On September 26, 2017, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions against multiple North Korean banks and individuals linked to North Korean financial networks, “in response to North Korea’s ongoing development of weapons of mass destruction (WMD) and continued violations of United Nations Security Council Resolutions (UNSCRs).” The Treasury Department stated that these actions were being taken “to complement UNSCR 2375, which was adopted unanimously by the United Nations Security Council on September 11, 2017 and includes the strongest sanctions ever imposed on North Korea.”
OFAC identified the following banks pursuant to Executive Order 13722 as blocked agencies, instrumentalities or controlled entities of the Government of North Korea:
- Foreign Trade Bank of the Democratic People’s Republic of Korea; and
- Central Bank of Democratic People’s Republic of Korea.
As a result, these banks’ property and interests in property that are or come within the United States, or that are or come within the possession or control of any United States person are blocked and, pursuant to the Executive Order, “may not be transferred, paid, exported, withdrawn or otherwise dealt in.” Foreign Trade Bank is North Korea’s primary foreign exchange bank and in 2013 was designated by the United Nations and the United States for facilitating transactions on behalf of North Korea’s WMD proliferation network.
Pursuant to Executive Order 13810, OFAC further designated—i.e., placed on the Treasury Department’s OFAC list of Specially Designated Nationals (SDN)—the following eight North Korean banks as operating in the financial services industry in the North Korean economy:
- Agricultural Development Bank;
- Cheil Credit Bank;
- Hana Banking Corporation Ltd.;
- International Industrial Development Bank;
- Jinmyong Joint Bank;
- Jinsong Joint Bank;
- Koryo Commercial Bank Ltd.; and
- Ryugyong Commercial Bank.
Executive Order 13810, which was signed by President Trump on September 20, 2017, authorized the US Treasury Department for the first time to (1) sanction foreign banks that engage in significant transactions with North Korea, and (2) block specific bank accounts linked to North Korea. The Secretary of the Treasury, in consultation with the Secretary of State, is authorized under this Executive Order to impose sanctions on any non-US financial institution that knowingly conducts or facilitates a “significant transaction” (i) involving any person blocked under US sanctions against North Korea or (ii) in connection with trade with North Korea. Foreign financial institutions sanctioned under this authority, such as the eight banks designated by OFAC on September 26, may be subject to restrictions on maintaining correspondent accounts in the United States or to full blocking sanctions. The new executive order prohibits US persons from transferring funds that “originate from, are destined for, or pass through a foreign bank account” determined by the Treasury Department to be owned or controlled by a North Korean person.
In addition, on September 26, OFAC designated 26 individuals who are representatives of North Korean Banks operating in China, Russia, Libya and the United Arab Emirates. These designations were made pursuant to Executive Order 13810 and Executive Order 13687, which targets, among others, agencies, instrumentalities and controlled entities of the Government of North Korea and the Workers’ Party of Korea.
OFAC’s actions, following so swiftly on the heels of Executive Order 13810, confirm the high priority placed by the Trump Administration on the expansion and enforcement of sanctions on North Korea. This announcement reflects a new potential source of secondary sanctions for non-US companies deemed to be providing material support to the North Korean regime or operating in the North Korean financial sector.
Under this new threat of secondary sanctions, US and non-US entities should seriously evaluate the risks associated with forming or maintaining financial or other business relationships, directly or indirectly, with North Korea. Most financial institutions were already conducting enhanced diligence related to North Korea; these recent actions provide heightened incentive to do so. “Know Your Customer,” long a mantra in anti-money-laundering circles, continues to be essential in this context.