Lai See

Who's watching the trust industry in Hong Kong?

PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 5:07am

In our accounts last week of tax consultant Deborah Annells and her company AzureTax, we said that in view of the large sums of money held by trust companies, the business should be regulated. Annells, it will be recalled, although based in Hong Kong, was found by the Taxation Disciplinary Board (TDB) of Britain's Chartered Institute of Taxation (CIOT) to have acted dishonestly in dealing with client funds on six instances and was expelled from the organisation. Annells says "mistakes were made", though she denies any wilful wrongdoing and dishonesty.

Although there is no regulator of the business in Hong Kong in the way banks are regulated by the Hong Kong Monetary Authority, there is actually a regulator of sorts - the financial secretary. Under the Trustee Ordinance, the financial secretary can appoint an inspector when a trustee business is operating fraudulently or in breach of trust.

Lai See understands that the financial secretary was furnished with the same information that was later sent to the institute, which subsequently concluded that Annells had acted dishonestly. However, the Financial Services and the Treasury Bureau decided not to appoint an inspector on the basis that "it does not seem to be in the public interest" and "the case has been reported to the police".

One has to wonder about this decision, given the conclusions arrived at by the institute when served with similar information. So when would it be in the public interest to appoint an inspector? Isn't the proper administration of a trust business of vital public interest irrespective of what the police may be doing? Shouldn't an inspector have checked the books to see exactly what was going on at Azure?

The financial secretary, for some strange reason, chose not to exercise his powers. What then of the Hong Kong Institute of Chartered Public Accountants (HKICPA)? It said earlier this week that it was looking into the case. The HKICPA declined to speak to Lai See, saying it was its policy not to comment on individual cases once an investigation had started. The suspicion is that it is only since the recent CIOT findings and the attendant publicity that it has begun its investigation. However, Lai See understands that it received two complaints in November 2011 about Annells and was likewise furnished with the same information that was considered by the CIOT. You have to wonder why the HKICPA has sat on this for 20 months. Is it a watchdog or lapdog?

Meanwhile, the police investigation has been lumbering on since December 2011 when Annells was first arrested, though not charged, and is still on bail. How long will it be before the Department of Justice makes a decision to charge her or not - another 20 months, more? In the interests of justice, a decision should be made. And what happens if our suspect decides to leave Hong Kong for good?

Annells has told Lai See that the TDB does not understand how Hong Kong operates - that it was applying different standards from almost 10,000km away. However, given the way the financial secretary has chosen not to exercise his powers as quasi-regulator of trusts and the HKICPA's dilatory approach, a few people in Hong Kong must be thankful that the CIOT did adopt different standards from those that seem to be the norm here.

Part of Annells' defence to the TDB was that regulation was lax in Hong Kong. It is an unusual defence for sure, but it may yet turn out that she is right, and as she has said, since the TDB's judgment, it will indeed be "business as usual" for her. But where exactly would that leave the trust industry in Hong Kong that industry practitioners are so keen to promote? No one will touch it with a barge pole.


Citi vs HSBC

In yesterday's column, we drew attention to Citi's elevation to the top of the league tables for debt issuance in Asia. However, during the editing process, the exact sector in which this occurred was somewhat muddied. So to reiterate, for the seven months to July 30, Citi was top of Asia-Pacific (ex-Japan) G3 bond bookrunner rankings, according to Dealogic data. However, if we look at just Asia (ex-Japan) G3, which excludes Australia and New Zealand, we see that HSBC heads the rankings this year to July 30 and has dominated this sector for the past five years.