They send them to countries where they aren't locked or break it down for parts.
iphones will remain locked regardless of what country they're in. I presume you're talking about states who are seemingly unwilling to pursue/prosecute claims of theft?
older iOS devices as well are also vulnerable to having their syscfg rewritten via exploits, so you can "clean" a locked device that way as well with a good set of serials. Apple Watches are a hot one for this.
I'm sure this is different with different components of course depending on how granularly apple tracks their hardware—but the whole package certainly can't be activated.
Completely owned.