The Securities and Futures Commission (SFC) has banned Mr He Zhi Hua, former chief executive officer of Ping An of China Securities (Hong Kong) Company Limited (Ping An), for 12 months in relation to any regulated activities for contributing to Ping An’s serious internal control deficiencies and other matters between August 2010 and April 2011 (Notes 1 & 2).
An SFC investigation found that He acted as a nominee and was complicit in a number of suspicious transactions at Ping An which should have been reported to the SFC and the Joint Financial Intelligence Unit in a timely manner but were not (Notes 3 & 4).
The SFC also found that He failed to ensure:
- Ping An had in place sufficient anti-money laundering internal control procedures or training to its staff;
- appropriate and effective procedures existed to protect client assets in effecting payments; and
- proper communication and enforcement of Ping An’s internal policies on employee dealings and account opening procedure (Notes 5 & 6).
Moreover, He, who was the most senior person at Ping An and in a position of authority in managing its business at the relevant period, tried to abdicate responsibility and offload blame to subordinates when these deficiencies were uncovered. Such management conflict with his subordinates aggravated the internal control deficiencies of Ping An. Ping An has since removed him from his position and appointed a new CEO.
Mr Mark Steward, the SFC’s Executive Director of Enforcement, said “The SFC will hold senior management accountable for internal control deficiencies where it is clear they are involved and responsible.”
Notes:
- Ping An was reprimanded and fined $6 million over the internal control deficiencies and other matters. Please see SFC’s press release dated 9 July 2014.
- There is a related disciplinary proceeding against another staff of Ping An that is presently before the Securities and Futures Appeals Tribunal.
- The Joint Financial Intelligence Unit receives reports of suspicious financial activity and is jointly run by staff of the Hong Kong Police Force and the Hong Kong Customs and Excise Department.
- Section 25A of the Organized and Serious Crimes Ordinance requires a person who suspects that any property represents proceeds of, or was used in connection with or is intended to be used in connection with, an indictable offence to disclose that suspicion to an authorized officer “as soon as it is reasonable for him to do so”.
- During the relevant period, the “Prevention of Money Laundering and Terrorist Financing Guidance Note”, published by the SFC in September 2009 under section 399 of the Securities and Futures Ordinance, was in force. From 1 April 2012, it was superseded by the “Guideline on Anti-Money Laundering and Counter-Terrorist Financing” and the “Prevention of Money Laundering and Terrorist Financing Guideline” issued by the SFC.
- Licensed corporations should have in place proper systems and controls for the identification and reporting of suspicious transactions. The first and foremost step is to gain sufficient knowledge about a customer’s business and financial circumstances (through customer due diligence and ongoing monitoring) to recognise that a transaction, or a series of transactions, is unusual. There should also be procedures in place for reporting internally by escalation to senior management and reporting externally to the Joint Financial Intelligence Unit.
A copy of the Statement of Disciplinary Action is available on the SFC website
