Overview
On November 20, 2017, President Trump announced that North Korea would be designated a “state sponsor of terrorism” – a designation shared by only Syria, Iran, and Sudan. The president also stated that the United States would announce the imposition of additional sanctions on Pyongyang. A day later, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions against one individual, 13 entities, and 20 vessels operating in or with ties to North Korea.
“State Sponsor of Terrorism” Designation
Countries determined by the Secretary of State to have “repeatedly provided support for acts of international terrorism” may be designated state sponsors of terrorism under three laws: section 6(j) of the Export Administration Act (as continued in effect under the International Emergency Economic Powers Act pursuant to Executive Order 13222), section 40 of the Arms Export Control Act, and section 620A of the Foreign Assistance Act. Under these laws, designation results in:
- A ban on US government foreign assistance
- A ban on exports and sales of defense articles and support
- Enhanced export controls over dual-use items
- A variety of other US government financial and immigration restrictions
Each of these restrictions may be waived by the president in consultation with relevant congressional committees on a case-by-case basis. The designation also has other consequences under US law. For example, state sponsors of terrorism are subject to a limited exception to sovereign immunity under the Foreign Sovereign Immunities Act for personal injury and death claims resulting from certain acts associated with terrorism.
In addition, the designation of North Korea under section 6(j) of the Export Administration Act triggers the application of the Terrorism List Governments Sanctions Regulations, 31 CFR Part 596, to the DPRK government. This does not appear to have any material impact on the current restrictions, as well as authorizations, under existing executive orders and the North Korea Sanctions Regulations, 31 CFR Part 510. For example, existing authorizations under OFAC-issued General Licenses, as well as the authorization for necessary financial services related to activities covered by the General Licenses, should not be affected by application of Part 596 restrictions. See, e.g., 31 CFR §§ 596.503 & 504.
Secretary of State Rex Tillerson indicated that, because existing US laws and regulations already impose substantial limitations on interactions between the United States and North Korea, the “practical effects” of state sponsor of terrorism status “may be limited.” The designation may have symbolic significance, however. North Korea was previously designated a state sponsor of terrorism in 1987, following the bombing of a Korean Air flight that killed the 115 passengers on board. The Bush Administration rescinded North Korea’s previous state sponsor of terrorism designation in 2008 as part of a policy initiative to encourage North Korea’s de-nuclearization. At the time, the DPRK government viewed removal from the list as an important step in improving bilateral relations. Thus, it may see this re-designation as provocative or escalatory.
In explaining the designation, President Trump and Secretary Tillerson referenced North Korean involvement in “assassinations on foreign soil.” This reference likely included the assassination in Malaysia earlier this year of Kim Jong-nam, North Korean Supreme Leader Kim Jong-un’s half-brother. President Trump also mentioned the 2017 death of Otto Warmbier, the American college student who was arrested in North Korea and later died, soon after his release to the US, after suffering a traumatic injury or illness while being detained, although this incident was unlikely considered an “act of international terrorism” under the relevant statutes.
Sanctions Designations
On November 21, 2017, OFAC imposed new sanctions against one individual, 13 entities, and 20 vessels operating in or with ties to North Korea, all of which are listed below. The sanctions were imposed under Executive Order 13810 (issued in September 2017) and Executive Order 13722 (issued in March 2016). See our previous advisory for a discussion of existing sanctions.
As a result of these designations, the sanctioned persons are listed as Specially Designated Nationals (SDNs), meaning that all US persons worldwide are required to freeze all assets of these SDNs in their possession or control, and are prohibited from engaging in practically all transactions and dealings with such persons. Furthermore, non-US persons can be subject to secondary sanctions for providing significant support to such persons or facilitating significant financial transactions on behalf of such persons.
Chinese Trading Companies and Individual
OFAC designated four Chinese entities and a Chinese individual involved in trade with North Korea, as follows:
- Dandong Kehua Economy & Trade Co., Ltd.
- Dandong Xianghe Trading Co., Ltd.
- Dandong Hongda Trade
- Dandong Dongyuan Industrial Co., Ltd.
- Sun Sidong
OFAC stated that these companies and Mr. Sidong cumulatively exported approximately $678 million worth of goods to North Korea and imported more than $100 million worth of goods from North Korea. None of these sanctioned firms are publicly traded. The focus on Chinese entities is notable as China is reported to be North Korea’s channel to the international market.
North Korean Shipping and Trading Companies and Vessels
OFAC identified the following entities as “agencies, instrumentalities, or controlled entities of the Government of North Korea,” and subject to sanctions pursuant to Executive Order 13722:
- Maritime Administration of the Democratic People's Republic of Korea (DPRK)
- Ministry of Land and Maritime Transportation of the DPRK
It also designated the following shipping and trading companies, and blocked 20 of their vessels:
- Korea Rungrado Shipping Company and its vessels Pu Hung 1, Rung Ra Do, and Yang Gak Do
- Korea Rungrado Ryongak Trading and its vessels Rung Ra 1 and Rung Ra 2
- Yusong Shipping Company and its vessels Won San 2, Za Ryok 2, 7-28, Yu Song 12, and Yu Song 7
- Dawn Marine Management Co. Ltd and its vessels Jang Gyong, Kum Song 3, Kum Song 5, Kum Song 7, and Kum Un San 3
- Korea Daebong Shipping Company and its vessel Rak Rang
- Korea Kumbyol Trading Company and its vessels Kang Song 1, Ku Bong Ryong, So Baek San, and Rye Song Gang 1
In its press release, OFAC shared four photos of a “recent attempt by Korea Kumbyol Trading Company’s vessel RYE SONG GANG 1 to conduct a ship-to-ship transfer, possibly of oil, in an effort to evade sanctions,” supporting its decision to impose sanctions against these entities.
North Korean Overseas Labor Revenue
OFAC designated the following entity, pursuant to Executive Order 13722, for “having engaged in, facilitated, or been responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea or the Workers’ Party of Korea:”
- Korea South-South Cooperation Corporation
The Treasury Department’s notice indicated that Korea South-South Cooperation Corporation has operated in China, Russia, Cambodia, and Poland.
Conclusion
Although the designation of North Korea as a state sponsor of terrorism is likely to have little practical effect, it is another sign of the deepening rift between the United States and North Korea and the isolation of North Korea from the global community. The designations of persons under various North Korea sanctions authorities indicate that the Trump Administration will continue to use these tools vigorously to impose new designations, and underscores the risk for non-US persons that engage with North Korea.
Although the President and Secretary Tillerson both stated that North Korea would be designated as a state sponsor of terrorism, the State Department has not yet updated its website and no Federal Registrar notice has been issued. These materials should be updated and released in the coming days.
Further commentary is available on the Steptoe International Compliance Blog. You can also follow us on Twitter (@SteptoeIntlReg).
