Dubai to Hong Kong, follow the money (laundering)

A reminder of how a small fishing port on the edge of the desert took just decades to transform itself into a global investment hub. Yet for all the admirers, there are many doubters. Those who see its shimmering skyline as a facade, its reputation for secrecy an invitation for money laundering and who question whether an emirate once synonymous with gold smuggling has ever truly shaken its appeal to those with something to hide.

Those doubts gained traction with the recent publication of a report by the Washington-based Centre for Advanced Defence Studies, which found that the emirate's real estate sector had been used by terror financiers, drug lords and war profiteers to launder money. It said individuals subject to sanctions by the United States and in some cases the European Union owned 44 properties - worth about US$28 million - in the emirate, while their expanded networks held an additional 37 properties, worth almost US$80 million.

The report, titled Sandcastles, did not merely confirm the long-held suspicions of many regarding Dubai. It cast its net farther, outlining links between sanctioned individuals and jurisdictions including Hong Kong, Syria, Romania, Mexico and the US. Not only that, but Hong Kong's real estate sector was identified as being among a group (including Dubai, New York, Los Angeles and London) that saw "large amounts of illicit money flowing through their systems, constituting a global security threat."

Some 6,000km from Dubai, the glistening skyscrapers of Hong Kong are far from the only thing the two jurisdictions have in common. Dubai's rise mirrors that of the Chinese territory, also a once sleepy fishing village turned international trading centre that now lays claim to be "Asia's World City" and was last year the world's third-biggest recipient of foreign direct investment.

Hong Kong markets itself as Asia's World City. File photo

With its free port and attractive tax system, Hong Kong is seen by many as the gateway to the Chinese market and is famed for its luxury property market. It is also grappling with increasing reports of fraud, money laundering and terrorist financing.

The Sandcastles report was based on leaked data from real estate professionals regarding 54,000 addresses with 129,000 owners from 181 countries. It identified three sanctioned individuals with links to China who were suspected of money laundering and offshoring their assets in Dubai. Their networks are thought to have links to North Korea, Iran's missile programme and the Tehran-backed Lebanese militant group Hezbollah.

Standing in front of Hong Kong's Hollywood Plaza on Nathan Road, a bustling shopping area where the sound of car horns reverberate, it is hard to imagine that an office on the 12th floor of this commercial building could have any connection with Hezbollah.

The registered address of Unique Stars International Limited as at the Hollywood Plaza on Nathan Road. Photo: Raquel Carvalho

This is the registered business address of Unique Stars International Limited, a company whose sole director is a Lebanese passport holder with no Hong Kong identity card: Issam Amhaz.

In 2014, the US imposed financial sanctions on a consumer electronics company - Beirut-based Stars Group Holding - operated by Issam and his brother Kamel. The US Treasury Department said they had secretly bought electronics in other countries that were later used by Hezbollah - considered a terrorist organisation by Washington - to develop drones. These drones were allegedly used for military activities in Syria as well as to conduct surveillance operations in Israel.

According to the firm's records, the Unique Stars International Limited of Nathan Road is still active, though a visit to its supposed office shows no trace of it. Instead, the floor is populated by sport shops, and no one on the floor who spoke to This Week in Asia had even heard of the firm.

Quite what has become of the Hong Kong company is unclear. It was created in February 2008, with a share capital of HK$100, but its operation since then remains obscure - so much so that in May 2015, the Registrar of Companies attempted to strike off the firm and then dissolve it on the grounds of inactivity. However, in July of that year it abandoned the effort due to an objection from an unspecified party.

The Unit 1201, in Hollywood Plaza, is the registered address of Unique Stars International Limited. Instead, it is occupied by a sports shop. Photo: Raquel Carvalho

Although the Hong Kong-based enterprise is not subject to sanctions, six subsidiaries of Stars Group Holding - including Unique Stars Mobile Phones LLC in Dubai and Stars International Ltd in mainland China - have been targeted by Washington.

This Week in Asia tracked down a company created by the two brothers in the Chinese city of Guangzhou in 2009. Listed as one of the firm's two directors was another businessman under sanctions, Ali Zoiter, who also had companies in Hong Kong.

The firm, dissolved in 2013, was among 14 Lebanese enterprises set up in China around 2009 that brought investment of US$60 million to the country.

According to Sandcastles, "the network of individuals surrounding the Amhaz brothers, comprised of multiple unsanctioned companies and their affiliates, was collectively associated with US$69.5 million in Dubai real estate". This network, said the report, had been tied to corruption and illicit finance schemes in West Africa, private security and weapons importation companies in Lebanon as well as a significant portfolio of US-based properties. "Altogether, there is compelling evidence that the wider Amhaz network had the infrastructure to move substantial amounts of money, as well as market access to small electronics and arms procurement, while also maintaining a significant property and commercial footprint," it concluded.

Missiles on display at Baharestan Square in Tehran, Iran. Photo: AP

The Amhaz brothers were not the only individuals with a China connection profiled in the report.

Hossein Pournaghshband, linked to five residential and commercial properties in the UAE worth US$3.1 million, is an Iranian facing US sanctions for procuring dual-use materials for his government's ballistic missiles programme. Data related to his properties in Dubai tied him to two unsanctioned companies trading in the United Arab Emirates, Iran, and China - the three jurisdictions in which he previously conducted sanctioned activity. Some reports have claimed his network was active in North Korea.

In January 2016, the US placed Pournaghshband and his UAE-based company Mabrooka Trading Co LLC under sanctions for procuring polyacrylonitrile fibres that, according to Washington, were used in Iran's missile programme. The materials were reportedly obtained through the Hong Kong-based Anhui Land Group Co Ltd, a company owned by a Chinese citizen named Chen Mingfu.

Chen and his business were also hit by US sanctions in January 2016. About a year later, Chen was named in another US sanctions list for his alleged role in helping to procure the same material for another sanctioned supplier linked to the Iranian Revolutionary Guard.

According to the US, Chen brokered deals, provided logistical support and was involved in shipping goods through China to Tehran.

The Hong Kong-based Anhui Land Group, linked to Pournaghshband's network, was created in July 2012 under the name China Mabrooka Trading Co Ltd. It was dissolved in February 2016 and no trace of it is now to be found at its former official address in Wan Chai.

Anhui Land Group Co Limited's former official address on Lockhart Road, Wan Chai. Photo: Raquel Carvalho

There is, however, another company of the same name still active in Anhui, mainland China, though it denies any links with the Hong Kong-based business, according to a report by the Chinese state-run newspaper Global Times. The Sandcastles report said the mainland Chinese company, which has capital of 2 billion yuan, manufactures general industrial instruments, including "expert-certified nuclear grade cables", which seemed to indicate it was "dealing in potentially applicable materials".

Iran's ballistic missile programme has been a growing source of international tension, with the American president Donald Trump insisting it needs to be addressed.

The US pulled out of its nuclear deal with Iran last May, promising to re-launch economic sanctions that had been waived when the agreement was signed in 2015.

Ali Vaez, the Iran project director for the International Crisis Group, said he expected the US to go aggressively after those who do not comply with the sanctions. "We will get to even more shocking designations pretty soon and pretty quickly... by that I mean banks, individuals or entities that are supported by governments that are allies or even rivals to the US. The objective here is to set an example and deter others to help Iran going around the US sanctions."

But this time around, Vaez said, the sanctions will not be that effective. "Iran pursues ballistic missiles as their only conventional weapon that they can use to deter their enemies from attacking the country. Regardless of the sanctions, Iran will continue to develop its ballistic missile programme," he said.

Perhaps it's not surprising that there should be such links between Hong Kong and Dubai. Christopher Davidson, a fellow at Leiden University in the Netherlands who has studied Gulf issues for about two decades, said in many ways Dubai had "aspired to and imitated Hong Kong".

"Dubai is the easiest place for foreigners to set up a company in the Middle East, they even have free zones that remove the bureaucracy - so in many ways we can make connections between what Dubai is trying to do and what Hong Kong did," he said.

Davidson said both cities were efficient communication and transport hubs. "I think there are great similarities even to some extent with regards to the political situation ... [neither Dubai nor Hong Kong] are really independent city states any more. In both cases they exist under the shadow of a more powerful neighbour," he said, in reference to Dubai's fellow emirate Abu Dhabi and mainland China.

"I suppose really it's a story of a lack of due diligence over the sources of the investment. So presumably anybody could set up a company in a fairly respectable location like Hong Kong and that could then be used to legitimate the investment in Dubai," he said. "In other words, the money wouldn't come directly from Lebanon or Iran, it would come via presumably a Hong Kong or Singapore registered company instead."

A Kim Jong-un impersonator in Hong Kong. A UN panel found the city was a top jurisdiction for North Korean front companies. Photo: AFP

Reports linking financial transactions with money laundering or terrorist financing have more than quadrupled over the past six years in Hong Kong - having reached 92,115 last year. The city has also been criticised as offering a safe haven for shell companies. A UN investigation found the city was one of the top jurisdictions for North Korean front companies.

Nicholas Ryder, professor in financial crime at the University of the West of England, Bristol, said Hong Kong's position as one of the world's largest financial centres - in the first six months of the year, 85,449 companies were incorporated in the city - made it appealing to those seeking to disguise illicit activities by setting up a company. The city, he said, could "be used to hide the proceeds of crime from law enforcement agencies or as part of the money laundering process of placement, layering and integration".

Ryder said research suggested shell corporations were often created for illegal purposes such as money laundering, fraud, terrorist financing and tax evasion.

However, those looking to move illicit money don't have things all their own way. With an amendment to Hong Kong's Companies Ordinance that came into effect on March 1, more information about the beneficial owners of companies is expected to be made available.

"Ultimately, making it difficult for a suspicious company to access traditional banking services in Hong Kong will be a key tool in preventing the use and abuse of Hong Kong's friendly business system to facilitate bad behaviour," said David S. Lee, a senior lecturer in accounting and law at the University of Hong Kong.

Additional reporting by Karen Zhang

This article originally appeared on the South China Morning Post (SCMP).

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