By James Pomfret and Michael Martina

HONG KONG/WASHINGTON (Reuters) – The amount of semiconductors and other banned goods shipped through China and Hong Kong to fuel Russia’s war effort has fallen by a fifth this year, previously undisclosed data from the U.S. Commerce Department showed. But Hong Kong remains a global hotbed for sanctions evasion.

Transit of Common High Priority Items (CHPL) through Hong Kong – advanced components including microelectronics that the U.S. and European Union say are likely to be used in Russia’s war in Ukraine – fell 28% between January and May, a U.S. Commerce Department official told Reuters.

During the same period, transit of these items via mainland China, excluding Hong Kong, fell by 19%, the official said.

Reuters is publishing these previously undisclosed figures for the first time.

Asked about the transit of dual-use goods through China to Russia, the Commerce Department referred Reuters to previous statements outlining efforts to “restrict Russia’s access to the technologies and other items it needs to sustain its brutal war against Ukraine.”

Both Hong Kong and China are seen by the US government as important global hubs for Russia when it comes to purchasing military materials, including semiconductors and drone parts.

“I think there is reason to be at least optimistic that we have been able to slow some of this trade,” the official said, but added: “China is still our biggest concern.”

The United States and its allies accuse China of supporting Russia’s war in Ukraine, including by exporting parts and equipment needed by Moscow’s arms manufacturers.

The U.S. State Department and the Treasury Department have imposed several sanctions worldwide on entities that allegedly had commercial ties to the Russian military, including front companies in Hong Kong that diverted semiconductors.

The official, who asked not to be named, said the drop in illicit flows is the result of several factors, including aggressive enforcement by U.S. authorities and contacts with companies whose products are being transshipped.

“We are talking to every company whose stuff shows up on the battlefield,” the official said, without naming names.

The official declined to share the full dataset with Reuters, citing the need to protect the department’s access to the information. “What I can say is that we have confidence in the source regarding imports into Russia.”

The Hong Kong government did not respond to questions from Reuters about the transfer of goods to Russia, but said it “does not implement, nor has the legal authority to take action against, unilateral sanctions imposed by other countries.”

However, it added that it “firmly” enforces sanctions imposed by the United Nations Security Council in line with instructions from the Chinese Foreign Ministry, including those regarding North Korea.

Chinese customs and the Chinese Foreign Ministry did not respond to Reuters requests for comment.

The Russian embassy in Washington did not respond to questions from Reuters.

A separate customs dataset from C4ADS, a Washington-based global security nonprofit, shows that more than 200 Hong Kong-registered companies shipped nearly $2 billion worth of goods to Russian buyers between August and December 2023.

The data, presented in a forthcoming report by The Committee for Freedom in Hong Kong Foundation (CFHK) and reviewed by Reuters, shows that $750 million worth of CHPL items were shipped through Hong Kong between August and December 2023. The items range from high-end chips from Nvidia and France’s Vectrawave to low-end chips from Texas Instruments and Intel.

According to CFHK, some of these prohibited goods were shipped to Russian companies under sanctions.

In response to questions from Reuters, Nvidia said it stopped selling to Russia in March 2022 and requires its customers to comply with all applicable U.S. laws.

Texas Instruments told Reuters it “strongly opposes” the use of its chips in Russian military equipment and the illegal diversion of its products to Russia.

Intel said the company strictly complies with U.S. export regulations and sanctions and holds suppliers and distributors accountable to the same standards.

Vectrawave did not respond to a request for comment.

“Our investigation has uncovered numerous instances where Hong Kong-based companies facilitated the transfer of sensitive technologies and goods, thereby undermining international security and stability,” said Samuel Bickett, lawyer and author of the CFHK report.

HIGH QUALITY CHIPS

C4ADS customs data from 2023 shows that two of the Nvidia shipments, valued at $1.58 million and $1.21 million, were sent to a Moscow-based company called “Lotos” by a sender named Malachor Electronics with a secretary address in a luxury office building in Hong Kong’s central business district.

Malachor director Colin Stevenson, who has a listed address in the UK, was unavailable for comment.

Between August and December last year, Nvidia products worth a total of $17.6 million were shipped to Russia by Hong Kong exporters after being traded in countries including China, Taiwan, Turkey, Thailand, Serbia and the United Arab Emirates, customs data seen by Reuters showed.

The shipments included the “Jetson TX2” Edge AI systems, which are among the components used in drones discovered by the Ukrainian government on the battlefield.

“Pre-owned Jetsons are available through many pre-owned channels. While we cannot track products after they are sold, we will take appropriate action if we determine that a customer is in violation of U.S. export controls,” said John Rizzo, an Nvidia spokesperson.

Rizzo did not provide details about the deliveries to Lotos.

Other high-end shipments included two shipments of $1 million each of semiconductors from Vectrawave that were labeled as microprocessors. Vectrawave is a maker of specialized semiconductors for high-tech communications and defense systems, including radar.

The ease of setting up and registering new companies in Hong Kong has led to a proliferation of shipping and logistics firms and other intermediaries that have also facilitated limited trade and money flows with Iran and North Korea, according to the CFHK report and a Reuters review of Hong Kong registration applications. Some of these have been sanctioned by U.S. authorities.

Reuters found closed offices during visits to industrial buildings in Hong Kong, close to the city’s Kwai Chung container port, for senders named in customs documents and company filings. One company, Align Trading, the sender of the Vectrawave chips, had an address that was a moldy room filled with hundreds of Hong Kong company registration letters.

Li Yanqing, a Chinese director of Align, had an address in Jiujiang in southern China and could not be reached.

(Reporting by James Pomfret and Michael Martina; additional reporting by Max Cherney in San Francisco; Editing by Don Durfee and Daniel Wallis)