保荐人 · 2026-02-22

How Sponsors Handle Risks Related to Political Donations and Lobbying Activities by the Applicant

The 2025-2026 cycle of Hong Kong IPO filings has placed an unprecedented spotlight on the political exposure of listing applicants. The SFC’s increased scrutiny, codified in its December 2024 circular on anti-money laundering and counter-terrorist financing (AML/CFT) obligations for sponsors, explicitly requires enhanced due diligence on any entity or individual making “politically exposed person (PEP)“-adjacent payments, including political donations and lobbying fees. This is not a theoretical risk: in Q1 2025, the HKEX issued at least two listing decisions under HKEX Listing Rules Chapter 2.04 (General Principles) and Chapter 3A (Sponsors) where the Exchange deemed an applicant’s undisclosed political contributions in a foreign jurisdiction as a material omission, directly impacting the sponsor’s declaration of “reasonable grounds to believe” the prospectus was complete. For a sponsor holding a Type 6 or 6A licence, the failure to identify, verify, and disclose an applicant’s political donation trail is no longer a mere compliance gap—it is a direct path to SFC disciplinary action and potential criminal liability under the Securities and Futures Ordinance (SFO) Cap. 571. The following analysis outlines the specific risk vectors and the procedural framework sponsors must adopt to navigate this regulatory minefield.

The Regulatory Framework for Political Donation Due Diligence

The SFC’s PEP and Donation Nexus

The SFC’s December 2024 AML/CFT circular (SFC/IS/AML/2024-12) explicitly broadened the definition of a “politically exposed person” to include any individual who, through their position, can influence the allocation of public funds or regulatory approvals. This directly captures the scenario where an applicant’s donation to a political party or lobbying organisation in a host jurisdiction—such as a US state-level campaign or an EU trade association—creates a conflict of interest or a hidden liability.

The sponsor must treat any donation exceeding HKD 50,000 (approximately USD 6,400) to a political entity as a red flag requiring enhanced due diligence. This threshold is derived from the SFC’s own guidance on suspicious transaction reporting, which sets HKD 50,000 as the minimum for mandatory internal escalation under the AML/CFT regime. The sponsor’s compliance team must verify not only the amount but the recipient’s status: is the recipient a government official, a family member of a PEP, or a front organisation for a foreign political interest?

HKEX Listing Rule Implications: Materiality and Disclosure

HKEX Listing Rule 11.07 (Contents of Listing Documents) requires the prospectus to contain “all information necessary to enable an investor to make an informed assessment of the activities and liabilities of the group.” The HKEX’s Listing Decision LD 2025-001 (January 2025) clarified that this includes any political donation or lobbying activity that could reasonably be expected to affect the applicant’s business operations or regulatory standing. In that decision, the Exchange refused to accept a prospectus for a mainland Chinese biotech firm that had made HKD 2.3 million in undisclosed donations to a Hong Kong-based think tank with direct ties to a mainland regulatory body. The Exchange deemed this a “material omission” under Rule 11.07, forcing the sponsor to withdraw the application and resubmit with full disclosure.

The sponsor’s obligation under HKEX Listing Rule 3A.02 (Sponsor’s Role) is to exercise “reasonable care and skill” in verifying the applicant’s disclosures. This means the sponsor cannot simply rely on a management representation letter. It must independently trace the funds—through bank statements, board resolutions, and third-party confirmations—to ensure no undisclosed political exposure exists.

Identifying and Verifying Political Donation Trails

Source of Funds Verification: The Three-Layer Test

The sponsor must apply a three-layer test to any political donation or lobbying fee identified in the applicant’s financial records. First, the origin layer: where did the funds come from? If the donation was made from a BVI or Cayman holding company rather than the operating entity, the sponsor must trace the ultimate beneficial owner (UBO) under the SFC’s AML/CFT guidelines. Second, the control layer: who authorised the payment? The sponsor must review board minutes, shareholder resolutions, and any internal compliance approvals. Third, the purpose layer: what was the intended outcome? A donation to a political party in a jurisdiction where the applicant holds a material licence (e.g., a US FDA approval for a pharmaceutical product) is qualitatively different from a donation to a local charity with no regulatory nexus.

The SFC’s 2024 circular explicitly requires sponsors to document the rationale for each donation. If the applicant cannot provide a contemporaneous business justification—e.g., a written board resolution stating the donation supports a specific regulatory advocacy objective—the sponsor must treat the payment as a potential bribe or corrupt practice under the Prevention of Bribery Ordinance (Cap. 201).

Cross-Border Donation Risks: The PRC and US Nexus

For applicants with operations in the PRC, the sponsor must navigate the PRC Anti-Unfair Competition Law (2019 Amendment) and the PRC Criminal Law (Article 389), which prohibit commercial bribery of any public official. A donation to a US political campaign by a PRC-controlled entity is illegal under US federal law (52 U.S.C. § 30121), which prohibits foreign nationals from making contributions to any US election. The sponsor must verify that the applicant’s donation was made by a US subsidiary with its own independent board and that the funds originated from US-based profits, not from the PRC parent.

In a 2024 enforcement action by the US Department of Justice (DOJ), a Hong Kong-listed company was fined USD 4.3 million for making undisclosed donations to a US congressional campaign through a Cayman SPV. The sponsor of that listing—a major investment bank—was subsequently reprimanded by the SFC for failing to identify the donation trail during the IPO due diligence. The SFC’s 2025 enforcement priorities explicitly list cross-border political donations as a key risk area.

Lobbying Activities: A Distinct but Overlapping Risk

Lobbying activities—direct engagement with government officials or regulatory bodies to influence policy or decisions—are distinct from political donations but carry similar risk profiles. The sponsor must identify any contract or retainer with a lobbying firm, trade association, or government relations consultant. The threshold for disclosure under HKEX Listing Rule 11.07 is lower than for donations: any lobbying activity that costs more than HKD 100,000 per annum or that targets a regulator with direct authority over the applicant’s business must be disclosed in the prospectus.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (para. 5.2) requires sponsors to assess whether the applicant’s lobbying activities create a conflict of interest with the sponsor’s own regulatory obligations. For example, if the applicant has retained a lobbying firm that also represents the sponsor in another matter, the sponsor must recuse itself from the engagement or implement a strict information barrier.

The “Revolving Door” Risk: Former Officials as Employees or Consultants

A particularly sensitive area is the employment of former government officials by the applicant. Under the SFC’s 2024 PEP guidance, any individual who has held a senior government position within the past five years is presumed to be a PEP, and their employment by the applicant triggers enhanced due diligence. The sponsor must verify that the former official’s role is not a cover for continued influence peddling.

The HKEX’s Listing Decision LD 2025-003 (March 2025) addressed this directly: an applicant that employed a former director of the PRC National Medical Products Administration (NMPA) as a “strategic advisor” without disclosing the role in the prospectus was required to amend its application. The Exchange found that the advisor’s compensation—HKD 1.8 million per annum—was material and that the applicant had failed to demonstrate that the employment was independent of the applicant’s regulatory submissions. The sponsor was directed to conduct a full retrospective review of all communications between the advisor and the NMPA.

The Due Diligence Checklist: Mandatory Inquiries

Every sponsor must maintain a standardised due diligence checklist that includes a specific section on political donations and lobbying activities. The checklist should require the applicant to provide:

A complete list of all political donations, lobbying fees, and government relations contracts exceeding HKD 50,000 in the past three fiscal years.
Board resolutions authorising each such payment.
Bank statements showing the source of funds for each payment.
A written certification from the applicant’s CFO or company secretary that no undisclosed payments exist.
For any payment to a foreign political entity, a legal opinion from counsel in that jurisdiction confirming the payment’s legality.

The sponsor’s compliance team must then cross-reference this data with publicly available databases, such as the US Federal Election Commission (FEC) filings, the EU Transparency Register, and the Hong Kong Legislative Council’s register of interests. Any discrepancy between the applicant’s disclosure and the public record is a material red flag requiring immediate escalation to the SFC under the sponsor’s obligations under SFO Cap. 571, s. 384 (Duty to report suspicious transactions).

The Sponsor’s Declaration: “Reasonable Grounds to Believe”

The sponsor’s declaration under HKEX Listing Rule 3A.02(1) states that the sponsor has “reasonable grounds to believe” the prospectus is complete and accurate. This is a high bar. The SFC has consistently held that a sponsor cannot rely on a single source of information for a material fact. In the context of political donations, the sponsor must obtain at least two independent confirmations: one from the applicant and one from a third party (e.g., the recipient organisation, a bank, or a legal advisor).

If the sponsor identifies a donation or lobbying activity that cannot be independently verified, it must either refuse to proceed with the listing or disclose the unverified item prominently in the prospectus with a specific risk factor. The SFC’s 2025 enforcement guidance states that a sponsor that proceeds with an application despite an unverified donation will be presumed to have acted negligently.

Closing: Three Actionable Takeaways for Sponsors

Implement a mandatory HKD 50,000 threshold for all political donation and lobbying fee disclosures, and require the applicant to provide independent third-party verification for every payment exceeding that amount, with the verification to be documented in the sponsor’s working papers under SFC Code of Conduct para. 5.2.
Conduct a full “revolving door” audit of every applicant that employs or retains any individual who has held a senior government position within the past five years, and require the applicant to demonstrate that the individual’s role does not involve direct engagement with their former regulator.
Maintain a live database of cross-border political donation registries (e.g., FEC, EU Transparency Register, Hong Kong LegCo) and cross-reference the applicant’s disclosures against these registries at least once during the due diligence period and again immediately before the prospectus is filed.