Canadian Companies Are Affected By
New U.S. North Korea Sanctions
Written By: Cyndee Todgham Cherniak
Date: September 23, 2017
On September 21, 2017, President Trump signed “Presidential Executive Order on Imposing Additional Sanctions with Respect to North Korea”. This Presidential Executive Order is directed at U.S. businesses and foreign financial institutions and foreign companies that engage in trade with North Korea (the Government of North Korea and/or Persons in North Korea). In other words, the Presidential Executive Order can affect companies in Canada or companies with whom Canadian companies sell goods (e.g., companies in China).
Canada’s restrictions against North Korea are some of the most severe and restrictive in the world. See Canada Imposes Very Strict/Limiting Export Controls And Economic Sanctions Against North Korea So, the issue is not so much Canadian companies doing business directly with North Korea. The risk relates to doing business with countries and companies who do business with North Korea where you might be painted with the same brush of malfeasance.
This Presidential Executive Order essentially forces foreign companies (including Canadian companies) to choose between doing business with and in the United States or North Korea. For Canadian companies, the choice is easy – doing business with and in the United States. The problem for Canadian businesses is that North Korea and its friends will try and trick Canadian companies in doing business indirectly with North Korea. See Canadian Companies Should Not Be Duped By North Korea, Which Is Subject To Strict Trade Sanctions
The U.S. Secretary of the Treasury is authorized pursuant to the Presidential Executive Order to block and prevent the transfer/payment/exportation/withdrawal/etc. of (1) all property interests currently in the United States or (2) all property interests that come within the United States after September 21, 2017, and (3) all property interests that are currently within the possession or control of any U.S. person or (4) all property interests that come within the possession or control of any U.S. person in respect of a list of persons to be developed by the Secretary of the Treasury in consultation with the State Department. The blocked persons who may be put on the list include individuals, corporations, partnerships, associations, trusts, joint ventures, groups, or other form of business and foreign financial institutions. The blocked persons that may be determined:
(i) to operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;
(ii) to own, control, or operate any port in North Korea, including any seaport, airport, or land port of entry;
(iii) to have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology;
(iv) to be a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea;
(v) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this order; or
(vi) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order.
Item (iii) should be of particular interest to Canadian companies and should cause Canadian companies to ensure they have proper compliance programs in place to prevent intentional and inadvertent exports to North Korea (imported from North Korea is less of an issue). If a Canadian company sells goods to, say China, and those goods are subsequently sold to North Korea, it is possible that the Secretary of Treasury will consider the export to be “at least one significant exportation to North Korea of any goods”.
Furthermore, the Presidential Executive Order targets certain North Korean industries (sources of cash for the North Korean regime), such as construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries. Canadian businesses in these sectors or who acquire goods and services from these sectors should be particularly careful. For example, if a Canadian company buys textiles from China and those textiles were actually produced in North Korea, the Canadian company may be blocked by the United States.
The Presidential Executive Order may be the basis for the blocking of certain North Korean persons who operate outside North Korea. As a result, it will be necessary to continue to monitor the Blocked Persons List. That is developed.
The Presidential Executive Order prohibitions include:
(i) the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to subsection (a) of this section; and
(ii) the receipt of any contribution or provision of funds, goods, or services from any such person.
The Executive Order has extra-territorial application and the U.S. may block a Canadian company’s or person’s assets located in the U.S. (e.g., a subsidiary).
The Executive Order also can impact funds held by foreign financial institutions. The Excutive Order states that “[a]ll funds that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person and that originate from, are destined for, or pass through a foreign bank account that has been determined by the Secretary of the Treasury to be owned or controlled by a North Korean person, or to have been used to transfer funds in which any North Korean person has an interest, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.” The term “foreign financial institution” is defined as meaning “any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent. The term includes, among other entities, depository institutions; banks; savings banks; money service businesses; trust companies; securities brokers and dealers; commodity futures and options brokers and dealers; forward contract and foreign exchange merchants; securities and commodities exchanges; clearing corporations; investment companies; employee benefit plans; dealers in precious metals, stones, or jewels; and holding companies, affiliates, or subsidiaries of any of the foregoing. The term does not include the international financial institutions identified in 22 U.S.C. 262r(c)(2), the International Fund for Agricultural Development, the North American Development Bank, or any other international financial institution so notified by the Secretary of the Treasury.”
The Executive Order specifically states that “there need be no prior notice of a listing or determination made pursuant to this order.” As a result, the freezing and blocking of assets can occur without notice.
The Presidential Executive Order contains many other provisions that should be reviewed carefully. This post does not cover all aspects of the Executive Order. We have selected a few elements of the Executive Order to highlight the seriousness of the Executive Order. It is more important than ever before for Canadian companies to ensure they have a robust compliance program in place and that internal systems work. It is possible to be off-side this Executive Order with significant financial consequences.
For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.
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