Commissioner of Police v Zhu
[2015] NZHC 2175
•9 September 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-871 [2015] NZHC 2175
BETWEEN COMMISSIONER OF POLICE
Applicant
AND
XIAO CHENG ZHU First Respondent
YAN MA
Second RespondentYUELAN WU Third Respondent
HAIGEN ZHU Fourth Respondent
Hearing: 26-27 March and 27 August 2015 Counsel:
M Harborow and K Eastwood for Plaintiff
First Respondent in person
Second Respondent in person
M Kan and J Ding for Third RespondentJudgment:
9 September 2015
RESERVED JUDGMENT OF MACKENZIE J
I direct that the delivery time of this judgment is
4.45 pm on the 9th day of September 2015
Solicitors: Meredith Connell, Auckland, for Applicant
Michael Kan Law, Auckland, for Third Respondent
Copy to: First and Second Respondent
COMMISSIONER OF POLICE v ZHU [2015] NZHC 2175 [9 September 2015]
Table of contents
The application [1] Background [3] The financial analysis [8] Mr Zhu and Ms Ma [13] Mr H Zhu and Ms Wu [13] The assets forfeiture application [15] The profit forfeiture application [52] Result [73]
The application
[1] This is an application for orders under the Criminal Proceeds (Recovery) Act 2009 (the Act). The following orders are sought:
(a) An order under s 58 of the Act that the residential property at
3/33 Hamlin Road, Mt Wellington, Auckland (the Hamlin Road property), of which the registered proprietor is First Delight Limited, be treated as though one or more of the respondents had an interest in it.
(b)A profit forfeiture order under s 55 of the Act against the first and second respondents, to the extent of $430,682.22.
(c) As an alternative to the order sought in (b), an assets forfeiture order in respect of the Hamlin Road property.
(d)As an alternative to the orders in (b) and (c), a profit forfeiture order against the third and fourth respondents in the sum of $94,675.74.
[2] Mr Harborow for the applicant in his closing submissions summarises the relief sought differently, being, in the alternative:
(a) assets forfeiture orders pursuant to s 50 of the Act; or
(b)profit forfeiture orders against the first and second respondents in the sum of at least $430,682.22 pursuant to s 55 of the Act; or
(c) profit forfeiture orders against the third and fourth respondents in the sum of at least $94,675.74 pursuant to s 55 of the Act.
Background
[3] All four respondents are members of the same family. The third and four respondents (Ms Wu and Mr H Zhu) are the parents of the first respondent (Mr Zhu). They lived in China. Mr H Zhu died on 27 October 2014. Mr Zhu was born there on 31 October 1979. He came to New Zealand to study in 1999. He completed his studies in 2002, and remained in New Zealand, where he obtained permanent residence in 2003. The second respondent (Ms Ma) was born on 7 November 1983. She is also a permanent resident of New Zealand. She is married to Mr Zhu and they have two children.
[4] In August 2011 the Inland Revenue Department (IRD) began an investigation into a number of companies linked to Mr Zhu and Ms Ma. An access warrant was executed at their home address, the Hamlin Road property. Documentation was seized relevant to the tax investigation which later led to 89 charges against Mr Zhu and four charges against Ms Ma under the Tax Administration Act 1994 (the TAA) and the Crimes Act 1961. Mr Zhu pleaded guilty to 80 charges on 15 May 2013. On
10 July 2013, he pleaded guilty to a further nine charges. He was later sentenced to six months home detention. Ms Ma was charged as a party to some of the Crimes Act charges, but these were later withdrawn.
[5] Mr Zhu incorporated many companies, which he registered with IRD for GST. He took steps to build up a façade of genuine business activity by setting up bank accounts and obtaining post office boxes for the companies. He obtained GST refunds for the companies. The summary of facts on which Mr Zhu pleaded guilty in May 2013 involved 27 companies. There were two charges under s 143B of the TAA for each company: making a false IRD number application; and making a false GST registration. For each of 24 companies there was also a charge under s 240 of the Crimes Act of making fraudulent GST refund claims, totalling $97,589.53. The
applications for those refunds were made on various dates between
12 February 2008 and 8 December 2011. There were also two further charges under s 256 of the Crimes Act of using a false document in applying for IRD numbers for two individuals. The nine further charges in July 2013 involved five companies. For each, there was a charge under s 240 of the Crimes Act of making fraudulent GST refund claims or income tax refunds totalling $20,176.61. There were also four charges of dishonest use of a document under s 228 of that Act. The refunds unlawfully obtained amounted to $123,259, of which $106,662.94 was recovered.
[6] In addition, it appeared from the investigation that Mr Zhu had accessed the IRD accounts of 26 people and misappropriated personal tax refunds for these people, totalling $17,452.32. He was not charged with any offences arising from those actions.
[7] As well as the tax irregularities, the documents obtained in the search indicated that Mr Zhu was providing unauthorised immigration consulting services. The documents indicated that Mr Zhu made online contact with a number of people and offered them assistance with immigration issues. He was not authorised to provide immigration advice under the Immigration Advisers Licensing Act 2007. Mr Zhu faced three charges of supplying false information under the Immigration Act 2009 and 29 charges of dishonestly using a document under s 228 of the Crimes Act 1961. The charges related to four individuals, from whom Mr Zhu collected fees totalling $65,000. Those charges were later withdrawn.
The financial analysis
[8] The basis for the application is set out in the affidavit of Detective Senior Sergeant Chao (DSS Chao), the Officer in Charge of the Auckland Asset Recovery Unit of the Financial Crime Group. DSS Chao’s Unit began an investigation into the financial affairs of Mr Zhu and Ms Ma. Those investigations extended to Ms Wu and Mr H Zhu. Banking enquiries identified bank accounts associated with all four respondents. Enquiries into the respondents’ taxation history were carried out. Enquiries were also made of Work and Income New Zealand (WINZ) as to benefits received by any of the respondents.
[9] The analysis of bank accounts covered a very large number of accounts, in several banks. There were, for Mr Zhu and Ms Ma:
(a) 13 ASB bank accounts in the name of Mr Zhu;
(b) three ASB credit card accounts in the name of Mr Zhu;
(c) three Kiwibank bank accounts in the joint names of Mr Zhu and
Ms Ma;
(d) one HSBC bank account in the joint names of Mr Zhu and Ms Ma; (e) four ASB bank accounts in the name of Ms Ma;
(f) one HSBC bank account in the name of Ms Ma; (g) one NBNZ bank account in the name of Ms Ma;
(h) one NBNZ credit card account in the name of Ms Ma; and
(i)one Kiwibank bank account in the name of Access Way Limited, the sole signatory for which was Ms Ma.
[10] For Ms Wu and Mr H Zhu, the following accounts were analysed: (a) 15 ASB bank accounts in the name of Ms Wu;
(b) one Kiwibank bank account in the name of Ms Wu;
(c) one Kiwibank bank account in the name of Ms Wu and Mr H Zhu; (d) three Kiwibank bank accounts in the name of Mr H Zhu; and
(e) one Kiwibank bank account in the name of Quick Tour Limited, the sole signatory of which was Mr H Zhu.
[11] The bank statements for all the accounts were entered into a spreadsheet. Transactions (including deposits and withdrawals) for which the source of disposition could be identified were accounted for, and the remaining items, which could not be accounted for, were treated as funds from unexplained sources.
[12] For the accounts analysed for Mr Zhu and Ms Wu, the total deposits from sources which could not be identified were $324,589.89. Of that, $289,031 was deposited into the accounts in cash, by a very large number of deposits ranging from tens of dollars to several thousand dollars on each occasion.
[13] DSS Chao says that those inquiries indicate that in the period 1 March 2007 to 31 March 2012 the respondents collectively had $525,357.96 of unexplained deposits into their bank accounts. This amount is made up as follows:
Mr Zhu & Ms Ma
Cash Deposits $289,013.00 Other Unidentified Deposits $35,576.89 Yujia Financial International Ltd
(NZ Forex company)
$93,397.33
Deposits from Meng Xing Zhao $ 4,990.00 Unexplained Sources of Funds (USF) $422,977.22
Mr H Zhu & Ms Wu
Cash Deposits $1,650.00 Forex Payments Received $35,959.74 Deposits from Mengying Zhao $10,200.00 USF $47,809.74 Tainted Credit Interest (Mr Zhu and Ms Ma)
$7,705.00
Tainted Credit Interest (Mr H Zhu and Ms Wu) $46,866.00 $54,571.00 Total USF
$525,357.96
[14] The applicant also seeks profit forfeiture orders in respect of the total of the unexplained funds in the respondents’ bank accounts, amounting to $430,682.22 for Mr Zhu and Ms Ma, and $94,675.74 for Ms Wu and Mr H Zhu.
The assets forfeiture application
[15] The Hamlin Road property was purchased in the name of Ms Wu in 2008. It is now registered in the name of First Delight Limited. The applicant asserts that the Hamlin Road property is tainted property in terms of s 5 of the Act in that it has been acquired as a result of, or is directly or indirectly derived from, Mr Zhu’s significant criminal activity.
[16] The Hamlin Road property was purchased by Ms Wu on 2 September 2008 for $240,000. Mr Zhu held a power of attorney for Ms Wu and he executed all the loan documents on her behalf. He also signed the sale and purchase agreement. A deposit of $12,000 was paid to the land agent on 7 July 2008 from an account in Ms Wu’s name. A further $78,828.48 was paid to the lawyers acting on the purchase on
1 September 2008 from another account in Ms Wu’s name. The balance of the
purchase price came from a mortgage of $150,000 from ASB, drawn down on 1
September 2008, but effectively immediately repaid, in that on the same day as Ms Wu’s loan account with ASB was debited with the $150,000 loan, there was a transfer from another of her accounts with ASB of $149,650. In October 2010 the property was transferred from Ms Wu to a company, First Delight Limited. The sole shareholder in that company is Elaine Zhu, who is Mr Zhu and Ms Ma’s infant daughter. Ms Wu is the sole director.
[17] The applicant contends that the funds for the total purchase price of
$240,828.48 were transferred into Ms Wu’s ASB account from Mr Zhu’s ASB account over the period between 10 March 2006 to 1 September 2008. In that period the applicant asserts that there were 23 transfers totalling $306,180. The applicant’s analysis of Mr Zhu’s account from which the transfers were made is relied on as establishing that $64,400 was deposited into that account from unidentified sources in the period between 16 May 2005 to 16 May 2008. A further $212,905 is said to have been deposited from unaccounted cash deposits between 8 July 2005 and
30 August 2008. Those amounts form part of the applicant’s analysis of the unexplained sources of funds totalling over $400,000 referred to.
[18] The respondents challenge the applicant’s analysis. The first, second and third respondents have filed affidavits addressing the purchase of the Hamlin Road property, and some of the unexplained sources of funds. I heard evidence from all three respondents. I describe the essence of their evidence as it appears from the affidavits, and their oral evidence.
[19] Ms Wu says in her affidavit of 31 July 2014 that her son Mr Zhu came from China to New Zealand to study in 1999. He was then aged 19. From 1999 to 2002 she supported him financially and provided him with funds. She estimates that she sent approximately $150,000 for his school fees and living costs. Those funds were from her wages or salary of RMB150,000 per annum. When he completed his studies in 2002, he still had approximately $60,000 left from the funds she had sent. She told him to cease spending her money as he was now able to support himself. She wanted the money retained in New Zealand to consider an investment here. He agreed to look for an investment property on her behalf. She signed a power of attorney and deed of delegation dated 19 November 2005 for him to act on her behalf in New Zealand. Mr Zhu used the power of attorney to open an ASB bank account in Ms Wu’s name. She produces, in support of her assertion that she was interested in investing in New Zealand, a loan approval from ASB in November 2005 for $280,000, which was not taken up.
[20] Ms Wu visited New Zealand on four occasions, three of them being extended visits. New Zealand Customs Service passenger movements documentation confirms that she visited New Zealand from 19 January 2001 to 2 February 2001; from 4 April 2009 to 8 March 2010; from 4 April 2010 to 3 June 2012; and from 30
June 2012 to 18 February 2014. She is apparently now living in New Zealand.
[21] Ms Wu says that from 2005 to 2007 she was working as a manager for Shanghai Shangjia Import and Export Co Limited which had people frequently travelling to New Zealand and Australia. She would ask people travelling to Auckland to take items to her son there. She also wanted to transfer funds to New Zealand to invest. She became cautious and ceased using foreign exchange companies based in New Zealand as a result of a failure of a foreign exchange trader, the An Ying group of companies. Because of her reluctance to use that channel for
transfer she asked people travelling to New Zealand to take money there for her. She estimates that from 2005 to 2007 she transferred $US100,000 (NZ$175,847) by this means, for Mr Zhu to deposit on her behalf. She produced two bank vouchers showing transfers from her account with the Industrial and Commercial Bank of China to an account name “Ping Wu” dated 10 and 15 December 2007 for a total of RMB250,000. She says those funds were paid to various parties to bring to New Zealand. She says that from the start of 2008 she began to use Yujia Financial International Limited (Yujia), a foreign exchange company to which she was introduced by Ms Ma. She says that from December 2005 until the settlement of the Hamlin Road property purchase in September 2008, she remitted through Yujia to accounts of Mr Zhu and Ms Ma a total of $102,887.19. She says that she also transferred through Yujia, after the settlement, funds totalling $59,585.86.
[22] Ms Wu explains the $1,650 cash deposit into her and Mr H Zhu’s account as being cash which she had when she opened the account on a visit to New Zealand in April 2009. That cash came from the money she had transferred earlier. The Forex receipts were some of the funds sent through Yujia. She says she has no knowledge of Mr Zhao’s activities, and says that the deposit of $16,200 occurred in March 2011, after the purchase of the Hamlin Road property.
[23] In her second affidavit, Ms Wu produced further documentation in support of
the assertions in her first affidavit, in response to the applicant’s further evidence.
[24] On the basis of her evidence, Ms Wu asserts that she had funds in New
Zealand, legitimately sourced from her funds in China of over $330,000, being:
(a) $60,000 remaining from her funds sent to Mr Zhu for his support while he was studying;
(b)$175,847 transferred through third parties to Mr Zhu from her bank accounts in China; and
(c) $102,887.19 transferred to Mr Zhu and Ms Ma through Yujia.
[25] Ms Wu explains the transfer to First Delight Limited as having been made at a time when she was “quite disappointed” with her son, whom she discovered has “psychological issues”. She also had concerns about her own health. Her motivation was to protect her assets, first from a relationship property claim by Ms Ma, and second to ensure Mr Zhu did not squander her life’s work if she died. When she was in New Zealand in April 2010, a friend advised her that if she created a company with herself as sole director, she “could nominate the beneficiary of this company”. She created First Delight Limited with herself as the director and her granddaughter as sole shareholder, which she understood to be the same as sole beneficiary. When the transfer to First Delight Limited was registered the ASB mortgage, which had been repaid, was discharged.
[26] Mr Zhu says in his affidavit that after he finished study in November 2002, there was about $60,000 in his ASB account, from Ms Wu, which she told him to keep for her. After he was granted permanent residence, Ms Wu told him she would purchase a house in New Zealand, and asked him to view some houses for her. He says that he arranged a power of attorney and a loan approval in 2005. Mr Zhu says that Ms Wu brought around $170,000 to him through many business delegations, over nearly three years, for her house purchase. Mr Zhu’s evidence does not address the other sources of the large number of cash deposits into his many accounts. Nor does he address the reasons why he maintained so many accounts.
[27] Ms Ma says in her first affidavit that after her marriage to Mr Zhu, and while she was expecting their first child in September 2008, Ms Wu said that she would buy a house for them to live in. She understood it would be owned by Ms Wu. On that basis, she and Mr Zhu started looking for houses, and arranging the transfer of Ms Wu’s funds from China. She says that between April and October 2008, a total of $83,397.33 was transferred through Yujia on behalf of Ms Wu to her bank account, and then transferred by her to one of Mr Zhu’s ASB accounts.
[28] The applicant’s claim is that at least a proportion of the unexplained funds that were deposited into Mr Zhu’s and Ms Ma’s bank accounts and subsequently transferred to Ms Wu’s bank account between 2006 and 2008 would have been applied towards the purchase of the property, so they had a direct financial interest in
the property. Alternatively the applicant asserts that Mr Zhu and Ms Ma had effective control of the property in that they had the capacity to control, use or otherwise treat it as their own, and can therefore be treated as having an interest in it.
[29] Counsel for the applicant points out that Mr Zhu arranged the acquisition of the property when Ms Wu was in China, and held a power of attorney under which he made all arrangements for the purchase. Mr Zhu and Ms Ma have lived in the property since it was purchased and have paid the outgoings. The beneficial owner, as sole shareholder in First Delight Limited, is their young daughter. They have completed documentation for the company.
[30] In essence, the applicant’s contention is that Ms Wu’s initial ownership, then that of the company, is a “front” for the true beneficial owner, Mr Zhu, with Ms Ma. The applicant contends that the Court can be satisfied that Mr Zhu and Ms Ma have effective control over the Hamlin Road property, and that the Court should, under s 58 of the Act, order that the property is to be treated as though Mr Zhu and Ms Ma have an interest in that property.
[31] The crucial evidence on this issue is that of Ms Wu. I have briefly described the main points of her evidence. The essence of it is that she purchased the property, with funds she sent from China. The essential issue for me is the credibility of Ms Wu. I must consider whether her evidence is so implausible that I can properly draw the inference that her ownership is simply as a “front” for her son, and that he has effective control over the property.
[32] I find nothing in the matters on which the applicant relies, as set out at [29], which is inconsistent with Ms Wu’s version of events. It would be quite natural that, as she was living in China, she would use her son to assist her in finding a property and making the necessary arrangements for purchase. Nor would it be surprising that she would allow her son and daughter-in-law, and grandchild, to live in the property rather than to let it commercially. They might well pay the outgoings in those circumstances. Ms Wu’s explanation for the transfer to the company, which I have described at [25], is not implausible. It would also be quite natural for her son to deal with some of the documentation.
[33] There is some, albeit limited, documentary support for the evidence of Ms Wu, Mr Zhu and Ms Ma that the decision to purchase the property was made by Ms Wu, albeit with input from her son and daughter-in-law. In an email dated 4 July
2004 to Ms Wu, Mr Zhu said:
And save the money to support the house purchasing as you know, after owning a home, then I can stand a chance to do more important things! Thank you for your support! And I will not fail you in the future!
[34] The tenor of that message is that Ms Wu would fund the purchase of a house. The deferential tone of the email suggests that the reference to “owning a home” is more likely to refer to a home owned by Ms Wu, to be used by her son, than to a home in his name. The email clearly envisages that the funds will come from Ms Wu, not Mr Zhu. There is also evidence of communication between Ms Wu and her son and daughter-in-law during the process of finding a suitable property, which is consistent with Ms Wu being at least a significant player in the decision-making process. That is more consistent with a purchase by her than with a purchase by Mr Zhu in which she simply allowed her name to be used. In particular, there is evidence that Ms Ma sent details of this property, with her comments noted on the information, posted on 24 July 2008. That is after the sale and purchase agreement was signed on 6 July 2008. However, it suggests that Ms Wu was being kept fully informed about the purchase in a way which is consistent with her evidence.
[35] Further, my clear impression gained from observation of Ms Wu in the witness box, and her evidence, is that she is a mother who is inclined to exercise quite a strong maternal influence over her son, to keep him on a proper path. That flavour also comes through in the emails, including the one quoted above. I consider that the relationship is such that she would not have countenanced, and Mr Zhu would not have attempted, her being used as a “front” for Mr Zhu’s purchase. I find on the balance of probabilities that Mr Zhu and Ms Ma do not have effective control over the Hamlin Road property.
[36] I next address the source of funds for the property. Ms Wu’s evidence is that she had savings in China derived over the years from her employment income. Ms Wu described herself in cross-examination as being at a “white collar” level. She produced a certificate from Alcatel Shanghai Bell Co Limited dated from 2003
which says that she had been employed by that company since 1984, at a then salary of RMB200,000 per annum. She says that in 2005 she was employed by Shanghai Shangjia Import and Export Co Limited and her salary was between RMB300,000 and RMB360,000, until 2008.
[37] The applicant has produced evidence to show that these figures are high compared to the average Chinese salary. DSS Chao says that the only evidence available to police regarding salary levels in China is from searches of two web sites. On the basis of those, he says that the salary claimed by Ms Wu is thirteen times the average salary and ten times the average clerk’s salary around that time. I do not find the evidence sufficiently cogent to draw the conclusion that Ms Wu’s evidence as to her salary is untrue. Averages can be misleading, particularly without an understanding of the range, and the profile of distribution within that range. I have no reason to doubt the authenticity of the certificate Ms Wu has produced. That is consistent with the salary levels which she claims.
[38] Ms Wu’s evidence that she had sufficient savings in China to fund the purchase of the Hamlin Road property is not inherently implausible. A large middle class has emerged in China in recent years. The ability of Chinese investors to fund purchases of residential property in Auckland is a matter of much public comment. Her evidence is supported by her bank records, which show she had substantial funds in her Chinese bank account.
[39] I next address Ms Wu’s evidence about the methods of transferring her funds to New Zealand. She had been sending funds since 1999 to support her son while he was studying. Her evidence that about $60,000 remained after he finished is not implausible. There is nothing in the applicant’s evidence which casts doubt on it.
[40] Her claim that she sent substantial sums to her son through people she knew through her employment requires careful scrutiny. Evidence to confirm the transfer of funds in this way would be difficult to obtain, and I attach little significance to the lack of such evidence. Ms Wu is able to point to bank withdrawal records totalling about $175,847 which are consistent with this claim, though they cannot establish it. She produced a list of 15 significant withdrawals from her bank account in China
between 2004 and 2007. She says she cannot state with certainty that all these transactions were for sending funds by delegations, but says that she would not have withdrawn those significant sums except for that purpose. There are some items in the documentary record which lend some credence to her evidence about this method of transfer. There is an email from Ms Wu to her son dated 10 November 2005 which shows that she was watching the NZD exchange rate, and that she had been searching for houses and had found a few of interest. There is also an email dated
21 November 2003 giving details of a five-person delegation of government officials, for whom Mr Zhu was to provide assistance.
[41] Mr Lee’s evidence is that he has compared Ms Wu’s claimed withdrawals with deposits into Mr Zhu’s accounts over the period and found no corresponding deposits around the same time as these. His analysis does, however, show significant deposits, equal to or exceeding the amounts claimed, sometimes several months after the dates claimed. The evidence does not satisfy me, on the balance of probabilities, that the money Ms Wu claims was sent was not remitted in the way she claims.
[42] As to the third source of funds, money transferred through Yujia, there is the documentary evidence I have described to support, to some extent, that there were transfers of funds from China through Yujia. There is nothing in the applicant’s analysis which is inconsistent with Ms Wu’s evidence on this point. There is insufficient other evidence on which to base a finding that it is more likely than not that she did not remit the funds she claims to have done.
[43] In short, the documentary evidence establishes that Ms Wu had substantial funds in her Chinese bank account throughout the period from 2005 to 2007, and that there were substantial withdrawals as well as deposits during that period. There is insufficient evidence to cause me to disbelieve Ms Wu’s assertion that she remitted the total purchase price from China in the ways she described in her evidence.
[44] I have expressed that finding in those negative terms, because the nature of this application means that I need to approach the respondents’ explanations with particular scepticism. In the case of Ms Wu, I can express my conclusion more
positively. I formed the impression that she was generally a credible witness. I also formed an impression about the family dynamics, as I have described. My findings on that issue are based on the impression I gained from hearing Ms Wu and Mr Zhu in particular, and to a lesser extent Ms Ma.
[45] On the evidence, I find on the balance of probabilities that the funds for the purchase of the Hamlin Road property originated from Ms Wu’s funds in China.
[46] All of the funds remitted from China initially went to accounts in the name of Mr Zhu, and were later transferred into Ms Wu’s accounts, from which the purchase price was paid. I address later whether the unexplained deposits into Mr Zhu’s account may have been, or included, money derived from his significant criminal activity. For the purposes of the claim to the Hamlin Road property, I proceed on the hypothesis that at least some of them were. On that hypothesis, does that make Ms Wu’s funds paid into these accounts tainted property?
[47] Funds in a bank account are clearly “property” for the purposes of the definition of “tainted property”. A bank account itself is not an item of property separate from the funds in it. Funds in a bank account will inevitably be mingled. It would be impossible to trace Ms Wu’s funds from the time of their deposit into Mr Zhu’s accounts, through to the funds subsequently paid into her account.
[48] In deciding whether, in those circumstances, the funds in Ms Wu’s account are tainted, it may be necessary to have regard to whether or not Ms Wu had knowingly benefited from Mr Zhu’s significant criminal activity. Counsel for the applicant submits that she must have been aware of, or at least wilfully blind to, her son’s offending. Much of the proved offending was committed when Ms Wu was not in New Zealand. Any evidence of the offending would have been documentary. Ms Wu has limited English. I consider Ms Wu was not aware of, or complicit in, her son’s offending. The applicant has not established, on the balance of probabilities, that Ms Wu knew of, or was wilfully blind to, Mr Zhu’s offending. She did not knowingly benefit from his offending by having her funds paid into, then out of, his accounts.
[49] In those circumstances, I find that funds paid from Mr Zhu’s accounts to Ms Wu’s accounts derived from remittances from China to Mr Zhu’s accounts, were not tainted property. That finding applies to the entirety of the funds paid into her account which were used in the purchase of the Hamlin Road property. Those funds exceeded the purchase price of that property.
[50] The applicant, while relying primarily on Mr Zhu’s offending as the “significant criminal activity”, also places some reliance on the suggestion that Ms Wu may have offended herself by receiving social welfare benefits and allowances to which she was not entitled. This was not relied on in the initial application, but in his reply affidavit DSS Chao produced a declaration signed by Ms Wu which he asserts contains false information. I do not consider it appropriate to take this possibility into account. The claim that the Hamlin Road property is tainted because it was acquired by Ms Wu from her criminal activity is inconsistent with the principal proposition, that the property belongs to Mr Zhu. An allegation that some of the purchase price came from Ms Wu’s funds, which were in turn derived from criminal activity by Ms Wu, is inconsistent with that principal claim. Further, Ms Wu has not been charged with any offending. The evidence does not establish, even to the civil standard, that Ms Wu, who apparently has no other convictions, has committed an offence which should engage the Act. The fact that it was raised only at a late stage is a further reason for declining to take this possibility into account as providing a separate and independent basis for the asset forfeiture application.
[51] For these reasons, I find that the applicant has not established, on the balance of probabilities, that the Hamlin Road property is tainted property. The application for an order under s 58 of the Act, and the application for forfeiture under s 50 of the Act, must be dismissed.
The profit forfeiture application
[52] In dealing with the asset forfeiture application, I have proceeded on the hypothesis that at least some of the funds in Mr Zhu’s bank accounts were derived
from significant criminal activity by him. I must now examine that hypothesis, to consider the profit forfeiture application.
[53] The applicant’s investigation has identified over $400,000 in Mr Zhu’s various accounts, and those of Ms Ma, which are unexplained. There has been a careful and thorough investigation into those funds and whether there is an explanation for them, and I generally accept the applicant’s evidence. Mr Zhu gave evidence. Except for the funds he received from Ms Wu, which I have addressed in dealing with the asset forfeiture application, I found his explanations unconvincing. I accordingly am satisfied that a large proportion of the funds are unexplained.
[54] That is not however sufficient to establish liability. The onus is on the applicant to establish, on the balance of probabilities, that the funds are tainted property; that is, that they have been acquired as a result of significant criminal activity, or are directly or indirectly derived from significant criminal activity. That is the crucial issue in this case.
[55] Mr Zhu has been convicted on 89 counts of offending, which falls within the definition of significant criminal activity. None of the unexplained deposits are derived from that offending. Mr Lee’s evidence is that the IRD has recovered some
$106,000 of the approximately $123,000 involved in that offending. He has not included this amount when calculating the unexplained funds. There is no evidence as to where the tax refunds were paid. It seems likely that the IRD would have paid them into a bank account or accounts. There is no evidence that they were later withdrawn in cash. I simply have no information on the point.
[56] Because the unexplained deposits are not derived from the convicted offending, I must consider whether I can properly draw the inference that the unexplained deposits result from some other offending by Mr Zhu, which has not been identified.
[57] The first possibility that I must consider is that the deposits are derived from offending similar to that for which Mr Zhu has been convicted, but not uncovered in the course of the investigation.
[58] For many types of offending, it will not be difficult to draw the inference that the offending of which the offender has been convicted is not the full extent of that offender’s offending. What is discovered and prosecuted may be the tip of the iceberg. In such a case, it will not be difficult to draw the inference that unexplained funds have been derived from a pattern of offending, only some of which has been discovered and prosecuted. I need to consider whether the evidence enables me to draw the inference that there were other refunds from the IRD which found their way, directly or indirectly, into cash deposits in Mr Zhu’s bank accounts.
[59] The IRD conducted an investigation, using its search powers, and discovered documentary evidence of offending between 2003 and 2011 involving 32 companies. The evidence does not enable me to infer that there was other offending in respect of those companies which had not been discovered, or that there was similar offending involving other companies, not discovered during the investigation. There is no evidence before me as to the scope of the investigation, or of any difficulty which the investigators had in obtaining all information and records which could be obtained using the extensive statutory investigative powers. There is insufficient evidence, apart from the existence of the unexplained funds, to enable me to draw the inference that there may be similar undiscovered offending.
[60] Furthermore, if I did draw that inference, I would need also to draw the inference that the proceeds of that undiscovered offending had been dealt with differently from the convicted offending. The applicant’s evidence is that none of the unexplained funds were derived from that convicted offending. As I have said, there is no evidence as to where the various tax refunds obtained were paid, and they are unlikely to have been paid in cash. To form part of the unexplained cash deposits, they would have had to be withdrawn in cash from the accounts into which they were paid. There is no evidence to show that was done. I infer they were not, since over $100,000 has been recovered. This means that I am being asked to infer that the unexplained deposits were the fruits of criminal activity similar to the convicted offending, but dealt with in a quite different way from the fruits of the convicted offending.
[61] Thus, there are two difficulties in the way of drawing an inference that it is more probable than not that the unexplained cash results from offending similar to that for which Mr Zhu was prosecuted. I would first need to draw an inference that the investigation by the IRD did not uncover all the offending. The nature of the offending does not make that inherently likely. There is no evidence as to why that might be so. Second, I would need to draw an inference that the proceeds of that undiscovered offending were dealt with in a different way from the proceeds of the discovered offending. That does not seem inherently more likely than not, and there is no evidence to suggest why that might be the case.
[62] I consider next the possibility that there may be some different type of offending. Mr Zhu was prosecuted for Immigration Act offending but those charges were withdrawn. Again, I have no evidence about the detail of that, or why the charges were not proceeded with. The charges related to four individuals, from whom Mr Zhu was alleged to have collected fees totalling $65,000. There is no evidence before me as to why the charges were withdrawn, or how the $65,000 was alleged to have been received by Mr Zhu. DSS Chao has produced statements from four people who say that they paid a total of $65,000 in cash. Those payments were made between 2009 and 2011. He has also produced a schedule of 26 persons whose personal tax refunds police allege were stolen by Mr Zhu and Ms Ma. Those total
$17,452.32. There is no evidence about why the charges initially laid were later withdrawn.
[63] The definition of “significant criminal activity” in s 6 of the Act is not dependent upon a successful prosecution or even the filing of charges.1 The significant criminal activity alleged must be proved to the civil standard: that is, on the balance of probabilities. The evidence is not sufficient to prove the alleged offending to that standard. That is particularly so when there is no explanation in the evidence about why these charges were not proceeded with. The evidence consists substantially of the statements of the alleged victims. That is hearsay, and has not been tested. I cannot, on that evidence, find the alleged offending proved on the
balance of probabilities. It is not possible to draw an inference, from the offending
of which Mr Zhu was convicted, that he is also guilty of this offending. The alleged
1 Vincent v Commissioner of Police [2013] NZCA 412 at [17].
immigration offending, in particular, is significantly different in nature from the convicted offending.
[64] In Commissioner of Police v Hayward Venning J noted that the Commissioner could invite the Court to infer, on the balance of probabilities, that the respondent was involved in other significant criminal activities that he was not charged with.2 That is so, but it is a question of fact in each case whether that is a proper inference to draw.
[65] The existence of unexplained funds is in my assessment, on the facts of this case, insufficient to prove the alleged offending. In Commissioner of Police v He Ellis J said:3
[35] I record at the outset that I did not find the way in which the critical financial aspects of the Commissioner’s case was presented to be particularly helpful. Given the standard of proof and the statutory presumptions operating in his favour it is all too easy (but all too vexing for the Court) simply to go through a respondent’s bank accounts and list what appears to be almost every deposit made over a five year period and then simply assert that each is “unverified” or “unidentified”.
…
[43] So, as I have said, I necessarily accept that the Commissioner is required to meet only the civil standard of proof and that statutory presumptions as to the quantum of any alleged unlawful benefit operate in his favour. But I consider that the Court is nonetheless entitled to expect clear and cogent evidence to be presented before it is asked to contemplate granting an application such as the present, which involves effective forfeiture of the respondents’ family home in the absence of a relevant conviction. As will be apparent from my foregoing comments I have found neither coherence nor cogency in the present case.
[66] I consider that those observations have resonance in the circumstances of this case. Establishing that deposits into a bank account are unidentified is only the start of the exercise. The applicant does have the benefit of the civil standard of proof and the statutory presumptions as to the quantum of any alleged unlawful benefit. But the applicant also has the onus of establishing facts which enable the inference to be drawn, as a logical and reasonable conclusion from facts proven to the civil
standard, that the deposits are the fruits of criminal activity. The nature of the
2 Commissioner of Police v Hayward [2012] NZHC 1097 at [22].
3 Commissioner of Police v He [2015] NZHC 777.
offending in this case is such that further evidence would be required to enable such an inference to be drawn.
[67] Another possibility advanced by counsel for the applicant is that the offending from which the unexplained deposits were obtained was different in nature from either the offending for which Mr Zhu was convicted, or the offending for which he was prosecuted but ultimately withdrawn. The Act is broad in its scope, and its reach in respect of the profits of criminal activity is long. However, I do not find in the Act any sufficient basis for the proposition that because a person has been involved in significant criminal activity of one kind, the inference must be drawn that unexplained deposits are the result of offending of a quite different kind. In using the term “offending of a quite different kind”, I am referring to offending which is completely unrelated, either in law or on the facts, to any offending in which that person is known to have been involved.
[68] Mr Harborow submits that there is a common feature of both the proven offending and the previously alleged offending in that it is within the broad category of dishonesty offending involving fraud or the fraudulent use of documents. However, the applicant does not suggest what other form any offending involving dishonesty within this broad category Mr Zhu may have committed. The applicant must prove that the respondents have benefited from significant criminal activity. It cannot discharge that burden when the nature of the alleged criminal activity is not identified. It would be speculation to infer that he has been involved in widespread offending outside the realms of that which has been uncovered, being either the tax offending or the immigration offending.
[69] The number and amount of deposits into Mr Zhu’s bank accounts, and indeed the number of accounts which he operated, are very suspicious. However, I do not consider that it is valid to reason backwards from the presence of suspicious deposits to the inference that those must have resulted from criminal offending of a type of which there is no evidence.
[70] Another relevant feature is that the total cash deposits are four times larger than the discovered offending, and are spread over many accounts. Before an
inference could be drawn by reasoning based on suspicion arising from the number and volume of deposits, there would need to be a more complete picture of the state of the various accounts. Movements between accounts may be relevant. On this point too, Ellis J’s comments in Commissioner of Police v He are apposite. She said:4
[42] A further concern about the way in which the Commissioner’s evidence was presented in this case is that, because of the focus on “unverified” deposits, there was little evidence about withdrawals or, indeed, about those deposits that the Commissioner regarded as “verified”. In the absence of a more complete picture of the respondents’ financial affairs it is very difficult to perceive patterns or logic in, and between, the accounts. In my view, however, such patterns and logic do exist.
[71] In this case too, the evidence before the Court is essentially limited to that upon which the applicant relies to identify unexplained deposits. There is no evidence showing withdrawals from the accounts. It is not possible from the evidence to obtain a picture of the overall state of affairs. Therefore, the inference cannot be drawn that the unidentified deposits are so suspicious that the most likely explanation, on the balance of probabilities, is that they are the product of unknown criminal activity, when the evidence is that they are not the product of the only convicted criminal activity. It would be speculation to so infer.
[72] In Commissioner of Police v Hayward, Venning J said that the applicant can rely on the disparity between moneys passing through the respondent’s bank account as compared to his declared legitimate income to prove or establish the benefit the respondent received from his significant criminal activities.5 That is so, but whether such evidence is sufficient to prove the significant criminal activity itself is a different question. As Venning J noted, it is ultimately for the applicant to satisfy the Court the extent that the respondent has benefited from significant criminal activity. In this case, the applicant has failed to satisfy me of that, so the profit forfeiture
application must fail.
4 Commissioner of Police v He, above n 3.
5 Commission of Police v Hayward, above n 2.
Result
[73] The applications for an asset forfeiture order and a profits forfeiture order are dismissed.
[74] The third respondent is entitled to costs on a 2B basis, and disbursements, to be fixed by the Registrar.
“A D MacKenzie J”
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