The United Nations Security Council ("UNSC") approved
a Resolution last week imposing new sanctions against North Korea
in response to its recent nuclear and missile tests. This UNSC
action follows the enactment of the North Korea Sanctions and
Policy Enhancement Act of 2016 (the "Act") by the United
States in late February.
Collectively, these measures will further curtail trade with North
Korea through a rigorous inspection regime and impose new
requirements on shipping companies relating to North Korea. Under
the Act, the President will have new authority to impose
"secondary sanctions" against third-country (e.g., non-US
and non-North Korean) nationals determined to have supported North
Korea's illicit weapons, money laundering, and related
activities. US sanctions measures imposed under the Act will apply
not only to US firms, but also to their foreign
subsidiaries—a jurisdictional reach that had previously
extended only to requirements set forth under the Iran and Cuba
sanctions programs.1 The implementation of these
measures requires close monitoring by US and foreign firms with
operations in the Asia-Pacific region.
UNSC Resolution 2270
On March 2, 2016, the UNSC unanimously agreed to Resolution 2270, which imposes a
variety of new restrictions on financial and commercial dealings
with North Korea. The Resolution is particularly significant given
its approval by China, which has historically been reluctant to
impose new sanctions against neighboring North Korea. Resolution
2270 will require all member states to take the following
measures:
- inspect all cargo transiting to and from North Korea, not just
cargo suspected of containing prohibited items;
- prohibit leasing or chartering vessels or aircraft and
providing crew or other services to North Korea and require all
states to ban North Korean flights and deny entry into ports of any
vessel suspected of carrying prohibited items;
- freeze the assets and other economic resources owned or
controlled by the North Korean government if associated with its
nuclear weapons program or the development of prohibited delivery
systems;
- freeze the assets of and impose a travel ban against numerous
individuals and entities associated with North Korea's nuclear,
military, and intelligence apparatus;2
- prohibit the export of an expanded list of "luxury"
goods to North Korea;3
- ban the opening of offices of North Korean financial
institutions abroad and the opening of any new offices of foreign
financial institutions within North Korea; and
- expand the North Korean arms embargo to include small arms and light weapons.4
These measures will generally be implemented by United Nations
member states through additional legal measures and guidance.
North Korea Sanctions and Policy Enhancement Act of
2016
On February 18, 2016, President Obama signed the North Korea Sanctions and Policy
Enhancement Act of 2016. Its scope is substantially broader
than Resolution 2270 in targeting North Korea's weapons
development and illicit financing activities and in creating new
secondary sanctions against third-country firms that engage in
certain types of activities in or with North Korea.
The Act provides for both mandatory and discretionary sanctions
based on several criteria. The President must designate any firm or
person determined to have knowingly assisted with the development
of North Korea's weapons of mass destruction program, delivery
systems, or other military programs; exported luxury goods to North
Korea; engaged in money laundering, counterfeiting, or narcotics
trafficking on behalf of North Korea; engaged in cyber-attacks on
behalf of North Korea; or dealt in precious metals, minerals, or
software related to weapons development. If a firm is designated
under this "mandatory" subsection of the Act, then the
President must impose asset-blocking requirements and prohibit all
transactions in the property and property interests of that
firm.
The President also has "discretionary" authority to
select from a menu of sanctions to impose against persons who
provide any material assistance to persons designated under UNSC
resolutions, engage in bribery in North Korea, assist in the
misappropriation of North Korean funds, or financially support any
of these activities. Those designated under this discretionary
provision of the Act may be subject to one or more of the sanctions
described in the Act, including the application of special measures
for US financial institutions to address money laundering;
prohibitions on foreign exchange; prohibitions on transfers of
credit or payments in or through the US financial system; and
certain other measures related to procurement, travel, and
shipping.5
The Act makes sanctions applicable not only to "US
persons,"6 but also to foreign firms owned or
controlled by a US person, thus making the jurisdictional scope of
North Korea sanctions similar to that of the Cuba and Iran
sanctions programs.7
Finally, within 180 days of enactment, the Secretary of the
Treasury (via authority delegated to the Financial Crimes
Enforcement Network ("FinCEN")) must determine whether
North Korea is a "jurisdiction of primary money laundering
concern" under Section 311 of the USA PATRIOT Act. Upon such a
finding, FinCEN must impose one or more "special
measures" under Section 311, which range from new diligence
and recordkeeping requirements for US financial institutions to a
prohibition on direct or indirect provision of correspondent and
payable-through accounts for North Korean financial institutions.
If finalized, this action would result in further extraterritorial
impact of US policy toward North Korea.8
* * *
Key sanctions provisions under the Act will only come into
effect when the President makes determinations pursuant to these
new authorities. For example, the President could utilize these
authorities to curtail the access of foreign financial institutions
to the US financial system (and their overall financial dealings
with US firms) if they were found to have facilitated North
Korea's illicit activities. Under comparable provisions in the
Iran sanctions program, the US government designated only a small
handful of relatively minor foreign financial institutions,
effectively minimizing possible disruptions to global trade caused
by designations. A similar pattern may occur in this case.
Implementation of the Act will require close monitoring in the
weeks and months ahead.
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