EXCLUSIVE: Treasury Takes Aim at North Korea’s Offshore Accounts

By Valentina Pasquali

U.S. officials in the past two years have secretly interdicted payments between American companies and their overseas commercial partners as part of a broader effort to prevent North Korea from accessing the global financial system, sources told ACAMS

In private communications, the Treasury Department’s Office of Foreign Assets Control has ordered U.S. banks to block certain payments under Executive Order 13810, which enables OFAC to stop transfers to, from or through foreign accounts controlled by North Korean parties, or that otherwise touch funds of any amount for Pyongyang.

OFAC appears to have begun using a blocking provision set forth in section 3 of the executive order shortly after the White House announced the measure in September 2017, according to Nick Turner, a sanctions and AML attorney at Steptoe & Johnson in Hong Kong.

“If a non-U.S. bank account receives a wire transfer from a North Korean person, OFAC could use sec. 3 [of the executive order] to freeze any future transfers to or from that account when they pass through a U.S. intermediary bank,” Turner told via email. “The account itself becomes tainted.”

Firms in the commodities and luxury goods industries, especially in the regions of East or Southeast Asia where entities associated with North Korea are known to operate, are the most likely targets of the order, he said.

The regime of Kim Jong-un is already under a global financial embargo but still allegedly raises and moves millions of dollars, whether formally or informally, through a far-reaching network of financial facilitators and front companies around the world.

E.O. 13810 aims to bolster the U.S. firewall in part by authorizing OFAC to impose secondary sanctions on foreign financial institutions that knowingly facilitate substantial business for North Korea, regardless of whether the payments tied to the commerce in question ever touch U.S. jurisdiction.

Sec. 3 of the order tasks OFAC with directing banks to freeze transfers tied to the targeted foreign accounts, either through a public alert or a private notice, but, according to official guidance, the provision does not otherwise impose any new, “immediate compliance obligations” on them.

The measure is unique in that it enables OFAC to block permissible payments into and out of the U.S. from any overseas account that officials believe separately handled funds for North Korea, and to do so both confidentially and without a formal blacklisting, said Sean Kane, a former senior official with the agency.

“You could be a U.S. person doing business unrelated to North Korea with a third-country entity, sending money to that entity’s account in Singapore,” said Kane, now an attorney with Dechert in Washington, D.C. “OFAC will say: ‘The entity you are transacting with is fine, the business you are doing is fine, but the account is also being used for business with North Korea, so we are blocking the payment.'”

“It is a level of attenuation that’s not normally used.”

U.S. officials for years have sought to stop Pyongyang from funneling funds through banks in the United States, either directly or through proxies, including by supplying financial intelligence to New York-based compliance officers of overseas banks to help them pinpoint North Korea-related accounts and close them.

In June 2017, two months before the White House issued E.O. 13810, the Treasury Department’s Financial Crimes Enforcement Network proposed blacklisting China’s Bank of Dandong under the Patriot Act for handling funds for North Korea in violation of global sanctions.

OFAC has used confidential blocking orders for counterproliferation and counterterrorist purposes prior to E.O. 13810, according to Jeremy Paner, a former investigator for the agency, but the directive is the first that openly sets out such authority.

“It’s a tool that has a really fast turnaround time,” Paner, now counsel with Ferrari & Associates in Washington, D.C., said. “OFAC can very quickly draft an administrative record upon receiving raw intelligence that there’s a blockable interest in that payment order, then give notice to the bank.”

Contact Valentina Pasquali at

Topics : Sanctions , Anti-money laundering
Source: U.S.: OFAC , U.S.: Department of Treasury , North Korea
Document Date: February 10, 2020