(April 8): Panama’s top auditor accused port operator CK Hutchison Holdings Ltd of wrongdoing, providing a potential pathway for the Central American country to wrest control of canal facilities caught up in a diplomatic tug-of-war between the US and China.

Panama Ports Co, part of Hong Kong-based Hutchison’s far-flung operations, failed to obtain required approvals for a contract extension in 2021, and owed millions in dues, Comptroller General Anel Flores told reporters on Monday following an audit.

Flores plans to file a criminal complaint with Panama’s attorney general’s office on Tuesday against the maritime authorities who granted the 2021 contract renewal and against executives of Panama Ports, he said. Ultimately, Panama’s Maritime Authority will need to decide whether to rescind the contract, he said. 

CK Hutchison didn’t immediately respond to a request for comment.

The move ratchets up pressure on CK Hutchison, founded by Li Ka-Shing, to give up control of two Panama Canal ports, after US President Donald Trump began pushing to rid the canal of Chinese influence. The audit was launched shortly after Trump returned to office in January; Hutchison then agreed to sell operations including the two facilities to a BlackRock Inc-led consortium. 

But Chinese authorities have put pressure on the conglomerate to scuttle the BlackRock deal, which would net Hutchison more than US$19 billion (RM84.96 billion) in cash should the transaction go through. Before the audit results were announced, BlackRock chief executive officer Larry Fink said he anticipates nine months of regulatory review, including from China, before a final decision is made on the deal. 

“I’m actually pretty optimistic that we will find a solution because, if you look at it, everything was done in the right order,” Fink said in an interview on Monday at the Economic Club of New York. “I think it’s going to be a very interesting thing to watch for geopolitical purposes.” 

The audit’s outcome makes it clear that Panama’s government, which has close ties to the US, can attempt to remove Hutchison even if the BlackRock deal doesn’t go through.

Flores said that in addition to the lapses in required approvals, his audit found that Panama Ports used a series of tax-exempt sub-contractors to lower the amount it pays to the government. 

The company used tax breaks to save US$850 million of at least US$1.3 billion it owed in payments to the republic in the first 25 years of the contract period, Flores said, adding that it currently owes US$300 million. The company also breached its agreement to share 10% of net income with Panama’s government, Flores said.

“There are two people in a transaction, but they need to know what they are selling and that what they are buying might not be what they were told,” Flores said, referring to the BlackRock deal. “There are breaches, nonpayments and countless things that were wrongly calculated.”

The Balboa and Cristobal ports on either side of the 51-mile (82km) Panama Canal, which connects the Atlantic and Pacific oceans, form a key part of the deal involving a total of 43 CK Hutchison facilities. 

While CK Hutchison is based in Hong Kong, a Chinese territory with its own borders, currency and legal system, Beijing has tightened its grip on the former British colony since 2020 when it imposed a broad national security law that’s paved the way for a crackdown on dissent.

A consortium backed by BlackRock agreed last month to buy a majority of Panama Ports and other Hutchison assets. But the parties are yet to sign the deal while it’s being scrutinised by Chinese authorities.

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