In order to pursue the United States’ foreign policy objectives, the US Treasury has imposed sanctions regulations against North Korea in some form since 1950. The sanctions have the broad goal of pressuring North Korea to denuclearize but have also been imposed to punish a range of transgressions and violations of international law by the North Korean government, including human rights abuses, cyberattacks and financial crimes such as money laundering and terrorism financing.
In order to implement an effective AML/CFT program and spot transactions that potentially violate compliance requirements, firms should be familiar with the North Korea sanctions regulations imposed by the United States.
The US imposes its own unilateral North Korea sanctions regulations (NKSR) in addition to those put in place by the United Nations Security Council (UNSC). US sanctions are issued by the US Treasury and enforced by the Office of Foreign Assets Control (OFAC). The US measures target a broader range of businesses and individuals than those imposed by the UN.
Since they were introduced, NKSR have been partially lifted or rolled back several times in exchange for North Korean concessions and progress towards denuclearization. However, recent incidents, such as the assassination of Kim Jong-Un’s half brother, Kim Jong-nam, and the death of US citizen Otto Warmbier, have prompted a harder stance from the US government.
The US Treasury issues an overview of sanctions currently in place against North Korea. Implemented via presidential executive orders, the measures broadly prohibit US persons from engaging in the following types of transactions:
- Transactions involving property, or interests in property, of North Korea or North Korean nationals.
- Imports and exports of goods, services and technology to and from North Korea (although OFAC may grant a license for exceptions in certain circumstances).
- New investments in North Korea (without a license or exception granted by OFAC).
- Any approval, financing, facilitation or guarantee of a transaction involving North Korea by a US person for a foreign person.
- Transactions involving North Korean vessels, including the registration of vessels or the authorization for vessels to fly the North Korean flag.
Certain transactions are exempt from NKSR, including those covered by the Treasury’s International Emergency Economic Powers Act (IEEPA). Exempt transactions might include those related to travel, personal communication and the import or export of information. US persons should consult OFAC guidance to determine the legal status of any proposed transactions related to North Korea.
OFAC may issue general and specific licenses to US persons in order to authorize certain categories of transactions that would otherwise be prohibited under NKSR. A list of general licenses for transaction exemptions is set out in the NKSR, and firms may apply for a license via OFAC’s online portal.
On 10 April 2020, OFAC issued amendments to the Treasury’s North Korea sanctions regulations. The NKSR amendments involve the following changes:
The US Congress has introduced a list of additional activities involving North Korea that may be subject to secondary sanctions. The scope of the secondary sanctions extends to non-US parties that maintain a direct or indirect correspondent account with a North Korean firm. Exceptions to secondary sanctions include those approved by UNSC and non-US parties importing or exporting luxury goods to North Korea.
New restrictions have been introduced on the opening or maintenance of US correspondent accounts that are found to have provided significant financial services to persons subject to NKSR. The rule also applies to payable-through accounts by non-US financial institutions.
Non-US Subsidiaries of US Financial Institutions
Under the amendment, non-US entities that are owned or controlled by US firms are prohibited from carrying out transactions with the government of North Korea or any person subject to North Korean sanctions. The measure is similar to US sanctions imposed on Iran and applies to any persons that directly apply US sanctions to their non-US subsidiaries.
Definition of "Significant Transactions"
Under NKSR, persons that engage in “significant transactions” with targeted persons may be classified as specially designated persons (SDNs) for AML screening purposes. The amendment provides a definition of the term “significant transaction” in that context, adding “financial services” to the scope of the measures and including an example of the impact of such a transaction on North Korea’s efforts to commit offenses such as money laundering, human rights abuses or the pursuit of nuclear weapons.
Definition of "Luxury Goods"
The amendments bring the definition of “luxury goods” used in US North Korea sanctions in line with the definition used by the UNSC. The amendment also clarifies that items approved for import and export to North Korea by the UN are not included in the definition of ”luxury goods.”
North Korea sanctions violations may result in financial penalties of up to $250,000 or two times the amount of the offending transaction (whichever is greater). Similarly, criminal convictions following sanctions violations may result in financial penalties of up to $1 million and prison terms of up to 20 years. Criminal penalties apply to persons that directly violate, or conspire to violate, sanctions or those who aid or abet the commission of a sanction violation.