Lacking a clear company policy

Mr. Chung had established a toy manufacturing enterprise in the Mainland in partnership with his friends. He solicited rebate from a Mainland supplier as a reward for placing purchase orders…

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Lacking a clear company policy
Bribery
Corporate Governance
Cross-boundary Corruption
Procurement
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Mr. Chung had established a toy manufacturing enterprise in the Mainland in partnership with his friends. Holding 10% of the shares, he was mainly responsible for supervising the manufacturing process. Since Chung had the authority to purchase materials for the company, he hinted to a Mainland supplier that he expected a rebate equivalent to 5% of the transaction amount as a reward for placing purchase orders. When the incident was exposed, the ICAC found that none of the shareholders in the enterprise had any knowledge of Chung’s acceptance of advantages. Besides, the company did not establish any clear policies on such acceptance of advantage either for its shareholders or staff. It was revealed that Chung had accepted a total of $50,000 over a period of eight months. Chung was sentenced to imprisonment for committing a bribery offence.

SMEs and Start-ups
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Case Analysis

In Hong Kong, according to the Prevention of Bribery Ordinance (POBO), it is an offence for any agent (generally the employee), without the permission of his principal (generally the employer), to solicit or accept an advantage as a reward for doing an act on relation to his principal’s business. Moreover, if any part of the bribery act takes place in Hong Kong, it shall still be an offence under the POBO. Although Chung was one of the shareholders of the enterprise, he was still an agent as defined by the law. He therefore must seek approval from the company before accepting any advantages. 

Business organisations should take the initiative to govern the acceptance of advantages by all levels of staff (including directors) in relation to company businesses. The company should state clearly amounts of advantage that the staff are permitted to accept, and conditions of such acceptance. The policy should also list out the declaration procedures and enquiry channels for staff compliance. 

Moreover, the company should establish detailed procurement procedures in order to ensure that the products purchased are of good quality and to prevent staff from abusing their authority or engaging in corrupt practices in the purchasing process. Staff should be reminded constantly of the importance of selecting suppliers in a fair and impartial manner.

Case Studies

Soliciting loans from a supplier

A senior merchandiser of a herbal tea manufacturing company was in desperate need of money. He tried to solicit loans from a supplier. But the supplier refused and reported the matter to the manufacturing company.

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Soliciting loans from a supplier
Bribery
Cross-boundary Corruption
False Documents
Whistle-blowing
Procurement
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A herbal tea manufacturing company sourced its raw materials from various Mainland suppliers. Mr Fong, a senior merchandiser of the company, was responsible for purchasing herbal materials and inventory control. 

Recently, Mr Fong who had experienced financial difficulties was in desperate need of money. He sent several text messages to a Mainland herbal supplier to solicit a loan of RMB60,000. Mr Fong suggested to the supplier that more purchase orders would be placed if the supplier deposited the money into his wife’s bank account in Hong Kong. The supplier made no response to the request. Shortly after, Mr Fong sent another text message to the supplier asking for another loan of RMB30,000 and threatened to cut the purchase orders if it was not granted. The supplier did not agree to his request, as it amounted to solicitation of bribes. The supplier then reported the matter to the management of the herbal tea manufacturer. In view of the severity of the matter and having no tolerance for solicitation of bribes by its staff, the management of the herbal tea manufacturer immediately reported the case to the ICAC.

Others
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Case Analysis

Soliciting bribes from overseas companies is also subject to prosecution 

Though the supplier, from which Mr Fong solicited bribes, was outside Hong Kong, Mr Fong might still commit an offence of soliciting an advantage under Section 9 of the Prevention of Bribery Ordinance (POBO) as he sent text messages requesting for loans to be deposited into his wife’s bank account in Hong Kong in return for placing more orders. 

Businesspersons should be aware that the POBO can apply when part of the corrupt act, e.g. promising, agreeing, soliciting or accepting advantages without permission, takes place in Hong Kong.

Accepting bribes, whether directly or indirectly, is against the law 

Loan is considered an advantage under the POBO. Accepting bribes regardless of whether the advantage is directly given to the acceptor or indirectly delivered to a third party is still against the law. In the case study, if the Mainland herbal supplier agreed to deposit the loans into Mr Fong’s wife’s bank account in Hong Kong, as long as it was proven that the receiving account was controlled by Mr Fong or that he was the ultimate beneficiary, Mr Fong would be considered as having accepted the advantage.

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