January 28, 2021

Hong Kong Moves to Limit Information on Executives

HONG KONG — After a year in which short-sellers continued attacks on companies from China and journalists conducted in-depth investigations into the secret wealth of Chinese leaders’ families, Hong Kong is moving forward with legislation to restrict access to information about corporate directors.

Little-noticed provisions in a package of proposed laws making their way through the local legislature would prevent the general public — including journalists and investors — from gaining access to the residential addresses and ID or passport numbers of directors of private companies in Hong Kong.

Those details, which can be key to sifting through often-byzantine layers of shell companies and nominee shareholders to identify the true owners of certain assets, are currently housed in an online searchable database that is open to the public for a nominal fee.

The restrictions are expected to be voted on by the legislature in the coming months and could still be amended. They would block access to directors’ details at the more than one million private companies that are registered in Hong Kong, with exceptions granted for law enforcement, securities or industry regulators and liquidators.

The measures are raising the hackles of investors and journalists in the Asian financial hub.

“If these changes go through, it would be a sad day for Hong Kong, which has generally been a beacon of transparency in a region where opacity is rife,” said Ben Rowse, head of the Asia practice at Nardello Co., which conducts due diligence and consults on compliance issues for the investment community.

As part of a broader corporate paper trail, such information was used in 2012 by The New York Times in reports on the wealth of the family of Prime Minister Wen Jiabao of China, and by Bloomberg News in a report on the wealth of the country’s presumptive next president, Xi Jinping.

“Company searches have always been an important tool for investigative journalism,” Journalism Educators for Press Freedom, an advocacy group based in Hong Kong, said in a news release Tuesday. “This information allows journalists to grasp concrete evidence in exposing conflicts of interest among senior officials and elected representatives and to reveal the shady practices of dishonest companies. To cut off this channel of discovery is to seriously stifle an important source of information.”

A former British colony, Hong Kong maintains records on public and private companies, land transactions and other corporate filings that are detailed — and accessible — to a standard not seen in many other countries in Asia. This is particularly true in mainland China, which has been restricting access to domestic corporate filings since a series of attacks by short-sellers on the shares of Chinese companies listed in North America.

The Hong Kong government has said the purpose of the new measures is to protect the privacy of company directors better. So far, legislators examining the proposals have tended to agree and have not proposed separate amendments.

“At issue is the dichotomy between the protection of privacy and the right to know,” said Ronny Tong, a legislator who supports more democracy.

There are some exceptions, he said, but the privacy rights of directors should not be any different from the average person’s — and “exceptions do not include media trying to fish out a story.”

For the financial industry, the issue is more nuanced. Banks conducting due diligence would still be able to receive the information on the directors of corporate borrowers by asking clients directly, and could simply decline to do business with them if they refused, said Kyran McCarthy, a partner and head of the Asia anti-money-laundering practice at the consulting firm KPMG. Existing shareholders of private companies would also retain access to directors’ details.

But for others, like would-be investors, the issue of access to identifying information would be more problematic. “It’s extremely important, particularly when you are trying to work out the existence of any related party transactions or conflicts of interest that may have not been disclosed to a potential investor or business partner,” said Mr. Rowse of Nardello.

David Webb, a longtime shareholder activist in Hong Kong who has gone to battle with several influential tycoons, sees a positive side to protecting residential addresses. “In some cases, it’s a personal security issue,” he said.

But he has no objection to the public availability of ID or passport numbers, he said — “which John Smith, or Mr. Chan, do you mean?”

Blocking access to those, Mr. Webb said, would be a bad move: “Hong Kong is just going the wrong way in terms of transparency.”

Article source: http://www.nytimes.com/2013/01/10/business/global/hong-kong-moves-to-limit-information-on-executives.html?partner=rss&emc=rss

Speak Your Mind