Hong Kong is not the freest market economy in the world that it once was. For many years, Hong Kong was a place where you could count on an open business environment with strong rule of law protections. 2020, and the subsequent implementation of the National Security Law (NSL) and Article 23 of the NSL, changed all that. And today, Hong Kong is increasingly becoming a base for a lawless regime to conduct illicit financial transactions and evade international sanctions.
A new report by Samuel Bickett, an attorney with the Committee for Hong Kong Freedom Foundation (CFHK) and Hong Kong activist, presents evidence on the scope and nature of Hong Kong’s sanctions evasion. Bickett’s report goes beyond the familiar headlines about Chief Executive John Lee’s blatant disregard for U.S. and international law by refusing to enforce sanctions, to detail how Hong Kong is seeking to undermine the rule of law at the behest of bad actors.
“Fundamentally, we see that Hong Kong has gone out of control,” Bickett said. “It has repurposed the framework and institutions that have long been a key part of the international financial system to support a dangerous regime that threatens global stability.”
Key findings of the report include:
Hong Kong has increased trade with Russia, Iran and North Korea in recent years, despite tightening international sanctions against these countries.
· Hong Kong is heavily funding Russia’s war of aggression in Ukraine. In fact, from August to December 2023 alone, Hong Kong provided over $750 million in shipments of prohibited goods to support the Russian war effort.
Hong Kong companies engage in a variety of activities to evade sanctions on behalf of corrupt regimes, including ship-to-ship transfers, providing dual-use technology and components, and setting up shell companies.
The report’s findings are groundbreaking, as many of the cases of sanctions evasion by Hong Kong entities have not been previously documented. These revelations, along with other previously known instances of illicit activity, highlight how Hong Kong has repeatedly evaded sanctions and become an emerging hub for illicit financial activity.
Changes in Hong Kong’s behavior cannot go unchecked by the United States or the international community. Given the dominance of the dollar in the global financial system, the United States should strengthen the financial tools it deploys to counter Hong Kong’s illegal activities. This could include using special Treasury measures and considering whether entities, including Chinese banks, qualify for a PMLC designation under Section 311 of the USA PATRIOT Act. A PMLC designation is a powerful tool, and if a Hong Kong entity is designated, the international banking system would refuse to do business with the designated entity. A PMLC designation would have a chilling effect on the global business community’s willingness to do business with that entity and with others deemed risky in Hong Kong.
After Beijing cracked down on Hong Kong, many warned the business community about the implications of the NSL and Article 23. This latest report makes clear that the deterioration of the rule of law has implications that go beyond the realm of civil and political liberties: they now impact the economy and security concerns.
The business community has tried to act as if it is business as usual in Hong Kong. However, the reality is far from that. It is time for business communities and governments around the world to wake up to the reality that Hong Kong is not the same as it was before. In fact, Hong Kong is a much riskier place to do business than it has ever been.