Once a trusted global financial center, Hong Kong has transformed into a key player in an emerging alliance of autocracies. A recent report by the Committee for Freedom in Hong Kong Foundation reveals how the city has become a leader in circumventing Western sanctions and facilitating illicit trade with countries like Russia, Iran, and North Korea.
Hong Kong’s business-friendly policies, which allow for easy concealment of corporate ownership, have made it an attractive base for sanctioned entities. The city’s Chief Executive, John Lee, openly stated in 2022 that Hong Kong would not enforce U.S. sanctions, effectively inviting illicit operators.
The impact is significant:
1. Russia: Customs data shows that shipments of high-priority technology to Russia nearly doubled after its invasion of Ukraine. By late 2023, these items made up almost 40% of cargo shipped from Hong Kong to Russia, despite U.S. efforts to halt such sales.
2. Iran: Hong Kong companies have been implicated in facilitating Iranian oil transfers and supplying parts for drone production.
3. North Korea: The city serves as a key hub for masking the operations of “ghost ships” that conduct illegal transfers of oil and resources with North Korea.
While other regions play roles in sanctions evasion, Hong Kong’s involvement is uniquely extensive. In 2022, only mainland China exported more integrated circuits and semiconductors to Russia than Hong Kong. The city is also mentioned 167 times in UN Security Council reports on North Korea sanctions evasion since 2010.
The authors argue that the U.S. should take stronger action:
1. Issue secondary sanctions against Hong Kong and Chinese entities that enable illicit trade with sanctioned countries.
2. Designate Hong Kong a “primary money laundering concern,” allowing for greater scrutiny of financial transactions.
3. Accelerate the process of investigating and sanctioning evaders by providing more resources to relevant government departments.
These measures would leverage the U.S. dollar’s dominance in global trade and finance to deter sanctions evasion. While the Biden administration has recently taken some steps to target Hong Kong corporate services agencies, the authors call for more comprehensive action, including against banks financing sanctions evasion.
The transformation of Hong Kong from a Western-aligned financial hub to a key facilitator for autocratic regimes represents a significant shift in global dynamics. As the city undermines international security and stability, the U.S. and its allies face mounting pressure to address this challenge before sanctions lose their effectiveness as a foreign policy tool.
