What Do the Panama Papers Teach Us about the Administrative Law of Corporate Governance Reform in Hong Kong?

• Author: Bryane Michael, Say H. Goo
• Pages: 370-413

370 TSINGHUA CHINA LAW REVIEW [Vol. 11:369

WHAT DO THE PANAMA PAPERS TEACH US

ABOUT THE ADMINISTRATIVE LAW OF CORPORATE

GOVERNANCE REFORM IN HONG KONG?

Bryane MICHAEL

Say H. GOO

Abstract

A complex business environ ment calls for a flexible administrative law for the agencies that

oversee corporations. Nowhere illustrates this m axim better than Ho ng Kong, and its need to

reform corpo rate regulations after the Panama Papers rev elations. We describe how only a

“non-administrative” administrative law can best cope with the challenges facing the

regulation of corporate gove rnance. Such a flexible, results-oriented approach to

administrative law develops new princip les and tests, rather than gives c ivil servants

instructions. Such an approach to corpora te g overnance can facilitate the assessment of

company governance, corporate disclosure, the self-regulation of professional groups like

lawyers and accountants, as well as ensure corporations engage in “legitimate economic

purposes.” We eng age with the li terature, showing why such a flexible app roach to

administrative ru lemaking would mor e likely redu ce some of the governme nt regulation a nd

oversight problems exp osed by the Panama Papers than previous approaches toward drafting

and implementing administrative law (at least in this area).

I. INTRODUCTION

The Panama Papers revealed serious defects in Hong Kong’s

corporate governance. Particularly, the scandal showed the lapses in

the way Hong Kong’s go vernment regulates and checks its financial

firms and professional services providers.1 While Hong Kong’s

government has failed to conduct (or at least publicly release) a study

looking at the harms of the Panama Papers revelations, the European

Union has.2 At first, the study looks like any other ordinary impact

assessment – looking at the tax law, corporate law, and the regulation

of financial institutions. Look more deeply though, and one sees a

1 For the full extent of the way that the Panama Papers shines a light on Hong Kong’s regulation,

see Jane Moir, Panama Papers: What are the Implication s on Hong Kong’s “Anti -Money Laundering”

Credentials?, H.K. LAW. (July 6, 2016), http://www.hk-lawyer.org/content/panama-paper s-what-are-

implications-hong-kong%E2%80%99s-%E2 %80%9Canti-money-laundering%E2%80%99%E2%80%9

9-credentials.

2 See EUROPEAN PARLIAMENT, THE IMPACT OF SCHEMES REVEALED BY THE PANAMA PAPERS O N

THE ECONOMY AND FINANCES OF A SAMPLE OF MEMBER STATES 1-12 (2017), http://www.europarl.eu

ropa.eu/RegData/etudes/STUD/2017/57 2717/IPOL_STU%282017%29572717_EN.pdf .

2019] CORPORATE GOVERNANCE RE FORM IN HONG KONG 371

study about EU administrative law. The study looks at the rules the

EU and its Member States’ ministries of finance should put in place

to deal with the way they (these government bodies) should regulate,

inspect and so forth. In other words, how EU member states’ (and the

EU’s in general) administrative law should change. Administrative

law represents an unloved branch of public law. Yet, as the Panama

Papers revelations show, the way government ministries, agencies,

and even independent bodies invested with public power, regulate

and investigate (or not) strikes at the heart of administrative law.3

The old days of administrative law as fixed, specific rules – given to

civil servants and other public officials – are numbered.

In this paper, we argue that a new way of thinking about

administrative law is needed to remedy the problems revealed by the

Panama Papers. That new way (not very new for many governments)

involves regulating what public entities do and the goals of their

work, rather than the way they do it. Government increasingly has

and takes responsibility for the conduct of all kinds of groups in

society – including companies. Government’s role in influencing

corporate governance shows how and why we need to re-conceive of

administrative law as a law of ends, rather than means. Such law can

encourage groups to assess corporate governance (or not), encourage

disclosure (or not), self-regulate (or not), and even nudge corporate

and other types of law toward focusing on legitimate ends rather than

regulating conduct. Any conception of administrative law as simply

listing an agency’s rights and obligations sorely misses the need for

ambiguity and flexibility in public administration (two features

antithetical to the classic predictability-and-clarity way of

understanding administrative law).4 Remedying the wrongs found in

3 Interestingly, few studies l ook at the administrative law side of corporate governan ce. One of the

more popular studies finds strong norms underlying, what a ppears on the surface, like regular rules and

regulations gov erning the procedural and substantive rights of the regulated. We return t o this th eme

throughout this paper. See Zumbansen Peer, Neither “Public” no r “Private”, “National” nor

“International”: Tran snational Corporate Governance from a Legal Pluralist Perspective, 38 J. L. &

SOC’Y 50, 75 (2011).

4 Few in the field of public administration would dispute such a statement. The field of

administrative la w though, continues to see adm inistrative action through 19 th century lenses. For an

analysis of the disconnect between the fields of administrative law and public administration, see

Gillian E. Metzger, Administrative Law, Public Administration, an d the Admin istrative Conference of

the United States, 83 GEO. WASH. L. REV. 1517, 153 9 (2015). Like us, Metzger uses financial law to

most clearly illustrate this difference. S ee also Gillian E. Metzger, Through the Looking Glass to a

372 TSINGHUA CHINA LAW REVIEW [Vol. 11:369

the Panama Papers will require rules far more results-focused and far

less mechanical than most administrative law.

Each section of this paper illustrates how a more flexible, results-

oriented view o f administrative law (Hong Kong’s in part icular) can

help to remove the poor corporate governance identified by/in the

Panama Papers. The first section presents data covering the major

issues and problems in Hong Kong identified in the Panama Papers.

The second section shows how government rules can encourage t he

practical, useful and accurate measurement of corporate governance

quality. The third section discusses ad ministrative law’s role in

encouraging corporate disclosure. Such a role revolves far more

around encouraging private actors to act (or not) than controlling or

checking companies. The fourth section describes the way

administrative law can channel the incentives of self-regulating

bodies, like lawyers and accountants. The fifth section most

concretely illustrates the issues arising in the previous sections – in

the form of a principles-based test for legitimate economic purposes.

Government has certain ends to incentivize – often developing

administrative principles or tests to help guide civil servants as they

channel private sector incentives.5 Each of these sections describes a

facet of such incentivisation. The final section concludes.

We ask for the readers’ indulgence as we make our argument

with the following limitations in mind. First and most importantly,

we do not make the case for or against such an approach to

administrative law. We only try to observe the world – and draw

conclusions about the approach which would most reduce the

problems identified by the Panama Papers. Our tone reflects the

outcome of that consideration – rather than any attempt to sell the

reader on any particular approach. Second, we do not provide a

classical literature review, showing how our understanding of the

form and needs of administrative law have changed over time.6

Shared Reflection: The Evolving Relationship bet ween Administrative Law and Financial Regulation ,

78 LAW & CONTEMP. PROBS. 129, 156 (2015).

5 See, e.g., Vicki C. Jackson, Constitution al Law in an Age of Proportionality, 124 YALE L.J. 2680,

3203 (2015). See also Thomas Poole, Between the Devil and the Deep Blue Sea: Administrative Law in

an Age of Rights (LSE Law Soc’y & Econ., W orking Papers No. 9, 2008), https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2501426 .

6 We hardly need to provide such a review – given the wide-sprea d recognition of the failu re of

classical public admini stration and administrative law a s branches of social science inquiry. Se e