The arrest of an executive of Sun Hung Kai Properties, Hong Kong’s biggest land developer, over a corruption scandal in 2012 triggered a debate in Panama-based law firm Mossack Fonseca over whether to report the firm to financial crime authorities in the British Virgin Islands.
Mossack Fonseca is at the center of the massive leak of documents showing how its clients, including relatives and associates of national leaders, used tax havens to hide their wealth. The documents have come to be known as the Panama Papers.
Staff at Mossack Fonseca became suspicious when SHKP, one of its clients, told the law firm that Yorkshire Ltd., of which SHKP executive Thomas Chan Kui-yuen had been a director for 20 years, had no purpose, the newspaper said.
They discovered that Chan had been arrested weeks earlier on charges of bribing former Hong Kong chief secretary Rafael Hui Si-yan, and therefore it was illegal for him to act as a corporate director in the BVI.
The firm asked SHKP to supply missing documents, including those about Chan, in case Hong Kong investigators came asking about the company.
But SHKP repeatedly refused the requests, saying the company had been “inactive for years”, the Guardian reported.
The Mossack Fonseca papers were obtained by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with the Guardian and other media outlets.
The papers show how Mossack Fonseca’s global offices were deeply divided about how to manage the standoff.
Some staffers worried that pressing SHKP to provide the documents might draw its ire: “The client will get mad and maybe transfer all the companies away from our firm.”
But Rosemarie Flax, the law firm’s managing director, warned: “If we do not receive the relevant documents we must not continue with the dissolution but move to resign as Registered Agent and file the [suspicious activity report] as recommended.”
The standoff lasted three months until SHKP finally agreed to supply the documents, allowing Mossack Fonseca to proceed with its request to dissolve Yorkshire Limited, the Guardian said.
In June 2014, or two years later, Mossack Fonseca learned that Chan was the director and beneficial owner of a company called Moricrown Limited.
Its records showed that Moricrown was part-owned by Cheung Kong Investment Co. Ltd., a subsidiary of Cheung Kong Holdings – a flagship company of Hong Kong billionaire Li Ka-shing.
A former founding director of Moricrown was Thomas Kwok Ping-kwong, a co-owner of SHKP, who had been charged in the bribery scandal along with Chan.
Chan’s role in Moricrown was discovered in an internal compliance check before an audit by the BVI Financial Services Commission.
An internal Mossack Fonseca memo noted that the firm risked fines of US$10,000 or more unless it updated identification documents for Chan and other directors and shareholders.
Six months later, Chan and Kwok were jailed for six and five years respectively for bribing Hui, the former top Hong Kong official.
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