By Victor Cha & Lisa Collins —
- The Department of the Treasury’s Notice of Finding on June 1 designates North Korea for the first time as a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act.
- This action is the equivalent of the “nuclear option” in the world of financial sanctions. North Korea and Iran (2011) are the only countries in the world designated as such by the U.S. government. Earlier designations on Myanmar, Nauru, Ukraine have since been rescinded.
- Section 311 grants the Secretary of the Treasury the authority to require U.S. domestic financial institutions and financial agencies to take “special measures” against jurisdictions or institutions designated as a “primary money laundering concern.” This effectively means that U.S. financial institutions are prohibited from opening or maintaining correspondent accounts with North Korean financial institutions, and other financial institutions with U.S. correspondent accounts are prohibited from using these accounts to process transactions for North Korean financial institutions.
- In relation to North Korea, this action was used once before in 2005 to designate a bank in Macao, Banco Delta Asia (BDA), as an institution of “primary money laundering concern.” Today’s actions designate the entire country. The Treasury Department’s action on June 1, 2016 is preliminary and will require finalization, but the impact is likely to be felt immediately.
- This action will have ripple effects beyond US financial institutions (most of which do not have relations with North Korea). Third country banks and financial institutions, if faced with the choice of doing business with North Korea or losing access to the U.S. financial system, will cut off their transactions not only with North Korean financial institutions but with any other financial institutions (such as those in China) that are suspected of transacting with North Korea.
- The Department of the Treasury can begin imposing penalties after a 60-day comment period.
Dr. Victor Cha is senior adviser and Korea Chair at CSIS. He is also a professor of government at Georgetown University.