President Donald Trump signed an executive order on 21 September 2017 (the Order) tightening sanctions against North Korea in response to recent "provocative, destabilizing, and repressive actions and polices," including recent ballistic missile and nuclear tests. Speaking at a trilateral meeting with President Moon of the Republic of Korea and Prime Minister Abe of Japan, President Trump noted that the Order will give the U.S. Department of the Treasury new tools to target the North Korean regime. "Foreign banks will face a clear choice," Trump remarked, "Do business with the United States or facilitate trade with the lawless regime in North Korea." The Order was issued without any corresponding designations by the Office of Foreign Assets Control (OFAC), so it remains to be seen how aggressively the United States government will enforce these new sanctions against non-U.S. parties.
This new authority expands the so-called "secondary" sanctions as the U.S. government can target non-U.S. parties who engage in activities that have no U.S. nexus. Existing comprehensive U.S. sanctions administered by OFAC already prohibit U.S. companies and other U.S. persons from engaging in virtually all trade and other activities with or involving North Korea. As a result, these new measures are primarily intended to influence behavior of non-U.S. persons who could now face exposure to U.S. restrictive measures if they choose to engage in activities with North Korea.
Specifically, the Order:
- establishes several new criteria for designating parties as Specially Designated Nationals (SDNs) including any persons who (1) operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea; (2) have engaged in at least one significant importation to or exportation from North Korea of any goods, services, or technology; or (3) own, control or operate any port in North Korea (including any seaport, airport, or land port of entry);
- prohibits vessels and aircraft that have called or landed at a port or place in North Korea in the previous 180 days, and vessels that engaged in a ship-to-ship transfer with such a vessel
- in the previous 180 days, from entering the United States (with a general license exception for emergencies);
- provides authority to block any funds transiting accounts linked to North Korea that come within the United States or possession of a United States person; and
- provides authority to impose sanctions on a foreign financial institution that knowingly conducts or facilitates (1) any significant transaction on behalf of certain blocked persons or (2) any significant transaction in connection with trade with North Korea. Under this new authority, the sanctions measures can be either restrictions on correspondent or payablethrough accounts or full blocking (asset freeze) sanctions by designating the foreign financial institution as an SDN.
This Order makes clear that any non-U.S. business that is engaged in trade related to North Korea risks sanctions exposure. As a result of these so-called "secondary sanctions", non-U.S. banks, nonU.S. insurers, and other businesses should review their compliance procedures and implementation to ensure that their business activities do not run afoul of the new sanctions even if there is no U.S. nexus to those transactions. The White House has issued a fact sheet on these new measures, and OFAC has also already begun to provide new Q&A responses detailing the meaning of the Order's provisions. As noted by Secretary Mnuchin, the Order went into effect immediately upon its issuance on Thursday.