Although poor, out-of-touch Dr. Evil of the Austin Powers series had to resort to the threat of using a giant laser beam to decimate various cities to try to obtain his one
million billion dollars in ransom, Kim Jong-un1 appears to be able to keep his questionable arsenal of weapons of mass destruction intact and instead take millions in U.S. dollars without resorting to extortion. Although the Obama administration has not gone so far as to blame North Korea for it (it is certainly possible the real perpetrator is deliberately trying to steer the evidence toward North Korea or that the perpetrators merely used the same malware code allegedly used by North Korea in hacking Sony Pictures), there is apparently substantial evidence that North Korea hacked banks who were user of the SWIFT bank messaging system, sending fraudulent SWIFT messages purportedly from the banks and stealing at least $81,000,000.2
For those of you unfamiliar, SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a communications system for international banking that allows its member banks to communicate (allegedly) securely and reliably to facilitate transactions between accounts in those banks. If you’ve ever wired money internationally, you probably had to use a “SWIFT Code” to do so. According to the New York Times, this is not the first time North Korea has stolen U.S. dollars; North Korea under Kim Jong-il’s regime was previously known as one of the largest and highest-quality counterfeiters of U.S. $100 bills. This hopefully was fixed when the U.S. gave its Benjamins a facelift.
As you may have heard, coincidentally timed with the discovery of the theft of funds from SWIFT users, the U.S. on June 1, 2016, imposed secondary sanctions on North Korea. Although the U.S. says these sanctions had been in the works for a while, the U.S. also attributes them to North Korea being a “primary money laundering concern,” among other things.
So you may be asking, weren’t U.S. banks and businesses already prohibited from doing business with North Korea? Indeed they were. In fact, the sanctions against North Korea were incredibly restrictive already, second only perhaps to those against Iran. However, under the new secondary sanctions, banks and business outside the United States are now cut off from using the U.S. banking system if they are doing business with North Korea or North Koreans. And the U.S. isn’t the only entity taking action against banking with North Korea. The United Nations Security Council had already issued a directive to members to cut banking relationships with North Korea.
So who do these sanctions really affect? North Korea’s largest trading partner is China. Although most large Chinese banks have already cut off business with North Korea, some of the smaller ones near the Korean border apparently have not. If those Chinese banks want to avail themselves of U.S. banks and the U.S. banking system and if China wants to make good with its U.N. obligations, all Chinese banks will have to cut ties with North Korea. Geopolitically, this could cause a bit of an uproar.
But what does that mean for us in the U.S.? Probably not much if you are outside the banking industry. However, it may affect U.S. businesses doing business with those Chinese banks described above.
What the most recent sanctions do for the rest of us is serve as a good reminder that the U.S. sanctions and embargoes are in constant flux and can be quite complicated. While the North Korea sanctions are pretty straightforward (they essentially prohibit doing business with North Korea or North Koreans and now doing business with banks that do business with North Korea or North Koreans), others are much more convoluted. What are some examples of the more complicated U.S. sanctions and embargoes? In addition to other sanctions, currently you cannot import jadeite or rubies extracted from Myanmar (Burma), but you can import just about anything else from Myanmar. You may not engage in transactions regarding petroleum from Syria or institute new investment in Syria, but you can send humanitarian aid to Syria and certain transactions related to U.S. persons resident in Syria are permitted. And, of course, the Cuba sanctions have gradually been relaxed over the last year or so to allow certain transactions (mostly related to information and cultural exchanges) between U.S. persons and Cuban people or business, including certain travel to Cuba. There are currently 28 active sanctions programs listed on the Treasury Department’s website.
Penalties for sanctions violations vary depending upon which statute is violated and whether the violation was willful, but can be more than one million dollars per violation. Before doing business internationally or with foreign entities, be sure to know which sanctions and embargoes may affect your transactions. Using up-to-date screening software to ensure you are not doing business with restricted parties or nations and instituting an effective export compliance policy are an absolute minimum requirement. Compliance procedures should be updated frequently to ensure timeliness. And, of course, stay tuned to see if Kim Jong-un continues to follow the Austin Powers storyline and next attempts to extort $100 billion in 1969 dollars.
If you need assistance implementing or updating your export compliance policy or for more information, please contact the sanctions team at Parker Poe Adams & Bernstein LLP.
1Coincidentally, the BBC once referred to Kim Jong-il, who is Kim Jong-un’s father, as a “real life Dr. Evil”
2Swift network bank thefts ‘linked’ to Sony Pictures hack, The Guardian, May 27, 2016.
Questions regarding this alert can be addressed to Eric Cottrell at firstname.lastname@example.org / 704.335.9850. This legal update does not constitute the provision of legal advice or the creation of an attorney/client relationship with any party.