Gang of 4 Big HK Accountants Wrong on July 1
Where is the protection for outside investors and the public?
In May, the United States charged five Chinese army officers with hacking into US businesses to steal secrets and sharing the information with Chinese companies.
Almost immediately, the Chinese warned that they would retaliate, making veiled references that they might accuse a wide range of multinationals including accounting firms of spying for the US and toss them out of the country.
Thus the law of unintended consequences. While the Big Four Auditors supposedly exist to protect outside investors, creditors and business partners from fraud by providing independent judgment on corporate trading and financial positions, they immediately started to protect their own interests.
An example of this is the joint issuance last week by the Big Four – Deloitte Touche Tomatsu, PriceWaterhouseCoopers, KPMG and Ernst & Young – of a scaremongering joint statement on the subject of the Occupy Central movement that appeared designed to curry favor with the government across the border.
It may seem puzzling why to the Big Four found it necessary to criticize a plan by democracy advocates to focus attention on the issue of universal suffrage, which has repeatedly been promised to Hong Kong’s voters but which keeps receding into the distance. But it could be possible that the firms decided they had better protect their interests with a patriotic blast that would play well in Beijing.
The combined accountancy firms said that: “If Occupy Central happens, commercial institutions such as banks, exchanges and the stock market will inevitably be affected. We are worried that multinational corporations and investors will consider relocating their headquarters from Hong Kong or even withdrawing their businesses.”
This is such obvious poppycock that almost no one in Hong Kong believes it. Did Occupy Wall Street bring Wall Street to its knees? In fact the Occupy movement has largely faded away across the globe because its leaders have never figured out an effective strategy other than to sit in parks and complain. It had largely faded in Hong Kong until hysterical governments across the border and in the territory itself revived it by specious threats.
Thus these firms appear far more interested in making their partners and senior employees richer by preserving their presence auditing mainland companies than in providing honest surveillance of accounts and independent analysis of business issues.
Although the four big names appear to the public to provide a common set of standards across borders, the reality is that the names are as much a franchise as anything else and in reality in individual jurisdictions different principles apply according to local circumstances.
In particular they are vulnerable to pressure from political interests or those businesses with especially favorable business connections. The Big Four statement was not motivated either by concern for Hong Kong or the result of independent analysis of the situation. It was a crude attempt to curry favor, particularly with Beijing and Hong Kong’s oligarchs for the benefit of the firms themselves, not their clients. It was thus in direct conflict with the principles that they are supposed to uphold.
Pleasing Beijing with such political actions of course helps get business with large state enterprises. But there may well be another aim as well. China like the US and a number of other countries is worried about loss of tax revenue resulting from the schemes cooked up by the tax departments of these firms to pretend that income arose in a place different from where business actually took place.
This profitable exercise in intellectual dishonesty is a cornerstone of vast incomes the Big Four reap from their multinational clients. That it is technically legal does not make it any less contrary to the public interest which auditors are supposed to represent.
For sure the Big Four want to be sure that Beijing does not come down too hard on the re-invoicing which enable mainland profits to appear to be made in lower-taxed Hong Kong.
So what better way to protect this sleazy business than pretend to be “patriotic” by suggesting pro-democracy activists will damage Hong Kong business, especially with Beijing making threatening noises about throwing them out?
A long-delayed investigation
The second example of self-protective sleaze practiced by this already protected profession is its unwillingness to enforce its own rules when influential persons are involved. The Hong Kong Institute of Certified Public Accountants began investigating the role of Ernst & Young’s former local head Anthony Wu Ting-yuk, in 1999 in an investment company which collapsed.
It took until December 2013 to come to the conclusion that Wu had been guilty of serious professional misconduct. By the time the decision was reached Wu had retired, meanwhile having been chairman of the Bauhinia Foundation, a pro-Beijing, tycoon-funded propaganda body, and government appointed head of the publicly-funded Hospital Authority.
In other words Wu’s political connections and his Big Four association enabled him to be shielded from the prompt disciplinary proceedings his behavior called for. Even now, six months after the verdict, no disciplinary actions have been announced.
Meanwhile, too, the illegally parked cars of the financial community, including Big Four executives, daily occupy central to the great inconvenience of the mass of city workers and tourists. Apparently they have bought immunity from a government increasingly selective in the application of laws.