32
J
venue insists that under Section IV of the Inland Revenue Ordinance, the police cannot obtain any information from him about Cheung. The police decide to try the auditors, who know that it is not in their interest to "betray" a client: hey refuse to help on the ground that they are under no compulsion to disclose information regarding any offence other than high treason. However, the police are so irritated by this time that they investigate the auditors and believe they have enough evidence to convince court that the auditors have concealed criminal activities in return for intro- ductions to new clients, aid in financing their personal busi-
Clearing the fence
By Leo Goodstadt
Commentators on corruption in Hongkong usually view bribery as a form of blackmail, with a defenceless public shelling out to a ravenous and omnipotent Civil Service. To estimate the amount of money involved in corrupt practices, a more realistic approach is essential.
Corruption in Hongkong is essentially a form of taxation or licence fee paid to some person in authority for immunity from the law's intervention. Such taxes and fees are directly related to the general level of profits in the colony, government financial levies in other countries (potential rivals) and the chances of relocating a business operation (legal or otherwise) else- where. With some exceptions, the businessman con- fronted with a demand for a bribe will pay only if corruption is cheaper than seeing a solicitor or taking a chance on the law actually establishing his guilt in court. (This applies as much to a manufacturer dunned by a fireman as to a narcotics wholesaler.) If the rate of corruption becomes an excessive tax on profits, the businessman either gets out of the racket or blows the whistle.
The figure generally agreed on by commercial circles. as the maximum direct taxation on business profits which the Hongkong commercial world will stand is somewhere between 20% and 25%. The official rate of tax is 15% for business operations; corruption is an additional and illegal levy.
The dilemma is to decide whether official taxes and corrupt payments together add up to 20% or whether they are closer to 25%. If the higher figure is accepted it can be shown that almost 20% of Hongkong's national income is the product of illegal activities; since cor- ruption and most forms of illicit business are labour- intensive, it would mean that more than two in every ten workers depend on crooked business for their liveli- hood. This level of corruption seems far too high. If bribery were so rampant, Hongkong as a community would be up in arms instead of spasmodically scandalis- ed by revelations of corruption in public life. It seems safer to assume that the figure for corruption is 5% of net profits assessed for tax (or one-third of the standard official tax rate). From this basis, the value of corrup- tion can be worked back from official budget and tax figures as well as national income estimates.
The results of this shadow exercise bring out two vital points about corruption. Government corruption is probably confined, as far as large payments go, to a
ness operations, and a share in some of Cheung's business ventures. The police are advised legally that the evidence is insufficient. The matter is taken by the police to Govern- ment House, where a number of senior officials convince the powers-that-be of the political foolishness of prosecuting the accountants of prominent local personalities such as Cheung Sam. They add that any self-made man is bound to arouse resentment and create enemics. Their advice prevails, but the tax case cannot be stopped so simply. Still, 1976 is another year: our man is confident that he will end up as Sir Sam Cheung.
relatively small number of civil servants (say 1% of the total number of government employees, but each getting a rake-off of HK$20,000 a month or more on top of their lawful salaries). Secondly, drugs, gambling and prostitu- tion are the single biggest sources of corruption. Even allowing for money paid by real-estate developers, travel- lers in need of passports and squatters trying to jump the queue for resettlement, gambling and drugs and sex are where the real money is made.
Gambling could be legalised completely tomorrow with no more than an outcry in some sections of the local press
an outery financed by the barons with a vested interest in gambling rackets. Drugs could be lega- lised today by encouraging doctors to prescribe narcotics for addicts willing to declare their medical problem. (This step would not contravene international narcotics
200◄
Estimated Value C Corruption
in US$ milion 1972
HK's Graft at a Glance
NARCOTICS
150 4
(100.000
- US$2 95
per day)
100
GAMBLING
(1 milion participants
USSO 39 per day)
$143.56
SEXUAL COMMERCE
Firms
intringing such laws as fre safety.buikting regulations
etc.
$163 82
muss HK's Nationa! Income (GDP)
$4,668.24
5000◄◄◄milion
19,2
4.000
50
$43 25
2000
Total payments to officials for toleration of short activities US$69.83m
Total legal emolurnents to officials US$260.77m. Bribes as proportion of total government payroll 26% Total civil service offtake as rewards for services rendered US$329.60m
1000
Total war et bujon
as grogoron of national income
109 actieties with chest connecTIONS
conventions, which have hitherto forced the colony to treat its addicts as criminals.)
Prostitution as such is not illegal in Hongkong. The provision of premises for the sex trade, living off im- moral earnings, and soliciting, are the main breaches of the law associated with prostitution. If the authorities used their imagination to devise a means by which pro- stitutes could be brought in touch with their customers short of actually plying for them in the streets, much of the criminal activity surrounding prostitution would dis- appear.
To legalise the rackets would mean the commercial ties between police and criminals would disappear. They would then be where they should of the fence.
on appointed sides
NOVEMBER 12, 1973
FAR EASTERN ECONOMIC REVIEW