Hong Kong Tries to Hide the Books

The Hong Kong government is proposing to take a giant step backward in the fight against corruption. Changes in the Companies Ordinance would reduce corporate transparency down to the sort of level usually associated with offshore island havens of crooks and tax evaders.

The proposed changes are given the cover of the need to protect privacy. The government document reads: "A feature of the new CO (Companies Ordinance) is to enhance protection of the privacy of personal information in documents for registration ... a regime that strikes a balance between protecting and the need for public access to certain personal information".

This so-called personal information is not what would normally be regarded as private but simple basic data such as residential addresses and identity numbers. The privacy claim appears a thinly disguised attempt to keep the lid on information. The administration has clearly been embarrassed by revelations about its own bureaucrats being involved in questionable property transactions to the point that it now wants to make it more difficult for the public to have access to information about the identity of directors of companies.

But greater pressure may have been coming from China because of the success of journalists following paper trails which identify the riches of the families of senior Communist Party leaders who have become billionaires through the activities of state-owned, party-controlled companies such as by acquiring shares at knockdown prices before Initial Public Offerings.

The Hurun Report, which annually ranks the wealth of China's wealthy, reported that 70 party officials collectively possessed net worth of US$89.8 billion in 2011, a gain of US$11.5 billion over 2010. That doesn't count the scores of other individuals whose net worth climbed as spectacularly because of their close proximity to power.

The greed of party officials acting for their families is not themselves but who publicly make anti-corruption vows has been exposed by foreign media such as the New York Times and Bloomberg through access to corporate documents in relatively open jurisdictions which hitherto have included Hong Kong.

In future, those wanting access to "withheld information" about directors and other individuals mentioned in the registration documents would have to apply to the Registrar of Companies and provide reasons for his request. The Registrar alone would decide on such applications.

To make matters worse, even existing records could now be hidden from sight. Anyone wanting to have such information withheld could apply to the Registrar.

Thus if this legislation is enacted, expect a rush of applications not only from those hiding ill-gotten wealth but the owners and directors of private companies which own or control listed companies. The scope for cover-up will be vastly extended with only the government itself having access to real identities and unlikely to care what is covered up so long as it does not directly impact the government itself.

Many see this proposal as evidence of the gradual erosion of the rule of law as the needs of the party and its operatives take precedence over public interests which clearly include information about company directors. It will also make tax avoidance easier and be especially welcomed by those Chinese citizens with US passports nervous of the long arm of the US tax authorities.

The proposal is also a step back at a time when the Hong Kong government has been urged by one of its own agencies to take better care of its records and documents and provide the public access supposedly promised. The government has, presumably to protect its own doings from subsequent exposure, not only refused to consider an Archives Law which would ensure the proper retention of and access to documents but has been regularly dumping large quantities of its own records.

While the new administration of CY Leung publicly proclaims its commitment to transparency and ethical conduct, its actual policies appear headed in the opposite direction. This is grist to the mill of those who always believed that Leung was always a party operative who would always put its interests and diktats ahead of Hong Kong's needs and expectations.