Why did the US government impose increasingly stringent sanctions on North Korea?
Lee Kok Leong, our special correspondent, interviews Kerry B Contini, Partner, Baker & McKenzie, on trade sanctions against North Korea and the need for a good compliance program and best practices to counter evasion.
Baker & McKenzie (BM): The US government has imposed sanctions against North Korea in one form or another since the Korean War in 1950. While there have been a number of reasons for the US sanctions, the overriding motivation has been to pressure North Korea to denuclearize by starving it of cash and trade. The United Nations has also imposed extensive sanctions against North Korea, but the US sanctions have exceeded the scope of the UN sanctions to capture a broader range of activities and business.
Over the years, US sanctions have undergone a cycle of expansion and temporary relaxation. On several occasions, the US government has expanded and strengthened the sanctions in response to advances in North Korea’s nuclear weapons program or after its testing of ballistic missiles, only to relax those sanctions during nuclear negotiations in which North Korea promised to freeze its nuclear program, dismantle nuclear facilities, and/or stop ballistic missile testing. When the US government perceived a lack of cooperation or compliance with agreed commitments, it would once again impose more sanctions.
Overall, the trend has been towards increasingly strict sanctions against North Korea. In 2007, the US imposed an export ban on North Korea, which in 2011 became a full-fledged trade embargo prohibiting virtually all trade in goods or services if there were any US nexus whatsoever, such as involvement of US companies, US citizens, permanent residents, or US dollars.
In 2017, the Countering America’s Adversaries Through Sanctions Act (CAATSA) was passed by the US Congress and signed by the President into law. CAATSA included provisions specifically targeting the shipping industry, including a prohibition on the entry of certain North Korea-connected vessels into the United States. CAATSA also expanded the risk that non-US companies and vessels that do business with North Korea could themselves become sanctioned by being added to the Specially Designated Nationals and Blocked Persons List (SDN List), which is maintained by the Office of Foreign Assets Control (OFAC) in the US Treasury Department, which is the main US sanctions enforcement agency. North Korea remains on the US State Department’s list of state sponsors of terrorism.
Over the past few years, OFAC has imposed additional layers of sanctions on parties in North Korea determined by the US Government to be engaged in human rights violations, cyberattacks, and money laundering. These have included parties outside North Korea, including in Russia and China. These parties are designated as SDNs and they, along with their subsidiaries, are effectively blacklisted from the US market. OFAC has said that it is “aggressively targeting” anyone who facilitates a significant export to or import from North Korea, or who engages in the North Korean transportation industry.
Basically, the US sanctions prohibit virtually any shipments or other transactions involving North Korea where there is any US nexus, which as noted above is broadly defined. Even if there is no US nexus, non-US companies engaging in business with North Korea may risk being added to the SDN List. This often has a devastating effect on non-US companies, as most banks and non-US companies are reluctant to do business with companies or vessels on the SDN List even where there is no US nexus.