| HONG KONG
HONG KONG Jan 23 Hong Kong has come under fire
for a plan to restrict public access to corporate data, with
investors and media groups worried it will block early warning
of accounting scandals like the one that cost Caterpillar Inc
Hong Kong is proposing changes to corporate laws that would
block residential addresses and full identity card numbers of
company directors from public view at the Companies Registry
website, citing the need to maintain privacy of individuals.
Critics say it would hinder due diligence of companies by
prospective investors and hurt the city's reputation as an open
and transparent business centre.
As a major investment hub for mainland China, Hong Kong has
become a popular place for Chinese to set up companies and
conduct business, in some cases to obscure their assets through
a complex web of shell companies and directorships.
"For people doing due diligence for investment, including
people like Caterpillar, as potential buyers if they want to
double-check things looking at company filings, they are going
to find it harder in future," said David Webb, a Hong Kong-based
"Obviously the more the government interferes ... it will
make it harder to do business here."
Caterpillar, the world's largest maker of tractors and
excavators, took a $580 million charge last week as a result of
"accounting misconduct" at a unit of a Chinese mining equipment
company it bought last year.
Caterpillar purchased ERA Mining Machinery Ltd and its
subsidiary Siwei last June. ERA had been publicly traded in Hong
Kong, doing business through Siwei, which is known for making
equipment to support roofs in mines.
The U.S. multinational said an ongoing investigation
launched after the deal closed "determined several Siwei senior
managers engaged in deliberate misconduct beginning several
years prior to Caterpillar's acquisition of Siwei."
Siwei has not commented.
The Hong Kong Journalists Association has launched a
petition opposing the government proposal to block access to
corporate data, scheduled to take effect early next year, saying
it will be hampered from exposing "illegal or immoral
The Hong Kong Association of Banks has also expressed
concern over the move.
Chan Ka-keung, head of the Financial Services and the
Treasury Bureau, which proposed the changes, said on Wednesday
the bureau would continue to discuss the rules with the city's
privacy commissioner to eliminate public concern.
The bureau has said a public consultation was conducted
between late 2009 and early 2010 and most respondents preferred
protecting personal data.
"Where necessary, law enforcement agencies can access the
protected information through the Companies Registry. There will
be no implications to our enforcement work on this front," the
bureau said in an e-mail to Reuters, addressing concerns that
anti-money laundering work might be affected.
Angelina Kwan, a former director of enforcement at Hong
Kong's Securities and Futures Commission, shrugged off concerns
saying the move was good from a privacy point of view.
Critics, however, say the fact that some Chinese use aliases
makes it difficult to trace the true identity of people,
providing a case for maintaining access to personal details.
"It's actually going to hurt the honest businessman who has
nothing to hide, and who is very prepared to allow potential
business partners to carry out due diligence," said Violet Ho of
risk consultant Kroll Advisory Solutions, adding there was a
risk of fraud going undetected if the changes went ahead.
"Now you will be in a situation where you can't immediately
exclude any of the say 2,000 companies associated with the
Chinese equivalent of a John Smith, and you have to do a lot of
manual work that is basically unnecessary."
Ho said the proposed law would impact any investor - private
equity companies, M&A investors and even banks.
Nearly 3.5 million searches of records were conducted
through the registry's electronic search services in 2012, up
nearly 8 percent from 2011. The registry has more than a million
local companies, many of which are connected to Chinese
businesses or investors.
"Chinese mainland investors and large corporations in Hong
Kong are among the supporters of the amendment to withhold the
information. Why? Because those so-called big bosses don't like
their residential addresses to be shown to the public nor their
true identity," said Democratic lawmaker James To.