Tribunal sits on $134m in unpaid fines

PUBLISHED : Monday, 19 July, 2004, 12:00am
UPDATED : Monday, 19 July, 2004, 12:00am


Insider dealers have paid only a third of the total since the agency was created

Just over a third of the $221 million due in penalties from insider dealers in Hong Kong has been collected by the government since it set up a tribunal to probe illicit trades.

This has left a $134 million shortfall and a black mark on the publicly funded Insider Dealing Tribunal, well-respected and envied worldwide for its ability to hit culprits in the pocket.

Of 14 inquiries conducted by the tribunal since it was set up in 1991, 12 have resulted in financial orders against individuals who benefited from privileged stock information. The tribunal is empowered to fine insider dealers up to three times the profit gained or loss avoided as a result of their prohibited trades.

But of the $221 million in fines and legal costs the insider traders have been ordered to pay, just $87 million has been recovered.

The Department of Justice - responsible for enforcing penalty orders - has refused to give details of the individuals concerned, citing privacy concerns.

Legal steps had been taken to claw back the cash but the department declined to point to actual cases.

A number of high-profile individuals have been deemed insider dealers over the past decade, with significant fines imposed.

The highest single penalty was slapped on former Hanny Magnetics (Holdings) boss Wong Sun, who was ordered in 2000 to pay $47.4 million.

The shortfall in fines has raised concern among regulators, legislators and corporate governance activists that the tribunal's success in deeming individuals insider dealers has not been matched with hard-hitting enforcement.

Democratic Party economic affairs spokesman Sin Chung-kai urged legislators to hold the government accountable in the next Legislative Council session.

'Definitely if the government doesn't have the power to enforce things, they need to ... ask [Legco] for extra powers. We appreciate the success rate [of the tribunal] ... but if they failed to recover the money, the government should strengthen their enforcement actions.'

Corporate governance protagonist and editor David Webb echoed this, saying: 'If the government isn't taking reasonable steps to recover the money, then that's an abuse of power.

'The taxpayer pays for the tribunal and the taxpayer is entitled to assume the government will take reasonable steps to recover all the money.'

He also challenged the Department of Justice's decision to keep the names of the non-payers private, saying insider dealers had given up their right to privacy.

According to the Department of Justice, of the 12 cases where insider dealing was found to have taken place, 81 financial orders were imposed on individuals, of which it had successfully enforced 60.

It would actively pursue the outstanding sums.

'We however note that there may be circumstances which are outside the government's control, for example the death of an insider dealer or his or her absence from the territory,' a government spokesman said.

The tribunal is entering its final days following the enactment last April of the Securities and Futures Ordinance, which created its wider-reaching successor, the Market Misconduct Tribunal.

The Insider Dealing Tribunal has had a controversial history. The costliest case was a $40 million probe into Paragon Holdings, which became a debacle when it emerged the chairman took evidence behind closed doors and asked counsel to the tribunal to ghost-write the final report.

A court ruled in 1998 that the tribunal's findings be quashed after the 'fundamental cornerstone' of open justice had been flouted.