Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Anti-Corruption Regulation.

25 February, 2012

 

1 What are the main bodies responsible for investigating and combating corruption, money laundering and terrorist financing?
 
The main bodies responsible for investigating and combating these issues are:
 
• the Independent Commission Against Corruption (“ICAC”);
• the Commercial Crime Bureau, the Narcotics Bureau and the Organised Crime and Triad Bureau of the Police; and
• the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department.
 
The Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) require regulated persons to comply with the Prevention of Bribery Ordinance and related guidance. In addition, they have issued guidelines to financial institutions in relation to their duties to prevent money laundering.
 
Pursuant to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, which will come into force on 1 April 2012, the SFC, the HKMA, together with the new Insurance Authority and the Customs and Excise Department will be the designated authorities to supervise financial institutions’ compliance with the new
statutory customer due diligence and record-keeping requirements.
 
2 What does each of these bodies investigate?
 
The ICAC is the principal agency responsible for investigating and preventing corruption in Hong Kong.
 
The Narcotics Bureau, the Organised Crime and Triad Bureau of the Police and the Customs Drug Investigation Bureau of the Hong Kong Customs and Excise Department investigate money laundering offences under the Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) and the Organised and Serious Crimes Ordinance (“OSCO”).
 
The Police, the Customs and Excise Department, the ICAC and the Immigration Department are jointly responsible for investigations arising out of the United Nations (Anti-Terrorism Measures) Ordinance.
 
3 What is the source of anti-corruption regulations in Hong Kong?
 
The Prevention of Bribery Ordinance (“POBO”) is the primary anti-corruption legislation in Hong Kong.
 
The Elections (Corrupt and Illegal Conduct) Ordinance (“ECICO”) creates specific offences for corrupt conduct in the course of public elections, and the Banking Ordinance (“BO”) creates an offence for the receipt of commission, gifts etc by those working in the banking sector.
 
As a matter of Common Law, it is an offence to bribe a person performing a public duty or for such a person to solicit or accept a bribe. It is also an offence at Common Law for a public official to misconduct himself in the course of his public duties.
 
The Independent Commission Against Corruption Ordinance (“ICACO”) established the ICAC and sets out the scope and parameters of its investigative powers.
 
4 What constitutes a bribery/corruption offence under the POBO?
 
The POBO specifies offences of bribery involving the Chief Executive, prescribed officers or public servants and private sector individuals. The POBO sets out in a schedule a large number of entities which are considered “public” for the purposes of the ordinance. These include a number of private companies or entities that carry out a public function.
 
Public sector bribery offences under the POBO include doing the following acts without lawful authority or reasonable excuse:
 
• offering an advantage to a public servant for performing, abstaining from performing, or influencing the performance of any act in his capacity as a public servant, or for influencing any business transaction between any person and a public body;
• as a public servant soliciting or accepting an advantage for performing, abstaining from performing, or influencing the performance of any act in his capacity as a public servant, or for influencing any business transaction between any person and a public body;
• offering, soliciting or accepting an advantage in connection with a contract with, or an auction conducted by or on behalf of, a public body; 
• offering an advantage to a prescribed officer or public servant whilst having dealings with the government; and
• possession of unexplained property by a prescribed officer.
Private sector bribery offences under the POBO include doing the following acts without lawful authority or reasonable excuse:
• offering an advantage to an agent without the permission of his principal, in connection with his performance or abstaining from performance of any act, or his favouring/disfavouring of any person, in relation to his principal’s affairs or business; and
• as an agent soliciting or accepting an advantage in connection with his performance or abstaining from performance of any act, or his favouring/disfavouring of any person, in relation to his principal’s affairs or business.
 
 
5 Do local anti-corruption regulations have extra-territorial effect?
 
Under the POBO, any person who “whether in Hong Kong or elsewhere” bribes the Chief Executive, a prescribed officer or a public servant commits an offence. 
 
The private sector bribery offences under the POBO do not have extra-territorial effect. However, if such an offence is committed offshore, it would be an “indictable offence” for the purposes of the Hong Kong money laundering regulations and would also trigger the “whistle-blowing” obligations imposed under those regulations, as referred to under question 18 below.
 
Bribery of foreign public officials in Hong Kong is not expressly prohibited under the POBO. However, foreign public officials may be caught under the broad definition of “agent” under the POBO, which includes “any person employed by or acting for another”. In the recent case of B v The Commissioner of the Independent Commission Against Corruption (FACC6/2009), the Hong Kong Court of Final Appeal has confirmed that where an advantage is offered in Hong Kong, the POBO applies even if the offeree is a foreign public official and the act or forbearance concerned is in relation to his public duties in a place outside Hong Kong.
 
6 Are there any statutory defences provided under the relevant legislation, eg, de minimis exceptions, payments that are legal in the country in which they are offered etc?
 
 
Under the POBO, it is not a statutory defence to show that an advantage is of de minimis value or that it is customary to any profession, trade, vocation or calling to accept the advantage. However, it is a general defence for any person to prove that he had offered, accepted or solicited the advantage with lawful authority or reasonable excuse. 
 
General permissions are given under the Acceptance of Advantages (Chief Executive’s Permission) Notice 2010 to prescribed officers to accept certain gifts, loans or passages from relatives, close personal friends and other persons in certain circumstances, for example, where there are no official dealings between the person offering the advantage and the department or organisation to which the prescribed officer concerned belongs.
 
The BO does not provide for any de minimis exception in respect of advantages.
 
7 What powers of investigation does the ICAC have and what are the
consequences of non-compliance?
 
The ICAC’s powers of investigation are extensive. The ICAC may investigate any alleged or suspected offence (or conspiracy to commit an offence) under the ICACO, the POBO or the ECICO.
 
In the course of an investigation, the ICAC can:
 
• by court order, require a witness to provide information and produce documents;
• require a person to attend interviews under caution;
• arrest a suspect;
• by court order, require a suspect to disclose details of property, expenditure and liabilities;
• generally, with the court’s sanction, search premises and, with or without the court’s sanction, seize evidence; and
• by court order require a suspect to surrender his travel documents.
 
On 9 August 2006, the Interception of Communications and Surveillance Ordinance came into operation. In the course of an investigation, various regulatory bodies including the ICAC, the Customs and Excise Department and the Hong Kong police may:
 
• intercept communications pursuant to a prescribed authorisation;
• in certain circumstances conduct covert surveillance, using a listening or optical surveillance device to listen to, monitor or record a person’s activities; and
• with the sanction by a panel of judges, conduct other forms of covert surveillance.
 
Any person who obstructs an ICAC officer in the execution of his duty or who, without reasonable excuse, fails or neglects to comply with what is required of them by the ICAC, commits an offence and is liable on conviction to a maximum fine of HK$20,000 and imprisonment for up to one year.
 
8 What are the powers of arrest and detention of the ICAC?
 
An ICAC officer may arrest a person without warrant if he reasonably suspects that person is guilty of an offence under the ICACO, the POBO or the ECICO. An ICAC officer may arrest a person also if, in the course of an investigation, he reasonably suspects that person is guilty of any other offence and that the offence was connected with the suspected offence under the ICACO, the POBO or the ECICO or any of the offences specified under section 10(5) of the ICACO.
 
9 Does the ICAC have powers to freeze properties which may be proceeds of a bribery/corruption offence pending conclusion of its investigation?
 
The ICAC has powers under the POBO to make an ex-parte application to the court for a restraining order to freeze properties which may be the proceeds of a bribery/corruption offence pending the conclusion of the investigation or any prosecution flowing from it. 
 
A restraining order may cover property in the possession or under the control of the suspect, as well as property heldby a third party for or on behalf of the suspect.
 
10 Are there any provisions requiring investigations or information disclosed during the course of investigations to be kept quiet?
 
Section 30 of the POBO makes it an offence to disclose, without lawful authority or reasonable excuse, details of an ICAC investigation, either by disclosing (i) that a person is the subject of an investigation; or (ii) the details of an investigation unless:
 
• a warrant has been issued for the arrest of the subject person;
• the subject person has been arrested, whether with or without warrant;
• the subject person has been required to furnish a statutory declaration or a statement;
• a restraining order has been served on the suspected person or any third party to whom the order is directed;
• the residence of the subject person has been searched under a warrant; or
• the subject person has been required to surrender to the ommissioner any travel document in his possession.
 
Under Section 25A(5) of the OSCO, if a person, knowing or suspecting that a money laundering report has been made to the relevant authorities, discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following such report, that person commits an offence and is liable to a fine of up to HK$500,000 and to imprisonment for up to three years. The DTROP provides for a similar “tipping off” offence.
 
11 Are there protections available when responding to investigations by the ICAC, eg, right to legal representation at interviews, privilege against selfincrimination and legal professional privilege?
 
Persons required to attend an interview with the ICAC have the right to be accompanied by their legal advisers at the interview.
 
The ICAC may obtain a court order to override any right to silence and/or privilege against self-incrimination that a suspect might have in relation to his financial affairs. 
 
Documents which are subject to legal professional privilege are not required to be produced to the ICAC, subject to limited exceptions under the POBO concerning financial information. Generally, documents which are created upon the instructions of legal advisers and communications with legal advisers will be subject to legal professional privilege. An internal investigation should be structured so that internal or external legal advisers are in charge of running the investigation.
 
12 Do the relevant anti-corruption measures relate only to the bribery of “public” individuals and/or bodies?
 
As explained above, the bribery offences under the POBO relate to both the bribery of public servants and prescribed officers, and private sector corruption or bribery.
 
13 What sanctions/sentences may the relevant authorities impose?
 
As an investigatory body, the ICAC is unable to impose any sanction or sentence itself. A person under investigation by the ICAC will be prosecuted in Hong Kong courts for the relevant offence if the Department of Justice considers that (i) the evidence is sufficient to justify the institution of proceedings; and (ii) the public interest requires a prosecution to be pursued.
 
The maximum sentence for the POBO bribery offences is 10 years’ imprisonment and a fine of HK$1,000,000. The Hong Kong courts have advocated the need for deterrent sentences, which means immediate custodial sentences can be expected.
 
The maximum sentence for the receipt of commission offence under the BO is 5 years’ imprisonment and a fine of HK$100,000.
 
Failure to comply with the SFC/HKMA’s guidelines may also expose a regulated person to disciplinary actions.
 
14 Is it possible to enter into a settlement to resolve any enforcement action/prosecution?
 
A prosecutor is given the discretion to consider whether to accept an alternative plea proposed by the defence in order to resolve criminal proceedings. The prosecutor is however required to take into consideration factors including whether:
 
• the alternative plea is supported by the evidence;
• the alternative plea reflects the essential criminality of the conduct;
• the alternative plea matches the seriousness of the crime;
• the alternative plea is beneficial in terms of cost/time saving and the impact on witnesses; and
• it is in the public interest to accept the alternative plea.
 
The Department of Justice may grant immunity from prosecution in return for a person giving truthful evidence in corruption-related criminal proceedings.
 
15 Are there provisions for persons to appeal against any enforcement action/prosecution initiated against them?
 
A person found guilty of a corruption offence by the Court may appeal to the appropriate appellate court. A person may also challenge through judicial review any unlawful exercise of powers by the ICAC. A person who has a noncriminal complaint against the ICAC may lodge a complaint with the ICAC Complaints Committee.
 
16 Do the Police and other local regulatory authorities assist the ICAC in its investigations?
 
The ICAC maintains extensive contacts in the public and private sectors to exchange information and facilitate cooperation. The ICAC works with local law enforcement agencies and government departments including the Police, Correctional Services, Customs and Excise, and Immigration. The SFC and the HKMA also cooperate with the ICAC in combating corruption and bribery in the financial services industry. 
 
17 How does the ICAC interact with overseas regulators?
 
Under the Mutual Legal Assistance in Criminal Matters Ordinance (“MLAO”), the Hong Kong Government has signed agreements for mutual legal assistance in criminal matters with over 25 countries (including the UK and the US). The scope of assistance under the MLAO includes taking evid ence, executing search and seizure warrants and ordering the production of documents.
 
The ICAC cooperates with the PRC authorities to tackle cross-border corruption under a Mutual Case Assistance Scheme between the ICAC and the mainland Procuratorates. The ICAC also maintains cooperation with anti-corruption authorities in various countries. Under the Mutual Legal Assistance in Criminal Matters (Corruption) Order, the Hong Kong Government will cooperate with contracting states in accordance with the provisions of the United Nations Convention Against Corruption, which deal with matters including extradition, taking of evidence, service of judicial documents and asset seizures and freezing. The enforcement authorities shall also consider assisting each other in investigations of and proceedings in civil and administrative matters relating to corruption where appropriate.
 
18 Are there any laws or regulations imposing obligations on persons to “whistleblow”or disclose suspected corruption or money laundering within an organisation?
 
The ICACO, the POBO, the BO and the ECICO do not prescribe any “whistle-blowing” obligations.
 
Under the OSCO, a person who knows or suspects that any property represents the proceeds of, or was/will be used in connection with, an indictable offence is required to report this to a Hong Kong police officer or member of the Hong Kong Customs and Excise Department. In practice such reports are usually made through the Joint Financial
Intelligence Unit (“JFIU”), a clearing house for suspicious transactions reports operated jointly by the Police and Customs and Excise. There is a similar obligation under the DTROP to file a report if a person suspects or knows that any property represents the proceeds of drug trafficking.
 
Failure to make a disclosure under these Ordinances is an offence and the penalties upon conviction are imprisonment for three months and a fine of HK$50,000.
 
In addition, “whistle-blowing” obligations are imposed on accountants and financial institutions licensed with the HKMA and/or the SFC under regulatory codes issued by their respective regulators.
 
19 What is the impact of overseas anti-corruption laws such as FCPA and the UK Bribery Act on companies and/or individuals in Hong Kong?
 
The US Foreign Corrupt Practices Act (the “FCPA”) prohibits the bribery of “foreign officials”. It is extra-territorial in effect and impacts all US companies and persons as well as foreign companies and persons if they issue securities on a US Exchange or otherwise engage in activities in furtherance of a bribe in US territory. Importantly, in pursuing potentially unlawful acts under the FCPA, the US Department of Justice has adopted an expansive definition of what it means to be committing an act of bribery in the US and has interpreted it to catch the transfer of money through US bank accounts including, potentially, all US dollar transactions that are cleared through bank accounts in the US.
 
The FCPA also contains a books and records provision requiring issuers to make and keep accurate books, records and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets. In addition, the FCPA’s internal controls provision requires issuers to devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations. These provisions apply to all companies, both US and non-US, that have their securities issued on a US exchange. They are expansive provisions and have been used to prosecute companies in cases where bribes have been paid to private individuals.
 
The UK Bribery Act 2010 (the “Bribery Act”) covers bribery of private persons as well as public officials. It also has extra-territorial application. For example, the Bribery Act prohibits offering or accepting a bribe outside the UK provided that the offender has a close connection with the UK. Persons with a “close connection” include British citizens and organisations incorporated in any part of the UK. Similarly, the Bribery Act’s corporate offence – which occurs when an organisation fails to prevent those performing services on its behalf from paying bribes applies not only to organisations incorporated under UK law, but also to any other company carrying on a business, or part of a business, in the UK, regardless of where the act of bribery takes place.
 
The fact that conduct may not constitute an offence under local law does not necessarily mean it is permitted under the FCPA or the Bribery Act. Companies doing business in Hong Kong are advised not only to comply with domestic legislation, but should also be fully aware of the far-reaching extra-territorial effect of both the FCPA and the Bribery Act.
 
 
For further information, please contact:
 
Kyle Wombolt, Partner, Herbert Smith
 

 

Leave a Reply

You must be logged in to post a comment.