Imagine the following scenario: a senior executive of a UK-based bank listed in New York commits an alleged fraud in the US.
Without notifying US criminal or regulatory authorities, the British government recalls him to London, then detains him and eventually throws him in jail. US regulators are not given proper access to the startled official even though the alleged violations were committed in their jurisdiction.
It might seem implausible elsewhere but this kind of thing is becoming almost the norm at Bank of China Hong Kong, the locally listed arm of one of the mainland's “big four” state-owned commercial banks.
So heavy-handed has Beijing's intervention in the bank's affairs become that some would argue it raises questions about Hong Kong's effectiveness as an independent jurisdiction.
News of the latest intervention, mentioned before in this column, emerged last month after mainland authorities summoned a group of BoC HK officials to Beijing for a meeting and then detained two of them for further questioning.
Those held former deputy chief executives Zhu Chi and Ding Yansheng are accused of embezzling about HK$30m, or US$3.8m, from a staff benefits account held at BoC HK under its mainland parent's name.
The style of their detention mirrors that of Liu Jinbao, BoC HK's former chief executive, who was whisked away last year without explanation to Beijing. It later emerged he was suspected of making improper loans during an earlier tenure at the bank's Shanghai branch.
In both cases, Hong Kong authorities conducted their own investigations but have been given scant access to the suspects on the mainland. The incidents, and earlier scandals at BoC HK, raise questions about the bank's internal monitoring and compliance systems.
But BoC HK's management at least seem to have learned some lessons from these problems. In contrast to its closed door tactics when Mr Liu was detained, BoC HK swung quickly into action last month. Its independent directors opened an inquiry into the fraud and promptly released the results. Senior management was also quick to reassure investors that the scandal would have no impact on the bottom line. Of greater concern for investors should be the wider issue of Beijing's willingness to intervene unilaterally in what is in effect the jurisdiction of Hong Kong regulators and criminal authorities.
For mainland Chinese companies, a Hong Kong listing is meant to be a stamp of quality. The territory's higher standards of corporate governance and regulatory scrutiny should mean a lower risk premium for their stock. But that stamp of quality is only as good as the territory's regulatory and judicial institutions. If these are constantly being undermined by the arbitrary, quasi-kidnapping of errant mainland corporate officials from under the Hong Kong regulators' noses, the territory's franchise as a safe place to list and invest will begin to lose its sheen.
This point is not lost on senior BoC HK officials. But far from protesting, Hong Kong regulatory officials themselves seem to passively accept the trend. Joseph Yam, the head of the territory's banking regulator, the Hong Kong Monetary Authority, said this week the body did not plan to release details of its investigation into alleged wrongdoing at BoC HK, saying it would leave this to the bank itself.
“The HKMA is in contact with our counterparts on the mainland and we have asked to interview Messrs Zhu Chi and Ding Yansheng. We can give no further details at present,” the HKMA said.
There are arguments to be made that BoC HK is a state-controlled company and is therefore especially susceptible to interference from Beijing. Some even say the bank's problems are related to a political tussle at the highest levels in Beijing, making it a special case.
It is also true that regulatory conflicts occur everywhere with companies whose operations span numerous jurisdictions.
But the threat to Hong Kong's integrity as a separate jurisdiction under the “one country, two systems” formula, and therefore to its franchise as a reliable place to invest free from this sort of interference, cannot be understated.
As one fund manager said: “This is not really a question of whether or not . . . it's a danger for investors to buy mainland companies but a question of Hong Kong's independence.”