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Case Studies
Conflict of interest and abuse of authority in granting credit facility
Both Laura and her husband worked at the same bank. She was also a director of a small sanitary ware company owned by her secret boyfriend, Ricky. Ricky was her client, but she had never disclosed the directorship to her bank, reasoning that the company's business would not conflict with her work in the bank and she was rarely involved in the day-to-day operations of the company. More importantly, she wanted to keep the issue of her extramarital affair away from the bank and, of course, her husband.
Ricky's company unfortunately faced financial difficulties and, because of this, he applied for a local documentary credit with Laura's bank to import a large quantity of leather shoes that seemed irrelevant to his major business. Laura processed the application and approved it without declaring their relationship to her boss. After a month, the bank's internal auditor discovered that the supporting documents submitted by Ricky were false and the transaction was bogus. As a result, Laura was queried and investigated by the management.
Case Analysis
Laura might violate the Code of Conduct[1] of the bank by taking up a directorship outside the bank without her employer's prior permission. On this issue, her directorship in Ricky's company gave rise to a conflict of interest with her official duties, so she might have breached the bank’s Code of Conduct for approving facilities to the company in which she is interested. Moreover, she might commit an offence of conspiracy to defraud if she was aware of the fraud committed by Ricky and assisted him in the approval process.
[1] According to HKMA’s Supervisory Policy Manual CG-3, each authorized institute (AI) (bank) should develop its own Code of Conduct containing certain minimum conduct requirements which include “no member of staff should take up any directorship, employment or part-time commercial duties, whether paid or unpaid, outside the AI except with prior written approval as required by the Code of Conduct.” The Code should also require that “no member of staff should grant credit to himself, his relatives or companies in which he or his relatives have a personal interest.”