In both public and private sectors, employees of different levels might be empowered to make decisions on engagement of suppliers and contractors etc. It might be very tempting for such employee to procure contracts to be awarded to entities which he or his family members have interests. However, if no proper declaration of interest was made, such employee might be liable for fraud, conspiracy to defraud and/or misconduct in public office (if the person is a public officer).
Conflicts of interest
Conflicts of interest arise in situations where personal interest of an employee interferes with the interest of the employer or when an employee has an interest that may affect the employee to perform its duties objectively and effectively. In the context of procurement of suppliers/contractors, the most common type of conflicts of interest arise when the employee and/or his family members have financial interest and/or can obtain financial benefits from the suppliers/contractors to be engaged by the employer.
It is very common that employers would expressly state in their employee’s handbook that employees are required to avoid conflicts of interest and are obliged to report to his supervisor if there is any potential or actual conflict of interest. This allows the employer to assign another staff to decide on the matter objectively and to monitor the transaction closely to safeguard the interest of the employer.
Section 16A of the Theft Ordinance provides that:
“If any person by any deceit (whether or not the deceit is the sole or main inducement) and with intent to defraud induces another person to commit an act or make an omission, which results either —
(a) in benefit to any person other than the second-mentioned person; or
(b) in prejudice or a substantial risk of prejudice to any person other than the first-mentioned person,
the first-mentioned person commits the offence of fraud and is liable on conviction upon indictment to imprisonment for 14 years.”
In the recent case of 香港特別行政區 訴 林詠安 Stephen DCCC 984/2016, an ex-manager of a media company was convicted of two counts of fraud in relation to awarding work orders to a company owned by his father (and the ex-manager also has an interest in the company) without declaring his interests in the transaction.
At the material time, the Defendant was the facilities executive and later promoted to the position of facilities manager of a company (the “Employer”) and he was empowered to award work orders to contractors and service providers of equipment and facilities for the Employer.
In January 2007, the Defendant set up Skytech Engineering & Co (“Skytech”) and his father was the proprietor of Skytech. While the Defendant did not declare his and/or his father’s interest in Skytech to the Employer, the Defendant induced the Employer to include and maintain Skytech in the Employer’s list of approved suppliers and made purchase orders with Skytech between August 2007 and February 2014. Then, the Employer made payments to Skytech for the provision of goods and services and Skytech later made some payments to the Defendant and his family members.
In the Employer’s code of practice for employees, employees are prohibited from purchasing goods or services on the Employer’s behalf from suppliers who are related to him or his family members or make such purchase that would give benefit to himself. If there is any potential conflict of interest, employees are obliged to report to his manager. Therefore, since the Defendant did not declare his and/or his father’s interest in Skytech to the Employer, the Defendant acted in breach of the code on avoiding conflict of interest.
The Court further noted that, if the Employer knew that the Defendant had an interest in Skytech and had obtained financial benefits from Skytech, the Employer would not have allowed Skytech to be included in its list of approved suppliers, or would closely monitor transactions with Skytech. Since the Defendant did not declare his interest, the Court considered that the Employer was not alerted to closely monitor the transactions with Skytech and might suffer prejudice.
In light of the above, the Defendant was convicted of two counts of fraud and was sentenced to six years and eight months’ imprisonment.
Other related offences
If any public official in the course or in relation to his public office wilfully omits to declare interest without reasonable excuse, he may also be found liable for the offence of misconduct in public office.
In another recent case of 香港特別行政區 訴 袁大鵬 DCCC 766/2017, an ex-technical manager of the University of Hong Kong was convicted for misconduct in public office and conspiracy to defraud the University of Hong Kong. In this case, the defendant arranged his sister’s company to be awarded some purchase orders and renovation works but he falsely stated in the procurement forms that he had nothing to declare.
As illustrated in the above cases, omission to declare conflict of interests may lead to serious consequences. Employees are strongly encouraged to familiarise themselves with their employer’s policies on conflicts of interest and discuss with their employers if in doubt.
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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.