Introduction

The recent District Court decision of HKSAR v Cheung Ling Chu Sally and Another (DCCC 920/2019) [2021] HKDC 188 shed light on when it would be an offence under section 9 of the Prevention of Bribery Ordinance (Cap 201)(“POBO”) when an advantage is accepted “in relation to the affairs or business of the principal”.

Factual background

The first defendant, Cheung Ling Chu Sally (“Cheung”), was the manager of one of the branches of China CITIC Bank International Limited (the “Bank”).

The second defendant, Pong Chui Kwai (“Pong”), was the Director and General Manager of King Chi Trading Company (“KC”), which engages in money exchange and remittance services including remitting money from the People’s Republic of China (“PRC”) to Hong Kong Special Administrative Region (“Hong Kong”) for its clients.

The two defendants, who had known each other for many years, arranged for Cheung to assist some of the Bank’s clients to engage KC’s service for remitting a total of RMB83,901,100 from the PRC to Hong Kong  (the “27 Remittances”). To do so, KC first quoted an exchange rate for the remittance service and Cheung then communicated such information to the clients with a markup, which became a profit margin for herself.

The Prosecution’s case

Section 9 of the POBO is the single prominent provision which captures corrupt transactions with agents in the private sector.

Section 9(1) provides that it is an offence for an agent, without lawful authority or reasonable excuse, to solicit or accept an advantage as an inducement to or reward for or otherwise on account of his or her:

1.    doing or forbearing to do, or having done or forborne to do, any act in relation to his or her principal’s affairs or business; or

2.    showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any person in relation to his or her principal’s affairs or business.

Meanwhile, section 9(2) of the Ordinance makes it an offence for a person, without lawful authority or reasonable excuse, to offer an advantage to an agent as an inducement to or reward for or otherwise on account of the agent’s:

1.    doing or forbearing to do, or having done or forborne to do, any act in relation to his or her principal’s affairs or business; or

2.    showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any person in relation to his or her principal’s affairs or business. 

In the Cheung Ling Chu Sally case, the prosecution alleges that the two defendants conspired together that (i) Cheung would accept an advantage as an agent of the Bank; (ii) which induces her to or reward her for conducting herself in relation to her principal i.e. the Bank’s affairs or business, namely by referring the Bank’s clients to KC for remitting money from the PRC to bank accounts designated by them in HK; (iii) without lawful authority or reasonable excuse.

Issues

As section 9 of POBO provides that an agent’s conduct must be “in relation to the principal’s affairs or business”, the District Court has to deal with the ultimate issue of whether Cheung’s referral of the Bank’s clients to KC amounts to act(s) “in relation to the Bank’s affairs or business”.

Ruling

Foreign Exchange Control in PRC

The ruling of this case must be comprehended in the context where the Foreign Exchange Control (“FEC”) in PRC, an important feature of this case, was in place at all the material times.

Under the FEC, currently not more than US$50,000 (or equivalent) per year could be remitted through the banking system from the PRC to Hong Kong.  However, remittance agents (licensed money service operators), including KC, act as a system of offset banking to effect such remittances such that no money flows out of or into PRC.  Typically, when clients would like to remit a certain amount of RMB from PRC to HK, they would go to KC to obtain a quote of the exchange rate and then arrange for the RMB to be transferred to one of KC’s RMB accounts in the PRC.  KC would then arrange payment into the client’s designated HK bank account.

1. Remittance services fell outside the ordinary businesses of the Bank

On the available evidence, it is undisputed that under the FEC, the Bank could not effect any remittances beyond the limit of US$50,000 (or equivalent) per year from the PRC to Hong Kong.

Further, to transfer money from the PRC to HK, a request had to first be initiated by the remitting party to a PRC bank. This means that the Bank, as a bank in HK, could only play the role of a receiving bank.

Based on the above, the learned Judge found that the Bank could not have executed the 27 Remittances and therefore such remittance services fell outside its ordinary businesses.

2. Cheung’s side business does not involve the Bank (her principal)

The Court referred to the Court of Final Appeal decision of Secretary for Justice v Chan Chi Wan Stephen (2017) 20 HKCFAR 98, which ruled (at paragraph 68) that:

“The reference in section 9 [of POBO] to the agent’s act or forbearance being “in relation to his principal's affairs or business” is properly construed to mean that the agent’s act or forbearance must be aimed at and intended to influence or affect the principal’s affairs or business in a manner that undermines the integrity of the agency relationship by injuring the bond of trust and loyalty between principal and agent.

When delivering the minority judgment in the same case, Permanent Judge Mr Justice Tang also stated that:-

“Commissioner of the Independent Commission Against Corruption v Ch’ng Poh is authority that for an act or forbearance to relate to the principal’s affairs or business it must have been intended to “influence or affect the principal’s affairs.”  And it would not so relate if the agent “should act on his own without involving his principal”.  With respect, I agree.  Thus, a moonlighting employee would not fall foul of s. 9 even if moonlighting was strictly forbidden by his contract of employment…”

The learned Judge then made the following observations on the available evidence:

1.    In a meeting with a Mainland couple, Cheung made it clear to the couple that the remittance service was to be conducted through an underground money exchange operated by “Mrs Yung”, and that it was unrelated to the Bank;

2.    Cheung’s former colleague at the Bank made it clear to Mr Kang, their then client, that as the Bank cannot effect the remittance under FEC, he had asked around outside the Bank, and found that the remittance service provided through Cheung’s contact was more reliable. Cheung’s former colleague also confirmed that he asked Cheung for the exchange rate on behalf of the client, and that such enquiry was not within the Bank’s ordinary business;

3.    Cheung continued to provide remittance services in the same manner even after her dismissal by the Bank on 2 September 2016 until she was arrested by the ICAC on 19 October 2016, which is clear evidence that her “side business” was separate and distinct from the bank. The learned Judge described that she was acting on her own “without involving his principal”;

4.    The iMessage exchanges between one of Cheung’s clients, and Cheung show that the name “Mrs Yung” was referred to during their discussions of the relevant remittance arrangements. The learned Judge was of the view that Cheung had surely told the clients beforehand that the remittance was to be done through a third party, namely, “Mrs Yung” or KC, and that it had nothing to do with the Bank.

3. No reputational damage/economic loss to the Bank

Regarding the Prosecution’s allegation that reputational damage would be caused to the Bank, the Court ruled that even if any intended remittance transactions did not proceed successfully, the Bank could easily disclaim liability as those services could not have been provided by it due to the FEC and must have been provided by an unrelated third party. As any possible complaint about the services of the third party should not and would not be attributed to the fault of the Bank, it could not be prone to “reputational damage” or any economic loss due to Cheung’s acts.

Takeaways

The Court eventually acquitted both defendants on the ground that Cheung’s conduct was not done “in relation to the bank’s affairs or business” – an outcome which may be to many people’s surprise.

Despite the acquittal, agents are still strongly urged to comply with any Code of Conduct or Human Resources Policies alike which are in place in their company. Although the defendants were not found guilty of s.9 of POBO which captures “corrupt” agent transactions specifically, the Court nevertheless criticized that Cheung was in “blatant and flagrant breach of her responsibilities and her conduct was demonstrably lacking in, if not devoid of, integrity and honesty…… D1 had brazenly treated her principal and her fiduciary duties and responsibilities with contempt.”

Agents should be reminded to be prudent with their conduct at all times to avoid potential breaches which would lead to legal liabilities or risk of being investigated by the ICAC particularly if advantages are involved.