Economic Sanctions

Economic sanctions fall broadly into two layers.


The first is sanctions under international law.

These are multilateral sanctions imposed through a resolution of the United Nations Security Council (UNSC), which creates an implementation obligation for all UN member states.

The sanctions on North Korea and Iran are leading examples.


The second is sanctions under domestic law.

These are unilateral sanctions that individual countries such as the United States, the EU, and the United Kingdom impose independently under their own laws, and the United States in particular has extended extraterritorial application even to non-U.S. companies that have no direct connection to the country.

In many cases the two are complementary in structure.

Korean companies can be exposed to the extraterritorial reach of U.S. sanctions through a variety of connecting points, including the use of the dollar settlement system, transactions through U.S. financial institutions, the inclusion of U.S.-origin items or technology, the involvement of U.S. persons, and the possibility of secondary sanctions.

The U.S. Department of Justice and OFAC (the U.S. Treasury Department's Office of Foreign Assets Control) have consistently stated that they will hold a company strictly accountable, even one with no connection to the United States, where it violates the economic sanctions rules in a manner that causes a U.S. person to commit a sanctions violation.

This means that Korean companies are no exception.

Primary sanctions are measures that prohibit the nationals or companies of the sanctioning country from dealing directly with a sanctioned party.

Secondary sanctions refer to the risk that a non-U.S. person may be designated for sanctions for dealing with a party that has been sanctioned for violating U.S. sanctions law.

In other words, if a Korean company deals with a U.S. sanctions target, it may become subject to secondary sanctions even without dealing directly with the United States.

This is the central reason Korean companies should not dismiss U.S. economic sanctions as an “American problem.”

Actual enforcement cases make clear just how heavy the consequences of a sanctions violation can be.

The U.S. Department of Justice and OFAC determined that a global tobacco company and its subsidiaries sold tobacco to North Korea through a circumvention structure involving Singapore and Chinese entities, and that, while concealing the involvement of an OFAC-designated North Korean institution, they induced U.S. financial institutions to process the related transactions.

As a result, the company agreed to pay approximately 629 million dollars in fines and penalty surcharges on grounds that included conspiracy to commit federal bank fraud and to violate the International Emergency Economic Powers Act (IEEPA), and this was recorded as the largest sanctions-violation enforcement case on record for a non-financial company.

Penalty surcharges imposed for a sanctions violation are in many cases calculated in proportion to the size of the transactions, so their scale can reach a level that threatens a company's survival, and companies with no direct connection to the United States are no exception.

From the moment a sanctions violation is confirmed or even suspected, a chain of tangible and intangible harms can follow, including the closure of bank accounts, the cutoff of dollar-clearing access, the suspension of business by overseas counterparties, and exclusion from international tenders.

When a transaction routed through an intermediary in a third country or through an entity in Hong Kong, the UAE, or elsewhere ultimately connects to a sanctioned party, it can be treated as a sanctions violation in the same way as a direct dealing.

When a violation is suspected, a company can mitigate the resulting harm by using the current DOJ NSD voluntary self-disclosure policy.

Under the U.S. Department of Justice's voluntary self-disclosure (VSD) policy, a company that makes a timely self-disclosure, fully cooperates, and carries out remediation may, absent aggravating factors, generally benefit from a presumption of a non-prosecution agreement with no fine.

This presumption of non-prosecution and no fine reflects the standards of the DOJ NSD's VSD Policy, and OFAC maintains a separate framework for voluntary self-disclosure and the mitigation of administrative enforcement.