Five directors of a coronavirus mask manufacturing firm in Hong Kong have been arrested for allegedly duping the government out of HK$9.12 million (US$1.18 million) provided through a subsidy scheme by inflating the production costs of the protective gear.
Police said on Friday night three women and two men, aged between 28 and 51, were detained on suspicion of conspiracy to defraud the government.
Chief Inspector Tang Hoi-tung of the financial investigation arm of the Narcotics Bureau identified the suspects as directors of a mask production firm that was approved under the scheme to provide 2 million masks a month to the government at production cost.
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Under the contract, the firm also needed to produce another 1 million masks every month for the local market.
Hong Kong’s government launched the local mask production subsidy scheme in March to combat an increasingly acute shortage of masks in the city as the coronavirus outbreak spread worldwide.
Since then, the firm has delivered 10 million masks to the government. It was paid HK$9.12 million for 4 million pieces – at an average cost of HK$2.28 each.
“Based on our investigations we believe that this group of people have used forged receipts to inflate the prices of the raw materials, resulting in the government paying more than the masks’ actual production cost,” Tang said. Further investigation was needed to determine the actual difference in price.
Under the HK$1.5 billion subsidy scheme, manufacturers setting up a production line capable of delivering at least 500,000 masks a month are given up to HK$3 million.
A further HK$2 million in subsidies is made available for each subsequent production line established at the same plant. Currently, 20 production lines are covered under the scheme.
Tang said police began investigating the case after receiving intelligence of suspicious transactions involving the firm’s bank account.
“The firm has played four roles in this fraud – as the supplier of the mask equipment, the supplier of raw materials, the mask production firm and the distributor of masks – to forge receipts to inflate the mask production cost,” she said.
Tang said the firm also used bogus delivery documents to create a false impression that it had fulfilled the contract requirement of selling 1 million masks per month on the local market.
But the firm did not have any record of purchase of raw materials, while the goods delivery receipts were dated before the company was set up, and the addresses used were incomplete, she said.
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