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

Berita 24 English -  According to documents seen by Reuters, Hong Kong's security chief sent letters this month to media tycoon Jimmy La...


Berita 24 English - 
According to documents seen by Reuters, Hong Kong's security chief sent letters this month to media tycoon Jimmy Lai and branches of HSBC and Citibank threatening up to seven years in prison for any dealings with the billionaire's accounts in the city.

The letters, signed by Secretary for Security John Lee, were sent to Lai following the announcement by Hong Kong authorities that his majority stake in publisher Next Digital and the local accounts of three companies he owns would be frozen under a new sweeping national security law.

While the balances in the accounts were small, one of Lai's financial advisers stated that they represented the Hong Kong management end of a global network of banking relationships covering his private wealth.

Three senior private bankers and three corporate lawyers - unaffiliated with Lai's accounts - stated that the action extended the tightening national security apparatus into the banking system's elite tiers for the first time, exposing risks to clients and top financial managers in Hong Kong.

The advisers seek guidance from bankers and attorneys on how to contest the freeze and its impact on offshore holdings and banking relationships previously managed through Hong Kong.

The security secretary's action also raises concerns about the city's broader investment climate, given the potential reach of the security law, which China's parliament imposed on the former British colony last June, lawyers, bankers, and diplomats say.

The moves could jeopardize any attempt by the democracy activist to repatriate offshore assets to bolster Next's troubled Apple Daily tabloid, a vocal critic of the government, the financial adviser said.

Next Digital shares surged as much as 330 per cent on Thursday after authorities last week froze Lai's 71.26 per cent stake, which was then valued at $45 million.

Lai has emerged as one of the new law's most high-profile targets, facing three national security charges, including alleged collusion with a foreign country.

The letter to Lai, which was delivered to him at the city's maximum-security Stanley Prison, threatens him with up to seven years in prison and an unspecified fine for any dealings in the named assets, including their disposal or conversion, their use as collateral, or their transfer into or out of Hong Kong.

The letter to Lai details seven Hong Kong bank accounts linked to three British Virgin Islands-registered companies (BVI).

Lai was unavailable for comment.

The letter, titled "Notice No. 1," states that the action is being taken by the law's "implementation rules," which allow for the seizure or freezing of property "used or intended to be used" in the commission of an offence.

The letters also acknowledge Lai's and the banks' legal right to contest the notice, which expires in May 2023.

According to documents seen by Reuters, the same language was used in letters to HSBC and Citibank.

According to a Security Bureau spokesman, "it is not appropriate for us to disclose operational details" while judicial proceedings are ongoing.

"It goes without saying that endangering national security is a grave offence."

The Hong Kong Monetary Authority (HKMA), the banking regulator, stated that banks must cooperate with law enforcement agencies in criminal investigations, including asset freezing, by applicable laws, including the national security law.

"The HKMA is not involved in criminal investigations and is therefore unable to comment," it stated.

'AWAKENING CALL'

The letter to Lai stated that he would be held liable if he handled the assets "other than according to the authority of a licence" granted by Security Secretary Lee.

The letters to the two banks did not specify which bank employees would be held accountable.

Citibank's Hong Kong-based spokesperson declined to comment on individual client accounts. "Citi is obligated to adhere to all applicable laws and regulations in the markets in which we operate," the spokesperson stated. HSBC's Hong Kong spokeswoman declined to comment.

The letter sent to Lai also mentions an account at OCBC Wing Hang Bank, but it is unknown whether that bank received a similar notice. OCBC Wing Hang did not respond to a request for comment.

Last May, Lai told Reuters that, given the mounting pressure on him, most of his personal wealth was offshore.

According to his advisers, this investment spans Asia and North America, including real estate in Taiwan, hotels in Canada, and tens of millions in US stocks.

"We are certain they are determined to strangle Apple, and even if they do not attempt to seize assets offshore, they are making it difficult to repatriate money," one adviser told Reuters.

"We can now see that any banking relationship centred on Hong Kong makes you vulnerable under the national security law – this is going to be a major wake-up call for the wealth management industry here, as well as their wealthy clients," the adviser explained.

"By attempting to nail Jimmy Lai and Apple to the wall, they may very well nail the entire industry as well."

According to Lai's advisers, the uncertainty surrounding his offshore assets stems from the fact that they are held in offshore accounts established and managed through Hong Kong.

According to bankers and attorneys, regulators and banks in other jurisdictions are not required to respond to requests for information about individual accounts from another country, particularly if the requests are unrelated to terrorism or money laundering charges.

According to one senior private banker in Hong Kong, it is common for Hong Kong-based private bankers to open overseas accounts for clients - with the critical assumption that such wealth offshoring would be legally firewalled.

"It makes no difference if the accounts are opened in Hong Kong. The money is located elsewhere and is subject to another jurisdiction. "Reuters spoke with the banker. "It is safe."

However, if confidence in this arrangement is eroded due to the national security law and discretionary restrictions on monetary outflows, the industry may suffer.

"Several clients have already begun to spread their eggs," said the banker, who requested anonymity due to the sensitivity of the subject. "Singapore is the number one destination."

Lai, 73, is serving a 14-month prison sentence for participating in unauthorised assemblies during Hong Kong's 2019 anti-government protests.

As the protests grew, Lai's representatives transferred assets offshore via Hong Kong bank branches to avoid extraditing, which fueled the demonstrations.

While the government later shelved the bill, key provisions – including the ability to extradite Hong Kong suspects to mainland Chinese courts and broader asset seizure regulations – were incorporated into China's security law.

Lee, the security secretary, stated last week that the action against Lai was intended to deter future crimes and was not intended to garner media attention.

Carrie Lam, Hong Kong's leader, stated that the action would bolster the city's status as a financial hub, "ensuring that no one can use our financial system to commit acts endangering national security."

Next Digital said in a statement on Wednesday that it had sufficient working capital to operate without additional loans or cash injections from Lai for at least 18 months beginning April 1.

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