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Carrian: End of a dark chapter in Hongkong's financial and judicial history

SCMP December 31

The judicial event attracting most attention recently has been the conviction of former legislator Gary Chen Kai-nam. More on that later. But a more important, and troubling, decision was the Court of Final Appeal's granting the appeal of Ewan Launder, former head of HSBC's investment bank, Wardley, against conviction on a charge of corruption in 1981 relating to the Carrian group.

Carrian was Hong Kong's largest ever bankruptcy and revealed a tale of corruption, false accounting, illusory profits etc stretching from Hong Kong to Malaysia and involving several leading bankers, accountants and lawyers. It was a remarkable story involving murder and suicide which has been sub-judice for so long that most of Hong Kong has forgotten about it. However, a detailed account of much of it appeared recently written by an energetic accountant/publisher, Hector Lee. Entitled, with a dash of irony, "Carrian: Robed Men of Justice" its detailed account provides a useful counterpoint to the Court of Final Appeal's conclusion in the Launder case. (Details from www.carrian.org)

Personally, I wonder whether the Court of Final Appeal would have dared come to such a conclusion on the Launder case had there been more than a handful of people in Hong Kong who could remember what this 20-year-old case was all about. Otherwise it would have sparked the outrage that greeted the 1987 decision of High Court Justice Dennis Barker QC to declare, following a 1½ year trial, that the mastermind of Carrian, George Tan, had no case to answer despite a mountain of evidence. The bibulous Barker's decision was later trashed by a judicial review of his peers and he left the bench, but there was no going back on his verdict on Tan.

That the Launder case has lasted almost twenty years is primarily due to the fact that Launder was a fugitive from Hong Kong justice for almost a decade till his arrest in Britain in 1993, then spent years and millions of dollars legally fighting extradition. The final result certainly confirms the skepticism of those claimed back in the early 80s that whatever happened to others mixed up in the Carrian affair, it was unlikely that any senior HSBC executive would ever be finally convicted, even though merchant banking subsidiary

Wardley was involved with Carrian as advisor as well as creditor from the very beginning, as well as in the last attempts to keep the lid on its horrors by rescuing it. Launder had had a distinguished if at times controversial career at Wardley - for example the firm's advice to minorities in Wynncor, then owner of the Hilton Hotel, to accept a low Cheung Kong offer for the company. Wardley was already closely involved with Cheung Kong and there were credible claims of undervaluation and conflicts of interest.

HSBC's reputation as well as profits were damaged by Carrian. It needed the firm hand of a dour and dedicated Scot, William Purves (later knighted), to restore the bank's reputation for prudence after the entrepreneurial era of Michael Sandberg, chairman during the years when the bank was close to Bond Corporation's Alan Bond as well as Carrian's George Tan.

Carrian first burst onto the scene in 1981 after buying Gammon House from Hongkong Land for a cool HK$1billion. Rumours abounded, which the company and its investment bankers did nothing to deny, that its backers were overseas Chinese of bottomless wealth. Carrian's acquisitions were so rapid and so large that it became within a couple of years Hong Kong's sixth largest company by market capitalisation. The senior partner of its auditor, Price Waterhouse, Jon Marshall, was installed as managing director adding further illusions of respectability. But by late 1982 it was on the rocks, owing billions, much of it unsecured or secured on inflated assets, to major banks.

In 1983, a Malaysian bank auditor Jalil Ibrahim in Hongkong to investigate unauthorized loans, was murdered. This set off a trail of investigation which uncovered extraordinary evidence of bribes, bogus profits,etc. It even transpired that mastermind George Tan had been an illegal immigrant in Hong Kong for over a decade.

Throughout the Carrian prosecution saga from 1983 the ICAC and the police's CCB have constantly found themselves up against bizarre legal judgments and quite extraordinary delays, between the UK, Malaysia and here, engineered by defendants with access to seemingly limitless amounts of money for the most expensive legal advice, and plenty of friends in high places in Hongkong, London and Malaysia. Legal tactics have accounted for most of the delays in bringing perpetrators to justice.

The success of delay is even given support by the CFA which ruled against a re-trial "in view of the long history of this matter". What an example to set, CFA. With 13 years of top legal representation, Tan saw after two trials in 1986/7 and 1992 collapse. He finally pleaded guilty conspiracy to defraud in 1996 and got just three years. A Barclays Asia director extradited from London, Stuart Turner, got a mere one year for corruption, increased to 1½ years on appeal. A leading German banker Dr. Uwe Rameken, made safe to Latin America and is still, in theory, wanted, while his local deputy did 3 years for corruption.

But the most stunning verdict of all was a 10-year sentence given to Malaysian banker Hashim Shamsuddin. Another Malaysian got 5 years jail for conspiracy to defraud. The two were important cogs in the system of corrupt loans, but hardly kingpins. They, non-Chinese, non-British became the fall guys while bigger fish received little or no punishment. A more senior Malaysian was Lorrain Osman who spent 7 years on remand in London prisons fighting extradition. After finally being extradited he served two months in jail, leaving Hongkong without settling legal costs of Pounds sterling one million due to the government.

Taken as a whole, one could reasonably conclude that in the Carrian case Hong Kong justice has in practice been so uneven as to open itself to accusations of utter arbitrariness, if not outright racism. Just look at the differences in sentencing. Allegations of cover-up also abound if one talks to diplomats as well as police, corporate circles, investigators and journalists here and in Malaysia who lived with the Carrian affair in the 80s.

The CFA's verdict on Launder's 1981 corruption charge rests primarily on two points. Firstly, a lack of grammatical thoroughness in the framing of the charge so that the 3 words "or having shown" denoting past tense should have been inserted in the middle of the present tense "showing favour". This is the kind of logic chopping which can bring the whole legal system into disrepute. Would the Court of Final Appeal those accused of murder and rape on such technical grounds?

Secondly, the judges demanded an extraordinarily high degree of direct linkage between the huge payments received by Launder (which were not denied) and the specific favours given to George Tan/Carrian. No wonder white collar crime seldom goes punished here, especially when the accused are members of or closely linked to the business elite or can pay huge sums to barristers to legally nit pick their way out of charges.

Ex-legislator Gary Cheng Kai-nam was certainly guilty of deceiving the public, abusing trust and bringing the Legislative Council into disrepute. But the sums of money involved were puny. An 18-month sentence looks excessive for a man whose professional career is ruined and who, unlike corrupt bankers, convicted or not, is unlikely to have millions stashed offshore.

Cheng's sentence is also harsh when one considers the numbers of cases here of shareholders in listed companies being effectively defrauded by the controlling shareholders, with the assistance of easily-bought valuers and investment banks. The almost total lack of application of criminal sanctions - such as prosecution for criminal breach of trust - in asset transfers between public companies and major shareholders continues to result in outside shareholders being robbed blind. This is regarded as "normal business practice" by many prominent business figures, and is reflected in the attitudes of the bureaucracy and the judiciary.

Interestingly, juries often take a more robust attitude than judges in white collar crime cases, perhaps as they come from social classes less willing to believe that members of top clubs cannot also be crooks.

Not that Hong Kong is unique in its failure to enforce white collar crime as crime. In the US a broker has just been fined US$429 million for selling dud stocks to clients in return for kickbacks. Is that not a criminal offence worthy of a long stint in jail? Or do you have to be a poor, preferably black, drug pusher or shoplifter to go jail?

In Hong Kong, it is the cogs in the drug distribution system, the triad foot soldiers, the common thieves who get the long prison sentences, while the drug barons and the big time fuel and cigarette smugglers and the fraudsters seldom get caught and convicted. On the mainland small time smugglers can get a bullet in the head, while the party-card carrying kingpins escape with disgrace. But is Hong Kong much better?

The Court of Final Appeal suggests not. Its judgement is in keeping with the dark and dirty chapter in Hongkong banking and legal history known as Carrian. ends