Keeping Hong Kong boardrooms clean

IF the Stock Exchange is really serious about ensuring no one who has a criminal record can become a director of a listed company, then it may want to learn from the consulates. Short of demanding a prospective director to present a Certificate of No Criminal Conviction issued by the police - a requirement imposed by the consulates on prospective emigrants - chances are some people will try to hide past convictions. To ensure foreign convictions were also brought to its attention, the Stock Exchange would also need to call for similar certificates issued by law enforcement bodies of foreign countries where the prospective directors have lived. Indeed, the revelation that Yu Pun-hoi was able to become chairman of the listed Ming Pao newspaper publishing group despite his criminal past shows how easy it is to hide one's history in Hong Kong. Mr Yu said it was because of 'a genuine oversight and misunderstanding' that he failed to disclose to the Stock Exchange that he was jailed for cheque and credit card fraud and illegal possession of firearms in Canada in 1979. It is up to the Stock Exchange to decide whether to accept Mr Yu's explanation and we make no suggestion that Mr Yu's failure to reveal his past convictions was deliberate. But the rules are clear. Under the Stock Exchange's listing rules, directors of listed companies are required to sign a declaration which contains a question on whether they have a criminal record. The question is: 'Have you at any time been convicted in Hong Kong or elsewhere of any offence involving fraud or dishonesty, or in Hong Kong of any offence (whether or not involving fraud or dishonesty) under the Companies Ordinance, the Bankruptcy Ordinance, the Protection of Investors Ordinance, the Banking Ordinance, the Securities Ordinance or any ordinance relating to taxation?' In failing to reveal his past convictions, there is a prima facie case against Mr Yu for breaching listing rule 3.09 which says 'every director of a listed issuer must satisfy the Exchange that he has the character, experience and integrity and is able to demonstrate a standard of competence commensurate with his position as a director of a listed issuer'. Mr Yu is lucky that his failure to report his past conviction does not constitute a criminal offence because when he signed the declaration he was not required to do so under oath. But, since November, all directors must make their declarations on oath and failure to tell the truth is a statutory offence. The lesson from Mr Yu's case is that it is easy for a person to deliberately cheat the Stock Exchange, and indeed other authorities, by failing to tell all. For while the Stock Exchange asks directors of listed companies to make a declaration, in practice it is very difficult for it to check if any such declaration is entirely truthful. As one merchant banker involved in public listings noted, it would be difficult to check the accuracy of such declarations. If a prospective director is not high profile enough to attract a great deal of attention, the chances are nobody except his close friends and relatives will be aware he has a criminal record. In fact, the ease with which one can hide a criminal record when pursuing a business career starts with the very first step of forming a limited company. The Companies Ordinance says the court may make an order prohibiting one who has been convicted of an indictable offence - involving fraud or dishonesty; or in connection with the promotion, formation or management of a company - from being a company director. The application to the court can be made by the Financial Secretary, Official Receiver, a liquidator or any person who has been, or is a member or creditor, of the company. However, unlike the Stock Exchange, which does make an attempt to ascertain the integrity of the directors of listed companies, the Companies Registry does not require anyone wanting to become a director to make a declaration about his criminal record. Moreover, the Companies Ordinance only applies to directors who have committed offences in Hong Kong, not overseas. Even if it is public knowledge that one has a criminal record, there are still ways to control a listed company without becoming its director. It is well known that some listed companies are controlled by non-listed companies, which are in turn managed by people with a criminal record. Mr Yu said he would now try to apply to Canadian authorities to have his criminal record cancelled. While it is up to Canada to rule on his application, it brings up the question of whether Hong Kong is duty bound to accept a foreign jurisdiction's ruling. Under Hong Kong's Rehabilitation of Offenders Ordinance, a person can legally keep quiet about his past conviction three years after he has been convicted only if he has not been sentenced to imprisonment or to a fine exceeding $5,000. The law is clearly a lot tougher than Canadian legislation on this matter. Mr Yu's case shows there is perhaps a need for the Stock Exchange and the Government to reveal the adequacy of rules aimed at barring certain classes of people from becoming company directors, both listed and unlisted. It is a well-known fact that some listed companies are controlled by non-listed companies, which are in turn managed by people with a criminal record