I confess that I’ve always hated Facebook, but every now and then, I see something there that interests me. One such example is the Facebook page of a group called Delegations for Dialogue, which led me to this slickly produced website. As it turns out, Delegations is run by a cast of improbably young characters promoting investment in North Korea through a “fact-finding” trip to Rason this August.
Now, I suppose there are two kinds of people in this world by now — those who’ve concluded that throwing money into North Korea has only made it more repressive and dangerous, and those who are (for whatever reason) simply incapable of drawing that conclusion. The same goes for understanding the moral hazard of investing in (and thus perpetuating) a system whose crimes against humanity, according to a U.N. Commission, are “without parallel in the contemporary world.” The same goes for those who believe anyone but Pyongyang will ever get rich from foreign investment in North Korea. Just ask Jim Rogers, Naguib Sawaris, James Passin, or a long list of other fools who have parted with their money there.
Rather, anyone who would seriously consider investing in North Korea by now can only be responsive to legal risk. As I’ve said before, I’m a lawyer but not your lawyer, so take what follows as advice to hire a lawyer of your own if you’re giving serious thought to taking part in this trip. For one thing, I found nothing on Delegations’ site about compliance with either national or U.N. sanctions — not even the standard, we-never-violate-sanctions disclaimer one sometimes sees with such programs. It quickly becomes clear that Delegations either has no idea of the legal framework it’s getting itself and its clients into or doesn’t care.
From the very first sentence, for example, Delegations shows the limits of its legal knowledge of the sanctions regime against North Korea by calling the North “the world’s most sanctioned nation,” something that still isn’t remotely accurate, either de jure or de facto, despite the significant escalation of sanctions over the last year. And while it’s usually a harmless error for an investor to overestimate a sanctions regime, the same can’t be said for underestimating one.
On examining the program materials for the August trip, things go downhill fast. For example, Delegations promises participants a tour of a local bank, but several of the banks located in Rason (and, as near as I can figure, all of them) are joint ventures, which are prohibited under UNSCR 2270, paragraph 33. Delegations promises its clients a meeting with North Korean trade officials; yet UNSCR 2321, paragraph 32, bans all public and private support for trade with North Korea, except when specifically approved by a U.N. committee. Delegations even promises participants an opportunity to open a bank account in a North Korean bank, directly contrary to UNSCR 2321, paragraph 31, which required U.N. members states to close any bank accounts in North Korea 90 days after the resolution passed (more than 90 days ago).
Then, on the banner of Delegations’ website is an image of the Pyongyang International Trade Fair, where one of the companies making an appearance this year was Green Pine, an entity designated by both the U.N. and the U.S. Treasury Department for its involvement in proliferation.
Fine, you say, who’s going to enforce a U.N. resolution anyway? But given the extensive evidence that North Korea continues to depend on the U.S. dollar system for trade and finance (note well: Delegations allows participants to pay their fees in euro or dollars), any favorable response to Delegations risks running smack into a very significant legal obstacle, namely Executive Order 13772, section 3 of which prohibits new investment in North Korea:
(a) The following are prohibited:
(i) the exportation or reexportation, direct or indirect, from the United States, or by a United States person, wherever located, of any goods, services, or technology to North Korea;
Here, the term “services” is key, and courts have generally interpreted this to include financial services. It would likely be interpreted to include promotional and marketing services on behalf of North Korean state-controlled enterprises, too.
(ii) new investment in North Korea by a United States person, wherever located; and
This is the provision that stumped Jim Rogers, Naguib Sawaris, et al.
(iii) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.
This covers the provision of correspondent services by U.S. financial institutions and their subsidiaries, effectively blocking transactions related to investment in North Korea out of the dollar system.
(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order or pursuant to the export control authorities implemented by the Department of Commerce, and notwithstanding any contract entered into or any license or permit granted prior to the effective date of this order.
This incorporates Commerce Department licensing requirements, which cover almost any transfer of U.S.-origin goods, services, and technology to North Korea, except the most innocuous consumer goods and food items classified as “EAR 99.” For more information on what all of that means, consult a more expensive lawyer than me, because violations of this executive order are punishable under section 206 of the International Emergency Economic Powers Act (20 years in prison, a $1 million fine, and a $250,000 civil penalty). And just in case you think the euro system is an easy escape valve from these prohibitions, not so much, given the new EU restrictions on financial services to North Korea, new anti-money laundering regulations, and new beneficial ownership disclosure rules.
To summarize: lawyer up, caveat emptor, or (better yet) find a safer place to put your money.