Nominee services in Hong Kong are a crucial part of the Corporate Services Providers business and the attached risks, for the client and for the provider, are sometimes difficult to comprehend.
When the foreign shareholder of a small company in Hong Kong is realizing that, because of the COVID-19 constraints on travels, the tax substance of his Hong Kong company should be increased he will often resolve to request for nominee services and so for a local Director.
When understanding the rights and obligations of a Hong Kong Nominee Director the shareholder is confronted to a dilemma, should he place such powers and responsibilities in the hands of an alien?
Should he take the risks to have a rogue Director with unique bank signatory power handling his affairs?
- First and foremost, dishonest persons are not legion, nominee services in Hong Kong could only be offered by licensed companies with fit and proper directors and shareholders.
- The provider of such services is exposed to a lot of risks with potentially improper client’s activities, the company would select professionals only as Directors, applying the same compliance process than for the client, monitoring included.
- With Hong Kong enforcement agencies and a strong legal system any fraud and dishonest acts would mean years in jail for the offender.
- As greed and stupidity are always a risk, having two directors signing jointly could decrease, if necessary, the risks for the clients.
Obviously, the above considerations are valid mostly for a Director whom is a Hong Kong resident, a director residing abroad, say Panama, will not bring the necessary substance and will not be subjected to the same immediate consequences in case of fraud/theft.
A lot of a Trust and Corporate Services Providers are now reluctant to offer nominee services in Hong Kong, this is due to the following facts:
- A nominee director in Hong Kong is first of all a Director, the nominee aspect of his activities isn’t a protection for any wrong doings.
- Anti-Money Laundering Laws and regulations are enforced drastically, suspicions of wilful blindness could be very difficult to rebuff.
- Compliance costs are high, making difficult the provision of nominee services at reasonable costs.
- Some business activities are complex, always cross borders, often immaterial and the risks related to indictable offenses are difficult to monitor with precision.
So, in fact the inherent risks and worries related to nominee services in Hong Kong are shared by both sides, what are then the main red flags?
- If a client couldn’t explain exactly why he couldn’t appear as the Director of his company.
- If a provider isn’t preparing an enhanced due diligence before onboarding the client.
- If the Hong Kong nominee Director don’t show professional capacities.
- If the activities are not totally in accordance with the initial compliance report.
GOOD COMMUNICATION is a crucial element, to see an operation rejected by the Director or a Suspicious Transaction Report sent to the Financial Intelligence Unit, to face delays in payments executions or agreements signatures are events easily avoidable.
With a good understanding from the start of the collaboration, with a full compliance report detailing all possible actions the partners will be sufficiently confidents to run smoothly the operations.