As a fleet of between 600 and 1,000 mostly ageing vessels continues to sail under the umbrella of suspected flags of convenience to evade international sanctions against Russia, the role of Hong Kong in undermining the measures has become clear according to a much-cited report by the Washington DC-based Committee for Freedom in Hong Kong Foundation. The findings are largely based on data from the Center for Advanced Defense Studies (C4ADS), a non-profit devoted to identifying “illicit networks that threaten global peace and security”.
Chaired by James Cunningham, the former US consul general for Hong Kong and ambassador to the United Nations, the Committee for Freedom in Hong Kong Foundation has considerable weight and continues to highlight civil rights abuses in the territory.
“Simply put, Hong Kong has gone rogue.”
The report claims that Hong Kong’s exports of semiconductors to Russia almost doubled after the invasion of Ukraine in February 2022. Between August and December 2023, 40 per cent of the $2 billion worth of shipments to Moscow contained goods on the US and EU’s lists of advanced components – including semiconductors, computer processors, digital storage units, and integrated circuits – many of them sought by Russia for its war effort. The report also identified numerous locally registered companies that are working with Russia, Iran and North Korea to facilitate their shipping needs, including the transport of sanctioned oil and gas.
“Simply put, Hong Kong has gone rogue,” concludes the 62-page report, Beneath the Harbor: Hong Kong’s Leading Role in Sanctions Evasion. Released in July and written by Samuel Bickett, a lawyer and former political prisoner in Hong Kong, the report has aroused comment in a wide variety of publications, including Nikkei Asia, and from bodies such as the Hudson Institute, which supports American leadership for peace.
“Hong Kong was once the freest economy in the world. But it has now experiencing a rapid erosion in the rule of law, which affects how businesses operate on the island,” the Hudson Institute stated. “In recent years, the city has emerged as a top sanctions violator, a money laundering hub, and a transshipment centre that plays a key role in providing Russia dual-use technology for its war effort.”
This is not entirely news to Washington, though. A 740-page report to Congress by the US–China Economic and Security Review Commission in late 2023 states: “Hong Kong has also served as a transshipment hub for advanced microelectronic components to Russia, circumventing sanctions.” That report followed research by the Carnegie Endowment for International Peace, which stated that Hong Kong’s participation in sanctions busting is a “direct consequence of Hong Kong’s increased subservience to China”.
Hong Kong’s China-friendly administration makes no pretence about observing sanctions. “The Government does not have the legal authority to, and it will not implement, unilateral sanctions imposed by other countries,” a spokesman for the administration said in the wake of the Under the Harbour report.
But that report certainly brings up to date the extent to which sanctions are flouted. It pulls together corporate and customs records, UN Security Council data, and vessel automatic identification and tracking systems to come up with, among other information, a fleet of 31 ships that are owned or managed by Hong Kong subsidiaries of Russian companies such as Far Eastern Shipping, Sovcomflot and Novatek, all of them sanctioned. Sovcomflot alone is cited as hiding ships behind seven separate subsidiaries that employ numerous tactics to obscure their identity, including renaming vessels at regular intervals.
Bickett’s conclusion: “Hong Kong has become essential to Russia’s efforts to evade sanctions by offering a politically safe and corporate-friendly location to set up subsidiaries for the ownership of shipping vessels.”
“The process of investigating and designating a company currently takes months and so far has typically focused on entities rather than individuals, which allows sanctions evaders to easily stay ahead of the game."
It’s not all bad news, though. Veteran Russia watcher Craig Kennedy of consultancy Navigating Russia believes that the shadow or “dark” fleet could be running out of time despite various strategies to hide it under dubious flags of convenience, such as that of land-locked Eswatini, formerly Swaziland, that listed no less than 26 vessels in 2024. (There were none in 2023.) These latest registrations prompted the International Maritime Organisation to designate a number of them as “False Eswatini”.
Kennedy also finds that “beset by mixed economics and perilous sanctions, shadow fleet growth has stalled”. In an analysis entitled The Shadow Fleet in Crisis, released in April 2024, he cites Russia’s mounting difficulty in buying even “ageing second-hand tankers” in the past year. “By the last quarter of 2023 purchases were down some 70 per cent of the first-quarter highs.” Russia is also paying way above the odds for these worn-out vessels. Kennedy estimates a stand-alone tanker capability that would maintain the required oil and gas shipments would cost “upwards of US$25 billion” just for the initial acquisitions.
Meantime, there’s no doubt that Hong Kong’s assistance to the dark fleet is prolonging its otherwise declining effectiveness. The solution is faster action by sanctions authorities, notably the US Office of Foreign Assets Control, according to Bickett. “The process of investigating and designating a company currently takes months and so far has typically focused on entities rather than individuals, which allows sanctions evaders to easily stay ahead of the game," he told Nikkei Asia. “The US, EU and their allies have also largely avoided targeting these activities at their root -- the banks, logistics firms and corporate services agencies that make up the core infrastructure that allows these trading companies to thrive.”
However, this is not entirely correct. Buried deep in last year’s report to Congress is mention of a request to Hong Kong banks to notify them of exactly that kind of suspicious activity. The looming issue is whether they would comply under the current regime.
