The State Department, Treasury Department and Homeland Security have issud an advisory highlighting the sanctions evasion tactics used by North Korea that could expose companies—including manufacturers, buyers, and service providers—to compliance risks under U.S. or United Nations sanctions authorities.
This advisory is also intended to assist 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).
This advisory does not impose new sanctions on North Korea. The U.S. remains committed to the Joint Statement that President Trump and Chairman Kim signed June 12 in Singapore. As the President has said, sanctions will be enforced and remain in effect.
Multiple U.S. and UN sanctions impose restrictions on trade with North Korea and the use of North Korean labor, potentially impacting a company’s supply chain operations. The two primary sanctions compliance risks are: inadvertent sourcing of goods, services, or technology from North Korea, and the presence of North Korean citizens or nationals in those supply chains, whose labor generates revenue for that government.
Concerning the inadvertent sourcing of goods, services, or technology from North Korea, companies are advsed to be aware certain practices:
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 may disguise the origin of goods produced in the country 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.
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.
Regarding North Korea's overseas labor, the advisory warns that “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.
The advisory also lists 41 countries and jurisdictions where North Korean laborers were found working on behalf of the North Korean government. “China and Russia continue to host more North Korean laborers than all other countries and jurisdictions combined,” it says.
The government warns companies to “be aware of these deceptive practices in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chain.