Originally published 11 February 2011
Keywords: Securities and Futures Ordinance, Hong Kong, on-site investigation, SFC, financial regulators
The Securities and Futures Ordinance (Cap. 571) (SFO) empowers the Securities and Futures Commission (SFC) to enter business premises of corporates and residential premises of employees (or any subjects of an investigation) to search for documents and information relevant to an investigation, copy or confiscate relevant materials, and conduct questioning of individuals (which may be conducted on the spot or by serving a formal notice on such individuals setting out the date and place of the interview).
These guidelines provide some general guidance for business representatives of a company in the event an investigation is conducted at the company's premises. Please note, however, these guidelines are not a substitute for formal legal advice which the company is encouraged to seek immediately when faced with an investigation targeted at the company and/or any of its personnel.
Generally, the business representatives of the company should at all times remember the following:
The following step-by-step guidelines deal with different stages in an investigation.
Step by Step Guidance:
When investigation officials arrive
Preparation: Ensure that reception staff and other key personnel in each major business premises have the contact details of relevant internal or external lawyers to contact, and a copy of this guidance document, so that they can respond quickly in the event of an on-site investigation.
1. CONTACT THE COMPLIANCE OFFICER AND OTHER KEY PERSONNEL
- Business representatives should contact the relevant Compliance Officer (if applicable) or in-house lawyer (and, if instructed, external lawyers) and the most senior executive available, and ask them to attend the location of the investigation immediately, if possible, to assist in dealing with the investigation.
- The investigation officials should be politely requested to wait in a closed meeting room until the arrival of the Compliance Officer or legal advisors. However, as there is no obligation on the investigation officials to do so, they should not be refused entry to other areas of the premises if they insist on this - subject to the matters set out in section 2 directly below.
- Under the SFO, people who have knowledge of or relating to an investigation conducted by the SFC are subject to a statutory secrecy obligation in respect of such knowledge. Therefore, business representatives should not disclose any information in relation to or the existence of an investigation to any person other than the relevant Compliance Officer and/or lawyers.
2. CONFIRM WHETHER THE OFFICIALS HAVE APPROPRIATE IDENTIFICATION AND AUTHORISATION
- SFC investigation officials conducting an on-site investigation are required to present valid identification documents as well as a court warrant authorising their entry to the site and seizure of materials. These documents should be requested and photocopied. If those documents are not provided, call a manager and the police.
- Check carefully whether the information contained in the warrant (in particular, the address of the premises) are correct. If the information is not correctly stated the business representatives should raise this to the SFC investigation officials and may consider refusing entry.
3. NOTE THE AUTHORISED SCOPE OF INVESTIGATION
- The court warrant authorising the SFC investigation officials
to carry out an on-site investigation should contain details such
as the purpose and authorised scope of the investigation. It is
important that these matters are noted, and communicated to all
business representatives involved in dealing with the officials, so
they understand the subject matter of the investigation and the
extent of their obligation to assist the officials.
During the on-site investigation
Preparation: Each business centre should have an appointed 'response team' that is ready to deal with any on-site investigation. Where possible, the team should include an in-house lawyer, staff who can assist with note-taking and photocopying, and a senior manager who can report the matter to the board or top management.
1. ALERT STAFF WITHIN THE PREMISES ONLY ON A NEED-TO-KNOW BASIS
- In view of the statutory secrecy obligation (section 378, SFO) imposed on persons who have knowledge concerning or arising from the investigation, the existence of an investigation should only be communicated by the business representatives to personnel on a need-to-know basis.
- For instance, the 'response team' should be alerted and other staff, such as IT staff, may also be informed as occasionally the SFC will be authorised under the court warrant to seize electronic documents from the servers located in the premises.
- If the workstation of a particular individual is searched by the SFC investigation officers, such individual should also be informed of the purpose of the search. Care should be exercised to ensure this communication is worded in a manner that will not cause undue concern.
- Staff should also be advised the investigation is standard enforcement practice, and if they have any concern, they should consult the response team.
2. ENSURE THE INVESTIGATION OFFICIALS ARE ACCOMPANIED THROUGHOUT THEIR INSPECTION
- Response team staff should accompany the investigation officials throughout their inspection of the business premises. The investigation officials are not entitled to refuse to be accompanied.
- Ideally, one staff member should focus on creating a written record of the investigation process, including areas visited, staff spoken to, documents inspected or copied, and comments made by the investigation officials.
- Another staff member should assist investigation officials with any requests they make (such as organising copies of documents), and a further staff member (or, ideally, an in-house or external lawyer) should be in charge of all further liaison with the investigation officials.
3. PROVIDE ASSISTANCE TO THE INVESTIGATION OFFICIALS
- Investigation officials may request staff assistance to copy or remove documents for inspection. Where this occurs, reasonable assistance should be provided. However:
- Where possible, check if any document requested to be copied or removed falls within the scope of the authorised investigation. While it is up to the investigation officials to decide this issue, an objection should be recorded in cases where it seems apparent that the investigation officials are exceeding the scope of their authority provided by the SFO or the warrant, or if the documents sought to be seized are subject to legal professional privilege.
- Where copies of documents are requested to be made, two such copies should be made - one for the Investigation officials and one for the company's future reference.
- It is very common for the SFC investigation officials to bring along their own IT experts, who will seek to seize or copy the complete electronic server or individual e-mail boxes of certain individuals. Invariably these e-mail servers may contain communications between the company and its legal advisors, which are subject to legal professional privilege. The business representatives should inform the SFC investigation officials that the company reserves all of its rights in respect of such privileged materials and try to work out with the SFC investigation officials a set of protocols to filter out such materials at a later stage.
4. DEALING WITH QUESTIONS
SFC investigation officials may question business representatives on matters relating to the investigation. Generally, the SFC may either question the individuals on the spot or issue a statutory notice to the individuals requiring the individuals to attend an interview (likely at the SFC's headquarters in Central) on a later date.
- Questioning on the Spot
Where the investigation officials seek to question any individuals on the spot, the following procedures should be adhered to:
- SFC investigation officials should generally limit their questions to documents and materials seized at the premises, and such questions should be directed to such individuals who are in custody or have knowledge of the documents and materials. Any persons who are questioned but do not have knowledge of the subject matter should inform the SFC investigation officials accordingly and politely decline to provide any answer.
- SFC investigation officials will usually obtain answers to their questions by first talking through the subject matter with the individual and then preparing a draft written statement for the individual's signature, and provide a copy of the statement to the individual for his retention. The individual concerned should carefully review the draft statement and remove any matters which he is not sure of or does not feel comfortable to give as an answer. If he does not agree to the content, he should refuse to sign it.
- SFC investigation officials have no right to detain any individuals for questioning or prohibit any individuals from seeking assistance or legal advice. If any individual being questioned feels intimidated or uncertain regarding certain issues, he should request to speak to a more senior manager of the company or an in-house or external lawyer.
- Importantly, when providing answers or making a statement to
the SFC, misleading answers or answers which are known to be false
should not be given. Otherwise, it may be a criminal offence.
- Questioning pursuant to a statutory notice under the SFO
The SFO empowers SFC investigation officials to issue a written notice to an individual requiring him to attend on a specified date and time for interviews (section 183, SFO). There are a number of legal implications attached to such a notice and the interview. As such, it is important that an individual who receives such a notice should seek legal advice without delay.
- SFC investigation officials may issue a written notice to an individual on the spot. If the recipient of the notice thinks the notice given for the interview is too short and he needs more time to seek proper legal advice, he should raise it with the SFC investigation officials immediately and seek to arrange a later date for the interview.
- Depending on the circumstances, the external legal adviser
instructed by the company may not be able to advise the individuals
in respect of such interview. As such the company may consider
arranging for separate legal representation for the individual
5. REINFORCING THE CONFIDENTIALITY AND PRIVILEGE OF INFORMATION OBTAINED BY INVESTIGATION OFFICIALS
- In relation to any documents seized or copied by the investigation officials, business representatives should state that the company claims confidentiality, irrelevance and privilege over such documents and the information they contain.
- Legally, the SFC is entitled to review documents which contain confidential information or information irrelevant to the investigation as the SFC is subject to the same statutory secrecy provision in respect of their investigation. However, the company should raise these issues at the outset with a view to working out an agreed protocol with the SFC to filter out such materials, especially when a large volume of electronic documents are seized by the SFC.
- Also see 3(a)(iii) above regarding asserting privilege.
6. VERIFYING THE INVESTIGATION RECORD
- SFC investigation officials will document in full the items and documents seized from the premises, and may request to have these records signed by persons questioned or investigated. Staff asked to review and sign such records should obtain a copy, and request an opportunity to review them in detail (ideally, with a legal advisor) and should only sign the document if they are satisfied the contents are accurate.
- Also see 4(a)(ii) above regarding written statement provided to
After conclusion of the on-site investigation
Preparation: The response team or any persons authorised by the company to deal with the investigation should keep the investigation confidential and at the same time continue to take certain steps to preserve evidence until and unless the investigation is formally concluded.
1. MAINTAIN SECRECY
- Due to the statutory secrecy obligation imposed by the SFO, business representatives who come into possession of any knowledge of or arising from the investigation should not disclose to or discuss such knowledge with anyone, other than the Compliance Officer or persons appointed by the company to deal with the investigation (such as in-house lawyer or external lawyers).
- If any individual receives a written notice from the SFC in respect of any interview, the individual may inform his employer and spouse of the existence of the interview, but not any other information concerning the same.
- Breach of this secrecy obligation is a criminal offence. If the company or any of its employees have any uncertainties regarding this obligation, external legal advice should be obtained without delay.
2. PRESERVATION OF DOCUMENTS OR PLACES OF EVIDENCE
- If the investigation officials seal any rooms or filing cabinets, all staff in the business premises should be advised that they may not break the seals under any circumstances.
- Any documents or materials which may be relevant to the investigation, but for whatever reason are not seized by the SFC investigation officials, should be preserved. However, such preserved materials should not be volunteered to the SFC unless and until the company is requested by the SFC to produce them by way of a formal written notice or a court warrant.
3. WHERE THE BUSINESS HAS NOT MANAGED TO COMPILE ITS OWN LIST, REQUEST FROM THE SFC A LIST OF DOCUMENTS COPIED/SEIZED
- If the same has not been compiled by the SFC investigation officers on the spot, staff at an appropriate level of seniority should contact the SFC and request they provide a list of all the documents that have been copied and/or seized.
4. LEGAL EXPERTS CAN BE CONTACTED FOR FURTHER ASSISTANCE
Mayer Brown JSM's Dispute Resolution team is experienced in assisting clients to deal with financial regulators, and to prepare for and manage on-site investigations by the SFC.
Always Remember Do Not Obstruct Investigation
ON-SITE INVESTIGATIONS - WHAT NOT TO DO:
Be aware that anyone who destroys evidence, or otherwise obstructs or impedes a SFC investigation may be guilty of a criminal offence.
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