Chau firm was being watched BOC Hong Kong (Holdings) arranged for two of its lawyers to sit on the board of Shanghai Land Holdings, the locally listed vehicle of disgraced Shanghai property tycoon Chau Ching-ngai, and also for one of its accountants to work inside the company. The lengths to which BOCHK went to monitor Shanghai Land, which Chau purchased in June last year using a $2.1 billion loan facility extended by the bank, raise questions about its claim to have been unaware of any connected transactions at the listed company which could have led to breaches of stock exchange listing rules. To raise the cash he needed to pay back the bank's loan, Chau sold properties in Shanghai to the listed vehicle. Koo & Partners lawyers Donald Koo Hoi-yan and Vivian Fan Cho-man served, respectively, as executive and non-executive directors on Shanghai Land's board at the insistence of senior BOCHK management, according to sources familiar with the situation. Koo & Partners, established in 1993, was the principal external counsel for Bank of China's Hong Kong branch and handled much of the legal work related to BOCHK's local listing in July last year. Sources said the lawyers were appointed after BOCHK's statutory auditor - PricewaterhouseCoopers (PwC) - declined a request to let two of its accountants sit on the board. PwC did, however, agree to second one of its employees to work inside Shanghai Land. In June, BOCHK appointed a special committee - convened by former Securities and Futures Commission chairman Anthony Neoh - to investigate the circumstances surrounding the controversial loan. The committee's findings, released on September 5, sought to distance the bank from Shanghai Land and Chau, who was detained by Shanghai authorities in late May and formally arrested earlier this month on charges of share manipulation and falsifying corporate documents. The report noted that BOCHK 'relied on [loan repayments] to be made against asset injections to be arranged by Mr Chau into Shanghai Land'. But it also maintained that the legality of these asset injections - through which Chau raised the cash to repay BOCHK's loan - 'depended on [Chau's] good faith and honesty, and on the ability of Mr Chau and Shanghai Land to comply with Hong Kong stock exchange listing rules'. Of the $1.77 billion that Chau drew down from the loan facility, he repaid all but $740 million. At an extraordinary general meeting scheduled for June 3, Shanghai Land shareholders were expected to approve a $661.5 million connected transaction that would have allowed Chau to pay off most of the remainder. However, the EGM was pre-empted by Chau's detention weeks earlier. Sources close to Shanghai Land's board maintain that all such injections were transacted at fair values and in full accordance with stock exchange rules. BOCHK secured the loan only against Chau's shares in Shanghai Land. 'The Bank accommodated Mr Chau's request not to take mortgage rights over properties available for injection into Shanghai Land, based on his representations that the injection of properties so mortgaged might be deemed as 'connected transactions',' the committee said. '[Bank officers] failed to appreciate that their accommodation of Mr Chau's requests for the purpose of surmounting obstacles in the listing rules could easily expose the bank to public speculation that they may have facilitated Mr Chau in evasion of the listing rules, whether or not there had been evasion.' Chau was required to outline any specific asset injections when he made a general offer to Shanghai Land shareholders as part of the takeover and would have needed approval if this involved future connected transactions. In a statement issued on June 6, BOCHK confirmed that it had arranged for 'the appointment of two persons nominated by BOCHK as executive and non-executive directors of Shanghai Land ... and a person designated by BOCHK as the accounting manager of Shanghai Land to monitor the accounts of Shanghai Land'. The statement did not reveal that the two directors were in fact lawyers for BOCHK and the accounting manager an employee of its statutory auditor. The committee's report did not mention BOCHK's ties to Shanghai Land's board and accounts department. According to the June 6 statement, Shanghai Land was also required to maintain a cash deposit with BOCHK 'of no less than the outstanding principal and interest of the loan ... any withdrawal out of the deposit account and any withdrawal above $10 million out of the other bank accounts [had to] be authorised by the BOCHK [board] nominees.' A source close to BOCHK defended the appointments: 'The arrangement was intended to ensure that cash would not be misused, which was desirable for minority shareholders as well [as for BOCHK]. The bank might have nominated some people they felt they could trust but that did not turn the bank itself into a compliance officer. 'If Shanghai Land did not comply with any rules, which only regulators and competent legal experts can decide, it did not mean that the bank had either knowledge or responsibility.' BOCHK declined to answer questions about its connections to Shanghai Land. 'Because your questions are all related to our special committee's report and the special committee made their report independently, BOCHK is not in a position to answer your questions on behalf of the special committee,' a bank spokeswoman said. 'The special committee does not exist any more as its mission is over,' added a source close to the committee. Koo & Partners and PwC also declined to comment for this article.