Financial Crime World

Hong Kong’s Crackdown on Fraudulent Financial Statements: The Theft Ordinance Holds Directors Accountable

False accounting is a serious offense in Hong Kong’s financial world, and the Theft Ordinance (Cap 210) serves as a deterrent against such practices. Section 19 of this ordinance outlines the penalties for falsifying accounts or records for financial gain or to cause loss.

Consequences of Falsifying Financial Information

Individuals who dishonestly manipulate accounting records or intentionally present misleading, false, or deceptive information during financial reporting could face harsh penalties:

  • A 10-year prison sentence upon conviction (Amended 23 of 1993 s. 7).

This offense covers statements, records, or documents required for any accounting purpose and extends to omissions of material particulars.

Role of Directors in Presenting Accurate Financial Statements

During annual general meetings (AGMs), it’s the responsibility of directors to present true and fair financial statements. Failure to comply with the Companies Ordinance (Cap 622) can result in fines or imprisonment (section 379).

Discrepancies Between Financial Statements and Accounting Records

Misalignments between financial statements and accounting records can lead to various consequences depending on the situation:

  1. Errors resulting in discrepancies: If financial statements intended for AGM use differ due to errors and are not intentionally misleading, the directors can face a fine of HK$300,000 (Section 21, Theft Ordinance, Amended 13 of 1974 s. 9; Cap 622).

  2. Knowingly presenting discrepancies: If the directors are aware of these discrepancies yet still present them to the AGM, the situation becomes fraud and could result in the same fine and a 12-month prison term upon conviction.

  3. Intentional deception: If financial statements are prepared with the intent to deceive the users, those responsible could be charged under Section 21 of the Theft Ordinance, potentially facing a maximum penalty of 10 years of imprisonment upon conviction.

Sources and Further Reading