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Case Studies
Administration of renovation contract in the Mainland
A bank planned to renovate its branch network in Guangdong and assigned a staff to be the project manager to station in the Mainland to oversee the project.
The Mainland contractor responsible for the renovation kept offering the project manager entertainment and free trips in the Mainland.
In the renovation of the first branch, the project manager found the workmanship and materials substandard.
The Mainland contractor then "reminded" the project manager of the entertainment and free trips provided, and further offered money to the project manager for recommending to the bank's head office in Hong Kong to continue to appoint him to renovate other Mainland branches. Later, a colleague of the project manager who knew about the corrupt dealing blew the whistle.
Case Analysis
In this case study, the project manager, an employee (agent) of the bank (the principal), accepted an advantage from the Mainland contractor, as a reward for making a recommendation to the bank’s head office in Hong Kong to accept the contractor's substandard works and employ the same contractor to renovate other branches (an act in relation to the bank’s business and took place in Hong Kong), might contravene Section 9(1) of the Prevention of Bribery Ordinance (POBO). The Mainland contractor might also contravene Section 9(2) of the POBO for offering bribes. If any part of the act of bribery (including offering, soliciting or accepting a bribe) takes place in Hong Kong, it may still be pursued by the ICAC under the POBO.
Procurement of goods and services is one of the most corruption-prone business processes, in particular those involving high values or specialist knowledge and specialised products or services, e.g. renovation and maintenance works.
It is common for banks to send staff members to work in the Mainland office. The staff members are exposed to significant risk of temptation due to their perceived remoteness from the main office in Hong Kong and the absence of supervisory control measures. Relying on a single staff member, who is a specialist, without effective checks and balances and segregation of duties, also increases the corruption risk.
Banks should lay down guidelines for key procurement stages. They should also assign supervisors to conduct site inspections to ensure compliance with the laid down guidelines and to detect malpractice, such as connivance of substandard performance of contractors. It is also important to circulate the staff code of conduct regularly to remind staff members to refrain from accepting frequent/lavish entertainment from contractors/suppliers which may otherwise affect one’s objective commercial judgment. In addition, it is also advisable to communicate to suppliers/contractors, in particular non-local ones, on the bank’s policy regarding anti-bribery, acceptance of advantages/entertainment, zero tolerance to corruption and channel(s) for feedback/enquiry.