Hong Kong Takes a Second Look at Changes to Corporate Database

HONG KONG — The second-highest official in Hong Kong said Wednesday that the government was reviewing a proposed rule change that had triggered a groundswell of worry among global banks, accounting firms, investors and media companies who fear the loss of a powerful tool against corruption in China.

Carrie Lam, Hong Kong’s chief secretary and second-ranking official, said that the city’s financial services regulators had begun holding discussions with its privacy commissioner about the proposed rule change. The change, contained in a bill that the administration began pushing through the legislature last month, calls for deleting the identity numbers and addresses of company directors from Hong Kong’s corporate registry starting next year.

“We will continue to listen to public views,” Mrs. Lam said.

Many financial institutions around the world depend on Hong Kong’s corporate registry for information about businesses here and in mainland China. They use it to check whether company directors have ever been associated with fraud or corruption at other businesses, in Hong Kong or in mainland China.

Banks consult the registry, which is available online and at a Hong Kong government office, before agreeing to help a company do an initial public offering on stock exchanges in Hong Kong or in mainland China. Hedge funds, private equity firms and other investors check the registry before buying large blocks of stock in companies. Journalists check the registry for investigative reporting.

Including the identity numbers and addresses is what makes it possible to ascertain whether a director in a company is someone with a background of fraud and other corrupt dealings, or simply someone with a similar name. There have been a series of cases in mainland China in which an individual accused of having a shady background has maintained that he or she was being confused with someone else, only to be found out based on the registries.

David Webb, a corporate governance activist in Hong Kong who maintains a database of directors of local companies, welcomed the government’s willingness to review the draft rule.

“It’s encouraging if they’re starting to think about it,” Mr. Webb said. “It is important to be able to identify people uniquely.”

He noted that his database has 19 people named Chan Chikeung and 12 people named Chan Waikeung, who need to be distinguished by identity numbers.

Mainland China also has corporate registries. But the Chinese government closed them to investors and other users, starting in Beijing more than a year ago and later in other Chinese cities as well, after short-sellers from the United States used research in those registries to document widespread fraud and other abuses at Chinese companies listed on U.S. stock exchanges.

Lack of access to mainland registries has made the registry in Hong Kong, which Britain returned to Chinese rule in 1997 but which retains a separate legal system, much more important in recent months.

Mrs. Lam said that the Hong Kong administration and legislature had held discussions dating at least to 2009 before adopting a new ordinance on companies last summer. The ordinance had broadly worded provisions encouraging privacy in corporate records, and there was little discussion about what that privacy might mean for financial markets.

The controversy began this winter when the government sent an implementing bill to the legislature with detailed changes to laws, including the deletion of data from the registry.

China’s incoming leader, Xi Jinping, has called for a crackdown on corruption but has been silent about the role of Hong Kong. The city is popular among mainland officials and their families as a safe place to park large sums of money beyond the reach of the Chinese police and tax collectors, and the city now has some of the world’s highest real estate prices partly as a result, creating an affordable-housing problem.

Article source: http://www.nytimes.com/2013/01/17/business/global/hong-kong-takes-a-second-look-at-changes-to-corporate-database.html?partner=rss&emc=rss