Archive for the ‘North Korea’ Category

President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls

2018/08/30

(Source: Vinson & Elkins LLP, 14 Aug 2018.)

By: David R. Johnson, Esq., drjohnson@velaw.com, +1 202-639-6706; and Daniel J. Gerkin, Esq., dgerkin@velaw.com, +1 202-639-6654. Both of Vinson & Elkins LLP.

The President has signed the National Defense Authorization Act of 2019 (“NDAA”), which, in addition to expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign direct investment,1 implements the Export Control Reform Act of 2018 (“ECA”), which sharpens the focus of the U.S. government on emerging and foundational technologies that are deemed not to have been adequately addressed by the prevailing U.S. export control regimes. The NDAA also places limits on the procurement of equipment and services from certain Chinese entities, though certain Members of Congress had adamantly advocated for much more stringent restrictions.

Please find a more detailed discussion of certain of the key aspects of the ECA, as well as the procurement-related restrictions set forth in the NDAA, below.

Export Controls Act of 2018

Permanent Statutory Authority for U.S. Export Controls. With limited exceptions, the ECA repeals the Export Administration Act of 1979, which lapsed several years ago and has been statutorily authorized each year since pursuant to Executive Orders issued under the International Emergency Economic Powers Act (“IEEPA”). Accordingly, the ECA now serves as the permanent statutory authority for the U.S. Export Administration Regulations (“EAR”), which generally govern the export, reexport, and in-country transfer of commercial and dual-use commodities, software and technology, and which are administered by the Bureau of Industry and Security, U.S. Department of Commerce (“BIS”).2

Treatment of Emerging and Other Types of Critical Technologies. In addition to ensuring permanent statutory authority for the existing commercial and dual-use export controls regime, the ECA directs the President, in coordination with the Departments of Commerce, Defense, State, and Energy to develop a “regular and robust process to identify the emerging and other types of critical technologies of concern and regulate their release to foreign persons as warranted regardless of the nature of the underlying transaction.” Specifically, these agencies are tasked by the ECA with identifying “emerging and foundational technologies” that are essential to the national security of the United States, but which are not currently controlled for export purposes.3

The process for identifying such technologies will be informed by publicly available information, classified information, information arising out of the CFIUS review process, and information generated by the various BIS advisory committees, and will take into account the development of such technologies in foreign countries, the effect export controls might have on continuing U.S. development efforts, and the effectiveness of export controls with respect to limiting the proliferation of such technologies to foreign countries.

The identified technologies will, following a notice and comment period, be subjected to enhanced U.S. export controls, possibly to include licensing requirements, and will be proposed for inclusion in multilateral export control regimes. At a minimum, licenses will be required for countries subject to a U.S. embargo, including those that solely are arms embargoed, such as China.4 Please note that license applications submitted by or on behalf of a joint venture, joint development agreement, or similar collaborative arrangement may require the identification of any foreign person with a significant ownership interest in a foreign person participating in the arrangement.

The following activities will be excepted from any licensing requirements:

  • The sale or lease of a finished item and the provision of associated technology if such items and technology are generally made available to customers, distributors, or resellers;
  • The sale or license to a customer of a product and the provision of integration or similar services if such services generally are made available to customers;
  • The transfer of equipment and provision of associated technology to operate the equipment if the foreign person could not use the equipment to produce critical technologies;
  • The procurement by a U.S. person of goods or services, including manufacturing services, from a foreign person if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  • Contributions and associated support provided by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of, or commitment to license, intellectual property in compliance with the rules of any standards organization.

The ECA requires reporting to Congress and to CFIUS every 180 days regarding actions taken to identify and control emerging and foundational technologies.

Changes to Licensing Process. The ECA mandates that applications for licenses address “the impact of a proposed export of an item on the United States defense industrial base” and an assessment of whether “the denial of an application for a license or a request for an authorization of any export that would have a significant negative impact on such defense industrial base.” By significant negative impact, the ECA means:

  • “A reduction in the availability of an item produced in the United States that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States, or for the production of an item in the United States for the Department of Defense . . . for the advancement of the national security of the United States.”
  • “A reduction in the production in the United States of an item that is the result of research and development carried out, or funded by, the Department of Defense . . . to advance the national security of the United States, or a federally funded research and development center.”
  • “A reduction in the employment of United States persons whose knowledge and skills are necessary for the continued production in the United States of an item that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States.”

Criminal and Civil Penalties. Like the IEEPA, the ECA authorizes criminal penalties of up to $1 million and imprisonment for not more than 20 years. However, the ECA increases the current inflation-adjusted maximum civil penalty to the greater of $300,000 or twice the value of the underlying transaction. These also are the criminal and civil penalties set forth in the Anti-Boycott Act of 2018.

Treatment of Certain Chinese Telecommunications Equipment Manufacturers and Service Providers

Over the objections of Sen. Marco Rubio, among others, the NDAA ultimately did not reimpose sanctions on Chinese telecommunications equipment manufacturer and service provider, Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”), and certain of its affiliates, which were subject to a BIS denial order arising out of U.S. export control violations stemming from transactions involving Iran and North Korea. That denial order was terminated, effective July 13, 2018.

The ECA does, however, prohibit federal agencies from procuring or obtaining, or entering into contracts with entities using, equipment, systems, or services that, in turn, use Chinese-origin telecommunications equipment or services deemed to be a “substantial or essential component of any system” or “critical technology as part of any system.” The targeted Chinese-origin telecommunications equipment or services are:

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation or any subsidiary or affiliate of such entities;
  • For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Technology Company, Dahua Technology Company, or any subsidiary or affiliate of such entities;
  • Telecommunications or video surveillance services provided by any of the above-named entities or using the above-described equipment; and
  • Telecommunications or video surveillance equipment or services produced or provided by an entity reasonably believed to be owned or controlled by, or otherwise connected to, the Chinese government.

 

Visit our website to learn more about V&E’s Export Controls and Economic Sanctions practice. For more information, please contact Vinson & Elkins lawyers Dave Johnson or Daniel Gerkin.

The changes to the CFIUS review process are discussed in greater detail at http://www.velaw.com/Insights/President-Signs-Sweeping-Expansion-of-CFIUS-Review-of-Foreign-Direct-Investment/.
2 The EAR also encompass the regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. These regulations now are permanently authorized by the Anti-Boycott Act of 2018.
Please note that the EAR currently allow for the imposition of temporary controls on items in accordance with their interim classification within Export Control Classification Number 0Y521.
4 The ECA also requires a review of the current controls on exports, reexports, and in-country transfers for military end uses and military end users in U.S. and United Nations arms-embargoed countries, as well as a review of the Commerce Control List of items that currently are not subject to any licensing for U.S. arms-embargoed countries.


Use Caution: Air Cargo Industry Experiences Increasing Compliance Regulations

2018/06/29

By: Ashleigh Foor

(Source: Bobsguide, 29 May 2018.)

Air cargo industry, be warned: regulations are ever-increasing in 2018, leading to more fines and penalties for those involved in illegal trade. A Maersk company recently violated international sanctions by carrying arms components with the potential for military use from North Korea to Egypt. This is just one example of what appears to be a lack of strong compliance procedures that diligently screen parties, goods, and destinations involved in a transport.

The use of air cargo continues to increase as it is the fastest means of transport for sending goods all over the world, but with many high profile sanctions breaches in the news many are left wondering if the industry can abide by these increasing regulations while still fulfilling the need for speedy exports. These new levels of regulation are due to the air cargo industry being used to launder money and fulfill terrorist objectives. Air cargo companies are currently required to check Airway Bills (AWBs) against sanctions and dual-use goods watch lists. Noncompliance can lead to hefty fines, loss of export/import privileges, along with reputational damage and even prison time.

The air cargo industry is in danger of losing its competitive advantage – speed – due to the burden of compliance regulations. The International Air Transport Association (IATA) believes that if these increased regulations are not dealt with and followed efficiently then costs will increase – slowing transit and hurting the industry’s unique selling point.

Currently, around 50% of AWBs globally are still processed on paper rather than electronically (e-AWBs). IATA is highly recommending a change from outdated paper-based processes to automated and digital screening solutions so that airway bills are verified with speed and accuracy. Companies that still rely on manual checks are at an immediate disadvantage.

One air cargo company leading the way in overhauling its compliance processes is Lufthansa Cargo. They have implemented a digital sanctions and dual-use goods screening engine that automatically checks cargo documentation to identify any irregularities that could pose a risk. The technology scans descriptions of goods to identify if they have the potential for military use as well as checks origin and destination locations to confirm the cargo is not moving to or from a sanctioned territory.

With all of the changes taking place and scandals in the headlines recently, automation and digitization of processes are not simply great goals to strive towards – they’re expected and necessary for staying compliant. Air cargo companies must evolve to meet higher regulatory requirements, and ultimately, to do their part in protecting global security.


Treasury/OFAC Amends and Reissues North Korea Sanctions Regulations

2018/04/04

(Source: Treasury/OFAC)

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is announcing the amendment and reissuance in its entirety of the North Korea Sanctions Regulations, 31 C.F.R. part 510, in order to implement Executive Order (E.O.) 13687, E.O. 13722, and E.O. 13810, and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act of 2017.  Pursuant to these authorities, all property and interests in property of the Government of North Korea and the Workers’ Party of Korea are blocked, and U.S. persons are generally prohibited from engaging in transactions with them without authorization from OFAC and must block property or interests in property that are in, or come within, the United States or the possession of a U.S. person.  In addition, these authorities provide the Secretary of the Treasury, in consultation with the Secretary of State, additional tools to disrupt North Korea’s ability to fund its weapons of mass destruction and ballistic missile programs.  OFAC is also publishing new and updated North Korea-related FAQs.

The Regulations and the FAQs emphasize that all U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all individuals and entities within the United States, and all U.S.-incorporated entities and their foreign branches.  Furthermore, all transactions within the United States, including all financial transactions that transit the U.S. financial system, must comply with OFAC regulations.  For additional information, see FAQ 11 and 31 C.F.R. part 510, subpart G.

Violations of the North Korea Sanctions Regulations, issued under the authority of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06 (IEEPA), and other statutes can result in substantial civil monetary penalties, referral for criminal prosecution, or both.  Each violation of the North Korea Sanctions Regulations is subject to a civil monetary penalty of up to the greater of the IEEPA statutory maximum ($289,238 as of March 1, 2018) or twice the value of the underlying transaction.  Criminal penalties of IEEPA can reach $1,000,000 and 20 years imprisonment per violation.  For additional information, see FAQ 12 and 31 C.F.R. part 510, subpart G.

For additional information regarding OFAC’s prohibitions and penalties, see Basic Information on OFAC and Sanctions.

The regulations will be published in the Federal Register, and the changes will take effect, on: March 5, 2018.

Further information about the North Korea sanctions may be found here


Expanded Russia, Iran, and North Korea Sanctions: Top 10 Takeaways

2017/10/16

(Source: Latham & Watkins LLP)

Authors: Les P. Carnegie, Esq., les.carnegie@lw.com, 202-637-1096; and William M. McGlone, Esq., william.mcglone@lw.com, 202-637-2202

President Trump signs the “Countering America’s Adversaries Through Sanctions Act,” which – among other measures – requires Congressional review to ease Russia-related sanctions.

On Wednesday, August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the Act). The Act significantly expands and codifies US sanctions targeting Russia, and it adds several measures to the already comprehensive US sanctions on Iran and North Korea. The Act passed both houses of Congress last week, with a vote of 419-3 in the House of Representatives and 98-2 in the Senate.

The Act is particularly significant because it codifies many of the Russia-related sanctions measures introduced by President Obama through executive orders, effectively requiring President Trump to secure Congressional approval before easing the targeted US sanctions relating to Russia. Russian President Vladimir Putin has announced his intention to impose retaliatory sanctions in response to the Act, and the Russian Foreign Ministry reportedly ordered a more than 60% cut in US diplomatic staff and suspended use of two US facilities in Russia.

Here are the top 10 takeaways from the Act:

RUSSIA-RELATED SANCTIONS

(1) Codifying and Expanding Existing Sanctions.

The Act codifies the following Executive Orders issued by President Obama: Executive Orders 1366013661136621368513694, and 13757. Among other measures, these Executive Orders imposed a virtual embargo on the Crimea region of Ukraine; imposed sanctions against perpetrators of malicious cyber activity and designated Russian and Ukrainian individuals, including government officials and oligarchs; and provided the underlying authority for Office of Foreign Assets Control (OFAC) Directive 1Directive 2Directive 3, and Directive 4.

The first three OFAC Directives prohibit US persons from extending medium- to long-term credit, or otherwise dealing in “new” debt (and in some cases “new” equity), of designated Russian financial institutions, energy firms, and companies in the defense sector. Directive 4 prohibits US persons from providing goods, software, technology, and services in support of certain non-conventional oil projects in Russia.

The Act expands certain of these Executive Orders and Directives:

* The Act gives the US Treasury Secretary the power to impose sanctions pursuant to Executive Order 13662, including the financing-type sanctions found in the OFAC Directives, against state-owned parties in Russia in the railways, metals, and mining sectors of the Russian economy. Prior to the Act, the targeted sectors were limited to the financial, energy, and defense sectors.

* No later than 60 days after enactment of the Act (or approximately the beginning of October), the US Treasury Secretary must modify Directive 1 to reduce the “new” debt prohibition to 14 days, down from the current 30 days, and Directive 2 from the current 90 days to 60 days. These 14-day and 60-day changes will be effective 60 days after the Directives are modified, which provides some time for US parties to adjust to this change. Notably, current OFAC interpretation (see OFAC FAQ # 419) is that extending payment terms of more than 30 days to a Directive 1 target violates the “new debt” prohibition, meaning that payment terms to Directive 1 parties will need to be reduced to no more than two weeks. The same is the case with respect to Directive 2 targets, for which the payment term requirement will be reduced to 60 days.

– The Act also requires the US Treasury Secretary to, within 180 days of enactment, submit to Congress a report “describing in detail the potential effects of expanding sanctions under Directive 1 … to include sovereign debt and the full range of derivative products.”

* No later than 90 days after the Act’s enactment (or approximately the beginning of November), the US Treasury Secretary must modify Directive 4, to prohibit US persons not only from providing goods, services (other than financial services), and technology to projects in Russia relating to the exploration or production for oil for deepwater, Arctic offshore, or shale projects, but to such projects anywhere in the world. Notably, the Directive’s expansion appears to reach non-conventional exploration and production beyond Russia, applies only to “new” deepwater, Arctic offshore, or shale projects, and only those projects where the Directive 4 target “has a controlling interest or a substantial non-controlling ownership interest in such a project defined as not less than a 33 percent interest.”

– This “new” and “substantial non-controlling ownership interest” language was added by the House to the Senate version, in an attempt to ease concerns raised by US energy firms and European allies regarding the breadth of the provision. This new provision will be effective 90 days after the US Treasury Secretary modifies Directive 4.

(2) Congressional Oversight of the President’s Russia-Related Actions.

Notably, the Act gives the US Congress the opportunity during a 30-day review period to disapprove of any effort by the President to reduce, waive, or eliminate US sanctions relating to Russia. Section 216 of the Act gives Congress the power to review (i) any action to terminate the application of the sanctions in the Act, the codified Executive Orders mentioned above, and certain other statutes; (ii) any action to waive the application of sanctions targeted at certain persons, such as parties added to the Specially Designated Nationals and Blocked Persons list (SDN List) or the List of Sectoral Sanctions Identifications parties (SSI List), or (iii) any “licensing action that significantly alters United States’ foreign policy with regard to the Russian Federation.”

(3) Energy Pipeline Secondary Sanctions.

The Act gives the President the power to impose, but does not require, secondary sanctions on foreign persons that knowingly (i) make an investment of US$1 million or more (or US$5 million or more over a 12-month period) that directly and significantly contributes to enhancing Russia’s ability to construct energy export pipelines or (ii) sell, lease, or provide to the Russian Federation, goods, services, technology, information, or support (valued at US$1 million or more, or during a 12-month period with an aggregate value of US$5 million or more) that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy pipelines.

* The Act appears to require the President to impose any such sanctions “in coordination with allies of the United States.” This language was added to the House version of the Act in response to concerns raised by European allies, in light of such projects as the proposed Nord Stream 2 natural gas pipeline from Russia to Germany.

(4) Cybersecurity Sanctions.

On or after 60 days of enactment, the Act requires the President, subject to a national security interest waiver, to impose asset-blocking as well as travel sanctions, including certain secondary sanctions, on any person who knowingly engages in significant activities that undermine the cybersecurity of any person or government, including a democratic institution, on behalf of the Russian government. Any national security interest waiver submitted by the President to avoid the imposition of sanctions must be accompanied by a certification that the Russian government has “made significant efforts to reduce the number and intensity of cyber intrusions conducted by that Government.” The Act includes a definition of what constitutes “significant activities undermining cybersecurity,” which includes, among other activities, significant destructive malware attacks.

(5) Secondary Sanctions Targeting Certain Activities Relating to Russian Intelligence and Defense Sectors, Sanctions Evaders, and Privatizations.

The Act requires the President to impose secondary sanctions on those (including non-US persons) who he determines:

* Have knowingly engaged in a significant transaction with “a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation, including the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.” Secondary sanctions are to be imposed 180 days after enactment of the Act. The Act requires the President to issue guidance or regulations no later than 60 days after the date of the Act’s enactment to “specify the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation.”

* Are responsible for, complicit in, or have supported serious human rights abuses in any territory forcibly occupied or otherwise controlled by the Russian government. The Act also requires sanctions on foreign persons that (i) knowingly have materially violated, attempted to violate, or conspired to violate or caused a violation of US sanctions or the Ukraine Freedom Support Act of 2014, or (ii) “facilitates a significant transaction or transactions, including deceptive or structured transactions” for or on behalf of a person that is a target of US sanctions, or for that person’s child, spouse, parent, or sibling.

* With actual knowledge make an investment of US$10 million or more (or any combination of investments not less than US$1 million each, which in the aggregate equals or exceeds US$10 million in a 12-month period), or facilitate such an investment, if the investment “directly and significantly” contributes to the ability of the Russian government to “privatize state-owned assets in a manner that unjustly benefits” Russian government officials or “close associates” or family members of those officials. The Act does not define the terms “investment,” “unjustly benefit,” and “close associates.”

(6) Sanctions Targeting Crude Oil Projects and Corruption.

The Act limits the discretion of the President under the Ukraine Freedom Support Act of 2014 by requiring the President to impose secondary sanctions on a foreign person that knowingly makes a “significant investment” in a “special Russian crude oil project” as well as foreign financial institutions that support such investments. The Ukraine Freedom Support Act does not define the term “significant investment” and defines a “special Russian crude oil project” to be a crude oil extraction project in Russian deepwater (i.e., more than 500 feet deep), Arctic offshore locations, or shale formations. The President can waive the imposition of such secondary sanctions by invoking a national interest waiver.

* The Act also limits the President’s discretion under the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, requiring him to impose secondary sanctions against a Russian government official or close associate or family member involved in an act of significant corruption in Ukraine, Russia, or elsewhere.

(7) Sanctions Relating to Support for the Syrian Government.

The President is required to impose asset-blocking and travel sanctions on any person determined by the President to have knowingly exported, transferred, or otherwise provided significant financial, material, or technological support to the Syrian government in acquiring or developing advanced conventional weapons, ballistic, or cruise missile capabilities, as well as biological, chemical, and nuclear weapons and related technologies.

(8) Secondary Sanctions Described.

The so-called “secondary sanctions” described in the Act target the activities of non-US persons. These secondary sanctions can be applied to parties beyond the jurisdiction of the United States, and they effectively take the form of a denial of US benefits, as opposed to monetary penalties available under US “primary” sanctions (which apply to US persons).

* In the context of the Act, the menu of secondary sanctions from which the President can select (generally, he must select up to five) includes the following:

– Denial of export-import bank financing and assistance

– Denial of US export licensing

– Prohibition against US financial institution making loans or providing credits of more than US$10 million in any 12-month period

– Use of US government power to oppose a loan from a non-US financial institution to the sanctioned party

– Denial of US Government procurement

– Prohibition against transactions in foreign exchange that are within US jurisdiction

– Prohibition against transfers of credit or payments between financial institutions or by, through, or to any financial institution, if within US jurisdiction

– For foreign financial institutions, (i) loss of designation as a primary dealer in US Government debt instruments by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and/or (ii) revocation of right to serve as an agent of the US Government or to serve as repository for US Government funds

– Effect on the property rights of sanctioned persons for property within US jurisdiction (i.e., asset blocking similar to those on OFAC’s SDN List)

– Prohibition against US persons investing in or purchasing significant amounts of equity or debt instruments of the sanctioned persons

– Travel prohibitions directed at corporate officers, principals, or controlling shareholders or principal of, or a shareholder with a controlling interest in

– Placement of any of these secondary sanctions on the principal executive officer or similar officers of the sanctioned person

IRAN

Largely in response to Iran’s ballistic missile tests, the Act imposes new sanctions targeting Iran’s defense sector and the Islamic Revolutionary Guard Corps (IRGC).

(9) Asset-Freezing and Terrorism-Related Sanctions.

The Act requires the President to impose asset-freezing sanctions (and for non-US persons, a travel ban) against any US or foreign person that knowingly engages “in any activity that materially contributes to the activities of the Government of Iran with respect to its ballistic missile program” or programs to develop, deploy, or maintain weapons of mass destruction. Subject to his exercise of a national security interest waiver, the President must also impose asset-freezing sanctions (and for non-US persons, a travel ban) against any US or foreign person who knowingly contributes to the “supply, sale, or transfer” to Iran of “battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems … or related materiel, including spare parts.”

* The Act also requires the President to impose the same sanctions on those who knowingly provide “technical training, financial resources or services, advice” or other services in supporting the use of the material listed. 90 days after the Act’s enactment, the President must impose terrorism-related sanctions pursuant to Executive Order 13224 against the IRGC and its “officials, agents or affiliates.” Notably, significant transactions with the IRGC can already subject non-US persons to US secondary sanctions, which survived the implementation of the Nuclear Agreement with Iran in January 2016.

NORTH KOREA

Largely in response to North Korea’s successful test of an intercontinental ballistic missile on July 4, 2017, the House of Representatives recently introduced certain North Korea-related provisions to the Act. Among other measures, the Act requires the US Secretary of State to provide Congress, within 90 days of enactment, a determination as to whether North Korea should be considered a state sponsor of terrorism.

(10) Additional Designation Authority and Human Rights Provisions.

The Act broadens the list of persons the President must impose asset-blocking measures under the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA). These additional targets include those who knowingly procure certain precious metals from North Korea; sell or transfer rocket, aviation or jet fuel to North Korea; provide fuel or supplies for designated North Korean vessels or aircraft; provide insurance services to vessels owned or controlled by the North Korean government; or maintain a correspondent account with any North Korean financial institution.

* The Act also expands the President’s discretionary authority to designate parties under the NKSPEA, including parties who knowingly acquire coal, iron, or iron ore from the North Korean government; purchase significant amounts of textiles from North Korea; or sell or transfer significant amounts of crude oil, condensates, petroleum products, or natural gas resources to the North Korean government, among other activities. Under the human rights-related provisions, the Act prohibits most goods produced by North Korean labor from entering the US and allows for the imposition of sanctions on most parties who knowingly employ North Korean labor.

* These new North Korea sanctions presumptively increase the prospects of designations of parties from China in the coming weeks.


Is Dennis Rodman Next in Line for OFAC Penalties?

2014/03/13

By: Brooke Driver

Leave it to Dennis Rodman to pack a North Korean dictator, a trashed hotel room and rehab into one vacation. The former basketball star took time out of his busy schedule to visit North Korean leader Kim Jong Un in early January to celebrate his thirty-first birthday. Reports have recently come out revealing the shocking details of Rodman’s trip, and the word “messy” seems to define it best.

The trip was indeed messy in both a literal and figurative sense. The former Chicago Bulls player, who has struggled with alcoholism for years, was apparently drunk most of the trip, and on his final night at the North Korean hotel, he reportedly trashed his hotel room, vomited repeatedly and even defecated in the hallway. Upon returning to the States, Rodman entered an intensive rehabilitation facility as a direct result of the disastrous trip.

The trip also proved messy in a legal sense. In honor of Kim Jong Un’s birthday, Rodman brought with him a number of high end gifts, including custom suits, a fur coat, bottles of Jameson and a designer handbag for the leader’s wife. The total value of the gifts was about $10,000. The gifts likely violated the U.S. ban on exports of luxury goods to North Korea, as described in the International Emergency Economic Powers Act, and Rodman’s actions are currently under investigation by the Treasury Department. If found guilty, he could be fined up to $250,000 and could spend up to 20 years in prison. Maybe he will find that type of “rehabilitation” more effective.


Taiwanese Father and Son Arrested for Allegedly Shipping Weapons Machinery to North Korea

2013/06/18

By: Brooke Driver

A 67-year-old Taiwanese man, Alex Tsai was arrested in Tallinn Estonia on May 1, 2013, for allegedly supplying weapons machinery to North Korea. His son, Gary Tsai, also connected to the illegal operation, was arrested the same day in his home in Glenview, Illinois.

Both men were charged in Chicago with identical accusations: one count of conspiring to defraud the United States in its enforcement of laws and regulations prohibiting the proliferation of weapons of mass destruction, one count of conspiracy 2 to violate the International Emergency Economic Powers Act (IEEPA) by conspiring to evade the restrictions imposed on Alex Tsai and two of his companies by the U.S. Treasury Department, and one count of money laundering. The father and son—as well as an unnamed “Individual A”—have been under investigation for some time for exporting goods and materials that could be used to produce weapons of mass destruction. The three men, now Denied Persons, are associated with at least three Taiwan-based companies and one US-based company suspected of criminal activity: Global Interface Company, Inc., Trans Merits Co., Ltd., Trans Multi Mechanics Co., Ltd and Factory Direct Machine Tools, all of which have also been added to the Debarred List. Specifically, Alex and Gary Tsai was debarred for dealing (since the late 1990’s) with the Korea Mining Development Trading Corporation, which was designated as a proliferator by President Bush in 2005. The Tsais has been transporting items to KOMID since the late 1990’s that could be used to support North Korea’s advanced weapons program.

The defendants may receive up to the maximum penalty of:

  • 20 years in prison and $1,000,000 fine for violating IEEPA
  • 20 years in prison and a $500,000 fine for money laundering
  • 5 years in prison and a $250,000 fine for conspiracy to defraud the US

Stop Using License Exception TSR Now!: You Need to Get a New TSR Written Assurance

2010/09/07

By: John Black

BIS Expands Controls on Foreign-Made Products and Changes TSR Written Assurance

In the July 30, 2010, Federal Register the Bureau of Industry and Security (BIS) published a revision to the Export Administration Regulations (EAR) that does two things.  First, it changes the requirements for what has to be in the written assurance for exports and reexports under License Exception TSR.  Second, it changes the destination countries for which the EAR asserts jurisdiction for foreign-made direct products of US technical data or software.

The two changes are parallel in that they change the target country list from Country Group D:1 plus Cuba to Country Group D:1 and E:1.  Country Group E:1 is Cuba, Iran, North Korea, Sudan and Syria, so the new rule effectively adds Iran, North Korea, Sudan and Syria to the target country list for the TSR written assurance and the foreign direct product control.

Before you export or reexport under License Exception TSR, you have to get the TSR written assurance from the recipient of the technical data or software you are sending.  The TSR written assurance effectively is a written agreement in which the recipient agrees not to transfer your technical data or software, or items it makes using your technical data or software, to the target country list.

So, your action item is:  If you have a TSR written assurance that includes the former target country list D:1 and Cuba) you may not use it as the basis for any more TSR exports and reexports.  You have to get a new TSR written assurance that identifies the target countries as D:1 and E:1.  (As a practical matter I recommend you list the countries instead of just citing the country groups but that is up to you.)  If you use TSR and your written assurance has the former target country list, you are violating the EAR.

In some very narrow circumstances the EAR controls foreign-made products (in the EAR foreign means non-US) because the foreign party makes a foreign item directly from using US technical data or software to produce them in very rare instances.  Specifically, such foreign products outside the US are controlled only when all three of these things are true:

  1. The technical data or software requires TSR or a license for export/reexport; and
  2. The foreign-made item is subject to “national security” controls on the CCL; and
  3. The foreign-made item is going to Country Group D:1 or E:1.

The second key change changes the target country list from D:1 and E:2 to D:1 and E:1, which adds Iran, North Korea, Syria, and Sudan to the countries for which the EAR asserts jurisdiction on certain foreign-made direct products of US technical data or software.  Even though there are four new countries on the target country list, the EAR “foreign-made direct product control” still rarely asserts jurisdiction over foreign-made items.


Updated List of Countries Not Cooperating Fully with US Antiterrorism Efforts

2009/05/18

2009/05/18

By: Danielle McClellan

The Department of State has recently published the countries that are not cooperating fully with the US antiterrorism efforts. These countries are Cuba, Eritrea, Iran, Democratic People’s Republic of Korea (North Korea), Syria, and Venezuela.

Whatever you do, please do not confuse this list of “countries not cooperating fully with US antiterrorism efforts” with the list of terrorism supporting countries.

More information:


OFAC Updates List of Countries Supporting International Terrorism

2009/05/18

2009/05/18

By: Danielle McClellan

OFAC recently amended the Terrorism List Governments Sanctions Regulations to remove Iraq, Libya, and North Korea from the list of countries designated as supporting international terrorism. Cuba, Iran, Sudan and Syria will remain on the list. This change is effective May 18, 2009.


North Korea: US Restrictions Are NOT Changed by the Change

2008/07/20

2008/07/20

By: Danielle McClellan

The President lifted the TWEA (Trading With Enemy Act) Sanctions on North Korea on June 27, 2008 after North Korea gave Chinese officials in Beijing 60 pages of documentation of its nuclear past after continued negotiations. Unfortunately for exporters and reexporters, the full scope of US export and reexport controls remain in force.

The document declares far less nuclear weaponry than the country actually houses, but Bush felt that North Korea should be rewarded for its efforts, as this is seen as a positive step in negotiations for the future of denuclearization of the Korean peninsula.

North Korea will be taken off the State Department list of nations that sponsor terrorism, but all other sanctions will remain in place. This means that all property and interests in property that were blocked are still blocked and will remain blocked. All current restrictions on imports, exports and North Korean blocked funds held by US financial institutions will continue indefinitely. The restrictions will continue until North Korea cooperates completely and gives up all of its nuclear weapons and information.

So, in a nutshell, in terms of export and reexport controls. nothing has changed, except the fact that North Korea is no longer on the list of State Sponsors of Terrorism. All prior restrictions apply, even though, “[North Korea] is no longer in the national interest of the United States.”

More information:

Proclamation by the President