APRGANZ
MANAGE
The bank's branch manager, a Briton, learned that his wife could receive some handsome gifts.
Cheung knew his boss's produc- tion costs and profit margins and was well placed to undercut him. Meanwhile, the export company branched out into the sale of real estate for Cheung and his partners in the construction business (there is no record of a board resolution approving this undertaking). Late in 1964, Cheung confided to friends that he believed the housing boom would end during 1965, and thus he was gambling on being able to dispose of the flats he and his friends had built since the beginning of 1963. The next year, as real estate faltered following the banking crisis and despite the general malaise in the wake of the bank runs, Cheung decided to tackle his personal enterprises full-time and so resigned from his old job. Since new restrictions prevented him from get- ting right into the banking business, he settled on the in- surance field: shipping would be his bread and butter, with vehicle business a handy prospect on the side.
IN 1967, riots in Hongkong found Cheung Sam short of ready cash for the first time. To be sure, the going hadn't been easy since the Star Ferry riots of the previous year, and Cheung had been scratching around for risk-free business to keep his insurance undertaking afloat. Yet if real estate in 1967 was slumping and banks showing new levels of caution, export orders were at record levels. Capital to finance these orders had to be found and, with the insurance company not yet sound enough to help, Cheung now found himself under squeeze. Relief came from medium-sized foreign bank whose young assistant manager had been drawn into partner- ship with Cheung's insurance concern in 1966. But he lacked the authority to approve a large advance and decided instead to effect an introduction to another foreign bank, whose British branch-manager learned that his wife could become the recipient of some handsome gifts: the overdraft was forthcoming and Cheung Sam was saved. (Before taking his annual leave, the Briton insisted on giving Cheung the pri vilege of buying his "near-new" car at list price.)
Matters improved in 1968 when, through his police con- tacts, Cheung heard that nine-seat minibuses were to be legalised in congested Hongkong. It cost him a good deal of money (since he was not dealing with junior civil servants) to find out from the Transport Department the precise speci- fications of the vehicles and thus grab a piece of the market by ordering the minibuses from Japan. He also arranged a joint financing venture with the finance company that had been formed by his newest partner's foreign bank, arranging the purchase and licensing of minibuses and picking up a tidy
NOVEMBER 12, 1973
commission. Cheung wrote vehicle insurance policies, sold a few minibuses, eased licensing problems through the Trans- port Department thanks to his influential contact there. (Licensees paid the Transport Department through Cheung, who took a finder's fee.) By 1969 Cheung had become a man of substance: he bought a place on the board of a leading charity and thus earned respectability in the eyes of the Gov-
ernment.
The welfare body was engaged in yet another building programme, and Cheung's development company arranged for the contracts to be distributed equitably. The company handled none of the building itself since this would have been unethical but, for a consideration, it helped friends in the architects' and contractors' worlds. A fellow member of the charity invited Cheung to join the board of a small local bank. Cheung felt an old ambition was about to be fulfilled and did not ponder the offer long enough; at the first meeting of the directors he found the bank was deep in trouble because of an investigation launched by the Banking Commissioner, who had discovered that clumsily fictitious accounts had been set up to enable directors to make ad- vances to themselves. The bank had been given a choice: prosecution of its officers or amalgamation with a certain bank keen to take it over. The board was in no position to fight. Cheung, however, was assured that the existing duec- tors would be retained in name and that their chances of making money would actually improve a prediction that turned out to be accurate. The new owners discovered a broad range of good business and a number of skeletons. It decided to strengthen the bank, now its subsidiary, by rede- veloping some of its real estate. Parcels of the new buildings were then bought up by nominees of the Hongkong directors at ridiculously low prices, bringing their new owners' man- agement in Hongkong into the rigged sale of the property under construction by providing nominees and finance.
Cheung Sam also found that his insurance company was able to benefit from the foreign owners. The parent bank had its own insurance company, which set up a branch office within the newly-won Hongkong bank. The reinsurance of thoroughly bad risks by Cheung's insurance company was passed over to this office, whose foreign manager was happy to see his commission earnings rise. This situation fired Cheung's imagination, and he proposed a business swap: Bad risks would be sent directly to the bank's insurance office and, in return, the bank's insurance manager would send the better class of business to Cheung. This foreign insurance broker insisted on obtaining shares in Cheung's company.
The bank's auditors uncovered this agreement and asked the insurance manager for an explanation. He went in some fear to Cheung who, unabashed, approached the auditors a well-known company. He spoke to a partner, pointing out three facts. First, the audit meant large and assuredly profit- able employment of the auditors' staff and equipment: secondly, the auditors had used their access to the bank's records to assess whether to undertake personal and private investments in sundry enterprises; thirdly, the auditors had failed to draw attention to breaches of the Banking Ordin- ance before the takeover. The auditors were impressed by these arguments but insisted that the insurance business should be arranged with more secrecy.
By 1972, Cheung was becoming a force to be reckoned with on the local scene. This inspired some envious soul to make allegations to the Anti-Corruption Branch of the Royal Hongkong Police Force. Little happened until early 1973. when Cheung's government partners started to get apprehen-
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