Hong Kong becomes Iran's money laundering hub? The Wall Street Journal exposes $4.8 billion in underground financial flows

The Wall Street Journal reveals that Hong Kong has become a key hub for the flow of Iranian funds and materials. Through a vast network of shell companies, Iran handles up to $4.8 billion in oil revenues annually and procures drone and missile parts.

According to the Wall Street Journal, Hong Kong is currently a critical hub in Iran’s financial circulation system. Through intricate networks of shell companies and alternative financial channels, Hong Kong not only assists Iran in managing billions of dollars in oil revenues but also serves as an important stepping stone for Tehran to evade U.S. sanctions and purchase sensitive technology for its military and drone programs.

How did Hong Kong become an important base for Iran’s shadow banking?

The report points out that data from the U.S. Treasury Department and related financial crime prevention agencies show that Hong Kong’s business environment, due to its simple company registration procedures, has become a breeding ground for entities disguising their sanctions targets. In 2024, the scale of financial transactions related to Iran’s shadow banking entities in Hong Kong is estimated to reach $4.8 billion, ranking second only to the United Arab Emirates.

Most of these networks, composed mainly of shell companies, are engaged in converting RMB from Iran’s oil sales into U.S. dollars, euros, or other strong foreign currencies to meet Iran’s international trade funding needs.

Iran Procures Military and Drone Parts via Hong Kong Shell Companies

Beyond money laundering, Hong Kong is also a key node for Iran to acquire sensitive military technology. U.S. authorities state that Hamed Dehghan, CEO of a trading company in Tehran, has been continuously using Hong Kong shell companies since 2019 to procure millions of dollars’ worth of controlled Western technology for Iran’s missile program and the Islamic Revolutionary Guard Corps (IRGC), including critical electronic components and rocket fuel precursors used in developing the “Shahed” attack drones.

Although the U.S. Treasury Department has repeatedly blacklisted involved Hong Kong entities, the low threshold for establishing new companies locally allows old companies to be sanctioned and replaced quickly with new shell companies that take over the business.

How do these funds evade U.S. sanctions?

To avoid scrutiny from the U.S.-based financial system, transactions related to Iran are often deliberately routed around major global multinational banks. The report notes that these funds are usually settled through small and medium-sized local banks with limited international exposure (such as Kunlun Bank), primarily using RMB to isolate from inspection risks.

Additionally, Iranian foreign exchange agencies connected to Iranian commercial banks (like Bank Tejarat) are said to control dozens of shell companies in Hong Kong, specifically managing underground fund flows for the IRGC.

Ghost Fleets and Maritime Laundering: Hong Kong’s Role in Iran’s Oil Smuggling Logistics

In physical trade, Hong Kong also plays a logistical role supporting Iran’s “ghost fleet.” Many shipping companies registered in Hong Kong actively assist in transporting Iranian crude oil via oil tankers engaged in “ship-to-ship” transfers at sea. By forging invoices and altering oil origin labels (often disguising Iranian oil as coming from Oman or Malaysia), these networks successfully conceal the true source of the oil, allowing sanctioned Iranian crude to enter refineries in China and other countries, and circulate covertly within the global trading system.

Hong Kong Government Refuses to Comply with Unilateral Sanctions: U.S. New Strategies to Block Shell Companies

Hong Kong SAR Chief Executive John Lee has explicitly stated that the Hong Kong government only enforces sanctions imposed by the United Nations Security Council and does not recognize unilateral sanctions imposed by individual countries (such as the U.S.). This policy stance allows entities targeted by the U.S. to operate freely within Hong Kong without much concern about local law enforcement crackdowns.

Faced with the severe challenge of rampant shell companies in Hong Kong, U.S. authorities have shifted tactics since October last year, targeting the addresses of institutions that register these proxy companies, aiming to increase the difficulty of establishing shell companies and cut off Iran’s underground funding and material supply chains at the source.

• This article is reprinted with permission from: Chain News
• Original title: Wall Street Journal: Hong Kong Becomes Iran’s Money Laundering Hub, $4.8 Billion Underground Cash Flow Exposed
• Original author: Co2