Risk-Advisory Firms Shift Focus Away From Hong Kong Amid Growing Concerns

As business dwindles and Chinese authorities tighten their grip on corporate intelligence gathering, several investigation firms are retreating from Hong Kong and relocating their employees. This retreat is a sign of growing concern among foreign companies about the business environment in the city.

Notable exits include three U.S. and British due-diligence companies that established a presence in Hong Kong over a decade ago. Nardello, a global company founded by a former U.S. federal prosecutor, and the Risk Advisory Group, co-founded by a former British fraud investigator, have either exited or are winding down their operations this year, according to people familiar with the matter.

While Nardello stated that it was reassigning staff but not fully closing its Hong Kong business, the Risk Advisory Group did not respond to requests for comment, per the Wall Street Journal.

New York-based investigations firm Mintz Group closed its Hong Kong office earlier this year following a raid on its Beijing office by Chinese authorities, during which five of its Chinese employees were detained. China imposed a $1.5 million fine on Mintz Group in July for conducting "unapproved" statistical work, as reported by the Wall Street Journal. Mintz Group did not provide a comment.

Chinese authorities have conducted a series of raids on foreign-owned due-diligence firms in mainland China, including Mintz Group, questioning staff at blue-chip U.S. consulting firm Bain, and restricting a senior executive at U.S. risk-advisory firm Kroll from leaving mainland China.

Many companies in the industry are re-evaluating their business plans and the potential risks they face in China, particularly in Hong Kong. The city was once considered a safe hub for conducting business, given its British-style legal system, but the scope of what is considered sensitive to authorities has broadened, leaving firms uncertain about where to draw the line.

According to the Wall Street Journal, the impact of China's National Security Law, imposed on Hong Kong in 2020, and the changing political environment in the city are having an economic impact.  The number of foreign businesses with regional headquarters in Hong Kong is declining, and the number of people employed by foreign firms in the city has dropped by 25,000 to 468,000 between 2019 and 2022, according to government figures.

Despite Hong Kong's business-friendly environment, concerns about the expanded concept of national security have driven some firms to reconsider their presence in the city. Fundraising activities in Hong Kong have significantly slowed, with U.S.-dollar fundraising by private-equity firms investing mainly in China declining by 89% in the first half of this year compared to the previous year, per the Wall Street Journal. Hong Kong IPO listings have also declined by 68% compared to the same period last year.

Risk-advisory firms, in particular, are rethinking their operations due to the evolving political landscape in the region. For many in the industry, mainland China and Hong Kong are no longer safe for commercial due diligence and investigative work.