The Air Koryo Designation

December 7, 2016 7:00 AM

Last week, Treasury added a number of new individuals and entities to its designated persons list. The problems with the Specially Designated Nationals (SDN) list vis-à-vis North Korea are well-known. On the one hand, the Office of Foreign Asset Control (OFAC) prohibits “US persons” from doing any kind of business with SDNs, with “persons” defined to include citizens, foreign nationals in the US, and US-based companies, both foreign and domestic. It also requires them to block property of SDN’s that come into their possession. On the other hand, the likelihood that US persons so-defined will come into contact with some of these entities is pretty slim. But it is not zero, and these lists may increasingly come to have another purpose: to put third parties outside the US on notice that we see these SDNs as bad guys carrying serious political risk.

The new designation includes a number of individuals tied to the weapons program through the so-called Second Economic Committee, positions in academia, the ubiquitous KOMID and other trading companies. The new list includes no fewer than five banks, several trading companies, but also some significant service providers that have significant foreign contacts: the Korean National Insurance Company, which provides insurance to North Korea’s fleet, the Korea Oil Exploration Company, and some construction companies. The Mansudae Art Studio is also designated, which implies even tourist purchases of art from the studio is proscribed.

But by far the greatest interest is in the designation of Air Koryo and (as far as we can tell) each and every single one of the aircraft that the airline owns. We are perfectly happy to do our own analysis, but in this case we can do no better than an outstanding piece of reporting by Chad O’Carroll at his NK Pro site.

In principle, the designation could affect all aspects of Air Koryo’s business. As O’Carroll outlines, this includes: fuel, ground handling and maintenance providers; spare parts acquisition; service promotion and advertising; air freight into and out of North Korea; and perhaps even travel and tourism. The main point of Carroll’s piece is one that that I made earlier in the week with respect to UNSC Resolution 2321: that many of these activities take place in jurisdictions where payment in dollars—and thus clearing—is not likely to arise, most notably in China and Russia.

But O’Carroll does note a few possible exceptions. A simple Google search for “DHL North Korea” takes you to the company's page on the country. A plain reading of the designation would suggest that DHL should be prohibited from using Air Koryo services. Air Koryo resumed flights to Kuwait earlier in the year, but was forced to cancel them in October under UNSC 2270; the Treasury designation makes expansion out of the existing limited route structure virtually impossible. South Korea passed sanctions on Air Koryo concurrently with those by the US, and while not directly meaningful the measure could also presage a campaign by Seoul to keep Air Koryo hemmed in. And banks may simply steer clear of Air Koryo wherever they are located if they see risk down the line.

The biggest question is whether the designation will unwind the North Korean tourist industry, consisting of firms such as Uri Tours and even Koryo Tours, which is British-based. The initial take is that it won’t. The designation is not the equivalent of a travel ban, although such a ban is possible (I recall that my first passport contained a prohibition on travel to a number of countries). More importantly, a complex precedent established in the early 2000s vis-à-vis Iran suggests that the designation does not imply a ban on US citizens flying Air Koryo, although that too could be challenged.

There is no one sanctions measure that will have definitive effect on North Korea. But as I have said before the pinpricks continue and there is little question that the Air Koryo designation will gnaw away at North Korea’s freedom of maneuver. Kudos to O’Carroll for very thorough reporting on the issue. 

Comments

manezhnaya ploschad

Chad and Stephen should not be mischaracterizing the restrictions posed by OFAC's designation of Air Koryo nor their implications. Travel and related services are excepted under IEEPA which is the statute under which Air Koryo was designated and so is informational material. See 50 USC sec. 1702 (b)(4). Additionally, SDN designation applies to US persons. Anyone who can use the internet and a mouse would see that DHL is German owned. So the Air Koryo designation would only be relevant to DHL if the shipment is from the US or for US persons. DHL has been operating for decades in places like Iran and Cuba because it is not ultimately a US company. Please check your facts.

Marcus Noland

Thank you for your interest in our work, Mr., or is it Ms.?, Ploschad.  (Hard to know what pronoun to attach to a place name.)  The point that you raise is an important one.  I just can't help noting the irony of someone concerned with checking facts using a fake name. 

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