Hong Kong’s Need for Stronger Anti-Money Laundering Regulations

US officials have warned Hong Kong that more steps must be taken in order to combat North Korean smuggling and money laundering.  South Korea recently captured a Hong Kong vessel in December under claims that it has been illegally delivering oil to a North Korean ship.  In a meeting between city officials and Sigal Mandelker, the Under Secretary for Terrorism and Financial Intelligence for the US Treasury, Mandelker stressed “the importance of having the appropriate mechanism in place to enforce UN Security Council (UNSC) resolutions and other regulations prohibiting activities that facilitate financial transactions with North Korea.”  In response to Mandelker, a spokesperson for the Hong Kong government issued a statement claiming that Hong Kong strictly follows all UNSC sanctions and closely monitors any actions that may violate those sanctions.

In the past year several Chinese companies have been accused of laundering money for North Korea.  Mingzheng International Trading Limited has been accused by the US for posing as a shell company and allowing them access to funds and, in addition, Mingzheng has also been linked to payments for a North Korean telecommunications company and ZTE, a Chinese company which makes telecommunications equipment.  In March of 2017, ZTE plead guilty for selling goods to North Korea and was fined $1.19 billion which is the same amount that Mingzheng was found to have transferred for North Korea.  Another Chinese company accused of money laundering in 2017 was Unaforte, a shell company used by North Korea.  According to The United Nations Panel of Experts on North Korea, Unaforte had opened two banks in Rason, a North Korean city.  An investigation conducted by CNN last year uncovered multiple North Korean shell companies operating in Hong Kong, including over 100 entities in Hong Kong connected to sanctioned North Korean companies that were discovered by Sayari Analytics, a company that gathers data in order to screen connections between businesses.

The underlying issue of how North Korea launders money through Chinese businesses can be found in the weakness of Hong Kong’s regulations.  Mild company reporting and registration regulations make Hong Kong an easy target for North Korea to take advantage of.  An expert in financial measures for the Foundation for the Defense of Democracies, Anthony Ruggiero, explains that strengthening the regulations around company registration and reporting can help prevent North Korea from exploiting Hong Kong’s weak system.  A Hong Kong government spokesperson has noted that while there is a system in effect, stronger regulations should be put into place, such as the Anti-Money Laundering and Counter-Terrorist Financing Bill (The Bill).  The Bill would require customer due diligence and proper record keeping in certain transactions, including requiring that companies operating and listed in Hong Kong keep and update beneficial ownership information.  This is a huge step for Hong Kong because as an autonomous territory, Hong Kong is able to abide by its own financial and shipping rules and regulations that differ from the rest of China so, if the Bill is passed, Hong Kong’s anti-money laundering and counter-terrorism regulations would be on the same level as those set by the Financial Action Task Force (FATF) and other associated countries.

In an effort to help prevent North Korea from bringing in international revenue, the US Treasury Department announced new sanctions against 16 individuals, 6 vessels, and 9 entities which have been linked to North Korea and involved in leading the UNSC to pass multiple sanctions against Pyongyang after the nuclear tests in 2017.  In order to successfully isolate North Korea and dictator Kim Jong Un, foreign countries have to work together to ensure that all sanctions are being followed.  Adhering to regulations and strengthening existing ones will help cut funding for North Korea’s nuclear and missile programs from entering the country.

 

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