A MERCHANT ship, seized by the Government after it was suspected of breaking United Nations sanctions by trading on behalf of Serbian and Montenegran interests, is to be sold off. The 17,191-tonne Maltese-flagged vessel, C Blanco, has been anchored off Stonecutters Island since June last year when it was impounded by the Marine Department and has since run up anchorage bills of more than $1 million. It was the first ship to be detained under the UN order in Hong Kong and is also believed to be the first such vessel held under such circumstances anywhere in the world. UN and government investigators believed the ship was part of a global operation to earn revenue for Serbia and Montenegro which was then funnelled back to pay for war materials for use against Bosnian and Croatian forces. ''She is under a sanction order and not allowed to leave Hong Kong, so putting her up for auction is one of the ways of disposing of her,'' a Marine Department spokesman said. ''It is the usual procedure. If the owner cannot repay the bill the ship is put up for sale.'' However, he said the sale would not go ahead until final checks on ownership, the vessel's background and any possible legal claims had been completed. According to investigations carried out into the background of the vessel, it was sold to a Maltese company, Blanco Shipping, for a ''nominal sum of US$1'' in 1992 in an attempt to conceal its identity and use. Principal Marine Officer, Lee Yuk-kwong, said the C Blanco belonged to the rump Yugoslavia, which was covered by the UN order, and that no decision had been made on when the ship would be sold. ''It owes about $1.1 million in 'port and light' dues,'' he said.