Samuel Bickett is a lawyer and Hong Kong human rights advocate. Shannon Van Sant is an adviser to the Committee for Freedom in Hong Kong Foundation. This blog post is based on an oped published in the Washington Post on 04 August 2024.
In recent years, dictators in China, Iran, Russia and North Korea have strengthened trade and security ties, formalized cooperation and alliances, and worked together to expand their power from Ukraine to Taiwan. One city plays a central role in this deepening alliance of autocracies: Hong Kong.
Once a trusted global financial center aligned with Western democracies and governed by the rule of law, our new report with the Committee for Freedom in Hong Kong Foundation details how Hong Kong has become the world’s leader in such practices as importing and re-exporting banned Western technology to Russia, forming untraceable front companies for the purchase and sale of barred Iranian oil, and managing “ghost ships” that illegally trade natural resources with North Korea.
Hong Kong’s business-friendly policies, which make it easy to conceal corporate ownership and quickly create and dissolve companies, allow illicit actors to make a mockery of U.S. and Western sanctions. At the same time, slow and inconsistent enforcement by Western governments has allowed those actors to continue their operations with relative impunity. The United States can and should address this situation without delay.
For decades, Hong Kong served as the world’s gateway to mainland China. Unsurprisingly, it also attracted elements of organized crime and money-laundering syndicates. But with its government steadily becoming an economic pariah in the West due to its crackdown on rights and freedoms, local officials have sought to bring in investment from autocratic regimes and oligarchs to compensate.
Hong Kong Chief Executive John Lee’s statement in October 2022 confirming that the territory would not enforce U.S. sanctions offered a green light to illicit operators who had set up shop in the city. Since then, many more have done so, from Russian tanker owners to Iranian exporters of drone technology. At a news conference in 2023, China’s then-foreign minister, Qin Gang, insisted that China does not sell weapons to parties involved in the Ukraine war but handles the “export of dual-use items in accordance with laws and regulations”— hardly reassuring when a vast range of commercial technology can also be used to build weapons.
Customs data collected by the global security nonprofit C4ADS shows that eight months after Russia invaded Ukraine, shipments of technology categorized by the United States and European Union as the highest priority to Russia for its war effort, such as advanced semiconductors and communications equipment, had nearly doubled from prewar levels. By the end of 2023, nearly 40 percent of the cargo shipped from Hong Kong to Russia was made up of these “Common High Priority Items.”
Hong Kong’s destabilizing behavior is not limited to Russia. Other Hong Kong companies have supplied the Western parts that Iran needs to produce drones — which have increasingly appeared on battlegrounds in Ukraine, Yemen and elsewhere.
As for North Korea, we reviewed more than a decade of U.N. Security Council reports on the country’s efforts to evade international sanctions. Hong Kong repeatedly appeared in these reports as the key hub for efforts to mask the fleet of “ghost ships” that conduct ship-to-ship transfers at sea with North Korea of banned oil and resources. The Hong Kong government has ignored repeated Security Council calls for action against the vessel and its owners.
Certainly, other jurisdictions in places such as Central Asia and the Middle East play a significant role in sanctions evasion. Yet Hong Kong stands out for the sheer volume and breadth of its involvement with rogue nations. In the 14 reports the U.N. Security Council has released on North Korea sanctions evasion since 2010, Hong Kong is mentioned a stunning 167 times.
The United States has the legal authority to issue what’s called “secondary sanctions” that target non-U.S. persons who do business with sanctioned companies. It should use this authority against the Hong Kong and Chinese banks, logistics firms, and corporate services agencies that provide the infrastructure for illicit trade with Russia, Iran and North Korea. These designations would cut off these firms from the U.S. financial system: an exceptionally strong deterrent in a world where roughly half of all global trade and nearly 90 percent of foreign currency exchanges involve the U.S. dollar. While the Biden administration has recently taken positive steps toward targeting certain Hong Kong corporate services agencies, it should follow through on its threats to act against the banks that finance sanctions evasion.
The United States should also designate Hong Kong a “primary money laundering concern,” a tool that would, for example, permit the Treasury Department to require U.S. financial institutions to disclose the beneficiaries of accounts opened by Hong Kong individuals. Finally, the process of investigating and sanctioning evaders must be completed much faster; the Treasury, Commerce, and State departments must receive all the resources they need to do the job.
Hong Kong is undermining the world’s security, stability and liberty. The United States and its allies need to curb the city’s behavior before sanctions become ingrained as little more than symbolic gestures.
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