R v Xu
[2018] NZHC 1971
•3 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2016-004-009392
[2018] NZHC 1971
THE QUEEN v
KANG XU GANG CHEN
ZONGLIAN JIANG
Hearing: 3 August 2018 Counsel:
T A Simmonds, K J Cooper and S E Cann for Serious Fraud Office
A M Simperingham and W Zhang for Xu S N B Wimsett and S T Patia for Chen
J-A Kincade and A Shendi for Jiang
Judgment:
3 August 2018
SENTENCING NOTES OF KATZ J
Solicitors: Serious Fraud Office, Auckland
A Simperingham, Woodward Chrisp, Gisborne W Zhang, Woodward Chrisp, Gisborne
Counsel:T Simmonds, Barrister, Auckland S Cann, Barrister, Auckland
S N B Wimsett, Barrister, Auckland
S T Patia, Samuel Wimsett Barrister, Auckland J-A Kincade, Blackstone Chambers, Auckland A Shendi, Barrister, Auckland
R v XU, CHEN & JIANG [2018] NZHC 1971 [3 August 2018]
Introduction
[1] Ms Xu, Mr Chen and Mr Jiang, you appear for sentence today, having been found guilty of various charges relating to your involvement in a large-scale mortgage fraud scheme that was perpetrated on the Bank of New Zealand (“BNZ”), ANZ Bank New Zealand Limited (“ANZ”) and, on one occasion, a third bank. The overall scheme involved 57 loan applications, 110 separate property transactions, and loans of approximately $54 million. Most of the offending occurred from late 2011 to late 2013.
[2] Ms Xu, you were convicted of 22 charges of obtaining credit by deception, under the Crimes Act 1961.1 Mr Jiang, you were convicted of 25 charges of obtaining credit by deception and also one charge of corruptly receiving secret commissions.2 Mr Chen, you were found guilty of nine charges of obtaining credit by deception, two of them representative, and one charge of corruptly paying secret commissions.3
[3] The maximum penalty for the Crimes Act charges is seven years’ imprisonment. The maximum penalty for the Secret Commissions Act charges is two years’ imprisonment.
The offending
[4] The factual background to your offending is set out in considerable detail in my Reasons for Verdicts.4 I will therefore only briefly summarise some key aspects of my findings this morning.
Overview of the mortgage fraud scheme
[5] The genesis of the offending was that Kang Huang, who operated a property development business trading as LV Park, was keen to reduce LV Park’s financing costs. In order to do so, he devised a sophisticated scheme to deceive the banks. Each of you played a key role in implementing that scheme.
1 Crimes Act 1961, s 240(1)(b).
2 Crimes Act 1961, s 240(1)(b) and Secret Commissions Act 1910, s 4.
3 Crimes Act 1961, s 240(1)(b) and Secret Commissions Act 1910, s 3.
4 R v Xu [2018] NZHC 1433 at [7]–[38].
[6] LV Park specialised in building residential homes. Mr Huang was the head of the LV Park Group. To fund its property development activities, LV Park obtained finance from non-bank commercial lenders, who charged relatively high interest rates, reflecting the significant risks associated with funding commercial property development activities. Mr Huang, however, wanted to access lower interest rate personal home loan financing to fund LV Park’s activities.
[7] Mr Huang devised a scheme that involved a large number of properties owned by entities associated with LV Park being transferred into the names of relatives, friends or employees of Mr Huang and his wife, Ms Xu, including all four of their elderly parents. In some cases, the transferees were fictitious. Residential home loan funding was then sought from the banks in the names of these various third parties, who were presented to the banks as genuine arm’s length purchasers.
[8] A number of false documents were provided to the banks in support of the loan applications in order to demonstrate that the applicants met the banks’ lending criteria when, in fact, they did not. The false documents included employment letters and Chinese bank statements showing deposits correlating with the salaries stated in the employment letters and/or loan applications. These documents were all forgeries.
[9] In addition, deposits, purporting to be salary payments, were paid into New Zealand bank accounts in the names of some of the loan applicants. These deposits correlated with the salaries stated in the loan applications and/or false employment letters for those applicants. The bank statements were then relied on as proof of salary.
[10] Once the loans were obtained, they were serviced by LV Park rather than the named loan applicant. LV Park also retained control of the properties throughout. The named purchasers either did not exist, knew nothing of the loan application made in their name, or agreed to lend their names to what they were told was essentially a “re-financing” arrangement being undertaken by LV Park.
[11] Each of you were aware of the ongoing deception and, in different ways, contributed to its success.
Ms Xu
[12] Ms Xu, you were convicted of 22 charges of obtaining credit by deception. Each charge related to a separate loan application, some of which encompassed multiple properties. I found that you created the false Chinese bank statements that were used to support nineteen of the loan applications, and that you then provided those documents to the banks. In most (or possibly all) cases, you did this through Mr Chen, who acted as the middleman. I also found that you made three false “salary” payments into New Zealand bank accounts in the names of two of the loan applicants.
[13] By providing false income information to the banks in support of 22 loan applications, you played a significant role in deceiving the banks as to the ability of the “dummy” purchasers to service the loans being sought.
Mr Chen
[14] Mr Chen, I found you guilty of nine charges of obtaining credit by deception, as well as a representative charge of paying secret commissions to Mr Jiang and also Peter Cheng, who were employees of the BNZ and ANZ respectively.
[15] In most of the fraudulent transactions you acted as the lawyer for the vendor, the purchaser and the lending bank. As a result, the risk of the fraud being discovered was minimised. You also held powers of attorney in respect of a number of loan applicants, which also minimised the risk of discovery.
[16] The general pattern of communication revealed by the evidence was that you were the “middleman” between Mr Huang and Ms Xu on the one hand, and Mr Jiang (for the BNZ) and Peter Cheng (for the ANZ) on the other. You had known Mr Jiang since at least 2008, when he was employed at Westpac. In that year Mr Jiang had assisted you to set up a bank account in the name of your aunt, and provided you with access details to that account. That account subsequently featured prominently in the mortgage fraud scheme. You used it to funnel the secret commission payments to Mr Jiang and Peter Cheng, disguising the true source of the payments, which actually originated from LV Park. You also used your aunt’s account to make multiple false salary payments into New Zealand bank accounts in the names of two of the loan
applicants. If those loan applicants even exist, they have never entered New Zealand, let alone received generous salaries from a New Zealand employer. Indeed, on one occasion you even made a false salary payment from your own bank account. The payments you made were carefully calculated so as to correlate with the salaries stated in the false employment letters for the relevant applicants.
[17] In addition, you obtained a false passport in the name of Shou Zhang from a contact in Hong Kong, and provided that document to both the BNZ and ANZ. Shou Zhang was an entirely fictitious person. The BNZ was deceived into believing that he was a genuine loan applicant and loaned sums of $476,500 and $360,000 respectively to him. The ANZ was also deceived, and approved a loan of $1,288,000 to the fictitious Mr Zhang, to fund his purported purchase of three properties from LV Park and its associated entities.
[18] Two of the obtaining by deception charges you were convicted of were representative charges. They alleged that you omitted to disclose to the BNZ and ANZ that Mr Huang and/or LV Park was the “true borrower” of the loans obtained in the names of various third parties. The particulars to these charges encompassed all of the third-party loan applications other than the transactions where you were personally involved as the purchaser. The phrase “true borrower” was effectively shorthand for the Crown’s allegation that the named borrowers were used as part of a “refinancing” scheme by LV Park (Mr Huang) in circumstances where, in effect, LV Park would remain the true owner of the properties (despite the legal transfers to the named borrowers) and would service the loans on the properties. In other words, the underlying purpose of the scheme was not to genuinely sell the properties, but to exchange high commercial interest rate loans for lower interest rate loans, while keeping the property within the LV Park portfolio.
[19] I found the representative charges both proved. You knew of the fraudulent scheme, but failed to disclose it to the banks, despite acting as their solicitor in respect of the relevant transactions. This was an egregious breach of your fiduciary duties to your clients.
[20] You were also convicted of failing to disclose to the ANZ that the employment and income information provided as part of loan applications in the names of three borrowers was false, in breach of a duty to disclose such information. I found that you were clearly aware of the falsity of the information, but did not disclose that fact to the ANZ, despite acting for them in the relevant transactions.
[21] You were convicted of one representative charge under the Secret Commissions Act 1910. I found that you had corruptly paid “kickbacks”, or secret commissions, to both Mr Jiang (as agent for the BNZ) and Peter Cheng (as agent for the ANZ). Again, this is consistent with your vital “middle man” role. You went to considerable lengths to disguise the true source of the kickback payments, which were funnelled from LV Park’s bank account through bank accounts in the names of your aunt and sister.
[22] Mr Chen, rather than take steps to prevent the fraud, or at least alert the banks to it, you instead played a key role in facilitating it. You were the glue that held the whole fraudulent scheme together. As an experienced conveyancing solicitor, you had the connections and knowledge that were critical to the success of the scheme. Your involvement provided a veneer of respectability and credibility.
Mr Jiang
[23] Mr Jiang, you were found guilty of all of the charges laid against you. Of those charges, 25 alleged obtaining credit by deception and one representative charge alleged that you received secret commissions for your role in the offending.
[24] You were the corrupt insider at the BNZ. You had a close relationship with Mr Chen, who was your key contact. There is no evidence of any contact between you and Mr Huang or Ms Xu. You played a key role in processing and approving the various loan applications, based on employment and income information that you knew to be false. By inputting that fraudulent information into the bank’s systems, and processing and approving loans based on it, you misled others within the bank into believing that the supporting information was true, when you knew it was false. In relation to one loan applicant, Shou Zhang, you knew that he was an entirely fictitious person, having been provided with a passport in his name that you knew to
be a forgery. Nevertheless, you facilitated your employer lending over $800,000 to the non-existent Mr Zhang.
[25] You were aware that LV Park and/or Mr Huang were actually behind the various loan applications, and that the borrowers named on the applications were, in effect, sham borrowers. You failed to disclose this to your employer, but instead simply processed the applications as if they were genuine arm’s length applications.
[26] You received a number of secret commission payments, usually in the sum of around $7,000 per transaction, for your assistance in processing or approving the BNZ loans. The total sum of kickback payments you received was approximately $240,000.
Setting the starting point
[27] In sentencing each of you I am required to take the principles and purposes set out in the Sentencing Act 2002 into account.
[28] Deterrence has been recognised as a particularly important sentencing consideration for this type of offending. New Zealand is widely respected internationally as one of the least corrupt countries in the world. Offending of the type you undertook has the potential to seriously undermine that reputation. To deter others, it is important that a strong message be sent that the type of fraudulent behaviour you engaged in is entirely unacceptable in our society. Your conduct must also be denounced in the strongest possible terms, and you must each be held accountable for your role in the offending.
[29] The first step in the sentencing process is to set a starting point, following which I will consider the various reductions that your counsel have proposed, to reflect mitigating circumstances personal to you.
[30] There is no tariff case for dishonesty offending. Culpability is assessed according to a combination of the particular factors applying to a specific case.5 In
5 Visser v Police [2015] NZHC 3275 at [14].
R v Varjan, the Court of Appeal set out the following approach to assessing culpability in fraud-related cases:6
[22] Culpability is to be assessed by reference to the circumstances and such factors as the nature of the offending, its magnitude and sophistication; the type, circumstances and number of the victims; the motivation for the offending; the amounts involved; the losses; the period over which the offending occurred; the seriousness of breaches of trust involved; and the impact on victims.
[31] The Secret Commissions Act charges carry maximum penalties of two years’ imprisonment. Again, there is no tariff case.
Shared aggravating features of the offending
[32] I will first summarise the common aggravating features of your offending, before turning to consider each of you individually. I acknowledge at the outset, however, that you were all involved in the offending in different ways and to different degrees, and that your individual degree of participation is critical to your overall culpability.
[33] First, the offending was premeditated and prolonged. Each of you was involved in the fraudulent scheme over a significant period of time. The offending involved a large degree of planning and co-ordination. It required the creation of false documents and the making of false salary payments to support the fraudulent loan applications. Each of you was involved in the fraudulent scheme in a material, but different, way.
[34] The offending was conducted on a massive scale. It was highly sophisticated. Overall, the fraudulent scheme involved approximately 110 property transactions, and approximately $54 million in funds obtained by deception. I recognise, of course, that none of you have been convicted in respect of all the transactions that were charged. Each of you, however, has been convicted in respect of involvement in a significant number of transactions. None of you can claim that your involvement was isolated, or “one off”. This was calculated fraudulent offending over a lengthy period of time and on a massive scale.
6 R v Varjan CA97/03, 26 June 2003.
[35] While many of the loans were repaid, the banks have suffered losses to date in the sum of approximately $427,000 from the shortfall arising from two mortgagee sales. Both of those properties had been transferred into the name of a young LV Park employee. The banks anticipate possible further losses but determining the quantum of such loss (if any) would be speculative at this stage and I put it to one side
[36] As Lang J observed when he sentenced Mr Huang for his role in the fraudulent scheme, the fact that so few loans resulted in a loss is a direct result of the fact that your activities occurred in a rising market.7 This is a purely fortuitous result that is not attributable in any way to either Mr Huang or any of you. However, due to the rising market, most of the properties were able to be sold for more than their purchase price. At any stage, however, the housing market could have fallen and that would have exposed all of the borrowers to potential claims by the lenders.
[37] The risk was further increased by the fact that Mr Huang and Ms Xu did not have a track record of success as property developers. Their previous property development business had failed, and they were both undischarged bankrupts during the period of most of the offending. They were high-risk borrowers masquerading, via the mortgage fraud scheme you all helped implement, as low-risk borrowers.
[38] A number of other, less obvious, losses are outlined in the victim impact statement that has been provided by one of the banks. It notes that the effects of mortgage fraud can be wide-ranging and long-lasting on the bank, everyday New Zealanders and the entire economy. The bank had to dedicate and invest significant resources into the investigation of your offending and the management of the various fraudulent loans, in order to recover funds and minimise its losses. The bank also had to enhance its lending policies, control environment and detection systems going forwards. This stricter lending environment could negatively impact on ordinary hard working New Zealanders seeking to obtain lending for their own homes and businesses. Your offending has also impacted on bank staff. As the author of the victim impact states:
7 Serious Fraud Office v Huang [2018] NZHC 86 at [12].
Bribing staff through inducements damages staff morale and the working environment, impacts their great reputation, trust and confidence and diminishes the pride they take in their work.
A number of managers have expressed the emotional and reputational damage this offending has had on them personally and their wider lending teams.
Many staff have been involved in investigating this offending taking up valuable resources that could be used to help other customers.
[39] Finally, the victim impact statement notes that the bank’s reputation also suffers when mortgage fraud is committed. Customers may grow concerned at whether the bank is safely looking after their money, which can impact on trust in the banking system and the economy as a whole. The statement records that: “The bank is committed to maintaining New Zealand’s respected reputation as one of the least corrupt countries in the world, and attempts to bribe staff undermine efforts to do so”.
[40]As Lang J noted when sentencing Mr Huang:8
… the ripples of offending such as this travel well beyond the financial institutions directly involved. If it came to be known overseas that New Zealand’s financial institutions are prepared to countenance, or are unable to counter, offending such as this, then the damage to our international commercial reputation will be enormous.
[41] In addition, the scheme had the potential to be financially ruinous to the third parties who were persuaded to have properties transferred into their names. These included a young LV Park employee who felt beholden to Mr Huang as her employer, and the four elderly parents of Mr Huang and Ms Xu. All of these people were put at serious financial risk in the event that LV Park defaulted on the loan repayments in respect of the loan that was taken out in their name. Indeed, I note that both of the properties that were purchased in the name of the young LV Park employee were sold at mortgagee sale with a significant shortfall.
Ms Xu
[42] Ms Xu, you provided the banks with false Chinese bank statements in support of nineteen loan applications, over a period of approximately two years. You created the bank statements using an Excel spreadsheet which was then converted into PDF
8 At [21].
format. The statements had to be carefully crafted to ensure that the entries on them reconciled with the salary amounts claimed in the false employment letters. This shows a level of sophistication. In addition, I found that you had made three false salary payments into bank accounts in the names of loan applicants, with the intent of deceiving the relevant bank. The Crown failed to prove at trial, however, that you were involved in the provision of false employment letters to the banks, or in the making of any of the significant number of other false salary payments.
[43] In the Verdicts, I found that Mr Huang was the instigator and mastermind of the fraudulent scheme. Although the Crown submits otherwise, it is my view that your role was at a much lower level than that. In effect, you provided your husband with support in relation to two particular aspects of the scheme.
[44] You have provided a comprehensive cultural report from Dr Liao, a senior lecturer in law at the University of Waikato. You lived in China until, at the age of 30, you moved to New Zealand. You had a traditional Chinese upbringing. Mr Liao explains that in traditional Chinese culture the husband is the master of the household, with extensive responsibilities, but also extensive power over other family members who are expected to be obedient to the head of the household. The wife’s role is subservient to that of her husband. Divorce carries a significant stigma for women in particular. Family is the most fundamental unit of society. Dr Liao suggests that it would likely have been extremely difficult for you to act contrary to your cultural norms by refusing to follow your husband’s orders or instructions, even if you knew or suspected that his activities were illegal.
[45] Dr Liao’s report is consistent with the findings I made in the Verdicts regarding your relationship with your husband, although his report obviously provides a cultural context for those findings. In particular, I found in the Verdicts that although you are clearly both intelligent and competent, your role in the overall LV Park business was very much subservient to that of your husband. You described yourself at one stage as an “old style traditional Chinese lady”. Mr Huang was the head of the business. Although you played an important role as his right-hand woman, particularly in managing the tradesmen who were working on the various properties, your role was more in the nature of providing administrative support, rather than leadership. You
followed your husband’s lead and implemented his instructions when it came to the business. This analysis of your role was supported by the evidence of an independent witness, the company’s accountant.
[46] Your evidence as trial was that at one point you tried to challenge your husband about his refinancing scheme, against the background of your concerns that previously his risk-taking business style had led you both into bankruptcy. However, challenging your husband resulted in a quarrel and an incident in which you said your husband had assaulted you in front of others. Your mother corroborated aspects of your evidence regarding this incident. After that, you say, you chose to follow your husband’s instructions and not challenge his authority further.
[47] The evidence at trial indicated that your husband is a strong personality who is both a showman and a risk-taker. As I have already noted, I accept that you were subservient to your husband, you did not play a leadership role in the offending, but rather a support role by creating and providing nineteen false bank statements to the bank at your husband’s request and also making three false salary payments into bank accounts, also at his request. Nevertheless, you knew that what was happening was wrong, but elected to go along with it and lend your own support to the fraudulent scheme. You also stood to benefit financially from the fraud, due to your interest in the LV Park Group of companies. However, your more limited role in the overall offending, and the fact that you were at least in part under the control and influence of your husband, reduces your overall culpability to some extent.
[48] Lang J adopted a starting point of six years and nine months for the offending of Mr Huang. That starting point incorporated his culpability for both the obtaining by deception charges and also the secret commissions charge he faced. It appears that, on a standalone basis, the starting point his Honour would have adopted for Mr Huang in respect of the obtaining by deception charges would have been six years’ imprisonment.
[49] Your culpability is significantly lower than that of your husband, for the reasons I have outlined. It is also, in my view, significantly lower than that of either Mr Chen or Mr Jiang. Of the four offenders, I see you as being the least culpable. The
other three offenders were all integral to the success of the scheme, although Mr Jiang was of course only integral to its success in relation to the BNZ transactions. Their roles were all important, in differing ways. Their conduct also spanned a wider range of matters than yours.
[50] Your involvement was not key to the success of the scheme. The tasks that you performed could have readily been undertaken by Mr Huang, or someone else at his behest. You were dispensable. In my Verdicts, I accepted the evidence of the handwriting experts that someone had forged your signature on a number of loan applications, most likely Mr Huang. The fact that Mr Huang was willing to do this, rather than ask you to sign those documents yourself, suggests that he was either concerned that you would draw the line at signing false loan applications, or that he saw your direct involvement as dispensable. He was nevertheless prepared to put you at serious risk by forging your name on fraudulent home loan applications.
[51] Counsel have referred me to a number of cases to assist in the sentencing process and I have also considered several others.9 None of them are particularly comparable to your offending, however. I see your culpability as being in a broadly similar range to the offender in R v Varjan and also to the brothers Mehrzad and Mehrdad Ghorbani in R v Stone. 10 The starting points adopted for those offenders was between two and a half and three years.11 The facts of your offending are quite different to those cases, however. The mortgage fraud scheme you were involved with operated on a much greater scale. However, the extent of your involvement in the offending was more limited in scope than the offenders in those cases.
9 Serious Fraud Office v Huang, above n 7; Aryasomayajula v R [2011] NZCA 633; Devoy v R [2017] NZCA 213; R v Stone [2016] NZDC 15958, [2017] DCR 557; SFO v Armitage DC Auckland CRN 04090500767, 1 December 2005; R v Armitage [2007] NZCA 270; R v Letele [2016] NZDC 4365, [2017] DCR 139; R v Wenzel DC Manukau CRI-2006-092-14382, 10 February 2010; R v Slack [2017] NZHC 2330; SFO v Essex DC Manukau CRI 2006-092-007290, 21 February 2007; Visser v Police, above n 5; Ghorbani v R [2017] NZCA 214; R v Varjan, above n 6; Schwanecke v Police HC Wellington CRI-2010-435-9, 10 September 2010; Mayer v R [2015] NZCA 206; D’Villiers v R [2010] NZCA 85; R v Love [2016] NZHC 2394, (2016) 4 NZTR 26- 020; Wang v R [2014] NZCA 252; R v O’Brien CA39/97, 27 August 1997; R v Faisandier CA185/00, 12 October 2000.
10 R v Varjan, above n 6; R v Stone, above n 9.
11 The starting point in Varjan was, at first instance, four to five years’ imprisonment. The Court of Appeal considered a starting point of three years would have been appropriate.
[52] Overall, with reference to the aggravating and mitigating features of the offending that I have referred to, and the various cases I have reviewed, I have concluded that the appropriate starting point for your offending is two years and nine months’ imprisonment. This is possibly towards the lower end of the available sentencing range. I have given significant weight, however, to the fact that you were subservient to Mr Huang, and largely acting on his direction. Further, you were not integral to the scheme and your involvement was and limited in scope.
Mr Chen
[53] Mr Chen, unlike Ms Xu, your involvement was central to the success of the fraudulent scheme. You were the middleman in the offending, providing the key connection between the corrupt bank insiders and Mr Huang.
[54] You were the solicitor for one or more of the parties in virtually all of the fraudulent transactions. Indeed, in most of the transactions, you acted for the vendor, the purchaser, and the lending bank. Your offending was facilitated by the fact that you held powers of attorney for a number of the loan applicants. You abused the trust inherent in that position. You also breached the duties you owed as a solicitor to your various clients, including the banks, in a most egregious way. A number of the so-called purchasers were elderly or lived overseas, and likely had limited insight into what was happening. You exposed them to serious risk in the event that LV Park defaulted on the loan repayments.
[55] In R v Haddon, the Court observed that the defendant, a solicitor, was expected to act with the highest integrity.12 Failure to do so has the potential to shake public confidence in the legal profession.13 You abused the trust placed in you by your clients, and the community as a whole, by your deliberate and ongoing dishonesty over an extended period. This as an extremely aggravating feature of your offending.
[56] In terms of mitigating factors, there was no evidence at trial that you obtained any personal financial benefit from your offending. Your pre-sentence report states
12 R v Haddon (1990) 6 CRNZ 508 (CA) at 512.
13 R v Renshaw (1992) 8 CRNZ 695 (HC).
that you told the report writer that you participated in the offending to assist with your standing in your law firm and to get more clients, so that you could get a promotion.
[57] Although no independent cultural report has been provided, you have filed an affidavit in which you suggest some cultural context to your offending. Based on your affidavit, Mr Wimsett submitted that in Chinese culture maintaining friendships is of the utmost importance and, as a result, you placed the needs and wants of your friend, Mr Huang, above your own personal integrity.
[58] Even accepting, for present purposes, that Chinese culture places an extremely high value on friendship, that cannot assist you in this case given the sheer magnitude of your offending. This was not a case where, on one or two occasions, you cut corners for a friend. You became integrally involved in a mortgage fraud the scale of which is probably unprecedented in New Zealand. As a solicitor you, more than any of your co-offenders, must have appreciated the seriousness of what was occurring. Your job, both as a friend and as a lawyer, was to dissuade Mr Huang from his plan to perpetrate fraud on the banks, and to point out to him that he could face imprisonment if he continued with his scheme. You did not do so, but instead assisted him by becoming a key player in the fraudulent scheme he devised.
[59] Turning now to the issue of the direct losses suffered by the banks, Mr Wimsett submits (and I accept) that you can only be sentenced on the basis that you contributed to a loss of $33,000 that was suffered in relation to one particular transaction. Although other losses have been suffered, they relate to a property that you were not charged in relation to. As I have already noted, however, the fact that the banks’ direct financial losses were not greater simply reflects the rising market conditions. While the extent of financial loss is a relevant factor, your offending would have been serious even if the banks had suffered no direct losses at all, for the reasons I have outlined previously. This type of offending gives rise to multiple forms of harm that extend beyond direct financial loss.
[60] I have considered the various cases referred to by counsel, and also some additional cases.14 In terms of parity, the closest benchmark is obviously Mr Huang’s
14 Above n 9.
sentencing. He received a starting point of six years’ imprisonment on the obtaining by deception charges. He was the mastermind and instigator of the scheme, and (unlike you) benefited financially from it. He could not, however, have implemented the scheme without your help. Your offending is characterised by your gross breach of trust in your capacity as a solicitor. Fortunately, corrupt behaviour by solicitors is extremely rare in New Zealand. Such behaviour must, however, be denounced in the strongest terms and requires a strongly deterrent sentencing response. Overall, therefore, I see your culpability as similar to that of Mr Huang.
[61] With reference to the other cases I have reviewed, in my view your offending is more serious than that of the solicitor in R v Slack,15 where a starting point of four years was imposed. Aryasomayajula and Devoy both involved defendants acting in professional capacities (real estate agents and a mortgage broker respectively) who abused those positions in the context of mortgage fraud schemes.16 Both involved starting points of five years’ imprisonment for the lead offenders, in circumstances involving a significantly lower quantum of lending ($13.5 million and $5.8 million respectively) than your offending.
[62] Overall, with reference to all of the features of your offending, and the various cases referred to, it is my view that a starting point of six years’ imprisonment is appropriate in respect of the obtaining by deception charges.
[63] On a standalone basis, I consider that your Secret Commissions Act offending would attract a starting point of at least one year and six months’ imprisonment. Your offending involved 39 corrupt payments to bank insiders of a total of $498,603, over the course of 17 months. You may not have paid those commissions from your own personal funds, but you facilitated their payment through a complex web of bank accounts, including bank accounts in the names of your sister and aunt. Although you did not receive a personal benefit, it is difficult to overstate the breach of trust involved. The banks were entitled to expect you, as a solicitor, to act with the utmost honesty and integrity. Instead, you facilitated the payment of almost half a million
15 R v Slack, above n 9.
16 Aryasomayajula v R, above n 9; Devoy v R, above n 9.
dollars in secret commissions to corrupt bank insiders, as a reward for their involvement in perpetrating frauds on the very banks for whom you were acting.
[64] Taking into account totality, however, it is my view that an uplift of six months is appropriate for the representative secret commissions charge. That brings your overall starting point to six years and six months’ imprisonment.
Mr Jiang
[65] Mr Jiang, your offending also involved a serious breach of trust. You were a BNZ employee and also, subsequently, an employee of another bank that was defrauded. As a bank officer, you were entrusted to act honestly, with integrity, and in the best interests of your employers. You abused that trust repeatedly, and over an extended period of time (17 months). Further, you received significant “kickbacks” for your corrupt behaviour, in the sum of approximately $240,000. You were motivated by greed. Honesty and integrity is particularly important in the banking industry because of the significant sums of money that flow through the banking system, and the importance of banks to the economy as a whole. Your conduct requires a strong deterrent response. Ms Kincade noted that no direct financial losses have arisen in relation to transactions you were involved in. That may be so but as I have already noted, the losses or harms caused by this type of offending extend far beyond direct financial losses.
[66] I consider that the appropriate starting point for your offending is best determined by reference to your co-offenders. Your offending merits a lesser starting point than Mr Huang and Mr Chen. You were involved in relation to the BNZ transactions only, unlike either Mr Huang or Mr Chen whose involvement spanned both the ANZ and BNZ offending. If you had been involved in all or most of the transactions I would have considered your culpability as similar to theirs. Given your lesser involvement, however, I consider that a starting point of five years’ imprisonment is appropriate on the obtaining by deception charges.
[67] On a standalone basis, I consider that a sentence of 18 months imprisonment would have been appropriate in respect of your receipt of secret commission payments. I see your culpability as broadly equivalent to that of Mr Chen in respect
of the secret commissions charge. You personally received a very significant benefit. Mr Chen did not personally benefit, but was involved in significantly more payments, as he also facilitated payments to Peter Cheng, the ANZ bank insider. In addition, there was an even greater breach of trust element to his offending, although obviously breach of trust is also a very serious aspect of your Secret Commissions Act offending.
[68] Taking into account totality, the appropriate uplift is six months imprisonment. Your overall starting point is therefore five years and six months’ imprisonment.
Factors personal to the offenders
[69] I now turn to consider whether there are any personal mitigating factors that justify a reduction to the sentence starting points that I have reached.
Ms Xu
[70] Ms Xu, you have lived in New Zealand for over 20 years. You have two daughters with Mr Huang, aged 25 and 13. Given that Mr Huang is currently serving a prison sentence for his own role in the offending, you are the sole caregiver for your younger daughter. Your elderly parents (aged 79 and 78 respectively) live with you. They do not speak English and neither of them have a driver’s licence. Their health is poor, which requires your frequent assistance. Due to the fact that Mr Huang is currently in prison you are also required to provide a degree of support to his elderly parents.
[71] Mr Simperingham submitted, on your behalf, that a 25 per cent discount is appropriate to reflect your special personal circumstances. In addition, Mr Simperingham seeks a discount for your previous good character. You have no previous convictions in either New Zealand or China. You have apparently made significant philanthropic donations in New Zealand. You were appointed a Justice of the Peace in 2005 in recognition of your contributions. Mr Simperingham submits that you should be afforded a credit of five per cent for your previous good character.
[72] Finally, there is the issue of remorse. Mr Simperingham submits that you are genuinely remorseful in respect of your offending. Your pre-sentence report records
that you engaged well during the pre-sentence interview, and appeared to be motivated to attend any programmes that are recommended. The report writer’s view is that you are genuinely remorseful for your offending. As Mr Simmonds observed, however, that must be seen in the context that you elected to defend the charges at trial. Through counsel, you have advised that you accept the Court’s verdicts and acknowledge that you were aware that Mr Huang’s “refinancing” scheme and what he instructed you to do was illegal. In my view that acknowledgment, although belated, does you some credit. I consider it to be a genuine indication of remorse given that, in making that admission, you have seriously undermined any prospect of a successful conviction appeal at least on factual issues. Your prospects of rehabilitation would appear to be excellent and, I hope, your current offending will ultimately prove to be a “one off” fall from grace.
[73] Although, obviously, you are not entitled to a guilty plea discount, your decision to test the Crown case was partially vindicated by the fact that you were acquitted in respect of 12 charges that you faced. In respect of most of the other charges you were found liable in respect of only one of the key particulars that underpinned those charges (namely that you provided the false bank statements to the banks). Mr Simperingham submitted that I should afford you additional credit of five per cent for your remorse.
[74] When sentencing Mr Huang, Lang J afforded him a discount of nine months (from a starting point of six years and nine months’ imprisonment) for his previous good character, his repayment of a loan that was left outstanding following the shortfall on a mortgagee sale, and (to a more limited extent) his co-operation in the investigative process. In addition, he gave Mr Huang a three-month discount for remorse. Mr Huang’s overall discounts for personal mitigating factors (excluding his guilty plea discount) were therefore about 15 per cent. The Crown accepts that a similar discount is potentially available to you, at the upper level.
[75] I have carefully considered the appropriate level of discount for your personal circumstances. The issue is a difficult one, but given the remorse you have now shown, which I accept is genuine, your previous good character, your excellent
rehabilitative prospects, and your difficult personal circumstances, I have concluded that a discount of nine months, or just over 25 per cent, is appropriate.
[76] That brings your end sentence within the home detention range. You have been assessed by Corrections as a suitable candidate for an electronically monitored sentence. I am satisfied that home detention is the least restrictive sentencing outcome that is appropriate in all of the circumstances of your offending.
[77] Ms Xu, as I think you will appreciate, your end sentence is a fairly lenient one. I have exercised a considerable degree of compassion in respect of your personal circumstances. I also see you as a person with strong rehabilitative prospects. I hope that going forwards you will lead an exemplary life and conduct any future business dealings you may have with the utmost of honesty and integrity at all times.
Mr Chen
[78] Mr Chen, in terms of your personal circumstances, I have carefully read the information Mr Wimsett has provided regarding your sister’s medical condition and her poor prognosis. I accept that it must be very difficult to be in prison and be unable to assist her at this time, or even see her, given that she lives in China.
[79] I have been provided with numerous references in your support. You are clearly highly valued as a friend and former colleague. Your referees also speak highly of your parenting skills. You are an excellent father who has played a very active role in your young son’s upbringing. Any term of imprisonment will inevitably have a significant impact on your son, who was previously living with you. Your elderly father also lives in Auckland. He is frail and requires care and attention, a role undertaken by you since your mother’s death several years ago.
[80] You have no relevant previous convictions and, based on your references, appear to have been of good character prior to your involvement in this offending.
[81] On the other hand, your pre-sentence report does not make encouraging reading. Although, in your affidavit, you endeavour to challenge the content of that report and suggest that you have been misunderstood or mis-reported, I am satisfied
that it is an accurate record of your interview with the report writer. The report notes that you presented with limited insight into your offending and showed no remorse, advising that the only victim was “my son and my family – no others, I don’t care about other people”. You sought to justify your offending and blame others. You showed little understanding as to how your actions affected others, yet stated that you knew that what you were doing was illegal. You are reported as displaying a high sense of entitlement.
[82] Overall, I am prepared to provide a discount of six months for the various factors identified by Mr Wimsett although, obviously, this does not include any discount for remorse, in light of your pre-sentence report.
Mr Jiang
[83] Mr Jiang, Ms Kincade submitted that you should be given a discount for remorse. She referred to your affidavit as demonstrating that you are genuinely remorseful and deeply regretted becoming involved in the mortgage fraud scheme. Ms Kincade submitted that although you have not previously indicated your remorse to the Court, you have now had time to reflect and have come to terms with the harm that your offending has caused.
[84] Ms Kincade suggested that a further indicator of your remorse was that you extracted yourself from the fraudulent scheme after you had stopped working for the BNZ, despite apparently being approached by your co-offenders at your new employer. In addition, Ms Kincade provided evidence of charitable donations you have made which are said to be a direct result of the regret that you feel. You state that you intend to forfeit all of the secret commission payments you have received.
[85] Your pre-sentence report records that you acknowledged to the report writer that you had done wrong, and that you accept that you deserve punishment for that. You said that you felt sorry for your family and friends and that you now believe you should have pleaded guilty rather than proceed to trial.
[86] You have explained in some detail how you became involved in the mortgage fraud scheme, both in your affidavit and to the author of the pre-sentence report.
Although you do engage in some blame-shifting, you have demonstrated a degree of meaningful insight into your offending and a willingness to take responsibility for it. This conclusion is supported by the fact that the admissions you have now made are likely to make any conviction appeal challenging to pursue, at least in relation to my factual findings.
[87] You have no previous convictions. I have carefully read the reference letters that you have provided. You appear to be highly regarded in your community by friends, family and professionals. In my view, a discount of nine months for personal mitigating factors, including your previous good character and your remorse, is appropriate.
Minimum period of imprisonment
[88] The remaining issue is that relating to the minimum term of imprisonment. The Crown seeks the imposition of an MPI of 50 per cent for both Mr Chen and Mr Jiang. The issue is whether it is necessary to impose a minimum term of imprisonment to ensure that the sentencing principles of deterrence, denunciation and the need to hold you accountable for your conduct are properly met.17
[89] In the ordinary course of events you would each be eligible for parole after serving just one-third of your sentence. In this case that would amount to two years’ imprisonment for Mr Chen and 19 months’ imprisonment for Mr Jiang. I do not consider that this would be sufficient to recognise the sentencing principles I have identified. For that reason, I propose to impose an MPI of 50 per cent of your sentence on each of the obtaining by deception charges laid under the Crimes Act.
Sentence
[90] Ms Xu, please stand. You are sentenced to home detention for a period of 12 months in respect of each of the obtaining by deception charges. Each sentence is to be served concurrently. I impose a special condition that you are to attend an assessment for any counselling, treatment or programme as directed by a probation
17 Sentencing Act 2002, s 86.
officer. In addition, you are to attend and complete any counselling, treatment or programme as recommended by the assessment, as directed by, and to the satisfaction of, a probation officer.
[91] Your sentence is to be served at the address recorded in your pre-sentence report. When you leave Court today you are to proceed directly to that address and to await the arrival of a security officer.
[92] Mr Chen, please stand. You are sentenced to 6 years’ imprisonment in respect of each of the obtaining by deception charges laid under the Crimes Act, and one year and six months’ imprisonment in respect of the Secret Commissions Act charge, each sentence to be served concurrently. I also impose an MPI of 50 per cent (three years’ imprisonment) in respect of each of the Crimes Act charges.
[93] Mr Jiang, please stand. You are sentenced to four years and nine months’ imprisonment in respect of the obtaining by deception charges laid under the Crimes Act, and one year and six months’ imprisonment in respect of the Secret Commissions Act charge, each sentence to be served concurrently. I also impose an MPI of approximately 50 per cent (two years and four months’ imprisonment) in respect of each of the Crimes Act charges.
[94]You may all now stand down.
Katz J
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