There has been considerable press interest in recent months around the international response to the nuclear and ballistic missile testing carried out by North Korea (the Democratic People’s Republic of Korea as it is officially known (the “DPRK”)).
In the wake of the DPRK launching two missiles over Japan and conducting its sixth nuclear test, a round of further EU sanctions aimed at curbing the regime’s nuclear and missile programme were announced yesterday. These new measures have the effect of (i) expanding restrictions on EU investment in and with North Korea to cover all sectors (i.e. effectively banning all EU investment in North Korea) (ii) lowering the amount of personal remittances that can be sent to North Korea from EUR 15,000 to EUR 5,000 and (iii) imposing a ban on oil exports to North Korea. Additionally, the EU Council is understood to be in the process of reviewing the list of banned luxury goods and imposing more stringent restrictions on North Korean workers in the EU. It has also added a further 3 individuals and 6 entities to the list of those subject to asset freezes and travel bans.
Individuals and corporates dealing with the DPRK and operating within the EU, should be aware of the EU sanctions regime affecting the jurisdiction. We set out below a summary of the key current sanctions restrictions for UK individuals and/or companies to bear in mind, along with some practical safeguards to consider in the event that the landscape changes in the coming months.
EU Sanctions (directly effective in the UK pursuant to Regulation 2017/1509 (as amended))
It is prohibited to import or export the following products from/to North Korea:
(a) ‘Dual-use’ items (i.e. goods and technology that can be used for both military and civilian purposes). The list of prohibited dual-use items is extensive but broadly includes, by way of example, certain nuclear materials, facilities and equipment, electronics, computers and telecommunications equipment and software.
(b) Items which could contribute to the DPRK’s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programmes.
(c) Aviation fuel.
(d) Certain raw materials and metals including titanium ore, vanadium ore, rare earth minerals, coal, iron, iron ore, copper, nickel, silver and zinc.
(e) Petroleum products.
(f) Any items (except food or medicine) destined directly or indirectly for the DPRK’s armed forces or which could support or enhance the operational capabilities of the armed forces of a state other than the DPRK.
(g) Luxury goods (e.g. horses, caviar, truffles, wines, cigars, perfumes and make-up, high quality leather and travel goods, high quality garments, carpets, precious metals, diamonds, high-end electronics, luxury vehicles, luxury clocks and watches, high quality musical instruments, works of art, sporting equipment etc).
It is also prohibited to import the following products from North Korea:
(i) Lead and lead ore;
(j) Statues; and
And to export the following items to North Korea:
(l) Helicopters and vessels;
(m) Newly printed or minted or unissued DPRK denominated banknotes and coinage;
(n) Natural gas liquids; and
(o) Crude oil.
RESTRICTIONS ON CERTAIN COMMERCIAL ACTIVITIES
It is prohibited to (directly or indirectly):
(p) provide/obtain technical assistance and brokering services related to (and related to the provision, manufacture, maintenance or use of) goods and technology listed in the EU Common List of Military Equipment (and as further set out in the relevant EU regulation) to/from any individual or legal entity in the DPRK;
(q) provide/obtain financing or financial assistance related to (and related to the provision, manufacture, maintenance or use of) the goods and technology listed in the EU Common List of Military Equipment to/from any individual or legal entity in the DPRK;
(r) accept or approve investment in any commercial activity from, or grant financing or investment services to, North Korean nationals and entities, individuals or entities of the Government of the DPRK, the Workers’ Party of Korea and any of their respective representatives and/or their parent entities;
(s) invest in or share investment(s) with any of the entities or individuals referred to in (o) above or domiciled in the DPRK;
(t) invest in or share investment(s) with (or engage in any other business arrangements) with the entities specified in the relevant Annex to the EU Regulation; and
(u) provide certain services to persons or entities in the DPRK, such as computer and related services, services linked to mining, services linked to manufacturing in the chemical, mining and refining industry, and services in the other areas prohibited for investment from the EU as further set out in the relevant Regulation.
RESTRICTIONS ON TRANSFERS OF FUNDS AND FINANCIAL SERVICES
The transfer of funds to/from North Korea is prohibited unless they are (i) limited to EUR 15,000 and concern certain humanitarian purposes or EUR 5,000 in the case of personal remittances or (ii) subject to any of the exemptions set out in the Regulation or specific trade contracts not prohibited by the sanctions.
It is also prohibited for any financial institutions to enter into or participate in transactions with financial institutions in North Korea.
FREEZING OF FUNDS
There is an asset freeze on funds and economic resources belonging to, held, owned or controlled by specific North Korean designated persons as listed in the Regulation itself. Funds and economic resources must not be made available to or for the benefit of any designated persons.
Whilst there are various exceptions and authorisations that are provided for in the Regulation in relation to the restrictions outlined above, companies and individuals should seek legal advice in the event they are looking to undertake any of the restricted activities.
UK individuals/businesses should note the wide-ranging nature and broad scope of the restrictions that are currently in place. There may be circumstances in which it is not immediately clear on the face of a business activity that it is affected by sanctions. It is worthwhile considering the following practical tips:
1. Ensure due diligence screening covers ownership structures and associated parties, particularly Chinese entities from the city of Dandong in the north-east Liaoning province on the Chinese-North Korean border (through which approximately 60% of the amount of trade between the two countries is thought to take place).
2. Negotiate suitable warranties and indemnities into contracts with parties close to high risk jurisdictions.
3. Incorporate specific sanctions provisions into termination/force majeure clauses in the event that counterparties or the sector in which you are dealing become the subject of a designation or restrictions.
4. Consider obtaining a licence for certain activities which are not ostensibly covered by the relevant regulations.
5. Ensure you have a robust internal compliance programme in the event you become embroiled in a sanctions violation.