White-Collar Crime 2021

Last Updated October 21, 2021

Hong Kong

Law and Practice

Authors



Baker McKenzie is an international law firm with presence in 76 offices across 45 countries. Its compliance and investigations group – one of the largest in the world, with over 450 lawyers – is renowned for providing compliance and risk management advice and multi-jurisdictional investigation services in areas such as white-collar crime, anti-bribery, anti-money laundering, customs, data privacy, sanctions, modern slavery, ESG and senior executive misconduct. In Asia Pacific, the firm has over 50 years of experience in helping clients navigate an increasingly complex regulatory landscape, and manage and mitigate potential risks. Its Hong Kong team regularly interacts with government authorities such as the ICAC, IA, the Hong Kong Police, SFC, the HKMA, the US Department of Justice, SEC, the UK Serious Fraud Office and other regional regulators. The team collaborates with PRC law specialists from its Joint Operation platform with FenXun Partners, thereby offering clients seamless international and local law capabilities. Thanks also to Andrea Kan, an associate in Baker McKenzie's Hong Kong compliance and investigations practice group, for her valuable contribution to this article.

Under the laws of Hong Kong, there are two main categories of offences: “summary offences” (ie, minor offences that can generally only be tried in the Magistrates’ Courts) and “indictable offences” (ie, more serious offences that can be tried at any level of the court, depending on the complexity of the case and the likely sentence). Most white-collar crimes are indictable offences.

Most criminal offences require (i) actus reus – a guilty act or omission, and (ii) mens rea – a guilty state of mind.

The prosecution has to prove both elements beyond reasonable doubt. However, certain minor criminal offences, known as “strict liability offences”, do not have a mens rea element. All that needs to be shown is that the defendant committed the act or omission.

A person may be liable for attempting to commit an offence, even if the offence is not completed. Under Section 159G of the Crimes Ordinance (Chapter 200) (CO), any person who “does an act that is more than merely preparatory to the commission of the offence” is guilty of attempting to commit the offence. Similarly, under Section 159A of the CO, any persons who agree to pursue a course of conduct which will necessarily amount to or involve the commission of any offence are guilty of conspiracy to commit the offence. Section 159A replaces the common law offence of conspiracy, except for the common law offence of conspiracy to defraud.

A person guilty of attempting to commit an offence (Section 159G) or conspiracy to commit an offence (Section 159A) is liable on conviction to the maximum penalty prescribed for the offence itself. A person convicted of the common law offence of conspiracy to defraud is liable to 14 years’ imprisonment.

There is no formal limitation period for indictable offences.

For summary offences, unless otherwise specified in the governing legislation, the limitation period for making any complaint or laying any information is six months.

Hong Kong does not have a specific statute of limitations dealing with concealed and/or continuing offences.

Generally, the Hong Kong authorities/courts only have jurisdiction to enforce their authority for criminal offences committed within the territorial jurisdiction of Hong Kong. If a certain aspect or element of an offence occurs abroad, the Hong Kong authorities/courts will have to assess whether "a substantial measure of the activities constituting a crime" occurred in Hong Kong (see HKSAR v Krieger [2013] HKCA 639).

Certain white-collar offences have extra-territorial reach, as in the following examples.

  • The Criminal Jurisdiction Ordinance (Chapter 461) sets out a list of criminal offences, including fraud and false accounting, for which the courts in Hong Kong will have jurisdiction as long as at least one “relevant event” occurs in Hong Kong.
  • The Prevention of Bribery Ordinance (Chapter 201) (POBO) expressly prohibits the bribery of Hong Kong public servants “whether in Hong Kong or elsewhere”. Hong Kong courts previously held people liable for bribing foreign public servants under Section 9 of the POBO where the relevant offer, solicitation or acceptance of the advantage takes place in Hong Kong.
  • Sections 114 and 115 of the Securities and Futures Ordinance (SFO) extend licensing obligations under the SFO (a breach of which may constitute a criminal offence) to persons outside of Hong Kong if the person actively markets services to the public in Hong Kong and such services, if provided, would constitute a regulated activity.

Legal entities may be liable for most criminal offences, as the definition of “persons” under the Interpretation and General Clauses Ordinance (Chapter 1) includes corporations. 

Criminal liability can be ascribed to a company by way of the “identification principle”, which provides that a company can be liable for criminal offences committed by individuals who represent the directing mind and will of the company (typically, directors and senior managers). However, the usual practice is for the authorities to pursue the individuals for criminal offences rather than the corporate. If a legal entity is liable for a criminal offence, certain officers or employees of the entity may also be found liable for the same offence. 

Generally, in Hong Kong, a successor entity will not be held liable for offences committed by the target entity that occurred before a merger or acquisition.

A victim of a white-collar offence may claim compensation for their loss via criminal proceedings. These are initiated by the Department of Justice (except for private prosecutions, which are rare). The trial court may make an order for restitution following a subsequent conviction.

A victim may also claim compensation for their loss via civil proceedings. This will be heard in the Small Claims Tribunal, District Court or High Court, depending on the amount claimed. This is the only option where it is not possible to commence criminal proceedings against the criminal suspect.

There is no class action mechanism in Hong Kong. The only equivalent, which is for civil cases only, is “representative proceedings” under Order 15 of the Rules of the High Court (Chapter 4A).

Anti-bribery and Anti-corruption

In HKSAR v Chu Ang [2020] HKCFA 18, the Hong Kong Court of Final Appeal clarified that a person is an “agent” for the purposes of Section 9(1)(a) of POBO where that person acts for another in circumstances that give rise to a reasonable expectation (and hence a duty) to act honestly and in the interests of that other person to the exclusion of his or her own interests. No pre-existing legal relationship is required for one to be an “agent” of another.

National Security Law

The National Security Law (NSL) was passed on 30 June 2020 by the Standing Committee of the National People’s Congress (NPCSC), introducing new offences for actions that threaten national security. On 7 July 2020, the Implementation Rules for Article 43 of the National Security Law took effect, providing for rules around implementing Article 43 of the NSL.

Following the enactment of the NSL, the Hong Kong Monetary Authority (HKMA) revised its “Frequently Asked Questions in Relation to Anti-Money Laundering and Counter-Financing of Terrorism” in September 2020, advising that AML reporting obligations would be triggered when a bank knows or suspects that any property is NSL offence-related property.

The main authority having powers of investigation, prosecution and enforcement for white-collar offences is the Hong Kong Police Force (HK Police). The HK Police has specialised divisions, such as the Commercial Crime Bureau, the Cyber Security and Technology Crime Bureau and Organised Crime and Triad Bureau.

The other key authorities include:

  • the Independent Commission Against Corruption (ICAC), which is responsible for regulating bribery and corruption;
  • the Securities and Futures Commission (SFC), which is responsible for regulating the securities and futures market;
  • the Competition Commission (CC), which is responsible for regulating market abuses;
  • the Joint Financial Intelligence Unit (JFIU), which is a joint operation between the HK Police and the Customs and Excise Department to manage the suspicious transaction reporting regime for Hong Kong;
  • the Inland Revenue Department (IRD), which is responsible for regulating public revenue offences.

White-collar investigations are usually initiated when the relevant authority receives a complaint or has a suspicion that an offence has been committed. 

Each authority has their own rules or guidelines in relation to the proper conduct of an investigation (eg, the Police Force Ordinance, the Independent Commission Against Corruption Ordinance, the SFO).

Each investigative authority has different powers to gather information and documents related to the offences. Such powers include the following.

  • The power to compel disclosure of documents: some authorities (eg, HK Police, ICAC, SFC) have the power to compel the disclosure of certain documents from companies or individuals.
  • The power to raid a company and seize documents: the HK Police and ICAC are the main authorities which conduct raids to search and seize documents. Most raids are conducted pursuant to a warrant issued by a magistrate. Other authorities are able to conduct raids in specified circumstances (eg, SFC, Insurance Authority, CC, Companies Registry).
  • The power of interview: the HK Police are entitled to question persons who have been arrested or those acting in a suspicious manner (Section 54, Police Force Ordinance). They also have a general power to interview witness and suspects.

The ICAC and SFC also have the power to compel persons to attend an interview and answer questions (Section 14 POBO and Section 183 SFO).

Internal investigations are not strictly required under Hong Kong law. However, with respect to civil and disciplinary proceedings (including Market Misconduct Tribunal Proceedings) undertaken by the SFC and HKMA, substantial co-operation – including disclosing the results of an internal investigation – may result in reduced sanctions.

Since April 2019, the SFC has required licensed corporations and registered institutions to disclose information relating to the circumstances of any licensed employee's departure, including whether the employee was subject to an internal investigation in the six months prior to their departure, regardless of whether it relates to regulated or unregulated activities. Similar requirements apply for HKMA-regulated entities. 

Domestic Framework

Hong Kong is a party to a number of bilateral and multilateral mutual legal assistance treaties. The Mutual Legal Assistance in Criminal Matters Ordinance (Chapter 525) (MLAO) allows the Secretary for Justice to make arrangements for the provision of certain assistance. This includes the taking of oral evidence and production of things before a magistrate, search and seizure of material under search warrants, obtaining of material under production orders and arranging for travel of persons to another place to assist in criminal investigation or proceedings.

The domestic legal framework for mutual legal assistance is covered by a number of statutes, including the following.

  • The Fugitives Offenders Ordinance (Chapter 503) (FOO) enables Hong Kong to sign extradition agreements with multiple countries. There are 46 categories of crimes that are liable for extradition, which includes white-collar crimes such as offences relating to securities and futures trading. Currently, the fugitive offenders agreements with several jurisdictions have been suspended, including Australia, Canada, the UK and the USA.
  • The United Nations Convention against Corruption.
  • The Mutual Legal Assistance in Criminal Matters Ordinance (Chapter 525) (MLAO) provides mutual assistance systems for taking evidence, executing search and seizure warrants and producing documents. With the orders made under the MLAO, Hong Kong has entered into bilateral agreements with a number of jurisdictions, which contain provisions for tracing, restraining, confiscating and repatriating any proceeds of crime. Some of these agreements have also been suspended.
  • The NSL allows for some cases to be sent to China for trial on national security grounds. The NSL is framed broadly to include Hong Kong permanent residents, non-residents and those outside Hong Kong who violate the law.

International Framework

International treaties

Hong Kong is a party to various multilateral treaties which provide mutual legal assistance in criminal matters, including: the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment 1984; the United Nations Convention Against Transnational Organised Crime 2000; the United Nations Convention Against Corruption 2003; and the Regional Cooperation Agreement on Combating Piracy and Armed Robbery Against Ships in Asia 2004.

Parties to these Conventions may seek assistance from Hong Kong pursuant to the provisions in them for mutual legal assistance.

International regulatory assistance

Apart from the above, the Hong Kong financial regulators – including the SFC and HKMA – have signed several memoranda of understands (MOUs) with overseas regulatory bodies. These include both bilateral co-operation agreements (eg, the HKMA has entered into MOUs and other formal arrangements with the banking supervisory authorities outside of Hong Kong) and multilateral co-operation agreements (eg, the SFC has signed the Enhanced MMOU for the International Organization of Securities Commissions (IOSCO) to facilitate the exchange of information with other international regulatory signatories).

Blocking Statutes

There are no direct blocking statutes in Hong Kong. However, there are laws and statutes which may limit the scope of extra-jurisdictional application of foreign laws, such as the data privacy law in Hong Kong, which restricts the provision of private data or evidence to overseas courts or regulators (subject to exemptions).

Enforcement bodies initiate white-collar prosecution by charging individual defendants, or by issuing summons requiring them to attend court. Criminal proceedings are initiated against corporate entities by way of summons. Certain types of prosecutions require the Secretary of Justice’s prior consent, so as to ensure that there is an appropriate level of scrutiny.

The decision to prosecute includes consideration of whether the admissible evidence available is sufficient to justify the institution or the continuation of proceedings, and whether the general public interest requires the prosecution to be conducted.

In assessing the requirements of the public interest, the prosecutor will consider factors including:

  • the nature and circumstances of the offence, including any aggravating or extenuating circumstances;
  • the seriousness of the offence;
  • the effect of a prosecution on Hong Kong law enforcement priorities;
  • any co-operation from the suspect with law enforcement or demonstrated remorse;
  • any criminal history of the suspect;
  • special circumstances that would affect the fairness of any proceedings; and
  • the availability and efficacy of alternatives to prosecution (eg, a caution, warning or other acceptable form of diversion).

The laws of Hong Kong do not provide for alternative mechanisms to resolve a criminal investigation without a trial, including deferred prosecution agreement, non-prosecution agreement or the equivalent. That said, it is open to the DOJ to grant a "bind-over" to an individual in lieu of a conviction. Bind-overs usually arise in minor offences only, and not white-collar offences.

A defendant may voluntarily agree with the prosecution to plead guilty to lesser charges or a reduced number of charges, based on a set of agreed facts to be presented to the court for sentencing, in order to resolve the criminal proceedings. However, a defendant cannot agree with the prosecution on the sentence.

For a plea agreement to be approved, three tests must be satisfied:

  • there is admissible evidence available to prove the charges to which pleas have been offered;
  • the charges adequately reflect the criminality of the conduct alleged against the accused; and
  • the charges give to the court adequate scope to impose penalties appropriate to address that criminality.

Furthermore, the court adopts the following guidelines for determining the amount of discount in a sentence to be given to a defendant for a guilty plea:

  • a one-third discount where a guilty plea is entered on the first occasion is required to tender a plea;
  • a 20% discount where a guilty plea is entered on the first day of trial; and
  • a discount of less than 20% where a guilty plea is tendered after the start of trial.       

The main offences in a corporate context under Hong Kong law include the following.

Fraud (Section 16A, Theft Ordinance – TO)

This arises where a person, by deceit and with intent to defraud, induces another person to do an act (or not do an act) which benefits or prejudices another person. The maximum penalty is 14 years’ imprisonment.

Theft (Sections 2 and 9, TO)

This arises where a person dishonestly appropriates property belonging to another with the intent to permanently deprive them of it. The maximum penalty is ten years’ imprisonment.

Obtaining Property, Pecuniary Advantage or Services by Deception (Sections 17, 18 and 18A, TO)

This arises where a person by deception dishonestly obtains for himself or herself (or another) any property, pecuniary advantage or services. The maximum penalty is ten years’ imprisonment.

False Accounting (Section 19, TO)

This arises where a person destroys, defaces, conceals or falsifies any account, record or document which is made/required for accounting purpose, or produces/makes use of any account, record or document in a way which he or she knows is or may be materially misleading, false or deceptive. The maximum penalty is ten years’ imprisonment. 

Section 9(3) of the POBO contains a similar offence. It applies where an agent uses a materially false, erroneous or defective document to deceive his or her principal.

False Statements by Company Directors, etc (Section 21, TO)

This arises where an officer of a body corporate or unincorporated association publishes a written statement/account which he or she knows is or may be materially misleading, false or deceptive, with the intent to deceive its members or creditors about its affairs. The maximum penalty is ten years’ imprisonment.

Forgery (Section 71, Crimes Ordinance – CO)

This arises where a person makes a false instrument, with the intent to use it to induce someone to accept it as genuine, and to do (or not do an act) because of that acceptance. The maximum penalty is 14 years’ imprisonment.

Use or Possession of a False Instrument (Sections 73 and 75, CO)

This arises where a person uses a false instrument which he or she knows or believes to be false, with the intent to induce someone to accept it as genuine, and to do (or not do an act) because of that acceptance. The maximum penalty is 14 years’ imprisonment.

Dealing with Proceeds of Crime (Section 25, Organized and Serious Crimes Ordinance; Section 25, Drug Trafficking (Recovery of Proceeds Ordinance))

This arises where a person who deals with property which he or she knows or has reasonable grounds to believe that it represents a person’s proceeds of an indictable offence. The maximum penalty is a HKD5 million fine and 14 years’ imprisonment.

The anti-bribery/influence peddling provisions in Hong Kong cover both public and private sectors.

Public Sector Bribery

The main offences in the public sector context include the following.

Soliciting or accepting an advantage (Section 3, POBO)

This arises where a prescribed officer (eg, government officials) solicits or accepts an advantage without the Chief Executive’s permission.

Bribery (Section 4, POBO)

This arises where a person offers an advantage to a public servant as an inducement to, reward for or otherwise on account of that public servant performing, expediting, delaying, hindering, preventing, assisting, favouring, etc, certain acts without lawful authority or reasonable excuse (eg, informed consent from the public servant’s employer). This provision also applies vice versa – that is, where a public servant solicits or accepts the advantage from another person to do (or not do) these acts.

The maximum penalty for an offence under Section 3 is a fine of HKD100,000 and one year's imprisonment (Section 12(2), POBO).

Private Sector Bribery

The main offence in the private context involves corrupt transactions with agents (Section 9(1) and (2), POBO). This provision applies in situations where there is a principal-agency relationship (eg, between an employer and employee) and prohibits the agent from soliciting or accepting an advantage without lawful authority or reasonable excuse as an inducement to, reward for or otherwise on account for the agent doing (or not doing) an act in relation to his or her principal’s affairs. This provision also applies vice versa – that is, where a third party offers the unauthorised advantage to the agent.

There are notable exceptions to these offences, such as the following.

  • There is a carve out for “entertainment” – that is, food and drinks consumed on the occasion when it is provided (Section 2).
  • No offence will be committed where there has been “lawful authority or reasonable excuse” for the advantage to be given or received. The usual example of such an event is where the agent’s principal gives informed consent for the agent to solicit or accept the advantage (Sections 9(4) and (5)).

As to the jurisdictional limits of these provisions:

  • Sections 3 and 4 have extra-territorial effect and prohibit corrupt conduct outside of Hong Kong as well (eg, offering a bribe to a Hong Kong government official whilst they are abroad). However, these sections only apply to “prescribed officers” and “public servants” of Hong Kong (Section 2). Foreign public officials do not fall within the ambit of these defined terms.
  • NB, this is not to suggest that it is permissible to offer advantages to foreign public officials whilst they are in Hong Kong. Such conduct will likely be contrary to Section 9(1) and (2).

As for an offence under Section 9, the maximum penalty is a HKD500,000 fine and seven years’ imprisonment (Section 12(1)(a)(iii), POBO).

Hong Kong does not impose a general obligation to prevent bribery and influence peddling. However, there are certain individuals and institutions (eg, licensed persons, banks, listed companies) which are subject to regulatory requirements, such as fitness and properness. This may create an obligation to take measures to prevent, detect and self-report corrupt conduct such as the following.

  • Under the Code of Conduct for Persons Licensed by or Registered with SFC (the “Code”), intermediaries must be familiar with POBO and follow the guidance issued by the ICAC (Paragraph 2.4) and comply with, and implement appropriate measures to ensure compliance with the law, rules, regulations and codes administered or issued by the SFC, and the requirements of any regulatory authority which apply to the intermediary (Paragraph 12.1).
  • Under the Listing Rules of the Stock Exchange of Hong Kong Limited (SEHK) – Corporate Governance Code and Corporate Governance Report, the board of a listed company is responsible for establishing and maintaining appropriate and effective risk management and internal control systems (Section C.2 of Appendix 14). The SEHK has also recently published a consultation paper in April 2021, where it indicated its plans to require issuers to have anti-corruption and whistle-blowing policies.
  • Under the Code of Conduct for Licensed Insurance Brokers, licensed insurance brokers and their employees are required to be familiar with and not contravene POBO (Section 1.4).

Regulated persons and entities who fail to comply may face serious penalties (fines, deregistration, delisting, disqualification, etc).

Insider Dealing and Market Abuse

The Securities and Futures Ordinance (SFO) is the governing legislation in respect of offences involving insider dealing and market abuse. It contains a parallel civil and criminal regime (Parts XIII and XIV of the SFO). It prohibits six types of market misconduct, as follows.

Insider dealing (Sections 270 and 291)

Insider dealing arises when a person connected with a corporation who has insider information deals in its listed securities or derivatives. It also applies where a person possesses information which he or she knows is inside information and deals with the corporation's listed securities or derivatives (or counsels/procures someone to do so). 

Defences to insider dealing: Sections 271 to 273, and 292 to 294 of the SFO sets out defences to insider dealing. Under these provisions, certain persons, trustees and personal representatives acting in certain ways will not be regarded as having engaged in market misconduct. In the case of a corporation, it is worth noting that Sections 271(2) and 292(2) provide for a “Chinese wall” defence (ie, information barrier). 

False trading (Sections 274 and 295)

False trading occurs when there are acts done with the intention (or being reckless as to whether it has or is likely) to create certain false or misleading appearances, such as the appearance of active trading, the price of securities or futures contracts. These include:

  • “wash sales” – trades which purport to be a transaction of sale or purchase, but involve no change in beneficial ownership; and
  • “matched orders” – selling at a price at which the person, or an associate who he or she knows of, has made an offer to purchase the same or substantially same amount of securities, and vice versa. 

Price rigging (Sections 275 and 296)

Price rigging arises where a person:

  • engages in wash sales, which has the effect of maintaining, increasing, reducing, stabilising or causing fluctuation; or
  • enters into or carries out a fictitious or artificial transaction/device, with the intention (or being reckless as to whether) it has the effect of maintaining, increasing, reducing, stabilising or causing fluctuation in the price.

The above apply to both securities traded on a relevant recognised market or by means of authorised automated trading services, as well as securities traded on a relevant overseas market.

Defence to price rigging: the first limb above is a strict liability offence. The prosecution only needs to prove the relevant guilty act. More generally, it is a defence if the person accused shows that the purposes of committing the act did not include creating a false or misleading appearance of active trading or the price for dealings in those securities (Sections 275(4) and 296(5), SFO).

Stock market manipulation (Sections 278 and 299)

This offence arises where a person engages in two or more transactions in securities that increases, reduces, maintains or stabilises (or is likely to have any of these effects) the price of any securities traded on a relevant recognised market or by means of authorised automated trading services, with the intention to induce others’ investment decisions. Sections 278 and 299 only apply to securities, and not futures contracts.

Disclosure of information about prohibited transactions (Sections 276 and 297)

The offence of disclosure of information about prohibited transactions arises where:

  • a person discloses, circulates, disseminates (or authorises or is concerned in the above) information;
  • which causes the price of securities or futures contracts to increase, reduce, be maintained or stabilised (or is likely to have any of these effects) because of a prohibited transaction (eg, transactions which amount to market misconduct) relating to the relevant corporation’s securities or futures contracts; and
  • where the person (or his or her associate) entered into or carried out the prohibited transaction, or received or expects to receive a benefit due to the information disclosure, circulation or dissemination.

Defences to disclosure of information about prohibited transactions: if a person is accused of market misconduct because of disclosure of information about prohibited transactions on the basis that he or she (or his or her associate) received or expected to receive a benefit, it is a defence if the accused person shows that (Sections 276(2) and 297(3), SFO):

  • the benefit was not from a person who entered into or carried out the prohibited transaction (nor an associate of that person); or
  • the benefit was from a person who entered into or carried out the prohibited transaction (or an associate of that person) who acted in good faith up to (and including) the time of disclosure, circulation or dissemination.

Disclosure of false or misleading information inducing transactions (Sections 277 and 298)

The offence of disclosure of false or misleading information inducing transactions arises where:

  • a person discloses, circulates or disseminates information (or authorises or is concerned in doing so) that is materially false or misleading (or is reckless or negligent as to whether it is materially false or misleading); and
  • which is likely to:
    1. induce someone to subscribe for securities or deal in futures contracts in Hong Kong,
    2. induce someone to sell or purchase securities in Hong Kong, or
    3. maintain, increase, reduce or stabilise the price of securities or the price of dealings in futures contracts in Hong Kong.

The omission of a material fact may also lead to information being deemed as “false or misleading”. 

Defence to disclosure of false or misleading information about transactions: it is a defence if the accused person shows that (Sections 277(2) and 298(3), SFO):

  • the issue or reproduction of the information was in the ordinary course of a business, and that the principal purpose was to issue or reproduce materials provided by others;
  • the contents of the information were not devised by himself or herself (or his or her officer, employee or agent);
  • he or she (or his or her officer, employer or agent) did not select, add to, modify or otherwise have control over the contents of the information; and
  • he or she did not know it was false or misleading as to a material fact (or through its omission).

Similarly, re-transmission and broadcasting of information operates as defences in certain circumstances – for example, media outlets (Sections 277(3), (4) and 298(4), (5), SFO).

It is also an offence to attempt to engage in, or aid, abet, counsel, procure, induce, etc, another person to engage in the above offences (Section 390 of the SFO, Section 159G of the Crimes Ordinance).

Sanctions

A person in breach of any market misconduct may be subject to either the civil or criminal sanctions depending on the seriousness of the violation. The Market Misconduct Tribunal (MMT) is the body responsible for conducting civil proceedings and imposing civil sanctions for market misconduct, while the courts are responsible for criminal proceedings.

The SFO operates on a "no double jeopardy" basis. Thus, a party cannot and will not be subject to both civil and criminal proceedings. However, irrespective of whether the SFC opts for the civil or criminal route, the SFC may commence proceedings under Section 213 of the SFO, in seeking to impose penalties (eg, restraining orders). 

Civil regime

The MMT is empowered to impose the various sanctions under the civil regime (Sections 257, SFO). These include disqualification orders, cold shoulder orders, cease and desist orders, disgorgement orders, costs orders and disciplinary referral orders.

Non-compliance with MMT orders under Section 257(1)(a) to (c) may result in a maximum penalty of a HKD1 million fine and two years’ imprisonment (Section 257(10)).

Criminal regime

Criminal proceedings for market misconduct offences can result in a fine of up to HKD10 million and/or ten years’ imprisonment. The court may also impose disqualification orders, cold shoulder orders, disciplinary referral orders and costs orders, in addition to the aforementioned fine and imprisonment (Section 303(2)).

Criminal Banking Law

Banking business

In Hong Kong, institutions intended to carry out a banking business must apply for a banking licence from the Hong Kong Monetary Authority and be authorised under Section 16(1) of the Banking Ordinance (BO). 

A director, chief executive and manager of an authorised institution who contravenes any condition attached to its authorisation commits an offence (Section 16(8), BO). He or she will be liable (in the case of a conviction on indictment) to a fine at tier 7 (ie, HKD400,000). If the offence continues, there will be a further fine of tier 2 (ie, HKD10,000) for each day it continues.

Financial solicitation

Under Section 116 of the SFO, every company or individual intending to carry out regulated activities in Hong Kong in relation to financial solicitation must apply for the relevant license from the SFC (eg, Type 1 – dealing in securities).

It is an offence if a person, without reasonable excuse, carries out a regulated activity without the necessary SFC license. The maximum penalty (if convicted on indictment) is a HKD5 million fine and seven years’ imprisonment. In the case of a continuing offence, there may be a further fine of up to HKD100,000 for every day it continues (Section 114(8), SFO).

Tax-related offences are prosecuted under the Inland Revenue Ordinance (Chapter 112) (IRO), which imposes requirements in relation to: filing timely and accurate returns, keeping and retention of records; establishing, maintaining; and applying due diligence procedures for financial account information. There is also a common law offence prohibiting "cheating" in relation to public revenue.

Any person who wilfully with intent to evade or to assist any other person to evade tax by, for example, making false statements or preparing any false books or records, will be liable to a fine of HKD50,000, a further fine of treble the amount of the tax undercharged and three years of imprisonment.

Any person who without reasonable excuse fails to comply with Section 80(2) of IRO by, for instance, giving any incorrect information or failing to furnish a return in time or inform chargeability to tax, may be prosecuted. A fine of HKD10,000 and a further fine of treble the amount of the tax undercharged may be imposed as penalties. The court may also order the person convicted to furnish the return within a specified time if he or she has not done so. However, offences which do not involve any wilful intent to evade tax are generally dealt with administratively by the imposition of additional tax not exceeding treble the undercharged amount.

There is no specific obligation to prevent tax evasion but there are statutory obligations to keep certain records. Depending on the type of records, a person who fails to comply with the record-keeping requirements may be subject to be a fine ranging from HKD10,000 to HKD100,000, and/or even an imprisonment of three years if an intent to defraud is found.

Financial record-keeping obligations are detailed in the following main statutory provisions depending on the type of person or entity.

Inland Revenue Ordinance (Chapter 112)

Section 51C of the Inland Revenue Ordinance (IRO) requires every person carrying on a trade, profession or business in Hong Kong to keep sufficient records in the English or Chinese language of his or her income and expenditure to enable the assessable profits to be readily ascertained. 

The penalty for failure to do so, without reasonable excuse, is a fine of HKD100,000, according to Section 80(1A) of the IRO. The court may also order the person convicted to do the act which he or she has failed to do within a time specified.

Companies Ordinance (Chapter 622)

Sections 373 and 377 of the Companies Ordinance require every company to keep accounting records for seven years after the end of the financial year. Division 3 of the Companies Ordinance further stipulates the manner in which company records should be kept.

If a director fails to take reasonable steps to ensure that proper books of accounts are kept, the director is liable to a fine of HKD300,000 or, if done wilfully, HKD300,000 and 12 months imprisonment (Section 377(3) and (4) of the Companies Ordinance).

Defence: there is a defence under Section 377(5) of Companies Ordinance if the person can establish that he or she had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of ensuring the record-keeping requirements was complied with and was in a position to discharge that duty.

Securities and Futures Ordinance (Chapter 571)

The SFO governs the record-keeping obligations for different financial intermediaries and associated entities. In addition, the Securities and Futures (Keeping of Record) Rules (Chapter 571O) ("SFO Record Keeping Rules") stipulates general record-keeping requirements for intermediaries and other specific requirements for different intermediaries. The SFC also issues circulars in relation to keeping records.

An intermediary or associated entity which, without reasonable excuse, contravenes the SFO Record Keeping Rules commits an offence and is liable to a fine. If an intent to defraud is proven, a much higher fine and imprisonment can be imposed.

Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615)

Section 20 of Schedule 2 of the Anti-Money Laundering Counter-Terrorist Financing Ordinance (AMLO) requires financial institutions to keep records of transactions and customer identities for a period of at least five years after the end of the transactions; Section 21 of Schedule 2 of the AMLO governs the manner in which records are to be kept.

The AMLO makes it a criminal offence if an authorised institution knowingly, or with the intent to defraud the HKMA, contravenes a specified provision of AMLO. The sanctions are as follows.

  • If the authorised institution knowingly contravenes the record-keeping requirement, it is liable to a maximum term of imprisonment of two years and a fine of HKD1 million upon conviction.
  • If the authorised institutions contravenes the record keeping requirement with the intent to defraud the HKMA, it is liable to a maximum term of imprisonment of seven years and a fine of HKD1 million upon conviction.
  • Disciplinary actions may also be taken by the HKMA against authorised institutions for such contravention. Further, responsible officers are also liable to a fine and/or imprisonment.

The Competition Ordinance (Chapter 619) is the primary source of competition law in Hong Kong. It provides the following.

  • An undertaking (ie, any entity, including a natural person, engaged in economic activity) must not make or give effect to or engage in an agreement or concerted practice or decision with the object or effect of preventing, restricting or distorting competition in Hong Kong (“First Conduct Rule”). Examples of conduct that contravenes the First Conduct Rule include price fixing, market sharing, bid-rigging and output restrictions.
  • An undertaking that has a substantial degree of market power must not abuse that power by engaging in conduct that has an object or effect of preventing, restricting or distorting competition in Hong Kong (“Second Conduct Rule”). Examples of conduct that contravenes the Second Conduct Rule include predatory pricing, anti-competitive tying and bundling, margin squeeze, refusals to deal and exclusive dealing.

The Competition Tribunal is responsible for imposing sanctions (both financial and non-financial) relating to contraventions of the First Conduct Rule and Second Conduct Rule.

Potential sanctions include payment of pecuniary penalties, payment of the CC’s investigation costs and disqualification of directors for up to five years. The Competition Tribunal has held that, where the CC seeks a pecuniary penalty, the proceedings involve the determination of a criminal charge, and are subject to the criminal standard of proof – ie, beyond reasonable doubt. There are no custodial sentences for breaching the First and Second Conduct Rules. 

The Competition Ordinance also introduces four criminal offences concerning investigations by the CC. Specifically, these relate to:

  • failing to comply with a requirement or prohibition imposed by the CC;
  • destroying or falsifying documents;
  • providing false or misleading documents or information; and
  • obstructing a person acting under warrant.

A person committing these offences is liable to a fine and imprisonment (both on conviction on indictment and on summary conviction).

There are two main categories of criminal conduct with respect to the sale/purchase of goods and services: (i) engaging in unfair trade practices; and (ii) selling faulty or dangerous goods.

The Trade Description Ordinance (Chapter 362)

The Trade Description Ordinance (TDO), primarily enforced by the Hong Kong Customs and Excise Department, prohibits common unfair trade practices deployed against consumers (Sections 7, 7A, 13E-13I), including:

  • applying false trade descriptions to goods or services;
  • engaging in a commercial practice that is a misleading omission or that is aggressive;
  • engaging in bait advertising and/or bait-and-switch practices;
  • wrongly accepting payment.

The maximum penalty upon conviction of the above offences is a fine of HKD500,000 and imprisonment for five years.

Other Legislation

There is various legislation in Hong Kong governing the sale of faulty or dangerous goods. For example, under Section 22 of the Consumer Goods Safety Ordinance (Chapter 456) (CGSO), it is a criminal offence to supply, manufacture or import consumer goods into Hong Kong unless the goods comply with the general safety requirements for consumer goods (or, if applicable, the approved standard for the particular goods). The maximum penalty upon conviction is a fine of HKD100,000 and imprisonment for one year on first conviction, and HKD500,000 and imprisonment for two years on subsequent convictions.

The main offences in the context of cybercrimes, computer fraud and breach of company secrets include the following.

Dealing with Proceeds of Crime (Section 25, Organized and Serious Crimes Ordinance)

This arises where a person who deals with property which he or she knows or has reasonable grounds to believe represents a person’s proceeds from an indictable offence. Those who do so may face prosecution under Section 25. The maximum penalty is a HKD5 million fine and 14 years’ imprisonment.

Those who receive the tainted funds may also face civil claims from victims of fraud seeking to recover their funds. 

Access to Computer with Criminal or Dishonest Intent (Section 161, CO)

This arises where a person obtains access to a computer with the intent to commit an offence, with a dishonest intent to deceive, with a view to dishonest gain or with a dishonest intent to cause loss to another. The maximum penalty is five years’ imprisonment.

Procuring Entry in Certain Records by Deception (Section 18D, TO)

This arises where a person dishonestly, with a view to gain for himself or herself (or someone else) and with the intent to cause loss to another, by deception procures the making, omission, altering, abstracting, concealing or destruction of the record of a bank, deposit-taking company, etc. The maximum penalty is ten years’ imprisonment.

Fraud (Section 16A, TO)

This arises where a person by deceit, and with intent to defraud, induces another person to do an act (or not do an act) which benefits or prejudices another person. The maximum penalty is 14 years’ imprisonment.

Theft (Sections 2 and 9, TO)

This arises where a person dishonestly appropriates property belonging to another with the intent to permanently deprive them of it. The maximum penalty is ten years’ imprisonment.

Obtaining Property, Pecuniary Advantage or Services by Deception (Sections 17, 18 and 18A, TO)

This arises where a person, by deception, dishonestly obtains for himself or herself (or another) any property, pecuniary advantage or services. The maximum penalty is ten years’ imprisonment.

Financial/Trade Sanctions

The United Nations Sanctions Ordinance (Chapter 537) (UNSO) and its subsidiary regulations allow the Hong Kong government to give effect to measures adopted by the United Nations Security Council, including through the imposition of economic and trade sanctions. The UNSO only targets sanctioned targets that are outside of the PRC.

Under the UNSO regulations, it is an offence to engage in prohibited financial transactions, or to make funds, other financial assets, or economic resources available to, or for the benefit of, sanctioned persons or entities. A person who contravenes the UNSO regulations may be subject to an unlimited fine and to imprisonment for up to seven years upon conviction on indictment.

Under Article 29(4) of the NSL, a person who receives instructions, control, funding or other kinds of support from a foreign country to impose sanctions against Hong Kong or the PRC is liable to a fixed-term imprisonment of three to ten years, while a person who commits an offence of a grave nature will be subject to life imprisonment or a fixed-term imprisonment of not less than ten years.

Although Hong Kong is not obliged to comply with or implement the requirements of other international sanctions programmes (such as US and EU sanctions), recent US developments (eg, the Hong Kong Autonomy Act 2020 and the Executive Order on Hong Kong Normalization) will affect the compliance obligations of multinationals and businesses with cross-border operations. 

Terrorist Financing

The principal legislation on terrorist financing is the United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575) (UNATMO).

The UNATMO prohibits the provision or collection of property and making property or financial (or related) services available to terrorists or terrorist associates. The maximum penalty is a fine and a 14-year imprisonment.

Customs

Imports and exports of certain articles are subject to licensing control by: the Director General of the Trade and Industry Department and the Customs and Excise Department under the Import and Export Ordinance (Chapter 60) (IEO); the Dutiable Commodities Ordinance (Chapter 109); and the Reserved Commodities Ordinance (Chapter 296). The penalties under these legislations or their respective regulations vary, depending on the contraventions.

A person who imports or exports an article specified in certain Schedules to the Import and Export (Strategic Commodities) Regulations (Chapter 60G) without a valid import or export licence is subject to a maximum penalty of an unlimited fine and seven years' imprisonment on conviction on indictment. The Customs and Excise Department also has power to seize or forfeit articles under IEO and DCO.

In Hong Kong, it is a criminal offence to both (i) conceal a crime, and (ii) conceal the proceeds of a crime.

Under Section 91 of the CPO, where a person knew or believes that (i) an arrestable offence has been committed by another person and (ii) has information which might be of material assistance in securing prosecution or conviction, and accepts or agrees to accept consideration from that person for not disclosing that information, then he or she is liable to a maximum of two years’ imprisonment upon conviction. Concealing an offence or concealing evidence of the commission of the offence may also constitute the common law offence of perverting the course of justice. This is a separate criminal offence to the predicate offence.

Under Section 25 of OSCO, it is an offence to deal with property when knowing or having reasonable grounds to believe that that property in whole or in part directly or indirectly represents the proceeds of an indictable offence. This is a separate criminal offence to the predicate offence. Please refer to 3.13 Money Laundering for additional information.

In Hong Kong, it is a criminal offence to both (i) conspire with another to commit a criminal offence, and (ii) assist another to commit a criminal offence.

Please refer to 1.1 Classification of Criminal Offences for information about the criminal offences of conspiracy and attempt.

Under Section 89 of the CPO, any person who aids, abets, counsels or procures the commission by another person of any offence shall be guilty of the like offence and subject to the same penalty as the principal offender.

Please refer to 1.4 Corporate Liability and Personal Liability for information about director liability for offences committed by a company.

Money Laundering Offences

The main legislation in Hong Kong regarding money laundering are OSCO and the Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405) (DTROPO). A person commits an offence if he or she:

  • deals with any property in whole or in part directly or indirectly;
  • knowing or having reasonable grounds to believe that;
  • such property represents proceeds of or was used or is intended to be used in connection with drug trafficking or any other indictable offence.

There is no need for intent to be established. The maximum penalty is a HKD5 million fine and 14 years of imprisonment.

Under OSCO, DTROPO and UNATMO, a person who knows or suspects that any property is suspicious or terrorist property must inform an authorised officer such as the Joint Financial Intelligence Unit (JFIU), via a Suspicious Transaction Report (STR) as soon as practicable. A person who fails to disclose such information commits an offence and is liable to a fine of HKD50,000 and to imprisonment for three months.

It is an offence for a person under OSCO, DTROPO and UNATMO, who knows or suspects an STR has been made, to disclose any matter which is likely to prejudice an investigation which might be conducted following such a report. A person who commits such a tipping-off offence may be subject to a fine and to imprisonment for three years.

Under OSCO, DTROPO and UNATMO, disclosure of the suspicion that the property represents proceeds of crime will act as a defence (Section 25A(2) OSCO, Section 25A(2) DTROPO, Section 12(2) UNATMO).

Due Diligence Obligations

In addition, it is an offence for a financial institution to, knowingly or with intent to defraud, contravene "specified provisions" set out in Schedule 2 of AMLO – ie, the requirements regarding customer due diligence and record keeping. 

An employee who, knowingly or with intent to defraud, causes or permits the financial institution to contravene "specified provisions" also commits an offence. The offender is punishable by a fine of HKD1 million and a two-year imprisonment if he or she knowingly commits the offence, or by a fine of HKD1 million and a seven-year imprisonment if he or she had an intent to defraud. Please also refer to 3.6 Financial Record-Keeping for further details.

The SFC and HKMA publish guidelines on anti-money laundering and counter-terrorist financing which set out the expected compliance standard for financial institutions. While the guidelines are not legally binding, failure to comply with the guidelines may be taken into account in any proceedings under AMLO. Such failure may also result in disciplinary or other actions under the SFO or the BO.

Authorities

The HK Police and the Hong Kong Customs & Excise Department are the primary authorities carrying out investigations of money laundering activities. Where the money laundering offences are facilitated by bribery or corruption, the ICAC also has the authority to investigate.

The JFIU is operated jointly by the HK Police and the Customs & Excise Department. Its main role is to manage, analyse and allocate to appropriate authorities the STRs for further investigation. The JFIU also liaises with financial institutions to obtain intelligence in relation to fund flow.

The SFC and HKMA also have the authority to investigate whether breaches of AMLO have taken place.

Where defences arise in relation to specific offences, they have been set out in Section 3. White-Collar Offences.

Most crimes in Hong Kong require the prosecution to prove both a guilty act and a guilty mind. However, as explained above, there are certain exceptions that do not require proving a guilty mind (ie, strict liability offences). The mere fact that a certain prohibited act was committed (irrespective of what the alleged offender had in mind at the time) would likely lead to a conviction.

In most cases (other than strict liability offences), it would be a defence if the accused can show that he or she did not have a guilty mind (or ill motive) while doing the act in issue. The existence of an effective compliance programme is not a defence to the offences noted in Section 3. White-Collar Offences, but may assist to avoid corporate liability.

Any exceptions in relation to the specific offences are set out in Section 3. White-Collar Offences.

No industries or sectors are exempt from white-collar criminal liability, and no de minimis exceptions exist under the relevant statutes. However, Hong Kong prosecutors and regulators retain a discretion to prosecute, and may decline do so where the amount at issue is negligible. Mitigating factors also play a role in sentencing.

Hong Kong does not have any formal programmes for claiming leniency or reduced penalties. Rather, the authorities will decide on issues such as leniency and/or immunity based on the facts of each case.

Whether the authorities will grant immunity will depend on a number of factors, including the importance of the witness' evidence, the culpability and credibility of the witness and the accused, as well as the interests of justice. Immunity will not be granted lightly.

As for leniency, the authorities will consider matters such as self-reporting and co-operation with the authorities in the matter. The SFC and the HKMA have recently emphasised that they will recognise and give credit for co-operation during an enforcement investigation in determining the applicable sanction.

There is no legislation offering comprehensive protection to whistle-blowers in Hong Kong. 

That said, there are a number of protections found in various ordinances, including the following:

  • in relation to actions of an employer, whistle-blowing employees are protected from dismissal and discrimination under the Employment Ordinance (Chapter 57) and other discrimination ordinances; 
  • in relation to money laundering, OSCO, DTROPO or UNATMO offer protection to an employee who discloses confidential information belonging to the employer from a breach of confidentiality claim if the disclosure is related to any actual or suspected money laundering or proceeds of crimes, provided the appropriate steps are followed;
  • in relation to offences under POBO, the names and addresses of informers are protected from use in civil or criminal proceedings, subject to limited exceptions.

There are also a number of guidelines recommending whistle-blower protections, including:

  • the HKMA has issued circulars and reports, setting out the expectation that banks would implement effective whistle-blowing mechanisms which allow employees to timely report illegal and unethical practices in a confidential setting without the fear of retaliation;
  • the SFC requires regulated institutions to immediately self-report actual or suspected breaches of laws or regulations, and the SFC's Business and Risk Management Questionnaire specifically asks whether the firm maintains “whistleblowing procedures for reporting by staff on any malpractices and unethical behaviours in an appropriate and confidential channel”;
  • the Corporate Governance Code issued by the SEHK recommends that best practice for the audit committee of Hong Kong listed companies is to establish a whistle-blowing policy and system for employees to raise concerns, in confidence, about possible improprieties regarding the company.

There is no statutory regime that provides incentives for whistle-blowers to report white-collar offences.

Under the Hong Kong Basic Law, anyone who is lawfully arrested has a right to a fair trial by the courts without delay. They are presumed innocent until convicted by the courts. 

The burden of proof for criminal offences rests with the prosecution. The prosecution must prove a criminal offence beyond a reasonable doubt.

The court will determine the sentence when a defendant is convicted of a white-collar offence by a criminal court. There is no prescriptive method for calculating the sentence, but the general approach is as follows.

The court will first establish the starting point for the sentence by:

  • identifying the maximum penalty that may be imposed and establish if there is a mandatory minimum or maximum starting point;
  • considering whether it is bound by any sentence handed down by a higher court; and
  • considering the seriousness of the offence and whether there are any mitigating or aggravating factors.

Once the court has established the starting point, it will consider:

  • the defendant's personal background and behaviour; and
  • whether there is any discount to be applied for a guilty plea.

The court will then apply any deductions to the starting point to compute the resulting sentence.

Baker McKenzie

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979 King’s Road, Quarry Bay
Hong Kong SAR

+852 2846 1888

+852 2845 0476

hklaw@bakermckenzie.com www.bakermckenzie.com
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Law and Practice

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Baker McKenzie is an international law firm with presence in 76 offices across 45 countries. Its compliance and investigations group – one of the largest in the world, with over 450 lawyers – is renowned for providing compliance and risk management advice and multi-jurisdictional investigation services in areas such as white-collar crime, anti-bribery, anti-money laundering, customs, data privacy, sanctions, modern slavery, ESG and senior executive misconduct. In Asia Pacific, the firm has over 50 years of experience in helping clients navigate an increasingly complex regulatory landscape, and manage and mitigate potential risks. Its Hong Kong team regularly interacts with government authorities such as the ICAC, IA, the Hong Kong Police, SFC, the HKMA, the US Department of Justice, SEC, the UK Serious Fraud Office and other regional regulators. The team collaborates with PRC law specialists from its Joint Operation platform with FenXun Partners, thereby offering clients seamless international and local law capabilities. Thanks also to Andrea Kan, an associate in Baker McKenzie's Hong Kong compliance and investigations practice group, for her valuable contribution to this article.

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