August 20, 2018
On July 24, 2018, the U.S. Department of State, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the U.S. Department of Homeland Security’s Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE) issued an advisory to highlight North Korean sanctions evasion tactics that could expose U.S. businesses to sanctions compliance risks. The advisory highlights a range of deceptive trade practices and notes that the two primary compliance risks for U.S. businesses are: (1) inadvertent sourcing of goods, services, or technology from North Korea; and (2) the presence of North Korean citizens or nationals in companies’ supply chains, whose labor generates revenue for the North Korean government.
Specifically, the advisory outlines the following specific North Korean deceptive practices that place businesses at risk for non-compliance:
In addition to these deceptive practices, U.S. businesses are also at risk of inadvertent dealing in contracts that involve North Korean labor as the North Korean government exports large numbers of laborers to fulfill contract in various industries, including apparel, construction, footwear manufacturing, hospitality, IT services, logging, medical, pharmaceuticals, restaurant, seafood processing, textiles, and shipbuilding. While China and Russia continue to host more North Korean laborers than all other countries and jurisdictions combined, North Korean laborers working on behalf of the North Korean government are present worldwide. The advisory notes that potential indicators of North Korean overseas labor include withheld and low wages; multi-year contracts which require a large, upfront payment; unsafe housing for laborers; autonomy over laborers; and contracts that lack transparency.
Businesses are expected to examine their entire supply chain for North Korean laborers and goods, services, or technology, and adopt and fully document appropriate due diligence best practices. This particularly applies to those businesses with operations in areas and industries that are highlighted in the advisory. Dealings in these restricted activities could result in OFAC penalties or designation on OFAC’s Specially Designated Nationals List. In addition, for goods imported into the United States where CBP and ICE find evidence of prohibited North Korean labor, CBP will deny entry of the goods, which could lead to the issuance of civil penalties and the seizure and forfeiture of the associated goods.