China / Hong Kong 

FATF and APG publish long-awaited mutual evaluation report on Hong Kong

Following the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering’s inspection of Hong Kong in October and November 2018, their much anticipated Mutual Evaluation Report on Hong Kong was published on 4 September 2019. The Report sets out the level of compliance with the FATF 40 Recommendations (Recommendations). It also sets out the level of effectiveness of Hong Kong’s anti-money laundering (AML) and counter-financing of terrorism (CFT) system as against the FATF 11 Immediate Outcomes (IOs) together with recommendations for enhancing and strengthening the system. You can read our full briefing here.

ICAC signs collaboration MoU and hosts training with SFC

In an effort to formalise and strengthen cooperation in combating corruption and financial crimes, the Independent Commission Against Corruption (ICAC) and the Securities and Futures Commission (SFC) have entered into a Memorandum of Understanding (MoU) on 19 August 2019.

The MoU, which sets out the framework for cooperation and collaboration between the two agencies, covers a wide range of matters including case referrals, joint investigations, exchange and use of information, mutual provision of investigative assistance, as well as capacity building. Mr Thomas Allan Atkinson, Executive Director of Enforcement of SFC, explained that the arrangement would enable the SFC to perform its statutory duties with greater efficiency and effectiveness in combating financial crime, and maintaining the integrity of the securities and futures market in Hong Kong.

In addition, the ICAC and SFC hosted its first joint training workshop after the MoU signing ceremony, with a particular focus on listed companies corruption and market misconduct. The participants, who were seasoned graft-fighters and market regulation experts from the ICAC and SFC respectively, exchanged their expertise in planning arrest and search operations, interviewing suspects, preparation for court proceedings, computer forensics, as well as market manipulation and insider dealing matters.

Former government official found guilty of misconduct in public office

Wilson Fung, former Deputy Secretary for Economic Development and Labour, has been found guilty of misconduct in public office, but acquitted of bribery charges.

The charges centred on Fung's acceptance of HKD 510,000 from Macau businesswoman Cheyenne Chan Ung-iok during his tenure as former deputy secretary for economic development and labour. The prosecution allege that the money was a "sweetener" for Fung who gave approvals to Chan's three airline and helicopter companies when they applied for traffic rights and expansion of landing sites in 2004. Fung and Chan argued, however, that they were engaged in an extramarital affair then, and the money was a reward to Fung for teaching her how to invest in properties. In handing down his verdict, the judge accepted that Fung and Chan had an affair and that the money could simply be part of property dealings between lovers. However, the judge also concluded that Fung must have known who Chan was at the time but failed to abstain from her company bids, amounting to a serious conflict of interest in a misconduct which warranted criminal sanctions.

Fung has been suspended from his current post as since the charges were pressed.

China to embed anti-corruption officers in Belt and Road projects

In an effort to broaden the reach of its anti-corruption campaign, China has announced plans to place officers overseas in countries participating in projects under China's Belt and Road Initiative.

The Belt and Road Initiative, which spans from countries in the South Pacific, across Asia, the Middle East and Africa, to the fringes of Europe and Latin America, aims to boost global trade through infrastructure projects such as bridges, ports, rail and roads. The development opportunities have led to risks of corruption in China and abroad, including the US arrest and conviction of Belt and Road activist Patrick Ho earlier this year, and rumours that Chinese officials have helped to bail out Malaysia's state development fund 1MDB by inflating the cost of infrastructure projects.

La Yifan, director-general for international cooperation at the Central Commission for Discipline Inspection, said that Chinese companies needed to play by the rules in host countries, as it is in their interests as well as the countries themselves to fulfil their duties with integrity. The recent Second Belt and Road Forum in Beijing presided over by president Xi Jinping promoted a "clean and green Belt and Road".

Stricter prison rules for corrupt convicts in China

In the latest effort to tackle graft, China's Supreme People's Court issued a new guideline making it more difficult for people convicted of corruption-related crimes to get parole or a reduction in their sentence.

The new guideline, which took effect on June 1, provides that persons convicted of corruption or bribery-related offences cannot obtain parole or a reduction of their sentence if they do not plead guilty, or if they fail to comply with the orders attached to their properties when they had the ability to do so. It also provides clarification on the conditions under which a prisoner's sentence can be reduced, including having to serve at least four years before applying for commutation, and showing signs of repentance or meritorious behaviour during imprisonment. The new standards will likely create a more consistent practice and make the process for applying for reduced sentence or parole more stringent.

ICAC mounts joint operation with SFC

The ICAC mounted a joint operation with the SFC codenamed "Cold Mountain" on 23 June 2019.

During the operation, the ICAC and SFC searched the offices of two sponsors, both investment banks licensed by the SFC, as well as the offices of two listed companies and a financial printing company. They arrested the former Joint Head of the IPO Vetting Team of the Listing Department of the Hong Kong Exchanges and Clearing Limited (HKEX) and two of his associates for suspected corruption and misconduct in public office in relation to the vetting of listing applications of the two listed companies. He is suspected of accepting bribes of about HK$10 million and colluding with lawyers and underwriters to approve listing applications that fail to meet HKEX's requirements.

The SFC, the statutory regulator responsible for overseeing The Stock Exchange of Hong Kong Limited (HKSE) and its parent company, HKEX, is also conducting a separate review of the administration and vetting practices in relation to listing matters at HKSE.

There have been an increasing number of joint operations between the ICAC and the SFC recently, particularly in relation to malpractices or misconduct in financial institutions. In May 2019, as part of the aforementioned joint operation, the ICAC charged the former director of a listed company with conspiracy to defraud at common law (please see our May e-bulletin here). After further investigations, the ICAC has pressed additional joint charges against two former senior executives of the same listed company for conspiracy to defraud the HKSE, the listed company and its board of directors and shareholders over the acquisition of an investment company at a consideration of over HK$89 million. It is alleged that the two defendants, who were the chief financial officer and executive director of the listed company respectively, conspired with the former director in concealing or failing to disclose that he was a substantial shareholder or director of the company which they acquired. Further, it is alleged that the acquisition was a connected transaction, without complying with the relevant listing rules of the HKSE on connected transactions.

In July, the ICAC also jointly charged two former senior executives and a former manager of the same listed company, along with a senior executive of a securities company, with conspiracy to defraud the HKSE, the listed company and its board of directors and shareholders over the placement of bonds issued by the listed company. The defendants were the executive director, financial controller (later promoted as chief financial controller – the same person as the defendant in the case above) and manager of the listed company, as well as the general manager of the securities company. The executive director was also a director of another brokerage firm in which he held substantial shares. The four defendants are alleged to have dishonestly induced the listed company to pay over HK$49.6 million as commission for placement of bonds via the securities company to the brokerage firm.

ICAC secures fraud convictions

Fraud continues to occupy the Hong Kong ICAC's smaller cases too. It has secured convictions for low-level payments and commissions fraud, sending another message that fraud at all levels of Hong Kong business will not be tolerated. Both cases emanated from corruption complaints to the ICAC. Both defendants await sentencing.

A former manager of a garment ink company pleaded guilty to one count of fraud at the West Kowloon Magistracy for deceiving her employer into placing purchase orders of plastic films with a company owned by her, causing her employer to make payments totalling over HK$480,000 to her company. The defendant, a business development manager, caused her employer to place 11 orders with her own company without disclosing her interests.

A former sales manager of an insurance company has been convicted of one count of fraud at the Eastern Magistracy for defrauding her then employer and a trustee of the Mandatory Provident Fund of commissions and cash incentives totalling around HK$21,000. The defendant, a sales manager of the insurance company and the up-line manager of an insurance agent, submitted 26 applications containing false information in the insurance agent's name for taking out an MPF product of a company.

A former chief financial analysis manager of a financial intermediary charged by the ICAC has been sentenced to 10 months' imprisonment for conspiring with a former direct sales representative of a bank to deceive it into granting a loan of more than HK$100,000 to an applicant referred by the financial intermediary. The defendant, who was responsible for arranging potential loan applications from financial institutions, had devised a scam to allow the financial intermediary to charge the loan applicant an excessive service fee (20% of the loan amount of HK$107,000) for securing a loan from the bank at a better interest rate. Under the bank's policy, securing a loan through a financial intermediary was prohibited.

A former marketing executive of a stationery trading company charged by the ICAC has been sentenced to 30 months' imprisonment for deceiving his employers into paying over HK$8.6 million to a trading firm owned by his family for products purportedly supplied by a Mainland electronics company. The defendant, who was responsible for placing orders with and arranging payments to the electronics company, directed the outstanding payments totalling HK$8.6 million to be made by the stationery company to another company which was owned by his father and his wife.

A former assistant manager of a logistics company has also been sentenced to 32 months' imprisonment after he pleaded guilty to defrauding the company of airfreight order payments totalling over HK$1.6 million. The defendant, who was responsible for negotiating and awarding airfreight orders to logistics companies, falsely represented to the company that the orders were awarded by another logistics company set up by his associate. After the goods were delivered to the company's clients, the defendant gave details of the four orders to the proprietor of the company set up by his associate for preparing invoices to demand payment amounting to HK$1.6 million from his own company. The judge found that the defendant wanted to increase cash flow for himself and the associate, which constituted a serious breach of trust.

Former Hong Kong chief executive cleared of criminal misconduct

On 26 June 2019, the Court of Final Appeal in Hong Kong overturned the criminal conviction of Donald Tsang Yam-kuen, former Chief Executive of Hong Kong, quashing his sentence and handing down an order that there will not be a retrial.

Tsang was charged by the ICAC in 2015 with corruption for failing to disclose a deal he had with Mainland-based businessman, Bill Wong Cho-bau, in relation to a luxury penthouse in Shenzhen that Tsang had planned to lease. Wong was the owner of the penthouse and a major shareholder of a now-defunct broadcasting firm in Hong Kong then applying for a digital broadcasting licence that required Tsang's approval. The broadcasting licence was subsequently granted. In the trial in 2017, jurors found that Tsang's failure to disclose the matter amounted to misconduct in public office, and he was sentenced to 18 months in jail. Tsang later successfully appealed against the 18-month sentence and had it reduced to a year, but failed to overturn his conviction. He was also ordered to pay a HK$1 million in costs which was reduced from the initial HK$5 million. He started serving his sentence whilst he continued to pursue his appeal to the top court.

Tsang has suffered from unstable health during his legal battle. He was released from the custodial ward in a public hospital in January this year.