Robert contravenes the *Codes of Conduct by knowingly dealing in the same securities for himself before he executes transactions for the portfolios under his management.  Moreover, he is also in breach of the Fund Manager Code of Conduct as it prohibits a fund manager from buying or selling any stocks on a day in which he or other fund managers in his company has a pending "buy" or "sell" order in the same stocks until such order is executed or withdrawn.   Robert’s action actually amounts to front running.

*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.

There is an apparent conflict of interest as Billy deals in the same stocks with his client simultaneously.   Although the company permits staff to aggregate their own orders with the orders of clients, the *Codes of Conduct require that in this situation, financial practitioners must give priority to satisfying orders of clients in any subsequent allocation if all orders cannot be filled.  Hence, even if Billy proportionally allocates the executed orders between Joe’s account and his own account, which does not appear to be blatantly wrong, he still breaches the Codes of Conduct as he has not given priority to satisfying Joe’s order in the subsequent allocation of the executed orders.

*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.

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.

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.

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.

Peter violated the Codes of Conduct[1] issued by Securities and Futures Commission by abusing his official position to refer business to David in return for accepting an advantage in the form of a country club membership. Peter failed to fulfil his obligation to protect the interests of his employer and clients as David might not be the broker who provided the best service to his company, not to mention the excessive brokerage fee charged.

If Peter had not obtained prior permission from his employer to accept the advantage, both Peter and David breached Section 9 of the Prevention of Bribery Ordinance (POBO).  Peter committed an offence of accepting a bribe and David committed an offence of offering a bribe.  

[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.

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.

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.

Philip must obtain the consent from his principal to accept the commission, otherwise both Philip and Ken would breach Section 9 of the Prevention of Bribery Ordinance. Without the approval of Philip’s principal, Ken would commit an offence of offering a bribe while Philip would commit an offence of accepting.

Although at the end of the day Philip might not be able to fulfil the agreement and Ken might not reward him, they were still liable to prosecution if a verbal agreement of corruption had been reached.

A bank employee should seek management's advice if he/she has any doubt about the propriety of any course of action, or if the employee finds his/her own interests may be in conflict with those of the bank. Nancy might breach the Code of Conduct[1] of her bank as she awarded the contract to her brother's company without disclosing their relationship to her employer. Even when Nancy was confident that the service provided by Gordon's company was as good as those of other firms, she should declare the interest to her employer.

[1] According to HKMA’s Supervisory Policy Manual CG-3, each authorized institute (bank) should develop its own Code of Conduct containing certain minimum conduct requirements which include “all staff should avoid situations that may lead to or involve a conflict of interest, actual or potential.”