Under the common law system, case law on activities constituting negligence, gross negligence and fraud is well-established. However, under the continental law (aka civil law) system used in China, judgment is made entirely by the presiding judge according to his/her interpretation of codified statues and ordinances – no correlation with precedents required. A fair trial greatly depends on the discretion of the judge.

Not too long ago, China’s judges were mostly retired military officers, appointed for their loyalty to the Communist Party’s directives. Although the number of professionally trained judges has greatly increased in recent years, their knowledge, experience and professionalism is disparate, to say the least.

Moreover, under the continental law system, a judge can investigate a case by interviewing or interrogating the defence lawyer behind closed doors, making trials in China appear arcane and, at times, unjust.

Punishment for financial fraud involving large sums of money is severe in China. Accountants in Hong Kong are concerned that, if unknowingly involved in fraud due to intentional wrongdoing by clients, they may be unfairly implicated as accomplices, extradited to China under the new law and tried under an unfamiliar legal system widely criticised for its imperfections.

Why corruption persists around Asia: few walk the talk

Another potential danger involves an arrangement used by many Chinese companies operating in Hong Kong to obtain local funding, whereby a Chinese parent company provides a guarantee in renminbi to a local bank to secure a loan in Hong Kong dollars to its Hong Kong company.

For many reasons, like the restructuring of state-owned enterprises as publicly owned companies, many Chinese companies do not keep a clean or traceable record of company constitutions or their legal representatives. As a result, it is often difficult to trace the source of a corporate guarantee in China. When their Hong Kong operations run into problems, some parent companies may try to relinquish their responsibilities for the “renminbi for Hong Kong dollar” guarantees by claiming them as fraudulent and filing for litigation.

In common law jurisdictions, bankers are safeguarded by Royal British Bank v Turquand (1856), which exempts bankers from legal liability when he/she has acted in good faith and done proper due diligence. However, similar rulings are obscure and capricious in China.

Bankers are concerned that they may be treated as accomplices under offences No 9 and 46 in the Fugitive Offenders Ordinance amendments and extradited to China for trial under an untrustworthy legal system.

Forcing the coalition of two very dissimilar legal systems at this time is analogous to forcing Hong Kong drivers to drive on the right side of the road before their cars are converted to left-wheel drive. Coercing Hong Kong to accept the amendments has generated grievous dissonance in society and deepened distrust of “one country, two systems”. A more consultative approach for developing solutions within the confines of both systems is the most practicable path to take at this time.

Dr Victor C.K. Wai is a retired banker and accountant