SFC REPRIMANDS AND FINES PING AN OF CHINA SECURITIES (HONG KONG) COMPANY LIMITED $6 MILLION OVER INTERNAL CONTROL FAILURES

The Securities and Futures Commission (SFC) has reprimanded Ping An of China Securities (Hong Kong) Company Limited (Ping An) and fined it $6 million over serious internal control deficiencies and other matters. An SFC investigation found that, between 1 August 2010 and 30 April 2011, Ping An failed to, among other matter, establish anti-money laundering internal controls, establish effective controls in relation to the handling of client assets and staff dealing procedures, actively identify and report to the SFC and the Joint Financial Intelligence Unit suspicious transactions in a timely manner, have in place an effective compliance function and provide anti-money laundering training to its staff. Ping An has agreed to engage an independent reviewer to confirm that the new procedures to rectify its internal control failures have been implemented and are working properly.  The statement of disciplinary action can be found here and the SFC's press release can be found here.

HONG KONG LOSES BID TO APPEAL LIMITS TO ANTI-BRIBERY LAWS

Hong Kong’s government failed in an attempt to appeal a ruling that the Hong Kong Prevention of Bribery Ordinance (POBO) don’t criminalise conspiracy in the territory to pay overseas bribes. Justice Roberto Ribeiro of the Court of Final Appeal dismissed the application by the Director of Public Prosecutions to hear arguments over the interpretation of the meaning of the term"offer" in the POBO. The judgment is available here.   The court reasoned that section 9(2) of POBO requires that an offer of an advantage be made to the agent. 

In this case, the Applicants were found to have conspired to offer bribes totaling around MOP 29 million to the then-Macau Secretary of Transport and Public Works (Ao Man-long), in return for the award and renewal of certain public cleaning contracts between a Macau joint-venture and the Macau Government. The Applicants were both officers of the Macau joint venture and of its Hong Kong-registered majority shareholder. The primary witness for the prosecution was the Applicants' alleged co-conspirator, N, also a director of the Macau joint venture.  In convicting the Applicants, the District Court accepted N's evidence that he and the Applicants had discussed and agreed in Hong Kong that they would offer advantages to Ao in connection with the renewal and award of contracts to their company. A draft consultancy agreement, found to be the means by which the advantages were to be delivered to Ao, was drafted in Hong Kong and sent by email to N. N then met with Ao in Macau, put the proposal in the form of the draft agreement to him in his office in Macau and, after some negotiation, agreed the terms of the agreement with him in Macau. Subsequently, payments were made to Ao in Macau that were said to flow from the Applicants' company.  On 18 December 2013, the Court of Appeal overturned the trial judge's ruling and quashed the Applicants' convictions.  The Court of Appeal held that the trial judge had been wrong to conclude that the offer made to Ao was made in Hong Kong. In this context the Court made important findings regarding the definition of "offer" under sections 2 and 9 of POBO.

On 15 January 2014 the prosecution filed a Notice of Motion seeking leave to appeal the Court of Appeal's decision, and seeking a certificate that the decision involved a point of law of "great and general importance". If such a certificate is granted the Court of Final Appeal is more likely to grant leave to appeal (although it retains a discretion).   The Court of Appeal refused to issue such a certificate, finding that the questions identified by the prosecution were of importance, but that the prosecution's general proposition, that an offer was complete once two parties agreed to make an offer, without any need to communicate that offer, was "not amendable to reasonable supporting argument."

SFC V ERNST & YOUNG (E&Y):  E&Y PRODUCES AUDIT WORKING PAPERS IN HONG KONG AND APPEALS OVER DISCLOSURE ORDER ON DOCUMENTS HELD IN CHINA

According to the SFC's press release of 23 June 2014, following the Court of First Instance's judgment on 23 May 2014 ordering E&Y to produce documents to the SFC relating to its audit work on the aborted listing of Standard Water Limited, E&Y has since produced some of the documents it held in Hong Kong.  E&Y has however filed an appeal in relation to the documents held by its joint venture partner based in China (EY Hua Ming).  According to the SFC, E&Y has provided such documents to the CSRC in China. (For further information, please refer to the June monthly update available here.)