Hong Kong major sanction evasion route, alleges report • The Register
Hong Kong’s government and local businesses undermine sanctions by deliberately facilitating the transfer of restricted and sensitive technology to naughty regimes, according to a report released on Monday by the nonprofit Committee for Freedom in Hong Kong Foundation.
The US and its allies restrict exports of advanced technologies – including semiconductors and related tech – to nations like including Russia, Iran, and North Korea. The justification for the bans is hindering offensive military capabilities and pressuring these nations to comply with international norms.
Sanctioned nations don’t take it lying down, and find ways to get the kit they want via what the US government calls “evasion routes.”
According to the Committee’s report, titled “Beneath the Harbor: Hong Kong’s Leading Role in Sanctions Evasion,” Hong Kong is on the way to becoming “a key destabilizing force in the world.”
“Simply put, Hong Kong has gone rogue, serving some of the world’s most brutal regimes and damaging international security interests by smuggling military technology, money, and prohibited commodities through the territory to flout sanctions,” wrote report author Samuel Bickett.
The analysis pulled together public data collected by security nonprofit C4ADS, corporate records, and sources including customs records, corporate registry data, UN Security Council records, vessel automatic identification system tracking information, and more.
Among the findings were that Hong Kong’s exports to Russia almost doubled after Putin’s illegal invasion of Ukraine in February 2022, with advanced tech prominent among the loot. Between August and December 2023, forty percent of the $2 billion worth of shipments to Moscow contained goods on the US and EU’s lists of advanced components – most sought by Russia for its war effort.
Many of the shipped goods in this time frame were purportedly made by Western manufacturers – including Intel, Analog Devices, Apple, and Texas Instruments.
The report further alleges that Hong Kong businesses have facilitated the transfer of advanced drone and missile technology to Iran for military purposes and facilitated the illicit sale of Iranian oil through ship-to-ship transfers at sea.
They do the same for North Korea – even creating fraudulent ship identities to evade detection.
To support his findings, lawyer, researcher and former Hong Kong political prisoner Bickett cited vendors importing and shipping integrated circuits and other tech unrelated to their businesses.
Piraclino, a fertilizer and charcoal vendor, shipped $2.03 million of American chips to recipients like sanctioned Russian-based military and civilian communication systems and equipment manufacturer VMK, according to the report.
Another distributor, Hong Kong-based component hub Arttronix International, was sanctioned in August 2022 for reshipping drone parts to Iran. The owner dissolved the biz and started a new one, in the process facing what Bickett has called “little scrutiny.”
“The Hong Kong government’s regulatory environment, which makes it easy to hide the names of corporate owners and allows for the rapid creation and dissolution of companies, has facilitated these evasion activities,” explained the report.
New companies can be set up in a matter of days, while it takes months to years for the US to investigate and impose sanctions.
The geography of the SAR also plays a part as a major transport hub connecting mainland China to the world’s busiest shipping lanes. Huge volumes making their way through the country are impossible to check thoroughly, “even if the government wanted to, which it clearly does not,” Bickett wrote.
Hong Kong is described in the report as in the past having been “governed by rule of law” and in compliance with international standards – a reputation it still leans on even though, the report laments, times have changed.
Its recent emergence as a global center for illicit finance and trade “reflects deliberate government policy,” detailed the report.
In October 2022, Hong Kong Chief Executive John Lee issued a statement that the territory would not enforce global sanctions on Russia – a distinction Bickett believes was enough to embolden sanction evaders.
His suggestions include the US and EU equipping their sanctions and export control agencies with the necessary resources and political support to target Hong Kong banks, corporate services firms, and other enablers of evasion.
Despite Bickett’s accusations, Hong Kong Customs does regularly intervene in illegal smuggling. Last month, it intercepted 596 CPUs illegally en route to China, and 280 kilograms of live lobsters and 70 “high-value computer display cards” that didn’t have paperwork were stopped in 2023. ®