Over the past several months, the United States has ramped up trade sanctions involving North Korea, Iran and Russia through several different mechanisms. For example, on September 20, 2017, President Trump signed an Executive Order authorizing sweeping new sanctions on non-US banks and companies that do business with North Korea (September 20 Executive Order or Executive Order 13810).1 The September 20 Executive Order goes significantly farther than the sanctions imposed with respect to North Korea by the "Countering America's Adversaries Through Sanctions Act," passed by Congress in July, which also imposed new sanctions on Iran and Russia.2
Less than a week following the issuance of Executive Order 13810, the US Treasury Department's Office of Foreign Assets Control (OFAC) imposed new sanctions on 8 North Korean banks and 26 individuals acting as representatives of North Korean banks in China, Russia, Libya, and the United Arab Emirates—suggesting that it intends to use Executive Order 13810 and other existing sanctions tools to aggressively target "North Korean use of the international financial system to facilitate its WMD and ballistic missile programs."3
The recent sanctions activity has also targeted Iran and Russia, through the "Countering America's Adversaries Through Sanctions Act" and other actions. On September 14, 2017, OFAC imposed new sanctions on eleven additional entities for supporting previously designated Iranian entities or for malicious cyber activity.4 Those Iran-related and cyber-related sanctions followed others of a similar nature issued earlier this summer, on July 16, 2017, when OFAC and the State Department together imposed sanctions on sixteen other entities and individuals engaged in support of designated Iranian entities or Iran's ballistic missile program.5
This Advisory summarizes these various new sanctions laws with respect to North Korea, Iran and Russia, including those imposed under the September 20 Executive Order and the "Countering America's Adversaries Through Sanctions Act."
North Korea and the September 20 Executive Order
Prior to the September 20 Executive Order, most interactions by US persons with North Korea were either absolutely prohibited or subject to licensing requirements. The September 20 Executive Order extends US sanctions extraterritorially to cover certain activities of non-US persons, with a special focus on transportation, financial institutions and North Korean trade. The sanctions have the potential to be even more robust than the extraterritorial sanctions Congress and the Executive branch imposed on Iran starting in the 1990s.
Most significantly, the September 20 Executive Order authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to block (i.e., freeze) funds of any persons who violate the Executive Order and whose funds come under control of a US person, as well as to suspend account access for non-US banks that work with North Korea on "significant transactions." In essence, the United States is painting a stark choice for non-US banks: if they engage in "significant transactions" with North Korea (which are not further defined in the Executive Order but may be clarified in future regulations), they cannot do business in the United States and risk having their funds in the United States frozen. The sanctions go beyond prohibitions on correspondent accounts in the United States, allowing the Secretary of the Treasury to potentially freeze the underlying assets of the branches of non-US banks operating in the US that also engage in trade with North Korea.
Sanctions on North Korean Interests
The specific prohibitions contained in the September 20 Executive Order, which may result in these far-reaching sanctions, authorize the Secretary of the Treasury to block (freeze) all property and interests in property that come into possession or control of a US. person of any person designated by the Secretary of Treasury in consultation with the Secretary of State who has been determined to:
- operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;
- 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;
- be a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers' Party of Korea;
- have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to the order; or
- be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the order.
The Executive Order prohibits receipt or transfer of any contribution or provision of funds, goods, or services by, to, or for the benefit of, or from any person whose property and interests in property are blocked pursuant to the Executive Order.
In addition, much like the sanctions on shipping under the US embargo on Cuba, the September 20 Executive Order imposes restrictions on ships or aircraft that have called on North Korea. Specifically, the Order prohibits an aircraft or vessel that has landed in or called on North Korea from landing at or calling on airports or ports in the US within 180 days of a physical presence in North Korea, or if it has engaged in a ship-to-ship transfer with a vessel that has docked in North Korea. Similarly, the Executive Order further imposes visa restrictions on travel to the US by North Koreans. Exceptions exist for US government and United Nations activities as well as their employees, grantees, or contractors. In addition, the Treasury Department has released a General License to permit emergency landings or dockings by vessels or aircraft in distress.6
Most significantly, the Executive Order requires the blocking of funds that (1) are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any US person and (2) originate from, are destined for, or pass through a non-US bank account that has been determined by the Secretary of the Treasury to be owned or controlled by a North Korean person, or to have been used to transfer funds in which any North Korean person has an interest.
The Executive Order also contains language similar to other Executive Orders that prohibit a US persons from approving, financing, facilitating, or guaranteeing a transaction by a foreign person where the transaction by that foreign person would be prohibited by the Executive Order. In practical terms, US persons cannot assist a non-US person on a transaction indirectly that the US person could not implement directly.
Sanctions on Non-US Financial Institutions
The sanctions contained in the September 20 Executive Order go beyond application to US persons by authorizing the Secretary of Treasury to impose sanctions on non-US financial institutions that knowingly conduct or facilitate any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to specifically enumerated Executive Orders or that knowingly conduct or facilitate any significant transaction in connection with trade with North Korea. The term "significant transaction" is not further defined in the Order. The absence of clarity on what constitutes a "significant" transaction will remain up to the Executive Branch to interpret, at least until it issues further regulations or clarifications to define the term. (It is possible that OFAC may use a multifactor significance test for the new North Korea sanctions similar to the test that it set out for Iran sanctions under Section 561.404 of the Iranian Financial Sanctions Regulations, but it has not done so yet.)7
Under the September 20 Executive Order, the Secretary of Treasury may impose several different sanctions on such non-US financial institutions, including prohibiting the opening of or imposing strict conditions on the maintenance of correspondent accounts or payable-through accounts in the United States. The Executive Order also requires US persons to block (freeze) all property and interests in property of such non-US financial institution that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, and provides that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in.
Indeed, within a week of the September 20 Executive Order's signing, OFAC took action that made clear it will implement the new sanctions authorized with respect to non-US banks aggressively. On September 26, 2017, OFAC designated 8 North Korean banks and 26 individuals acting as representatives of North Korean banks in China, Russia, Libya, and the United Arab Emirates, in an effort to "further disrupt North Korea's access to the international financial system."8 As noted above, as a result of the designations, any property or interests in property of those designated on September 26 in the possession or control of US persons or within the United States must be blocked.
Executive Order 13810 provides one of the strongest set of sanctions tools the US has implemented on non-US persons. The sanctions are designed to place pressure on North Korea by removing financing options, hampering monetary flows, and impeding imports and exports. The sanctions are broader than traditional embargoes in that they threaten entities that do business with North Korea, not just the regime itself. Nor does the Order contain a contract sanctity provision—meaning that contracts entered into before the issuance of the Executive order are subject to the prohibitions absent the issuance of any General Licenses to permit wind-down of the sanctions.
Some of the restrictions set forth in the September 20 Executive Order took immediate effect and require no further action by the Executive Branch to prevent the activity, such as prohibitions on vessels or aircraft transiting the United States after transiting ports or airports in North Korea. Other provisions, such as the blocking of bank accounts of non-US financial institutions, will first require a determination by the Department of the Treasury that the party has been designated subject to the Executive Order, coupled with a notice, such as the September 26, 2017 OFAC designations detailed above. As with those designations, notice is generally published on OFAC's website, without any advance notice necessary to the financial institutions being sanctioned. This lack of notice—and the clear message sent by OFAC in its swift action following the issuance of Executive Order 13810—provides a strong deterrent effect on financial institutions that access the US market but may also have opportunities to participate in North Korean investment and trade.
Recent Iran-Related Sanctions
On April 2, 2015, the United States along with other countries signed a Joint Comprehensive Plan of Action (JCPOA) with Iran, whereby Iran agreed to freeze its nuclear program in return for sanctions relief. Notwithstanding the JCPOA, the restrictions that apply to US persons under the Iran sanctions regulations administered by OFAC generally remained in effect. However, on implementation day of the JCPOA in January 2016, the United States waived most of the pre-existing sanctions related to non-US persons who engage in activities with Iran, with the caveat that the President needs to periodically renew these waivers and certify that Iran remains in compliance.9
By October 15, 2017, President Trump must decide whether to certify Iran's compliance with the agreement. If he determines that Iran is not in compliance with the agreement, some of the sanctions (predominantly those related to non-US persons) would "snap back" into force. Therefore, non-US persons could be sanctioned for activity that is currently covered by the JCPOA waivers, such as certain petroleum related transactions or transactions involving the Central Bank of Iran (CBI).
While the Trump Administration completes a policy review on Iran, the United States has been ratcheting up the pressure on Iran by designating additional entities associated with its ballistic missile and cyber program, thereby blocking all property and interests in property subject to US jurisdiction of those designated and generally prohibiting US persons from engaging in transactions with those entities. For example, on July 16, 2017, OFAC and the State Department together imposed sanctions on seven entities and five individuals—spanning Iran, Turkey, and China—for engaging in activities in support of Iran's military or Iran's Islamic Revolutionary Guard Corps (IRGC), as well as an Iran-based transnational criminal organization and three associated persons.10 In a press release issued with the July 16 designations, US Treasury Secretary Steven T. Mnuchin stated that the sanctions "send a strong signal that the United States cannot and will not tolerate Iran's provocative and destabilizing behavior," and that the United States "will continue to target the IRGC and pressure Iran to cease its ballistic missile program and malign activities in the region."11
Similarly, on September 14, 2017, OFAC sanctioned eleven additional foreign entities, based in both Iran and Ukraine, for supporting previously designated Iranian entities or for malicious cyber activity.12 In conjunction with these September 2017 designations, the Trump Administration did approve certain JCPOA-related waivers, but made clear that those waivers "should not be seen as an indication of President Trump or his administration's position on the JCPOA."13
The Countering America's Adversaries Through Sanctions Act (Russia, Iran and North Korea)
The Executive Order on North Korea and the additional designations of Iranian entities and persons build on legislation passed by Congress in July and signed by President Trump in August—the "Countering America's Adversaries Through Sanctions Act" (Act)—which imposed sanctions on Russia, Iran and North Korea.14 The Act imposed modest new sanctions on foreign persons and companies that do business in Iran or North Korea and significant new sanctions on foreign persons and companies that do business in Russia.
With respect to Russia, the Act codifies existing Executive Branch sanctions against Russia and requires the President to impose sanctions on foreign persons and companies that make significant investments in certain Russian oil projects and on foreign financial institutions that engage in certain transactions involving Syria or certain Russian oil projects. With respect to Iran, the Act mainly reinforces previously existing sanctions, by sanctioning all dealings with the Iranian Revolutionary Guard Corps and transactions in arms with the Iranian Government. Finally, the Act cuts off North Korea from the global banking system by restricting the use of US correspondent accounts in furtherance of specified North Korean business activities.
Below, we summarize the major provisions of the Act and key takeaways.
The Russian sanctions package has five major effects.
1. Imposes Congressional review requirements on sanctions removal
The legislation ensures the President cannot unilaterally eliminate or alter US Russian sanctions by imposing two measures. First, before the President may revoke any US sanctions on Russia that are formally codified, Congress is granted the opportunity to pass a joint resolution of disapproval.15 The President may veto any such resolution, but that veto will be subject to a Congressional override.
Secondly, the legislation codifies the OFAC Directives imposing Sectoral Sanctions on Russia pursuant to several Executive Orders. While codification will not impact the effect of the Directives, codification means the President no longer has the power to terminate such Orders unilaterally. Companies can therefore expect that the current Russia sanctions—including sectoral sanctions—are here to stay.
2. New Secondary Sanctions on Foreign Persons and Foreign Financial Institutions
The Act further removes Presidential discretion by making mandatory two provisions of the Ukraine Freedom Support Act, enacted in 2014.
First, Section 225 of the Act makes mandatory sanctions on foreign persons who knowingly make a "significant investment" in a special Russian crude oil project. 16 The term "significant investment" is not further defined. A "special Russian crude oil project" is "a project intended to extract crude oil from[:] (A) the exclusive economic zone of the Russian Federation in waters more than 500 feet deep; (B) Russian Arctic offshore locations; or (C) shale formations located in the Russian Federation."17 The President is required to impose three or more of the sanctions listed in 22 U.S.C. § 8923(c) on violators, which include:
- Denying Export-Import Bank assistance;
- Prohibiting participation in US government procurement;
- Prohibiting exportation or provision of any defense article or service, or granting of a license;
- Prohibiting licensing of dual-use items;
- Prohibiting acquiring, holding, using, transferring, or exporting any property in which the foreign person has any interest that is subject to US jurisdiction;
- Dealing in or exercising any right/privilege with respect to such property; and conducting any transaction involving such property;
- Prohibiting any transfers of credit or payment between financial institutions involving that person's interest, to extent subject to US jurisdiction;
- Prohibiting any US person from transacting in, providing financing for, or otherwise dealing in debt of longer than 30 days' maturity or equity of the foreign person;
- Exclusion from the US and visa revocation; or
- Sanctions on principal executive officers.
Second, Section 226 of the Act imposes severe sanctions on foreign financial institutions that engage in any of the following:
- Knowingly engaging in significant transactions involving the following activities:
- Manufactures, sells, transfers, brokers, or otherwise assists in the transfer of defense articles into Syria or into the territory of a specified country without the consent of the internationally recognized government of that country;18
- Assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, an entity that is involved in such a transfer of defense articles into Syria;19
- Investment in a special Russian crude oil project; or 20
- Involvement in Gazprom's withholding of significant natural gas supplies from NATO members.21
- Knowingly facilitating a significant transaction on behalf of any Russian person included on the Specially Designated Nationals (SDN) or blocked persons list under the Ukraine Freedom Support Act, Executive Orders 13660, 13661, 13662, or any other Executive order addressing the crisis in Ukraine.
This second bullet point represents a significant expansion of the application of US sanctions, as previously the US did not penalize non-US persons who transacted with SDNs, so long as the transaction was not subject to US jurisdiction. The sanction imposed on foreign financial institutions found to be engaged in any of these activities is harsh: a prohibition on the opening, and a prohibition or the imposition of strict conditions on the maintaining, in the US of a correspondent account (an account held by another financial institution) or a payable-through account by the foreign financial institution, effectively cutting such institutions off from the US financial system.
3. New Sanctions Evaders Provision
Section 228 imposes sanctions on foreign persons who evade sanctions. It blocks property of a foreign person who:
- Materially violates, attempts to violate, conspires to violate, or causes a violation of any Russian sanction; or
- Facilitates a significant transaction on behalf of a person subject to US sanctions on Russia, or the child, spouse, parent, or sibling of such a person.
While the first bullet is typical of sanctions evaders provisions, the second bullet's reference to "a person subject to US sanctions" is not." If the provision is read to cover all foreign persons who engage in transactions with SDNs or persons on the Sectoral Sanctions Identifications (SSI) list, this would significantly increase the scope and impact of sectoral sanctions. Under the broad interpretation of this provision, now even non-US persons engaging in any significant transactions with SSI parties would incur sanctions. It is unlikely this interpretation was intended by the drafters, given that the title of the clause is "sanctions evaders" and provides no indication of any intent to so dramatically expand the impact of the SSI list, but in the absence of guidance by OFAC, this provision might pose a risk.
4. Technical Modifications to Existing Sectoral Sanctions
The legislation also makes important technical amendments to OFAC's sectoral sanctions Directives.
- Directive 1: the Act reduces the time period for which dealing in new debt and equity with certain Russian financial services institutions is prohibited from a maturation of 30 days to 14 days;
- Directive 2: the Act reduces the time period for which dealing in new debt with certain entities in the Russian energy sector is prohibited from a maturation of 90 days to 60 days; and
- Directive 4: the Act amends the application of Directive 4 to prohibit the provision, exportation, or reexportation, directly or indirectly, by United States persons or persons within the United States, of goods, services (except for financial services), or technology in support of exploration or production for new deepwater, Arctic offshore, or shale projects (i) that have the potential to produce oil (anywhere in the world) and (ii) that involve any person determined to be subject to the Directive or the property or interests in property of such a person who has a controlling interest or a substantial non-controlling ownership interest in such a project defined as not less than a 33 percent interest.
5. Numerous New Sanctions Provisions
The Act lastly contains numerous new sanctions provisions, the most significant of which could impact oil pipeline projects such as the Nord Stream 2 pipeline between Russia and Germany. Section 232 of the Act permits the President, "in coordination with allies of the United States," to impose sanctions on a person who knowingly: (1) makes an investment that directly and significantly contributes to the enhancement of the ability of the Russian Federation to construct "Russian energy export pipelines" or (2) sells, leases, or provides to the Russian Federation goods, services, technology, information, or support that could directly or significantly facilitate the maintenance or expansion of the construction, modernization, or repair of "energy export pipelines" by the Russian Federation. Any such investment or support must have a fair market value of $1,000,000 or, during a 12-month period, have an aggregate fair market value of $5,000,000 to be subject to sanctions. The term "Russian energy export pipeline" is not defined in the Act; however, the transcript of the Congressional debate indicates it was intended to include both oil and liquefied natural gas (LNG) pipelines. Furthermore, "goods, services, technology, information, or support" could be broadly interpreted to include a wide range of ancillary products and services necessary for the export of oil and LNG. Despite the potential broad application, this provision is not mandatory—meaning, the President may never exercise the power to impose the sanctions described in Section 232.
By contrast, the Act requires the President to impose several new sanctions on or relating to Russia:
- Section 224 imposes sanctions with respect to any person who the President determines knowingly engages in significant activities undermining cybersecurity against any person on behalf of the Government of the Russian Federation, or is owned, controlled, or acts on behalf of such a person.
- "Significant activities undermining cybersecurity" is defined as including (1) significant efforts to deny access to or degrade, disrupt, or destroy an information and communications technology system or network or to exfiltrate, degrade, corrupt, destroy, or release information from such a system or network without authorization for purposes of conducting influence operations or causing a significant misappropriation of funds, economic resources, trade secrets, personal identifications, or financial information for commercial or competitive advantage or private financial gain; (2) significant destructive malware attacks; and (3) significant denial of service activities.
- Section 227 of the Act makes Section 9 of the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 mandatory, which applies sanctions to (1) any official of the Russian Government, or a close associate or family member thereof, that the President determines is responsible for, complicit in, or directed acts of significant corruption in the Russian Federation, and (2) any individual who materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, such an act.
- Human Rights Violations:
- Section 228 of the Act requires the President to impose sanctions on foreign persons responsible for or complicit in serious human rights abuses in any territory forcibly occupied or otherwise controlled by the Government of the Russian Federation, or owned, controlled, or acting on behalf of such a person.
- Transactions with the Russian Intelligence or Defense Sector
- Section 231 of the Act requires the President to impose sanctions on persons who knowingly engage in a significant transaction with a person that is part of, or operates for or on behalf of, the Russian defense or intelligence sectors. This provision could have wide application to companies purchasing arms from the Russian government. Notably, Section 237 of the Act specifies that the new sanctions authorized under the Act shall not apply with respect to the activities of the National Aeronautics and Space Administration (NASA). Not later than 60 days after the Act's enactment, the President is required to issue regulations or other guidance specifying the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation for purposes of this provision.
- Privatization of Russian State Owned Businesses
- Section 233 of the Act requires the President to impose sanctions on persons making an investment of $10,000,000 or more (or any combination of investments of not less than $1,000,000 each that in the aggregate equals or exceeds $10,000,000 in any 12-month period), or facilitates such an investment, if the investment directly and significantly contributes to the ability of the Russian Federation to privatize state-owned assets in a manner that unjustly benefits Russian government officials or their close associates or family members.
- Transfer of Arms to Syria
- Section 234 of the Act requires the President to impose sanctions on foreign persons knowingly exporting, transferring, or otherwise providing to Syria significant financial, material, or technological support that contributes materially to the ability of the Government of Syria to (A) acquire or develop chemical, biological, or nuclear weapons or related technologies; (B) acquire or develop ballistic or cruise missile capabilities; (C) acquire or develop destabilizing numbers and types of advanced conventional weapons; (D) acquire significant defense articles, defense services or defense information (as such terms are defined under the Arms Export Control Act); or (E) acquire items designated on the US Munitions List.
The Act's new sanctions on Iran, by contrast, are much more limited, strengthening previously existing sanctions and other amendments unlikely to impact persons and entities that do not do business with Iran's security or military sectors.
Sanctions in Response to Iran's Ballistic Missile Program
Section 104 of the Act imposes sanctions on any person the President determines knowingly engages in any activity that materially contributes to the activities of the Government of Iran with respect to its ballistic missile program, or any other program in Iran for developing, deploying, or maintaining systems capable of delivering weapons of mass destruction. Such activity includes any effort to manufacture, acquire, possess, develop, transport, transfer, or use systems capable of delivering weapons of mass destruction. The sanctions also apply to successor entities, entities owned or controlled by such an entity, persons acting in support of such an entity, and persons knowingly providing or attempting to provide financial, material, technological, or other support for, or goods or services in support of, such a person.
Sanctions With Respect to the Iranian Revolutionary Guard Corps (IRGC)
Noting the IRGC's support of terrorist and insurgent groups, Section 105 of the Act requires the President to impose sanctions on the IRGC and foreign persons that are officials, agents, or affiliates of the IRGC. These sanctions effectively block all transactions in property and interests of persons identified as being connected with the IRGC, to the extent subject to US jurisdiction.
Sanctions Relating to Human Rights Abuses
Section 106 requires the Secretary of State to submit a list of people responsible for extrajudicial killings, torture, or other gross violations of internationally recognized human rights committed against individuals in Iran who seek (A) to expose illegal activity carried out by Iranian Government officials, or (B) to obtain, exercise, defend, or promote internationally recognized human rights and freedoms. The President may block all transactions in all property and interests in property of such a person that is either in the US or comes into the US or within the possession and control of a US person.
Enforcement of Arms Embargos
Section 107 of the Act requires the President to impose sanctions on any person who:
- knowingly engages in any activity that materially contributes to the supply, sale, or transfer directly or indirectly to or from Iran, or for the use in or benefit of Iran, of any battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems or related materiel, including spare parts; or
- Provides technical training, financial resources or services, advice, other services or assistance related to the supply, sale, transfer, manufacture, maintenance, or use of arms and related materiel described above.
Finally, the North Korean portion of the legislation includes a laundry list of new sanctions on those who deal in projects ranging from certain minerals to jet and rocket fuel. Section 311 of the Act imposes five additional categories of mandatory sanctions:
- persons who knowingly purchase or otherwise acquire from North Korea any significant amounts of gold, titanium ore, vanadium ore, copper, silver, nickel, zinc, or rare earth minerals;
- persons who knowingly sell or transfer to North Korea any significant amounts of rocket, aviation or jet fuel (except for use by a civilian passenger aircraft outside North Korea, exclusively for consumption during its flight to North Korea or its return flight);
- persons who provide significant amounts of fuel or supplies, provide bunkering services, or facilitate a significant transaction to operate or maintain a vessel or aircraft that is designated under an applicable Executive Order or United Nations Security Council resolution, or that is owned or controlled by a person so designated;
- persons who insure, register, facilitate the registration of, or maintain insurance or a registration for, a vessel owned or controlled by the Government of North Korea, except as specially approved by the United Nations Security Council; and
- persons who maintain a correspondent account with any North Korean financial institution, except as specifically approved by the United Nations Security Council.
Section 311 also creates eleven new categories of discretionary sanctions the President may choose to impose, including:
- persons who purchase or otherwise acquire from the Government of North Korea significant quantities of coal, iron, or iron ore, in excess of the limitations provided in applicable United Nations Security Council resolutions;
- persons who purchased or otherwise acquired significant types or amounts of textiles from the Government of North Korea;
- persons who sold, transferred, or otherwise provided significant amounts of crude oil, condensates, refined petroleum, or other types of petroleum or petroleum byproducts, liquefied natural gas, or other natural gas resources to the Government of North Korea (except for heavy fuel oil, gasoline, or diesel fuel for humanitarian use);
- persons who conducted a significant transaction in North Korea's transportation, mining, energy, or financial services industries; and
- persons who facilitated the operation of any branch, subsidiary, or office of a North Korean financial institution.
The Act also imposes a rebuttable presumption that North Korean goods were produced with convict, forced, or indentured labor. The most significant parts of the Act, though, involve shipping and financial transactions.
Regarding shipping, Section 315 of the Act bars certain foreign ships and aircraft from accessing US waters or ports unless their port of origin complies with United Nations inspection requirements on shipments to and from North Korea. To identify which foreign vessels and ports of origin qualify for this prohibition, the Act requires the publication of a list of all foreign vessels over 300 gross tons that are known to be:
- owned or operated by or on behalf of the Government of North Korea or a North Korean person;
- owned or operated by or on behalf of any country in which a sea port is located, the operator of which the President has identified under section 205(a)(1)(A) of the North Korea Sanctions and Policy Enhancement Act; or
- owned or operated on behalf of any country identified by the President as a country that has not complied with the applicable United Nations Security Council resolutions.
Vessels subject to the prohibition on accessing US waters or ports are foreign vessels for which a notice of arrival is required to be filed under section 4(a)(5) of the Ports and Waterways Safety Act and that are either (1) on the most recent list of vessels described above or (2) more than 180 days after the publication of this list is knowingly registered by a government, the agents or instrumentalities of which are maintaining a registration of a vessel included on the list.22 This prohibition is in addition to other shipping-related sanctions described above, on persons who insure or register a North Korean government owned or controlled vessel, and those who provide a significant amount of fuel or supplies to operate or maintain a sanctioned vessel or aircraft.
The Act also includes several new sanctions on financial transactions with North Korea. First, as described above, Section 311 imposes mandatory sanctions on persons who knowingly, directly or indirectly, maintain a correspondent account with any North Korean financial institution, except as specifically approved by the United Nations Security Council. Section 312 of the Act furthers the isolation of North Korea from US financial markets by requiring US financial institutions to ensure their correspondent accounts, established, maintained, administered, or managed by that institution for a foreign financial institution, are not used by the foreign financial institution to provide significant financial services indirectly to sanctioned entities.23 Section 312 clarifies that under the Act, US financial institutions are only authorized to process transfers of funds to or from North Korea (or for the benefit of any designated entity) if the transaction is ordinarily incident and necessary for a transaction for which OFAC has issued a license and does not involve debiting or crediting a North Korean account. As set forth above, the Act is not the only source of heightened US sanctions involving North Korea. The September 20 Executive Order extended US sanctions involving North Korea even further, to cover certain activities of non-US persons, and have the potential to be even more robust than the extraterritorial sanctions Congress and the Executive branch had imposed on Iran starting in the 1990s.
1. See Executive Order 13810 of September 20, 2017, Imposing Additional Sanctions With Respect to North Korea.
2. See Countering America's Adversaries Through Sanctions Act, H.R. 3364.
3. See OFAC Press Center, Treasury Sanctions Banks and Representatives Linked to North Korean Financial Networks (Sept. 26, 2017).
4. See OFAC Press Center, Treasury Targets Supporters of Iran's Islamic Revolutionary Guard Corps and Networks Responsible for Cyber-Attacks Against the United States (Sept. 14, 2017).
5. See OFAC Press Center, Treasury Targets Persons Supporting Iranian Military and Iran's Islamic Revolutionary Guard Corps: Actions Coincide with State Department Designations Involving Iran's Ballistic Missile Program (July 18, 2017).
6. See General License No. 10 to the September 20 Executive Order, Calling of Certain Vessels and Landing of Certain Aircraft Authorized.
7. See 31 C.F.R. § 561.404.
8. See OFAC Press Center, Treasury Sanctions Banks and Representatives Linked to North Korean Financial Networks (Sept. 26, 2017).
9. See, e.g., APKS Advisory, Implementation Day: Iran Sanction Relief Arrives, and Is More Robust Than Expected for US Companies With Foreign Interests (Jan. 19, 2016).
10. See OFAC Press Center, Treasury Targets Persons Supporting Iranian Military and Iran's Islamic Revolutionary Guard Corps: Actions Coincide with State Department Designations Involving Iran's Ballistic Missile Program (July 18, 2017).
12. See OFAC Press Center, Treasury Targets Supporters of Iran's Islamic Revolutionary Guard Corps and Networks Responsible for Cyber-Attacks Against the United States (Sept. 14, 2017).
13. See CQ Newsmaker Transcripts, State Department Holds News Briefing (Sept. 14, 2017), ("(T)he administration did approve waivers in order to maintain some flexibility as we support on Capitol Hill and among allies and partners to address the flaws in the JCPOA, and additional time to develop our policy to address the full range of Iranian malign behavior. . . . (N)o decisions have been made on the final JCPOA. We still have some time for that.").
14. The Act signed into law August 2, 2017, is a combination of three separate sanctions bills: the Countering Iran's Destabilizing Activities Act of 2017, the Countering Russian Influence in Europe and Eurasia Act of 2017, and the Korean interdiction and Modernization of Sanctions Act.
15. Specifically, the Presidential actions subject to the Act's restrictions are: Sanctions provided for under the Act or any law amended by the Act, including the EOs codified under section 222 (E.O.s 13660, 13661, 13662, 13685, 13694, 13757); Sanctions under the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (22 U.S.C. § 8901 et seq.) or the Ukraine Freedom Support Act of 2014 (22 U.S.C. § 8921 et seq.); The prohibition on access to the properties of the Government of the Russian Federation located in Maryland and New York that the President ordered vacated on December 29, 2016; Any licensing action that "significantly alters United States' foreign policy with regard to the Russian Federation."
16. The Ukraine Freedom Support Act provision is codified at 22 U.S.C. § 8923(b).
17. 22 U.S.C. § 2891(9).
18. 22 U.S.C. § 8923(a)(2)(A)(II).
19. 22 U.S.C. § 8923(a)(2)(B).
20. 22 U.S.C. § 8923(b)(1).
21. 22 U.S.C. § 8923(b)(3).
22. 33 U.S.C. § 1221 et seq.
23. Specifically, entities designated under section 104 of the North Korea Sanctions and Policy Enhancement Act (22 U.S.C. 9221 et seq.).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.