On the heels of United Nations Security Council Resolution 2375 released on September 11, 2017, President Trump issued a new executive order yesterday (the EO) that greatly expands U.S. sanctions against North Korea, particularly so-called secondary sanctions, which apply to non-U.S. individuals and corporations. As explained below, the EO establishes the following:
- Broad new criteria for designating non-U.S. persons for sanctions, including blocking their assets in the United States
- A “180 Day Rule” under which vessels and aircraft are barred from entering the U.S. for a period of 180 days after any port call or landing in North Korea
- Authority for the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) to block any funds transiting accounts linked to North Korea that come within the U.S. or possession of a U.S. Person
- Authority for OFAC to impose sanctions on foreign financial institutions that knowingly conducted or facilitated, on or after the date of the EO: (i) any significant transaction on behalf of certain blocked persons; or (ii) any significant transaction in connection with trade with North Korea
The EO provides that secondary sanctions can be imposed on persons determined by the U.S. Secretary of the Treasury, in consultation with the U.S. Secretary of State, to fall under any of the following categories:
- Persons who operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles or transportation industries in North Korea
- Persons who own, control or operate any port in North Korea, including any seaport, airport or land port of entry
- Persons who have engaged in at least one significant importation from or exportation to North Korea of any goods, services or technology
- North Korean persons that generate revenue for the Government of North Korea or the Workers' Party of Korea, including those engaged in commercial activity
- Persons who 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 this order
- Persons owned or controlled by, or who 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 this order
Individuals and entities found to meet these criteria will: (1) have all their property and property interests blocked if these come within the United States or the possession of a U.S. person; and (2) be denied entry into the United States, as immigrants or non-immigrants, and treated as persons covered by section 1 of Proclamation 8693 of 24 July 2011 (Suspension of Entry of Aliens Subject to United Nations Security Council Travel Bans and International Emergency Economic Powers Act Sanctions).
The EO makes clear that these prohibitions include the making of any contribution, or provision of funds, goods or services, for the benefit of any person blocked pursuant to the EO (or the receipt of such funds, goods or services). It also prohibits the donation of the types of articles specified in section 203(b)(2) of International Emergency Economic Powers Act (ie, articles such as food, clothing and medicine) to blocked persons.
It is likely that some individuals and companies with a “constitutional presence in the United States” have already been blocked pursuant to this order, as the EO notes that prior notice was not given to such persons since the ability to transfer assets instantaneously would render the blocking measures ineffectual.
180-Day Rule for Vessels and Aircraft
The EO provides that no vessel may call a U.S. port and no aircraft may land in the United States if it has been to North Korea within the previous 180 days. For vessels, this includes vessels that have engaged in a ship-to-ship transfer with a vessel that has called at a port in North Korea within the previous 180 days.
Related to this provision is the new General License 10, issued yesterday by OFAC to allow vessels in distress to call at a port and aircraft to make emergency landings. This license also exempts from the 180-day rule vessels that have put into port in North Korea because they were in distress, aircraft that have made emergency landings in North Korea, as well as aircraft engaging in a non-traffic stop in the United States.
Blocking of Certain Funds
The EO provides that funds will be blocked and may not be transferred or dealt with in any way if they: (1) are in, or come within, the United States, or within the possession or control of a U.S. person; and (2) originate from, are destined for or pass through a foreign bank account that either: (a) is owned or controlled by a North Korean person; or (b) has been used to transfer funds in which any North Korean person has an interest.
OFAC issued a new FAQ 526 stating that this provision does not create any immediate compliance obligations on U.S. persons; rather, OFAC will provide notice and additional guidance, as necessary, to clarify its expectations for the implementation of this provision.
The EO authorizes the Treasury Department, in conjunction with the State Department, to impose certain sanctions on foreign financial institutions (FFIs). First, an FFI can be sanctioned if it has, on or after the EO, knowingly conducted or facilitated any significant transaction on behalf of any person blocked under the EO, or under EO 13551, 13687, 13722 or 13382 in connection with North Korea-related activities.
Second, an FFI can be sanctioned if it knowingly conducted or facilitated any significant transaction in connection with trade with North Korea.
If an FFI is found to have conducted or facilitated any of the significant transactions described above, the Treasury Department is authorised to impose sanctions that: (1) prohibit the opening, and prohibit (or impose strict conditions) on the maintenance of, correspondent accounts or payable-through accounts in the United States; or (2) block all property interests in the United States. Such blocking would include: the provision of funds, goods or services by, to or for the benefit of the blocked person and the receipt of any contribution or provision of funds, goods or services from any such person.
In this context, an FFI includes any foreign entity that is engaged in the business of accepting deposits; making, granting, transferring, holding or brokering loans or credits; purchasing or selling foreign exchange, securities, commodity futures or options; or procuring purchasers and sellers thereof, as principal or agent (eg, depository institutions; banks; money service businesses; trust companies; securities brokers and dealers; commodity futures and options brokers and dealers; forward contract and foreign exchange merchants; securities and commodities exchanges; clearing corporations; investment companies; employee benefit plans; and dealers in precious metals, stones or jewels), including holding companies, affiliates and subsidiaries. Under the EO, FFI does not include certain international financial institutions, such as the IMF, and certain other international development institutions.
The general licenses previously issued with EO 13722 do not apply to transactions prohibited by the new EO, except for General Licenses 2 and 9, with respect to legal services and emergency medical services, respectively. OFAC is also updating General License 3 to account for the new EO Imposing Additional Sanctions with Respect to North Korea.