Make profit in bidding

Barry, a senior project manager of a subcontractor, faced a dilemma when bidding a project. The manager of the main contractor promised Barry with the contract, but Barry had to inflate the bidding price…
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Barry was a Senior Project Manager of a construction company in Hong Kong. Recently, his company was going to put in a bid to be the principal subcontractor of a project in the Mainland. The bid was RMB500 million. Barry then negotiated with Echo Ltd, the state-owned main contractor of the project that was asking for the bid. The Echo manager told Barry that his company would get the contract if he could inflate the bidding price from RMB500 million to RMB550 million. The manager further explained that the additional RMB50 million would be shared equally among the Managing Director of Echo Ltd, the manager himself and Barry as a hook to ensure Barry’s silence. Barry was disturbed because he had heard of stories like this which the bidder got physical harms as a return for refusal to cooperate.

Would Barry violate any bribery offence if he acceded to the Echo manager’s request? What should Barry do?

Case Analysis

When conducting business overseas, it is important to watch out for increased bribery risks that may come with business operations under different systems and cultures.  Companies should pay special attention to the local laws and regulations in different jurisdictions as well as foreign bribery laws with extra-territorial effect.

In the case study, if Barry agreed with the Echo manger to inflate the bidding price in order to win the contract, Barry, the Echo Managing Director and the Echo manager might violate the anti-bribery provisions in the PRC Criminal Law.

In case any part of the bribery offence took place in Hong Kong, Barry might also breach Section 9 of the Prevention of Bribery Ordinance if he, without lawful authority or reasonable excuse, offered bribes to the Echo manager as an inducement or reward for securing the contract.

To avoid breaching the law and protect himself from any physical harm, Barry was suggested to report the matter to his company and seek help from local authorities.

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Substandard work - piling

A works supervisor discovered that the length of the constructed piles did not match with the concrete delivery records for the piles. He suspected that some of the piles might have been shortened…
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In January 2001, Lee & Wong Holdings Ltd (LW) awarded a $1,000 million contract to a main contractor for constructing four 40-storey residential blocks, a commercial complex and a car park.   The main contractor then sub-contracted  the  piling  work  to  another  company.    The  latter  in  turn awarded the work to Saar Piling Company Ltd (Saar) by simply deducting 15% of his original successful bid.  LW also appointed a consultant firm Joe & Partners (JP) to oversee the construction work.   The project was scheduled to be completed in twenty months and five months were allowed for the piling works.

JP deployed an engineer as the Project Manager (PM) to oversee the project but he was not required to be resident on site.   Occasionally, he would go to the site for meetings but did not carry out site inspections himself. Routine site inspection was left to an Assistant Inspector of Works (AIoW) and a Works Supervisor (WS) who were resident site staff appointed by JP. However, the AIoW had very limited experience in piling work.

As there were only two supervisory staff on site responsible for overseeing the whole piling works, the AIoW and the WS found it difficult to check every detail during the work process.  They could only rely on the records of Saar and sign the completion forms taking the face value without checking.

Due to unexpected difficulty encountered during the placing of reinforcement casings, LAM, Director of Saar, found that the piling work was behind schedule and a one-month delay was anticipated.   Saar, being a small sub-contracting company, found it difficult to bear possible substantial liquidated damage (LD) of $800,000 per day as stipulated under the main contract.

LAM then discussed the making of shortened piles with the foreman and site agent of the main contractor, who were always away from work and thus failed to monitor the work progress.  They thought that the specifications stipulated in the contract were conservative and shortened piles should cause no severe harm to the completed buildings resting on top of the piles.   They believed that the buildings would not be structurally affected.

LAM instructed his workers not to excavate the pile bores as deep as the proposed founding levels.   Instead, after the length of the reinforcement casings had been checked by the supervisory staff of JP, LAM asked his workers to cut the casings during night time when the consultant site supervisory staff were off duty.   LAM then manipulated a measuring tape by removing parts of its central portion so that it gave a reading longer than the actual measurement.   When the supervisory staff of JP measured the pile bore depth using the manipulated measuring tape provided and re-examined the reinforcement casing, they were not able to detect that the piles had been shortened.

One day, the WS of JP discovered that the length of the constructed piles did not match with the concrete delivery records for the piles.   He suspected that some of the piles might have been shortened.   He immediately approached LAM for an explanation for the irregularities discovered and the proposals for remedial actions.

LAM, after discussion with the foreman and site agent, went to the WS’s office to hand him an envelope containing $300,000 and plead him to turn a blind eye to the substandard piling works.   The WS immediately refused LAM’s request.

The WS immediately  reported LAM’s  offering of bribes to the ICAC. LAM, the site foreman and site agent of the main contractor were arrested and convicted of conspiracy to offer an advantage to the WS as a reward for turning a blind eye on substandard piling work.

Questions

  1. Why were LAM, the foreman and site agent convicted of corruption offences? What actions should you take when being offered bribes?
  2. How devastating would the damages be if a construction professional accepts advantages for turning a blind eye to substandard works? What are the consequences of such behaviour?
  3. What is the importance of site supervision at a construction site?
Case Analysis

Section 9 of the Prevention of Bribery  Ordinance (POBO)

LAM conspired with the foreman and site agent to offer the Works Supervisor $300,000 for his turning a blind eye to the substandard piling work was an offence under Section 9 of the POBO.   This section states that:

  • It is an offence for an agent (normally an employee) to solicit or accept an advantage without the permission of his principal (normally the employer) when conducting his principal’s affairs or business; and
  • The person who offers the advantage also commits an offence.

Report Corruption

The positive action of the Work Supervisor was a good illustration of the proper action to take when one was being offered a bribe: refuse the bribe immediately and report the matter to the ICAC.

Consequences of Corruption

Turning a blind eye to substandard works would result in building defects, causing the company extra costs to rectify the problem.  Worse still, such hidden faults in construction works would be hazardous to public safety.

Construction professionals should bear in mind the implications of substandard works to public safety, as their responsibilities to his employer and the profession should at all times be governed by the overriding interest of the general public.

In similar court cases previously, the judge commented that the defendants “place in jeopardy not only the structure and those using it but also the reputation of Hong Kong.   The potential consequences of their actions may quite fairly be described as disastrous.   The conduct of these Accused casts a shadow over the entire construction industry…”

Corruption could also bring devastating damage to one’s career and reputation. Construction professionals need to live by a high standard of integrity so as to resist the corruption temptations facing them in the workplace.

Site Supervision

The allocation of adequate resources to site supervision is crucial to ensuring the quality of works.   Site supervisory staff are sometimes inadequate, both in number and experience, and may therefore not be able to monitor the work of the contractor effectively nor promptly detect any fraudulent acts. Employers/consultants should deploy sufficient on site supervisory staff with appropriate training and experience.

The deployment of only technical staff on site is inadequate and professional input is important especially at critical construction stages.

Infrequent site visits by professional staff is not uncommon in the construction industry.   In fact, regular supervisory check is crucial in ensuring that the work complied with the required standard.   Supervisory staff should use their own measuring tapes in checking the pile depth.   In addition, the role of independent internal technical audit should also be strengthened so as to guard against any possible malpractice.

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Falsifying attendance records

In order to facilitate the engineer’s monitoring of workers’ attendance and recording of their working hours, workers were required to punch an attendance card when reporting on and off duty every day in the Engineer’s office.

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In a construction project of a commercial complex valued over $500 million, the main contractor employed ten foremen to monitor the work of sub-contractors.  A site engineer of the company, who took charge of the foremen, was responsible for the overall supervision of the project.

The salaries of the foremen and other workers were calculated on a daily basis.  Each  of  them  was  required  to  punch  an  attendance  card  when reporting on and off duty every day.  The attendance cards and the punching machine were placed in the engineer’s office so that when the foremen and other staff  reported  on  or  off  duty, they  had  to  punch  the  cards  in  the engineer’s office.  The engineer was responsible for ascertaining that his subordinates personally punched the cards.  At the beginning of each month, the engineer was responsible for calculating the salaries of his subordinates based on their individual attendance records for the previous month.  His calculations and the punched cards were then sent to the Accounts Department of the company for processing salary payment.

As the family of one of the foremen, CHAN, was in the Chinese Mainland, CHAN would seek every opportunity to travel there to visit his family.  One day, CHAN went to see the engineer and requested for three days’ off.  CHAN, however, requested the engineer not to record his leave but instead punched the attendance card for him so as to show that he was working on the three days.  In return, CHAN offered the engineer $500 for assisting him in punching the attendance card and turning a blind eye to his absence.

The engineer turned down the offer and reported the matter to the ICAC.  Eventually, CHAN was convicted for offering a bribe to the engineer, contrary to Section 9 of the Prevention of Bribery Ordinance (POBO) and was sentenced to imprisonment.

Case Analysis

Case Analysis

The foreman, CHAN, offered an advantage to the engineer (i.e. an employee and hence agent of the construction company) as a reward for assisting him to falsify attendance records, contrary to Section 9(2) of the Prevention of Bribery Ordinance (Cap.201) (POBO). Irrespective of whether the engineer accepts or rejects the bribe, the act of offering (by CHAN) already constitutes a criminal offence.  Should the engineer have accepted the bribe, the engineer would have committed a corruption offence and be charged under Section 9(1) of the POBO.    In addition, regardless of whether the engineer accepted the bribe, if he assists CHAN in falsifying the attendance record, this would amount to an offence under Section 9(3) of the POBO.  This provision stipulates that it is an offence for an employee to use any false document, receipt or account to deceive his employer.  Improper ethical behaviour may also lead to the revocation or suspension of a professional registration with a professional body and as a result the engineer would be restricted/prohibited from practice.

 

Case in Perspective

The lack of supervisory control and reliance on a manual tracking system over localised staff attendance create opportunities for personnel to abuse delegated authority, engage in unauthorised absences, commit payroll fraud, or offer bribes to secure the collusion of checking officers.  To address this problem, the main contractor should establish a system to strengthen attendance tracking and staff administration by implementing the following control measures –

(a) Eliminate susceptible manual systems and implement a digital attendance management system (e.g. fingerprint or facial recognition);

(b) In the interim, supplement manual systems with CCTV to authenticate staff presence, deter impersonation and provide verifiable records of attendance; and

(c) Conduct surprise on-site spot checks and physical headcounts to verify real-time worker presence by supervisors and/or independent units. 

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Insider information in tendering

A young engineer was tempted by a sub-contractor during a tendering exercise. The sub-contractor offered him a handsome financial assistance for his new flat in exchange for leaking insider information.

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David worked in a construction company as a junior engineer after graduation. Through work, he became close with a subcontractor Mr. CHAN who often treated David lavish dinners and free trips to Macao. The two got along famously.

Recently, David’s company was conducting an open tendering exercise for a multi-billion project in Lantau, which Mr. CHAN was very keen. David was responsible for collecting the price quotation documents for the project. One day, Mr. CHAN invited David to a lavish dinner over which he made a proposal to David. He asked David to go through the quotations secretly and leaked him the price of the lowest bid. Then he would submit an even lower price just before the closing time to ensure the winning of the tender.

Knowing that David needed help for the down payment of his new flat, Mr. CHAN promised David a handsome contribution to the down payment if David helped him out. He also persuaded David that he was just as good as anyone else and that it would be a ‘win-win’ situation for both of them. David really needed a hand financially, and he did not want to sabotage the excellent relationship with Mr. CHAN.

Should David say yes to Mr. CHAN?  Would this be illegal?  Would it harm anybody in anyway?

Case Analysis

Case Analysis

Under Section 9(1) of the Prevention of Bribery Ordinance (Cap.201) (POBO), it would be an offence if David (i.e. agent), without the approval of his employer (i.e. principal), accepted the advantage (i.e. the financial assistance to the down payment of the new flat) as an inducement to assisting Mr. CHAN to get the tender.  Meanwhile, Mr. CHAN might also be liable for promising to offer bribes to David under Section 9(2) of the POBO.

By leaking the insider information to Mr. CHAN, David might also breach the Rules of Conduct of the Hong Kong Institution of Engineers, which prohibited engineers from disclosing confidential information and required them to act in the best interest of the employers.

Corruption would impair fair competition and put public safety at stake.  The quality of work would be in question as the sub-contractor was not chosen by an objective assessment of its competence and capability.  To uphold professional ethics and avoid breaching the law, David should say no to Mr. CHAN’s request and report the matter to his company and/or the ICAC.

 

Case in Perspective

Leakage of sensitive or confidential tender information (e.g. bid prices) by compromised personnel to favour a particular bidder will undermine fair competition and integrity of the procurement process.  To prevent such malpractice, the company should establish a robust procurement system to ensure the selection of the most suitable contractor based on merit.  For example, 

(a) Take precautionary measures to prevent leakage of tender information, such as receiving tenders through secure electronic channels with the password split and separately held by different staff members, and tasking an independent team to witness tender opening;

(b) Prohibit the opening of tenders received before the deadline, and ensure tenders remain in the custody of designated officer to minimise the risk of information leakage;

(c) Accept late tenders only with the endorsement of the management (or the tender board, if any) on justifiable grounds; 

(d) Require staff involved in procurement to declare whether they have any conflict of interest in the matter, and manage any declared conflict to mitigate integrity risks; and

(e) Maintain proper documentation of the tendering process, including but not limited to meeting minutes, tender evaluation and negotiation, correspondence, and declaration and management of conflict of interest, to facilitate independent audits and ensure accountability. 

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Expedition of payment

A proprietor of a subcontractor offered advantages to the inspector of works of the government department as a reward for expediting the checking of works orders.
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A Government Department (the Department) awarded a slope maintenance  contract  to  Chongs  Construction  Company  Ltd,  which  then sub-contracted the works to JKW Subcontracting Company (JKW), of which CHEUNG was the proprietor.

From time to time, the Department issued to the contractor works orders (WOs) describing the work required, location and estimated value of the work. Upon completion of work, an Inspector of Works (IoW) of the Department would physically inspect and verify whether the work done was in compliance with the required standard.   Based on the recommendation made by the IoW, the project engineer would approve payment to the contractor by signing on the WO concerned.   He was not required to physically inspect every piece of work completed as over a hundred WOs were issued every month.

When the engineer signed on the WO, the contractor could apply for payment by submitting the WO to the Accounting Section of the Department. A contractor could only apply for payment on completion of work as certified on the WO.

In conjunction with the payment process, the Quantity Surveying Section of the Department counter-checked the work of the contractor.   However, the Quantity Surveyors of the Section could only randomly check 10% of the WOs issued.   Both the project engineer and the quantity surveyors might therefore not be able to detect abuse in relation to the WOs.

YAU was an IoW of the Department responsible for overseeing the works carried out by JKW.   In March 2000, CHEUNG approached YAU and urged YAU to expedite the checking of WOs. Hence, CHEUNG could receive payment earlier.   In return, CHEUNG offered YAU a part-time job with $8,000 a month.

Between April 2000 and December 2001, YAU accepted a part-time job from CHEUNG as a reward for expediting the checking of WOs issued to CHEUNG.   On many occasions, YAU certified work completion on the WOs though the work concerned had not even commenced.

YAU and CHEUNG were later arrested by the ICAC and were found guilty of offences under Section 4 of the Prevention of Bribery Ordinance (POBO).   Both YAU and CHEUNG were sentenced to imprisonment.

Questions

  1. How did YAU and CHEUNG violate Section 4 of the Prevention of Bribery Ordinance?
  1. Besides the offer of a part-time job, what else can be classified as an“advantage”?
  1. What should be watched out for in site supervision to prevent malpractice?
Case Analysis

Section 4 of the Prevention of Bribery  Ordinance

YAU and CHEUNG were convicted of offering/accepting an employment as a reward for abusing YAU’s official position as a public servant, contrary to Section 4 of the POBO.   Under this section, it is an offence for:

  • a public  servant  to  solicit  or  accept  any  advantage  offered  as  an inducement to or reward for any action or inaction in connection with the performance of his official duty; and
  • any person who offers such an advantage.

Advantage

As stipulated in the POBO, an offer of employment or contract is defined as an advantage.   Attention should also be drawn to the fact that loans from contractors are also classified as advantages. Such dealings are often precursors to more serious corrupt arrangements and should be avoided.

Site Supervision

Site supervision is crucial in different stages of work.   Reliance on a single individual should be avoided.   Senior officers should conduct spot checks, closely monitor the quality and progress of work and keep thorough and accurate records.   The role of independent auditing should also be strengthened to provide a means to detect possible malpractice at an early stage.   In addition, corruption prevention awareness amongst all tiers of supervisory staff should be raised.

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Lax supervision

A proprietor of a subcontractor offered “laisee” to a site supervisor, requesting for “flexibility” in inspection and acceptance of work completed.
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A large building project developed by a public body (PB), involving five residential blocks and a commercial complex with a car park, should be completed by April 2003.   The PB awarded the project to a main contractor CK Holdings Ltd (CK) in May 2001 at $1,800 million.   Central Architects and Engineers Ltd (CAE) was appointed by the PB as the project consultant.

There were a number of sub-contractors responsible for different aspects of work for this project.   Among them, CK sub-contracted all plastering works to Diamondhead Plastering Company and CHONG was its proprietor.

Being the project consultant, CAE was responsible for monitoring and supervising the workmanship and progress of work including that for CK and its various sub-contractors.   CAE had recruited a team of five residential site supervisory staff headed by a Clerks of Works (CoW) Martin.   All of them were public servants acting as an agent for the PB in the project.

CHONG, Martin and other site supervisory staff of CAE always had dinner together and played mahjong after work.   Being a habitual gambler, Martin was in great debt and often borrowed money from his relatives and friends.

CHONG also invited Martin to Shenzhen on several occasions to have lavish meals and attend nightclubs.   CHONG paid all the bills on these occasions.   Furthermore, CHONG sometimes offered Martin loans and chips in the casinos in Macau.   Martin considered CHONG treated him well solely on friendly basis.

Shortly  after  their  visits  to  Shenzhen  and  Macau,  CHONG  went  to Martin’s site office and suggested to adopt a quicker method for laying screed. Instead of using a thorough mixture of cement, sand, aggregate and water, CHONG proposed to adopt a ‘semi-dry sand’ method in which a layer of sand was put onto a layer of cement and thereafter water was sprayed onto the layers.   Although this shortcut method of laying screed was used in some other projects, it was not allowed in this project and it was clearly stipulated in the Specifications.   Thus, Martin immediately objected to the suggestion.

On the day before Winter Solstice, CHONG approached Martin again and pleaded for relaxation on the screeding method.   He indicated that the screeding work had been behind schedule and the liquidated damage for delay was heavy.   CHONG offered a laisee packet of $50,000 to Martin claiming that it was for the forthcoming Winter Solstice and requesting for ‘flexibility’ in acceptance of work completed.  He also demanded Martin not to be too stringent when inspecting the work.   He further indicated that since he had been treating Martin well for so long it should be time for Martin to do something in return.   Finally, Martin decided to accept the bribe, accede to CHONG’s request and connive at the shortcut screeding method.

CHONG and Martin were later arrested by the ICAC and were found guilty of offences under Section 4 of the Prevention of Bribery Ordinance (POBO).

Questions

  1. How did CHONG and Martin violate the POBO?
  2. What do you think about the over-socialisation between Martin and CHONG?
  1. Is customary practice, such as giving laisees during festivals (開工利是), a defence to accept an advantage? Why?
  1. Being a habitual gambler, what is the possible risk of Martin in respect of corruption?
Case Analysis

Section 4 of the Prevention of Bribery  Ordinance

Section 4 of the POBO deals with corruption relating to public servants. Under this section, it is an offence for:

  • a public servant to solicit or accept any advantage offered as an inducement to or reward for any action or inaction in connection with the performance of his official duty; and
  • any person who offers such an advantage.

In the circumstances, CHONG offered an advantage to Martin for conniving at the shortcut screeding method. Both thus committed an offence under Section 4 of the POBO.

Over-Socialisation

The contractor and site supervisory staff work in close circles and they easily become over-socialised and develop unhealthy relationship. Gambling, lavish and frequent entertainment are conducive to corrupt activities among the parties. The acceptance of free pleasure trips is an advantage under the POBO.     Such unhealthy relationships will easily affect their ability to effectively supervise the works of the contractors. Site staff may also be “sweetened up” by the unscrupulous contractors with the lavish and excessive entertainment.

Customary Practices

Any special events or festive occasions, such as ‘Lo Pan Festival’ (魯班誕 ),  are  not  excuses  for  staff  to  accept  any  advantage  or  laisee  from contractors. As  stipulated  in  section  19  of  the  Prevention  of  Bribery Ordinance, it shall not be a defence to show that any advantage accepted is customary in any profession, trade, vocation or calling.

Gambling

Habitual gamblers and persons in debt are highly vulnerable to corruption. Loans offered by contractors to site supervisory staff are major temptations and frontline staff who are in great debt will be comparatively easier to be tempted to accept bribes.

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Recruitment of workers

A site supervisor collected “introduction fees” from workers in exchange for referring them to work at a construction site. 

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A site supervisor employed by a construction company was assigned to recruit workers and supervise their work at a construction site.  The site supervisor asked 10 workers to pay $150 to $250 per day to him as “introduction fees” in return for referring the workers to work at the construction site.  Being informed that this was a trade practice to pay “introduction fees” and believing that they would not get the jobs if they did not do so, the workers reluctantly acceded to the site supervisor’s request.  Over a year, the site supervisor received a total of $200,000 “introduction fees” from the workers, without the knowledge and permission of the construction company.

Case Analysis

Case Analysis

The site supervisor was the employee and hence agent of the construction company.  He solicited and accepted advantages (i.e. the “introduction fees”) from the workers for referring them to work at the construction site, which was related to the affairs of the construction company (i.e. his principal).  In the absence of the principal’s permission to solicit and accept advantages, he had contravened Section 9(1) of the Prevention of Bribery Ordinance (Cap.201) (POBO).  As a result, the site supervisor was sentenced to imprisonment and ordered to pay $200,000 as restitution to the construction company.  The workers who paid the “introduction fees” had also contravened Section 9(2) of the POBO, for offering advantages to an agent of the company.

 

Case in Perspective

Under the POBO, both the giver and receiver of bribes commit an offence.  In addition, trade practice or custom could NOT be an excuse for soliciting, offering or accepting bribes. 

In the above case, the site supervisory staff breached the trust placed on him by his employer in the recruitment of workers and abused his powers for personal gains.  This rendered himself liable to criminal liabilities, damaged the reputation of the construction company and the industry as a whole, and might even undermine the quality and safety of the works, particularly if incompetent workers were recruited for the works only because they were willing to pay the “introduction fees”.  

To prevent their staff/employees and agents from falling prey to corruption in the recruitment of workers and hence ensure the quality and safety of works, construction companies should put in place adequate corruption prevention safeguards in recruitment of workers.  Examples of safeguards include –

(a) Prohibit staff/employees or agents, through staff code of conduct or employment contracts, from soliciting and accepting advantages in relation to their work particularly in the recruitment of workers;

(b) Enhance the transparency of payment of wages to workers (e.g. adopting written employment contracts and clearly specifying the wages therein) and put in place control measures in the procedures for recruitment of workers;

(c) Arrange payment of introduction/handling fee, if applicable and payable to the staff/agents, directly to the staff/agents responsible for recruitment of workers; and

(d) Remind staff/employees, agents and workers to be vigilant and report suspected corruption to the ICAC immediately.

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Profit gaining through front running

Ken is working for an international futures trading company as a dealing manager. His company often receives orders from fund managers whose moves can significantly affect the market. Taking this opportunity, Ken makes some secret arrangements with Anna, a dealer of another futures trading company…
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Ken is working for an international futures trading company as a dealing manager.   His company often receives orders from fund managers whose moves can significantly affect the market.  Taking this opportunity, Ken makes some secret arrangements with Anna, a dealer of another futures trading company, that whenever Ken receives "purchase" orders from his company, he will call Anna immediately to advise her to buy contracts.   After Anna has completed her order, Ken executes his company’s orders.   Since his company’s orders are usually in bulk, the price of the futures contract is driven up within a short time interval. Anna then sells the contracts and shares the profit with Ken.   Similar arrangements are made when Ken receives "sell" orders from the company.

Case Analysis

Ken  should  clearly  know  that  the  orders  of  his  company’s  clients  are non-public information which will have a substantial effect on the trend of the futures market.   However, he still deliberately delays effecting transactions for clients and conspires with Anna to make use of this market-sensitive information for personal gain.   Both of them have engaged in front running and thus violate the *Codes of Conduct.

Ken and Anna may be guilty of a corruption offence too.   Under Section 9 of the Prevention of Bribery Ordinance (POBO), Ken's sharing of the profit from the front running operation can be treated as accepting an advantage from Anna as a reward for his doing an act in relation to his principal’s affairs, i.e. passing the information of his company orders to Anna.

*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.

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An offence committed notwithstanding incomplete corrupt transaction

Agnes, an account manager of a brokerage firm, offered money to Alan, a senior portfolio manager of an asset management corporation, for his assistance in persuading other members in the selection committee to direct business to her.
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Alan is a senior portfolio manager of a pension fund in a large asset management  corporation.    He  is  also  a  member  of  the  company’s  broker selection committee and has an influence on the proportion of business allocated to external brokers.   Agnes is an account manager of a brokerage firm which, to Alan’s knowledge, charges a higher brokerage rate but offers a poor level of service.    On  one  occasion,  Agnes  invites  Alan  to  join  her  for  a  drink  and eventually explains to him that she is prepared to rebate him if he can persuade other members in the selection committee to direct business to her.   To get things moving, she proposes placing $100,000 into Alan’s bank account. Succumbing to the temptation, Alan gives Agnes his account number.  This "under-the-table" arrangement is finally exposed and reported to the ICAC by a colleague of Alan.   Both Alan and Agnes are arrested even before they execute the corruption deal.

Case Analysis

Alan breaks the *Codes of Conduct and Section 9 of the Prevention of Bribery Ordinance (POBO) as he agrees to abuse his official position as a member of the broker selection committee by persuading other members to offer business to Agnes and accepts rebate in return without permission from his employer. Likewise, Agnes also breaches the Codes of Conduct and the PBO for offering an illegal advantage to Alan.   Although Alan hasn’t executed the "under-the-table" deal, both of them still commit a corruption offence.   Under the law, a person will be found guilty even though the purpose of bribery has not been carried out.

*Remarks: Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Code of Conduct for Corporate Finance Adviser and the Fund Manager Code of Conduct.

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Excessive entertainment and gifts

Margaret was an account manager of a brokerage company. Daniel, her client, treated her and her subordinates to a luxurious dinner and offered her an antique watch after earning a good sum of money in his investment.
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Excessive entertainment and gifts
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Margaret, an account manager of a brokerage company, had maintained close relationships with her clients and always shared her investment views with them.   One afternoon, a client, Daniel, called Margaret.   He was in a jovial mood and explained to Margaret that he had just earned a considerable sum of money from the recent rise in the stock market.  He then invited Margaret and her subordinates for dinner in a very luxurious restaurant.   After a sumptuous feast, Daniel also presented Margaret with an antique watch.

Case Analysis

If the advantage offered, i.e. the antique watch, was not a reward for Margaret in abusing her official position, Margaret might not contravene the Codes of Conduct[1] issued by Securities and Futures Commission and the Prevention of Bribery Ordinance (POBO).   However, she should be mindful of situations which might lead to the violation of the Codes of Conduct and the law.  Margaret should seek her principal’s (i.e. employer’s) approval before accepting the gift.  Moreover, she should decline the gift if she felt that the acceptance would put her in a position of obligation to the offeror.   In case of doubt, it would be prudent for her to consult her employer on whether she could accept the gift.

Although entertainment  is  common  in  business  practice  and is not  an advantage under the POBO, Margaret should avoid accepting excessive levels of entertainment which might affect her objectivity in dealing with clients.

[1] Codes of Conduct refer to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the Corporate Finance Adviser Code of Conduct and the Fund Manager Code of Conduct.

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