June 18, 2025 • 25 mins
This week on The Fin, professional services reporter Maxim Shanahan on why King & Wood Mallesons is struggling to manage risk and conflicts across its jurisdictions.
This podcast is sponsored by Aussie Broadband
Further reading:
‘We didn’t have a hope in hell’: KWM’s cautionary China tale
A corrupt wind farm deal in Montenegro, a controversial Russian legal conference and the financial problems of one of its most senior executives have thrown the spotlight on the Sino-Australian law firm.
Calls for tougher rules amid KWM drama
The senators who led the inquiry into the PwC tax leaks scandal say King & Wood Mallesons’ troubles expose flaws in the governance of top law firms.
KWM sues former global chief operating officer
King & Wood Mallesons is suing a former member of its international management committee for debt relating to loans worth more than $1 million.
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Episode Transcript
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Speaker 1 (00:04):
The Australian Financial Review. When Australian law firm Mallison Stephen
Shak merged with China's king and Wood in twenty twelve,
it broke new ground.
Speaker 2 (00:16):
So Kate WM is the first international firm headquartered in Asia.
So the future for US is aligned with very much
the emergence of Asia, including China.
Speaker 1 (00:30):
Shi Jimping was just coming to power, and while the
two countries' political and legal systems were vastly different, most lawyers,
politicians and business people believe China would continue to open up.
Speaker 3 (00:43):
To the world.
Speaker 1 (00:44):
One person who was there right from the start was
Chinese lawyer Rupert Lee. He was integral to the merging
negotiations and would go on to become the firm's chief
operating officer its third most senior executive. But late last year,
Rupert Lee was out. His sudden departure led Financial Review
(01:07):
journalist Max Shanahan to start digging around, and what he
discovered among court files in Beijing, allegedly corrupt wind farm
deals in Montenegro and a controversial legal conference in Russia,
has raised serious questions about how Kingenwood Mallison's manages risk
and conflicts across its jurisdictions.
Speaker 3 (01:30):
Kingwood Mallisons has no independent directors who might pull them
up and say, you know, hold on what deals we
being exposed to? Why is Rupert who's on our global
board worrying eight million Hong Kong dollars from the firm?
When's he going to pay it? Buck?
Speaker 1 (01:43):
Welcome to the Finn. I'm Lisa Murray. This week Max
Shanahan on kwm's China experiment and whether it can last.
It's Thursday, June nineteenth. Hi, Max, thanks for coming on
(02:16):
the podcast, Lisa, thanks for having me. KM has been
operating as a global law firm since twenty twelve. What
made you decide to start looking into the merged firm
and how it works now?
Speaker 3 (02:30):
Oh, well, I've always been interested in how the mergers worked.
It's a merge between an Australian and a Chinese law firm.
They're such radically different legal systems it must be really
difficult to bridge those systems. How are they pulling it off?
If they are pulling it off? And so the way
this sort of all came about was I'd written a
story about the global chief executive retiring Soe Kench and
(02:51):
then I started to hear about this guy Rupert Lee,
who was the global chief operating officer, heard that he
was leaving as well, and I'd planned to write a
story about it. But then last October one of the
international legal trade publications reported that not only was he
leaving the firm, Kingwood Mallison's was suing him for eight
million Hong Kong dollars, and so that sort of set
(03:11):
off all sorts of red flags.
Speaker 1 (03:13):
So he started looking into Rupert Lee.
Speaker 3 (03:16):
Yeah, so it turned out that he got himself into
quite a bit of legal and financial trouble. So obviously
there was some sort of falling out, and katiewm had
sued Rupert Lee for taking an eight million Hong Kong
doll alone from the Hong Kong partnership. So it got
to the points where we had to try and track
him down. By this time he'd left the firm, he
was sort of difficult to get in touch with. So
(03:36):
we sent someone around to his place in Hong Kong,
in quite a nice neighborhood on Hong Kong Islands, and
we dropped a list of questions under his door. A
few days went by and I managed to track down
a phone number and I gave him a call and
he said he'd received our questions and he was going
to send me a response.
Speaker 1 (03:52):
So before we delve into Rupert Lee's financial and legal
problems and how he responded to your questions, let's go
right back to the start. Why did Mallisons and King
and Would decide to merge in the first place.
Speaker 3 (04:05):
So Mallison's has always been one of the top firms
in Australia. It was founded almost two hundred years ago.
Two of the current High Court bench did time at Mallison's.
There's sort of high profile business people and war directors
like Nicola Wakefield Evans for example. They're sort of smattering
of kind of conservative politicians that have come out of there.
And so it's a place that if you go through
(04:27):
law school and you get a clerk shup at Mallison's,
you're sort of set up for a good career if
you stay in the firm all through the connections you
get you can go on to arrange different careers in
the bar or in business. And so the context of
the merger is about fifteen years ago a lot of
Mallison's rivals in Australia were doing deals to tie up
with UK firms to add some sort of global element
(04:47):
to their business. So Free Hills, an Australian law firm,
did a tie up with Herbert Smith Allen's, one of
their big rivals with Link Leaders, a UK firm and
Mallison's had tried the other few times but nothing really
came to pass, so they started to talk to China.
Speaker 4 (05:01):
Mm hmm.
Speaker 5 (05:04):
Chinese President Hu Jintao arrived at the White House to
an elaborate welcome ceremony. The two leaders spent most of
their time talking about the economy, both repeatedly uttering the word.
Speaker 6 (05:16):
Of the day cooperation, cooperation.
Speaker 3 (05:18):
And at this time China's economy was really booming and
it was the next big thing. Trade between Australia and
China was really expanding at a rapid base.
Speaker 6 (05:26):
Well it was because of the continuing demand from China,
largely that Australia's economy managed to fare better than most
developed countries during last year's global financial crisis.
Speaker 3 (05:35):
It was opening up its economy and everyone thought this
growth and liberalization would just continue as it was.
Speaker 7 (05:40):
The pilot Free Trade Zone allows foreign competitors' access to
China's highly protected services sector. The government is promising to
cut through the red tape for businesses opening here and
give investors tax benefits.
Speaker 3 (05:52):
The merger was eventually done into the last few months
of the Hugean Taoer era, and there was a new leader, Xijimping,
who was meant to continue on this liberalization.
Speaker 4 (06:02):
However, it is widely hoped that his new government will
take some drastically needed reforms in order to get the
country's economy back on track and to fight the ever
growing problem of corruption.
Speaker 1 (06:14):
I was actually in China at the time in twenty twelve,
and I remember that period. I remember the merger and
everyone being so excited about it, and I also remember
writing stories about China at the time opening up not
just economically but politically. Everyone expected political reforms from Sheeting Ping,
So there was a lot of optimism at the time.
Speaker 3 (06:34):
And both firms saw a huge opportunity in this to
capitalize on that sentiment, and so the dually ended up
doing was with King and Wood, which is one of
the top Chinese firms that was set up in the
early nineties just as private law firms were first allowed
in China, and from the start it wanted to really
focus on doing international work and appealing to Western clients,
(06:55):
so its name is a great example. There was no
King no Wood. They were just emulating this ideal of
what an imagined kind of authoritative and well connected Western
law firm looks like. At the time they merged, there
were sort of roughly the same size between one hundred
and fifty two hundred partners, and now the Chinese partnership
is double the size of the Australian partnership. And there's
(07:16):
this great scene in a book that was written about
the history of Kingwood Mallson's where these three senior Australian
partners get on a plane to Beijing and then they
turn up in their shirt sleeves and it's freezing cold,
and they make their way to the Kingwood offices in
this big tall building in Beijing, and they greeted in
this huge boardroom. There's only three of them, and on
the other side there's eleven Chinese partners and this guy
(07:39):
who was managing partner, as time Strooke Fuller, he leans
across to his colleagues and he says, you know, I
think we've undercooked this.
Speaker 1 (07:46):
But despite the Mallison's delegation being completely out numbered, the
talks went well, the two firms did end up eventually merging.
Tell us about the deal, how did it actually work.
Speaker 3 (08:00):
So the firm's structured as a Swiss Varian, which is
this sort of structure that's not uncommon in these big
international law firms, and it means that each member partnership
in each country is financially separate, so things go badly
in one part of the world, it doesn't bring the
rest of the firm down with it. So what's different
about Kingwood Mallison's is there's only three main partnerships as Australia,
(08:22):
China and Hong Kong, so that's a bit unique. But
despite that, it's intended to present to the world as
a single firm. It's pitched to clients as I think
the line that uses where the top tier international firm
for Asia from Asia. So the merger presented heaps of
opportunities for the firm, but the different Australian and Chinese
attitudes in some cases to governance and risk also through
(08:43):
up lots of challenges.
Speaker 8 (08:44):
What are some of the challenges you've confronted in putting together.
Speaker 5 (08:48):
Such established firms from such different settings.
Speaker 8 (08:52):
Yes, we don't have long enough for all of the challenges.
It's a classic question.
Speaker 3 (08:56):
In an interview about a decade ago then global managing
partners to it full set as much.
Speaker 8 (09:01):
Right from the start of Kingwood and Mallisons, this concept
of merger of equals not a takeover of Australia of
China or China of Australia. Everybody has an equal voice.
Speaker 3 (09:10):
But he stressed that the two firms still shared these
common values and the relationship was developing with speed and
everything was going to plan.
Speaker 8 (09:17):
I think every month and every year that goes by,
people see the benefit of merging the firms.
Speaker 3 (09:22):
And so while this varian structure isolates risk, it also
has the effect of clouding visibility over each of the
partner firms, particularly in the Mallison's case, when you have
clients with big data protection of concerns, they want to
know that their data isn't going to be shared with
the Chinese part of the firm, So you have to
erect these walls within the firm, which sort of compounds
(09:45):
the existing walls between the partnerships. So that makes things
difficult to manage in some cases. So what it really
means is that while each partnership leverages the brand the
reputation and the international connections of KWM, in practice, little
knowledge or transparency over what each part of the firm
is working on. So I spoke to a bunch of
(10:06):
former partners and staff at KWM, some of whom were
really closely involved in the merger, some of whom were
there until quite recently, and they all said that there
was always an awareness that there were transparency issues in
the partnership. One former partner said they caught it within
the firm the Great Wall of China, which he took
to me, and the gap between what you understand is
happening and what is actually happening in the Chinese partnership.
(10:29):
Another gave me an example. They were working with a
major bank kill as a client and they had operations
in Australia, Hong Kong and China, but they just couldn't
find out which partner in the Chinese firm the client
was using, so in the end they had to go
and ask the client directly. So I was clearly problems
with communication between the international elements and yeah, because of
all these cybersecurity concerns that clients had, there were big
(10:53):
internal boundaries erected between the partnerships. They were on completely
different document sharing systems. Even simple inform was difficult to
obtain and it really was an environment that was conducive
to any sort of corporation or collaboration and rupe.
Speaker 1 (11:07):
At least job as chief operating officer was to oversee
that cooperation between the Australian and Chinese lawyers. But it
doesn't sound like there was much going on. Max. When
did Lee's problems become a problem for KWM.
Speaker 3 (11:22):
Yeah, So it turns out that while he was global
Chief operating Officer of the firm, which is quite a
big job, he was also had this whole range of
private business interests on the side, probably the most colorful
of which is this payments company, which got caught up
in China's gambling crackdown in twenty twenty one. One of
its employees was convicted for facilitating payments for an illegal
(11:43):
aligning casino run by Sun City Group, which is quite
well known in Australia for its junkets operation, which came
up in inquiries into Crown and Star casinos. He was
alleged to have been part of a group that helped
channel funds to the chair of relisted company the chair
was also his business partner in a separate business. In
(12:03):
twenty twenty three, he gets this huge three hundred and
seventy million Hong Kong dollar money lenders claim from this mysterious,
small little lender in Kowloon. He says, nothing to worry
about there. Even if that is the case, it's sort
of a unusual thing for a global law firm executive
to be caught up in. And then in February last year,
he gets this bankruptcy petitioned from a financial firm in
(12:24):
Hong Kong, and Rupert says Katoem actually helped him out
here and they even opened a file for him, helped him.
He says, security settlement in this bankruptcy claim. Kingwood Mouson's
Australia completely denies that, which is a bit unusual. And
the other unusual thing is that there's this just lack
of agreement between Rupert and KWM about how he actually
(12:45):
came to leave the firm. So KWM Australia says that
KWM China asked him to resign halfway through last year
because of I presume all these financial business issues which
are really piling up on top of each other Ruperts
said that he actually left of his own cord and
that he was retained as a business consultant at the
firm until the end of last year, so there's a
(13:06):
bit of discordance between those two explanations. Naturally, all of
this made me want to look further into what he
was doing while I was still working for KIM, and
I discovered that in twenty seventeen he became the director
of this big state owned electricity company that was also
quite a major client to Kingwood Mouson's and about a
(13:28):
year before Lee joined the board of that firm, it
had brought into a wind farm project in Montenegro that
is now the subject of corruption investigations in three separate countries.
Speaker 1 (14:01):
Max, we're talking about King and Wood Mallison's, the first
ever Sino Australian law firm, which has been operating for
over a decade now. Your investigation has uncovered some real
governance challenges for the firm and these were highlighted in
a wind farm deal which its lawyers advised on in Montenegro.
(14:21):
As you said, the deal is now the subject of
corruption investigations in three separate countries. Tell us about the
deal and how KWM was involved.
Speaker 3 (14:32):
Yeah, So Kingwood Mallisons provided legal advice over the course
of about three years for this wind farm project in Montenegro.
It was a product of China's Belton Road initiative, which
was the signature foreign policy of jijimping. It provided huge
opportunities for legal work. So one of these projects took
KWM to Malta, which is a small island in the Mediterranean.
(14:55):
It's a European Union member country and it sort of
tried to leverage that to make its way in the world,
tried to attract a lot of foreign investments through becoming
a haven for offshore companies. Now rupidly had become a
non executive director of this state owned company called shang
Hi Electric Power in May twenty seventeen. It was a
(15:16):
longtime client of Kingwood Mallison's and his appointment came in
the same month that he was appointed as its global
chief operating Officer. So Shanghi Electric was involved in a
range of deals in Southern Europe, including buying a third
of Malta's state owned energy company and a Malta which
was in a heap of debt at this point, and
so in twenty sixteen, which is about a year before
(15:37):
Lee joins the board. Shanghai Electric brought the rights to
build this wind farm in Montenegro, which was done as
a partnership with an A Malta. The law firm was
responsible for completing due diligence on the project. But the
real problem with the deal was the price that Shanghai
Electric paid for the wind farm. It forked out more
than three times of value that the wind farm had
garnered just a couple of months previously. And Kingwood Mallinson's
(16:01):
was the law firm responsible for drafting the contracts which
enabled that deal to go through. And there's never any
explanation about why that markup is paid. So Rupert Lee
is not alleged to have broken any rules, ought to
have been aware that the propriety of the deal had
been caught into question. He only became a director after
the price markup was paid, and he told me he
was unaware that cato IM had even acted on the deal.
Speaker 1 (16:24):
So max, are the investigations chiefly about that markup in price?
Speaker 3 (16:29):
Yes, So there's three governments investigating the deal to try
and find out why the Montenegro and the Maltese and
the Spanish governments are all in on it, and Europoles
involved as well. The allegations are that the price was
inflated and some of the money eventually found its way
to offshore accounts held by senior Maltese politicians, and it
was also controversial because of the involvement of this Maltese
(16:53):
casino entrepreneur and property developer named Jorgen Fenick. Jorgen Fennick
has been accused of all austrating the car bombing murder
of an investigative journalist who was looking into the Missouri
wind farm deal.
Speaker 2 (17:06):
Carojuana Galitzia was the country's best known investigative journalist. She
was killed on Monday in this car minutes after she
left her home in Malta.
Speaker 3 (17:16):
And another equally suspected deal involving the same characters.
Speaker 9 (17:20):
Galizia ran a popular blog in which she highlighted the
cases of suspected corruption in Malta. Once described as a
one woman WikiLeaks, she famously led the Panama Paper's investigation
into corruption in Malta.
Speaker 3 (17:35):
And almost five million euros from the markup made its
way to companies controlled by Fenik, so Jorgan Fenik was
arrested on these charges related to the car bombing. In
late twenty nineteen.
Speaker 4 (17:49):
Police have now arrested one of the country's most prominent
businessmen in connection to the case.
Speaker 8 (17:54):
Organ Fenek, was detained by armed officers after his yachts
was intercepted. As Walter's handling of the case has drawn
international criticism.
Speaker 3 (18:03):
He was released on bail in January this year and
there's still no trial dates. Kingwood Mausons isn't alleged to
have broken any rules or to have been aware of
the potential corruption, and a lot of it happens downstream
from its involvement, but I think it is something you'd
probably ask questions about you. Why are we writing in
this massive markup to this company no one's ever heard of?
(18:24):
But Kingwood Mallsons extends its relationship with Shanghai Electric and
the Montenegro Deal, continuing to act as its legal advisor,
and in twenty eighteen it secures the financing for the
project to enable it to actually be constructed and go ahead.
Speaker 1 (18:39):
You also came across another example that exposed the different
approaches of the Australian and Chinese partnerships. How did a
KWM lawyer end up as a speaker at a contentious
legal conference in Saint Petersburg the year after Russia invaded Ukraine.
Speaker 3 (18:57):
So the senior kater and partner Tian Wenjing, who also
worked on the Montenegro wind farm deal. In May twenty
twenty three, she turns up at this big Saint Petersburg
legal conference, which is organized by the Russian Ministry of Justice.
So this wasn't just your run of the mill legal conference.
There are a lot of boring panels about legal professional things,
(19:19):
but the sort of keynote speakers at this event were
the Russian Foreign Minister Sergey Lavrov and the Russian former
president dmitriy Medvedev. There were political panels, including one which
is called the Russophobia twenty first century Nazism. Most gollingly,
probably there was a panel which promoted the forced relocation
of Ukrainian orphans into Russia. This is the subject of
(19:40):
an international Criminal Court arrest warrant. That panel was headed
by two Russian cabinet ministers. Tian Wenjing she appeared on
two panels.
Speaker 2 (19:50):
It is my honor to talk about Chinese approach from
a perspective of chalish.
Speaker 3 (19:56):
Lawyer alongside representatives of these major Russian state owners enterprises.
Speaker 6 (20:02):
I never could expect to witness such changes that were
observing currently.
Speaker 3 (20:11):
One of which was the United Shipbuilding Corporation, whose representative
was actually leading the panel.
Speaker 6 (20:16):
I'm very optimistic about the current situation Russia in now
is it undergoing the period of changes.
Speaker 3 (20:24):
This is the company which builds the majority of Russia's
naval fleet and it's sanctioned by the Australian government. Spoke
about opportunities arising from other global law firms exits from
Russia and the growing market for Russian companies to arbitrate
disputes in Hong Kong and China. The program for one
of her panels referred to unfriendly countries such as Australia,
(20:46):
which were continuing to strengthen their sanctions policies against Russia
and Belarus. And a result of all the Western sanctions
on Russia, which has isolated from the global financial system
and then forced big Western companies to pull out of
the country. That's opened up a lot of opportunities for
Chinese companies, and it's natural that Chinese lawyers would follow
that business. It's quite a lucrative source of business. But
(21:09):
this kind of shows the intensions at the heart of
this Kingwood Malson's relationship. On its Australian website, the firm
is advising clients on how to comply with Western sanctions
on Russia, including on its energy sector. On its Chinese website,
Tian co author and article with this chief executive of
a Russian energy plant company on how to actually invest
(21:30):
in the Russian energy sector, and this guy has eventually
a couple of months later a sanctioned.
Speaker 1 (21:34):
The very different approaches.
Speaker 3 (21:36):
Yeah, kind of acting at cross purposes and pulling in
very different directions.
Speaker 1 (21:40):
So then a final question Max, can KWM continue as
a Sino Australian firm or do these different approaches to
governance and risk management start to affect its brand and
reputation so much that it could force a rethink on
the merger.
Speaker 3 (21:58):
So this whole merger was based on on a bit
of a punt, which is a rare thing for law firms,
that China's growth was going to continue as it was,
It's economy and politics was going to continue to liberalize,
but none of that came to pass. So the original
sort of thesis for the merger isn't there anymore. But
even if the Australian Partnership wanted to leave the firm,
there are a few things holding it back. So the
(22:19):
Hong Kong Partnership, which was the only actual combination between
Australian and Chinese lawyers, has become a really profitable part
of the firm. And probably the most inconvenient thing is
that there's a sort of penalty clause in the merger agreement.
So if the Australian Partnership were to pull out, then
it would have to give up the Hong Kong Partnership,
which is probably something it doesn't want to do. So
(22:40):
all of this, I think kind of shines a light
on law firm governance, which probably isn't the most exciting topic,
but when you consider it in light of what's happened
to the big accounting and consulting firms who have the
same private partnership structure, law firms have really got out
of this whole post PEC tax leaks upheaval unscathed. Kingod
Mallison's has no independent directors who might pull them up
(23:01):
and say, you know, hold on what deals were being
exposed to. Why is Rupert who's on our global board
borrowing eight million Hong Kong dollars from the firm, when's
he going to pay it back? And also they don't
publish accounts. There's no sort of transparency. Despite being a
global organization, as they say, having almost two hundred partners
in Australia, they'd be bringing in hundreds of millions of
(23:23):
dollars in revenue. But the end of the day, it's
kind of a branding issue, all right. They advertise themselves
as this single global law firm will connect you with Asia,
where the law firm for Asia for the Asian century.
But also we have no idea what's going on in
our Chinese partnership, and the firm can't even speak as
(23:45):
one entity. I mean, when the going is good, it's
Kingwood Mallisons, the global law firm. But when you start
to ask questions, it's where Kingwood Mallison's Australia, Kingwood Mallisons
Hong Kong and Kingwood Mallison's China. So I think that's
something that it has to deal with.
Speaker 1 (24:02):
Thanks Max, Thanks Lissen, Thank you for listening to The finn.
(24:22):
I'm Lisa Murray with Financial Review reporter Maxim Shanahan joining
the podcast today. The Finn is produced by Alex Gau
with assistance from Mandy Coolan. Fiona Buffini is head of
Premium Content. Our theme is by Alex Goo. If you
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(24:46):
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about markets, business and power, Subscribe to The Financial Review
at AFI dot com slash subscribe next week. The Australian
(25:11):
Financial Review
The Australian Financial Review. When Australian law firm Mallison Stephen
Shak merged with China's king and Wood in twenty twelve,
it broke new ground.
Speaker 2 (00:16):
So Kate WM is the first international firm headquartered in Asia.
So the future for US is aligned with very much
the emergence of Asia, including China.
Speaker 1 (00:30):
Shi Jimping was just coming to power, and while the
two countries' political and legal systems were vastly different, most lawyers,
politicians and business people believe China would continue to open up.
Speaker 3 (00:43):
To the world.
Speaker 1 (00:44):
One person who was there right from the start was
Chinese lawyer Rupert Lee. He was integral to the merging
negotiations and would go on to become the firm's chief
operating officer its third most senior executive. But late last year,
Rupert Lee was out. His sudden departure led Financial Review
(01:07):
journalist Max Shanahan to start digging around, and what he
discovered among court files in Beijing, allegedly corrupt wind farm
deals in Montenegro and a controversial legal conference in Russia,
has raised serious questions about how Kingenwood Mallison's manages risk
and conflicts across its jurisdictions.
Speaker 3 (01:30):
Kingwood Mallisons has no independent directors who might pull them
up and say, you know, hold on what deals we
being exposed to? Why is Rupert who's on our global
board worrying eight million Hong Kong dollars from the firm?
When's he going to pay it? Buck?
Speaker 1 (01:43):
Welcome to the Finn. I'm Lisa Murray. This week Max
Shanahan on kwm's China experiment and whether it can last.
It's Thursday, June nineteenth. Hi, Max, thanks for coming on
(02:16):
the podcast, Lisa, thanks for having me. KM has been
operating as a global law firm since twenty twelve. What
made you decide to start looking into the merged firm
and how it works now?
Speaker 3 (02:30):
Oh, well, I've always been interested in how the mergers worked.
It's a merge between an Australian and a Chinese law firm.
They're such radically different legal systems it must be really
difficult to bridge those systems. How are they pulling it off?
If they are pulling it off? And so the way
this sort of all came about was I'd written a
story about the global chief executive retiring Soe Kench and
(02:51):
then I started to hear about this guy Rupert Lee,
who was the global chief operating officer, heard that he
was leaving as well, and I'd planned to write a
story about it. But then last October one of the
international legal trade publications reported that not only was he
leaving the firm, Kingwood Mallison's was suing him for eight
million Hong Kong dollars, and so that sort of set
(03:11):
off all sorts of red flags.
Speaker 1 (03:13):
So he started looking into Rupert Lee.
Speaker 3 (03:16):
Yeah, so it turned out that he got himself into
quite a bit of legal and financial trouble. So obviously
there was some sort of falling out, and katiewm had
sued Rupert Lee for taking an eight million Hong Kong
doll alone from the Hong Kong partnership. So it got
to the points where we had to try and track
him down. By this time he'd left the firm, he
was sort of difficult to get in touch with. So
(03:36):
we sent someone around to his place in Hong Kong,
in quite a nice neighborhood on Hong Kong Islands, and
we dropped a list of questions under his door. A
few days went by and I managed to track down
a phone number and I gave him a call and
he said he'd received our questions and he was going
to send me a response.
Speaker 1 (03:52):
So before we delve into Rupert Lee's financial and legal
problems and how he responded to your questions, let's go
right back to the start. Why did Mallisons and King
and Would decide to merge in the first place.
Speaker 3 (04:05):
So Mallison's has always been one of the top firms
in Australia. It was founded almost two hundred years ago.
Two of the current High Court bench did time at Mallison's.
There's sort of high profile business people and war directors
like Nicola Wakefield Evans for example. They're sort of smattering
of kind of conservative politicians that have come out of there.
And so it's a place that if you go through
(04:27):
law school and you get a clerk shup at Mallison's,
you're sort of set up for a good career if
you stay in the firm all through the connections you
get you can go on to arrange different careers in
the bar or in business. And so the context of
the merger is about fifteen years ago a lot of
Mallison's rivals in Australia were doing deals to tie up
with UK firms to add some sort of global element
(04:47):
to their business. So Free Hills, an Australian law firm,
did a tie up with Herbert Smith Allen's, one of
their big rivals with Link Leaders, a UK firm and
Mallison's had tried the other few times but nothing really
came to pass, so they started to talk to China.
Speaker 4 (05:01):
Mm hmm.
Speaker 5 (05:04):
Chinese President Hu Jintao arrived at the White House to
an elaborate welcome ceremony. The two leaders spent most of
their time talking about the economy, both repeatedly uttering the word.
Speaker 6 (05:16):
Of the day cooperation, cooperation.
Speaker 3 (05:18):
And at this time China's economy was really booming and
it was the next big thing. Trade between Australia and
China was really expanding at a rapid base.
Speaker 6 (05:26):
Well it was because of the continuing demand from China,
largely that Australia's economy managed to fare better than most
developed countries during last year's global financial crisis.
Speaker 3 (05:35):
It was opening up its economy and everyone thought this
growth and liberalization would just continue as it was.
Speaker 7 (05:40):
The pilot Free Trade Zone allows foreign competitors' access to
China's highly protected services sector. The government is promising to
cut through the red tape for businesses opening here and
give investors tax benefits.
Speaker 3 (05:52):
The merger was eventually done into the last few months
of the Hugean Taoer era, and there was a new leader, Xijimping,
who was meant to continue on this liberalization.
Speaker 4 (06:02):
However, it is widely hoped that his new government will
take some drastically needed reforms in order to get the
country's economy back on track and to fight the ever
growing problem of corruption.
Speaker 1 (06:14):
I was actually in China at the time in twenty twelve,
and I remember that period. I remember the merger and
everyone being so excited about it, and I also remember
writing stories about China at the time opening up not
just economically but politically. Everyone expected political reforms from Sheeting Ping,
So there was a lot of optimism at the time.
Speaker 3 (06:34):
And both firms saw a huge opportunity in this to
capitalize on that sentiment, and so the dually ended up
doing was with King and Wood, which is one of
the top Chinese firms that was set up in the
early nineties just as private law firms were first allowed
in China, and from the start it wanted to really
focus on doing international work and appealing to Western clients,
(06:55):
so its name is a great example. There was no
King no Wood. They were just emulating this ideal of
what an imagined kind of authoritative and well connected Western
law firm looks like. At the time they merged, there
were sort of roughly the same size between one hundred
and fifty two hundred partners, and now the Chinese partnership
is double the size of the Australian partnership. And there's
(07:16):
this great scene in a book that was written about
the history of Kingwood Mallson's where these three senior Australian
partners get on a plane to Beijing and then they
turn up in their shirt sleeves and it's freezing cold,
and they make their way to the Kingwood offices in
this big tall building in Beijing, and they greeted in
this huge boardroom. There's only three of them, and on
the other side there's eleven Chinese partners and this guy
(07:39):
who was managing partner, as time Strooke Fuller, he leans
across to his colleagues and he says, you know, I
think we've undercooked this.
Speaker 1 (07:46):
But despite the Mallison's delegation being completely out numbered, the
talks went well, the two firms did end up eventually merging.
Tell us about the deal, how did it actually work.
Speaker 3 (08:00):
So the firm's structured as a Swiss Varian, which is
this sort of structure that's not uncommon in these big
international law firms, and it means that each member partnership
in each country is financially separate, so things go badly
in one part of the world, it doesn't bring the
rest of the firm down with it. So what's different
about Kingwood Mallison's is there's only three main partnerships as Australia,
(08:22):
China and Hong Kong, so that's a bit unique. But
despite that, it's intended to present to the world as
a single firm. It's pitched to clients as I think
the line that uses where the top tier international firm
for Asia from Asia. So the merger presented heaps of
opportunities for the firm, but the different Australian and Chinese
attitudes in some cases to governance and risk also through
(08:43):
up lots of challenges.
Speaker 8 (08:44):
What are some of the challenges you've confronted in putting together.
Speaker 5 (08:48):
Such established firms from such different settings.
Speaker 8 (08:52):
Yes, we don't have long enough for all of the challenges.
It's a classic question.
Speaker 3 (08:56):
In an interview about a decade ago then global managing
partners to it full set as much.
Speaker 8 (09:01):
Right from the start of Kingwood and Mallisons, this concept
of merger of equals not a takeover of Australia of
China or China of Australia. Everybody has an equal voice.
Speaker 3 (09:10):
But he stressed that the two firms still shared these
common values and the relationship was developing with speed and
everything was going to plan.
Speaker 8 (09:17):
I think every month and every year that goes by,
people see the benefit of merging the firms.
Speaker 3 (09:22):
And so while this varian structure isolates risk, it also
has the effect of clouding visibility over each of the
partner firms, particularly in the Mallison's case, when you have
clients with big data protection of concerns, they want to
know that their data isn't going to be shared with
the Chinese part of the firm, So you have to
erect these walls within the firm, which sort of compounds
(09:45):
the existing walls between the partnerships. So that makes things
difficult to manage in some cases. So what it really
means is that while each partnership leverages the brand the
reputation and the international connections of KWM, in practice, little
knowledge or transparency over what each part of the firm
is working on. So I spoke to a bunch of
(10:06):
former partners and staff at KWM, some of whom were
really closely involved in the merger, some of whom were
there until quite recently, and they all said that there
was always an awareness that there were transparency issues in
the partnership. One former partner said they caught it within
the firm the Great Wall of China, which he took
to me, and the gap between what you understand is
happening and what is actually happening in the Chinese partnership.
(10:29):
Another gave me an example. They were working with a
major bank kill as a client and they had operations
in Australia, Hong Kong and China, but they just couldn't
find out which partner in the Chinese firm the client
was using, so in the end they had to go
and ask the client directly. So I was clearly problems
with communication between the international elements and yeah, because of
all these cybersecurity concerns that clients had, there were big
(10:53):
internal boundaries erected between the partnerships. They were on completely
different document sharing systems. Even simple inform was difficult to
obtain and it really was an environment that was conducive
to any sort of corporation or collaboration and rupe.
Speaker 1 (11:07):
At least job as chief operating officer was to oversee
that cooperation between the Australian and Chinese lawyers. But it
doesn't sound like there was much going on. Max. When
did Lee's problems become a problem for KWM.
Speaker 3 (11:22):
Yeah, So it turns out that while he was global
Chief operating Officer of the firm, which is quite a
big job, he was also had this whole range of
private business interests on the side, probably the most colorful
of which is this payments company, which got caught up
in China's gambling crackdown in twenty twenty one. One of
its employees was convicted for facilitating payments for an illegal
(11:43):
aligning casino run by Sun City Group, which is quite
well known in Australia for its junkets operation, which came
up in inquiries into Crown and Star casinos. He was
alleged to have been part of a group that helped
channel funds to the chair of relisted company the chair
was also his business partner in a separate business. In
(12:03):
twenty twenty three, he gets this huge three hundred and
seventy million Hong Kong dollar money lenders claim from this mysterious,
small little lender in Kowloon. He says, nothing to worry
about there. Even if that is the case, it's sort
of a unusual thing for a global law firm executive
to be caught up in. And then in February last year,
he gets this bankruptcy petitioned from a financial firm in
(12:24):
Hong Kong, and Rupert says Katoem actually helped him out
here and they even opened a file for him, helped him.
He says, security settlement in this bankruptcy claim. Kingwood Mouson's
Australia completely denies that, which is a bit unusual. And
the other unusual thing is that there's this just lack
of agreement between Rupert and KWM about how he actually
(12:45):
came to leave the firm. So KWM Australia says that
KWM China asked him to resign halfway through last year
because of I presume all these financial business issues which
are really piling up on top of each other Ruperts
said that he actually left of his own cord and
that he was retained as a business consultant at the
firm until the end of last year, so there's a
(13:06):
bit of discordance between those two explanations. Naturally, all of
this made me want to look further into what he
was doing while I was still working for KIM, and
I discovered that in twenty seventeen he became the director
of this big state owned electricity company that was also
quite a major client to Kingwood Mouson's and about a
(13:28):
year before Lee joined the board of that firm, it
had brought into a wind farm project in Montenegro that
is now the subject of corruption investigations in three separate countries.
Speaker 1 (14:01):
Max, we're talking about King and Wood Mallison's, the first
ever Sino Australian law firm, which has been operating for
over a decade now. Your investigation has uncovered some real
governance challenges for the firm and these were highlighted in
a wind farm deal which its lawyers advised on in Montenegro.
(14:21):
As you said, the deal is now the subject of
corruption investigations in three separate countries. Tell us about the
deal and how KWM was involved.
Speaker 3 (14:32):
Yeah, So Kingwood Mallisons provided legal advice over the course
of about three years for this wind farm project in Montenegro.
It was a product of China's Belton Road initiative, which
was the signature foreign policy of jijimping. It provided huge
opportunities for legal work. So one of these projects took
KWM to Malta, which is a small island in the Mediterranean.
(14:55):
It's a European Union member country and it sort of
tried to leverage that to make its way in the world,
tried to attract a lot of foreign investments through becoming
a haven for offshore companies. Now rupidly had become a
non executive director of this state owned company called shang
Hi Electric Power in May twenty seventeen. It was a
(15:16):
longtime client of Kingwood Mallison's and his appointment came in
the same month that he was appointed as its global
chief operating Officer. So Shanghi Electric was involved in a
range of deals in Southern Europe, including buying a third
of Malta's state owned energy company and a Malta which
was in a heap of debt at this point, and
so in twenty sixteen, which is about a year before
(15:37):
Lee joins the board. Shanghai Electric brought the rights to
build this wind farm in Montenegro, which was done as
a partnership with an A Malta. The law firm was
responsible for completing due diligence on the project. But the
real problem with the deal was the price that Shanghai
Electric paid for the wind farm. It forked out more
than three times of value that the wind farm had
garnered just a couple of months previously. And Kingwood Mallinson's
(16:01):
was the law firm responsible for drafting the contracts which
enabled that deal to go through. And there's never any
explanation about why that markup is paid. So Rupert Lee
is not alleged to have broken any rules, ought to
have been aware that the propriety of the deal had
been caught into question. He only became a director after
the price markup was paid, and he told me he
was unaware that cato IM had even acted on the deal.
Speaker 1 (16:24):
So max, are the investigations chiefly about that markup in price?
Speaker 3 (16:29):
Yes, So there's three governments investigating the deal to try
and find out why the Montenegro and the Maltese and
the Spanish governments are all in on it, and Europoles
involved as well. The allegations are that the price was
inflated and some of the money eventually found its way
to offshore accounts held by senior Maltese politicians, and it
was also controversial because of the involvement of this Maltese
(16:53):
casino entrepreneur and property developer named Jorgen Fenick. Jorgen Fennick
has been accused of all austrating the car bombing murder
of an investigative journalist who was looking into the Missouri
wind farm deal.
Speaker 2 (17:06):
Carojuana Galitzia was the country's best known investigative journalist. She
was killed on Monday in this car minutes after she
left her home in Malta.
Speaker 3 (17:16):
And another equally suspected deal involving the same characters.
Speaker 9 (17:20):
Galizia ran a popular blog in which she highlighted the
cases of suspected corruption in Malta. Once described as a
one woman WikiLeaks, she famously led the Panama Paper's investigation
into corruption in Malta.
Speaker 3 (17:35):
And almost five million euros from the markup made its
way to companies controlled by Fenik, so Jorgan Fenik was
arrested on these charges related to the car bombing. In
late twenty nineteen.
Speaker 4 (17:49):
Police have now arrested one of the country's most prominent
businessmen in connection to the case.
Speaker 8 (17:54):
Organ Fenek, was detained by armed officers after his yachts
was intercepted. As Walter's handling of the case has drawn
international criticism.
Speaker 3 (18:03):
He was released on bail in January this year and
there's still no trial dates. Kingwood Mausons isn't alleged to
have broken any rules or to have been aware of
the potential corruption, and a lot of it happens downstream
from its involvement, but I think it is something you'd
probably ask questions about you. Why are we writing in
this massive markup to this company no one's ever heard of?
(18:24):
But Kingwood Mallsons extends its relationship with Shanghai Electric and
the Montenegro Deal, continuing to act as its legal advisor,
and in twenty eighteen it secures the financing for the
project to enable it to actually be constructed and go ahead.
Speaker 1 (18:39):
You also came across another example that exposed the different
approaches of the Australian and Chinese partnerships. How did a
KWM lawyer end up as a speaker at a contentious
legal conference in Saint Petersburg the year after Russia invaded Ukraine.
Speaker 3 (18:57):
So the senior kater and partner Tian Wenjing, who also
worked on the Montenegro wind farm deal. In May twenty
twenty three, she turns up at this big Saint Petersburg
legal conference, which is organized by the Russian Ministry of Justice.
So this wasn't just your run of the mill legal conference.
There are a lot of boring panels about legal professional things,
(19:19):
but the sort of keynote speakers at this event were
the Russian Foreign Minister Sergey Lavrov and the Russian former
president dmitriy Medvedev. There were political panels, including one which
is called the Russophobia twenty first century Nazism. Most gollingly,
probably there was a panel which promoted the forced relocation
of Ukrainian orphans into Russia. This is the subject of
(19:40):
an international Criminal Court arrest warrant. That panel was headed
by two Russian cabinet ministers. Tian Wenjing she appeared on
two panels.
Speaker 2 (19:50):
It is my honor to talk about Chinese approach from
a perspective of chalish.
Speaker 3 (19:56):
Lawyer alongside representatives of these major Russian state owners enterprises.
Speaker 6 (20:02):
I never could expect to witness such changes that were
observing currently.
Speaker 3 (20:11):
One of which was the United Shipbuilding Corporation, whose representative
was actually leading the panel.
Speaker 6 (20:16):
I'm very optimistic about the current situation Russia in now
is it undergoing the period of changes.
Speaker 3 (20:24):
This is the company which builds the majority of Russia's
naval fleet and it's sanctioned by the Australian government. Spoke
about opportunities arising from other global law firms exits from
Russia and the growing market for Russian companies to arbitrate
disputes in Hong Kong and China. The program for one
of her panels referred to unfriendly countries such as Australia,
(20:46):
which were continuing to strengthen their sanctions policies against Russia
and Belarus. And a result of all the Western sanctions
on Russia, which has isolated from the global financial system
and then forced big Western companies to pull out of
the country. That's opened up a lot of opportunities for
Chinese companies, and it's natural that Chinese lawyers would follow
that business. It's quite a lucrative source of business. But
(21:09):
this kind of shows the intensions at the heart of
this Kingwood Malson's relationship. On its Australian website, the firm
is advising clients on how to comply with Western sanctions
on Russia, including on its energy sector. On its Chinese website,
Tian co author and article with this chief executive of
a Russian energy plant company on how to actually invest
(21:30):
in the Russian energy sector, and this guy has eventually
a couple of months later a sanctioned.
Speaker 1 (21:34):
The very different approaches.
Speaker 3 (21:36):
Yeah, kind of acting at cross purposes and pulling in
very different directions.
Speaker 1 (21:40):
So then a final question Max, can KWM continue as
a Sino Australian firm or do these different approaches to
governance and risk management start to affect its brand and
reputation so much that it could force a rethink on
the merger.
Speaker 3 (21:58):
So this whole merger was based on on a bit
of a punt, which is a rare thing for law firms,
that China's growth was going to continue as it was,
It's economy and politics was going to continue to liberalize,
but none of that came to pass. So the original
sort of thesis for the merger isn't there anymore. But
even if the Australian Partnership wanted to leave the firm,
there are a few things holding it back. So the
(22:19):
Hong Kong Partnership, which was the only actual combination between
Australian and Chinese lawyers, has become a really profitable part
of the firm. And probably the most inconvenient thing is
that there's a sort of penalty clause in the merger agreement.
So if the Australian Partnership were to pull out, then
it would have to give up the Hong Kong Partnership,
which is probably something it doesn't want to do. So
(22:40):
all of this, I think kind of shines a light
on law firm governance, which probably isn't the most exciting topic,
but when you consider it in light of what's happened
to the big accounting and consulting firms who have the
same private partnership structure, law firms have really got out
of this whole post PEC tax leaks upheaval unscathed. Kingod
Mallison's has no independent directors who might pull them up
(23:01):
and say, you know, hold on what deals were being
exposed to. Why is Rupert who's on our global board
borrowing eight million Hong Kong dollars from the firm, when's
he going to pay it back? And also they don't
publish accounts. There's no sort of transparency. Despite being a
global organization, as they say, having almost two hundred partners
in Australia, they'd be bringing in hundreds of millions of
(23:23):
dollars in revenue. But the end of the day, it's
kind of a branding issue, all right. They advertise themselves
as this single global law firm will connect you with Asia,
where the law firm for Asia for the Asian century.
But also we have no idea what's going on in
our Chinese partnership, and the firm can't even speak as
(23:45):
one entity. I mean, when the going is good, it's
Kingwood Mallisons, the global law firm. But when you start
to ask questions, it's where Kingwood Mallison's Australia, Kingwood Mallisons
Hong Kong and Kingwood Mallison's China. So I think that's
something that it has to deal with.
Speaker 1 (24:02):
Thanks Max, Thanks Lissen, Thank you for listening to The finn.
(24:22):
I'm Lisa Murray with Financial Review reporter Maxim Shanahan joining
the podcast today. The Finn is produced by Alex Gau
with assistance from Mandy Coolan. Fiona Buffini is head of
Premium Content. Our theme is by Alex Goo. If you
like the show and want to hear more, follow us
wherever you get your podcasts, and consider rating and reviewing
(24:46):
us as it helps others find us. For more stories
about markets, business and power, Subscribe to The Financial Review
at AFI dot com slash subscribe next week. The Australian
(25:11):
Financial Review
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