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In response to the latest nuclear tests conducted on 12 February 2013, the United Nations and the European Union have strengthened their sanctions regimes against the Democratic People’s Republic of Korea/North Korea (the “DPRK”). In particular, new measures adopted by the EU on 23 April 2013 extend existing controls on the supply of certain items and services to the DPRK, introduce further controls on banking, financial and transportation sector activities relating to the DPRK, and expand the list of entities and individuals designated as sanctions targets.
Recent Developments
UN and EU sanctions measures on the DPRK have been in place for close to seven years. During this period, the sanctions regimes have been continually revised and tightened in response to political developments in the DPRK and amidst concerns that the DPRK continues to develop its nuclear weapon capabilities. With two rounds of new UN and EU legislation being adopted, 2013 has already seen some substantial changes to the sanctions environment relating to the DPRK.
Period to March 2013
On 22 January 2013, the UN Security Council adopted Resolution 2087 (2013) condemning missile tests conducted by the DPRK in December 2012 and introducing additional sanctions measures intended to further restrict the DPRK’s nuclear and ballistic weapons capabilities. The EU announced that it would be revising its sanctions regime to reflect the new UN measures. These developments were outlined in Council Decision 2013/88/CFSP of 18 February 2013, as reported in our February 2013 Client Alert, and were implemented on 26 March 2013 by Council Regulation (EU) No. 296/2013. These included the following key changes:
• an extension of the controls on the supply of proliferation-sensitive items, including new controls on the supply of aluminium and certain metal alloys, and the provision of related services;
• a prohibition on the supply to or purchase from the DPRK Government, Central Bank or related persons of gold, precious metals and diamonds (equivalent to similar controls imposed on Iran and Syria) and the provision of related services;
• restrictions on banking activities, including in particular a prohibition on DPRK banks from establishing new branches or business ventures, as well as a prohibition on financial institutions within EU jurisdiction from opening offices or subsidiaries in the DPRK;
• restrictions on financial activities involving the DPRK, including a prohibition on the direct or indirect sale, purchase or brokering of DPRK public or public-guaranteed bonds issued after 19 February 2013;
• a ban on the delivery of newly printed or unissued DPRK denominated banknotes and newly minted DPRK coinage to or for the benefit of the DPRK Central Bank and related bodies; and
• additions to the list of entities and individuals designated as EU sanctions targets and thus subject to an EU asset freezes, travel ban and other designated person controls.
Further changes in April 2013
In light of a further missile test conducted by the DPRK on 12 February 2013, the UN Security Council adopted another Resolution, Resolution 2094 (2013), strengthening its sanctions measures. Following EU Council meetings on 22 and 23 April 2013, the EU announced that it had agreed to extend its sanctions regime to reflect the new UN measures. These changes are outlined in Council Decision 2013/183/CFSP. The new measures adopted in April require further implementing legislation, by way of a Council Regulation which we expect to be adopted in due course, before they become binding on private parties.
As a result of these developments, it is now necessary for companies doing business with the DPRK to consider: (i) the existing EU sanctions regime, as outlined in our February 2013 Client Alert; (ii) the additional controls implemented by the EU on 26 March 2013; and (iii) the further amendments adopted by the EU on 23 April 2013 which are still to be implemented by way of a future Regulation.
New April 2013 measures
The new measures adopted on 23 April 2013 may be summarised as follows:
• Extension of controls on proliferation sensitive goods and technology. The existing EU sanctions regime prohibits the direct or indirect sale, supply, transfer or export of specifically listed items (including all controlled dual-use items) that could contribute to the DPRK’s ballistic missile or weapons of mass destruction-related programmes. In March, the EU extended these controls to include additional items, including in particular aluminium in unwrought and semi-processed form and certain metal alloys, as listed in the annex to the Regulation. The April Decision further extends these controls to include “any other item that could contribute” to the DPRK’s nuclear or ballistic missile programmes or to other activities prohibited by UN Security Council Resolutions. It is expected that a list of additional items falling within the scope of the revised control will be published in due course by way of future Council Regulation.
• Extension of controls on the provision of ancillary services relating to controlled items. The existing regime prohibits the provision of technical assistance or brokering services, financing or financial assistance (including insurance and reinsurance) related to controlled items. The April Decision broadens the scope of such controls to also include the provision of “technical training”, “advice” and “other intermediary services” related to controlled items or financing in support of such activities.
• Further obligations on EU credit and financial institutions to bring to an end banking relationships with the DPRK where there are reasonable grounds to believe that the relationship could contribute to the DPRK’s nuclear or ballistic missile programmes or other prohibited activities, and to exercise increased vigilance in relation to their dealings with the DPRK with a view to reducing current commitments and, if possible, putting an end to them.
• A prohibition on the provision of any financial or other assets, including bulk cash, that could contribute to the DPRK’s ballistic missile or weapons of mass destruction programmes or activities or other prohibited activities.
• An obligation on Member States to inspect cargo imported from or destined for the DPRK as well as cargo brokered or facilitated by the DPRK or DPRK nationals or persons acting on their behalf. Aircraft and vessels transporting cargo to and from the DPRK shall also be required to provide additional pre-arrival and pre-departure information to EU Member State authorities. In this context, EU Member States have the right to inspect, seize, dispose of cargo shipped to or from the DPRK where it is thought that the shipment is prohibited under UN or EU sanctions. EU Member States are to deny access into their ports of vessels that have refused inspection, and shall also deny aircraft to take off from their territory if they have reasonable grounds to believe the aircraft contains controlled items destined for the DPRK.
• Amendments to the list of entities and individuals subject to designated person controls to include three additional individuals and two additional entities. The changes to the designated persons list have been implemented with effect from 23 April 2013 by way of Commission Implementing Regulation (EU) No. 370/2013.
Recommended Actions
The DPRK’s nuclear-related activities are under increased international scrutiny. Companies that continue to trade with the DPRK must ensure that they keep abreast of developments and exercise enhanced vigilance to ensure compliance with fast-moving international sanctions measures. Companies should constantly review all current and contemplated transactions involving a direct or indirect connection to the DPRK, in particular by:
• reviewing (and regularly re-reviewing) whether any goods, software or technology being supplied directly or indirectly to the DPRK or via DPRK-registered vessels fall within the scope of the diverse range of product controls;
• ensuring that there are no grounds for suspicion that items may be intended for a WMD-end use or military end-use in the DPRK;
• undertaking appropriate due diligence and sanctions screening of any counterparties, end-users, banks and other third parties potentially benefiting from DPRK-related transactions to verify that they are not on, owned or controlled by, or acting on behalf of or at the direction of, someone on the list of designated persons;
• being mindful that transferring funds arising from transactions with a DPRK nexus will be more difficult in light of heightened financial sector controls and scrutiny; and
• ensuring there is no US nexus to the transaction that could bring in to play the broad-ranging US sanctions in place against the DPRK.
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The foregoing is intended only to provide a general overview of recent developments related to EU sanctions on the DPRK. If you have any queries about how these changes might affect your company or if you require advice on any specific transactions or plans, please do not hesitate to contact a member of Baker & McKenzie’s International Trade Practice Group.
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