The Fight against Economic Crimes - The ICAC Experience
Mr Tony KWOK Man-wai,
Deputy Commissioner and Head of Operations,
Independent Commission Against Corruption, HKSAR
the International Seminar
on Prevention of Economic Crimes, Shanghai
26 - 28 October 1999
Fight against Economic Crimes -
The ICAC Experience
I am honoured to be able to speak and share with you the experience of the ICAC in the fight against economic crimes in Hong Kong Special Administrative Region (HKSAR)
The ICAC was established in 1974 to fight corruption in Hong Kong. One question that immediately springs into mind is what does an anti-corruption agency have to do with economic crime, the subject of this seminar. In the HKSAR, the responsibility in investigating commercial crime lies with the Hong Kong Police’s Commercial Crime Bureau. There are two points I like to emphasize. Firstly, unlike some anti-corruption agencies whose charter is to deal with corruption in the government only, the Hong Kong ICAC strongly believes that anti-corruption effort should be targeted at all sectors of the society. There should be no double standard. This, we believe, is one of the ingredients for ICAC’s success in the past 25 years in turning Hong Kong from one of the most corrupt colonies to one of the cleanest places to do business. Our legislation allows us to investigate corruption offences both in the government as well as the private sector. Indeed at present, half of our investigative resources are devoted to investigating corruption in the business sector.
Secondly, from our experience, corruption offences seldom stand alone and very often are related to other criminal offences. For example, a corrupt bank manager would not only be involved in accepting bribes but would most likely be involved in a conspiracy to defraud the bank and false accounting charges. Again, our legislation specifically empowers the ICAC to investigate any offences found to be related to corruption, which include all kinds of economic crime. Hence, I believe we can share with you some of our experience in the enforcement in this area.
I am now going to take you through some examples of corruption-facilitated economic crimes tackled by the ICAC over the years.
Bank Fraud (OTB Case)
Experience tells us that corruption in the banking sector can snowball into huge magnitude causing dire consequences. The Overseas Trust Bank case is one typical example. It collapsed in 1985 and had to be taken over by the Government with an injection of HK$3 billion (US$384 million) as a rescue operation. Before its collapse, OTB was the third largest local bank in Hong Kong, with 43 local branches and 8 overseas branches. I was the head of the joint ICAC/Police Task Force set up to investigate the case. The investigation was concluded in 18 months, with the conviction of the top four ranking officials of the bank, ie, the chairman, the managing director, the Chief General Manager and the General Manager, as well as the businessman who had conspired with these bank officials to defraud the bank. The fraud began with a cheque kiting scheme in moderate amounts, mainly to ease the cash flow problem. But as times went by, it snowballed into huge sums and eventually, the collapse of the cheque kite brought about the collapse of a bank. This is the price of corruption.
Although Hong Kong has a very effective regulatory system on the securities market, the corrupt are quick to exploit any opportunity as the lure of huge flow of money in the stock market is tempting.
In 1988, we had a major investigation on the then Chairman of the Hong Kong Stock Exchange. Evidence revealed that he had accepted advantages in the form of preferential share allocation in relation to the listing of new companies in the stock exchange. He was subsequently found guilty of corruption and was sentenced to a total of four years imprisonment. Partly as a result of this case, there had been significant improvement in the management of the Stock Exchange and the setting up of the Security and Futures Commission.
We have an ongoing case which is now pending trial and hence I am unable to speak of its detail. It involves the managing director of a major overseas investment firm alleged to have accepted substantial bribes from stockbrokers and company directors for purchasing their shares with clients’ funds under his control. To his own benefit and clients’ detriment, he also allegedly made huge profits through his personal securities trading accounts by directly purchasing from or selling to the funds on marginal price movements. He is further alleged to have utilised numerous securities accounts with off-shore companies, and bank accounts in Hong Kong, Singapore, the United Kingdom and Switzerland to conceal his activities.
Insurance Fraud (Bogus Claim)
There is an emerging trend of corruptly facilitated fraudulent insurance claims for personal injury and hospitalisation expenses incurred in the Mainland, invariably supported by bogus documentation. In many cases, the suspects purchased general accident and injury insurance a few days before departing for the Mainland, where, he claimed, he was robbed, injured and hospitalised for over a month. On return to HKSAR, they conspired with corrupt insurance agents and made successful claim of such bogus expenses.
Credit Card Fraud
Credit card fraud has always been an area of concern to both law enforcement agencies and the credit card industry. This criminal activity invariably started with the corrupt acquisition of bona fide credit card data from employees of local hotels, restaurants or retail establishments. With a simple device called skimmer provided by the syndicate, an employee of a restaurant can easily capture the computer data of the customer’s credit card and such data can be sold to the syndicate for HK$500 to $1,000 each time. The syndicate have high-tech equipment which enables them to manufacture bogus card with bona fide data within 24 hours and the card can then be used by the syndicate members in another country. With excellent co-operation and support from the industry and through proactive investigations, ICAC and the Police Commercial Crime Bureau have been successful in neutralizing a number of such international counterfeit credit card syndicates.
Copyright infringement is a major concern worldwide. ICAC had once conducted a major investigation in this area due to suspicion of corrupt involvement. In April last year, the ICAC carried out two operations against the manufacturers of counterfeit VCDs. The case involved what we believe to be the biggest ever seizure of counterfeit optical discs and equipment used in their manufacture. We seized 22 million VCDs valued at HK$689 million. Investigation revealed that a senior Customs official was involved in tip-offs on impending raids. The scale of the syndicate’s operation was staggering. The production machinery alone was worth over HK$327 million. Most of the pirated discs were believed to be destined for the Mainland.
Construction fraud and corruption involving the use of sub-standard piling and building materials, poor quality of works, lack of site supervision, inflation of project fees and fake testing reports can have serious consequence affecting public safety. Back in the mid-80s, the ICAC investigation revealed large scale corruption in the building of public housing estates and as a result of discovery of poor concrete formation, 26 blocks of public housing estates had to be demolished and thousands of tenants had to be rehoused. Recently, ICAC have discovered a number of construction sites where there had been sub-standard piling. Site supervisors were alleged to have received bribes from sub-contractors in turning a blind eyes to such serious malpractice. In one case, the insufficiency of the piling work had resulted in a saving to the sub-contractor of about $40 million but the consequential remedial work, however, is likely to cost in the region of $500 million, not to mention the loss of precious time and goodwill to the developer.
Real Estate Fraud
The speculative nature of property sales in Hong Kong also enables the greedy and corrupt to engage in malpractices. Common types of fraudulent acts include confirmor fraud, price manipulation, kickbacks to representatives of purchaser and vendors. In a recent case, ICAC investigation revealed that a Mainland company intended to make land investment in Hong Kong, was allegedly defrauded of a total of $515 million through a confirmor fraud.
Other Types of Corruption-facilitated Economic Crimes
We have not exhausted the list of corruption-facilitated economic crimes. ICAC has also come across others such as tax evasion and cigarette smuggling, forex fraud involving rate manipulation and mobile phone fraud involving phone cloning and leakage of customer confidential information. Illegal commission, inflated invoices, abuse of office for personal gain are also common corruption related fraud in nearly all business sectors. The latest discovery is cyber crime.
Sharing of ICAC Experience
We believe that together with the police, ICAC has been effective in fighting economic crime, hence making HKSAR one of the best places to do business. We would like to share with you some of the factors which we consider to be essential in the fight against economic crime.
Economic crime are often sophisticated and committed by intelligent people. Hence, we must have adequate power to investigate such offences. ICAC enjoys a wide power of investigation including the power to investigate bank accounts, the power to require information from suspects and witnesses, the power to restrain properties, the power to search premises and the power of arrest and detention. I should hasten to add that most of these powers have to be sanctioned by the court, which provides the right check and balance.
In order to maintain a competitive edge over the corrupt, the ICAC adopts a proactive approach by rigorously networking with other law enforcement agencies, government departments and regulatory bodies in the public sector for exchange of intelligence and referral of cases. We also actively liaise with private sector companies so that signs of corruption are quickly identified and nipped in the bud. This close liaison, together with a network of informants, provides a comprehensive source of on-line intelligence to expose corruption which may otherwise have gone unnoticed. If necessary, we also consider the use of undercover agents to infiltrate the target group.
In order to enhance the professional capabilities of our investigators, the ICAC has looked into areas where we can improve, such as enhancement of our information technology system to improve our intelligence collection and analysis ability. We have also set up a computer forensic section to recover evidence that can be obtained from computers seized during the course of investigation.
In order to ensure that witnesses would be forthcoming in giving evidence in court without fear of interference from the suspects, we have set up a specialised section on Witness Protection and Firearms to deal with requests for witness protection.
Because of the complexity in corruption-related asset tracing and money laundering investigation, we now have a number of in-house investigative accountants who can offer professional expertise in this type of investigations.
International and Mainland Co-operation
Corruption and economic crime recognize no boundary. ICAC regards good international and Mainland co-operation as absolutely essential. We have established close links with many overseas law enforcement agencies in order to trace transnational money movements and the passage of criminals. We have also hosted and assisted in organising many regional and international conferences. We now have regular meetings with representatives of such agencies such as Royal Canadian Mounted Police, the Australian Federal Police, and the US Federal Bureau of Investigation to enhance mutual investigative and legal assistance. The ICAC hosts annually a regional seminar on corruption-related crime and we publish a quarterly newsletter on the subject
Since 1988, we have established and enjoyed excellent working relationship with the Guangdong People’s Procuratorate (GDPP), not only on matters concerning the Guangdong Province, but also include mutual case assistance covering all provincial procuratorate in the Mainland. In the past ten years, ICAC officers have travelled to the Mainland on 115 occasions and interviewed 210 witnesses, whereas Mainland Procuratorate officers have travelled to HKSAR on 160 occasions and interviewed 428 witnesses. With the ever-increasing cross boundary trade between the HKSAR and the Mainland, there is a growing need for enhanced cooperation and we are now working closing with the GDPP to achieve this aim.
Measures to curb economic crimes and corruption are now firmly on the international agenda. I believe an international forum like this provides an excellent opportunity for us to share experience and update ourselves. Apart from the essential experience swapping and networking that make conference such as this vital, we should perhaps consider setting up an international network for anti-corruption agencies in order that members can formulate multi-lateral agreement for mutual legal and investigative assistance, and organise regular conference, workshops and seminars for exchange of information, training and intelligence.
I would like to remind you of the ICAC’s well celebrated three pronged approach, ie enforcement, prevention and education. I have dealt with mainly the enforcement side and my colleague will later speak to you on the prevention and education side.
I cannot emphasize more the importance of fighting corruption and economic crime. We believe that HKSAR would not be the HKSAR of to-day if we had been awash with corruption. The HKSAR story in fighting corruption is one of hard-won success with the support of the whole community. That community remains determined not to let corruption rear its ugly head again.
Ref. : AF/33/39/11 5.10.99