| LCQ5: Management of CE's and Principal Officials' assets by private trusts |
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Following is a question by the Hon Emily Lau and a reply by the Secretary for Constitutional Affairs, Mr Stephen Lam, in the Legislative Council today (May 19):
Question: For the prevention of conflict of interests, the Chief Executive ("CE") and some Principal Officials ("POs") under the accountability system have set up "family trusts" to manage their assets. A major difference between this kind of trusts and "blind trusts" is that the settlor, beneficiaries and trustee of a "family trust" can have kinship relations, while the trustee of a "blind trust" has to be an independent person, who is not required to, and will not, report to the settlor and beneficiaries the details of the trust's investments and specific assets. In this connection, will the Executive Authorities inform this Council: (a) in terms of the effectiveness in preventing conflict of interests, how placing the assets of the CE and POs in a "family trust" compares with placing them in a "blind trust", as well as the rationale for the conclusions drawn therefrom; (b) of the measures to ensure that the setting up of family trusts can prevent the CE and POs from having conflict of interests in discharging official duties; and (c) whether they will reconsider requiring that the trusts set up by the CE and POs to prevent conflict of interests have to be "blind trusts"; if so, of the details of the relevant requirements; if not, the reasons for that? Reply: Madam President, Upon introducing the accountability system, we adopted the Code for Principal Officials under the Accountability System ("the Code"). The Code stipulates that Principal Officials under the accountability system ("POs") are required: (a) to ensure that no actual or potential conflict arises between their public duties and their private interests [Clause 1.2(7) of the Code]; (b) to avoid putting themselves in a position where they might arouse any suspicion of dishonesty, unfairness or conflict of interest [Clause 5.1 of the Code]; and (c) to refrain from handling cases with actual or potential conflict of interest [Clause 5.3 of the Code]. In addition, Chapter 5 of the Code stipulates detailed requirements on prevention of conflict of interest on the part of POs. Clause 5.7 of the Code provides that the Chief Executive may as necessary require POs to take appropriate measures to avoid any conflict of interest. Under the present declaration of interests system, POs are required to file annual declarations on their investments and interests as specified. Such declarations are made available for public inspection upon request. This enables the public to have information on the investments and interests held by POs. Similar declarations are also made by the Chief Executive. Furthermore, Clause 5.4 of the Code stipulates that POs shall report to the Chief Executive any private interests that might influence, or appear to influence, their judgement in the performance of their duties. The questions put by the Honourable Emily Lau are mainly concerned about the management of assets through trust to avoid conflict of interest. My response is as follows: Regarding parts (a) and (b) of the question, generally speaking, a trust is a legal relationship created when a person (the "settlor") places assets under the name and control of another person (the "trustee") for the benefit of the beneficiaries (who may include the settlor and the trustee). The trustee is responsible for managing or disposing of the assets in the trust in accordance with the terms of the Trust Deed. The trustee can be a person or a company. "Family trusts" generally refer to trusts which are set up for the benefit of the settlor's spouse, children and other family members. The settlor could be one of the beneficiaries. In Hong Kong legislation, there are no specific provisions on what constitutes a "family trust". As regards "blind trusts", there are no specific provisions on what constitutes a "blind trust" in Hong Kong legislation. Nor are there any provisions relating to the setting up, operation or management of a "blind trust". "Blind trusts' generally refer to trusts where the settlor leaves all matters concerning the investment, management and disposal of the trust assets entirely in the hands of the trustee, and the trustee must act in accordance with the terms of the Trust Deed. It is an essential term of the Trust Deed of a "blind trust" that at no time and in no manner shall the trustee seek or accept, directly or indirectly, any advice, direction or instruction from the settlor in connection with the trust assets or the management, disposition or investment thereof. If the settlor of a "family trust" leaves all matters concerning the investment, management and disposal of the trust assets entirely in the hands of the trustee, and the settlor must not be involved, directly or indirectly, in the investment, management and disposal of the trust assets, the effectiveness of a "family trust", in terms of avoidance of conflict of interest, is no different from that of a "blind trust". The Chief Executive and the POs concerned put their assets in a trust in order to avoid conflict of interest. For this purpose, the crucial point is whether or not the trustee is able to act independently in connection with the management of the trust assets. So long as the Chief Executive and the POs concerned are not in any way involved in the management of the trust, and they have declared their assets in accordance with the present declaration of interests system, conflict of interest will be avoided. The investments and interests of the Chief Executive and POs are made available for public inspection. They are subject to the scrutiny of the public, the media and the Legislative Council. As regards part (c) of the question, different measures can be taken to avoid conflict of interest on the part of the Chief Executive and POs. The setting up of "blind trusts" to manage their assets is only one way of doing so. We consider that as long as conflict of interest can be effectively avoided, it is not necessary to require the Chief Executive and POs to set up "blind trusts" to manage their assets. Hong Kong is a highly transparent society. As I have said just now, the investments and interests declared by the Chief Executive and POs are made available for public inspection, and are subject to the scrutiny of the media, the public and the Legislative Council. Thus far, conflict of interest has not arisen from the trust arrangements made by the Chief Executive and the POs concerned. We do not consider it necessary to change the present arrangements. Ends/Wednesday, May 19, 2004 |