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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