On September 20, 2017, President Trump signed Executive Order 13810, “Imposing Additional Sanctions with Respect to North Korea” (the “EO”), which broadly authorizes the Department of the Treasury to impose sanctions against individuals and entities, including non-U.S. financial institutions, for conducting or facilitating trade with North Korea. The EO marks the Trump Administration’s decision to employ a strategy of threatening secondary sanctions—sanctions that target conduct with no nexus to the United States—to pressure companies around the world to sever business involving North Korea. When announcing the EO, President Trump stated, “Foreign banks will face a clear choice: Do business with the United States, or facilitate trade with the lawless regime in North Korea.”
The EO builds on recent U.N. Security Council Resolutions and the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), which President Trump signed into law on August 2, 2017 and signals Congress’s embrace of broad secondary sanctions against North Korea.
We describe below the EO’s most significant provisions.
Key Provisions of the Executive Order
A. Authorization to Sanction Entities for Engaging in or Supporting a Wide Range of North Korea-related Trade
The EO authorizes the Treasury Secretary to designate—i.e., place on the Treasury Department’s Office of Foreign Assets Control (“OFAC”) list of Specially Designated Nationals (“SDN”)—any individual or entity determined:
- “To have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology”;
- “To operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea”;
- “To 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 EO; or
- “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 EO.
Notably, this conduct does not require any nexus to the United States.
B. Authorization to Sanction Foreign Financial Institutions For Conducting or Facilitating Transactions Involving North Korea Trade
The EO contains provisions specifically targeted at foreign financial institutions. Specifically, the EO authorizes the Treasury Secretary to designate as a SDN—or to impose the lesser measure of prohibiting or restricting U.S. correspondent accounts for—foreign financial institutions that, on or after September 21, 2017:
- “Knowingly conduct or facilitate any significant transaction on behalf of any person whose property and interests in property are blocked” pursuant to, among others, North Korea-related executive orders; or
- “Knowingly conduct or facilitate any significant transaction in connection with trade with North Korea.”
C. Restrictions on U.S. Entry for Aircraft and Vessels
The EO imposes new restrictions on aircraft and vessels that have travelled to North Korea in the previous 180 days. Specifically:
- Any aircraft, in which a non-U.S. person has an interest, that lands in North Korea is prohibited from landing in the United States within 180 days after its departure from North Korea; and
- Any vessel, in which a non-U.S. person has an interest, that has called at a North Korean port within the previous 180 days, or has engaged in a ship-to-ship transfer with a vessel that has called at a North Korean port within the previous 180 days, is prohibited from calling at a port in the United States.
D. Blocking of Funds Related to North Korean Persons
The EO blocks all funds that come within the United States and originate from, are destined for, or pass through a non-U.S. bank account determined by the Treasury Secretary 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.”
On September 21, 2017, OFAC issued guidance stating that it “will provide appropriate notice and additional guidance, as necessary, to clarify its expectations for implementation” of this provision. Absent a future determination from the Treasury Secretary, this provision does not create any immediate compliance obligations on U.S. persons.
Continued Escalation of Sanctions and Other Measures Regarding North Korea
The EO reflects the high priority placed by both the Trump Administration and Congress on the expansion and enforcement of North Korea sanctions. The EO builds on a number of actions designed to bring maximum pressure to bear on the North Korean regime, including:
- On June 14, 2017, the Department of Justice filed a $1.9 million civil forfeiture action against funds held at a U.S. bank that belonged to Chinese company Minzheng International Trading Limited, which was allegedly facilitating transactions on behalf of a North Korean bank.
- On June 29, 2017, Treasury Secretary Mnuchin announced that Treasury’s Financial Crimes Enforcement Network (“FinCEN”) had found that the Bank of Dandong, a Chinese financial institution, was a financial institution of “primary money laundering concern” under Section 311 of the USA PATRIOT Act and initiated a rulemaking to cut off the Bank of Dandong’s correspondent banking relationships with the United States. In announcing this finding, Secretary Mnuchin stated that “the United States is sending an emphatic message across the globe that we will not hesitate to take action against persons, companies and financial institutions who enable this regime.”
- On August 22, 2017, OFAC designated ten entities and six individuals for engaging in trade with North Korea, including China- and Russia-based companies. The same day, the Department of Justice announced two civil forfeiture complaints seeking to forfeit $11 million in funds at U.S. banks belonging to Singapore- and China-based companies that allegedly engaged in coal and petroleum transactions with North Korea.
- In a September 12, 2017 hearing before the House Foreign Affairs Committee, Treasury’s Assistant Secretary for Terrorist Financing Marshall S. Billingslea described all of these recent actions, and emphasized that, “[f]inancial institutions in China, or elsewhere, that continue to process transactions on behalf of North Korea should take heed. We will continue to target North Korea’s illicit activity, regardless of location.
Although the ultimate effect of the new EO will largely turn on its implementation, the EO reflects the continued commitment of the Trump Administration to sever North Korea’s access to international trade and financial markets. Under this new threat of secondary sanctions, non-U.S. entities should seriously consider the risks associated with forming or maintaining trade, financial, or other business relationships, directly or indirectly, with North Korea. While most financial institutions were already conducting enhanced diligence related to North Korea, the new EO serves as another warning of the importance of these compliance measures.
* * *
The full text of the EO is available here.
Joseph Delich, Matthew J. Rosenbaum and Anand Sithian contributed to this Client Memorandum.