Clear policies help stamp out corruption

Article contributed by special arrangement with the Independent Commission Against Corruption

Mr Chan was the proprietor of a mechanical engineering company and ran a factory on the mainland. Like many other Hong Kong businessmen engaged in cross-border business, he delegated the management of day-to-day operations to a trusted member of staff stationed in South China and did not feel the need to travel there too often.

The production manager was Mr Wong, who had worked for the company for over eight years, but had recently been transferred to the mainland to take up his current post. Since some of the work had to subcontracted to smaller local factories, he soon became acquainted with a number of other manufacturers in the area.

In due course, one of them offered to pay secret commissions in return for receiving continuous orders. So he could arrange this, Mr Wong advised the manufacturer to submit a number of fake quotations in the name of various bogus companies, quoting higher rates. The manufacturer was then instructed to deposit 200,000 yuan into a bank account held by Mr Wong's wife in Hong Kong, in recognition of the assistance given.

Later on, Mr Wong resorted to other corrupt practices when dealing with suppliers. He asked them to go through an "intermediary", which was in fact a trading company operated by his friends, and to pay handling fees, part of which he pocketed.

Mr Chan learned what was going on only after receiving complaints from some manufacturers and suppliers. After considering the detrimental effect these activities were having on the company's profits and reputation, he decided to report the matter to the authorities but was unsure whether the ICAC would accept his complaint since it involved a factory located outside Hong Kong.

However, the ICAC explained that Mr Wong had breached Section 9 of the Prevention of Bribery Ordinance (PBO) by accepting illegal kickbacks for placing orders with the contractor, without the permission of his employer.

This section of the PBO deals with corruption in the private sector. It states that it is an offence for an agent (such as an employee) to solicit or accept an advantage, without the permission of his principal (such as an employer), as an inducement to, or reward for, his doing or forbearing to do any act in relation to his principal's affairs. The person who offers an advantage to the agent is also guilty of an offence. The maximum penalty for breaching Section 9 is seven years' imprisonment and a fine of HK$500,000.

If any part of the act of bribery (including the promising, negotiating, soliciting, offering or accepting of unauthorised advantages) takes place in Hong Kong, the matter can be pursued under the PBO by the ICAC. In this case, although the production orders were placed in the mainland, money was deposited into a bank account in Hong Kong. Hence, part of the corrupt transaction could be said to have occurred in Hong Kong. Besides that, Mr Wong also breached Section 9 (3) of the PBO by knowingly using fake quotations to mislead his employer.

The tactics used by people in cases of corruption are ever evolving and unscrupulous individuals are aware that it may be too risky to solicit illegal rebates from suppliers they don't know well. Therefore, in this case, instead of dealing directly with suppliers, Mr Wong found a way for them to route business through an intermediary, thus creating a platform for him to solicit illegal payments.

For enquiries about this article or ICAC services, please contact the Programme Coordinator (Business Sector) at (tel) 2543 0000, (fax) 2545 5036 or (e-mail)

Q & A on cross-boundary business
Q1 How can you prevent corruption / malpractice when you are usually away from the office?
A1 There should be a good control system and a culture of integrity to prevent wrongdoing. Management should:
  • formulate a comprehensive code of conduct clearly setting out standards of behaviour expected of company staff when conducting business, and properly promulgate this code to all staff
  • set out and review the system of controls to prevent corruption
  • arrange training programmes to enhance staff knowledge of the law and to raise awareness of ethical issues and corruption prevention

  • Q2 How can you prevent corruption / malpractice in procurement for cross-boundary business?
    A2 Previous complaints received by the ICAC show that procurement is a high-risk area in terms of corruption. An effective control system reduces the risk and management is advised to adopt the "SMS" strategy to prevent any malpractice:

    Selection of suppliers and contractors

  • draw up a list of approved suppliers and conduct random checks on additions and deletions
  • use open tenders wherever appropriate
  • be alert to any sudden disappearance of regular suppliers and to suppliers being granted contracts repeatedly

    Monitoring purchasing procedures and performance of staff

  • conduct random checks on successful and unsuccessful quotations to compare prices
  • check with local authorities regarding the company registration of suppliers / contractors for details of owners and shareholders to ensure supplier companies are not owned or operated by your own staff
  • record every receipt of goods and check for discrepancies against purchase orders

    Setting up system control

  • set up counter-checking mechanisms and conduct spot checks to detect irregularities like orders which are too large
  • inform suppliers and business associates of the company's policy on acceptance of advantage and encourage them to report any solicitation of bribes
  • have a clear policy on accepting advantages and require staff to declare any conflict of interest, to protect company information and not to divulge tender prices and quotations

  • Taken from Career Times 09 December 2005

    (Last review date: 23 August 2013)

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