Rethink urged on checking directors' pasts before floats
PROPER checks should be introduced for companies and directors prior to stock exchange listing to prevent criminals from gaining access to capital markets, according to investigators Kroll Associates.
Revelations that directors of local companies have concealed their criminal past have rocked the market in recent months.
Police and the Independent Commission Against Corruption have also warned of an increasing scramble for cash by illegal means before 1997.
'The issue is not simply directors with criminal records,' said Stephen Vickers, managing director of Kroll Associates (Asia) and a former Hong Kong police officer.
'A bright light needs to be shone on the whole listings procedure. Due diligence in Hong Kong is [often seen] as if this was a village where everyone knows one another.' Mr Vickers warned that proposals for company directors to produce Certificates of No Criminal Records from local police was not the answer.
'That takes care of local criminals,' he said. 'What about everyone else? That kind of check would have picked up Yu Pun-hoi's Canada convictions.
'What is needed is more co-operation between the exchange, the Securities and Futures Commission and the sponsoring banks.' One problem was that banks were not being held truly accountable.
'Bankers are paid to do deals, not kill deals, so they are very frightened of negative information,' he said.
Mr Vickers recently addressed a conference of 'hardened' investors where 70 per cent considered due diligence to be nothing more than covering one's back.
'Negative information is not always a deal killer,' he said.
Mr Vickers said one area of concern was the impact of organised crime on corporate life.
'There are certain sectors of industry which are very prone to organised crime.' Mr Vickers said there were already links between listed companies and organised crime.
He singled out the construction industry, parts of the entertainment industry and some jewellery firms.
'In the 1980s, a huge amount of money was made doing things like controlling access to the lower end of the property markets, and there was a lot of smuggling,' he said.
'Anything with a tariff got smuggled. If you look at how many air-conditioners are imported to Hong Kong for domestic use, then everyone would have 30 each [if the air-conditioners stayed in the territory].' Money has moved into karaoke bars and into leveraged forex companies but has inevitably found its way into listed companies.
'There are some companies which seriously do need looking at,' Mr Vickers said.
He did not foresee or advocate special regulations for investigating directors.
'I don't think certification or anything similar is the way we are headed,' he said. 'But it does help investors to know that someone independent has played a role. Investors, especially corporate investors, want to know what they are investing in.' When Kroll performs due diligence services, different checks are made.
Databases of worldwide media are searched.
'If a name has ever been in the media then Kroll will find it,' Mr Vickers said. 'There is also a lot of interviewing.
'We will talk to a lot of people, because having a criminal record can sometimes be irrelevant.
'You cannot get a liquor licence in Hong Kong with a criminal record, but the criminals can always find someone with no record to be the front.'