The Headline News In Hong Kong - Part 3

Before proceeding with the latest political scandal, here is some general background:

(ChineseNewsNet)  August 24, 2004.

[translation]  According to Ming Pao, there is only three weeks until election day for the Legislative Council.  Yesterday, the media reported that Kowloon West Democratic Party candidate James To failed to disclose personal conflicts of interest and caused another earthquake among the democratic camp.  The fact that the media are disclosing "black materials" on their members was something that the Democratic Party expected because they knew that their opposition this time was not a political party or a candidate, but an entire 'country.'

A Democratic Party insider said that good friends in the political circle told them that many people from mainland China, rumored to be from the National Security Department, had been working at the Legislative Council Library at the Citibank Building in Central for one full week.  These people were researching information and they were said to be looking principally at the financial interests declared by the Legislative Council members.

The democrats realized that a big machine is gather "black materials" on them.  Since their victory in last November's district council elections, the democrats realized that the central government is paying close attention to this upcoming Legislative Council election, and that they will not permit the democrats to gain a majority in order to paralyze the Hong Kong Special Administrative Region.

This Democratic Party insider said that their members have discussed whether they have cause to be concerned, but their common attitude is that they are clean and therefore they were not concerned that anyone can find anything.

According to Democratic Party Yeung Sum, they were psychologically prepared to be continued to be attacked over the next three weeks.  They will use the most transparent and most honest way to respond.

So the democrats knew that the attacks were going to come, and it won't be something silly like the Swift Boat Veterans For Lies.  And they promised that they will use the most transparent and most honest way to respond.  Remember that when you read the latest mess.

Ming Pao (August 8, 2004):  (summary) According to two separate polls run by different political parties, Democratic Party candidate James To's slate has a popular support of 40%, which virtually guarantees that he will be elected in the Kowloon West contest for one of the four positions on the Hong Kong Legislative Council.

(Sing Tao) August 23, 2004  (summary)  

Legislative Council member James To was reported to have violated legislative council member regulations by renting an office owned by his shell company Target Link to himself and two other Democratic Party district council members at exorbitant rental rates which were covered by government funds.  The office space totalled 500 square feet and was purchased in July 1997 for HK$1,048,000.  Each month, James To paid HK$6,800 to use the living room while the other two paid HK$3,500 apiece for the other rooms.  The total monthly rent was HK$13,800, for about 16% annual return on investment when the typical rate on real estate investment in Hong Kong was in fact only between 2% to 4%.  Over the past 5 years and 9 months, the shell corporation Target Link received government subsidies totallying HK$604,900.  However, James To has never declared to the Legislative Council that he owned shares in Target Link.

So far, this did not seem to be a major issue, according to an academic for The Standard:

Hong Kong University law associate professor Benny Tai said the To issue was one of ethics and policy.  "The details of the rental agreement must be studied before we can come to a conclusion,'' he said. "But at this moment I don't see any criminal behaviour.  Unless Legco regulations stipulate that party members and the party itself cannot engage in rental agreements, it would be hard to say that there was a conflict of interest.''

Tai said the key was whether the rent level was reasonable.  "If it didn't exceed the market level by too much, and given that it is ethically acceptable by the public, it is not a bad way for political parties to manage their resources, although I am not suggesting this is one way to raise one's income,'' Tai said.

Sing Tao went ahead and obtained the current rents for a number of comparable apartments in the same Shamshuipo neighborhood, and they were all lower than the HK$13,800.  The real estate market has also recovered from the doldrums after the 1997 collapse, so that the HK$13,800 is even more dubious back then.  To be 'fair', Sing Tao also pointed out that this building contained more than a dozen single-unit brothels, and a 500-square-feet apartment could easily be partitioned into half a dozen 'bedrooms' to be sublet, so this may be a way to justify the higher-than-typical-market rent.  And there is also a question as to whether the outdoor signage can be considered as part of the rented property as well.  According to Wenweipo, a local real estate agency reported that the unit was listed for sale at HK$600,000 or for rent at $4,000+ per month.  So this is a murky issue that is best resolved by calling in a independent assessor.  No biggie, as the sayings goes.

But why did James To, who is a lawyer himself, failed to report his interests?  Here was his first defense (The Standard):

Under Rule 83 of the Rules of Procedure concerning registration of interests, each Legco member shall declare the particulars of his registrable interests, including land and property owned, and the names of companies in which the member has a beneficial interest in shareholdings of a nominal value greater than one-hundredth of the issued share capital.

Under this provision, James To said that he owns only one share in Target Link (which equals exactly 1% of 100 shares) and therefore he did not have to report.  Indeed, according to the Companies Registrar, 100 shares have been issued by Target Link.  So who owns the other 99 shares?  Another Democrat Party member Stanley Ng Wing-fai owns one share and the other 98 shares ... were never issued according to James To!  In other words, he owns 50% of the shell company!

Next, James To resorted to a completely different line of defense.  In The Standard:

On Monday, To showed two undated documents with no official stamps to prove his transfer of a company's shares to the Democratic Party to counter claims he failed to declare these interests to Legco.  He denies owning the company, Target Link, which bought a flat of about 500 square feet in 1997 for the party's Kowloon West branch.  To said he and another party member, Ng Wing-fai, are just the nominees for the party to manage the company and that they receive no monetary rewards.  To said he and Ng signed the share transfer documents in May 1997 but could not recall the exact date.  As the shares are kept under a nominee's name, there was no need to register his interest because Legco only requires a declaration of interests owned in a personal capacity.

While James To may argue that he had no personal liability based upon undated and unstamped documents which he should have known better as a lawyer, the big problem now is that he has steered the arrow straight at the Democratic Party!  They own the office unit and they may be overbilling the government!  A different interpretation is that Target Link was supposed to have 100 shares, of which To and Ng each had 1 share each to their names.  So out of the 100 shares, the sole shareholders To and Ng have 50 shares each.  By the documents, To transferred one share to the Democratic Party, which means that he still has 49 shares of his own!  James To apologised for this oversight and said that he would sign another (undated and unstamped?) document to rectify the error.

What does the Democratic Party have to say?  In The Standard:

In an embarrassing admission, the Democratic Party central committee - comprising key members - said it did not know until Monday that the party owned the Sham Shui Po flat at the centre of a political storm.

Party spokesman Law Chi-kwong said on Tuesday that the Democratic Party only learned of the ownership when To denied allegations of improper use of Legco allowances for his district office.

The 27-member central committee, which includes party chairman Yeung Sum and solicitor Albert Ho, was not informed of the declaration of transfer of shares from To and Ng Wing-fai seven years ago to the Democratic Party.

Worse yet, at the time of the alleged transfer, this office unit was a piece of negative equity (that is, its re-sale value is less than the purchase price).  The unit was purchased at the peak of the real estate bubble with HK$500,000 from eight Democratic Party members including James To and a mortgage loan of HK$548,000 issued by the Hong Kong Bank.  Shortly after, the real estate bubble burst.  So it was no favors to donate a piece of negative equity to the Democratic Party.  According to Wenweipo, the unit above (without any illegal structure) was recently sold for just over HK$500,000.  The rental income coming from the government subsidies had been used to repay the bank mortgage to the Hong Kong Bank, which was never informed that there was a transferral of ownership as required.

Illegal building extension marked with red line

Sing Tao also disclosed that Target Link, the nominal owner of the office unit, was notified by the Housing Department that it had an illegal extension last December, and an order was issued to remove the structure within 60 days.  That means that actual usable legal space is more like 400 square feet.  Target Link did not comply with that order.  As a result, a note has been inserted into the Land Registry so that the unit cannot be resold unless the problem is taken care of first.  Target Link shareholder Stanley Ng Wing-fai is a Democratic Party candidate for the Architecture, Surveying and Urban Planning functionary sector and therefore really should know better.  Ng has admitted that he did not pay attention to the fact that there was an illegal structure on premise for many years, but he has promised to follow up with the engineers soon.

At this point, the Democratic Party has announced that it will form a commission to look into this matter.  At the press conference, the reporters were disappointed that most of the questions were not answered, and some of the answers were more confusing than ever.  The commission will consist of the retired party whip Szeto Wah and two members in the legal field.  They will look into this matter, as well as similar potential problems with other Democratic Party members.  The DP spokesperson Law Chi-kwong does not exclude the possiblity that there may be more of these situations.  More pointedly, Law does not guarantee that the investigation will be concluded before the 9/12 Legislative Council elections.  But one supposes that the public opinion polls will drive how quickly the results will be announced.  Of course, the newspaper editorials are reminding everyone that it was the Democratic Party that insisted that there must be an independent commission to investigate government misdeeds (such as the handling of the SARS crisis).

The Legislative Council Secretariat is asking for more information from James To.  Since the Council is out of session until after the elections, no decision may be made.  It is possible that James To may be re-elected this time and then be expelled after disciplinary hearings afterwards.

The Independent Commission Against Corruption is also looking into this matter.

I am not sure that I got all the details right, but that is hardly the point.  The big takeaway point here is that this is a mess, both on how things were done and how things are being explained now.  They knew that something like this was coming, but they didn't think it was big deal.  Once it happened, they just improvised on the fly and got into deeper and deeper trouble.  They may or may not be honest in their responses, which were definitely opaque so far.

The big question is, Do you have confidence in having the Democratic Party in charge of the Hong Kong Special Administrative Region?

The Smear Campaign

(The Standard)  Scandals part of smear plot, say Democrats.  By Matthew Lee and Carrie Chan.  August 26, 2004.

A well-planned smear campaign is bearing fruit in the form of back-to-back scandals that may hurt the Democratic Party in next month's Legislative Council election, party leaders say.

"There is a well-organised conspiracy under way,'' Democratic legislator Law Chi-kwong said, "and it is being done systematically.''

Referring to the raid that nabbed Alex Ho on prostitution charges in the mainland and the uncovering of the James To property scandal this week, Law said that a "smear campaign'' launched by unknown persons was intent on digging up dirt on the Democrats.

Party chairman Yeung Sum said on Wednesday that more bad news could be in the offing in the run-up to the polls.

"There are two more weeks to go [before election day]. So far, Democrat candidates in two of five constituencies have been plagued with bad news,'' Yeung said. "I would not be surprised if there are more [scandalous reports] to come as the election gets close.''

If more scandals emerge, Yeung said, voters would have to consider whether there was an "organised move'' underway against the Democrats.

The Democrats have been aware of attacks for several months, a party source said. "We have known that some people who specialise in intelligence gathering have been digging for negative information for five or six months,'' the source said, noting that recently someone approached the Legco library for detailed information regarding party legislators' declarations of interests.

All financial transactions of lawmakers must be declared and records are kept in the library for public inspection.

If the allegations are true, the campaign against the Democrats is a taste of what has been an election staple of United States politics for years: digging up scandalous incidents about an opponent's past.

In the US, it is called "opposition research'' and it is a multimillion dollar business for those who come up with information that can harm a candidate's chances.

According to the Hyperdictionary, the word smear has these meanings:

  1. [n] an act that brings discredit to the person who does it; "he made a huge blot on his copybook" 
  2. [n] a blemish made by dirt; "he had a smudge on his cheek" 
  3. [n] a thin tissue or blood sample spread on a glass slide and stained for cytologic examination and diagnosis under a microscope 
  4. [n] slanderous defamation 
  5. [v] charge falsely or with malicious intent; attack the good name and reputation of someone; "The journalists have defamed me!" "The article in the paper sullied my reputation" 
  6. [v] cover (a surface) by smearing (a substance) over it; "smear the wall with paint"; "daub the ceiling with plaster" 
  7. [v] spread or daub over 
  8. [v] make a smudge on; soil by smudging 
  9. [v] stain by smearing or daubing with a dirty substance

Should the cases of Alex Ho and James To be called smear campaigns?  For meaning #5, the first component is 'to charge falsely' but the preponderance of the available evidence is that some of the revelations are true.  The Standard article addresses this distinction only in the last sentence:

"Any one of us during the election should be prepared for negative issues, given that there are so many people out there digging up negative information,'' Albert Ho said. "There is no way to hide if one is at fault.  Whether it's smears or revelations [of truth] depends on the issues,'' he added.

On Commercial Radio's Teacup In A Storm program, Democratic Party Chairman Yeung Sum got himself into trouble when he invoked the word "smear."  When a listener called in to challenge his use of the word, he denied using this, which he did.  Finally, the program host acted as referee and said that Yeung did use the word but that at least he did not say "smear by the central government."

In the matter of James To, two key questions of smear vs. revelation are:

(SCMP)  Slap on the wrist for James To over his rental expenses claim.  By Jimmy Cheung.  March 10, 2005.

The Legislative Council plans to pass an unprecedented sanction against Democrat James To Kun-sun, with a motion of admonishment over his office rental claim last year.

A Legco inquiry yesterday tabled a report criticising Mr To as negligent and falling short of the standards expected of a lawmaker.

Legco's committee on members' interests is to admonish Mr To on April 6 with a motion - generally considered the lowest level of punishment possible under the existing rules.

The Democratic Alliance for Betterment of Hong Kong said the measure seemed too lenient, saying it would study the feasibility of further punishments, such as a reprimand or suspension from duty.

Mr To's integrity was called into question during the September Legco election. He was accused of paying above-market rent for an office in Shamshuipo - money he then claimed back in expenses - and of failing to declare his interest in the company that rents the property to the party.

Concluding the inquiry, the first of its kind in Legco history, committee chairwoman Sophie Leung Lau Yau-fun said Mr To had been grossly inadequate and negligent in handling his company's documents.

"But there is no evidence that Mr To deliberately concealed such interests," she said, referring to the fact that Mr To had not failed to declare his interests in the rental company to the Yau Tsim Mong District Council, of which he is a member.

But the committee said he had a duty to clarify the number of shares he held.

"The committee considers that Mr To failed to prudently discharge that duty, which falls short of the standards expected of a member in handling such matters by members of the public," she said.

Mrs Leung said the committee had no power to investigate whether Mr To had inflated the rental claims. She said the punishment was appropriate.

In a press statement, Mr To said he accepted the report and the recommended punishment.

"Indeed, I have been negligent and have learned a deep lesson. I undertake to be more careful in dealing with matters concerning the declaration of interests."

DAB legislator Lau Kong-wah said the party had yet to discuss whether it would impose a heavier punishment through an amendment to the motion.

Mr Lau said: "The penalty appears to be too lenient. It's not even considered to be a few slaps on the face. It's just like telling someone, `Hey, don't do it next time'."

Democrats chairman Lee Wing-tat said the party accepted and respected the committee's report.

A separate investigation instigated by the party was also in its final stages, and would give an account when ready, according to Mr Lee.