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SCMP Reporter

The former chairman of Hong Kong-based Nanyang Brothers Tobacco Co  and two company officials were convicted in the District Court  of pocketing commissions and smuggling cigarettes to the mainland.
Lu Dayong,  60, who has fled the city, and his  lover, Ko Kit,  40, a director of Hang Chun Trade Development,  were found guilty of a joint charge of conspiracy to accept an advantage from a cigarette trader, Golden Leaf International Development.  They received more than HK$7.5 million.
The pair, with Chan Kai-san,  41, a Hang Chun sales manager, were also convicted of a count of conspiracy to defraud Nanyang Brothers. The trio were acquitted of a bribery charge.
Nanyang Brothers, a subsidiary of publicly listed Shanghai Industrial Holdings,  made the Double Happiness brand of cigarettes in Hong Kong. Double Happiness was the brand smuggled to the mainland.
The marathon trial of the cigarette smuggling racket, which was delayed for months, finally began  last June.
Defence lawyers had contested the legality of the Independent Commission Against Corruption's  investigation, arguing evidence collected by a bugging device was inadmissible because it violated the Basic Law.
Judge Joseph Yau Chi-lap  rejected the argument, and a request for a judicial review of that decision was also rejected.
The prosecution said the three were caught during covert surveillance discussing the cigarette shipments or commission payments, and said anti-graft agents found Lu kept a diary on the commission payments and cigarette shipments. The offences happened between December 2002 and February 2004.
The prosecutors said Lu approved Hang Chun and Golden Leaf as overseas distributors for Nanyang Brothers cigarettes. The cigarettes were smuggled to the mainland from Hong Kong via the Philippines, Cambodia and Vietnam, the court heard.
Prosecutors said the commissions were paid through various parties from the mainland in the form of deposits, cash and company or casino cheques to bank accounts controlled by unknown conspirators and Ko. She held the funds on Lu's behalf in her bank accounts.
Judge Yau said evidence showed Lu controlled Hang Chun, despite Ko being listed as its director. He said  Lu concealed the fact that Double Happiness cigarettes were actually being sold to a company Lu controlled and said this was dishonest. Judge Yau said their dishonest act caused economic loss to Nanyang Brothers and put the company at economic risk.
Sentencing for Ko and Chan was adjourned to February 20, pending background reports.



Three convicted over smuggling of cigarettes to the mainland