NZ shell companies exposed by UN
New Zealand’s role in allowing easy shell company creation has been revealed by a UN Security Council report as a key component in efforts by North Korea to break international arms trading sanctions.
A 75-page report on North Korea’s sanctions busting efforts was released by the council in New York today after its publication was blocked for six months by China, a key ally for North Korea.
Written by a panel of experts it also reveals some new details about a shipment of arms seized in Thailand last December from an aircraft chartered by an Auckland registered company, SP Trading Ltd.
The report is embarrassing for New Zealand which tries to portray itself in the United Nations as a good global citizen.
In 2006 and 2009 the Security Council imposed extensive sanctions on North Korea – referred to as the Democratic People’s Republic of Korea (DPRK) in the UN - in a bid to make them return to international negotiations over nuclear developments and arms trading.
"The DPRK employs a broad range of techniques to mask its transactions including the use of overseas entities, shell companies, informal transfer mechanisms, cash couriers and barter arrangements,” the Security Council report says.
"In the recent case of DPRK arms interdicted in Thailand, for example, the DPRK used shell companies set up in Ukraine, Hong Kong and New Zealand to handle the financial arrangements as well as the air carriage of the arms which were falsely labelled as oil boring equipment destined for Iran."
The report says the experts underscored "the importance of exercising extra vigilance to assure that financial transactions and services do not contribute to the DPRK’s proscribed activities."
The report refers to the Auckland incident when an Illyushin-76 aircraft was found at Bangkok with 35 tons of arms aboard worth US$18 million (NZ$23 million) on December 11.
While the origin of the arms was clear, it has never been clear where they were going. The Security Council report adds some details.
"The airway bill covering the shipment had been issued by Air Koryo, national carrier of the DPRK," the report says.
"It indicated the cargo as 145 crates of mechanical parts.
"However, the Thai inspection of the cargo revealed that the content consisted of some 35 tons of conventional arms and munitions including 240mm rockets, RPG-7s, TBG-7s and MANPADS surface-to-air missiles.
"It was also established that the shipper was Korea Mechanical Industry Co.Ltd, a DPRK entity, and that the consignee was Top Energy Institute located in Iran."
The Security Council says a "puzzling factor" was the numerous flight plans involved with the aircraft.
"The aircraft used in this illicit trade is owned by a company in the United Arab Emirates and registered in the Republic of Georgia as 4LAWA.
"It was leased to SP Trading Limited, a shell company registered in New Zealand, and then chartered to Union Top Management Ltd (UTM), another shell company registered in Hong Kong.
"This routing may have been an attempt to mask the aircraft’s true destination."
The report revealed that North Korea has emerged as a key supplier of banned weapons material to Iran.
Following the revelations that New Zealand’s easy company registration system played a key role in the arms sanction trading, the Ministry of Economic Development has tightened the rules.
Last week the sole director of SP Trading at the time of the arms trading, fast-food manager Lu Zhang, 28, was convicted and discharged in the Auckland District Court on 74 charges of giving false residential information to the Companies Office.
During the hearing it emerged that the Chinese Government had warned the court that Beijing would "definitely pay close attention" to how it treated Zhang.
District Court Judge Robert Kerr reacted angrily to the letter from the Chinese Ambassador in Wellington, Xu Jianguo.
"Why do they believe they have greater rights than anybody else?" Judge Kerr said.