Hong Kong, a hub for corporate offshore schemes, must ensure disclosure rules are truly effective

Jane Moir says the authorities’ plan to require companies to reveal their controlling owners, in the wake of the Panama Papers scandal, does not go far enough

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Children play on a viewing platform in Hong Kong as the city’s skyline is reflected in the glass panels. Hong Kong has long been a centre for processing questionable money flows. As a major financial player, it is under pressure to be truly compliant with global governance norms. Photo: AFP

Published: 12:07pm, 24 Feb 2017Updated: 6:47pm, 24 Feb 2017

Last year’s Panama Papers revelations put Hong Kong in the crosshairs of global anti-money laundering bodies. The dump of 11.5 million documents from a Central American law firm incriminated senior political leaders from Vladimir Putin to David Cameron, and fingered Hong Kong as a key middle man in a web of offshore jurisdictions that allows the wealthy to conceal transactions and dodge tax.

Hong Kong’s desire not to be branded a rogue jurisdiction saw the government last month propose an overhaul to corporate disclosure rules that would potentially unmask beneficial owners. The measure, however, runs the risk of being a box-ticking exercise, as the suggested procedure for getting the information from companies could not be more unfriendly for users.

Hong Kong was busiest office of Panama Papers law firm

In the aftermath of the 2008-09 financial crisis, a political backlash developed against aggressive tax avoidance schemes. Cash-strapped governments, led by the US, moved to force offshore centres into greater transparency. Whistle-blower revelations have added to the sense of urgency and raised the risk of a centre being blacklisted for non-compliance.

Forcing companies to be upfront about people with significant control would bring Hong Kong into line with countries such as the UK

In January, the Hong Kong government floated changes that would force private firms to reveal the individuals who ultimately control them. Companies would have to reveal any offshore shareholders with 25 per cent of shares or more.

Forcing companies to be upfront about people with significant control would bring Hong Kong into line with countries such as the United Kingdom. However, the proposal mooted last month has a major drawback.

Joe Public will need to go directly to a company to find out who is ultimately in control. Such an admission frustrates meaningful scrutiny by the media, businesses and institutions conducting anti-money-laundering procedures.

In Britain, a central register has been set up for an anonymous public search – free of charge – of a company’s ultimate owners. From June, a full year’s worth of open data will be available to search via the government’s Companies House website.