On February 1, 2021, the Hong Kong District Court acquitted a former investment banking managing director (MD) of J.P. Morgan Securities (Asia Pacific) Limited (J.P. Morgan APAC) of bribery charges. This drew considerable interest in view of the $72 million penalty paid in 2016 by the same APAC unit to the U.S. Department of Justice (DOJ) in a nonprosecution agreement and the approximately $130.5 million in disgorgement paid to the U.S. Securities and Exchange Commission (SEC) by its parent, J.P. Morgan Chase & Co.
The former MD was charged under Section 9(2)(b) of the HK Prevention of Bribery Ordinance (Cap 201), which prohibits private sector bribery (the Ordinance also criminalizes public sector bribery). HK’s Independent Commission Against Corruption (the ICAC) alleged that in 2010, the MD hired the son of a potential client in return for gaining favor in its quest to win the mandate to help the company go public in an initial public offering (IPO) in Hong Kong. The hire was made through a “client referral program” under which senior staff may refer the relatives of potential clients for employment.
In March 2021, the court released its Reasons for Verdict. Essentially, the court acquitted on the basis that it could not find the requisite corrupt intent. The prosecution had relied on emails sent by the MD to establish a corrupt intent: “the last thing I want is we go slow and they ask another bank and I am sure someone will give him a full-time offer given the mandate up for grasp here … We can give him an offer” and “we are a strong contender. Blink Blink nod nod, can we find a place for his son….” Notwithstanding these emails, the court said that it was not certain that the MD had offered the job as an enticement, as the offer might simply have been made to maintain a good relationship and that references to the IPO might simply have been the MD’s way of showing off to colleagues after taking into account the prosecution witness’s evidence that the IPO was still at a preliminary stage then. Finally, although the court described the hiring as a “total mess,” she took the view that it was not the MD who had made the final hiring decision and that the team tasked with the hiring of junior staff had “clearly made mistakes” and failed to fulfil their “gatekeeping duties” in not properly vetting the candidate.
The court’s comment that the job offer may have been extended to “maintain a good relationship” (as opposed to being evidence of corrupt intent) has led to questions about whether such benefits are acceptable if motivated by the desire to maintain client relationships. We would hesitate to read too much into this one comment, as the rest of the court’s reasoning suggests that the outcome did not rest on this one issue alone. More significantly, the Foreign Corrupt Practices Act (FCPA) is still very much in the frame, and we do not see the DOJ or SEC changing its position regarding the use of such employment opportunities to gain business.
There are also various other factors at play here — one obvious difference is that the FCPA case was a settlement between the corporation and the U.S. government, whereas the HK case involved criminal charges against an individual who obviously had far greater motivation for contesting the case. Second, in an FCPA or UK Bribery Act case, it is easier to attribute the separate actions and motivations of employees to the corporation collectively so as to build the case against the corporation, whereas the MD here appears to have been part of a chain, which means it was more challenging for the prosecution to show “corrupt intent” by her at an individual level.
The case reiterates the need to be aware of the differences between local antibribery laws and the FCPA and equivalent legislation. The HK antibribery law is stricter than the FCPA in many ways — for instance, Section 8 makes it an offense to offer an advantage to a public servant while having dealings with that public servant’s office/department. This is almost a strict liability provision, and fairly similar provisions can be found in antibribery laws in Malaysia and Singapore. On the other hand, unlike the FCPA, the HK antibribery law does not contain provisions for corporate liability, thereby making it very difficult to hold companies liable for bribery as the prosecution has to meet the “directing mind and will” test under the common law (e.g., it will be necessary to prove that the board, as the directing mind of the company, knew what lower-level employees were up to).
