Best Practices for Compliance with North Korea OFAC Sanctions

As we discussed further at length here, the U.S. and nations around the world have recently sought to implement and impose harsh economic sanctions programs against  North Korea to pressure Pyongyang into ceasing its development of a nuclear weapons program.  The international community has ramped up its pressure by adopting increasingly severe measures since August, when President Trump signed into law a wide-ranging sanctions bill titled the Countering America’s Adversaries Through Sanctions Act (CAATSA), and the UN Security Council followed suit by unanimously passing a US-drafted resolution targeting $1 billion worth of the DPRK’s primary exports.

On November 21, the Office of Foreign Assets Control (OFAC) issued expansive additional sanctions, highlighted by secondary sanctions against several Chinese entities. The sanctions target thirteen new entities (including four Chinese trading companies and six North Korean shipping companies), one Chinese national, and twenty DPRK-flagged shipping vessels.  OFAC stated that this most recent round of sanctions serves to target third-country persons with “long-standing commercial ties” to the DPRK, as well as the “transportation networks that facilitate North Korea’s revenue generation.”

Business entities from Dandong, China are coming under particularly increased scrutiny, as between two-thirds and three-quarters of all North Korea’s foreign trade with China goes through the Yalu River border town.  OFAC included three Dandong entities, Dandong Kehua Economy and Trade, Dandong Xianghe Trading and Dandong Hongda Trade on its sanctions list, as the three Chinese trading companies were accused of exporting approximately $650 million worth of goods to North Korea and importing more than $100 million worth of goods from the rogue nation. The sanctioned Chinese national and his company were further accused of exporting over $28 million worth of goods to North Korea, including motor vehicles, electrical machinery, radio navigational items, and items associated with nuclear reactors.

How can your company best protect itself from violating the updated Treasury Department restrictions?

  • Screen all parties involved in a potential transaction. At a minimum use the updated SDN List and OFAC Sanctions List Search tools provided on the Treasury Department’s website; as well as the UN Security Council Sanctions List Search.
  • Document your diligence and conduct routine inquiries, particularly if you engage with Chinese or Russian subsidiaries within the supply chain.
  • Be on the lookout for potential “shell companies” and smaller financial intuitions utilized to evade North Korea sanctions. Use a questionnaire and get it in writing.  Also, follow up when you get answers.
  • Establish and conduct effective training programs with overseas subsidiaries on compliance risks; monitor and evaluate the effectiveness of such compliance programs.
  • Identify and follow up on Red Flags – problematic industries (defense, aircraft, oil), potential exposure to North Korean business and banking, joint ventures, undisclosed third parties, front companies, etc.