Most observers agree that Hong Kong chief executive CY Leung did nothing illegal in extracting a $6.5 million payment for his part in the $124 million 2011 sale of DTZ to UGL.
However, as more details emerge about the timing and nature of Leung’s arrangements with the Australian engineering firm, it’s clear that the execution of this payment to the now erstwhile director of DTZ required some thorough planning and fine timing to avoid stepping across legal boundaries.
The payments were not revealed to the Hong Kong authorities, and because the deal was structured as a bonus for not competing with the new owners of DTZ, Leung is contending that he does not owe tax on these funds.
To make things clearer, here is a summary of the moves made by Leung, UGL and other parties involved to ensure that UGL could acquire then-insolvent DTZ on the cheap, and Leung could collect more than 5 percent of the total transaction value after taking office as Hong Kong’s chief executive during 2012.
Dates and other facts are courtesy of some fine reporting in the Sydney Morning Herald and the South China Morning Post.
The CY Leung Bonus Collection Timeline
- 3 October 2011 – DTZ makes UGL its preferred bidder for a fast-track sale, after the property services come ran into a liquidity crisis
- 7 November 2011 – DTZ announces to the London Stock Exchange that its shares are on their way to having no value
- 8 November 2011 – CY Leung and other directors vote to make UGL the preferred bidder for DTZ
- 24 November 2011 – CY Leung announces intention to resign his posts at DTZ effective December 4th
- 28 November 2011 – Leung declares candidacy for Hong Kong chief executive post
- 2 December 2011 – Leung signs letter of offer with UGL agreeing to accept payment for supporting acquisition of DTZ
- 4 December 2011 – Ernst & Young appointed as administrators of DTZ’s “prepack” bankruptcy sale by the UK courts
- 4 December 2011 – Ernst & Young sells DTZ to UGL via the prepack deal negotiated in advance. Shareholders and unsecured creditors wiped out.
- 5 December 2011 – Ernst & Young applies to have DTZ de-listed
- 25 March 2012 – Leung elected chief executive of Hong Kong
- December 2012 – Leung receives first installment of “bonus” from UGL
Leung Declares His Innocence in Public Statement
Yesterday, Leung spoke to the media for the first time since the scandal hit the press, and contended that he had done nothing morally or legally wrong in extracting his $6.5 million payment from UGL.
Leung said that the funds were paid to him to prevent him from forming or joining a rival firm within two years. By structuring the payment in this way, Leung says that the compensation does not constitute income, and is therefore not subject to tax.
Since the chief executive believes he provided no services to UGL, he does not see his agreement with the Australian firm as constituting a conflict of interest.
However, the former real estate broker would not explain why he did not declare the payment to the Hong Kong government.
Political leaders in both Hong Kong and Australia has recommended that Leung be investigated, and some analysts are speculating the Beijing government, which is in the midst of a wide-ranging anti-corruption campaign, may reconsider its support of the unpopular leader.