Commissioner of Police v Cheng [2016] NZHC 2304 (28 September 2016)

Last Updated: 2 November 2016

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

CIV 2016-416-12 [2016] NZHC 2304

IN THE MATTER	of an application pursuant to sections 22, 24 and 25 of the Criminal Proceeds (Recovery) Act 2009
BETWEEN	THE COMMISSIONER OF POLICE Applicant
AND	THOMAS CHENG First Respondent
AND	MASONIC LIMITED Second Respondent
AND	REDOUBT HOUSE LIMITED Third Respondent
AND	ACTION INVESTMENTS LIMITED Fourth Respondent
AND	ACTION INVESTMENT LLP Fifth Respondent
AND	HARVEST PROPERTY LLP Sixth Respondent
AND	MORTGAGE INTERNATIONAL LLP Seventh Respondent
AND	EXPRESS FACTOR LLP Eighth Respondent
AND	WILLIAM CHENG First Interested Party
AND	NYIOH CHEW HONG Second Interested Party

Hearing:	20 September 2016
Counsel:	K R L Guthrie for Applicant A M Simperingham for First Interested Party
Judgment:	28 September 2016

THE COMMISSIONER OF POLICE v CHENG [2016] NZHC 2304 [28 September 2016]

_{JUDGMENT OF SIMON FRANCE J}

Introduction

[1] Mr Thomas Cheng, the first respondent, has been charged with serious drug offending (methamphetamine). Consequent upon his arrest, Wylie J made restraining orders in relation to various property and bank accounts.¹ One of the bank accounts was in the name of Mr William Cheng, the father of Thomas. Mr Cheng makes an application for the restrained funds, being $74,024.35, to be released.

[2] The Commissioner seeks to maintain the orders on two separate bases – the funds are tainted property because Thomas made significant deposits into the account; alternatively, there are reasonable grounds to believe the applicant Mr William Cheng has benefitted from his own significant criminal activity, namely tax evasion. Accordingly, an order under s 25 of the Criminal Proceeds (Recovery) Act 2009 is appropriate.

Relevant facts

[3] Mr William Cheng is a Singaporean businessman with interests in New Zealand. There are six commercial properties in the Gisborne area owned by five corporate entities with which he or his wife, Ms Hong, are associated. Each property is subject to a mortgage, with the mortgagee being one of two Singaporean registered companies with which either Mr Cheng or Ms Hong are associated.

[4] Three of the property owners are New Zealand companies. None of them nor the two Singaporean corporate owners have New Zealand bank accounts. Instead all dealings in relation to their properties go through a single account in the name of William Cheng. It is this trading account that is the subject of the restraining order.

_{At the time of the order there was $74,024.35 in the account, and that is what was}

¹ Commissioner of Police v Cheng HC Gisborne CIV-2016-416-12, 4 April 2016.

seized. It seems the account continued to be used unhindered for a while after that, before all its activity was transferred to a different account with another bank.

[5] Enquiries with the IRD indicate:

(a) Mr William Cheng has a tax number but has not filed anything. It can at this stage be noted that Mr Cheng has several other accounts in New Zealand with a total credit balance exceeding $10 million. There has been no accounting to IRD concerning interest earned (recognising some tax will have been taken by the bank);

(b) Ms Hong does not have a New Zealand tax number; (c) none of the companies have filed income tax returns; (d) none of the companies have filed GST returns.

[6] I heard evidence via AVL from Ms Hong. She was testifying on her own behalf and on behalf of Mr Cheng who it seems has both physical and mental health issues. There was medical evidence to support this. It seems he has some form of mental deterioration. He is not incompetent in any sense but struggles under pressure. He would struggle to organise his thoughts under the stress of testifying, and it would affect his health. Ms Hong has an enduring power of attorney. I accept this evidence.

[7] Ms Hong attempted to provide some explanation for the business arrangements. She said GST returns had been filed online but had nothing to substantiate this despite knowing from the affidavits it was an issue. She explained that none of the companies make any profit, and indeed the restraint of the $70,000 was placing their viability under stress. The lack of profit was due to the interest obligations to the mortgagees. It is not apparent, however, from the bank statements that any such interest payments have ever been made, but Ms Hong said that was because they were annual payments.

[8] A snapshot of five months of statements shows that when a surplus develops in this trading account, it is transferred to another account in Mr Cheng’s name. Over the short period this was nearly $400,000. Ms Hong suggested this money was withdrawals to enable the interest to be paid, but again gave no documentary support. At this point the legitimacy of these alleged mortgage arrangements is questionable. Ms Hong also suggested Mr Cheng had transferred the money to his accounts at the direction of his brothers with whom he is in business.

[9] It is unnecessary to go further into this evidence. I did not find Ms Hong to be a satisfactory witness. To the extent any of her testimony seeks to provide a legitimate explanation for these arrangements, I do not accept it.

[10] I also conclude that the claim that Mr Cheng is being financially affected by the restraint is untenable. The restrained account was building up considerable surplus in a relatively short time. There is no basis to believe the same is not happening in whatever new account is being used. The reality is that for reasons not stemming from this restraining order, Mr Cheng’s access to his other large deposits is being prevented. That would be the source of any alleged difficulty, if there is such difficulty.

Analysis

[11] The original restraining order application was advanced on two bases – the funds in the account were tainted property (s 24 of the Act), and there were reasonable grounds to believe Messrs William and Thomas Cheng, and Ms Hong, had benefitted from substantial criminal activity, namely tax evasion. The latter would justify orders under s 25 of the Act.

[12] Section 24 of the Act allows restraint of tainted property. It is clear that at relevant times Mr Thomas Cheng paid into the trading account, by several deposits, a total of $46,925. There are reasonable grounds to believe that money was the product of alleged drug activity. The definitions in the Act make it clear that the interspersing of tainted money will mean the entire sum is tainted. The basis for an order under s 24 is therefore present.

[13] However, the evidence satisfies me that other than the sum deposited by Thomas, the rest of the money is not the product of his serious criminal activity. Its legitimate source as rental income is readily apparent and I consider that Thomas’ drug offending does not support retention beyond the amount he deposited.

[14] However, as I read the order, Wylie J in fact restrained all the property under s 25. That section does not require the property to be itself linked to the alleged significant criminal activity. The requirements are that there be reasonable grounds to believe Mr Cheng has unlawfully benefited from significant criminal activity, and the restrained property belongs to him. It can be property wholly separate from the actual criminal activity. I am well satisfied the necessary criteria are made out.

[15] First, there are reasonable grounds to believe tax evasion has occurred. The lack of any evidence of proper tax treatment, together with the extremely complex ownership structures, provide a basis for belief that there has been significant evasion of the companies’ tax obligations in relation to the commercial properties. Further, it seems clear Mr Cheng has a controlling role in the companies and there are reasonable grounds to believe he is aware of the tax evasion. He is implicated, at least as a party, in any deliberate tax evasion by the companies. Second, the lack of any tax returns in relation to interest earned on his own very large deposits suggests that this absence may be linked to a pattern of tax evasion.

[16] The money seized was in an account under Mr Cheng’s name. There is evidence of transfer of large sums from that account to other accounts in his personal name. I am accordingly satisfied the money in the account is rightly seen as Mr Cheng’s.

Conclusion

[17] The application is declined.

[18] I confirm there is a basis under s 24 of the Act for retention of $46,925 as being the proceeds of Mr Thomas Cheng’s significant criminal activity.

[19] I also conclude that under s 25 there are reasonable grounds to believe that Mr William Cheng in his own right has unlawfully benefitted from significant criminal activity, namely tax evasion both by himself and by companies with which he is associated and controls. I am further satisfied the restrained money is his property, although theoretically belonging to the companies. This is evidenced by transfer of large sums from the account to other accounts in Mr Cheng’s name. Under s 25 the entire sum is properly restrained, and the application to vary because of hardship is declined.

[20] The Commissioner is entitled to scale costs (2B) and reasonable disbursements to be fixed by the Registrar if necessary.

Simon France J