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HK Protects Illicit Wealth
World Economy

HK Protects Illicit Wealth

The same year Jasmine Li, whose grandfather was the fourth-ranked politician in China at the time, donned a floral Carolina Herrera gown and debuted at a ball in Paris, a company called Harvest Sun Trading Ltd. was born in an aging building at the edge of a district in Hong Kong. The next year Li bought the company for $1.
The revelations come from a tremendous cache of documents leaked from the Panamanian law firm Mossack Fonseca and published by the International Consortium of Investigative Journalists, AP reported.
Hong Kong was Mossack Fonseca’s go-to spot for financial intermediaries like P&P Secretarial Management, home to 2,212 accountants, banks and other middlemen Mossack Fonseca used to set up 37,675 offshore companies for its global clients between 1977 and 2015—more than any other place in the world, according to ICIJ’s analysis.
Hong Kong has emerged as a major design center for offshore vehicles, a place brimming with people expert at packaging and protecting wealth. The back pages of newspapers in the country teem with advertisements for corporate formation companies, one-stop shops promising fast bank account opening, corporate compliance, tax and accountancy services. Offshore vehicles are used to minimize tax, mitigate political risk, and circumvent onerous regulations in China. And they are completely legal.

  Haven for Hiders
But Hong Kong’s offshore financial machinery works so well, and so discreetly, that it can be abused by those seeking to hide illicit assets or evade taxes. As traditional havens, like Switzerland, cave to years of grinding pressure from European and American tax authorities, unsavory money is drawn to Hong Kong, which despite reforms, retains its reputation for secrecy, non-cooperation, and a light regulatory touch, watchdog groups and lawyers say.
“Hong Kong attracts this type of hot money from across the region and globally, partly because of its perceived stability,” said Iain Willis, a partner at Latymer Partners, a corporate intelligence advisory firm in London. “’Light-touch’ financial regulation, easy rules on company incorporation and limited transparency” add to its appeal, he said.
China’s Foreign Ministry dismissed ICIJ’s reports as “groundless,” and the government has aggressively censored discussion of them.
Hong Kong tax authorities said in an email Friday that they would “take necessary actions” based on the offshore leaks, and work to “enhance the efficiency and effectiveness” of enforcement as required.
“It’s quite natural that Hong Kong would grow to play a significant role in the plumbing infrastructure of globalization,” said Martin Kenney, an asset recovery lawyer in the British Virgin Islands. “They are the architects, designers and engineers of the structures.”
Hong Kong does not tax income that originates abroad, a policy that supports the proliferation of foreign-registered companies. Hong Kong’s independent legal system and effective escape route from mainland China’s currency controls—it’s easier to move money between mainland China and Hong Kong than elsewhere—also add to its appeal, lawyers say.

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