Hong Kong must protect corporate whistle-blowers to check fraud
Chris Fordham says Hong Kong law lags behind other jurisdictions in the protection for whistle-blowers in corporate fraud cases.
Hong Kong has a history of taking the right steps to investigate and prosecute cases of alleged corporate fraud, but there is still room for improvement in its approach to anti-fraud defences.
Findings from Ernst & Young's 2012 Global Fraud Survey suggest that as businesses continue to face challenging economic environments, bribery, corruption and fraud are likely to remain widespread.
As a major business hub, Hong Kong is not immune from these unethical practices and while the tools for detection may exist here, one key area requires closer attention - legislation to protect whistle-blowers. Hong Kong not only lags behind other jurisdictions; it has failed to make any strong inroads in the past few years.
The role of whistle-blowing in the detection of fraud has been highlighted by a recent global survey by the Association of Certified Fraud Examiners that found over 43 per cent of fraud was detected by a tip. And the majority of tips come from employees of the organisation.
The survey also revealed that corporate fraud costs businesses globally an estimated US$3.5 trillion each year, showing that the issue can't be ignored.
In the past two years, Hong Kong Exchanges and Clearing has taken some steps in the right direction, saying that all listed companies should install a whistle-blowing policy to enable employees and other business associates to raise concerns to the company of suspected malpractice. What's missing here is the legislation required to offer them protection.
Hong Kong has some protections - in the case of money laundering, for example - but these do not go far enough. So what is needed?