According to previously unreleased U.S. Commerce Department data, the amount of banned commodities and semiconductors moved through China and Hong Kong to support Russia’s war effort decreased by a fifth this year, but Hong Kong is still a hub for people evading international sanctions.

According to a U.S. Commerce Department official, there was a 28% decline in the transshipments of Common High Priority Items (CHPL) through Hong Kong between January and May. CHPL are sophisticated components, such as microelectronics, that the U.S. and the European Union believe are likely to be utilised for Russia’s conflict in Ukraine.

According to the official, transshipments of such goods via mainland China—apart from Hong Kong—dropped 19% over the same time period.

This is the first time that numbers in this regard is being disclosed in the media.

When the Commerce Department was questioned about the transshipment of dual-use commodities from China into Russia, the department pointed them to previous remarks detailing its attempts to “restrict Russia’s access to the technologies and other items that it needs to sustain its brutal war against Ukraine.”

The U.S. government views China and Hong Kong as important worldwide hubs where Russia may obtain supplies for its armed forces, such as drone components and chips.

“I think there’s some cause for being at least optimistic that we have been able to slow down some of this trade,” the person said. However, he added: “China is still our number one concern.”

China has been charged by the US and its allies with helping Russia in the war in Ukraine, in part by supplying equipment and parts required by Moscow’s armament manufacturers.

Delta struggled over the weekend to return to business as usual.

Multiple rounds of sanctions were imposed by the U.S. State Department and Treasury on organisations worldwide that were purportedly connected to the Russian military through commerce. These firms included Hong Kong shell corporations that were involved in semiconductor diversion.

Speaking under anonymity, the source attributed the decline in illicit flows to a number of causes, including strong action by US authorities and engagement with businesses whose products are being transshipped.

“We are talking to any company whose items are showing up on the battlefield,” the official said, without giving names.

Citing the need to safeguard the department’s access to the data, the official declined to provide Reuters with the whole data set. “We have faith in the source regarding imports into Russia,” I can state.

When Reuters asked about the transshipment of products into Russia, the Hong Kong government stated that it “does not implement, nor do we have the legal authority to take action on, unilateral sanctions imposed by other countries.” However, the administration did not answer the queries.

However, it also stated that, in accordance with China’s Foreign Ministry’s orders, it was “enforcing vigorously” the sanctions imposed by the UN Security Council, particularly those pertaining to North Korea.

No comments on the issue were available from China’s Foreign Ministry and Customs Administration. The Russian embassy in Washington also did not provide any comments.

A different customs dataset from the global security non-profit C4ADS, located in Washington, D.C., revealed that between August and December 2023, more than 200 Hong Kong-registered companies transported around $2 billion worth of goods to Russian consumers.

The information, which was examined by Reuters and included in an upcoming report by The Committee for Freedom in Hong Kong Foundation (CFHK), revealed that between August and December 2023, $750 million worth of CHPL goods—from high-end chips made by Nvidia and France’s Vectrawave to lower-end chips made by Texas Instruments and Intel—were shipped through Hong Kong.

According to CFHK, some of these prohibited items were supplied to Russian companies under sanctions.

In response to inquiries from Reuters, Nvidia stated that it stopped selling to Russia in March 2022 and that all of its clients must abide by all relevant U.S. regulations.

Texas Instruments stated to Reuters that it “strongly opposes” the illegal diversion of its products to Russia and the use of its chips in Russian military hardware.

According to Intel, it adheres strictly to US export laws and sanctions and holds distributors and suppliers to the same standards.

There were no comments available from Vectrawave.

“Our research has highlighted numerous instances where Hong Kong-based companies have facilitated the transfer of sensitive technologies and commodities, undermining international security and stability,” said Samuel Bickett, a lawyer and author of the CFHK report.

Two of the Nvidia shipments, valued at $1.58 million and $1.21 million, were sent to a Moscow-based company called “Lotos,” according to the 2023 customs data from C4ADS. The consignor, Malachor Electronics, had a secretarial address in an upscale office block in Hong Kong’s central business district.

It was not possible to get in touch with Colin Stevenson, the director of Malachor, whose stated address is in the United Kingdom.

According to customs data examined by the media, between August and December of last year, Hong Kong consignors delivered $17.6 million worth of Nvidia items into Russia after they were transferred in China, Taiwan, Turkey, Thailand, Serbia, and the United Arab Emirates.

Among the parts of drones the Ukrainian government has found on the battlefield are “Jetson TX2” Edge AI systems, which were included in shipments opens new tab.

There are several second-hand channels where one may find pre-owned Jetsons. A representative for Nvidia, John Rizzo, stated that “we will take appropriate action if we determine that any customer is violating U.S. export controls, even though we cannot track products once they are sold.”

Rizzo withheld information on the cargo to Lotos.

Additional upscale shipments consisted of two $1 million shipments of semiconductors from Vectrawave that were identified as microprocessors. Manufacturer of specialist semiconductors for advanced defence and communication systems, such as radar, is Vectrawave.

According to the CFHK report and an analysis of Hong Kong companies registry filings by Reuters, the ease of setting up and registering new firms in Hong Kong has led to a proliferation of shipping and logistics firms and other intermediaries that have also facilitated restricted trade and monetary flows with Iran and North Korea. U.S. officials have approved of some of these.

Reuters visited industrial buildings near the Kwai Chung container port in Hong Kong and discovered closed offices for consignors listed in company filings and customs records. Align Trading, a company that consigned the Vectrawave chips, had an address that was a musty room filled with hundreds of register letters from Hong Kong businesses.

Align employed a Chinese director named Li Yanqing, who could not be located despite having a reported location in Jiujiang, southern China.

(Adapted from Reuters.com)

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