LexSage

Canadian Companies Should Not Be
Duped By North Korea, Which Is
Subject To Strict Trade Sanctions

September 16, 2016

Canadian companies must be careful to not inadvertently breach Canada’s very strict sanctions against North Korea. Most Canadian companies know that almost all dealings with North Korea are either not permitted or that an export permit or ministerial authorization is required.  That is why it comes as quite a shock to learn that not only was a Canadian good listed in the most recent United Nations Panel of Experts Report relating to North Korea, it ended up in an unmanned aerial vehicle (a drone).

In February 22, 2016, the United Nations Security Council released a 294 page report entitled “Letter dated 22 February 2016 from the Panel of Experts established pursuant to resolution 1874 (2009) addressed to the President of the Security Council”.  On page 34 of this document, the panel noted that a flight control computer (automatic control board) of Canadian origin was sold to RedChina Geosystems on July 11, 2011 and ended up in an unmanned aerial vehicle sold to or diverted to North Korea. Footnote 52 indicates that the autopilot is subject to Canadian export controls.  The Panel of Experts monitoring violations of sanctions by North Korea explains how goods ended up in North Korea and provides valuable insight into how North Korea dupes good, law abiding companies.

What is clear is that dealings by Canadian companies with entities and persons in China, Russia, Namibia, Pakistan and the United Arab Emirates (and elsewhere) might inadvertently lead to a diversion to North Korea. It is somewhat easy to abide by a rule to not sell or ship to North Korea.  However, it is more difficult to ensure Canadian goods do not somehow end up in North Korea.  As a result, it is important to understand what are Canada’s trade restrictions relating to North Korea and know what are the rules with respect to diversions and transhipments and re-exports to North Korea.

North Korea has been under UN sanctions for many years.  The North Korean authorities have become very resourceful in obtaining goods that they desire despite the UN sanctions and unilateral sanctions imposed by many countries, including Canada. The most recent provocations by North Korea demonstrate that the risks are now higher than ever.

Canada has implemented UN sanctions against North Korea pursuant to the United Nations Act and the Regulations Implementing the United Nations Resolutions on the Democratic People’s Republic of Korea.  The prohibitions are as follows:

• No person in Canada and no Canadian outside Canada shall knowingly export, sell, supply, transfer or ship, directly or indirectly, any arms and related material (wherever situated) to any person in the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly export, sell, supply, transfer or ship, directly or indirectly, any resources contributing to the DPRK’s nuclear program (wherever situated) to any person in the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly export, sell, supply, transfer or ship, directly or indirectly, any luxury goods (wherever situated) to any person in the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly export, sell, supply, transfer or ship, directly or indirectly, any bulk cash (wherever situated) to any person in the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly import or procure any arms and related material from any person in the DPRK or citizen of the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly import or procure any resources contributing to the DPRK’s nuclear program (wherever situated) from any person in the DPRK or citizen of the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly import or procure bulk cash from any person in the DPRK or citizen of the DPRK.
• No owners or master of a Canadian vessel shall knowingly carry or cause to be carried arms and related material, resources contributing to the DPRK’s nuclear program, luxury goods or bulk cash (wherever situated) destined for any person in the DPRK.
• No operator of a Canadian aircraft shall knowingly carry or cause to be carried arms and related material, resources contributing to the DPRK’s nuclear program, luxury goods or bulk cash (wherever situated) destined for any person in the DPRK.
• No owners or master of a Canadian vessel shall knowingly carry or cause to be carried arms and related material, resources contributing to the DPRK’s nuclear program, luxury goods or bulk cash (wherever situated) from any person in the DPRK or citizen of the DPRK.
• No operator of a Canadian aircraft shall knowingly carry or cause to be carried arms and related material, resources contributing to the DPRK’s nuclear program, luxury goods or bulk cash (wherever situated) from any person in the DPRK or citizen of the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly provide or acquire any financial services to, from or for the benefit of or on the direction or order of the DPRK or any person in the DPRK with respect to certain activities.
• No person in Canada and no Canadian outside Canada shall knowingly provide a vessel that is registered in the DPRK with goods, materials or services for the vessel’s operation or maintenance if there are reasonable grounds to believe the vessel is carrying arms and related materials, resources contributing to the DPRK’s nuclear program, luxury goods or technical data related thereto.
• No person in Canada and no Canadian outside Canada shall knowingly provide or transfer to any person in the DPRK technical assistance or any other assistance or services, such as brokering or other intermediary services related to the provision, manufacture, maintenance or use of arms and related materials or resources related to the DPRK’s nuclear program.
• No person in Canada and no Canadian outside Canada shall knowingly accept the provision or transfer of technical assistance related to the provision, manufacture, maintenance or use of arms and related materials or resources related to the DPRK’s nuclear program from any person in the DPRK or citizen of the DPRK.
• No person in Canada and no Canadian outside Canada shall knowingly deal directly or indirectly in any property in Canada that is owned or controlled, directly or indirectly, by a designated person or a person acting on behalf of or at the direction of a designated person.
• No person in Canada and no Canadian outside Canada shall knowingly enter into or facilitate, directly or indirectly, any financial transaction related to any property in Canada that is owned or controlled, directly or indirectly, by a designated person or a person acting on behalf of or at the direction of a designated person.
• No person in Canada and no Canadian outside Canada shall knowingly provide financial or other related service in respect of any property in Canada that is owned or controlled, directly or indirectly, by a designated person or a person acting on behalf of or at the direction of a designated person.
• No person in Canada and no Canadian outside Canada shall knowingly make any property or any financial or other related service available, directly or indirectly, to or for the benefit of a designated person.
• No person in Canada and no Canadian outside Canada shall knowingly do anything that causes, assists or promotes, or is intended to cause, assist or promote any of the above prohibitions.

Canada has also imposed unilateral sanctions pursuant to the Special Economic Measures Act and the Special Economic Measures (Democratic People’s Republic of Korea) Regulations. 

The prohibitions are as follows:

• Any person in Canada and any Canadian outside Canada shall not export, sell, supply or ship any goods, wherever situated, to the DPRK or any person in the DPRK or deal in any goods destined for the DPRK or any person in the DPRK.
• Any person in Canada and any Canadian outside Canada shall not make any investment in any entity in the DPRK that involves a dealing in any property, wherever situated, held by or on behalf of the DPRK, any person in the DPRK, or a national of the DPRK who does not ordinarily reside in Canada.
• Any person in Canada and any Canadian outside Canada shall not provide or acquire financial services (including those that are intended to facilitate an investment in any entity) too, from or for the benefit of or on the direction or order of the DPRK or any person in the DPRK.
• Any person in Canada and any Canadian outside Canada shall not transfer, provide or communicate, directly or indirectly, technical data to the DPRK or to any person in the DPRK.
• It is prohibited for any person to dock in Canada or pass through Canada any ship that is registered in the DPRK unless such docking or passage is necessary to safeguard human life.
• It is prohibited for any person to land in or fly over Canada an aircraft that is registered in the DPRK unless such docking or passage is necessary to safeguard human life.
• Any person in Canada and any Canadian outside Canada shall not do anything that causes or assists or promotes or is intended to cause, assist or promote any act or thing that is prohibited in the above list.

North Korea is also on the Area Control List.

Pursuant to subsection 7(1) of the Export and Import Permits Act (“EIPA”), the Minister may issue to any resident of Canada a permit to export to transfer goods or technology to North Korea (which is on the Area Control List).  The Minister will set out what is being exported to North Korea and in what quantities.  The Minister may place any conditions on the export of any goods to North Korea.

If any person exports to North Korea any goods without a permit, they would have breached the prohibition in section 13 of the EIPA.  They would be subject to prosecution.

Pursuant to subsection 15(1) of the EIPA, no person shall knowingly do anything in Canada that causes or assists or is intended to cause or assist any shipment, transhipment, diversion or transfer of any goods or technology on the Export Control List to be made from Canada to North Korea.

Pursuant to subsection 15(2) of the EIPA, no person shall knowingly do anything in Canada that causes or assists or is intended to cause or assist any shipment, transhipment, diversion of any prohibited firearm, prohibited weapon or prohibited device or transfer of component or part designed exclusively for assembly to be made from Canada to North Korea.

It should go without saying that Canadian companies would not want to breach Canada’s strict export controls/economic sanctions/trade restrictions against North Korea.  Care must be taken as the UN attention on North Korea is increasing.  The reputational risk associated with being named in a UN Panel of Exports Report on North Korea could harm any Canadian business.  Now is the time to implement programs to ensure that you are not duped by North Korean officials or friends.  Due diligence is required.

What steps is your company taking to ensure that you do not act contrary to the law? Do you ever ask if you are dealing with a citizen of North Korea? Do you check names against any designated persons lists?  Do you have any form of screening in place? Do you look at the websites of customers in high risk countries, such as China, to see if the entity has dealings or connections with North Korea? Do you look at the publicly available information about websites of new customers?  Do you have any internal procedures to investigate unusual queries for arms and related materials, nuclear materials, etc.?

For more information about Canada’s export controls, economic sanction and trade restrictions, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsagecom.