Hong Kong’s pretensions to be a well-regulated financial center must be regarded with a certain amount of disbelief if Bank of East Asia Chairman and CEO David Li hangs onto his government appointments, including his cabinet post as a member of the Executive Council, and his many directorships of public companies, including the South China Morning Post, in the wake of the US Securities and Exchange Commission’s decision last week to fine him heavily for insider trading.

Li has been found culpable of tipping off a close friend, Michael Leung Kai-hung, about the impending bid by Rupert Murdoch for Dow Jones, of which Li was a non-executive director. The friend then passed the information to his daughter and son-in-law, who proceeded to buy heavily. Although criminal charges were not pursued, Li has agreed to pay a civil penalty of US$8.1 million and his friend and the son-in-law a total of US$16.3 million in disgorgement of profits and penalty. The news was announced on the eve of the Lunar New Year, presumably to keep local coverage to a minimum.

“If a member of George Bush or Gordon Brown's cabinet entered a settlement in such a case, he would surely resign,” said David Webb, also a member of the Hong Kong Stock Exchange and perhaps the territory’s most prominent gadfly, on his Web site. “If a member of the US Senate or House of Representatives were involved, he would also resign. As a cabinet member, Mr Li is privy to all sorts of confidential and potentially price-sensitive information about Hong Kong affairs, and he also has input in shaping policy. He has a duty of confidentiality which the SEC claims he had trouble keeping in the Dow Jones case. Mr Li should do the honorable thing, and avoid undermining the reputation of Hong Kong's cabinet and legislature. He should resign.”

As a secondary matter, Webb wrote, “the Hong Kong Monetary Authority has a duty to review, in the light of the SEC's allegations, whether Mr Li is a fit and proper person to be Chairman and Chief Executive of a licensed bank… There are also 10 other HK-listed companies in which he sits as an independent non-executive director – he ranks as one of the busiest directors in Hong Kong, as well as serving on overseas boards. They should all reconsider whether Mr Li is an asset to their boards.”

So far, at least from the muted response of authorities, it is unlikely that Hong Kong’s Establishment intends to do anything about the revelations at all.

Li’s own attitude to his responsibilities as a director of a listed company was rather typical of the approach to insider dealing by Hong Kong’s tycoons. But Li is not just another get-rich-quick businessman who thinks rules are made to be exploited. He is the scion of one of Hong Kong’s richest and most distinguished families. He has been the banking sector’s representative on the Legislative Council for 22 years. He is especially close to Donald Tsang. He served as head of Tsang’s campaign in the pseudo-election for chief executive in 2007, has been a member of the Executive Council, the territory’s highest decision-making body, since Tsang was installed in 2005, and was recently awarded the highest locally-bestowed official honor, the Grand Bauhinia Star.

He is on the board of a dozen or so listed companies and various other public and private bodies but it has been his ability to make himself useful to both the British and to Beijing which has been outstanding. He was trusted as a “patriotic businessman” to be on the Basic Law Drafting Committee, which designed the local constitution, but he also accepted a British knighthood. His membership on the Dow Jones board derives from his relationship with Peter Kann who was then based in Hong Kong running the Asian Wall Street Journal and went on to become chairman of Dow Jones.

Li’s brother was, until recently, minister for education in the Tsang government. Another relative is respected chief justice Andrew Li. Yet another half-brother is former stock exchange boss Ronald Li, who was jailed for corruption after the 1987 stock market crash – a scapegoat for years of official tolerance of financial sector malfeasance.

While David Li himself made no money out of the Dow Jones dealing, his responsibility for leaking the information was clear enough, as was Leung’s zeal to trade on it. The facts as stated by the SEC are that he told Leung about the deal while they were together on a flight to Shanghai. Leung immediately told his son-in-law, who began buying shares on his behalf through Merrill Lynch, acquiring 415,000 in the 16 days before the deal was announced.

Li’s leak, which he had previously vigorously denied, was a serious action for someone in such senior banking and official positions. In many other financial milieus it would almost certainly culminate in his being forced from many of the directorships and public positions that he holds. That clearly is not going to happen. In the small circle of Hong Kong’s elite, making money at the expense of small investors, which is what insider trading is about after all, is par for the course.

Li is of course not the only local tycoon to enjoy the prestige of being on the board of a major US company without making any effort to act responsibly in the interests of shareholders. The head of the Hang Lung property group, Ronnie Chan, is another billionaire schmoozer who found his way to the chairmanship of the Asia Society in Hong Kong, then became the Asian face on the board of Enron, the US energy trading company that imploded in 2001. He was even a member of Enron’s audit committee and so had added responsibility for one of the greatest corporate collapses of all time. But in Hong Kong, these conflicts seem no more than minor nuisances. The dogs bark, as they say, and the caravan moves on.