By James Pomfret and Greg Torode
LONDON/HONG KONG (Reuters) - Two Western media executives with long experience in Hong Kong have accused global accounting firm BDO of breaking international rules by helping the city's government liquidate the company, which was run by the jailed tycoon Jimmy Lai.
The two U.S.-based directors of Lai's Next Digital Ltd filed a complaint with the British government in December, alleging BDO improperly "acted as a quasi-governmental agency at the behest of the (Hong Kong government), with no judicial oversight" to shut down Lai's media enterprise, including the popular Apple (NASDAQ:AAPL) Daily newspaper.
The allegations by Gordon Crovitz, a former publisher of the Wall Street Journal, and Mark Clifford, a former editor-in-chief of Hong Kong's South China Morning Post, are in a 32-page complaint reviewed by Reuters.
Lai, a vocal critic of China's Communist Party, on trial on national security charges that could result in a life sentence, was the founder and controlling shareholder of Next Digital. It once employed more than 2,000 people but was shut down in June 2021 after a mass police raid and a freeze on its assets.
As he fights the national security case, Lai is in jail on other charges, including a conviction for unauthorised assembly.
"The prosecution of Jimmy Lai and the forced closure of Apple Daily are a sad sign of what has happened in Hong Kong, both in terms of the decline of the free press... and invoking powers to force the liquidation of a listed company without any due process," Crovitz told Reuters.
Britain, the U.S. and other Western governments have called Lai's prosecution in the Chinese city politically motivated and demanded the 76-year-old's immediate release.
The BDO case spotlights political risks for businesses and listed corporations under Beijing's national security clampdown in Hong Kong.
China imposed a sweeping national security law on the financial hub in 2020. Beyond closing Apple Daily and some civil society organisations, the crackdown resulted in dozens of opposition politicians, activists and protest leaders being jailed or going into exile, as well as curbs on free speech and street protests. A second set of national security laws was enacted in March.
Western governments have criticised the clampdown on the former British colony. Hong Kong and Chinese officials say the laws are vital to bring stability after months-long pro-democracy protests in 2019.
ALLEGATIONS INSPECTOR ACTED FOR GOVERNMENT
The complaint by Crovitz and Clifford alleges Clement Chan, a managing director of BDO's Hong Kong arm, was appointed "financial inspector" by Hong Kong in July 2021 and violated rules of the Organisation for Economic Cooperation and Development.
With no judicial oversight and using powers under Hong Kong law, Chan seized documents from a Hong Kong law firm and demanded Next Digital directors take part in recorded interviews and produce documents or risk prosecution, the complaint alleges.
Once such a complaint has been made, all parties are asked to respond to the allegations before a decision is made by the British government on whether to take the complaint to arbitration. At the end of the process, a report is published.
Britain's Department of Business and Trade, which deals with such OECD complaints, said it could not comment on specific cases. Decisions will be "published on its website at the appropriate time", a spokesperson said.
Chan, in a written response to Reuters questions, said BDO was never appointed inspector of Next Digital but that he had received a "personal appointment" by Hong Kong's financial secretary under the Companies Ordinance.
He said his duty as inspector was to investigate Next Digital's affairs, not to wind it up. As the investigation is ongoing, he said he could not comment further but said his duties would be conducted lawfully.
Chan's reply, headed "Office of the Inspector of Next Digital Limited", listed an address one floor below BDO's Hong Kong headquarters. A Reuters visit to the building confirmed an office in a single room with a plaque and door sign bearing the same name.
Responding to questions from Reuters, a Hong Kong government spokesman issued a brief statement on Monday: "BDO has not been appointed as the Inspector of Next Digital Limited."
London-based BDO International said in a statement it "cannot provide further information", given confidentiality obligations under OECD rules for UK complaints. BDO Hong Kong did not respond to questions on whether it had received payment from the Hong Kong government or whether its resources had been used to assist Chan's work as inspector.
'VERY GEOPOLITICALLY CHARGED'
Under OECD rules, multinational enterprises must "prevent or mitigate adverse human rights impacts that are directly linked to their business operations" and "carry out human rights due diligence". Parent companies are responsible for all the actions of their subsidiaries, including those overseas, according to the guidelines.
BDO's corporate responsibility efforts include "building human and social capital", according to its website.
The OECD guidelines are non-binding, but OECD governments - which include Britain but not China or Hong Kong - must promote and monitor implementation of the guidelines.
Nicolas Hachez, head of access to remedy at the OECD Centre for Responsible Business Conduct, told Reuters that OECD countries could review allegations involving companies based in their own country and "operating anywhere in the world".
Chan submitted an interim report of his findings to the government, which the government used to justify the company's liquidation.
"After considering the Interim Report, the Financial Secretary took the view that it would be expedient in the public interest that NDL (Next Digital Limited) be wound up," Hong Kong Financial Secretary Paul Chan said in a September 2021 statement.
Clement Chan's half-yearly contracts have been renewed since 2021, most recently in July.
BDO faces reputational risks, according to SOMO, a Netherlands-based advocacy research group focussed on multinationals.
The complaint against BDO would be one of the first lodged against a global accounting firm for acting as an "enabler for an authoritarian regime", said SOMO's advocacy director, Joseph Wilde-Ramsing.
"This is a unique case... groundbreaking and in a process that is very geopolitically charged," Wilde-Ramsing said.
"The main cost for a company like BDO will be in terms of image and reputation, but this can have financial consequences if investors or business partners see the company as irresponsible and are spooked."
The global legal firm Mayer Brown faced business and political blowback for work undertaken for a client in 2021 over its removal of a statue commemorating China's 1989 Tiananmen Square crackdown on pro-democracy demonstrators.