Irene Jay Liu

"US blacklists HK shipping firms linked to Iran," South China Morning Post, 15 January 2011

This front-page investigative story breaks down the international sanctions-busting network of the Islamic Republic of Iran Shipping Lines (IRISL), which has been accused of aiding Iran's nuclear and weapons program.

In November 2012, the Hong Kong Marine Department gave notice that the 19 ships profiled in the series would no longer be allowed to operate under the Hong Kong flag.

The United States yesterday blacklisted more than a dozen companies in Hong Kong, which a South China Morning Post investigation shows are at the centre of an international network accused of aiding Iran's nuclear and weapons programme in defiance of UN sanctions.

The US has targeted 20 shipping companies registered in Hong Kong, which are all previous or current nominal owners of ships previously owned by the Islamic Republic of Iran Shipping Lines (IRISL), which has been internationally censured for supporting Iran's nuclear and weapons programme.

"IRISL is under tremendous financial pressure from international sanctions, and it is going to extreme lengths to obscure its network and the ownership of vessels," said Stuart Levey, the US under secretary for terrorism and financial intelligence.

"Today's designations expose the latest in a string of deceptive measures Iran is taking to continue its illicit conduct."

The new sanctions represent the largest effort by the US to call out Hong Kong entities for their role in aiding IRISL, but they do not cover the full breadth of Hong Kong's involvement since international sanctions began more than two years ago, a Post investigation found.

And while many of the world's major economies - the US, the European Union, Japan and Australia - responded to the UN's June sanctions against three IRISL subsidiaries (which were made possible with China's support in the Security Council) with even stronger unilateral sanctions against the beleaguered shipping line, Hong Kong has not enacted legislation that would give the latest UN sanctions effect, thus preventing local officials from taking action.

Under sanctions, the US will block the assets of designated companies, and US citizens are prohibited from dealing with them.

IRISL has faced increasing difficulties in operating since March 2008, when the UN Security Council resolution called on members to inspect cargoes to and from Iran on ships operated by IRISL over suspicions that prohibited goods were being carried.

In the autumn of 2008, the US imposed unilateral sanctions on IRISL and led the effort to persuade the international community to exert pressure on the shipping line.

Soon after the UN resolution, IRISL began renaming, reflagging and changing ownership of its fleet. 

IRISL began changing the registration of its fleet in the summer of 2008, reflagging ships, including 20 in Hong Kong. Others were registered in Germany and Malta.

At the same time, the shipping line changed nominal ownership of the 20 Hong Kong-flagged ships to companies registered in Hong Kong - Starry Shine International Limited, Ideal Success Investments Limited, Top Glacier Company Limited, and Top Prestige Company Limited, four of the companies blacklisted.

The companies' two directors/shareholders are Ahmad Sarkandi and Ghasem Nabipour, both officials at IRISL at the time, who have since been sanctioned by the US.

The four companies' corporate secretary is listed as Sovereign Corporate Services Limited, a company half-owned by David John Beaves, of the Hong Kong office of UK-based law firm Ince & Co. "I can't really comment," Beaves said. Talks about IRISL were protected by client privilege and confidentiality, he said.

In January 2009, the US issued a temporary denial order against IRISL, forbidding participation for 180 days in export transactions involving items subject to US Export Administration Regulations. It extended the temporary denial order to Starry Shine, Sarkandi and Nabipour in April 2009, to halt re-export of a powerboat for the Iranian Navy. While the US was trying to constrain IRISL's activities, the shipping line took on local representation with ties to the central government.

H & T International Transportation Limited, a joint venture between state-owned China Hualian International Trading Company and Kimward Development Limited, was listed as the local representative for the 20 ships, transcripts from the Marine Department Shipping Register show.

There was no reply to questions faxed to China's Ministry of Foreign Affairs.

According to its company website, H & T is the direct agent for IRISL, as well as a number of other shipping and airfreight firms including Russia's Fesco, CCNI and South Korean airline Asiana. H&T did not respond to a request for comment.

While the US has sanctioned companies over the past two years for working on behalf of IRISL, it has not sanctioned H & T.

By November 2009, ownership of the vessels changed again, this time to 19 separate companies, each sharing the same address at the Lippo Centre in Admiralty, which is also the address of the Hong Kong offices of the UK-based law firm Holman, Fenwick and Willan.

The companies each own one of the 19 ships registered in Hong Kong (one vessel, the Afflatus, was destroyed in a collision in May 2009), as well as 13 former IRISL ships registered in Malta.

The corporate secretary of the 19 companies is HFW Secretarial Limited, whose directors are Chi Man-fung, Paul John Hatzer, Richard John Wilmot and Pui Choi-yeung, all partners at the law firm.

HFW's commercial director James Huckle said that IRISL in 2008 requested Holman Fenwick and Willan set up companies for the purposes of registering the 20 ships in Hong Kong. But when the EU passed unilateral sanctions in July of that year, the law firm instructed IRISL that it was no longer willing to provide company secretarial services for them and asked the shipping line to move registration as soon as possible, Huckle said.

"Thus far, despite our request, the transfers have not taken place. We continue to urge IRISL to transfer these SPVs as soon as possible, as Hong Kong law does not allow us to effect that transfer unilaterally," he said.

Huckle said the firm received approval last autumn from Britain's Treasury to continue to receive funds from IRISL for completing the work and the law firm established internal procedures to ensure compliance with the sanctions.

The US sanctioned 16 of the 19 Hong Kong shipping companies, as well as four firms registered in the Isle of Man that serve as the sole director and shareholder for the Hong Kong companies.

The US has not blacklisted any of the law firms, secretarial firms or agents that facilitated the formation of this corporate structure and continue to have ties to IRISL.

Last summer's round of UN and unilateral sanctions has hampered IRISL's operations, as Western financial institutions and insurers have withdrawn their business.

In December, Hong Kong officials detained the Decretive, a Malta-flagged ship whose mortgage is guaranteed by IRISL at the request of four European banks over alleged loan defaults totalling US$268 million.

While the detention was not directly caused by the international sanctions against Iran, the incident shows how Iranian companies are struggling to maintain operations in the face of punitive policies.

The Decretive's loans were issued in US dollars, which became a source of difficulty for IRISL after the US in September 2008 placed the shipping line on the US Treasury's Office of Foreign Assets Control list, which imposes controls on transactions and freezes assets under US jurisdiction.

Hong Kong's impounding of this ship followed similar action against three IRISL ships in Singapore. That case, brought by Credit Agricole Corporate and Investment Bank, seeks US$210 million in alleged loan defaults and additional costs.

The three German-flagged container ships - the Sabalan, Sahand and Tuchal ­were held in September on a warrant issued by Singapore's High Court. IRISL recently settled with the bank and has reclaimed the ships.

Despite IRISL's difficulties with European banks, the Hong Kong network of shipping companies has facilitated the Iranian firm's efforts to continue paying the mortgage on seven of its Malta-based ships.

According to the Hong Kong Companies Registry filings, four of the sanctioned Hong Kong companies - New Desire Limited, Sackville Holdings Limited, Neuman Limited and Alpha Effort Limited - hold the mortgage for four Malta-flagged ships formerly owned by IRISL. Three other Malta-flagged former IRISL ships are listed on the mortgage documents, owned by companies that have been sanctioned by the US. Despite new names, flags and company owners, the borrower listed in the documents remains IRISL.

Hong Kong is not required to enforce the unilateral sanctions of the US, or any other jurisdiction. It is, however, required to enforce UN sanctions enforced in Hong Kong.

Current Hong Kong law has not been updated to enact enforcement of last June's UN sanctions, which are the only direct UN sanctions against IRISL. (The March 2008 resolution called on member states to inspect cargoes to and from Iran on ships operated by IRISL when there was suspicion that prohibited goods were being carried, but did not go so far as imposing sanctions.)

A Marine Department spokesman said if a Hong Kong-registered ship was found in evidence that she was in violation of UN sanctions enforced in Hong Kong, the Director of Marine had the power to deregister the ship. Any person found in violation of the sanctions would be subject to legal action.

But even if an entity was found to be in violation of the latest UN sanctions related to IRISL, Hong Kong would not be legally required to take enforcement action.

While emphasising that the latest US actions were measures "under their national sanctions regime", a spokeswoman for the Commerce and Economic Development Bureau said the government "will make the relevant subsidiary legislation to designate entities subject to financial sanctions as decided by UNSC [UN Security Council]. Meanwhile, HKSAR will continue to exercise vigilance in enforcing our local legislation to effectively implement the UNSC sanctions against Iran."