“Beneath the Harbor”; Goods still moving into NK from PRC; Railway between Iran and PRC is operational; Iran and Russia gas pipeline
Prohibited Transactions for the week of 22 July 2024 (#56)
This image was created in Microsoft Copilot Designer on 22 July 2024 using the prompt “Gas pipeline with flags of Russia and Iran, illustration.”
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I also wanted to highlight a new report released this week, “Beneath the Harbor: Hong Kong’s Leading Role in Sanctions Evasion” which examines the use of Hong Kong by North Korean, Iranian, and Russian illicit sanctions evasion networks. The report summarizes previously available open source information about illicit activity that occurred in the city, as well as provides new findings about recent activities, using corporate registry information about Hong Kong companies involved in:
Shipping drone parts to Iran
Arranging ship-to-ship transfers of Iranian oil
Purchases of Iranian crude
Vessel identity laundering of a ship tied to North Korea
Though the report doesn’t necessarily shed light on new techniques used by sanctions evaders, it does show the enormous compliance challenges faced by banks in the city. One of the policy recommendations in the report is specifically directed at banks, and is a suggestion to incorporate customs data and suspicious vessel activity data into AML procedures in order to better identify potential sanctions evasion activity. Integrating this kind of data into one-off sanctions investigations is possible, though there likely would be logistical and technical challenges if you wanted to supply this data to a broader investigations team for them to access on every case that could have a sanctions touchpoint.
North Korea
According to covert reporting from inside North Korea, Chinese-made electronics, motorcycle engines, and other steel and machinery parts are being imported into the DPRK, in violation of international sanctions. Goods are going through the PRC’s Jilin province, as Chinese customs officials in Liaoning province have tightened controls on exports. The article states that goods which go through Dandong — which is in Liaoning province — can be easily identified by the public and that PRC customs officials are cracking down in order to maintain the appearance of sanctions enforcement. //These past few weeks have seen a number of reports from covert sources inside the DPRK about increased restrictions on imports coming from the PRC due to stricter enforcement by Chinese customs officials. These on the ground reports don’t really convey the “big picture” reasoning behind Beijing’s clampdown, but does show the continued ability of North Korean illicit networks — on both sides of the border — to react and adapt to changes in the security environment.
North Korea’s government continues to encourage citizens to use debit cards and electronic payments, as a means to draw more “idle cash” (see Issue #48) into the country’s formal financial system. //Curious to see that two English-language websites which rely on covert reporting from inside North Korea covered the issue of electronic cards inside the DPRK within a day of each other.
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A US-based security vendor inadvertently hired a North Korean information technology (IT) worker, but this illicit actor was exposed almost immediately due to suspicious activity on their company-issued laptop.
OFAC sanctioned a PRC-based network of six individuals and five entities for their role in procuring items for the DPRK’s ballistic missile and space programs.
A North Korean military intelligence operative has been indicted for hacking into US military bases, NASA, and American health care providers. The individual laundered ransom payments through PRC-based facilitators, and then using the funds to purchase more equipment to be used in other hacks.
Iran
A railway connecting Iran and the PRC has been relaunched with China-bound freight leaving from the Aprin dry port south of Tehran, as well as goods from Shaanxi province in northwestern China going to Tehran. This railway will pass through Turkmenistan and Kazakhstan and is part of the first phrase of the China-Europe rail corridor. //As mentioned in Issue #26, an agreement was signed between Iran, Turkey, Turkmenistan, and Uzbekistan to create a new transport corridor between the PRC and Europe. It’s a bit unclear if this is the same rail line as what was inaugurated at Aprin, or if there will be two separate lines connecting Iran with the PRC.
Iran’s oil minister stated that the recent natural gas deal between Tehran and Moscow will ensure domestic distribution of gas, increase Iran’s export capacity to neighboring countries, and could be worth USD10 to USD12 billion annually. The two sides signed a 30 year contract for the pipeline, which will primarily be paid for by Russia.
There is skepticism about the feasibility of the deal, and critics have pointed out that despite Iran’ proven gas reserves, it has not prevented the country from having annual gas shortages, and reliance on lower quality, higher polluting oils. //This project seems in line with the general increase of cooperation between Tehran and Moscow, but it doesn’t seem to make too much economic sense.
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Iran has made more than 1.7 million refinery parts and other equipment for Venezuelan refineries.