Trial of the Century: Two Hong Kong Billionaires Face the Music

The first week of Hong Kong’s long-awaited trial has produced juicy details about the cancerous nexus between government and business in one of Asia’s leading financial centers.

Asked why Sun Hung Kai Properties paid government official Rafael Hui HK$4.125 million (US$532,000) in consultancy fees in 2005, company co-chairman Raymond Kwok said a refusal would have made the firm look “downright mean” – despite the fact that Hui had already resigned as consultant as rumors swirled he would be the next Chief Secretary.

Hui resigned from Sun Hung Kai on May 1, 2005, terminating his contract 11 months early. Two months later, on June 30, he was indeed sworn in as Chief Secretary for Administration, becoming the second most powerful official in the Hong Kong government.

The case is about “standards of integrity in public life, concealment of information, secret and disguised payments made to a very senior official involving an abuse of office”

Five hours before taking the oath of office, Prosecutor David Perry told the jury last week, the soon-to-be top mandarin received another HK$4.7 million from Sun Hung Kai. In all, said Perry, the property conglomerate paid Hui HK$34.2 million – about US$4.4 million – in cash and other inducements to act as the company’s “ears and eyes” in government.

The charge is easy to understand, Perry said on the first day of the proceedings on June 4. It is about “standards of integrity in public life, concealment of information, secret and disguised payments made to a very senior official involving an abuse of office.”

Hui, Raymond Kwok and his brother, co-chairman Thomas Kwok, and two other accused deny all the charges against them. But they face years in prison if found guilty in what some in the press has dubbed as Hong Kong’s “trial of the century.”

Blue chip

The amount involved actually looks paltry compared with other corruption cases in Asia. Still, the trial is garnering shocked attention because the alleged acts strike at the heart of fairness and good governance in business and government – and involves some of the city’s most powerful players.

The Kwok brothers and their family are ranked as Hong Kong’s fifth wealthiest, with a net worth of US$13.9 billion, according to Forbes’s Richest People on the Planet 2014 list. For his part, Hui has had a long career in government and was a close friend of Donald Tsang, who was chief executive from 2005 to 2012.

Sun Hung Kai Properties itself is among the bluest of the blue chips in Hong Kong. Known for its high-end residential and office projects, the 41-year-old conglomerate’s revenues topped HK$68.4 billion (US$8.8 billion) in the year to June 2012, the year the Kwok brothers were detained and questioned.

Sales have since fallen 21% to HK$53.8 billion (US$6.9 billion) in the year to June 2013, although the company eked out a 2.3% increase in the six months to December 2013. The share price has remained steady as the trial proceeds, but is about 10% lower than before the Kwok brothers were indicted in 2012.

Conspiracy to corrupt

Fresh details have emerged in the trial’s first week, putting meat on the terse statement that the Independent Commission Against Corruption (ICAC) released in 2012. The anti-graft body had said that the Kwoks, Hui, Sun Hung Kai Executive Director Thomas Chan and businessman Francis Kwan conspired to commit misconduct in public office and to offer an advantage, as well as furnished false information.

At the Hong Kong High Court, Perry, a high-profile English barrister who prosecuted the Egyptian cleric Abu Hamza al-Masri and advised Britain’s Crown Prosecution Service on the Cash-for-Honors scandal, methodically laid out the ICAC’s case against the defendants.

Hui had joined the civil service in 1970, becoming an administrative officer and at one point getting seconded to the ICAC itself. He was appointed Secretary for Financial Services in 1995. In 2000, he left the civil service to become Managing Director of the Mandatory Provident Fund Schemes Authority (MPFA).

At the end of 2002, Hui resigned from the MPFA, with the leaving date in August 2003, to start a consultancy business. From early 2003, Perry told the jury of six women and three men, the Kwok brothers started negotiating with Hui about working with Sun Hung Kai as a consultant.

Hui and the Kwoks have known each other for more than 20 years, said Perry. He quoted Raymond Kwok as saying that Hui was a close and good friend of the Kwok family. A consultancy agreement was duly signed with Sun Hung Kai Real Estate Agency in 2004, worth HK$4.5 million a year and came with rent-free accommodation at two Sun Hung Kai-controlled luxury flats.

“He was not entitled. He was no longer consultant and he can’t be a consultant because he would be chief secretary”

But Hui prematurely terminated the agreement in 2005 because, as he told the ICAC, he was “gearing himself” to become Chief Secretary, said Perry. However, he still demanded payment of HK$4.125 million, which represented the amount for the 11 months left on the consultancy agreement.

It would have been “embarrassing” not to pay, said Raymond Kwok in his statement to the ICAC. On the invoice, the co-chairman scribbled a note: “OK in view of Mr Hui’s excellent performance during his consultancy work with us for the past 13 months.”

Cash transfers

“He was not entitled,” Perry said at the High Court. “He was no longer consultant and he can’t be a consultant because he would be chief secretary.” That was apparently not the only payment Hui got from the Kwoks. By June 30, said Perry, Hui had received three sets of payments totaling HK$17.625 million (US$2.3 million), including HK$4.7 million that was delivered hours before Hui’s swearing-in.

About HK$8.5 million of the total amount got to Hui through an elaborate layer of transfers in the form of cash, checks and cashier orders, said Perry. This was facilitated by Thomas Chan, the executive director who has been working at Sun Hung Kai for more than four decades.

The prosecution said that Chan was awarded bonuses by Sun Hung Kai, part of which then found its way to Hui through businessman Francis Kwan, a former Hong Kong stock exchange executive Perry described as the “middleman” in the cash transfers and Hui’s “lifelong and childhood friend.”

Kwan allegedly transferred the money from companies owned by Chan to Hui. Perry charged that Kwan performed the same service in 2007, when Hui had retired as chief secretary and sat on the Executive Council, which advises Hong Kong’s chief executive in policy-making and administration – HK$11.182 million, in this case.

Kwan was “rewarded handsomely,” said Perry: HK$2 million in 2005 and another HK$1 million in 2007. “It is not bad for simply passing some money to an old friend,” the prosecutor observed. As for the Kwoks, he added, the ruse allowed them to “melt into the background.”

Including two unsecured loans from a Sun Hung Kai subsidiary and rent-free accommodation in the two luxury flats that Hui continued to occupy even after stepping down as consultant in 2005, the value of the cash and other emoluments Hui received from the Kwok brothers came to more than HK$34 million.   

Expensive tastes

The trial proceedings, so far, make for uncomfortable reading. A major financial and business center like Hong Kong is expected to have better governance than a frontier market, where the alleged unsavory practices are regarded, fairly or not, as commonplace.

On the other hand, the fact that the supposed conspiracy between the tycoons and an allegedly corrupt official has been unearthed, and, more importantly, is being prosecuted indicates that underhanded business ways will not be totally tolerated in Hong Kong.

The cynics will say that there could be other instances of collusion that have not been discovered. There is a sense in laissez-faire Hong Kong that family empires have been built in part on connections with government officials.

Are Hui and the Kwoks emblematic of an entrenched way of doing business in Hong Kong, a kind of cronyism that fundamentally makes the playing field uneven and unfair?

If the prosecution is to be believed, that certainly appears to be the case with the Kwoks and family friend Hui. Perry said that Sun Hung Kai was particularly interested in two projects that involved government approval – the multi-billion dollar cultural hub in West Kowloon and a property project on Ma Wan Island.

Still, it would be unfair to paint the entire government bureaucracy with a broad black brush. Like other senior civil servants, Hui enjoyed fairly comfortable compensation – he was paid an annual salary of HK$4.6 million (US$593,400) as chief secretary and HK$1.3 million (US$167,000) as unofficial member of the Executive Council.

While other people might be satisfied with that salary, Hui was “a man with expensive and refined tastes,” said Perry, who noted that Hui had 25 credit cards and 14 bank accounts. The senior bureaucrat once spent HK$42,000 on a Bulgari watch and HK$33,000 for dinner at Nicholini’s, Conrad Hong Kong’s signature restaurant.

And he had a passion for horse-racing, said the prosecutor. “He spent vast sums on carrots and bran,” and presumably bet massive amounts on the horse. Between July 2007 and June 2008, Hui is said to have made cash withdrawals of HK$6.98 million and toted up HK$3.4 million in credit card spending.

Entrenched cronyism?

Is this a case of one man’s greed making him vulnerable to the blandishments of individuals who want to become even richer? Or are Hui and the Kwoks emblematic of an entrenched way of doing business in Hong Kong, a kind of cronyism that fundamentally makes the playing field uneven and unfair?

There is no lack of cynicism in Hong Kong about the outcome. Wrote one trenchant blogger about the 66-year-old Hui: “There will be appeal after appeal, he’ll then be around 70, he’ll have some ‘medical condition’ that will require him ‘going overseas’ where he’ll go and live out his life.”

The same is being said about the Kwoks, too.

Remarkably, analysts and the market appear sanguine about Sun Hung Kai, however. Credit rating firm Moody’s has affirmed the company's A1 credit rating. Sun Hung Kai’s “cash holdings, totaling HK$18 billion at end-2103, and committed undrawn facilities, are sufficient to cover its debt payments and capital investments in the next 12 months,” Moody’s analysts wrote in March.

Moody’s also notes that the company has “established committees to supervise and to execute its business plans,” which it believes makes Sun Hung Kai “resilient to negative news from the ongoing legal case.”

At the same time, “the company’s improved corporate governance and management oversight will ensure its operations remain stable, while maintaining strong financial discipline,” said the analyst.

Who knew? Credit must be shared with the professional managers at Sun Hung Kai, including CFO Patrick Chan, who joined the company in 2009 after a well-regarded stint at Hang Seng Bank (just named the world’s strongest bank in the latest Bloomberg survey).

Still, time will tell whether one of Hong Kong’s blue chips will remain stable as the trial of its co-chairmen grinds on.

About the Author

Cesar Bacani is Editor-in-Chief of CFO Innovation.

Photo credit: Shutterstock

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