HK's reputation as financial, commercial center in jeopardy

2021-01-26 12:07:58

The Chinese national flag and the flag of the Hong Kong Special Administrative Region fly above the Golden Bauhinia Square in Hong Kong, China, Aug 5, 2019. [Photo/Xinhua] I was shocked to learn of the shutting down of a major law firm in Hong Kong by the Law Society of Hong Kong. Among the grievous breaches alleged was the misappropriation of clients' funds by a former employee. The Law Society claimed that as the regulatory body of Hong Kong lawyers, it had no choice but to take swift action, saying: "Delayed intervention would only cause more clients to suffer bigger losses". I cannot accept the ridiculous logic of this justification for freezing the funds of clients of the legal profession. The shutting down and the freezing of funds were purportedly intended to protect the clients of the firm. But the move itself would cause immediate and probably even bigger losses. In any case, the alleged losses that could potentially be avoided through the freezing of the accounts are not proven. If the Law Society is sincere in "protecting the interests of the clients", it certainly should not be insensitive to the potential losses incurred by the action. At a news conference, a group of victims reported that among them some HK$100 million ($12.9 million) belonging to 79 families had been frozen. The freezing of the funds means that they might not be able to complete their property transactions and could be at risk of being unable to honor their other contractual obligations. Close to half of the families had funds of a half-million Hong Kong dollars to 2 million Hong Kong dollars frozen. In one case the frozen funds exceeded HK$10 million. Hong Kong is a top financial center and has enjoyed a very good reputation as an international commercial center. The damage to Hong Kong's reputation is too big for the Law Society or the SAR government to ignore. The fact is that we have innocent citizens who have done nothing wrong other than hiring a law firm which is a market leader in property conveyancing in Hong Kong to help with property transactions. The incident suggests that anyone buying legal services in Hong Kong could be at risk! "Professional services and other producer services" is one of Hong Kong's four "pillar industries" and accounts for 12 percent of Hong Kong's GDP. If we are concerned about preserving or enhancing Hong Kong's competitiveness, we must not expose the clients of our legal services to such wanton disregard of their rights. One partner of Wong, Fung & Co, the law firm in the incident, had appealed to the Law Society to release the funds, saying that the alleged impropriety had to do with an employee's behavior back in 2019, and that it had nothing to do with the firm's clients in 2020. He emphasized that the law firm itself had not misappropriated clients' funds; any discrepancies in the accounts had to do with computer problems and human mistakes. He has applied for a judicial review of the Law Society's action. The Law Society, of course, should protect the interests of clients. However, instead of containing losses, the Law Society's action may actually amplify them. Given the gravity of the situation and the implications for Hong Kong's reputation as a commercial and financial center, it is imperative that the SAR government come to the aid of the victims in the first instance. If the Law Society will not release the funds, the SAR government can lend money to the victims to meet their immediate needs. The SAR government can secure an undertaking from the partners of the law firm to return the money, while reserving the right to prosecute the firm and its partners if there is evidence of illegal behavior. It appears to me that the benefit to Hong Kong far outweighs the cost or risks involved. The Law Society said it had reported the case to relevant government departments, as well as the Hong Kong Monetary Authority and the Hong Kong Association of Banks, and had appealed for them to offer assistance to the affected clients. It also called on the clients to seek independent legal advice for themselves. All this suggests that the Law Society has done something to help the clients, but in reality none of the suggestions are really helpful. To me, the Law Society is more interested in protecting itself than protecting the interests of the clients. By freezing the funds of the law firm and shutting it down, it shows the world that it is a regulatory body that has teeth. By reporting the case to the relevant government departments, it is telling the world it has done its part. But in practice all this will not help the reputation of Hong Kong as a good place to do business. So far among the government departments that have learnt of the incident, Inland Revenue has promised to extend the deadline or to allow installment payments for stamp duties or waive the fine for late submission. If the SAR government acts fast, it will tell the Hong Kong public it is sensitive to the plight of the victims. The victims, of course, will be greatly relieved. The government's image will be boosted and Hong Kong will gain as a good place to do business. The author is a senior research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University. The views do not necessarily reflect those of China Daily.