Authorities are ramping up collection efforts, a tax partner said.

Hong Kong is reportedly intensifying tax checks on private equity and venture funds as it faces pressure to plug deficits, reports Bloomberg.

Some tax advisers said they have seen a jump of as much as 50% in funds seeking guidance on how to respond to inquiries from the authorities during that period.

Authorities are “ramping up” their collection efforts, said Patrick Yip, vice-chair and international tax partner at Deloitte China. “We have seen a noticeable increase in inquiries from fund clients seeking advice on how to deal with inquiries from the Hong Kong tax authorities in the last two years.”

Hong Kong, which prides itself on its low taxes, is battling a sluggish economy and steep deficits after years of political upheaval, strict Covid-19 curbs and a slumping housing market. The government is looking at drastic measures, including cutting 10,000 civil servant jobs and ways to boost revenue, such as potentially regulating basketball betting.

In 2024, it raised taxes on high earners – the first hike in two decades. The city’s top income tax rate is 17% and it has no levies on capital gains.

Read more from Bloomberg.

Small and medium-sized businesses in 11 UK regions are being targeted as part of a crackdown by HMRC on perceived non-compliance with the National Minimum Wage (NMW).

Belfast, Birmingham, Bradford, Cardiff, Cornwall, Cumbria, East Anglia, Glasgow, Liverpool, the North East, and Watford are being specifically targeted by the tax authority. Businesses found guilty of non-compliance will be ordered to pay NMW arrears to workers in addition to increased National Insurance Contributions (NICs).

If a business does not accept HMRC’s initial offer of a health-check meeting, they also risk financial penalties of up to 200% and public naming and shaming.

Many of these businesses could be inadvertently breaking the rules due to their complexity and common misunderstandings around how to accurately calculate NMW beyond an hourly rate of pay.

HMRC has committed more than £27 million to tackling NMW non-compliance, with regional enforcement being its main focus. Areas are being targeted based on data suggesting a larger volume of workers potentially being paid below the required NMW rate, as well as intelligence gathered such as complaints made by workers in the region.

HMRC is targeting workers paid in excess of £30,000 per annum. Therefore, Azets estimates that more than 50% of all SMEs in targeted locations could be caught up in the enforcement activity, requiring checks of their business records and hours’ worth of administrative burden, even for compliant companies.

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Commenting on this, Azets UK head of National Minimum Wage, Kyle Newton, said: “Maintaining compliance with National Minimum Wage is commonly misunderstood, with the calculation made up of several components across five core pillars – it is not just an hourly rate of pay. As an employer, unless you understand these pillars and have policies in place to govern and control each, you are at risk of non-compliance.

“From our experience, it is sometimes the case that enforcement is inconsistent with the circumstances of the targeted business, meaning that often HMRC calculations have applied incorrect assumptions.

“With HMRC continually ramping up enforcement and the Government granting the Low Pay Commission further powers to align NMW rates with real living costs, now more than ever there is a greater probability of business facing scrutiny. Employers should take proactive steps to ensure compliance before a letter lands on their desk.”

Many businesses have already received letters from HMRC as part of a three stage process.

Targeted businesses will receive an HMRC nudge letter providing a list of common areas that can lead to NMW non-compliance. The next stage is a letter from HMRC offering to perform a free health-check. Failure to take up this offer will result in HMRC opening up a formal enquiry.

Newton added: “Effectively HMRC is flooding the post code area, using a variety of methods to gather intelligence to aid its enforcement and collection of National Minimum Wage arrears and penalties.

“Additional tactics include targeting workers directly through a series of letters and social media campaigns encouraging them to check their pay and whistle blow if they believe they are paid below the required rate.

“By taking proactive steps to ensure compliance and mitigate risk, businesses will avoid the 200% legal penalties, protect their reputation, and ensure fair treatment of their employees.”

Hong Kong’s Securities and Futures Commission searched AMTD Group’s office and the home of Mr Calvin Choi, who runs the firm, in February 2021.

HONG KONG (BLOOMBERG) – The Hong Kong financial group behind an initial public offering (IPO) that stunned Wall Street by soaring more than 32,000 per cent following its debut has drawn regulatory scrutiny over deals it arranged in the Asian financial hub.

The previously unreported probe by Hong Kong’s securities watchdog into AMTD Group, which is run by former UBS Group banker Calvin Choi, predates the US listing of its unit AMTD Digital.

Despite reporting just US$25 million (S$34.5 million) of revenue in the year ending April 2021, AMTD Digital’s market capitalisation briefly surged above US$400 billion in early August – surpassing giants including Goldman Sachs Group and JPMorgan Chase & Co. The stock has since tumbled more than 90 per cent.

Hong Kong’s Securities and Futures Commission (SFC) searched AMTD Group’s office and Mr Choi’s home in February 2021, according to people familiar with the matter. Investigators were looking into its underwriting arrangements as recently as November, one of the people said. The full scope of the inquiry and its current status are unclear. Some SFC probes never result in charges and those that do can often take years to become public.

The regulator’s scrutiny adds to a string of controversies in recent years involving Mr Choi, who is appealing a separate SFC decision to ban him from the securities industry for two years over what the regulator said were conflicts of interest from his time as a UBS dealmaker.

A unit of China Minsheng Investment Group (CMIG), which bought a major stake in AMTD Group in 2015, publicly accused Mr Choi of financial fraud, even putting up posters with his face on the streets of Hong Kong, according to a 2020 Caixin report. I It is unclear whether CMIG took any further legal steps.

Mr Choi, who did not respond to repeated phone calls and text messages, has appealed the SFC ruling, and a tribunal will hear the case in December. In September 2020, he told newspaper Tai Kung Pao that the allegations from CMIG were untrue and he had never had any authority over CMIG funds.

The financier’s firm is one of at least seven from Hong Kong or China to see wild price swings after listing in the US this year. US Securities and Exchange Commission chair Gary Gensler has repeatedly warned about the risks of investing in Chinese companies and last week said the regulator pays close attention to wild market moves, without specifically mentioning any firms.

The SFC probe has focused at least partly on small-cap IPOs that were underwritten by a unit of AMTD Group, the same one that arranged the US listing of AMTD Digital, people familiar with the matter said. Deals scrutinised by the SFC include IPOs of IntelliCentrics Global Holdings and China Bright Culture Group, the people said.

Investment avenues

The Hong Kong stock exchange in June 2021 sanctioned two executives at IntelliCentrics Global after the firm used more than 90 per cent of the proceeds from its 2019 IPO to buy offshore promissory notes through AMTD.

The bourse noted that the firm has said its purchase was a “temporary and interim measure” to manage IPO proceeds. Even so, the exchange found that the firm and two executive directors had breached its rules.

China Bright Culture Group, a television producer, invested US$70.8 million – or 60 per cent of the amount raised selling shares in Hong Kong – in a promissory note issued by L.R. Capital Property Investment, according to its 2021 annual report. The full amount was later redeemed.

L.R. Capital Property shares the same Cayman Islands address – and company secretary – as L.R. Capital Management, in which Mr Choi’s father held a stake until December 2021, according to filings with corporate registries in the British territory and Hong Kong. The latter firm, a former majority owner of AMTD Group, played a part in the decision by the SFC to ban Mr Choi, according to a ruling by the Securities and Future Appeals Tribunal in Hong Kong.

According to people with knowledge of how AMTD arranged deals, the firm worked with select investors to cover shortfalls in demand for IPOs. After the IPO, the newly listed company would invest similar amounts into wealth products managed by firms linked to AMTD, the people said.

If shares of the newly listed company rose after the IPO, the investors would sell and share the profit with the listed company, the people said. The IPO issuer would then redeem its investments in AMTD-linked wealth products. The issuer also agreed to cover any potential losses suffered by the select investors in the IPO, the people added.

Documents seen by Bloomberg News show close ties between some of the investors. Three companies that invested in one recent US IPO underwritten by AMTD, for example, shared the same company secretary and two of them are registered on the same Hong Kong address, the documents show.

“Any kind of manipulation that is obscuring the nature of the cash flow or the nature of the company is a form of market manipulation that regulators are, or should be, watching out for,” said Associate Professor Veronique Lafon-Vinais at the Hong Kong University of Science and Technology, speaking in general.

Hong Kong’s market has long been plagued by allegations of transactions between closely connected companies. In 2018, the SFC’s enforcement chief accused a “nefarious network” of listed companies, brokers, money lenders and advisers of enriching themselves off unsuspecting investors.

The regulator has since clamped down on the small-cap market, known as Growth Enterprise Market, to root out the extreme price swings caused by so-called “ramp-and-dump” schemes that inflated the value of thinly traded companies.

Similarly extreme gyrations are now confounding US investors. AMTD Digital shares surged at one point to as high as US$2,555.30 from its US$7.80 IPO price, before falling to US$186.93 on Wednesday.

Another affiliate, AMTD Idea Group, climbed as much as 536 per cent in New York. A little-know financial services firm, Magic Empire Global – unaffiliated with AMTD – jumped as much as 2,825 per cent following its debut on Aug 6 before tumbling again. Other Chinese or Hong Kong-based firms have also seen big swings after listing in New York.

Experts on the ground in both Hong Kong and Singapore already report booking spikes and surges in airfares and hotel rates. The message is to start laying the groundwork for when China eventually eases its own travel policies.

Travel management companies are warning airfares will continue to surge in the coming weeks following Hong Kong’s decision to relax travel restrictions this week.

Since September 26, international travelers to Hong Kong have not had to undergo mandatory hotel quarantine. Hotel rates also jumped as the financial hub starts competing again for international business travelers against rival Singapore, and could jump by as much as 40 percent in the coming months.

Singapore, which dropped most of its travel restrictions in March, has has already seen a strong return of conference business, in part due to Hong Kong’s ongoing closure.

Corporate travel agency CWT said inbound and outbound bookings in Singapore were up around five-fold from the beginning of the year, but now booking levels in Hong Kong were increasing, with transactions currently three times higher than at the beginning of the year.

“Call volumes to our travel counselors in Hong Kong spiked following the announcement, and we expect this could translate to a big jump in bookings in the weeks ahead,” said Akshay Kapoor, head of sales, Asia Pacific, CWT.

“We’re receiving many queries from travelers who were previously planning itineraries with multiple destinations but are now looking to split those up into separate trips since they won’t have to quarantine when they return,” he added.

BCD Travel saw an “immediate” uptick in enquiries too after Hong Kong’s announcement, in particular for bookings that had been pending as travelers waited for further details.

“The increased activity continues this week,” said Jonathan Kao, managing director, Greater China. “Travelers are timing trips to avoid quarantine on their return to Hong Kong.”

He added that most customers were surprised by the new policy, which came into force within three days of the announcement. “The speculation was that it would go live around mid to late October, in preparation for the Hong Kong Sevens and Global Financial Leaders Investment Summit, organized by the Hong Kong Monetary Authority and planned for this November,” he said.

Price Shocks

The message now is that travel managers should prepare.

“It’s important to communicate their projections with their travel agencies and other suppliers like airlines and hotels, so that we are all better prepared to support the return to travel,” Kao said.

According to CWT, hotel rates in hong Kong are forecast to see year-on-year price increases of 40 percent in 2022 and 14 percent in 2023, while Singapore could rise 25 percent and 7 percent next year.

“I do not see demand pressures on pricing abating anytime soon,” said CWT’s Kapoor. “On the contrary, I expect demand will spike sharply once China relaxes its border restrictions and removes quarantine requirements for international travel.”

While airfares decreased in most markets in 2020 and 2021, CWT saw the opposite for these two financial powerhouses. Air ticket prices for Hong Kong increased 13 percent and then 5 percent, and Singapore increased 10 percent in 2020 and a further 25.8 percent in 2021.

Further ahead, airfares in Hong Kong are expected to jump 24 percent this year and a 4 percent next year. For Singapore they are projected to climb 15 percent in 2022 and then 9 percent in 2023.

Singaporean multinational bank DBS said the island’s hospitality industry was also on track for a “spectacular” second half of 2022, with room rates moving quickly to pre-pandemic levels and the average length of stay nearly doubling from 2019.

“Travelers have to compromise on class of travel due to limited inventory, and so for example fly economy instead of business class,” Andrew Yeo, managing director for Singapore and Australia at BCD. “They should also consider alternate airlines and be prepared for last-minute itinerary changes due to current conditions.”

Business-class pricing has also been more unpredictable, and has at times jumped from -15 percent to +15 percent in the space of a few weeks, making it challenging for travel managers to plan ahead with confidence using historic data, according to Skytra, the Airbus-owned airfare data company.

“Prices within the Asia-Pacific region have also been consistently high since late June when China eased its rigid controls for domestic travel and countries such as Thailand reopened to international visitors,” said CEO Elise Weber.

All Roads Lead to China

With limited direct flights into China, business travelers have been using Hong Kong as a major transit point into the country since its shortened the quarantine requirement to seven days back in April.

That corporate traffic could now increase further.

“We’re seeing our first serious amount of bookings to Hong Kong in the past few days,” said Hugh Batley, co-founder of Singapore-based business travel agency TruTrip. Those bookings include many micro-events, such as training and events. “Singapore, Malaysia, China, all those routes will see significant growth,” he added.

For BCD, Hong Kong-China routes have been consistently sold out in the past six months and likely will be through the end of the year, with most flights selling out as soon as the inventory becomes available.

Once China does reopen, experts warn demand will outstrip supply as airlines try to ramp up their reduced capacity. It may also be difficult to obtain seats to a desired destination, while airport staff and ground handling could be another issue.

However, the Asia Pacific region will propably dodge the chaos Europe and U.S. saw after those regions opened back up.

“The policy change in China could be a bit more gradual and the government may take a phased approach to reopening,” Kao noted.

“If you look to the U.S., they’ve had the boom. In Asia Pacific, they’re that little bit further delayed with reopening, so we’re still in that boom. The boom may not be as big as it would have been due to the recession, and we won’t see it in our sector for a few months,” added Batley.

There’s also a chance China will be monitoring Hong Kong closely. “I suspect Hong Kong is a little bit of test bed to see what happens, when internationals come into a region,” Batley added.

However, BCD’s Kao said the China government has consistently been planning for reopening.

“Hong Kong certainly plays a role in their strategy. However, while insights and information can be gained from Hong Kong’s reopening, it won’t be the yardstick for China due to the difference

in scale and complexities,” he said.

Also in the region, Japan plans to lift Covid restrictions, relax border control measures be on par with the U.S. as of October 11, while Taiwan will end quarantine for inbound arrivals from October 13.

UPDATE: This article has been updated with comments from Skytra. An earlier version stated Andrew Yeo was managing director for Singapore and Australia at CWT.

HKEX conducted IPO inquiries on 16 newly listed firms last year.

The Stock Exchange of Hong Kong Limited (HKEX) and the Securities and Futures Commission (SFC) are intensifying collaboration to target IPO-related misconduct, suspicious financial arrangements, and ramp-and-dump scams plaguing the city’s financial markets.

True to their commitment to combat IPO-related misconduct, the HKEX conducted inquiries into 16 newly listed companies’ use of IPO proceeds over the past year, whilst the SFC sought disqualification and compensation orders from the Hong Kong Court against directors of a listed company for IPO-related breaches.

The HKEX commenced disciplinary actions against three listed companies over the past year for their IPO-related misconduct, sanctioning them and their directors with public criticism and public censure.

Stephanie Chan, partner at Sidley Austin Hong Kong, noted that increased cooperation between the regulators will help them achieve their regulatory objectives in a “more cost-effective manner.”

“Compared to the HKEX, which usually invites listed companies to provide written submissions, the SFC has much wider statutory investigative powers, such as powers to compel subjects of investigation or other parties to produce documents, to execute search warrants to search premises and to obtain documents, and they can also require a person to attend an interview to give evidence. Through collaboration, the regulators can better allocate their investigative resources,” Chan told Hong Kong Business.

In a recent case, the HKEX identified some questionable transactions involving a listed company during their routine monitoring of the company’s announcements. Recognising the potential issues, the HKEX referred the case to the SFC for further investigation.

“The SFC is better placed to obtain evidence that may not otherwise be available to the HKEX. In that case, the SFC shared the evidence with the HKEX to facilitate its investigation. This is a good example showing the benefits of strategic collaboration between the regulators,” Chan said.

IPO-related misconduct

Chan said most IPO-related misconduct cases involve the misuse of proceeds through dubious financial arrangements that lack commercial justification and can cause significant losses for listed companies.

She said many listed companies involved in these cases do not properly disclose their change in use of IPO proceeds when it materially diverges from their initial business plans disclosed in the prospectus.

Newly listed companies may misuse IPO proceeds by paying unusually high, undisclosed expenses to parties related to directors or shareholders, disguised as listing expenses like IPO consultancy fees and underwriting commissions.

They may also make disproportionately high upfront payments to consultants and promoters not aligned with their purported purposes.

“There are also other cases involving suspicious financial arrangements at the IPO stage to artificially satisfy the initial listing requirements and create a false market of the shares,” Chan said.

She further noted that ramp-and-dump scams, another key area of focus for the HKEX and the SFC, may involve market manipulative activities conducted by sophisticated cross-border syndicates through taking steps to“ramp” up a listed company’s share price by spreading favourable news on social media to lure investors.

“They will then “dump” the shares at a very high price and cause the share price to collapse and leave the investors with significant losses,” Chan said.

A warning

With the increased scrutiny over IPO-related misconduct, Chan advised directors and senior managers of listed companies to “maintain good corporate governance and implement effective internal controls to ensure compliance with the regulatory requirements.”

Chan warned that the SFC and the HKEX have a broad range of sanctions for enforcement actions targeting IPO-related misconduct and suspicious financial arrangements.

For instance, the SFC can pursue civil cases before the Market Misconduct Tribunal or initiate criminal or civil proceedings in the Hong Kong Courts against parties responsible for misconduct. The SFC can also seek appropriate remedies, including disqualification and compensation orders, against directors and other relevant parties.

On the other hand, the HKEX can initiate disciplinary proceedings and impose appropriate sanctions if it finds a breach of the Listing Rules, including private reprimands, public statements involving criticism, public censures, prejudice interests of investors statements , and director unsuitability statements.

Chan reminded directors of listed companies that under the city’s regulatory requirements, they have the responsibility, collectively and individually, to ensure compliance with their “fiduciary duties and duties of care, skill and diligence to the listed company and ensuring the company’s regulatory compliance.”

Directors must exercise independent judgment, proactively make inquiries and monitor the use of IPO proceeds and other assets, consult with the compliance adviser as needed, and oversee commercial transactions and agreements entered into by the listed company.

Directors and the listed company have the responsibility to properly disclose any material changes in how IPO proceeds are used.

When handling financial arrangements, directors should ensure transactions align with the company’s best interests.

“There should also be adequate and effective vetting procedures, risk assessment, due diligence and approval process, and full compliance with the disclosure obligations,” Chan said.

She concluded by stating that directors should keep detailed records to demonstrate to regulators that they have properly discharged their duties to ensure regulatory compliance.

“Maintaining a proper record-keeping system is also essential for demonstrating compliance with regulatory requirements in the event of a regulatory investigation,” she added.