House Select Committee Shines Light on Hong Kong’s Role in Sanctions Evasion

U.S. legislators are increasingly concerned that Hong Kong is becoming a key hub for bypassing sanctions against Russia, Iran, China, North Korea, and other authoritarian regimes. Accordingly, the House Select Committee on the Chinese Communist Party issued a letter on November 25 to Treasury Secretary Janet Yellen Monday requesting more information on the department’s efforts to prevent Hong Kong from being used as a hub for evading U.S. sanctions and anti-money laundering regulations.

The request follows a bipartisan appeal earlier this month for the Biden administration to sanction Hong Kong officials for their roles in the arbitrary detention of pro-democracy activists. Moreover, both letters also address threats that stem from Beijing’s growing control over the city, marking a further shift away from its nominal independence from the mainland.

Hong Kong Is a Growing Hub for the Illicit Activities of China’s Authoritarian Partners

Known as a prominent financial center, Hong Kong has increasingly become a global hub for sanctions evasion, facilitating exchanges between China’s authoritarian partners. Russia has long relied on Hong Kong to circumvent Western sanctions and provision its over-stretched war machine. Recent estimates from the Committee for Freedom in Hong Kong Foundation suggest that nearly 40 percent of exports from Hong Kong to Russia in 2023 contained war-critical technology such as semiconductors and other high-value components for advanced weapons systems.

Both Chinese firms and Iranian front companies have also used Hong Kong to facilitate China’s purchases of Iranian oil and launder funds for Iran’s Islamic Revolutionary Guard Corps, a U.S.-designated terrorist organization with a dominant role in Iran’s economy. South Korea has also sanctioned shipping companies based in Hong Kong for trading with North Korea, allowing the Kim regime to exchange commodities on the global market in violation of international sanctions meant to curb its illegal weapons program.

China’s Growing Crackdown on Hong Kong’s Pro-Democracy Movement

Along with serving as a hub for its authoritarian partners to evade sanctions, Beijing has used its influence over Hong Kong to intensify its crackdown on the city’s pro-democracy movement. In the past week, 45 pro-democracy protestors were found guilty during show trials under Hong Kong’s stringent national security law, which it adopted amid significant pressure from Beijing. The city passed the law following unprecedented pro-democracy protests in 2019 and has used its intentionally vague provisions to arrest over 260 people and target activists living abroad. The announcement of the verdicts also follows the arrest and ongoing prosecution of Jimmy Lai, the long-serving editor of the pro-democracy newspaper Apple Daily, for sedition and colluding with foreign forces. Arriving amidst a period of unrest due to a recent spate of randomly-targeted violent crimes and an ongoing economic downturn, the trials have served to silence internal criticism, strengthening the CCP’s political dominance.

The U.S. Should Tighten Financial Restrictions on Hong Kong

Hong Kong has become an avenue for Beijing to pursue its foreign and domestic policy goals by providing economic relief for a coalescing bloc of authoritarian regimes and strengthening the CCP’s authority. Rather than maintain its more lenient economic policies based on the city’s nominal independence from Beijing, the United States should respond accordingly. 

Having previously enacted sanctions against the government of Hong Kong over the passage of its draconian national security law, the United States should to go further. The next Congress should introduce sanctions on the city’s financial sector to disrupt its status as an emerging financial hub for authoritarian regimes seeking to undermine U.S. national security.

Jack Burnham is a research analyst in the China Program at the Foundation for Defense of Democracies (FDD). For more analysis from Jack and FDD, please subscribe HERE. Follow Jack on X @JackBurnham802. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.