TNAG-2028-FCO40-2890-Hong-Kong-freezing-of-Kuwaiti-and-Iraqi-assets-1990 — Page 55

CONFIDENTIAL

Argument

6. The reason why the Hong Kong Government was not able to take immediate action to freeze Kuwaiti and Iraqi assets was because Hong Kong does not have equivalent statutory powers to those which the UK was able to exercise under the

Emergency Laws (Re-enactments and Appeals) Act 1964. The

Hong Kong Legislature had also adjourned for the summer

recess. (Although it could have been recalled this would

have caused some delay). The possibility of using the Governor's existing emergency powers was also ruled out

because these are clearly limited to circumstances where

there is a threat to public safety, the defence of the territory or the defence of public order. After urgent consultation with the Hong Kong Government over the weekend

of 4-5 August, we therefore concluded that the only option was to make an Order in Council under the Royal Prerogative.

This Order, together with similar Orders for the Caribbean

Dependent Territories, was drafted on Monday morning and

made in the late afternoon of Monday 6 August.

7. It is true that the fall in Hong Kong share prices on Monday 6 August (7.4%) was sharper than in London and the other major international markets but it was not all that

out of line with the fall in several of the other smaller

markets, eg Zurich 7.3%, Singapore 6.35%, Frankfurt 5.4%. This fall must also be seen in the context of the Hong Kong market being one of the most liquid (because of its one-day settlement period) and of share prices there having risen rapidly over recent months. Some Kuwaiti selling

undoubtedly did take place on 6 August. But some banks stalled until Tuesday 7 August, seeking confirmation that

selling instructions emanating from London were in order

under the Freeze Directions issued by the Treasury in the

UK. Market turnover on 6 August was in fact lower than on 7

BUSAHL/3

CONFIDENTIAL