CY Leung faces separate probes of HK$50 million deal with Australian firm

Hong Kong's Chief Executive Leung Chun-ying will face separate investigations by the city's graft-buster agency, as well as Australian police, into a HK$50 million deal between Leung and an Australian firm.

The Independent Commission Against Corruption (ICAC) received a complaint filed by the Neo Democrats party yesterday after details of the deal were revealed by Fairfax newspapers in Australia on Wednesday.

Secretary for Justice Rimsky Yuen Kwok-keung said he had delegated full responsibility to Director of Public Prosecutions Keith Yeung Ka-hung to avoid any perception of bias.

In Australia, Greens party leader Senator Christine Milne asked federal police to investigate if the deal broke foreign bribery laws. Those laws make it illegal to provide a benefit to a foreign public official in order to obtain a business advantage.

Leung signed the HK$50-million deal with engineering firm UGL in 2011, months before he became chief executive. It wanted to buy insolvent property firm DTZ, of which Leung was a director.

The deal - made two days before Leung resigned from DTZ and the completion of the takeover - stipulated that he would receive the money in two instalments in 2012 and 2013. UGL and Leung said the money was to prevent him from forming or joining a rival firm within two years.

In an "additional commitment" clause, Leung agreed to "[act] as a referee and adviser from time to time" if UGL asked, raising questions about whether it was securing Leung's future services. As chief executive he could not take up a paid advisory job for a commercial entity.

Leung inserted a handwritten clause into the contract saying he would perform the required duty "provided that it does not create any conflict of interest".

UGL said that the vendor in the deal, the Royal Bank of Scotland, and their advisers were fully aware of UGL's intention to enter into an arrangement with Leung.

Lawmaker Albert Ho Chun-yan said the clause "would not save Leung" because he had already pocketed the money. Ho also asked if Leung had declared it to the chief justice. Leung's office did not respond last night.

DTZ's administrator, Ernst & Young, was not told about the deal. David Webb, a deputy chairman of the Takeovers and Mergers Panel under the Securities and Futures Commission and editor of Webb-Site.com, said Ernst & Young should have been informed so it could "consider whether an excessive amount of the value of the business was being shifted from the company to its director and management".

Administrators should be informed of “any connection between the purchaser and the directors, shareholders or secured creditors", he said, citing Hong Kong's insolvency guidelines.

Webb argues that since Leung was still a director of DTZ at the time Ernst & Young was appointed, “the question is why didn’t he disclose these arrangements to the administrators?”

By failing to disclose the side-deal between himself and UGL, Webb said Leung may have “obtained an advantage without his principal’s consent, against Section 9 of the Prevention of Bribery Ordinance.”

Last night Ernst & Young said it was natural for UGL to enter into a non-poaching arrangement to secure key personnel as DTZ was a "people business".

"For the avoidance of doubt, any such arrangements made were between UGL and the employees," Ernst & Young said.

Responding to a query about whether tax was paid on the money Leung received from UGL, a spokesman for the chief executive said that he was advised by an accountant that he "was not required to pay salaries tax for the related payments."

The report has come at a time when Leung is facing fierce criticisms for allowing tear gas to be used against pro-democracy protesters on September 28. 

John Garnaut, an Australian journalist who co-wrote the original report, said his team received documents on October 5 from an anonymous source. Garnaut said Leung's lawyers had "threatened" legal action before the report was published. 

The chief executive's office said Leung decided to persue a potential case because the reporters' allegations of a "bribe" were "very serious". 

Additional reporting by Andrea Chen and Tony Cheung