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

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HONG KONG — Hong Kong’s safety 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 within the metropolis, based on paperwork seen by Reuters.

The letters, signed by Secretary for Safety John Lee, had been despatched to Lai after the Hong Kong authorities introduced the freezing of his majority stake in writer Subsequent Digital and native accounts of three firms owned by him below a sweeping new nationwide safety legislation.

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

Three senior non-public bankers and three company legal professionals – impartial from Lai’s accounts – stated the motion prolonged the tightening nationwide safety equipment into elite tiers of the banking system for the primary time, exposing dangers for shoppers and high monetary managers in Hong Kong.

The advisers are in search of steering from bankers and legal professionals on easy methods to problem the freeze, and its affect on offshore holdings and banking relationships managed by Hong Kong till now.

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The motion by the safety secretary can also be fueling concern in regards to the broader funding local weather within the metropolis given the potential attain of the safety legislation, imposed on the previous British colony final June by China’s parliament, legal professionals, bankers and diplomats say.

The strikes may imperil any try by the democracy activist to maneuver offshore belongings again residence to prop up Subsequent’s troubled Apple Each day tabloid, a staunch authorities critic, the monetary adviser stated.

Shares in Subsequent 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 legislation and is going through three nationwide safety expenses together with allegedly colluding with a overseas nation.

The letter to Lai, despatched to him on the metropolis’s high-security Stanley Jail, threatens as much as seven years’ jail and an unspecified advantageous for any dealing within 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 firms registered within the British Virgin Islands (BVI).

Lai couldn’t be reached for remark.

Described as “Discover No. 1,” the letter states that the motion is taken below the “implementation guidelines” of Article 43 of the legislation, which permits for the seizure or freezing of property “used or supposed for use” for the fee of an offense.

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

The identical language was utilized in letters to HSBC and Citibank, based on the paperwork seen by Reuters.

A Safety Bureau spokesman stated as judicial proceedings had been occurring “it isn’t applicable for us to reveal operational particulars.”

“Suffice to say, endangering nationwide safety is a really severe crime.”

Banking regulator, the Hong Kong Financial Authority (HKMA), stated banks needed to cooperate with legislation enforcement businesses in prison investigations, together with freezing of belongings below related legal guidelines, which incorporates the nationwide safety legislation.

“The HKMA has no function in prison investigations and we aren’t ready to remark,” it stated.

‘WAKE-UP CALL’

The letter to Lai specified that he can be held liable if he handled the belongings “besides below the authority of a license” granted by Safety Secretary Lee.

The letters to the 2 banks didn’t clarify which workers within the financial institution can 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 adjust to all relevant legal guidelines and rules in markets the place we function,” the spokesperson stated. A spokeswoman at HSBC in Hong Kong declined to remark.

An account in OCBC Wing Dangle Financial institution can also be listed within the letter despatched to Lai however it isn’t identified if that financial institution acquired an analogous discover. OCBC Wing Dangle declined to remark.

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Lai informed Reuters final Might 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’re sure they’re decided to choke Apple, and even with out making an attempt to grab belongings offshore, they’re making it troublesome to maneuver that cash again into Hong Kong,” one adviser informed Reuters.

“We will now see that any banking relationship you might have centered on Hong Kong makes you susceptible below the nationwide safety legislation – that’s going to be a giant wake-up name for the wealth administration business right here, and their wealthy shoppers,” the adviser stated.

“In making an attempt to nail Jimmy Lai and Apple to the wall, they could properly be nailing that business too.”

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

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

One senior non-public banker in Hong Kong stated it was a typical follow for Hong Kong-based non-public bankers to arrange abroad accounts for shoppers – working below a key assumption that such offshoring of wealth can be legally firewalled.

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“It doesn’t matter if the accounts are arrange in Hong Kong. The cash is elsewhere, and falls below one other jurisdiction,” the banker informed Reuters. “It’s safe.”

If, nonetheless, confidence on this association had been undermined by the nationwide safety legislation and discretionary curbs on financial outflows, it may harm the business.

“A whole lot of shoppers have already been spreading their eggs,” stated the banker who declined to be named given the sensitivity of the difficulty. “The No. 1 one vacation spot is Singapore.”

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

As these protests constructed, Lai’s representatives moved belongings offshore by way of Hong Kong financial institution branches to hunt safety towards a proposed extradition invoice that fueled the demonstrations.

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

Lee, the safety secretary, stated final week that the transfer towards Lai was meant to stop additional crimes and wasn’t aimed toward media work.

Hong Kong’s chief Carrie Lam stated the motion would hopefully reinforce town’s standing as a monetary hub “in order that no-one can use our monetary system to hold out acts endangering nationwide safety.”

Subsequent Digital stated in an announcement on Wednesday it had sufficient working capital to function for at the least 18 months from April 1 with out new loans or money injections from Lai. (Reporting By Greg Torode, James Pomfret and Sumeet Chatterjee in Hong Kong; Further reporting by Anshuman Daga in Singapore; Modifying by Robert Birsel)