Alongside the North Korea sanctions designations made on Friday, OFAC also, in conjunction with the State Department the US Coast Guards, issued a 10-page advisory (actually 5 pages, plus 5 pages of annexes) about North Korea shipping practices:
North Korea Sanctions Advisory Issued: February 23, 2018
Title: Sanctions Risks Related to North Korea’s Shipping Practices
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), with the U.S. Department of State and the U.S. Coast Guard, is issuing this advisory to alert persons globally to deceptive shipping practices used by North Korea to evade sanctions. These practices may create significant sanctions risk for parties involved in the shipping industry, including insurers, flag registries, shipping companies, and financial institutions. Parties subject to U.S. and/or United Nations (UN) sanctions should be aware of these practices in order to implement appropriate controls to ensure compliance with their legal requirements.
As part of the maximum pressure campaign against North Korea, the United States is committed to disrupting North Korea’s illicit funding of its weapons programs, regardless of the location or nationality of those facilitating such funding. The North Korean shipping industry is a primary means by which North Korea evades sanctions to fund its nuclear weapons and ballistic missile programs. As such, the United States will continue targeting persons, wherever located, who facilitate North Korea’s illicit shipping practices.
The United States and its international partners have demonstrated resolve to pursue those violating sanctions in the North Korean shipping industry through the adoption of UN port entry bans, the detention of vessels complicit in sanctions evasion, and through national-level sanctions designations. Both the United States and the UN maintain robust sanctions regimes against North Korea. The United States prohibits trade and other transactions directly or indirectly involving North Korea, and the United States can sanction entities and individuals who engage in trade, among many other things, with North Korea. The UN prohibits most exports and imports, with very limited exceptions, and maintains prohibitions related to ship-to-ship transfers, sanctions evasion, and port entry of designated vessels, among other areas.
This advisory contains two annexes. The first provides an overview of U.S. and UN sanctions relevant to the shipping industry, including a non-exhaustive list of bases for which persons can be sanctioned by OFAC. The second provides a list of North Korean vessels that are capable of engaging in ship-to-ship transfers.
Deceptive Shipping Practices Employed by North Korea
As the global community increases its pressure, North Korea continues to deploy deceptive practices with respect to shipping to evade sanctions. The following list provides examples of the types of tactics used by North Korea to obfuscate the identity of the vessels, the goods being shipped, and the origin or destination of cargo.
• Physically Altering Vessel Identification: Maritime vessels meeting certain tonnage thresholds are required to display their name and International Maritime Organization (IMO) number (a unique, seven-digit identifying vessel identification code) in a visible location either on the ship’s hull or superstructure. A vessel’s IMO number is intended to be permanent and should remain consistent regardless of a change in a vessel’s ownership or name. North Korean-flagged merchant vessels have physically altered their vessels to obscure their identities and attempt to pass themselves off as different vessels. These physical alterations include painting over vessel names and IMO numbers with alternate ones.
• North Korean Ship-to-Ship (STS) Transfers: STS transfers are a method of transferring cargo from one ship to another while at sea rather than while located in port. STS transfers can conceal the origin or destination of cargo. North Korea operates a fleet of 24 tankers capable of engaging in STS transfers of refined petroleum products and other banned goods. The names and IMO numbers of these vessels are listed in Annex 2, though they are subject to change as North Korea seeks to conceal the identity of vessels it owns and operates. The following map shows area where ship-to-ship transfers commonly occur: (image omitted)
• Falsifying Cargo and Vessel Documents: Complete and accurate shipping documentation is critical to ensuring all parties to a transaction understand the parties, goods, and vessels involved in a given shipment. Bills of lading, certificates of origin, invoices, packing lists, proof of insurance, and lists of last ports of call are examples of documentation that typically accompany a shipping transaction. North Korea has been known to falsify vessel and cargo documents to obscure the origin or destination of cargo.
• Disabling Automatic Identification System (AIS): AIS is a collision avoidance system, which transmits, at a minimum, a vessel’s identification and select navigational and positional data via very high frequency (VHF) radio waves. While AIS was not specifically designed for vessel tracking, it is often used for this purpose via terrestrial and satellite receivers feeding this information to commercial ship tracking services. Ships meeting certain tonnage thresholds and engaged in international voyages are required to carry and operate AIS; however, North Korean-flagged merchant vessels have been known to intentionally disable their AIS transponders to mask their movements. This tactic, whether employed by North Korean-flagged vessels or other vessels involved in trade with North Korea, could conceal the origin or destination of cargo destined for, or originating in, North Korea.
• Manipulating AIS: North Korean-flagged merchant vessels have also been known to manipulate the data being transmitted via AIS. Such manipulation could include altering vessel names, IMO numbers, Maritime Mobile Service Identities (MMSIs), or other unique identifying information. This tactic could also be used to conceal a vessel’s next port of call or other information regarding its voyage.
Risk Mitigation Measures
North Korea’s deceptive practices are intended to circumvent existing sanctions compliance controls used by the shipping industry and other actors involved in shipping-related transactions (such as insurance companies and financial institutions). The risk of engaging in prohibited activity or processing prohibited transactions can be mitigated by implementing the following types of measures:
• Monitor for AIS Manipulation: Ship registries, insurers, charterers, vessel owners, or port state control entities should consider investigating vessels that appear to have turned off their AIS while operating in the area surrounding the Korean peninsula. Any other signs of manipulating AIS transponders should be considered red flags for potential illicit activity and should be investigated fully prior to continuing to provide services to, processing transactions involving, or engaging in other activities with such vessels.
• Conduct Research Prior to STS Transfers: Vessels conducting STS transfers in the area surrounding the Korean peninsula should be aware of the potential for North Korean vessels to use deceptive practices to hide their identities, including by using false vessel names or IMO numbers. Vessel operators should ensure that they have verified the vessel name, IMO number, and flag prior to engaging in such a transfer, and ensure there is a legitimate business purpose for the STS transfer.
• Review All Applicable Shipping Documentation: Individuals and entities processing transactions pertaining to shipments potentially involving North Korean-flagged vessels or shipments to or from North Korea should ensure that they request and review complete and accurate shipping documentation. Such shipping documentation should reflect the details of the underlying voyage and reflect the relevant vessel(s), cargo, origin, and destination. Any indication that shipping documentation has been manipulated should be considered a red flag for potential illicit activity and should be investigated fully prior to continuing with the transaction. In addition, documents related to STS transfers should demonstrate that the underlying goods were delivered to the port listed on the shipping documentation.
• Clear Communication with International Partners: Not all parties to a shipping transaction may be subject to the same sanctions regimes, so clear communication is a critical step for international transactions. Clearly communicating U.S. and UN sanctions obligations and discussing sanctions compliance obligations with parties to a transaction can ensure more effective compliance with relevant sanctions programs.
• Leverage Available Resources: There are several organizations that provide commercial shipping data, such as ship location, ship registry information, and ship flagging information. This data should be incorporated into due diligence practices, along with available information from OFAC, the UN, and the Coast Guard, as outlined below in the “North Korea Sanctions Resources” section of this advisory.
Penalties for Violations of U.S. and UN Sanctions Regimes
Individuals and entities engaged in shipping-related transactions should be aware of the potential consequences for engaging in prohibited or sanctionable conduct.
OFAC investigates apparent violations of its regulations and maintains enforcement authority as outlined in its Economic Sanctions Enforcement Guidelines. Persons that 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 $289,238, per each violation.1 See hyperlink for additional information regarding OFAC’s enforcement authorities, Economic Sanctions Enforcement Guidelines, and recent civil penalties and enforcement actions.
The UN also maintains various enforcement mechanisms for ensuring compliance with its requirements. It may direct a member state and the relevant shipping registry to drop registration of a ship designated by the UN for violating sanctions and may also direct that it be denied entry at all ports. Ships suspected to be carrying UN prohibited cargo may be inspected at sea upon the consent of the flag state, or directed by the flag state to proceed to a specific port for inspection. Vessels whose registration cannot be confirmed or who are deregistered by the flag state may be treated as a vessel without nationality and be subject to the laws of the nation conducting the inspection.
North Korea Sanctions Resources
For questions or concerns related to OFAC sanctions regulations and requirements, including to disclose a potential violation of U.S. sanctions regulations, please contact OFAC’s Compliance Hotline at 1-800-540-6322 or via OFAC_Feedback@treasury.gov. To submit a request for a specific OFAC license, see https://licensing.ofac.treas.gov/Apply/Introduction.aspx.
IHS Maritime is the manager of the IMO ship numbering scheme. For verification of IMO numbers for individual ships, you can find existing IMO numbers at https://gisis.imo.org/Public/SHIPS/Default.aspx. IHS Maritime can be contacted via email at mailto:firstname.lastname@example.org or at the following address: IHS Maritime, Sentinel House, 163 Brighton Road, Surrey CR5 2YH, United Kingdom.
The U.S. Coast Guard, in coordination with the Department of State, has published a list of vessels that are owned or operated by North Korea or a North Korean person which will be denied entry to all U.S. ports. This list is separate from that maintained by OFAC or described in Annex 2. The link to that list is located here http://www.nvmc.uscg.gov/CAATSA.aspx. For questions regarding the list, please call or e-mail the Coast Guard’s Headquarters Foreign & Offshore Vessel Compliance Division, 202-372-1232, email@example.com.
To report potential North Korea-related UN shipping violations, including suspected STS transfers with North Korean-flagged vessels in violation of UN requirements, please email: DPRKcargo@state.gov.
1 Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Sec. 701 of Public Law 114-74 (FCPIA), OFAC adjusted its civil monetary penalty amounts on August 1, 2016 and February 10, 2017, and will adjust those amounts annually.