ICAC Landmark Cases - The Unmaking of a Legend (Carrian Fraud Case)

Task Force 3 (TF3)

On 23 May 1985, the then Principal Investigator Anthony Robey was appointed Head of Task Force 3 (TF3), leading the first batch of 12 investigators on the Carrian case. Ricky Chu Man-kin, then a senior investigator, was among this group of TF3 officers.

Although Chu considered himself strong in mathematics, he made a ‘mistake’ in estimating the length of the case since what was thought to be a one-year case dragged on for more than ten years. He recounted quite dramatic the way he was ‘recruited’ into TF3: “In 1985, I was to be posted from the investigation branch to the ICAC Training School, serving as a training officer for new recruits when one day, I bumped into one of our assistant directors……”

Recollection from Chu
(in Cantonese only)

Christopher Chui Yiu-shing, then assistant investigator, began working in the Task Force from the very beginning and stayed on the case until its completion. He explained the structure and work allocation of TF3: “The Noordin Report indicated that many of the loans from BMFL to Carrian were believed to be corruption-related frauds. When TF3 was established, it was divided into Team A and B to investigate fraud and corruption respectively. TF3 then followed up on the problem areas and alleged criminal conduct raised in the Noordin Report, and assigned an area of investigation for each officer.”

After the establishment of TF3, a huge amount of documents related to the Carrian Group and BMFL were transferred to the Task Force by the Police. Chui said: “The documents filled up a total of 47 filing cabinets.” Within six months, the number of TF3 investigators increased to 25. Later, more investigating officers and clerical staff were added. More than 40 officers ended up taking part in TF3 work. Due to the increase in manpower and accumulation of documents, TF3 had to move from the Operations Department headquarters to the Hong Kong Trade Centre in Central where it could operate independently.

Danny Lo King-wing, then senior investigator, was also among the first batch of officers transferred to TF3. He said: “In the first three months, we were all buried under the mountain of ‘papers’ analysing the Noordin Report and all the ‘Carrian documents’. Initially our work involved data comparison and cross-referencing.” Chu added: “I was seldom in the TF3 offices. Usually I would be in the office of Carrian’s liquidator (an accounting firm) ‘digesting’ the Carrian accounts with the assistance of accountants. My focus has to track down Carrian’s financial sources and business transactions, identify suspected accounting entries, perform audit trails and identify the people concerned to see if corruption or false accounting was involved. In addition, we have to trace the flow of suspected bribe payments such as the way the former Carrian chairman channeled advantages to the senior executives of BMFL, and how the recipients had played around with the bribe money to cover up their corrupt practices etc.”

Tracing the illicit payments

To establish corrupt conduct, there must be evidence of a transfer of advantages. The ICAC therefore had to identify how the bribe payments actually changed hands.

For ease of reference, flow-charts showing each suspected bribe payment were drawn up and posted around the TF3 offices. Chu recalled: “On those charts, we could show money being transferred from one company to another. All were astronomical sums but none of them was in round numbers. My intuition told me that all the numbers should be intricately connected - but what were the missing links?” Chu has always had a quick mind for figures but he stared at those flow-charts every day, and sometimes felt at his wits’ end.

One day, an idea flashed across his mind. He quickly grabbed a calculator, changed all the amounts into Hong Kong dollars, then divided by 101. Amazingly, all the figures became round numbers! Chu correlated that since stockbrokers charged 1% as commission for stock trading, it was highly likely that the bribes would be used for investing in stocks. He then steered the investigations along that line and discovered that many of the bribe payments were indeed used to buy stocks which were then transferred from Carrian’s account to the companies or personal accounts owned by the suspected recipients and their relatives. These transfers spoke volumes of the existence of ‘unusual’ relationships between Carrian and the related parties. This revelation not only accelerated the investigation but also helped identify the key suspects.

In the meantime, TF3 discovered that some loans released by BMFL to Carrian had disappeared. It was suspected that the money might have been transferred to the Swiss bank account controlled by the former Carrian chairman, or to one of the offshore companies of his. To track down these missing funds, the ICAC solicited assistance from the Swiss courts. Lo had to make a special trip to Switzerland to collect evidence.

20 meter-long flowchart tracking the movement of suspected bribe payments

Query:	Why the money transferred is astronomical but not in round figures?
Decoding:	Convert the money in to HK$ →︁ Divided the HK$ by 101 = Round figures
Key point:	The figure “1” out of 101 may refer to 1% commission in stock trading
Conclusion:	The bribes could have been used for buying shares

20 meter-long flowchart tracking the movement of suspected bribe payments

Query:	Why the money transferred is astronomical but not in round figures?
Decoding:	Convert the money in to HK$ →︁ Divided the HK$ by 101 = Round figures
Key point:	The figure “1” out of 101 may refer to 1% commission in stock trading
Conclusion:	The bribes could have been used for buying shares

Collecting Evidence Overseas

The Noordin Committee had conducted very detailed research in Malaysia providing TF3 with much valuable information for investigation. However, ICAC investigators still had to cross-check the accuracy of the allegations made in the report by conducting their own investigations.

In November 1985, TF3 began its overseas evidence-collection mission. “Chu and I were mainly responsible for collecting evidence in Malaysia, and we were later joined by Chui”, Lo recalled. “Our work in Malaysia involved checking through the related documents and accounts kept by BBMB and the relevant accounting firms, interviewing witnesses, and turning the information gathered and witness statements collected into legally admissible form so that they could be presented as evidence in court. Another colleague was responsible for evidence search in the United States since many of the improper loans were paid in US dollars and the related telegraphic transfers were handled by American banks.”

Powerful Evidence Secured

The general manager of BMFL was the man behind the initial contacts between BMFL and the Carrian Group. For that reason, the ICAC believed that this man was the key investigation target, and that his evidence would be crucial in providing the missing links and sufficient evidence to prosecute.

TF3 Deputy Head Brian Carroll was specially assigned to take statements from this general manager. He said: “As the general manager of BMFL, this man was responsible for processing all the loan applications submitted by the former Carrian chairman and he must have had intimate knowledge of the loan payments. We then sought and obtained legal approval for him to give evidence under immunity from prosecution to ensure that the main culprits were brought to justice. I personally conducted well over 60 interviews with him. Over a thousand pages of statements were recorded and later, after further investigation and verification, this testimony became powerful evidence in court.”

Early Legal Input

“In most corruption cases, the ICAC would normally begin by conducting investigations, interviewing witnesses, then arresting the suspects, etc. After collecting sufficient evidence, a case report would then be submitted to the Legal Department for Crown Counsel to consider whether or not to press charges and to set the right charges. However, due to the complexity of the Carrian case, its extent and magnitude were difficult to estimate. The Legal Department then assigned six Crown Counsels to work with TF3 to facilitate our legal briefs.” Chu said: “Throughout my entire career as an investigator in the ICAC, that was the first and only time that the Legal Department got involved in a case as early as during the investigation stage.”

Professional Support

One thing is common in all commercial corruption fraud - the perpetrators utilise the accounts of different companies or individuals, or structure complex business transactions, to conceal their illicit deals or bribe payments via extremely complex routes. These corrupt deals are mostly hidden among reams of documents and accounting papers. The ICAC investigations would have been greatly facilitated by professional assistance in the analysis of the complex accounting procedures. The Government therefore approved contingency funds to appoint an international accounting firm to help with the investigation, and an international law firm to handle the legal procedures in other jurisdictions outside Hong Kong.

Criminal Conduct Exposed

As a result of the collective efforts by the investigators and the assisting professionals, TF3 basically deciphered the way in which the suspects conducted their crimes, and in six months had amassed and mastered solid evidence.

According to the information then gathered, the loan amounts involved hovered around US$600 million. However, the means by which the corrupt conducted their crimes were simple and direct, boiling down to amassing capital through corrupt means for a ‘quick return’ in business.

Since its establishment, the Carrian Group had persistently conveyed the impression of being a conglomerate with enormous financial clout. But the reality was quite the contrary. The Carrian chairman himself had in fact always been short of cash. His business empire was built by bribing the senior executives of BMFL and luring them into releasing sizeable but unsecured or non-guaranteed credits. With this enormous ‘wealth’, he was able to extend his business reach and at the same time create for himself a suave and multi-talented image. He also tried hard to make others believe that he was a successful businessman so as to impose his will on the financial world, among business corporations and even on the general public, all in an effort to push up the price of Carrian stock. On the other hand, the BMFL senior executives accepted huge bribes in return for abusing their authority in indiscriminately approving loans to Carrian. Throughout the entire process, BBMB headquarters was left in the dark.

In fact, the Carrian chairman had adopted similar corrupt means to borrow from other banks as well as from BMFL. In order to conceal the fact that the Carrian Group was the real ‘beneficiary’ behind the deals, the Carrian chairman made his staff set up various companies in their private capacities to act as loan applicants.

In October 1983, the Carrian business empire crumbled. At the same time, the senior executives of BMFL involved in the case resigned from the bank and fled Malaysia. Malaysian immigration records showed that they had left for the UK and other European countries. TF3 had to seek help from Interpol to track down their whereabouts and request the countries where the suspects were in hiding to issue arrest warrants.

By early December 1985, the UK police advised that the former chairman of BMFL had been put under surveillance. The then Deputy Director of the Operations Department, Graham Stockwell, travelled to the UK to discuss extradition arrangements with New Scotland Yard. Meanwhile, Carroll was to stay in the UK to liaise with the police in mounting joint arrest operations simultaneously in the UK and Hong Kong to prevent possible communication between BMFL and Carrian suspects.

The arrest operations were originally planned for on 9 December. However, UK intelligence showed that the former chairman of BMFL might have realised that he was being monitored and was about to flee. The UK Police therefore decided to strike ahead of time. In Hong Kong, Robey was coordinating the arrest operations while maintaining close contact with Carroll in the UK. Chu was in command of the arrest teams at the Hong Kong end.

On the evening of 6 December 1985 (London time), the former chairman and former director of BMFL were arrested in London; simultaneously i.e. in the early morning of 7 December in Hong Kong, three other suspects, including the former chairman and two former directors of the Carrian Group, were arrested by the ICAC.

Operations Diary

Date	Time	Deployment
4 Dec	1515	Carroll calls Robey from London, saying that the UK police have in place the arrest warrants and can strike at any time; New Scotland Yard have also accepted the documents submitted by the ICAC thus permitting extradition procedures to proceed right after the arrests.
5 Dec	1645	UK police have put the former BMFL chairman under surveillance, while the search for the former director continues.
5 Dec	1900	The former chairman has acted, apparently planning to flee again; meanwhile the police have just located the residence of the former director’s wife, and are trying to confirm whether the man himself is also there.
6 Dec	1000	The ICAC and the UK police agree to conduct simultaneous arrests at 0700 on 9 December (London time) i.e. 1500 Hong Kong time.
	1800	Since there are indications that the former chairman is planning to flee, the UK police suggest an early strike, and ask the ICAC to act in concert.
	2000	The two sides further confirm the action timetable on the phone.
7 Dec (UK, 6 Dec)	0630 (London time, 2330)	TF3 arrests the former chairman and two former directors of the Carrian Group; meanwhile, the UK police arrest the former chairman and the former director of BMFL.

ICAC Investigation