Beneath the Harbor: Hong Kong's Leading Role in Sanctions Evasion

In my new report with CFHK, we expose how Hong Kong--with the government's blessing--has become the favorite base of those seeking to trade with Russia, North Korea, and Iran

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For the past six months, I’ve been working with the Committee for Freedom in Hong Kong Foundation to track Hong Kong companies helping Russia, Iran, and North Korea evade global sanctions with the tacit blessing of the Hong Kong government. Our report, released today, uncovers the stunning breadth of Hong Kong’s role in global illicit trade with these authoritarian regimes and highlights the surprising ease with which the city’s mechanisms have been exploited to evade international sanctions.

Some of our most significant findings:

🔹 Despite international sanctions, trade between Hong Kong and sanctioned countries like Russia, North Korea, and Iran has increased significantly, indicating a deliberate strategy to circumvent international restrictions.

🔹 Hong Kong’s exports of advanced tech to Russia surged after the invasion of Ukraine, with $750 million of shipments in Dec 2023--nearly 40% of the total--consisting of items on a US/EU list of the most essential components for Russia’s military systems.

🔹 Hong Kong companies have played a pivotal role in supporting North Korea’s illicit shipping operations, facilitating ship-to-ship transfers and the creation of fraudulent ship identities to evade international sanctions.

🔹 Hong Kong companies have facilitated the transfer of advanced drone and missile technology to Iran, which has been used to support military efforts in the Middle East and beyond, and facilitated the illicit sale of Iranian oil via ship-to-ship transfers at sea.

🔹 The Hong Kong government has welcomed these sanctioned evaders, either tacitly or at times explicitly, by refusing to cooperate with global governments and the UN to enforce sanctions.

In the report, we call out by name companies and individuals who appear to be participating in these activities. Our evidence comes from a range of materials including Russian customs records collected by global security nonprofit C4ADS, Hong Kong corporate records, vessel ownership and tracking data, Iranian emails posted online by a hacking collective, and other materials. Some of the highlights:

🔹 Piraclinos Limited: Claimed to be a fertilizer and charcoal seller but shipped millions of dollars’ worth of integrated circuits to the sanctioned Russian company VMK, masking its true beneficial owners through frequent changes in directors and owners from corporate services firms in Cyprus and Central Asia.

🔹 Arttronix International: After being sanctioned for reshipping drone parts to Iran, the owner swiftly moved to dissolve the company. Once the dissolution was complete, he established a new company under a new name, ETS International, illustrating the ease with which the people behind sanctioned companies can resume business in Hong Kong.

🔹 HK Shipping Cooperation Limited and HK Petroleum Enterprises Cooperation: Sought to facilitate significant oil deals with Iranian oil company Sahara Thunder, including arranging vessels for ship-to-ship transfers and the sale of oil originating from Oman. Both companies share the same two shareholders (including an EU citizen), director, and secretary.

🔹 The New Konk: Multiple Hong Kong companies have been involved in the illicit activities of the vessel previously known as New Konk, a multiyear saga involving a group of sanctions evad- ers that used the vessel—under various names—to make illicit ship-to-ship oil transfers with North Korea, create fraudulent ship identities, and launder proceeds using shell companies.

🔹 Align Trading/Vectrawave: Hong Kong consignor Align Trading Co. Ltd. purportedly shipped nearly $2 million of expensive and highly specialized integrated circuits produced by French military technology producer Vectrawave to AO Trek, a Russian company previously alleged by Ukraine to be supplying components for missiles and military aircraft.

Our key recommendations include empowering agencies like OFAC and BIS with increased resources and political support, using secondary sanctions against banks and logistics firms, and designating Hong Kong as a Primary Money Laundering Concern (PMLC).

This isn’t the end of this effort, but the beginning. We’ll be working hard over the coming months to brief US policymakers and seek to ensure Hong Kong’s sanctions evaders are brought to heel to effectively disrupt these illicit networks.

Read the full report here.