Hong Kong companies owned by mainland Chinese in alleged UN sanction busting with Iran
Is Hong Kong (HK) becoming the preferred rule OF law services centre that the Chinese Communist Party (CCP) under their arbitrary rule BY law is using to reel in Western democracies, their companies and economies? This is a significant, real and imminent threat to all democracies.
HK people do not want to be doing the Chinese Communist Party's (CCP) dirty laundry for them in our community! Without the rule OF law HK is finished!
WTPOHK urges USA, UK and all leading democracies worldwide to support HK people to uphold the Joint Declaration.
For years it has been possible for money in China to be transferred, at a profitable margin, into 'clean clear' USD funds in a bank account in HK which then makaes it possible to transfer funds anywhere in the world. Just ask any HKer doing business in China how this is done: if you are in HK and you need to pay your workers in China just use an agent to facilitate the transfer!
This is not the first time that USA has implied that Hong Kong (HK) has been the corporate base of companies linked to Chinese owners that are trading or otherwise involved with Iran, North Korea and other nations under US or UN sanctions. Huawei and ZTE immediately spring to mind (see references below).
Now that America has removed HK's special trade status, when will its regulations start to control banks in HK which will squeeze CCP's corrupt practices out of HK?
Iran's Sanctioned Shipping Line Runs Network of Hong Kong Companies
RFA 18 November 2020.
Iranian state shipping routes are continuing to evade U.S. sanctions by operating via a complex network of companies and subsidiaries registered in Hong Kong, dozens of which are traceable to a purported individual in Shanghai named on publicly available records as Shen Yong, a recent RFA investigation has revealed.
RFA had earlier linked Shen Yong to four shipping companies -- Reach, Delight, Gracious and Noble -- registered in Hong Kong that were named as having done business with the Islamic Republic of Iran Shipping Lines (IRISL), using company records in Hong Kong.
Further investigations have shown that Shen Yong is named on the records of some 37 companies registered in Hong Kong, which between them control at least 10 ocean-going container vessels and five oil tankers. Most are connected in some way with IRISL.
IRISL has previously been accused of transporting ballistic missiles to Iran and materials associated with nuclear proliferation, and is a frequent target of U.S. sanctions.
Corporate records show that IRISL first started setting up Hong Kong-registered companies in 2008, using a complex network of holding companies, or shell companies.
Such companies rarely hold any assets or conduct any business; their main purpose is to act as a shareholder for another company, and can be effectively used in multiple layers across different geographical locations to obscure the true owners of a business.
The first IRISL-linked companies start appearing in Hong Kong's companies registry in 2008, gradually increasing as Iran was sanctioned by the United Nations in 2010, and accelerating after 2016 with the establishment of at least 10 new companies in Hong Kong, despite the country's signing of a nuclear non-proliferation agreement.
U.N. resolutions require all member states to freeze the assets belonging to IRISL or its agents, as well as those of any entities, funds or economic resources owned or controlled by the company.
No enforcement by Hong Kong
But the resolution was clearly not implemented in Hong Kong, where at least 11 IRISL-linked companies continued to operate in the city under the period covered by U.N. sanctions. US political risk management consultant Ross Feingold said the United States could feel let down by Hong Kong's inaction on sanctions. "What view will the U.S. take of Hong Kong's [lack of] action on sanctions? They will think it hasn't done enough," Feingold said. He said Washington may not be able to rely on the city's cooperation in future, given worsening relations between the U.S. and China. "Whether or not Hong Kong cooperates with the U.S. is now subject to political factors," he said. The Hong Kong government's Commerce and Economic Development Bureau told RFA that the Hong Kong government has been in strict compliance with U.N. Security Council sanctions, and has implemented them according to instructions from Chinese Ministry of Foreign Affairs in Beijing. While the Hong Kong authorities did delist 19 IRISL vessels that had been registered in the city in 2012, they appear not to have moved against the companies that controlled them. Robert Clifton Burns, a former associate professor of law at the Georgetown University Law Center who specializes in economic sanctions, said that U.N. sanctions placed member states under a legal obligation to seize or freeze assets linked to sanctioned parties. "[If] somebody in ... a member state that has a blocking obligation comes into possession or control of property or funds of the blocked person, then they are required to ... put it into a blocked account," he said. "The example I always used to give was ... if Osama Bin Laden walked into a McDonalds ... and ordered a hamburger you couldn't give him the hamburger ... and if he gave you the U.S.$5 to pay for the hamburger you couldn't give him the U.S.$5 back," he said.
Even under unilateral U.S. sanctions, Burns said, secondary sanctions affect even businesses outside of the U.S. "There doesn't have to be any U.S. nexus for a transaction," he said. "If the foreign bank engages in providing certain types of financing to Iran's automotive and petroleum sector, and provides it in certain amounts, then they would be subject to U.S. sanctions, even though there would be no other U.S. link to it." In 2018, when the U.S. pulled out of the Iran nuclear non-proliferation agreement, a number of IRISL affiliates in Hong Kong changed shareholders, listing the Cyprus-registered Montenavo and Santarosa shipping companies as their shareholders for the first time. A search of Cypriot company records has revealed that both companies are controlled by the same shareholder, a Shanghai-based individual named as ChengCheng Dai. One of them, an IRISL subsidiary called Ideal Success Investment Ltd. lists its shareholders and directors as Ahmad Sarkandi and Ghasem Nabipour, both of whom were targeted by U.S. sanctions at the time the company was set up in 2008, according to a recent search of the Hong Kong companies registry. ChengCheng Dai is shown as having received her shares from an Iranian individual, Fateh Tamiji in September 2018, a former CEO of ROD Ship Management, an IRISL subsidiary that has previously been the target of U.S. sanctions for shipping arms. Few details are available regarding ChengCheng Dai. Her date of birth is given as 1992, and her address is listed as Chunlei Village, Heqing, Shanghai. An e-mail sent to IRISL requesting further information had met with no reply at the time of writing. Recent media reports suggest China and Iran are currently in talks over a comprehensive bilateral cooperation agreement that will see China continue to import Iranian oil, as well as becoming a major investor and partner in Iranian security and governance. According to Feingold, China is keen to ensure its imports of Iranian oil continue, while Iran is hungry for China's technology exports. "China doesn't really need to pay much attention to U.S. sanctions," he said. "It's just going to carry on with its trade relations."
Reported by Jack Davies for RFA's Khmer Service, and by Chan Jeun-lam and Gigi Lee for RFA's Cantonese Service. Translated and edited by Luisetta Mudie.
Proliferation of Shell Companies Sparks Calls For Crackdown in Hong Kong
RFA 28 February 2019
The arrest of Huawei chief financial officer Meng Wanzhou in Vancouver on suspicion of fraud linked to shell companies registered in Hong Kong sparked renewed interest in corporate regulation in the former British colony.
And exiled Hong Kong media boss Gu Zhuoheng tweeted this week that he will reveal details of a tangled web of corporate assets owned by President Xi Jinping's family and other elite Chinese families, 3,000 of which are based in Hong Kong.
According to the Companies Registry, around 1.4 million companies are domiciled in Hong Kong, with some 140,000 new firms registering every year from 2014 to 2017.
Last year, that number ticked up to around 160,000, however, with a total of 141,366 new companies set up in Hong Kong from January to November 2018 alone.
The registry also sees around 800 registrations of overseas-domiciled companies' Hong Kong subsidiaries, although it recorded more than 1,000 such registrations from January to November 2018.
Anyone can set up a company in Hong Kong via the E-Registry website, or via a licensee who provides registration services to trusts and companies.
Hong Kong is home to more than 6,000 of such service providers, charging a wide range of services for varying fees.
Some offer to set up a company free of charge, only adding service charges later if further tasks are required. Fees can range from 6,000-30,000 Hong Kong dollars (U.S. $760-3,800), a December investigation by RFA revealed.
Some offer virtual offices, the use of a Hong Kong address for registration, mail collection and telephone answering services.
Same across the board
Several licensees responded to inquiries on the part of a fictional mainland Chinese businessman who was unable to travel to the city in person, and who wished to set up a company there.
Their replies were the same across the board: All applicants need is a photocopy of their Chinese ID card and proof of address through a third party or by e-mail, and to complete a declaration form for submission to the city's government.
Such a person could set up a Hong Kong-based company in as little as five days or a week, they said. No verification of signatures or in-person applications are required, and falsified or borrowed ID would be hard to discover.
"You don't have to come in person. You can just provide a photocopy of their ID and proof of address," an employee who answered the phone at one service provider in the central business district told RFA in December.
"There is no stipulation that you have to have any employees or an account at a Hong Kong bank," she said.
She said that since a government crackdown on the practice, some people were now using shell companies as a substitute for offshore companies domiciled in the British Virgin Islands (BVI), as a way of avoiding tax.
"This is a BVI company," she said. "Offshore companies aren't domiciled in Hong Kong, but in the British Virgin Islands."
She added: "In the past, people used to use these companies a lot to evade taxes, but now it’s harder to open bank accounts there, so our clients are using shell companies [in Hong Kong] more than they are using offshore companies."
Documents for a fee
Asked if companies are required to show proof of operation after being set up, all of the service providers contacted by RFA said they could provide the necessary documents for a fee, and the government was unlikely to check.
One service provider in the central business district offered a variety of service packages, starting with the most basic fee for setting up private, limited liability company.
Apart from administrative services like mail collection and phone-answering, an additional fee could ensure that no questions were asked about whether the company had any operations.
Another service provider in Sheung Wan district said the cost of setting up the company would be H.K. $10,000 (U.S. $1,270), with additional secretarial services costing about H.K. $3,000 (U.S. $380) a month.
"If you do not open a bank account, as long as you pay the fees, the government will not pay any attention to you," an employee told RFA.
"The government won't care if you don't do any business, as long as you pay its fees every year," she said.
At an address registered to one licensee company in Sheung Wan, a total of 1,867 company names were listed on 38 sheets of A4 paper tacked to the wall — likely shell companies using the address for registration.
The address was just down the street from the registered address of the licensee.
Attempts to inquire about one shell company that had been under investigation in connection with a pyramid scheme in recent weeks met with no success.
"We have many [customers] ... and we are only responsible for setting up the company for them, and providing annual returns," an employee at the company's service provider told RFA. "But we don't know what they do, and we don't check them individually."
"If you can't find [this company], I don't think we will find it," she said. "We only communicate with them via e-mail."
‘It will have an impact’
Last March, the Hong Kong government passed a new amendment to the Companies Ordinance to adopt a licensing system for such service providers.
The key requirements for licensing operations are that the licensees must carry out due diligence on their clients.
Chu Yiu-kwong, director of Weitong Registration Co., a licensee, said Hong Kong's status as an international financial company could be affected by the accusations against Huawei's Meng Wanzhou, who is accused of using a Hong Kong-based shell company to disguise Huawei's dealings with Iran.
"It will definitely have an impact, because this incident is all about using Hong Kong companies ... and Hong Kong bank accounts to conduct illegal transactions," Chu said.
"It is likely that ... both the United States and the United Nations will require Hong Kong to take more measures, which will make life more difficult in other ways, and the Hong Kong government and banks will be more strictly regulated," he said.
Democratic Party lawmaker and former corruption investigator Lam Cheuk-ting said the relaxed attitude towards business registrations is part of a long-term pro-business stance on the part of the Hong Kong authorities.
"If people are using shell companies to carry out illegal activities, then we should make a serious effort to tackle this, and start looking at existing shell companies," Lam told RFA.
"In particular [we need to look at] the regulation of these companies offering secretarial services ... We should take a multi-pronged approach," he said.
"Penalties should be strengthened if the operations of these shell companies pose a significant risk, or cause large-scale financial losses," Lam said.