Oh Hong Kong, Hong Kong. The city that I love, and where I have lived for these last 20 years, has leaders that daily do their best to do it in.
The latest extremely curious decision by the Hong Kong puppet government is a change to the Companies Ordinance that will make it easier for company directors to obscure their identity. This increases the risk of fraud, and makes companies less accountable.
It is a step backward in terms of corporate governance, at a time "ESG" is all the rage. Most of the time, we concentrate on the green "Environment" part of that acronym, but yes, the second and third letters require good Social and Corporate Governance. We wish Hong Kong had both.
I'll let the Asian Corporate Governance Association explain.
"Directors will be able to obscure their identities in Hong Kong's corporate database under new rules proposed by the government," the association says in a brief explainer on its Web site. "Crucial unique identifiers, such as I.D. card numbers and home addresses, will be withheld from public view, undermining company research, due diligence and investigative journalism."
The Hong Kong government is hell bent on "protecting," by which it means hiding, the identity of its members, members of the police force, and apparently corporate bigwigs. It is probably no coincidence that senior members of the Chinese Communist Party are often frighteningly rich, and keen to scurry away their money and business interests in Hong Kong. Then you have the age-old buddy relationships between Hong Kong tycoons and the government, though that relationship is starting to fray.
In the proposed rules, Hong Kong companies would no longer have to provide the home addresses, passport or I.D. card numbers of their directors in public registers. This, according to Chief Executive Carrie Lam, is to ward off massive privacy concerns and a wave of "doxxing," the release of personal information on the Internet.
There has been no record of the doxxing of company directors, however. Even the pro-democracy protestors who might "out" members of the secret police aren't too worried about whether Mr. Smith and Mrs. Chan are sitting on the board of Hong Kong Company X. In fact, journalists and government critics still frequently find themselves subject to doxxing.
What this change will allow you to do is to use an abbreviated version as your name, or a Chinese name, or a Thai version of your name. So I can use my Chinese name, which means "Wheat Dragonfly," or call myself any variation of "Alexander Frew McMillan," my full legal name, that I choose. On one board, I can be A.F. McMillan, and perhaps Sandy McMillan (using my Grandfather's nickname for Alex) on another. Maybe I'll get a legal Thai name for good measure.
Cross-checking who sits on which board would be virtually impossible. This would allow cross-holdings to hide in plain sight, in which Mr. Alexander Chan owns 49% of Mr. James Smith's company, and Mr. Jimmy Smith owns the rest of Mr. Sandy Chan's company. Maybe they're good buddies, or part of a covert co-investment ring, or all cousins of the leader of the Chinese Communist Party.
Hong Kong Chief Executive Carrie Lam, whose every utterance is politically driven, loves to tell people not to "politicize" issues. By this, she means, "It is political, but don't argue with me about it."
The driver behind this obscure quest is a great piece of investigative research carried on state broadcaster RTHK, and conducted by the journalist Choy Yuk-ling, who goes by Bao Choy. She used a search of the license-plate registry to trace vehicles caught on video that carried suspected assailants who then beat people up on the subway in Yuen Long.
A gang of more than 100 men in white T-shirts, some thought to be Chinese triad gangsters, in July 2019 attacked subway goers, with people returning from protests mixed with normal commuters. Members of the mob were caught on camera carrying rods and having a friendly chat with police, who were suspiciously slow to respond. The license plates traced to community leaders in Hong Kong's villages, some of which have strong triad ties.
This would be great journalism in the free world, accessing public records in the public interest, as Choy pointed out outside court after she was arrested. Now it's the cause for a change in the rules for the company register. Choy is on trial for her work.
The prosecution alleges that accessing those records for the purpose of a news investigation amounts to making a false statement, since news is not specified as a valid reason for pulling the records up. Oh, and an investigation of the Yuen Long attack, which I watched live streamed and which clearly showed the white T-shirt gang beating people up, has been summed up by authorities as a gang fight. Like there were "very fine people on both sides." Judge for yourself.
Investors, bank due diligence teams, lawyers and, yes, journalists will now all be prevented from using company records to identify directors. I'd say it's a bad call prompted by a wish to protect politically sensitive people. It is bad for Hong Kong corporate governance and accountability.
Let's not forget: No one was "doxxed" in the Yuen Long reporting. It led to a news report that the administration didn't like. There's been no evidence to suggest that identifying information about corporate directors has ever been abused. A former Companies Registrar in Hong Kong, Gordon Jones, said he had received no complaints at all about invasion of privacy during 15 years at the helm.
These rule changes were first proposed way back in 2013, and shelved when there was strong opposition. The Asian Corporate Governance Association notes that small- and mid-size businesses were firmly against a change because it would make it harder for them to keep an accurate eye on the identity of their trading partners.
The 2013 and 2014 possible changes have been dredged up again. Journalist groups such as the Foreign Correspondents' Club of Hong Kong have opposed this current change, with the companies registry "an important tool long used by journalists to improve accountability, expose wrongdoing, and bring to light important matters of public concern."
But financial, legal and compliance professionals will suffer, too. Investors will not be able to do their own legwork, and the experts that they consult will be equally hamstrung.
Now, "the government is citing privacy concerns without evidence of systemic abuse," the Asian Corporate Governance Association explains. Meanwhile, of course, numerous other jurisdictions are moving in the opposite direction to improve disclosure. The details of directors and their identifiers are free of charge in jurisdictions such as the United Kingdom. Details of beneficial ownership are also public knowledge in other jurisdictions, while in Hong Kong only regulators and law enforcement have access to that.
"There will always be individuals and corporates who prefer their affairs to be secret," the corporate governance association says so very well. "But there is a quid pro quo for company directors who enjoy the legal protections afforded by limited liability - and that is transparency. Shrouding their details from public scrutiny is a huge step backwards and compromises a disclosure-based regime which relies on openness and the free flow of information."
