Sanctions Update: North Korean Sanctions Toughened

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1 Sanctions Update: North Korean Sanctions Toughened 24 March 2016 Background UN and US Sanctions were recently passed to condemn North Korea for its January 6 nuclear test and February 7 rocket launch. The new sanctions expand the breadth and depth of previous sanctions against North Korea. The new sanctions do this by, among other things, targeting both North Korean natural resources sales and North Korean imports of aviation and rocket fuel. They also impose a freeze on North Korean assets and a ban on new financial channels to and from North Korea. North Korea US Sanctions The US passed the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA 2016) as law on 18 February The NKSPEA 2016 has enhanced and widened the scope of sanctions that were previously in place under the North Korea Sanctions Enforcement Act of The NKSPEA 2016 prohibits any person from knowingly engaging (or attempting to engage) in the following activities: Any activities or transactions with the North Korean government that materially contribute to the proliferation of weapons of mass destruction; Import, export or re-export of any significant arms or related material to or from North Korea; Engaging in transactions related to the manufacture, maintenance or use of arms or related material in North Korea or providing training, services or assistance for such transactions; Import, export or re-export of luxury goods to or into North Korea; Sale, supply or transfer of precious metals, graphite, raw or semi-finished metals or aluminium, steel, coal or software related to weapons of mass destruction and other proliferation activities; Censorship on behalf of the North Korean government; Human rights abuses involving the North Korean government; Money laundering, counterfeiting of goods or currency, bulk cash smuggling, narcotics trafficking or other illicit activity which involves or supports the government of North Korea. In addition to the above sanctions, NKSPEA 2016, also gives the President of the United States the power to identify foreign ports and airports where the inspections of ships, aircrafts and conveyances originating in North Korea, carrying North Korean property or operated by the North Korean government are deemed deficient. The Department of Homeland Security will then have the power to conduct enhanced customs inspection of any cargo that enters the US through one of the 1

2 identified ports or airports. Furthermore, any vessel, aircraft or conveyance that has been found to have facilitated sanctionable activities may be seized or forfeited if they enter the US jurisdiction. It is important to note that the US intends the NKSPEA to apply to all persons and not just to US persons. It therefore operates as a secondary sanction applicable worldwide to persons and corporations of any nationality. Persons who breach the NKSPEA sanctions may face very substantial civil / criminal penalties, including considerable fines and lengthy jail sentences; blocking / forfeiture of assets that come under US jurisdictions; denial of access to the US; and loss of access to the US financial system. More recently, on 16 March 2016, the US President issued an Executive Order giving effect to the NKSPEA 2016 and the UN Resolution 2270, and adding the following sanctions: Freeze of any North Korean property in the US; Ban on export of goods from the US to North Korea; and, Ban on investment or financing in North Korea by a US person. UN Sanctions On 2 March 2016, the UN Security Council adopted Resolution 2270 the primary purpose of which was to intensify sanctions against North Korea. While earlier UN sanctions against North Korea had been more focussed on activities relating to North Korea s weapons development, the new sanctions operate more generally to restrict North Korea s trade and revenue streams. The UN Security Council has called for Member States to report back within 90 days of adoption of the resolution (i.e. by 31 May 2016), on the measures taken to implement the provisions of Resolution 2270 locally. We would therefore expect the EU and other UN member states, including Singapore, to implement Resolution 2270 fairly soon. Some of the new key measures under Resolution 2270 are as follows: Member States must prohibit their companies and nationals from chartering vessels, aircraft or crew services to North Korea, and prohibit their nationals from operating North Korean vessels or using the North Korean flag, unless those activities are exclusively for livelihood purposes. (Note: The livelihood purposes exception is not defined in the Resolution but it is likely that the intention behind its inclusion is to allow room to permit otherwise prohibited activities in circumstances where the prohibition is causing adverse humanitarian consequences on the civilian population of North Korea). Member States are required to inspect all cargo going to and coming from North Korea, cargo brokered by North Koreans or anything on North Korean-flagged vessels or aircraft. North Korea s exports of coal, iron and iron ore are prohibited, with a few minor exceptions for exports for livelihood purposes and exports that are unrelated to prohibited activities. North Korea s exports of titanium ore, vanadium ore, rare earth minerals and gold are prohibited. Ban on the export of aviation fuel to North Korea, including rocket fuel (The refuelling of Air Koryo planes outside of North Korea is not banned). Member States are obliged to close any existing North Korean financial institutions present in their territories. 2

3 Member States must ensure that financial institutions under their jurisdiction do not establish new joint ventures, or take an ownership interest in North Korean banks, or have correspondent relationships with North Korean banks. An asset freeze and visa ban by Member States on 16 persons and 12 entities targeted by the UN. EU Sanctions The EU has so far not adopted the UN Resolution 2270 sanctions in full yet. The EU has however enacted Regulation 315/2016 which adds the 16 people and 12 entities targeted by UN Resolution 2270 to the list of EU sanctioned persons. The existing EU sanctions against North Korea are to be found in Regulation 329/2007 (amended by Regulation 696/2013). These sanctions mirror the earlier UN sanctions against North Korea. The existing EU sanctions apply to all EU nationals, including entities incorporated or constituted under the law of an EU Member State and prohibits the following activities: Sale, supply, transfer or export of prohibited goods and technology to any natural or legal person in North Korea; Provision of technical or financial assistance related to the prohibited goods and technology; Sale, supply, transfer or export of any prohibited luxury items to North Korea; Acceptance of North Korean vessels into port where there are reasonable grounds to believe that the vessels carry prohibited items; Provision of bunkering or ship supply services or any other services to North Korean vessels where there are reasonable grounds to believe that the vessels carry prohibited items; and, Establishment of new correspondent relationships and maintenance of correspondent relationships with banks in North Korea where there are reasonable grounds to believe this could contribute to North Korea s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programmes. In addition to the above, the sanctions require EU nationals to: Freeze all funds and economic resources belonging to, owned, held or controlled by sanctioned persons or entities; and, Inspect cargo originating in or destined for North Korea where there are reasonable grounds to believe that the cargo contains prohibited items. 3

4 Current Singapore Sanctions against North Korea - (Pre-Resolution 2270) The UN Resolution 2270 sanctions have not yet been implemented in Singapore. The position in Singapore (for now) is therefore as it was under the earlier UN sanctions against North Korea. In Singapore, UN sanctions against North Korea are implemented through three local Regulations, namely: 1. United Nations (Sanctions Democratic People s Republic of Korea) Regulations Monetary Authority of Singapore (Sanctions Democratic People s Republic of Korea) Regulations Monetary Authority of Singapore (Freezing of Assets of Persons Democratic People s Republic of Korea) Regulations 2009 Under these Regulations, any citizen of Singapore / person in Singapore is prohibited from the following activities: Supply or procurement of any prohibited items to / from any person in North Korea; Receipt or provision of technical training, services or assistance related to manufacture or maintenance of any prohibited item from / to any person in North Korea; Provision of financial services and other resources that may contribute to North Korea s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programmes; and, Provision of bunkering services to any North Korea-flagged vessels if there are reasonable grounds to believe that the vessel is carrying any banned items. In addition, financial institutions are prohibited from the following activities: Provision of financial services and other resources that may contribute to North Korea s nuclear-related, ballistic missile-related, or other weapons of mass destruction-related programmes; and, Entering into financial transactions or providing financial assistance in relation to any prohibited item; and, Opening any representative office, or incorporating or establishing any subsidiary, or opening any bank account in North Korea. Financial institutions are also required to freeze all funds, financial assets or economic resources owned or controlled by any sanctioned person. It is possible that further sanctions may be imposed against North Korea if the situation with North Korea worsens. If your business may have some North Korean related dealings, particularly if you are in the shipping, trade, financial or insurance sectors, we would advise keeping a close watch on developments in this space in the coming months. DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. 4

5 Main Contacts: Karnan Thirupathy Partner T E [email protected] Jonathan Goacher Counsel T E [email protected] Andrew Cook Senior Associate T E [email protected] Yuen Gi Ko Solicitor T E [email protected] 5