Contents Preface 5 Introduction 7

J1909 Contents Part I Preface 5 Introduction 7 Understanding the Law - Awareness Chapter 1 Conducting Business in Hong Kong Anti-corruption La...
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J1909

Contents Part I

Preface

5

Introduction

7

Understanding the Law - Awareness

Chapter 1 Conducting Business in Hong Kong Anti-corruption Laws of Hong Kong

12

Case Studies

18

Chapter 2 Conducting Business in Shanghai Laws against Corruption and Bribery on the Mainland

33

Case Studies

46

Chapter 3 Specific Areas of Commercial Activity The Hong Kong Scenario – Securities, futures and investments sectors

62

– Trading and the banking business

72

– Construction industry

83

The Shanghai Scenario – Securities, futures and investments sectors

92

– Trading and the banking business

98

– Construction industry

Part II

102

Analysing Risks - Assessment

Chapter 4 Corruption Risks and Preventive Measures Basic Functional Areas

1

– Purchasing

108

– Sales and marketing

111

– Inventory and stock control

113

– Accounting

114

– Personnel and administration

116

– Information systems management

118

Specific Trades

Part III

– Preventive measures - securities market

122

– Preventive measures - banking industry

130

– Preventive measures - construction industry

134

Putting Theories into Practice - Action

Chapter 5 Maintaining Competitive Edge Formulating a Corporate Code of Conduct

147

Strengthening the Corporate System of Control

149

Establishing an Ethical Corporate Culture

152

Chapter 6 Knowing the Official Anti-corruption Organisations in Shanghai and Hong Kong Anti-corruption Organisations – In Hong Kong

156

– In the Mainland

158

Concerted Efforts to Fight Corruption Organisations Providing Business Administration, Investment and Legal Consulting Services – In Hong Kong

164

– In Shanghai

165

Chapter 7 Taking Appropriate Action Reporting Corruption or Bribery Promptly

2

– In Hong Kong

166

– In Shanghai

166

Resolving Business Disputes Lawfully

167

Appendices Appendix :

(1) Extracts from the Prevention of Bribery Ordinance (Laws of Hong Kong Chapter 201)

172

(2) Extracts of Corruption and Bribery Offences from the Criminal Law of the People's Republic of China

176

(3) Rules and Regulations Governing the Securities and Futures Markets of Hong Kong

187

(4) Extracts of the Securities (Insider Dealing) Ordinance (Laws of Hong Kong Chapter 395)

188

(5) Extracts of the Banking Ordinance (Laws of Hong Kong Chapter 155)

192

(6) Rules and Regulations Relating to Investing in Shanghai

194

(7) Extracts of the Banking (Code of Conduct) Guidelines 1986

196

(8) Code of Conduct (Sample)

201

(9) Declaration of Company Code of Conduct (Sample)

208

(10) Letter to Suppliers and Companies (Sample)

209

(11) Addresses and Telephone Numbers of Hong Kong Government Departments and Service Providers for the Business Sector

210

(12) Addresses and Telephone Numbers of Major Chambers of Commerce in Hong Kong

212

(13) Addresses and Telephone Numbers of Administrative Organisations for Industry and Commerce in Shanghai

213

(14) Professional Services

216

(15) Addresses and Telephone Numbers of ICAC Regional Offices

222

(16) Addresses and Telephone Numbers of the Procuratorial Organisations in Shanghai

223

(17) Websites of Organisations in Hong Kong and Shanghai

226

References 3

227

Preface With China officially joining the World Trade Organisation (WTO), Asia is set to stand in the economic spotlight in the first twenty years of the new century. The Mainland will gradually lower tariffs and lift restrictions on key industries like banking, insurance and telecommunications. International investment in China will reach an unprecedented level. In the next few years, more and more transnational enterprises are likely to establish their AsiaPacific headquarters in Hong Kong and Shanghai, using each city as a base f rom which to explore and invest in the huge market potential of the Mainland. As two of the most important trade and financial centres along the coast of China, Shanghai and Hong Kong each have their own legal systems. In the past few years, joint-trading ventures between the two cities have increased, and closer economic contacts in the future are a near certainty. While complementing each other with unique attributes and systems, Shanghai and Hong Kong can work together to create a win-win situation that demonstrates to the whole world the economic vitality of China. Businessmen who wish to have a share in the enormous potential of this market are naturally operating in a highly competitive market environment. At the same time, businesses must also recognise the importance of observing and conforming to the rules and regulations of the jurisdictions in which they operate, maintaining a level playing field and ensuring the confidence of investors, customers and shareholders alike. Jointly published by the Shanghai Municipal People's Procuratorate and the Independent Commission Against Corruption of the Hong Kong Special Administrative Region (Hong Kong SAR), this book aims to provide a practical legal guide for cro s s - b o u n d a ry businessmen to increase their awareness and observance of the different laws of the two places, thus safeguarding their rights and interests when conducting business in Hong Kong, Shanghai and China as a whole.

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In the course of compiling this book, we are indebted to the following organisations for their invaluable support in providing us detailed and timely i n f o rmation: the Shanghai Municipal Construction and Management Commission, the Shanghai Foreign Economic Relations and Tr a d e Commission, the Shanghai Administrative Bureau for Industry and C o m m e rce and the Shanghai Securities Regulatory Office of the China Securities Regulatory Commission, the Trade and Industry Department of the Hong Kong SAR Government, the Hong Kong Trade Development Council and the Securities and Futures Commission.

Shanghai Municipal People's Procuratorate Independent Commission Against Corruption, Hong Kong Special Administrative Region March 2002

6

Introduction Coherent structure This Guide aims to provide cross-boundary investors in Shanghai and Hong Kong with information concerning the laws and re g u l a t i o n s governing "ethical trading", plus a set of ethics-based measures to help investors and businesses avoid unnecessary disputes, lawsuits, or b reaches of the anti-corruption and anti-bribery laws of each city. Although interrelated, this Guide is divided into three main parts:

Understanding and observing the laws and regulations, policies — Awareness and systems of the jurisdictions where investments take place A na l y s i n g c or r u pt i o n ri s k s a nd de v i s i n g p r e v e n t i v e — Assessment m e a s u res Adopting proactive and decisive preventive measures to avoid or — Action minimise the risks of corruption

Practical tone and approach As a reference book, this Guide strives to take a user-friendly approach. The selection of material is reader-focussed in order to enhance its practicality and value as a source of re f e rence. To make it more readable, the book is written in everyday language and avoids difficult or complex legal terms. Extracts of relevant anti-corruption and anti-bribery laws are listed in the appendices for easy re f e rence. Some of the p rovisions of laws and regulations mentioned in this book are not c o rruption and bribery related but are crucial to lawful business transactions, thus a brief introduction is given. Apart from highlighting them in relevant chapters and sections, this book also provides readers with websites where the original text can be found.

Extracts of laws are for reference only Readers should note that the provisions of laws in this book might not reflect fully the spirit of the laws and the correlation between different chapters and sections. One should consult the original text of the relevant laws and seek legal advice in case of doubt. 7

In particular, where references to laws and statutes of the Mainland are made, it is important to note that many such laws have no equivalent official English translation. We have therefore provided a transliteration of relevant laws where necessary, but readers are advised to refer to the original Chinese version for further clarification. Following China's accession to the WTO, hundreds of commercial laws and regulations in the Mainland will have to be amended. Investors should be aware of such changes, much of which can be found at http://www.moftec.gov.cn.

Thorough case analysis To explain the legal provisions more effectively, this book uses a number of case studies to illustrate situations where corruption, bribery or ethical dilemma may be encountered by businessmen, and analyses the legal liabilities for employers, employees and all other people concerned. Most of these scenarios are based on actual cases but the names of the persons, companies and enterprises involved are all fictitious, and any similarity is entirely coincidental.

Special discussion on specific trades Cases cited in Chapters 1 and 2 are selected from various trades. They aim to illustrate the provisions and major points of law, and to identify the bribery opportunities and management loopholes. Chapter 3 discusses problems that might arise in the specific industries of sec urities, futu res and investment; trading and ban king; and construction in both Hong Kong and Shanghai, as these are particularly important market sectors in both places.

Detailed corruption prevention recommendations Prevention is always better than cure. Chapter 4 introduces relevant corruption prevention measures to tackle the problems depicted in different cases and the signs identified in major functional areas such as

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p u rchasing, accounting, and so on in diff e rent trades. There is a separate section for the specific trades. These preventive measures can help protect the legal rights and interests of investors and businessmen.

Professional design to enhance readability As a practical reference book, the cases, extracts of laws and flow charts in this Guide are colour coded to facilitate quick searching. As early re p o rting is the most effective deterrent to corruption, the addresses and telephone numbers of relevant organisations in Hong Kong and Shanghai are included in the book to provide readers with the best channels for reporting corruption and seeking corruption prevention services.

Joint ownership of copyright The copyright of this joint publication is co-owned by the Shanghai Municipal People's Procuratorate and the Independent Commission Against Corruption (ICAC) of the Hong Kong SAR. Both parties have verified the content of the Guide and authenticated the major points of their respective laws.

Throughout this publication, the male pronoun is used to cover references to gender. This is purely for narrative consistency and convenience, and no gender preference is intended or implied. 9

PA R T

I

Understanding the Law - Awareness

R

Respect for the rule of law, the promotion of int egrit y and the persist ence of fair

competition are all basic elements required to attract investment. Even as the world econom y is undergoing a period of adjustment, an economic entity advocating fairness and the rule of law can still command an advantage in the marketplace. Any enterprise which respects the rule of law will be

able

to

collect

more

business

opportunities with a reputation of integrity. As Hong Kong and the Mainland adopt the "one count ry two systems" principle, businessmen need to be acquainted with the legal provisions and economic policies of d i ff e rent regions in conducting cro s s b o u n d a ry investments. Following China's accession to the WTO, enforcement of related legal provisions in the Mainland will be stricter than before. Businessmen are advised not to rely solely on "customary practices" in order to avoid unnecessary disputes, litigation and contravention of anti-bribery laws. This is the foundation of "Awareness". 11

Chapter 1 : Conducting Business in Hong Kong Anti-corruption The Prevention of Bribery Ordinance (PBO) (Laws of Hong Laws of Kong Chapter 201) aims to keep our society fair and Hong Kong corruption-free, thus safeguarding the legal interests of both employers and employees. Investors and businessmen operating in Hong Kong are required to observe these laws. This will help avoid any unnecessary losses or even legal liabilities as a result of any bribery and malpractice in their companies and also promote the image and goodwill of their companies.

C o rruption and bribery constitute the same offence The business sector, Government departments and public bodies in Hong Kong are all subject to the PBO, which provides a clear definition on bribery. However, there is no specific offence called "corruption" in the laws of Hong Kong, since it is only a general term used to describe the act of soliciting and accepting bribes. Similar to the term "subject of offences" in the Criminal Law of the People's Republic of China (Criminal Law of the PRC), different identities of suspects are also separately defined in the laws of Hong Kong. Accepting a bribe means that an agent or entrusted party (normally an employee) abuses his official position by accepting an advantage in relation to the business of his principal or entrusting party (normally the employer) without obtaining his principal's permission. Offering a bribe takes place when an individual offers an advantage to an agent for the latter's showing favours in his official capacity. The party accepting bribes can be anyone who is employed in the private sector, a Government department or a public body or who acts for another. The one who offers bribes can be any person. Any agent who uses false documents with the intent to deceive or mislead his principal also contravenes the PBO. 12

Chapter 1 : Conducting Business in Hong Kong

Commercial Bribery Relevant provisions of the PBO

Summary of the law

Key points to note for businessmen

Private sector employees accepting bribes Section 9(1)

• Any agent • without the permission of his principal • soliciting or accepting any advantage • so as to affect his doing or forbearing to do any act in relation to his principal's affairs

• An employee should not solicit or accept any advantage relating to his work without his principal's permission

Offering bribes to private sector employees Section 9(2)

• Any person • without the permission of the agent's principal • offering any advantage to any agent • as an inducement to or reward for doing or forbearing to do any act in relation to his principal's affairs

• Before offering any advantage to a private sector employee, make sure the employee has the prior permission of his employer to receive such an advantage

Employees using false documents to deceive an employer Section 9(3)

• Any agent • using any false, erroneous or defective receipt, account or other document in respect of which his principal is interested • with intent to deceive his principal

• It is also an offence under the PBO even though the agent has not received any advantage

Apart from trading partners, businessmen may also have contacts with civil servants or employees of public bodies. These public servants also come under the strict control of the PBO, which prohibits them from accepting advantages in relation to their duties.

13

Chapter 1 : Conducting Business in Hong Kong

Bribery Involving Public Servants Relevant provisions of the PBO

Summary of the law

Key points to note for businessmen

Affecting the performing of official duties Section 4(1)

• Any person • in Hong Kong or elsewhere • without lawful authority or reasonable excuse • offering any advantage to any public servant • to affect that public servant's decision to perform or abstain from performing his official duties

• Do not offer any advantage to public servants in return for favours, inside information or preferential treatment in public services

Affecting the procuring and execution of contracts Section 5(1)

• Any person • without lawful authority or reasonable excuse • offering any advantage to any public servant • as an inducement to or reward for such public servant's giving assistance or using influence in the procuring of any contract with a public body

• Do not offer any advantage to public servants as a reward for securing contracts

Offering no advantage in the course of business Section 8(1) & (2)

• Any person • without lawful authority or reasonable excuse • offering any advantage to public servants while having dealings with the Government or any public body

• Offering any advantage to a civil servant or an employee of a public body in the course of business is an offence even though there is no intent to bribe or no special request made

14

Chapter 1 : Conducting Business in Hong Kong

Bribery Involving Dealings with Public Bodies Relevant provisions of the PBO

Summary of the law

Key points to note for businessmen

In relation to making tenders Section 6(1)

• Any person • without lawful authority or reasonable excuse • offering any advantage to any other person • in return for the withdrawal of or the refraining from the making of a tender, for any contract with a public body

• Do not offer any advantage to any other tenderer in return for his refraining from making a tender

In relation to auctions Section 7(1)

• Any person • without lawful authority or reasonable excuse • offering any advantage to any other person • in return for his refraining from bidding at any auction conducted by or on behalf of any public body

• Do not offer any advantage to any person in return for his refraining from bidding at auction

Maximum penalty for committing PBO offences The maximum penalty for committing PBO offences from section 4 to section 9 is imprisonment for seven years and a fine of HK$500,000. Persons convicted of accepting a bribe may also be ordered by the court to compensate their employers. In some cases, relevant ordinances will be applied in ordering the confiscation of suspected illegal proceeds if other serious crimes are involved. This is only a summary of the anti-corruption laws of Hong Kong. For the original text, please refer to Appendix 1. 15

Terms and Definitions

Chapter 1 : Conducting Business in Hong Kong

Agent Generally an employee or entrusted part y. If a company appoints another to act for it in the course of business, he becomes the agent or entrusted party, whether the appointment is full-time or part-time and whether or not the entrusted party receives a fixed salary or a fee from the company. The term "agent" also includes individual directors of a company.

Principal or entrusting party Generally an employer. In the private sector, "employer" often means the owner or the board of directors of a company.

Principal's permission The permission or agreement given by a principal for an agent to accept any advantage in the course of his duties. Normally, such permission should be obtained before the agent solicits or accepts it. If an advantage has been offered or accepted without prior permission, the agent should seek retrospective permission from his principal as soon as reasonably possible.

Public servant A civil servant or an employee of any public body. The term covers permanent and temporary, paid and unpaid employees.

Public body Includes the Government, Executive Council, Legislative Council, District Councils and any committees or other bodies appointed by the Chief Executive-in-Council. It also includes major service providers given a franchise by the Government, organisations spending / disbursing substa ntial public funds and those specially appointed by the Government.

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Chapter 1 : Conducting Business in Hong Kong

Advantage Includes money, gifts, loans, re w a rds, commissions, employment, contracts, service, favours and discharge of liability whether in whole or in part, but excludes entertainment.

Entertainment Food or drink for consumption on the occasion when it is provided and any other entertainment, for example, singing and dancing, provided at the same time. Although the PBO does not prohibit the acceptance of entertainment, many companies nevertheless set out guidelines on the circumstances under which employees may accept entertainment.

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Case Studies Most of the following cases are based on real cases but the names of the characters and companies are fictitious. They aim to illustrate the major points of law under the PBO.

Case 1 Principal's permission should be definite and given in advance Ivan has been in the toy business for many years, working his way up from the junior level to a senior management position. Some years ago he started investing in the Mainland and acquired 10 per cent of the shares in a Shanghai-Hong Kong joint venture. Because of Ivan's substantial experience in the toy trade, he took charge of the production line, and divided much of his time between Hong Kong and Shanghai. Ivan often made all the procurement and purchasing decisions, and so was naturally courted by many suppliers who off e red him entertainment. One of these suppliers even went so far as to offer Ivan a commission of five per cent of the value of a contract, as a reward for Ivan placing an order for industrial chemicals with their company. The case was brought to the attention of the ICAC, who found that some of the shareholders were not aware of Ivan's acceptance of advantages from this supplier, and that the company did not have in place a clear policy on this issue. Some shareholders claimed they had given Ivan permission to accept commissions to subsidise his social expenses in Shanghai and Hong Kong, but they were not able to state when the permission was granted, let alone the approved amount or the circumstances under which the acceptance was permitted. According to the ICAC investigation, Ivan had received a total of HK$50,000 illegal rebates or commissions over an eight-month period. Based on the substantial evidence gathered, he was finally prosecuted for breaching Section 9 of the PBO and sent to prison. 18

Analysis and major points of law Under Section 9 of the PBO, the principal's permission (in this case, the toy company) has to be given before an agent (Ivan) solicits or accepts an advantage; otherwise the agent has to apply for permission as soon as reasonably possible after the acceptance. In addition, for such permission to be lawful, the principal needs to carefully consider the details of the application before granting permission. Ivan's company had not stated clearly in advance whether or not its staff members could accept advantages in relation to their official duties. In other words, Ivan did not have the company's permission when he accepted the commission. Furthermore, since he had not applied for retrospective permission from his company afterwards, and not all the s h a reholders had knowledge of (until the ICAC investigation) and granted permission for the acceptance, such acceptance could not be counted as "permitted by the principal". Some of the company shareholders recklessly claimed that Ivan was allowed to accept commission. However, they did not specify the details and scope of acceptance, and they also did not take into account the fact that such a policy would affect fairness of competition among their suppliers. This is against both the spirit and requirements of Section 9 of the PBO, so the defence of "permission of the principal" is not substantiated. As such, companies should proactively formulate rules and regulations to govern the acceptance of advantages by staff at all levels. They should also state clearly in writing the company policy, types and ceiling amounts of advantages staff are permitted to accept, conditions of such acceptance, declaration procedures and enquiry channels, etc. for staff compliance.

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Case 2 Offering or accepting a bribe are both offences in law A director of a finance company and the credit manager of a bank became good friends due to their frequent business contacts. They both enjoyed playing mahjong and drinking fine wine, so they often spent free time together. But every time they went out, it was almost always the director of the finance company who paid the bill. The demand for loans grew sharply after the Asian financial crisis of 1997-98. In order to secure more business, the director of the finance company asked his bank manager friend to increase his credit limit. Knowing full well that he could not provide sufficient collateral, the director privately agreed to offer a rebate of HK$50,000 to the bank manager for every one million dollars increase in his credit line. In a short period of 18 months, the finance company was granted credits totalling nine million dollars on separate occasions, even though there was insufficient collateral to cover the credit granted. The case was eventually detected by the compliance department of the bank and referred to the ICAC for investigation. The pair was sentenced to imprisonment upon conviction.

20

Analysis and major points of law In the above case, the bank manager is an employee of the bank, i.e. an agent under Section 9 of the PBO while the bank is the principal or the employer. The bank certainly would not allow the manager to accept advantages related to his official position, thus the rebate was an illegal advantage and the acceptance of which constituted an offence of accepting a bribe. The one who offers illegal advantages (the finance company director) commits bribery. Both the offer and acceptance of bribes constitute an offence. Under the PBO, food or drink for consumption on the occasion when it is provided is considered as "entertainment", which is not defined as an advanta ge. Eve n tho ugh it is not a gainst the law to accept entertainment, the bank manager might compromise his impartiality when he dined frequently with the finance company director. Since lavish entertainment would pave the way for bribery and corruption to occur, it is stipulated in the Banking (Code of Conduct) Guidelines 1986 (administered by the Hong Kong Monetary Authority) that bank staff are only permitted to accept normal business entertainment (for example, a meal involving no more than ord i n a ry amenities). There f o re it is n e c e s s a ry to be fully aware of the consequences of offering or accepting an advantage when dealing with a bank.

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Case 3 Companies offering advantages outside Hong Kong but with part of the bribery act taking place in the territory will also be prosecuted F red was an engineer of a construction company and was responsible for approving the electrical equipment and materials required for construction projects. He was going to get married, but due to financial problems, he could only aff o rd a simple wedding. His fiancée was very upset. Fred's cousin David, an employee of a Hong Kong enterprise, was recently posted to an electrical switch production factory in the Mainland to handle the development of new products. He had to travel frequently between Hong Kong and the Mainland. David, in the hope of gaining recognition from his company and getting more funds for his R&D work, recommended a new electric light switch to Fred when he returned to Hong Kong. He persuaded Fred to use the switches in a local private residential project undertaken by Fred's company and suggested that a commission of HK$50,000 could be paid to him in instalments. Without hesitation Fre d accepted the offer. David then appropriated HK$20,000 from the company's entertainment account for partial payment of the commission to Fred, calling it a wedding gift. Fred thought he could use the money to subsidise his wedding, but unfortunately the switches he had purchased were found defective. The incident aroused the suspicion of the construction company's senior management, which then referred the matter to the ICAC for investigation. With substantial evidence, Fred was arrested just days before his wedding and was jailed after trial.

22

Analysis and major points of law It is against the law to offer any advantage, whether directly or indirectly, to any person or to a third party having connections with that person, if the advantage is proven to have been offered in relation to his duties. Although David offered an advantage to Fred under the pretext of giving him a wedding gift, both of them were still guilty of a bribery offence. The illegal commission was offered to an employee of a Hong Kong company by a company based outside Hong Kong. However, if any part of the act of bribery (including promising, agreeing, soliciting, offering or accepting of unauthorised advantages) or achieving the purpose of bribery can be proved to have taken place in Hong Kong, the case can still be pursued under the PBO. Likewise, if non-local residents request their Hong Kong counterparts to deposit bribes into a Hong Kong bank account, both parties will be in breach of the PBO as part of the bribery transaction takes place in the territory.

23

Case 4 Falsifying documents to mislead the principal constitutes an offence under the PBO Tim was the director of a Hong Kong company and was stationed in its Mainland factory. In the process of awarding a freight contract to a cro s s - b o u n d a ry transportation company for goods to be transported to Hong Kong, he claimed he was the factory owner. Tim also falsely claimed that he needed to inflate the transportation cost to offset certain monthly miscellaneous expenses, which were not chargeable to the company's account. He instructed the transportation company operator to inflate the transportation fees on the monthly statement by HK$20,000, which was t hen dep osited into the p ersonal bank account of the factory accountant as reserve funds of the factory. For the next nine months, the transportation company operator inflated the monthly transportation fees as instructed. However, the operator later discovered that Tim was only a paid director and not the actual factory owner. He therefore reported the matter to the person in charge of the factory in Hong Kong. Subsequent ICAC investigations revealed that Tim had pocketed HK$180,000 through the bank account of the accountant. He was eventually charged with false accounting and was jailed.

Analysis and major points of law In accordance with the PBO, the term "agent" includes individual directors of a company. In the above case, the director, as an agent of his company, breached Section 9(3) of the PBO by intentionally using false documents to deceive and mislead his principal, i.e. the company. The factory director, who provided false information to mislead the transportation company operator and to deceive his own company, also committed offences of false accounting and deception.

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Case 5 Bribery still exists even if the purpose of the bribe has not been achieved An international company intended to set up its South East Asian headquarters in Hong Kong. A committee was appointed, chaired by the company's vice president, Susanna, to select the supplier of IT equipment and computer software for the new office. One of Susanna's old school friends, who worked for a computer supplier, learnt of the possible contract and approached Susanna. In an attempt to influence Susanna's decision over the contract for the IT equipment and software, he gave her an expensive watch as a gift. Though fully aware of her classmate's intention and clearly knowing that she did not have the power to affect the decision of the committee, Susanna still succumbed to the temptation and accepted the gift. In a further attempt to influence her decision, her school friend paid Susanna a visit at home and deliberately left behind a new notebook computer, saying it was for the trial use of her husband during overseas business trips. After prudent consideration, the committee finally decided to award the equipment and software contract to another company. Susanna's old school friend was upset at the outcome but could do nothing about it. Later, some of Susanna's colleagues learned of the gifts of the watch and notebook computer, which gave rise to much gossip in her company. The incident eventually drew the attention of senior management and was reported to the ICAC for investigation.

25

Analysis and major points of law Susanna's old school friend clearly tried to sweeten her with gifts. He was the offeror and Susanna was the recipient. Even though Susanna subsequently did not place orders with his company, both of them had already breached the PBO. Under Section 11 of the PBO, if it is proved that the offeror believes that the advantage given is a reward of favours for him, the recipient of the bribe cannot use the defence that: (a) "he did not actually have the power to do so", (b) "he accepted the advantage without intending to do so" or (c) "he did not in fact do so". It is important to note that accepting any gift or sweetener is an offence under law, even if the final outcome or intent of the gift is not achieved.

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Case 6 Even if a bribe is not honoured, an offence is still committed A businessman, Ken, applied through a consultant firm, for a HK$27 million fixed-term loan from a bank. He applied in the name of his company, putting up his own property as collateral. Stephen, the director of the consultant firm, told Ken that the bank manager privately asked for a commission equivalent to three per cent of the secured loan as a reward for approving his application, and that he could help transfer the money to the bank manager. So Ken issued a post-dated cheque for HK$810,000 made payable to a company set up by Stephen. They also drew up and signed a bogus purchase contract for HK$810,000 as a way of covering up the real intent of the money. Because of the poor economic climate following the Asian financial crisis, Ken was unable to repay the loan. The value of the property Ken had put up as collateral had fallen sharply, and the bank pressed Ken hard to repay the loan. Ken then contacted the bank manager directly to assure him that the post-dated cheque for HK$810,000 would be honoured. Not knowing what Ken meant at first, the manager was quick to realise that someone might have used his name to accept advantages. He assured Ken that everything would be fine, but then immediately checked through all the relevant documents and reported the matter to the ICAC. After receiving the corruption complaint, the ICAC launched an investigation and discovered that Stephen had deliberately deceived Ken by falsely claiming the bank manager had asked for a commission. Stephen was sentenced on deception charg e s , while Ken was imprisoned for offering a bribe.

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Analysis and major points of law Ken had followed Stephen's advice and issued a post-dated cheque for HK$810,000 for the specific purpose of offering a bribe. So long as the offeror believes that the advantage is a reward for favours done in relation to one's duties, he has already committed an offence of offering a bribe. This is true, regardless of whether the target of the bribe receives the advantage or not. Since Stephen was not the person responsible for approving the loan application, he was not actually accepting a bribe directly, but he was guilty of deceiving the businessman of HK$810,000. He contravened the law, even though the post-dated cheque was never honoured.

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Case 7 Handling job-related information for any person in return for an advantage constitutes an offence in law Mimi worked for a restaurant in a five-star hotel. Her boyfriend Harry patronised the restaurant frequently. One day Harry gave Mimi a small electronic device, half the size of a cigarette packet. He asked her to use the device, called a "skimmer", to capture credit card data when settling bills for customers. Mimi refused at first, but Harry lied to her that it was not against the law, and offered her with a reward of HK$120 for every set of credit card data she captured with the device. Mimi finally agreed and over a period of about a month, she captured 42 sets of data. However, she was arrested by the ICAC after her activities became known to the hotel. Investigations revealed that much of the data captured by Mimi had been used to manufacture counterfeit credit cards, which were then passed along to criminal syndicates in different countries. Several card-issuing banks together lost over two million dollars due to the scam.

29

Analysis and major points of law One of Mimi's responsibilities was to properly handle customers' credit cards. Mimi had contravened Section 9 of the PBO by accepting an advantage from an outsider as a reward for capturing customer credit card data without the permission of her employer. A skimmer can capture and store a large quantity of customers' card data, and can cause tremendous losses to the card-issuing banks. If the skimmer had been seized in the course of investigation, Mimi could have been charged with an offence under the Organised and Serious Crimes Ordinance and would have been liable to a maximum penalty of 14 years' imprisonment upon conviction. The organisation concerned, i.e. the restaurant with which Mimi was working, or the hotel would also be listed as high-risk organisations by the card-issuing banks and the law enforcement agencies. Investors and businessmen operating enterprises that rely on credit card transactions need to be extra vigilant, and keep a close eye on the activities of employees that handle such transactions.

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Case 8 Calling something an "established custom" is no defence against charges of bribery Bill was the South East Asian regional business manager of a European electronic medical equipment manufacturing company. He came to know the management of a Mainland-based medical equipment supplier when he was on a regular visit to the Mainland. He learnt that the supplier was planning to set up a company in Hong Kong to conduct bilateral business by purchasing European products through the suppliers in Hong Kong, and selling Chinamade wheelchairs and electronic equipment to markets in South East Asia. Bill took the opportunity to invite the supplier to send staff to Hong Kong to study the most advanced European medical facilities and equipment used in hospitals, and to familiarise themselves with the formalities of starting a business in Hong Kong. Upon arrival of two Mainland representatives in Hong Kong, Bill only spent two days visiting hospitals with them, but spent a whole week treating them to lavish parties and dinners, enjoying expensive red wine at karaoke lounges, as well as visiting scenic spots including Macau and the offshore casinos. In the casinos, Bill would give each of them HK$10,000 worth of chips to "try their luck", claiming that it was a "trade practice" to show his hospitality. He also implied that he would offer them handsome "red packets" (small red envelopes of money) if their planned Hong Kong office would place orders for medical instruments with his company.

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Analysis and major points of law Other than food and drink provided for immediate consumption, free tours and red packets are both considered advantages. If the Mainland employees accepted these advantages in Hong Kong without the p e rmission of their employer and such acceptance affected their decision in work, both the offeror and recipient would be in breach of the PBO. The offeror cannot claim that the advantage offered is "an established custom in the trade". According to Section 19 of the PBO, such custom cannot be held up as defence in court for both the offeror and the recipient. The court shall only make a judgement based on whether permission has actually been given by the recipient's principal.

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Chapter 2 : Conducting Business in Shanghai Laws against Corruption and Bribery on the Mainland

The provisions of the Criminal Law of the PRC against corruption and bribery seek to protect social and economic order. They urge State functionaries to uphold integrity, be self-disciplined and fair when discharging their duties, and they punish illegal acts such as corruption and bribery, abuse of authority or position for private gains and the exchange of official power for money. People doing business in the Mainland will inevitably have to deal with State functionaries. T h e re f o re, it is important for investors and business people to have a thoro u g h understanding of the Mainland's anti-corruption and anti-bribery laws to protect their own legal interests against potentially illegal activities, and to guard against any involvement and participation in corruption and bribery. "Corruption" and "bribery" offences "Corruption" refers to any act whereby a person takes advantage of his office to appropriate, steal, swindle or use other illegal means to acquire public money or property. The subjects of corruption offences are State functionaries who are referred to as "special subjects". Any individuals or units conspiring with State functionaries to commit a corruption offence are considere d accomplices, i.e. "general subjects". "Bribery" broadly refers to both the offering and acceptance of bribes. Accepting bribes is the act of taking advantage of one's office to solicit or accept money or property from others illegally so as to seek benefits for others. State functionaries or personnel of companies, enterprises, etc. who take advantage of their offices for personal gains may also commit other offences.

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Chapter 2 : Conducting Business in Shanghai

Corruption, Embezzlement and Misappropriation Offences Relevant provisions of the Criminal Law of the PRC Embezzlement by State functionaries Articles 382, 383, 183(2), 271(2), 394

Summary of the law • • • •

Any State functionary taking advantage of his office by illegal means to appropriate public money or property

• Any State functionary assigned to nonState-owned units for official duties • taking advantage of his office • to take possession of State-owned money or property illegally • Any non-State functionary entrusted by State organs or State-owned institutions to manage or run State property • taking advantage of his office • to take possession of State-owned money or property illegally • Any non-State functionary who conspires with the functionaries mentioned above to engage in embezzlement shall be regarded as accomplices and punished accordingly • Any State functionary • accepting gifts (amount involved is relatively large) in activities of public service • failing to hand over the gifts to the State as required by State regulations 34

Key points to note for businessmen • Non-State functionaries taking part in activities of appropriating public money or property will become accomplices to a corruption offence, even if they have not gained any direct benefits

Chapter 2 : Conducting Business in Shanghai

Embezzlement through • Any employee of a company, enterprise dereliction of duty by or any other unit employees of • taking advantage of his position enterprises • to take possession of the money or Article 271(1) property of his own unit unlawfully

Illicit division of Stateowned assets Article 396(1)

• In violation of State regulations

Misappropriation of public funds Articles 384, 185(2), 272(2)

• Any State functionary • taking advantage of his position • to misappropriate public funds for his own use and fails to return the funds after the lapse of three months • or for conducting illegal or profit-making activities

Misappropriation of a unit's funds Article 272(1)

• Any employee of a company, enterprise or any other unit • taking advantage of his position • to misappropriate funds of his own unit for personal use or for loaning them to another person and the funds are not repaid before the expiration of three months • or for conducting illegal or profit-making activities

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• Any employee, whether posted from Hong Kong or employed in the Mainland, can be the subject of the offence

• in the name of a unit • dividing up State-owned assets among all the individuals of the unit in secret

• Any employee, whether posted from Hong Kong or employed in the Mainland, can be the subject of the offence

Chapter 2 : Conducting Business in Shanghai

Bribery Offences Relevant provisions of the Criminal Law of the PRC Acceptance of bribes by State functionaries Articles 385, 163(3), 184(2), 388

(I) Offences of accepting, offering and introducing bribes relating to a State functionary or unit

Summary of the law

• Any State functionary • The request for bribes should be explicitly • taking advantage of his position refused and the • to extort money or property from another incident reported to person the proper authorities • or to accept money or property illegally immediately from another person for securing benefits for the person • Any State functionary • in violation of State regulations • accepting rebates or service charges of various descriptions and taking them into his own possession • Any State functionary • taking advantage of his own functions and powers or position • through the performance of another State functionary during the discharge of his duties • to extort or accept money or property from an entrusting person for securing illegitimate benefits

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Key points to note for businessmen

Chapter 2 : Conducting Business in Shanghai

Acceptance of bribes by a unit Article 387

• A State organ and State-owned enterprise, etc. • extorting or illegally accepting money or property from another person for securing benefits for the person • or secretly accepting off-the-book rebates or service charges of various descriptions

Members of intermediary organisations deliberately providing false testifying papers Article 229(2)

• A member of an intermediary organisation who provides legal,

Offering bribes to State functionaries Article 389

• Any person • for the purpose of securing illegitimate benefits • offering money or property to State

accounting or verification services, etc. • demanding or illegally accepting money or property from other people • deliberately providing false testifying papers

functionaries • Any person • in violation of State regulations • offering money or property / rebates or service charges of various descriptions to State functionaries #

• Business people should not follow the illegitimate advice of intermediaries

• The perpetrators of an offence to offer bribes to State functionaries can include foreign investors and cross-boundary businessmen

# Any person who offers money or property to a State functionary through extortion but gains no illegitimate benefits would not be regarded as having offered a bribe. 37

Chapter 2 : Conducting Business in Shanghai

Unit offering bribes Article 393

• Any unit • for the purpose of securing illegitimate benefits • or in violation of State regulations • offering rebates or service charges to State functionaries

• A bribe offered in the name of a company or an enterprise remains an offence

Offering bribes to a unit Article 391

• Any person • for the purpose of securing illegitimate benefits • or in violation of State regulations

• Even if the bribe is offered to a State organ, State-owned enterprise or unit , it remains a bribery offence

• offering money or property / rebates or service charges of various descriptions to State organs or Stateowned enterprises Introducing a bribe Article 392

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• Any person • introducing a bribe to State functionaries

• Anyone who lines up any bribery racket commits a criminal offence

Chapter 2 : Conducting Business in Shanghai

(II) Offences of offering and accepting bribes in the course of commercial dealings Relevant provisions of the Criminal Law of the PRC Acceptance of bribes by employees of companies and enterprises Article 163

Summary of the law • Any employee of a company and enterprise • taking advantage of his position • demanding money or property from another person • or illegally accepting another person's money or property in return for the benefits he seeks for such person

• Any employee of a company and enterprise • in violation of State regulations • accepting rebates or service charges of various descriptions and taking them into his own possession Offering bribes to employees of companies and enterprises Article 164

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• Any person or unit • for the purpose of seeking illegitimate benefits • offering money or property to any employee of a company or enterprise

Key points to note for businessmen • The Mainland has specific laws and regulations in this area. Employees posted to the Mainland should pay particular attention to the laws so as not to inadvertently commit an offence

Chapter 2 : Conducting Business in Shanghai

Others Relevant provisions of the Criminal Law of the PRC

Summary of the law

Failing to explain a significant excess of property or expenditure over lawful income Article 395(1)

• Any State functionary whose property or expenditure obviously exceeds his lawful income • the difference is enormous • failing to prove that the sources are legitimate

Concealing savings outside the territory of China Article 395(2)

• Any State functionary • deliberately concealing bank savings outside the territory of China

Maximum Penalties for Committing Corruption and Bribery Offences Corruption and bribery offences

Maximum penalties

Embezzlement by State functionaries Acceptance of bribes by State functionaries

Capital punishment

Misappropriation of public funds Offering bribes to State functionaries

Imprisonment for life

Embezzlement through dereliction of duty by employees of enterprises

Imprisonment for 15 years

Acceptance of bribes by employees of companies and enterprises

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Chapter 2 : Conducting Business in Shanghai

Misappropriation of a unit's funds

Imprisonment for ten years

Offering bribes to employees of companies and enterprises Members of intermediary organisations deliberately providing false testifying papers Illicit division of State-owned assets

Imprisonment for seven years

Unit offering bribes Unit accepting bribes

Imprisonment for five years

Failing to explain significant excess of property or expenditure over lawful income Offering bribes to a unit Introducing a bribe Concealing savings outside the territory of China

Imprisonment for three years

Imprisonment for two years

In addition to criminal penalties, the funds or property constituting the advantage in a corruption or bribery case may be traced and recovered. Criminals may also be fined and their property confiscated as prescribed by law. Where a unit commits a crime, the unit may be held criminally liable while the persons concerned may also be given criminal punishment. The information above is only a summary of the provisions of the Criminal Law of the PRC relating to corruption and bribery offences. Please refer to Appendix 2 for an English translation of these articles.

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Chapter 2 : Conducting Business in Shanghai

Apart from understanding the provisions of the Criminal Law of the PRC on corruption and bribery offences, businessmen should also acquaint themselves with other related regulations in the Mainland. Due to the Mainland's sheer size, businessmen should not only comply with the national laws, but also understand and adhere to the local laws, regulations and policies. These include : • Local laws and regulations - The people's congresses of different provinces, autonomous regions, municipalities and larger cities make district laws and regu la tions, whereas their respective local governments formulate rules. Businessmen planning an investment in a particular area must first familiarise themselves with all the relevant laws and regulations of that area, and check the content, applicability and impact on the business projects concerned. • Regional policies - Some of the provisions governing the trade and economy of provinces, cities and autonomous regions may be couched in the form of policies rather than laws. Such policies may a ffect the kinds of investment, the amount that can be invested, conditions of approval, and even the length of time re q u i red for approval relating to projects open to foreign investors.

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Terms and Definitions

Chapter 2 : Conducting Business in Shanghai

State functionaries Persons who perform public service in State organs; persons who p e rf o rm public service in State-owned companies, enterprises, institutions or people's organisations; persons who are assigned by State organs, State-owned companies, enterprises or institutions to companies, enterprises or institutions that are not owned by the State or people's organisations to perform public service and the other persons who perform public service according to law all be regarded as State functionaries.

Taking advantage of office The act of taking advantage of a position of authority or of the convenience afforded by that position when appropriating, managing or handling money or property. Taking advantage of the convenience arising from one's own official position or authority. The act of taking advantage of one's own position or authority to direct and influence State functionaries of any rank in the same department, in neighbouring departments or in units with close ties.

Violation of State regulations Violation of the laws enacted or decisions made by the National People's Congress and its Standing Committee, and the administrative rules and regulations formulated, the administrative measures adopted and the decisions or orders promulgated by the State Council.

Money or property Money and materials, e.g. currency, gold, silver and other materials that can be measured in terms of value and amount.

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Chapter 2 : Conducting Business in Shanghai

Benefits or gain Property and various labour services that cannot be measured in terms of value and amount, e.g. job redeployment, allocation of population register, arrangement of employment, etc.

Profit-making activities Activities such as trading, establishing an enterprise, investing in stocks, money-lending, etc.

Secret off-the-book acceptance Inability to truthfully report matters according to the money and property accounting system in the legally established financial account.

Public property (a) State-owned property; (b) property collectively owned by working people; and (c) public donations or special funds used for elimination of poverty for other public welfare undertakings. Private property that is being managed, used or transported by State organs, State-owned companies, enterprises, or enterprises owned by collectives, or people's organisations.

Misappropriation of public funds for personal use The use of embezzled public funds by the embezzlers themselves or by other individuals; also the offer of embezzled public funds to enterprises, units, bodies or organisations in the name of an individual for the purpose of securing personal gain.

Company, enterprise or other unit "Company" - a non-State-owned limited liability company and holding company limited set up in accordance with the Company Law of the PRC; "enterprise" - any non-State-owned economic organisation (other than a "company") engaging in lawful economic transactions; "other unit(s)" - any non-State-owned social or economic organisation(s) other than a "company" or an "enterprise" as defined. 44

Chapter 2 : Conducting Business in Shanghai

Administrative law enforcing organs S t a t e - o rgans which are empowered to e xercise administrative punishment on citizens and units according to administrative and economic law, such as government departments responsible for trade and industry, taxation, customs, environmental protection, forestry, transport etc.

Judicial organs The people's courts, the people's procuratorates and public security organs.

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Case Studies As in Chapter 1, the following cases are only intended to illustrate the major points of law. The content as well as the names of characters and companies are fictitious.

Case 9 Offering and accepting a bribe are both offences in law Supervisor Jin was the officer in charge of a residential project's construction office of a State-owned machinery and equipment factory based in Shanghai. Mr Xi was the operator of a private construction company. In late 1999, Mr Xi through various connections got in touch with Jin wit h an intent to secure a contract f or the re s i d e n t i a l construction project of the machinery and equipment factory. On meeting with Jin, Mr Xi promised that if Jin could help him secure the tender, he would give Jin one per cent of the total project price as a payback. Jin voted for Mr Xi during the tender assessment process and enabled Mr Xi to win the bid. Mr Xi later honoured his promise and gave Jin RMB50,000 as a token of appreciation. Both of them we re caught and se ntenced to fixed-term imprisonment for offering and accepting bribes respectively.

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Analysis and major points of law Jin was a State functionary who took advantage of his office to secure a benefit for Mr Xi in return for bribes. Jin committed the offence of accepting bribes. Criminal litigation in the Mainland places much emphasis on whether the "offender" is "subjectively intentional" when committing the crime, i.e. whether there is evidence to prove that the suspect "clearly knows that his act would entail a particular consequence but still proceeds to commit it". Mr Xi initiated the offer of money to Jin as an advantage in exchange for illegitimate benefits (i.e. requesting Jin to secretly help him secure the tender), so there was an element of "subjective intent" which constituted an offence of offering bribes. In this case, both the offeror and recipient of bribes were found guilty.

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Case 10 Giving rebates of any description to a State functionary is considered an act of bribery Mr Fan was the Deputy General Manager of a State-owned tea corporation in Shanghai. He dealt with a Hong Kong-based Japanese-funded company, but took advantage of his position by asking for a US$1 rebate for each packet of tea sold as a condition of business. He also asked for the rebates deposited into his personal bank account in Hong Kong on the premise that this would facilitate Mainland traders to make withdrawals during business trips to Hong Kong. Since the price of the tea products was still very attractive despite the payment of rebate, the Japanese operator acceded to Fan's request. During a three-year period, from February 1997 to August 2000, Fan demanded a total of US$140,000 from the Japanese company and spent it on personal property and the operation of his own private enterprises. After a complaint was made by a subordinate, Fan was finally sentenced to fixed-term imprisonment for committing the offence of accepting bribes.

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Analysis and major points of law Fan was a State functionary who took advantage of his position to accept bribes from another person, thus constituting an offence of accepting bribes. By intentionally concealing savings outside the territory of the Mainland, he committed yet another offence. Fan was the one who asked for the rebates. It was an act of extortion within the offence of accepting bribes. As such, a heavier punishment was given. In the course of any economic activity, offering rebates or serv i c e charges of various descriptions to State functionaries for the purpose of securing illegitimate benefits is re g a rded as offering bribes and is punishable. Even though the offeror is not securing illegitimate benefits, he will still be criminally liable for offering bribes should there be a violation of State regulations. The Japanese businessman in this case did commit an act of giving money to Fan but there was no "deliberate intent" on his part to offer a bribe, as he believed he was just settling payment of the goods in two parts. Besides, since there was no evidence to prove otherwise, his explanation was eventually accepted by the procuratorate. He then turned prosecution witness to testify that he was demanded a bribe in the case. He was therefore not adjudged to have committed an offering offence. Though the Japanese businessman was fortunate enough to be cleared of any criminal liability, the reckless way in which he handled the matter was not advisable.

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Case 11 O ffering advant ages to State functionaries in business transactions is an act of offering bribes Mr Meng was the manager of a private enterprise dealing in motor vehicles. In order to secure licences for the motor vehicles, Meng became acquainted with two functionaries in the municipal transport management department. From July 1999, Meng started to refer licence applications of substandard motor vehicles to these two functionaries direct for processing. As a result, a total of 2,100 licences were illegally obtained and hefty profits were pocketed by Meng. In appreciation for their help, Meng treated the two transport functionaries to a trip to Hong Kong, and afterwards deposited HK$700,000 bribe money into a bank account the two had opened in Hong Kong. Owing to a staff reshuffle, the illegal dealings of the duo were exposed and Meng was also sentenced to fixed-term imprisonment for offering bribes.

Analysis and major points of law Meng's application to illegally register substandard motor vehicles for licences was considered an act of securing an illegitimate benefit. Although Meng was the operator of a private enterprise and not a State functionary (i.e. a general subject of an offence), his act of bribing State functionaries constituted an offence of offering a bribe. Committing the offence of accepting bribes in the Mainland is certainly pursued for criminal responsibility. Moreover, such an offence falls under the conditions of "criminal responsibility can be pursued outside the territory" as defined in the Criminal Law of the PRC. This means that even if the offence of accepting bribes is committed outside the territory of the PRC, criminal responsibility can be pursued in the Mainland so long as the crime is punishable according to the laws of the location where the crime is committed. 50

Case 12 Misappropriation of public funds by making use of State enterprise funds for private loan purposes or to gain personal benefits is an offence Patty was the deputy financial director of a State-owned food import and export company in Shanghai. From November 1999 to March 2000, Patty took advantage of her position in handling the financial matters of the company by falsifying accounts and deeds of trust. On three occasions, she misappropriated company funds amounting to RMB30 million for the purpose of providing a loan to the operator of a private Hong Kong-funded enterprise, who was in financial difficulties and with whom she had close connections. To show his appreciation for Patty's assistance, the operator arranged an overseas trip for Patty with all the expenses borne by the private enterprise. The internal control system of the enterprise detected these i rregularities. An investigation was initiated and Patty's illegal behaviour was discovered. At the time the inci dent was discovered, she had not repaid any part of the RMB30 million that was misappropriated. Patty was given fixed-term jail sentence for misappropriation of public funds.

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Analysis and major points of law Lending money to other people to operate a company for private gains constitutes the misappropriation of public funds for personal use in the Criminal Law of the PRC. Patty had done so for more than thre e months thereby committing an offence. Patty was a State functionary who took advantage of her position. Though she had neither taken the funds for personal use nor for conducting illegal activities, the act still constituted an offence of m i s a p p ropriation of public funds. Whether she re t u rned the funds eventually would also have had no bearing on the nature of the misappropriation offence. Since she had not intended to take personal possession of the funds, her action did not constitute a dire c t c o rruption offence, although she was treated as a suspect of a corruption offence throughout the investigation. It was also unwise for the Hong Kong businessman to borrow such a large sum of money from a friend who was a State functionary. Since he had to repay the loan immediately, his business in the Mainland was severely affected and his enterprise eventually closed down.

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Case 13 Making use of a client's funds is a misappropriation offence Sandy was a senior manager in a well-known investment company in Hong Kong. More than a year ago, she started to operate a fashion business in Shanghai with a friend, but business was poor. Recently, an investment firm in Shanghai persuaded her to take up the post of manager of the futures department. She resigned from the Hong Kong company and took the position with the Shanghai investment firm. In order to get more money to finance her fashion business, Sandy took advantage of her position in the investment firm and m i s a p p ropriated over RMB50 million of her clients' money by trading in futures using different accounts. Eventually the case came to light, and it was later found in an audit check that the company suffered a loss of over RMB4 million. Sandy was sente nced to fi xed-term imprisonment for misappropriation of funds.

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Analysis and major points of law Sandy was not a State functionary but she took advantage of her position to make use of company funds to trade in futures. This violated the provision re g a rding misappropriation of company funds "for personal use in profit-making activities". Although it was not proved that she had obtained personal benefits and the misappropriation lasted less than three months, her act was sufficient to constitute an offence of misappropriation of a unit's funds. Whether or not Sandy eventually returned the money did not affect the nature of the offence of misappropriation of a unit's funds. Since it was not proved that she had the intention to take the money into her personal possession, the offence of embezzlement through dereliction of duty by employees of enterprises could not be established. Sandy was not a State functionary, so she had not misappropriated public funds but a unit's funds. These two different offences carry d i ff e rent punishments. The subject of this offence could be an employee of a joint venture or private enterprise, including someone recruited from outside the Mainland.

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Case 14 A unit secretly accepting off-the-book rebates and advantages commits an offence of accepting bribes by a unit Hong Kong businessman Peter operated an electronic component f a c t o ry in Shanghai that provided electronic parts to pro d u c t m a n u f a c t u rers in other regions. In the course of business, he became acquainted with the manager of a State-owned electronics trading company, Mr Li. At the end of 1997, Peter's factory encountered financial difficulties, so Mr Li took the opportunity to make a bulk purchase of electronic components from Peter. However, during negotiations, not only did Mr Li push down the price, he also forced Peter to quote the original price on the invoice and pay the difference in the form of rebates to a specified subordinate of his in cash as staff welfare. Peter accepted the deal and thanked Mr Li for helping him out with his financial plight. Mr Li grossed a large profit on the deal with Peter. After a discussion with other leading personnel in the company, Mr Li instructed his subordinates to accept rebates from related units in their dealings with foreign investors. In the subsequent two years, the State-owned enterprise openly accepted rebates amounting to RMB1.2 million from business units in their transactions with f o reign enterprises. The money accrued was then secre t l y deposited into an off-the-book "treasure chest" account.

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A small portion of the money in the "treasure chest" account, subheaded "welfare expenses subsidies", was used by the senior staff for festive celebrations, wining and dining. A large portion of it was used for investment. All this money was used off-the-book and controlled by a small group of senior staff. The State-owned enterprise in question was eventually fined for the offence of accepting bribes by a unit while Mr Li was sente nced to fix ed-term imprisonment. Peter was also investigated.

Analysis and major points of law The State-owned electronics trading company was the subject of the offence of accepting bribes by a unit. Units secretly accepting off-thebook rebates and service charges, etc. in external business dealings with foreigners will be punished for the offence of accepting bribes from another unit. Mr Li was a State functionary who instigated the criminal intent. He then instructed his subordinates to put it into practice. He was therefore the person to be held directly responsible and who was pursued for criminal liability. The unit itself could also be fined. Any unit which offers rebates of various descriptions to State organs, State-owned companies and enterprises for illegitimate benefits commits an offence. The responsible person will be sentenced to fixedterm imprisonment of three years or less. Fortunately for Peter, he was only trying to do business in a difficult economic climate, and he was in fact the victim who was forced to lower the price and pay a bribe. Peter was therefore not prosecuted. However, the case brought him a lot of trouble and he really regretted not getting to know the local laws and regulations better.

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Case 15 The principal responsible person of a joint-venture company can be held liable for offering bribes E d w a rd was the Hong Kong re p resentative of a private jointv e n t u re enterprise and held 60 per cent of its shares. The enterprise mainly produced high-quality metal stationery and had put in place a number of security measures to guard against b u rg l a ry. The Mainland factory manager had reminded Edward three times that the fire prevention facilities in the factory were i n s u fficient and its exceptionally tight security measures had increased the fire hazard in the building. The result could be an investigation by the local fire prevention authorities. However, Edward insisted time and again that his main concern was to guard against theft. He asked the factory manager to take charge of the matter and deal with the fire prevention authorities, adding that he would back up the factory manager as long as he could persuade the authorities that everything was okay. Then a fire broke out in the factory and 12 workers were injured or died. The procuratorate received a report that the factory manager had bri bed two St ate functionaries of the fire pre v e n t i o n authorities. Cash, including foreign currencies, worth over RMB300,000 were found in the residences of the two State functionaries. A thorough investigation showed that the two State functionaries had taken advantage of their position to accept over RMB200,000 in bribes. In addition, neither of them was able to explain the source of the remaining RMB100,000 which was obviously in excess of their lawful income. The two State functionaries were both sentenced to fixed-term imprisonment for the offences of accepting bribes and for failing to explain the significant excess of pro p e rty or expenditure over lawful income. The factory manager and Edward were both sentenced to fixed-term imprisonment for offering bribes.

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Analysis and major points of law Edward was considered to be the principal responsible person of the j o i n t - v e n t u re company. He had clearly authorised the manager to handle the fire protection matters of the factory on three occasions and said he would be fully responsible for any consequences. Although Edward did not directly offer bribes to the State functionaries, the fact that he had authorised the manager to handle the matter and that the manager offered bribes not for himself but for the factory meant that Edward had to bear the legal liability of the manager's acts. The property or expenditures of the two State functionaries of the fire prevention authorities were clearly in excess of their lawful income. They had the burden to prove the source of the significant amount of property in their possession. Any person who cannot clearly specify the legal source of his income commits an offence of failing to explain significant excess of property or expenditure over lawful income.

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Case 16 Taking advantage of one's position to steal a company's money and pro p e rty is an offence of embezzlement through dereliction of duty Nelson was the Hong Kong representative and cashier for a plastic products joint-venture enterprise in Shanghai. Between March and April 1997, Nelson removed a number of loose customer invoices from the company account vouchers amounting to a total of RMB170,000. He then obtained the seals specially used by the company's finance department and the private seals of top management and applied them onto the cheques in his possession. He forged the signatures on the cheque collection register to issue seven cheques worth RMB170,000 in total. Finally, he deposited the cheques into the credit card account of his wife and fabricated vouchers as payment for a client's transport expenses to account for the amounts. Nelson's action was discovered during an audit within the enterprise. He was sentenced to fixed-term imprisonment for the offence of embezzlement through dereliction of duty.

Analysis and major points of law Nelson was not a State functionary but he took advantage of his position to forge documents and steal from the company, taking possession of the unit's money unlawfully. His intent to take possession of pro p e rty was sufficiently obvious to constitute the offence of embezzlement through dereliction of duty. If personnel of State-owned companies, enterprises or units assigned to non-State-owned companies, enterprises or units are found to have done anything similar, they will commit an offence of embezzlement.

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Case 17 Acceptance of bribes by employees of companies and enterprises Yvonne was the manager of an industrial trading company (a collective enterprise) responsible for purchasing company supplies, sales and marketing of products, subcontracting work, and advertising and publicity services, etc. From early 1995 to November 1996, Yvonne took advantage of her position to accept bribes totalling RMB240,000 from a clothing accessories company, an industrial corporation and an advertising company in return for facilitating their businesses. Investigations ari sing out of a complaint made by other competitors saw Yvonne sentenced to fixed-term imprisonment for the offence of accepting bribes by employees of companies and enterprises.

Analysis and major points of law Fair competition is of paramount importance in maintaining a good business environment. Acceptance of bribes in business dealings creates unfairness and easily attracts complaints or corruption reports from business rivals. Although Yvonne was not a State functionary, the fact that she took advantage of her position to accept bribes from related business units and to secure benefits for them constituted an offence of accepting bribes by employees of companies and enterprises. If the personnel of State-owned companies, enterprises or units assigned to non-State-owned companies, enterprises or units are found to have done similar things, they will have committed an offence of accepting bribes by State functionaries which carries a much heavier penalty.

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Working together with diligence will bring true excellence

Chapter 3 : Specific Areas of Commercial Activity This chapter looks in detail at three trades and professions, which are particularly active in Hong Kong and Shanghai. These are: • Securities, futures and investment sectors • Trading and the banking business • Construction industry Hong Kong and Shanghai have different legal systems, so the situation and conditions in each jurisdiction will be discussed separately in the next two sections. Preventive m e a s u res for each of these business sectors are discussed in Chapter 4 - "Corruption Risks and Preventive Measures". To avoid duplication, we provide only a brief overview of the major points of law, instead focussing on analysing the common problems encountered in these areas. The Hong Kong Securities, futures and investments sectors Scenario

Hong Kong is a leading global financial centre and an important stock and futures exchange in the Asian region. By the end of 2000, the Hong Kong Exchanges and Clearing Limited (HKEx)1 launched the Automatic Order Matching and Execution System (AMS/3) which now enables investors to make transactions on different investment products through a variety of methods and systems. The way in which business can be conducted in Hong Kong can take one of a number of forms. This could include simply registering and setting up a new company, acquiring an existing company, establishing a representative office, or listing a new company on one of the local exchanges.

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Hong Kong's Exchanges and Clearing Houses were merged and demutualised to form the Hong Kong Exchanges and Clearing Limited (HKEx) which was listed on its Exchange on 27 June 2000.

Chapter 3 : Specific Areas of Commercial Activity

Chinese (Mainland) State-owned enterprises are also able to have a presence in Hong Kong. Many of them are listed on the HKEx, where they are known as "H" Shares. Privately established Chinese enterprises can also be listed on the Hong Kong market, and are often referred to as "red chips". In Hong Kong, the term "listed companies" refers to those public limited companies listed on the HKEx and whose shares are transferable freely by the public. The listing and operation of such companies are subject to a number of ordinances and regulations, some of which are listed in Appendix 3. Given the complexity of the laws, investors and senior managers are advised to have a good understanding of what is required before becoming involved in the market. The next section provides a number of case studies to illustrate these points.

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Case Studies The following cases aim only to illustrate certain major points of law. The names of persons and companies involved are purely fictitious.

Case 18 Exaggerating a company's financial position to facilitate raising of capital and listing on the market With the recent boom in export trade in the Mainland, an amalgamation of several large-scale enterprises of a province had f o rmed a corporation. In order to pre p a re to raise investment capi tal and an eventual lis ting in Hong Kong, two of the corporation's directors were sent to Hong Kong to set up a "window" company. Their plan had the initial consent of the China Securities Regulatory Commission and the Ministry of Foreign Trade and Economic Cooperation. The "window" company in Hong Kong appointed an experienced accounting f irm as i ts cons ulta nt to advise on listing arrangements, procedures and requirements. After reviewing the structure of the new corporation, the accounting firm considered that competition existed among the corporation's subsidiaries, and that the corporation had to restructure its business so as to provide HK$50 million or 25 per cent of floating stock to meet the basic listing criteria. This would involve the take-over of one or more Mainland or Hong Kong companies. Charle s was a me mber of the listing proj ect team at the accounting firm. In his market analyses he suggested the acquisition of several companies that he had re s e a rched and shortlisted. His recommendations were supported by his colleague Walter. The acquisition plan eventually went ahead, but not without problems. 64

Charles and Walter both resigned from the accounting firm soon after the listing of the corporation. The senior director of the accounting firm later found problems in the financial information of some of the corporation's subsidiaries which it appeared involved fraudulent Letters of Credit (L/Cs). He suspected that there might have been payment and acceptance of bribes during the listing process, so he reported the case to the ICAC. Investigations revealed that Charles, Walter and an employee of the corporation's "window" company were suspected of having accepted bribes for concealing the deficit situation of local companies acquired in the deal, and that they had conspired with others to exaggerate the financial status of those companies. This allowed the re s t ru c t u red corporation to meet the Hong Kong listing requirements.

Case Analysis Under Section 9 of the PBO, it was an offence for Charles, Walter and the employee at the "window" company to accept advantages without the approval of their employers. The directors posted to the "window" company in Hong Kong were also liable for signing documents related to the listing. It is stipulated in the law that the asset value of any company has to be accurately disclosed in the prospectus and listing documents. Any misrepresentation of the company's performance will breach HKEx's Listing Rules and the Protection of Investors Ordinance (Laws of Hong Kong Chapter 335). The corporation's directors who were deceived or unaware of the corrupt actions below them might not face any charges. But if the case were made public, the share price of the corporation would be significantly affected. It could have resulted in the suspension of trading during investigations and severely damaging the corporation's reputation. Clearly, companies should exercise great care when seeking to raise investment capital and a stock market listing in Hong Kong.

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Case 19 Insider dealing Alex, the Hong Kong-based financial director of a Mainland red chip company was on good terms with Henry, the sales manager of a large securities company. After dining together one night, the duo went to a night-club to plan their strategy to make some money. Alex told Henry that his company was scheduled to restructure and might re ceive investment from a well-known intern a t i o n a l corporation. The two companies had even signe d several agreements. They decided this was a golden opportunity. But Alex felt it would be awkward to mobilise his available capital for fear of arousing suspicion, so they came to an understanding. Alex would inform Henry to speculate jointly on the stocks of the red chip company at the right time. Henry gathered together his savings and took out additional loans from banks and finance companies. Henry made a large purchase of the red chip company's stocks in his son's name, using accounts at several different brokers to cover his tracks. Two weeks later after the red chip company had announced its re s t ructuring plan a nd the takeover of a pro f i t - m a k i n g communications company, its share price began to fluctuate. Six weeks later, news of a multinational corporation on the lookout for business partners in Hong Kong or the Mainland to develop the Mainland market further boosted the red chip company's shares. However, negotiations between the red chip company and the multinational communications company failed. Alex immediately informed Henry to sell their shares at a high price and made huge profits. As a reward for his giving prior notice for their moneymaking plan, Henry then deposited HK$750,000 into Alex's personal account.

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Case Analysis Under the Securities (Insider Dealing) Ordinance (Laws of Hong Kong Chapter 395), Alex was regarded as an "insider" because he was the financial director who had access to the confidential information relating to the company. Henry violated the codes of conduct of his profession and committed an insider dealing offence for using non-public information (i.e. information not made public at the time the stocks were purchased) provided by Alex in order to make a financial gain. Please refer to Appendix 4 for detailed text of the Ordinance. Although insider dealing is not a criminal offence, a person is subject to heavy penalties if he is found guilty by the Insider Dealing Tribunal. The person is liable to pay the Hong Kong SAR Government a sum equivalent to the amount of profit gained as a result of the insider dealing, plus a fine not exceeding three times the aforementioned amount. He is also banned from taking part in the management of a listed company or any other specified company for a period up to five years. Alex had also committed a bribery offence, as he had leaked confidential information about his company to Henry in return for the latter's financial reward. Henry committed the offence of offering a bribe. Both were in breach of Section 9 of the PBO.

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Case 20 Front running Frank was the general manager of the Hong Kong office of an H share company. Since taking up his post in Hong Kong, he had been working hard, actively establishing good relationship with business counterparts in the hope of proving his own abilities. The Hong Kong office was mainly responsible for handling a certain amount of the export trade and investment projects of the H share company. However, the company's stringent accountability system required Frank to seek the approval of CEO or head-office before his investment decisions could be implemented. Frank was annoyed with this policy, feeling that such decisions should be decentralised and put in his hands. Frank came to know Ray, a dealing manager at a large securities trading house. Ray's clients were mainly fund managers and large investors whose trading volumes could sometimes significantly affect the market. Ray's trading house also executed trades for Frank's employer - the H share company. Frank secretly came to an arrangement with Ray in which Frank withdrew money from the "treasure chest" he had privately set up in the Hong Kong office. Whenever Ray received "buy" orders from the H share company, he would first ask Frank to buy the same share in his own name through another securities trader. Ray then executed the H s hare company's order which was usually significantly large to drive up the share price. Taking this opportunity, Frank sold on strength, making a good return on the price difference. C o n v e r s e l y, when Ray received "sell" orders from the H share company, similar arrangements would allow Frank to profit from the price difference, if it was possible to sell the shares short. For his trouble, Frank would offer Ray 30 per cent of the profit gained in every transaction and keep the rest in the local Hong Kong office account, claiming that he was making money for his company instead of for himself. 68

Case Analysis Ray clearly knew that the orders of his clients might have a significant effect on the price of certain stocks. He was also aware that such orders were confidential, and not normal public information. However, he deliberately delayed effecting transactions for these clients and conspired with Frank to make use of this market-sensitive information for personal gain. This was a typical example of front running. It undermined the interests of clients and violated the Fit and Proper Criteria of the Securities and Futures Commission (SFC) as well as the Code of Conduct for Persons Registered with the Securities and Futures Commission. In addition, Ray also breached the HKEx's code of conduct which strictly prohibits members from leaking information relating to their clients' "buy" and "sell" orders, and requires them to uphold the principle of conducting business in the best interests of their clients. Both Ray and Frank had committed an offence of accepting and o ffering bribes under Section 9 of the PBO, as Ray had pro v i d e d information about his clients' transaction orders in exchange for Frank's reward. It was also against the law for Frank to set up a "treasure chest" for stock market speculation. Such activities are governed by different rules and regulations in Hong Kong and the Mainland. In Hong Kong, Frank's act would constitute a crime of theft. Any decision by the authorities to institute investigations and legal proceedings would not be influenced by the amount of company funds embezzled, nor any restitution that had been made (or when the restitution was made).

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Case 21 Market manipulation A publicly listed electrical engineering company had made p rovisions for huge bad debt losses in its annual re p o rt. The market reacted and the company's share price fell, languishing near the bottom of its price range for some time. Four months later, the share price suddenly rocketed from HK$4 to HK$6.2 within a few weeks. This culminated in trading of the shares being suspended suddenly one afternoon. The following day the company issued a press release announcing that an independent third party, a person named Larry, held 28 per cent of the shares, and that a conditional acquisition of shares from other shareholders would be carried out according to SFC's Code on Takeovers and Mergers (the condition states that the number of shares acquired by Larry and any shareholders who agree to the takeover have to amount to 50 per cent of the company's share capital). The acquisition price, i.e. HK$6.5, was the same as the allotment price at which Larry had bought the shares from previous shareholders. It turned out that the board of directors of a fore i g n - c a p i t a l company, as advised by its financial controller Mark, had decided to finance the purchase of four per cent of the stock in the electrical engineering company. The shares were later transferred to Larry enabling him to raise his shareholdings from 28 per cent to an amount that satisfied the criteria for a full acquisition. As a result, Mark had secretly accepted huge benefits from Larry. Mark then released information to the market that, according to his research of the company's capital assets, valued the shares at HK$9. This meant that when the period of acquisition acceptance came to a close, Larry's holdings amounted to only 40 per cent of the total share value of the company. Given that this fell short of the 50 per cent holding re q u i rement, his acquisition plan was cancelled.

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Meanwhile, it turned out that Mark had secretly purchased shares in the electrical engineering company in the name of his wife well in advance of the acquisition and then collaborated with Larry in selling them out before the price fell. Since both men had conspired with the dealing manager of a brokerage company, they got to know the best time to purchase and sell shares, thus enabling them to make a significant profit.

Case Analysis Mark deceived his own board of directors with a falsified professional analysis of the electrical engineering company, commissioned as part of the financing the purchase of four per cent of the company's shares. The board was able to make small profit by transferring the shares to L a rry. But they did not realise that they had been used as an accomplice in the market manipulation scam facilitated by Mark, Larry and the dealing manager of the brokerage company who had made significantly larger profits from the scam. If the case had been uncovered by SFC, not only would Larry and those concerned be liable to prosecution, but the company which had financed the purchase and transfer of the shares would also be charged with conspiring to manipulate the market under the Securities Ordinance. It is stipulated in the SFC's Code on Takeovers and Mergers that the quotation of the offer an acquirer makes for a full company acquisition must not be lower than the highest price of the shares over the last six months, and that the offer price is usually the same as the allotment price in the transfer of shareholdings. This Code aims to ensure that all shareholders are equally and fairly treated and they should have sufficient market information to make an informed decision. It is clearly unfair to other shareholders if somebody intentionally manipulates the market. Mark might have committed an offence under Section 9 of the PBO for intentionally misleading the board of directors of his own company by suggesting the board of directors to purchase the shares of a certain company and then transfer them to other designated persons. 71

Chapter 3 : Specific Areas of Commercial Activity

Trading and the banking business The banking industry is a pivotal part of any economy, and is often a key partner in any entrepreneurial venture. Banks provide funds for a wide range of business activities, as well as providing complementary support services for the normal operation and day-to-day running of a business. In view of the important role played by the banking industry in all economic activities, rules and regulations are in place all over the world to ensure the healthy operation of the industry. Banks and their employees in Hong Kong have to abide by the Banking Ordinance (Laws of Hong Kong Chapter 155). Sections 123 and 124 of the Ordinance are both related to deception and acceptance of bribes2. Please refer to Appendix 5 for the detailed text of the Ordinance. All bank employees are also required to comply with the Banking (Code of Conduct) Guidelines 1986 ("Code of Conduct") which is administered by the Hong Kong Monetary Authority. Investors and businessmen are encouraged to avoid dealing privately with individual bank staff (i.e. outside their capacity as a representative of the bank they work for), and need to be cautious when conducting the following activities with banks: • Applying for credit facilities and overdraft • Applying for L/Cs • Evaluation of collateral • Applying for a mortgage or loan for property, machinery, stocks, etc. • Financing of listing activities As was pointed out in Chapter 1, it is an offence in Hong Kong for an agent (including a director and an employee of a bank) to solicit or accept any advantage from others as an inducement to, or a reward for,

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Section 123 of the Banking Ordinance specifies the circumstances in which bank directors and employees commit a deception offence through accounts or books of record; Section 124 prohibits the acceptance of advantages by directors and staff in the course of business.

performing his duties in relation to his principal's (the bank's) affairs without his principal's permission. Any person who offers an advantage to a bank employee (including a director) for the same reason also commits an offence. The following cases illustrate real-life examples of questionable dealings with banks.

Case 22 False valuation of collateral in exchange for approval of a higher credit limit William was the owner of a factory on the Mainland. Recently he needed to apply for HK$8 million in credit to help finance his rapidly-expanding business. He contacted his friend Andrew, the Loans Department Manager of a bank in Hong Kong, who advised William to t ake out a mortgage using the new pro d u c t i o n machinery he had recently purchased as collateral. The bank assigned Andrew and his supervisor to visit the Mainland factory in order to verify the application information and inspect the machines. After the inspection, Andrew's supervisor expressed doubts that the machines had been in use for a while and were not new as stated in the application. He asked William to produce more documentary proof to the age of the equipment. William asked his staff to fax more invoices from Hong Kong and promised to submit the original papers to the bank on their return to Hong Kong. He expressed a hope that the bank could process his application quickly. Andrew decided to take advantage of William's predicament by saying that his supervisor could exercise his discretion and slightly o v e r-value the ma chinery in orde r t o meet the mor t g a g e requirement. Andrew asked for a "red packet" of HK$200,000 from William which, he claimed, would be passed on to his supervisor.

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Case Analysis Bank employees in general know full well the urgency of a client's financial needs. Certain unscrupulous employees may take the opportunity to profit from such situations. Andrew knew that William wanted the loan urgently, he took the opportunity to solicit money from William. Since the bank strictly prohibits staff from accepting any advantage under such circumstances, William should not submit to Andrew's demand, or offer any advantage to him or his supervisor. To do so would be to commit an offence under the PBO. As for Andrew, even if he was only soliciting a bribe on behalf of his supervisor and not benefiting personally, he would still be in violation of the PBO.

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Case 23 Making use of another person's company for deception and money laundering John was very busy running a rapidly-expanding manufacturing business on the Mainland. His original import-export company in Hong Kong was only partly operating and doing very little business. John had a friend, Leo, who was an employee at the Cre d i t D e p a rtment of a large bank. Leo was aware of the diff e re n t situations with John's companies in Hong Kong and the Mainland. Leo asked John if he could use the import-export company to conduct some private export business, taking advantage of the credit limit the bank had already granted to the company. Apart from pledging that he would pay for any customs duty, Leo also o ff e red to pay John a s ervice fee of three per cent on all transactions. As Leo was a long-time friend, John agreed to his p roposal. During the early stages, John was very careful. He checked and signed each and every invoice himself, and examined the documents Leo used when applying for L/Cs. But as time went by, John became too busy, and even gave Leo the company chop. Leo suddenly disappeared, and it was only then that John discovered that the company was heavily indebted to the bank. Alarmed by this, he called the police. It was found that Leo was not really making use of John's company to conduct a norm a l business. Instead, he had conspired with others to create bogus transactions using the name of the company to apply for L/Cs and deceive the bank. Leo also took advantage of his position in the bank to collect i n f o rmation on loan applicants. Soon after the ba nk had successfully granted a loan, he would call the client concerned and tell them the confirmation letter had been issued wrongly by the bank and to disregard it. Leo had also bribed two other employees of the Credit Department to ensure the loan money was transferred 75

smoothly into John's company account via other accounts. In addition, John was also suspected by the police of having embezzled a loan of HK$87 million from the bank through 25 bogus loan transactions. Meanwhile, the bank also discovered that both deposits and withdrawals in John's account were highly suspicious. Frequently, l a rge sums of money would be deposited into the company's account right before public holidays or on a Saturday morning, coming in from several accounts. Then this money would be t r a n s f e rred out to various accounts the following Monday. It seemed highly probable that money laundering was gong on.

Case Analysis In this case scenario, Leo made use of John's company name and credit limit to conduct three illegal activities: (1) using bogus transactions to deceive the bank into issuing L/Cs; (2) using a company account to appropriate loans the bank had granted to its clients; and (3) using a company account for money laundering. Businessmen sometimes consider "lending" their credit to others in order to keep the existing credit line active or to get extra income. However, doing so is extremely risky. This is because in order to cheat the bank into financing a business transaction, and to ensure an invoice tallies with that of the L/C, the perpetrator might have to falsify title documents of the goods in question, in order to lead the L/C issuing bank into issuing an L/C with a much relaxed line of credit. Also, a company which applies for the L/C on behalf of another company cannot in any way monitor the transaction, or provide more information for the bank to track the details. Therefore it has to shoulder the liability for any debt.

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Leo abused his office for personal gain and bribed his colleagues, and would be charged with fraud and bribery. He would also be charged with theft for embezzling loans approved by the bank for other clients. If Leo was proved to have assisted others in laundering ill-gotten gains3 and deliberately concealed such activities from the bank, he would contravene the Organised and Serious Crimes Ordinance (Laws of Hong Kong Chapter 455), the Drug Trafficking (Recovery of Proceeds) Ordinance (Laws of Hong Kong Chapter 405) and the Guideline on Prevention of Money Laundering issued by the Hong Kong Monetary Authority.

Case 24 Granting of loans without complete documents Ronald, the director of an investment company in Hong Kong, applied for a US$30 million loan from a local bank to finance a shopping mall development in the Mainland. He approached Chris, the Assistant General Manager in charge of the bank's business development. After discussing the matter internally, it was decided that Chris's department would draft a financing application proposal to ensure that the application was in line with the bank's vetting guidelines. Chris in particular was ordered to follow up on the application and to seek more information from Ronald. Chris later told Ronald that the bank had approved the estimated valuation and the asset mortgage clause of the financing plan in the initial vetting stage. After the bank had approved the financing arrangement, Ronald's investment company sought to withdraw the loan in instalments f rom a Mainla nd branc h of the bank, but prob lems were encountered as the investment company was unable to submit sufficient supporting documents. Ronald rang Chris in Hong Kong and asked him to contact the Mainland branch off i c e .

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If a sum of money is the proceeds from drug trafficking and serious crimes, then any forms of depositing and withdrawal of such intending to conceal the true origin of the money would be regarded as money-laundering activities.

Subsequently, the branch office released part of the loan, even though they did not have the necessary supporting documents. To show his appreciation, Ronald arranged the sale of some company shares to Chris. He later bought back the shares from Chris at a much higher price through a broker he knew well. Eventually, Chris made a profit of more than one million Hong Kong dollars through share trading without the need to contribute any funds at all.

Case Analysis Bank employees are duty bound to provide quality services to customers in a helpful manner. Under certain circumstances, there may be different procedures for special financing arrangements, especially if substantial amounts are involved, but such procedures still have to be in line with the bank's internal guidelines. Bank employees need to provide customers with professional advice on drafting the financing application proposals so as to ensure that the conditions stated in the application comply with the vetting guidelines of the bank. During that process, there is no need for the customer to offer any advantage or reward. Moreover, according to the Banking (Code of Conduct) Guidelines 1986, even if the acceptance of an advantage or gift does not affect the normal execution of duties by bank employees, and is not related to any of the bank services listed in Section 124 of the Banking Ordinance, its value cannot exceed HK$1,000. If the reward is accepted in relation to the bank's business and if the bank employee has not obtained permission from the bank, the reward would be regarded as an illegal advantage. Both the offeror and recipient commit an offence under Section 9 of the PBO, no matter whether the offer and acceptance of the bribe is dressed up as trading in stocks or accompanied by any other pretext.

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Case 25 L/Cs kiting Fred owned an import-export company in Hong Kong which mainly dealt with trade between the Mainland and Hong Kong. Because of frequent trips to the Mainland, Fred left the daily operation of the company to Luke. Recently, Fred discovered a number of questionable L/Cs in the company. Although the delivery points of the goods were all in the Mainland, the documents showed that several overseas financial i n t e rmediaries were involved and the payment period of some transactions was 90 days or more. Fred sensed that something was wrong, so he asked Luke to check on these deals. A week later, Luke took leave on the pretence of visiting family overseas, but he never returned. It was later discovered that Luke had conspired with others to falsely represent the purchase of products from other parties. Luke then applied for an L/C from the bank, falsely claiming that it was in the payment for the transaction. The other party then discounted the L/C at another bank, and deposited the proceeds into yet another bank account as a cash pledge. By repeating this process, they were able to accumulate cash in the time period between discounting the L/C and the repayment deadline. Since Luke had bribed a senior staff member of the L/C issuing bank, his illegal racket was able to continue for over a year without being discovered. The "snowball" effect of this process became bigger and bigger, with a total of seven banks becoming involved and leaving Fred's company on the verge of insolvency. The total amount of accumulated bad debts amounted to over HK$60 million.

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Case Analysis Quite simply, Luke had bribed an employee of the L/C issuing bank. Both of them were therefore in breach of Section 9 of the PBO. They would also be charged with conspiring to defraud the bank. This is also an example of serious mismanagement. The integrity of both parties is fundamental to bank transactions of this nature. It is the company operator's responsibility to oversee each and every transaction and to look for any signs of bribery or fraud in daily business dealings. Please refer to Chapter 4 for more information on preventive measures. The original purpose of payments by L/C is to minimise operational risks and to help with cash flow. However, since L/Cs allow a grace period for a buyer to settle the payment after receipt of goods, dishonest individuals may take advantage of this period to defraud money from the bank. As the bank is not responsible for authenticating the transaction documents4, applicants must handle every transaction with care.

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The guideline issued to banks internationally by the International Chamber of Commerce (ICC) on the Internet contains an interpretation of the definitions on the paper of UCP500 (Uniform Customs and Practice for Documentary Credit). The guideline also points out that banks have no responsibility to verify the documents concerned in processing letter of credit applications.

Case 26 Setting up a private "treasure chest " Mr Wen was sent to Hong Kong from the Mainland recently as the Deputy Financial Controller of a State-owned enterprise. Shortly after his arrival, he discovered that certain L/C documents had been used to secure discounts from the bank despite failing to meet the re q u i red standards of the audit department. We n ' s colleagues said the bank had confidence in the State-owned enterprise, as it was a major long-term client, and was able to handle their business flexibly. Three months later, Mr Wen learned that certain staff had taken advantage of their positions to discount fraudulent L/Cs at certain banks in order to secure funds. They had set up their own private " t re a s u re chest" to speculate on Hong Kong and US stocks. Information revealed that two senior staff of the enterprise, two import-export firms, as well as eight banks and finance companies were involved. The money involved amounted to HK$200 million. It was also possible that some bank employees might have been bribed, or might have taken part in the speculation activities. Mr Wen immediately referred the case to the ICAC for investigation. Subsequently, the two senior staff of the State enterprise, a number of bank officers who had taken bribes, and several finance company directors and the import - e x p o rt firm managers were convicted. A total of 18 persons were involved in the scam that had lasted almost two years.

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Case Analysis Once again, bank employees who knew there were problems with the L/Cs but still approved the discount in return for an advantage had committed an offence under Section 9 of the PBO. The two senior State enterprise staff as well as other persons involved would be charged with offering bribes and conspiracy to defraud the bank. Bank employees supervise and assess the risks faced by the bank in each and every transaction. However, if staff of the enterprise have bribed bank employees, or if they have conspired to participate in speculative activities, banks can become vulnerable. The bank's intent of adopting a flexible financing policy is to encourage and support the business development of clients. But if there are problems in the enterprise, such as improper supervision and lack of regular contact between senior managers of an enterprise and the bank, incidents similar to this can easily arise. After this case came to light, the banks and the finance companies involved became major creditors of the State enterprise. They are within their rights to try and recover the losses suffered as a result of the fraudulent L/Cs. The State enterprise is still responsible for the debt.

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Chapter 3 : Specific Areas of Commercial Activity

Construction industry Hong Kong has always faced the twin pressures of limited land supply and growing population. This continues today, despite the economic slowdown of recent years, as people seek a better standard of living. The move to expanded towns in the New Te rritories, coupled with increased cross-boundary traffic, has led to significant investment in new infrastru c t u re, as well as private commercial and re s i d e n t i a l development. In carrying out construction projects, procedures such as tendering, planning, building and quality control must be carefully coordinated and managed. Good project management therefore plays an important role in assuring the quality of construction. If the project management fails to achieve an effective balance between efficiency and quality, or if there is lax supervision, unscrupulous individuals will use the opportunity to take advantage of the situation. The cases below serve as a reminder and reference for investors and operators in this field.

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Case 27 Substandard works A civil engineering firm had succeeded in tendering for the foundation works of a housing estate commissioned by the Hong Kong Housing Department. They subsequently contracted out the actual works to another company. As the subcontract price was considerably less than the main contractor's tender price and because time was short, the Director and Engineering Manager of the subcontractor approached the P roject Manager of the main contractor for assistance and promised to give him HK$300,000 in instalments as a reward. They conspired to shorten the length of the piles in the foundations in order to lower the cost and reduce the time needed to complete the works. To this end , they bribed two Site Supervisors of the main contractor. They also bribed a staff member of an independent material testing company to falsify a test report. In addition, they substituted materials in the course of transportation so that the results of the test and any random check carried out by the Housing Department would correspond. They also bribed the quantity surveying officer, material suppliers and certain staff of the Housing Department so that any data regarding the foundation works tallied together. Given the number of people involved, rumours quickly spread of c o rrupt goings-on. The Housing Department and the main contractor mounted an investigation and reported the case to the ICAC, who investigated and exposed the scam.

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Case Analysis Piling and foundation works are key to all large-scale construction projects. Poor foundations can clearly lead to structural problems and be a danger to life, no matter how superior the quality of the finished structure. The Director and Engineering Manager of the subcontractor was guilty of conspiracy to defraud and offering bribes. A Project Manager, two Site Supervisors and a quantity surveying officer were guilty of accepting bribes. The main contractor further suffered by being blacklisted by the Hong Kong SAR Government, and was barred fro m tendering on Government projects. Construction can be a lucrative business, but lax supervision can cause d i re consequences and unpredictable losses in both finance and reputation. The Hong Kong SAR Government takes a tough line against anyone compromising the quality an d safety of constru c t i o n developments.

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Case 28 Inflating construction expenses A large Mainland construction company recently gained a foothold in the Hong Kong construction industry. The company teamed up with a Hong Kong developer to build 60 small houses in a suburb of the New Territories. Mr Li was posted to Hong Kong by the Mainland construction company to take charge of the project. He had to submit regular progress reports to the parent company. According to his reports, approval procedures for such small houses were complicated, and differed from those for buildings in the urban area. He was required to hold frequent meetings with Government engineering staff at all levels and prepare assessment reports for their examination. These reports covered everything from applications to waive the foundation works, drawing up of an environmental pro t e c t i o n a g reement and laying the sewage pipes at company cost. His re p o rts also pointed out that since the relevant Govern m e n t departments were slow in granting approval, he needed to make more contact with Government officers and as a result, there was an increased cost in "socialising" with these officials. What had really happened was that Mr Li had been bribed by the Hong Kong dev elop er to c onspire wit h him to infla te the construction expenses and charge additional costs to the Mainland c o m p a n y. In addition, given the multi-layered nature of the subcontracting system, they deferred paying wages to workers on the job, and obtained credits from suppliers in the name of the construction company. Through all these illegal activities, the Hong Kong developer managed to complete the construction of the housing development, earning a significant profit from the sale at almost no cost.

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Case Analysis To better understand the laws and regulations related to construction of small houses in the New Territories, Mainland construction companies can consult the relevant departments of the Hong Kong SAR Government. Mr Li accepted bribes and conspired with the Hong Kong developer to deceive his employer, was guilty of accepting bribes and conspiracy to defraud. In the report submitted to the Mainland construction company, Mr Li disclosed that he might have to offer gifts to officers of the Hong Kong SAR Government. This alone should have sounded alarm bells due to Section 4 of the PBO, which states that Government servants are not allowed to accept advantages such as gifts relating to their official duties. Anyone offering advantages commits an offence of offering bribes. If the management of the Mainland construction company gave tacit agreement to Mr Li's behaviour, it would only serve to damage the company's reputation and affect its continued development in Hong Kong.

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Case 29 Conspiracy when submitting tenders for contracts Tony was the Project Manager of a professional multinational engineering consultancy, which had been operating in Hong Kong for a number of years. He learnt that a public body was looking to have all the air-ducts and sewers in its buildings inspected. This would involve using a state-of-the-art re m o t e - c o n t rolled video system to take pictures and measurements inside the ducts and sewers in order to put together a comprehensive maintenance plan. Tony felt he had something to prove to his bosses, and was anxious to obtain the engineering contract. He also knew that only a few companies in Hong Kong possessed the specialised equipment needed for such a job, so he made arrangements to meet all of them separately. He told them that the public body would award contracts for different phases of the works. He also hinted to them that if they agreed to participate to inflate the tender price for each section of the project, they could each secure the contracts in turn. If they then subcontracted the works to other companies, they would be sure of getting a share in the project. The manager of one of the companies said while he was not really enthusiastic about placing a tender because of internal deployment problems, he would withdraw from the tendering exercise if one of the other companies could reward him privately. Tony's company was eventually awarded the engineering contracts and had different elements of the works subcontracted to two companies, including one in which Tony himself held a 40 per cent share. Tony also substituted video tapes of sewers taken by a foreign company as video completed by his own company in Hong Kong. This helped him provide evidence to back a false report he had put together.

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Case Analysis Tony's company committed conspiracy to defraud by joining hands with other engineering companies in order to inflate tender prices. The manager of the company who solicited advantages from Tony as a reward for not placing a tender committed an offence under Section 6 of the PBO. Please refer to the summary of the law in Chapter 1. There was also a clear conflict of interest, as Tony was the employee of the main contractor and also a major shareholder in a subcontracting c o m p a n y. Tony also used video tapes taken by other companies fraudulently for passing them off as records of the subcontracting company, and abusing his position to help this company. This was clearly a case of conspiracy to defraud, and might also be an offence under Section 9(3) of the PBO. Although Tony's company was a well-established pro f e s s i o n a l engineering consultancy, poor management supervision could seriously tarnish the reputation of the company and might lead to the company's name being struck off the approved list of consultants to Government departments and public bodies.

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Case 30 Disclosing confidential tender information A public body in Hong Kong was inviting tenders for the construction of a complex office building. A number of large constru c t i o n companies had expressed an interest in tendering for the project. In order to scrutinise the tenders, the public body set up a committee with their Administration Manager Gary as the Secretary. Albert, the Executive Director and Project Controller of one of the construction companies, wanted to secure most of the contracts of the project at a lower tender price. So he offered HK$900,000 to G a ry in re t u r n for passing him the tender details of other contractors. Albert knew very well that the other directors in his company would not condone any such action, so he had to account for the HK$900,000 payout by other means. Albert solicited HK$250,000 f rom one contractor when he off e red to overlook substandard works the contractor had carried out on curtain walling. He also deliberately included custom-design and specialised material requests in his tender, giving material suppliers that he favoured the chance to secure contracts without any competition. These suppliers then returned the favour later with financial rewards. He also bribed staff at the public body in question in order to obtain their approval for altering works specifications and using materials other than those prescribed, so that the construction company could make a bigger profit. Albert would in turn gain the trust of his Board of Directors. On the side, he also secured nine small-scale renovation contracts from the public body, thereby making further gains for himself. But the Financial Controller of the construction company eventually l e a rnt of the incident. As other senior management might be involved, he reported the case directly to the Chairman of the Board and the Managing Director, and they in turn informed the ICAC. 90

Case Analysis A l b e rt off e red Gary HK$900,000 and requested disclosure of confidential tender details concerning other contractors. Both of them contravened Section 4 of the PBO. Albert was also guilty of accepting bribes under Section 9 of the PBO when he accepted money from the curtain-wall subcontractor in return for overlooking their substandard works. The offering of bribes to staff of the public body for allowing the alteration of works and material specifications was in breach of Section 4 of the PBO. Albert also contravened Section 5 of the PBO when he secured the renovation contracts by corrupt means. Please refer to the summary of the law in Chapter 1. F o rt u n a t e l y, the constr uction compa ny had put in place a comprehensive control system which helped to bring the matter to light. If not, the substandard works carried out by subcontractors under its supervision would have surely damaged the reputation of the company, and may have led to more serious consequences such as injury and death.

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Chapter 3 : Specific Areas of Commercial Activity

The Shanghai The economic situation and the methods employed by dishonest Scenario individuals in committing crimes in these three specific trades and p rofessions are similar in Shanghai as they are in Hong Kong. We therefore include just a small selection of case scenarios to illustrate certain points.

Securities, futures and investments sectors Shanghai is the main financial centre for the Mainland and the centre for securities trading on the Mainland. Foreign investment has gro w n considerably. In the past few years, hundreds of listed companies in the Mainland have finalised their acquisition and merger plans. Many enterprises became listed companies through acquiring or borrowing "shell companies". As all these dealings involve realignment of assets, regulatory bodies and law enforcement agencies are greatly concerned about the development of the securities market. Great effort is put into investigating and punishing illegal and fraudulent activities such as deception, embezzlement of company assets to operate side businesses, trading between affiliated part i e s 5 , misappropriation of funds, corruption, bribery and so on. Please refer to Appendix 6 for a list of relevant laws and regulations in the Mainland. Below are a few case scenarios of corruption and bribery found in the Mainland securities market.

5

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Pursuant to the Enterprises Accounting Standard - Relationship and Disclosure of Dealings of Affiliated Parties (transliteration of 《企業會計準則 - 關聯方關係及其交易的披 露》) promulgated by the Ministry of Finance of China on 22 May 1997, when making financial and operational decisions in an enterprise, the party which controls, either directly or indirectly, or co-controls the other party or exerts great influence on the other party is regarded as the affiliated party. The two parties or the parties controlled by the same party are also regarded as the affiliated parties. Any transfer of resources or obligations between the affiliated parties are regarded as dealings between affiliated parties no matter whether the collection of payments is involved.

Case 31 Using inside information to trade company stocks Mr Qin was the Finance Director of a State-owned mechanical and electrical corporat ion. He had di rect acces s to import a n t documents and information relating to the company's business strategy. During the course of a casual conversation, he picked up some inside information relating to a joint-stock electrical company in which his corporation was a major shareholder. The information concerned the possible realignment of this electrical company with a well-known high-tech enterprise. So Mr Qin purchased 10,000 s h a res in the joint-stock electrical company on two separate occasions. Mr Qin was the close associate of a Hong Kong businessman named Victor. During a banquet one evening, Victor asked Qin about the trend of stock markets on the Mainland. Victor too was looking for inside information, and had promised Qin a reward if he found out anything worthwhile. Qin told Victor about the possible realignment of the electrical joint-stock company, and that he had a l ready b ought 10,000 shares in the company. Victor then purchased 50,000 shares through another company in the name of a legal representative. The price of the stock rose sharply a week later, and both Qin and Victor sold their holdings, making a tidy profit of RMB50,000 and RMB230,000 respectively. Victor also gave Qin another RMB30,000 as a token of his appreciation.

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Case Analysis Mr Qin clearly used inside information to trade the stock of the company and disclosed the information to another person, and recommended the shares to that person. This was in contravention of Clause 3 of the Interim Methods for Prohibiting Fraudulent Acts Relating to Securities (transliteration of 《禁止證券欺詐行為暫行辦法》 ). Being a State functionary, Mr Qin also contravened Article 385 of the Criminal Law of the PRC and committed an offence of accepting bribes by taking advantage of his position to extort money or property from another person to secure benefits for the latter. Victor on the other hand committed the offence of offering bribes under Article 389 of the Criminal Law of the PRC.

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Case 32 Falsifying documents to obtain a stock market listing A Mainland joint-stock company was set up in the form of collective economy, although a certain amount of foreign capital was involved. Due to certain constraints and regulations on the Mainland, the company could not be listed on one of the Mainland stock exchanges. To try and obtain a listing, a number of directors of the company, including two from Hong Kong, decided to seek help from a man named Huang who was in charge of the Mainland companies/enterprises registration department. They assigned Tom, an employee from Hong Kong to make contact with Huang. The pair reached an agreement to falsify documents for the purpose of seeking a listing for the joint-stock company. Huang would direct a subordinate of his to alter the application documents by advancing the registration date, and the time at which the company became an experimental enterprise. Tom asked company staff to falsify the resolutions of a shareholders general meeting as well as profit-sharing proposals. They succeeded in cheating the relevant departments of the Mainland, and eventually acquired the listing qualification. Once the company was listed on the market, Tom gave Huang a reward of RMB200,000 for his help.

Case Analysis Tom and Huang contravened Clause 11 of the Interim Methods for Prohibiting Fraudulent Acts Relating to Securities and also Clause 70(2) of the Interim Regulation on Management of Stock Issue and Trading (transliteration of《股票發行與交易管理暫行條例》) in conspiring to falsify documents and obtain a stock market listing for the company by deception. Huang also committed an offence of accepting bribes under Article 385 of the Criminal Law of the PRC when he took advantage of his position as a State functionary to accept money or property from another person in exchange for securing benefits for that person. At the same time, Tom and the other directors committed the offence of offering bribes under Article 389 of the Criminal Law of the PRC. 95

Case 33 I rregular raising of capital in order to re p u rc h a s e shares Stanley enjoyed great renown and was well respected in the stockmarket community in Hong Kong. Being highly thought of by his company, Stanley was posted to the China Business Department of a Mainland subsidiary company. He was the number two man in the department and had the authority to process any single transaction up to RMB15 million in value. Hank, Stanley's cousin-in-law, had been operating on the Mainland for over ten years, and had become the CEO of a science and technology joint-stock company. In an attempt to speculate on its own stock price, the joint-stock company spent RMB39.7 million buying 1,980,000 shares of the parent company through six different accounts operated by branch offices of the company. However, as the financial situation of the company was quite tight, Hank borrowed RMB13 million fro m Stanley's securities company. All the arrangements were made by Stanley. A week later, the science and technology company announced a resolution of the Board of Directors to issue bonus shares to shareholders. This caused the price of the shares to rise sharply. The company sold the holdings of its own shares making a tidy profit of RMB9.2 million. Hank also made a lucrative return for himself. Apart from repaying the securities company the capital and interest of the short-term loan, Hank paid RMB420,000 to Stanley for his help and support.

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Case analysis The science and technology company contravened Article 149 of the Company Law of the PRC in using a large amount of its own money to trade stocks right before the release of the sensitive information. It also breached Clause 41 of the Interim Regulation on Management of Stock Issue and Tr a d i n g which prohibits joint-stock companies fro m re p u rchasing shares issued to the public without obtaining prior permission. Since inside information was involved, it was considered insider dealing under Clause 3 of the Interim Methods for Prohibiting Fraudulent Acts Relating to Securities. In offering a loan to the science and technology joint-stock company for the trading of stocks, the securities company contravened Clause 43 of the Interim Regulation on Management of Stock Issue and Tr a d i n g which prohibits financial institutions from offering loans for securities dealings. Stanley was guilty of the offence of accepting bribes from employees of companies and enterprises under Article 163 of the Criminal Law of the PRC by taking advantage of his position to accept money or property from another person in return for seeking benefits for that person. Hank, who worked for the science and technology joint-stock company, committed an offence of offering bribes to employees of companies and enterprises under Article 164 of the Criminal Law of the PRC.

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Trading and the banking business Following China's accession to the WTO, an increasing number of foreign banks will enter China, as the banking market is opened up. The following cases provide a better understanding of the issues and concerns in dealing with banks on the Mainland.

Case 34 M i s a p p ropriation of funds for foreign exchange trades in order to make a profit on price differentials A Hong Kong businessmen named Paul had invested in a jointventure enterprise in the Mainland specialising in the production of fax machines and domestic cordless telephones. Thirty per cent of its products were supplied to the Mainland market. In order to pay his workers' salaries in Renminbi, Paul kept part of the proceeds from sales on the Mainland for this purpose, and gave the rest of the proceeds to the Deputy Factory Manager, Wei, for the purchase of raw materials and manufacturing equipment. On average, the money saved for these purposes amounted to several hundred thousands dollars each month. Wei had been assisting Paul for over 20 years and had gained his t rust. Recently, Wei was having problems with his personal investments, so he told a good friend, Ho, about his plight. Ho happened to be the Leader of the Foreign Exchange Management Team of a bank in Shanghai. Trying to help out a friend, Ho suggested Wei leave the Renminbi with him and he would deposit it into several false bank accounts that he would set up.

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Ho would then illegally convert the Renminbi into various foreign currencies, transfer the money as deposits and then make use of falsified documents to "make up" the figures. Since everything was to be controlled by Ho personally, the two could then take possession of the price difference between cash exchange and remittance currencies. Wei accepted Ho's proposal. In the next 18 months, the two misappropriated a total of RMB480,000 and shared the proceeds between them.

Case Analysis Wei misappropriated funds from his company for personal gain, so he committed the offence of misappropriation of a unit's funds by a functionary of a company or an enterprise. Ho was also a State functionary. He pocketed the price difference of RMB240,000 between the cash exchange and remittance currencies made by Wei. His conduct therefore amounted to acceptance of an advantage to secure an illegal benefit for others, which constituted an o ffence of accepting bribes by State functionaries. As for Wei, he offered an advantage to Ho, asking him to secure a personal benefit within Ho's scope of duties. His conduct constituted an offence of bribing a State functionary. It is important to handle business proceeds in the Mainland with care. The Renminbi is currently not freely exchangeable, and there are laws regulating foreign exchange trading in the Mainland. Businessmen need to be aware of the laws and operate accordingly.

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Case 35 Misappropriation of public funds through a computer accounting system Zhang was the Team Leader of the Accounts Section, part of the Accounting Division of a State-owned bank. He was also assigned to handle the computer programme on editing and revising the bank's accounting system. When the bank carried out its quarterly auditing and interests settlement pro c e d u re, Zhang altered a certain trading company's accounts data in the computer system without authorisation. He fabricated two entries of RMB400,000 and RMB300,000 in the company's transaction records by entering the same amounts into the corresponding credit record. Then, right b e f o re the computer started its auditing programme, Zhang deleted the two entries, which were still kept in the computer records of a branch of the bank. It was not possible for other auditors to see that the two entries were in fact fabricated because the falsified records had already been deleted from the company's computer transaction records at the head office before the auditing exercise. Counter staff at the branch were then operating with a system that contained incorrect data. The consequence of this was that the account records of the trading company at the end of March and June showed two additional items of RMB400,000 and RMB300,000 respectively on balance, but without any proper reference. Shortly after, Zhang told Richard, a Hong Kong businessman who worked for the trading company, that the computer had made a mistake. After verification by the company's Accounts Department, the funds were directly withdrawn in cash from the re l e v a n t accounts to refund the bank. R i c h a rd was later shown a bank document that had be en fabricated by Zhang, and a member of the accounting staff. All the receipts and payments were checked and confirmed. In reality,

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Zhang had cons pired with the accounting employee, and promised to give him RMB150,000 for his services. As a result of this conspiracy, the bank had to pay out an extra sum of RMB700,000 which was not properly accounted for. Two months later, Zhang misappropriated RMB350,000 from the accounts of another industrial corporation using the same method. But this time the bank detected the irregularity through an i m p roved automated computer monitoring system, and the incident was referred directly to the bank's Director of Audit for investigation. It was then discovered that Zhang had twice before pulled off this scam.

Case Analysis Zhang was a State functionary who had taken advantage of his office to appropriate public funds and was in violation of Article 382 of the Criminal Law of th e PRC, thereby committing an off ence of embezzlement by State functionaries. The accounting employee who conspired with Zhang was not a State f u n c t i o n a ry, but his secret collaboration with Zhang made their embezzlement possible, plus he pocketed RMB150,000 as a reward. According to the Criminal Law of the PRC, any person who conspires with State functionaries to commit a crime of embezzlement is liable to punishment as an accomplice. The act of the accounting employee would also constitute an offence of embezzlement. Richard will need to be more careful when managing and auditing the accounts. It is vitally important to keep accurate and relevant data so that there is clear evidence should the need for an investigation arise.

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Construction industry Shanghai has developed rapidly in recent years, both in terms of urban expansion and infrastructural facilities. A huge amount has been invested to prepare the city for the future as China joins the WTO. The city's construction industry continues to flourish, but those involved in the construction business need to uphold core principles of fair play and competition. The following cases serve as a reference for this industry in Shanghai.

Case 36 Setting up a shell company to indirectly re c e i v e rebates Victoria was the representative of a Hong Kong enterprise. She travelled frequently between Hong Kong and Shanghai. For many years, she had been selling Italian-made sanitary ware, including bathtubs and heat-resistant floor bricks and tiles, to Shanghai in l a rge quantities. Due to increased competition in the market, pressure was mounting on her to maintain market share. Victoria was having coffee with Mr Tan, the Engineering Manager of a State-owned construction company. The company had a development project under way in Shanghai. Tan mentioned that he was considering starting a business of his own, and invited Victoria to form a company with him, with a view to supplying construction materials to the State-owned enterprise he currently worked for. He pledged that the Hong Kong company Victoria worked for would still maintain its sales volume, and that Victoria could also benefit personally. The two of them formed a company and made it look like a largescale joint-venture enterprise. They rented a high-class office and employed several staff. In the next two years, Mr Tan and Victoria made use of their own company to sell huge amounts of building materials to the State-owned enterprise Tan worked for at a price which was five per cent higher than Victoria's company. 102

Due to strong competition, the price of imported sanitary ware dropped drastically. Eventually, Mr Tan's supervisor found out about his activities, and both Tan and Victoria had to face the full force of the law.

Case Analysis Under the separate definitions of "individual" and "company's legal person", a State functionary who accepted advantages through a specially established company would have committed an offence of accepting bribes. Mr Tan was a State functionary who had the authority to approve the purchase of building materials. He made use of his authority in exchange for rebates from a supplier. This constituted an offence. Not only had he taken advantage of his office in return for money, he had also sought to secure illegitimate benefits for the offeror. Victoria's offer of rebates and fees to a State functionary was an offence of offering a bribe. Being the officer in charge of the Mainland unit of a Hong Kong enterprise, Victoria was one of the key people in the company, responsible for its actions and decisions. She therefore had to bear criminal responsibility for the offence of a unit offering bribes.

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Case 37 Accepting bribes in exchange for testing samples A Hong Kong company had successfully bid for an infrastructure project on the Mainland. Since complex technical details were involved, both the Mainland and Hong Kong sides of the company agreed to appoint a consultant firm to provide technical support and carry out required tests. The consultant firm was also made responsible for monitoring the work progress. Sam was the Hong Kong re p resentative of the company who conducted regular construction site inspections. During one inspection, Sam was struck by the orderly distribution of holes drilled in one completed section of the building. The holes were drilled for the purpose of taking concrete samples for testing. Each hole had a serial number and a signature attached to the side. He felt the consultant firm was taking its monitoring work seriously. One morning a few days later, Sam noticed that the driver responsible for transporting the concrete samples from the site to the testing centre had changed. He approached this new driver to talk to him, but the driver ran away as soon as he saw Sam. Sam found some cylindrical concrete specimens in the back truck, with serial numbers same as those he had previously seen next to the holes. He wondered why these specimens were still on site, as they should have been delivered to the testing centre. Sam immediately took one of the specimens to verify whether it was really extracted from this construction site. It was found that the structure of the concrete specimen was different from that used on site, and it was clear that the concrete sample concerned was not taken from this site. After a detailed investigation conducted by the relevant law e n f o rcement unit and the site dire c t o r, it was discovered that several works supervisors of the consultant firm had accepted bribes from the works unit to change the testing samples in order to pass the relevant tests. 104

Case Analysis The consultant firm was a private enterprise. The acceptance of money by those works supervisors to secure illegitimate benefits for other people constituted an offence of accepting bribes by employees of companies and enterprises. The unit carrying out the works was also a private Mainland construction company. The company's representative had to bear criminal responsibility for the offer of money as it constituted offering bribes to a unit. When investing in infrastructure projects in the Mainland, special care should be exercised when contracting out consultancy services. It is best to appoint consultant firms with previous experience in handling i n f r a s t ru c t u re projects and who have a proven track re c o rd. They should also have a thorough knowledge about the laws and regulations on the Mainland to avoid any loopholes in works supervision. In addition, investors also need to take into account the reputation of the firm and its competence in putting a system of control into practice in order to avoid such malpractice.

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PA R T

II

Analysing Risks - Assessment

I

In conducting cross-boundary investments, it

is important to observe the law. Moreover, in o rder to win the fight against corru p t i o n , o rganisations should also adopt a twopronged strategy in exploring the risks and causes of corruption on the operational and

management fronts, and analyse proactively the various common corruption activities and malpr actice. This is t he foundation of "Assessment".

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Chapter 4 : Corruption Risks and Preventive Measures Basic Regardless of the scale or nature of their business, most Functional organisations have positions to handle the functions of Areas p u rchasing, sales and marketing, inventory and stock control, accounting, personnel and administration, and information systems management. This section provides examples of some of the most common malpractice identified in these areas, and proposes certain preventive measures. Purchasing Common malpractice 1. Selection of suppliers and contractors • Appointing supplier and contractor companies wholly or partially owned by the employees themselves, or by their close relatives. • Employees setting up bogus firms in order to obtain purchase orders from the companies that employ them. A common trick is to acquire goods at very low prices then resell them to the company at higher prices. 2. Negotiations with suppliers and contractors • Soliciting commissions from suppliers or contractors as a reward for favouring them when placing orders for goods or services, allowing overc h a rging and accepting substandard goods and services. • The leaking of valuable or confidential information such as tender information, in return for a reward. 3. Making purchases • Splitting orders to avoid exceeding the financial limits set by the company, or being discovered overbuying goods or services. • Altering prices on orders in order to pocket the price difference.

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• Acquiring goods from suppliers in the name of their employer company for use by their own private company or operation for company owned by staff in the name of the company or utilising the credit limit of the company that employs them. • Failing to observe normal procedures when making purchases and always carrying out urgent purchases to circumvent norm a l procedures.

Preventive measures 1. Selection of suppliers and contractors • Draw up a list of approved suppliers and conduct random checks on addition and deletion. Materials a nd goods should be purchased from the suppliers on the list. • Set up a database on the prices of the goods and update price changes regularly for reference. • Conduct random checks on quotations from successful and unsuccessful suppliers to compare prices. Verify with suppliers who have not made a quotation and make a record for all contacts with them. • Set the quantity and financial limits for purchases. Should the limits be exceeded, make sure suppliers or contractors are selected by open tender. • Be alert on any sudden disappearance of regular suppliers (as they may have been forced out by impossible conditions) as well as emergence of any suppliers being granted bulk contracts. • Check business and companies registration records for details of owners and shareholders of suppliers to ensure they are not owned or operated by staff.

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• Sign contracts with several suppliers for specific purchases for goods and raw materials which are required regularly so as to ensure the quantity, quality and price of the supply. 2. Negotiations with suppliers and contractors • Inform suppliers in writing of the company's policy and standpoint on acceptance of advantages by staff. • Implement measures to ensure the segregation of duties, counterchecking and accountability. Require different employees at middle management level to take charge of negotiat ions, making purchases and authorising the acceptance of goods on delivery. • Deploy accounting personnel to conduct spot checks on goods delivered to spot irregularities such as overbuying. • Keep records of quotations for random verification. • Record every receipt of goods and check whether there is any discrepancy from the purchase orders. • Keep performance records to ensure supplies consistently meet company standards. • Investigate complaints from suppliers and document the results of any such investigations. • Establish security procedures to prevent the disclosure of tender prices and quotations of suppliers. 3. Making purchases • Set procurement authorisation levels and corresponding financial limits for different types and amounts of goods. • C ross check vouchers and re c o rds from the purc h a s i n g department and the accounts department. Follow up any incorrect vouchers and identify the causes of mistakes.

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• Set the minimum number of suppliers required for quotations, a c c o rding t o the amount or quantity of purchases. Ve r b a l quotations should be documented as well. • Specify conditions for urgent or special purchases in order to minimise their being used as a pretext to circumvent norm a l procedures.

Sales and Common malpractice Marketing 1. Handling customers' orders • Diverting companies' business to competitors or secret associates. • Revealing confidential customer information to others. 2. Selling discounted goods • Pocketing customer discounts. • Offering discounts to ineligible customers. • Pocketing bulk-purchase discounts by grouping orders together and processing them as bulk purchases. 3. Commissions and bonuses • Conspiring with colleagues to gain commissions or bonuses by falsifying sales quotas. 4. Allocating goods • Allocating purchases of "high-demand" or "high value" goods to those offering bribes. • Recommending or appointing less competitive suppliers or partners as distribution agents.

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Preventive measures 1. Handling customers' orders • C o m p a re sales patterns of various items and sales outlets to ensure there are no irregularities. • Ensure senior managers meet with major clients regularly. • Draw up procedures to protect details of clients. 2. Selling discounted goods • Keep a register of sales, and randomly check buyers who have benefited from discounts and commission schemes. • Send long-term clients statements of regular transactions, in addition to issuing official receipts. • Send questionnaires to clients regularly and seek their views. • Establish a complaints channel for clients. Record and investigate all and any complaints. 3. Commissions and bonuses • Review the performance of individual sales staff and the credit worthiness of their clients regularly. 4. Allocating goods • Draw up clear guidelines for allocating "high-demand" or "high value" goods. • Constantly review the performance of distribution agents along with the overall performance of their responsible staff.

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Inventory and Common malpractice Stock Control 1. Receiving goods and stock control • Covering up non-deliveries or accepting substandard goods, etc. • Overstating loss or damage caused during delivery to cover up pilferage. 2. Writing off stock • Stealing goods by fraudulently writing off stock. • Releasing goods on the first-in-last-out basis so that goods with expiry dates become write-offs, which are subsequently stolen and sold.

Preventive measures 1. Receiving goods and stock control • Appoint different officers to handle purchasing and acceptance of goods upon delivery. • Random check any damage claims regularly. • Establish an authorisation system for the collection of goods and keep a record of the staff's specimen signatures. • Maintain a re c o rd of t he det ails of the st ock suc h as its acceptance, delivery, return, transfer or temporary loan to other units, etc. • Maintain electronic data of all details, and use bar codes on stock to enable real time logistical control of excessive or low stocks. • R e q u i re documentary re c o rds or electronic information to be verified and authenticated by an authorised person if it appears altered.

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2. Writing off stock • Keep a master record of all stock. • Use a standard form to record all requisitions and write-offs. • Involve more than one officer in authorising write-offs. • Release stocks on the first-in-first-out basis. • Keep a register of all staff allowed access to warehouse keys. • Review regularly, with spot checks, the quantity and quality of goods by staff of accounts department.

Accounting Common malpractice 1. Making payments and collecting debts • Accepting bribes for speeding up payments or delaying the collection of debts. • Arranging double payments deliberately and making subsequent claims for reimbursement in order to provide interest-free operating funds for anyone offering bribes. • Falsifying invoices or other documents in order to embezzle company funds. 2. Granting credit facilities and writing off bad debts • Granting credit facilities that are not supported by adequate security. • Writing off debts prematurely. 3. Processing claims • Conspiring to overstate claims. • Approving reimbursements for false claims.

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Preventive measures 1. Making payments and collecting debts • Set clear procedures for making payments and collecting debts. • Use serial numbers on all requisition forms, purchase ord e r s , invoices and receipts in order to provide a cross-reference. • Require "Paid" chops and signatures be applied on all invoices and relevant documents only after payment is received. • Appoint an independent auditor to randomly check debtor records and bank statements to detect irregularities. • Adopt a deployment system for accounting procedures in large enterprises. Senior management can deploy professional staff to handle accounts in subordinate units with salary paid by the unit at the upper level. 2. Granting credit facilities and writing off bad debts • Set clear credit policies. Refer special requests to a higher authority if there are exceptions. • Involve a panel comprising not less than three officers to regularly screen requests for credit, and the writing off of bad debts. Submit them only to top management for approval. • Set clear procedures for issuing reminders on doubtful debts and keep management fully informed. 3. Processing claims • Set up a petty cash account for routine small purchases and miscellaneous expenses. • R e q u i re claimants to submit claim forms approved by their superiors before granting reimbursement. • Set the upper limit of each single petty cash request, and the authorisation level for different grades of staff. 115

Chapter 4 : Corruption Risks and Preventive Measures

• Obtain prior approval for petty cash requests exceeding the prescribed limit, otherwise, the amount of reimbursement will be made to the upper limit only. • Use companies' credit cards to purchase miscellaneous items without separate invoices to reduce malpractice or mistakes.

Personnel and Common malpractice Administration 1. Staff welfare benefits • Accepting advantages in return for giving favours when arranging welfare benefits such as accommodation, insurance or medical benefits. • Accepting bribes for tolerating incorrect or exaggerated statements on claim forms, or expediting claim procedures when handling applications from staff. 2. Daily administration • Accepting bribes from colleagues for processing fraudulent claims such as fake overtime or sick leave, etc. 3. Recruitment, promotions and postings • Accepting bribes for favouritism in appointments, promotions and transfers.

Preventive measures 1. Staff welfare benefits • Set clear criteria and procedures for use of outside services. • Require all claim documents to be duly endorsed by department heads and an officer from the administration or personnel department before submission to the insurance company in order to eliminate deliberate obstructions or special treatment. 116

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2. Daily administration • Allowance claims should be recommended only by a supervisor and approved by a senior officer. • Send overtime re c o rds certified by department heads to the accounts department for calculation of wages. Send also to the personnel department afterwards for compilation of statistics and supervision. • Conduct random checks to verify claims. • Encourage staff rotation to prevent possible collusion. • Monitor changes in claims by statistical charts, computer programmes or other tools. Conduct investigation immediately if there is any significant increase in the frequency or amount of claims. 3. Recruitment, promotions and postings • Set up a properly constituted committee for re c ruitment, and outline specific recruitment criteria. The same should apply to inhouse promotions. • Issue policy statements to all staff re g a rding postings and promotions. • Conduct staff performance appraisals at regular intervals (e.g. once a year). • Use standard performance appraisal forms. Appraisers concerned should exchange views to ensure consistency in assessment criteria. • Place records of any acts of non-compliance of individual staff with respective appraisal reports for referential use. • Bring in a second indepen dent officer to examine recommendations for promotions as far as possible for objective inputs. 117

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• Open up communi cation channel s with staff and build an understanding of any irregularities in the company's operation. • Attach importance to the "exit-interview" with any staff leaving the company; document their views.

Information With the huge increase in the use of computers and inter n e t Systems applications worldwide, computer crimes are growing rapidly in many Management different forms. Crimes involving commercial theft and financial fraud are rising sharply, and becoming more sophisticated in nature. Such crimes can not only incur huge financial loss to computer firms, G o v e rnment departments and business organisations, but also jeopardise the healthy development of business and e-commerce. Most information technology (IT) or computer crimes are actually an illegal means to facilitate other crimes. To enable businessmen in Hong Kong and Shanghai to manage their company information more effectively, we have included here some suggestions in areas of environmental, technical and management checks.

Environmental controls • C a refully select the location for central computer and other network and backup equipment, and include proper security measures. • Control and monitor physical access to areas housing computing resources. • Install electronic security measures in computing resources and communication links to prevent databases from being tampered with or accessed by unauthorised personnel with the use of electronic devices at a close distance. • Maintain backup copies of all data and programmes to protect against loss of information as a result of computer hacking or system failure. 118

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• Establish storage procedures and security measures to control the output of information either in printed form or other data storage media, and procure other security facilities to ensure information security. • Install security devices (e.g. paper shredders, demagnetisers, etc.) to destroy all unneeded information and storage media.

Technical controls 1. Passwords • Define clear levels of access in accordance with the corporate access control policy and adhere to the "need-to-know" principle. • Use unique logon IDs and associated passwords for different levels to verify the identity of each valid user and keep a traceable record of usage of the system. • Establish an advanced password system including encryption, transmission and maintenance methods, to avoid infiltration by hackers. 2. Terminal access • Install a turn key, card key or identity verifying device before access to a terminal is allowed. • Restrict the functions and data access of different terminals. • Limit the time and sessions during which terminal connections are available to computer services. • Protect logon sessions by enabling automatic terminal time-out after prolonged idleness. • Locate or place sensitive terminals away from places of easy observation during logon sessions.

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3. Network access • Establish a system to identify locations and users re q u e s t i n g computer access and maintain logs of usage and system access activities. • E n c rypt important transmissions with a coding system, which should not be fully automatic, but administered by designated personnel and include periodic revision. • Set up restrictions for general on-line access for users inside a local area network (LAN). • Separate the authorisation and executive duties of network access. • Install "firewall" systems to automatically detect virus attacks and potential intruders from other networks. Such installations are also important for separating databases in a large system. • Install monitoring systems to track abnormal activities including message transmission, data overload and sudden block requests for server connections. Incorporate preventive measures and overload ceiling for automatic shutdown. • Separate particularly sensitive and important applications and data from routine ones by running them on dedicated and separate computers. 4. Application programmes • Monitor application programmes in the system regularly and any installation of software has to be approved through application. • Incorporate diagnostic and checking sub-programmes to verify data processing and operating steps. • E n s u re system log re c o rds on data processing, operators' identities, system access and security activities are generated by automatic means and any manual alteration to the re c o rds is prohibited.

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• Arrange the operational pattern of the professional system with c a re. It should only permit one-way information retrieval fro m database for analysis and processing purpose and prohibit against re-feeding of important information after analysis.

Management controls • F o rmulate comprehensive security policies, measures and regulations. • Establish a task force to undertake coordination and review. • Promulgate systematically relevant policies to staff members to enable them to understand the importance of inform a t i o n confidentiality and to familiar ise them with the necessa ry procedures. • Issue circulars regularly to remind staff to take note of security and to reiterate the procedures required.

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Specific Trades With re f e rence to the corruption risks for the specific trades mentioned in Chapter 3, the following is a selection of corresponding preventive measures.

Preventive Companies which raise capital from the public through a stock Measures - exchange listing naturally have to attract investors with good track Securities Market re c o rds and a high degree of transparency in their operation. However, no matter how remarkably the company has performed in these two areas, close monitoring by means of laws and regulations is still required. The PBO is one of a number of ordinances designed to protect the interests of investors i.e. to prevent losses caused to companies and all their shareholders by corrupt activities and the malpractice of staff. Internal monitoring systems in a company can give prior warning of any signs of illegal activity, thereby minimising the loss suffered to the company. Company listing, insider trading and misappropriation of public funds are three high-risk areas in the securities market. Some preventive measures are listed below for the reference of investors.

Company listing Companies come under the influence of strict laws and regulations once they prepare to apply for a stock market listing. Companies intending to apply for listing need to prepare a large quantity of documents to prove they meet the listing requirements.

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Preparations for listing on the Exchange Main Board in Hong Kong Listing procedures are complicated. The enterprises concerned have to: • Prepare a complete set of accounts and taxation plan, which must satisfy the listing requirements (financial reports of up to three years). • Prepare a review of the business situation of the company and a profit forecast report. • Prepare a description on the company structure and the overall human resources deployment before and after the listing (senior management staff remains basically unchanged in three years). • Restructure the company beforehand if necessary. • Estimate the time and amount of funds needed before the listing. • Establish contact methods with the stock exchange, re g u l a t o ry bodies and shareholders and estimate time needed. (Details of the Listing Rules can be found on the HKEx website http://www.hkex.com.hk)

Corruption prevention measures 1. Seeking professional advice and upholding a high degree of transparency Raising capital and listing are subject to stringent requirements, so p rofessional advice and specific re f e rence materials should be b rought in. A compa ny needs to mainta in a high degre e of transparency in its operations once listed, in order to be accountable to shareholders and the public. Normally, listing consultants would tailor-make for their clients (companies intending to seek listing) the most suitable listing methods and ways, accompanied by different options and analyses. However, top management of the company will still be held accountable for all activities.

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2. Seeking listing partners with professionalism and integrity To secure a successful listing and to avoid any illegal and irregular activities in the company, a professional, ethical and efficient support team is essential. Companies intending to apply for listing need to have: • An experienced guarantor (a merchant bank in case of listing on the Exchange Main Board). • An approved auditor as the listing accountant. • Two independent legal consultants to give legal advice to the guarantor and the company separately. • An ethical and experienced surveyor to evaluate all assets of the company. In acquiring companies or reorganising the business of the company, special attention should be paid to whether all the relevant accounts have been disclosed and audited so as to avoid any suspicion of false accounting or fraud. In addition, a general meeting of shareholders should be convened at the earliest possible date to confirm any change of the company structure (e.g. increasing the number of shareholders to over 50 and appointing two independent non-executive directors). Certain business elements of the company may not be suitable for listing or may involve competition among each other, thus affecting the rights and interests of the shareholders. Enterprises should therefore make a decision on which elements or sections of the business should be merged, or which companies should be acquired or sold off. As arrangements for re s t ructuring might involve a reorganisation of assets, which may in turn affect the benefits of different parties, it is vital to appoint a consultancy with integrity.

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Process for wholly acquiring a listed company

If the acquirer holds m o re than 50 per cent of the voting rights of the shares

(1) If the acquirer holds 30 per cent* or more of the voting rights of the shares; (2) If the acquirer holds 30-50 per cent of the voting r ights of the shares and has acquired two per cent more in the past 12 months; or (3) Other conditions as stipulated in the Code of Takeovers and Merg e r s that would trigger a mandatory offer

Conditional takeover offer to all shareholders

Does the acquirer hold more than 50 per c ent of the voting rights, including those a g reed to be acquire d , before the lapse of the offer?

No

Upon the lapse of the offer, the acquirer has to return all the shares to the s h a reholders who have accepted the offer

Yes

Unconditional takeover offer to all shareholders

* Starting from 19 October 2001, the 35 per cent holding trigger in mandatory offer was lowered to 30 per cent and the five per cent creeper in any 12 months was lowered to two per cent. For details, please visit the website of the Securities and Futures Commission at http://www.hksfc.org.hk. 125

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Insider dealing The Securities (Insider Dealing) Ord i n a n c e (Laws of Hong Kong Chapter 395) explains and details the circumstances under which insider dealing is considered to have taken place. Extreme care needs to be taken when handling confidential information that is i m p o rtant to the benefit of the company and its clients. If any disclosure and leakage of information leads to another person dealing in securities and their derivatives in the market with information which has not been made public, the person who deals in the securities and the person who discloses the information both contravene the ordinance, no matter whether a benefit is obtained or not.

Corruption prevention measures To prevent insider dealing, companies can consider taking the following measures: • Adopt a management culture that operates on a need-to-know basis. • Prevent leakage of information relating to the merger, takeover or significant reorganisation of the company and also restrict the circulation of such information within the company. • Enhance the security of sensitive information by attaching stamps on files and use of security software in the transmission of information. • Establish an audit trail system for confidential information to keep track of st aff who have h andled or gained access to the information.

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• R e q u i re decision-makers and those concerned to follow the " w h e reabouts re p o rting" practice6 in the sensitive and critical period before and after a decision is made on merger, takeover and large-scale joint development plan in order to avoid dubiousness. Decision-makers should also refrain from accepting entertainment that may lead to conflict of interest and declare the time, location and participants in such entertainment programmes.

6

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The decision-making level should hold meetings to set the commencement and end time of the declaration. During the period, all people concerned should take the initiative to report their whereabouts and leave their contact telephone numbers and addresses to the designated staff of the company to facilitate communications.

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Misappropriation of public funds People who set up "treasure chests" usually have the power to move company funds but may not have the authority to redirect funds back into the company. However, since they cannot receive funds just by simple instruction, managers should pay close attention to the following signs of irregularities and be ready to adopt these preventive measures:

Warning signs

Preventive measures

• Advanced payment of payable • Advanced payment of accounts should be accounts before the deadline. annotated and endorsed by another manager before the actual release of funds. • Incomplete supporting documents for payable invoices.

• Cheques or documents for settlement of payment of each invoice should be accompanied by a complete set of suppor ting docu ments. Photocopies have to be endorsed for confirmation purpose.

• Double payment.

• All cheques should carry counterfoils and a "Paid" chop should be attached to all invoices when e ffecting payments. All supporting documents should be numbered serially and afterwards filed by the issuer.

• Withdrawals made by memo or • Staff at all levels should be prohibited to draw daily expenses exceeding a certain limit, unless with a promissory note. voucher. • Unclear procedures for writing off materials and equipment.

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• The supplies department should send staff to obtain a thorough understanding of the situation before writing off. The audit department should verify the write-off afterwards.

Using technology effectively to ensure success far and wide

Chapter 4 : Corruption Risks and Preventive Measures

Preventive To investors, a bank is a service provider as well as an important Measures - business partner and supporter. Businessmen do not like being on Banking Industry bad terms with their banks, nor do they like to make complaints against bank staff. With great importance attached to goodwill in the banking industry, most banks have formulated codes of conduct to ensure a high standard of professional integrity of employees. In Hong Kong, banks and their staff have to comply with the Banking (Code of Conduct) Guidelines 1986 (the Code) administered by the Hong Kong Monetary Authority. Please refer to Appendix 7 for details. Investors should also be familiar with the stipulations listed in the Code so as to sa feguard the ir own interests and avoid any malpractice.

Corruption prevention measures 1. Conflict of interest When considering which bank to work with, the reputation and service quality of a bank should be of top priority; not whether a relative or a close friend is working there. When a bank employee finds that his own interests are in conflict with those of the bank, he should make a declaration (as required) and seek the bank's advice to avoid compromising his objectivity and integrity. Essentially, bank staff should not: • Assess loan applications from relatives. • Advise clients of the bank to invest in a particular company in which he has financial interests. • Assess tenders or quotations submitted by close friends or relatives. One should also avoid resorting to the following practices, which may arouse misunderstanding or even be perceived as offering bribes:

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• Offering frequent lavish entertainment perks to bank employees. • Taking part in high-stake gambling activities with bank employees. • Offering "red packets" of great value or expensive gifts to bank employees. • Inviti ng bank employees on overseas tours or arr a n g i n g memberships of leisure clubs to entertain them. • Offering favours to bank employees and their relatives through special arrangements. 2. Loans Any bank employee with the authority to approve loans should have specified limits commensurate with his rank. Anyone making a loan application needs to first enquire with the bank about details, and clarify requests made by the staff to avoid future misunderstanding. 3. Obtaining business No bank employee should offer a bribe in any form in order to obtain business. Bank employees have to comply strictly with the legal re q u i rements and policies of the ba nk while offer ing an y commissions, payments, favourable terms or other advantages to third parties to obtain business for the bank. The policies are usually explained in writing and available from banks. 4. Use of information No person should deal in the shares or other securities of any listed company upon obtaining non-public in formation from ba nk employees.

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5. Appointment of bank staff A bank employee must obtain prior written approval from his employer before taking up any directorship, employment or part-time commercial duties (paid or unpaid) in other organisations. Should any person wish to appoint a serving bank employee, he needs to first find out whether the appointee has terminated all connections with his previous employer, and whether the bank has any restrictions on his transfer and the length of the sanitisation period, etc. 6. Channels for complaints and enquiries Banks usually have mechanisms to facilitate their employees, clients and other interested parties in making complaints and enquiries. Investors should make best use of these channels and be aware of their rights.

Minimising corruption risks by fulfilling one's own duties When dealing with banks, investors should not only abide by the relevant laws, but also fulfil their own obligations so as to ensure the smooth conclusion of transactions. This also helps to minimise any opportunity to be exploited by dishonest bank personnel. 1. Loans and raising of capital • Provide clear and detailed financial records. • P rovide financial assessment re c o rds pre p a red by guarantors familiar to and trusted by the banks. • Give a full account of the operations of the company, including any joint projects and ventures run with foreign companies. • P rovide a reasonable evaluation of the collaterals and asset portfolio.

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2. Discount cheques and L/Cs • Furnish sufficient documents on commodity transactions. • Monitor closely the company's operations to detect any corruption symptoms. • Maintain appropriate contacts with the bank management and conduct regular checks on relevant information. 3. Import-export trade • Conduct random checks on certificates of origin and certificates of inspection. • Conduct spot checks on bills of lading. • Verify the flight and freight schedules with the airlines and shipping companies. 4. Accounts management • Conduct frequent reviews on the capital flow of the company and checks on freight documents, documentary bills, invoices, etc. • Monitor the pattern, time and amount of capital movement and keep track of any unusual changes.

Detection of early symptoms of L/C fraud L/C fraud has cropped up frequently in previous ICAC investigations. Top management of some corporations have occasionally conspired with bank employees, bribing them to turn a blind eye to the deception taking place. Management of corporations should therefore take adequate precautions against corruption and fraud, and encourage managerial staff at all levels to be vigilant against any viola tion of the l aws and regulat ions. When dealing in L/ C transactions, corporate management should be aware of the potential of the following signs of corruption which may exist in the workplace, and report them early to the authorities concerned: 133

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• Issuing L/Cs to partnership companies. • P roduct descripti on is too sim ple and wit hout adequate specifications. • Overly professional and incomprehensible product description. • Prices of the products are suspiciously high. • Frequent off-boundary export and entrepot trades. • Repeated practices of re-negotiation of unredeemed documentary bills by business partners. • Unusual frequent movement of local L/Cs. • U n n e c e s s a ry discount application though the company has a normal capital flow and a strong financial status. • Perfect arrangement of the shipment schedules so that every outorder of goods is followed by an in-order of goods before the expiry date of delivery, with the amount usually slightly higher than that of the last transaction.

Preventive Measures Construction Industry

The construction industry has a unique way of operating. Those in th e in dustry are wel l aware of this and c ontinue t o make improvements. Some countries and cities have established trade committees or trade associations with a view to more effectively assisting their members to handle circumstances that might be prone to corruption and malpractice.

The multi-layered subcontracting system The subcontracting of works is one of the major characteristics of the construction industry. Normally, a main contractor would bid for a construction project through tendering and then subcontract various elements of the work to other construction companies, such as e l e c t r i c i t y, aluminium windows and curtain wall installations. 134

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However, the subcontracting system in Hong Kong allows some construction companies to act solely as "brokerage firms" which just f u rther subcontract out the projects awarded to them to other companies for the purpose of maintaining a cash flow. This helps companies to secure the ongoing support of banks, material suppliers and other business partners. Since profits need to be made at every layer, subcontractors at the lower tiers may have to use substandard materials if they want to retrieve costs or to make a narrow margin of profit.

Time is money The construction industry both in Hong Kong and Shanghai is much more focussed on efficiency and cost-effectiveness. In Hong Kong, project delays may result in substantial financial penalties causing an i n c rease in costs. To ensure that projects finish on time, some subcontractors may resort to fraudulent practices so as to recoup lost time.

Problems generated from project complexity In view of the complexity of projects and the high degree of professionalism required, there is a temptation for corruption and malpractice in certain areas of the construction process. They are most common in the following three areas: 1. Tendering • Accepting advantages as a reward for: - including a subcontractor on the company's list of approved subcontractors. - leaking information of tender documents submitted by bidders or confidential information of construction projects.

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- altering material specifications and accepting building materials which do not comply with the contract.

Chapter 4 : Corruption Risks and Preventive Measures

• Conspiring with subcontractors to defraud the company by first securing the contract at an uneconomically low price and then giving permission to vary project details thus allowing the subcontractor to make a profit. 2. Implementation • Accepting advantages as a reward for: - allowing use of substandard materials. - allowing the skipping over of work procedures thus impairing project quality. - expediting project payme nt on purpose and a dvancing settlement of final accounts. - p e rmitting a subcontractor's unjustifiable claims for time extension. - permitting or supporting subcontractor's claim for compensation from the company. • Colluding with subcontractors to falsify records by exaggerating the number of workers employed in order to defraud project funds. 3. Materials Testing • Using specially pre-arranged samples to replace actual samples collected on site as testing specimens. • Falsifying test reports. • Manipulating sample selection, collection, identification, marking, transportation and despatch of test results so as to affect the accuracy of tests.

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Corruption prevention measures Companies should formulate corruption prevention measures to prevent the offer and acceptance of bribes by staff. Suggestions are: 1. Formulating a corporate code of conduct A comprehensive code of conduct enables staff to understand clearly when they can accept advantages in relation to their duties. It can also minimise the opportunities for staff to accept bribes and help establish an ethical corporate culture. In order to enhance the effectiveness of a code of conduct, managers have to inform all clients, suppliers and subcontractors etc. who have business dealings with the company of the content of the code so that they will all understand the trade principles of the company. M o re o v e r, when signing contracts with clients, suppliers and subcontractors, the company can attach a policy on acceptance of advantages to the contract so as to remind them not to offer any advantage to the construction staff and other employees of the company. The methods, procedures and other relevant information regarding the formulation of a code of conduct are discussed in Chapter 5. 2. Setting up a system of control The setting up of a stringent system of control can minimise corruption opportunities. Even if an engineering supervisor colludes with a contractor to conduct illegal activities, the management can still be able to detect the warning signals and take appro p r i a t e p reventive measures in time. All a company needs to do is to establish monitoring procedures and enhance supervision in various functional areas. This should cover tendering, contracting and subcontracting, project accounting, pro c u rement of building materia ls, site supe rvisi on an d sta ff re c ruitme nt, et c. T he management should instruct all staff to adhere to these procedures 137

Chapter 4 : Corruption Risks and Preventive Measures

s t r i c t l y. The basic principles for setting up a system of contro l include : • Set out clear work procedures, including guidelines on project alterations, rules re g a rding variation of building materials and procedures for inspection of completed projects, etc. Also, clearly specify the levels of authorisation. • Specify duties and responsibilities for diff e rent levels of staff . S u p e rv i s o ry staff are re q u i red to closely supervise their subordinates, conduct random checks on the works as well as documents related to construction projects. • Incorporate checks and balances such as adoption of independent technical audit. • Maintain proper records of tenders, quotations, etc. • Protect sensitive information from leakage such as tender bids, potential project items, terms of construction contracts, etc. and follow the "need-to-know" corporate culture. • Conduct periodic revi ews of company's ope rat ions and procedures. 3. Improving management practice a. Tendering contracts Construction contracts awarded at unreasonably low prices may imply that contractors have cut corners to reduce their losses and resorted to corrupt means to cover up any malpractice. Some contractors tend to ignore the potential seriousness of construction defaults and may request subcontractors to expedite works at the expense of project quality. In selecting contractors, consideration should be given to the quality and track records of firms rather than just the tender price. Quality factors to be considered i nclude the contractor's management structure, technical competency, financial standing, 138

Chapter 4 : Corruption Risks and Preventive Measures

the scale of the projects at hand and whether it will affect the deployment of resources in the new projects, the professional standard of the project team and the specific requirements of the tender in question. Contractors with poor quality and a bad track re c o rd, or those who have failed to fulfil contract obligations, should be barred from tendering. To enhance the transparency of the tendering process, developers can consider appointing independent consultancy firms to conduct p re-tender studies, as well as pre p a re tender contents and technical re q u i rements for large-scale infrastru c t u re pro j e c t s . Invitations for tenders should be advertised through appropriate media such as the press and the Internet. Tender documents should be assessed jointly by the consultancy firm and the developer (or investor) of the project. An appeal and reassessment committee, chaired by more senior members of the developer's management team, should be formed. All tendering results must be publicised and each appeal case should be heard in detail. In Shanghai, developers and contractors have to sign a "probity a g reement" when entering into a construction contract. Any defaulting party has to bear economic responsibility. b. Subcontracting Subcontracting of construction works is a long-established practice, which can facilitate the execution of works in a coste ffective manner with efficient use of industry re s o u rces. The professional division of work can enhance the quality of a project. However, excessive multi-layered subcontracting undercuts profit margins at the lower end and increases the risks of malpractice. The brokerage form of subcontracting adds additional layers without adding any value to the construction process. Multi-layered subcontracting also makes it difficult for the project team and the main contractor to carry out quality control of the works, to identify the sources of defects and to call the defaulting parties to account. 139

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The main contractor should be required to disclose to its clients any justifiable subcontracting and to submit the related contract documents, thus making the subcontracting process more t r a n s p a rent. The main contractor should also be re q u i red to employ a specified number of permanent site staff and dire c t workers for each project so as to fulfil its supervision responsibility. c. Consultant-managed projects M o re Gover nment departments and public bodies (such as electricity and gas companies) tend to outsource the design and ma nagement functions of their construc tion projects to consultants, with site supervision undertaken by the consultants' project-based resident site teams. Therefore, the management personnel of consultants play an important supervisory role in site p roject activities. The project-based resident superv i s o ry staff employed by consultants have to observe rules formulated by the same consultants, in particular prohibiting any undesirable close relationship with the contractors whom they supervise. When signing contracts with their employers, consultants have to show that they have in place a code of conduct and provisions for regulating professional standards, which are to be incorporated into the construction contract. d. Conflict of interest Front line staff usually work in close circles and some of them may be tolerant of petty corruption. Few may be prepared to blow the whistle on such practices. It is not uncommon for project staff and site supervisory staff to "over-socialise" and develop unhealthy relationship. They even go gambling with the contractor, accept lavish and frequent entertainment, and build up private business relationship with them. Such relationship clearly affect their ability to effectively supervise the works, and are often precursors of more serious corruption schemes.

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Site supervisory and project staff should have appropriate conduct in their daily dealings with the contractor to avoid any conflict of i n t e rest. Companies should for mulate guideli nes on t he acceptance of entertainment and advantages from contractors, which should clearly define what is "acceptable social relationship" with contractors as well as state under what circumstances staff should declare conflict of interest. e. Project variations Changes in project design and post-contract works variations are vulnerable to manipulation. Project officers might be tempted to issue variation orders to favour the contractors. The pro j e c t consultant and the chief designer, etc. should be required to report all major deviations from the agreed design and specifications to their clients (e.g. the relevant works departments, the Government or the developer). Variations of a significant nature should be approved by a project committee comprising senior personnel independent of the project team. f. Site supervision In Hong Kong, over 45 per cent of the construction re l a t e d pursuable corruption reports are related to substandard works and lax supervision. This clearly indicates that quality control at construction sites is a major problem. In this respect, the situations in both Shanghai and Hong Kong are quite similar and the causes are as follows: • Employers not committing more than the minimum resources to monitor the quality of works, leading to failure in pro m p t l y detecting staff accepting bribes to cover up substandard works; • Inadequate training for site staff to equip them for the supervision of specialist works (e.g. piling and materials testing), thus being taken advantage by the unscrupulous; and • Insufficient professional input at the critical construction stages. 141

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Professional input on site can be increased and supervision by professional staff should be mandatory at all critical stages of construction such as increasing the percentage of coring checks on the concrete/rock interface, conducting more concrete core tests and pre - s t ressed re i n f o rcement bar tests on actual site samples. To create a deterrent effect and facilitate early detection of malpractice on site, independent technical audits should be s t rengthened and carried out on a regular basis as the works progress. g. Quality control tests Quality control testing, such as those on the strength of concrete and steel re i n f o rcement and the depth of piles and quality of concrete of the piles, is important in verifying compliance of the work specifications in a construction project. However, it is not unusual that these tests are carried out by a subcontractor or l a b o r a t o ry appointed by the main contractor, thus creating a conflict of interest situation where the independence of testing could be impaired. The contractor can also influence the tester in an attempt to conceal substandard works or materials. If there are inadequate security arrangements in the industry for testing samples, including their selection, collection, identification, marking, transportation and despatch of test results, then corrupt persons could abuse even the smallest loopholes. Materials and acceptance t ests should be car rie d out by laboratories independently, and directly appointed by the project developer or its consultants. Periodic parallel tests should be conducted to monitor the performance of the testing agents, to detect any irregularities of the testing mechanism and to frustrate any conspiracy in the testing process. Quality control tests and tests conducted on site should also be closely supervised by the employer or its consultants. These should be enhanced with security procedures for the sampling and testing of construction materials, including sample identification and stock control to 142

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prevent possible tampering, and test results should be sent directly to the engineer instead of through the contractor. The amount of project payment released on completion and full testing compliance of the works should be equivalent to the total expenses of all the relevant contractors, less any profits. The full payment balance should onl y be made when the re l e v a n t contractors have completed all the "remedial works" satisfactorily and when no fault or omission of works is found during the "transitional period" specified in the contract. This payment arrangement should effectively guarantee project quality. 4. Understanding local laws It is necessary for businessmen to have a good understanding of local laws and pro c e d u res when conducting business in any country or city. Take Case 28 in Chapter 3 as an example, although the assessment procedures for small houses in the New Territories in Hong Kong are different from those for buildings in the urban a rea, the head office of the company can always obtain the relevant information through various channels, such a s independent project consultants, legal advisers and the websites of the respective Government departments. In Shanghai, businessmen investing in large-scale infrastructure projects have to be aware that it is necessary for them to invite tenders through an independent tendering centre (transliteration of 招投標中心 ). They should also appoint local legal and accounting

firms specialised in handling foreign businesses at an early stage so as to guarantee that each development procedure complies with local laws and regulations.

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PA R T

III

Putting Theories into Practice - Action

A

A thorough understanding of the laws and systems of the places where investment is located and business is traded, coupled with

a careful analysis of the corruption risks and causes, can prevent corruption and malpractice. However, if "awareness" is not accompanied by "action", or if behaviour is still re c k l e s s despite knowing that it may contravene the laws, risks will become unexpectedly greater instead of being reduced. Investors should proactively formulate a c o m p rehensive management system and enhance the ethical standards of employees at all levels to attain good governance and benefit

from

a

flourishing

business

environment. Decisive action should be taken against any corruption and bribery problem detected in a company as a warning to others. This is the foundation of "Action".

Chapter 5 : Maintaining Competitive Edge In order to strengthen a company's competitiveness in the market, protect its profitability and reputation, entrepreneurs are advised to adopt the following strategies: • Formulate a corporate code of conduct • Strengthen the corporate system of control • Establish an ethical corporate culture Companies should ensure the effective implementation of the code of conduct. By referring all illegal activities to relevant law enforcement agencies, staff at all levels will have a clear understanding of the company's uncompromising stand against corruption. As such, dishonest staff "dare not commit corruption." By strengthening the system of control and improving administrative m e a s u res and pro c e d u res, employees will be unable to find loopholes in the system in an attempt to make personal gains. As such, dishonest staff "cannot commit corruption". T h rough establishing an ethical culture, the ethical standards of employees will be raised. When there is a strong sense of belonging and justice, coupled with a company-wide culture that condemns c o rruption a nd malpractice, staff wi ll value such a working atmosphere. As such, they "do not want to commit corruption".

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Formulating a An effective company code of conduct not only reduces Corporate Code incidents of corruption, fraud and conflict of interest, but of Conduct also enhances the trust and confidence of customers, suppliers, contractors and all who have business dealings with the enterprise. In formulating and implementing such a code, entre p reneurs are encouraged to address the following points: Clear standpoint Emphasise the importance of observing the law. Issue clear guidelines to partners, management and staff to remind them regularly of the need to draw up contracts and co-operation documents in accordance with the relevant laws when conducting business in Hong Kong or the Mainland. Warn personnel against using bribery means to secure business or accepting advantages. For companies engaging in cross-boundary business, the standards of behaviour should be consistent for staff in both locations. In addition, codes of conduct in the Mainland and Hong Kong offices and factories should be in line with the company's overall business practice and management philosophy, as well as respectful of local conditions.

Comprehensive coverage Follow the legal requirements of the jurisdiction in question, as well as the company's own business practice when formulate a code of conduct. Key parts of the code should cover: • The policy on accepting and offering advantages in relation to company business. • Guidelines on handling conflict of interest. • Procedures to prevent the leaking of proprietary information. 147

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• Channels for reporting misconduct. • Disciplinary action against violation of the code. A more detailed code may further include guidelines on acceptance and offering of entertainment, principles gover ning outside employment and the company's stand on staff involved in high-risk activities such as gambling. The code should advise staff to consult the management and re p o rt to the relevant agencies if they are offered or solicited for bribes.

Effective communication The code should be clearly presented and easily understood. It must be effectively communicated to all parties concerned, both within and outside the company. It could take a number of formats: some companies issue it as a separate handbook, while others prefer to incorporate it into their staff manual or letter of appointment. Either one should explain and re i n f o rce the policy on acceptance of advantages, including the principles governing the offering and acceptance of gifts, tips and "red packets". On festive occasions, companies should issue notices to remind staff of the key points of the code of conduct. They should also clearly inform their customers, suppliers and contractors of the policy on acceptance of advantages.

Regular review Review the code regularly so that it can be improved in the light of changing needs and circumstances. For more details about the formulation of codes of conduct, please refer to the samples and letters to business partners in Appendices 8, 9 and 10.

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Strengthening the Corporate System of Control

Companies and enterprises should aim to have a set of i n t e rnal operational pro c e d u res in relation to ethical standards. Procedures formulated at the initial stage of operation may be the outcome of personal preference. H o w e v e r, as the company develops, the pro c e d u re s should be reviewed so that the operation can be run more smoothly in the course of cro s s - b o u n d a ry business activities, while corruption and malpractice can be effectively reduced or minimised. The eight principles of a system of control The following eight principles of a system of control can also be regarded as macro-measures that prevent corruption and malpractice from taking place: 1. Establish clear procedures and responsibilities To let employees clearly understand the latest work procedures and responsibilities at all levels, publish a handbook to detail the structure of the company, the chain of command and the role, power and responsibilities of each unit/division in the organisation. Make all instructions consistent and simple. 2. Ensure effective supervision To ensure all rules and pro c e d u res are followed, get the top management actively involved in the formulation and implementation of the control measures. 3. Maintain proper records To ensure all records are accurate and up-to-date, draw up manuals that show employees how to handle the business records, invoices, receipts and computer records.

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4. Protect sensitive information P revent dishonest employees from exploiting the company's "information of value" for personal gains by adopting the following preventive measures: • Classify all sensitive information. • Establish clear rules on access to confidential information, e.g. access should only be on a need-to-know basis, etc. Strictly enforce such rules. • Require staff to sign agreements not to leak or misuse classified information during their employment and for a specified period after they have left the company. • Alert all staff to the serious consequences of leaking/abusing any confidential information. • Locate photocopiers in open areas where there is little chance for unauthorised duplication and immediately shred all unnecessary photocopies of classified documents. • Provide clear guidelines on how to handle requests for release of information. • Set up a monitoring system to ensure that users can be traced. 5. Detect warning signs To minimise the impact of corruption on the company, supervisors and senior managers should be constantly alert to the following warning signs: • Complaints or tip-offs from anonymous callers, letters, or e-mails. • Unexplained alterations in inventory records or similar documents. • Documents that are missing or out of sequence. • Unnecessary duplication of records. • Employees who make or build contacts with dubious characters like loan sharks. 150

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• Unusual staff behaviour, such as refusing to take long holidays. Although some of these may just be the result of staff tardiness or incompetence, in the experience of law enforcement agencies in Shanghai and Hong Kong, they ca n also be early signs of malpractice. 6. Incorporate checks and balances Incorporate various types of checks and balances into the system of c o n t rol to prevent or detect irregularities and malpractice early. Examples include countersigning, random checking, periodic rotation of staff and internal audits conducted by an independent third party. 7. Provide channels for complaints Set up easily accessible channels for complaints and guarantee full c o n f i d e n t i a l i t y. The channels should be well publicised and complaints should be promptly dealt with and recorded. If complaints are justified, hand over the suspects to relevant law enforcement agencies and take immediate remedial actions. Should it require a longer time to complete procedures, staff should be duly informed. 8. Conduct periodic reviews Review and improve diff e rent aspects of the system of contro l periodically to ensure its effectiveness. Not only can this prevent c o rruption and malpractice, but it also minimises corru p t i o n loopholes as well.

Implement the system of control After embedding the concept of a system of control in diff e rent work are a s , monitoring can be exercised through administrative measures and corrupt activities can be minimised. For actual implementation in specific functional areas, please refer to the preventive measures listed in Chapter 4 and incorporate them into the procedures for the overall system of control.

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Establishing an Ethical Corporate Culture

Even though companies have formulated comprehensive codes of conduct or equipped themselves with an elaborate system of control, corruption and malpractice cannot be prevented if employees lack the re q u i re d qualities, skills and motivation. Establishing an ethical culture is therefore an essential component in an efficient and corruption-free organisation. Reasons for a breach of trust Why do employees become involved in unethical business dealings? There are a variety of reasons: 1. Lack of legal knowledge Employees at all levels and even senior management have been prosecuted for offering illegal kickbacks to employees of other firms. While some do so intentionally, there are others who have committed o ffences purely because they lack knowledge of the legal implications. Ignorance is, however, no defence in law. 2. Lack of determination Some employees, even those who are very experienced, may fail to resist temptation and succumb to the sweetening process of corruption. 3. Lack of analytical skills Other employees may lack the skills to analyse a situation properly or assess the consequences of each course of action. Hence they drift from one decision to another leading to mistake after mistake. Typical examples are failure to handle conflict of interest, development of undesirably close relationship with customers, and so on.

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4. Inadequate understanding of the system of control Unclear guidelines, lack of proper procedures, failure to comply with g roup measures and ina dequate supervisi on all encourage employees to exploit weaknesses in the organisation for personal gain.

The essentials of establishing an ethical culture In order to establish an ethical culture in a company, management must make it of the highest priority. To encourage employees to put ethics into practice, management must: • Act as a role model • Exercise monitoring and control • Implement integrity education programmes Let us look at these in more detail. 1. Act as a role model It is a manager's duty to provide clear direction to his subordinates by acting as a role model. As the saying goes, "When those above misbehave themselves, those below will follow suit". Staff are more likely to model themselves on the conduct of their supervisors than to adhere to formal policies.

Communicate management's commitment to the value of integrity • Clearly communicate the senior manager's own beliefs in the value of integrity. • Initiate discussion with employees about ethical issues that may arise in work situations. • Support actions and decisions that uphold the value of integrity. • Take firm and prompt action to eliminate corruption or any unethical activity.

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2. Exercise monitoring and control All managers should be vigilant in exercising monitoring and control over the activities of employees. Any suspected or identified corruption or malpractice should be dealt with forcefully and quickly. A message of "zero tolerance" should be sent out. Any hesitation could be construed as tacit acceptance or even tolerance of corruption or malpractice.

Set up a mechanism to ensure prompt handling of complaints and protection for complainants • Handle all complaints in strict confidence. • Refer complaints to relevant law enforcement agencies if justified. • Treat complainants impartially and without any prejudice. • Make posting arrangements for complainants if necessary. Managers should also take a proactive approach to updating their company guidelines and to plugging system loopholes as soon as inadequacy or weakness is identified. Even those who are not directly involved in the formulation of company guidelines or improvement to c o n t rol systems should be invited to provide feedback on their adequacy, validity, applicability and effectiveness.

Attend to duties in the systems of control • Ensure that guidelines and control systems are operating without any conflict and contradiction. • Propose improvements to corporate guidelines and control systems. • Maintain proper control of resources. • Give quick and accurate response to enquiries. • Monitor whether the goals set are realistic and measure the progress. • Inculcate a sense of self-discipline at all levels. • Spot check the performance of employees, especially those undertaking outdoor work. • Collect feedback from clients/contractors. 154

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3. Implement integrity education programmes Training forms an important part of any integrity programme. The main objectives of training are to : • Improve employees' understanding of the statutory provisions, the integrity rules and values set by the company and the standards expected of staff; • Enhance employees' awareness of the importance of upholding a high standard of integrity; and • Generate open discussion so that staff can exchange share d values. Sessions on integrity and practical work issues such as dealing with ethical dilemmas and conflict of interest should be included in induction and refresher courses for employees at all levels. In order to successfully nurture an ethical corporate culture, the company needs the support of both its people and the system. Synergy is essential to achieve the best results.

Training services offered by the anti-corruption agencies In Hong Kong - The ICAC provides tailor-made services to help companies organise various training programmes. For example, explaining the PBO, outlining the differences between the anti-corruption laws of the Mainland and Hong Kong, and corruption prevention measures, and so on. Businessmen and entrepreneurs can approach any ICAC regional office for these services. In Shanghai - The people's procuratorate provides a wide range of corruption prevention services such as courses on legal systems, visits to anti-corruption exhibitions and compilations of selected anti-corruption cases, and so on. The p rocuratorate also helps enterprises formulate practical corruption pre v e n t i o n measures and assigns officers to exercise supervision over crucial projects, e.g. tendering procedures. Businessmen are also encouraged to seek assistance from the local people's procuratorate.

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Knowing the Official Anti-corruption Organisations in Shanghai and Hong Kong

Anti-corruption Businessmen, entrepreneurs and investors in the Mainland Organisations or Hong Kong should report any suspected corruption and bribery activities to their local anti-corruption authorities. Below is a brief description of the work of the anticorruption authorities in each jurisdiction.

In Hong Kong The Independent Commission Against Corruption Pursuant to Article 57 of the Basic Law of the Hong Kong Special Administrative Region of the PRC, a Commission Against Corruption has been established in the Hong Kong SAR. It functi on s independently and is accountable to the Chief Executive. The ICAC has three departments: the Operations Department (responsible for investigation), Corruption Prevention Department (responsible for prevention) and Community Relations Department (responsible for education). 1. Operations Department The Operations Department is responsible for receiving, examining and investigating complaints that allege corruption. Most of the complaints handled by the Commission come from members of the public. The public can lodge complaints through a telephone hotline, by mail or by personal visit to the 24-hour Report Centre or to any ICAC regional office. The primary aim of the Commission was to fight corruption in Government departments. In recent years, however, there has been an upsurge of corruption re p o rts relating to the private sector, representing more than half of the total annual corruption complaints received. These cases are often geographically dispersed and the methods used by cri minals h ave bec ome m ore and more sophisticated. The Operations Department has there f o re set up

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different task forces to deal with these different situations. In some cases, investigators have to travel overseas to collect evidence. When an allegation of bribery is substantiated after investigation by the Operations Department, the case is forwarded to the Secretary for Justice for prosecution. Where there is insufficient evidence, the Advisory Services Group of the Corruption Prevention Department will normally approach the units concerned and provide them with preventive education services. 2. Corruption Prevention Department The work of the Corruption Prevention Department is mainly to examine the systems and procedures of Government departments and public bodies, identify possible corruption loopholes and advise on ways to minimise opportunities for corruption. Since its establishment in 1985, the Advisory Services Group of the Corruption Prevention Department has provided free and confidential advisory services to business organisations in different functional areas such as purchasing, sales and marketing, inventory and stock control, accounting and personnel administration. The department can be reached at the hotline 2526 6363. 3. Community Relations Department The Community Relations Department is responsible for educating the public against the consequences of corruption, and enlisting public support in combating corruption. Commercial organisations have long been the major target of ICAC's educational initiatives in corruption prevention. Since the level of corruption reports involving the business sector has remained high in recent years, the Community Relations Department has maintained close contacts with the business sector. It explains the anticorruption legislation as well as the consequences of corruption, and

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urges businessmen to take the problem of corruption seriously. In addition to offering the necessary assistance in drawing up codes of conduct for staff and formulating corruption prevention measures, the Community Relations Department also provides staff training for business organisations. These t raining course s fa mil iarise businessmen with anti-corruption laws and company codes of conduct so that they will be fully aware of the importance of observing the law when working in Hong Kong or the Mainland. Businessmen are encouraged to contact any regional office of the ICAC to make arrangements for such services.

In the Mainland Commissions for discipline inspection The commissions for discipline inspection, which are organisations under the Communist Party of China, are responsible for enforcing party discipline. In addition to the Central Commission for Discipline Inspection, similar commissions have been set up within the party at committee and organisation level. The duties and prerogatives of these commissions include: • Inspecting conduct that amounts to infringement of party discipline by party cadres and party members at various ministries under the State Council or at different levels of party organisations; and • Receiving complaints, carrying out investigations and determining sanctions against party cadres and party members infringing party discipline at various ministries under the State Council or at different levels of party organisations. These commissions only deal with infringements of party discipline (including corruption and bribery) by party members.

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Supervisory bodies Under the State Council, there is a Ministry of Supervision and at each level of local Government, similar organisations exist called supervision bureaux or supervision offices. Their functions are: • Inspecting the implementation of St ate policies, laws and regulations, and national economic and social development by State administrative bodies, functionaries and leading cadre s posted to enterprises and other units; • Investigating and dealing with infringements of law and discipline in order to safeguard the integrity of the Government; and • P reventing corruption and bribery as well as improving and strengthening administrative controls in order to enhance efficiency. Such supervisory bodies are primarily responsible for administrative sanctions against State functionaries who have misbehaved but not committed any criminal offence. Should they be found to have committed an offence in the course of investigation, they would be referred to public security organs or procuratorates and dealt with according to the law.

People's procuratorate Accountable to the National People's Congress and the Supreme People's Procuratorate, the people's procuratorates at different levels monitor the administration of the laws. Among their major functions, the people's procuratorates are responsible for investigating corruption and bribery offences and for deciding if a suspect should be arrested and if legal proceedings should be instituted against him.

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1. Anti-corruption and bribery office The Supreme People's Procuratorate and the lower level people's procuratorates have established anti-corruption and bribery offices which are responsible for: • Handling cases involving economic crimes re f e rred by re p o rt centres; • Investigating major economic crimes such as corruption and bribery, etc.; • Analysing the circumstances, characteristics, patterns and trends of major economic crimes such as corruption and bribery, etc.; • R e s e a rching into investigation pro c e d u res and methods for economic crimes such as corruption and bribery, etc.; and • Formulating provisions and regulations in respect of investigation. 2. Corruption-related crime prevention agencies The corru p t i o n - related crime prevention agencies under the procuratorial organs handle offences relating to dereliction of duty in addition to those concerning corruption and bribery. A Corruptionrelated Crime Prevention Department has been set up in the Supreme People's Procuratorate and a similar department is also founded in the Shanghai Municipal People's Procuratorate and other procuratorial organs under it. The functions of the Curruption-related Crime Prevention Department are: • Investigating offences relating to dereliction of duty; analysing the circumstances, techniques, characteristics, patterns and causes of such offences so as to help units concerned to learn the lessons of the cases, plug loopholes in the systems and tighten controls; formulating essential and specific measures to prevent offences relati ng to derel iction of duty according to the a ctu al circumstances; and providing units in question with timely and practical procuratorial recommendations; 160

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• Publicising a nd explaining th e work and str ategy of the procuratorial organs in relation to the prevention of dereliction of duty and enlisting public support; and • Strengthening liaison and collaboration with relevant departments and establishing a mechanism which integrates pre v e n t i v e measures for specific areas, systems, procuratorial organs and the community so as to effectively eradicate and minimise offences relating to dereliction of duty.

Concerted Since its first contact with the Mainland in 1983, the ICAC Efforts to Fight has liaised closely with various anti-corruption agencies in Corruption the Mainland, particularly the Supreme People's Procuratorate, the Ministry of Supervision and the different provincial and municipal procuratorates.

On the operations front, the ICAC's Operations Department and the Guangdong Provincial People's Procuratorate instituted a mutual assistance scheme in 1987 to assist each other in taking evidence and interviewing witnesses in each other's territory. With the recent continuous growth of trade between Hong Kong and the Mainland, cross-boundary corruption and related crimes have increased. To cope with this, the Operations Department has re i n f o rced its cooperation with anti-corruption agencies in the Mainland in handling cross-boundary corruption cases. Investigations in the Mainland are conducted wit h the assistance of provincial and municipal procuratorates. In 1997, the Operations Department set up the Hong Kong Mainlan d Operational Liaison Sec tion to stre n g t h e n communication in cross-boundary corruption investigations. The antic o rruption agencies in the two places have also in recent years marked the enhanced cooperation by frequent exchange visits and signing a number of agreements.

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The Corruption Prevention Department and Community Relations Department maintain close links with Mainland officials responsible for corruption prevention and education, and frequently exchange views and experiences through visits and training seminars. The Hong Kong Mainland Liaison Office, a specially formed unit under the Community Relations Department, acts as an intermediary in arranging exchange study tours with its counterparts in the Mainland and in conducting training courses for its staff so as to enhance the understanding of each other's work. Joint publications on anti-corruption legislation in Hong Kong and the Mainland have been produced to provide practical guide for cro s s - b o u n d a ry businessmen.

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Organisations Providing Business Administration, Investment and Legal Consulting Services

Businessmen should consult local Govern m e n t departments, legal advisors or relevant service providers for foreign businessmen to solve their cro s s - b o u n d a ry business problems lawfully.

In Hong Kong In Hong Kong, consultancy and technical support services are available from Government departments such as the Trade and Industry Department and Invest Hong Kong, as well as from other service providers for the business sector such as the Hong Kong Productivity Council, the Hong Kong Industrial Technology Centre Corporation, the Hong Kong Trade Development Council and the Hong Kong Export Credit Insurance Corporation, etc. Appendix 11 provides a list of websites, addresses and telephone numbers of the relevant departments and organisations. Additionally, appointed p rofessionals such as lawyers and accountants can also assist companies. A number of chambers of commerce in Hong Kong like Federation of Hong Kong Industries, The Hong Kong Chinese Enterprises Association, The Chinese Manufacturers' Association of Hong Kong, The Chinese General Chamber of Commerce, The American Chamber of Commerce in Hong Kong and The Hong Kong General Chamber of Commerce also provide supporting services to their members. Please refer to Appendix 12 for their websites, addresses and telephone numbers.

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In Shanghai To meet the needs of economic development, Shanghai has establ ished the following consult ancy and a dm inistrative organisations which foreign investors may contact for assistance: • S u p p o rting serv i c e s - Businessmen can contact the Fore i g n Economic Relations and Trade Commission, the Administration and Service Centre for Foreign Investors in Shanghai, the China Council for the Promotion of International Trade Shanghai Sub-Council or Administration for Industry and Commerce for assistance. A correspondence list is provided in Appendix 13. • Professional and lawful services - When investing in Shanghai, businessmen need to apply for a variety of endorsement documents and licences from different units. For those who are unfamiliar with the local situation in Shanghai, such pro c e d u res may l ook complicated. To save trouble, investors may call on legal and professional services such as foreign economic law offices and onestop investment consultancies. For relevant information, please refer to Appendix 14.

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Chapter 7 : Taking Appropriate Action Reporting Businessmen in Hong Kong or in the Mainland who are Corruption or solicited for advantages by an agent, whether explicitly or Bribery Promptly implicitly, should report the cases without delay. If they do not act pro m p t l y, they could be suspected of having o ff e red bribes when the cases come to light. In Hong Kong, the ICAC treats all re p o rts of corruption in the stricte st confiden ce. In the Mainland, the part y, G o v e rnment and judic ial organs also re q u i re th e responsible units to keep strictly confidential the names of complainants. Channels for enquiries and reporting corruption in both places In Hong Kong ICAC

Telephone 2526 6366

Mail P.O. Box 1000, Hong Kong

Address ICAC Report Centre (24-hour service): G/F Murray Road Carpark Building 2 Murray Road, Central, Hong Kong

ICAC regional offices: Addresses and telephone numbers are listed in Appendix 15

In Shanghai Shanghai Municipal People's Procuratorate

Telephone 64152000

Address 648 Jianguo Road (West), Shanghai City (The addresses and telephone numbers of the People's Procuratorates in Shanghai are given in Appendix 16)

Shanghai Commission for Discipline Inspection and Supervision Bureau (Combined Supervision Room) 166

Telephone 64371448

Address 7 Wanping Road, Shanghai City

Chapter 7 : Taking Appropriate Action

Resolving Business Disputes Lawfully

When problems arise in the course of business, they should never be resolved by trying to exploit connections with influential individuals, by the back door or by the indiscriminate use of middlemen. Assistance should instead be sought from the appropriate local Government departments. If the request lies outside the ambit of a Government department and has no criminal element, for example a civil case, a lawyer can be appointed to help obtain justice or claim compensation through a civil lawsuit.

Ways to resolve a dispute Businessmen can consider adopting the following ways to resolve disputes relating to business undertakings in the Mainland Discussion and mutual compromise to settle business disputes of a general nature

• P a rties concerned should normally engage in dire c t negotiations or they may enlist the mediation services of the contrac t administrati on agency, appro p r i a t e supervisory departments at all levels or the administration for industry and commerce for reaching an agreement. This will help pre s e rve goodwill and friendly working relationship.

Arbitration to secure a legal binding effect

• Arbitration is frequently employed to resolve fore i g n economic disputes. On a voluntary and equal basis, parties concerned agree in writing to refer their dispute to an arbitration organisation acceptable to both sides for adjudication and a binding verdict. • T h e re are two main foreign economic arbitration o rga nisations in the Mainl and, name ly, t he China International Economic and Trade Arbitration Commission

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and the China Maritime Arbitration Commission. Both are standing non-government arbitration bodies. • The legal binding effect of arbitration agreements is also c o n f i rmed by international treaties. Most treaties and p rotocols signed between the Mainland and fore i g n countries on commercial and maritime matters, trade a g reements and delivery terms contain provisions for arbitration. Arbitration agreements are now widel y accepted and recognised by most countries/re g i o n s including the Hong Kong Special Administrative Region. • Courts may however reject cases that involve arbitration agreements. Article 257 of the Civil Procedure Law of the PRC stipulates that no person who is party to a dispute c o n c e rning forei gn economic relat ions, trade, transportation and maritime matters shall put his case to the people's court if the dispute involves a contract that contains an arbitration clause or if the parties concerned have already entered into a written agreement to the effect that the dispute be referred to a PRC foreign economic arbitra tion organisat ion or any other a rbitration organisations. Litigation to settle disputes

• The aggrieved pa rty may file suit in a court which e x e rcises the appropriate jurisdiction and resolve his dispute through judicial process. According to the Mainland laws, intermediate people's courts are the courts of first instance in such cases, so legal proceedings in these disputes should be instituted in such courts. • If, however, the case involves economic crimes, this should be reported to the appropriate authorities.

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Insisting on written contracts and the written listing of all terms and conditions No matter in Hong Kong or Shanghai, businessmen should insist that all terms and conditions of a cross-boundary investment form part of a written contract in order to ensure the legal binding effects of the agreements and to safeguard their own interests. Should it ever appear necessary to offer advantages in the course of business, investors should clarify whether such advantages are lawful and whether they are directly relevant to their investment projects. If the party accepting advantages is employed by a Hong Kong company, he must obtain his employer's prior approval. If the recipient is a representative of a unit in Shanghai, one should ensure that his acceptance of an advantage has been endorsed by that unit and that the advantage will accrue to the unit as a whole - not to any individual (or a number of unit employees). Please refer to Chapter 2 regarding the definition of "offering bribes to a unit" in Article 391 of the Criminal Law of the PRC. Investors should observe the following when drawing up a contract for investment projects in the Mainland: • Define any offer of advantages in the contract - An investor may sometimes need to enhance his competitive edge by proposing lawful advantages to a trading partner, whether an enterprise or unit. When he sets up a factory, for example, he may offer to provide shuttle buses for workers commuting between workplace and living quarters. He may also arrange overseas study tours or training courses for staff of his Mainland trading partners. As these advantages are clearly intrinsic to the project, the investor should guard against any suspicion of intentional bribery by spelling them out clearly in the contract and limiting himself to offering only those advantages so specified.

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• Define how payments and commissio ns are to be made - Should representatives of trading partners ask investors to pay commissions in a specific way, for example, depositing money into company accounts outside the territory, investors should state the method of payment clearly in all contracts and invoices, normally restricting this to traceable payments such as crossed cheques and telegraphic remittances. Cash payments should never be made whether directly or via a third party. • R e p o rt irregularities in contractual negotiations - If irregularities are e n c o u n t e red during contractual negotiations, e.g. if a re p resentative of the counterpart solicits personal advantages in return for a business deal, the investor should immediately report the case to a local anti-corruption agency.

For further information, please refer to the list of websites in Appendix 17.

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Appendices

Appendix 1 (1) Commercial bribery (offering bribes, accepting bribes and deceiving one's employer by false documents)

Extracts from the Prevention of Bribery Ordinance (Laws of Hong Kong Chapter 201) Section 9 (1) Any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for or otherwise on account of his (a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal's affairs or business; or (b) showing or forbearing to show, or having shown or forborne to s h o w, favour or disfavour to any person in relation to his principal's affairs or business, shall be guilty of an offence. (2) Any person who, without lawful authority or reasonable excuse, o ffers any advantage to any agent as an inducement to or reward for or otherwise on account of the agent's (a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal's affairs or business; or (b) showing or forbearing to show, or having shown or forborne to s h o w, favour or disfavour to any person in relation to his principal's affairs or business, shall be guilty of an offence. (3) Any agent who, with intent to deceive his principal, uses any receipt, account or other document (a) in respect of which the principal is interested; and (b) which contains any statement which is false or erroneous or defective in any material particular; and (c) which to his knowledge is intended to mislead the principal, shall be guilty of an offence. (4) If an agent solicits or accepts an advantage with the permission of his princ ipal , being permission which complies with subsection (5), neither he nor the person who off e red the

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advantage shall be guilty of an offence under subsection (1) or (2). (5) For the purposes of subsection (4) permission shall (a) be given before the advantage is offered, solicited or accepted; or (b) in any case where an advantage has been offered or accepted without prior permission, be applied for and given as soon as reasonably possible after such offer or acceptance, and for such permission to be effective for the purposes of subsection (4), the principal shall, before giving such permission, have regard to the circumstances in which it is sought.

(2) Bribery involving public servants

Section 4(1) Any person who, whether in Hong Kong or elsewhere, without lawful authority or reasonable excuse, offers any advantage to a public servant as an inducement to or reward for or otherwise on account of that public servant's (a) performing or abstaining from performing, or having performed or abstained from perf o rming, any act in his capacity as a public servant; (b) expediting, delaying, hindering or preventing, or having expedited, delayed, hindered or prevented, the performance of an act, whether by that public servant or by any other public servant in his or that other public servant's capacity as a public servant; or (c) assisting, favouring, hindering or delaying, or having assisted, favoured, hindered or delayed, any person in the transaction of any business with a public body, shall be guilty of an offence.

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Section 5(1) Any person who, without lawful authority or reasonable excuse, offers an advantage to a public servant as an inducement to or reward for or otherwise on account of such public servant's giving assistance or using influence in, or having given assistance or used influence in (a) the promotion, execution, or procuring of (i) any contract with a public body for the performance of any work, the providing of any service, the doing of any thing or the supplying of any article, material or substance; or (ii) any subcontract to perform any work, provide any service, do any thing or supply any article, material or substance required to be performed, provided, done or supplied under any contract with a public body; or (b) the payment of the price, consideration or other moneys stipulated or otherwise provided for in any such contract or subcontract as aforesaid, shall be guilty of an offence.

(3) Offering advantages to public servants illegally

Section 8 (1) Any person who, without lawful authority or reasonable excuse while having dealings of any kind with the Government through any department, office or establishment of the Government, offers any advantage to any Crown servant* employed in that department, office or establishment of the Government, shall be guilty of an offence. (2) Any person who, without lawful authority or reasonable excuse, while having dealings of any kind with any other public body, offers any advantage to any public servant employed by that public body, shall be guilty of an offence. * The term is under review.

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(4) Bribery involving dealings with public bodies

Section 6(1) Any person who, without lawful authority or reasonable excuse, offers any advantage to any other person as an inducement to or a reward for or otherwise on account of the withdrawal of a tender, or the refraining from the making of a tender, for any contract with a public body for the performance of any work, the providing of any service, the doing of any thing or the supplying of any article, material or substance, shall be guilty of an offence.

Section 7(1) Any person who, without lawful authority or reasonable excuse, offers any advantage to any other person as an inducement to or re w a rd for or otherwise on account of that other person's refraining or having refrained from bidding at any auction conducted by or on behalf of any public body, shall be guilty of an offence.

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Appendix 2 (1) Embezzlement by State functionaries

Extracts of Corruption and Bribery Offences from the Criminal Law of the People's Republic of China Article 382 Any State functionary who, by taking advantage of his off i c e , appropriates, steals, swindles public money or property or by other means illegally take it into his own possession shall be guilty of embezzlement. Any person authorised by State organs, State-owned companies, enterprises, institutions or people's organisations to administer and manage State-owned property who, by taking advantage of his office, appropriates, steals, swindles the said property or by other means illegally take it into his own possession shall be regarded as being guilty of embezzlement. Whoever conspires with the person mentioned in the preceding two paragraphs to engage in embezzlement shall be regarded as joint offenders in the crime and punished as such.

Article 383 Persons who commit the crime of embezzlement shall be punished respectively in the light of the seriousness of the circumstances and in accordance with the following provisions : (1) An individual who embezzles not less than 100,000 yuan shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment and may also be sentenced to confiscation of property; if the circumstances are especially serious, he shall be sentenced to death and also to confiscation of property. (2) An individual who embezzles not less than 50,000 yuan but less t han 100,000 yuan sha ll be sentenced to fixed-t erm imprisonment of not less than five years and may also be sentenced to confiscation of property; if the circumstances are especially serious, he shall be sentenced to life imprisonment and confiscation of property. 176

(3) An individual who embezzles not less than 5,000 yuan but less than 50,000 yuan shall be sentenced to fixed-term imprisonment of not less than one year but not more than seven years; if the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not less than seven years but not more than 10 years. If an individual who embezzles not less than 5,000 yuan but less than 10,000 yuan, shows true repentance after committing the crime, and gives up the embezzled money of his own accord, he may be given a mitigated punishment, or he may be exempted from criminal punishment but shall be subjected to administrative sanctions by his work unit or by the competent authorities at a higher level. (4) An individual who embezzles less than 5,000 yuan; if the c i rcumstances are relatively serious, shall be sentenced to fixed-term imprisonment of not more than two years or criminal detention; if the circumstances are relatively minor, he shall be given administrative sanctions at the discretion of his work unit or of the competent authorities at a higher level. Whoever repeatedly commits the crime of embezzlement and goes unpunished shall be punished on the basis of the cumulative amount of money he has embezzled.

Article 183(2) If an employee of a State-owned insurance company or any person who is assigned by a State-owned insurance company to an insurance company that is not owned by the State to engage in public service commits the act prescribed in the pre c e d i n g paragraph (i.e. taking advantage of his position, deliberately fabricates the occurrence of an insured accident and falsely settles a fictitious claim, thereby swindling the insured amount of money out of the company and taking it into his own possession), he shall be convicted and punished according to the provisions in Article 382 and 383 of this Law. 177

Article 271(2) If an employee who is engaged in public service in a State-owned company, enterprise or any other State-owned unit or if a person who is assigned by a State-owned unit to a company, enterprise or any other unit that is not owned by the State to engage in public service commits the act mentioned in the preceding paragraph (i.e. taking advantage of his position, unlawfully takes possession of the money or property of his own unit), he shall be convicted and punished in accordance with the provisions of Article 382 or 383 of this Law.

Article 394 Any State functionary who, in his activities of domestic public service or in his contacts with foreigners, accepts gifts and does not hand them over to the State as is required by State regulations, if the amount involved is relatively large, shall be convicted and punished in accordance with the provisions of Articles 382 and 383 of the Law.

(2) Embezzlement through dereliction of duty by employees of enterprises

(3) Illicit division of State-owned assets

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Article 271(1) Any employee of a company, enterprise or any other unit who, taking advantage of his position, unlawfully takes possession of the money or property of his own unit, if the amount is relatively large, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention; if the amount is huge, he shall be sentenced to fixed-term imprisonment of not less than five years and may also be sentenced to confiscation of property.

Article 396(1) Where a State organ, State-owned company, enterprise, institution or people's organisation, in violation of State regulations and in the name of the unit, divides up State-owned assets in secret among

all the individuals of the unit, if the amount involved is relatively large, the persons who are directly in charge and the other persons who are directly responsible for the offence shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined; if the amount involved is huge, they shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined.

(4) Misappropriation of public funds

Article 384 Any State functionary who, by taking advantage of his position, misappropriates public funds for his own use or for conducting illegal activities, or misappropriates a relatively large amount of public funds for profit-making activities, or misappropriates a relatively large amount of public funds and fails to return it after the lapse of three months, shall be guilty of misappropriation of public funds and shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention; if the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not less than five years. Whoever misappropriates a huge amount of public funds and fails to return it shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment. Whoever misappropriates for his own use funds or materials allocated for disaster relief, emergency rescue, flood prevention and control, special care for disabled servicemen and the families of revolutionary martyrs and servicemen, aid to the poor, migration and social relief shall be given a heavier punishment.

Article 185(2) If any employee of a State-owned commercial bank, stock exchange, futures exchange, securities company, futures brokering 179

company, insurance company or any other State-owned financial institution and any person who is assigned by a State-owned commercial bank, stock exchange, futures exchange, securities company, futures brokering company, insurance company or any other State-owned fina ncial in stitution to th e mentioned institutions in the preceding paragraph (i.e. a commercial bank, stock exchange, futures exchange, securities company, futures brokering company, insurance company or any other financial institution) that are not owned by the State to engage in public service commits the act mentioned in the preceding paragraph (i.e. taking advantage of his position, misappropria tes money belonging to the said units or any client), he shall be convicted and punished according to the provisions in Article 384 of this Law.

Article 272(2) If an employee who is engaged in public service in a State-owned company, enterprise or any other State-owned unit or any person who is assigned by a State-owned company, enterprise, or any other State-owned unit to a company, enterprise or any other unit that is not owned by the State to engage in public service commits any act mentioned in the preceding paragraph (i.e. taking advantage of his position, misappropriates the funds of his own unit for personal use or for loaning them to another person), he shall be convicted and punished in accordance with the provisions of Article 384 of this Law.

(5) Misappropriation of a unit's funds

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Article 272(1) Any employee of a company, enterprise or any other unit who, taking advantage of his position, misappropriates the funds of his own unit for personal use or for loaning them to another person, if the amount is relatively large and the funds are not repaid at the

expiration of three months, or if the funds are repaid before the expiration of three months but the amount involved is relatively large and the funds are used for profit-making activities or for illegal activities, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention; if the amount involved is huge, or if it is relatively large but is not returned, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years.

(6) Acceptance of bribes by State functionaries

Article 385 Any State functionary who, by taking advantage of his position, extorts money or property from another person, or illegally accepts another person's money or property in return for securing benefits for the person shall be guilty of acceptance of bribes. Any State functionary who, in economic activities, violates State regulations by accepting rebates or service charges of various descriptions and taking them into his own possession shall be regarded as guilty of acceptance of bribes and punished for it.

Article 163(3) Any employee of a State-owned company or enterprise who, being engaged in public service or who is assigned by a State-owned company or enterprise to engage in public service in a company or enterprise that is not owned by the State, commits any of the acts mentioned in the preceding two paragraphs (i.e. taking advantage of his position, demands money or property from other person or illegally accepts another person's money or property in return for the benefits he seeks for such person; or violating State regulations in economic activities, accepts rebates or serv i c e c h a rges of various descriptions and takes them into his own

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possession), shall be convicted and punished according to the provisions in Articles 385 and 386 of this Law.

Article 184(2) Any employee of a State-owned banking institution or any person assigned by a State-owned banking institution to a banking institution that is not owned by the State to engage in public s e rvice who commits the act mentioned in the pre c e d i n g paragraph (i.e. in financial activities demands money or property from another person or illegally accepts money or property from another person in return for the benefits secured for such person or, in violation of State regulations, accepts rebates or service c h a rges of various descriptions and takes them into his own possession), shall be convicted and punished according to the provisions in Articles 385 and 386 of this Law.

Article 388 Any State functionary who, by taking advantage of his own functions and powers or position, secures illegitimate benefits for an entrusting pe rson through another State functionary ' s performance of his duties and extracts from the entrusting person or accepts the entrusting person's money or property shall be regarded as guilty of acceptance of bribes and punished for it.

(7) Acceptance of bribes by a unit

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Article 387 Where a State organ, State-owned company, enterprise, institution or people's organisation extorts from another person or illegally accepts another person's money or property in return for securing benefits for the person, if the circumstances are serious, it shall be fined, and the persons who are directly in charge and the other

persons who are directly responsible for the offence shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention. Any of the units mentioned in the preceding paragraph that, in economic activities, secretly accepts off-the-book rebates or service charges of various descriptions shall be regarded as guilty of acceptance of bribes and punished in accordance with the provisions of the preceding paragraph.

(8) Members of intermediary organisations deliberately providing false testifying papers

(9) Offering bribes to State functionaries

Article 229(2) Any member mentioned in the preceding paragraph (i.e. a member of an intermediary organisation, whose duty is to make capital assessment, verification or validation, to do accounting or auditing, or to provide l egal ser vice, etc.), who commits the crime prescribed in the preceding paragraph (i.e. deliberately provides false testifying papers), demands money or property from another or illegally accepts money or pro p e rty from another shall be sentenced to fixed-term imprisonment of not less than five years but not more than 10 years and shall also be fined.

Article 389 Whoever, for the purpose of securing illegitimate benefits, gives money or property to a State functionary shall be guilty of offering bribes. W h o e v e r, in economic activities, violates State regulations by giving a relatively large amount of money or property to a State functionary or by giving him rebates or service charges of various description shall be re g a rded as guilty of offering bribes and punished for it.

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Any person who offers money or property to a State functionary through extortion but gains no illegitimate benefits shall not be regarded as offering bribes.

(10) Unit offering bribes

(11) Offering bribes to a unit

Article 393 Where a unit offers bribes for the purpose of securing illegitimate benefits, or in violation of State regulations, gives rebates or service charges to a State functionary, if the circumstances are serious, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the offence shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention. Any person who takes into his own possession the illegal gains derived from bribing shall be convicted and punished in accordance with the provisions of Articles 389 and 390 of this Law.

Article 391 Whoever, for the purpose of securing illegitimate benefits, gives money or pro p e rty to a State organ, State-owned company, enterprise, institution or people's organisation or, in economic activities, violates State regulations by giving rebates or service charges of various descriptions shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention. W h e re a unit commits the crime mentioned in the pre c e d i n g paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the offence shall be punished in accordance with the provisions of the preceding paragraph.

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(12) Introducing a bribe

Article 392 Whoever introduces a bribe t o a State functionary, if the c i rcumstances are serious, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention. Any person who introduces a bribe but voluntarily confesses the act before he is investigated for criminal responsibility may be given a mitigated punishment or exempted from punishment.

(13) Acceptance of bribes by employees of companies and enterprises

Article 163(1) and (2) W h e re an employee of a company or enterprise who, taking advantage of his position, demands money or property from other person or illegally accepts another person's money or property in return for the benefits he seeks for such person, if the amount involved is relatively large, he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention; if the amount is huge, he shall be sentenced to fixed-term imprisonment of not less than five years and may also be sentenced to confiscation of property. Any employee of a company or enterprise who, violating State regulations in economic activities, accepts rebates or serv i c e c h a rges of various descriptions and takes them into his own possession shall be punished in accordance with the provisions in the preceding paragraph.

(14) Offering bribes to employees of companies and enterprises

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Article 164 Whoever, for the purpose of seeking illegitimate benefits, gives money or property to any employee of a company or enterprise, if the amount involved is relatively large, shall be sentenced to fixedt e rm imprisonment of not more than three years or criminal detention; if the amount involved is huge, he shall be sentenced to

fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined. Where a unit commits the crime as mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the crime shall be punished according to the provisions in the preceding paragraph. Any bri ber who confesses the bribery voluntarily prior to prosecution may be given a mitigated punishment or be exempted from punishment.

(15) Failing to explain significant excess of property or expenditure over lawful income

(16) Concealing savings outside the territory of China

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Article 395(1) Any State functionary whose property or expenditure obviously exceeds his lawful income, if the difference is enormous, may be ordered to explain the sources of his property. If he cannot prove that the sources are legitimate, the part that exceeds his lawful income shall be re g a rded as illegal gains, and he shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention, and the part of property that exceeds his lawful income shall be recovered.

Article 395(2) Any State functionary shall, in accordance with State regulations, declare to the State his bank savings outside the territory of China. Whoever has a relatively large amount of such savings and does not declare them to the State shall be sentenced to fixed-term imprisonment of not more than two years or criminal detention, if the ci rcumstances are re latively minor, he shall be given administrative sanctions at the discretion of his work unit or the competent authorities at a higher level.

Appendix 3

Rules and Regulations Governing the Securities and Futures Markets of Hong Kong (1) Ordinances • Companies Ordinance (Laws of Hong Kong Chapter 32) • Securities Ordinance (Laws of Hong Kong Chapter 333) • Commodities Trading Ordinance (Laws of Hong Kong Chapter 250) • Securities (Disclosure of Interests) Ordinance (Laws of Hong Kong Chapter 396) • Securities (Insider Dealing) Ord i n a n c e (Laws of Hong Kong Chapter 395) • Protection of Investors Ordinance (Laws of Hong Kong Chapter 335) (Please visit website http://www.justice.gov.hk/ for details of the above Ordinances)

(2) Codes of Conduct • Code of Conduct for Persons Registered with the Securities and Futures Commission • Fit and Proper Criteria issued by the Securities and Future s Commission (Please visit website http://www.hksfc.org.hk/eng/bills/html/codes_guide.htm for details of the above Codes)

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Appendix 4

Extracts of the Securities (Insider Dealing) Ordinance (Laws of Hong Kong Chapter 395)

Dealing in securities or their derivatives

Section 6

Take-over offer

Section 7

For the purposes of this Ordinance, a person deals in securities or their derivatives if (whether as principal or agent) he buys, sells, exchanges or subscribes for, or agrees to buy, sell, exchange or subscribe for, any securities or their derivatives or acquires or disposes of, or agrees to acquire or dispose of, the right to buy, sell, exchange or subscribe for, any securities or their derivatives.

In this Ordinance, "take-over offer for a corporation" (收購一間機構 的要約) means an offer made to all the holders (or all the holders other than the person making the offer and his nominees) of the shares in the corporation to acquire those shares or a specified proportion of them, or to all the holders (or all the holders other than the person making the offer and his nominees) of a particular class of those shares to acquire the shares of that class or a specified proportion of them.

Relevant information

Section 8 In this Ordinance "relevant information" (有關消息) in relation to a corporation means specific information about that corporation which is not generally known to those persons who are accustomed or would be likely to deal in the listed securities of that corporation but which would if it were generally known to them be likely materially to affect the price of those securities.

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When insider dealing takes place

Section 9: (1) Insider dealing in relation to a listed corporation takes place (a) when a person connected with that corporation who is in possession of information which he knows is re l e v a n t information in relation to that corporation deals in any listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in such listed securities knowing or having reasonable cause to believe that such person would deal in them; (b) when a person who is contemplating or has contemplated making (whether with or without another person) a take-over offer for that corporation and who knows that the information that the offer is contemplated or is no longer contemplated is relevant information in relation to that corporation, deals in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in those listed securities or their derivatives, otherwise than for the purpose of such take-over; (c) when relevant information in relation to that corporation is disclosed directly or indirectly, by a person connected with that corporation, to another person and the first-mentioned person knows that the information is relevant information in relation to the corporation and knows or has reasonable cause for believing that the other person will make use of the i n f o rmation for the purpose of dealing, or counselling or procuring another to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives);

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(d) when a person who is contemplating or has contemplated making (whether with or without another person) a take-over offer for that corporation and who knows that the information that the offer is contemplated or is no longer contemplated is relevant information in relation to that corporation, discloses that information, direct or indirectly, to another person and the first-mentioned person knows or has reasonable cause for believing that the other person will make use of the information for the purpose in dealing, or in counselling or procuring another to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives); (e) when a person who has information which he knows is relevant information in relation to that corporation which he received (directly or indirectly) from a person (i) whom he knows is connected with that corporation; and (ii) whom he knows or has reasonable cause to believe held that information by virtue of being so connected, deals in the listed securities of that corporation or their derivatives (or in the listed securites of a related corporation or their derivatives) or counsels or procures another person to deal in those listed securities or their derivatives; (f) when a person who has received (directly or indirectly) from a person whom he knows or has reasonable cause to believe is contemplating or is no longer contemplating a take-over o ffer for that corporation, information to that effect and knows that such information is relevant information in relation to that corporation, deals in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) or counsels or procures another person to deal in those listed securities or their derivatives.

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(2) An insider dealing in relation to a listed corporation also takes place when a person who is knowingly in possession of relevant i n f o rma tion in rel ation to that corporation in any of the circumstances described in subsection (1) (a) counsels or procures any other person to deal in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) in the knowledge or with reasonable cause to believe that that person would deal in those listed securities or their derivatives outside Hong Kong on any stock exchange other than the Unified Exchange; or (b) discloses that relevant information to any other person in the knowledge or with reasonable cause to believe that that or some other person will make use of that information for the purpose of dealing, or of counselling or procuring any other person to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a re l a t e d corporation or their derivatives) outside Hong Kong on any stock exchange other than the Unified Exchange.

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Appendix 5 Offences by directors, managers, trustees, employees and agents

Extracts of the Banking Ordinance (Laws of Hong Kong Chapter 155) Section 123 Any dire c t o r, manager, trust ee, employee or agent of any authorised institution who, with intent to deceive (a) wilfully makes, or causes to be made, a false entry in any book of record or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of the institution; (b) wilfully omits to make an entry in any book of record or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of the institution, or wilfully causes any such entry to be omitted; or (c) wilfully alters, abstracts, conceals or destroys an entry in any book of record, or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of the institution, or wilfully causes any such entry to be altered, abstracted, concealed or destroyed, commits an offence and is liable (i) on conviction upon indictment to a fine at tier 8 and to imprisonment for 5 years; or (ii) on summa ry con viction to a fine a t tier 5 an d to imprisonment for 2 years.

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Prohibition on receipt of commission by staff

Section 124 Any director or employee of an authorised institution, who asks for or receives, consents or agrees to receive any gift, commission, emolument, service, gratuity, money, property or thing of value for his own personal benefit or advantage or for that of any of his relatives, for procuring or endeavouring to procure for any person any advance, loan, financial guarantee or credit facility from that institution or the purchase or discount of any draft, note, cheque, bill of exchange or other obligation by that institution, or for p e rmitting any person to overdraw any account with that institution, commits an offence and is liable(a) on conviction upon indictment to a fine at tier 6 and to imprisonment for 5 years; or (b) on summary conviction to a fi ne a t tier 5 and to imprisonment for 2 years.

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Appendix 6

Rules and Regulations Relating to Investing in Shanghai 1. Company Law of the People's Republic of China 2. Law of the People's Republic of China on Wholly Fore i g n Owned Enterprises 3. Rules for the Implementation of the Foreign-Capital Enterprise Law of the People's Republic of China (Ministry of Foreign Trade and Economic Cooperation) 4. Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures 5. Regulations for the Implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures (State Council) 6. Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures 7. Rules for the Implementation of the Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures (Ministry of Foreign Trade and Economic Cooperation) 8. Certain Regulations regarding Capital Investments of Different Parties in Chinese-Foreign Equity Joint Ventures (Ministry of F o reign Trade an d Economic Cooperation and the Administration for Industry and Commerce) 9. Commercial Bank Law of the People's Republic of China 10. Securities Law of the People's Republic of China 11. Regulations on Foreign Exchange Control in the People's Republic of China (State Council) 12. Interim Provisions on Guidance to Foreign Investors regarding the Orientation of their Investments (State Development Planning Commission, State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation)

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13. Interim Provisions on Foreign Investment in Investment C o m p a n i e s ( M i n i s t ry of Foreign Trade and Economic Cooperation) 14. Certain Regulations regarding the Change of Shareholdings in F o reign-Funded Enterprises ( M i n i s t ry of Foreign Trade and Economic Cooperation and Administration for Industry and Commerce) 15. M e a s u res for Liquidation of Foreign-Funded Enterprises (Ministry of Foreign Trade and Economic Cooperation) 16. Regulations re g a rding the Approval of Fore i g n - F u n d e d Enterprises in Shanghai Municipality (Shanghai People's Congress) 17. Criminal Law of the People's Republic of China 18. Interim Regulations on Management of Stock Issue and Trading (State Council) 19. Interim Methods for Prohibiting Fraudulent Acts Relating to Securities (State Council)

Please visit the following websites for more details regarding these rules and regulations: Database for the laws of the People's Republic of China http://www.legal-info.com.cn M i n i s t ry of Foreign Trade and Economic Cooperation of the People's Republic of China http://www.moftec.gov.cn The Supreme People's Procuratorate of the People's Republic of China http://www.spp.gov.cn

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Appendix 7 Part II Model code of conduct

Extracts of the Banking (Code of Conduct) Guidelines 1986 1. Introduction All staff of [insert the proper name of the authorised institution] are subject to this code of conduct. Any breach will give rise to disciplinary action and may, where applicable, give rise to criminal prosecution. Any staff member who has any doubt about the propriety of any course of action or who finds that his own interests are or may be in conflict with those of the [insert "bank" or "company" as appropriate] should seek the advice of [insert the name of the senior ranking officer or the post of the senior ranking officer as appropriate]. Any queries regarding the contents of this code of conduct should be directed to [insert the name or post of the senior ranking officer as appropriate, which need not be the same senior ranking officer or post as above]. Profitability of the [insert "bank" or "company" as appropriate] is enhanced by its good reputation to which all staff shall contribute. All staff (in particular but not limited to those with lending authority or involved in commending loans of any kind) shall always look out for circumstances which are susceptible to fraud, forg e ry or corruption, in order to protect the [insert "bank" or "company" as appropriate] and its staff not just from actual malpractice, but also from allegations of malpractice.

2. Loans All staff with lending authority shall have spe cifi ed limits commensurate with their rank as laid down in the [insert title of bank's or company's document which sets out such limits]. No member of staff shall grant credit or loans to himself, to members of his immediate family (spouse and children under the age of 21), or to companies in which he or his immediate family is interested.

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3. Borrowings No me mber of staff (or his imm ediat e fami ly) shall make borrowings or receive credit from third parties on an abnormally favoured basis unless approved by [insert the name or post of the senior ranking officer as appropriate, which need not be the same senior ranking officer or post as elsewhere specified].

4. Conduct when Obtaining Business No member of staff shall offer any bribe or similar consideration to any person or company in order to obtain business for the [insert the proper name of the authorised institution]. Any commissions paid or other payments made, or favourable terms conceded, or other advantages given, by any staff member in the conduct of the [insert "bank's" or "company's" as appropriate] business shall be in accordance with the [insert "bank's" or "company's" as appropriate] policies on such matters as notified from time to time and shall be promptly recorded in writing.

5. Personal Benefits All staff should note carefully the provisions of Section 124 of the Banking Ordinance and Section 9 of the Prevention of Bribery O rd i n a n c e which contain criminal penalties for accepting advantages in prescribed circumstances. Members of staff should actively discourage customers of the [insert "bank" or "company" as appropriate] from offering personal benefits of all kinds (including every type of gift, favour, service, loan, fee or anything of monetary value). No member of staff shall solicit, accept or retain personal benefits f rom any customer of the [insert "bank" or "company" as appropriate], or any individual or organisation doing or seeking to 197

do business with the [insert "bank" or "company" as appropriate]. H o w e v e r, provided that there is no reasonable likelihood of improper influence on the performance by them of their duties on behalf of the [insert "bank" or "company" as appropriate] and that the personal benefit concerned is not accepted in connexion with a banking function re f e rred to in Section 124 of the B a n k i n g Ordinance, all staff are permitted to accept from customers (but not solicit) (a) any normal business entertainment (for example, a meal involving no more than ordinary amenities); or (b) any gift (including a laisee) given on festive occasions under customary practice, subject to a maximum limit of HK$1,000 in value; or (c) any personal benefit arising from kinship or marriage; or (d) any personal benefit received from a close personal friend, where such friendship is entirely unrelated to the business of the [insert "bank" or "company" as appropriate], subject to a maximum limit of HK$2,000 in value. Where a staff member wishes to accept a personal benefit (which is not a personal benefit referred to in (a), (b), (c) or (d) above), he shall, within three working days of the personal benefit being offered or presented, send a written report to [insert the name or post of the senior ranking officer as appropriate, which need not be the same senior ranking officer or post as elsewhere specified] stating (a) the name of the donor; (b) a description and an assessment of the value of the gift; (c) the business connexion (if any) between the donor and the [insert "bank" or "company" as appropriate]; and (d) the personal relationship between the staff member and the donor. 198

The staff member will then be advised whether the gift may be accepted or whether it should be re t u rned to the donor or disposed of in some other way.

6. Use of Information No member of staff shall during, or after termination of, his employment with the [insert "bank" or "company" as appropriate] (except in the proper course of his duties or with the [insert "bank's" or "company's" as appropriate] written consent) divulge or make use of any secrets or of any correspondence, accounts, connexions or dealings of the [insert "bank" or "company" as a p p ropriate] or its customers or of any knowledge gained in relation there to during his employment. No staff member shall in any way use information so obtained for financial gain. No member of staff shall release information concerning a customer of the [insert "bank" or "company" as appropriate] to a third party without the customer's consent in writing except in a c c o rdance with the [insert " bank's" or "c ompany's" as appropriate] trade, credit and information arrangements, or like arrangements for the proper interchange of information between authorised institutions about credit risks, or where he is required to do so by law.

7. Investments No member of staff shall deal (whether directly or indirectly) in the shares or other securities of any company listed on The Stock Exchange of Hong Kong Limited at any time when he is in possession of information, obtained as a result of his employment by, or his connection with, the [insert "bank" or "company" as appropriate] which is not generally available to the shareholders of that company and to the public and which, if it were so available, 199

would be likely to bring about a material change in the market price of the shares or other securities of the company concerned. No such information shall be disclosed to any third party. All members of staff shall immediately notify the [insert "bank" or "company" as appropriate] in writing, the details of any dealings in which they are (whether directly or indirectly) concerned in any such listed company. It should be noted that, in particular instances, insider dealing may be the subject of enquiries under the Securities Ordinance by the Insider Dealing Tribunal whose reports are made public and would cover, amongst other things, findings as to whether or not the person or persons under enquiry were culpable in respect of insider dealing.

8. Outside Employment No member of staff shall take up any directorship or employment or part-time commercial duties (paid or unpaid) outside the [insert "bank" or "company" as appropriate] except with the prior written approval of [insert the name or post of the senior ranking officer as appropriate, which need not be the same senior ranking officer or post as elsewhere specified]. Approval will be given to take up other employment or part-time commercial duties only in circumstances where the interests of the [insert "bank" or "company" as appropriate] will not be prejudiced. Such approval will be given by [insert name or post of senior ranking officer specified above] or by one of his delegatees depending upon the rank of the member of staff seeking to take up such employment or commercial duties.

200

Appendix 8

Code of Conduct (Sample) The Company believes that honesty, integrity and fair play are important assets in all of its business activities. All directors and employees of the Company must ensure that the Company's reputation is not tarnished by dishonesty, disloyalty or corruption. Contents of this Code of Conduct are applicable in Hong Kong and the Mainland.

(1) Bribery, illegal gifts and commission

Prevention of Bribery Ordinance No director or employee is permitted to solicit or accept an advantage in connection with his duties without the permission of the Company. The term "advantage" is defined as any gift, loan, fee, reward, employment, contract, service or favour. Accepting or offering unlawful advantages constitutes an offence under Section 9 of the Prevention of Bribery Ordinance in Hong Kong and Articles 163 and 164 of the Criminal Law of the People's Republic of China.

Soliciting Advantages It is the policy of the Company to prohibit directors and employees from soliciting any advantage from clients, suppliers or any person in connection with the Company's business.

Accepting Advantages D i rectors or employees must decline advantages off e red in connection with their duties if the acceptance of such advantages could affect their objectivity, lead them to act against the Company's interests or lead to complaints of bias and unfair dealing against the Company. 201

If the advantages off e red meet with the following conditions, directors or employees can consider accepting them: • acceptance will not influence the performance of the recipient; • the recipient will not feel obliged to do something in return for the offeror; • the acceptance of the advantage can be openly discussed without reservation; and • the nature (e.g. advertising or promotional gift, customary gift or "red packets" given during festive occasions) and the value (e.g. not exceeding $_______) of the advantage are such that refusal could be seen as unsociable or impolite. In case of doubt, the recipient should refer the matter to (name and/or rank of a nominated officer of the Company) for advice and instructions.

Offering Advantages Under no circumstances may an employee or director offer bribes or similar considerations to any person or company, for the purpose of influencing such person or organisation in obtaining or retaining business for, or directing business to the Company. Any commissions paid, or payments made, or favourable terms concede d, or other advantage s give n by any director or employee in the conduct of the Company's business should be in a c c o rdance with the Company's prevailing policies on such matters. Employees and directors should obtain the prior written approval of the Company. Under no circumstances can a director or employee offer any advantages, including gifts, loans, services or favours, etc. to an employee of a government department and public body.

202

On the Mainland, besides offering an advantage, introducing a bribe to a State functionary would also constitute an offence under Article 392 of the Criminal Law of the People's Republic of China.

Company Files and Accounts D i rectors and employees should note that any falsifying of documents, and submission of falsified accounts are illegal in the criminal laws of Hong Kong and the Mainland. The Company also strictly forbids such behaviour.

Observing Local Laws when Working in Another Jurisdiction Any director or employee who conducts business on behalf of the Company in another jurisdiction must abide by the laws of that jurisdiction, including laws and regulations on anti-corruption, and all other laws and regulations pertaining to ethical business conduct.

(2) Personal conduct of directors and employees

203

Entertainment Although entertainment is an acceptable form of business and social behaviour, directors or employees should not accept invitations to meals or entertainment that are excessive in nature or f re q u e n c y. This will prevent any embarrassment or loss of objectivity in the course of conducting the Company's business. If it is impolite to decline an invitation, the director or employee might accept, on the understanding that he be allowed to reciprocate.

Use of Proprietary Information Directors and employees are not allowed at any time to disclose any proprietary information to any individuals or organisations outside the Company without permission. Such information may relate to all aspects of the Company's operations including investment strategies, sales and marketing plans, new products, financial projections, patent applications, clientele databases, copyrighted materials etc. It is the responsibility of each director and employee who has access to, or is in control of such pro p r i e t a ry information, to provide adequate safeguards to prevent any abuse or misuse. Examples of misuse include disclosure of information in return for monetary rewards; use of information for personal interest, and disclosure of information in an attempt to sabotage the Company's interests.

Handling Situations Involving a Conflict of Interest Conflict of interest situations arise when the personal interests of directors or employees compete or conflict with the interests of the Company. Such situations can at best lead to divided loyalty and at worst can result in corruption or other questionable practices. The most common conflict of interest situations directors or employees may become involved in are : • having undeclared financial interests in any supplier, contractor or parties that do business with the Company; • offering assistance to the Company's competitors through taking on part-time employment or "consultancy" service; • engaging covertly in production of services or goods in competition with the Company;

204

• performing outside work on the Company's premises and using the Company's time and assets; and • giving unduly favourable treatment to particular supplier, contractor, customer, job applicant or subordinate for personal reasons. Every director or employee of the Company should make it his personal responsibility to avoid situations that may lead to or involve conflict of interest. He should at all times ensure that his dealings with customers, suppliers, contractors and colleagues do not place him in a position of obligation that may lead to a conflict of interest. In a case where a director or employee or his immediate family might have engaged or considered engaging in business, investments or activities that might have existing or potential conflict with the Company's interests, it is the responsibility of the director or employee to make a full disclosure in writing to (name and/or rank of nominated officer).

Misuse of the Company's Assets and Resources Appropriation of company property, including raw materials and finished goods by employees for personal use or for resale is considered to be theft and renders the culprit liable to prosecution and dismissal.

Loans A dire c t o r, an employee or members of his immediate family should not grant or guarantee any loan to, or accept a loan from (or through the assistance of) any individual or organisation having business dealings with the Company. There is, however, no restriction on normal loans from banks or financial institutions made using prevailing interest rates and terms. 205

Gambling Directors and employees are advised not to engage in frequent and excessive gambling of any kind, including games of mahjong, with persons having business dealings with the Company. In social games with clients, contractors or suppliers, directors and employees must exercise judgement and withdraw from any involvement in high stakes gambling.

Outside Employment D i rectors and employee s should not take up concu rre n t employment, either regular or on a consulting basis, without the prior written approval from the Company. Applications for outside employment should be sent to (name and/or rank of a nominated officer) for consideration.

Insider Trading The Company will not tolerate the use of insider information by d i rectors or employees to secure personal advantage at the expense of the Company, or to gain advantage over those not in the Company. The use of information which has not been made public for personal gain is illegal, unethical and is strictly prohibited.

(3) Monitoring of compliance and the means of enforcement

Understanding of, and Compliance with the Code of Conduct It is the personal responsibility of every director and employee to understand and comply with the Code of Conduct. Functional managers should also in their day to day supervision ensure that their subordinates understand well and comply with the standards and requirements stipulated in the Code of Conduct.

206

Problems encountered in enforcement, as well as comments or suggestions for improvement, should be directed to (name and rank of the officer responsible for overall co-ordination and monitoring of the implementation of the Code of Conduct) for consideration and action.

Violation of the Code of Conduct The Company will not tolerate any illegal or unethical activities. Anyone violating the Code of Conduct will be severely disciplined, and their employment terminated. W h e re corrupti on or other forms of crimina l dealings are suspected, a report will be made to the ICAC in Hong Kong, or the appropriate law enforcement authorities in the Mainland.

Complaints Channels of complaint are open to all shareholders and potential s h a reholders; customers and consumers; suppl ier s and contractors and all directors and employees of the Company. Complaints can be made directly to (name and rank of the officer designated for receiving and investigating complaints, holding an independent and neutral position). This person answers directly to (the Chief Executive Officer or the Board of Directors) to allow efficient handling of all complaints received. The Company will consider all complaints impartially and seriously. Unlawful or unethical conduct will be investigated thoroughly. All information received will be kept strictly confidential.

207

Appendix 9

Declaration of Company Code of Conduct (Sample) (Name of company) believes that honesty, integrity and fair play are important assets, and that they are crucial to the long-term development and success of the Company. It is therefore the responsibility of all staff members to observe the laws and regulations of the jurisdiction where they are located, and to maintain a high standard of business/professional ethics when conducting business. It is the policy of the Company to prohibit staff members from soliciting or accepting any illegal advantage from clients or suppliers. Staff should also avoid situations where their personal interests may be in conflict with their official duties. If such a conflict were to arise, a declaration must be made to the C o m p a n y. It is also the policy of the Company to pro h i b i t malpractice, such as misappropriation of company pro p e rt y, misuse of confidential information, falsification of accounts and documents, and so on. Any staff member breaching the Company's code of conduct will be subject to disciplinary action. Where any staff member is suspected of having committed corruption, deception or other criminal offences, the Company will re p o rt them to the anticorruption agency/law enforcement authority of the jurisdiction where the offence took place. For enquiries, please contact (name of Ethics Compliance Officer).

208

Appendix 10

Letter to Suppliers and Companies (Sample) We believe in a fair, open and honest business environment. We feel that gifts between business associates or trading partners are unnecessary and may even be detrimental to the development of a cordial and mutually beneficial business relationship. It is our policy not to permit our employees to seek any advantage in the form of gifts, money or in kind, in their business dealings on behalf of the Company. This policy is strictly implemented. All our staff are familiar with this policy, and are fully aware that any breach will result in disciplinary action. We may also consider reporting suspected criminal activities to the relevant authorities in the Mainland, or the ICAC in Hong Kong. We would therefore be grateful if you and your associates would re p o rt to (name and/or rank of a designated officer of the Company) any attempt by a member of our staff to solicit an advantage from your company. For your information, a copy of our corporate code of conduct is enclosed.

209

Appendix 11

Addresses and Telephone Numbers of Hong Kong Government Departments and Service Providers for the Business Sector 1. Government Departments

Organisation

Commerce & Industry Bureau

Website

http://www.info.gov.hk/cib

Address

Level 29, One Pacific Place, 88 Queensway, Hong Kong

Tel. No. 2918 7500

Business and h t t p : / / w w w. i n f o . g o v. h k / Suite 1507-9, Level 15, Services Promotion b s p u One Pacific Place, 88 Unit Queensway, Hong Kong

2918 7571

Trade & Industry Department

http://www.info.gov.hk/tid

2392 2922

Invest Hong Kong

http://www.investhk.gov.hk Level 15, One Pacific Place, 88 Queensway, Hong Kong

3107 1000

Intellectual Property Department

http://www.info.gov.hk/ipd

24-25/F Wu Chung House, 213 Queen's Road East, Wan Chai, Hong Kong

2961 6901

Information Services Department

http://www.info.gov.hk/isd

3-8/F Murray Building, Garden Road, Central, Hong Kong

2842 8777

h t t p : / / w w w. l r p u . l a b o u r. Room 1703-1705, ING Labour Relations Tower, 308-320 Des gov.hk Promotion Unit, Voeux Road Central, Labour Department Hong Kong

2110 3988

Innovation and Technology Commission

http://www.info.gov.hk/ 14/F Ocean Centre, 5 Canton Road, Tsim itc Sha Tsui, Kowloon, Hong Kong

2737 2208

Information Technology and Broadcasting Bureau

http://www.info.gov.hk/ 1-2/F Murray Building, Garden Road, Central, itbb/ Hong Kong

2189 2222

210

Trade & Industry Department Tower, 700 Nathan Road, Kowloon, Hong Kong

2. Service Providers for the Business Sector Organisation

Website

Address

Tel. No.

Hong Kong Export Credit Insurance Corporation

http://www.hkecic.com

2/F Tower 1, South Seas Centre, 75 Mody Road, Tsim Sha Tsui, Kowloon, Hong Kong

2723 3883

Hong Kong Productivity Council

http://www.hkpc.org

HKPC Building, 78 Tat Chee Avenue, Kowloon, Hong Kong

2788 5678

Hong Kong Trade Development Council

http://www.tdctrade.com

38/F Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong

2584 4333

Hong Kong Management Association

http://www.hkma.org.hk

14/F Fairmont House, 8 Cotton Tree Drive, Central, Hong Kong

2526 6516

Note this is not an exhaustive list of the government departments and business organisations.

211

Appendix 12

Addresses and Telephone Numbers of Major Chambers of Commerce in Hong Kong

Organisation

Website

Address

Tel. No.

Federation of Hong http://www.fhki.org.hk Kong Industries

4/F Hankow Centre, 5-15 Hankow Road, Tsimshatsui, Kowloon, Hong Kong

2732 3188

The Hong Kong Chinese Enterprises Association

http://www.hkcea.com

Room 2104-6, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong

2827 2831

The Chinese Manufacturers' Association of Hong Kong

http://www.cma.org.hk

CMA Building, 64 Connaught Road Central, Central, Hong Kong

2545 6166 2542 8600

The Chinese General Chamber of Commerce

http://www.cgcc.org.hk

4/F, 24-25 Connaught Road Central, Central, Hong Kong

2525 6385

The American http://www.amcham.org.hk 1904, Bank of America Chamber of Tower, 12 Harcourt Road, Commerce in Hong Central, Hong Kong Kong

2526 0165

Hong Kong General Chamber of Commerce

2529 9229

http://www.chamber.org.hk 22/F United Centre, 95 Queensway, Hong Kong

Note this is not an exhaustive list of the chambers of commerce.

212

Appendix 13

Addresses and Telephone Numbers of Administrative Organisations for Industry and Commerce in Shanghai Unit

Address

Tel. No.

Postal Code

Shanghai Municipal Administration for Industry and Commerce

301, Zhao Jia Bin Road

63172758

200032

Municipal Administration for Industry and Commerce, Pudong Branch Office

2330, Pudong Main Road

58315315

200135

Municipal Administration for Industry and Commerce, Huangpu Branch Office

1234, Yanan East Road

63225497

200003

Municipal Administration for Industry and Commerce, Luwan Branch Office

222, Xingye Road, 4/F

63724447

200020

Municipal Administration for Industry and Commerce, Xuhui Branch Office

76, Chaling Road

640384003100

200032

Municipal Administration for 1289, Dingxi Road Industry and Commerce, Changning Branch Office

62266905

200050

Municipal Administration for Industry and Commerce, Jingan Branch Office

58, Jiaozhou Road

62538375

200040

Municipal Administration for Industry and Commerce, Putuo Branch Office

579, Beishi Road

65659442

200333

213

Unit

Address

Tel. No.

Postal Code

Municipal Administration for Industry and Commerce, Zhabei Branch Office

319, Gonghe New Road

56626047

200070

Municipal Administration for Industry and Commerce, Hongkou Branch Office

279, Tianbao West Road

65225670

200092

Municipal Administration for Industry and Commerce, Yangpu Branch Office

297, Shuangyang Road

65195624

200093

Municipal Administration for Industry and Commerce, Baoshan Branch Office

28, Songbin Road

56849581

200940

Municipal Administration for Industry and Commerce, Minxing Branch Office

6388, Humin Road

64120416

201100

Municipal Administration for Industry and Commerce, Jiading Branch Office

455, Tacheng Road

59528007

201800

Municipal Administration for Industry and Commerce, Jinshan Branch Office

305, Renmin Road, Zhujing County

57311155

201500

Municipal Administration for Industry and Commerce, Songjiang Branch Office

68, Renmin Road, Songjiang County

57715300

201600

214

Unit

Address

Tel. No.

Postal Code

Municipal Administration for Industry and Commerce, Qingpu Branch Office

175, Qingsong Road, Qingpu County

59728798

201700

Municipal Administration for Industry and Commerce, Nanhui Branch Office

60, Renmin Road, Huinan County

58012255

201300

Municipal Administration for Industry and Commerce, Fengxian Branch Office

51, Jiefang West Road, Nanqiao County

57412131

201400

Municipal Administration for 388, Dongmen Road, Industry and Commerce, Chongmin Chengqiao County Branch Office

59621173

202150

Municipal Administration for Industry and Commerce, Airport Branch Office

68841466

201202

215

888, Qihang Road, 7/F

Appendix 14 Professional service 1: services of foreign economic law offices

Professional Services Lawyers in foreign economic law offices are familiar with market regulations and legal requirements of the Mainland. They can thus readily act as a bridge between the government, enterprises and the market, playing the role of professional intermediaries in the Mainland's economic development. They can provide the following services for foreign investors. • legal consultancy services on international economy and trade, technical co-operation, marine matters, trademarks, patents, real estate, finance, share holding companies, taxation and insurance; • participating in negotiations, assisting in research, drafting and examining economic contracts, agreements and other legal documents which involve foreign interests as required by clients; • providing legal advice and acting as notaries; • acting as agents of clients in negotiations, mediation, arbitration and litigation; and • serving as legal advisers, appointed by the Mainland and foreign enterprises, organisations and individuals.

Professional service 2: "one-stop investment consultancy" services

216

"One-stop investment consultancy" services aim to protect the lawful interests of investors and simplify Mainland investment formalities. These are recognised and approved by the Mainland Government. Investors can avoid the trouble of visiting numerous government departments, since they can complete all formalities in one place. Through a single channel, they can undert a k e procedures for business registration, banking services, taxation, insurance, legal services, accounting services, labour and staff matters, customs, investment surveys and visits, and so on. "Onestop investment consultancy" services can not only reduce an investor's burden but also reduce opportunities for corruption and bribery to take place. Services include:

• acting as intermediaries for foreign businessmen intending to invest in the Mainland; • o ffering consultancy, co-ordination and investment pro j e c t presentation services; • establishing liaison between foreign investors and various government departments; and • solving a variety of investment problems and questions encountered by foreign investment enterprises. In the most popular investment cities or provinces, units inviting investment normally offer investors "one-stop investment consultancy" services for related investment projects. This negates the need for Hong Kong investors to employ or contract agents to handle their investment interests. For the latest investment procedures, please visit the website of the Shanghai Municipal Investment Promotion Office for Foreign Investors ( h t t p : / / w w w. i n v e s t m e n t . g o v.cn). Also listed below are the corresponding addresses and telephone numbers for a selection of consultancy units in Shanghai, for investment projects aimed at f o reign investors, and district/county service centres where consultancy services can be obtained for the securing agency of investment projects.

217

Foreign Investment Consulting Firms in Shanghai Unit

Address

Tel. No.

Fax

Shanghai Foreign Investment Consulting Company Limited

Room 601, New Town Mansion, 55 Loushanguan Road, Shanghai Zip : 200336

62752713

62097610

Shanghai Foreign Investment Service Center

16th floor New Town Mansion, 55 Loushanguan Road, Shanghai Zip : 200336

62756390

62758166

Shanghai Investment Consulting Corporation

12th floor, 1200 Yanan Road (East), Shanghai Zip : 200003

63903366 Ext. 2019 63904688

63904817

Economic, Legal & Social Consultancy Center, Shanghai Academy of Social Sciences

Room 401, 7/622 Huaihai Road (Central), Shanghai Zip : 200020

53060606

53061979

Shanghai SITCO 7th floor SITCO Building, 111 International Consultant Jiujiang Road, Shanghai Corporation Zip : 200002

63231111

63239724

CCPIT, Shanghai SubCouncil

63847723

63865197

218

5th floor, 1 Jinling Mansion, 28 Jinling Road (West), Shanghai Zip : 200021

Foreign Investment Service Centers in the Districts and Counties Unit

Address

Tel. No.

Fax

Foreign Investment Service Center of Shanghai Pudong New Area

Room 1603-1604 Suncome Liauw's Plaza, 738 Shangchen Road, Pudong, Shanghai Zip : 200120

58319408

58319943

Foreign Economic Relations and Trade Service Center of Shanghai Changnin District

Room 602, 37 Anxi Road, Shanghai Zip : 200050

62527390

62400864

Foreign Investment Service Center of Shanghai Xuhui District

Room 404, 60 Nandan Road, Shanghai Zip : 200030

64287874

64287874

Foreign Investment Room 304, 10 Hainan Road, Service Center of Shanghai Shanghai Hongkou District Zip : 200080

63240040 Ext. 2365

63249778

Foreign Investment Service Center of Shanghai Luwan District

Room 611, Bashi Building, 525 Jianguo Road (East), Shanghai Zip : 200025

53822703

53822704

Shanghai SFECO International Personal Service Corporation Nanhui Branch

12 Renmin Road, Huinan Town, Nanhui County, Shanghai Zip : 201300

58020276

58020084

219

Foreign Investment Service Centers in the Districts and Counties Unit

Address

Tel. No.

Fax

Foreign Investment Service Center of Shanghai Minghang District

Room 614, No. 1 Building, 6258 Humin Road, Shanghai Zip : 201100

64123681

64121532

Foreign Investment Service Center of Shanghai Fengxian District

No. 2 Building (East), 256 Nanqiao Road, Fengxian Town, Shanghai Zip : 201400

57412602

57413776

Foreign Investment Service Center of Shanghai Putuo District

Room 102, No. 5 Building (East), 29 Puxiong Road, Shanghai Zip : 200063

62440972

62440253

Foreign Investment Service Center of Shanghai Jingan District

Room 2702, 58 Jiaozhou Road, Shanghai Zip : 200040

62152380

62152380

Foreign Economic Relations and Trade Service Center of Shanghai Zhabei District

Room 1613, 480 Datong Road, Shanghai Zip : 200070

63805390 Ext. 6613

63172603

Foreign Investment 5th floor, 28 Songbin Road, Service Center of Shanghai Shanghai Baoshan District Zip : 200940

56846512

56846526

Shanghai SFECO International Personal Service Corporation Jinshan Branch

57314489

57321055

220

160 Donglin Street, Zhujin Town, Jinshan District, Shanghai Zip : 201500

Foreign Investment Service Centers in the Districts and Counties Unit

Address

Tel. No.

Fax

Foreign Investment Service Center of Shanghai Qingpu County

Room 219, West Building, 100 Gongyuan Road, Qingpu County, Shanghai Zip : 201700

59732890 Ext. 19219

59734837

Foreign Investment Service Center of Shanghai Chongming County

108 Dongmen, Chenqiao Town, Chongming County, Shanghai Zip : 202150

59622274

39610001

Foreign Investment Room 303, 83 Shandong Road Service Center of (North), Shanghai Shanghai Huangpu District Zip : 200001

63295679

63295679

Foreign Investment Service Center of Shanghai Jiadin District

Room 301, Office Building of Jiabao Group, 118 Jiajian Highway, Jianbang, Jiading District, Shanghai Zip : 201800

69910573

69910701

Shanghai Yangpu Foreign Economic Advisory Office

707 Yulin Road, Shanghai Zip : 200082

65869341

65351054

Foreign Investment Service Center of Shanghai Songjiang District

81 Rongle Road East, Songjiang District, Shanghai Zip : 201613

57743302

57742235

221

Appendix 15

Addresses and Telephone Numbers of ICAC Regional Offices Each regional office under the Community Relations Department has staff specially trained to receive reports and answer enquiries about corruption. All information is kept strictly confidential. A citizen can lodge a complaint or make an enquiry in any of these eight offices.

Name of Office

Address

Report & Enquiry Tel. No.

Regional Office (Hong Kong West/Islands)

G/F, Harbour Commercial Building 124 Connaught Road Central Sheung Wan, Hong Kong

2543 0000

Regional Office (Hong Kong East)

G/F Tung Wah Mansion 201 Hennessy Road Wan Chai, Hong Kong

2519 6555

Regional Office (Kowloon West)

G/F Nathan Commercial Building 434-436 Nathan Road Kowloon

2780 8080

Regional Office (Kowloon Central)

G/F, 21E Nga Tsin Wai Road Kowloon City, Kowloon

2382 2922

Regional Office (Kowloon East/Sai Kung)

Shop No. 4, G/F Kai Tin Building 67 Kai Tin Road, Lam Tin, Kowloon

2756 3300

Regional Office (New Territories South West)

G/F Foo Yue Building 271-275 Castle Peak Road Tsuen Wan, New Territories

2493 7733

Regional Office (New Territories North West)

No. 4-5, G/F, North Wing Trend Plaza, 2 Tuen Shun Street Tuen Mun, New Territories

2459 0459

Regional Office (New Territories East)

G06-G13, G/F Shatin Government Offices, 1 Sheung Wo Che Road, Shatin, New Territories

2606 1144

222

Appendix 16

Addresses and Telephone Numbers of the Procuratorial Organisations in Shanghai Unit

Address

Report Hotline

Postal Code

Shanghai Municipal People's Procuratorate

648 Jianguo Road (West)

64152000

200030

The 1st Branch of Shanghai Municipal People's Procuratorate

648 Jianguo Road (West)

64432000

200030

The 2nd Branch of Shanghai Municipal People's Procuratorate

555 Zhongshan Road (North)

56702000

200070

Pudong New District People's 3135Yanggao Road Procuratorate (Central)

58852000

200135

Huangpu District People's Procuratorate

1234 Yanan Road (East)

63182000

200003

Luwan District People's Procuratorate

28 Jianguo Road (Central)

64742000

200025

Xuhui District People's Procuratorate

40 Nandan Road

64392000

200030

Changning District People's Procuratorate

100 Wuyi Road

62252000

200050

Jingan District People's Procuratorate

1036 Changping Road

62312000

200042

Putuo District People's Procuratorate

35 Puxiong Road

62562000

200063

223

Addresses and Telephone Numbers of the Procuratorial Organisations in Shanghai Unit

Address

Report Hotline

Postal Code

Zhabei District People's Procuratorate

200 Pushan Road

56322000

200070

Hongkou District People's Procuratorate

51 Hainan Road

63932000

200080

Yangpu District People's Procuratorate

2049 Pingliang Road

65192000

200090

Baoshan District People's Procuratorate

17 Youyi Road

56692000

201900

Minhang District People's Procuratorate

303 Xinsong Road

64922000

201100

Jiading District People's Procuratorate

76 Bole Road

59912000

201800

Jinshan District People's Procuratorate

428 Weier Road

57942000

200540

Songjiang District People's Procuratorate

80 Rongle Road (Central)

57812000

201600

Qingpu District People's Procuratorate

119 Chengzhong Road (North)

59712000

201700

Nanhui District People's Procuratorate

19 Huinan County Station Road

58002000

201300

224

Addresses and Telephone Numbers of the Procuratorial Organisations in Shanghai Unit

Address

Report Hotline

Postal Code

Fengxian District People's Procuratorate

1711 Nanfeng Highway

57102000

201400

Chongming County People's Procuratorate

27 Renmin Road, Chengqiao County

69612000

202150

The Railway Transport Branch 9, Lane 145, Huiwen Road of Shanghai Municipal People's Procuratorate

56222000

200071

Zhangjiang Area of Pudong New District People's Procuratorate

58372000

201200

225

1398 Huaxia Road (East), Pudong

Appendix 17

Websites of Organisations in Hong Kong and Shanghai Hong Kong Special Administrative Region Independent Commission Against Corruption http://www.icac.org.hk/ The Securities and Futures Commission of Hong Kong http://www.hksfc.org.hk/ The Securities and Futures Commission of Hong Kong (Bills) http://www.hksfc.org.hk/eng/bills/html Hong Kong Exchanges and Clearing Limited http://www.hkex.com.hk/ Hong Kong Department of Justice http://www.justice.gov.hk/ Hong Kong Trade Development Council http://www.tdctrade.com/

Shanghai Municipality http://www.shanghai.gov.cn China Procuratorial Daily http://www.jcrb.com/ournews/asp/index.htm The Supreme People's Procuratorate of China http://www.spp.gov.cn/gzdt/ China International Fair for Investment & Trade http://www.chinafair.org.cn/ China Stock Markets Web http://www.hkex.com.hk/csm/ Isinolaw Research Centre http://www.isinolaw.com/

226

References 1. China Public Administration Society "Material Collections for 10th Anniversary of Chinese Public Administration Society" (1998) 2. Zhongguo Fazhi Chubanshe (China Legal System Press) Xinbian Zhonghua Renmin Gongheguo Changyong Falu Fagui Quanxu 41988 "A New Edition of the Laws and Regulations Commonly Used in the People's Republic of China" (transliteration) (April 1988) 3. "Communique of The Supreme People's Procuratorate of the People's Republic of China" (No. 4, 2001) 4. Corporate Finance Association, Hong Kong Association of Financial Advisors, Hong Kong Futures Exchange Limited, Hong Kong Investment Funds Association, Hong Kong Securities Clearing Company Limited, Hong Kong Securities Institute, Hong Kong Securities Professionals Association, Hong Kong Stockbro k e r s Association Limited, ICAC, HKSAR, Securities and Future s Commission, The Stock Exchange of Hong Kong Limited "Ethics in Practice - A Practical Guide for Financial Practitioners" (2000) 5. Department of Justice "Legal System in Hong Kong" (September 1998) 6. Department of Justice, Zhongshan University Neide Yu Xianggang Susong Zhidu Yantaohui Jinian Changkan "Commemorative Special Issue for the Seminar on the Legal Proceedings in the Mainland and Hong Kong" (translaiteration) (May 26-27, 2000 at Guangzhou) 7. ECIC "Compass" Quarterly Newsletter (December 2000) 8. Hong Kong Monetary Authority, ICAC, HKSAR, Hong Kong Institute of Bankers, The Hong Kong Association of Banks, The DTC Association "Ethics in Practice - A Practical Guide for Bank Managers" (August 2001) 9. "Hong Kong Lawyer " (April & June 2001)

227

10. ICAC, HKSAR "P ractical Guide on Corporate Ethics Programme" 11. Hong Kong Trade Development Council and Zhongguo Jinrong Chubanshe (China Finance Press) Waishang Touzi Qiye Xindai Guangli Zhinan 5-1998 "A Guide to Credit Management of Foreign-Funded Enterprises" (transliteration) (May 1998) 12. "Bauhinia Magazine" (April, September, October 2001) 13. "Economic Reporter" (19 March, 26 March, 16 April, 23 April, 3 September, 17 September 2001) 14. Liu Lixian Jingji Fanzui Anli Congxu - Huilu Zui 8-1996 "A Collection of Economic Crime Cases - Bribery Off e n c e " (transliteration) (August 1996) - Zhongguo Jiancha Chubanshe (China Procuratorate Press) 15. "Outlook Weekly" (12 February 2001)

228

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Evaluation Form 1. Do you consider the following chapters of the Guide useful to you Very Useful

Useful

Average

Not Useful

Not Useful At All

Chapter 1: Conducting Business in Hong Kong Chapter 2: Conducting Business in Shanghai Chapter 3: Specific Areas of Commercial Activity Chapter 4: Corruption Risks and Preventive Measures Chapter 5: Maintaining Competitive Edge Chapter 6: Knowing the Official Anti-corruption Organisations in Shanghai and Hong Kong Chapter 7: Taking Appropriate Action

2. Do you consider the Guide effective in enhancing your understanding of the anti-corruption laws of the Mainland and Hong Kong as well as the importance of formulating corruption prevention measures? Very effective Effective Average Ineffective Very ineffective

} }

Please go to Question 3

Please go to Question 4

3. How do you find the Guide effective/average? (You can tick more than one item) Enhancing knowledge of the anti-corruption legislation of the Mainland and Hong Kong and other related laws and regulations The illustrative cases provide a useful reference Enhancing awareness of corruption risks The suggested preventive measures are practical Realising a need to adopt an ethics programme in my company Serving as a practical handbook for investors Other reasons:

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4. Why is the Guide not effective? Please elaborate on any inadequate aspects and suggest your expectations or improvements.

5. Do you have any other comments about the Guide?

6. Would you like to have an ICAC officer to contact you and discuss with you how the ICAC can be of service? To be completed by companies/personnel in Hong Kong only) Yes, please make an appointment with me Name :

Post Title :

Name of Company : Company Address : Tel : No need for the time being Your Position/Post Title :

(The information is useful for the evaluation of the Guide. Please fill it in.) Thank you! Please fax the completed evaluation form to the ICAC Hong Kong Mainland Liaison Office at (852) 2522 4579 The information provided in this form will be used for evaluating the Guide and approaching you to see how the ICAC can be of service. Under Section 18 and 22 and Principle 6 of Schedule 1 of the Personal Data (Privacy) Ordinance, you have the right of access to make correction of your personal data provided in this form. Such access to personal data should be addressed to Ms Hedy FOK Man-to at (852) 2826 3367. This form will be kept until 31.12.2003.

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