Although there have been some minor adjustments, sanctions on North Korea generally remain the same under the new Part 510. All property and interests in property of the Government of North Korea and the Workers’ Party of Korea are blocked, and U.S. persons are generally prohibited from engaging in transactions with them without authorization from OFAC and must block property or interests in property that are in, or come within, the United States or the possession of a U.S. person. All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all individuals and entities within the United States, and all U.S.-incorporated entities and their foreign branches. Each violation of the North Korea Sanctions Regulations is subject to a civil monetary penalty of up to the greater of the International Emergency Economic Powers Act (IEEPA) statutory maximum ($289,238 as of March 1, 2018) or twice the value of the underlying transaction. Criminal penalties of IEEPA can reach $1,000,000 and 20 years imprisonment per violation.

For more information, check out OFAC’s updated North Korea FAQs or contact our sanctions team.

OFAC also issued new guidance for the global shipping and finance industries, describing common methods used by North Korea to evade sanctions, listing due diligence steps companies should use to spot illegal shipping activities, and providing an overview of how U.S. and UN sanctions apply. OFAC specifically notes that the United States intends to blacklist as a Specially Designated National (SDN) any parties that provide goods or services in support of North Korean vessels, engage in significant exports to or imports from North Korea, or engage in activities related to the transportation industry in North Korea. OFAC also noted that non-U.S. financial institutions that knowingly facilitate significant transactions involving North Korea may be sanctioned by the U.S. government, including, among other penalties, losing access to U.S. correspondent accounts.

To avoid these substantial possible penalties under U.S. law, the global shipping industry and financial institutions providing maritime-related services need to be on alert for transactions or other dealings that may relate to North Korea, particularly those that violate UN or U.S. sanctions on that country.

While it has been known that North Korea sends workers abroad, this report is the first time the supply chain has been documented to show North Korean forced labor products entering the U.S., which is a federal crime. It has been reported that North Korea sends tens of thousands abroad, bringing in revenue estimated at $200-$500 million per year as Kim Jong Un keeps a large percentage of the salaries. According to the AP, the North Korean workers in China remain under constant surveillance and live in forced labor conditions.

In August, 2017 President Trump signed legislation which makes it a crime to import products made by North Korean workers anywhere in the world and authorizes new economic sanctions against North Korea on goods produced by North Korean forced labor. The new U.S. law labels all North Korean workers, both in North Korea and abroad, as forced labor. Customs is reviewing the report and considering enforcement measures including prohibiting goods from entering the U.S. In addition, if Customs finds evidence of forced labor, the matter will be turned over to Immigration and Customs Enforcement (ICE) - Homeland Security for a criminal investigation. Importers are encouraged to review their supply chains to ensure that their goods are not manufactured by slave or forced labor.

New SDN Designation Authority: The Office of Foreign Assets Control (OFAC) has the power to blacklist the following persons as SDNs:

• Companies operating in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;
• North Korean persons, including North Korean persons that have engaged in commercial activity that generates revenue for the North Korean government;
• Those materially assisting, sponsoring, or providing financial, material, or technological support for sanctioned parties;
• Companies owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the order;
• Companies owning, controlling, or operating any port in North Korea, including any seaport, airport, or land port of entry; and
• Companies engaging in at least one significant importation from or exportation to North Korea of any goods, services, or technology.

• No aircraft in which a foreign person has an interest that has landed in North Korea may land in the United States within 180 days after departure from North Korea.
• No vessel in which a foreign person has an interest that has called at a port in North Korea within the previous 180 days (and no vessel that has engaged in a ship to ship transfer with such a vessel) may call at a port in the United States.

Foreign Financial Institution Sanctions: OFAC may sanction foreign financial institutions that knowingly conduct or facilitate transactions involving parties subject to North Korea sanctions or that knowingly conducted or facilitated any significant transaction involving trade with North Korea. Sanctions can include being barred from opening and restricting from using correspondent or payable-through accounts in the United States or block the foreign financial institution as an SDN (or other blocked party).

The firms and individuals involved were targeted because they were involved in the development of North Korea’s nuclear and missile programs, the North Korean energy sector, the export of North Korean laborers, and enabling North Korean entities to access the global financial system.

Several experts have cautioned that the Senator’s ask exceeds the review authority of CFIUS, which reviews transactions that could result in control of a U.S. business by a foreign person to determine the effect of such transactions on the national security of the United States. It remains to be seen whether the President would be willing to stretch the limits of CFIUS for broader foreign policy objectives, such as pressing China to get tougher on North Korea. While Trump may be open to considering an aggressive interpretation of Committee authority – particularly to achieve a desired outcome – the calculation may change under circumstances where the suggestion comes from a leader across the aisle, not to mention an evaluation of the scope of the Committee’s authority. At this point, it is not clear that CFIUS’s approach to Chinese company acquisitions of U.S. businesses will change.

Please contact our export and sanctions team with any questions about the new law and its implications.

Lesson One: Don’t launder money for North Korean SDNs engaged in proliferation schemes. If you want to know more about how North Korea attempts to launder funds, check out this detailed and fascinating report on the topic.

Lesson Two: If you conduct a transaction in U.S. dollars, even if all other aspects of the transaction occur outside of the United States, the U.S. government will likely claim jurisdiction over the transaction.

In the Mingzheng case, the U.S. government asserted jurisdiction because the Chinese companies used U.S. dollars, which triggered indirect dollar clearing transactions in the United States:

Although North Korean financial facilitators engage in U.S. dollar transactions overseas, funds are still cleared through a U.S. correspondent bank account, thereby triggering the U.S. economic sanctions. . . These U.S. dollar payments, which cleared through U.S. correspondent banking accounts, violated U.S. law, because Mingzheng was surreptitiously making them on behalf of FTB, whose designation [as an SDN] precluded such transactions.

In other words, the U.S. government is claiming that the Chinese companies caused U.S. banks to conduct dollar clearing transactions for the ultimate benefit of a blacklisted SDN, an activity that is prohibited under U.S. law. Most international trade transactions denominated in U.S. dollars will generate this type of activity in the United States, potentially triggering U.S. jurisdiction over the underlying transactions.

Conducting transactions denominated in U.S. dollars is only one way that non-U.S. companies can become subject to U.S. sanctions laws. Non-U.S. companies can also get in trouble if they conduct a transaction with an SDN or embargoed territory (currently the Crimea region of Ukraine, Cuba, Iran, North Korea, and Syria) that involves U.S. companies, products, or persons. The classic example here is of a non-U.S. company ordering products from the United States in order to resell them to an SDN or embargoed territory. A similar and common issue arises when a non-U.S. company has employees who are U.S. citizens. Such employees must be fully recused from any business related to SDNs or embargoed territories. ‘Secondary’ sanctions are another way that non-U.S. companies can become subject to U.S. sanctions, but that’s a complex story for another blog post.

The takeaway: If you conduct a transaction that is or may become subject to U.S. law, you need to ensure that all aspects of the transaction complies with U.S. sanctions rules. A basic and important due diligence step is to screen all such transactions against the U.S. SDN List and identify any transactions that might involve sanctioned countries or territories.