Financial crime in Hong Kong: overview

Q&A guide to financial and business crime in Hong Kong.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial and Business Crime Country Q&A tool.

This Q&A is part of the global guide to financial and business crime. For a full list of jurisdictional Q&As visit www.practicallaw.com/financialcrime-guide.

Contents

Fraud

Regulatory provisions and authorities

1. What are the main regulatory provisions and legislation relevant to corporate or business fraud?

The main legislation and regulatory provisions against corporate or business fraud in Hong Kong include:

  • Crimes Ordinance (Chapter 200).

  • Theft Ordinance (Chapter 210).

  • Securities and Futures Ordinance (Chapter 571).

  • Organised and Serious Crimes Ordinance (Chapter 455).

  • Inland Revenue Ordinance (Chapter 112).

  • Criminal Procedure Ordinance (Chapter 221).

  • The Prosecution Code (last updated on 5 November 2015).

In addition, there are offences under the common law.

The Prosecution Code is a set of statements and instructions to guide Department of Justice prosecutors in conducting prosecutions of all criminal matters. In deciding whether to prosecute, the Department of Justice must consider two main requirements:

  • Sufficiency of evidence.

  • Public interest.

Offences

 
2. What are the specific offences that can be used to prosecute corporate or business fraud?

Fraud and theft

There is no specific offence of misappropriation in Hong Kong, but generally such conduct will be prosecuted under the Theft Ordinance as fraud (section 16A) or theft (section 9), or conspiracy to defraud under the common law (see below, Conspiracy to defraud).

Fraud encompasses any deceit that induces another person to commit an act that results in either:

  • Benefit to the fraudster or other parties.

  • Prejudice or a substantial risk of prejudice to any other person.

Intent to defraud is required.

For theft, a person commits an offence if he or she dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it.

Conspiracy to defraud

It is an offence under common law for two or more persons to agree dishonestly on means to cause economic loss to another or to put the other's economic interests at risk. The realisation that those means may cause such loss or put such interests at risk is enough. Prosecutors need not show actual detriment but an intention to defraud is necessary.

In practice, prosecutors in Hong Kong often prefer a charge of conspiracy to defraud as it covers a wide range of conduct and it is immaterial whether the intended fraud has in fact been committed.

False accounting

A person is guilty of false accounting if he or she (section 19, Theft Ordinance):

  • Destroys, conceals or falsifies any accounting documents or records.

  • Produces or makes use of any such accounting document or record knowing that it is or may be misleading, false or deceptive in a material particular.

To be guilty of false accounting, the person must have acted dishonestly with a view to gain for him or herself or another, or with intent to cause loss to another.

Obtaining pecuniary advantage or property by deception

Under the Theft Ordinance a person who by deception dishonestly obtains any pecuniary advantage or property belonging to another with the intention of permanently depriving the other of it, may be guilty of an offence (section 18). "Deception" means any deception (deliberate or reckless) by words or conduct (any act or omission) as to fact or as to law; including a deception relating to the past, the present or the future and a deception as to the intentions of the person using the deception or any other person (section 17).

Tax fraud

The most common tax-related offence in Hong Kong is tax evasion under section 82(1) Inland Revenue Ordinance. This is where a person wilfully with intent evades tax in Hong Kong by, for example, making any false statements in his or her tax return or in answers to questions raised by the Inland Revenue Department.

Computer crimes or cyber fraud

Accessing a computer with criminal or dishonest intent is the criminal charge preferred by prosecutors in computer-related crimes or cyber fraud. Any person may be guilty of this offence if that person accesses a computer with (section 161, Crimes Ordinance):

  • Intent to commit an offence.

  • A dishonest intent to deceive.

  • A view to dishonest gain for him or herself or another.

  • A dishonest intent to cause loss to another.

Generally speaking, all the crimes stated above require proof of intent or knowledge and are not strict liability offences. Attempt, conspiracy, and aiding and abetting are also punishable for these offences. A person attempts to commit a crime, if that person does an act that is "more than preparatory" to committing the offence with the requisite intent. This applies even when it would be impossible to commit the substantive offence(s).

Under the Interpretation and General Clauses Ordinance (Chapter 1), the term "person" in any statute is defined as including any public body and any body of persons, corporate or unincorporated. In other words, the above offences can be used to prosecute individuals and corporates alike.

For corporate liability, see Question 35.

Enforcement

 
3. Which authorities have the powers of prosecution, investigation and enforcement in cases of corporate or business fraud? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The Hong Kong Police Force has power to conduct criminal investigations and commence prosecutions. There are also specialist divisions within the police force that deal with serious or complex corporate or business fraud:

  • The Commercial Crime Bureau (CCB) investigates serious and complex commercial fraud, computer and technology crimes, and counterfeiting or forgery of currency, credit cards and other commercial instruments.

  • The Cyber Security and Technology Crime Bureau (CSTCB) of the CCB handles computer and technology crimes.

  • The Organized Crime and Triad Bureau (OCTB) investigates organised crimes and syndicated criminal activities including money laundering.

The Joint Financial Intelligence Unit (JFIU) is jointly run by the Hong Kong Police Force and the Customs and Excise Department and handles reports concerning suspicious financial activities.

The Securities and Futures Commission (SFC) is an independent body regulating the securities and futures markets in Hong Kong. The SFC has a wide range of enforcement powers under the Securities and Futures Ordinance, including criminal, civil and regulatory. It regulates market participants such as listed companies, investment banks, brokers, intermediaries, fund managers, investment advisers and public investors in Hong Kong.

The Inland Revenue Department (IRD) is responsible for investigating and prosecuting tax fraud.

For crimes involving an international element, the Hong Kong authorities may co-operate with overseas regulators in investigating, prosecuting and conducting criminal proceedings under the terms of international treaties, bilateral agreements for mutual legal assistance and similar memorandums of understanding.

Generally speaking, the courts and the authorities in Hong Kong have no extra-territorial jurisdiction.

Prosecution powers

While the above Hong Kong authorities generally hold the power of investigation and prosecution, the Department of Justice has overall responsibility for initiating criminal prosecutions in Hong Kong. It provides legal advice to the investigative authorities, makes prosecution decisions and represents the government in legal proceedings, particularly in cases that are complex or involve important points of law or public interest.

Powers of interview

The SFC and the IRD have no arrest powers but have the power to interview suspects. Under the Securities and Futures Ordinance, a failure to comply with a notice for interview or a refusal to attend SFC interviews without reasonable excuse is itself a criminal offence (section 184).

Powers of search/to compel disclosure

The above authorities have powers to:

  • Obtain search warrants from magistrates' court.

  • Search suspicious premises.

  • Seize documents, records and computer devices by way of production orders.

The SFC and the IRD have powers to issue a notice in writing compelling a person to produce documents or to answer questions relevant to the investigation. Failure to comply with such production notices constitutes a criminal offence.

For more information on the [prosecuting authority] see box: The authorities.

Powers to obtain evidence

The authorities can obtain evidence from third parties both pre-trial and during trial. The power to obtain evidence pre-trial is substantially in line with the power to search or compel disclosure by way of search warrants or production orders issued by the courts (see box: Powers of search/to compel disclosure.

As for power to obtain evidence during trial, the court can issue witness summons requesting a third party to appear as witness or to produce documents in court.

In relation to obtaining evidence abroad for criminal proceedings, Hong Kong's statutory regime contains provisions on mutual legal assistance by way of a letter of request. This means that the Secretary for Justice of Hong Kong can request an appropriate overseas authority to arrange for evidence to be taken overseas, or for a document or record to be produced overseas, and for the transmission of the evidence, document or record to Hong Kong (see section 9, Mutual Legal Assistance in Criminal Matters Ordinance, Chapter 525).

For cross-border co-operation, see Question 38.

Power of arrest

The Hong Kong Police Force has powers to arrest suspects if there is a reasonable suspicion that a crime has been committed. It also has powers to interview witnesses and suspects. The police can then decide if, on the evidence available, it should:

  • Release a suspect unconditionally.

  • Release a suspect on bail pending further investigation.

  • Detain a suspect for up to 48 hours.

  • Lay criminal charges against a suspect and bring them before the magistrates' courts.

For offences involving an international element or suspects at large, the police can also:

  • Issue arrest warrants.

  • Put suspects on the "stop list" at immigration control points.

  • Request the extradition of suspects from countries where bilateral treaties on the surrender of fugitives are in place.

Court orders or injunctions

In practice, financial institutions in Hong Kong will usually freeze suspicious bank accounts as an interim measure as soon as they are notified by investigating authorities of any suspected criminal activities relating to those accounts. The authorities themselves can in effect freeze a suspicious account by issuing a letter of no consent, which refuses consent to deal with a suspicious bank account. Once a letter of no consent has been issued, it will be reviewed monthly internally within the authorities. If the letter remains in place for more than three months, then the formation commander of the Hong Kong Police Force will be responsible for monthly reviews. Under normal circumstances a letter of no consent should not operate for a period exceeding six months. In exceptional cases, the formation commander can consult the Department of Justice for advice.

The Organised and Serious Crime Ordinance also enables the authorities to apply to the courts for restraint orders and confiscation orders over assets in Hong Kong belonging to persons arrested for, or charged with, money laundering offences.

 
4. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

See Question 3.

The Department of Justice (DOJ) makes the decision to charge based on the Prosecution Code, which requires sufficient evidence and public interest.

In assessing the evidence, the DOJ must consider whether:

  • There is admissible and reliable evidence to support a prosecution.

  • Together with any reasonable inferences that can be drawn from it, the offence will likely be proven.

The test is, therefore, whether the evidence demonstrates a reasonable prospect of conviction.

The DOJ will also consider the following non-exhaustive list of factors in evaluating whether prosecution would be in the public interest:

  • The nature and circumstances of the offence, including any aggravating or extenuating circumstances.

  • The seriousness of the offence.

  • Any delay in proceeding with a prosecution and its causes.

  • Whether the offence is trivial, technical in nature, obsolete or obscure.

  • The level of the suspect's culpability.

  • Any co-operation from the suspect with the law enforcement or demonstrated remorse. The public interest may be served by not prosecuting a suspect who has made admissions, demonstrated remorse, compensated a victim and/or co-operated with authorities in the prosecution of others.

  • Any criminal history of the suspect.

  • The attitude, age, nature or physical or psychological condition of the suspect, a witness and/or a victim.

  • The prevalence of the offence and any deterrent effect of a prosecution.

For the less serious offences concerning individuals, the defendant or their lawyer can make a written application to DOJ to negotiate a bind-over (a formal undertaking to the court for good behaviour in the future) in lieu of criminal conviction. However, this very rarely applies to business crimes such as fraud, bribery or financial crimes.

Under the Prosecution Code, the DOJ must consider the following before granting a bind-over:

  • Whether the public interest requires the prosecution to proceed.

  • Whether the consequences to the offender would be out of all proportion to the gravity of the offence.

  • The likely penalty in the event of conviction.

  • The age of the offender, his or her record, character, mental state (at the time of offending and presently).

  • The views of the victim.

  • The attitude of the offender to the offence.

Conviction and sanctions

 
5. What are the sanctions for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

Criminal courts can make compensation orders for victims for loss or damage that results from an offence. Compensation orders are intended to compensate a victim in a summary way and avoid the need for civil proceedings which can be lengthy and costly. Compensation orders are not standalone, and must be made in conjunction with a sentence or other orders.

The Securities and Futures Commission may seek one or more civil or administrative sanction in Market Misconduct Tribunal proceedings:

  • Fine.

  • Disqualification of individuals as directors or managers of listed companies.

  • "Cold shoulder orders" (that is, prohibition from trading in the market).

  • Disgorgement of profits.

  • Revocation and suspension of licence.

  • Reprimand.

  • Payment of the SFC's investigation costs.

Criminal proceedings

Right to bail. As a general principle, a person who is arrested for a criminal offence should be granted police bail (that is, pre-charge bail) unless:

  • The offence is serious.

  • There is a risk of the person absconding.

  • There is a likelihood of the person interfering with prosecution witnesses, impeding the investigation or obstructing the course of justice.

The police do not have power to detain a person indefinitely (see Question 3, Powers of arrest and interview). An arrested person must be brought before the magistrates' court as soon as practicable. In practice, an arrested person will usually be charged and brought to court within 48 hours of their arrest.

In relation to court bail (that is post-charge bail), the criminal courts must grant bail to an accused person under the Criminal Procedures Ordinance (Chapter 221). Therefore, bail is a right and not a privilege. However, in deciding whether to grant bail, the court can consider the totality of available evidence and the accused's personal background, and to ensure that the accused would not:

  • Fail to surrender to custody as the court may appoint.

  • Commit an offence while on bail.

  • Interfere with a witness or pervert or obstruct the course of public justice.

If bail is granted, the conditions imposed by a court usually include:

  • Cash bail.

  • Surety.

  • Prohibition from contacting prosecution witnesses.

  • Regular reporting at police stations.

  • Residence at a particular address.

  • Surrender of the accused's travel documents.

In appropriate cases, conditions such as curfew or prohibition from being in the vicinity of the victim's premises would be imposed by a court. Applications to vary bail conditions can be made to the magistrates' court and be further appealed to the High Court.

Penalties. The following penalties are applicable:

  • Fraud and theft. The maximum penalty for fraud is 14 years' imprisonment (section 16A, Theft Ordinance) and ten years' imprisonment for theft (section 9).

  • Obtaining property by deception, obtaining a pecuniary advantage by deception and false accounting. The offences of obtaining property by deception (section 17, Theft Ordinance), obtaining a pecuniary advantage by deception (section 18, Theft Ordinance) and false accounting (section 19, Theft Ordinance), the maximum penalties are all ten years' imprisonment.

  • Tax evasion. This offence attracts a maximum penalty of three years' imprisonment, a fine of HK$50,000 and a further fine of triple the tax amount evaded (section 82, Inland Revenue Ordinance).

  • Accessing a computer with criminal or dishonest intent. This has a maximum penalty of five years' imprisonment (section 161, Crimes Ordinance).

Generally, immediate imprisonment is the customary sentence imposed by the criminal courts on individuals found guilty of business or corporate fraud. That said, various non-custodial options such as suspended sentence, community service orders, probation orders and so on can be imposed in exceptional cases, depending on the specific circumstances of the offence and the background of the defendant.

As a company is not a natural person that can be subject to sanctions such as imprisonment or community service orders, the only viable criminal penalty that can be imposed is a fine. However, it is rare for a company to be charged with offences related to fraud. More often, it is the directors or persons in control of the company who are charged.

Civil suits

Civil suits, in which civil damages are claimed, can be initiated in Hong Kong by the wronged parties.

No class actions are available in Hong Kong but parties may have their actions joined if the facts of the cases and the heads of claims are the same or similar, and if the civil courts take the view that it is more expedient to hear these claims together.

As a general principle, civil damages are compensatory in nature and they aim to restore a claimant to the position the claimant would have been in had the civil wrongdoing not been committed. Punitive or exemplary damages are awarded only in exceptional circumstances.

Safeguards

 
6. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

Right to silence

Right to silence is enshrined in the constitution. Under Hong Kong's Basic Law (a "mini constitution" under the One Country Two System regime of the People's Republic of China) and the Bill of Rights Ordinance (Chapter 383) which is the local legislation incorporating the International Covenant on Civil and Political Rights (ICCPR), a person subject to a criminal investigation has the right to silence and cannot be compelled to testify against themselves, or to confess guilt. The right to silence echoes the presumption of innocence. No adverse inference can be drawn from a person's silence in criminal proceedings. If the right to silence is violated as a result of the misconduct of the authorities, all confessions arising out of the misconduct may be rendered inadmissible in criminal courts against the subject of investigation.

An interview at the Securities and Futures Commission (SFC) is fundamentally different from that of other law enforcement agencies such as the police or the Independent Commission Against Corruption (ICAC). Given the SFC's role as the regulator and gatekeeper of the financial market, the right to silence in SFC interviews is expressly revoked under the Securities and Futures Ordinance. The interviewee must answer all the questions raised by the SFC, failing which would constitute a criminal offence.

However, the interviewee can protect themselves by making a declaration under section 187 of the SFO if the interviewee believes that their answers at the interview may incriminate them in the future. Once such a declaration is made, the answer cannot be admitted as evidence in any criminal proceedings against the interviewee unless certain exceptions apply, for example, if the interviewee commits perjury or intentionally provides false and misleading answers to the SFC.

Privilege

A person can refuse the authorities' demands to disclose documents or materials that are subject to legal professional privilege, which covers:

  • Legal advice privilege. This is applicable to communications between lawyers and their clients made for the purpose of giving or receiving legal advice. Advice from in-house lawyers is also generally privileged, provided that the in-house lawyer was performing a legal function in entering into such communications. However, this extends only to lawyer-client communications and does not cover communications with other professionals or non-lawyers.

  • Litigation privilege. This covers communications between lawyers, clients and third parties made for the purpose of obtaining legal advice or collecting evidence for existing or contemplated litigation.

If there is a dispute over whether a document is privileged, the document must be sealed on the spot and the question of privilege must be determined by the court in due course.

 

Bribery and corruption

Regulatory provisions and authorities

7. What are the main regulatory provisions and legislation relevant to bribery and corruption?

The Prevention of Bribery Ordinance (POBO) (Chapter 201, Prevention of Bribery Ordinance) is the primary piece of legislation governing bribery and corruption in Hong Kong. It came into operation in 1971 when the city was plagued with corruption. While the common law offence of bribery continues to exist, for all practical purposes the Prevention of Bribery Ordinance statutory offences have rendered the common law bribery offence obsolete.

Another common law offence of misconduct in public office continues to exist and prosecutors in Hong Kong have recently used it to charge high-ranking government officials with corrupt conduct. Misconduct in public office contains four elements:

  • A public official.

  • In the course of or in relation to that official's public office.

  • Wilfully and intentionally.

  • Culpably engaged in serious misconduct.

 
8. What international anti-corruption conventions apply in your jurisdiction?

The following international anti-corruption conventions apply in Hong Kong:

  • UN Convention against Corruption 2003.

  • UN Convention against Transnational Organized Crime 2000.

Offences

 
9. What are the specific bribery and corruption offences in your jurisdiction?

Foreign public officials

There is no explicit provision under the Prevention of Bribery Ordinance (POBO) governing bribery of foreign public officials. In 2010, the Court of Final Appeal (CFA) of Hong Kong clarified the extra-territorial reach of the POBO in a landmark case B v The Commissioner of the Independent Commission Against Corruption. The central issue concerned advantages offered by persons in Hong Kong to foreign agents for their acts or forbearance outside Hong Kong.

The CFA found that the POBO applies where the advantage is offered in Hong Kong, even if the offeree is a foreign public official residing outside Hong Kong, and the conduct relates to their activities in a foreign jurisdiction. Nevertheless, the CFA stated that the extra-territorial element would only be a limited one: it is directed against offers made in Hong Kong and targets the offeror only.

This landmark CFA decision applies the POBO in a similar (although limited) sense to the Bribery Act 2010 in the UK or the Foreign Corrupt Practices Act 1977 in the US.

Domestic public officials

It is an offence to offer any advantage to a public servant as an inducement to or reward for that public servant's performance or forbearance in performing any act in their capacity as a public servant, whether in Hong Kong or elsewhere (section 4, POBO). Likewise, it is an offence for a public servant to solicit or accept any such advantage.

Another major offence concerning public servants under section 10 of POBO include is:

  • Maintaining a standard of living above that commensurate with their official emoluments (salaries, fees or profits from office.

  • Being in control of pecuniary resources or property disproportionate to their official emoluments.

For the offence of misconduct in public office, see Question 7.

These are stand-alone offences concerning domestic public officials, which are distinct from the ones relating to the private sector.

Private commercial bribery

An agent who solicits or accepts any advantage without the permission of that agent's principal when conducting their principal's affairs or business may be guilty of private commercial bribery (section 9, POBO). The offeror of the advantage is also guilty of the same offence.

"Advantage" includes money, gifts, loans, commissions, offices, contracts, services, favours and discharge of liability in whole or in part (section 2(1), POBO). It does not include entertainment which covers the provision of food or drink, for consumption on the occasion when it is provided, and of any other entertainment provided at the same time.

To become an "agent" of another, it is not necessary to have some pre-existing legal, contractual or fiduciary obligation to act in relation to the principal's affairs or business. A person may create a reasonable expectation that they would act in the interest of another person to the exclusion of their own interest, which is sufficient for the person to be regarded as an agent of the other. For more details, see Question 42.

Defences

 
10. What defences, safe harbours or exemptions are available and who can qualify?

There is a general defence to offences under the Prevention of Bribery Ordinance (POBO), which is lawful authority or reasonable excuse. In a typical example an agent (for example an employee) who has obtained his principal's (for example his employer's) prior permission to receive or solicit advantages from third parties (such as suppliers) could raise a valid defence.

Public officials can advance the defence of general or special permission from the Chief Executive of the Hong Kong government for the solicitation or acceptance of any advantage (section 3, POBO).

 
11. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

Being an associated person, such as a spouse or agent, would not in itself render someone liable for corruption offences committed by the principal offender. Associated persons and agents may be liable if there is evidence suggesting that they have conspired with or aided, abetted or counselled the principal offender in conducting the corrupt transactions.

However, the powers of the authorities to search and to compel disclosure may extend to property and information related to the agents, trustees, spouse, parents and children of a suspect.

Enforcement

 
12. Which authorities have the powers of prosecution, investigation and enforcement in cases of bribery and corruption? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The Independent Commission Against Corruption (ICAC) is the independent investigative authority for bribery and corruption offences in both the public and private sectors in Hong Kong.

If other forms of criminal conduct are unveiled during the course of an investigation by ICAC (typically conspiracy to defraud, fraud, theft and perverting the course of public justice), ICAC has the jurisdiction to extend the investigation into such conduct and to commence prosecution if appropriate.

For more information on ICAC see box: The authorities.

Prosecution powers

The decision to prosecute for bribery and corruption offences generally rests with the Secretary for Justice of Hong Kong, and the consent of the Secretary for Justice is required before prosecutions under the Prevention of Bribery Ordinance can be made.

Powers of interview

For the powers of interview of the ICAC, see Question 3, Powers of arrest and interview.

Powers of search/to compel disclosure

For the powers of the ICAC of search and to compel disclosure, see Question 3, Powers of search/to compel disclosure.

In addition, ICAC can compel suspects to disclose details of their assets, income and expenditure for a specified period that may be relevant to corruption, if a court order from the Court of First Instance of the High Court is obtained. ICAC can also apply for a court order to confiscate a suspect's travel documents and restrain disposal of property even before a suspect is charged with a criminal offence.

Powers to obtain evidence

See Question 3.

Power of arrest

The ICAC has the powers of arrest and granting bail (sections 10 and 10A, The Independent Commission Against Corruption Ordinance).

Court orders or injunctions

See Question 3, Court orders or injunctions.

 
13. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

See Question 4.

Conviction and sanctions

 
14. What are the sanctions for participating in bribery and corruption?

Civil/administrative proceedings or penalties

Distinct from other types of offences under section 12 Prevention of Bribery Ordinance (POBO) there are mandatory confiscation and restitution orders against an accused who is convicted of a corruption or bribery offence. A confiscation or restitution order can be enforced in the same manner as a civil judgment of the High Court.

Criminal proceedings or penalties

Right to bail. See Question 4, Criminal proceedings: Right to bail.

Penalties. Normally an immediate custodial sentence will be imposed after conviction, whether the offender is a public official or not. The courts have advocated the need for deterrent sentences as "an important factor in the community's efforts to eradicate corruption", as stated in Lai Yuk-kui v The Queen [1981] HKLR 691 one of the landmark judgments under POBO. In addition, any assets implicated in the offence may also be confiscated by the courts or used to compensate victims.

In contrast to the positions in the United States and the United Kingdom, there are no POBO offences relating specifically to corporations. While corporations can in theory be held liable under POBO, prosecutions of corporations for bribery offences are unheard of in Hong Kong.

Safeguards

 
15. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

See Question 6.

Tax treatment

 
16. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

There are no circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense or otherwise.

 

Insider dealing and market abuse

Regulatory provisions and authorities

17. What are the main regulatory provisions and legislation relevant to insider dealing and market abuse?

The major legislative provisions concerning insider dealing and market abuse include the Securities and Futures Ordinance and its ancillary regulations. Such provisions stipulate the criminal, civil and regulatory sanctions that can be sought by the Securities and Futures Commission (SFC).

The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the Code of Conduct) is the guideline for the SFC in considering whether a licensed or registered person satisfies the requirement that it is fit and proper to remain licensed or registered.

If a person fails to comply with any provision of the Code of Conduct, that in itself will not render that person liable to any judicial or other proceedings. That said, the SFC is entitled to consider whether such failure tends to reflect adversely on the person's fitness and properness, and it may take out relevant enforcement actions in that connection. Further, the Code of Conduct is admissible in evidence in any court proceedings concerning the Securities and Futures Ordinance.

Offences

 
18. What are the specific offences that can be used to prosecute insider dealing and market abuse?

The four major types of insider dealing and market abuse offences under the Securities and Futures Ordinance (SFO) are:

  • Insider dealing.

  • False trading.

  • Price rigging.

  • Stock market manipulation.

Insider dealing

In general terms, it is an offence for a person who has insider information to (section 291, Securities and Future Ordinance):

  • Deal in related securities.

  • Encourage or procure another person to deal in such securities.

  • Disclose the insider information to another knowing or having reasonable cause to believe that the other person will make use of the information for the purpose of dealing.

False trading

False trading covers four types of scenarios (section 295, Securities and Futures Ordinance):

  • False appearance of active trading. Intentional or reckless creation of a false or misleading appearance of active trading, or with respect to the market for or price of securities or futures.

  • Creating or maintaining an artificial price. Intentional or reckless involvement in transactions that create an artificial price.

  • Wash sales. Transactions that do not result in a change in beneficial ownership.

  • Matched orders. Transactions that involve substantially the same price for substantially the same quantity as one's own or an associate's known dealings.

Price rigging

Two types of price rigging are prohibited (section 296, Securities and Futures Ordinance):

  • Wash sales with the effect of maintaining, increasing, reducing, stabilising, or causing fluctuations in the price of securities.

  • Fictitious or artificial transactions with the effect of maintaining, increasing, reducing, stabilising, or causing fluctuations in the price of securities, whether conducted intentionally or recklessly.

Stock market manipulation

It is an offence to carry out two or more transactions in securities that may increase, reduce, or stabilise the price of any securities with the intention to influence another person's investment decisions (section 299, Securities and Futures Ordinance).

Civil market abuse

Apart from the criminal offences outlined above, Part XIII Securities and Futures Ordinance sets out six types of insider dealing and market misconduct that are subject to the civil regime of the ordinance.

For these civil market abuses, the Securities and Futures Commission must obtain the consent of the Secretary for Justice before starting proceedings in the Market Misconduct Tribunal.

The Securities and Futures Ordinance expressly provides that there will not be double jeopardy, that is, a person will not be subject to both civil proceedings and criminal prosecution for the same conduct (sections 283 and 307).

Defences

 
19. What defences, safe harbours or exemptions are available and who can qualify?

There are a number of statutory defences available under the Securities and Futures Ordinance (SFO), depending on the offence.

Insider dealing

It is a defence if the alleged insider dealer proves that (section 292, SFO):

  • The purpose for which the insider dealt or counselled or procured another person to deal did not include the purpose of making a profit or avoiding a loss through the use of the relevant information.

  • The insider has dealt or counselled or procured another person to deal as an agent and that the insider did not select or advise on the selection of the securities in question.

In addition, a corporation charged with an insider dealing offence could raise the "Chinese wall" defence. This applies if at all material times the corporation had structures in place designed to ensure segregation of decision-makers on the transaction side of the business from decision-makers on the information side of the business, and those structures were effective in ensuring no inside information passed over the wall between the decision-makers. However, if it is proven that the Chinese wall was not maintained properly to ensure good compliance or that there were internal control failures that contributed to market misconduct, the corporation can still be convicted and fined.

False trading and price rigging

The defences provided under the SFO are based on the "purpose test", which requires the accused to prove that he or she did not engage in market misconduct for prohibited purpose(s) (sections 294 and 295 ).

Enforcement

 
20. Which authorities have the powers of prosecution, investigation and enforcement in cases of insider dealing and market abuse? What are these powers and what are the consequences of non-compliance?

Authorities

The Securities and Futures Commission (SFC) is the leading authority in relation to insider dealing and market abuse, both in the criminal and regulatory spheres (see Question 3, Authorities).

Prosecution powers

The SFC enforces the Securities and Futures Ordinance (SFO) under a dual civil and criminal regime; it can bring a market misconduct case before either a criminal court or the Market Misconduct Tribunal, which is a civil tribunal. This decision highly depends on factors including the gravity of the case, monetary amount involved, duration and sophistication of the market misconduct concerned, and the culpability of the accused, and so on. Generally speaking, criminal prosecutions are reserved for the more serious cases of market misconduct.

In practice, the SFC refers all market misconduct cases to the Department of Justice for advice on sufficiency of evidence and venue. It is the Department of Justice which makes prosecution decisions on such criminal cases in accordance with the Prosecution Code. Obtaining the consent of the Secretary for Justice is a prerequisite to the SFC's institution of proceedings before the Market Misconduct Tribunal.

Powers of interview

The SFC can conduct an investigation if it has reasonable ground to believe that market misconduct has taken place. The SFC will issue a notice to interview witnesses and/or suspects.

Powers of search/to compel disclosure

The SFC can issue a notice for production, which compels the production of any documents and records relevant to the market misconduct in question.

For more serious cases, the SFC can apply to the magistrates' court for a search warrant to search premises and seize documents (section 191, Securities and Futures Ordinance).

Powers to obtain evidence

See Question 3.

Power of arrest

See Question 3, Court orders or injunctions.

Court orders or injunctions

See Question 3.

Protections available

In an SFC interview, there is no right to silence. An interviewee is under a strict duty to answer all the questions asked, and the failure to do so is a criminal offence However, the interviewee can protect himself/herself by making a declaration according to section 187 of the SFO if the interviewee believes that what he or she states during the interview may incriminate him or her in the future. Once such a declaration is made, the answer cannot be admitted as evidence in any criminal proceedings against the interviewee unless certain exceptions apply; for example, if the interviewee commits perjury or intentionally provides false and misleading answers to the SFC. (See Question 3, Protections available)

 
21. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

See Question 4.

Conviction and sanctions

 
22. What are the sanctions for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

For matters before the Market Misconduct Tribunal, the Securities and Futures Commission (SFC) can seek civil sanctions against a defendant who is found to have engaged in any market misconduct. Sanctions can include:

  • Payment of restitution.

  • Disqualification as a director, liquidator, receiver or manager of a corporation.

  • A "cold shoulder order" ( see Question 4, Civil/administrative proceedings or penalties).

  • A cease and desist order (that is a form of permanent injunction against the misconduct in question).

For regulatory matters, the SFC can itself take disciplinary action against licensed persons or corporations and revoke or suspend licences, prohibit applications for licences, fine and reprimand.

Criminal proceedings

Right to bail. The SFC has no power of arrest. Therefore, the power to grant bail pre-charge does not apply here. For granting of bail by criminal courts post-charge, see Question 4, Criminal proceedings: Right to bail.

Penalties. For a person convicted of a market misconduct offence, the maximum penalties are ten years' imprisonment and a fine of HK$10 million.

Civil suits

Under the Securities and Futures Ordinance, a person may recover pecuniary losses sustained as a result of civil market misconduct by instituting a civil action, regardless of whether or not Market Misconduct Tribunal proceedings or criminal prosecutions have been started.

Safeguards

 
23. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

See Question 6.

 

Money laundering, terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

24. What is the main legislation and regulatory provisions relevant to money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering

The main regulatory provisions include the:

  • Organised and Serious Crimes Ordinance (Chapter 455).

  • Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405).

  • United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575).

  • Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Chapter 615).

  • Securities and Futures Commission (SFC) Prevention of Money Laundering and Terrorist Financing Guidance Note.

  • Hong Kong Monetary Authority (HKMA) Guidelines on Prevention of Money Laundering.

While the SFC and HKMA guidelines do not have the force of law, a failure to comply with any of their requirements by licensed corporations, licensed representatives, or associated entities will, in the absence of extenuating circumstances, reflect adversely on their fitness and properness.

There are also industry-specific guidelines, such as the Guideline for Precious Metals and Precious Stones Dealers and the Advisory Guideline on Preventing the Misuse of Charities for Terrorist Financing.

Terrorist financing

See above, Money laundering.

Financial/trade sanctions

The United Nations Sanctions Ordinance (Chapter 537) is applicable. For other relevant provisions, see above, Money laundering.

Offences

 
25. What are the specific offences that can be used to prosecute money laundering, terrorist financing and breach of financial/trade sanctions?

Money laundering

Under the Organised and Serious Crimes Ordinance (OSCO) and the Drug Trafficking (Recovery of Proceeds) Ordinance a person commits a money laundering offence if that person deals with property, knowing or having reasonable grounds to believe that the property in whole or in part, directly or indirectly, represents the proceeds of an indictable offence.

Terrorist financing

Under the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO), it is an offence if a person either:

  • Provides or collects property intending, knowing, or having reasonable grounds to believe that the property will be used to commit one or more terrorist acts.

  • Makes property or financial services available to or for the benefit of a terrorist or terrorist associate.

The UNATMO authorises the Secretary for Security to freeze the property of terrorists or of persons connected with terrorists.

Reporting provisions apply under OSCO to a person who knows or suspects that any property:

  • Represents the proceeds of drug trafficking or other indictable offences or was, or is intended to be, used in connection with such offences.

  • Represents terrorist property.

That person should, as soon as reasonably practicable, report the knowledge or suspicion to the Joint Financial Intelligence Unit (JFIU) or his or her employer's designated anti-money laundering compliance officer. Failing to do so could constitute a criminal offence.

Financial/trade sanctions

The United Nations Sanctions Ordinance gives the Chief Executive of Hong Kong the authority to make regulations implementing United Nations Security Council sanctions, and to specify or designate relevant persons and entities. Such United Nations sanctions normally prohibit making available or dealing with, directly or indirectly, any funds or economic resources for the benefit of or belonging to a designated party.

Defences

 
26. What defences, safe harbours or exemptions are available and who can qualify?

Money laundering

It is a defence if a person intended to disclose as soon as is reasonable any knowledge, suspicion or matter to an authorised officer or has a reasonable excuse for their failure to make a disclosure.

An accused can also raise a defence if there is sufficient evidence to prove that they perceived and believed that the property being dealt with does not represent the proceeds of an indictable offence (HKSAR v Yeung Ka Sing, Carson FACC No. 5 & 6 of 2015; HKSAR v Pang Hung Fai FACC No. 8 of 2013). This essentially disproves the mental element of this offence.

Terrorist financing

See above, Money laundering.

Financial/trade sanctions

See above, Money laundering.

Enforcement

 
27. Which authorities have the powers of prosecution, investigation and enforcement in cases of money laundering? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The Hong Kong Police Force and the Customs and Excise Department are responsible for enforcing the anti-money laundering legislation in Hong Kong. Both agencies work closely with the Department of Justice to investigate and prosecute.

The Joint Financial Intelligence Unit (JFIU) is jointly operated by the Hong Kong Police Force and the Customs and Excise Department and disseminates suspicious transactions reports and maintains a central register of money-changers and remittance agents. While the JFIU does not enforce the law, it assists investigators by obtaining bank account details from financial institutions, identifying suspicious transactions, and advising on whether accounts should be frozen.

The Financial Services and the Treasury Bureau co-ordinates anti-money laundering and counter-terrorist financing policies.

The Narcotics Division of the Security Bureau is tasked with assisting in the fight against money laundering and terrorist financing.

Hong Kong is also a member of the Financial Action Task Force (FAFT) on Money Laundering.

The Egmont Group of Financial Intelligence Units was established to fight against money laundering and financing of terrorism through international co-operation, especially in the areas of information exchange, training and sharing of expertise. The JFIU is one of the 151 financial intelligence unit members of the Egmont Group as of 2015.

Prosecution powers

See Question 3, Powers of prosecution.

Powers of interview

See Question 3, Powers of arrest and interview.

Powers of search/to compel disclosure

See Question 3, Powers of search/to compel disclosure.

Court orders or injunctions

See Question 3, Court orders or injunctions.

Protections available

See Question 3, Protections available.

 
28. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

See Question 4.

Conviction and sanctions

 
29. What are the sanctions for participating in money laundering, terrorist financing offences and/or for breaches of financial/trade sanctions?

Money laundering

Right to bail. See Question 4, Criminal proceedings: Right to bail.

Penalties. The maximum penalty for money laundering offences is a fine of HK$5 million and imprisonment of 14 years.

If a financial institution fails to comply with the requirements relating to customer due diligence and record-keeping, a relevant authority may:

  • Publicly reprimand the financial institution.

  • Order the financial institution to take any specified action to remedy the contravention.

  • Order the financial institution to pay a pecuniary penalty not exceeding the amount that is the greater of HK$10 million or three times the amount of the profit gained, or costs avoided, by the financial institution as a result of the contravention.

Failure to make a report may lead to an offence of "failing to make a suspicious transaction report", a crime, which carries a maximum penalty of three months' imprisonment.

Failure to comply with Securities and Futures Commission (SFC) or Hong Kong Monetary Authority (HKMA) guidelines may result in the offender being declared not fit and proper by the SFC or HKMA, which is likely to be followed by disciplinary actions by these authorities.

Terrorist financing

Right to bail. See Question 4, Criminal proceedings: Right to bail.

Penalties. The maximum penalty for terrorist financing offences is a fine and imprisonment of 14 years.

Financial/trade sanctions

Right to bail. See Question 4, Criminal proceedings: Right to bail.

Penalties. A person who contravenes any regulation in relation to financial/trade sanctions is liable to a maximum penalty of a fine and imprisonment of seven years.

Safeguards

 
30. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

See Question 6.

 

Financial record keeping

31. What are the general requirements for financial record keeping and disclosure?

Generally, a person carrying on a trade, profession or business in Hong Kong must keep sufficient records in English or Chinese of their income and expenditure to enable their assessable profits to be readily ascertained. These records must be retained for at least seven years.

Under the Securities and Futures Commission's Guideline on Anti-Money Laundering and Counter-Terrorist Financing and the Monetary Authority's Guideline on Money Laundering and Counter-Terrorist Financing, financial institutions should keep all documents and records relating to customer identity and transactions for at least six years. The following information must be kept, to provide evidence of criminal activity to the investigating authorities:

  • Documents and records obtained in the course of identifying and verifying:

    • the identity of the customer;

    • the beneficial owner of the customer;

    • a customer's beneficiary,

    • persons acting on behalf of the customer;

    • other parties connected with the customer.

  • Any additional information obtained for enhanced client due diligence or ongoing monitoring.

  • Documents and records of the purpose and intended nature of the business relationship.

  • Documents and records of the customer's account and business correspondence.

  • Identity of the parties to a transaction.

  • Nature and date of transaction.

  • Type and amount of currency involved.

  • The origin of the funds.

  • The form in which the funds were offered or withdrawn; for example, cash and cheques.

  • The identity of the person undertaking the transaction.

  • The destination of the funds;

  • The form of instruction and authority.

  • The type and identifying number of any account involved in the transaction.

In addition, the SFC or other authorities may, by notice in writing, require a financial institution to keep the records relating to a specified transaction or customer for longer, if the records relate to ongoing investigations or transactions that have been the subject of a suspicious transaction report.

 
32. What are the penalties for failure to keep or disclose accurate financial records?
 
33. Are the financial record keeping rules used to prosecute white-collar crimes?

The financial record keeping rules are used to prosecute white-collar crimes.

 

Due diligence

34. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance provides a detailed due diligence procedure in relation to anti-money laundering.

An effective systemic approach to identify suspicious financial activity may safeguard a person from the risk of being involved with terrorist financing and money laundering crimes. One method, known as the "SAFE" approach, involves four steps:

  • Screening the account for suspicious indicators.

  • Asking the customer appropriate questions.

  • Finding out the customer's records.

  • Evaluating all the above information.

 

Corporate liability

35. Under what circumstances can a corporate body itself be subject to criminal liability?

Under the Interpretation and General Clauses Ordinance (Chapter 1), the term "person" in any statute is defined as including any public body and any body of persons, corporate or unincorporated.

Accordingly, a corporate body can technically commit most offences except those:

  • For which imprisonment is the only penalty available (for example, murder).

  • That by their nature can only be committed by natural persons in their personal capacity rather than as an agent of the corporation (for example, rape).

Hong Kong has followed the common law principles of England and Wales in ascribing corporate criminal liability under two main heads:

  • The identification principle. A corporation may be criminally liable for the criminal acts of the directors and managers who represent its directing mind and will, and as an embodiment of the company. It generally applies to senior officers or board members of a company whose acts are capable of being imputed to the company under this principle.

  • Vicarious liability. A corporation may be held criminally liable for the unlawful acts of its employees or agents, typically in strict liability offences or regulatory matters such as industrial safety, environmental regulations, food and hygiene, and so on.

In practice, given the individualistic nature of offences such as fraud, bribery and money laundering, the Commercial Crime Bureau (CCB) and the Independent Commission Against Corruption (ICAC) normally investigate and prosecute individual suspects because they are more readily identifiable as the parties at fault. Prosecution of companies is rare. Companies are more likely to be subject to enforcement action such as office search and seizure of corporate documents to facilitate investigations.

For individualistic offences such as insider dealing and price rigging, the Securities and Futures Commission (SFC) is more likely to investigate and prosecute individuals. However, it is not uncommon for the SFC to issue a notice for production against companies to compel production of documents, and to issue a notice for interview to make face-to-face inquiries with a company's authorised representatives.

For those regulatory offences under the Securities and Futures Ordinance that could be committed in a corporate capacity (for example issuing misleading advertisements, disclosing price-sensitive information or conducting unauthorised financial activities), the SFC regularly pursues investigation and disciplinary actions against companies.

Criminal penalties against corporations usually include fines, compensation and forfeiture orders.

See Corporate governance and directors' duties in Hong Kong: overview ( www.practicallaw.com/7-506-8920) .

 

Cartels

36. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

Competition regulation in Hong Kong is still in its infancy. The first cross-sector competition legislation in Hong Kong, the Competition Ordinance (Chapter 619), came into full force on 14 December 2015.

The Competition Ordinance includes three rules prohibiting anti-competitive conduct:

  • The first conduct rule. This prohibits agreements and concerted practices that restrict competition. This covers serious cartel activities among competitors (that is, horizontal conduct), which include market sharing, price fixing, bid rigging and output restriction.

  • The second conduct rule. This prohibits abuse of substantial market power.

  • The merger rule. This prohibits mergers that substantially stifle competition in the telecommunications sector. Unlike other jurisdictions, there is no general merger control regime under the Competition Ordinance.

The principal cartel enforcement body in Hong Kong is the Competition Commission.

The Competition Commission has extensive powers to investigate suspected breaches of the Competition Ordinance, which include the power to:

  • Require production of documents and information.

  • Enter and search premises (dawn raids).

  • Compel individuals to attend interviews.

The Competition Tribunal is a specialist court which has primary jurisdiction to hear and adjudicate on competition cases.
The tribunal may impose a broad range of sanctions on a party that contravenes the Competition Ordinance, including:

  • Pecuniary penalties (up to 10% of Hong Kong turnover for each year of infringement, to a maximum of three years).

  • Disgorgement of illegal gains or avoided loss.

  • Directors' disqualification orders of up to five years.

  • Injunctive relief.

  • Awards of damages in follow-on actions.

No criminal offences or sanctions are provided for under the Competition Ordinance, except for offences such as obstructing the Commission's investigation or providing false information. The penalties for participating in cartel offences are essentially civil and regulatory in nature.

See Cartel leniency in Hong Kong: overview ( www.practicallaw.com/4-523-1913)

 

Immunity and leniency

37. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

If a person voluntarily discloses their own criminal conduct to the authorities by way of self-reporting, or acts as an informant and assists the authorities in securing the successful prosecution and conviction of other culprits, this would operate as a powerful mitigating factor and may attract a substantial discount in sentence.

In certain exceptional circumstances an informant may be granted immunity from prosecution. The decision whether to grant immunity will be strongly influenced by:

  • The nature of the evidence the informant may be able to give and its significance to the prosecution.

  • The background and any previous criminal convictions of the informant.

  • The informant's perceived credibility (including the fullness of their disclosure of facts and matters within their knowledge) and any discernible motive for not telling the whole truth (including the receipt, promise or expectation of a benefit).

  • Their level of involvement in the offence being prosecuted (which should generally be lower than that of the offender being prosecuted);

  • The presence of any supporting evidence.

A separate leniency regime operates in the competition law area. To help combat cartel conduct, the Competition Ordinance provides that the Competition Commission may agree with an undertaking that it will not bring or continue proceedings in the Competition Tribunal for a pecuniary penalty in exchange for the undertaking's co-operation in an investigation or proceedings.

On 19 November 2015, the Commission published its Leniency Policy for Undertakings Engaged in Cartel Conduct providing details and guidance on such leniency agreements. How the leniency regime works in practice remains to be seen.

 

Cross-border co-operation

38. What international agreements and legal instruments are available for local authorities?

Obtaining evidence

The Mutual Legal Assistance in Criminal Matters Ordinance (Chapter 525) is the principal legislation in Hong Kong that governs mutual assistance in criminal matters between Hong Kong and other jurisdictions. As a result of various multilateral and bilateral mutual legal assistance treaties, Hong Kong has mutual legal assistance mechanisms in place with 29 other jurisdictions.

The mutual legal assistance regime covers obtaining evidence; sharing information; and tracing, restraining, confiscating and sharing proceeds of crime. The types of legal assistance available include:

  • Taking of oral evidence and production of materials before a magistrate (including by live TV link).

  • Search and seizure of materials under search warrant.

  • Obtaining of materials under production orders.

  • Arranging the travel of a person to another place to assist in criminal investigation or proceedings.

  • Enforcement of external confiscation orders and restraining of dealing in property which may be subject to external confiscation orders.

  • Service of process.

In addition, a number of international treaties providing for cross-border co-operation are in force and apply to Hong Kong, including:

  • International Convention for the Suppression of the Financing of Terrorism 1999.

  • United Nations Convention against Transnational Organized Crime 2000.

  • United Nations Convention against Corruption 2003.

Hong Kong has reached bilateral agreements with 19 jurisdictions on surrender of fugitive offenders and 14 on transfer of sentenced persons.

The Mutual Legal Assistance Unit in the Hong Kong Department of Justice is the main authority that co-ordinates and processes requests to and from Hong Kong for mutual legal assistance, and handles requests from overseas courts or tribunals pursuant to the Evidence Ordinance (Chapter 8).

Seizing assets

See above, Obtaining evidence.

Sharing information

See above, Obtaining evidence.

If a request for assistance or information is related to corruption matters, the Department of Justice normally authorises the Independent Commission Against Corruption (ICAC) to provide the necessary assistance to foreign authorities.

In addition, a number of specialist units have been set up by ICAC to strengthen co-operation with overseas counterparts, including the International and Mainland Liaison Section, the Computer Forensics and Research and Development Section, and the Financial Investigation Section. These specialised units liaise closely with law enforcement agencies worldwide and share relevant intelligence as well as investigative expertise.

 
39. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

In general terms, the basic common law principle applicable to Hong Kong is that domestic criminal courts only have jurisdiction over criminal offences that are committed within the territorial limits of Hong Kong, and cannot assert extra-territorial jurisdiction.

Certain exceptions to this principle are provided in the Criminal Jurisdiction Ordinance (Chapter 461) and the Court of Final Appeal's landmark decision concerning the Prevention of Bribery Ordinance (B v The Commissioner of the Independent Commission Against Corruption) (see Question 9, Foreign public officials). However, they are of relatively limited application in Hong Kong.

 
40. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory? Are there statutes aimed at blocking the assertion of foreign jurisdictions within their territory?

The Mutual Legal Assistance in Criminal Matters Ordinance sets out certain grounds for refusing a request for extradition made by foreign jurisdictions, including:

  • Possible impairment of sovereignty, security or public order.

  • The political nature of a request.

  • Possible prejudice on account of race, sex, religion, nationality or political opinions.

  • Lapse of time.

  • Breach of confidentiality.

  • Possible death penalty.

 

Whistleblowing

41. Are whistleblowers given statutory protection?

If a whistleblower's personal safety or well-being may be at risk as a result of being a prosecution witness, the whistleblower may seek protection from the witness protection programme under the Witness Protection Ordinance (Chapter 564). The Commissioner of the Police or the Independent Commission Against Corruption (ICAC) will review the witness's personal situation and the information provided to decide whether to include the witness in the programme. If the witness is included, they must sign a memorandum of understanding that sets out the terms and conditions of their participation in the programme. The approving authority will take such action as it considers necessary and reasonable to protect the witness's safety and welfare, including the non-disclosure of the witness's original identity, establishment of new identity, and protection of the witness when they give evidence in court.

The Witness Protection Unit of the Hong Kong Police and the Witness Protection and Firearms Section of ICAC are specialist units responsible for witness protection.

 

Reform, trends and developments

42. Are there any impending developments or proposals for reform?

Court of Final Appeal decision on money laundering offences

Since they were first proposed, the anti-money laundering laws in Hong Kong have been criticised as being too draconian, although they are the government authorities' favourite tools in investigating and prosecuting against complex fraud with substantial fund flows.

Most money laundering offences are charged under the Organised and Serious Crimes Ordinance (OSCO). A person commits a money laundering offence if they deal with any property knowing or having reasonable grounds to believe that this property in whole or in part, directly or indirectly, represents any person's proceeds of an indictable offence, (section 25, OSCO).

"Having reasonable grounds to believe" has been held to involve both an objective and subjective test. For the objective test, there must be grounds that a right-thinking member of the community would find sufficient to believe that the monies may involve the proceeds of an indictable offence. For the subjective test, those grounds must be known to the defendant. This meant that as long as the subjective and objective tests are satisfied (without considering the defendant's own circumstances), a person could be convicted of money laundering even if the funds are proven to be from a legitimate source.

In HKSAR v Pang Hung Fai [2014] 6 HKC 487, the Court of Final Appeal (CFA) gave an authoritative interpretation of the mens rea required for "having reasonable grounds to believe" and affirmed that a defendant's own perception and evaluation of the objective facts (and not just the hard facts of the case alone) is to be taken into account when deciding whether the required mens rea exists.

On 11 July 2016, CFA delivered a milestone judgment in HKSAR v Yeung Ka Sing, Carson (2016) 19 HKCFAR 279, which sets down the Hong Kong position in relation to the interpretation of section 25(1) of the OSCO, including:

  • No need for the prosecution to prove a predicate offence. It is not necessary for the Prosecution to prove that the property in question constituted the proceeds of an indictable offence to secure a conviction. A person can be liable for money laundering even if the money turns out to be "clean". However, a person with suspicion may obtain immunity under section 25A of the OSCO, under by making a report to the relevant authority in Hong Kong (that is, the Joint Financial Intelligence Unit (JFIU)).

  • The test for considering the mens rea. The defendant's personal beliefs, perceptions and prejudices should be considered in assessing his mens rea. If the defendant provides evidence as to their state of mind, and this evidence is accepted as true or potentially true, acquittal is called for since the mens rea is not established by the prosecution. This is so even if the asserted perceptions or beliefs appear naïve or gullible to others. But if the defendant's evidence of his state of mind is entirely disbelieved, the court can draw inferences based on the Prosecution's evidence.

  • Rule against duplicity. Where a charge involves a series of deposits each of which is capable of being treated as a separate offence, the rule against duplicity is not infringed because the purpose of concealing the property comprising each of the deposits, known or reasonably believed to represent the proceeds of crime, provided a connection which made the individual deposits acts of a similar nature so that they could fairly be regarded as forming part of the same transaction or criminal enterprise.

The Court of Final Appeal's decision on bribery offences

The scope of agency under POBO was clarified by the CFA in a recent case HKSAR v Luk Kin Peter Joseph & Yu Oi Kee (unreported, FACC Nos. 6, 7 and 8 of 2016).

In this case, two directors signed board minutes authorising an acquisition which involved connected transaction. Under the Listing Rules, the transaction required disclosures and was subject to voting restrictions. However, the board minutes failed to disclose these issues. Relying on this erroneous document, the parent company executed the transaction without making disclosures.

The two directors were charged under section 9(3) of POBO as agents who deceived or misled their principal (namely, the parent company) with false document. Although the directors had no legal obligation to act on behalf of the parent company, they were found by the CFA to be "agents" acting on behalf of the parent company. The CFA clarified that an agency relationship may arise without pre-existing legal, contractual or fiduciary obligation to act. When one of the directors agreed with the parent company that he would find a buyer for the acquisition, he created a reasonable expectation that he would act in the interest of the parent company to the exclusion of his own interest. He assumed a duty to act in good faith and not to deceive the parent company.

In light of the decision in this case, for the avoidance of the potential risk involved in acting as an agent of other group companies, a director having interest in any transaction and acting on behalf of a company (of which he is not a director) should make full and proper disclosure of his interest. Failure to do so can lead to false or erroneous statements in documents and may expose him to a risk of breaching section 9(3) of POBO.

The Court of Appeal's landmark decision on sentencing practice

Since the mid-1990s, the Hong Kong courts had adopted the practice that a one-third discount on sentence would be given to defendants who pleaded guilty before trial.

On 2 September 2016, the Court of Appeal held in HKSAR v Ngo Van Nam and HKSAR v Abdou Maikido Abdoulkarim ([2016] 5 HKLRD 1) that less discount will be given to defendants pleading guilty at a later stage of criminal proceedings.

Following this judgment, if a trial is conducted in the Magistrates' Court:

  • 33% discount will apply for guilty pleas entered before trial dates are fixed.

  • 20-25% discount will apply for guilty pleas indicated after trial dates are fixed but before the first day of trial.

  • 20% discount will apply for guilty pleas entered on the first day of trial.

  • If a trial is conducted in the District Court the following discounts apply:

  • 33% discount will apply for guilty pleas made on plea day.

  • 20-25% discount will apply for guilty pleas indicated after trial dates are fixed but before the first day of trial.

  • 20% discount will apply for guilty pleas entered on the first day of trial.

  • If a trial is conducted in the Court of First Instance, the following discounts apply:

  • 33% discount will apply for guilty pleas entered at the committal in the Magistrates' Court.

  • 25% discount will apply for guilty pleas indicated after committal but before the fixing of trial dates by the Listing Judge.

  • 20-25% discount will apply for guilty pleas indicated after trial days have been fixed but before first day of trial.

  • 20% discount will apply for guilty pleas entered on the first day of trial.

In addition, the court retains an overriding discretion in sentencing and may deviate from the above guidelines in suitable cases. Nowadays, it is not uncommon that prosecution materials are not fully disclosed to the defendant until a trial is fixed. As such, the revised practice will effectively "punish" those defendants who wish to consider the full strength of the prosecution case before entering their plea. It remains to be seen how readily the court is going to exercise its overriding discretion to resolve this potential injustice, and whether any constitutionality challenge would be mounted against this defect.

 

Market practice

43. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

Both foreign and local corporations are increasingly vigilant of their exposure to corruption and corporate crimes in the light of the legal developments in Hong Kong discussed in this Q&A.

Many corporations are stepping up their internal compliance procedures and training programs with a view to proactively identifying, preventing and rectifying any potential corporate misconduct or crime. Internal investigations are commonly adopted by international financial institutions once misconduct or potential misconduct is identified.

 

The authorities

The Hong Kong Police force

W www.police.gov.hk

Status. The Hong Kong Police force is a government organisation.

Principal responsibilities. The principal responsibilities of the Hong Kong Police Force are to conduct criminal investigation and commence prosecution.

Joint Financial Intelligence Unit

W www.jfiu.gov.hk

Status. The Joint Financial Intelligence Unit is an inter-governmental organisation established by the Hong Kong Police Force and the Customs and Excise Department.

Principal responsibilities. The principal responsibilities of the Joint Financial Intelligence Unit are to receive and handle reports about suspicious financial activities.

The Securities and Futures Commission

W www.sfc.hk

Status. The Securities and Futures Commission is an independent statutory body set up in 1989.

Principal responsibilities. The principal responsibility of the Securities and Futures Commission is to regulate the markets of securities and futures in Hong Kong.

Department of Justice of Hong Kong

W www.doj.gov.hk

Status. The Department of Justice of Hong Kong is a government organisation.

Principal responsibilities. The principal responsibility of the Department of Justice of Hong Kong is to conduct criminal prosecutions in Hong Kong.

The Independent Commission Against Corruption

W www.icac.hk

Status. The Independent Commission Against Corruption is an independent statutory body set up in 1974.

Principal responsibilities. The principal responsibilities of the Independent Commission Against Corruption are to investigate and prosecute bribery and corruption offences in both the public and private sectors in Hong Kong.

The Market Misconduct Tribunal

W www.mmt.gov.hk/

Status. The Market Misconduct Tribunal is an independent body established in 2003 under the Securities and Futures Ordinance.

Principal responsibilities. The principal responsibilities of the Market Misconduct Tribunal are to hear and determine any question or issue arising out of or in connection with proceedings instituted under the Securities and Futures Ordinance in relation to market misconduct.

The Financial Action Task Force on Money Laundering

W www.fatf-gafi.org/home/

Status. The Financial Action Task Force on Money Laundering is an inter-governmental organisation.

Principal responsibilities. The principal responsibilities of the Financial Action Task Force on Money Laundering are to develop and promote national and international policies to combat money laundering and terrorist financing.

The Egmont Group of Financial Intelligence Units

W www.egmontgroup.org/

Status. The Egmont Group of Financial Intelligence Units is a non-governmental organisation.

Principal responsibilities. The principal responsibilities of the Egmont Group of Financial Intelligence Units are to combat money laundering and financing of terrorism through international co-operation, especially in the areas of information exchange, training and sharing of expertise.

The Competition Commission

W www.compcomm.hk

Status. The Competition Commission is an independent statutory body established under the Competition Ordinance.

Principal responsibilities. The principal responsibility of the Competition Commission is to enforce the Competition Ordinance of Hong Kong through its investigations and enforcement proceedings in the Competition Tribunal.

The Competition Tribunal

W www.judiciary.gov.hk/en/crt_services/pphlt/html/ct.htm

Status. The Competition Tribunal is a superior court of record established under the Competition Ordinance.

Principal responsibilities. The principal responsibility of the Competition Tribunal is to deal with legal proceedings concerning competition matters.



Online resources

Bilingual Laws Information System

W www.legislation.gov.hk

Description. The Bilingual Laws Information System maintained by the Department of Justice of Hong Kong SAR which contains official up-to-date information on all Hong Kong legislation.

Hong Kong Legal Information Institute

W www.hklii.hk

Description. The Hong Kong Legal Information Institute developed and jointly operated by the University of Hong Kong Department of Computer Science and the Faculty of Law, with the assistance of the Australasian Legal Information Institute, which contains information on Hong Kong case law and legislation.



Contributor profiles

Felix KH Ng, Partner

Haldanes

T +852 2868 1234
F +852 2845 1637
E felix.ng@haldanes.com
W www.haldanes.com

Professional qualifications. Hong Kong SAR, Solicitor; England & Wales, Solicitor;

Dubai International Financial Centre, Registered Practitioner

Areas of practice. White collar criminal defence; regulatory enforcement defence; corporate internal investigations; competition law.

Non-professional qualifications. Master of Laws in International Legal Practice, College of Law of England & Wales; Bachelor of Chinese Law (People's Republic of China), Tsinghua University; Postgraduate Certificate in Laws, University of Hong Kong; Bachelor of Laws, University of Hong Kong

Recent cases

  • Representing an investment banker in a corporate investigation held in London and the related anti-trust investigation commenced by the US Department of Justice and Commodity Futures Trading Commission (CFTC).

  • Representing a crude oil trader in a cross-border false trading investigation taken out by the Chicago Mercantile Exchange & Chicago Board of Trade.

  • Representing the chairman and executive directors of a renowned pharmaceutical company in investigations by the Securities & Futures Commission (SFC), Stock Exchange of Hong Kong and Independent Commission Against Corruption.

  • Defended a listed company chairman in the first SFC prosecution in Hong Kong on Price Rigging under section 296 of the Securities & Futures Ordinance.

  • Defending a private banker in a Hong Kong Monetary Authority investigation under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance.

Languages. English, Cantonese, Mandarin, Spanish

Professional associations/memberships. Regional Representative (Asia General), Criminal Law Committee of the International Bar Association, National Representative of Hong Kong – Young Lawyers' Committee of the International Bar Association; Law Society of Hong Kong; Law Society of England and Wales.

Publications.

  • Author of International Comparative Legal Guides – Business Crimes Hong Kong 2016 by Global Legal Group, United Kingdom.

  • Author of Government Investigations – Hong Kong 2015 & 2016 by Law Business Research Limited, United Kingdom.

  • Author of Doing Business in Hong Kong Guide 2014 to 2016 by LexisNexis, United Kingdom.

Jane Y Ma, Associate Solicitor

Haldanes

T +852 2868 1234
F +852 2845 1637
E jane.ma@haldanes.com
W www.haldanes.com

Professional qualifications. Hong Kong SAR, Solicitor

Areas of practice. Criminal litigation; bribery and corruption; regulatory investigations (securities and futures); competition law; money laundering

Non-professional qualifications. Postgraduate Certificate in Laws (Distinction), University of Hong Kong; Bachelor of Laws, University of Hong Kong

Recent cases

  • Defending a director of a multi-jurisdictional IT corporation for a charge of money laundering conspiracy involving over HK$600 million.

  • Defending an international pharmaceutical company in a Customs and Excise investigation.

Languages. English, Cantonese, Mandarin

Professional associations/memberships. Law Society of Hong Kong

Publications. Co-author of Government Investigations – Hong Kong 2015 & 2016 by Law Business Research Limited, United Kingdom.

Timothy L T Wan, Associate Solicitor

Haldanes

T +852 2868 1234
F +852 2845 1637
E timothy.wan@haldanes.com
W www.haldanes.com

Professional qualifications. Hong Kong SAR, Solicitor

Areas of practice. Criminal litigation; securities, regulatory and disciplinary matters; money laundering 

Non-professional qualifications. Postgraduate Certificate in Laws, City University of Hong Kong; Bachelor of Laws (Hons), University of Warwick, United Kingdom; Bachelor of Social Sciences (Hons) in Policy Studies and Administration, City University of Hong Kong

Recent cases

  • Defended the directors of a listed company in a letter of credit fraud trial and instructed a leading Queen's Counsel from London on stay applications, judicial review and appeal.

  • Assisted in the defence of a director of a multinational corporation related to pyramid-scheme investigations.

Languages. English, Cantonese, Mandarin

Professional associations/memberships. Law Society of Hong Kong

Publications. Co-author of Doing Business in Hong Kong Guide 2014 to 2016 by LexisNexis, United Kingdom.

Grace S Y Gao, Trainee Solicitor

Haldanes

T +852 2868 1234
F +852 2845 1637
E grace.gao@haldanes.com
W www.haldanes.com

Professional qualifications. Hong Kong SAR, Solicitor (expected admission in 2017)

Areas of practice. Criminal litigation; civil litigation and dispute resolution

Non-professional qualifications. Postgraduate Certificate in Laws, University of Hong Kong; Bachelor of Laws, University of Hong Kong

Languages. English, Cantonese, Mandarin

Professional associations/memberships. Law Society of Hong Kong


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