Wednesday, October 28, 2009

Fine for forged bank reference letters

Like many banks, American Express Bank (AEB) requires customers who want to open accounts with it to produce letters of reference from other banks stating the length of the customer's relationship with the other banks. This is now standard practice as part of the KYC (Know Your Customers) requirements for banks to stop money laundering and terrorist financing.

Ho Nyat Yeing, who was relationship manager with AEB, found it difficult to obtain these letters. She therefore forged reference letters using blank letterheads from other banks. In court, she pleaded guilty to 11 out of 79 charges. As no loss was caused to any party, shre was fined $41,000.

There are other relationship managers who have been caught in similar situations, with some of them having already been sentenced by the courts.

Saturday, October 17, 2009

$1.9m fine for car tax evasion

Ang Hian Koon, owner of Allied Auto was fined over $1.9 million for evading over $700,000 in customs duties and over $200,000 in Goods and Service Tax (GST) in relation to the parallel importing of cars. As he could not pay the amount of the fines, his jail sentence will be 52 weeks. His business had been under-declaring the value of the cars while arranging to pay the foreign supplier in cash during face to face meetings.Although he was not the person submitting the false information to the authorities, he was aware of what was happening. The mastermind of the fraud, Tay Kien Chuan, was fined over $10 million but will serve 8 1/2 years in jail in default of paying the fine.

In total, there are about 15 persons who have been convicted or are awaiting trial for tax evasion in the car parallel import business.

Confession but no corruption conviction

A marine surveyor, Anuar Ahmad, was acquitted for corruption recently. He had been charged with taking a $500 bribe for overlooking a short supply of bunkers (fuel) to a ship. During investigations, he had been told by an Corruption Prevention and Investigation Bureau (CPIB) investigator that if he confessed, he would only be fined and not jailed. Based on this, he confessed to the bribery charge.

During his trial, the judge threw out his confession as it was made under an inducement. The other evidence against him was also rather weak; there were no complaints about the fuel supply. Accordingly, he was acquitted of the charge.

It should be noted that a few years ago, the bunkering industry was hit by a scandal concerning bribes to marine surveyors. They are in charge of checking on the supply of fuel to ships refuelling in Singapore. However, some of them were convicted of taking bribes from fuel suppliers in order to overlook short delivery of fuel or dilution of fuel.

Legal note - under section 24 of the Evidence Act, a confession made under inducement, threat or promise by a person in authority, is inadmissible if the accused was seeking to gain an advantage or avoid an evil.

Tuesday, October 13, 2009

Credit card fraud - rewards for stopping fraud

A friend who worked on credit card security told me that a retailer's staff who spots and retains a stolen or fake credit card is given a reward of $50. If the credit card holder is detained, the reward is $200. However, this information was provided quite some years ago, so the rewards may now be higher.

A word of caution - detaining a suspected crook carries some risk. It the detention is not justified, a lawsuit for false imprisonment might well be started against the employee and his employer. A lawyer friend and his pregnant wife were once wrongly detained for shoplifting of a briefcase. Although he produced a receipt, this was not accepted. The retailer feared that he had bought one item, then went back to steal an identical item using the first receipt. He later settled his false imprisonment claim with the department store for $800.

Sunday, October 11, 2009

Ren Ci saga comes to a close?

Ren Ci is a leading Singapore charity involved in providing free medical services. Its founder-chief and monk Shi Ming-Yi and his aide, Raymond Yeung, were charged in court with various offences relating to a $50,000 loan to the aide. Shi was charged with criminal breach of trust in relation to the $50,000 as loans to Yeung were not covered by the charity's staff loan scheme as the latter was a Hongkonger who had not received permission to work in Singapore. Further, the charity's staff loan scheme had strict limits based on the employee's salary.

In an attempt to cover up the loan, the abbot and his aide recorded the $50,000 as a loan to the Mandala Buddhist Cultural Centre, a business entity owned by the charity. However, the Centre's books had no record of this. Later, false statements were made to the Commissioner of Charities when the loan was probed. This is another example where the cover-up offences turn a single act of dishonesty into a whole chain of offences.

Both have just been found guilty after a 21-day trial. Because this was not an isolated act of dishonesty and the fact that public monies in the form of charitable donations were misused, it is possible that a stiff sentence would be meted out. Sentencing will be on 11 November 2009.

[legal note - criminal breach of trust occurs when money entrusted with a person is used for unauthorised purposes. Even using such money for less than a day would amount to an offence under the Penal Code, and this is so even if the money is replaced]

2 Taiwanese jailed for credit card fraud

2 Taiwanese, Lin Ming-Hung and Huang Cheng-Yu, were jailed for 4 years each for counterfeit credit card offences involving more than $6,000. Although the amount involved is not large, the stiff sentence shows that the courts are determined to punish credit card fraud severely. They each pleaded guilty to 3 charges of having counterfeit cards, 2 charges of abetment to cheat and 11 other charges were taken into consideration.

The accused were part of a syndicate which trained them in fraud techniques such as which goods to purchase, and how to react if the retailer made a call to a bank to check the credit cards. It is understood that their detention was as a result of information provided by Card Security Group Singapore.

Saturday, October 10, 2009

Past scandals - National Bank of Brunei (NBB)

This blog will cover not only Singapore cases but notable past cases that may be of interest to Singaporeans.

One case from Brunei concerns Khoo Teck Phuat and his son Khoo Ban Hock. The latter was managing director of NBB w. Under his charge, the bank loaned more than Brunei $1 billion (which is equivalent to Singapore $1 billion) to companies controlled by his father. These loans were undocumented and unsecured. It was claimed that these offences under Brunei banking laws by Khoo Ban Hock were committed under the control and his direction of his father.

When this dishonesty was discovered, the younger Khoo was sentenced to 3 years jail but later only served two. The elder Mr Khoo was not charged, but it was understood that he made restitution of about S$600 million to cover the losses suffered by various party. Mr Khoo Teck Puat later went on to become a billionaire, and was of the largest shareholders in megabank Standard Chartered when he died in 2004. However, after the NBB scandal, he kept a low profile.

Corruption and its effects

Besides strict penalties for the bribe payer and bribe taker, corruption can also lead to other effects.

For one, if an employee pays a bribe to the employee of a customer, the customer will be able to terminate the contract and also to sue the employee's company for any loss or damage.

As regards an employee bribe taker, besides losing his job, he is also subject to severe financial penalties. The employer can sue the employee for the value of any bribe received. This is on top of the penalty that can be imposed by a court which equals the value of the bribe received, under section 13 of the Prevention of Corruption Act. This "double punishment" was confirmed by the court in a case involving Carrefour Supermarket -

see Carrefour Singapore v Leong Wai Kay, [2006] 4 SLR 412 (the last set of characters is the citation of the case which tells a lawyer where to find the decision in a law library)

Wednesday, October 7, 2009

Ponzi schemes - who was Ponzi?

With some much recent news about Ponzi schemes - see the posts on Bernard Madoff and about the Sunshine Empire, the question that some ask is "who was Ponzi and what was his scheme?'

Ponzi was someone with a bright idea which he introduced in the USA as a means of generating great returns. His idea involved international reply coupons which could be bought in any country and used like postage stamps to send a letter overseas. These coupons could also be exchanged for cash in any other country. His brainwave was to buy the coupons in less developed countries and then to ship them to the USA where they could be exchanged for much greater amounts (sounds like a great form of arbitrage). Logistic problems prevented his plan from being carried out but he received such a large amount of investments in his plan that he decided to carry out a massisve deception by using new investment money to pay off previous investments.

If you wish to know more about his life and his ultimate fate, you may refer to wikipedia.

Forged cheques - safeguards

Protecting your cheques is important as letting others have access to them exposes you to the risk of fraud.

Here are some basic precautions -
1. Do not pre-sign cheques. If this is unavoidable, only sign a few and place them into the hands of one person who wil be monitored by another.

2. Set withdrawal limits on each cheque so that any forger will have to sign several in order to steal a large amount.

3. Monitor how many cheque books the bank has issued to your company. This is to ensure that employees do not make requests for such without your knowledge, or intercept them when the cheque books are sent to you.

4. Do bank reconciliation statements every month as they will warn employees that any dishonesty will be quickly caught. Some cases of forged cheques involved dishonesty over a long period of time.

5. Something unusual - ask every employee's spouse to sign an indemnity - he/she will be responsible for any fraud caused by the spouse. Depending on how badly employee wants the job, this may be difficult to achieve.

Tuesday, October 6, 2009

Forged cheques again

In a previous posting in April 2009, I raised the issue of cheques with forged signatures. Banks are under common law liable for the value of such cheques as they are not allowed to pay out under the cheques except if the actual signature of the customer is present. However, the banks use contractual clauses to shift the risk of forged cheques onto the customer.

Mr Michael Hwang, Senior Counsel, and President of the Law Society, has now raised the issue of whether the banks should do so. He has raised the issue with the Association of Banks, the Consumers' Association of Singapoe and with a Cabinet Minister. However, nothing has made banks change their minds about the use of such clauses. He mentions that in Malaysia and in Hong Kong, customers will not stand for the use of such clauses. Hopefully, the business community acting through trade associations and the like will exert some pressure on the banks to change.

In the meantime, for us individuals, there is always the issue of whether we can rely on provisions of the Unfair Contract Terms Act to try to argue that the banks' clauses are invalid.

Sunshine Empire 3 - The law of Ponzi Schemes

If James Phang and company are found to have run a Ponzi scheme, what can they be charged with?

Under Singapore law, the law relating to Ponzi Schemes can be found under section 340 of the Companies Act which refers to the business of a company "being carried on with intent to defraud creditors or ... for any fraudulent purpose" . Phang and Jackie Hoo face 1 charge under this section.

Another relevant section is section 404, Companies Act which refers to fraudulent inducing persons to invest money. However, proving fraud is usually rather difficult and it usually requires proof as to the state of the defendant's mind - that he intended to defraud others. In some cases, the defendant might claim that he honestly believed in his company's business model (its revenue generation methods). In a crminal trial, the prosecution has to prove the charges beyond reasonable doubt.

It should be noted that the bulk of the charges against the Phang gang are in relation to falsification of accounts. This may require a lot of investigation work but may in the end be easier to prove. In many cases, the assets of the company are overstated. In the cases of fraud, it is often not just over optimistic valuations of the assets but rather including ficititious assets on the balance sheets.

Corruption - what is a bribe?

A bribe under the Prevention of Corruption Act covers not just monetary payments but any favour or advantage. For the full text of the relevant definition, please refer to the end of this post.

Even a free hawker meal can amount to a bribe as some hawker (food stall) inspectors who were convicted of corruption and lost their jobs, have found out. Some policemen

The law of corruption has been applied not just to employees who took bribes from suppliers and civil servants who took bribes from the public, but also to

a) a independent bus driver who took fees from doctors to take foreign workers for medical check-ups. He was not told to take them to any particular doctor, so I am not sure that he was correctly convicted;

b) professional football players who received bribes to play well;

c) a jockey who rode winning horses being given gifts by a grateful owner. I believe that he was later acquitted on appeal;

d) Singaporeans being paid to enter into sham marriages with foreigners.

The full definition of a bribe as found in Section 2 of the Prevention of Corruption Act -
"gratification" includes —

(a) money or any gift, loan, fee, reward, commission, valuable security or other property or interest in property of any description, whether movable or immovable;

(b) any office, employment or contract;

(c) any payment, release, discharge or liquidation of any loan, obligation or other liability whatsoever, whether in whole or in part;

(d) any other service, favour or advantage of any description whatsoever, including protection from any penalty or disability incurred or apprehended or from any action or proceedings of a disciplinary or penal nature, whether or not already instituted, and including the exercise or the forbearance from the exercise of any right or any official power or duty; and

(e) any offer, undertaking or promise of any gratification within the meaning of paragraphs (a), (b), (c) and (d);

Monday, October 5, 2009

Sunshine Empire 2 - the charges

From the Commercial Affairs Department website - as at 5 October 2009

Q What is the status of the investigation?
A CAD has completed the investigations on Sunshine Empire Pte Ltd ("Sunshine Empire") and other companies involved in this case. On 3 February 2009, the following persons have been charged in the Subordinate Court.

a. Jackie Hoo Choon Cheat, a director of Sunshine Empire, and James Phang Wah each faced 1 charge of fraudulent trading under Section 340 of the Companies Act, 1 charge of failure to maintain proper accounting records of Sunshine Empire under Section 199 of the Companies Act and 8 charges of criminal breach of trust as an agent of Sunshine Empire under Section 409 of the Penal Code;

b. James Phang Wah also faced 6 charges of falsification of Sunshine Empire’s accounts under Section 477A of the Penal Code and 1 charge of false declaration of the share capital of Empire Communications Technology Pte Ltd under Section 401 (2A) (b) of the Companies Act. In addition to the Penal Code and Companies Act charges, James Phang Wah faced 3 charges for possession of uncensored and obscene films under the Films Act;

c. Neo Kuon Huay, a director of Empire Emall (S) Pte Ltd, faced 6 charges of falsification of Sunshine Empire’s accounts under Section 477A of the Penal Code and 1 charge of false declaration of the share capital of Empire Emall (S) Pte Ltd under Section 401 (2A) (b) of the Companies Act; and

d. Yong Wai Hong, a director of Empire Communications Technology Pte Ltd and various companies, faced 6 charges of false declaration of the share capital of various companies under Section 401 (2A) (b) of the Companies Act.

Note that Yong Wai Hong has already been convicted of the charges under the Companies Act.

Sunshine Empire trial

The trial of the bosses of the Sunshine Empire has just started. James Phang, his wife Neo Kuon Huay, and ex-direcror Jackie Hoo Choon Cheat have been charged with their roles in this affair.

The prosecution has alleged that they masterminded what is Singapore's largest Ponzi scheme involving more than $180 million. Ponzi schemes are a scam where monies from new investors is used to pay off previous investors, thus giving the appearance of a successful business model.In this way, more investments are attracted.

Ponzi schemes have been in the news in the last 12 months because of the enormous scam run by American Bernie Madoff. Please search this blog if you want more information on some of Madoff's tactics.

Sunday, October 4, 2009

Bribery of witness - first case

In 2007, new sections were introduced into Singapore's general criminal law, the Penal Code, to deal with offences in relation to the court system and the administration of justice.

One of these sections, s 204B provides for punishment for bribing witnesses and taking bribes in judicial proceedings. The words "judicial proceedings" covers legal proceedings in the course of which evidence may be taken. This definition will therefore cover not only lawsuits but also arbitrations.

It appears that a security guard, Chidambaram Radha, is the first person to be convicted under this provision. He attempted repeatedly to get an Indian national to lie on the witness stand in relation to charges against him for harbouring of illegal immigrants. Ironically the harbouring charges against him were later dropped, but for his attempted bribery, he recently received a 6 month jail term.

Corruption - strictest laws in the world

Does Singapore have the stricted anti-corruption laws in the world? I have not done any studies on other laws, but our laws are extremely strict in covering acts of corruption occuring overseas.

Under 37 of the Prevention of Corruption Act, Singapore citizens who commit acts of corruption overseas, eg taking or paying a bribe, may be punished under the Act. This is one of the rare cases where the Singapore courts are given extra-territorial jurisdiction (over acts done outside the country). The Act however, does not seem to require any connection to Singapore for the Act to apply. For example, a Singaporean working in China for an American company, pays a bribe to a Chinese civil servant, would have committed an offence under the Act.

In contrast, a friend working in a neighbouring country for a major software company, recounted the story of trying to obtain a large private sector contract. An employee from the potential customer asked whether he was willing to give the employee a car. My friend was shocked by this, after having grown up in Singapore. He also amazed by the size of the bribe wanted - considering the size of the contract, sports rims could be thrown in but definitely not a car!

Corruption - early Singapore history

Corruption is a problem for many developing nations. Singapore in its early days was not spared.

A recent book, Men in White, which is a story about the People's Action Party, its history and its opponents, contains references to corruption in the early days of Singapore's independence.

One account is that obtaining forms from any government department required payment of tens of cents to the employee dispensing the forms. Another story concerns President Nathan, who when he was applying for a civil service job many decades ago, was asked in Tamil, by an Indian inteviewer, "how many tables?". Nathan could not understand what was being asked. He did not get the job, but later found out that he was being asked how many tables for a fancy dinner he would give to the civil servant in return for getting the job.

Lee Kuan Yew, when he came to power, ensured that corruption was severely punished. No one from clerk to Minister should be outside the law. The most famous case of high level corruption was Teh Cheang Wan, Minister of National Development, who lived in a big bungalow in the Chancery Road area, before his suicide on his criminal activity being discovered.

Duty to report fraud by auditors

Auditors, like many professionals, owe a duty of confidentiality to their clients. This means that if an auditor discovers fraud, it is strongly arguable that he should take his clients' instructions on whether or not to report the fraud. In many cases, the directors of a client company might prefer not to report the fraud as it may reflect badly on their management, in addition to damaging the company's reputation.

However, for public companies or their subsidiaries, auditors are required to report serious fraud to the Minister of Finance. Under section 207(9A) of the Companies Act, serious fraud is defined as an offfence involving fraud or dishonesty where the maximum penalty is at least 2 years jail and the value of the property involved at worth at least $20,000.

An interesting point about the provision is that the auditor is only required to report fraud against the company by its officers or employees. However, if he discovers that the company is committing fraud against someone else, the provision does not seem to apply(the relevant words of the provision being "is being or has been committed against the company by officers or employees of the company").