With the shrinkage of business and the rectification of corporate intelligence collection by the Chinese government, some investigation companies are withdrawing from Hong Kong and transferring employees from the city, which is the latest sign of concern for foreign companies.
According to insiders, three US and UK due diligence companies that established branches in Hong Kong more than a decade ago have either withdrawn or are currently reducing their operations this year. These companies include Nardello, a global company founded by a former US federal prosecutor, and The Risk Advisory Group, co founded by a former UK fraud investigator.
Nardello stated that the company is relocating its employees to other locations, but will not completely close its Hong Kong operations. The Risk Advisory Group did not respond to a request for comment.
According to insiders, Mintz Group, a New York based research firm, closed its Hong Kong office earlier this year; Not long ago, Chinese authorities raided the Beijing office of Meisi Wisdom in March and detained five Chinese employees. In July of this year, China imposed a fine of $1.5 million on the company for conducting "unauthorized" statistical work. Meisi Smart did not respond to a request for comment.
Since the beginning of this year, the Chinese government has launched a series of surprise inspections on foreign due diligence companies in mainland China, which provide commercial risk consulting to clients or conduct audits and investigations within China. The Wall Street Journal reported earlier that, in addition to raiding the office premises of the Wisdom Group, China also questioned employees of the consulting company Bain&Co. and prohibited an executive of the US risk consulting company Kroll from leaving Chinese Mainland in Hong Kong.
Many industry companies are reassessing their business plans and potential risks in China, including their operations in the partially autonomous Hong Kong region. The main business of such enterprises includes pre transaction review work, which was considered routine in the past. But recently, the extension of the sensitive scope recognized by the government has expanded, making it more difficult for companies to determine where the boundary lies.
Martin Purbrick, an analyst with Jamestown Foundation, said: "With the expansion of China's national security concept, it is no longer safe to carry out commercial due diligence and other investigations in Chinese Mainland or Hong Kong." Purbrick also runs its own risk consulting company.
Purbrick stated that China's implementation of the National Security Law on Hong Kong in 2020 and changes in Hong Kong's political environment have also had an impact on the economy. He stated that Hong Kong used to be a very useful base because its British style legal system was different from China's legal system and could protect local enterprises from the carpet style law enforcement that mainland China was willing to carry out based on national security.
The latest government data shows that the total number of foreign companies headquartered in Hong Kong is gradually decreasing. Between 2019 and 2022, the number of employees employed by foreign companies in Hong Kong decreased by 25000 to 468000.
Industry insiders have stated that the business related to China in the corporate intelligence industry has significantly slowed down, and the industry has always been centered around Hong Kong, providing services to Chinese private equity or IPO clients.
Since the beginning of this year, the fundraising flood in Hong Kong has slowed down to a trickle. In the first half of this year, the US dollar fundraising of private equity companies mainly investing in China decreased by 89% year-on-year. According to Dealogic's data, as of October this year, companies listed in Hong Kong raised only $3.5 billion through IPOs, a decrease of 68% from the same period last year and much lower than the $42.8 billion in 2021.
A spokesperson for the Hong Kong Business and Economic Development Council stated that Hong Kong remains a commercial friendly city and the government is committed to promoting Hong Kong as a major investment destination. She stated that 30 companies in strategic areas will invest nearly $4 billion to establish offices or expand their business in Hong Kong. She said that the National Security Law has restored stability to the city.
Nardello was founded by former US prosecutor Daniel Nardello, who also served as the company's chairman. The company opened an office in Hong Kong in 2012 and stated that it will strengthen its business in China and the entire region.
Nardello, citing geopolitical risks, informed employees that the office would be closed before the end of this year, and employees could choose to relocate to another location or leave the company.
In recent years, Nardello's number of employees in Hong Kong has been continuously decreasing. According to LinkedIn search results, there are currently three people working in the office.
Nardello's internal statement regarding the closure of its Hong Kong office is a major reversal of attitude. Previously, management informed employees in a company wide notice in May that the company would not close its Hong Kong office.
We are reassigning some employees and restructuring, but we will not close our business in Hong Kong, "said Sabina Menschel, President of Nardello at the time. We will continue to work in Hong Kong
The head of Nardello's political risk and strategic intelligence business in the region will be based in Singapore, and Nardello opened its eighth global office in Singapore in July. The company stated in a written statement at the time that the Singapore office would help the company develop its business in the Asia Pacific region.
Nardello's executives include senior individuals who have worked in the US law enforcement and judicial departments. The company provides due diligence and investigative research services for criminal litigation, fraud, and anti-corruption investigations. Nardello also provides advice to clients on geopolitical and regulatory risks. Last year, a lawyer for the cryptocurrency exchange FTX stated that the exchange hired Nardello to assist in conducting an internal investigation into the cause of FTX's bankruptcy.
According to insiders, The Risk Advisory Group, which has a small number of employees in Hong Kong, closed its local office in May. The group has removed its Hong Kong office from its official website, and the office has also moved to the address previously listed.
The above-mentioned company stated that Tim Stanley, its senior manager in charge of Hong Kong operations, was transferred to the Zurich branch the following month. Stanley did not respond to requests for comment from reporters.
A person familiar with the matter said that the company opened an office in Singapore last year and will continue to operate in the Asia Pacific region.
The company's main business is conducting commercial investigations for pre listing transactions, mergers and acquisitions, anti fraud, and corruption investigations. The company also conducts investigations on environmental, social, and governance (ESG) issues for enterprises, such as human rights and environmental abuse in the supply chain.