As a consequence of U.S. and UN sanctions on the Democratic People’s Republic of Korea (DPRK or North Korea), companies increasingly need to coordinate compliance efforts across the typically distinct worlds of economic sanctions and import/customs compliance. This is particularly necessary with respect to identifying, and mitigating the risk of DPRK-related labor in supply chains. Below, we summarize first the expanded scope of UN restrictions on the DPRK, including the prohibition on the use of DPRK labor, and then second, how those rules have been implemented and expanded in the United States in increasingly complex ways.

Part I:    United Nations Restrictions:

The United Nations has maintained limited sanctions on North Korea for years, but in 2017 it expanded those sanctions in a number of material ways.  Of relevance to this analysis, the UN Security Council (UNSC) reached a determination that all DPRK labor outside of North Korea poses a high forced labor-related risk.  As a result, the UNSC first required that all new work visas for DPRK citizens be approved by the UNSC, before expanding that restriction in December 2017 (UNSCR 2397) to require all UN Member States to repatriate all DPRK workers currently employed in their territory “immediately but not later than 24 months” (i.e., December 2019).  Therefore, for example Chinese and Taiwanese companies could currently employ DPRK citizens, but they will be required to reduce that employment and ultimately curtail it, or risk violation of UN resolutions.

Part II:   U.S. Restrictions:

In parallel, the United States has implemented a growing array of restrictions that also target DPRK labor.  Below, we summarize the relevant (a) U.S. sanctions prohibiting transactions with the DPRK and (b) a parallel set of import requirements presumptively prohibiting products manufactured with DPRK nationals in the supply chain:

(1) U.S. Sanctions on the DPRK:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has maintained a comprehensive embargo on the DPRK since 2017 and more limited restrictions for decades. Today, OFAC prohibits the export of any goods or services to the DPRK  and any transactions with the Government of North Korea or the Workers Party of North Korea.  OFAC generally considers a transaction with a DPRK national ordinarily resident in the DPRK to be prohibited as an indirect export of a service to the DPRK.

Importantly, for this analysis, OFAC also prohibits the importation of any goods or services from the DPRK, even items with only a de minimis percentage DPRK content (e.g., a $10,000 widget produced in Russia with a $2 North Korean origin part would be considered North Korean origin and prohibited entry into the United States).

Over the last few months, we have seen that OFAC has aggressively expanded its enforcement of these provisions, including designation of persons involved in DPRK trade, and issuing advisories to the shipping community about DPRK risks in the supply chain.  See;; and

(2) DPRK-Related Import Prohibitions:

In parallel, since August 2017, U.S. Customs and Border Protection (“CBP”) has maintained a North Korean related import restriction.  Specifically, pursuant to Section 321(b) of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), CBP utilizes a presumption that any “significant goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens” is produced through forced labor and therefore is prohibited for entry into the United States.  The presumption can be rebutted only through “clear and convincing” evidence that the DPRK nationals are not forced labor (e.g., a demonstration that they are asylees or refugees in a third country).  To assist importers in meeting their “reasonable care” obligation to ensure that goods entering the United States meet these new provisions, the Department of Homeland Security has published CAATSA Section 321(b) Guidance on due diligence steps importers can take, while CBP has noted that the seafood industry presents a high risk of DPRK nationals.  See e.g.,

Part III: Significant Points for Importers, Exporters and U.S. Companies

The net result of the overlap of the above restrictions is:

  • All U.S. and non-U.S. companies are prohibited to grant new work permits to DPRK nationals, except DPRK nationals seeking an asylum or refugee status.
  • U.S. companies are prohibited under U.S. sanctions law from directly or indirectly exporting goods or services to the DPRK, including transacting with persons ordinarily resident in the DPRK.
  • U.S. companies are prohibited under U.S. sanctions to import any products produced in whole or in part (no matter how small the percentage) with DPRK origin material into the United States.
  • All products manufactured in whole, or in part, with DPRK national labor are presumptively considered to be produced with forced labor and are therefore prohibited to enter the United States, unless the importer can demonstrate through “clear and convincing” evidence that the DPRK nationals were not forced labor (e.g., by demonstrating they are asylum seekers).


On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.


From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

In the Federal Register on March 5, OFAC amended and reissued the North Korea Sanctions Regulations in its entirety to implement three recent Executive Orders and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act.

The agency is also incorporating into the reissue:

  • Several general licenses which until now have only appeared on OFAC’s website on the North Korea Sanctions page;
  • Several new general licenses; and
  • New definitions, interpretations, and general licenses that were not previously provided on OFAC’s website have been added to flesh out the regulations, including incorporating several general licenses typically included in OFAC’s other programs (e.g., related to the provision of legal services, work with international agencies, or on behalf of the U.S. government)

OFAC has also published new and updated North Korea-related FAQs.



Despite increased pressure from the U.S. and the UN Security Council, human rights groups estimate about 16 countries still host North Korean laborers. A recent estimate by the Korea Institute for National Unification in Seoul puts the number of North Korean workers overseas at around 147,000. Most work in China and Russia, but reports continue to surface of North Korean workers even in EU countries.

In Poland for instance, a recent New York Times report found North Korean workers in a number of industries, including agriculture, the manufacture of shipping containers, and even ship construction. The report also includes the names of companies – Armex (reportedly linked to a UN sanctioned company called Rungrado General Trading) and Wonye – that have allegedly been involved in supplying such workers.

It was not until October 2017 that the EU agreed to stop renewing work permits for North Korean labor. However, media reports indicate local governments in Poland continued to approve such permits after the EU’s decision. New legislation took effect in Poland on January 1, 2018, barring new foreign worker permits in Poland, but there is reportedly little coordination between provincial governments and the national government on these permits.

The increased focus on imports produced by North Korean labor in third countries – now subject to exclusion from the United States, as well as exposing U.S. persons to OFAC sanctions – creates a need for enhanced due diligence in supply chain operations. Reports like these can help companies identify such products and transactions, something that is generally very difficult to do.

On September 20, 2017, President Trump signed Executive Order 13810, which substantially increases the authority of the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) to impose both primary and secondary sanctions on non-U.S. persons transacting with the Democratic People’s Republic of Korea (aka North Korea). These new sanctions come soon after, and implement, two United Nations Security Council Resolutions (UNSCRs) expanding sanctions on North Korea. They also follow new sanctions imposed in August by the Countering America’s Adversaries Through Sanctions Act and a travel ban imposed by the United States in July (see our previous summary of the travel ban here). The European Union is reportedly also considering new sanctions to be announced in mid-October. Below, we provide summaries of the new actions taken by the following jurisdictions:

    • United States
    • United Nations
    • European Union

New U.S. Sanctions

The United States has maintained a comprehensive embargo on North Korea since March 15, 2016, which has prohibited U.S. persons from exporting any goods or services, directly or indirectly, to North Korea. A ban on imports into the United States of North Korean-origin goods also has been in place since April 18, 2011. Previous executive orders also have provided for the designation of persons that trade with specific sectors of the North Korean economy, for example metal, graphite, coal or software. The new EO greatly expands the types of trade with North Korea that may subject non-U.S. persons to designation, substantially increasing secondary sanctions and forcing non-U.S. persons to choose between dealing with North Korea or retaining access to the U.S. dollar. In particular, in includes:

  • Broad New Authority To Impose Primary Sanctions on Any North Korean and Secondary Sanctions on Persons Conducting Virtually Any Transaction with North Korea: The EO grants OFAC authority to designate all North Korean persons, defined to include all North Korean citizens and permanent residents, and all entities incorporated in North Korea, as specially designated nationals (SDNs). It also grants OFAC authority to designate as SDNs any person conducting almost any type of business with North Korea. The EO defines persons broadly – as is typical for OFAC sanctions programs – and includes joint ventures. Given recent rhetoric from the Hill and in the press, it is foreseeable that U.S. entities engaged in joint venture projects in China and other third countries that undertake any activity related to North Korea may get swept up in the sanctions restrictions. Specifically, OFAC can designate a person as an SDN if it concludes that the person: (1) operates in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea; (2) owns, controls, or operates a port in North Korea; and (3) has engaged in one significant exportation to or importation from North Korea of any goods, services, or technology.;. OFAC also may designate any person that provides material support to the foregoing or acts for or on behalf of the persons described above.
  • Secondary Sanctions Targeting Foreign Financial Institutions Transacting with North Korea: OFAC is now authorized to impose either (a) full asset blocking sanctions or (b) more limited restrictions or prohibitions on the maintenance of correspondent or payable through accounts in the United States on any foreign financial institution that, after September 21, 2017, knowingly conducts or facilitates any significant transaction: (1) with any SDN designated pursuant to the [DPRK], [DPRK2], [DPRK3], this EO, or any North Korean person designated pursuant to the [NPWMD] program; or (2) in connection with trade with North Korea.
  • New Restrictions on Vessels or Planes that Travel to North Korea: The EO imposes three transportation-related prohibitions: (1) vessels in which a non-U.S. person has an interest that call at a port in North Korea cannot call at a U.S. port for 180 days; (2) vessels in which a non-U.S. person has an interest that engage in a ship-to-ship transfer with vessels described in (1) above within the last 180 days cannot call at a U.S. port; and (3) aircraft in which a non-U.S. person has an interest that have landed in North Korea may not land in the United States for 180 days following their departure from North Korea.
  • Blocking All Assets Passing Through North Korean Accounts: The EO blocks (or freezes) all funds that “originate from, are destined for, or pass through a foreign bank account” that OFAC determines is owned or controlled by a North Korean person or has been used to transfer funds in which a North Korean person has an interest.

In parallel to this executive action, the U.S. Congress is debating several pieces of legislation on North Korea. The scope of the package that will pass Congress is not yet clear, but it is widely expected to include (a) broad secondary sanctions authority on persons knowingly conducting certain types of significant transactions with North Korea and (b) a broader authority to ban travel than that currently being exercised by the State Department. Finally, on September 26, 2017, President Trump also announced an expansion of the Administration’s travel and visa restrictions to cover North Korean and Venezuelan nationals, in addition to the Middle Eastern countries it had previously covered.

New United Nations Sanctions

Prior to the new U.S. actions, the United Nations had also passed two recent resolutions—UNSCR 2371 (passed on August 5, 2017) and UNSCR 2375 (passed on September 11, 2017)—expanding its restrictions on North Korea. These resolutions imposed a series of restrictions including, inter alia:

    • Prohibitions on Export to North Korea: UNSCR 2375 prohibits the export to North Korea of all condensates, natural gas liquids, and all refined petroleum products, and imposes a cap on crude oil exports. The UNSCR authorizes the export of a limited amount (up to 2,000,000 barrels per year) of refined petroleum products provided that the transactions do not involve any designated persons and are designed exclusively for improving the livelihood of North Korean persons.
    • Prohibitions on Import from North Korea: The resolutions require member states to prohibit the import of coal, iron, iron ore, seafood, lead, lead ore, and textiles from North Korea or its nationals, with limited exceptions for certain pre-existing contracts.
    • Restrictions on North Korea Labor: UNSCR 2371 limited the number of North Korean nationals that UN Member States are allowed to have work within their countries to the number that held work authorizations as of August 5, 2017, unless authorized in advance by the UN. UNSCR 2375 goes further and requires that UN authorization is required for a Member State to grant any new work permits to North Korean nationals.
    • Financial Restrictions: UNSCR 2371 requires Member States to prohibit their nationals from entering into new joint ventures with North Korean persons. UNSCR 2375 then prohibits even existing joint ventures unless those joint ventures have been approved in advance by the UN. It provides a 120 day wind down period for entities to withdraw from existing joint ventures. The prohibition does not apply to China-DPRK hydroelectric power infrastructure projects or Russia-DPRK ports and rail projects.
    • Shipping and Cargo Restrictions: The UNSCRs authorize the identification as blocked property of any vessels that are violating North Korea-related restrictions in previous UNSCRs. It also requires Member States to inspect any vessel at sea that they have reasonable grounds to believe is carrying cargo in violation of applicable UN restrictions on North Korea.
    • New Designations: The resolutions also require Member States to impose travel bans and asset freezes on 10 individuals and seven entities, including the Foreign Trade Bank, which serves as North Korea’s primary foreign exchange bank.

EU Debate on New Measures

In parallel, the European Union is reportedly considering a package of new EU sanctions that would expand the scope of the EU’s measures beyond those implemented by the United Nations, though they would not be as comprehensive as those implemented by the United States. These are expected to be announced on or before the meeting of EU Foreign Ministers on October 16 and reportedly will include (a) a ban on EU persons investing in North Korea, (b) an expansion of the definition of “luxury goods” for which exports are prohibited, and (c) an oil import embargo.

On August 2, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), which imposes new sanctions on Russia, Iran, and North Korea.

While President Trump noted his view that the legislation was “significantly flawed”, its passage represents the successful culmination of months of Congressional negotiations and its provisions will have an immediate and material impact, particularly on companies undertaking transactions in Russia.

CAATSA represents, in effect, the combination of three separate pieces of legislation imposing new sanctions on Russia, Iran, and North Korea. Each piece of the legislation contains a series of new restrictions, but several key highlights are summarized below:

  • Russia: New Primary Sanction Authorities: CAATSA provides the President with new authorities to sanction (1) persons knowingly engaging in significant activities undermining cybersecurity on behalf of the Russian Government; (2) non-U.S. persons who evade existing Russia-related sanctions; (3) non-U.S. persons responsible for, complicit in, or otherwise directing, the commission of serious human rights abuses in Russia; and (4) non-U.S. persons who provide significant support that materially contributes to the ability of the Government of Syria to acquire chemical, biological, or nuclear weapons, ballistic missiles, or other similar items (e.g., those on the U.S. Munitions List). The Legislation does not itself designate any persons
  • Russia: Sectoral Sanctions – Reduced Payment Terms and New Sectors: The Legislation modifies existing restrictions by reducing permissible maturity periods under Directive 1 and Directive 2 (from 30 and 90 days to 14 and 60 days, respectively) and expanding the territorial scope of Directive 4 to certain types of oil exploration and production activities globally, not just in Russia. Second, it also authorizes the expansion of sectoral sanctions to state-owned enterprises in Russia’s mining, metals, and railway sectors.
  • Russia: Secondary Sanctions on Defense, Intelligence, and Export Pipelines Sectors: The Legislation imposes several new mandatory and discretionary “secondary” sanctions. These include (1) mandatory secondary sanctions on persons conducting “significant” transactions with Russia’s defense or intelligence sectors (or persons operating in that sector); (2) discretionary secondary sanctions on non-U.S. persons undertaking an investment or providing goods, services, or support for the construction of Russian energy export pipelines; (3) mandatory secondary sanctions on persons making an investment in excess of certain thresholds in the privatization of Russian state-owned assets in a way that unjustly benefits Russian officials or their families; and (4) modifies, to make mandatory, existing secondary sanctions on non-U.S. persons undertaking significant transactions in support of exploration or production of oil from shale, arctic offshore, or deep-water locations in Russia.
  • Russia: Codification of Existing Sanctions: The Legislation also codifies all of the existing Executive Orders on Russia (both those related to Ukraine and to Cyber activities) as well as the existing designations as of August 2, 2017. While the President retains discretion to relax the provisions, the Legislation requires that he provide advance notice and written justification for any such relaxations, and then allow Congress at least 30 days to potentially object to the relaxation.
  • North Korea: The Legislation imposes a series of new designation authorities for the President, which broadly relate to persons that are in violation of existing U.S. and United Nations sanctions on North Korea. CAATSA also imposes new obligations on U.S. financial institutions to cut-off correspondent account access for non-U.S. financial institutions that might indirectly be benefiting North Korea. Finally, it calls on the administration to consider re-designating North Korea as a state sponsor of terrorism.
  • Iran: Similarly, the Iran-related aspects of the Legislation primarily focuses on providing the President with a series of new designation-related authorities that focus on Iran’s non-nuclear related activities (e.g., ballistic missile testing, support to terrorism, and enforcing arms embargoes).
  • National Strategy To Combat Terrorism Finance: Finally, the Legislation calls for the development of a national strategy to combat terrorism finance and it opens the opportunity for private sector engagement in the development of that strategy.

CAATSA’s passage has already provoked immediate responses from not only its targets – Russia has requested the removal of several hundred U.S. diplomatic personnel and threatened additional retaliation while Iran has accused the United States of violating the nuclear deal – but U.S. allies, including Germany and Austria who have called CAATSA’s provisions “unacceptable” and indicate they will not “tolerate” sanctions being imposed on their companies pursuant to its provisions.

For more information, contact: Jeffrey Snyder, Cari Stinebower, Carlton Greene, Dj Wolff, J.J. Saulino

On March 7, Zhongxing Telecommunications Equipment Corporation and its subsidiaries and affiliates, as well as ZTE Kangxun Telecommunications Ltd. and its subsidiaries and affiliates (collectively referred to as ZTE or ZTE Corporation) entered into a guilty plea with the U.S. Department of Justice and “agreed to pay a $430,488,798 penalty to the U.S. for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement.”

Simultaneously, ZTE also entered into settlement agreements with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for $100,871,266 related to the same conduct, as well as the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) for $661 million for illegal exports of U.S.-origin product to Iran and North Korea.

In total, ZTE’s settlement reached $1.19 billion; BIS has agreed to suspend payment of $300,000,000, which ZTE will be required to pay if it violates the BIS settlement agreement.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Dj Wolff

Continuing a trend toward greater judicial scrutiny of Department of Justice (DOJ) plea agreements first seen in the district court’s action in the Fokker case, Ed Kinkeade, a U.S. District Judge for the Northern District of Texas, revised the guilty plea submitted to him by ZTE and the DOJ to reject the corporate monitor agreed to by both ZTE and the DOJ and instead add that the “monitor is a judicial adjunct pursuant to Federal Rule Procedure 53.”

In place of the monitor proposed by ZTE and DOJ, the Judge selected former Texas state district court judge, James Stanton. Judge Kinkeade also revised the agreement to ensure the court has a more active role in several ways including: (a) removing DOJ’s role in reviewing the monitor’s workplan, which will now be written by the court, (b) indicating the monitor will report to the court, and (c) clarifying that the court, not DOJ, “shall decide any disputed issues between the Monitor, the Company, and the Department.”

In light of the settlement of administrative and criminal enforcement actions against ZTE, the End-User Review Committee (ERC) at the Bureau of Industry and Security (BIS) removed both companies from the Entity List on March 29.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Dj Wolff, Chris Monahan, Jana del-Cerro

The months of November and December saw major steps by both the U.S. and the United Nations targeting the Democratic People’s Republic of Korea’s (DPRK) nuclear and ballistic missile programs. First, on November 9, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a final rule imposing correspondent banking restrictions on U.S. financial institutions in an effort to wall off North Korean banks from the U.S. financial system. Citing ongoing concerns over the DPRK’s ability “to access the international financial system to support its WMD and conventional weapons programs,” the rule exercises FinCEN’s authority under Section 311 of the USA PATRIOT Act to impose so-called “special measures,” requiring covered financial institutions to both prevent North Korean banks from opening correspondent accounts and to take steps to ensure that North Korean banks do not indirectly make use of their correspondent relationships with other foreign financial institutions.

Second, on November 30, the United Nations Security Council passed United Nations Security Council Resolution (UNSCR) 2321, which imposed additional sanctions targeting North Korea’s government as well as the country’s trade in commodities. The new sanctions aim to cut the DPRK’s coal exports by an estimated 60 percent and ban the export of copper, nickel, silver, and zinc. The resolution requires member states to prohibit persons subject to their jurisdictions from providing public or private support for trade with the DPRK such as export credits, guarantees, and insurance; to close foreign bank offices, accounts, and subsidiaries within the DPRK within 90 days, except as approved by a committee of the council; and to expel from their territory persons working on behalf of DPRK banks or financial institutions. It also calls on U.N. member states to limit the number of bank accounts held by DPRK diplomatic missions and consular posts, as well as the number of DPRK diplomats within their respective territories. The resolution imposes asset freezes on 11 individuals and 10 entities, including North Korean banks like Korea United Development Bank and North Korean trading companies like Singwang Economics and Trading General Corporation. The U.S. Ambassador to the United Nations, Samantha Power, estimated that, altogether, the new sanctions would slash the DPRK’s export revenue by at least $800 million dollars per year, or 25 percent of its total export revenues. UNSCR 2321 builds on a previous UNSCR (2270) from March, which imposed several similarly strong measures with respect to the DPRK, most notably requiring member states to inspect cargo transiting their territories originating from or directed to the DPRK.

Third, on December 2, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated seven individuals and sixteen entities for sanctions, some of which are names from resolution 2321, some of which are unilateral actions by OFAC. Among the latter is OFAC’s designation of Air Koryo, North Korea’s only commercial airline, and the identification as blocked property of 16 of its planes. The Council of the European Union has since issued its own statement on December 12 welcoming UNSCR 2321 and promising that it soon will take steps to implement it.

The new FinCEN rule is particularly significant to U.S. banks. Although U.S. financial institutions have been prohibited from maintaining direct relationships with North Korea’s financial institutions since at least March 2016, when Executive Order 13722 prohibited U.S. persons from exporting any goods, services, or technology to North Korea, according to the final rule the DPRK nonetheless has accessed the U.S. financial system “through its use of aliases, agents, foreign individuals in multiple jurisdictions, and a long-standing network of front companies.” The rule targets such indirect access, requiring covered financial institutions to “take reasonable steps to not process a transaction for the correspondent account of a foreign bank in the United States if such a transaction involves a North Korean financial institution.” FinCEN specified that these “reasonable steps” include sending a formal notice to foreign correspondent account holders informing them that they may not allow any North Korean financial institution to use their accounts and implementing risk-based procedures to identify any foreign correspondent accounts that violate this prohibition. To that end, banks must follow up with account holders whenever there is reason to believe that North Korean financial institutions are involved in transactions through the use of aliases or front companies. Foreign correspondent account holders involved in such transactions risk having their accounts terminated.

The rule follows FinCEN’s June 2016 Notice of Finding designating the DPRK as a “primary money laundering concern” for its covert use of the financial system to support its nuclear and ballistic missile programs. The Notice of Finding provides insight into the types of activities that U.S. banks should monitor. For instance, it describes how, in 2013, “senior North Korean leadership utilized a . . . front company to open accounts at a major Chinese bank under the names of Chinese citizens, and deposited millions of U.S. dollars into the accounts” before processing transactions through U.S. correspondent accounts. In another example, it recounts how a front company named Leader (Hong Kong) International Trading Limited “cleared at least $13.5 million through correspondent accounts at U.S. banks.” In its final rule, FinCEN urges U.S. banks to use current screening and reporting procedures, such as those used for compliance with economic sanctions programs administered by the Office of Foreign Assets Control (OFAC), to detect such covert transactions.

Practical Considerations

The final rule and the recent UNSCR increase the pressure on banks to accurately identify and prevent transactions with DPRK financial institutions and their agents. At the same time, the DPRK’s fluid network of foreign companies presents a substantial hurdle to compliance with the rule. As discussed in a recent report by C4ADS, a nonprofit organization dedicated to transnational security issues, the DPRK evades, or quickly responds to, detection of its illicit network by frequently changing the names and ownership structures of its front businesses. To U.S. financial institutions dealing with foreign banks, the DPRK network is therefore often obscured by layers of apparently legitimate operations. In some cases, specialized commercial compliance databases already used in sanctions screening may be able to assist with identifying foreign financial institutions and other parties likely to be dealing with or affiliated with DPRK financial institutions. However, banks providing correspondent access to foreign financial institutions that operate in areas at high risk for DPRK involvement may in special cases wish to seek expert assistance in considering available information, posing questions as needed to correspondent account holders, and determining their obligations under this rule. Given the likely continued increase of U.S. designations and enforcement in this area, it is not unreasonable for banks to expect greater cooperation and partnership with U.S. regulators to recognize and take action against such risks.

FinCEN’s final rule is effective on December 9.