As tensions continue to escalate between the United States and North Korea, and President Donald Trump and Kim Jong-Un trade increasingly tense lobs, the United Nations, the EU, the United States, and other countries continue to impose additional stringent sanctions against North Korea to a breaking point (for detail of UN Security Council Resolution 2375 and US’s new sanctions, see here). In this advisory we provide an overview of the EU sanctions measures that have been imposed against North Korea, review their impact, and offer some observations on future actions that may take place.
I. Sanctions Against North Korea: A Historical Context
The modern sanctions regime against North Korea traces back to its first successful nuclear test in October 2006. The UN responded by implementing UN Security Council Resolution (UNSCR) 1718, which demanded that North Korea halt its nuclear program and prohibited Member States from sending certain military supplies and luxury goods to North Korea. The EU also adopted its first restrictive measures against North Korea by transposing UNSCR 1718, as well as imposing additional EU autonomous measures. Since then, the UN Security Council (UNSC) has issued subsequent resolutions, and the EU as well, but North Korea has nevertheless continued its nuclear program. As a result, recent sanctions have involved more concerted efforts to squeeze North Korea by economically pressuring its largest benefactors, China and Russia.
II. EU’s Recent Sanctions Effort Including Autonomous Measures
In response to the North Korea nuclear test conducted on September 2, the UNSC unanimously adopted Resolution 2375 to further strengthen UN sanctions on North Korea. On September 15, and October 10, the European Council strengthened its sanctions against North Korea by transposing the sectoral sanctions imposed by UNSCR 2375 (2017).
The measure includes a ban on the sale of natural gas liquids, textile imports, limitations on the sale of refined petroleum products and crude oil, prohibitions for Member States to provide work authorizations to North Korea nationals, prohibitions on opening, maintenance, and operation of all (new and existing) joint venture or cooperative entities and additional listing of entities and persons who are subject to an asset freeze and travel restriction.
Besides transposing the UNSCR, on October 16, the EU Foreign Affairs Council discussed the situation on the Korean peninsula, and in particular the continuing development of North Korea’s nuclear weapons and ballistic missiles in violation of the UNSCRs. The Council adopted immediately-effective new EU autonomous measures – which complement and reinforce the UN-based sanctions – under Council Regulation (EU) 2017/1858 to further increase the pressure on North Korea to comply with its obligations. The new measures include:
- A total ban on EU investments in North Korea in all sectors;
- A total ban on the sale of refined petroleum products and crude oil;
- Lowering the amount of personal remittances transferred to the North Korea from €15,000 to €5,000 (as the EU believes these personal remittances are used to back Pyongyang’s arms programs); and
- Limitations on renewal of work authorizations for North Korean nationals working on Member States’ territories, apart from refugees and others in need of international protection.
III. Overview of EU Sanctions
1. Export and Import Restrictions
Chapter II of Council Regulation (EU) 2017/15091 lists the restrictions on the export and import of numerous items, materials, equipment, goods and technology that could contribute to facilitate North Korea’s nuclear-related, ballistic missile-related or other weapons of mass destruction program (proliferation program).
It is prohibited to export and import arms and related materiel of all types, including the provision of related technical and financial assistance, or take part in activities aimed at the circumvention of those prohibitions. Procurement of arms and related materiel of all types, technology, key components, any other items or related assistance, technical training, or advice and services that could contribute to North Korea’s nuclear-related proliferation program are also prohibited.
It is prohibited to export to North Korea: (1) items, materials and equipment relating to dual-use goods and technology; (2) and any other item listed in the conventional arms dual-use list adopted by the UN Sanctions Committee pursuant to paragraph 7 of UNSCR 2321 (2016); and (3) related assistance, technical training, advice and services.
On October 16, 2017, the EU imposed a total ban on the sale of refined petroleum products and crude oil as an autonomous measure under Council Regulation (EU) 2017/1858. The competent authorities of Member States may authorize only transactions that meet exemption conditions, such as transactions for humanitarian purposes. Also, the import, purchase, or transfer of North Korean-origin petroleum products is prohibited.
The scope of these restrictions covers not only petroleum products, but also aviation fuel. Trading or transporting on a Member State-flagged vessel aviation fuel to North Korea, whether or not originating in the territories of Member State, are also prohibited.2 For the purposes of this prohibition, aviation fuel is defined to include gasoline, naphtha-type jet fuel, and kerosene-type jet/rocket fuel.
Minerals, Precious Metals
The EU also imposed broad restrictions on trading numerous minerals and precious metals, such as gold and diamond, with North Korea. Recently, the EU imposed a total ban on all exports of coal, iron, iron ore, lead and lead ore by transposing the sectoral sanctions imposed by UNSCR 2371 (2017). This measure was intended to target North Korea’s economic lifeline, as coal and iron make up roughly 40% of its total exports. Regarding minerals, the import of copper, nickel, silver and zinc, coal, iron, iron ore from North Korea is prohibited (for more details, see Annex V, VII of Council Regulation (EU) 2017/1509). These sanctions require all Member States to curtail their purchases and cease supplying much-needed capital to North Korea, a great deal of which was believed to be funding North Korea’s proliferation programs.
Imports of gold, titanium ore, vanadium ore and rare-earth minerals from North Korea are also prohibited. Exporting, importing or brokering transactions of gold and precious metals, as well as of diamonds, platinum, and silver from or for the Government of North Korea are also prohibited. This prohibition extends to transactions in the form of waste and scrap of precious metals or of metal clad with precious metal.
Imports or exports of luxury goods to North Korea are prohibited.3 The scope of luxury goods is broader than general assumptions, and many manufacturers could be caught under the definition of luxury goods, which are defined in a list comprising 22 different categories of goods, for a total of over 300 items).4
It is prohibited to import seafood and textiles from North Korea and to deliver newly printed, minted or unissued North Korea-denominated banknotes and coinage to or for the benefit of the Central Bank of North Korea. Procurement of statues and the supply of new helicopters and vessels are also prohibited.
Moreover, the prohibition on imports from and exports to North Korea is not limited to the listed items. If the importer or exporter knows or has reasonable grounds to believe that: (1) the item is destined directly or indirectly for the North Korea’s armed forces; or (2) the item could support or enhance the operational capabilities of the armed forces of a state other than North Korea, the import and export of such items are prohibited.5
2. Financial Sanctions
The UNSCRs and the EU’s autonomous measures made a concerted effort to cut off North Korea’s global financial activities and this brought a wide range of restrictions on financial transactions, including investment.
Within the EU, acceptance or approval of investments in any commercial activity made by North Korea (including natural and legal persons, entities owned or controlled by North Korean nationals, or entities formed under North Korean law) is prohibited. And all EU investments in North Korea, in all sectors, are equally prohibited.
It is prohibited to acquire, or extend participation in, any North Korean entities engage in activities involving: (1) North Korea’s nuclear-related, ballistic-missile-related or other weapons of mass destruction-related activities or programs; (2) conventional arms-related industry; or (3) the mining, refining and chemical, metallurgy and metalworking sectors; and (4) aerospace. It is also prohibited to establish, maintain, or operate all (new and existing) joint venture, grant financing or financial assistance to such entities.
Financial assistance and transfers of funds:
- Providing public or private financial support for trade with North Korea or to North Korean nationals or entities is prohibited. Member States shall not enter into new commitments for grants, financial assistance or concessional loans to North Korea, except for humanitarian and development purposes addressing the needs of the civilian population or the promotion of denuclearisation.
- It is prohibited to transfer funds to or from North Korea.7 Financial institutions in the Member States shall not enter into, or continue to participate in, any transactions with: (1) banks domiciled in North Korea; (2) branches or subsidiaries within or outside the jurisdiction of the Member States of banks domiciled in North Korea; (3) or financial entities that are controlled by persons or entities domiciled in North Korea.8 Transactions falling within certain specified categories are exempted, such as foodstuffs, healthcare and medical equipment or for humanitarian purposes.9
- On October 16, 2017, the Council decided to lower the amount of personal remittances that could be sent to North Korea from €15,000 to €5,000.10 The regulations shall be applied regardless of whether the transfer of funds is executed in a single transaction or in several linked transactions (transactions are considered linked when there exists a chain of transfers involving different payment service providers, or natural or legal persons, which are related to a single obligation to transfer funds.11)
Branches, subsidiaries and corresponding banking relations and North Korean bonds:
- North Korea’s financial institutions, including the Central Bank of North Korea are prohibited from opening branches, subsidiaries or representative offices in the EU. Existing representative offices, subsidiaries or banking accounts in North Korea shall be closed as well. Also, North Korean banks no longer (1) establish new joint ventures with the banks in EU; (2) take an ownership interest in banks under the jurisdiction of Member States; (3) or establish or maintain correspondent banking relationships with EU banks. Existing joint ventures, ownership interests and correspondent banking relationships with North Korea banks shall be terminated.12 However, the UN Sanctions Committee could determine otherwise on a case-by-case basis (e.g., the possibility of creating a humanitarian banking channel to facilitate the delivery of humanitarian activities, diplomatic missions, or UN activities).13
- It is prohibited for a North Korean diplomatic mission, consular post or diplomat to own or control banking accounts in the EU.14
- Lastly, trade and related services (e.g., brokering, providing financial assistance) in the issuance of North Korean public bonds issued after February 18, 2013 to or from the Government of North Korea are prohibited.15
Monitoring of financial activities of financial institutions:
- To ensure the measures on financial sectors, the EU imposed enhanced monitoring obligations on credit and financial institutions. EU credit and financial institutions are required in their activities with such bank and financial entities to exercise continuous monitoring of account activity (e.g., customer due diligence, anti-money laundering and counter-terrorism compliance), require completion of all information fields of payments (unless it shall refuse to process), maintain records of all transactions for a period of 5 years and report to the competent Financial Intelligence Unit (FIU) transactions they suspect may contribute to North Korea’s proliferation financing.16
Asset Freezes and Prohibition on Making Funds Available
All assets of the listed persons and entities should be frozen17 for the list, see Annexes XII, XV, XVI and XVII of Council Regulation (EU) 2017/1509). It is also prohibited to make any funds or assets directly or indirectly available to such listed persons and entities because of their promotion or support of North Korea’s nuclear-related proliferation programs or because they provide financial services or transfer financial or other assets or resources that could contribute to those programs. On October 16, the Council also added 3 persons and 6 entities to the lists of those subject to an asset freeze and travel restrictions (Council Implementing Regulation (EU) 2017/1859). 41 persons and 10 entities are now designated by the EU autonomously. In addition, 63 individuals and 53 entities are listed by the UN.
3. Transport Sector: Port and Vessels, Flights18
Chapter VI of Council Regulation (EU) 2017/1509 lists the restrictions on the transport sector, in particular the obligation to comply with inspection, prohibition on the provision of vessels to North Korea, registering of vessels and aircrafts and related services.
Member States have an obligation to inspect all cargo (including personal luggage and checked baggage of individuals) to and from North Korea, and cargo that has been brokered or facilitated by North Korea or its nationals or persons or entities acting on their behalf, either via land, sea or air, and Member States shall seize and dispose of any prohibited items. Inspections shall also take place when there are reasonable grounds to believe that the shipment may contain prohibited items. If the inspection is refused, Member States shall deny the vessel entry into their ports.19
Member States shall prohibit the entry into their ports of North Korean vessels. It is prohibited to register vessels in North Korea; to obtain authorization for a vessel to use the North Korean flag; to own, lease, operate, or provide any vessel classification, certification or associated service; or to insure any vessel flagged by North Korea. Member States shall de-register any vessel that is owned, controlled, or operated by North Korea. Providing insurance or reinsurance services to vessels owned, controlled or operated by North Korea and servicing North Korea vessels is also prohibited. Vessels listed on the EU sanctions list shall be seized. On October 18, the Council added 4 vessels to the sanctions list (Council Implementing Decision (CFSP) 2017/1909, Annex IV to Decision (CFSP) 2016/849).20
Regarding flights, airports and aircrafts, Member States shall deny North Korean aircraft permission to land in, take off from or overfly their territory.
4. Restrictions on Admission and Working Permits
For North Korean nationals and individuals working on behalf of the North Korean government, travel is restricted. First, the persons listed in Annexes I, II and III of Council Decision (CFSP) 2016/849 cannot travel to Member States. Also, Member States have an obligation to expel: (1) North Korean nationals, diplomats, government representatives who work on behalf of a listed person or entity or assist in the evasion of sanctions; (2) individuals working on behalf of or at the direction of a North Korean bank or financial institution; and (2) any national of a third country determined to be involved in similar activities.
Since North Korean workers are sent abroad to earn foreign currency to support North Korea’s proliferation program, the UN and EU strengthened its restriction on providing working permits and imposed a total ban on new issuance of working authorisations for North Korean nationals in their jurisdictions. The Member States are also not allowed to renew working permits for North Korean workers present on their territory, except for refugees and other persons benefiting from international protection.
5. Other Restrictions
Besides the above comprehensive restrictions targeting the North Korean government, North Korean nationals and entities, and many North Korean economic sectors, the EU imposed prohibitions on: (1) providing services incidental to mining and to manufacturing in the chemical industry to North Korea; (2) leasing real property to or from North Korea for any purpose other than diplomatic or consular activities; (3) satisfying claims made by North Korea persons, entities, in connection with any contract or transaction the performance of which has been affected by EU restrictions; and (4) scientific and technical cooperation involving persons or groups officially sponsored by or representing North Korea.
IV. Practical Impact on International Trade
Aside from exports of coal and iron ore, North Korea has fairly limited engagements with global trading partners. The total volume of trade between EU and North Korea was €27 million in 2016, ranked as 184th among all EU partners). Currently, there is currently almost no trade between the EU and North Korea due the significant legal, financial, commercial and reputational disincentives.
However, North Korea still has close relationship with major EU trading partners such as China, Russia and India – who ranked as the EU’s first, fourth and ninth biggest trading partners (2016). Now that the United States has North Korea secondary sanctions tools, EU persons need to be aware of their counterparties’ transactions with North Korea to make sure they do not trigger secondary sanctions risk by indirectly doing business with North Korea.
While EU citizens remain largely restricted from transacting with North Korea, the UN and EU restrictive measures are aimed at squeezing North Korea’s economic ties with other trading countries and are not limited to North Korean targets. In this context and to ensure the effectiveness of measures, the EU imposed the obligation on Member States to lay down rules on effective, proportionate and dissuasive penalties applicable to infringement of EU regulations and to take all the necessary measures to ensure that they are implemented.21
- Companies need to be aware of the scope and contents of EU sanctions because insufficient or out-of-date compliance programs could result in unintentional breaches of regulations in a variety of sectors.22
- Companies also need to be aware of the overlapping UN, EU, and US sanctions, as EU entities are subject to UN restrictions and US secondary sanctions restrictions in addition to EU autonomous restrictions.
- If an EU individual or entity found to have violated sanctions, it could be subject to a web of enforcement actions, fines, and reputational damage. Companies can reduce these risks by maintaining an up-to-date compliance program and seeking compliance counsel to ensure that they do not undertake any transactions that violate North Korea sanctions restrictions.
- Finally, if North Korea continues its proliferation program and sabre-rattling, the UN, EU, and US could continue to impose additional restrictions on already-limited trade involving North Korea, so it will be important for EU individuals and entities to stay current on evolving North Korea sanctions.