Computer crime - hacking

Hacking, an offence under section 3 of the Computer Misuse Act, is committed when a person knowingly causes a computer to perform a function for the purpose of securing access without authority to any program or data held in any computer. The keywords here are "without authority". It therefore covers outsiders trying to penetrate a company's computer system as well as employees trying to access company data knowing that they had no right to do so.

Hacking is now no longer regarded as a harmless prank. Punishment is $5,000 maximum fine and/or jail of up to 2 years. There are enhanced penalties for repeat offenders as well as those who cause damage as a result of the offence.

Section 4 covers what I call aggravated hacking - this is hacking for the purpose of committing a further offence involving property, fraud, dishonesty or which causes bodily harm and which is punishable on conviction with imprisonment for a term of not less than 2 years. Again, enhanced punishment is provided for - up to 10 years jail, up to a $50,000 fine or both.

Various professionals including a few lawyers and government servants have been convicted for hacking or related offences.

Computer crime

Computers and microprocessors (collectively, called computers) are so much a part of daily life that many fraud crimes are committed using computers or with the aid of computers.

The Singapore government recognised the importance of info technology and passed a statute, the Computer Misuse Act in 1993, despite a nominated Member of Parliament writing an article that argued against any special legislation on computer crime. Instead, he argued, existing laws should be modified or interpreted to cover computer crime.

My view on the other hand is that specialised laws were needed for several reasons -

• to make the laws on this area easy to understand,
• to save time and problems in trying to deal with non-purpose drafted laws, and
• to send a signal of the government's strong stance against computer crime.

Later posts will deal with issues of computer crime.

Fraud - JSI Shipping case

New posts on the JSI Shipping case heard by the Court of Appeal will be published shortly on the following blog - http://professionalnegligencesg.blogspot.com/.

This case is a common example of how when fraud occurs, the criminal is either nowhere to be found or often has little left of his ill-gotten gains. The end result is that often innocent parties end up suing other "innocent parties" to recover their losses. In this case, the company which had suffered large losses ended up suing the company auditors for professional negligence in relation to the fraud.

Bounced cheques

Cheques where the payee is unable to collect payment due to the issuer's bank stating "refer to drawer" are known as "rubber cheques" or "bounced cheques". The issue to be considered here is whether issuing of such cheques should be considered a criminal matter, eg the offence of cheating under the Penal Code.

From what I understand, the police normally take the view that this is only a civil case and not a criminal one. The police would only take action if the case is reasonably strong. In the normal bounced cheque situation, it is possible that the cheque issuer intended to pay but for some reasons, the funds were not available on the due date for payment. There is therefore no intention to cheat. On the other hand, if it can be shown that the cheque was issued from a closed account, then there is clearly no way for the payee to receive payment. This would then be a clear case of cheating.

Even if the police rejects the complaint of criminal conduct, it might still be possible to obtain a private summons for cheating against the cheque issuer. It would be better to consult your lawyer on this although the procedure is not complicated.

As a final comment, it might be possible to show cheating even where the bank account was not closed if it can be shown that the issuer issued cheque(s) for ridiculously large sums of money. For example, if he issued cheques totalling $500,000 when his bank account never had more than $10,000, the court may well agree that he had no intention of paying the cheques.

Fraud offences under the Companies Act

Besides the Penal Code, the Companies Act also lists offences relating to fraud.

Some of the more common offences include -

• accounting offences - A person failing to comply with the rules relating to company accounts found in sections 199 to 203 commit an offence under section 204. This was the provision under which former Haw Par director Richard Charles Tarling was imprisoned.
  

• falsification of books - a person falsifying company books or documents with intent to defraud commits an offence under section 338 and is subject to a possible jail and fine.

• fraudulent trading - if a company is run with the intention of defrauding creditors of the company or any other person, or for any fraudulent purpose, then an offence under section 340 is committed. There is both civil and criminal liability for such offences.

Ponzi scheme in Singapore, Singapore's own Madoff?

The recent case of Public Prosecutor v Stefanovic Nenad shows the results of a local Ponzi scheme. As most people know, a Ponzi scheme relies on using new investors's money to pay off previous investors, thus giving the previous investors the ILLUSION that the business is doing well.

Nenad, a Singapore resident Yugoslav, tooks monies from various persons in Singapore, telling them that he could obtain 30% returns from them using a trading account he had with a company called FIMAT Singapore Pte Ltd. The amounts of money involved were over $800,000. In some of the cases, he used new investors' monies to pay off previous investors who were persuaded to invest the money with him. In other cases, he took money from investors, telling them that he was going to use his FIMAT trading account even after this account was closed.

He was charged with 11 charges, out of which the prosecution proceeded with only 4 charges. He pleaded guilty and was sentenced to 64 months' imprisonment. The judge took into consideration the fact that a large sum of money was involved, the public interest in stopping financial fraud and the fact that he had used his illegal methods over a period of time (over a period of 2 years).

The charges against him included cheating, forgery and criminal breach of trust.

Those who wish to read the full judgment of the court may wish to refer to the Subordinate Courts website - www.subcourts.gov.sg.The case is found (for the time being at least) at http://lwb.lawnet.com.sg/legal/lgl/rss/subcourts/60844.html.

Law - fraud and the Penal Code

As mentioned previously, the Penal Code is the main criminal statute in Singapore.

Most of the common offences relating to fraud are found in Chapter 17 of the Code which deals with property offences. These offences are -

a) cheating (section 415) - this applies when a person is deceived or tricked either

• into delivering assets or
  

• allowing assets to be kept, or

• doing something or not doing something which in both cases is likely to lead to harm
  

b) criminal breach of trust (section 405) - this applies when a person who is either entrusted with assets or manages assets, uses these assets for purposes not covered by the entrustment.

c) forgery (section 463) - this applies to anyone making a false document or electronic record for a whole host of reasons. Perhaps if you make a fake document solely as a practical joke, this would be one of the few instances where no offence would be committed.

These offences may sometimes overlap - for example, if a fake share certificate is used to deceive someone, the offences of cheating and of forgery may both be committed. However, the usual rule is that a person cannot be punished twice for one criminal act.

Oriental Century and Raffles Education

Major Singapore listed education company Raffles Education was the victim of major fraud in its investee company, Orient Century. The later is a Singapore company with its operations in China. The market was shocked by recent news that Orient Century's Chief Executive Officer, Wang Yuean, admitted to inflating sales and cash balances, as well as diverting funds to a third party. The admissions, if true, may well amount to offences under the Singapore Companies Act and the Penal Code.

Raffles Education holds about about a 30% share of Orient Century which cost $34.6 million. The later company has now appointed a special legal adviser and a special accountant to cope with the crisis.

Commentators have pointed out the difficulty of enforcing Singapore company and fraud laws in relation to foreign nationals who are based overseas.

Pan Electric collapse 2 - forward contracts

One important factor behind the Pan Electric collapse and the unprecedented closing of the Singapore stock market was the widespread use of forward contracts. These were contracts relating to the sale and repurchase of shares. For example, A might sell shares in company Z to B at a price of $1.50, and agree to repurchase them from B in 30 days at a price of $1.60.

Depending on the actual facts of each pair of transactions, various challenges could be made against them -

• they were gambling contracts;
• they were disguised moneylending contracts;
• because of the previous 2 challenges, these contracts were beyond the powers of the various corporate bodies involved in the transactions, and
• such transactions were floating charges and required registration under the Companies Act.

Not all the issues were explored in the subsequent fallout from the case. However, they were a several leading cases on the nature of various share financing arrangements and whether such arrangements should be consider fixed or floating charges under the Companies Act.