Hong Kong Employment Law Update: Too High a Price to Pay - Employee Bribery and Corruption Risks

Increased competition fuelled by economic downturn may increase the risk of bribery and corruption in the retail sector

Bribery and corruption affects fair market practices. HR professionals, together with their legal, business and compliance colleagues, should be ensuring that their organisations are compliant with all anti-bribery and corruption laws and regulations. Changing the culture within the company will be crucial to achieving total compliance with the law. The Independent Commission Against Corruption (ICAC) has recently published a training package titled "Integrity + Quality: Shopper's Paradise - Corruption Prevention Training Package for Retail Industry" ("Guidebook") on 13 May 2016 aimed at employees in the retail industry to bring about this culture change. The Guidebook warns employers of the increasing risk of bribery and corruption, especially in the retail sector, in light of waning sales performance in the industry and intensified market competition due to the economic downturn.

Reserving high demand goods for customers

Directors, staff and agents could be in breach of anti-bribery laws in situations where they reserve goods in high-demand for certain customers for unauthorised advantages in return, or abuse their employers' staff discount policy and reselling the purchased items for profit.

Risk of misconduct may arise in situations where customer demand exceeds the supply of products, for example, in the case of formula milk powder, latest smart phones, limited edition goods and fashion accessories etc. The possibility of re-selling these high-demand goods for personal gain means that employees in specific retail outlets are vulnerable to being approached by parallel traders who would offer monetary rewards, commission payments or kickbacks in return for "special VIP treatment", including reserving or setting aside a certain number of these high-demand goods for the parallel trader.

Abusing staff discounts

Apart from reserving high demand goods for certain customers, bribery scams can also be committed by the abuse of staff discounts.

In the retail industry, it is a common practice to allow employees to purchase the company's merchandise at a discount as a form of employee benefit. However, such employee discounts can be abused in different ways. For instance, employees may purchase the discounted products and resell them at a profit, or assist third parties who are not employees to purchase the products at a discount. In some situations, such abuse of employee discount may breach anti-bribery laws in Hong Kong.

Prosecution of bribery scams involving abuse of staff discounts

In May 2016, an ex-employee of the Hong Kong Disneyland Resort (Hong Kong Disneyland) was sentenced to 11 months' imprisonment for breaching section 9(2)(a) of the Prevention of Bribery Ordinance (Cap 201) (POBO). The ex-employee approached former colleagues for their assistance to purchase Hong Kong Disneyland's merchandise with their staff discount, offering them monetary rewards to do so. The ex-employee subsequently re-sold the merchandise on the internet for a profit.

Section 9(2)(a) of the POBO provides that it is an offence for any person to offer an advantage to an agent as an inducement to, or reward for, his/her doing or forbearing to do any act, or showing or forbearing to show favour or disfavour to any person, in relation to his/her principal's affairs, except with his/her principal's permission.

The Magistrate took the view that the defendant initiated the scam. Also, his actions of contacting former colleagues repeatedly to request for their assistance in purchasing discounted merchandise for resale purposes amounted to a serious breach of trust.

Illegal rebates

Employees may also resort to illegal means to boost sales and improve the company's performance, such as offering financial incentives or kickbacks to third parties to attract business.

In 2008, five senior executives of a publicly listed jewellery chain in Hong Kong were convicted of the offence of offering advantages to agents by offering commission to travel agents to incentivise them to bring more tourist groups to the company's showrooms.

A false accounting system was also put in place to conceal the secret nature of the commission payments made to travel agents, which were disguised as payments of staff promotional commission, from the company's auditors.

The court took the view that these were very serious offences committed over a substantial period of time and that "lying had become a matter of the company's corporate policy". In light of the severity of the offences, sentences of imprisonment were unavoidable.

Therefore, unethical trade practices should not be taken lightly at any time. All employees should be made aware of the severe consequences of contravening anti-bribery laws so that such misconduct could be prevented.

What can employers do?

In light of the retail industry's vulnerability to risks of corruption and misconduct, the ICAC's Guidebook aids employers in training front line employees and management staff. Although the Guidebook is targeted at the retail industry, the principles and tips contained in it have a wider applicability to all employers.

It is important to be vigilant against such risks of corruption and misconduct to protect the company's business from financial loss as well as reputational damage. A commitment to mitigate corruption risks helps prevent an impression amongst both employees and customers that company culture condones bribery and corruption.

Here are a few top tips to reduce the bribery and corruption risks in the workplace:

• In relation to the sale of high-demand goods, employers should produce a policy and set out clear instructions that frontline employees and managers must follow when selling goods to customers. The policy could include setting a quota for the amount of goods that each customer could purchase and requesting shop managers to monitor and audit inventory regularly to detect any irregularity. The policy should be communicated to all relevant employees to ensure that they are aware of the applicable guidelines.
• Raise employees' and managers' awareness regarding corruption prevention by providing regular training.
• Put in place a Code of Conduct which provides for a prevention of bribery policy. Communicate to employees that the company has zero tolerance for any misconduct contravening anti-bribery laws and that any employee who breaches such prevention of bribery policy will be subject to disciplinary action, up to and including summary dismissal.
• Provide a confidential channel for customers/ whistle blowers within the company to make complaints regarding any misconduct observed.
• Establish a systematic method to conduct investigations and alleged irregularities. Take all complaints of misconduct seriously and investigate the matter fairly and thoroughly before making any decision.

*Article first published in "China Staff, Vol. 23 No. 4 June 2016"