Rex v Potemani [2015] TOSC 33; CR166.2014 (18 May 2015)

IN THE SUPREME COURT OF TONGA
CRIMINAL JURISDICTION
NUKU’ALOFA REGISTRY

CR 166 of 2014

BETWEEN:

REX

AND:

HULITA POTEMANI

BEFORE LORD CHIEF JUSTICE PAULSEN

Hearing: 11 - 13 May 2015.

Counsel: Mr. T. ‘Aho for the Crown
Mr. ‘O Pouono for Mrs. Hulita Potemani

Judgment: 18 May 2015.

R U L I N G

THE CHARGES

[1] Mrs. Potemani faces one count of Receiving, contrary to section 148 (1) and (5) of the Criminal Offences Act and two counts of Money Laundering, contrary to section 17 (1)(a) and (b)(i) of the Money Laundering and Proceeds of Crime Act 2000.

THE FACTS

[2] Mrs. Potemani is a Facebook user. On 28 March 2014 she accepted a friend request from one Jet Larry Iketau, a person she had never met. She started to chat with Mr. Iketau on Facebook. There followed over the course of the next six days hundreds of chat exchanges between Mrs. Potemani and Mr. Iketau over Facebook. The content of some chats would suggest that there were also texts and telephone calls made but this was not explored in the evidence. Mr. Iketau told Mrs. Potemani that he lived in South Africa and he quickly found common ground with her by claiming that he was of Tongan ethnicity and a Christian. On learning that she was a woman alone he suggested he might be the right man for her. The chats very quickly became intimate with expressions of love being made by both parties and the possibility of Mr. Iketau coming to Tonga and travelling with Mrs. Potemani was discussed.

[3] There seems no doubt that Mr. Iketau was from the very beginning grooming Mrs. Potemani to act as a money mule for a phishing scam. In a chat at 11:13am on 31 March 2014 Mr. Iketau asked Mrs. Potemani if she could open a bank account for him. He said that he had “product” that he wanted to advertise on line in Tonga and needed an account into which anybody who had an interest in his product could make payment. Ms Potemani immediately agreed. There followed more chats where Mr. Iketau said that the account should be in Mrs. Potemani’s name. He then asked whether two accounts could be opened at different banks and, later, if Mr. Potemani had a friend who might also allow her account to be used. I do not need to go into further detail of all that. As it turned out Mrs. Potemani had an existing account with the ANZ and agreed that her account could be used. The account only had T$4 in it at the time.

[4] In a chat at 11.21am on 31 March 2014 Mrs. Potemani asked Mr. Iketau what sort of product he had but he did not respond to that question and she did not press him. In a later chat at 12.24pm Mr. Iketau said he had a customer who wanted a sample of “the product” and that he was going to have the customer send the money to Mrs. Potemani’s account. She was given instructions to collect the money from the account and send it to Mr. Iketau by money transfer through Western Union. In later chats Mr. Iketau was insistent that the money be sent immediately, that is that Mrs. Potemani was to go straight from the ANZ bank to Western Union and send the money. At 1.24pm on 31 March 2014 Mrs. Potemani provided Mr. Iketau with her bank account details.

[5] What Mrs. Potemani did not know was that on 31 March 2014 Mr. Iketau, or someone associated with him, had through computer hacking obtained the bank account details of Paula and Timothy Holt, who run a resort business in Tonga, and had used them to successfully request electronic transfers of amounts of $T21,000 and $T4,000 from Mr. and Mrs. Holts’ account into Mrs. Potemani’s account. Mr. and Mrs. Holt did not know and had no connection to Mrs. Potemani and had no reason to make any payment to her.

[6] On the instructions of Mr. Iketau Mrs. Potemani checked her account balance and at 2.56pm on 31 March 2014 advised Mr. Iketau that she had received the $T21,000 payment. At that stage the smaller $T4,000 payment did not show in Mrs. Potemani’s account. It appears that Mrs. Potemani was not aware of the $T4,000 amount going into her account until much later. Mrs Potemani then withdrew $T1,000 from her account at the ATM machine and as instructed by Mr. Iketau withdrew a further $T19,000 from inside the ANZ bank at Nuku’alofa. When she withdrew the money she lied to the bank officer and said it was to be used to buy a vehicle.

[7] On the next two days, that is 1 April and 2 April, Mrs. Potemani made unsuccessful attempts to send the money as directed by Mr. Iketau through Fexco (which I understand is associated with Western Union). On 1 April she tried to send $10,000 to a recipient in Singapore and told Fexco that this was a cash reimbursement to a friend. On 2 April she tried to send $T5,000 each to Mr. Iketau and someone he claimed was his sister in South Africa. On that occasion she said the intended recipients were relatives and the money was for travel expenses. It was because there was no supporting documentation and because Fexco was suspicious of Mrs. Potemani that she could not send the money.

[8] At 5.53pm on 1 April Mr. Iketau gave Mrs. Potemani instructions that she was to use the money to buy electronic equipment and forward that equipment to him using DHL. She said that she would do that for him and on 2 April she went to retail outlets in Nuku’alofa where she bought a laptop, notepad and mobile phones worth $T7,576.76. She was getting encouragement from Mr. Iketau to use more money and buy more equipment but the chats show that she was reluctant because she was concerned that she would be asked where she got so much money from.

[9] Later that day she went to DHL with a friend and arranged for the goods to be sent to Mr. Iketau under her friend’s name. In a chat at 1.54pm she told Mr. Iketau that the value of the goods as listed on the invoice issued by DHL was “a make up” to reduce the cost of the freight and, in a later chat at 2.04pm, that she had used her friend because she was worried about gossip and about something happening to her. In her evidence Mrs. Potemani said that it was DHL that decided what value to place on the goods for the invoice but even if that was so she was aware that the information was incorrect and went along with it.

[10] Fexco filed a suspicious transaction report under the Money Laundering and Proceeds of Crime Act. For its part the ANZ quickly suspected that a fraud had been committed. There was evidence of the ANZ emailing Mr. and Mrs. Holt about the payments because they had insufficient funds to cover them and replies coming back which were sent, not by Mr. and Mrs. Holt, but by Mr. Iketau or his associates aimed at buying time while Mrs. Potemani sent the money or goods. Mrs. Potemani was spoken to by the Police and charged. On 4 April 2014 she voluntarily made a statement to Detective Paseka which was taken from her over three days with lengthy breaks. Mrs. Potemani assisted the Police by downloading all of her chats with Mr. Iketau from Facebook which were admitted into evidence.

[11] There are two points about Mrs. Potemani’s statement that I should mention. First, Mrs. Potemani gave answers to two questions in which she said that she had thought that Mr. Iketau must have been involved in selling marijuana and for that reason did not want the money sent directly to him. In her answer to Q17 she said that she thought this because she had asked Mr. Iketau what his product was and he had not told her. The second point is that Mrs. Potemani said that she spent about $T600 of the money upon herself for fuel, food, clothes and other items.

[12] I understand that the ANZ credited Mr. and Mrs. Holts’ bank account with the full amount debited so that they suffered no loss. The ANZ suffered no loss either and has recovered the full $T24,000 from Mrs. Potemani or from recovery of the electronic goods that were collected from DHL before they were sent to Mr. Iketau.

THE DEFENDANT’S CASE

[13] Mrs. Potemani gave evidence in which she confirmed most of what I have said above. Mrs. Potemani’s Counsel, Mr. Pouono, said in his submissions that Mrs. Potemani did not dispute that $T21,000 had been deposited into her ANZ account at Nuku’alofa on the 31 March 2014 and that she had withdrawn $T20,000 and attempted to immediately transfer the money to Singapore and then later the next day attempted to transfer the money to South Africa all under Mr. Iketau’s instructions. Mrs. Potemani also did not dispute that the transfers did not go through because of Western Union’s requirements. She admits also that she then bought electronic items to be sent to South Africa. Mr. Pouono said that the issue raised by the defense in relation to both the Receiving and the Money Laundering charges was whether Mrs. Potemani had the required mens rea for the offences. He submitted that she did not

[14] In respect of the Receiving charge, Mr. Pouono said that Mrs. Potemani thought the money was the sale proceeds of legitimate product sold in Tonga. He points out that Mrs. Potemani knew nothing about the computer hacking and the debiting of Mr. and Mrs. Holts’ bank account and in the absence of such knowledge she was free to use the money that was put into her account as she wished.

[15] In respect of the Money Laundering charges Mr. Pouono said Mrs. Potemani had no reason to believe the money came from the commission of a serious offence. He referred again to her lack of knowledge of anything about the actual source of the money and says that she was taken advantage of by Mr. Iketau who used emotive language with her and asked her to go out so that she was trying to prove herself to him

THE RECEIVING CHARGE

[16] Section 148 (1) and (5) Criminal Offences Act provides

(1) Any person who receives any property knowing or believing it to have been stolen or obtained in any way whatsoever under circumstances which amount to a criminal offence is guilty of an offence and is liable to the same punishment as if he had committed theft.

(5) For the purposes of this section.....a person shall be treated as receiving property if he dishonestly undertakes or assists in its retention, removal, disposal or realization, or if he arranges to do so

[17] Mr. ‘Aho referred me also to section 40 of the Evidence Act but I do not rely on that provision.

THE ELEMENTS TO BE PROVED

[18] The indictment charges that Mrs. Potemani received on or about 31 March 2014 at Nuku’alofa $T25,000 which she believed to be obtained in anyway whatsoever in circumstances which amounted to a criminal offence.

[19] The $T25,000 is the sum of the two amounts credited to Mrs. Potemani’s account on 31 March 2014. As I have noted earlier, Mrs. Potemani withdrew only $T20,000 from her account and she did not know of the $T4,000 paid into her account until later. The Crown relies on Machent v Quinn [1970] 2 All ER 25 applied in Tonga R v Funaki anors [2005] TLR 239 and other cases as authority that it is not necessary to prove the total value in the indictment; it will suffice if it is proven that a sum was received. I accept that is correct as a matter of law and there were no submissions made for the defense to the contrary.

[20] The essential elements of the charge of Receiving that must be proved beyond reasonable doubt are:

[20.1] That Mrs. Potemani;

[20.2] Received property;

[20.3] That she knew or believed to have been stolen or obtained under circumstances which amount to a criminal offence.

[21] Items 20.1 and 20.2 were not contested but I record that they were proved in the evidence. Mrs. Potemani gave evidence of the events I have described and her involvement in them and the cash she withdrew from the ATM. The cash Mrs. Potemani withdrew from the bank is clearly property within the meaning of the section.

[22] The issue in relation to this charge is whether the Crown has satisfied the onus upon it to establish beyond a reasonable doubt that Mrs. Potemani had an actual belief that the money that she withdrew from the bank was stolen or obtained under circumstances which amount to a criminal offence. I note that in contrast to what is required in other jurisdictions (compare for instance section 246 Crimes Act 1961 (NZ)) there is no requirement in section 148(1) that the Crown prove that the property received by an accused was in fact stolen or obtained as a result of a criminal offence. R v Makahununiu [2005] TOSC 20 and section 148(3) of the Criminal Offences Act.

[23] Mr. ‘Aho referred me to the leading New Zealand Court of Appeal decision in R v Crooks [1981] 2 NZLR 53, which dealt with the meaning of the word “knowing” as it appeared in section 258 Crimes Act 1961 (NZ) and whether an accused will be taken to have known that property has been dishonestly obtained when he has a suspicion that that is the case and fails to make any inquiry. I do not need to resort to the analysis in Crooks. I am satisfied that it has been proven beyond reasonable doubt that Mrs. Potemani had an actual belief at the time she withdrew the money from the ANZ that it was obtained under circumstances that amounted to a criminal offence. I come to this view for the following reasons.

[24] There were a number of circumstances that should have put Mrs. Potemani on notice that Mr. Iketau may have been involved in criminal activity. When he asked her to open a bank account for him she had been his friend on Facebook for only three days. If Mr. Iketau was selling legitimate goods in Tonga one would expect him to have his own bank account. Even if there were valid reasons that he did not have a bank account Mr. Iketau asked Mrs. Potemani to open an account for him in her name and not in his name. The reason he gave for that in a chat at 11.15am on 31 March 2014 was that if she opened the account in his name questions would be asked. The chats also disclose that the amount that Mr. Iketau informed Mrs. Potemani would be paid by the customer for the product changed according to what he considered could be sent out of Tonga through Western Union. Although he initially said $T20,000 would be deposited into Mrs. Potemani’s account he later said that the full payment was in fact $T30,000 and asked if Mrs. Potemani could have a friend make her account available so that T$15,000 could be put into each account. If that was not enough Mr. Iketau was insistent that the money be withdrawn from ANZ immediately and that Mrs. Potemani must go straight to Western Union and send it to him.

[25] All of that would not be sufficient to show that Mrs. Potemani had an actual belief that the money she withdrew from the ANZ was stolen or obtained under circumstances amounting to a criminal offence if Mrs. Potemani, in her desire to prove herself to Mr. Iketau, merely suspected that the money may have been stolen or obtained through criminal activity or had a genuine but misguided belief that the money was from the sale of legitimate goods. What satisfies me that this was not the case are the following four further pieces of evidence. First, Mrs. Potemani lied to the ANZ bank as to the purpose to which she was going to put the money when she withdrew the T$19,000 from her account. Secondly, she lied to Western Union as to the reasons the money was being sent overseas on both occasions she tried to send the money. There was no reason for her to lie unless she believed she was involved in some criminal activity. Thirdly, as I have mentioned her chats at the time indicate that she was very nervous and concerned about being questioned as to the source of the money. Fourthly, and in my view decisively, Mrs. Potemani admitted to the Police in her statement that she thought the money was the product of the sale of marijuana. It is quite clear from the context of the interview that Mrs. Potemani was stating what she believed at the time she withdrew the money. I reject as wholly implausible her evidence that she only thought of the possibility that the money was from the sale of marijuana when she was in Police custody.

[26] For those reasons I find all of the elements of the Receiving charge are proved.

MONEY LAUNDERING

[27] There are two counts of Money Laundering. I will deal with each separately.

First count of Money Laundering

[28] Count two of the indictment charges that Mrs. Potemani, on or about 2 April 2014 at Nuku’alofa, did use $T7,576.76, having reasonable grounds to suspect that it was derived directly from the commission of a serious offence, by converting those funds to purchase electronic equipment with the aim of aiding another in the commission of an offence.

[29] Section 17 (1)(a) and (b)(i) of the Money Laundering and Proceeds Crime Act relevantly reads:

A person commits the offence of money laundering if the person:

(a) acquires, possesses or uses property knowing or having reasonable grounds to believe or suspect that it is derived directly or indirectly from the commission of a serious offence;

(b) by:

(i) the conversion or transfer of property derived directly or indirectly by the commission of a serious offence, with the aim of concealing or disguising the illicit origin of that property or of aiding any person in the commission of the offence;

THE ELEMENTS TO BE PROVED

[30] Section 17 is not easy to interpret or understand but broken down into its elements what the Crown must prove beyond a reasonable doubt against Mrs. Potemani in this case is as follows:

[30.1] That Mrs. Potemani;

[30.2] Used $7,576.76;

[30.3] Knowing or having reasonable grounds to believe or suspect that it was derived directly or indirectly from the commission of a serious offence;

[30.4] By the conversion of the $7,576.76 into electronic equipment;

[30.5] That the $7,576.76 was derived directly or indirectly from the commission of a serious offence;

[30.6] That she acted with the aim of aiding any person in the commission of the serious offence.

[31] The defense was focused on the mens rea requirement of the offence but I consider that Mrs. Potemani clearly had the required mens rea. The findings of fact that I have made in relation to the Receiving charge are applicable here. The circumstances under which Mrs. Potemani acquired and used the money were so clearly suspicious that she had reasonable grounds to believe, and did in fact believe, that the money was derived from serious criminal offending. I consider this charge was not proven for other reasons which I shall now set out.

[32] Money laundering is a process by which criminals disguise the original source, ownership and control of the proceeds of criminal activity. They do this by taking the proceeds of a crime, called a predicate offence, and laundering the money in various ways to make it appear to have been obtained legitimately. A predicate offence then in this context is the crime that produces the property (usually cash) that is to be laundered. In section 17(1)(b)(i) the term “a serious offence” refers to the predicate offence. What constitutes a “serious offence” is defined in section 2 of the Money Laundering and Proceeds of Crime Act 2000 but for present purposes I do not need to concern myself with that definition.

[33] When I asked Mr. 'Aho to identify the serious offence for the purposes of section 17(1)(b)(i) (that is, what was the predicate offence) he said it was the theft of $T25,000 from Mr. and Mrs. Holt by the fraudulently transfer of that sum from their bank account to the bank account of Mrs Potemani. I do not think that can be correct. A credit balance in a bank account is merely a thing in action and is not something tangible capable of being stolen under Tongan law. Whilst in everyday life we might regard such a transfer as the payment of money from one person's account to that of another the money is in fact represented electronically by an entry in the bank's accounts and as a debt owed by the bank to its customer. The debiting of one customer's account and the crediting of the account of another does not involve any transfer or taking of property from one to another.

[34] In R v Sefesi [2013] TOSC 14 the accused was an employee of a bank who had been charged with five counts of fraudulent misappropriation under section 162 (b) of the Criminal Offences Act. It was alleged that he had fraudulently acted by debiting one customer's account in favour of another. The accused was acquitted on a directed verdict (although convicted on an alternative count) and Cato J issued a written judgment in which he quoted from the House of Lords in R v Preddy [1996] UKHL 13; [1996] A.C. 815 as follows:

[10] Preddy concerned electronic transfers from a lending institution to the bank account of a fraudulent borrower. Lord Goff observed;

Let it be assumed that the lending institution bank account is in credit, and there is therefore no difficulty in identifying a credit balance standing in the account as representing property, i.e. a chose in action, belonging to the lending institution. The question remains, however, whether the debiting of the lending institution's bank account and the corresponding crediting of the bank account of the defendant and or his solicitor constitutes obtaining of the property. The difficulty in the way of that conclusion is simply that, when the bank account of the defendant (or his solicitor) is credited, he does not obtain the lending institutions "chose in action".

[11] Lord Goff further explained;

"...I do not see for myself how this can be properly be described as obtaining property belonging to another. In truth the property which the defendant has obtained is the new chose in action constituted by the debt now owed by the bank, and represented by the credit entry in his own bank. This did not come into existence until the debt so created was owed to him by his bank, and so never belonged to anybody else. True, it corresponded to the debit entered into lending institution's bank account; but it does not follow that the property which the defendant acquired can be identified with the property which the lending institution lost when the account was debited. In truth, section 15 (1) is here being invoked for the purpose for which it was never designed, and for which it does not legislate."

[35] Relevantly Cato J noted also:

"[8] I was advised that the Tongan provisions contained in section 162 of the Act followed the English Larcency Act 1916, and were enacted about a hundred years ago, although the English definition of property seemed wider than the Tongan being described as anything that has value and is the property of any person. Banking with its system of electronic debits and credits has, however, moved well beyond coin and banknotes passing hands and tangible property in that sense.

and

[19] In my view, this prosecution illustrates an urgent need for Tonga to effect reform of the existing Criminal Offences Act to avoid the problems the Crown encountered in this case. Offences involving dishonesty such as embezzlement, theft and misappropriation generally require to be revisited because they are so important for the maintenance of probity in business and commercial dealings. Consideration is also required to be given to the concept of property itself and electronic transfers so important in banking and commerce today. Penal legislation should be fashioned to plainly meet the demands of the modern age.
[36] In this case when Mr. Iketau caused the ANZ bank to debit Mr. and Mrs. Holts' bank account and credit the bank account of Mrs. Potemani he was not committing the offence of theft as that offence is defined under Tonga law. I was unable to find any other serious offence that he might have committed and I was not referred to any by Counsel for the Crown. That being the case the Crown has failed to prove an essential element of the offence of Money Laundering; that is it has failed to prove that the money Mrs. Potemani used to acquire the electronic equipment was derived directly or indirectly from a serious offence.

[37] The Crown cannot, in my view, call in aid section 17(2) of the Money Laundering and Proceeds of Crime (Amendment) Act 2010 which provides that for the purposes of a money laundering offence under section 17(1) it is not necessary to prove which serious crime has been committed. That does not mean that there is no requirement for the Crown to provide proof of a predicate offence only that it does not have to prove that any particular offence was committed. This is made clear by the use of the determiner "which" in section 17(2). But what the Crown must do, in my view, is produce sufficient evidence from which an inference can be drawn to the required criminal standard that the property in question is derived, directly or indirectly from criminal activity that amounts to a serious offence. In this case it has not done so.

[38] For these reasons I find this count of the indictment is not proven.

Second count of Money Laundering

[39] Count three of the indictment charges that Mrs. Potemani, on or about 2 April 2014 at Nuku'alofa, did use $T1,723.24, having reasonable grounds to suspect that it was derived directly from the commission of a serious offence, by converting those funds to purchase goods with the aim of aiding another in the commission of an offence.

[40] It was never explained to me where the figure of $T1,723.24 came from. Mr. 'Aho said in his submissions that what the Crown relied on to prove this charge was that in her statement to the Police Mrs Potemani admitted to spending $T600 of the money she withdrew from the ANZ on goods for herself.

[41] I consider that this charge is not proven for two reasons. First, what I have said above in relation to the first count of Money Laundering applies equally to this charge. Secondly, even if I was wrong in my conclusion that the Crown has failed to prove that the money that Mrs Potemani used to buy goods was not derived from a serious offence, the $600 was spent for her own consumption and not to aid the commission of the offence as required by section 17(1)(b)(ii).

[42] For these reasons I find that this count of the indictment is not proven either.

THE RESULT

[43] On the first count of the indictment Mrs. Potemani is guilty of the offence of Receiving under section 148(1) and (5) Criminal Offences Act and she is convicted of that charge.

[44] On the second and third counts of the indictment Mrs. Potemani is not guilty of Money Laundering under section 17(1)(a) and (b)(i) Money Laundering and Proceeds of Crime Act and she is acquitted of those charges.

[45] Finally the result of this case, and in particular the acquittal of Mrs. Potemani on Money Laundering charges, may be regarded as unsatisfactory. I lend my support to the comments that Cato. J made in R v Sefesi about the need for reform of the law involving dishonesty. In a modern age where increasingly both private and commercial transactions are conducted electronically more cases like this will occur until there is reform.

NUKU'ALOFA: 18 MAY 2015

LORD CHIEF JUSTICE