On July 27, 2017, the US Congress passed the Countering America's Adversaries Through Sanctions Act (CAATSA), which calls for imposition of extraordinarily wide-ranging new sanctions measures on Russia, Iran and North Korea. The CAATSA currently awaits action by President Trump and will likely become the law of the land in the coming days. In this update, we provide an overview of the new sanctions in the Countering Iran's Destabilizing Activities Act of 2017 (CIDA) and Korean Interdiction and Modernization of Sanctions Act (KIMSA), Titles I and III respectively of CAATSA. Please note that these sanctions are highly nuanced and contain limitations and exceptions, thorough discussion of which is beyond the scope of this update.
New Iran Sanctions under CIDA
Under CIDA, the President:
- Is required to impose sanctions on persons that knowingly engage in activities concerning Iran's ballistic missile program, or any other program in Iran for developing, deploying or maintaining systems capable of delivering weapons of mass destruction, and persons that knowingly provide financial or other support for such activities;
- Is required to impose sanctions on persons that knowingly engage in activities that materially contribute to the supply, sale or transfer to or from Iran, or for the use in or benefit of Iran, of certain military equipment, and persons that knowingly provide financial or other support or services related to the supply, sale or transfer of such military equipment;
- Is required to impose additional sanctions on the Islamic Republican Guard Corps and its foreign officials, agents and affiliates; and
- Is authorized to impose sanctions on persons determined to be responsible for extrajudicial killings, torture, or certain other violations of internationally recognized human rights committed against individuals in Iran who seek to expose illegal activity of the Iranian government or obtain, exercise, defend or promote human rights and freedoms.
As under most US sanctions, a person acts "knowingly" under CIDA sanctions even when that person does not actually know but "should have known" of a particular conduct, circumstance or result. Thus, insurers, traders, shippers, banks and others may find themselves targeted by US sanctions if they fail to take steps to ascertain whether a given counterparty is engaging in sanctionable activities. Sanctions imposed under CIDA include asset freezes, denial of entry into the US and pecuniary fines.
New North Korea Sanctions under KIMSA
The KIMSA provides for extensive amendments to the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA), which require or authorize the President to impose sanctions on persons that engage in an extremely wide array of dealings with North Korea. Pursuant to the NKSPEA amendments:
- The President is required to impose sanctions against persons that knowingly:
- acquire from North Korea significant amounts of gold, titanium, copper, silver, nickel, zinc, or certain other minerals;
- insure, register, facilitate the registration of, or maintain insurance or a registration for, a vessel owned or controlled by the North Korean government except as specifically approved by the UN; or
- provide North Korea with significant amounts of rocket, aviation or jet fuel (except for use by civilian passenger aircraft outside North Korea);
- provide significant amounts of fuel, supplies, or bunkering services, or facilitate a significant transaction to operate or maintain a vessel or aircraft designated, or owned or controlled by a person designated, under certain US or UN sanctions; or
- maintain a correspondent account with any North Korean financial institution except as specifically approved by the UN.
- The President is authorized to impose sanctions against persons that knowingly:
- purchase or otherwise acquire from North Korea significant quantities of coal, iron, or iron ore in excess of UN-established limitations, or significant amounts or types of textiles;
- facilitate a significant transfer of funds or property of the North Korean government that materially contributes to any violation of applicable UN resolutions;
- facilitate a significant transfer to or from North Korea of bulk cash, precious metals, gemstones or certain other stores of value;
- provide to North Korea significant amounts of crude oil, condensates, refined petroleum, other types of petroleum or petroleum byproducts, LNG, or other natural gas resources;
- engage in or facilitate online commercial activity of the Government of North Korea, including online gambling;
- purchase or otherwise acquire fishing rights, or significant types or amounts of food or agricultural products, from the North Korean government;
- engage in, facilitate or are responsible for the exportation of North Korean workers in a manner intended to generate significant revenue for the North Korean government or the Workers' Party of Korea;
- conduct a significant transaction in North Korea's transportation, mining, energy, or financial services industries; or
- facilitate the operation of any branch, subsidiary, or office of a North Korean financial institution except as specifically approved by the UN.
The NKSPEA amendments also:
- Require US financial institutions to cease providing services for correspondent accounts found to be used to provide significant financial services to persons designated for sanctions under NKSPEA;
- Require the President to withhold foreign assistance for a period of two years from countries that trade in defense articles or services with North Korea;
- Require the President to issue reports identifying foreign sea ports and airports that fail to implement UN-mandated inspections of ships, aircraft, cargo or conveyances in transit to or from North Korea, and authorize the Secretary of Homeland Security to implement enhanced screening procedures to determine whether related physical inspections are warranted;
- Ban importation into the US of goods, wares, articles, and merchandise mined, produced or manufactured by the labor of North Korean nationals, unless US Customs and Border Protection finds by clear and convincing evidence that such goods, wares, articles, and merchandise were not produced with convict labor, forced labor, or indentured labor; and
- Require the President to impose sanctions on persons identified as knowingly employing North Korean laborers in North Korea's transportation, mining, energy or financial services industries, unless the President has received reliable assurances that (a) the employment does not result in the transfer of convertible currency, luxury goods, or other stores of value to the North Korean government, (b) all wages and benefits are provided directly to the laborers and held in accounts where such laborers reside, and (c) the laborers are subject to working conditions consistent with international standards.
KIMSA also provides for amendment of the Ports and Waterways Safety Act to prohibit vessels from entering US navigable waters or transferring cargo in US ports if such vessels are owned or operated by the North Korean government or a North Korean, or owned or operated by or on behalf of a country in which a sea port has been determined to have failed to implement UN-mandated inspections, or owned or operated by or on behalf of a country that has not complied with applicable UN resolutions.
In summary, KIMSA tightens North Korea-related sanctions applicable to the US and US persons, and requires or authorizes a plethora of new US secondary sanctions targeting non-US entities that do business with North Korea.