On September 20, President Trump signed Executive Order 13810 imposing additional sanctions on North Korea. These measures follow prior sanctions set forth in the August 2, Countering America’s Adversaries Through Sanctions Act (which we wrote about in our prior Alert) and by the UN on September 11 through Security Council Resolution 2375.
The measures in the new EO are primarily so-called “secondary sanctions” calling for designation by the US Treasury Department (in consultation with the State Department) of persons or entities that do business with or related to North Korea. Key sections of the Executive Order are summarized below.
On balance, such sanctions are most likely to impact Chinese and Russian persons or entities that have ongoing dealings with North Korea, including financial institutions. On September 26, OFAC designated eight North Korean banks and 26 individuals under the new sanctions. The entities designated included North Korean banks with Chinese branches and the individual representatives of such banks living outside of North Korea. This follows designations of a number of Chinese and Russian entities and individuals on August 22 under prior sanctions.
In any event, the sanctions against North Korea are now the United States’ most expansive economic sanctions program, though most elements of the new sanctions are not self-executing and are still dependent on Treasury Department designations. Companies with global operations should take note of the EO’s wide-ranging restrictions.
Section 1: Blocking
This Section blocks the property that is in the United States or that comes into the United States of any person determined by the US Treasury Secretary:
1. to operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles or transportation industries in North Korea;
2. to own, control or operate any port in North Korea, including any seaport, airport or land port of entry;
3. to have engaged in at least one significant importation from or exportation to North Korea of any goods, services or technology;
4. to 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 Worker’s Party of Korea;
5. to have materially assisted, sponsored or provided financial, material or technology 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
6. to 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.
Section 2: Planes and Ships
This Section deals with the transportation sector. According to the new sanctions, any aircraft in which a foreign person has an interest that has landed at a place in North Korea may not land at a place in the United States within 180 days after departure from North Korea. In addition, 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 in which a foreign person has an interest that has engaged in a ship-to-ship transfer with such a vessel in the previous 180 days may call at a port on the United States. The restrictions are subject to a general license which provides an emergency exception.
Sections 3 and 4: Blocking of Funds and Financial Institutions
These Sections deal with financial transactions. Section 3 enumerates the types of funds that are blocked and may not be transferred, paid, exported, withdrawn or otherwise dealt in. Specifically, Section 3 encompasses all funds that are in the United States, that after the date of the EO come into the United States, or that are or after the date of the EO come into the possession or control of any US person and that originate from, are destined for, or pass through a foreign 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. While this provision is extraordinarily broad on its face and could encompass funds transfers that have no direct linkage to North Korea, OFAC’s FAQs note that until OFAC has designated bank accounts and provided appropriate notice and additional guidance, as needed, there are no immediate compliance obligations on US persons.
Pursuant to Section 4, the Secretary of the Treasury is authorized to impose foreign financial institution sanctions upon determining that the foreign financial institution has, on or after the effective date of the EO:
Knowingly conducted or facilitated any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to Executive Order 13551 of August 30, 2010, Executive Order 13687 of January 2, 2015, Executive Order 13722 of March 15, 2016, or this order, or of any person whose property and interests in property are blocked pursuant to Executive Order 13382 in connection with North Korea-related activities; or knowingly conducted or facilitated any significant transaction in connection with trade with North Korea.
With respect to any foreign financial institution determined by the Secretary of the Treasury, in consultation with the Secretary of State, in accordance with this section to meet the criteria, the EO notes that the Secretary of Treasury may:
1. Prohibit the opening and prohibit or impost strict conditions on the maintenance of correspondent accounts or payable-through accounts in the United States; or
2. Block all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession of control of any United States person or such foreign financial institution, and provide that such property and interests in property may not be transferred, paid, exported, withdrawn or otherwise dealt in.
Russia Sanctions Update
On September 29, pursuant to the Treasury Department’s obligations under the Countering America’s Adversaries Through Sanctions Act, OFAC revised two of its Russian sectoral directives to reflect new debt maturity levels. Specifically, OFAC revised Directive 1 (financial sector) to prohibit new debt exceeding 14 days maturity associated with persons covered by the Directive. It revised Directive 2 (energy sector) to prohibit new debt exceeding 60 days maturity associated with persons covered by the Directive. The new thresholds are effective for debt issued on or after November 28, 2017. Directive 4 (which covers certain energy projects) has not yet been modified, but the Treasury Department is required to issue a revised directive by the end of the month.