On OFAC’s new North Korea Sanctions regulations

In the days since the Treasury Department announced its amendment to the North Korea sanctions regulations at 31 CFR Part 510, I’ve received at least half a dozen inquiries from journalists about what it means. Unfortunately for us all, today also marks the first day in almost three weeks, inclusive of weekends and holidays, that I did not work a significant amount overtime in my day job—currently, it involves responding to the nationwide coronavirus disaster declaration—so I’ll keep this post brief.

This regulation, by itself, does not signal any change in U.S. policy. It’s merely the satisfaction of a statutory mandate in the new Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act, which required that these regulations be promulgated within 180 days. And as I wrote about that act at the time, Treasury would want to write this regulation so as to require an executive designation before the prohibitions would be enforceable, and so it has.

Otherwise, the regulation is a much more faithful implementation of section 104(a) of the North Korea Sanctions and Policy Enhancement Act (NKSPEA) than its antecedent, Executive Order 13722, prohibiting almost verbatim what the Obama-era regulation only paraphrased, and not very completely at that. It also implements the new prohibitions of the new Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act, the most important of which are in newly added sections 104(g) and 201B:

(ix) Section 104(g) of NKSPEA, as amended. Any person the Secretary of the Treasury determines, in consultation with the Secretary of State, knowingly:

(A) Directly or indirectly, engages in the importation from or exportation to North Korea of significant quantities of:

(1) Coal, textiles, seafood, iron, or iron ore;

(2) Refined petroleum products or crude oil above limits set by the United Nations Security Council and with which the United States concurs; or

(3) Services or technology related to goods specified in paragraph (a)(3)(ix)(A)(1) and (2) of this section;

(B) Facilitates a significant transfer of funds or property of the Government of North Korea that materially contributes to any violation of an applicable United Nations Security Council resolution (as defined in NKSPEA, as amended);

(C) Directly or indirectly, engages in, facilitates, or is responsible for the exportation of workers from North Korea, or the employment of such workers, in a manner that generates significant revenue, directly or indirectly, for use by the Government of North Korea or by the Workers’ Party of Korea;

(D) Directly or indirectly, sells or transfers a significant number of vessels to North Korea, except as specifically approved by the United Nations Security Council;

(E) Engages in a significant activity to charter, insure, register, facilitate the registration of, or maintain insurance or a registration for, a vessel owned, controlled, commanded, or crewed by a North Korean person; or

(F) Contributes to and participates in:

(1) A significant act of bribery of an official of the Government of North Korea or any person acting for or on behalf of that official;

(2) The misappropriation, theft, or embezzlement of a significant amount of public funds by, or for the benefit of, an official of the Government of North Korea or any person acting for or on behalf of that official; or

(3) The use of any proceeds of any activity described in paragraph (a)(3)(ix)(A) or (B) of this section; or

(x) Section 201B of NKSPEA, as amended. Any foreign financial institution that the Secretary of the Treasury determines, in consultation with the Secretary of State, knowingly, on or after April 18, 2020, provides significant financial services to any person designated for the imposition of sanctions with respect to North Korea described in paragraphs (a)(3)(vii) through (ix) of this section and under an applicable Executive order (as defined in NKSPEA, as amended) or an applicable United Nations Security Council resolution (as defined in NKSPEA, as amended), and with respect to which the Secretary of the Treasury has exercised the authority to block all property and interests in property.

This is all powerful stuff–potentially, at least. Section 201B greatly extends the reach of financial sanctions, and the kleptocracy sanction represents another patient and important step toward the grand strategy I’ve described here. Unfortunately, creation of a new subsection (g) instead of adding the new prohibitions to subsection (a) unwittingly excluded those new prohibitions from the money laundering and forfeiture laws that refer to section 104(a) only. Prosecutors will now have to argue that the new regulations make 104(g) conduct violations of the International Emergency Economic Powers Act, and thus subject to the same treatment—the forfeiture of property “involved in” violations. This is critically important, because civil forfeiture is often the U.S. government’s only effective means to enforce sanctions against foreign persons who are outside of U.S. in personam jurisdiction, and who aren’t amenable to extradition. This can be fixed with a technical amendment, which may have to wait for either a nuke test or a president more inclined to enforce these laws.

Which brings us to the answer that the reporters really want to know–what will these new regulations do? Yes, they contain some useful tools. On paper, these sanctions could easily match those we’ve actually enforced against Iran. But if President Trump is determined to subordinate our interests, our security, and the law to a vain and spurious election-year claim of “success” in his North Korea negotiations, I don’t expect him or Steve Mnuchin to use any of them. The Glocom network, Shinheung Trading, Malaysia-Korea Partners, a string of IT companies whose real function is to commit cybercrime and launder the profits into Chinese banks continue to operate unmolested across Southeast Asia, and they’re all using our own banking system to help Kim Jong-un menace and defraud us. In the coming days, the UN Panel of Experts will release a new annual report—two months behind schedule, because of Russian and Chinese stalling—showing that both governments continue to sabotage the effectiveness of sanctions. They have yet to pay a significant price for doing so.

As I’ve said before and will say again, I’ll believe it’s really maximum pressure when I see a major Chinese bank pay a nine-digit penalty for laundering Kim Jong-un’s money, whether pursuant to a settlement or the sentence of a court. That’s why anyone who wants to focus her limited attention on what really matters will pay less attention to what the Treasury Department is (not) doing and more attention to what the FBI and the Justice Department are doing.