On September 1, 2020, several US government agencies issued an advisory warning industry of the risks of inadvertent involvement in North Korea’s ballistic missile procurement activity. The advisory focuses not only on the producers and traders of products that can be misused for ballistic missile purposes, but also logistics providers and financial institutions that may unwittingly support this unlawful trade.
The advisory, issued by the US Departments of the Treasury, State, and Commerce, specifically highlights North Korea’s “collaborat[ion]” with “foreign-incorporated companies, such as Chinese and Russian entities, to acquire foreign-sourced basic commercial components.” It describes some of the deceptive tactics that these intermediaries may use, including concealing the true end-user and mislabeling export documentation, such as by “falsely declaring specialized materials to instead be general-purpose items that are widely commercially available.” The advisory notes that “most” of the products North Korea sources internationally for its ballistic missile program do not meet the thresholds of UN-mandated restrictions on trade with North Korea or of national export control lists, “and are widely available from overseas distributors, highlighting the importance of complying with ‘catch-all’ controls, as required by [United Nations Security Council Resolution (‘UNSCR’)] 2270.”
These “catch-all” export controls, which are implemented by most major countries, typically require parties to obtain an export authorization for products that are not generally subject to export controls if there are restricted parties or restricted end-uses involved in an export transaction, such as applications relating to ballistic missiles (including certain drones and other rockets) or weapons of mass destruction.
The advisory includes an annex listing specific types of materials and equipment that are commonly diverted for use in North Korea’s ballistic missile program, such as the following:
- Multi-axle heavy vehicles, such as 8 or 9-axle forestry vehicles, used as Transporter Erector Launchers (TELs) for ballistic missiles
- Steels, aluminum, and specialty materials containing titanium
- Filament winders and winding equipment
- Carbon fiber for composite motor cases
- Solid propellant, including aluminum powder and ammonium perchlorate, to the scale of 100 tons over the next 10 years
A key message for industry is to be watchful for “red flags” indicating potentially unlawful activity. Given the very broad jurisdictional reach of US export controls in particular, parties engaged in international trade should heed these risks even when dealing in products that are widely commercially available and not generally subject to export controls. Under US law, parties can potentially face civil enforcement actions or administrative sanctions, even if they do not have actual knowledge of an unlawful end-use, if they do not act appropriately based on the presence of “red flags.” The advisory lists numerous legal authorities that apply to this type of trade and some of the risk-based compliance measures companies should have in place. Among other things, it notes that the following fact patterns should prompt additional scrutiny:
- A new customer places an unexpected and/or high-value order for sophisticated equipment.
- The customer is a reseller or distributor. In such cases, you should always inquire who the end user is.
- The customer has no website or social media and is not listed in online business directories.
- The customer’s address is similar to an entity listed on the CSL [the US export controls and sanctions restricted party screening list], or the address indicates the customer is located close to end users of concern, including co-located with an entity listed on BIS’s Entity List [a US export controls restricted party list].
- Your customer places an order and makes all shipping arrangements through a freight forwarding service. In such cases, request that the freight forwarder provide you a copy of the Electronic Export Information (EEI) filing to ensure the information is accurate.