Mossack Fonseca, the Panama-headquartered law firm at the centre of Monday’s Panama Papers leaks, debated whether to report Sun Hung Kai Properties (SHKP) to the financial crime authorities in the British Virgin Islands.
The leaked papers revealed that the arrest of Sun Hung Kai executive Thomas Chan Kui-yuen in 2012 led to a battle within the law firm over whether to part ways with its VIP client. Asia’s largest property developer was using a shell company controlled by Chan in the British Virgin Islands called Yorkshire Limited, according to the leaks seen by The Guardian.
More than 11 million leaked files, known as the Panama Papers, were obtained securely from an anonymous source over a year ago by German newspaper Süddeutsche Zeitung. The data was shared with The International Consortium of Investigative Journalism (ICIJ) and several other media outlets. Over 370 journalists from over 100 news organisations in 76 countries collaborated on the project over several months, with the first stories from the data dump emerging on Monday.
Mossack Fonseca staff reportedly raised concerns after Chan was arrested in 2012 in connection with bribing former chief secretary Rafael Hui Si-yan. The criminal charges made it illegal for Chan to hold a corporate role in the British Virgin Islands.
Staff noted that the shell company had no purpose and were wary that Hong Kong investigators may ask about it. SHKP refused to provide required due diligence documents, saying the company had been “inactive” for years. According to The Guardian, a Hong Kong staffer warned in an email that SHKP “will get mad” and may “transfer all the companies away from our firm” should they be pressed for the missing papers.
A stand-off ensued as staff debated whether, and how, Yorkshire Limited should be liquidated. The documents were eventually provided after three months and the company was dissolved on November 13, 2012.
In 2014, property tycoon Thomas Kwok was jailed for five years for bribing Rafael Hui Si-yan. As a high-ranking company executive, Thomas Chan received six years behind bars for his role as a middleman in the scandal.
‘Proud of our work’
On Monday, the International Consortium of Investigative Journalism said that it had obtained internal files from Mossack Fonseca containing information on 214,488 offshore entities.
“Mossack Fonseca’s fingers are in Africa’s diamond trade, the international art market and other businesses that thrive on secrecy. The firm has serviced enough Middle East royalty to fill a palace. It’s helped two kings, Mohammed VI of Morocco and King Salman of Saudi Arabia, take to the sea on luxury yachts,” it said.
The law firm gave special rates and treatment to SHKP, a client it described as “one of the best in the last 10 years”.
In a statement after the leak, Mossack Fonseca said that it has never been sued and it followed “both the letter and spirit of the law”.
“We’re proud of the work we do, notwithstanding recent and willful attempts by some to mischaracterize it,” the statement read.
The Independent Commission Against Corruption (ICAC) has not stated whether it investigated Yorkshire Limited.
What are shell companies?
Shell companies have few significant operations, products or assets, but are used to carry out business transactions. They exist only on paper, are usually based in offshore jurisdictions and have no offices or employees. Some may lie dormant simply because the company failed, but they may also be used to avoid or evade tax, as corporate entities “invest” profits into the “fake” corporations.