Courtesy of the Financial Times, a look at the web of rusty ships and shell companies keeping North Korea afloat despite tightening sanctions:

For a Hong Kong company managing a small fleet of cargo ships, Union Link International hoists an exotic array of flags, from China and Tanzania to the Pacific island nations of Niue and Palau.

But one stands out: a five-pointed red star on broad horizontal stripes of red and dark blue. It is North Korea’s national banner and the vessel that flies it, the Dolphin 26, is just one in a vast network helping Pyongyang survive the international sanctions that target its rapidly advancing weapons programme.

The UN Security Council on Monday passed its toughest measures yet against North Korea and reiterated an agreement to identify and inspect vessels suspected of transporting proscribed goods from the country. But the opacity of the web of ships, people and businesses perpetuating such trade flows suggests the international community faces a huge challenge if its clampdown is to succeed.

Hundreds of the vessels involved are owned and managed by companies based in Hong Kong, where it is not illegal to do business with North Korea.  Some of the companies are operated by North Koreans, corporate records show, although most are backed by Chinese nationals.

“These networks have to be important to North Korea because the North Korean economy has been able to do something no Soviet economy was ever able to do before, and that’s stabilise the balance of trade and the currency,” says Nicholas Eberstadt of the American Enterprise Institute, a conservative think-tank.

Washington-based research group C4ADS has detailed the characteristics of shipping networks important to North Korea. Of a sample of the 248 companies it identifies as managing or operating businesses connected to North Korea, 160 are registered in Hong Kong. One C4ADS report notes that the companies employ “a variety of schemes to disguise beneficial ownership including using flags of convenience for ships, establishing shell and front companies to register their holdings?.?.?.?and using multiple layers of intermediaries to conduct business”.  

The Dolphin 26’s rusty hull has seen better days. Its decks were corroded enough to draw the attention of inspectors in February, according to a Chinese port’s disciplinary report. The vessel was last spotted in mid-May in China’s northern port of Tianjin, ship-tracking service MarineTraffic shows.

There is no evidence to suggest it has been used to break any laws. But it shares many of the characteristics of ships that have.

The Dolphin 26 has changed its registered owner and manager six times and its name three times in the past eight years, while its flag has been switched four times in five years, according to maritime database Equasis. By swapping flags and shifting ownership between shell companies, experts say it is much more difficult to identify patterns and track the activities of people behind the shipping companies. Many of the businesses share Hong Kong addresses with the secretarial companies paid to represent them, a set-up commonly used by shell companies with no real assets in the territory.  

The other ships managed by Union Link show similar patterns. The Oriental Lady has changed flag six times — twice to North Korea’s — since 2003.

The Zhi Hui has used a North Korean flag four times since 2006. “If you think about the time, energy and money these companies take to hide their true identity, you have to think that this is important,” says William Newcomb, former deputy co-ordinator of the US state department’s North Korea Working Group under President George W Bush. Xie Qun, the registered owner of Union Link, says she has cut down on the “stressful work” of running a shipping company in order to look after her child and elderly parents.

Speaking at a McDonald’s restaurant in Dalian, she says she severed ties with her last North Korean client in February, as the UN was about to approve fresh sanctions, and that she has never knowingly helped North Korean companies break the law. Ms Xie notes that many small shipping companies were registered under her name in Hong Kong, a strategy aimed at spreading risk — should one ship become involved in a dispute, other ships and companies would not be affected. “It’s common practice in the industry to register many companies,” she says, adding that industry peers had told her to do so in Hong Kong, where companies can be registered without an address or assets in the territory.

Hong Kong company records show two dissolved shipping companies registered under Xie Qun’s name. The Chinese territory’s Commerce and Economic Development Bureau says it is aware of reports from the UN Panel of Experts accusing companies of facilitating illicit trade with North Korea and is “looking into the cases in which Hong Kong-registered companies are said to be involved”.

US regulators and research groups have homed in on several large Chinese companies, many based in Dandong on the border with North Korea, which they believe are aiding Pyongyang’s weapons programme, as well as the people behind the companies.

In late June, the US Treasury department accused the Bank of Dandong of financing activities related to proliferation of weapons of mass destruction. Last September, the justice department charged Dandong Hongxiang Industrial Development with conspiring to evade US sanctions and violating nuclear proliferation rules. A C4ADS report in June showed how Dandong Dongyuan Industrial had sent North Korea a shipment of navigational equipment worth $790,000 in 2016. A Chinese national, Sun Sidong, owned the Hong Kong-registered company whose ship transported it, which was seized in Egypt last year carrying 30,000 rocket-propelled grenades made in North Korea. However, North Korea-flagged ships — such as the Dolphin 26 — are falling into disuse.

“My sense is the decrepit fleet of North Korea-flagged ships is increasingly less central to North Korean trade activity,” says Marcus Noland, a North Korea expert who is director of studies at Washington’s Peterson Institute for International Economics. “The North Korean flags are like targets?.?.?.?There are more and more of these ships flagged with Southeast Asian or African flags.”

In a Hong Kong industrial district far from the financial centre, a small accounting firm called Trustworthy Secretarial is Union Link’s only physical connection to the city in which it is registered. Trustworthy represents Union Link in Hong Kong but representatives in the company’s small, cluttered office said they could not comment on their client’s business.