HKSAR v Deborah Annells: Prolific Offending and Regulatory Shortcomings


Introduction

On 11 July 2016 British tax consultant Deborah Annells was sentenced by the High Court of Hong Kong to nine years’ imprisonment for offences relating to theft, fraud and possession of a false instrument, following a guilty plea.[1] The case is an example of serious and prolific white-collar offending, and one which raises major concerns about the regulatory and oversight bodies responsible for consumer protection in the finance industry and the ethical conduct of finance professionals.

Facts of the Case

The defendant was the founder and chief executive of AzureTax, a company that specialised in organising the tax affairs of expatriates in Hong Kong, and which sometimes involved setting up trust funds. She is a past president of the Rotary Club of Hong Kong, has sat on the general committee of the British Chamber of Commerce in Hong Kong, and was chairman of its finance committee.

From June 2009 to April 2013, the defendant misappropriated over HK$30 million from four of her clients. Following her initial arrest, she appeared in the Magistrates’ Court on 8 November 2013 and was granted bail with conditions, one of which imposed a travel restriction on her. On 11 April 2014, the defendant applied to remove the restriction by producing a false document to the court. The document misrepresented her company’s financial position by creating the impression it had obtained a lease for office space, apparently demonstrating commercial ties to Hong Kong. The false document undoubtedly influenced the Magistrate to lift the travel restriction despite the defendant’s very substantial flight risk.

On 9 December 2015, following a trial, the defendant was convicted of perverting the course of public justice, attempted fraud, and possessing a false instrument. She was sentenced to a total of four years’ imprisonment. On 4 July 2016, the defendant pleaded guilty to the remaining 45 offences of theft and was sentenced by Mr Justice Zervos on 11 July 2016.

The High Court’s Sentence

The Court noted that through blatant and repeated acts of dishonesty and deceit over a protracted period, the defendant had systematically stolen large amounts of her clients’ funds. It found that:

“Her conduct constituted a serious breach of trust and a gross abuse of her professional duties and responsibilities towards her clients who as a result suffered extreme hardship and despair. Throughout this time she acted without any degree of regret or tinge of concern for the people who trusted and relied on her, both personally and professionally.” [2]

In adopting a global approach to sentencing the defendant, the Court took into account at least four factors. First, the fact that there were 45 theft offences occurring over a period of nearly four years. Second, the use of false documents while the defendant was on bail. Third, the total sum of HK$30 million, only some of which was recovered by two of the victims (but only after taking legal action). Fourth, the fact that the defendant had abused her professional and statutory positions.

The Court therefore began with a sentencing starting point of 13 and a half years’ imprisonment, reduced to nine years for the defendant’s guilty plea. It was decided that 18 months of the previous four years’ imprisonment for the perverting offence would run consecutively. The defendant therefore received a total sentence of ten and a half years’ imprisonment.

The Court held that given the nature and gravity of her offending, Ms Annells’ personal circumstances and professional history provided no meaningful mitigation. It emphasised that white-collar crime has a significant impact on its victims and cannot be said to be a ‘victimless crime’. There is always a victim, whether an individual who has suffered loss or the community at large. The Court emphasised that three victim impact statements had been provided that:

“reveal the extent of the hardship that each of them has gone through at the hands of the defendant’s greed and deception…The trusts were to provide for the future financial security of the victims and their families and that was shattered by the defendant’s misdeeds.” [3]  

Highlighting flaws in Regulation

The Court noted that, despite the defendant’s professional standing, there was a disturbing failure of the relevant regulatory and oversight bodies to ensure that financial professionals are fully aware of their ethical duties and professional responsibilities. The High Court stated:

“It is not a case of ticking a box in acknowledgement of such duties and responsibilities but by making sure through effective monitoring and education that professionals are fully aware of their duties and responsibilities because of the privileged and trusted position that they are in.” [4]

In this instance, both the Financial Secretary and the Hong Kong Institute of Certified Public Accountants (HKICPA) were presented with compelling evidence of the defendant’s fraud and breaches of trust, but declined to act.

  1. Financial Secretary’s Office

Under s95 of the Trustee Ordinance, the Financial Secretary has the power to appoint an inspector if there are circumstances which suggest:

“a) That the trust company has committed a breach of trust; (b)That the business of the trust company is being conducted with intent to defraud its creditors…or otherwise for a fraudulent or unlawful purpose…”  

On 18 November 2011, one of the victims wrote to the Financial Secretary informing him of the defendant’s actions and asking for an inspector to be appointed. The letter included an affidavit from a former director of AzureTax who had inside knowledge that the defendant had been misappropriating funds. On 1 December 2011, the same person sent another letter outlining an attempted theft from a third party in order to repay the stolen trust money. It was accompanied by full correspondence between the solicitors of the two parties, which included an express admittance of dishonesty by the defendant’s solicitor.

On 19 January 2012, the Financial Services and Treasury Bureau (FTSB) replied to the letters stating that “there were insufficient grounds to appoint an inspector and that the case does not seem to involve significant or great public interest.” This view directly contrasts to that of Mr Justice Zervos, who during sentencing emphasised how the defendant’s conduct in her capacity as a trustee, had a serious impact on the public, and in particular, public confidence in the financial system.

2. The Hong Kong Institute of Certified Public Accountants (HKICPA)

Despite receiving the same detailed information in November 2011, the HKICPA did not formally discuss the defendant’s case until two and a half years later in September 2014, when it was referred to its Disciplinary Panel. As of October 2016, according to its website, the HKICPA has still not arrived at a verdict in the matter.

Following the sentencing hearing, Hillary Cordell, a victim of the defendant, alleged failures of both institutions to regulate Deborah Annells’ conduct effectively. She remarked that she was extremely grateful to have been listened to “after the utterly inadequate reaction from the HKICPA and the Financial Secretary. This was such a long time in coming.”

Conclusion

The Deborah Annells case is a grave example of white-collar offending, concerning the theft of more than HK$30 million over a period of four years. The defendant engaged in a sustained and serious abuse of trust in order to steal substantial sums of money from her clients and to conceal the theft from them. If it were not for the actions of one of her senior employees, who alerted the clients and the authorities to what was taking place, the situation could have been even more serious.

The case also highlights a potential flaw in government and regulatory bodies with oversight for these areas.  Despite having powers to police financial institutions and their members, they were reluctant to apply these powers in this case. The fact that the defendant caused such a degree of harm, despite being a regulated professional, is damaging to Hong Kong’s reputation as a financial centre seeking to attract global investment. This fact will not be lost on the regulatory institutions, which will no doubt now review the approach to be taken in similar cases in the future.

Jonathan Laidlaw QC

 

 

[1] HKSAR v ANNELLS DEBOARH (No 80 of 2015).

[2] Paragraph 1.

[3] Paragraph 80.

[4] Paragraph 113.