On November 27, 2017, the US State Department published a notice in the Federal Register that North Korea was designated as a State Sponsor of Terrorism (“SST”) on November 17, 2017. North Korea was originally designated as an SST in 1988 in connection with the bombing of a Korean Air flight but was delisted in 2008 by President George W. Bush as part of negotiations over its nuclear program.
In conjunction with North Korea’s SST designation, the US Treasury Department’s Office of Foreign Assets Control designated one individual, 13 entities, and 20 vessels from North Korea and China as Specially Designated Nationals (“SDNs”) on November 21, 2017, pursuant to Executive Order 13810 of September 20, 2017. In a press release, the US Treasury Department explained that it designated these parties and vessels because they have “long-standing commercial ties to North Korea [and are part of] the transportation networks that facilitate North Korea’s revenue generation and operations.”
North Korea’s SST designation and the SDN designations build upon increasingly stringent sanctions targeting North Korea that have been imposed by the United States, European Union, and Switzerland, among others, in conjunction with increasing sanctions imposed by the United Nations. The other SST countries are Iran, Syria, and Sudan.
Legal Implications of the SST Designation
North Korea’s SST designation triggers the following sanctions and restrictions:
- A licensing requirement for exports or reexports of goods or technology that could significantly enhance North Korea’s military capability or ability to support terrorism;
- A prohibition on exports and reexports to North Korea of defense articles and defense services and related technology under the International Traffic in Arms Regulations (“ITAR”);
- A prohibition on US Persons (i.e., entities organized under US laws and their non-US branches; individuals and entities physically located in the United States; and US citizens and permanent resident aliens, wherever located or employed) from engaging in financial transactions with the North Korean government without a license from the Treasury Department, under the Terrorism List Governments Sanctions Regulations;
- A prohibition on any assistance to North Korea under the Food for Peace, Peace Corps, and Export-Import Bank programs;
- A requirement for the United States to oppose loans to North Korea by the World Bank and other international financial institutions; and
- An exception to sovereign immunity that would allow individual US Persons to bring claims against the North Korean government in US courts for personal injury and death resulting from terrorism or material support for terrorism.
The legal implications of North Korea’s SST designation are likely to be limited. Many of the above activities remained prohibited by US sanctions or export controls during the period between 2008 and 2017 when North Korea was not an SST. During this period, North Korea has remained subject to the same anti-terrorism controls as other SST countries under the Export Administration Regulations (“EAR”) (as well as a comprehensive EAR export/reexport ban) (covering item #1 above), and North Korea has remained subject to a US arms embargo under the ITAR and EAR (covering item #2 above). In addition, since March 2016, North Korea has been subject to US comprehensive sanctions pursuant to Executive Order 13722 of March 15, 2016 (covering item #5 above).
Increased Scrutiny for US-Listed Companies from the US Securities and Exchange Commission
In addition, the SST designation for North Korea may lead to increased scrutiny for US-listed companies if they engage in any dealings with North Korea. Specifically, the Office of Global Security Risk (“OGSR”) within the US Securities and Exchange Commission periodically requests information from US-listed companies regarding any material dealings with SST countries if such dealings have not been previously disclosed in a company’s regular annual and quarterly filings. Accordingly, US-listed companies can expect that OGSR inquiries may now ask about North Korea along with Iran, Sudan, and Syria.