How a U.K. Firm Helped China Crack Down on Hong Kong Democracy
How a U.K. Firm Helped China Crack Down on Hong Kong Democracy
A cautionary tale for American businesses.
THE BIDEN ADMINISTRATION HAS WARNED American businesses operating in Hong Kong that they face “new and heightened” risks as Beijing brings the city’s legal and political regimes into alignment with the mainland. The September 6 advisory from the U.S. Departments of State, Agriculture, Homeland Security, Commerce, and Treasury updated a 2021 warning of the “reputational, regulatory, financial and in certain instances, legal risks” to American companies in the city. According to the advisory, even ordinary business activities may run afoul of the territory’s national security legal regime.
The advisory should have highlighted how companies may come under pressure to do the Hong Kong government’s dirty work. Consider the case of U.K.-based multinational BDO, the world’s fifth-largest accounting firm, which helped the Hong Kong government liquidate Next Digital Limited, the parent company of the popular pro-democracy newspaper Apple Daily.
Beijing imposed the National Security Law in Hong Kong in 2020 after months of sustained pro-democracy and rule-of-law protests, effectively ending Hong Kong’s autonomy and crushing the democracy movement. The law’s sweeping but vague provisions criminalize virtually anything Beijing wishes under the guise of subversion, secession, terrorism, and foreign collusion. The law also set up a parallel national security system that answers to Beijing and is equipped with separate national security police and judges. An additional law, enacted in Hong Kong in 2024, expanded the categories of national security offenses.
For Beijing and its proxy, the Hong Kong government, shutting down Apple Daily was a top priority. The newspaper was forced to stop publishing in June 2021 when its accounts were frozen without due process, preventing it from paying its staff and vendors.
The following month, Hong Kong Financial Secretary Paul Chan appointed Clement Chan, BDO’s managing director for assurance in Hong Kong, as a “special inspector.” The BDO executive used government powers to conduct searches and seizures and interrogate witnesses. The financial secretary then used the BDO executive’s interim report on Next Digital as justification to dissolve the Apple Daily publisher in December 2021. Chan’s appointment has been repeatedly renewed and now extends to 2025.
Jimmy Lai, the founder of Apple Daily and Next Digital, was in no position to fight back. Arrested in August 2020, he has been in prison since December 2020, convicted of participating in unauthorized demonstrations and a bogus fraud allegation related to a business lease. Lai’s trial on national security charges, in which he faces a potential life sentence, is ongoing. Six of his senior executive and editorial staff have also been charged with national security offenses.
Two former Next Digital directors, Mark L. Clifford and L. Gordon Crovitz, have lodged a complaint in the U.K., where BDO is based, with the Organization on Economic Cooperation and Development. They allege that the firm “participated in suppressing the free press and the persecution of journalists” in violation of OECD guidelines for responsible business practices and seek an end to BDO’s relationship with the Hong Kong government.
Clifford and Crovitz also seek an apology from BDO “to the people of Hong Kong and to the many clients and staff of BDO who must be aghast to learn of the role BDO chose to play in censoring the free flow of information that had made Hong Kong among the most successful and admired economies in the world.”
BDO should be able to fulfill both requests—that is, if it wishes to live up to the motto “do the right thing” it claims as one of its “foundational pillars.”
Still, the firm and Chan would be getting off easy. The Biden administration should impose travel and financial sanctions on both Financial Secretary Chan and Clement Chan for their role in liquidating Next Digital. The United States has already imposed sanctions on Hong Kong Chief Executive John Lee and other senior officials for their roles in the national security crackdown. The Global Magnitsky Sanctions regime allows these sanctions not only for government officials but for any individuals who have acted as agents of or on behalf of human rights abusers.
The episode should serve as a cautionary tale. Clement Chan and BDO appear to be willing tools of the Hong Kong government. American businesspeople may believe they are not susceptible to pressure and, if faced with a choice, would uphold professional and ethical standards. Indeed, the complaint to OECD credits another top accounting firm, Ernst and Young, with declining the appointment to investigate Next Digital.
But American businesses shouldn’t fool themselves into believing that they can avoid being caught in the ethical and legal vise that is crushing freedoms in Hong Kong. China excels at coercion. Coopting and compromising business elites as part of a bid for global leadership is a top priority of General Secretary Xi Jinping, according to the Congressional Select Committee on the Chinese Communist Party’s report on the CCP’s united front influence operations.
The State Department warned in March that Hong Kong maintains a watch list to prevent specific residents from leaving the city. On the mainland, where the use of exit bans is well established, 29 Americans are believed to be barred from leaving.
The pressure, and the stakes, will only rise as Beijing feels confident of the demands it can make on those who do business in Hong Kong at the CCP’s sufferance.
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