Case Studies

Our case studies contain analysis and discussion points for users to better understand the legal provisions. They also provide suggestions on how to prevent corruption, fraud and malpractices.

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All Areas of Concern

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All Areas of Concern


Dominic is a sales manager of a brokerage company and he has a few corporate clients.   One of his clients is a listed company named Treasure Hunt. During a cocktail reception, the financial controller of Treasure Hunt, Tony, talks to Dominic about his plan to make some short-term financial gains.   According to Tony’s knowledge, an international corporation is planning to inject capital into Treasure Hunt, and he foresees its share price will rocket up if the deal is made. Tony, therefore, suggests to collaborate with Dominic to buy Treasure Hunt shares in advance.

 

With keen interest, Dominic further proposes to purchase the stocks through an external broker in order to disguise their identities.   A week later Treasure Hunt announces the capital injection arrangement and, as anticipated, its share price goes sky-high.   Dominic and Tony, having made a good profit, immediately sell their shares.

Robert is a fund manager of an international asset management company, who manages the provident funds for certain large corporations.   One day, he receives a research report from an analyst stating that the profit margin of Hydroplane is expected to be high in the forthcoming three years.

 

Robert, therefore, plans to buy a substantial amount of Hydroplane’s shares for his provident funds portfolios.   Knowing that such a bulk purchase will likely boost its share price, he decides to place an order for himself through an external broker before sending out the purchase instruction to the dealing room for his provident funds portfolios.

Benny is a manager of a financial corporation and undertakes a merger project for Interlock Company and Happy Diet Chain.  Led by a director, he and his team members have held meetings with the management of these two companies, day and night, trying hard to work out the best terms for the exercise.

 

Benny knows full well that if such information is made public, it will affect the share prices of both companies.   But Benny also has other things on his mind. Soon he is to get married and desperately needs to find the money for his wedding expenses.   He finally decides to borrow some money from his family to purchase a large quantity of the two stocks in advance.   A week later, when the announcement of a merger between Interlock and Happy Diet is made public, the market prices of their shares rise spontaneously.   Benny subsequently sells the stocks and makes substantial profits.

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?

 

Teddy, a clerk in a solicitor firm, was responsible for handling conveyancing documents. Due to financial pressure, Teddy was tempted by his friend to prepare fake documents to deceive the bank for mortgage loans.


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