Don't let Belt and Road lead to ball and chain

The case of a former Hong Kong official awaiting trial in New York is a timely reminder not to let your guard down in frontier markets.

Not for nothing is the New York Metropolitan Correctional Center (MCC) known as the "Guantanamo Bay of Manhattan". But the comparison is unjust – unjust on the more globally notorious Guantanamo, that is. Because according to one terrorist suspect who has seen the inside of both, Guantanamo just happens to be “more pleasant”.

Alongside the likes of Mexican cartel leader 'El Chapo', MCC's inmates now include one Patrick Ho Chi-ping, an eye doctor-turned-Hong Kong official who parlayed his political influence into a globetrotting role as ambassador-at-large for the charitable arm of Chinese consortium CEFC China Energy.

According to a 54-page FBI complaint, Ho and his Senegalese co-accused engaged in a "multi-year, multimillion-dollar scheme to bribe high-level officials in Chad and Uganda in exchange for business advantages for a Chinese oil and gas company."

As US Attorney Joon H. Kim put it in a press statement: "When this type of international corruption and bribery touches our shores and our financial system, as the alleged schemes did, federal criminal charges in an American court may very well be the end result."

To investors eyeing rich pickings in frontier markets, as Chinese President Xi Jinping's Belt and Road Initiative gets Beijing's cash flowing across Asia and beyond, it's a timely reminder: actions, even words, can get you led out of JFK Airport in handcuffs, even if these actions happened thousands of miles away from the US border.

To be sure, Ho's case is so far unproven. CEFC has also vigorously denied any wrongdoing in its dealings in Africa. But that's not the point. Even eventual vindication would not give Ho back the days he spends in the MCC awaiting trial – and that’s even before you begin to think of the likely reputational and financial damage.

Greater scrutiny

Ho's case is a clear sign American investigators are taking a closer look at China's dealmaking just as the Belt and Road initiative hits top gear.

Indeed, Ho's arrest in the US came days before he was due to host a Washington DC forum promoting Belt and Road, featuring a line-up of American and Chinese diplomatic figures. He has also been an eager cheerleader for – to use an idiom favoured by the current crop of Chinese leaders – greater "win-win cooperation" between the US and China.

And while Ho famously gave up his US residency rights when he joined the Hong Kong government, the fact the charity he worked for had a US registration was, according to the indictment, enough to leave him on the hook. Don't expect American officials to leave any stone unturned as they put the wide-ranging powers of the Foreign Corrupt Practices Act (FCPA) to use.

Also worth noting is the fact much of the case against Ho is gleaned from his emails, which mention a mystery desert rendezvous with the Chad president, large "donations" and other potentially juicy titbits. Electronic communications – and that can mean text messages over services like WhatsApp and WeChat, no matter how secure they may claim to be – are manna from heaven for investigators.

And the United States is far from being the only jurisdiction with its eyes turned to corruption overseas. Britain and Brazil, to name but two, have laws similar to the US FCPA. China has stepped up anti-bribery rules too and falling foul of Chinese law would likely lead you to a place that makes New York’s MCC seem like the Ritz-Carlton – with no army of fancy lawyers able to get you out.

There's no doubt that China's Belt and Road initiative will, both directly and indirectly, create a huge range of opportunities for savvy investors to profit from. But the overlap is considerable between the list of Belt and Road countries and the list of those that score badly on Transparency International's corruption perception index. Many frontier markets still offer an environment where gift giving, lavish entertaining, and even out-and-out graft are represented as an "essential" part of doing business.

Investors need to resist temptation. For sure, balancing risk is something investors do every day, but don't underestimate the downside of anything that even looks like an infraction.

What's more, it's vital to think carefully about your communication. That email may have perfectly innocent intent, but how would a bloodthirsty district attorney in Manhattan look at it? Perhaps it's best to imagine your message being read in the slow drawl of an American prosecutor before you press send.

It's best to think about these things now – before you're being fitted for an orange jumpsuit.

To offer more Belt and Road insights, FinanceAsia is hosting its first Belt and Road Connected: Invest Philippines conference in Manila on January 30. For more information, contact Andrew Wright on +852 31751926 or via email.

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