Fallout Grows from HK Attempt to Hide Corporate Info
More than six months ago - on July 12 - virtually without debate, Hong Kong's Legislative Council passed the first major revision of the Companies Ordinance in nearly 20 years. Today the ordinance, published in the Government Gazette in August, has become a lightning rod for public concern that has broadened into apprehension over possible government submission to China's will.
Undergoing comment before final implementation by the Securities and Futures Commission, the revisions to the ordinance are regarded as another ominous sign that Hong Kong is increasingly beholden to Beijing, and that the new provisions are there to protect billionaire Chinese who are hiding their money in the territory, as well as to cover the machinations of some of Hong Kong's biggest oligarchs.
The unease over the mainland's growing sway has sparked considerable public outrage over a wide range of issues beyond concealing company records and contributing to the low public approval ratings of CY Leung, who took office last July as the territory's chief executive.
David Webb, the longtime corporate information activist, articulated those concerns in a conversation with Reuters, saying that "the government is getting more heavy-handed, intervening in various aspects of business and in the process they are very bad for business, they are undermining the city's reputation as a free market. Also what built Hong Kong is that we are a free market on China's doorstep. And unfortunately we are heading for convergence."
Nobody at the time of passage, including the entire legislative council opposition or the city's 21 local newspapers and three international ones, seems to have noticed.
Subsequent disclosure of some of the provisions has embarrassed both the press and the Legco. Also passing unnoticed was a proposal by the Secretary for Justice Rimsky Yuen in a Jan. 14 speech at the Ceremonial Opening of the Legal Year 2013 that the Law Reform Commission "has in its meeting last month decided to establish two sub-committees to consider the topics of archives law and access to information."
"The government only revealed the idea of the change in a press conference in the midst of other company information and the reporters covering the situation missed it," said Mak Yin Ting, the head of the Hong Kong Journalists Association. "The government has the obligation to inform the public what they are doing, not just hide it in the midst of a bundle of issues."
Nonetheless, the articles also passed without the notice of any of the legislative opposition, many of whom are lawyers and who served on the relevant committees. They neither objected nor raised the alarm. The Civic Party membership in Legco at the time was mostly composed of lawyers, including then party head Audrey Eu, current party head Alan Leong, and then-legal sector representative legislator Margaret Ng. The Democratic party, which is also well represented by lawyers, was no better.
Gone unnoticed apparently was the opposition to the new law from the Bankers Association and the Bar Council, representing the very barristers represented so strongly in the Civic and Democratic parties. The normally conservative bankers are concerned that they will be even more exposed to accusations of being parties to money laundering. Indeed, only this week a young mainlander was sentenced to 10 years in prison in Hong Kong for his role in laundering an astonishing HK$13 billion through the Chiyu Bank, a unit of the Bank of China group. The man was evidently just being used by an “Uncle” – identity not revealed – on the mainland.
Thus this critical issue of freedom of information clearly shows how poorly the pro-democracy parties perform on the specifics that really matter, critics say. They will always be in a minority until they learn that their role, if they are serve the community and deserve re-election, especially in opposition, must be attention to specifics.
The specifics in this case are troublesome to say the least. While their inclusion may have been designed to keep pesky journalists at bay, as Asia Sentinel reported yesterday they go far beyond the public perception, which the media missed even after they were made public. A legal source who says they will result in withholding from the public parts of the identification numbers and details of the residential addresses of company directors found in the Hong Kong company registration records that not only journalists but bankers, investment bankers, lawyers and other parties need in the crucial conduct of due diligence in company transactions.
It encompasses commercial banks that conduct similar checks on individuals and entities as part of their due diligence and know-your-client processes. The same applies to private banks and wealth management operations. The impact on investment banks is even more acute. Insolvency and restructuring officials need the information as well. Among others affected would be hedge fund managers who count on the assurance of the free flow of information to execute swift transactions with confidence. Accountants and auditors also need to check for related-party transactions, insurance companies need to verify the identities of the insured and claimants and credit companies need to verify the identities of the borrowers. Property transactions can also be affected without proper verification.
When governments hide things, we find them out. Click here to subscribe
Only 60 comments were submitted to the government on the regulation changes. Most of them, the Journalist Association's Mak said, were from listed companies supporting the changes and giving the government the opportunity to say the regulations had broad public support. Hutchison Whampoa, the conglomerate controlled by tycoon Lee Ka-shing, submitted five positive responses through five subsidiary companies, she added.
"Company searches are an important tool and source of information for journalists and the public. We regret that the FCC was not invited to provide feedback on this change during a public consultation at the end of last year," said a statement by the Hong Kong Foreign Correspondents Club. "Hong Kong has a free and open media and the ability of foreign correspondents and journalists to legally access information about individuals and their companies is vital to our role of reporting on issues of public interest. We believe any measures that reduce the transparency of company registrations in Hong Kong will be detrimental to the city's business and media environment."