A Model Law Prohibiting Luxury Goods Transfers to North Korea

Post on 11 July 2019 by Dave Steiger

July 11, 2019

CNS Drafts Model Law Prohibiting the Provision, Sale, or Transfer of Luxury Goods to North Korea.

Although prohibited by the UN Security Council since 2006, luxury goods, including Rolls limos, yachts, and even ski lifts, continue to pour into North Korea. One reason is that many states have never implemented this ban in their national laws. To help improve this record, CNS has developed a model luxury goods embargo law that can be easily adapted by UN Member States.

A Model National Regulatory Instrument to Enforce the UN Security Council Prohibition on the Provision, Sale, or Transfer of Luxury Goods to the Democratic People’s Republic of North Korea (DPRK)

↓ Article ↓ Appendix [Model Law] ↓ Annex [Model Luxury Goods List] ↓ Notes

When the UN Security Council imposed sanctions against North Korea in October 2006 following the country’s first nuclear test, among other measures, the body placed an embargo on the provision, sales, or transfer of luxury goods to or from North Korea. The embargo targeted the country’s political and military elites, seeking to impair/upset/curtail the opulent lifestyle they enjoyed as the result of President Kim Jung-Un’s patronage and, ultimately, to create pressure on the country’s leader to obtain sanctions relief by curtailing the North Korean nuclear and related missile programs. The luxury goods ban was first introduced in Resolution 1718 (2006), slightly modified in Resolutions 1874 (2009), and 2094 (2013), and then reaffirmed in Resolutions 2270 (2016), 2321 (2016), 2356 (2017), 2371 (2017), 2375 (2017), and 2397 (2017).  All of these measures were adopted pursuant to Chapter VII of the UN Charter, making them binding on all UN Member States.

Unfortunately, as detailed in the periodic reports of the Panel of Experts (POE) supporting the Committee established by the Security Council to monitor implementation of Resolution 1718 and its successors (1718 Committee), implementation of the luxury goods ban has been so inadequate that such goods remain readily available in North Korea to those who can afford them.[1] An underlying reason for this failure has been the lack of essential legal measures in UN Member States to impose and enforce the Security Council-mandated prohibition on exports of luxury items.

This article provides a model regulatory instrument for use by national governments in implementing the UN prohibition, together with background information and an explication of the document’s various provisions. The full text of the model instrument may be found in the Appendix.

Preamble

The Preamble describes the legal framework of UN Security Council actions necessitating the adoption by UN Member States of regulatory instruments prohibiting the provision, sale, or transfer of luxury goods to North Korea. The Preamble highlights that the Security Council’s actions have been taken pursuant to Chapter VII of the UN Charter in order to address the threat to international peace and security posed by North Korea’s weapon of mass destruction and related missile delivery programs. It also notes that all Member States by ratifying the UN Charter have agreed to be bound by such mandatory actions of the Security Council.

Article 1. Authority: Law or Regulation?

The rather inelegant term “regulatory instrument” is being used here because the legal systems of UN Member States vary considerably. In some, establishing the luxury goods prohibition and related enforcement mechanisms can be accomplished only by the enactment of a new law, while in others, this may be accomplished by means of a new regulation under existing law. “Regulatory instrument” is intended to capture both alternatives.

A state’s implementation of mandatory Security Council resolutions is usually governed, in important part, by the state’s United Nations Participation Act, the law that prescribes the measures through which the state will fulfill the obligations it has agreed to by ratifying the UN Charter.  As noted, these obligations include the country’s obligation to implement UN Security Council requirements adopted under Chapter VII of the Charter, concerning threats to international peace and security.

The terms of United Nations Participation Acts vary from state to state.  One arrangement adopted by a number of countries (e.g., Bangladesh, Poland, Singapore, and the United States) authorizes an appropriate executive branch official to issue regulations implementing Security Council Resolutions, without the need for new legislation, and thus, without the involvement of the legislative branch.  The United Nations Participation Acts of other states (e.g., the Czech Republic, Finland, and the Netherlands), however, require new, ad hoc legislation to implement Security Council Resolutions each time a new resolution is adopted, a much more cumbersome and lengthy process. Regardless of the terms of its United Nations Participation Act, a country may implement some or all requirements of Security Council Resolutions by issuing regulations under an existing law, such as one controlling exports, either using this tool exclusively (e.g., France, Germany, Japan, and Sweden) or in a mixed system that relies on a United Nations Participation Act for implementing some sanctions measures and pre-existing law for implementing others (e.g., the United Kingdom and the United States).[2]

The model regulatory instrument contains alternative phrasing in square brackets throughout to accommodate these various alternatives.  Article 1. Authority provides four options. The regulatory document may be framed as:

  • A completely new law adopted through the state’s normal legislative processes;
  • A new regulation, issued by an appropriate official under the state’s UN Participation Act (following normal regulatory/administrative law processes);
  • A formal amendment to an existing law (an arrangement normally requiring legislation); or
  • A new regulation, under the state’s export control laws (following normal regulatory/administrative law processes).

As noted, the second and fourth options based on the issuance of new regulations will be considerably less cumbersome to execute, but may not be available in many UN Member States.

Article 2. Effective Date.

This refers to the date that the law will become effective.

Article 3. Prohibition on the supply, sale, or transfer of luxury goods to the DPRK.

This is the central provision of the model regulatory instrument.

Paragraph (a) of Article 3 covers all persons subject to the jurisdiction of the state adopting the instrument, that is, all persons of any nationality within the state’s territory and all nationals of the state situated abroad. The core prohibition places restrictions on the movement of “luxury goods.”

Paragraph (b) of Article 3 defines this term. Importantly, “luxury goods” are not limited exclusively to the goods on the state’s most recent luxury goods control list (to be incorporated as Annex I of the model instrument). Rather, the term also includes any additional goods determined by the relevant authority, usually during the export approval process, to fall into the luxury category because they are not essential for daily subsistence and there is reason to believe that they could enhance the quality of life of elite parties in the Democratic People’s Republic of Korea.

This phrasing draws from an Implementation Assistance Notice regarding the luxury goods ban issued by the 1718 Committee in December 2011 and updated in January 2017.[3] The phrasing is intended to capture a luxury item that may have been overlooked in preparing the state’s control list. The PoE identified such a case of what was unquestionably a luxury good intended for North Korea, but whose export could not be halted because it was not on the exporting country’s control list at the time. The item in question was an Austrian-made multiple-gondola ski lift.[4] It could have been blocked had the Austrian control list included the “catch-all” phrasing of the model’s paragraph 3(b), as the item was definitely not needed for daily subsistence and would most certainly have enhanced the quality of life for North Korean skiers, presumably among the country’s elite, as only such citizens would have sufficient resources to afford to pursue the sport.

Paragraph (c) of Article 3 provides authority for the relevant national official to amend the luxury goods control list at their discretion, in particular, to implement any future Security Council modifications of the luxury goods embargo. The final phrase of the paragraph, directing the official, in managing the control list, to give “due consideration to lists that may be in use in other jurisdictions,” is especially important and deserves particular comment.

One of the most difficult challenges in implementing the UN luxury goods embargo has been the fact that the Security Council has not issued an authoritative list of luxury goods, but only a list of categories of goods to be controlled.  The category list, which has been expanded several times in successor resolutions to Resolution 1718, has been consolidated by the 1718 Committee as follows:

Jewelry:

  • Jewelry with pearls
  • Gems
  • Precious and semi-precious stones (including diamonds, sapphires, rubies, and emeralds)
  • Jewelry of precious metal or of metal clad with precious metal

Transportation items, as follows:

  • Yachts
  • Luxury automobiles (and motor vehicles): automobiles and other motor vehicles to transport people (other than public transport), including station wagons
  • Racing cars

Luxury Goods

  • Luxury watches: wrist, pocket, and other with a case of precious metal or of metal clad with precious metal
    • Transportation items, as follows:
      • aquatic recreational vehicles (such as personal watercraft)
      • snowmobiles (valued greater than $2,000)
    • Items of lead crystal
    • Recreational sports equipment
    • Rugs and tapestries (valued greater than $500)
    • Tableware of porcelain or bone china (valued greater than $100)[5]

    The result of this somewhat vague and open-ended approach is that every UN Member State has been free to craft its own list. Some lists are quite comprehensive. The European Union luxury goods control list contains several hundred individual items, divided into twenty-two categories.[6] Because it is so extensive and is used by more states than any other list, it has been selected to serve as the list used in the model regulatory instrument. Other states, however, have more limited lists and many states have not taken any steps to implement the luxury goods ban.[7]

    These uneven practices have enabled North Korean agents to export goods from a country with strong controls to an intermediate destination with weak or no luxury goods controls, from which the goods can then be sent on to North Korea with little difficulty. China, a major North Korean trading partner, has not published a luxury goods control list and does not honor those of other nations.

    The situation strongly underscores the need for greater uniformity. Widespread adoption of the model luxury goods regulatory instrument and the associated EU control list would be an important step in this direction.[8]

    Paragraph (d) of Article 3 provides authority to the relevant official to waive the prohibition on the provision, sale, or transfer of an individual luxury good or classes of luxury goods, if they determine that such a waiver is essential to protect the national interest of the state adopting the luxury goods regulatory instrument. The waiver might be employed, for example, if banning exports of the item or class of items would seriously damage the economy of the adopting state or if provision of certain goods might advance a diplomatic initiative of national importance. It is assumed, however, that the waiver will be used sparingly so as not to undermine the state’s compliance with the overall luxury goods prohibition.

    Article 4. Prohibition against using [Country’s] flag vessels or aircraft for the supply, sale, or transfer of luxury goods to the Democratic People’s Republic of Korea.

    This article reinforces the prohibition on the provision, sale, or transfer to North Korea of luxury goods by banning actions to facilitate the transport of such goods to that country, which is essential for the movement of prohibited items. As the Panel of Experts noted, the efforts of North Korea to evade sanctions often involve the shipping of goods through two or more states to disguise their ultimate destination and take advantage of variations in export control practices.

    Article 5. Prohibition against provision of financial services and support for the purpose of supplying, selling, or transferring luxury goods to the Democratic People’s Republic of Korea.

    This article similarly reinforces the prohibition on the provision, sale, or transfer to North Korea of luxury goods by banning actions to facilitate the financing of such transactions, another essential element to permit the movement of prohibited items; the article also bans providing financial support for such transactions in the form of export credits, guarantees, or insurance. The Panel of Experts has highlighted the efforts of North Korean agents to disguise the financing of their luxury goods purchases, sometimes resorting to hand-carried payments and wire transfers.[9]

    Article 6. Offense.

    This article provides for the enforcement of the prohibitions in the three previous articles through criminal and civil penalties for violations. The specific penalties should parallel those in the state’s existing export control or other relevant laws. These can be incorporated by reference or restated in the text of Article 6.

    The phrasing requires that an offender act knowingly and intentionally, a standard safeguard where the potential for significant fines or even imprisonment are present. It appears to be particularly appropriate in the current context, because the contraband items are so commonplace and their ultimate destination so easy to disguise that many parties that actually contribute illegal trade in luxury goods do so unwittingly, as the Panel of Experts pointed out on a number of occasions. Other participants are complicit, however, and having strong penalties for such behavior can have a deterrent effect, if accompanied by energetic enforcement efforts.

    Next Steps

    The Security Council prohibition has been on the books for nearly thirteen years and appears to have done little to curtail the lifestyles of North Korea’s rich and infamous. An underlying difficulty is that unlike embargoed weapons of mass destruction and missile-related items, luxury goods circulate freely in the global economy and do not pose obvious inherent dangers.

    Two caveats must be kept in mind, however. The first is that as the Unites States and others seek international support to increase diplomatic and financial pressure on North Korea, they must decide how to do this most effectively. Certain sanctions measures, such as terminating banking relationships with North Korea and curtailing imports and exports of key commodities, are likely to have a greater to impact on leaders in Pyongyang than curtailing their access to luxury goods. US and other diplomats decide where cooperation is most urgently needed and will have the greatest impact, it is difficult to imagine that enforcement of the luxury goods ban will top the list.

    Secondly, the role of China must be taken into account. It does not appear to play an active role in the luxury goods ban. When Austria had ski-lifts placed on the EU control list, China continued to provide North Korea with equipment of this kind, advising the Panel of Experts that skiing is “a popular sport for people” and that ski-lift equipment is not on its – still unpublished – luxury goods list.[10] Given such an attitude and with much trade in luxury goods headed for North Korea moving through China, according to Panel of Experts reports, prospects for curtailing Pyongyang’s access to such resources do not look promising.[11]

    Still, if the luxury good embargo can be energized, it could make a useful contribution to the broader campaign to pressure North Korea’s leaders to curtail their nuclear and related missile activities. Specialists have noted that the emerging middle class in North Korea has increasingly gained access to luxury goods, creating an additional group that might join the elite in calling for sanctions relief if the luxury goods spigot were cut off.

    In the end, if “maximum pressure” is to be applied to reverse the North Korean nuclear and missile programs, a strengthened luxury goods ban needs to be included in the effort. Promoting wide adoption of measures like the model regulatory instrument and its associated list is a good place to start.

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    APPENDIX
    [ACT] [REGULATION] TO
    PROHIBIT EXPORTS OF LUXURY GOODS
    TO THE
    DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA

    Preamble

    Recognizing the obligation of [ Country] to accept and carry out the decisions of the United Nations Security Council pursuant to Article 25 of the United Nations Charter and pursuant to the [Country’s United Nations Participation Act];

    Recognizing that decisions of the Security Council issued pursuant to Chapter VII of the United Nations Charter, concerning threats to international peace and security, are binding on all United Nations Member States;

    Recognizing that the Security Council, pursuant to Chapter VII of the United Nations Charter, has determined that the weapon of mass destruction and related delivery system programs of the Democratic People’s Republic of Korea constitute a threat to international peace and security and has prohibited the Democratic People’s Republic of Korea from continuing such programs, under Resolutions 1718 (2006), 1874 (2009), and 2094 (2013), and reaffirmed in 2270 (2016), 2321 (2016), 2356 (2017), 2371 (2017), 2375 (2017), and 2397 (2017); and

    Further recognizing that the Security Council, through the above resolutions, has decided that all UN Member States shall prevent the direct or indirect supply, sale or transfer to the Democratic People’s Republic of Korea of luxury goods;

    The [appropriate body, agency, or official] hereby [enacts] [adopts] [issues] [makes] the following [law] [regulation]

    Article 1. Authority.

    (Select appropriate alternative.)

    [This act is adopted to fulfill the obligations set out in the [Country] United Nations Participation Act.]

    or

    [This regulation is adopted pursuant to the authority granted to the {Minister of ______________} under the {Country} United Nations Participation Act.]

    or

    [The {Country} Export Control Law is amended as follows:]

    or

    [This regulation is adopted to under the {Country}National Export Control Law to implement its purposes and objectives]

    Article 2. Effective Date.

    This [act] [regulation] shall become effective on [_________________].

    Article 3. Prohibition on the supply, sale, or transfer of luxury goods to the Democratic People’s Republic of Korea.

    (a) No individual or entity in [Country] and no national of [Country], whether acting inside or outside [Country], shall supply, sell or transfer, directly or indirectly, any luxury good to any person or entity in the Democratic People’s Republic of Korea or to any representative of the government of the Democratic People’s Republic of Korea, whether or not the item originated in [Country].

    (b) For the purposes of this [act/regulation] “luxury goods,” shall mean those goods listed in Annex I, as amended from time to time pursuant to paragraph (c) of this Article, and any other goods determined by the [Minister of ____________, or other appropriate official] not to be essential for daily subsistence and that the [Minister of _____________, or other appropriate official] has reason to believe could enhance the quality of life of elite parties in the Democratic People’s Republic of Korea.

    (c) The [Minister of ________________, or other appropriate official] shall review the list of prohibited luxury goods from time to time and add or remove such items as they deem necessary for the effective implementation of the Security Council resolutions listed above and any further resolutions restricting the transfer of luxury goods to the Democratic People’s Republic of Korea, giving due consideration to lists that may be in use in other jurisdictions.

    (d) The [Minister of ________________, or other appropriate official] may waive the prohibitions of paragraph (a) of this Article and of Articles 4 and 5, if they determine that such a waiver is essential to protect the national interest of [Country].

    Article 4. Prohibition against using [Country’s] flag vessels or aircraft for the supply, sale, or transfer of luxury goods to the Democratic People’s Republic of Korea.

    No —

    (a) owner or master of a ship registered as a [Country] flag vessel; and

    (b) owner or operator of an aircraft registered in [Country],

    shall carry, or cause or permit to be carried, on board or on or in any part of the ship or aircraft any luxury goods for supply, sale or transfer to any person or entity in the Democratic People’s Republic of Korea or to any representative of the government of the Democratic People’s Republic of Korea.

    Article 5. Prohibition against provision of financial services and support for the purpose of supplying, selling, or transferring luxury goods to the Democratic People’s Republic of Korea.

    No individual or entity in [Country] and no national of [Country], whether acting inside or outside [Country], shall directly or indirectly —

    (a) provide any financial services or support (including the granting of export credits, guarantees or insurance); or

    (b) transfer financial assets or resources, or other assets or resources,

    for the purpose of supplying, selling, or transferring luxury goods to the Democratic People’s Republic of Korea.

    Article 6. Offense.

    Any individual or entity in [country] and any national of [country] acting outside [country] who

    • Knowingly and intentionally violates the prohibitions set out in Articles 3, 4, and 5, or
    • Knowingly and intentionally participates, in activities the object or effect of which is to circumvent the prohibitions referred to in Articles 3, 4, and 5 above,

    shall be guilty of an offense and subject to penalties as set out in [insert reference to appropriate criminal and civil penalty provisions of Country’s export control or other relevant law, or restate such penalties here].

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    ANNEX I
    EU Luxury Goods Control List

    → View this list as a PDF

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    Notes

    [1] The eleven reports of the Panel of Experts submitted, generally on an annual basis, may be accessed on the website of the 1718 Committee, https://www.un.org/securitycouncil/ sanctions/1718/panel_experts/reports.  The earliest is dated November 5, 2010, and the most recent March 5, 2019.  Among other luxury items, the Panel has documented the presence in North Korea of imported recent-year, Rolls Royce and Lexus sedans; armored Mercedes limousines; numerous used automobiles manufactured abroad; an Italian-made yacht; large quantities of foreign tobacco; abundant foreign-origin laptops; name-brand cosmetics, watches, and sportswear; high-end imported wines and spirits; and quantities of jewelry and precious stones.

    [2] See Vera Gowlland-Debbas, ed., National Implementation of United Nations Sanctions: A Comparative Study (The Hague, Leiden: Martinus Nijhoff, 2004), pp. 43 ff., excerpt available at books.google.com.

    [3] “Implementation Assistance Notice No. 3: Guidelines for the implementation of measures regarding ‘Luxury Goods’ under Security Council resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016) and 2321 (2016),” Security Council Committee established pursuant to resolution 1718 (2006), January 20, 2017, https://www.un.org/securitycouncil/sites/www.un.org.securitycouncil/ files/implementation_assistance_notice_3.pdf.

    [4] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” S/2017/150, January 30, 2017, p. 46/326, https://www.un.org/ga/search/view_doc.asp?symbol=S/2017/150.

    [5] 1718 Sanctions Committee, “Additional Items and Luxury Goods” (last updated December 21, 2016),” https://www.un.org/securitycouncil/sites/www.un.org.securitycouncil/files/ list_items_and_luxury_goods.pdf.

    [6] Council Regulation (EU) 2017/2062 of 13 November 2017 amending Regulation (EU) 2017/1509 concerning restrictive measures against the Democratic People’s Republic of Korea, https://eur-lex.europa.eu/eli/reg/2017/2062/oj. A copy of the list may be found below as Annex I of the Model Luxury Goods Regulatory Instrument.

    [7] For a detailed review of the disparate practices regarding luxury goods controls of UN Member States, see, “UN Sanctions: Definitions of ‘Luxury Goods,’” (2019), NKHumanitarian, updated April 28, 2019, https://nkhumanitarian.wordpress.com/un-sanctions-definition-of-luxury-goods/#FNanchor_9.  See also,

    “As North Korea Continues to Boost its Imports, a Look at the Role of Luxury in the Hermit Kingdom,” The Fashion Law, February 25, 2019, http://www.thefashionlaw.com/home/as-north-korea-continues-to-boost-its-luxury-imports-a-look-at-the-role-of-luxury-in-the-hermit-kingdom.

    [8] It may be noted that in contrast to prohibitions regarding luxury goods, Security Council prohibitions on providing, selling, or transferring nuclear-, chemical-, biological-, or missile-related goods to North Korea are accompanied by detailed, pre-existing lists of controlled items developed by relevant multilateral groups, thereby creating a degree of uniformity among UN Member States with respect to these controls over trade in these latter spheres.

    [9] Report of the Panel of Experts, S/2012/422, op. cit., p. 32, also noting North Korean use of “money laundering techniques to disguise the relationship between transactions and shipments.” See also Security Council Committee established pursuant to resolution 1718 (2006), “Fact Sheet compiling certain measures imposed by Security Council resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), 2371 (2017), 2375 (2017), and 2397 (2017),” April 17, 2018, p. 9, noting the prohibition against providing financing to support sanctions evasion (a term that would include the financing of the provision, sale, or transfer of luxury goods),  https://www.un.org/securitycouncil/sites/www.un.org.securitycouncil/files/ fact_sheet_updated_17_apr_2018_0.pdf

    [10] “Final report of the Panel of Experts submitted pursuant to resolution 2141 (2014),” February 23, 2015,  S/2015/131, p. 42/315, https://www.undocs.org/S/2015/131.

    [11] See, e.g., “Final report of the Panel of Experts submitted pursuant to resolution 2407 (2018),” S/2019/171, March 5, 2019, p. 48/378, https://www.undocs.org/S/2019/171; “Final report of the Panel of Experts submitted pursuant to resolution 2050,” June 11, 2013, (2012) S/2013/337, p. 40.

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