On September 21, 2017, President Trump signed “Presidential Executive Order on Imposing Additional Sanctions with Respect to North Korea“. This Presidential Executive Order blocks U.S. assets of persons to be identified by the Secretary of State. The perameters that the Secretary of State may consider in listing any person 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 are less of an issue). If a Canadian company sells goods to, say China, and those goods are subsequently sol to North Korea, it is possible that the Secretary of State will consider the export to be “at least one significant exportation to North Korea of any goods”.
The Executive Order contains many other provisions that should be reviewed carefully. 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.
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 that 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.