http://www.reuters.com/article/2012/04/24/us-hongkong-kwoks-probe-idUSBRE83N0IZ20120424

Exclusive: Hong Kong probes $2.5 million payment in Kwok case: source

Former Hong Kong Chief Secretary Rafael Hui (L) leaves the Independent Commission Against Corruption (ICAC) headquarters in Hong Kong April 10, 2012.

Credit: Reuters/Stringer

By David Lague

HONG KONG | Tue Apr 24, 2012 8:04am EDT

HONG KONG (Reuters) – Hong Kong’s anti-graft agency is looking into payments totaling more than U.S. $2.5 million to a former top public servant as part of the city’s corruption investigation involving two billionaire brothers who run Asia’s largest property developer.

According to a source with knowledge of the investigation, the Independent Commission Against Corruption (ICAC) is investigating payments to Hong Kong’s former chief secretary, Rafael Hui. The payments are linked to Sun Hung Kai Properties (0016.HK), the powerful conglomerate run by Raymond and Thomas Kwok.

Hui and the Kwok brothers were arrested on suspicion of corruption on March 29 and released on bail without charges being filed. The three men, friends since childhood through Macau family connections, have been ordered to report back to ICAC headquarters later next month, when they are expected to extend their bail agreement, the source said.

Details of the investigation have not been disclosed. The payments cited by the Reuters source reveal for the first time precise information on Hui’s role in the investigation of the Kwoks, who rank among Asia’s richest families.

It is not clear whether the payments came from Sun Hung Kai Properties, one of its subsidiaries, or from the Kwok brothers themselves. Details on what else the ICAC is investigating are also unclear.

The Kwok brothers have denied any wrongdoing. The ICAC declined to comment while the investigation continues. Sun Hung Kai also declined to comment.

Several attempts at reaching Hui, including calls to former associates, were unsuccessful.

The ICAC arrested Sun Hung Kai Properties Executive Director Thomas Chan and four other people who are yet to be identified in March as part of the same investigation into allegations of bribery and misconduct in public office. They were also released on bail.

The arrests sent a shock through Hong Kong’s business community, a small, close-knit group of tycoon-led families that control much of the city’s business operations and hold heavy political influence. The case is the biggest investigation the ICAC has undertaken since its formation in 1974.

According to the source, Hui received a series of payments before and after his time in office worth more than $2.5 million. These payments are among several key transactions that are part of the investigation, the source said.

“KING STRATEGIST”

For Hui, 64, the ICAC probe threatens to tarnish a public service career in which he rose to become the deputy to Hong Kong’s outgoing chief executive, Donald Tsang.

Hui stood down as chief secretary in 2007 at the end of Tsang’s first term. He then spent two years on the Executive Council, an advisory body to the chief executive.

After his arrest, Hui resigned as an independent, non-executive director of pan-Asian insurer AIA Group (1299.HK). Prior to the investigation, he sold his 50 per cent share in an investment company, RH & Lang Ltd., which is registered in the British Virgin Islands, the South China Morning Post reported. Local media reports said Hui also sold off racehorses.

Hui, an opera fanatic, has been under a harsh spotlight before.

In 2005, he declined to move into the colonial mansion on Victoria Peak reserved for the chief secretary, opting to stay instead in his modern, 5,000-square-foot apartment. The luxury flat overlooking the Happy Valley racecourse that he and his wife call home is in the Leighton Hill complex, a Sun Hung Kai development. That prompted criticism at the time that Hui would be conflicted in his public role on any matters related to the Kwoks. On taking office, Hui pledged to pay HK$160,000 ($20,600) per month in rent to remain in the apartment.

As chief secretary, Hui’s connections with Sun Hung Kai came under public scrutiny after he took on the role of overseeing Hong Kong’s billion-dollar West Kowloon cultural district, a project on which the company had bid.

Hui, whose nickname is “King Strategist”, provided both political and business advice to Sun Hung Kai over the years, a boon for a developer in a city where the government controls the land supply. He was also trusted by the Kwoks’ mother, according to sources close to the family.

“He’s a very smart guy with many tricks, with a great grasp of details and flexibility,” said James To, a democratic lawmaker, who has dealt regularly with Hui over 20 years of public service.

Hui is a member of the Chinese People’s Political Consultative Conference, the top-level advisory body to the Chinese government.

TINY ELITE

Upon completion of its investigation, the ICAC will send the evidence to Hong Kong’s justice department, which then decides if it will prosecute. The ICAC was set up in 1974 when crime and police corruption were rampant in the then British colony. The agency has investigated top police and government officials and construction executives.

But in the last few years, critics complain the commission has failed to successfully prosecute any high-level cases involving Hong Kong’s rich and powerful, or the burgeoning new class of mainland Chinese entrepreneurs.

The Kwoks and Hui are part of a tiny elite who dominate business and politics in the city of 7 million, which returned to Chinese rule in 1997. All three belong to the 1,200-member committee that selected Hong Kong’s next leader on March 25.

The Kwok brothers have built Sun Hung Kai, which they inherited from their father, into the world’s second-largest real estate developer. Their office tower portfolio includes the city’s two tallest buildings, the International Finance Center and the International Commerce Center. The property developer is the beating heart of a conglomerate that is deeply embedded in Hong Kong life, with stakes in the bus, phone and trash systems of Asia’s financial capital.

Sun Hung Kai’s stock has fallen 15.5 percent since the arrests, but that still leaves it with a market capitalization of $31.6 billion.

Forbes estimates the Kwok brothers’ fortune at $18.3 billion, according to figures in March just before they were arrested. For Hong Kong’s fabulously rich tycoon families, that puts them No. 2 behind Li Ka-shing, who is also Asia’s richest person.

Such wealth caught the eye of a notorious gangster, Cheung Tze-keung, known as “Big Spender”, who kidnapped Walter Kwok in 1997 and held him for six days in a wooden crate before his family paid a ransom, reportedly HK$600 million ($77 million). Cheung was executed a year later by firing squad in mainland China.

The incident left Walter badly shaken, sources and media reports say, but he returned to run the company until being forced from the helm in 2008. In a writ seeking to prevent his removal, Walter said his brothers, Raymond and Thomas, believed he had bipolar affective disorder — which Walter denies — and could not fulfill his duties.

The younger brothers also objected to a long-term friendship between Walter and a lawyer, Ida Tong, who they felt was exerting undue influence at the company, according to two other sources close to the family. Tong could not be reached for comment.

The embarrassing public tussle for Sun Hung Kai Properties forced the family’s octogenarian matriarch, Kwong Siu-hing, to intervene and assume the chairman’s role herself until last December, when Thomas and Raymond took on the joint role.

Walter has not been arrested, and his spokeswoman has declined to comment to Reuters.

(Additional reporting by Alex Frew McMillan and James Pomfret; Edting by Michael Flaherty and Bill Tarrant)