North Korean sanctions evasions reveal Hong Kong’s middleman role

Hong Kong's North Point Asia-Pac Commercial Center, which houses an office that is linked to the Wan Heng 11, a ship suspected of helping North Korea evade sanctions. Hong Kong has emerged as a key nexus in North Korea's underground business network aimed at dodging sanctions. (AP)
Updated 23 March 2018
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North Korean sanctions evasions reveal Hong Kong’s middleman role

HONG KONG: In the dead of night last month, two tanker ships pulled alongside each other in the East China Sea. One was a North Korean vessel, the other was the Belize-flagged Wan Heng 11.

Lights on both ships were blazing, arousing a Japanese spy plane’s suspicion they were carrying out a “ship-to-ship” transfer banned under UN sanctions imposed over North Korea’s nuclear weapons program.

Records for the Wan Heng and a number of other ships identified in recent UN and US sanctions blacklists and Japanese surveillance reports reveal ties to Hong Kong through front companies based here. The findings underscore rising concern over the southern Chinese financial capital’s role as a nexus for North Korea’s underground business network, which has led the US government to urge Hong Kong authorities to crack down.

The corporate registration agents that set up these front companies “present a key vulnerability in the implementation of financial sanctions,” said a report by the UN Panel of Experts on North Korean sanctions released on March 16. Researchers said North Korea relies on front companies acting as middlemen to mask its overseas trading links, many of which involve China.

Successively tighter rounds of sanctions aim to deprive North Korea of key sources of revenue by choking off its ability to smuggle exports, including through oil transfers between ships on the high seas.

Hong Kong, an Asian business hub, is “staying highly vigilant about activities and suspected cases” of sanctions violations and is “looking into the cases” involving Hong Kong-registered companies, the government said in a statement.

The city often tops business and economic freedom rankings, based on criteria that include ease of setting up business. That can also facilitate illicit dealings.

The city hosts a vast industry of company formation experts who can register corporations quickly and with minimum information from their clients. Many operate out of anonymous, one-room offices with as little as a single employee. They promise to set up a firm within a day for clients who can apply online if they’re not in Hong Kong.

Out of 11 companies based outside North Korean named in a US Treasury sanctions list last month, two each were in China and Taiwan and one each in Singapore and Panama. The remaining five were in Hong Kong.

The UN report said separate investigations of a Singaporean company and Glocom, identified as North Korean military equipment supplier, found evasion tactics included the use of Hong Kong front companies.

Hong Kong has imposed new rules aimed at preventing money laundering that took effect this month that require licensing of corporate registration agents. Companies also must now identify and disclose their beneficial owners, but only to law enforcement authorities.

It’s not unusual in itself for a company to operate out of secretarial office, said David Webb, a Hong Kong corporate governance activist.

But he says lax corporate disclosure rules give “Hong Kong a sort of Monaco of the East image, as a funny place for shady people.”

A review of Hong Kong company filings and shipping databases revealed a murky web of company names and employees working out of a variety of unlikely locations.

One US-sanctioned company, Liberty Shipping, shared an address with its registration firm in Hong Kong’s Wan Chai district. A woman at the office, which had yet another name on the door, said it had ceased doing business with Liberty Shipping and didn’t have contact information. She added that it dealt with the company through an intermediary she wouldn’t name. Liberty Shipping’s annual return showed that its director lived in Dalian in China’s northeast but didn’t provide a phone number.

In the Wan Heng’s case, shipping databases give the rusty tanker’s registered owner and commercial manager as Zhejiang Wanheng Shipping Co., with a care-of address for an apparently related company, Hong Kong Wanheng International Trading, at an apartment in The Beaumont, a suburban luxury apartment development. No one answered the apartment’s buzzer on a recent visit.

Corporate registration records gave a second office address in Hong Kong’s North Point neighborhood. A woman who answered the office door, which didn’t have a sign, said Wanheng’s director, Yip Kwok-man, was not in.

“He just uses the office as a nameplate. It’s not convenient to give you any more information,” she said, refusing to provide her name, adding that she and three other women in the office weren’t his staff.

A woman listed as Wanheng’s company secretary said she was recruited by a friend. But she said she didn’t work for the company anymore because it was too much hassle, without being more specific.

Yip’s home address in Wanheng’s annual return turned out to be a modest one-bedroom unit in an aging public housing complex in the city’s Tsing Yi suburb. No one was home when the AP visited and a neighbor said the resident there had a different surname.

A further search of records found a second address for Yip in an upscale waterfront apartment block in the Sai Wan Ho district. A man who answered the intercom didn’t respond when asked in both Mandarin and Cantonese whether Yip Kwok-man was there.


Abu Dhabi’s Mubadala halts Abraaj investment deal talks

Updated 52 sec ago
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Abu Dhabi’s Mubadala halts Abraaj investment deal talks

ABU DHABI: Abu Dhabi state investor Mubadala has halted talks to buy Abraaj’s investment business, two sources said, in a blow to the private equity firm which is facing an investigation by investors into how it used some of their money.
Dubai-based Abraaj, which denies any wrongdoing, is considering selling some or all of the unit following a row with four investors, including the Bill & Melinda Gates Foundation and the World Bank’s International Finance Corporation, over how it used their money in a $1 billion health care fund.
Mubadala, which has more than $200 billion in assets, and Abraaj held initial talks a month ago, but these did not progress, one of the sources said.
Abraaj said it does not comment on market speculation, while Mubadala declined to comment on Monday.
“We remain focused on working collaboratively with our investors and continuing to execute on the re-organization of our firm to pave the way for continued long-term growth and value creation,” Abraaj said in an email to Reuters.
Investment banks have also approached international private equity firms to look at Abraaj’s investment arm, but some are holding off until after an investigation by forensic accounting experts Ankura Consulting, which has been commissioned by the investors, two other sources said.
Other potential buyers include Abu Dhabi Financial Group (ADFG), sources said last month.
ADFG, which manages $6.5 billion in assets, declined to comment about its interest in Abraaj’s investment business. The Gates Foundation and the IFC, the World Bank’s private finance arm, have both declined to comment on the row.
SHAKE-UP
The fund dispute, which erupted this year has jolted Abraaj, a top investor in the developing world founded in 2002 by Arif Naqvi, who in late February handed the running of the fund to two co-chief executives.
Abraaj has also shaken up its management, suspended new investments, freed up large investors from millions of dollars in capital commitments and is reviewing its corporate structure.
It was managing $13.6 billion before deciding to return $3 billion to investors and putting a new $6 billion fund on hold.
Naqvi remains CEO of Abraaj Holdings, a significant shareholder of Abraaj Investment Management Ltd, the fund management business. Sources say he has spoken to senior bankers about various options for the firm, although Abraaj has not formally hired an adviser to sell the business.