This afternoon, the Treasury Department’s Office of Foreign Assets control announced that as part of a settlement, Navigators Insurance Company has agreed to pay OFAC a civil penalty of $271,000 for 48 sanctions violations involving Iran, Sudan, Cuba, and North Korea. Navigators is a New York-based provider of maritime insurance. It also had a branch in London, which evidently decided to cut costs by skimping on lawyers. Here’s how that worked out for them.
Between May 8, 2008 and April 1, 2011, Navigators and its London, U.K. branch (“Navigators U.K.”) issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims. Navigators did not have a formal OFAC compliance program in place at the time it engaged in these apparent violations, and personnel within Navigators U.K. misinterpreted the applicability of OFAC sanctions regulations.
Between May 8, 2008 and February 18, 2011, Navigators provided insurance coverage to North Korean-flagged vessels under 24 P&I insurance policies and collected $1,142,237 in premium payments in relation to these policies. In addition, between February 23, 2009 and October 11, 2010, Navigators paid seven claims totaling $12,236 in relation to these policies. The base penalty amount for this set of apparent violations was $577,237. [OFAC]
In considering the amount of the penalty, Treasury considered that Navigators knew that these policy-holders were sanctioned, was “a commercially sophisticated financial institution,” and “did not have a formal OFAC compliance program in place at the time” of the violations. It also considered that Navigators self-disclosed the violation, and that once Treasury came knocking, Navigators cooperated and took remedial action.
The point being: if you do business with North Korea, good lawyers are a wise investment.
One of the few things our North Korea sanctions still do, specifically Section 2 of Executive Order 13466, is to prohibit U.S. persons from “owning, leasing, operating, or insuring any vessel flagged by North Korea.” That executive order was a place-holder for what remained in place as President Bush lifted most of our sanctions against Pyongyang, and removed it from the list of state sponsors of terrorism, in exchange for Kim Jong Il’s promise to disarm.
Seven years and two nuclear tests later, we’ve just seen the third action in one busy month to sanction North Korean shipping, following the EU’s designation of the Korea National Insurance Corporation, and the U.S. designation of Chinpo Shipping. This is enough data to show a pattern — Treasury is concentrating on North Korean shipping, and the EU might be, although it’s probably too early to say how broad, persistent, coordinated, or effective this effort will be, or how quickly the administration would back off for any deal Pyongyang offers.
With Pyongyang hinting that it will test some sort of nasty device this fall, feel free to insert your own “shot across the bow” pun in the comments.
The focus on shipping is curious in light of how little Treasury has done to North Korea’s banks recently, with the exception of the 2013 blocking of the Foreign Trade Bank. Surely Treasury doesn’t think shipping sanctions are a way to hurt Pyongyang without antagonizing Beijing. No, I didn’t think they’d think that:
One important sign to watch for is whether senior U.S. officials will go on tour to enlist other governments to support a new enforcement effort. The action against Banco Delta Asia wasn’t effective just because we sanctioned a single dirty bank, but because Stuart Levey and Danny Glaser met with bankers and finance ministers across Asia and Europe and politely warned them about the risks of doing business with Pyongyang. Today, we tend to overlook the role of financial diplomacy in the success of the BDA effort. Like good diplomats, Levey and Glaser wore their velvet gloves when they shook hands. But anyone could feel that the iron fist within was BDA.