Thursday, October 22, 2015

Transcript of the CHC guilty verdict (Middleground: 21 Oct 2015)

IT WAS judgement day for the six members embroiled in the City Harvest Church case that spanned over 140 days. Senior Pastor and Founder Kong Hee, Deputy Senior Pastor Tan Ye Peng, Member of Investment Committee John Lam, former Fund Manager Chew Eng Han, former Finance Manager Serina Wee, and her successor Sharon Tan were arrested in 2012 following a probe into financial irregularities by the Commissioner of Charities and the Commercial Affairs Department.

And the verdict? Guilty. All six were found guilty of all charges laid against them – criminal breach of trust and falsifying of accounts.

Explaining his judgement, Justice See Kee Oon told the court that all six members were “crucial cogs in the machine” in the plan to defraud City Harvest Church.

If you want to know what he said in the courtroom today, here’s an excerpt:

The six accused persons were tried primarily on charges of conspiring to commit criminal breach of trust or CBT by dishonestly misappropriating funds belonging to City Harvest Church that had been to entrusted to one or more of them.

The first group (of charges) comprises the 1st to 3rd charges and pertains to what have been referred to in the course of the trial as “sham bond investments”. The second … 4th to 6th charges pertain to what has been termed “round-tripping”.

A third group of charges, the 7th to 10th, concerns falsification of accounts in CHC’s books relating to the round-tripping transactions. I do not propose to set out the evidence as it is lengthy and voluminous. It suffices to note that the main background facts are largely undisputed or uncontroversial.

I will set out my findings in relation to the elements of the offence of CBT first, leaving aside the issue of dishonesty. I will then focus… on the extent of the accused persons’ knowledge and involvement in the plans to use funds belonging to CHC for the Crossover Project, which I will prefer to as “the Crossover”, and on whether their conduct in the circumstances shows that they had acted with dishonest intent.

First, I am satisfied that Kong Hee, Tan Ye Peng, and John Lam Leng Hung were as members of CHC’s management board each entrusted with dominion over CHC’s funds, whether in the Building Fund or the General Fund. Second, I am bound to hold that they were entrusted with such dominion in the way of their business as agents because, being board members, they were so entrusted in their capacities as agents of CHC. Third, I am satisfied that the various plans to use CHC’s funds amounted to putting these funds to unauthorised or wrong use.

Let me now turn to the wrong use of CHC’s funds. The Building Fund was a restricted fund that could be used only for building-related expenses or investments for financial return. I find that the Xtron and Firna bonds were not genuine investments but were wrong use of the Building Fund. I find also that charges 10 and 11 of the Special Opportunities Fund, or SOF, were not genuine investments but were transactions designed to create the appearance that the Firna bonds had been redeemed. I find, finally, that the payment under the advance rental license agreement, or ARLA, was not a building-related expense, but was a transaction designed to perpetuate the appearance that the Firna bonds had been redeemed. They were, therefore, all wrong uses of CHC’s funds. I turn next to the accused persons’ involvement and knowledge in the various plans to use CHC’s funds.

The accused persons understood that Kong Hee’s preference to be discreet about the funding for the Crossover was for the sake of ensuring the success of the Crossover. But being discreet was also synonymous with non-disclosure and misstatements. Kong Hee had explained that it was his preference to avoid disclosure of CHC’s involvement in Xtron to avoid any misconception that Sun Ho’s secular music career was, in his words, not real, and that CHC was still using its money to promote her career. But in relation to both aspects, the evidence shows that it was true that her perceived success was inflated from rather more modest levels and Xtron and the Crossover team had to rely heavily on sponsorship from CHC members or supporters to help prop up her album sales and promote her career. When these sources of financial support which did not directly flow from CHC were insufficient, they had to come up with other means.

I will turn to the Xtron bonds now. Xtron was the special purpose vehicle for the Crossover and for this purpose Xtron was clearly under CHC’s control and not independent. The plan formulated in 2007 was that CHC’s funds specifically funds from the Building Fund would be channelled through Xtron to be used for the Crossover and the use of the funds was controlled entirely by Kong Hee and his team. In truth, this was analogous to an elaborate extension to a pattern of financial assistance via sponsorship lending or prepayment to Xtron that had already either been taking place or been contemplated prior to 2007. These were seen as short-term measures to put Xtron in funds and support the Crossover. The mindset was thus that Xtron bond issues were only yet another temporary plan, albeit one which involved borrowing from CHC’s Building Fund and hoping that the funds would somehow find their way back to CHC at some unspecified future point.

Kong Hee, Tan Ye Peng, Chew Eng Han and Serina Wee each clearly played a substantial role in conceiving and executing this plan to channel CHC’s Building Fund through Xtron for the Crossover. John Lam’s role was evidently less substantial, but I am satisfied that he had his own part to play as a board member and investment committee member. All of them knew that the Building Fund was a restricted fund to be used only for specific purposes. They claim that they believed the Xtron bonds were genuine investments. They believed the Xtron bonds would bring CHC financial return. But on my evaluation of the evidence, I consider that the prosecution has proved beyond a reasonable doubt that they did not hold that belief. I find that the accused persons were planning on the basis of Sun Ho’s planned US Crossover album being realistically generating sales of only 200,000 units and although their projections showed that the bonds could not be redeemed by the maturity date,  they were unconcerned, since Eng Han had assured them that the maturity date for the bonds could always be extended or fresh bonds could be issued.

I am unconvinced that they could have had a genuine belief in Sun Ho’s prospects of success for the US Crossover, given their consciousness that much of her earlier success was contrived and contributed to by CHC itself. Serina readily conceded that Sun Ho’s Asian Crossover albums all made losses, and Xtron had thus incurred substantial accumulated net losses. Kong Hee, Ye Peng, Eng Han and John Lam also knew that CHC was involved in propping up her Mandarin album sales. I am unable to see how there can be any genuine or honest grounds for their claims that they expected far higher sales for her planned US album well in excess of the projection of 200,000 units.

This was no more than an optimistic hope. It was definitely not a realistic expectation. All this strongly militates against their claims that the Xtron bonds were motivated by the realistic prospect of financial return and they were genuine investments. Further, the accused persons were all involved in making plans to put Xtron in funds to redeem the bonds. They knew that these plans would involve CHC paying money to Xtron under the guise of legitimate transactions, when, in fact, the real concern was Xtron’s cashflow difficulties and their purported transactions were mere excuses for CHC to channel money to Xtron. Thus they knew that there was a strong possibility that the apparent financial return under the Xtron bonds would come from CHC itself. This knowledge further undermines their claim that they believe the Xtron bonds were a genuine investment.

In addition, the accused persons hid or obscured material information from others. Eng Han and John Lam kept the truth about the Xtron bonds from Charlie Lay. All of them at various times gave the auditors the impression that CHC and Xtron were independent of each other, when they knew that Kong Hee, in fact, made all decisions on Xtron’s behalf in relation to the Crossover without reference to the Xtron directors who were mere figureheads. The auditors were not told that Xtron was, in fact, controlled by Kong Hee and Ye Peng, and that they, together with their co-accused, will exercise control over the use of the bond proceeds. There is no doubt that they knew that they had something to hide. In all the circumstances, I am satisfied that the accused persons knew that the Xtron bonds were conceived first and foremost to support the Crossover and not for financial return. The prospect of any financial return was a secondary consideration, at best, and, even then, I do not accept that they genuinely believed that the sale of Sun Ho’s music albums would generate sufficient profit for CHC to enjoy financial return. They knew that any financial return to CHC might be illusory, in the sense that it was CHC’s own money that might need to be channelled to Xtron to redeem the bonds. Given their knowledge, I cannot accept their claims that they believed the Xtron bonds were a genuine investment.

Accordingly, they caused CHC to subscribe to $13 million in Xtron bonds, knowing that they were not legally entitled to do so. Thus, they acted dishonestly. And I find that the 1st and 2nd charges have been made out against John Lam, Kong Hee, Eng Han, Ye Peng and Serina.

In respect of the Firna bonds, the accused persons knew — all knew — that the primary purpose of the bonds was also to channel money from CHC’s Building Fund to the Crossover. Kong Hee, Ye Peng, Eng an and Serina knew that they and not Wahju Hanafi  were the ones controlling the Firna bond proceeds, and deciding how the proceeds should be applied towards the Crossover. Yet, they took the inaccurate position that Wahju was somehow independently supporting the Crossover using his personal monies, and this was what they told the auditors and lawyers. They knew that the financial return under the Firna bonds would not come from the profits of Firna’s glass factory business but depended entirely on the success of the Crossover. If the revenue from Sun Ho’s albums was not adequate, they would find alternative sources of funds for Firna and that might include channelling CHC’s own money into Firna through various means.

Given this knowledge, I do not think Kong Hee, Eng Han, Ye Peng and Serina could have believed that the Firna bonds would generate financial returns for CHC and so they could not have believed that the bonds were a genuine investment. John Lam was further removed from the Firna bonds than the other accused persons, but he signed the secret letter that secured the signature of Wahju’s father-in-law on the Firna BSA. I am satisfied that he knew  that the prospect of financial return of CHC did not depend on the success of Firna’s glass factory business. He knew that it was a very real possibility that the Crossover would not be profitable. Thus, I find that he, too, did not believe that the Firna bonds would generate financial return for CHC, meaning that he did not think the bonds were a genuine investment. Therefore, in causing CHC to subscribe to the $11 million in Firna bonds, the accused persons knew that they were not legally entitled to do so. They thus acted dishonestly. As such, I find that the 3rd charge has been made out against John Lam, Kong Hee, Eng Han, Ye Peng and Serina.

At the centre of the 1st to 3rd charges is how the Building Fund came to be applied for the Crossover when it was a restricted fund for specific purposes, either for building or investment. In my judgment, the crossover was not one of these purposes. It was not an investment, since, by their own characterisation, it was meant to serve a missions purpose all along. I’m not convinced that there was any mixed motive, dual purpose, or hybrid intent behind the use of the Building Fund. These are creative labels tacked on in an attempt to strain and stretch the mean, the plain meaning of the word “investment”. They were plainly fabricated in an attempt to justify their past conduct and misuse of the Building Fund. I do not see how they can be said to have acted in good faith in relation to the charges they face.

The accused persons have, of course, pointed to the fact that the money did come back to CHC with interest, however, this is patently due to their efforts to put Xtron, Firna and AMAC in the funds to facilitate these repayments through the round-tripping transactions. It does not confirm that there was any actual intention at the outset to invest for the purpose of maximising returns. What is more telling is that it was consistently represented to CHC’s executive members that investing the Building Fund in this fashion was meant to maximise returns. There was no mention at all that the investment was in the Crossover, let alone that it was for spiritual returns or for both spiritual and financial return from the Crossover. The failure to mention those facts buttresses my conclusion that the accused persons knew that they were not legally entitled to cause CHC to enter into the Xtron and Firna bonds.

I turn now to the round-tripping and falsification of accounts charges. As revealed by evidence, there was never any financial return derived from any of Xtron’s and firna’s Crossover-related activities. Instead, when the time came to deal with the auditors’ queries and to address Sim Guan Seng’s concerns, they resorted to removing more funds from the Building Fund and also the General Fund under the pretext of making further investments in the Special Opportunity Fund and purportedly for a building purchase by Xtron through the ARLA. The round-tripping transactions were crafted to create the appearance that these were genuine transactions involving the redemption of bonds when they were not. They were not genuine transactions, because the accused persons controlled these transactions every step of the way, and the substance of it was that CHC was channelling money through various conduits in order to pay itself.

Given that Ye Peng, Eng Han, Serina and Sharon Tan were fully aware of the whole series of transactions, they could not have believed that they were genuine investments or that the payment under the ARLA was a building-related expense. They say that they viewed all this as restructuring, but that, to my mind, is fundamentally inconsistent with her  belief that the transactions were genuine investments or building-related expenses. This inability to provide a coherent explanation for their conduct strongly suggests that they knew they were not legally entitled to cause CHC to enter into these transactions. They may have apprised the CHC board of an earlier version of the transactions, but they kept that knowledge from the lawyers and the auditors.

Taking into account all the circumstances, I am satisfied beyond reasonable doubt that the 4th to 6th charges have been made out against them. I am also satisfied that there was falsification of CHC’s accounts following from the attempts to disguise the SOF and ARLA transactions as genuine transactions.

In relation to the 9th charge, the accounting entry recording a redemption of Xtron bonds in the form of a set-off against advance rental was false because it was not a case of CHC and Xtron making independent decisions to pay advance rental on one hand and redeem bonds on the other. I find that the accused persons knew that false accounting entries would have to be made pursuant to their plan to create the appearance of redemption of bonds and, hence, I find that they each had intent to defraud.

I am, therefore, satisfied that the 7th to 10th charges have been made out against Ye Peng, Eng Han, Serina and Sharon. I note that there was an extensive record which comprised an elaborate patchwork of emails, BlackBerry messages, phone SMSs, hard copy documents and numerous other documented exchanges in some form or other. The fact that there was a mass of available evidence which when woven together amounted to a paper trail is not necessarily indicative of innocence. In my view, insofar as much of it was incriminating, it is more suggestive of a mindset of presumptuousness or boldness, demonstrating that the accused persons were over-confident in their belief that they could replace the funds in time before suspicions were aroused.

The case against the accused persons depended heavily on inferences to be drawn from the objective
evidence. Much of these inferences can be readily drawn as the tenor and language in the communications adduced at trial, strongly point to their dishonest intent. In short, the documentary evidence goes a long way in demonstrating their subjectively  guilty knowledge. I am not convinced that they have raised any reasonable doubt in this regard. I find that the accused persons were variously inextricably entangled in two conspiracies to misuse CHC’s funds. One conspiracy consisted of misusing Building Fund monies for the Crossover, and the other involved misusing CHC’s funds, a substantial portion of which comprised Building Fund monies to create the appearance of bond redemptions and to defraud the auditors via falsified accounts through the various roles they played.

Each of them participated  and functioned in their own way, as crucial cogs in the machinery. Although here are distinctions in their respective levels of knowledge and participation, I am unable to discern any rational basis to exclude any of them from being implicated and being characterised as conspirators. Much of the defence centred on the beliefs and motivations of the accused persons. If it can be shown that they genuinely, honestly and reasonably held the view that what they were doing was legitimate in the sense that they were legally entitled to do it, and they went ahead to act in good faith as a result. I think there may well be room for doubt as to whether they act had acted dishonestly. The weight of the evidence, however, points to a finding that they knew they were acting dishonestly, and I am unable to conclude otherwise.

Where professional advice was sought, this was really mainly an attempt to seek out self-supporting
confirmatory advice based on selectively disclosed information. They omitted mention of the crucial fact that CHC remained in control of Xtron and would correspondingly control the use of the funds. They provided leading questions for belief, confirmation and support from only those advisers whom they trusted to support the Crossover vision and were quick to reject or filter out any dis-confirming information. The accused persons chose to support the Crossover vision and to act and participate in acts in support of it. The Crossover became a comprehensive logic for justifying their beliefs and actions. And for doing whatever was expedient for its advancement.

The pervasive mindset seemed to be one of short-term expediency. The use of means involving dubious methods was worth the risk to them if there was some hope of longer-term gain. In their defence, all the accused persons testified largely to the same effect. They loved CHC and would not have wished to do harm to CHC. They never intended to cause loss to CHC. They consulted and cleared their proposed with their lawyers, the auditors and the CHC board. They were motivated by CHC’s cultural mandate and they believed in the Crossover vision. They pointed to pure motives and a justifiable purpose in the use of CHC funds. And ultimately, the funds which were removed were for church purposes and were returned to CHC.

The crux of their defence was that there was no conspiracy and no dishonesty. … and
the ultimate objectives were in furtherance of the Great Commission. It may be arguable that all of them thought they were not acting dishonestly to cause wrongful loss since no permanent loss was intended, but this was premised on their unquestioning trust and belief in Kong Hee and their confidence that the Crossover would succeed. Thus they convinced themselves that it was both morally and legally permissible to trailer use the money from CHC’s funds when they knew it was not.

The accused persons chose to engage in covert operations and conspiratorial cover-ups. They contrived to create cover stories and clever round trips concealing their unlawful conduct. They chose to participate in the conspiracy to misuse CHC’s funds, which includes siphoning off large amounts from the Building Fund for Sun Ho’s music career and eventually for the round-tripping transactions to enable the bond redemptions. They chose to defraud the auditors with falsified accounts, suggesting a series of genuine transactions for the redemption of bonds and advance rental. The evidence points overwhelmingly to a finding that they had all acted dishonestly and in breach of the trust reposed in them, and they played their respective roles in the conspiracy with intent to cause wrongful loss to CHC and to defraud the auditors. I am, therefore, satisfied beyond a reasonable doubt that the six accused persons are guilty of all the charges that have been brought against them. I note that all of them believed that they had acted in what they considered to be the best interests of CHC.

There is no evidence of any wrongful gain. That was never the prosecution’s case in any event, as the charges were premised on wrongful loss caused to CHC through the misappropriation of CHC’s funds. I consider that John Lam, Eng Han, Serina and Sharon were all acting in accordance with the instructions of people they considered to be their spiritual leaders, deserving of their trust and deference, and Ye Peng, although a leader in his own right, similarly trusted completely the leadership of Kong Hee. But no matter how pure the motive, or how ingrained the trust in one’s leaders, regardless of the context in which that trust operates, these do not exonerate an accused person from criminal liability of all the elements of an offence are made out.

Sentencing will take place at a later date, with the court due to hear submissions from defence and prosecution lawyers from Nov 6 to 20.

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