Economic Sanctions: U.S. Treasury Designates Four Persons for Violating U.N. Shipping Sanctions against N. Korea
By Bruce Zagaris
August 26, 2018
This article was originally published in the International Enforcement Law Reporter, www.ielr.com, a highly respected publication covering issues in criminal law, financial crime and more. It is reprinted with the kind permission of attorney, financial crime expert, and ACFCS Advisory Board member Bruce Zagaris. Originally published in the International Enforcement Law Reporter, Volume 4, Issue 8. Republished with permission and appreciation
On August 15, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced designations against four persons for violating United Nations sanctions on shipping with respect to North Korea.
Treasury acted against one individual and three entities pursuant to Executive Order 13810 of September 20, 2017. Treasury’s designations served also to reinforce the U.S. government’s efforts to prevent financial flows to North Korea’s Weapons of Mass Destruction (WMD) programs and activities.1
OFAC designated China-based Dalian Sun Moon Star International Logistics Trading Co., Ltd. and its Singapore-based affiliate, SINSMS Pte. Ltd. These companies cooperated to facilitate illicit shipments to North Korea using falsified shipping documents, including exports of alcohol, tobacco, and cigarette-related products.
The illicit cigarette trade in North Korea reportedly has realized over $1 billion per year for the regime. SINSMS Pte. Ltd. has responsibility for exports to North Korea and general trading of items from China, Singapore, Hong Kong, Thailand, Vietnam, Indonesia, and Cambodia.
Employees at SINSMS Pte. Ltd. also furnished information on how to evade shipping restrictions by sending cargo SINSMS Pte. Ltd. to Nampo, North Korea, through Dalian, China.
Russia-based Profinet Pte Ltd. (Profinet) and its Director General, Russian national Vasili Aleksandrovich Kolchanov were also newly designated by OFAC.
Profinet is a Russian port service agency furnishing loading, bunkering, supplying, and departure arrangements for vessels calling at the Russian ports of Nakhodka, Vostochny, Vladivostok, and Slavyanka.
Profinet has supplied port services on at least six separate instances to North Korean-flagged vessels, including the sanctioned vessels CHON MYONG 1 and RYE SONG GANG 1, which have ferried thousands of metric tons of refined oil products.
Profinet continued to offer its bunkering services to North Korean-flagged vessels even after its employees knew of oil-related sanctions on North Korea. Kolchanov personally participated in North Korea-related deals and interacted directly with North Korean representatives in Russia.2
In announcing the new designations, Treasury reminded the shipping industry, including flag states, ship owners and operators, crew members and captains, insurance companies, brokers, oil companies, ports, classification service providers, and others of significant risks posed by North Korea’s shipping practices, and urged UN member states and shipping industry associations to circulate OFAC’s North Korea Shipping Advisory.3
In July 2018, U.S. Secretary of State Mike Pompeo said North Korea was smuggling petroleum products “into the country at a level that far surpasses the quotas established by the UN.” He said “illegal ship-to-ship transfers are the most prominent means by which this is happening.”
U.S. Ambassador to the UN, Nikki Haley, called out Russia and China directly, referring to a U.S. attempt on July 19 to bring a complaint before the UN to discipline it for its smuggling.
China and Russia blocked the measure. Haley explained “(w)e have photographs of proof of ship-to-ship transfers.”4
The OFAC North Korea Sanctions Advisory on sanctions risks related to North Korea’s shipping practices provides examples of the types of tactics used by North Korea to obfuscate the identity of the vessels, the goods being shipped, and the origin or destination of cargo.
The examples are as follows: physically altering vessel identification; North Korean ship-to-ship (STS) transfers; falsifying cargo and vessel documents; disabling automatic identification system (AIS); and manipulating AIS.
The advisory also sets forth the risk mitigation measures the shipping industry and other actors involved in shipping-related transactions (such as insurance companies and financial institutions) can take: monitor for AIS manipulation; conduct research prior to STS transfers; review all applicable shipping documentation; clear communication with international partners; and leverage available resources.5
The U.S. Treasury’s designation of four persons as SDNs along with the advisory on North Korea’s shipping practices illustrate steps the U.S. government is taking to enhance compliance and enforcement.
The sanctions also illustrate the Trump administration’s exasperation with North Korea.
The latter demands a declared end of the Korean War before it stops its nuclear weapons program. The designations are also signals to China and Russia that the U.S. intends to continue to enforce its North Korean sanctions.6
1. U.S. Department of Treasury, Treasury Targets Shipping Industry and Other Facilitators of North Korea United Nations Security Council Violations, Press Release, Aug. 15, 2018.
4. Donna Borak and Nicole Gaouette, US Treasury targets companies in Russia, China for violating North Korea sanctions, CNN, Aug. 1, 2018.
5. U.S. Department of the Treasury, North Korea Sanctions Advisory, Sanctions Risks Related to North Korea’s Shipping Practices, Feb. 23, 2018 http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/dprk_vessel_advisory_02232018.pdf.
6. Alan Rappeport, U.S. Punishes Companies Helping Kim, N.Y. TIMES, Aug. 16, 2018, at A9, col. 6.