US official warns Hong Kong over North Korea smuggling, money laundering

By Joshua Berlinger, CNN

 Thu January 25, 2018

Hong Kong (CNN)Hong Kong needs to do more to combat North Korean smuggling and money laundering in the city, a top US official has warned.

The Asian financial hub has been linked to Pyongyang's efforts to violate sanctions. In December, South Korea seized a Hong Kong-flagged vessel it claims illicitly transferred oil to a North Korean ship, and a September United Nations report singled out shell companies with ties to Pyongyang.

"This shouldn't be a place where companies can establish themselves to help in the smuggling, ship-to-ship transfers, et cetera," Sigal Mandelker, the US Treasury's under secretary for terrorism and financial intelligence, told reporters Wednesday. CNN was not present at the briefing, but the US Treasury Department confirmed her comments.

Mandelker said she relayed her concerns in meetings with city officials.

"We have also stressed here in Hong Kong the importance of having the appropriate mechanism in place to enforce UN Security Council resolutions and other regulations prohibiting activities that facilitate financial transactions with North Korea," she said.

Hiding in plain sight: Why Hong Kong is a preferred spot for North Korea's money launderers

When asked about Mandelker's comments, a spokesman for the Hong Kong government said the city "strictly implements the sanction measures decided by the United Nations Security Council (UNSC) and has been staying highly vigilant about activities and suspected cases that may violate UNSC sanctions."

Hong Kong is governed as a special administrative region of China and operates under its own set of laws and regulations when it comes to the financial and shipping industries.

The city's lax regulations when it comes to company registration and reporting requirements -- a legacy of British colonial rule, analysts say -- make it an attractive place to do business but easy for bad actors like North Korea to engage in illicit activities.

"Hong Kong, of course, is an international financial hub and at the same time it has company formation and registration rules that we think need to be stronger," Mandelker said.

China accused of letting oil into North Korea 01:37

The Hong Kong government spokesman said the city's Companies Registry has a "robust and efficient supervision system" but noted that the government will be implementing new, stronger regulatory requirements in March.

A CNN investigation last year found a number of North Korea-connected front companies operating in Hong Kong. Sayari Analytics, a firm that uses open data to monitor the connections between businesses, identified more than 100 entities in Hong Kong linked to sanctioned North Korean firms.

Anthony Ruggiero, an expert in the use of targeted financial measures at the Foundation for the Defense of Democracies, said Hong Kong needs to work on tightening the procedure for registering and monitoring companies.

"It's a loophole that North Korea has exploited and I'm sure that other proliferators have exploited," he said. "It is something that the Hong Kong authorities need to get a better handle on."

As part of its strategy to rein in North Korea's nuclear weapons and ballistic missile proliferation, the United States is attempting to isolate the regime of North Korean leader Kim Jong Un and stymie its ability to bring in revenue abroad.

To that end, the US Treasury Department announced Wednesday sanctions levied against nine entities, six shipping companies and vessels and 16 individuals with ties to North Korea.

"Treasury continues to systematically target individuals and entities financing the Kim regime and its weapons program, including officials complicit in North Korean sanctions evasion," US Treasury Secretary Steven Mnuchin said in a statement.

Washington has also led efforts at the UN Security Council to pass multiple rounds of sanctions against Pyongyang in response to their missile and nuclear tests in 2017.