2019年6月28日，美国参议院通过了《2020年度国防授权法案》，其中包括一项修正案，即《2019年奥托·瓦姆比尔限制银行涉及朝鲜法案》（Otto Warmbier Banking Restrictions Involving North Korea Act of 2019）（下称“《BRINK法案》”或“《布林克法案》”），标志着新一轮针对朝鲜的潜在制裁。值得中国金融机构关注的是，酝酿中的《布林克法案》可能授予美国财政部新的工具，以惩罚与朝鲜有业务往来的外国金融机构。
On June 28, 2019, the United States Senate passed the National Defense Authorization Act for Fiscal Year 2020. Included as an amendment was the Otto Warmbier Banking Restrictions Involving North Korea Act of 2019. Known as the BRINK Act, the act represents a potential new round of sanctions on North Korea. Worryingly for Chinese financial institutions, the proposed BRINK Act would give the U.S. Department of the Treasury new tools to punish foreign financial institutions that do business with North Korea.
来自民主党和共和党的《布林克法案》支撑者均旗帜鲜明地表达了该法案的立法意图。民主党参议员克里斯·范霍伦(Chris Van Hollen)表示：“[法案]将通过制裁与朝鲜有业务往来的任何金融和商业机构，以打击朝鲜的非法金融网络。”共和党参议员帕特·图米(Pat Toomey)则直言：“美国将给中国金融机构一个非常简单的选择：你可以与美国开展业务，或者与朝鲜开展业务，但两者不能兼得。”尽管近期美朝之间关系缓和，图米参议员依然声称，川普总统支撑《布林克法案》，他目前“并未获悉政府对此法案有任何抵触”，并且他认为政府会“乐见加强对朝鲜的约束。”
The bipartisan sponsors of the amendment were blunt in the potential legislation’s purpose. Democratic Senator Chris Van Hollen stated that “[i]t’s going to target North Korea’s illicit financial network by imposing mandatory sanctions on those businesses, banks, any enterprises that are doing business with North Korea.” Republic Senator Pat Toomey added that “they would present Chinese banks with a very simple choice. You can do business in the United States, or you can do business with North Korea. But you can’t do business with both.” And while there has recently been rapprochement between the United States and North Korea, Toomey insisted that the U.S. President Donald Trump supports the BRINK Act, that he was “not aware of any resistance from the administration,” and that he thought the administration would “welcome tightening the screws on North Korea.”
The bill has two more steps to become law: pass the U.S. House of Representatives and then be signed into law by the U.S. President. There is no certainty that the bill will officially become law, but the possibility is very high. Firstly, the House is controlled by the Democrats. Despite President Trump’s efforts to resolve the North Korea nuclear crisis by the Trump-Kim summits, the U.S. Congress always has its own idea regarding North Korea. The current U.S. Senate is controlled by the Republicans, the same party with the President, and yet still, the Senate passed the bill. It is unlikely that the U.S. House controlled by the Democrats will block it. Second, the bill is part of the National Defense Authorization Act for Fiscal Year 2020. Generally speaking, the U.S. Congress will pass each year’s National Defense Authorization Act because the U.S. national security is at stake. Therefore, if a bill is an amendment of that year’s National Defense Authorization Act, the likelihood of passing the Congress cannot be ignored. In the end, the question is whether President Trump will sign the bill into law. Again, it is unlikely for the President not to sign the National Defense Authorization Act for Fiscal Year 2020 when both the Senate and the House have passed it. Therefore, the bill is very likely to become law though its content may be subject to further adjustment.
Although the amendment has yet to pass the United States House of Representatives or to be signed into law by President Trump, processes that could take months, and there is no guarantee that it will pass as it currently exists, the content of the proposed BRINK Act necessitates, in our view, pre-emptive action by Chinese financial institutions. We describe why below and follow up with some advice for Chinese financial institutions that may have exposure to North Korea business that would run afoul of proposed sanctions in the BRINK Act.
The proposed BRINK Act amends the North Korea Sanctions and Policy Enhancement Act of 2016 (the “North Korea Sanctions Act”) and implements a mix of primary and secondary sanctions. In this case, the BRINK Act would target non-U.S. entities doing business with sanctioned North Korean entities. Primary sanctions prohibit citizens and companies from the sanctioning country, the United States in this case, from engaging in business with the sanctioned country, North Korea. Secondary sanctions are much broader, prohibiting third parties located outside of the sanctioning country, such as Chinese financial institutions, from conducting business with the sanctioned country. Secondary sanctions put pressure on third parties to halt business with the sanctioned country by creating penalties for sanction violations, such as cutting-off the third party’s access to the sanctioning country. The Office of Foreign Assets Control (“OFAC”) is the U.S. Department of the Treasury agency responsible for administrating and enforcing economic and trade sanctions.
Foreign financial institutions, including Chinese ones, that knowingly conduct a transaction with a sanctioned North Korean entity could be effectively barred from the U.S. financial system by the introduction of prohibitions on the opening or maintaining of correspondent or payable-through accounts in the United States.
The BRINK Act is modeled on the Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2010 (“CISADA”), a sanction law that aims to limit Iran’s access to the global financial markets. Much of the language is the same, and we expect it will be enforced in the same manner. Like the CISADA, implementing the BRINK Act would be an exercise of extraterritorial jurisdiction by the United States. You can read our article on U.S. extraterritorial jurisdiction here.
I. Sanctions against Financial Institutions
The key provision of the BRINK Act provides that the Secretary of the Treasury “shall impose one or more… sanctions” on “a foreign financial institution that the Secretary determines on or after the date that is 90 days after the date of the enactment of the [BRINK Act] knowingly provides significant financial services to any person designated for the imposition of sanctions under” the following:
1) Section 104 (a) or (b) of the North Korea Sanctions Act. This section consists of a list of activities that warrant mandatory sanctions, e.g. knowingly exports technology for weapons of mass destruction to North Korea, and a list that allows for discretionary sanctions, e.g. knowingly provides financial services to any entity designated pursuant to an applicable United Nations Security Council resolution.
2) An applicable Executive order. This includes Executive Orders 13810 (Imposing Additional Sanctions With Respect to North Korea), 13722 (Blocking Property of the Government of North Korea and the Workers’ Party of Korea, and Prohibiting Certain Transactions With Respect to North Korea), 13687 (Imposing Additional Sanctions With Respect to North Korea), 13570 (Prohibiting Certain Transactions With Respect to North Korea), 13551 (Blocking Property of Certain Persons With Respect to North Korea), and 13466 (Continuing Certain Restrictions With Respect to North Korea and North Korean Nationals).
3) An applicable United Nations Security Council Resolution. This includes resolutions 2397, 2375, 2371, 2356, 2321, 2270, 2094, 2087, 1874, and 1718.
This means that that Secretary of the Treasury must impose sanctions on Chinese financial institutions if the financial institution “knowingly” provides “significant” financial services to any entity “designated” by the aforementioned legislation, Executive orders, or UN Security Council Resolutions. This is an escalation of the North Korea Sanctions Act, which only required the imposition of mandatory sanctions if the significant financial services were “relat[ed] to the manufacture, maintenance, or use of any [nuclear, radiological, chemical, or biological weapon or any device or system designed in whole or in part to deliver such a weapon] to be imported, exported, or reexported to, into, or from North Korea.”
II. Defining “knowingly” and “significant”
A key aspect of the aforementioned provisions is that a financial institution “knowingly” engages in the prohibited activity. The BRINK Act provides that “[t]he term ‘knowingly’, with respect to conduct, a circumstance, or a result, means that a person has actual knowledge, or should have known, of the conduct, the circumstance, or the result.”
The term “significant” is not defined in the BRINK Act. However, in the North Korea Sanctions Regulations, which includes implementing regulations for the North Korea Sanctions Act, the criteria for determining whether a transaction is “significant” is as follows:
the size, number, frequency, and nature of the transaction(s);
type, complexity, and commercial purpose of the transaction(s);
the level of awareness of management of the transaction(s) and whether the transaction(s) are a part of a pattern of conduct;
the nexus between the foreign financial institution involved in the transaction(s) and North Korea or a blocked person;
the impact of the transaction(s) on the goals of Executive Order 13810 (Imposing Additional Sanctions with Respect to North Korea), including the economic or other benefit conferred or attempted to be conferred on North Korea or a blocked person;
whether the transaction(s) involved any deceptive practices; and
other factors that the Department of the Treasury deems relevant on a case-by-case basis.
III. Sanctions and Penalties for Violations of the BRINK Act
Punishments for violating the BRINK Act come in two forms. First, there are sanctions against financial institutions that knowingly conduct significant financial transactions with the aforementioned “designated” entities. Second, there are penalties for persons that violate sanctions imposed against financial institutions under the BRINK Act.
The Secretary of the Treasury may “block and prohibit . . . all transactions in all property and interests in property of the foreign financial institution if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person.” Alternatively, the Treasury Secretary may “prohibit, or impose strict conditions on, the opening or maintaining in the United States of a correspondent account or a payable-through account by the foreign financial institution.”
If the Treasury Department decides to impose strict condition(s), the Treasury Department will issue an order or a regulation that sets out the strict condition(s) to be imposed on the U.S. correspondent accounts or U.S. payable-through accounts of the relevant foreign financial institution and publish the order or regulation in the Federal Register. If the Treasury Department decides to prohibit the opening or maintaining of U.S. correspondent accounts or U.S. payable-through accounts for a foreign financial institution, the Treasury Department will add the name of the foreign financial institution and publish it on its List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (the “CAPTA List”).
Persons who violate sanctions imposed against financial institutions under the BRINK Act would be subject to penalties under Section 206 of the International Emergency Economic Powers Act. This includes civil penalty no greater than $250,000 or “an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.” Willful violations may result in a criminal penalty of up to $1,000,000, or a prison sentence of up to 20 years, or both.
Observations for Chinese Financial Institutions
Although there has been some reluctance in the past to sanction large financial institutions, Chinese or otherwise, for violating U.S. sanctions, the mandatory nature of the BRINK Act would force the U.S. administration to take action that could cause significant harm to Chinese financial institutions. Since the sanctions and penalties would kick in within 90 days of the BRINK Act being passed into law, waiting for the legislative process may leave financial institutions too little time to implement a robust sanction compliance program and conduct the necessary audits to ensure that no existing customers are designated entities.
Especially, the “should have known” standard in the BRINK act, may push the Chinese financial institutions to establish compliance program. Although it is unclear whether the amendment containing the BRINK Act will make it through the U.S. legislative process, the short timelines and massive impact it could have on Chinese financial institutions necessitates swift action.
As such, we highly recommend that Chinese financial institutions engage external sanction compliance experts with experience implementing sanction compliance programs that meet OFAC standards. You can read our article on the recently published OFAC Framework that serve as a guideline for robust U.S. sanction compliance program here.
“New North Korea sanctions would tell Chinese banks: It’s us or them,” Washington Examiner, https://www.washingtonexaminer.com/policy/defense-national-security/new-north-korea-sanctions-would-tell-chinese-banks-its-us-or-them.
31 C.F.R. 561
The CAPTA list can be found here https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/capta_list.aspx