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William is a fund manager who manages a number of Asian unit trusts comprising of low stake portfolios.   Given the keen competition with his fellow fund managers in the company, he sets out to make the unit trusts in his care the star performing funds within a short period of time.

Although his clients have clearly specified a low risk mandate, William still invests a large proportion of the funds of his discretionary clients in emerging Asian countries, ignoring any warning signs of an economic downturn within the region.   He even explains to the trustees of the unit trusts that the financial hiccup in some of the countries will soon be over.   However, the financial turmoil quickly spreads across Asia causing the collapse of several stock markets.   The unit trusts under William’s management suffer a tremendous loss.

The Wealthy Restaurant Group (the Group) consisted of a chain of ten restaurants in Hong Kong.   The Director of the Group, CHENG, was highly experienced in the food and beverage business but had no knowledge about construction and engineering works.  Hence, he relied on the expertise of Engineer WONG when there were selections of construction and engineering contractors.

WONG was authorised to approve decoration and renovation works up to a value of $300,000 and those above $300,000 would require CHENG’s endorsement.     According  to  company  policy,  contracts  below  $300,000 should be let by quotation and those above $300,000 by way of tender. Contracts should then be awarded to the bidder who offered the most competitive price, irrespective of quotations or tenders.

In January 2000, WONG approached one of the contractors KWAN. WONG convinced KWAN to offer him a commission (5% of the contract price) in return for supplying KWAN with quotation information submitted by other bidders every time when there was a quotation exercise.   With the information, KWAN could always submit the lowest bid and be awarded the contract on every occasion. WONG also split contracts of $300,000 or above into two or more contracts to avoid CHENG’s involvement in the award.

As the Group had no internal audit section, the malpractice was not discovered.   During the period from January 2000 to December 2001, most renovation contracts of the Group totalling $10 million were awarded to KWAN and WONG received over half a million dollars as commission in return.

WONG and KWAN were later arrested by the ICAC and convicted of offering/accepting advantages, contrary to Section 9 of the Prevention of Bribery Ordinance (POBO).   They were each sentenced to imprisonment and WONG was also ordered by the court to return the illegal commission to the Group.

As a registered engineer, WONG was sanctioned by his professional institution and was removed from the membership list.

Questions

1. Why were WONG and KWAN convicted of corruption offences?
2. What measures should be taken to prevent malpractice in tendering?
3. What can the management of the company do in order to prevent the splitting of orders?
4. What is the possible consequence of corruption?

Highlander Construction Ltd, the main contractor of a housing development project, employed five crane operators for lifting building materials for sub-contractors in the construction site.   The staff handbook of Highlander clearly stipulated that staff was prohibited from soliciting or accepting advantages from persons having business dealings with the company, including sub-contractors.   The crane operators were briefed this policy by the Human Resources Manager when they were first recruited.

Shortly after the commencement of work, the crane operators discussed a trade practice among themselves and decided to charge sub-contractors ‘tea money’ of $9,000 per month for expediting lifting of their building materials. To those sub-contractors who did not pay, the crane operators would delay the lifting of their materials.

CHAN was the director of Shing Kee Engineering Ltd, a subcontractor responsible for the superstructure plumbing works.   He was familiar with the crane operators.   They often went out for meals and gambled after work. When the crane operators were in financial needs, CHAN would lend them money.

A resident engineer YU was aware that the crane operators often gave priority  to  CHAN  in  lifting  plumbing  materials  before  attending  to  other sub-contractors.   He was also aware that the crane operators and CHAN kept a very close relationship.   Although there were suspicious undertakings, YU did not make a complaint to the ICAC as he had no evidence of corruption.

The crane operators accepted $35,000 from CHAN over a period of seven months as a reward for giving special attention to the lifting of CHAN’s materials.   The incident was finally revealed and they were all arrested and eventually convicted of offering/accepting advantages as a reward for expediting lifting for CHAN, contrary to Section 9 of the Prevention of Bribery Ordinance (POBO).   All of them got imprisonment sentences.

CHAN was the breadwinner of his family.   While serving his term, his son who was studying abroad had to return to Hong Kong as his family could no longer afford the costs involved.

Questions

1. Why were CHAN and the crane operators convicted of corruption offences?
2. Are customary/trade practices excuses for the crane operators to take advantages on the subcontractors?
3. What are the possible costs of corruption?
4. Should the resident engineer report any suspected corruption to the ICAC

if he only has suspicion and do not have any evidence?

A large building project developed by a public body (PB), involving five residential blocks and a commercial complex with a car park, should be completed by April 2003.   The PB awarded the project to a main contractor CK Holdings Ltd (CK) in May 2001 at $1,800 million.   Central Architects and Engineers Ltd (CAE) was appointed by the PB as the project consultant.

There were a number of sub-contractors responsible for different aspects of work for this project.   Among them, CK sub-contracted all plastering works to Diamondhead Plastering Company and CHONG was its proprietor.

Being the project consultant, CAE was responsible for monitoring and supervising the workmanship and progress of work including that for CK and its various sub-contractors.   CAE had recruited a team of five residential site supervisory staff headed by a Clerks of Works (CoW) Martin.   All of them were public servants acting as an agent for the PB in the project.

CHONG, Martin and other site supervisory staff of CAE always had dinner together and played mahjong after work.   Being a habitual gambler, Martin was in great debt and often borrowed money from his relatives and friends.

CHONG also invited Martin to Shenzhen on several occasions to have lavish meals and attend nightclubs.   CHONG paid all the bills on these occasions.   Furthermore, CHONG sometimes offered Martin loans and chips in the casinos in Macau.   Martin considered CHONG treated him well solely on friendly basis.

Shortly  after  their  visits  to  Shenzhen  and  Macau,  CHONG  went  to Martin’s site office and suggested to adopt a quicker method for laying screed. Instead of using a thorough mixture of cement, sand, aggregate and water, CHONG proposed to adopt a ‘semi-dry sand’ method in which a layer of sand was put onto a layer of cement and thereafter water was sprayed onto the layers.   Although this shortcut method of laying screed was used in some other projects, it was not allowed in this project and it was clearly stipulated in the Specifications.   Thus, Martin immediately objected to the suggestion.

On the day before Winter Solstice, CHONG approached Martin again and pleaded for relaxation on the screeding method.   He indicated that the screeding work had been behind schedule and the liquidated damage for delay was heavy.   CHONG offered a laisee packet of $50,000 to Martin claiming that it was for the forthcoming Winter Solstice and requesting for ‘flexibility’ in acceptance of work completed.  He also demanded Martin not to be too stringent when inspecting the work.   He further indicated that since he had been treating Martin well for so long it should be time for Martin to do something in return.   Finally, Martin decided to accept the bribe, accede to CHONG’s request and connive at the shortcut screeding method.

CHONG and Martin were later arrested by the ICAC and were found guilty of offences under Section 4 of the Prevention of Bribery Ordinance (POBO).

Questions

1. How did CHONG and Martin violate the POBO?
2. What do you think about the over-socialisation between Martin and CHONG?

3. Is customary practice, such as giving laisees during festivals （開工利是）, a defence to accept an advantage? Why?

4. Being a habitual gambler, what is the possible risk of Martin in respect of corruption?

A Government Department (the Department) awarded a slope maintenance  contract  to  Chongs  Construction  Company  Ltd,  which  then sub-contracted the works to JKW Subcontracting Company (JKW), of which CHEUNG was the proprietor.

From time to time, the Department issued to the contractor works orders (WOs) describing the work required, location and estimated value of the work. Upon completion of work, an Inspector of Works (IoW) of the Department would physically inspect and verify whether the work done was in compliance with the required standard.   Based on the recommendation made by the IoW, the project engineer would approve payment to the contractor by signing on the WO concerned.   He was not required to physically inspect every piece of work completed as over a hundred WOs were issued every month.

When the engineer signed on the WO, the contractor could apply for payment by submitting the WO to the Accounting Section of the Department. A contractor could only apply for payment on completion of work as certified on the WO.

In conjunction with the payment process, the Quantity Surveying Section of the Department counter-checked the work of the contractor.   However, the Quantity Surveyors of the Section could only randomly check 10% of the WOs issued.   Both the project engineer and the quantity surveyors might therefore not be able to detect abuse in relation to the WOs.

YAU was an IoW of the Department responsible for overseeing the works carried out by JKW.   In March 2000, CHEUNG approached YAU and urged YAU to expedite the checking of WOs. Hence, CHEUNG could receive payment earlier.   In return, CHEUNG offered YAU a part-time job with $8,000 a month.

Between April 2000 and December 2001, YAU accepted a part-time job from CHEUNG as a reward for expediting the checking of WOs issued to CHEUNG.   On many occasions, YAU certified work completion on the WOs though the work concerned had not even commenced.

YAU and CHEUNG were later arrested by the ICAC and were found guilty of offences under Section 4 of the Prevention of Bribery Ordinance (POBO).   Both YAU and CHEUNG were sentenced to imprisonment.

Questions

1. How did YAU and CHEUNG violate Section 4 of the Prevention of Bribery Ordinance?

2. Besides the offer of a part-time job, what else can be classified as an“advantage”?

3. What should be watched out for in site supervision to prevent malpractice?