China Briefing

Time to put spotlight on who banks hire

China Resources corruption case has drawn attention to widespread practice of financial institutions taking on relatives of mainland officials

PUBLISHED : Monday, 28 April, 2014, 5:02am
UPDATED : Monday, 29 February, 2016, 12:19pm

After Beijing's decision over a week ago to detain Song Lin, the chairman of China Resources, on allegations of corruption, speculation has run rife on the mainland and overseas media about its implications. Does this signal a wider anti-corruption campaign to go after another senior leader, one of Song's protectors in the central government? Or does it mark the beginning of a drive to tackle rampant economic irregularities at all major state-owned conglomerates?

Amid the intense media attention surrounding the case, however, the apparent unwillingness of the Hong Kong and mainland authorities to investigate the role of Song's alleged mistress, another alleged key player in the scandal, makes curious reading.

According to allegations against Song made public by a senior reporter at a newspaper controlled by state-run Xinhua, Helen Yang Lijuan, his alleged mistress, helped Song to receive huge bribes and launder money, accumulating personal wealth of more than one billion yuan (HK$1.25 billion ).

The reporter alleged that Song used his influence to get Yang hired at two Swiss investment banks, first at Credit Suisse, then later at UBS.

Public records show that China Resources appeared to favour the two banks with more investment banking deals during the period when Yang worked there. Figures also show that after she left Credit Suisse for UBS in 2012, China Resources started to allocate more deals to UBS. Yang was reportedly in charge of handling client relationships with major state-owned enterprises including China Resources and that few people at either bank knew of her relationship with Song, except for rumours that she had a powerful uncle working at China Resources.

The allegations against Song and Yang come at a time when United States regulators have started to look into the hiring practices of American investment banks and examine whether staff were employed in Hong Kong and elsewhere in Asia because their relatives in government positions would steer business deals their way.

US regulators are reportedly investigating JP Morgan's hiring practices and client relationships in Hong Kong and the Independent Commission Against Corruption last month reportedly searched the office of Fang Fang, JP Morgan's outgoing chief executive officer for its China investment banking business.

Given the serious allegations against Yang and her role in Song's case, one would have expected Hong Kong regulators to step in, but there has been no sign of that happening.

It is, in fact, an open secret that almost all Western and Chinese investment banks have tried to hire the children or relatives of senior Chinese officials and major state company executives to get an inside track when vying for investment banking deals.

Nowhere is this more farcical than in the intense competition to seek lucrative mandates to sponsor the stock market flotations in Hong Kong or New York of major state companies.

As executives of listing companies are inundated with requests from current and former influential mainland officials, they simply try to include almost all the investment banks in the underwriting syndicate to avoid offending any of them.

Widespread anger against the perceived nepotism and alleged under-the-table dealings have forced some top mainland leaders to ask their relatives to leave Western banks for the mainland-controlled ones, but the hiring practice of favouring close relatives or friends of influential officials and senior business executives is still prevalent at some Western investment banks.

Moreover, many other multinational businesses have also adopted similar hiring practices when expanding their business on the mainland.

Over the years, American regulators have punished a number of US telecom companies and other firms and accused some of their China-based executives of breaching US regulations by bribing Chinese officials for lucrative deals. Curiously, the authorities have never followed up on the mainland on who received the bribes amid suspicions that most of the people who gained were relatives of senior mainland officials.

As the implications from the case involving Song and Yang deepen, it is time that Hong Kong and mainland authorities learned from the US and took a serious look at the hiring practices of Western businesses.