On 20 August 2019, District Court Judge Gary Lam Kar-yan handed down a confiscation order of approximately $1.46 million from a former associate director of the Hong Kong Branch of UBS AG (UBS Hong Kong), Tu Bing, who was found guilty after trial of one count of conspiracy for an agent to accept advantages, contrary to section 9(1)(a) of the Prevention of Bribery Ordinance (Cap. 201) (POBO) at the District Court on 27 October 2017 (DCCC 295/2017). Tu’s appeal against conviction was also dismissed by the Court of Appeal on 18 January 2018. The Judge ordered that the $1.46 million be paid in six months, failing which he be required to serve an additional 30 months’ imprisonment.
The Defendant, Tu Bing, was an associate director of the Global Wealth Management and Business Banking of UBS Hong Kong from 2006 to 2011. His main responsibility was to manage clients’ investment portfolios. In May 2006, Tu convinced a client of UBS Hong Kong, Mr. Zhang, to open two investment accounts. Mr. Zhang, being ordinarily resident in Shenzhen, had the accounts entirely managed by Tu in Hong Kong.
In May 2007, at a meeting at a Shenzhen hotel, Tu told Mr. Zhang that he had made profits from investments on the stock market with the two investment accounts. Tu also told Mr. Zhang that it was standard industry practice for clients to pay him back 20% of the realised profits as “handling and intelligence fees”. Mr. Zhang acceded to Tu’s request. He subsequently deposited two cheques amounting to a total of approximately $1.46 million into the bank account of Tu’s younger brother, Tu Jian.
It has been the policy of UBS Hong Kong at all material times that its employees must not demand or accept commission or benefits from the clients of UBS Hong Kong in respect of the business and affairs of UBS Hong Kong.
Following a complaint made by Mr. Zhang to the Hong Kong Monetary Authority in 2014, the ICAC launched investigations and ultimately pressed a charge against Tu for conspiracy for an agent to accept advantages, contrary to section 9(1)(a) of POBO.
Section 9(1)(a) of POBO states that any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for or otherwise on account of his doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business shall be guilty of an offence.
In Secretary for Justice v Chan Chi Wan Stephen (2017) 20 HKCFAR 98, the Court of Final Appeal clarified that section 9 of POBO does not criminalise any and all payments of money by a third party to an agent made without the principal’s knowledge and consent. Instead, the relevant “act in relation to the principal’s affairs or business” must be one that is likely to involve some deviation from the agent’s normal duties and is likely to undermine the integrity of the agency relationship to the detriment of the principal’s interests.
In its analysis, the Court distinguished the present case from Chan Chi Wan Stephen and rejected the defence’s argument that Tu had not deviated from his normal duties since his normal duties were precisely that of managing the investment portfolios of Mr. Zhang. The Court opined that the defendant in the Chan case only accepted advantages for work done outside of his working hours as an agent, and that such work was beneficial to the business of the principal. In the present case, however, in performing his duties to manage clients’ investment portfolios (including Mr. Zhang’s), Tu should only be paid by UBS Hong Kong in accordance with his employment terms and should not be otherwise paid by clients of UBS Hong Kong without its consent.
The Court found that in demanding kickbacks in the form of a portion of the investment profits as return for managing a client’s investment portfolio, Tu had clearly deviated from his normal duties, since the normal duties of Tu were to manage investment portfolios without being paid individually by clients. The Court accepted that such deviation of duties undermined the agency relationship between Tu and UBS Hong Kong, and was thus detrimental to the principal’s interest.
Moreover, the Court cited from Ribeiro PJ’s judgment in Chan Chi Wan Stephen that the detriment to the principal’s interest need not be an immediate or tangible economic loss to the principal or benefit to the agent at the principal’s expense. Where the conduct undermines the integrity of the agency relationship, it is in itself capable of constituting the necessary detriment.
The Court concluded with the observation that the clear intention of section 9 of POBO was to proscribe the giving and receiving of secret commissions or kickbacks, which was precisely what Tu had committed in the present case. On that basis, the court found Tu guilty of the offence as charged. The conviction and its reasoning were also subsequently upheld on the same grounds by the Court of Appeal.
The judgment serves as a resounding reminder to relationship managers, account executives and client advisors of financial institutions managing clients’ portfolios that the soliciting and receiving of what may generically be termed profits sharing, secret commissions or kickbacks are prohibited by law, and that the ICAC will not be slow to enforce the provisions of POBO.