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?

2. Besides the offer of a part-time job, what else can be classified as an“advantage”?

3. What should be watched out for in site supervision to prevent malpractice?

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?

3. Is customary practice, such as giving laisees during festivals （開工利是）, a defence to accept an advantage? Why?

4. Being a habitual gambler, what is the possible risk of Martin in respect of corruption?

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.

William is a fund manager who manages a number of Asian unit trusts comprising of low stake portfolios.   Given the keen competition with his fellow fund managers in the company, he sets out to make the unit trusts in his care the star performing funds within a short period of time.

Although his clients have clearly specified a low risk mandate, William still invests a large proportion of the funds of his discretionary clients in emerging Asian countries, ignoring any warning signs of an economic downturn within the region.   He even explains to the trustees of the unit trusts that the financial hiccup in some of the countries will soon be over.   However, the financial turmoil quickly spreads across Asia causing the collapse of several stock markets.   The unit trusts under William’s management suffer a tremendous loss.

Doris  is  an  account  manager  of  a  brokerage  company.    One  day,  a white-collar worker named Kelvin steps into her company with a request to open an account to deal in securities.   He tells Doris that, as he plans to study abroad next year, he wants his savings of one hundred thousand dollars to have a good return so that he can have enough money to reach his goal early.   He asks Doris in what products he should invest.  Doris persuades Kelvin to open a margin account to buy second-line stocks.   However, Doris doesn’t try to explain to Kelvin the difference between margin accounts and cash accounts, nor the risks involved in the former.

Hearing that the Hang Seng Index is dropping rapidly soon after the opening of the stock market, Kelvin calls Doris and places the order to immediately sell all the shares in his account.   Because Doris also receives many other "sell" orders from her large clients that morning, she sets aside Kelvin’s order and busily handles their transactions.   When Doris has time to eventually execute Kelvin’s order, Kelvin has already suffered a great financial loss.

Donald is an account manager of a brokerage company and has been licensed by the Securities and Futures Commission (SFC) to deal in securities. Since his company is keen to develop the futures brokerage business and needs more manpower to handle client orders, Donald is instructed by his supervisor to apply for the related license.  In fact, his company never considers whether Donald possesses the required qualifications and experience to be so licensed.

One day, a regular customer, Gordon, seeks Donald’s advice on index options.   Although Donald has yet to obtain the license, he is confident of providing advice to Gordon because, in preparing for the license application, he obtains plenty of reference material from his colleagues in the futures brokerage division.   He even accepts the order from Gordon to buy in index options contracts.

Raymond  is  a  fund  manager  who  manages  the  provident  funds  in  a medium-sized asset management company.  His wife, Jenny, is an account executive in a brokerage firm.   Recently, Jenny has been under pressure from her employer to generate more business.   Due to the keen competition within the industry, she is unable to meet the quota for finding new clients.   In order to help his wife, Raymond makes use of his official position to place business with her without observing his company policy on the selection of external brokers.

Robert is a fund manager of an international asset management company, who manages the provident funds for certain large corporations.   One day, he receives a research report from an analyst stating that the profit margin of Hydroplane is expected to be high in the forthcoming three years.

Robert, therefore, plans to buy a substantial amount of Hydroplane’s shares for his provident funds portfolios.   Knowing that such a bulk purchase will likely boost its share price, he decides to place an order for himself through an external broker before sending out the purchase instruction to the dealing room for his provident funds portfolios.

Billy is a sales manager of a securities company.  On one occasion, he recommends his client, Joe, to purchase the stocks of Earth Bank at the price of $10 per share because of its favourable development.   Joe thus places an order with Billy to purchase 150,000 shares.   As Billy also wants to buy the stocks of Earth Bank, he therefore aggregates his own order of 50,000 shares with that of Joe’s.

Because of the huge demand of Earth Bank's stocks in the market, Billy can only acquire 150,000 shares.   He then allocates the stocks in the proportion of Joe's order and his own.   As a result, 37,500 shares are allocated into his own account and the remaining 112,500 shares into Joe’s account.

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.