Hong Kong Graft Charges Pressure City Chief to Crack Down

Sun Hung Kai Properties Ltd. Co Chairmen Raymond and Thomas Kwok
Raymond Kwok, co-chairman of Sun Hung Kai Properties Ltd., second left, and Thomas Kwok, co-chairman of Sun Hung Kai Properties Ltd., right. Photographer: Jerome Favre/Bloomberg

Hong Kong’s anti-graft agency charged two billionaire property developers and the city’s former No. 2 official with bribery-related offenses, the richest and most senior figures to be indicted in the body’s 38-year history.

Thomas and Raymond Kwok, co-chairmen of Sun Hung Kai Properties Ltd., and two other men conspired to give Rafael Hui payments and loans totaling HK$34 million ($4.4 million) for unspecified favors involving Hui’s role as the government’s then chief secretary, a Hong Kong court heard July 13.

The case may fan criticism of collusion between government and business in Hong Kong, ranked the least corrupt territory in Asia after Singapore by Transparency International. That reputation is under threat after a series of controversies concerning conduct of officials, adding pressure on new Chief Executive Leung Chun-ying to increase scrutiny and accountability.

“The public has come to expect increasingly high standards of accountability and integrity of its public officials,” former Independent Commission Against Corruption commissioner Timothy Tong said at a conference in May.

As many as 400,000 protesters marched this month against social issues including perceived collusion between government and business tycoons. Some lawmakers have also lodged an ICAC complaint against Leung over unauthorized building structures discovered at his home. Leung, whose development secretary resigned last week after being arrested by the ICAC in a separate probe, is scheduled to address lawmakers today.

Wrongdoing Denied

Raymond Kwok, 59, told reporters outside Hong Kong’s Eastern Magistrates Court July 13 that he would prove his innocence. His brother Thomas, 60, has previously denied wrongdoing. Sun Hung Kai said later the same day the brothers would continue as co-chairmen, assisted by two newly promoted deputy managing directors.

Hui, 64, declined to comment to reporters after his court appearance. The Kwoks, Hui and the two others charged in the case, Sun Hung Kai executive director Thomas Chan and Francis Kwan, were granted bail.

Hong Kong’s property sector is a flash point amid growing popular discontent about a widening wealth gap and high home prices, according to Dane Chamorro, Asia Pacific director at risk consultancy Control Risks.

“Hong Kong real estate is a classic high corruption risk environment where a small group of players dominate the industry and is reliant upon government for the supply of the main asset: land,” he said.

Most Expensive

The average gross household income of the poorest 10 percent of Hong Kong people fell to HK$2,170 ($280) per month in 2011 from HK$2,590 in 2001, according to a June 18 census report. The city has the world’s most expensive homes, with prices advancing more than 80 percent since the start of 2009, according to data compiled by Centaline Property Agency.

Scrutiny of the real estate sector “plays to popular sentiment given the unprecedented run-up in property prices,” Chamorro said.

Leung’s government should aim to resolve “deep-rooted conflict,” China’s President Hu Jintao said in a speech after swearing Leung in on July 1. Chinese Premier Wen Jiabao emphasized the importance of running a graft-free government at Leung’s appointment ceremony.

Giving kickbacks or providing favors to authorities “occurs innumerable times on a daily basis in China,” Daniel Chow, a law professor at Ohio State University, wrote in a Wisconsin Law Review article about the U.S. Foreign Corrupt Practices Act and its applications in China.

China 75th

Situations where a government official refers a company under their supervision to do business with another one owned by a relative of the official are common, according to Chow.

Transparency International’s Corruption Perceptions Index in 2011 ranked Hong Kong the 12th-cleanest out of 183 countries, and second in Asia after Singapore. China ranked 75th, behind Tunisia and Brazil.

“There is a major anxiety among some Hong Kong people,” said Sonny Lo, a professor of social sciences at the Hong Kong Institute of Education. Is the use of connections and favors as seen in mainland China “seeping into the political and social fabric of Hong Kong society?”

Under Control

The ICAC was set up in 1974 after a police commander under investigation for graft managed to walk through immigration controls and onto a London-bound plane. The British colonial administration acted following street protests against graft that was “as much a part of life as breathing,” with illegal gambling establishments and drug pushers rampant, according to Stephen Char, who joined the commission in 1976 and worked there for 29 years.

“Corruption is under control now but recent cases have shown the situation could deteriorate,” Char said. “The ICAC has wide powers of investigation and those powers are necessary.”

Leung, the third person to lead Hong Kong since it returned to Chinese rule in 1997, has pledged to remove exemptions that protect the chief executive from criminal prosecution for accepting perks such as accommodation.

His predecessor, Donald Tsang, apologized for accepting trips to Macau and Thailand on yachts and jets owned by businessmen. Akina Fong, an ICAC spokeswoman, declined to comment on whether the commission is investigating Tsang. The Department of Justice decides on prosecutions, she said.

Broad Powers

With the ICAC’s role expanding -- its employees have tripled since its formation to about 1,300 -- defense lawyers criticize the agency’s arrest powers and lack of time limits on when it must bring charges.

The concept of “innocent-until-proven-guilty” doesn’t apply, for example, to government workers whose assets are discovered to exceed their salaries, said Andrew Lam, a Hong Kong lawyer and an ICAC investigator from 1977 to 1980.

“If you don’t explain, you will be guilty,” Lam said. “The existence of the ICAC is beneficial to society as a whole but justice for individuals is sometimes sacrificed.”

Lam himself was an ICAC target, charged with perverting the course of justice in relation to a witness held in its custody. He was cleared by Hong Kong’s highest court in 2010 after six years and two appeals. More transparency, openness and accountability would prevent an agency with such wide-ranging powers from being exploited, he said.

Independent Review

Investigations can only be terminated with the endorsement of an independent Operations Review Committee, according to Fong. The 17-member group includes a former secretary for constitutional affairs, current legislators, the chief executive officer of a Hang Seng Index company, and the chairman of a local hospital board.

The Hong Kong public demands robust law enforcement against bribery, which the ICAC is equipped to tackle, according to Tong, who was succeeded as ICAC commissioner on July 3 by former Immigration Department chief Simon Peh.

“Recent times have seen in Hong Kong a clear shift away from the quid-pro-quo bribery situations to a more sinister form of self-generated advantage,” Tong said at an anti-graft conference in May.

Public officers can abuse their position to obtain perks or other private benefits, he said, and one challenge for the ICAC’s efforts is the gap between public expectations and legal definitions of corrupt behavior.

Officials should ask themselves if their conduct, even if innocent or lawful, could be seen by the public as inappropriate, Tong said.

If so “alarm bells should ring. In short, the sunlight test applies.”

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