What's the Big Deal About the Panama Papers and Hong Kong?
Think of it like this: Little Winson lives in Central. He’s been a good hard-working boy, and so he’s cleared a full $1,000 in lai see from family members and friends over Chinese New Year. But he knows that if he tells his parents about his haul, he’d be forced to share some of the cash with his family.
So he goes to his good friend Kelvin Fonseca and says: “I have $1,000 and I’d much rather I didn’t have to share it with my family. What can I do?”
Kelvin says, “I have this friend who lives in Yuen Long. Give me your $1,000 and he’ll hang on to it. You can give me $10 for the MTR fare up there, and an extra $5 for my time.”And so all is well. Winson’s cash is squirrelled away in Yuen Long, he can bring it back to the island if he wants to go for a bowl of wonton noodles, and his family’s none the wiser. Has Winson broken the law? Certainly not. Is he morally questionable? That depends on if you think the family deserves to share in Winson’s good fortune—or, of course, if Winson’s planning on running for public office some day.
Of course, there’s another possible scenario: Winson got the money by swiping stacks of lai see when his family wasn’t looking, and he needs to hide his ill-gotten gains. In which case that friend in Yuen Long is looking like a pretty good bet to stash the loot. Has Winson broken the law? You betcha.
Hong Kong has a long association with offshore banking, and what some might call Hong Kong’s “business-friendly” approach is what others might call “nontransparent,” depending on which side of the tax coin you’re on. The city itself isn’t a tax haven as such, but it built its reputation as the world’s freest economy (you don’t pay a maximum 15 percent salaries tax and 16.5 percent companies tax because of excessive government intervention, do you?).
It’s incredibly easy to register a company here—unlike the similarly positioned Singapore, you don’t even need a director who’s a resident in the territory—and there’s a critical mass of support services to help out with whatever you want to do, as well as a robust legal system that’ll cover you if you did everything by the book. And of course, that magic formula: in Hong Kong you’re not taxed on offshore earnings.
So it’s no wonder the Panama Papers reveal that Hong Kong branch of Mossack Fonseca was its busiest, and the city’s home to the most intermediaries—lawyers, banks, accountants—of any of the company’s dealings. Between Hong Kong billionaires and China nobility looking to get in on that sweet, sweet offshore action, there’s little surprise that the firm flourished here. As the saying might go, you can’t take it with you… but you can make damned sure the government doesn’t get its hands on it, either.