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View more articles by Chad O'Carroll
Chad O'Carroll has written on North Korea since 2010 and writes between London and Seoul.
The Department of Treasury conducted an in-depth investigation of an American NGO’s work on North Korea in 2018, NK News has learned, sparking extensive sanctions compliance concerns and significant new paperwork burdens among fellow humanitarian organizations.
Although no fines were ultimately issued – the NGO in question instead received a cautionary note – the process did cost the group tens of thousands in legal fees and significant operating burdens.
“As a relatively small NGO, we spent hundreds of staff hours responding to OFAC questions in 2018,” American Friends Service Committee (AFSC) spokesperson Dan Jasper told NK News about the investigation. “Funds meant for humanitarian support were instead spent on lawyers.”
Jasper did not explain the precise cause of the months-long investigation by the Treasury’s Office of Foreign Asset Control (OFAC).
But as news of the May 2018 investigation spread among fellow American not-for-profits working inside the DPRK, concerns emerged about their own activities in light of increasingly complicated and myriad unilateral U.S. sanctions rules.
So too did their concerns about OFAC humanitarian reporting requirements, interpretations of which became much more encompassing than had been originally been envisioned by the NGOs, prompting long delays and legal hurdles for in-country operations.
GENERAL LICENSE NUMBER FIVE
Before OFAC began paying closer attention to U.S. NGOs in 2018, the handful of American organizations working in the DPRK had been operating there under a perceived broad exemption: General License Number Five, issued in March 2016.
As a result of this, NK News understands many U.S. NGOs believed the language to be sufficiently plain and broad to continue in-country programming without additional paperwork – assuming, of course, that necessary activities and goods remained within the parameters of the exception.
But while many believed the exemption of their humanitarian “services” in North Korea meant they could continue as before, they did not realize – sometimes until several years later – that OFAC never actually intended them to continue transporting goods from third countries without a license into the country.
In other words, General License Number Five meant that the physical labor conducted by American NGO staffers in DPRK were exempt from sanctions, but that the products and inputs they needed to bring into the country to deliver those services were not.
“Everyone in the NGO community had probably broken U.S. sanctions law,” one NGO staffer told NK News about sentiment after the difference in interpretation became clear.
When OFAC later amended and reissued its entire North Korea sanctions regulations in February 2018 to align with other sanctions programs – codifying existing executive actions and legislative authorities in one place – confusion about the humanitarian exemptions was addressed head-on.
“Everyone in the NGO community had probably broken U.S. sanctions law”
As part of the process, General Licenses like Number Five were explicitly removed and integrated into a broader single document of law, with the humanitarian exemptions specifically articulated in 31 CFR § 510.512.
Furthermore, an updated March 2018 OFAC FAQ directly clarified that, with the exception of food and medicine, almost everything else would require separate exemption licensing for U.S. NGOs if being imported from a third country.
With the OFAC investigation into AFSC kicking off just months later in May 2018, the stage was set for major new concerns to begin spreading among those in the American humanitarian sector.
“The AFSC situation was a concern for all of us – even before it got to further action,” said an officer at a humanitarian organization about events in 2018.
“We never got anything in writing, but thought… the General License of 2016 covered everything,” the officer continued, talking on condition of anonymity.
As a result of the OFAC interpretation and AFSC investigation, NGOs began thinking about how to deal with the years during which goods might have been exported to the DPRK for humanitarian projects without specific exemptions.
“My understanding is there were several different approaches on how to deal with OFAC when it looked like the General License was going away,” said another humanitarian worker on condition of anonymity.
“Different organizations took different strategies,” the worker continued. “My own feeling, however, is that we have all encountered problems, all been looked at, and all had to give information.”
To proactively tackle the problem, “some people filed voluntary self-disclosure to detail accidental violations and to avoid being fined and investigated, the NGO staffer said.
“Voluntary self-disclosures reduce the potential for penalties and can reduce the chances for OFAC investigation.”
The process was not easy, however.
A time consuming and costly five-year voluntary lookback would be necessary for many, in order to disclose to OFAC all shipments sent in accidental violation of General License Number Five.
And some difficult conversations arose from the voluntary process, NK News understands, including communications from OFAC that one source said appeared to be designed to “put the fear of God into you.”
Despite the warnings, however, multiple sources confirmed that no fines were ever issued to American NGOs during the process, though the paperwork requirements were often intense.
EXEMPTION PROCESS NECESSARY
By the end of the first half of 2018, it had become clear to most in the U.S. humanitarian community that extra legal precautions would be necessary to ensure their work did not flout the letter of the law.
“At this point the sanctions mean that you need an OFAC license just to work with any partner in North Korea, even if the goods themselves are exempted,” said the officier at the humanitarian organization. “I don’t know what the thinking is.”
Further complicating isses were ambiguities about the scope of some American exemptions.
For example, though there is an existing U.S. waiver to allow travel aboard sanctioned airline Air Koryo, this does not extend to transporting cargo with passengers related to program delivery, requiring yet another license still.
And though exemption requests can be made on the OFAC website, applicants typically need a strong track record of work as well as administrative and legal support to get the paperwork right the first time around.
But once exemption requests were filed, other problems began, sources said: delays, communication problems, and confusion among North Korean counterparts.
Above all, NGOs said that getting OFAC approval to transport even basic items into the DPRK meant long delays.
“While no official data exists on response times from OFAC, AFSC has seen the requests take anywhere from eight months to a year and half,” said Daniel Jasper about the time he and his NGO peers were encountering in 2018 onwards.
“These programs have served as the baseline level of engagement between the U.S. and DPRK for almost forty years”
Other sources agreed about the process, which includes no mandatory response deadline from the government side: “Applications are very slow to get approvals, responses are slow too,” said the NGO staffer.
“They are understaffed,” the source continued – something other NGO personnel with experience interacting with OFAC on humanitarian requests agreed on.
One of the connected problems, NGOs told NK News, is that once an application is filed, it’s extremely difficult to obtain status updates or to communicate with OFAC about concerns.
Consequently, “it really helps if one knows people at State or Treasury to move things along, otherwise it’s a black hole,” the officer at the humanitarian organization said – something not everyone has the privilege of having.
As a result of the long delays encountered in the licensing process, some explained that their North Korean partners were often left puzzled and frustrated.
“The rules are hard to explain to the Koreans,” the humanitarian worker said. “It’s hard to explain how it is that OFAC can be so powerful (and) hard to make Koreans understand that the U.S. NGOs cannot disobey.”
And because the process creates “delays and uncertainty,” the officer at the humanitarian organization said, “it has impacts on relationships…making it difficult to commit to timelines” with North Korean partners.
It is possible, too, that the North Korean foreign ministry has been keeping tabs on the issue as an indicator of broader American interest in post-Singapore commitments.
“These programs have served as the baseline level of engagement between the U.S. and DPRK for almost forty years,” said Jasper of AFSC.
Additional humanitarian restrictions and exemption requirements “during moments of fragile diplomacy,” therefore, can “send the wrong signal to the DPRK officials” who are likely paying attention to how Washington treats U.S. NGOs.
“The humanitarian restrictions, then, can have damaging impacts on high-level diplomacy by giving the impression that the U.S. government’s public commitment to diplomacy is not supported by its policies.”
STRETCHING LIMITED RESOURCES
Not only have the voluntary look-back procedures and additional exemption filings created work for the U.S. NGOs, but each piece of paperwork comes with processing requirements – sometimes significant – for OFAC itself.
Responsible not only for exemptions requests but sanctions architecture, designation, and monitoring too, some believe the process is – at times – worth it.
“When you add in the concern that Pyongyang might use, say, a bioinsecticide plant to make biological weapons, that compels us to scrutinize what we license,” said Joshua Stanton, author of the One Free Korea.
However, he said that monitoring low-technology “EAR99-class” items could be a poor use of Treasury resources.
“I suspect that most NGO exports to North Korea are benign items classified as ‘EAR 99’ under the Export Administration Regulations,” Stanton said.
“To scrutinize those applications heavily is a case of the juice not being worth the squeeze.”
“They’ve made resource allocation and policy choices that are overdue for reconsideration”
And though he said he had heard in 2017 that OFAC had encountered staffing shortages on the North Korea portfolio, “recently, Treasury people have assured that me they have plenty of people available to work on North Korea.”
But Stanton says he doesn’t see the results of it, in terms of licensing or designations.
“So, if it’s not a resource problem, it’s a problem of inattention, political will, or presidential micromismanagement,” he said.
“There’s no good reason to delay designations that are legally mandatory, nor is there any good reason to hold up licenses for humanitarian aid, provided there are no dual-use concerns.”
Asked about its investigation into AFSC – despite the question on Treasury resources – as well as the seemingly burdensome humanitarian licensing requirements, an official told NK News that “(the Department) continues to support the delivery of humanitarian assistance to civilians living in areas subject to U.S. sanctions.”
“Treasury’s Office of Foreign Assets Control routinely works with NGOs and charities in their applications for specific licenses when they are interested in providing humanitarian assistance to communities in North Korea,” the official added.
(The spokesperson did not provide answers in response to specific NK News questions on issues outlined within this article.)
Moving forward, observers said there were things that OFAC could consider to improve the situation for humanitarian groups working in the North.
Jasper, of AFSC, said the process could be improved by giving NGOs “a timeline of the approval process to organizations seeking exemptions, so they can better plan their aid shipments.”
Furthermore, he said “clarifying guidance for NGOs and/or providing definitions for vague terms such as ‘partnerships’ and ‘partnership agreements’” could also help.
And expanding the general license to better reflect the “often dire realities of aid needs and priorities,” while providing “legal clarifications and protections to financial institutions and suppliers that work with humanitarian organizations” could also help, Jasper said.
For his part, Stanton noted that “the responsibility ultimately falls on a President and a Treasury Secretary who are clearly out of their depth and running out of time for on-the-job training.”
“They’ve made resource allocation and policy choices that are overdue for reconsideration,” he said.
However, he acknowledged “the people who do the designations and the people who review the licenses are in different sections, have different skill sets, and are paid from different budget allocations,” which meant such human resources are not “completely interchangeable.”
So, if the 2018-dated sanctions consolidation that contains the humanitarian licenses isn’t currently working efficiently?
“I hope Treasury will listen to the NGOs and review both the language and the process,” Stanton said.
Edited by James Fretwell and Oliver Hotham