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Hong Kong firms may not be ready to face foreign anti-bribery laws
The hiring of a princeling with the intention to influence the private sector company managed or controlled by the parent would be an offence under both laws. The appropriate response to Princelings would need to involve screening for personal connections to not only government officials and managers of state-owned enterprises but also privately-owned future or ongoing customers.
Leonie Tear 29 Sep 2016
 
   
The issue of bribery and corruption is alive and well in Hong Kong. A recent survey of 500 board-level executives in large organisations across 12 countries, revealed that a staggering 92 per cent of board-level executives in Hong Kong have identified instances of bribery or corruption in their organisations. More worrying still, 86 per cent said their anti-bribery policies made it more difficult to build their business.
Until recently, companies in Hong Kong regarded the US Foreign Corrupt Practices Act (FCPA) as the only game in town. This reflected the fact that for many years the United States was the only jurisdiction to consistently enforce its foreign bribery laws across this region. Significantly, half of all US FCPA corporate enforcement actions in 2014 and 2015 involved Asia.
However, by paying scant attention to other jurisdictions’ anti-bribery laws, Hong Kong firms have unwittingly exposed themselves to risk in light of changing enforcement trends.
Domestically, the Hong Kong Department of Justice has become increasingly assertive in enforcing the Prevention of Bribery Ordinance (POBO), the city’s primary anti-bribery law. A greater number of prosecutions have been brought in recent years and the penalties applied by Hong Kong courts have increased in severity. An offender may be fined HKD$500,000 and jailed for 10 years. While POBO enforcement action is still focused on individuals, corporate entities may also be prosecuted under Hong Kong law.
Internationally, the recent enforcement actions against Standard Bank and Sweett Group placed the UK’s Bribery Act in the spotlight. The Standard Bank action attracted particular attention in Hong Kong because the bank became a subsidiary of the Chinese ICBC after the problematic conduct took place.  If the UK Bribery Act was previously seen as a paper tiger, it now seems to have real teeth.
The implications of ignoring Hong Kong and UK law are significant. A practical example is the potential response to the bribery risk of hiring so-called “Princelings”, the offspring of influential decision makers. JP Morgan and Qualcomm paid high penalties after US regulators established they had hired Princelings to win business from state entities under their parents’ control. A number of other, similar investigations are ongoing.
An FCPA-centric response to Princelings would probably consist of screening prospective employees for connections with public officials, including senior employees of state-owned enterprises, and creating an information barrier between a Princeling employee and work performed for their parent’s organisation so the employer cannot be accused of receiving an advantage in return. But this does not fully cover the bribery risk.
Unlike the FCPA, the POBO and UK Bribery Act also criminalise business-to-business bribery. The hiring of a princeling with the intention to influence the private sector company managed or controlled by the parent would be an offence under both laws. The appropriate response to Princelings would need to involve screening for personal connections to not only government officials and managers of state-owned enterprises but also privately-owned future or ongoing customers.
Furthermore, the POBO took it a step further by prohibiting the ‘sweetening’ of a public official. That is, to maintain an overarching relationship even in the absence of identifiable business or business advantages. The FCPA-inspired information barrier method would fail as it does not matter whether there was intent to obtain business. However, even simply to offer the Princeling employment to sweeten the public official would breach the POBO.
The Princeling example demonstrates that anti-bribery programmes that are overly focused on FCPA compliance may result in inadequate controls and unacceptable levels of risk for companies doing business in Hong Kong.
Instead of whittling down compliance to the standards of the FCPA, firms operating in Hong Kong must look to adopt the highest standards applicable to the business worldwide and roll that out across the organisation.
Companies must be on high alert when it comes to foreign bribery laws and changing enforcement trends that could have a very real impact on their business.  Global investigations often lead to negative publicity, serious financial sanctions and even the jailing of senior executives.
Quite clearly, the old adage that bribery is just the cost of doing business is now out of date.

Leonie Tear is a Hong Kong-based lawyer with Eversheds’ Fraud & Investigations Group. Eversheds produced the “Beneath the Surface” report, surveying senior executives globally on their attitudes to bribery and corruption. 

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