China’s Kunlun Shipping and its Hong Kong affiliate Kunlun Holdings looked set for a promising future when first formed in 2013 with the purchase of a VLGC.
Believed to be backed by an oil trader, the outfit began to steadily grow its fleet with secondhand VLGCs and VLCCs.
A spurt of buying activity, which began in November 2018 and lasted until the early part of this year, saw Kunlun linked to six large-tanker purchases.
This put the company on shipping’s radar, subjecting it to a level scrutiny that later proved fatal.
Rumours quickly started circulating that Kunlun was secretly engaged in moving Iranian oil and gas cargoes to China.
That was perfectly legal until May, when the US Department of the Treasury’s sanctions waivers that permitted Chinese imports of Iranian oil and gas were not renewed.
If Kunlun had abided by US sanction rules and gone in search of cargoes elsewhere, it would have been fine.
Instead, its ships were alleged to have gone dark, turning off their AIS when approaching the Middle East to slip into Iranian loading ports unnoticed.
There were also allegations that Kunlun’s ships were engaging in multiple clandestine ship-to-ship transfers in the Indian Ocean and off the Malaysian coast to hide the origins of their cargoes.
Industry chatter about this grew so loud that, by August, international bankers were calling in loans on Kunlun ships and insurers were pulling their coverage.
They claimed that Kunlun was unable to provide satisfactory answers about its suspicious trading activities, and they no longer wanted to have any further relationship with the company.
By September, Kunlun’s activities had attracted the attention of the US Department of the Treasury’s Office of Foreign Assets Control.
Kunlun Holdings, Kunlun Shipping and their director Xu Bin were sanctioned for contravening US sanctions. So was China Concord Petroleum, an oil trading company entirely owned by Kunlun Holdings.
Several other Chinese companies, including Cosco Shipping Tanker (Dalian) and Cosco Shipping Tanker (Dalian) Seamen and Ship Management, were also added to the US Department of the Treasury's list of specially designated nationals.
Being added to the list blocks the companies from doing business in the US and freezes its assets in the country.
The migration of Kunlun’s ships across to new owners began shortly thereafter. Even though the companies and its directors were sanctioned, the individual ships were not.
This allows them to continue trading under the ownership of non-sanctioned entities, provided they follow the rules.
