Ontario Court of Justice

Between:

J. Scutt

Her Majesty the Queen for the Crown

— And —

Kwok Yin Cheung

J. Lockyer for the defendant

Reasons for Sentence

Lipson J.:

[1] Guilty Plea

[1] Kwok Yin Cheung pleaded guilty to defrauding the Royal Bank of Canada of $332,275 between 2010 and 2013.

The Circumstances of the Offence

Agreed Facts

"Royal Bank of Canada (RBC) provides their employees a benefits plan through Sun Life Assurance Company of Canada (Sun Life). Although RBC funds the plan, Sun Life provides the administrative services for the plan. The plan provides for typical benefits such as dental, vision, prescription costs, physiotherapy etc.

The accused, Kwok Yin (Derek) CHEUNG is a former employee of RBC and Sun Life. He worked for Sun Life for three years prior to joining RBC. He left RBC in 2008. Thereafter CHEUNG had his own business called Veritrust Financial Solutions in Markham. The co-accused, Agnes LEE is currently married to CHEUNG.

In 2013 Sun Life and RBC became aware of a fraud scheme in which CHEUNG was submitting false benefit claims from service providers to Sun Life on behalf of RBC employees. After Sun Life paid the benefit the monies would be split between the employee and CHEUNG, usually on a 50-50 basis.

The investigation has confirmed that at least $332,275 was paid out by Sun Life on behalf of RBC as a result of benefit claims that have been confirmed to be fraudulent.

The Fraud

CHEUNG either directly or through an intermediary approached RBC employees with a scheme in which he told them he could make them extra money by "maximizing" their benefit claims with Sun Life. CHEUNG met with the employee and obtained their personal information including their Sun Life account login information and password. With this information CHEUNG could log into the employees' Sun Life account where he submitted benefit claims for services that had never in fact been provided to the employee. If required by Sun Life, CHEUNG also submitted false receipts as proof that the service had been provided.

Sun Life processed the false claims which resulted in the benefit amount being credited directly to the employees' personal RBC account. The employee then arranged for an agreed upon portion of the benefit amount to be paid to CHEUNG. This payment took the form of cash, cheque or direct transfer from the employee's bank account to CHEUNG's bank account.

Investigation

In 2013 Sun Life notified RBC that false on-line claims had been submitted by two RBC employees, Maria Araullo and Angelica Mercado. RBC interviewed both employees and as a result of information received from them RBC Corporate Security commenced an investigation into CHEUNG and other RBC employees. With respect to CHEUNG the investigation consisted of:

• Surveillance
• Tracing the flow of benefit monies from SunLife to the bank accounts of RBC employees and then to the bank accounts of CHEUNG
• Determining the IP address that was accessing the SunLife accounts of the RBC employees
• Confirming whether the service provider allegedly providing the benefits being claimed was real or had in fact provided the service
• Interviewing RBC employees

After completing their investigation RBC contacted the Toronto Police Service who continued with the investigation with further interviews and checks on the alleged service providers. Ultimately the Toronto Police arrested CHEUNG on October 22, 2013 and on the same day conducted a search warrant at his home.

Evidence

A. Beginning of Investigation

As a result of investigations RBC received information from two employees Angelica Mercado and Maria Araullo indicating that a fraud was occurring in respect of insurance benefit claims. Mercado said that she had been approached by another RBC employee (Lim) who was already participating in the fraud who introduced her to CHEUNG. Mercado provided CHEUNG with her Sun Life identification number and password. Araullo did not mention CHEUNG but said that she had been approached by another bank employee named Irmahal Cresencia. Araullo only dealt with Cresencia who arranged for false benefit claims to be made to Sun Life. Upon receiving a benefit payment Araullo paid Cresencia two thirds of the amount in cash. As a result of this information RBC began investigating whether CHEUNG had any connection to their employee benefit plan.

B. IP Addresses

Cheung is an RBC client and accordingly has an identification number linked to his RBC accounts. RBC records determined that Cheung accessed his accounts using online banking. When a client logs onto their RBC online account the client's IP address is recorded by the bank's system. An analysis of Cheung's online banking activity for 2012 and 2013 indicated that the same IP address (99.247.123.85) was used throughout those years to log onto Cheung's RBC online accounts.

RBC concluded that Cheung was the person using this IP address to log onto his own accounts because:

i) RBC online access requires the use of a personal client card which was issued to Cheung and the login of a personally determined password. RBC records indicate that Cheung maintains sole ownership of the bank accounts to which there are no other authorized users. A review of RBC records indicates that RBC has never been notified by Cheung that the client card was missing, stolen or compromised. There is no record that Cheung advised RBC that there was any unauthorized online access to his accounts during the period of review.

ii) An internet search of IP address 99.247.123.85 was conducted by RBC and determined that the address was associated to Rogers Cable in Markham, Ontario which was consistent with Cheung's address listed in his RBC personal profile of 128 Manhattan Drive, Markham, Ontario.

iii) RBC undertook further investigation to link Cheung to this IP address. Through surveillance Cheung was positively identified as being located and observed at the residence of 128 Manhattan Drive, Markham, Ontario on September 27, 2013 between the hours of 20:22 and 22:03. A review of RBC online banking sessions for that same time period confirmed that the Cheung RBC accounts were accessed by the IP address 99.247.123.85 at 21:53:13 on September 27. This internet banking session occurred at a time that Cheung was present within the residence of 128 Manhattan Drive, Markham.

RBC provided the same IP address to SunLife to conduct a search of their electronic records to see if the address was being used to login into the benefit accounts of any RBC employees. Sunlife determined that this IP address was used to access the accounts of 22 RBC employee benefit accounts during the period of November 2012 to August 2013. Further investigation located other IP addresses linked to Cheung that showed a total of 32 RBC employees had claims submitted or their Sunlife accounts viewed by Cheung's IP addresses.

C. Service Providers

Investigators attended a number of health facilities that relate to claims made by the RBC employees that have been linked to fraudulent claims. The investigation identified five service providers that were directly linked to CHEUNG and his wife, Agnes Lee (LEE). One of the service providers was Integris Health and Wellness clinic, located at 2221 Yonge Street, suite 402, in the City of Toronto.

LEE is the sole owner of Integris Health and Wellness and CHEUNG was listed as the clinic manager. Visits to the business address found a small room with a reception desk. This clinic does not have a direct phone number but has a 1-877 number that links to a call centre in the United States where you can only leave a message. Numerous receipts from Integris Health and Wellness clinic were submitted to Sun Life for services that RBC employees confirm were never provided.

LEE is also an owner of a one bedroom residential condo in Toronto. Several health benefit claims receipts were submitted for acupuncture services using the address of the condo as the address for the service provider. Investigation determined that the acupuncture services claimed had never been provided.

D. RBC Employee Interviews

The scope of the investigation resulted in RBC Corporate Security identifying 64 employees involved in the fraud. Of these 56 employees were dismissed for cause and 8 employees resigned. A further 18 ex-RBC employees were identified as being involved in the fraud but they had already left the bank by the time of the investigation.

Thirty of the employees admitted that they had been involved in the fraud with CHEUNG. They describe being approached directly by CHEUNG or through an intermediary, passing along the necessary Sun Life information, receiving benefit payments through Sun Life for services that they had never received or paid for and then splitting those proceeds with CHEUNG usually on a 50-50 basis.

Another thirteen employees tried to partially or fully deny involvement. Some admitted to knowing CHEUNG but not to having knowledge of the fraud. However they could not explain how CHEUNG was able to have their Sun Life password or why they were transferring money to CHEUNG after they received their benefit payment. Some confirmed that they had never received the services being claimed for but had no explanation as to why someone else would access their on-line Sun Life account to make a claim or why they did not question the payments credited to their bank account by Sun Life. Some claimed that the service was provided but had no explanation as to why they used CHEUNG to submit the online claim instead of doing it themselves.

Even though these employees did not admit their involvement in the fraud, the Crown takes the position that these employees were involved with Cheung in the fraud as there is no other reasonable inference, other than the commission of the offence, that could explain the same pattern of money flowing to Cheung, the same service providers and that Cheung was accessing their SunLife accounts online using the employees' private password.

E. Emails

Some of the RBC employees used their work email to communicate with CHEUNG about the fraud. In one email the employee does not appear to understand that they don't get to keep 100% of the $180 benefit payment they have received from Sun Life but have to split it with CHEUNG. In one part of the email train CHEUNG writes:

"Okay you still don't understand, I will try one more time. I will do it slowly the money is not 100% yours, is half and half, that is why we have a balance to begin with, am I correct? If so the $180 is not 100% yours, only half of it is yours. Let me know if you understand that.

In another email another employee sends CHEUNG dates on which he should not invoice for physiotherapy sessions either because they will be out of the country or because they have other medical appointments. It is clear that they are working together to make sure that the false claims do not claim services were provided on a date that it would not be possible for the employee to have been available for the service.

F. Bank Records

An analysis of the bank accounts of the RBC employees involved in the fraud confirmed that money was being sent by the employees to Cheung's personal account by e-transfer and by cheque.

In some cases the bank records showed the fraudulent insurance benefit being paid into the employee's RBC account by SunLife followed by the transfer to Cheung. In other cases the employee arranged to pay Cheung at a later date or sometimes waited until they had received a number of benefit payments before arranging to give Cheung his portion of the funds.

G. Financial Loss

A chart prepared by RBC (modified by the Crown for the purpose of sentencing) outlines the extent of the fraud. The chart can be summarized as follows:

To RBC Sunlife claimants

Total amount of confirmed false claims paid out to RBC Sunlife claimants: $332,275

To Cheung from RBC claimants

Total transferred from RBC claimants accounts to Cheung by e-transfer: $88,628

Total transferred from RBC claimants to Cheung by cheque: +$50,998

Total: $139,626

Cash alleged by three employees to Cheung (denied by Cheung): +$11,087

Unaccounted funds: +$38,296

The amount of the fraud on RBC is $332,275. Although Cheung did not receive this amount, his primary role in working with other RBC employees to commit the fraud means that Cheung (along with at least one other person) together with the RBC employees is responsible for the bank losing this amount of money. The records of e-transfers and cheques establish that $139,626 went directly to Cheung. Three RBC employees alleged that they also paid Cheung in cash (which is denied by Cheung). The employee statements claim $11,087 in cash payments were made. There is a further amount of $38,296 that may have gone to Cheung however this would be based on an assumption that all benefits received were split 50/50 between the employee and Cheung. For the purpose of this plea the Crown will only allege the amount that can be established through banking records: $139,626 as the amount paid to Cheung."

[2] While the prosecution originally alleged that Mr. Cheung received $139,626.00, Mr. Cheung has paid restitution in the amount of $120,000. The Crown and defence agree that for the purposes of sentencing, Mr. Cheung has made full restitution.

Circumstances of the Offender

[3] Mr. Cheung is 38 years old and married. He came to Canada from Hong Kong in 1989 with his parents and older brother. His parents divorced when he was 14 and unfortunately Mr. Cheung eventually lost contact with both his mother and father. He spent most of his formative years living with an aunt.

[4] Mr. Cheung attended Seneca College for 2 years taking technology courses and then, as a mature student, earned a degree in economics from York University. He then worked as an insurance broker for about seven years. He currently works with his spouse in real estate appraisal. He is also completing accounting and construction courses at Seneca and George Brown College. Mr. Cheung attends church regularly and participates in fundraising activities.

[5] Exhibit 1 is an impressive collection of good character letters written by family and friends of Mr. Cheung which the court has carefully considered.

What is a Fit Sentence?

[6] The Crown seeks a sentence of 9 months. Counsel for Mr. Cheung submitted that a conditional sentence in the upper reformatory range is appropriate.

[7] There are several mitigating and aggravating factors present in this case and they were accurately identified by counsel.

[8] There is no doubt that Mr. Cheung was at the centre of a large scale fraud involving a significant loss to the bank of $300,000. Most of the illegal activity took place over a two year period. In order to commit this fraud, the accused engaged in many transactions with many RBC employees. I agree with the Crown's observation that Mr. Cheung was operating the scheme as an ongoing business. Although others were knowingly involved, Mr. Cheung was certainly a key directing mind in the operation.

[9] In terms of mitigating circumstances, Mr. Cheung is a first offender, having no previous criminal record. Significantly, he has entered a relatively early guilty plea saving the public the expense of a preliminary hearing and/or trial. I accept that he is genuinely remorseful. Another important mitigating factor is that the accused has made restitution to the satisfaction of the Crown. As well, Mr. Cheung has a supportive network of family and friends who have assisted him in his rehabilitation since his arrest.

[10] The primary sentencing objectives in a case such as this should be denunciation and deterrence. The real issue is whether a conditional sentence as proposed by Mr. Lockyer can adequately address those objectives.

[11] Section 742.1 of the Criminal Code permits the imposition of a conditional sentence provided certain criteria are met. The sentence must be less than two years, serving the sentence in the community would not endanger the safety of the community, and that such a sentence would be consistent with the fundamental purpose and principles of sentencing. A conditional sentence, in appropriate cases, can properly express the principles of deterrence and denunciation, although clearly a conditional sentence will not have the same effect as a sentence of incarceration. A conditional sentence may be longer than an otherwise appropriate period of incarceration and may include terms to give it a punitive element in order to enhance the effect of the conditional sentence.

[12] Upon a consideration of the circumstances of the offence and despite the mitigating factors here, I am not persuaded that this is a case where a conditional sentence is appropriate. This was a serious fraud committed over a lengthy period of time. Mr. Cheung played a pivotal role. Either directly or indirectly he recruited many RBC employees to engage in this scheme and used their login information to submit false claims to Sun Life. If required by Sun Life, Mr. Cheung also submitted false receipts as proof of services allegedly provided. The investigation revealed that the accused involved at least 30 RBC employees in this extensive fraud. He did significant harm to a process that depends on the honesty of the users. While this was not a breach of trust, the accused used "insider" knowledge from his previous employment. Mr. Cheung had no altruistic purpose in committing this crime. He committed the fraud in order to attain some measure of financial security for himself and his wife. Mr. Cheung's dishonesty was deliberate and protracted. These aggravating factors support the imposition of a custodial sentence.

[13] While it is true that deterrence and denunciation are the primary sentencing objectives in this case, the court takes into account that Mr. Cheung is a first offender who entered an early guilty plea, is remorseful and has made restitution. Ordinarily this kind of offence, even for a first offender, would attract a reformatory sentence in the one to two year range. However, given the significant mitigating factors involved here, it seems to me that a considerable measure of leniency can be extended to Mr. Cheung without offending the fundamental sentencing principle of proportionality. I am also satisfied that the accused should perform a substantial number of community service hours in order to provide reparation for the harm done to the community.

[14] Mr. Cheung is sentenced to five months to be followed by a period of probation of 18 months. In addition to the mandatory terms, he will:

• Report to a probation officer within 72 hours following his release from custody and thereafter as required.

• Reside at an address approved by his probation officer.

• Perform 120 hours of community service to be completed to the satisfaction of his probation officer within the first 16 months of the commencement of this probation order and shall provide his probation officer with written proof that the community service has been completed.

• Refrain from contacting Irmahal Cresencia.

Released: September 28, 2015

Justice T. Lipson