U.S. Department of State

   

The U.S. Department of State, with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Homeland Security’s (DHS) Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE), is issuing this advisory to highlight sanctions evasions tactics used by North Korea that could expose businesses – including manufacturers, buyers, and service providers – to sanctions compliance risks under U.S. and/or United Nations sanctions authorities. This advisory also assists businesses in complying with the requirements under Title III, the Korean Interdiction and Modernization of Sanctions Act of the Countering America’s Adversaries Through Sanctions Act (CAATSA). Businesses should be aware of deceptive practices employed by North Korea in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chains.

Multiple U.S. and UN sanctions impose restrictions on trade with North Korea and the use of North Korean labor.[1] The two primary risks 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. This advisory also provides due diligence references for businesses.

North Korea’s system of forced labor operates both domestically and internationally. In North Korea, most laborers work between 12 and 16 hours per day (and sometimes up to 20 hours per day) with only one or two rest days per month in jobs they are assigned to by the North Korean government. Outside of North Korea, there are two primary groups of North Korean laborers earning income: (1) North Korean overseas laborers whose primary work is organized, managed, and overseen by, and produces revenue for, the North Korean government; and (2) North Koreans who have fled North Korea, including refugees and asylum seekers who live and work outside of North Korea and are earning income to sustain themselves in a personal capacity.

The U.S. government is focusing its disruption efforts on North Korean citizens or nationals whose labor generates revenue for the North Korean government. In most cases, employers pay salaries directly to the North Korean government, which takes between 70 percent and 90 percent of the total earnings. The North Korean government reportedly earns hundreds of millions of U.S. dollars per year from exporting labor. These remittances support the North Korean government’s weapons of mass destruction (WMD) and ballistic missile programs. Use of North Korean citizens or nationals as laborers in supply chains could trigger U.S. sanctions, and the issuance of work authorizations for these North Korean nationals is prohibited under UN Security Council resolution 2397 (2017).

The U.S. government is not seeking to disrupt the efforts of North Korean refugees and asylum seekers, who are living and working outside of North Korea, to earn an income to sustain themselves in a personal capacity. Individuals originally from North Korea, who obtain South Korean citizenship or any other citizenship, are no longer considered North Korean citizens or nationals, for purposes of CAATSA § 321 (b).

I. Heightened Risk for and Potential Indicators of Goods, Services, and Technology with a North Korean Nexus

• Sub-Contracting/Consignment Firms: Third-country suppliers shift manufacturing or sub-contracting work to a North Korean factory without informing the customer or other relevant parties. For example, a Chinese factory sub-contracts with a North Korean firm to provide embroidery detailing on an order of garments.

• Mislabeled Good/Services/Technology: North Korean exporters disguise the origin of goods produced in North Korea by affixing country-of-origin labels that identify a third country. For example, North Korean seafood is smuggled into third countries where it is processed, packaged, and sold without being identified as originating from North Korea. There are also cases in which garments manufactured in North Korea are affixed with “Made in China” labels.

• Joint Ventures: North Korean firms have established hundreds of joint ventures with partners from China and other countries in various industries, such as apparel, construction, small electronics, hospitality, minerals, precious metals, seafood, and textiles. See Annex 2 for a list of known North Korean joint ventures.

• Raw Materials or Goods Provided with Artificially Low Prices: North Korean exporters sell goods and raw materials well below market prices to intermediaries and other traders, which provides a commercial incentive for the purchase of North Korean goods. This practice has been documented in the export of minerals. For example, a close review of trade data on North Korea’s export of anthracite coal to China from 2014-2017 reveals a consistent sub-market price for this export.

• Information Technology (IT) Services: North Korea sells a range of IT services and products abroad, including website and app development, security software, and biometric identification software that have military and law enforcement applications. North Korean firms disguise their footprint through a variety of tactics including the use of front companies, aliases, and third country nationals who act as facilitators. For example, there are cases where North Korean companies exploit the anonymity provided by freelancing websites to sell their IT services to unwitting buyers.

II. Heightened Risk for and Potential Indicators of North Korean Overseas Labor

A. Heightened Risk for North Korean Overseas Labor Producing Revenue for the Government of North Korea

Industries

The North Korean government exports large numbers of laborers to fulfill a single contract in various industries, including but not limited to apparel, construction, footwear manufacturing, hospitality, IT services, logging, medical, pharmaceuticals, restaurant, seafood processing, textiles, and shipbuilding.

Location

In 2017-18, North Korean laborers working on behalf of the North Korean government were present in the listed countries and jurisdictions below.[2] China and Russia continue to host more North Korean laborers than all other countries and jurisdictions combined.

• Algeria
• Angola
• Bangladesh
• Belarus
• Cambodia
• China
• Democratic Republic of the Congo
• Equatorial Guinea
• Ethiopia
• Ghana
• Guinea
• Indonesia
• Kyrgyzstan
• Kuwait
• Laos
• Libya
• Mali
• Malaysia
• Mongolia
• Mozambique
• Namibia
• Nepal
• Nigeria
• Oman
• Peru
• Poland
• Qatar
• Republic of Congo
• Russia
• Rwanda
• Senegal
• Singapore
• Tanzania
• Taiwan
• Thailand
• Uganda
• United Arab Emirates
• Uruguay
• Vietnam
• Zambia
• Zimbabwe

B. Potential Indicators of North Korean Overseas Labor[3]

• Wages: Indicators include the employer withholding wages, making unreasonable pay deductions, paying wages late, and making in-kind payments. In some instances, laborers earning revenue for the government are paid wages in cash and pay a lump sum to the North Korean government upon their return home.

• Contracts: Laborers producing revenue for the government typically are hired under two-to-five year contracts that require a large upfront payment to the North Korean government (anecdotally, up to 30 percent of the total contract amount).

• Housing: Laborers often reside in unsafe and unsanitary conditions provided by the employer and sometimes face excessive costs for those accommodations. Laborers providing revenue for the government typically reside in collective housing and are isolated from laborers of other nationalities.

• Control over Laborers: Laborers often have no access to or control over bank accounts. Employers retain passports and/or confiscate or destroy laborers’ personal documents (e.g. visas). Laborers producing revenue for the North Korean government will generally have official documentation, including government-issued passports (as opposed to refugees and asylum seekers who will likely not have any such documentation). As with many victims of forced labor, these documents – as well as visas and work permits – may be retained by employers or recruiters. Laborers providing revenue for the government also get little to no time off and are required to attend mandatory self-criticism sessions.

• Lack of Transparency: Contract details are often hidden, and financial transactions are handled in such a way that it is difficult to determine the ultimate beneficiary. North Korea also often limits third parties from conducting worksite inspections. Laborers producing revenue for the North Korean government typically cannot be interviewed without a “minder” present.

III. Due Diligence Best Practices

Businesses should closely examine their entire supply chain(s) for North Korean laborers and goods, services, or technology, and adopt appropriate due diligence best practices. This especially applies to those businesses with operations in high-risk countries, or who operate in high-risk industries. While due diligence practices will vary based on the size and nature of the business, well-documented due diligence policies and practices may be considered mitigating factors when the U.S. government determines the appropriate enforcement response. For specific recommendations of due diligence practices and potential mitigating factors, please see DHS Q&A, specifically question eight, and OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R Part 501, Appendix A.

IV. Penalties for Violations of Sanctions and Enforcement Actions

Individuals and entities should be aware of the potential consequences for engaging in or facilitating prohibited or sanctionable conduct.

OFAC investigates apparent violations of its regulations and maintains enforcement authority as outlined in its Economic Sanctions Enforcement Guidelines, 31 C.F.R Part 501, Appendix A. Persons who violate U.S. sanctions with respect to North Korea can be subject to civil monetary penalties equal to the greater of twice the value of the underlying transaction or $295,141 per violation, referred for criminal prosecution, or both.^[4] For additional information regarding OFAC’s enforcement authorities, Economic Sanctions Enforcement Guidelines, and recent civil penalties and enforcement actions, visit the OFAC Resource Center.

CBP and ICE enforce the prohibition against importing goods made with forced labor through civil and criminal enforcement actions, respectively. Where CBP finds 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, as appropriate. ICE’s Homeland Security Investigations works with CBP on these types of enforcement actions and may initiate criminal investigations relating to the importation of these proscribed goods that target individuals and/or corporations for their roles in the importation of proscribed goods into the United States in violation of the law. These laws include, but are not limited to, 18 U.S.C. 1761, 18 U.S.C. 545, and 18 U.S.C. 1589, and conviction under these laws could result in incarceration, fines, and forfeiture of any/all goods imported and proceeds of these crimes.

V. Activities that Could Result in Designation by OFAC

OFAC has authority to impose sanctions on any person determined to, among other things:

• operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;
• have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology;
• have engaged in, facilitated, or been responsible for an abuse or violation of human rights by the government of North Korea or the Workers’ Party of Korea or any person acting for or on behalf of either such entity;
• have engaged in, facilitated, or been responsible for the exportation of laborers from North Korea, including exportation to generate revenue for the government of North Korea or the Workers’ Party of Korea; or
• have sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea or any person acting for or on behalf of the government of North Korea or the Workers’ Party of Korea, metal, graphite, coal, or software, where any revenue or goods received may benefit the government of North Korea or the Workers’ Party of Korea.

Additionally, if the Secretary of the Treasury, in consultation with the Secretary of State, determines that a foreign financial institution has knowingly conducted or facilitated significant trade with North Korea, or knowingly conducted or facilitated a significant transaction on behalf of a person designated under a North Korea-related Executive order, or under Executive Order 13382 for North Korea-related activity, that institution may, among other potential restrictions, lose the ability to maintain a correspondent account in the United States.

VI. North Korea Sanctions Resources

For additional information on OFAC sanctions, please see the North Korean Sanctions Regulations, 31 C.F.R. Part 510. For questions or concerns related to OFAC sanctions regulations and requirements, including disclosing a potential violation of U.S. sanctions regulations, please contact OFAC’s Compliance Hotline at 1-800-540-6322 or OFAC_Feedback@treasury.gov. To submit a request to OFAC for a specific license, see https://licensing.ofac.treas.gov/Apply/Introduction.aspx.

The DHS Q&A publication focuses on CAATSA Title III Section 321(b), which affects the entry of merchandise produced by North Korean nationals or citizens. CAATSA reiterates the need for comprehensive due diligence by and on behalf of U.S. companies involved in importing goods. Careful consideration of, and reasonable care with respect to, the different risks presented in your supply chain should always be taken into account when importing into the United States.

Importers have an obligation to exercise reasonable care and take all necessary and appropriate steps to ensure that goods entering the United States comply with all laws and regulations. To assist importers in understanding these obligations, CBP recently updated and published an Informed Compliance Publication, What Every Member of the Trade Community Should Know: Reasonable Care. CBP has also published seven fact sheets on various topics related to forced labor, including Forced Labor – Importer Due Diligence. These are also posted on CBP.gov.

The Responsible Sourcing Tool, funded by the State Department, is an online platform with resources to help federal contractors, acquisitions officers, and businesses identify, prevent, and address human trafficking risks in their global supply chains. The site contains information on industries and commodities at risk for trafficking or trafficking-related activities, as well as 10 risk management tools and a set of tools specific to the seafood industry.

 

Annex 1

Overview of North Korea Sanctions Prohibitions Related to Supply Chains

Both the United States and the United Nations (UN) maintain robust sanctions regimes against North Korea. A high-level overview of these prohibitions follows, but all individuals and entities reviewing this advisory are encouraged to ensure they understand fully all sanctions obligations, in all jurisdictions in which they operate, that pertain to their activities. Please note that this section is current as of the date of this advisory – the most-up-to-date information can be found at the websites listed in the footnotes below.

The United States prohibits, among other things[5]:

• All transactions or dealings involving the North Korean government or the Workers’ Party of Korea;
• The exportation or re-exportation, direct or indirect, from the United States, or by a United States person, wherever located, of any goods, services, or technology to North Korea;
• The importation into the United States, direct or indirect, of any goods, services, or technology from North Korea;
• Vessels and aircrafts that have visited North Korea within the last six months, or engaged in a ship-to-ship transfer with such a vessel, from visiting the United States;
• New investment in North Korea by a United States person, wherever located;
• Any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by the foreign person would be prohibited if performed by a United States person or within the United States, and;
• The importation into the United States of any goods, wares, articles, and merchandise mined, produced, and manufactured wholly or in part by North Korean citizens or nationals.

The United Nations prohibits the importations from North Korea of the following[6]:

• Coal
• Textiles
• Seafood, including fishing rights
• Iron and iron ore
• Lead and lead ore
• Copper
• Nickel
• Zinc
• Gold
• Silver
• Titanium ore
• Rare earth metals
• Vanadium ore
• Statues and monuments
• Conventional arms
• Food and agricultural products
• Machinery
• Electrical equipment
• Earth and stone, including magnesium and magnesite
• Wood
• Vessels

Joint Ventures: UN Security Council resolution 2375 requires Member States to prohibit all joint ventures with North Korean entities and individuals, whether new or already existing, subject to very narrow exceptions.

Labor: UN Security Council resolution 2397 requires all Member States to repatriate all North Koreans earning income no later than 24 months from December 22, 2017, subject to very narrow exceptions.

 

Annex 2

Joint Ventures in North Korea

NOTE: This annex lists joint ventures that have operated or are currently operating in North Korea established prior to 2016 and is not a comprehensive list of North Korean joint ventures that exist at this time. This annex is not a “sanctions list.” While some entities on this list may be entities whose property and interests in property are blocked, the inclusion of these entities in this advisory does not constitute as a determination by OFAC that any of these entities meet the designation criteria under any sanctions program. Persons subject to sanctions can be found on OFAC’s List of Specially Designated Nationals and Blocked Person and other sanctions lists, which can be searched here.

 

Annex 3

Sectoral Breakdown of North Korean Overseas Workers

Note: This annex reflects open source data on North Korean overseas workers in the below countries, jurisdictions, and industries. It is not a comprehensive list of all countries, jurisdictions, or industries. Businesses involved in these countries or jurisdictions’ sectors should scrutinize their supply chain to ensure compliance with U.S. laws. UN Security Council resolution 2397 requires UN Member States to repatriate all North Koreans earning income no later than 24 months from December 22, 2017. Therefore, countries and jurisdictions may have taken actions to expel North Korean workers since this data was reported.

 

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[1] Annex 1 provides a more detailed description of the North Korean sanctions prohibitions related to supply chains.

[2] The State Department regularly reports on countries and industries hosting North Korean laborers in our annual reports including the Country Reports on Human Rights Practices and Trafficking in Persons Report. In addition, a number of NGOs have conducted extensive research on this topic and have released public reports. These NGOs include the Database Center for North Korean Human Rights, the ASAN Institute, C4ADS, and the Committee for Human Rights in North Korea.

[3] Indicators in section B may apply to either North Korean laborers producing revenue for the North Korean government, or to North Korean refugees and asylum seekers, unless otherwise specified.

[4] Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Sec. 701 of Public Law 114-74, OFAC adjusted its civil monetary penalty amounts on August 1, 2016, February 10, 2017, and March 19, 2018, and will adjust those amounts annually.

[5] These prohibitions apply to transactions by a U.S. person or within the United States, including those that pass through the U.S. financial system. These prohibitions do not apply to exempt transactions. This document is explanatory only and does not have the force of law. This document does not supplement or modify the statutory authorities, Executive orders, or regulations. For additional details on OFAC prohibitions related to North Korea, see www.treasury.gov/ofac.

[6] All UN Member States have a legal obligation to implement the sanctions measures imposed by UN Security Council resolutions (UNSCRs). North Korea-related UNSCRs can be found on the 1718 Committee website at https://www.un.org/sc/suborg/en/sanctions/1718.