The prosecution of suspected insider dealers in criminal courts provides a strong deterrent but also makes it more difficult for investigations to succeed, according to a regulator, lawyers and academics.
Guilt must be established beyond reasonable doubt in the criminal courts, a higher standard than for civil proceedings. Problems in putting the necessary evidence before the courts also arise, they say. It was concerns such as these which led policy makers to believe, for many years, that insider dealing should not be treated as a criminal offence.
The only penalty for insider dealing was public censure, until the setting up of the Insider Dealing Tribunal in 1991.
The tribunal, which had the power in civil proceedings to impose fines and ban offenders from being a company director, was intended to provide more of a deterrent.
But it faced criticism for long drawn-out hearings and the ability of offenders to avoid paying their fines. A turning point came when the Securities and Futures Ordinance was enacted in 2003, making insider dealing a criminal offence.
Since the arrival of Mark Steward as executive director (enforcement) in 2006, the Securities and Futures Commission has ramped up its efforts to crack down on insider dealing, and secured convictions against nine people in four cases.
The difficulties faced by investigators taking insider dealing cases to the criminal courts remain, however.
Mr Steward said: 'There are challenges at every stage in an insider dealing investigation. The market is anonymous, so identifying trading which is the result of insider information is very difficult to detect. An insider trade from the outset looks no different to a normal trade.'
He added that the nature of the offences means there is a need to establish that a person not only traded, but that they traded knowing certain information. 'It is always difficult to prove beyond reasonable doubt exactly what someone had in their head at a particular time. You can prove someone had access to information, but that does not prove they actually had it,' he said.
The information concerned has to be recognised as price sensitive. 'Not all information fits that category. We need market experts who are prepared to come to court and say this is price-sensitive information. It is very difficult to get appropriate experts to give this kind of evidence in court,' Mr Steward said.
Andrew Powner, a lawyer who has acted for the defence in white-collar crime cases, said lawyers on both sides needed to dedicate lots of time and manpower to go through all the paperwork and communications. 'There's a huge volume of paperwork, e-mails and other communications now. In the old days, you didn't have that.'
Simon Young, a professor of criminal law at the University of Hong Kong, said getting evidence could be difficult. But he criticised the authorities' reliance on giving witnesses immunity from prosecution.
'It's way too common in Hong Kong. One has to look very carefully at immunity agreements. There is a great risk that these individuals are lying because there's so much incentive to lie. And who gets immunity is all up to law enforcement agencies.'
Other jurisdictions have put in place safeguards and other hurdles to keep immunity witnesses to a minimum, he added. 'We haven't even begun to start doing that. Other jurisdictions haven't used this as much because they know the dangers.'
Mr Steward said there was a need for greater awareness among Hong Kong people that insider dealing was a crime. 'It is important we recognise insider dealing is not a victimless crime. The market is hurt by insider dealing, investors are hurt by insider dealing,' he said.
'This is something which is more readily recognised in jurisdictions like the US where the profits of insider dealing can be used to compensate investors who were dealing in the market at the same time, but did not have access to the inside information.
'We have not reached that point in Hong Kong or in many jurisdictions around the world, but it is a recognition that their market is hurt by insider dealing.'
There are other efforts by regulators to help crack down on insider dealing. Last year, the exchange tried to extend the blackout period which bans directors from trading shares of their companies ahead of the announcement of interim and annual results.
Some businesses, however, opposed the extension, and the exchange agreed from April 1 to only extend the blackout period from one month to two months before the annual announcement.