On March 5, the Office of Foreign Assets Control (“OFAC”) released a completely revised and revamped version of the North Korea Sanctions Regulations. The intent of the revision was to catch up with Executive Orders 13687, 13722, and 13810, as well as with the North Korea Sanctions and Policy Enhancement Act of 2016 and Title III of the Countering America’s Adversaries Through Sanctions Act, all of which came into force since the regulations were originally promulgated in 2010.

Not surprisingly, OFAC continues its war on the Congressionally mandated travel and information exemptions in 50 U.S.C. § 1702(b)(3) and (4), apparently worried that someone might give a copy of the Declaration of Independence or The Federalist Papers to a Nork SDN. Section 510.213 of the new regulations contains the normal travel and informational materials exemptions but section 510.213(a) says this:

(a) United Nations Participation Act. The exemptions described in this section do not apply to transactions involving property or interests in property of persons whose property and interests in property are blocked pursuant to the authority of the United Nations Participation Act, as amended (22 U.S.C. 287c(b)) (UNPA).

And the note to that section says this:

Persons whose property and interests in property are blocked pursuant to the authority of the UNPA include those listed on both OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) and the Consolidated United Nations Security Council Sanctions List (see https://www.un.org) as well as persons listed on the SDN List for being owned or controlled by, or acting for or on behalf of, such persons.

Of course, to add extra unnecessary confusion, the introductory text to the new rules in the Federal Register says this:

The exemptions described in this section do not apply to any transactions involving property or interests in property of certain persons whose property and interests in property are blocked pursuant to the provisions of E.O. 13551, E.O. 13722, or E.O. 13810 and that are blocked pursuant to the authority of the UNPA in addition to IEEPA.

This pretty much renders the Note to section 510.213 useless. The list of persons blocked under the UNPA includes everyone designated under those three orders and given program tag listing of DPRK2, DPRK3 and DPRK4. The problem is that is a much bigger list than those on the Consolidated United Nations Security Council Sanctions List. There are 133 North Korean individuals and entities on the UN List, whereas there are 314 North Korean individuals and entities designated on the SDN List under DPRK2, DPRK3 and DPRK4.

The UNPA gives the President the power “whenever the United States is called upon by the Security Council to apply measures which said Council has decided are to be employed to give effect to its decisions under said Charter” to issue executive orders “to the extent necessary to apply such measures.” Without question, when a Security Council Resolution requires member states to block particular entities and individual, the President has the power to block them under UNPA.  So OFAC can, if it wants, forbid U.S. persons from giving copies of The Interview, The Bible or John Stuart Mill’s On Liberty to any party on the UN List, no matter how silly and pointless such a restriction would be.

But the Security Council Resolutions at issue here under which the Executive Orders were issued do not say block these particular individuals and whoever the heck else you want to block while you’re at it. So individuals blocked by OFAC that aren’t also blocked under UN Security Council Resolutions are not lawfully blocked under the UNPA and the full extent of the travel and informational materials exemptions in section 1702(b) of IEEPA have to be applied by OFAC to those individuals not also on the UN Sanctions List. Don’t bet on that ever happening.

Photo Credit: The House of Leaves – Burning 4 by Learning Lark [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/7iW4zL [cropped]. Copyright 2009 Learning Lark

Back on November 17, the South Koreans seized KOTI, a Panamanian-registered ship that was suspected of transferring oil in mid-ocean to a North Korean ship.  That didn’t stop the Office of Foreign Assets Control (“OFAC”) from adding the vessel (and the company that owns it) to the SDN list during its latest round of sanctions against North Korea, even though KOTI will likely spend its final days in Pyeongtaek before its final voyage to a South Korean scrap heap.

Now, of course, we know, thanks to very cool pictures released by OFAC when it designated KOTI, that the ship indeed transferred oil to the unfortunately named North Korean tanker KUM UN SAN 3 (apparently an anagram of A MUSK NUN), somewhere in the East China Sea.  And, as the picture above, also released by OFAC, makes clear, the ship to which KOTI transferred the oil, did not identify itself as the KUM UN SAN 3 or as a North Korean vessel.  According to markings on the vessel, it was a ship named KUS, sailing from Dalian, China, and registered as IMO 8660909. So how was KOTI to know that it was dealing with a wolf in sheep’s clothing, or, as we might say, a Nork in ship’s clothing?

Well, OFAC also released an advisory proposing mostly useless advice on how to avoid the North Koreans on the high seas.  You know, things like read all your shipping documents.  Duh.  But the advice on ship-to-ship transfers is pretty useful.   Obviously, the ship offloading cargo needs to establish a legitimate commercial reason for the ship-to-ship transfer, particularly where the transfer occurs in the East China Sea.  The normal commercial justifications for ship-to-ship transfers include reducing the weight of a ship so it can enter a harbor, refueling a ship, and transferring cargo to the new owner where a change in ownership has occurred at sea.   It’s going to be hard to justify an STS transfer to a North Korean ship in the East China Sea based on any of these normal commercial justifications.

More importantly, the advisory advises due diligence to determine the identity of the ship taking the transfer.  And here is where Google and other online resources are your friend.  Had KOTI and its shipping company checked the IMO website it would have quickly learned that IMO 8660909 belonged to a cargo ship named ZHI KUN 6 (not a tanker named KUS).  It also would have learned that there was no ship named KUS.  Finally, it could have used one of many marine traffic sites, such as this one, to determine the location of the ZHI KUN 6, which appears to have been elsewhere at the time of the cargo transfer.

(An interesting side note on the marine location issue.  OFAC says that at the time of the STS transfer between KUS, née KUM UN SAN 3, and KOTI, the ZHI KUN 6 (the real owner of IMO 8660909) was in “Xiaoyao, China,” a location that is not know to exist anywhere in the world anymore than Emerald City, Oz or Hogsmeade Village.   There is a Xiaoyaoxiang, but it is about 20 miles inland, which would be an odd location, but who knows?  In any event, ZHI JUN 6 wasn’t in the East China Sea at the time.)

Today OFAC designated one individual, 27 shipping companies and 28 ships that it asserts have been involved in circumventing sanctions against North Korea, principally by engaging in ship-to-ship transfers where prohibited goods are transferred in mid-ocean to North Korean vessels which then carry those goods to North Korean ports. The picture on the right, released by Treasury today, shows such a ship-to-ship transfer.

The President characterized these as the “largest ever” imposed on North Korea, a reference, I suppose, to the number of entities sanctioned rather than the likely actual impact of these sanctions.  Executive Order 13570, issued in 2011 by the previous administration, forbids all imports from North Korea. As a result, since 2011, North Korean ships, including those designated today and those still undesignated, cannot call in U.S. ports. Thus, it’s not clear what impact designating a bunch of Nork ships will have.

Moreover, the designation does not prohibit non-US companies – such as those from Russia, which escaped any designations today — from dealing with these newly designated ships. Of course, if detected, such non-US vessels and shippers might themselves be sanctioned, so there may be some deterrent effect. But it’s hard to say how significant that deterrent effect will be. After all, the 11 non-Nork shipping companies caught up today in OFAC’s new designations certainly knew that they were running that risk when they decided to offload cargo to North Korean vessels in mid-ocean or otherwise try to skirt sanctions on North Korea. Moreover, they did so despite UN Security Council Resolution 2375, section 11 of which prohibits ship-to-ship transfers of goods bound for North Korea.  And the 16 North Korean shipping companies singled out in OFAC’s announcement, which could not deal with the United States even before the designation, are unlikely to be affected by their new status as SDNs.

So while I certainly applaud these designations, I don’t think their impact should be oversold.