A new report by WildAid, an international nongovernmental organization that aims to eliminate illegal wildlife trade, together with undercover video by independent investigators provided to WildAid and WWF-Hong Kong, exposes how Hong Kong’s legal ivory market fuels ivory smuggling and elephant poaching.

Hong Kong is the world’s largest retail market for elephant ivory, with licensed businesses in high-rent tourist areas displaying more than 30,000 ivory items for sale—more than any other city in the world. Hong Kong is also a major transit hub for illegal ivory.

WATCH: In this undercover video, investigators reveal illicit activities in the Hong Kong ivory trade.

Video courtesy: WWF-Hong Kong/WildAid

The report, “Illusion of Control,” released Friday in Hong Kong, reveals that ivory traders routinely replenish their legally held private stocks with illegal ivory from recently poached African elephants. The report also details how complacent bureaucrats and a deficient regulatory system allow this to happen.

“Hong Kong ivory traders are no more than proxy killers of African elephants and have been operating under the nose of the authorities with complete impunity from the law for decades,” says Alex Hofford, campaigner for WildAid and the report’s coauthor.

They operate within “a loop-hole riddled system” run by Hong Kong’s Agriculture, Fisheries and Conservation Department (AFCD), which “has betrayed the elephant species through systematic institutionalized leniency and timid tolerance towards the city's ivory traders.”

Legal Ivory by the Numbers

Imports and exports of ivory have been outlawed in Hong Kong since 1989, when international trading in ivory was banned. But Hong Kong continues to allow domestic ivory sales by more than 400 licensed traders who can legally sell and use ivory from the pre-1989 private stocks.

In 1989, the legal commercial stocks held by private traders totaled 665 metric tons. (These stocks are separate from the Hong Kong government’s stockpile of seized illegal ivory, which totaled 29.6 tons in 2014 and is being destroyed in an extensive process that began in May 2014.)

The idea was that trading in Hong Kong could continue until the legal supplies ran out. Based on expected rates of ivory sales, the report calculates that “Hong Kong’s stockpile of legal, licensed, pre-1989 ivory should have sold out by 2004.”

But it hasn’t.

Instead, the stocks have not only endured but remained relatively stable. They amounted to 116.5 metric tons in 2011, nearly 119 tons in 2012, 117 tons in 2013, and just over 111 tons in 2014.

WildAid suggests that the stocks should have fallen more quickly, especially since the number of visitors from mainland China—who constitute 90 percent of Hong Kong’s ivory buyers—rose dramatically over that same period. In 2014, 47 million mainland Chinese tourists visited the city, a 106 percent increase over 2008.

Iain Douglas-Hamilton, the head of Kenya-based Save the Elephants, says Hong Kong is “raising its head as a weak link just as mainland China is getting its house in order and shutting down its ivory trade. One wonders why the Hong Kong stockpile hasn’t decreased more.”

Complicity by Regulators and Traders

Regulatory weaknesses and limited oversight have allowed smuggled ivory to seep into the city’s legal markets with little backlash.

As one trader explains in the video, while these stocks were registered with AFCD, “the record was not in detail.” Only the weights were recorded.

View Images Hong Kong authorities confiscated these ivory tusks, as well as rhino horns and leopard skins, smuggled in two containers of timber from Nigeria in August 2013. Seizures like this illustrate Hong Kong's pivotal role as a transhipment point for illicit wildlife products from Africa to mainland China. Photograph by Alex Hofford, EPA,Corbis

The system does not connect any individual tusk or product to verified paperwork, so traders can easily replenish their stocks with newly poached ivory.

And they do.

“After I sell an [ivory] item, I can use illegal ivory to make another item to top up my stock again,” that same trader said.

Each year, vendors report the total weight of the ivory in their possession. AFCD then provides a license for that amount, which is supposed to be displayed. Yet that rarely happens and, when it does, there is room for fraud.

A survey of 94 shops by WildAid from October 2014 to August 2015 revealed that of those who did display a license, “often it was partially hidden, damaged, out-of-date or tampered with by redacting the trader’s name and maximum weight of licensed inventory.” Only one shop was in full compliance.

Further, vendors can “deregister” ivory stocks—meaning that they recategorize it from commercial to “inactive” so that the ivory is off AFCD books and no longer subject to a license. But these deregistered stocks can later be reregistered, providing another way to launder ivory.

The lack of verification and monitoring by AFCD contributes to the problem, as shady traders can slip illegal ivory into the system with little risk of getting caught.

According to WWF-Hong Kong’s report The Hard Truth, AFCD has only eight full-time inspectors, and it’s impossible for them to check all the outlets and dealers selling ivory every year.

One trader featured in the video explained how a passport system could be adopted to follow raw ivory through to finished product. The finished product could be certified with a photo and record of its size and weight and would be traceable back to the original material.

“I made this suggestion to the Hong Kong government right at the time when ivory was banned,” he said. “But the government thought it was too much trouble.”

Gemstones and Ivory: Are They Linked?

In the Hung Hom district of Kowloon, centered on Man Lok Street, a few industrial buildings are occupied by diamond traders and a multitude of companies that offer precious and semi-precious stones from Africa, like tanzanite, garnet, tourmaline, and amethyst. The district is popular with tourists from mainland China, who come by the busload.

Right alongside the gemstone import companies are a number of ivory trading companies that hold significant ivory stocks and have carving capabilities and links to carving factories in mainland China.

On any given day in the corridors, it’s not uncommon to encounter nationals from many African countries, including Kenya, Tanzania, Democratic Republic of Congo, Nigeria, Mali, and Guinea—some known to be the focus of intense elephant poaching.

Ethiopia’s honorary consul to Hong Kong, who until recently vehemently defended the ivory trade contrary to his government’s policy, has his consulate office at the same address as his jewelry company, which also previously traded ivory.

This physical proximity leads to the question as to whether informal arrangements and opportunities exist to conceal freshly poached ivory inside shipments of gemstones from Africa to Hong Kong.

After the independent investigators who filmed the undercover video went to one gem showroom and inquired about the availability of ivory, they were led to an unlisted ivory carving workshop and warehouse in another building.

A Spur for Poaching

While unpublished AFCD data indicate that the largest amount of ivory held by any trader is six tons, the undercover video shows one trader saying he can easily procure ten tons and that it’s a simple matter to put in a purchase order for newly poached ivory.

“If you dare [to receive the ivory], then I can send them to you from Africa,” a trader says.

View Images These tusks from Hong Kong’s cache of seized illegal ivory were displayed at the start of the government’s incineration of its 29.6-ton stockpile on May 15, 2014. Public pressure to ban ivory sales permanently is building in Hong Kong. Photograph by Siu Chiu, Reuters

Further, the WildAid report describes how ivory sellers routinely help clients circumvent the law.

Taking pre-1989 raw ivory out of Hong Kong requires government-issued re-export permits. Because these permits can take up to six months to get, shopkeepers coach customers on how to smuggle the tusks. For ivory tourist trinkets, they’ll provide false receipts that misidentify the item as mammoth ivory, which needs no permit.

“I’m just selling it to you,” a trader says in the undercover footage. “Where you go after that is your problem.”

Full Ban Needed

As the WildAid report makes clear, though, Hong Kong is a key hub for ivory trafficking, and closing loopholes could go a long way toward stemming the trade.

AFCD recently issued a nine-point plan to strengthen its control of the legal ivory trade and combat trafficking. The plan includes labeling pre-1989 raw ivory (tusks and large cut pieces) with tamper-proof holograms and making photo records of the ivory at the time of import inspection. It extends the marking system to worked ivory (instead of just raw) and requires licensees to report changes in the quantity of their stocks at specific intervals.

The plan also steps up inspections of both licensed shops and other arts and crafts shops and calls for detector dogs to be deployed at four boundary control points to screen passengers departing from Hong Kong to the mainland. And it calls for radiocarbon-dating to determine the age of ivory.

Many of these measures face hurdles. Increasing inspections of shops, for instance, will be time-consuming and costly, and more than the only eight current inspectors will be needed to count and weigh all the “legal” ivory stocks held by traders.

With mainland China taking steps to eliminate its domestic ivory trade, the report notes that “it makes practical sense for Hong Kong to ban the trade” so as to make enforcement on the mainland easier and eliminate the world’s largest ivory market.

In May 2015 China’s Minister of State Forestry Administration Zhao Shucong said China would “strictly control ivory processing and trade until the commercial processing and sale of ivory and its products are eventually halted.”

And in September, China’s President Xi Jinping pledged “to enact nearly complete bans on ivory import and export…and to take significant and timely steps to halt the domestic commercial trade of ivory. ”

Despite AFCD’s assertions that it has strict controls over local ivory sales, the WildAid report exposes “glaring corruption among Hong Kong’s ivory traders.”

The report suggests that a ban on ivory sales, combined with enhanced and better-supported enforcement units, will be the most viable solution.

“History has shown that legal ivory sales only serve to provide a cover for illegal trade, which fuels the rampant poaching we see across Africa,” says Peter Knights, the CEO of WildAid. “If elephants are to stand any chance at surviving, Hong Kong must join China and the U.S. in shuttering its market.”