Exclusive: Hong Kong security chief threatens tycoon Lai’s bankers with jail if they deal in his accounts By Reuters

© Reuters. FILE PHOTO: Media mogul Jimmy Lai, founding father of Apple Daily, leaves the Court of Final Appeal by jail van in Hong Kong, China February 9, 2021. REUTERS/Tyrone Siu

By Greg Torode, James Pomfret and Sumeet Chatterjee

HONG KONG (Reuters) – Hong Kong’s security chief despatched letters to media tycoon Jimmy Lai and branches of HSBC and Citibank this month threatening as much as seven years’ jail for any dealings with the billionaire’s accounts in town, in accordance with paperwork seen by Reuters.

The letters, signed by Secretary for Security John Lee, had been despatched to Lai after the Hong Kong authorities introduced the freezing of his majority stake in writer Next Digital and native accounts of three corporations owned by him underneath a sweeping new nationwide security regulation.

One of Lai’s monetary advisers stated that whereas the quantity of funds in the accounts was comparatively small, they represented the Hong Kong administration finish of a world community of banking relationships protecting his personal wealth.

Three senior personal bankers and three company attorneys – impartial from Lai’s accounts – stated the motion prolonged the tightening nationwide security equipment into elite tiers of the banking system for the primary time, exposing dangers for purchasers and prime monetary managers in Hong Kong.

The advisers are looking for steerage from bankers and attorneys on how you can problem the freeze, and its impression on offshore holdings and banking relationships managed via Hong Kong till now.

The motion by the security secretary can be fuelling concern in regards to the broader funding local weather in town given the potential attain of the security regulation, imposed on the previous British colony final June by China’s parliament, attorneys, bankers and diplomats say.

The strikes might imperil any try by the democracy activist to maneuver offshore belongings again house to prop up Next’s troubled Apple (NASDAQ:) Daily tabloid, a staunch authorities critic, the monetary adviser stated.

Shares in Next Digital rose as a lot as 330% as they resumed buying and selling on Thursday after authorities final week froze Lai’s 71.26% stake, then value $45 million.

Lai has emerged as one of many highest profile targets of the brand new regulation and is dealing with three nationwide security prices together with allegedly colluding with a overseas nation.

The letter to Lai, despatched to him on the metropolis’s high-security Stanley Prison, threatens as much as seven years’ jail and an unspecified high-quality for any dealing in the named belongings, together with disposal or conversion, utilizing them as collateral or transferring them in or out of Hong Kong.

The letter to Lai lists seven Hong Kong accounts which might be linked to a few corporations registered in the British Virgin Islands (BVI).

Lai couldn’t be reached for remark.

Described as “Notice No. 1”, the letter states that the motion is taken underneath the “implementation rules” of Article 43 of the regulation, which permits for the seizure or freezing of property “used or intended to be used” for the fee of an offence.

The letters additionally acknowledge the precise of Lai and the banks to problem the discover, which expires in May 2023, in court docket.

The similar language was used in letters to HSBC and Citibank, in accordance with the paperwork seen by Reuters.

A Security Bureau spokesman stated as judicial proceedings had been occurring “it is not appropriate for us to disclose operational details”.

“Suffice to say, endangering national security is a very serious crime.”

Banking regulator, the Hong Kong Monetary Authority (HKMA), stated banks needed to cooperate with regulation enforcement businesses in legal investigations, together with freezing of belongings underneath related legal guidelines, which incorporates the nationwide security regulation.

“The HKMA has no role in criminal investigations and we are not in a position to comment,” it stated.


The letter to Lai specified that he could be held liable if he dealt with the belongings “except under the authority of a licence” granted by Security Secretary Lee.

The letters to the 2 banks didn’t clarify which staff in the financial institution could be held liable.

A Hong Kong-based spokesperson for Citibank stated the financial institution didn’t touch upon particular person consumer accounts. “Citi is required to comply with all applicable laws and regulations in markets where we operate,” the spokesperson stated. A spokeswoman at HSBC in Hong Kong declined to remark.

An account in OCBC Wing Hang Bank can be listed in the letter despatched to Lai however it isn’t recognized if that financial institution obtained an identical discover. OCBC Wing Hang declined to remark.

Lai instructed Reuters final May that, given the stress constructing on him, the majority of his private wealth was off-shore.

His advisers say that is unfold throughout Asia and North America, together with property in Taiwan, motels in Canada and tens of thousands and thousands in U.S. shares.

“We are certain they are determined to choke Apple, and even without trying to seize assets offshore, they are making it difficult to move that money back into Hong Kong,” one adviser instructed Reuters.

“We can now see that any banking relationship you have centred on Hong Kong makes you vulnerable under the national security law – that is going to be a big wake-up call for the wealth management industry here, and their rich clients,” the adviser stated.

“In trying to nail Jimmy Lai and Apple to the wall, they might well be nailing that industry too.”

Lai’s advisers worry the uncertainty surrounding his offshore belongings stems from the truth that they are held in offshore accounts arrange and managed via Hong Kong.

Bankers and attorneys say regulators and banks in different jurisdictions will not be obliged to answer calls for associated to particular person accounts from one other nation, particularly if these requests will not be linked to terrorism or cash laundering prices.

One senior personal banker in Hong Kong stated it was a typical follow for Hong Kong-based personal bankers to arrange abroad accounts for purchasers – working underneath a key assumption that such offshoring of wealth could be legally firewalled.

“It doesn’t matter if the accounts are set up in Hong Kong. The money is somewhere else, and falls under another jurisdiction,” the banker instructed Reuters. “It’s secure.”

If, nevertheless, confidence in this association had been undermined by the nationwide security regulation and discretionary curbs on financial outflows, it might harm the trade.

“A lot of clients have already been spreading their eggs,” stated the banker who declined to be named given the sensitivity of the problem. “The No. 1 one destination is Singapore.”

The 73-year-old Lai is serving a 14-month jail sentence for collaborating in unauthorised assemblies throughout anti-government protests that rocked Hong Kong in 2019.

As these protests constructed, Lai’s representatives moved belongings offshore through Hong Kong financial institution branches to hunt safety in opposition to a proposed extradition invoice that fuelled the demonstrations.

While the federal government later shelved the invoice, its key options – together with the flexibility to render Hong Kong suspects for trial in mainland Chinese courts and broader asset seizure rules – had been included in the security regulation imposed by China’s highest legislative physique.

Lee, the security secretary, stated final week that the transfer in opposition to Lai was meant to forestall additional crimes and wasn’t geared toward media work.

Hong Kong’s chief Carrie Lam stated the motion would hopefully reinforce town’s standing as a monetary hub “so that no-one can use our financial system to carry out acts endangering national security”.

Next Digital stated in an announcement on Wednesday it had sufficient working capital to function for not less than 18 months from April 1 with out new loans or money injections from Lai.

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