The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) yesterday continued its focus on North Korean shipping, designating three companies with links to Ocean Maritime Management (OMM).
Haejin, Pyongjin and Yongjin Ship Management rose from the ashes of OMM shortly after its sanctioning in July 2014, and between them are registered as either the owner, manager or safety manager of nearly every vessel in OMM’s fleet.
“OFAC designated the … three shipping companies pursuant to E.O. 13551 for being owned or controlled by or acting for or on behalf of U.S.- and UN-designated Ocean Maritime Management Company (OMM),” the OFAC press release reads.
The move is the latest in a well-documented game of whack-a-mole that sees North Korea create new companies and change ship names to skirt updated sanctions.
The new round of designations marks the third time OFAC included entities relating to North Korea’s maritime practices since 2014.
‘There is clearly a focus on shipping, and overall, it does make sense to pick and target specific vulnerabilities’
In addition to OMM and its vessels (including two which were decommissioned or lost), the Singapore based Senat Shipping and one of its ships were also designated. The Treasury department additionally fined a U.S. company for insuring North Korean ships (among others), in August this year.
“There is clearly a focus on shipping, and overall, it does make sense to pick and target specific vulnerabilities. I’m not sure shipping is the first vulnerability I would have picked, but it would have been on my list,” Joshua Stanton, attorney and author of the One Free Korea blog told NK News.
According to the UN Panel of Experts most recent report and the Equasis Maritime Database, the three companies are tied to 13 of 14 vessels previously associated with OMM.
Heajin and Yongjin are the most influential, and are connected to twelve of the vessels overall. Pyongjin administers just one of ships, the Hui Chon, which has recently taken to visiting to Russian ports.
OFAC did not add a further company to their list, even though it also sprang up after OMM’s designation. Tonghunsan Shipping manages the remaining vessel, the similarly named Tong Hung San and formerly known as the Chong Chon Gang, which was caught smuggling weapons through the Panama canal in 2013.
The omission is a curious one at first glance, with OFAC even mentioning the ship by name in their press release.
“OMM attempted to import a concealed shipment of arms and related materiel to North Korea aboard the DPRK-flagged cargo vessel Chong Chon Gang in July 2013.”
However in conjunction with pre-existing regulations on the ships themselves, the new designations could act as a tightening noose on the OMM network as a whole, making a further sanction on Tonghungsan Shipping unnecessary.
KNOCK ON EFFECT
The OFAC designations will likely make life difficult for listed individuals and entities looking to transact in U.S. dollars, but are also available to banks worldwide. While the consequences for organisations or individuals far removed from the dollar system might be harder to trace, the knock-on effect could be more pronounced for shipping companies.
Under normal circumstances merchant ships might sail to any number of countries and have to deal with banks or financial institutions that are aware of OFAC’s designations.
Thanks to third party software solutions, banks can run transactions against sanctions databases like Thompson Reuter’s World-Check, or Accuity – which makes specific mention of North Korean vessels.
Many banks with interests in the U.S. market would pay attention to U.S. Treasury regulations and subsequently think twice about transacting with designated North Korean companies. The odds of a shipping company running into such a barrier as its vessels sail through foreign ports and canals are relatively high, and could result in blocked transactions.
Nonetheless it appears the measures have yet to trickle down to Russian or Chinese banks. According to the NK News ship tracker, many of OMM’s fleet have not broadcast much location data in recent months, with the exception of two in December which both visited ports in the Russian Far East.
The most recent is the Kang Gye which arrived in Vladivostok on Thursday, the day after the OFAC designations were updated, indicating that exerting direct pressure from OFAC in the region is still difficult.
“In terms of making things difficult (for OMM ships visiting Russia), I believe only if payments for shipping services were in dollars and cleared via New York banks would funds come within OFAC’s reach. Russian persons or entity could also be vulnerable if shown to be operating on behalf of designated entity,” an expert familiar with sanctions told NK News.
All in all since the original 2014 designations, OMM ships outside of East Asian waters have become an increasingly rare sight. Port inspections of North Korean vessels outside Asia in general have become far less frequent, and OMM ships no longer appear in Latin American, Indian and African inspection databases as they did in the previous decade.
The one exception is the Mu Du Bong, which crashed into a Mexican reef after visiting Cuba last year. The ship was originally held on charges of environmental damage, for which it wasn’t adequately insured, but since paying the fine the crew have been repatriated and it has yet to be released.
Should North Korea stay true to form, their next step will be to create new companies and reassign the OMM linked vessels. This shuffling which also includes renaming and reflagging ships is a relatively common procedure within the DPRK fleet, even for unsanctioned entities or assets.
OFAC’s January Executive Order (EO) however could give it the leeway to continue tightening the net around the shadier elements of the North Korean fleet, even as the links to high profile cases like that of OMM and the Chong Chon Gang become increasingly tenuous.
“If they use EO 13687, which is a status-based (rather than a conduct-based) sanction. OFAC only has to prove that a target is ‘an agency, instrumentality, or controlled entity of the Government of North Korea or the Workers’ Party of Korea,’” Stanton said.
“Or alternatively, that the target is ‘owned or controlled by, or … acted or purported to act for or on behalf of, directly or indirectly, the Government of North Korea’ to use that EO. That’s pretty broad.”
The EO means Treasury could pursue other North Korean shipping companies that have likely moved elicit or sanctioned materials in the past, even without an interdiction as in the case of the Chong Chon Gang.
The Pyongyang based Korea Kumbyol is one such candidate. In 2008, it was reported one its vessels delivered nearly 300 tonnes of “material” to Burma’s defense ministry.
Kumbyol has massively expanded its operation in recent years, adding nine ships to its fleet and much like OMM’s, the vessels perform poorly when it comes to broadcasting their locations even when compared to other DPRK ships.
North Korea’s maritime insurance agency, and reflagging companies present further options, while continuing to pursue the DPRK’s long standing third party collaborators remains an under explored avenue.
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Featured Image: The US Treasury Department by romanboed on 2014-07-29 16:09:37