Global Sanctions Regimes Ramp Up Against North Korea
The United Nations, the United States, and governments around the world have sought to update, implement and impose severe economic sanctions regimes against the Democratic People’s Republic of Korea (DPRK) in response to Pyongyang’s continued development of nuclear weapons and ballistic missile programs.
This article will provide a brief timeline and overview of the most recent updates to international sanctions regimes targeting the North Korean economy.
US and UN Sanctions Expansion
On August 2, 2017, President Donald Trump signed into law a wide-ranging sanctions measure titled The Countering America’s Adversaries Through Sanctions Act (CAATSA), expanding current sanction regimes against Iran, Russia and North Korea. Pursuant to CAATSA’s Title III, Korean Interdiction and Modernization of Sanctions Act (KIMSA), President Trump was authorized to impose new sanctions on non-US persons for certain North Korean-related transactions.
The UN Security Council then unanimously passed the US-drafted Resolution 2371 on August 6, which imposed fresh sanctions on North Korea targeting $1 billion worth of the nation’s primary exports, including coal, iron, iron ore, lead, lead ore and seafood. It also called for a resumption of talks between the US, China, Japan, Russia, North Korea and South Korea, with the ultimate goal of denuclearizing the Korean peninsula.
North Korea conducted its sixth and most powerful nuclear test on September 3, 2017, prompting the UN to pass Resolution 2375 on September 11. Driven by the efforts of US Ambassador Nikki Haley, the unanimously-backed sanctions regulations were severe, but not as far-reaching as the Trump administration initially had hoped for after receiving pushback in the negotiation process from its Russian and Chinese counterparts. However, the resolution did increase inspection requirements of ships engaging with North Korean ports, banned North Korean textile exports, capped sales of crude oil and prohibited the sale of natural gas into North Korea.
Executive Order 13810 and OFAC Update
On September 21, President Trump issued an executive order (EO) that authorized a wide variety of sanctions against numerous individuals, entities and foreign financial institutions involved with the “provocative” and “destabilizing” North Korean regime. Following the September UNSC Resolution and EO 13810, on September 26 the US Treasury Department’s Office of Foreign Assets Control (OFAC) published updated guidance, issued new general licenses, and designated 26 individuals and eight banks as Specially Designated Nationals and Blocked Persons (SDNs) under the North Korean sanctions regime.
EO 13810 also expanded the categories of conduct that can result in a designation on the SDN list, and requires foreign entities to cut ties with persons who operate in a variety of North Korean industries or risk being designated as blocked parties themselves, subject to forfeiture actions by the US Department of Justice.
The expanded list of vulnerable individuals and entities includes those who:
Operate in the North Korean construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textile or transportation industries;
Own, control or operate any port in North Korea, including any seaport, airport or land port of entry;
Have engaged in at least one significant importation from or exportation to North Korea of any goods, services or technology; and,
Are a North Korean citizen, including any North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea. In addition, the EO prohibits aircraft and vessels that have engaged with North Korea within the prior 180 days from entry into the US.
EO 13810 further authorizes the imposition of secondary sanctions on foreign financial institutions that conduct significant transactions related to North Korea or with a blocked party, regardless of whether the institution has any connection to the US This expansion will result in considerable risk for US companies that engage in business with entities and institutions in North Korea’s major trading partner countries, particularly Russia and China.
Fresh Sanctions from the EU and UN
On October 16, the Foreign Affairs Council of the European Union (EU) adopted autonomous sanctions measures to complement and reinforce the September UN Resolution 2375. The new sanctions include a total ban on EU investment in all sectors of North Korea’s economy, as well as a total ban on the sale of refined petroleum products and crude oil. EU member states additionally agreed not to renew work authorizations for North Korean nationals present on their territory, with certain exemptions for refugees. On October 23, the UN Security Council on North Korea expanded its current export prohibitions, adding 32 items with both civilian and military uses to the banned goods and technologies list.
The US House of Representatives approved the Otto Warmbier North Korea Nuclear Sanctions Act on October 24. The measure passed overwhelmingly 415-2, and was described as the “most far-reaching sanctions ever directed at Pyongyang” by the bill’s sponsor Congressman Andy Barr. Named in honor of the American student who died after spending more than a year in North Korean custody, the Otto Warmbier North Korea Nuclear Sanctions Act directs the US Treasury Department to impose strict conditions and oversight on foreign financial institutions that engage with North Korea. The bill additionally authorizes the Treasury Department to cut off financial assistance to any international government that knowingly fails to prevent economic transactions that benefit the DPRK regime.
China and Chinese financial institutions are likely the primary target of this most recent round of sanctions legislation.
Amidst escalating tensions between Pyongyang and Washington, the most recent sanctions have expanded the extraterritorial scope of available enforcement mechanisms in the current unpredictable climate of international relations. The geopolitical instability of North Korea will continue to invite harsh economic sanctions from around the world. The bottom line is that businesses will have to spend more time focused on due diligence and documentation to ensure compliance.
Doreen M. Edelman is a shareholder and co-leader of the Global Business Team at Baker Donelson (Washington, D.C.). With more than 25 years of experience in import and export compliance, foreign investment and global expansion, she advises both US and foreign-based companies on international business matters.