North Korea – Enforcement of Sanctions
As reported in our News Item of 26 September 2017, significant new sanctions against North Korea were unanimously agreed by the United Nations Security Council in August and September of 2017. Efforts to enforce those sanctions, especially against the maritime community, have been intensified by nation states and Members should be aware both of the particular prohibitions on trade with North Korea and the serious consequences of trading in breach of sanctions.
Those UN sanctions with a particular impact on maritime trade were helpfully summarised in the Client Alert, issued by the Club’s US attorneys Freehill Hogan & Mahar in September 2017, and which for the avoidance of doubt are set out here again:
UN Security Council Resolution No. 2371 of 5 August 2017:
- Bans all exportation of coal, iron, iron ore, lead and lead ore from North Korea and prohibits the transport of said North Korean origin commodities by the vessels of any Member State of the United Nations;
- Bans all exportation of seafood from North Korea, and prohibits the transport of North Korean origin seafood by the vessels of any Member State of the United Nations;
- Authorises the UN Committee monitoring the sanctions against North Korea to designate any vessels engaged in activities prohibited by various UN Resolutions relating to North Korea, and calls upon UN Member States to ban said vessels from entry to their ports;
- Prohibits new joint ventures or cooperative entities with North Korean entities or individuals.
UN Security Council Resolution No. 2375 of 11 September 2017:
- Bans the supply, sale or transfer of all condensates or natural gas liquids to North Korea;
- Imposes a cap of 2 million barrels per year of all refined petroleum products imported to North Korea (since reduced to 500,000 barrels and is heavily controlled, requiring the Member State to advise the Security Council every thirty days of the amounts supplied and the parties to the transaction);
- Restricts the supply, sale or transfer of crude oil to North Korea in any 2-month period after the Resolution was passed to the amount which any UN Member State supplied, sold or transferred to North Korea in the 12 months before the Resolution was passed;
- Bans the exports of textiles from North Korea;
- Bans UN Member States from providing work authorisations for North Korean nationals, after the date of the Resolution;
- Prohibits all joint ventures or the expansion of current joint ventures with North Korean entities or individuals;
- Calls upon Member States to inspect vessels, with the consent of the flag State, if there are reasonable grounds to believe that such vessels are carrying cargoes whose supply, sale or export is prohibited under various UN Security Council Resolutions;
Since the above measures were introduced there have been several reported instances of trade with North Korea in breach of sanctions, with vessels photographed by satellite apparently engaged in the illicit transfer of cargoes in STS operations with North Korean vessels at sea. In reaction the US Department of Treasury has designated one individual, 27 entities and 28 vessels found to have been engaged in efforts to circumvent sanctions. Details of these and other enforcement actions are set out in a new Client Alert issued by Freehill Hogan & Mahar on 6 March 2018.
As noted in that Alert, OFAC have signalled their clear intent to focus on maritime activities by issuing a Sanctions Advisory which sets out the deceptive practices being used by North Korea to mask illicit trade and risk mitigation measures which the international shipping community should consider implementing. A copy of that Advisory can be found West P&I Resources.
These measures are in addition to the provisions introduced by President Trump in an Executive Order on 21 September 2017, which included the imposition of a 180-day rule - similar to that which the US has operated against Cuba for many years - so that any vessel which calls at a North Korean port or engages in a STS operation with a vessel that has done so may not trade in US waters for the next six months.
Beginning in 2016 China has implemented various measures in reaction to the escalating situation with North Korea. Most recently these have included the following which match the UN Security Council Resolutions described above:
Announcement (2018) No. 19, Ministry of Transport:
- Implementation date: 14th Feb 2018;
- Restrictions on ships which carried banned cargoes related to North Korea and are designated by UN Security Council calling at Chinese ports;
- Restrictions on Chinese citizens and enterprises chartering North Korean-flagged ships, or chartering ships to North Korea, and restrictions on providing crews to North Korea or hiring North Korean crews;
- Restrictions on providing ship registration, insurance or re-insurance, or ship classification and certification services;
- Restrictions on ships owned by Chinese citizens or enterprises conducting STS operations with North Korean-related cargoes.
Announcement (2018) No.17, Ministry of Commerce, Industry and Information Technology, National Defense Bureau, National Atomic Energy Agency, General Administration of Customs:
- Implementation date: 5th Feb 2018
- Prohibited to export to North Korea dual-use items and technologies related to weapons of mass destruction and their means of delivery, and dual-use conventional weapons, as detailed in the announcement.
Announcement (2018) No. 4, Ministry of Commerce, General Notice of the General Administration of Customs:
- Implementation date: 6th Jan 2018
- Total ban on the export of iron, steel and other metals, industrial machinery, and transport vehicles to North Korea;
- Restrictions on crude oil exports to North Korea;
- Restrictions on the export of refined petroleum products to North Korea;
- As of the date of implementation of the announcement, the import of some grain and agricultural products from North Korea, including magnesite and magnesium oxide, soil and stone, timber, machinery, electrical equipment and ships will be completely banned.
Announcement (2017) No. 40, Ministry of Commerce, General Notice of the General Administration of Customs - Notice on the implementation of UN Security Council Resolution 2371:
- Implementation date: 15th Aug 2017
- The import of coal, iron, iron ore, lead, lead ore and aquatic products from North Korea is completely prohibited (except coal that is confirmed by the exporting State on the basis of credible information to be of non-North Korean origin and transhipped through the port of Rozin, provided that the exporting State notifies in advance the Committee established by the United Nations Security Council pursuant to resolution 1718).
Chinese lawyers Hai Tong & Partners advise that penalties for breach of these provisions by Chinese persons and entities can be administrative or criminal depending on the severity.
Pursuant to Article 82 of the Customs Law, administrative penalties - where acts of smuggling are not sufficiently serious to constitute a crime - can include fines and the potential confiscation of vessels repeatedly used for smuggling. Powers are granted to allow the customs authorities to detain and search vessels suspected of being involved in smuggling and to examine the bank accounts of suspected entities and persons. Where there is a failure to pay a fine or other sums found to be due the legal representative or main principal of the accused party will be prevented from leaving China.
Where the circumstances of the smuggling act are sufficiently serious to constitute a criminal offence, Article 153 of the Criminal Law allows for fines to be levied and for fixed-term imprisonment of not more than three years or criminal detention. More serious cases can be see sentences increased to a fixed-term imprisonment of not less than three years but not more than 10 years and ultimately the most serious cases can result in a fixed-term imprisonment of not less than 10 years.
The measures set out above form part of the most comprehensive sanctions regime ever implemented against a single state and underline the determination of the United Nations and individual countries to do everything possible to deter North Korea from pursuing its nuclear weapons programme. There is a significant and growing focus on the shipping industry in order to prevent North Korea from obtaining the supplies it needs to further its nuclear ambitions.
Members should therefore be in no doubt that any trade with North Korea will be subject to the greatest scrutiny. Vessels may be subject to search and detained at ports whilst suspicious activity is investigated. Any activity in breach of sanctions will result in insurance coverage being immediately withdrawn and a very high likelihood of severe penalties being imposed which will at best affect the future trading of the vessel and at worst could prove fatal to the future viability of a Member's whole enterprise.
Even if it were possible to undertake legitimate trade with North Korea, Members should bear in mind that the Club is very unlikely to be able to support vessels trading to North Korean ports, with payment of claims and fees and the provision of security liable to be very delayed and perhaps completely prohibited. Any vessel doing so will also be automatically banned from US waters for the following 180 days.
All Members are therefore strongly urged to re-assess the risks of undertaking any business with North Korea and should also exercise the fullest possible due diligence to ensure that they are not unwittingly entering into prohibited activities with North Korean entities.
The Club maintains a comprehensive webpage on sanctions including those against North Korea (which can be found Sanctions News) and Members are strongly advised to read this and to contact the Managers (Tony Paulson Tony.Paulson@westpandi.com or Tim Davies Tim.Davies@Westpandi.com) for advice on these and any other sanctions matters.
The Managers are very grateful to Freehill Hogan & Mahar and Hai Tong & Partners for their assistance in developing this advice.