Government investigations in Hong Kong

Enforcement agencies and corporate liability

What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?

The following government agencies are principally responsible for the enforcement of civil and criminal laws and regulations pertinent to businesses, such as serious fraud, money laundering, bribery and securities laws.

CCB, OCTB and JFIU – serious fraud and money launderingThe police are generally responsible for maintaining law and order in Hong Kong and have the power to conduct criminal investigations and commence prosecutions.

Specialist arms within the police handle investigations of serious fraud and money laundering. The Commercial Crime Bureau (CCB) investigates serious and complex commercial fraud, computer and technology crimes and the counterfeiting or forgery of currency, credit cards and other commercial instruments. The Organised Crime and Triad Bureau (OCTB) investigates organised crimes and syndicated criminal activities, including money laundering. In combating money laundering offences, the CCB and OCTB usually work hand in hand with the Joint Financial Intelligence Unit (JFIU), which is jointly run by the police and the Customs and Excise Department and is responsible for receiving and handling reports of suspicious financial activities.

ICAC – bribery and corruptionEstablished in 1974 when syndicated corruption was rife, the Independent Commission Against Corruption (ICAC) is the independent investigative authority for bribery and corruption in Hong Kong. The cornerstone of the ICAC’s enforcement mechanism is the Prevention of Bribery Ordinance (POBO), which seeks to combat corruption in both the public and private sectors. The most important prohibition under the POBO concerns the solicitation, acceptance or offering of unauthorised advantages (ie, bribes), which are used as an inducement or reward for the performance of duties or exertion of influence in business or contractual matters.

SFC – securities lawsIn response to the stock market crash in Hong Kong in 1987, the Securities and Futures Commission (SFC) was established as an independent body to administer the laws governing Hong Kong’s securities and futures markets. The Securities and Futures Ordinance (SFO) gives the SFC extensive powers to investigate, discipline and prosecute licensed financial institutions and licensed persons for various forms of market misconduct, such as:

• insider dealing;
• price rigging;
• false trading;
• market manipulation; and
• other types of regulatory offence.

The SFC has a wide range of enforcement powers under the SFO – including criminal, civil and regulatory powers – and regulates market participants, including:

• listed companies;
• investment banks;
• brokers;
• fund managers;
• investment advisers; and
• public investors.

In general, the Department of Justice works with the above investigative authorities by providing legal advice, making prosecution decisions and representing the government in legal proceedings – particularly on cases that are complex in nature or involve important points of law or public interest issues. In practice, many prosecutions at the summary level (ie, at the magistrates’ courts, which are the lowest level of criminal courts in Hong Kong) involve simple cases that are processed by the investigative bodies themselves and do not require the specific involvement of the Department of Justice.

What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?

The enforcement authority of the Hong Kong law enforcement agencies is conferred by statutes, which generally cover the following.

CCB, OCTB and JFIUCCB and OCTB officers have extensive powers to investigate matters involving serious fraud and money laundering, such as:

• arresting suspects and detaining them for up to 48 hours;
• interviewing witnesses and suspects;
• searching premises and seizing documents;
• compelling parties to produce documents; and
• freezing bank accounts.

For offences with an international element, the CCB and the OCTB can also:

• issue arrest warrants;
• put suspects on the so-called ‘stop list’ at immigration control points; and
• request the extradition of suspects from countries where bilateral treaties on the surrender of fugitives exist.

While the JFIU does not enforce the law, it provides intelligence to its partnering investigation units to assist their investigations, particularly on money laundering. The JFIU’s responsibilities include:

• obtaining bank account details from financial institutions;
• identifying suspicious transactions; and
• advising on whether such accounts should be frozen.

ICACWhile the ICAC’s enforcement authority is largely similar to that of the CCB and the OCTB, it has special powers of investigation to combat corruption under the POBO, including the power to compel suspects to disclose details of their assets, income and expenditure that may be relevant to corruption. Further, the ICAC can ask the court to confiscate a suspect’s travel documents and restrain disposal of property before they are criminally charged.

The ICAC commences investigations into corruption-related matters only. However, if other forms of criminal conduct are discovered during its investigations (which typically include conspiracy to defraud, theft and perverting the course of public justice), the ICAC can switch its focus of investigation and lay the appropriate criminal charges.

SFCAn investigation is initiated when the SFC has reasonable cause to believe that market misconduct may have taken place. The SFC does so by issuing:

• a notice for interview to witnesses and suspects; and
• a notice for production to compel the production of documents and records that are relevant to the market misconduct concerned.

For more serious cases, the SFC can also apply to the Hong Kong courts for search warrants to search premises and seize documents.

In general, the investigative and prosecutorial powers of the government agencies are applicable to both natural and legal persons. Thus, the authorities can pursue investigations and prosecutions against corporate employees as well as companies themselves. However, in practice, given the individualistic nature of offences such as fraud and money laundering, the CCB and the OCTB will normally investigate and prosecute employees as individual suspects or defendants, since they are more readily identifiable as the parties at fault.

Prosecutions of these offences brought before the Hong Kong courts have always focused on the employees of companies, their conspirators, accomplices and other natural persons. Prosecution of companies as corporate defendants for such offences is rare. The most relevant enforcement action against companies is an office search and seizure of corporate documents to facilitate these agencies’ investigations.

Similarly, for individualistic offences such as insider dealing and price rigging, the SFC is more likely to investigate and prosecute individual employees as defendants. That said, it is not uncommon for the SFC to issue a notice for production against companies to compel the production of documents and a notice for interview to conduct face-to-face enquiries with the company’s authorised representatives.

For regulatory offences that could be committed in a corporate capacity (eg, issuing misleading ads, disclosing price-sensitive information or conducting unauthorised financial activities), it is common for the SFC to pursue investigative and disciplinary actions against companies.

Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?

While the government entities listed in question one have different functions, they can and often simultaneously investigate the same target in parallel investigations, especially where the same conduct could give rise to different criminal implications.

In practice, the enforcement agencies have a mutual understanding of their respective scope of authority and will normally coordinate among themselves so that there is no duplication of investigation or double jeopardy by prosecuting a defendant on the same subject matter. The investigative authorities may also share information obtained from the target on request of another agency.

The authorities may also refer a case to other agencies for further investigation. The most common example is referral of cases by the SFC to the CCB when certain market misconduct (eg, market manipulation) is of such gravity and scale that it would potentially amount to serious fraud.

However, there are no specific laws or regulations governing the aforesaid coordination of investigations or sharing of information, and these exercises are operated under the internal protocols of the agencies.

In what fora can civil charges be brought? In what fora can criminal charges be brought?

For CCB, OCTB and ICAC cases, criminal prosecutions can be brought at different levels of the criminal courts, depending on the gravity of the offences and the potential sentencing that the charges would attract. For less serious offences, charges can be brought at the magistrates’ courts, which can impose a maximum of two years’ imprisonment for a single charge and three years’ imprisonment for multiple charges.

For more serious cases, the CCB, the OCTB and the ICAC can prosecute at the District Court, which can impose up to seven years’ imprisonment. For offences of severe gravity or significant scale, they can bring charges at the High Court, which can impose a maximum sentence of life imprisonment (subject to the statutory maximum penalty of the particular offences concerned).

Trials will be conducted before a jury in the High Court. There is no right to a jury trial in the magistrates’ courts or the District Court.

The SFO stipulates a dual civil and criminal regime for market misconduct, whereby the SFC can elect to either bring a civil action before the Market Misconduct Tribunal or commence criminal proceedings in the criminal courts.

As such, the SFC has the power to:

• institute summary criminal proceedings at the magistrates’ courts for less serious market misconduct;
• consult the Department of Justice’s legal advice and institute criminal proceedings at the District Court or the High Court; and
• commence civil proceedings itself before the Market Misconduct Tribunal, with the consent of the Department of Justice (which can withhold consent only if criminal proceedings are contemplated or under way).

For regulatory matters, the SFC can take disciplinary actions by itself against licensed persons or corporations. A range of disciplinary penalties can be imposed, including:

• revocation or suspension of licences;
• prohibition of application for licences;
• fines; and
• reprimands.

Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?

There is a legal concept of corporate criminal liability in Hong Kong. Companies are legal persons that can be prosecuted for most criminal offences, unless a statute indicates otherwise. The typical exceptions are those offences for which imprisonment is the only penalty (eg, murder) and those that by their nature can be committed only by natural persons in their personal capacity (eg, common assault and arson).

There are two main ways that liability for a criminal offence can be attached to a corporate entity. First, for offences involving a fault element (eg, intention, knowledge and recklessness), a company will normally be criminally liable only where the commission of the offence can be attributed to someone who at the material time was the ‘directing mind and will’ of the company or ‘an embodiment of the company’ (the identification principle under the common law applicable to Hong Kong). Second, certain statutory offences impose an absolute duty on the employer company (ie, strict liability offences, which require the prosecution to prove only that a wrongful act has been done, and not need to prove the employee’s intention or state of mind), even if the company has not authorised or consented to the act of the employee (the vicarious liability principle).

In criminal proceedings, the prosecution must prove beyond reasonable doubt that a defendant is guilty of an offence. The above evidential hurdle concerning corporate criminal liability may explain why it is rare for the government to prosecute a corporation for individualistic offences with fault elements, such as commercial fraud or money laundering. Criminal prosecution of corporations is more commonly seen in relation to strict liability offences.

Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?

In deciding whether to bring criminal charges, the Department of Justice must abide by the Prosecution Code (latest version published in 2013), which stipulates two requisite components: sufficiency of evidence and public interest.

In assessing the sufficiency of evidence, the Department of Justice must consider whether there is admissible and reliable evidence to support a prosecution and, together with any reasonable inferences able to be drawn from it, that the offence will likely be proven. Therefore, the test is whether the evidence demonstrates a reasonable prospect of conviction.

The Department of Justice will also consider the following non-exhaustive list of factors in evaluating whether a prosecution would be in the public interest:

• the nature and circumstances of the offence, including any aggravating or extenuating circumstances;
• the seriousness of the offence;
• any delay in proceeding with a prosecution and its causes;
• whether the offence is trivial, technical in nature, obsolete or obscure;
• the level of the suspect’s culpability;
• any cooperation of the suspect with law enforcement or demonstrated remorse – the public interest may be served by not prosecuting a suspect who has:
  • made admissions;
  • demonstrated remorse;
  • compensated a victim; or
  • cooperated with authorities in the prosecution of others;
• any criminal history of the suspect;
• the attitude, age, nature or physical or psychological condition of the suspect, witness or victim; and
• the prevalence of the offence and any deterrent effect of a prosecution.

The above is the government’s general prosecution policy. Although there is no specific code catering to the prosecution of corporate defendants, the same principles should apply.

Initiation of an investigation

What requirements must be met before a government entity can commence a civil or criminal investigation?

Government entities can commence a civil or criminal investigation on:

• receipt of information from a complainant or other sources of information; and
• having reasonable suspicion of any form of crime or misconduct.

What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?

Commercial Crime Bureau, Organised Crime and Triad Bureau, Independent Commission Against Corruption (ICAC) and Securities and Futures Commission (SFC) investigations are commonly triggered by reports made by complainants, who are usually victims or aggrieved parties of the crime concerned. The ICAC also accepts anonymous complaints, although this is a less satisfactory way of making a criminal report. Media reports and self-reporting by corporations or their employees concerning a particular crime and misconduct may also trigger investigations by these agencies.

In addition, the SFC monitors the stock market through its market surveillance system (which contains real-time market transaction data), proactively identifies any irregular and unusual market activities and commences investigations.

What protections are whistle-blowers entitled to?

Whistleblowers who expose misconduct and illegal activities occurring in an organisation must provide information or give statements to the authorities, which turns them into witnesses. A witness protection programme is in place in Hong Kong by virtue of the Witness Protection Ordinance, which aims to provide protection and assistance for witnesses whose personal safety or wellbeing may be at risk as a result of being a witness.

The commissioner of the police or the ICAC will carefully review witnesses’ personal circumstances and the information that they provide before including them in the witness protection programme. Witnesses must sign a memorandum of understanding that sets out the terms and conditions of their participation in the programme. The approving authority will take such action as it considers necessary and reasonable to protect witnesses’ safety and welfare, including:

• non-disclosure of the original identities of witnesses;
• the establishment of new identities; and
• the protection of witnesses when they give evidence in court.

The Witness Protection Unit of the police and the Witness Protection and Firearms Section (R4) of the ICAC are specialised units responsible for witness protection.

For regulatory breaches, authorities such as the SFC offer certain penalty reductions for self-reporting and cooperation. In December 2017 the SFC issued a Guidance Note on Cooperation with the SFC, which highlights the significance of prompt cooperation by way of voluntary and prompt reporting of any breaches to the SFC. In recognition of cooperation, regulatory penalties may be reduced by up to 30% when a case is resolved. However, this guidance note does not apply to criminal cases as the Department of Justice has unfettered discretion over criminal prosecutions.

At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?

During the covert phase of an investigation, a government entity will not publicly acknowledge an investigation. This is because any premature disclosure may alert suspects who are still at large, thereby jeopardising the:

• investigation;
• preservation of evidence;
• integrity of potential witnesses; and
• arrest of potential suspects.

The investigation will usually turn overt when arrests and the interviews with major suspects and the seizure of documents have been completed. However, the authorities may publicly announce such an investigation, depending on the nature of the case and whether significant public interest is involved. The recent trend for the ICAC and the SFC is that they publish a press release or enforcement news on their official websites only after the defendants have been charged or convicted.

A business under investigation can request that the authorities maintain its anonymity in the investigation, but there are no formal mechanisms requiring the authorities to entertain such requests.

Evidence gathering and investigative techniques

Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?

There is normally a covert phase of the investigation, especially in cases with serious fraud, money laundering, corruption or market misconduct allegations. During this phase, the authorities will usually gather evidence by:

• interviewing witnesses;
• conducting surveillance on suspects;
• seizing documents from various sources; and
• obtaining bank or securities transaction records.

The duration of the covert phase is dependent on the complexity of the case and the number of parties involved. It is not uncommon for this phase to last between two to six months before the target is approached by the government.

What investigative techniques are used during the covert phase?

Typical investigative techniques used during the covert phase include:

• undercover operations;
• electronic surveillance;
• telephone interception; and
• controlled deliveries to infiltrate a crime syndicate and obtain direct and contemporaneous evidence on the suspects and the illicit transactions.

The authorities will also apply to the courts to obtain:

• search warrants to search suspicious premises and seize documents;
• production orders to compel the production of documents and records; and
• restraint orders to freeze bank accounts involving suspicious financial transactions.

In practice, financial institutions in Hong Kong usually take a firm and swift stance in voluntarily freezing suspicious bank accounts as an interim measure as soon as they are notified by investigating authorities of any suspected criminal activities involved in the accounts, even in lieu of a restraint order issued by the courts.

Further, for witnesses who are assisting the Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC) investigations during the covert phase, a stringent duty of confidentiality is imposed whereby the witnesses are prohibited from disclosing to third parties any matters relating to the ongoing investigations. Any breach of such a duty of confidentiality not only amounts to a statutory offence under the Securities and Futures Ordinance (SFO) and the Prevention of Bribery Ordinance (POBO), but could also potentially constitute the offence of perverting the course of justice under the common law.

After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?

After a target becomes aware of the government’s investigation, it should conduct an internal investigation by interviewing its own employees and reviewing its business and bank records to develop its own understanding of the facts. Such internal investigations are often conducted with the assistance of in-house counsel or external legal representatives.

Extra caution should be exercised when conducting internal interviews with employees to ensure that no duty of confidentiality imposed by the authorities will be breached (in the event that these employees have already been interviewed by the authorities as suspects or witnesses). Such duty is particularly stringent for offences concerning the SFC and the ICAC. The questions at the internal interviews should not touch on the details of any interviews or investigations that may have already been conducted by the authorities, and the interviewees should be advised of their right to seek independent legal representation.

Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?

There is no general duty for targets to preserve documents, recorded communications or any other materials before they are aware of an investigation. In practice, business entities in Hong Kong will keep their business and financial records for seven years before disposing of them.

However, after a target is aware of an investigation, it should preserve all relevant business records to facilitate the authorities’ inquiries and to avoid any potential allegations of the wilful destruction of evidence or perverting the course of justice. In particular, if a target has been served a production order, it is duty bound to preserve and produce the documents or any other material required under the order.

During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?

Enforcement agencies are entitled to require the target to provide all of the materials relating to their investigation, normally by virtue of search warrants or production orders issued by the courts. The search warrants and production orders usually set out the gist of the allegations concerned and an extensive scope of documents required from the target, which normally includes all:

• hard-copy documents;
• electronic records;
• audiovisual records;
• computer data; and
• mobile devices relevant to the investigation for a specific period.

Failure to comply with the enforcement agencies’ search warrants or production orders may constitute a statutory offence under the SFO and the POBO or amount to contempt of court. This duty of compliance will generally override the data protection and privacy laws in Hong Kong.

On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?

Targets can oppose the government’s demand for materials on the following grounds:

• legal professional privilege (LPP), which is well recognised in Hong Kong. The two main categories of LPP are:
  • legal advice privilege, which applies to communications between clients and their lawyers made for the purpose of giving or receiving legal advice. Advice from in-house lawyers is also generally privileged, provided that the in-house lawyer is performing a legal function in entering into such communications; and
  • litigation privilege, which applies to communications between lawyers (and in some circumstances their clients) and third parties made primarily for the purpose of obtaining legal advice or collecting evidence in respect of existing or contemplated litigation; and
• any public interest grounds that such materials should not be produced to the authorities.

In practice, when a target or its legal representatives claim LPP on certain documents, such materials will be placed in sealed envelopes by the authorities in the presence of the company’s authorised representatives and will not be used for investigation purposes in the interim. Targets are at liberty to apply to the Hong Kong courts to argue that such materials are covered by LPP and should not be disclosed to the authorities.

May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?

The government can compel testimony of employees by issuing a writ of subpoena (witness summons) against them to testify in the courts. Persons served a writ of subpoena who refuse to attend court to testify will be liable for the offence of contempt of court. However, for the prosecution counsel, careful consideration must be exercised before calling employees as prosecution witnesses to testify against their senior management or employer company, since the employees might refuse to cooperate or adapt their testimony to protect their employer, especially while they are still employed by the target.

In criminal proceedings, a person may refuse to testify or produce any document if such evidence might expose them to criminal prosecution. This privilege against self-incrimination is enshrined in the Basic Law, which is the ‘mini-constitution’ of Hong Kong. The party claiming such privilege must satisfy the court that there is a real and appreciable danger – and not a mere possibility – of self-incrimination.

As such, employees and targets can claim privilege against self-incrimination and refuse to answer certain questions during the investigations or in criminal court proceedings if their answers to such questions would expose them to criminal implications. The government may resort to the testimony of other prosecution witnesses, documentary records and circumstantial evidence to obtain such information.

Under certain circumstances, a person under investigation is statutorily required to answer questions raised by the authorities. For instance, under Sections 183 and 184 of the SFO, a person must provide information and answer questions raised by SFC investigators. If the answer tends to incriminate that person, they can make a claim under Section 187 of the SFO before providing any such answers. Such answers are inadmissible as evidence against the person in criminal proceedings.

Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?

When there is a potential or real conflict of interest arising between employees and their employer, employees are advised to obtain independent legal advice. Typical scenarios of such conflicts include when the employees contemplate giving evidence against the employer or when the employees wish to run a line of defence that may contradict that of the employer.

Otherwise, employees can be represented by counsel for the target.

Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?

Targets may share information to facilitate their respective defences if sufficient safeguards are in place to avoid any suspicion of perverting the course of public justice (eg, exerting pressure on other targets to change their testimony or destroy documents).

Targets can claim LPP or common interest privilege for documents exchanged between parties that have a common interest in the subject matter of the contemplated or existing litigation.

The potential negative consequences of sharing information are that the target is, effectively, alerting other potential co-defendants of its defence in contemplated criminal proceedings. There is a risk that other parties may adjust their lines of defence to protect themselves or, in the worst-case scenario, give evidence to the authorities to shift the blame to the target (without using the privileged documents) and seek immunity from prosecution.

At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?

Once an investigation becomes overt, targets may notify investors about the investigation based on their own commercial considerations. Listed companies have a general duty to inform investors of any investigations commenced against them, their management or key officers, as this will constitute price-sensitive information for the public. The notification usually takes the form of a public announcement made via the Hong Kong Stock Exchange. Targets should seek clearance from the authorities before they do so and obtain written approval on the exact content that can be disclosed to the investors and the general public. For SFC and ICAC investigations, it may be useful to refer to their official enforcement news and press releases when developing the contents of these disclosures to avoid breaching any duty of confidentiality. Any disclosure should be factual and concise.

Cooperation

Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?

Targets can always:

• cooperate with the authorities;
• volunteer information during an investigation; or
• notify the government of their potential wrongdoing by self-reporting before an investigation has started.

There is no formal mechanism for doing so, but a target or its legal representatives can approach the relevant agencies directly. Assisting an investigation and voluntarily surrendering to the authorities may:

• be a powerful mitigating factor if the target is eventually prosecuted and convicted; or
• facilitate the prosecution authorities’ decision on whether immunity should be granted to the target.

Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?

There are no formal voluntary disclosure programmes in place in Hong Kong that can qualify a business for amnesty or reduced penalties. However, any voluntary disclosure, assistance or surrender to the authorities may operate as a powerful mitigating factor on conviction or facilitate the prosecution authorities’ decision on immunity.

Can a target business commence cooperation at any stage of the investigation?

Yes.

What is a target business generally required to do to fulfil its obligation to cooperate?

Full and frank disclosure is the general requirement for a target in fulfilling its obligation to cooperate, regardless of whether this is by:

• answering questions at interviews;
• producing documents; or
• making written representations to the authorities.

When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?

Targets are at liberty to pay attorneys’ fees for their employees if they decide to cooperate, as long as they do not compel the employees to fabricate evidence or adjust their stories to suit the target’s own needs.

Payment of attorneys’ fees should not influence the government entity’s decision in the investigation and prosecution process, and no adverse inference can be drawn by the authorities and the courts.

What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?

From an individual employee’s perspective, the relevant considerations in deciding whether to cooperate with a government investigation will include:

• performing civic duties to combat crimes;
• absolving themselves of any potential liabilities; and
• preserving their own job.

In view of the employee’s constitutional right against self-incrimination, employees cannot be compelled to cooperate or give evidence to the authorities. If an employee is dismissed by the target because of their refusal to be interviewed by company counsel or the government, this may amount to a wrongful dismissal and the target may be liable to pay damages.

How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?

If the target voluntarily produces documents to the authorities that eventually form part of the criminal evidence referred to in open court, such documents will not be subject to privilege and will be disclosable as evidence in related civil litigation. If these materials are not referred to in open court, they will be subject to privilege and will not be used by any third parties in civil proceedings without leave of the court.

Resolution

What mechanisms are available to resolve a government investigation?

A criminal investigation by government authorities can be resolved if the target enters a guilty plea to the relevant charges in the criminal courts or negotiates with the authorities for immunity from prosecution by offering evidence or assistance as prosecution witnesses. In the event of a not-guilty plea, the matter will be resolved in a trial in the criminal courts.

With regard to disciplinary actions taken by the Securities and Futures Commission (SFC), persons or businesses under investigation may make a settlement proposal to the SFC to resolve the disciplinary proceedings. The SFC can agree to a settlement if it is in the public interest.

Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?

Depending on the evidence available and the commercial objectives of the target, it can admit its wrongdoing by entering a guilty plea in the criminal courts.

An admission by a target in criminal proceedings will be prima facie evidence of its fault, which can be used against it in related civil proceedings.

What civil penalties can be imposed on businesses?

Common civil penalties for market misconduct imposed by the SFC include:

• fines;
• disqualification as directors or managers of listed companies;
• ‘cold shoulder orders’ (ie, prohibition from trading in the market for a fixed period);
• disgorgement of profits;
• revocation and suspension of licences;
• a reprimand; and
• payment of the SFC’s investigation costs.

What criminal penalties can be imposed on businesses?

As business entities are not natural persons – and therefore cannot be subject to penalties such as imprisonment or community service orders – the only viable criminal penalty that can be imposed is a fine. Ancillary orders such as compensation orders and forfeiture orders can also be imposed. Unlike in some other jurisdictions, there is no formal scheme of mandatory debarment from public procurements for corporations convicted of criminal offences.

What is the applicable sentencing regime for businesses?

Unlike in other jurisdictions, there are no specific sentencing regimes or guidelines for businesses in Hong Kong. In determining the appropriate sentence, the courts usually consider several factors, including:

• the seriousness of the offences;
• the duration of the criminal behaviour;
• the monetary amount of any damage inflicted on victims;
• any previous criminal convictions; and
• whether the businesses fully cooperate with the authorities and plead guilty at the earliest available opportunity.

What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?

An admission of wrongdoing may give rise to reputational risks for businesses and undermine the public’s confidence in their corporate governance and management staff, particularly for public-listed companies. This may in turn adversely affect the prospects of the business’s future ventures, especially those that require regulatory licences, tenders and governmental approval.

UPDATES & TRENDS

Are there any emerging trends or hot topics that may affect government investigations in your jurisdiction in the foreseeable future?

Case alert – misconduct in public officeTsang Yam-kuen DonaldThe high-profile bribery case of the former chief executive of Hong Kong, Tsang Yam-kuen Donald (Tsang), has finally concluded. The High Court trial held in February 2017 involved one count of bribery and two counts of misconduct in public office concerning his failure to disclose his interest in a Shenzhen apartment associated with a major shareholder of a sound broadcasting licence applicant. While Tsang was unanimously acquitted of one count of misconduct, he was convicted of the other, with the jury failing to reach a verdict on the bribery charge.

The retrial on the bribery charge took place in September 2017 and the jury again failed to reach a valid verdict. The prosecution decided that it would not seek another retrial.

In April 2018 Tsang’s appeal against his conviction of one count of misconduct in public office was heard and the Court of Appeal reached a unanimous decision to dismiss the appeal. However, Tsang’s sentence was reduced from 20 months to 12 months.

Tsang later lodged another appeal against his conviction to the Court of Final Appeal, which, on 26 June 2019, quashed his conviction and held that no retrial would be required. This ruling was premised on the trial judge’s failure to provide jurors proper directions on two major elements of offences – namely, ‘wilfulness’ and ‘seriousness’.

To find Tsang guilty of misconduct in public office, the jury must be satisfied that he wilfully misconducted himself and that such misconduct was serious. The relevant misconduct may or may not in itself be illegal. If Tsang was convicted of acceptance of bribery (which is not the case), the elements of wilfulness and seriousness would have presented little difficulty. However, as the relevant dealings he had were not found to be corrupt, the said two elements become crucial, and the jury should have been given sufficient guidance on them.

The Court of Final Appeal held that the trial judge had erred in explaining to the jurors that ‘wilful’ simply meant ‘deliberate’ (ie, not inadvertent). For example, a decision not to disclose one’s interest (ie, the misconduct in question in Tsang’s case) because the decision maker did not know or believe that there was an obligation to do so in the circumstances was deliberate, but not wilful. The offence strikes at abuse of power, not error of judgement.

Since Tsang was not found guilty of corruption, an evaluation of the nature and extent of his departure from his duties and the seriousness of possible consequences required consideration of the motives behind his omission, what he needed to disclose and the results of non-disclosure. It may be dangerous to leave a jury to its own devices in assessing the element of seriousness in such a case. The trial judge should have provided more assistance and analyses.

The Court of Final Appeal’s decision has not only cleared Tsang’s name, but also shed light on the interpretation of the essential elements in misconduct in public office offences.

Case alert – access to computer with dishonest intentTeachers using their own phones to leak interview questionsSection 161(1)(c) of the Crimes Ordinance makes it an offence for a person to obtain access to a computer with a view to dishonestly gain for themselves or another. Four teachers in Hong Kong who used their own smartphones and a school computer to transmit school interview questions to others were charged under this provision. In February 2016 a magistrate acquitted all of them as she was not satisfied that the required element of dishonesty has been established. The secretary for justice brought the case to the Court of First Instance, which dismissed the appeal in August 2018 on the basis that what the teachers did had involved no unauthorised extraction and use of information from a computer.

In November 2018 leave to final appeal was granted to the secretary for justice. The Court of Final Appeal handed down its judgment on 4 April 2019, in which it stated that, as a matter of language, a person always ‘obtains’ access to something to which they did not previously have access. Therefore, it concluded that the application of the section does not extend to the use of a person’s own computer, unless that use involves getting access to another’s computer. The government’s appeal was again dismissed.

This ruling served as a severe blow to the Department of Justice, which has been using the section as a catch-all charge to prosecute various computer-related crimes, including the taking of upskirt photographs with mobile devices. The prosecution and the legislature must now find alternative ways to fill the lacuna in the law.

Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019 In early 2019 the Hong Kong government proposed the Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019. The government claimed that this bill was triggered by a case involving a Hong Kong resident who had allegedly murdered another Hong Kong resident in Taiwan, but was not required to face a murder trial in Taiwan after fleeing to Hong Kong. This was because the current Fugitive Offenders Ordinance and the Mutual Legal Assistance in Criminal Matters Ordinance do not apply to Taiwan. This case, as the Hong Kong government claimed, highlighted the loopholes in the existing regimes of surrender of fugitive offenders and mutual legal assistance under the two ordinances. The government sought to establish a mechanism for transfers of fugitives for not only Taiwan, but also mainland China and Macau, which are not covered by the existing laws.

The bill’s introduction drew widespread criticism domestically and abroad, with particular concerns over the erosion of Hong Kong’s legal system and the ‘one country, two systems’ regime, given the significant differences between the judicial systems in Hong Kong and mainland China, especially on the protection of human rights. It also triggered massive protests in June and July 2019, which were widely reported in international media.

Chief Executive Carrie Lam announced on 15 June 2019 that the bill would be suspended under public pressure. However, protestors in unprecedented numbers again took to the streets, this time demanding:

• a complete withdrawal of the bill;
• an investigation into the police’s abuse of it power in handling protestors;
• a retraction of the labelling of the 12 June 2019 protest as a ‘riot’; and
• the unconditional release of the arrested protestors.

On 9 July 2019 Lam declared that the bill was dead and that the amendment process would be halted, without formally withdrawing the bill or acceding to any other requests of the public.