Hong Kong's Corporate Directors Want Some Privacy
Late one night last November, staffers of the A3Medical Anti-Aging Center say they were told by their boss’s brother that the salon would close for renovations. It never reopened. Former employees were anxious to track down the owner to retrieve the HK$900,000 ($116,000) they said they were still owed. Using data listed in Hong Kong’s Companies Registry, they traced their boss to another business she owned. After picketing its office, Man Lee, 32, says she and five colleagues got some of their money back.
Man was one of more than 1,000 workers who have used the records to track down missing employers in the past two years. Soon that may no longer be possible. Hong Kong’s government wants to restrict public access to the Companies Registry, which keeps records of corporate directors, a category that includes chief executive officers, board directors, and company secretaries. That could make it easier to launder money and cheat on taxes, according to lawyers and corporate transparency advocates. “The less transparent a corporate entity is, then the greater scope for criminal malpractice,” says Gordon Jones, registrar of companies from 1993 to 2007, who opposes the change. “The free flow of information is Hong Kong’s big competitive advantage.”
The Companies Registry assigns identification numbers to Hong Kong businesses and matches the companies with their owners and other directors, who are listed by name as well as passport or Hong Kong ID number. The registry also provides directors’ home addresses. Small businesses, unions, due diligence firms, and journalists are among those opposing the change, which lawmakers are expected to consider in May.
The new rules try to weigh public access against the privacy of directors, Shirley Wong, a spokeswoman for Hong Kong’s Financial Services and the Treasury Bureau, said in a written response to questions. The change won’t hinder efforts to thwart criminal activities because police will have access to the data.
There were 3.5 million company searches in 2012, up from 3.3 million in 2011, according to the registry. The database has details for more than 1 million directors, many connected to businesses in mainland China, where corporate disclosure is more limited.
The proposed rules pit workers like Man against tycoons, including Li Ka-shing, Hong Kong’s richest man, whose fortune is valued at $28.2 billion according to data compiled by Bloomberg. He’s among the business leaders who back increased secrecy to safeguard privacy. Six companies controlled by Li supported restricted access when the government held public consultations in 2009 and 2010. They also asked that old records be expunged. Jeremy Lau, a spokesman for Li’s Hutchison Whampoa, says the company has no additional comment.
Directors risk identity theft and harassment because their ID numbers and home addresses are in the registry, and the information can spread over the Internet, says Angelina Kwan, former director of enforcement at Hong Kong’s Securities & Futures Commission. “The benefits of the changes outweigh the costs,” says Kwan, now chief operating officer of Reorient Group, a Hong Kong-based investment bank. “Regulators and shareholders can still get access to this information.”
Jones, the former registrar, says there were no complaints about invasion of privacy during his tenure. The register “is a very useful tool for members of the public to check quickly and cheaply on the bona fides of … directors,” he says.
Restricting disclosure would raise the cost of doing business, says Violet Ho, senior managing director in Hong Kong for Kroll, a risk consultancy that mines Hong Kong filings for background checks for clients. “If you’re entering into a business dealing with an individual who has a very common name, you want to know whether his other businesses have a clean record,” she says.
A poll of 1,300 members of the Hong Kong Small & Medium Enterprises Association found that 68 percent oppose the changes and only 6 percent back them, according to Danny Lau, the association’s chairman. Small companies run background checks on counterparties before closing deals, he says.
Working with a labor union, Man and her colleagues located their former boss, Tse Chim-chim, by looking for her name and ID number. Tse didn’t respond to requests for comment. “We usually won’t go searching the records unless we’re forced to,” Man says. “At least we had a trace to follow when needed.”