Commissioner of Police v Know-All Group Limited HC Auckland CIV-2010-404-00403

[2011] NZHC 851

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-00403

BETWEEN  THE COMMISSIONER OF POLICE Applicant

ANDKNOW-ALL GROUP LIMITED First Defendant

ANDYUEN YAM LI Second Defendant

Hearing:         12 January 2011

Counsel:         RMA McCoubrey for Applicant

DPH Jones QC for Respondent

Judgment:      7 February 2011 15:00:00

JUDGMENT OF RODNEY HANSEN J

This judgment was delivered by me on 7 February 2011 at 3.00 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Meredith Connell, DX CP24063 for Applicant

Neumegen and Company, P O Box 5968, Auckland 1141 (Mr E Yee) for

Respondents

POLICE V KNOW-ALL GROUP LIMITED HC AK CIV-2010-404-00403 7 February 2011

Introduction

[1]     The applicant (the Commissioner) applies under the Criminal Proceeds (Recovery) Act 2009 (the Act) for a restraining order over three properties owned by the second respondent (Ms Li).  They are currently the subject of an interim order. Ms Li opposes its continuation.  She claims the statutory conditions necessary to the making of a restraining order have not been satisfied.

[2]      There is also a restraining order over approximately $2.5m seized by police from the premises of the first respondent (Know-All Group Limited).  There is no opposition to the continuation of that order pending an application for forfeiture.

Issues

[3]      The restraining order is sought under s 25 of the Act which provides:

25   Making restraining order relating to all or part of respondent's property

(1)         A court hearing an application for a restraining order relating to all or part of a respondent's property may, if the court is satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity, make an order that the property it specifies in the order (“restrained property”)—

(a)        is not to be disposed of, or dealt with, other than is provided for in the restraining order; and

(b)        is to be under the Official Assignee's custody and control.

(2)         A restraining order made under subsection (1) may relate to any of the following:

(a)        all  of  a  respondent's  property  (including  property acquired after the making of the order):

(b)        specified parts of a respondent's property:

(c)        all of a respondent's property (including property acquired after the making of the order) other than specifically excluded property.

[4]      The critical issue is whether the Commissioner has established reasonable grounds to believe that Ms Li has unlawfully benefited from significant criminal activity.  The criminal activity relied on by the Crown is the offence of laundering the proceeds of drug offences under s 12B of the Misuse of Drugs Act 1975.  The offence is “significant criminal activity” as defined in s 6 of the Act.  It is alleged that Ms Li was involved in a business, trading in the name of Know-All Group, which provided currency exchange services.  The business operated from one of the properties she owned in Victoria Street, adjacent to the Auckland Sky City Casino. The Commissioner alleges that drug dealers who frequented the casino used the Know-All Group to disperse profits generated by their activities.

[5]      It is accepted for the purpose of this application that there is evidence that the business undertook the laundering of the proceeds of drug dealing, although it is denied that Ms Li was involved.  The hearing focused on the narrower question of whether there are reasonable grounds to believe that Ms Li unlawfully benefited from the activity.

[6]      The phrase “unlawfully benefited from significant criminal activity” receives

an extended meaning in s 7 of the Act which reads:

7     Meaning of unlawfully benefited from significant criminal activity

In this Act, unless the context otherwise requires, a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).

The issue is then whether the Commissioner has shown that there are reasonable grounds to believe that Ms Li has knowingly, directly or indirectly, derived a benefit from the money laundering activities of the Know-All Group.

Evidence of benefit

[7]      Ms Li is a Chinese national, now residing in Hong Kong.  She married Shih Liang Han (Mr Shih) in China in 1971.  They had two sons, San Wan Sze, known as Simon and Wai Sat Sze, known as Louis.  The family emigrated to New Zealand in the early 1990s.  Mr Shih and Ms Li divorced in 1999.  Mr Shih died in 2008.

[8]      The Know-All Group business began operations in about 2000.  Until at least

2004, the business was owned and operated by Know-All Group Limited which was incorporated in 1998.  Its sole director and shareholder is Ms Li.  Until earlier this year the registered office of the company was at its business premises in Victoria Street.

[9]      All family members have from time to time been engaged in the running of the business.   Ms Li acknowledges active involvement until mid-2004, when she moved to Australia and then to live permanently in Hong Kong.   From that time, Mr Shih managed the business.   For short periods Simon and Louis, who lived in Australia, came to New Zealand and worked in the business.  Ms Li’s position is that after she left New Zealand, she had no active involvement in the business and it ceased to be operated by Know-All Group Limited.  She says that, effectively, it was operated by Mr Shih on his own account, although under the name and style of Know-All Group.

[10]     The Commissioner’s case relies in part on Ms Li’s involvement with another

company, Know-All Group Pty Limited, which was incorporated in Australia in

2002.   Ms Li is the sole director and secretary.  All shares are held by Louis Sze. This company also operated a foreign exchange business.  In April 2006 Louis Sze opened a foreign exchange account in the United States in April 2006 in the name of the company.   The email address shown on the application is the same as that on business cards for Know-All Group Limited in the names of Mr Shih and Ms Li which were found when the Victoria Street premises were searched on 19 December

2006.

[11]     This was the last of three searches of the premises carried out in 2006.  The cash, which is the subject of the restraining order, was also found and seized on this occasion.

[12]     The evidence gathered in the course of the searches is gathered together in two substantial affidavits by Constable Stephen Peat.  The Commissioner also relies on an affidavit of Yin Wang, known by the English name “Happy”.  She worked for the business in late 2005 and for much of 2006.

[13]     The evidence of Ms Wang makes it clear that a lot of the business carried out by Know-All Group was legitimate.   She said that most of the customers were students who asked for relatively modest sums to be transferred overseas.  But she also gave evidence of customers from the casino for whom she did five or six transactions per day, with an average value of $8,000-9,000.   And she said that during the week preceding the police search on 19 December 2006, Mr Shih brought large amounts of cash to the office in supermarket bags and asked her to help with the counting.  She packaged five bags, each containing $100,000.

[14]     Mr  Shih’s  involvement  with  a  drug  dealing  syndicate  is  detailed  in  the evidence of Constable Peat.  Mr Shih was associated with Kim Tac Voong who was one of the ringleaders of a drug dealing syndicate which conducted its operations from the casino.  Intercepted communications support the proposition that Know-All Group was used to send the proceeds of drug dealing overseas.  There is evidence that  substantial  profits  were  derived  from  these  transactions.    A  source  and disposition statement for all accounts operated by Mr Shih for the period 1 March

2004  to  22  December  2006  identifies  a  total  of  $3,259,820.87  in  unexplained income.

[15]     The Commissioner’s position is that there were benefits from the money laundering operations amounting to $3,759,4047.05 comprising:

(a)       The cash seized by the police on 19 December 2006.

(b)      $914,000 transferred to the American account opened on behalf of

Know-All Group Pty Limited.

(c)       $200,000  transferred  from  a  financial  institution,  OM  Financial

Limited, to Know-All Group Pty Limited on 6 November 2006.

(d)$150,292.45 in cash deposits made to an ANZ joint account in the name of Ms Li and Louis Sze between 1 June 2004 and 31 December

2006.

[16]     The cash seized by the police self-evidently did not benefit the business and seems most unlikely even to have represented a potential profit to the business. Rather, it is an indication of the scale and nature of its operations and of the substantial profits being made from such activities.  The other transactions may be relied on as evidence of benefits and also to show there were links between the New Zealand business and the Australian company.  The account with OM Financial was operated by Mr Shih.  Substantial sums were deposited in the account, in excess of

$1m during the last half of 2006.

Evidence of continuing involvement after 2004

[17]     An affidavit filed in opposition to the application for restraining orders by Wing Kong Wong, a chartered accountant, shows that Ms Li derived substantial income from her personal business interests in Hong Kong, the proceeds of an insurance claim, rental from her properties in New Zealand and, while she was living in New Zealand, from drawings from Know-All Group Limited.  On the basis of this information, Mr Wong concluded that Ms Li was able to cover commitments in New Zealand  such  as  mortgage  repayments  and  to  make  remittances  overseas  using income from legitimate sources.  This does not, however, dispose of the key question of whether there is evidence that she benefited directly or indirectly from the money laundering activities of Know-All Group Limited.

[18]     There  is  compelling  evidence  that  Ms  Li  continued  to  have  a  close involvement in the business after she left New Zealand in 2004.  Ms Happy Wang

said she reported regularly to Ms Li.   She deposed to deducting her wages from receipts and faxing a summary of what had been done to Ms Li in Hong Kong.  She said the balance of New Zealand cash held at the end of the day was recorded and faxed to Ms Li, either by Mr Shih or by Ms Wang herself.  Ms Wang said Mr Shih referred to Ms Li as “the boss” and sometimes told Ms Wang to “phone the boss” and not to ask him when she wanted her work checked.

[19]     Ms Wang states that the week before the third police search, when she was counting the large sums of cash, she telephoned Ms Li because she was concerned that the cash was not being kept securely.  She asked her if there was a better way to keep the cash.  Ms Li said she would think about it.

[20]     Ms Wang also refers to the involvement of Louis and Simon Sze in the business.   Both were at the premises in November 2006.   Both undertook foreign exchange transactions when they were present.  In November and December 2006, on Mr Shih’s instructions, Ms Wang paid New Zealand currency to Louis Sze on a number of occasions.  She said she would sometimes receive phone calls from the Know-All Group Sydney office instructing her to make payments to people in Auckland.

[21]     Constable Peat deposes that telephone records confirm that telephone calls were  made  from  Know-All  Group’s  Auckland  office  to  Ms  Li’s  Hong  Kong telephone number on an almost daily basis and up to five times in one day.  There were also regular phone calls from the Auckland office to the telephone number in Australia given by Louis Sze in the application by Know-All Group Pty Limited to open the American account.

[22]     After the third search warrant was executed in December 2006, the police phoned Ms Li to find out the location to the key to the safe and the “pin” code.  She gave them the information.  In a second conversation, she estimated that there was

$300,000 in the safe which was the operating capital of the business.   She denied knowledge of other cash and said it was Mr Shih’s “matter”.  The next day, Ms Li telephoned to claim the return of $300,000-500,000 of the cash seized because there were people wanting to send money from China to New Zealand.  Ms Li said that

Ms Wang had told her about several hundred thousand dollars in cash kept under the bed in a bedroom in the business premises.  Ms Li said that it was Louis who took the cash to the shop, contrary to Ms Wang’s evidence.

[23]     Ms Li swore an affidavit in opposition to the application.  She deposes that after she left New Zealand in 2004, Mr Shih took over the running of the business. Apart  from  providing  advice  from  time  to  time,  she  claims  to  have  had  no meaningful involvement in its operations.   She leased the premises to him.   The company Know-All Group Pty Limited ceased trading.

[24]     Ms Li says that soon after leaving New Zealand she set up a money exchange business in Australia.   (She does not say whether this was Know-All Group Pty Limited.)   That business did not make enough  money and  experienced security problems.  It was wound up in November 2006.

[25]     Ms Li states that Mr Shih was his own boss.   It would have been out of character for him to take orders from her.  If he told others she was the boss, it was without her authority and for his own purposes.  She spoke to him from time to time and, when he was absent from the office, answered queries from employees.   She denies any involvement in the management of the business or knowledge of illegal

activities.  In answer to specific claims in the affidavit of Constable Peat she says:

The account opened in the USA was established by the Australian company to  enable customers to speculate in foreign currency.   It had nothing to do

with Know-All Group Pty Limited.

She did not authorise the printing of the business cards.  She concludes that

Mr Shih had them printed for his own purposes.

Ms Wang was not in touch with her on a daily basis.  She lived in Australia during most of the time Ms Wang was employed.  She had only occasional contact with her to answer queries about a customer or matters of that nature.

Telephone records showing frequent calls cannot be relied on.   If correct, they are explained by use of a diversion service by Mr Shih which enabled him  to  call  customers or agents  in  China via her Hong Kong telephone

number.

She told the police to get into the safe after being instructed by Mr Shih to do so.  She understood this to be so that he could avoid further trouble with the police.  He also told her there was $300,000 in the safe.  She simply did what Mr Shih asked her to do.  He also told her that their son, Louis, had taken the money to the premises.   He asked her to pass this information on to the

police.

Discussion

[26]     Counsel accepted that it is not open to me in a hearing of this nature to resolve disputed issues of fact.  There was a notice given to cross-examine Ms Li but, as she resides in Hong Kong, she was not available to give evidence.   It was agreed that the issues should be dealt with on the basis of the affidavits.   That essentially requires me to proceed on the basis of the  evidence adduced by the Commissioner, unless plainly untenable, or incontrovertibly contradicted by other evidence.

[27]     On the basis of the evidence filed on behalf of the Commissioner, I consider there are reasonable grounds to believe that Ms Li unlawfully benefited from the money laudering activities undertaken by the Know-All Group business.   The evidence  provides  ample basis  for  me to  infer  that,  although  absent  from  New Zealand, Ms Li  continued  to  have an  interest  in  the business,  knowledge of its activities and a direct say in its operations.

[28]     I am not persuaded that Know-All Group Limited ceased to be the vehicle for the money laundering business.  Its registered office remained at 77A Victoria Street. No  steps  were  apparently  taken  to  liquidate  the  business.    Documents  such  as business cards, which appear to have been in circulation in 2006, were in the name of the company.  Mr Wong’s view that the company ceased trading in 2004 is based

on the instructions of Ms Li and the absence of accounts for later periods.  That is not a sufficient basis to reject evidence that the business continued to trade through the company.  If Ms Li is right, I would have at least expected to see accounts for the year ended 31 March 2005 showing that the business had been wound up.

[29]     On her own evidence, Ms Li was directly involved in the operations of the Australian company.  Apart from the name and Ms Li’s common role as director of both companies (both of which indicate an international dimension to the business), there are established links between the two operations.   Know-All Group Limited (through  OM  Financial)  made  remittances  to  the  account  opened  by  Know-All Group Pty Limited in America and transferred $200,000 direct to Know-All Group Pty Limited Australia on 6 November 2006.  The timing of the latter remittance is not without significance.  It falls within the period when Know-All Group Limited appears to have become most actively involved in processing large cash sums.   It came at a time of heightened police surveillance of the Auckland operations.  It was in November 2006 that Ms Li says she closed the Australian operation.

[30]     While  Ms  Li  has  answered  much  of  what  Ms  Wong  says,  Ms  Wang’s evidence must be accepted for the purpose of this application.   Corroborated by phone records, it discloses a continuing active involvement of a managerial nature by Ms Li in the Auckland operation.  If her explanations for the information she gave to the police following the search in December are put to one side, they confirm a detailed knowledge of the operations of the business.

[31]     The evidence adduced on behalf of the Commissioner builds a picture of a family enterprise conducted internationally in which Mr Shih, Ms Li and their two sons were actively involved.   While from mid-2004 Mr Shih was primarily responsible for the day to day operations of the Auckland business, Ms Li continued to have an active, perhaps even a directing, role.   In my view, the totality of the evidence establishes reasonable grounds to believe that Ms Li was aware of the unlawful activities of the Auckland operation and, through remittances to accounts in New Zealand and elsewhere in which she was directly or indirectly beneficially interested, she benefited from such activity.

Result

[32]     The restraining order over the properties particularised in the Commissioner’s

application is extended in accordance with s 37 of the Act.