In global financial hubs like Hong Kong, companies licensed to deal in securities, asset management, and other regulated activities are meant to operate within strict legal frameworks. However, the rarity and value of these licences have led some people to use them as tools to transfer hidden benefits to others. Here are some common methods used, with story examples to show how they work and the risks involved.

Method 1: Selling a Licensed Corporation Below Market Value

How It Works If you own a licensed corporation, you could sell it to someone you want to benefit, for a price much lower than its true value. On paper, it looks like a normal business transaction, but in reality, it is a way of giving that person a hidden financial advantage.

Typical Steps

1. Lower the Corporation’s Valuation:
   • Hide the corporation’s potential value, such as future contracts or unpaid invoices.
   • Tell others that the corporation is struggling, to justify the low sale price.
2. Sign a Formal Sales Agreement:
   • Draft a legal agreement showing a “reasonable but low” price.
   • If required, get a valuation report from a friendly assessor to support the price.
3. Benefit for the Buyer:
   • After buying the corporation, the hidden value re-emerges, and the corporation becomes much more valuable.
   • The buyer can resell the corporation for a profit or simply enjoy owning a valuable corporation for very little.

Example Story 1 Mr Wang owns a corporation with Type 1, 4, and 9 licences. He wants to reward his friend Mr Li for past favours but does not want to give him cash.

What Happens:

• Wang hides future projects and income streams from the corporation records.
• He tells the market that the business is failing and offers to sell it cheaply.
• Li buys the corporation at a low price, passing regulatory checks smoothly.

Outcome:

• After a few months, the corporation “suddenly” secures new projects, increasing its value.
• Li gains a large financial reward, while Wang successfully “gifted” him this benefit without suspicion.

Method 2: Fake Sale with Money Returned

How It Works Here, a corporation is “sold” to someone, but the money paid is secretly returned to them. The buyer gets the corporation for free or at little cost, and it looks like a normal sale.

Typical Steps

1. Fake Transaction:
   • Draft a sale agreement showing a fair price.
   • Secretly agree to refund the buyer’s money after the transaction.
2. Appear Compliant:
   • File all documents properly with regulators and the company registry.
   • Privately agree that the seller can repurchase the corporation later or continue to control it.
3. Benefit for the Buyer:
   • They get control of the licensed corporation without spending their own money.
   • The seller shows goodwill without being seen giving a direct gift.

Example Story 2 Ms Huang owns a licensed corporation and wants to win favour with a politician, Mr X, to expand her business overseas.

What Happens:

• Huang sells 80% of her corporation to X for HK$10 million.
• Behind the scenes, Huang returns the money to X through offshore accounts.

Outcome:

• X controls a valuable corporation without spending money.
• Huang builds a stronger relationship with X, improving her business prospects.

Method 3: Paying Excessive Commissions or Fees

How It Works Instead of selling shares, the corporation pays someone high commissions, consultancy fees, or referral payments. This looks like a normal business expense but is actually a hidden reward.

Typical Steps

1. Fake Service Agreements:
   • Sign contracts with the person (or their corporation) as a consultant, agent, or broker.
   • Agree on high fees, even if little or no work is done.
2. Use Business Deals as a Cover:
   • Involve the person in a transaction and give them a large commission.
   • This moves corporation profits into their hands under the disguise of “fees”.

Example Story 3 Mr Chen owns a licensed securities corporation. He wants to reward his friend Mr Zhou.

What Happens:

• Chen signs a consultancy contract with Zhou, promising 5% of a future deal.
• Zhou does little, but when the deal is done, he receives HK$5 million as a fee.

Outcome:

• Zhou gets the money as “legitimate earnings”.
• Chen avoids suspicion, as it looks like a standard business expense.

Other Grey-Area Practices

1. Multi-layered Offshore Transfers:
   • Move shares through offshore shell corporations to hide the real beneficiaries.
2. Buy-Back Deals:
   • Sell the corporation to someone, but agree to buy it back later at a different price.
3. Using Overseas Subsidiaries:
   • Transfer funds to overseas branches, making it harder for Hong Kong regulators to trace the flow of money.

Why Is This Possible?

• Regulatory Gaps: Authorities focus more on daily operations than ownership changes.
• Free Share Transfers: Corporation shares can change hands easily unless a clear legal violation is found.
• Separation Between Owner and Controller: “Nominee shareholders” often hide the true controlling person.

How to Reduce These Risks

1. Mandatory Independent Valuations:
   • Require an independent audit or valuation when a licensed corporation is sold below or above market rates.
2. Stricter Beneficial Ownership Checks:
   • Make it harder to use nominee shareholders.
3. Surprise Inspections:
   • Randomly investigate share transfers and high consultancy payments.
4. Cross-Border Cooperation:
   • Work with other countries to track offshore payments.

Conclusion: Spotting Hidden “Gifts” Licensed corporations in Hong Kong are valuable and easy to transfer, making them attractive tools for hidden rewards. Whether through cheap sales, fake transactions, or inflated fees, the goal is always the same: transferring benefits without being caught.

By carefully examining the true nature of deals, ownership changes, and payment justifications, regulators and businesses can better detect these hidden “gifting” schemes.

Fictional examples like those above remind us:

• Legal paperwork can hide the real story.
• Real oversight lies in verifying valuations, ownership, and service payments. Only by closing these gaps can we reduce the misuse of licensed corporations as tools for hidden benefit transfers.