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Following is a question by the Hon Lee Cheuk-yan and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):

Question:

It is reported that there is an upward trend in the number of fraud cases in Hong Kong involving the trading of local London Gold. In this connection, will the Government inform this Council:

(a) of the total number of complaints received over the past two years about fraudulent practices in the trading of local London gold, and the average amount of money involved in each case;

(b) whether any prosecutions have been instituted by the authorities in connection with these complains; if so, of the number of such prosecutions and the average penalty imposed on the convicted persons; if not, why not; and

(c) whether it has plans to introduce legislation to step up the regulation of the trading activities of local London gold, if so, of the specific timetable for introducing such legislation; if not, why not?

Reply:

Madam President,

(a) The requested information is given in the table below:-

1996 1997 1998

---- ---- (up to Sept)

------------

No. of complaints

received by the Police 142 129 161

Average amount

involved per $150,000 $270,000 $150,000

complainant

(b) The Police has conducted investigations into all complaints where there is prima facie evidence of illegal activities. Currently, police investigations into a total of 23 companies are still on-going. Arising from these investigations, the Police has taken prosecution action in two cases: one in 1996 in which one person was convicted under the Protection of the Investors Ordinance (*) (Cap. 335) and was fined $75,000; and another one currently being charged under the same Ordinance. The hearing date of the latter case is being fixed.

(c) The Loco London Gold market was established in Hong Kong in the mid 1970s and has since been operating effectively. Currently, it is the largest London gold trading centre for Asia and the rough market estimates as at end 1997 suggested a turnover of about US$190 million per day, or about seven times of the daily turnover of the Chinese Gold and Silver Exchange Society.

As in the case of other major London gold trading centres such as New York and London, the Loco London Gold market in Hong Kong is essentially unregulated. It is a highly sophisticated market where trades are conducted almost exclusively among a group of seasoned and specialised traders and essentially at the wholesale level. Currently, the local market has about 70 active players with no restriction on access to new entrants.

Complaints against trading of Loco London gold are primarily concerned about fraudulent and deceptive activities mostly in the form of employment traps in the disguise of Loco London gold rather than the trading system of the genuine market itself. These malpractices are already covered by the Theft Ordinance (Cap. 210) enforceable by the Police and may lead to criminal punishments upon conviction. Where the "fraudsters" make fraudulent or reckless misrepresentation to induce other persons to trade in Loco London gold, they might also be caught by the Protection of Investors Ordinance.

Given the nature of the genuine Loco London Gold market and the fact that the complaints are essentially suspected cases of frauds with no relation to genuine London Gold trading, the Administration's view remains that the best solution to the problem lies in public education, instead of regulation over the genuine market itself. In this context, considerable efforts have been made to increase public awareness of fraud cases in relation to Loco London gold trading. These include issuing press release and booklets, and organising seminars on a regular basis to alert job seekers of the various forms of employment traps, including those in Loco London gold and other financial investment. Television programmes such as "Police Call" and general investor education programmes produced by the Securities and Futures Commission also remind the public of frauds and investment traps under the disguise of Loco London gold trading.

The Financial Services Bureau has also produced a pamphlet specifically listing out the commonly seen fraudulent activities in relation to Loco London gold trading. The pamphlets have been distributed to the public through District Offices, public housing estates, secondary schools and post-secondary institutions. Teachers have in particular been encouraged to discuss with their students about possible employment traps when seeking summer or part-time jobs. The pamphlet also lists out the contact numbers of designated officers at the Financial Services Bureau, Labour Department and the Police in case of question or complaint concerning Loco London gold trading.

It is worth underlining that fraudsters may set up employment traps in many different forms and under varying disguises. Loco London Gold is one of the many vehicles that the fraudsters find convenient to exploit. There could well be many other forms of commercial activities that might be used as a substitute should regulation be imposed on the Loco London Gold market. We therefore believe the correct response lies on increased awareness of the public through education to protect themselves against deceptive and fraudulent activities than subjecting an otherwise long-established, effective and efficient market under unnecessary regulation.

* Charged with one count of "recklessly to induce persons to invest money" under section 3(1)(b) of the Protection of the Investors Ordinance.

End/Wednesday, November 11, 1998

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