US warns Hong Kong over oligarch's superyacht docked in its waters

Concerns have emerged Hong Kong might be perceived as a popular destination for the assets of sanctioned Russian corporations. Photo / Thinkstock

The US has warned that Hong Kong risked becoming a haven for Russian oligarchs after the Chinese territory said it would not enforce western sanctions on a superyacht owned by billionaire Alexei Mordashov that has docked in the city's waters.

The US state department also said Hong Kong's business outlook could be further clouded by its government's inaction as the former British colony's "reputation as a financial centre depends on adherence to international laws and standards".

The saga unfolded as the 142-metre Nord, one of the world's most luxurious superyachts built by German company Lürssen, entered Hong Kong waters on Wednesday. The US$500m (NZ$891m) vessel has been moored west of the city's Victoria Harbour.

The yacht, which sails under the Russian flag, left Vladivostok last week, according to Marine Traffic, a tracking website. Nord was described by the studio that designed it as "a warship wearing a tuxedo" as it boasts two helipads, a pool and a fleet of tenders.

Mordashov, one of Russia's richest men, made his fortune through the steel group Severstal. Following Russia's invasion of Ukraine, the US, EU and UK imposed sanctions on Mordashov and other oligarchs.

"Certain countries may impose unilateral sanctions against certain places on the basis of their own considerations," a spokesperson for the city's marine department said on Friday.

"The Hong Kong [government] does not implement, nor do we have the legal authority to take action on, unilateral sanctions imposed by other jurisdictions."

The US said the statement by the Hong Kong department might encourage oligarchs who are subject to sanctions to live in the city.

"The possible use of Hong Kong as a safe haven by individuals evading sanctions from multiple jurisdictions further calls into question the transparency of the business environment," a US state department spokesperson told the Financial Times.

Lodestone, a Hong Kong-based yacht brokerage that provides support services to superyachts, is listed as the agent for the Nord in Hong Kong. An employee confirmed the listing.

Ryan Mitchell, an assistant professor at the Chinese University of Hong Kong with a focus on international law, said it would "raise risks considerably if Hong Kong became widely seen as a popular destination for the assets of sanctioned Russian corporations or individuals".

"Hong Kong-based corporations or individuals should be aware that they could later face secondary sanctions if they enter into business transactions or relationships with Russian sanction targets," he added.

Maintenance, insurance and other financial services provided to the yacht could involve institutions that operate in more than one state.

This could "give the option to the sanctioning states to intervene with these transactions not directly in Hong Kong but along the chain of payments", said Michael Tsimplis, a law professor from the City University of Hong Kong.

A visiting pleasure yacht is not allowed to stay in Hong Kong waters for more than 182 consecutive days unless it is properly licensed with local authorities, according to the marine department.

-By Chan Ho-him and Primrose Riordan in Hong Kong