How Hong Kong could become the next hot place for Russian oligarchs to store their wealth
A man takes a photo with his phone on a promenade next to Victoria Harbour during a day of heavy rain in Hong Kong on June 8. In the weeks after Russia’s invasion of Ukraine, British lawmakers revived and rushed through a long-delayed economic crime bill to target Russian assets, President Joe Biden said the United States was “coming for your ill-begotten gains,” and authorities in France and Italy seized yachts linked to Kremlin allies. As Western governments crack down on dirty money – or at least make a show of doing so – the world’s kleptocrats and oligarchs are looking for new places to store their wealth. “In the last few months, there’s been an incredible re-routing of capital to new places where people can stash their money,” said Tom Mayne, an expert in corruption studies at the London-based think tank Chatham House. While the former British colony – and pioneer of offshore finance – is not the only place the suddenly displaced Russian rich are eyeing, it has an edge over rivals such as Dubai and Caribbean tax havens. “Oligarchs have historically loved London because of what it brings to the table not just in terms of financial services, but also luxury properties and private schools for their children,” Mr. The city has long been attractive for Chinese oligarchs, and while that has changed somewhat in recent years because of President Xi Jinping’s anticorruption crackdown and Beijing’s growing control, for those with less to fear from the Chinese government, it may be the ideal bolt-hole. Beijing’s influence over Hong Kong could even be a plus for those seeking to shield their assets.
A spokesperson for the Hong Kong government said the city implements sanctions of the United Nations Security Council to fulfill its international obligations. The sanctions of other jurisdictions are outside the scope of the government’s international legal duties, the spokesperson added. “[Hong Kong bankers] quite flagrantly announce they can take your dollars and clear them in pristine bank dollars and it’ll settle without having to go through New York,” Mr. And if you need a local company to help handle some of those transactions, or to process the purchase of a luxury property, Hong Kong happens to be one of the easiest places to register a company and keep its true owners and purpose secret. Opening a company in Hong Kong costs less than C$250 and requires just a director and a company secretary, with only the latter needing to be based in the city. While not necessarily an indication of criminality, “we know that the majority of shell companies aren’t legitimate businesses and aren’t involved in any business activities, they’re simply used to move money around,” Mr. Some Russian oligarchs have already seen the advantages of operating in Hong Kong. Having a company based in Hong Kong can be advantageous, because like London – and unlike tax havens such as the British Virgin Islands – its position as a global financial centre can provide a certain veneer of respectability.
After the Panama Papers were published in 2016 – exposing Hong Kong as a global hub for shell companies – the city moved to beef up measures against money laundering and corporate disclosure laws. A company secretary who has worked in the industry for eight years and represented hundreds of companies described the new register as a “box ticking exercise by the government. The Globe and Mail is not identifying the person so they can speak about sensitive matters. “It’s good for us because we charge a fee for it, but from a regulatory perspective it’s pretty useless,” they said, pointing out that even banks can’t request to see the register, and its accuracy largely depends on the honesty of the person maintaining it. The company secretary said that while it has got considerably tougher to open a bank account in recent years due to financial institutions’ own internal checks, people can still set up a company or buy property without much government oversight. Under Hong Kong law, there is a statutory obligation to report any suspicion that property involved in a deal represents proceeds of an indictable offence. Even if those sectors were filing more reports, it isn’t clear they would result in convictions. Our Morning Update and Evening Update newsletters are written by Globe editors, giving you a concise summary of the day’s most important headlines.
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