Throwing the book at a minor offence

PUBLISHED : Monday, 09 June, 2008, 12:00am
UPDATED : Monday, 09 June, 2008, 12:00am

'In a handwritten mitigation letter submitted to the District Court yesterday, [Centaline Property Agency chairman Shih Wing-ching] wrote he believed the ICAC might not have enough resources to combat bribery and corruption in the private sector, which he considered more structurally complex than the public turf where the ICAC had its earlier successes.'

SCMP, June 4

What a star. Three of his property agents are convicted for paying referral fees but he stands by them in public, pledges to rehire them, makes it obvious that they have not offended their boss in any way and then, in a letter to the judge, tells the ICAC to grow up.

I think he is right, too. I think it is entirely arguable that the practice of referral fees in the property business does no great harm to society and should never have been made a criminal offence. If reprehensible, it is best left to the companies affected as a matter for internal disciplinary action.

More than that, this case says that legislators should limit themselves to what is possible for them. They do a disservice to society when they pass laws that require far more enforcement resources than are actually allocated to the job. It makes justice fickle, fosters defiance of the law and brands people as criminals when they are nothing of the sort.

What we have at issue here is a very common commercial practice. When A buys from B on C's credit, B shows his appreciation to A with a gift for steering the business his way. Neither of them mentions it to C. It used to be called tea money. We now call it a referral fee. This gift is, of course, invariably straight cash and the sums involved would routinely buy more tea than anyone can drink. What has happened here, you will say, is that C has been cheated and the law has a role to play in upholding C's property rights.

Yes, it does, but it is surprising how often in these arrangements C knows that there has been payment of a referral fee of which he was not told and to which he does not seriously object if it is kept in proportion. The old comprador system on which Hong Kong's economy was founded was pretty much of this sort.

I'm of the opinion, in fact, that in some businesses, particularly property and construction, there is only rarely such a thing as a straight contract with no extra payment under the table.

And very often this money goes to the right people in the transaction. Knowledge of the market can be as valuable as ownership of the asset being traded. If C doesn't know enough of the market and hires A to do his dealing for him then C should not fool himself that A will be satisfied with a wage alone.

By dealing well A has probably saved C far more than the referral fee involved and both know it or, at least, should know it. If C thinks that A does not deal well then he should get another dealer. But stopping referral fees won't get C better deals.

Let's say, however, that I am wrong about this. Let's say that referral fees are bribery, graft and utterly corrupt and there is nothing to be said for them even if the people who are presumed to lose by them do not strenuously object.

What do we say then to B when he has put a lot of work into arranging a property purchase by C and faces a demand for a referral fee by A, who has been designated by C to handle the purchase?

If B refuses, he loses the business and A will give it to a rival. In fact, this being the property business, B is not likely to do any business at all in the future if he refuses demands for referral fees. He won't find any other sort of business. He either pays or he leaves the business. Either way A gets the referral fee.

I'm sure Mr Shih was speaking the absolute truth when he said that the practice is common. It has to be. For bigger deals I think it is universal. I'm sure he is also right in doubting that the ICAC can stop it.

To do so, the ICAC would not just have to stop a practice but change a culture and would have to do it in one go with a massive enforcement effort.

If referral payments continue to be made at all, the business would continue to go to those who make them while the clean players would leave. I say the ICAC could never do it. In this particular case, I suspect what happened is that someone ratted on the game. The people done for it in court will get their jobs back but the rat will be fired and his name go on the industry blacklist. Everyone in the industry will understand the lesson - keep your mouth shut.

Such ICAC piecemeal efforts at cleaning up corruption are worse than useless and I think Mr Shih is entirely right in saying that they may work in the public sector but not in the private. In the private sector they just confirm and refine practices that are not particularly socially damaging anyway. Why does the ICAC bother?

Hmmm ... perhaps because it has a budget to justify and this purpose can be served admirably by crucifying a few property people for doing what they all do and then pretending that only a few of them really did it and now won't do it at all any more, thanks to the ICAC.

Nasty boy, don't be so cynical.