In late February, Japan’s government released photographs of a tanker it said it strongly suspects was making a transfer, likely of oil, to a North Korean ship in violation of international sanctions.
The tanker’s owner, Ha Fa Trade International Co., is registered to an address in Hong Kong’s Wan Chai district. But the company can’t be found there. Instead, the cluttered 23rd-floor office belongs to an agency that helps Businesses register with the authorities, with scant information on their ultimate owners.
This isn’t an accident or an oversight: Hong Kong has positioned itself as one of the world’s easiest places to do Business, allowing companies to register with minimal documentation in as little as a day.
U.S. and United Nations experts say this is making the city a hub for North Korean front companies—and the U.S. wants Hong Kong to crack down. A U.N. Panel of Experts report made public on Friday describes registration middlemen like Hong Kong’s as a “key vulnerability” allowing North Koreans to defy sanctions intended to starve the country’s nuclear and missile programs of funds.
Of the nine companies outside North Korea that the U.S. sanctioned in February for working on Pyongyang’s behalf, two are based in China, one each in Panama and Singapore—and five in Hong Kong. Attempts to track down three of those five firms led to a maze of secretarial agencies.
Experts say front companies allow North Koreans and their agents, many of whom are in China, to obfuscate their identities and operate without revealing their Pyongyang ties.
“Those who start front companies are very skilled at taking advantage of Hong Kong’s Business-friendly regulatory and financial environment,” said
who heads law firm Clifford Chance’s anticorruption and trade-controls practice in Asia.
Hong Kong put new regulations into effect this month that aim to make money laundering more difficult, including stricter client-verification guidelines for company service agencies.
The city “has a robust and efficient supervision system in place,” a Hong Kong government spokesman said, and was “looking into cases in which Hong Kong-registered companies are alleged to be involved” in evading sanctions.
Lawyers in Hong Kong who advise banks on sanctions enforcement say that while the new regulations are a step in the right direction, they won’t solve many of the problems the U.N. panel identified.
Even under the new rules, registering a company in Hong Kong typically requires merely filling in a form with such basic information as founding shareholders’ addresses and the director’s national-identity-document numbers. The company’s listed director can be its sole shareholder, and needn’t live in Hong Kong. Corporate-service agencies take care of the rest, and the whole process can be done online.
Agencies advertise such services as “24-hour express incorporation” and “shelf companies”—entities that have already been created and can be purchased by emailing copies of basic identity documents to the agency.
One North Korean technique, experts say, is to use agencies to establish a front company that opens a bank account, does a deal and then shuts down—leaving nobody for enforcers to find.
Many of the agencies operate one-room, one-person offices in Hong Kong to serve as postal addresses for dozens of client companies. The episode of the oil tanker cited by Japan last month shows how hard it is to peel back the layers.
The tanker, the Xin Yuan 18, was spotted by a Japanese military aircraft alongside a sanctioned North Korean vessel, the
Chon Ma San,
in the East China Sea late one February night. A “comprehensive assessment” led Japan to suspect that a ship-to-ship transfer of cargo had occurred, according to Japan’s foreign ministry.
The 23rd-floor office where Ha Fa Trade is registered belongs to an agency called Yirenjiaren Registration Secretary Ltd. A woman working there said she couldn’t confirm whether Ha Fa Trade is a client. A representative at the agency’s main office in Shenzhen, China, said Ha Fa Trade didn’t come to the agency directly and is a client of a different agency that uses the same Hong Kong office as its address.
A representative for that agency, Fei Long International Business Co., said it had been approached to register Ha Fa Trade in Hong Kong by yet another company-service agent identified only as Liao. There was no response to repeated requests for comment left for that agent through Fei Long.
Documents obtained from Hong Kong’s company registry list
Tang Yun Hui
as Ha Fa Trade’s director and only shareholder. The documents show the company’s address in the remote village of Yaoxing in China’s Hubei province, but provide no phone number or email address.
The address corresponds to a two-story house—empty on a recent visit—with broken glass and overripe cabbages in the yard. Reached by phone, using a mobile-phone number provided by another village resident, Mr. Tang said he is an “ordinary sailor” and knows nothing about Ha Fa Trade or Xin Yuan 18.
“I’ve worked on so many ships and never heard of that one,” he said. Told of the company documents, he expressed surprise: “How could they have my signature?”
The Chinese identification-card number on the documents is his, the 32-year-old Mr. Tang said, and the address is that of the farmhouse where he grew up.
The ID card has been out of his hands numerous times, Mr. Tang said, including in 2016 when he lost his wallet disembarking from a ship in Shanghai and during many Chinese port calls, when a ship’s third mate holds it to fill out paperwork.
Mr. Tang said he earns $8,000 to $9,500 a year as a sailor on Chinese ships and has never owned a ship, visited Hong Kong or been associated with North Korean trade. He said repeatedly he had not.
It wouldn’t be convenient to meet in person, he added: “I’m in the middle of the sea.”
An official who answered the phone at North Korea’s consulate in Hong Kong declined to comment for this article.
To curb money laundering, the new Hong Kong regulations require companies to keep a registry of the people that ultimately own them or have significant control. These registries, though, are available only to Hong Kong authorities, not to the public or to banks trying to check companies for North Korean links.
The U.N. report says an alleged North Korean military-equipment supplier, Glocom, established a web of front companies, including in Hong Kong, and used them to make payments and move money to other North Korea-controlled entities.
To pay an associate in Singapore, according to the report, a North Korean representative would transfer money from China to the account of a Hong Kong front company, which would then transfer it to the associate’s Singapore account. The Singapore bank would see only the receipts from the Hong Kong company.
Glocom didn’t respond to emailed questions.
During a Hong Kong visit in January, Sigal Mandelker, the U.S. Treasury’s undersecretary for terrorism and financial intelligence, urged leaders “to send a strong message that Hong Kong is not going to be a place where companies find any kind of safe harbor to facilitate front-company, shell-company activity.”
—Wenxin Fan in Hong Kong and
in Yaoxing, China, contributed to this article.
Source : WSJ