wife, Ms Hong, are associated.   Each property is subject to a mortgage, with the mortgagee being one of two Singaporean registered companies with which either Mr Cheng or Ms Hong are associated.

[4]      Three of the property owners are New Zealand companies.  None of them nor the two Singaporean corporate owners have New Zealand bank accounts.  Instead all dealings in relation to their properties go through a single account in the name of William Cheng.  It is this trading account that is the subject of the restraining order.

At the time of the order there was $74,024.35 in the account, and that is what was

1      Commissioner of Police v Cheng HC Gisborne CIV-2016-416-12, 4 April 2016.

seized.  It seems the account continued to be used unhindered for a while after that, before all its activity was transferred to a different account with another bank.

[5]      Enquiries with the IRD indicate:

(a)      Mr William Cheng has a tax number but has not filed anything.  It can at this stage be noted that Mr Cheng has several other accounts in New Zealand with a total credit balance exceeding $10 million. There has   been   no   accounting   to   IRD   concerning   interest   earned (recognising some tax will have been taken by the bank);

(b)      Ms Hong does not have a New Zealand tax number; (c)         none of the companies have filed income tax returns; (d)        none of the companies have filed GST returns.

[6]      I heard evidence via AVL from Ms Hong.   She was testifying on her own behalf and on behalf of Mr Cheng who it seems has both physical and mental health issues.  There was medical evidence to support this.  It seems he has some form of mental  deterioration.    He  is  not  incompetent  in  any  sense  but  struggles  under pressure.  He would struggle to organise his thoughts under the stress of testifying, and it would affect his health.  Ms Hong has an enduring power of attorney.  I accept this evidence.

[7]      Ms Hong   attempted   to   provide   some   explanation   for   the   business arrangements.    She  said  GST returns had  been  filed online but  had  nothing to substantiate this despite knowing from the affidavits it was an issue.  She explained that none of the companies make any profit, and indeed the restraint of the $70,000 was placing their viability under stress.  The lack of profit was due to the interest obligations to the mortgagees.  It is not apparent, however, from the bank statements that any such interest payments have ever been made, but Ms Hong said that was because they were annual payments.

[8]      A snapshot of five months of statements shows that when a surplus develops in this trading account, it is transferred to another account in Mr Cheng’s name. Over the short period this was nearly $400,000.  Ms Hong suggested this money was withdrawals  to  enable  the  interest  to  be  paid,  but  again  gave  no  documentary support.   At this point the legitimacy of these alleged mortgage arrangements is questionable.  Ms Hong also suggested Mr Cheng had transferred the money to his accounts at the direction of his brothers with whom he is in business.

[9]      It is unnecessary to go further into this evidence.  I did not find Ms Hong to be a satisfactory witness.   To the extent any of her testimony seeks to provide a legitimate explanation for these arrangements, I do not accept it.

[10]     I also conclude that the claim that Mr Cheng is being financially affected by the restraint is untenable.   The restrained account was building up  considerable surplus in a relatively short time.   There is no basis to believe the same is not happening in whatever new account is being used.  The reality is that for reasons not stemming from this restraining order, Mr Cheng’s access to his other large deposits is being prevented.  That would be the source of any alleged difficulty, if there is such difficulty.

Analysis

[11]     The original restraining order application was advanced on two bases – the funds  in  the  account  were  tainted  property  (s 24  of  the  Act),  and  there  were reasonable grounds to believe Messrs William and Thomas Cheng, and Ms Hong, had benefitted from substantial criminal activity, namely tax evasion.   The latter would justify orders under s 25 of the Act.

[12]     Section 24 of the Act allows restraint of tainted property.  It is clear that at relevant times Mr Thomas Cheng paid into the trading account, by several deposits, a total of $46,925.   There are reasonable grounds to believe that money was the product of alleged drug activity.   The definitions in the Act make it clear that the interspersing of tainted money will mean the entire sum is tainted.  The basis for an order under s 24 is therefore present.

[13]     However, the evidence satisfies me that other than the sum deposited by Thomas, the rest of the money is not the product of his serious criminal activity.  Its legitimate source as rental income is readily apparent and I consider that Thomas’ drug offending does not support retention beyond the amount he deposited.

[14]     However, as I read the order, Wylie J in fact restrained all the property under s 25.   That section does not require the property to be itself linked to the alleged significant criminal activity.  The requirements are that there be reasonable grounds to believe Mr Cheng has unlawfully benefited from significant criminal activity, and the restrained property belongs to him.  It can be property wholly separate from the actual criminal activity.  I am well satisfied the necessary criteria are made out.

[15]     First, there are reasonable grounds to believe tax evasion has occurred.  The lack of any evidence of proper tax treatment, together with the extremely complex ownership  structures,  provide  a  basis  for  belief  that  there  has  been  significant evasion of the companies’ tax obligations in relation to the commercial properties. Further, it seems clear Mr Cheng has a controlling role in the companies and there are reasonable grounds to believe he is aware of the tax evasion.  He is implicated, at least as a party, in any deliberate tax evasion by the companies.  Second, the lack of any tax returns in relation to interest earned on his own very large deposits suggests that this absence may be linked to a pattern of tax evasion.

[16]     The money seized was in an account under Mr Cheng’s name.   There is evidence of transfer of large sums from that account to other accounts in his personal name.    I am  accordingly  satisfied  the  money in  the  account  is  rightly  seen  as Mr Cheng’s.

Conclusion

[17]     The application is declined.

[18]     I confirm there is a basis under s 24 of the Act for retention of $46,925 as being the proceeds of Mr Thomas Cheng’s significant criminal activity.

[19]     I also conclude that under s 25 there are reasonable grounds to believe that Mr William  Cheng  in  his  own  right  has  unlawfully  benefitted  from  significant criminal activity, namely tax evasion both by himself and by companies with which he is associated and controls.   I am further satisfied the restrained money is his property, although theoretically belonging to the companies.  This is evidenced by transfer of large sums from the account to other accounts in Mr Cheng’s name. Under s 25 the entire sum is properly restrained, and the application to vary because of hardship is declined.

[20]     The   Commissioner   is   entitled   to   scale   costs   (2B)   and   reasonable disbursements to be fixed by the Registrar if necessary.

Simon France J