Understanding North Korea sanctions: An explainer, links & authorities

Introduction: Why I created this page

Background

  • Until February of 2016, U.N. sanctions against North Korea were strong on paper but poorly enforced, and U.S. sanctions against North Korea were (contrary to the assumptions of many journalists and academics) comparatively weak — weaker than our sanctions against Belarus and Zimbabwe.
  • Sanctions against North Korea strengthened considerably in 2016 with the passage in February of the North Korea Sanctions and Policy Enhancement Act, and the U.N. Security Council’s approval of Resolution 2270 (both of them are explained in greater detail below). Even so, implementation of the new authorities has been uneven, and has only just begun.
  • Here are the Treasury Department’s FAQs and overview of North Korea sanctions, as of 2016.
  • There is certainly more that could be done to close sanctions loopholes, but the most important priority now is to enforce the U.N. and U.S. sanctions that already exist, through a combination of law enforcement and diplomacy.
  • North Korea continues to do most of its business through offshore dollar accounts that flow through the U.S. financial system. These dollars pay North Korea’s army and security forces, buy materials and parts for its military and WMD programs, and maintain the luxurious lifestyle of Kim Jong-un and his ruling elite.
  • Most of those North Korean accounts are in Chinese banks; others are in Europe. It’s often said that China is the key to sanctions enforcement. U.N. reports prove that China has violated sanctions for years — so flagrantly that the violations could only be the result of Chinese government policy. The NKSPEA mandates secondary sanctions on third-country (including Chinese) banks and companies that violate U.N. sanctions and U.S. law. It forces them to choose between access to the U.S. economy and the North Korean economy.
  • The U.S. has jurisdiction over dollar transactions between non-U.S. persons and banks. The Justice Department explained this in a recent North Korea-related civil forfeiture complaint. For an explanation of how this works in practice, see this, and focus on the correspondent banks, which are usually in the United States and subject to Treasury Department regulation.

correspondent-banking

  • This isn’t a partisan issue. Although the administration has hesitated to fully enforce the NKSPEA, there is strong bi-partisan support for this approach in both houses of Congress. As of October 2016, the Obama administration was under intense pressure to impose secondary sanctions on Chinese banks that launder Kim Jong-un’s money.
  • For sanctions to work, they need aggressive enforcement,  the support of good diplomacy, and time. They should be implemented to target the finances that sustain the regime while minimizing humanitarian effects on the people. They must be part of a broader strategy that has specific and concrete objectives.

U.N. Security Council sanctions resolutions: 1695 | 1718 | 1874 | 2087 | 2094 | 2270 | 2321  Broadly summarized, the resolutions —

  • require North Korea to cease all activity related to the development of ballistic missiles, or its nuclear, chemical, or biological weapons programs, and to completely dismantle those programs;
  • prohibit the transfer of goods or technology to or from North Korea that are related to, or could contribute to, North Korea’s WMD programs;
  • prohibit scientific cooperation with, or the provision of training to, North Korean nationals in a broad range of fields that may relate to WMD and military uses;
  • prohibit the transfer of weapons to or by North Korea, and the transfer to North Korea of items (trucks, helicopters, vessels) that may have dual-use applications;
  • require the inspection of all cargo entering, leaving, or transiting through North Korea, including personal baggage and checked luggage;
  • prohibit the transfer of luxury goods to North Korea;
  • restrict North Korean shipping and financial transactions to prevent further violations of U.N. sanctions;
  • prohibit member states from reflagging, insuring, or crewing North Korean ships, or leasing or chartering ships to North Korea unless approved by a U.N. sanctions committee;
  • ban the export by the Government of North Korea of coal, iron, or iron ore, except for “livelihood purposes; define “livelihood” exports of coal as limited to $400 million or 7.5 million metric tons per year, except that payments to entities associated with North Korea’s WMD programs are prohibited entirely;
  • prohibit the sale or transfer by the Government of North Korea of gold, titanium ore, vanadium ore, rare earth minerals, copper, nickel, silver, and zinc;
  • ban the export of statues by North Korea;
  • require member states to expel persons involved in violating U.N. sanctions against North Korea and persons working for or on behalf of North Korean financial institutions;
  • require member states to freeze any funds or property, including ships, that are controlled by U.N.-designated persons, or that are used to facilitate violations of the sanctions;
  • prohibit the transfer of any funds that could contribute to North Korea’s WMD programs or to or from any person designated by the U.N. sanctions committee;
  • limit North Korean diplomatic and consular facilities and personnel to one bank account each;
  • require member states to ban correspondent relationships between their banks and North Korean banks;
  • require the closure of all foreign subsidiaries, representative offices, and bank accounts in North Korea;
  • prohibit public or private support for trade with North Korea, including guarantees, insurance, and export credits;
  • prohibit the transfer to North Korea of rocket, aviation, or jet fuel; and
  • “express concern” about Pyongyang’s labor exports, “the grave hardship that the people in the DPRK are subjected to,” and Pyongyang’s pursuit of “nuclear weapons and ballistic missiles instead of the welfare of its people while people in the DPRK have great unmet needs;”
  • establish a Panel of Experts to investigate potential violations of, and implementation of, U.N. sanctions. (See U.N. POE reports from 2010, 2012, 2013, 2014, 2015 & 2016.)

U.S. Sanctions Laws

  • Iran, North Korea & Syria Nonproliferation Act, Pub. L. No. 106-178, Mar. 14, 2000 (codified at 50 U.S.C. 1701 note). Provides for very limited trade and other sanctions (such as debarment from U.S. government contracts) against persons designated for assisting North Korea’s WMD development.
  • North Korea Sanctions & Policy Enhancement Act of 2016, Pub. L. No. 114-122, 130 Stat. 93, Feb. 18, 2016 (codified at 22 U.S.C. Ch. 99). This is the only comprehensive, North Korea-specific sanctions law. Key provisions:
    • Sec. 102 – mandatory investigations
    • Sec. 104 – persons and conduct subject to designation
    • Sec. 201 – urging the President to designate North Korea as a jurisdiction of primary money laundering concern, under section 311 of the Patriot Act (On June 1, 2016, the Secretary of the Treasury designated North Korea as a jurisdiction of primary money laundering concern. On November 4, 2016, the Secretary issued a final rule prohibiting financial institutions operating in the United States from providing correspondent account services to North Korean financial institutions, effectively severing North Korea’s banks off from the global financial system.)
    • Sec. 202 – urging the President to improve diplomatic efforts to implement and enforce U.N. sanctions
    • Sec. 204 – denying government contracts to companies designated under section 104
    • Sec. 205 – providing for more intrusive inspections of cargo coming from ports that fail to inspect cargo to and from North Korea, as required by U.N. Security Council resolutions
    • Sec. 206 – denying entry to the United States by persons designated under section 104, and shareholders of companies designated under section 104
    • Sec. 208 – humanitarian and other exemptions and waivers
    • Secs. 209 & 210 – cybersecurity reporting and sanctions provisions
    • Sec. 301 – requiring the President to submit a plan to provide “unrestricted, unmonitored, and inexpensive electronic mass communications … to the people of North Korea”
    • Sec. 302 – Strategy to promote North Korean human rights.
    • Sec. 303 – report on North Korean prison camps.
    • Sec. 304 – report on, and sanctions for, serious human rights abuses or censorship
    • Sec. 401 & 402 – conditions for suspending and terminating sanctions, respectively

U.S. Sanctions Executive Orders: Generally —

  • These executive orders are promulgated under the authority of the International Emergency Economic Powers Act, 50 U.S.C. 1705 et seq., violations of which are punishable under sec. 206, by 20 years in prison, a $1 million fine, and a $200,000 civil penalty).
  • Sanctions executive orders are enforced by the Treasury Department’s Office of Foreign Assets Control, or OFAC.
  • Designation under one of these EOs blocks the property of the person designated. Generally, this affects dollar-denominated transactions and accounts, which rely on correspondent banking through U.S. financial institutions to transfer funds from a buyer to a seller.
  • Persons designated under these executive orders are added to the Treasury Department’s List of Specially Designated Nationals, or SDN List. This index tells you which E.O. was used to designate a target on the SDN List.
  • Although the EOs may appear to have broad, sweeping language, only the specific persons designated and added to the SDN List are blocked.
  • Banks are required to block SDN-listed persons and implement Know-Your-Customer compliance programs to prevent blocked persons from circumventing sanctions or laundering money. Nearly all governments have KYC laws.
  • The Treasury Department’s Financial Crimes Enforcement Network, or FINCEN, works with the banking industry to oversee and enforce anti-money laundering (AML) guidelines and procedures.
  • Banks that fail to put sufficient compliance programs into effect may face criminal penalties running into the billions of dollars in egregious cases, civil penalties under other Title 31 provisions, and the complete suspension of their access to the dollar-based financial system under section 311 of the Patriot Act.

The executive orders that apply or could potentially apply to North Korea include —

  • 13224 (2001) – for persons designating for engaging in, or providing material support for, terrorism. No North Korean persons are designated under this EO. I have published evidence of the North Korean government’s recent and repeated sponsorship of acts of terrorism.
  • 13382 (2005) – for persons involved in or supporting WMD development and proliferation. Roughly 60 North Korean targets are designated under this EO.
  • 13466 (2008) – a placeholder, maintaining the block on assets previously blocked, signed by President Bush when he lifted Trading With the Enemy sanctions against North Korea after the 2007 agreed framework
  • 13551 (2010) – North Korea-specific sanctions for proliferation, arms dealing, and money laundering.
  • 13581 (2011) – Transnational criminal organizations. No North Korean targets are designated under this EO.
  • 13570 (2011) – Requiring an OFAC license to import goods or services from North Korea, directly or indirectly.
  • 13687 (2015) – Blocking persons designated as officials of the North Korean government or ruling party, or for assisting or supporting them. Potentially broad, but little-used in practice.
  • 13694 (2015) – Cyber sanctions. No North Korean persons are designated under this EO.
  • 13722 (2016) – North Korea-specific sanctions for persons designated as involved in or facilitating human rights abuses, censorship, arms dealing, WMD proliferation, labor exports, cyberattacks, or certain mineral exports. Bans new investment in North Korea and authorizes sectoral sanctions against North Korea’s mining, energy, transportation, and banking industries. Partially implements the NKSPEA, and expands on it in certain respects.

U.S. sanctions regulations & general licenses

  • 31 C.F.R. Part 510 – OFAC regulations synthesize, codify, and implement sanctions programs against a specific target or category of targets. As of October 2016, these relatively weak regulations were overdue to be updated, to reflect the enactment of the NKSPEA and the promulgation of Executive Order 13722.
  • General licenses create exemptions to the sanctions regulations for certain humanitarian, cultural, and other purposes.

Other significant U.S. statutes

Third-country sanctions authorities

Policy options to force disarmament and reform