Timmy, an estate agent, was commissioned by Mrs Chung, a landlord, to sell a residential unit at $9,000,000. Ms Lam, a client, expressed willingness to buy the unit at $8,780,000 but instead of informing Mrs Chung of the offer, Timmy told Mrs Chung that a client had agreed to buy her unit at $8,580,000 in the name of a limited company. He persuaded Mrs Chung to sell the unit at a reduced price for cash flow reason as there were signs that property prices were going down. Mrs Chung eventually agreed. However, Mrs Chung later found out that, after the transaction was completed, the buyer had immediately sold the unit to Ms Lam at $8,780,000. She reported the case to the ICAC which subsequently revealed that Timmy was one of the shareholders of the limited company which was the buyer.
As a licensed estate agent, Timmy should observe the Code of Ethics of the Estate Agents Authority. Estate Agents and salespersons, in engaging and accepting an appointment as an agent, should protect and promote the interests of their clients, carry out the instructions of their clients in accordance with the estate agency agreement and act in an impartial and just manner to all parties involved in the transaction. Also, they should avoid accepting an appointment involving a property in which they have a beneficial interest. Any pecuniary or other beneficial interests in relation to the property shall be disclosed fully to all parties concerned.
Timmy’s dishonest behaviour not only caused loss to Mrs Chung and Ms Lam but also tarnished the reputation of the trade. Timmy’s conduct might constitute a criminal offence of fraud under Section 16A of the Theft Ordinance.
Mrs Mo, a flat owner, commissioned an estate agency as the sole agent for the sale of a shop premises priced at $13.6 million. The company assigned Anna and Bill to take care of the matter.
One day, Anna found a buyer who offered to buy the premises for $14 million. As Anna could not reach Mrs Mo at that moment and had to leave office for an urgent meeting, she asked Bill to contact Mrs Mo. When Bill contacted Mrs Mo, he told her that a buyer had offered $12.8 million for the premises. Bill eventually persuaded Mrs Mo to accept the offer and sign a provisional sale and purchase agreement.
The next day, Bill told Anna that the shop premises had been sold to his client Mr Sung who was willing to re-sell the premises to Anna’s original buyer as a confirmor. Sensing something was suspicious, Anna reported to her supervisor that Bill might have breached the company’s code of practice by showing favour to Mr Sung to sell him the premises at a lower price.
While the estate agency conducted an internal investigation, Bill begged Anna to falsely claim that she had only met the original buyer who made the $14 million offer after the provisional sale and purchase agreement had been signed. Anna immediately refused.
In fact, the whole situation happened because Bill did not want to share the commission equally with Anna. Instead of co-operating with Anna, he wanted to handle the transaction alone. He thus sought assistance from his friend Mr Sung in buying the shop at a lower price and then re-selling it as a confirmor to Anna’s original buyer at a higher price. Through this way, Bill not only could receive more than $50,000 commission from both the buyer and seller, he could also share the profits from the price difference with Mr Sung. The estate agency refused to pay Bill the commission and reported the situation to the ICAC.
It might seem that Bill was being clever, but actually he was being foolish. He committed a criminal offence of fraud under the Theft Ordinance and seriously undermined professional ethics by disregarding the interests of his clients.
Bill’s unethical behaviour breached the Code of Ethics promulgated by the Estate Agents Authority. His failure to observe and comply with the law and the Code of Ethics might render him not being a fit and proper person under the Estate Agents Ordinance to hold license and disciplinary action might be taken against him.
On the other hand, the management of the estate agency showed zero tolerance for such malpractices by treating Anna’s complaint seriously and taking action against Bill’s unethical and illegal behaviour. Its integrity management enabled staff to understand clearly the ethical standards the company required of them and whistle-blow any misconduct in confidence. This could deter staff from further unethical behaviour. It could also attract and help retain ethical employees, thus helping the company to earn greater profits and goodwill in a long run.
Director Mr Lai was a village-type house developer and a director of an estate agency. His agency had acquired a land lot in the New Territories for constructing village-type houses.
Mr Lai assigned the project to his assistant Clement who held an estate agent’s licence. Clement knew Mr Shum who claimed himself a village representative. They often gambled together and Clement ended up owing money to Mr Shum. When Clement failed to make a repayment, Mr Shum asked Clement to deceive Mr Lai by making use of Mr Lai’s eagerness to get the project underway so that Clement could repay the debts. Clement felt he had no alternative but to do as Mr Shum instructed. One day, Clement told Mr Lai that Mr Shum, the village representative, had asked the company to donate $500,000 to the village fund. Otherwise, the village residents would object the coming village-type house construction project. To avoid complications, Mr Lai made a cheque to Mr Shum and Clement returned a false receipt on Mr Shum’s behalf.
Later, Mr Lai suspected that corruption might be involved in the incident and reported it to the ICAC. After investigation, it was found that Mr Shum was not a real village representative, but only an ordinary villager.
Clement had been entrusted with handling the village-type house development project and should have cherished the opportunity to show his abilities. Unfortunately, his gambling habit led him to personal finance problems. Driven into a corner, he conspired with Mr Shum to deceive Mr Lai’s company and abused his employer’s trust in him. Clement knew very well that the $500,000 solicited by Mr Lai was not for donation purpose. By using a false receipt to deceive his principal Mr Lai, Clement might be in breach of Section 9(3) of the Prevention of Bribery Ordinance. Mr Shum might also commit a deception offence under the Theft Ordinance for falsely represented himself to Mr Lai as a village representative.
As Clement and Mr Shum had business dealings, socialising might have been unavoidable. But Clement should have kept a suitable distance from Mr Shum and, above all, should not have had any pecuniary associations so that he would not have to show favouritism, or to get caught in a work dilemma where it was difficult to stay neutral, or to do illegal acts for personal gain. He should avoid engaging in frequent gambling activities with his clients to avoid involving in any monetary dealings that might lead to conflict of interest situation.
Clement would also breach the Code of Ethics promulgated by the Estate Agents Authority for engaging in illegal activities and bringing discredit and/or disrepute to the estate agency trade. His failure to observe and comply with the law and the Code of Ethics might render him not being a fit and proper person under the Estate Agents Ordinance to hold license and disciplinary action might be taken against him.
Ivy was a sales manager of a sportswear distributor. The company had a discount policy for bulk purchase of sportswear that every 100 sports jerseys sold would enjoy a discount of 10%. The soccer jersey of the latest winning team was selling like hot cakes. A small sportswear shop in Mongkok placed an order for 50 of this jersey and another shop in the area also ordered another 50. Since they were in the same district, the delivery would be made together. A thought struck Ivy. Why didn’t she combine the two orders and make out an order for 100? She could doctor the invoices up. The discount would be a source of her extra income. And it would not harm anyone.
But would it be considered as cheating the company? Should she split the gains into three and share with the two sportswear shops?
Under the Section 9(3) of the Prevention of Bribery Ordinance, it is an offence for any agent, with intent to deceive the principal, to use any false, erroneous or defective receipt, account or other document in respect of which the principal is interested.
Ivy might breach Section 9(3) of the Prevention of Bribery Ordinance for using false documents with the intent to deceive her company. She might also commit an offence of deception, contrary to Section 17 of the Theft Ordinance.
A relationship manager of a bank was responsible for managing portfolios of his corporate clients. He noticed that one of his SME clients, Client A, had been lax checking his account statements. Without Client A’s knowledge, the relationship manager took a series of malpractice in Client A’s account, for example, fraudulently applying for an increase of credit line, forging the client’s instruction to draw funds from the credit line and transferring the money from the client’s account to an account he controlled. Later, Client A raised his doubts about the balance of the credit line, the relationship manager lied that it was caused by an error in the computer system.
On another occasion, the relationship manager also forged a loan application under Client A’s name by using another client as guarantor and forged signatures. He wanted to use the loan to settle the debit balance in Client A’s credit line to cover up his scam earlier. During the credit approval and fund transfer process, the backend staff members had their doubts but only went to the relationship manager for clarifications. The supervisor of the relationship manger also raised questions about the irregularities but he easily accepted the explanation given by his subordinate without follow-up. Later, with Client A’s persistent enquiries and complaints about the questionable credit balance to the bank supervisor, the scam by the relationship manager was finally exposed.
Nearly all bank staff members who misuse customers’ funds believe that such action is only temporary and can be rectified shortly. However, crime is committed once the funds are misused and such action cannot be ‘rectified’ even if the funds are ‘repaid’ before the crime comes into light. In this case study, the relationship manager (an agent) might have violated Section 9(3) of the Prevention of Bribery Ordinance (POBO) by using forged documents to deceive his bank (the principal) in approving an increase in Client A’s credit limit and Client A’s fraudulent new loan. Also, the relationship manger could be liable for a series of other crimes including theft (transferring money from client’s account to his own), fraud and forgery.
From the perspectives of customer service, it may be desirable for a relationship manager to provide personal service and act as the bank’s single point of contact for important clients. However, if all verification/clarification of questionable or doubtful transactions are routed through the relationship manager, it will undermine checks and balances and create opportunities for manipulations by unscrupulous relationship manager.
Moreover, banks should adopt good control practices to remind supervisors to stay vigilant to potential risk of corrupt practices and make thorough enquiries into any suspected irregularities.
An SME owner wanted to buy new machines by hire and purchase (HP) loan at 90% of the purchase value, but banks could only lend up to 60%. A machine supplier issued an inflated invoice so that the SME owner could borrow more. The supplier then referred the SME owner to a finance company's Sales Executive who was a friend of the supplier. Despite spotting the scam, the sales executive turned a blind eye and sought credit approval for the loan, in order to meet his sales quota. Having succeeded once, the sales executive conspired with the machine supplier to help a number of other SME clients who faced similar difficulties to obtain HP loans, with bogus machine purchase transactions. The scam was exposed by some SMEs’ default payments and internal audit’s investigation.
Facing keen competition in the industry and pressure to secure loan business in the bank, a bank staff may cross the line. Over reliance on sales staff to provide borrowers’ information without counter checks would increase the risk of manipulation.
The Sales Executive, an employee (agent) of the finance company (the principal), intended to deceive/mislead the company by using invoices which contained false information. Notwithstanding he did not receive any bribes, he might have contravened Section 9(3) of the Prevention of Bribery Ordinance (POBO).
The Sales Executive, machine supplier and SME owners could be charged with fraud against the finance company, or conspiracy to defraud the finance company.
The Sales Executive rationalized his acts by regarding his practice as helping the finance company to secure more loan business, at the same time helping the SMEs to overcome difficult situations. However, the fact that customers had to obtain higher loans through a fraudulent means suggested that they are high risk customers. Granting them higher loans increased the risk exposure of the finance company.
Approving a higher loan based on inflated collateral value or bogus transactions might also result in an unusual increase in bad debt cases, and internal review by the finance company would detect the irregularity involved.
Banks should adopt good control practices such as setting up a central team to conduct vigilant due diligence on high credit risk customers, conducting independent assessment of machine suppliers involved in HP transactions to ascertain their reliability, gauging reasonableness of the sales prices on invoice, and conducting regular assurance check to detect irregularities/unusual trend.
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