A new advisory from the US State Department highlights the tactics used by North Korea to evade US or United Nations sanctions authorities

A new advisory from the US State Department highlights the tactics used by North Korea to evade US or United Nations sanctions authorities

American companies importing products including apparel, textiles and footwear have been warned they could face fines or even criminal charges if they inadvertently source goods from North Korea, or if North Korean workers are found anywhere in their supply chains.

A new advisory from the US State Department highlights the tactics used by North Korea to evade US or United Nations sanctions authorities – including sub-contracting or mislabelling.

It also names 22 North Korean companies that have joint ventures with partners from China and other countries and produce textiles, apparel and footwear.

Most North Korean labourers work between 12 and 16 hours per day, the State Department says, with only one or two rest days per month in jobs they are assigned to by the government. There are also North Korean workers overseas whose primary work produces revenue for the government.

In most cases employers pay salaries directly to the government, which takes between 70% and 90% of the total earnings – and reportedly earns hundreds of millions of US dollars per year to support its weapons of mass destruction (WMD) and ballistic missile programmes.

Among the main risks to a company's supply chain operations are: inadvertent sourcing of goods from North Korea, and  the presence of North Korean citizens or nationals in those supply chains.

Deceptive practices that US firms should watch out for are:

  • Sub-contracting/consignment firms: Third-country suppliers shift manufacturing or sub-contracting work to a North Korean factory without informing the customer or other relevant parties. For example, a Chinese factory sub-contracts with a North Korean firm to provide embroidery detailing on an order of garments.
  • Mislabelled goods: North Korean exporters disguise the origin of goods produced in North Korea by affixing country-of-origin labels that identify a third country. For example, there are cases in which garments manufactured in North Korea are affixed with "Made in China" labels.
  • Joint ventures: North Korean firms have established hundreds of joint ventures with partners from China and other countries in various industries, such as apparel and textiles.
  • Raw materials or goods provided with artificially low prices: North Korean exporters sell goods and raw materials well below market prices to intermediaries and other traders, which provides a commercial incentive for the purchase of North Korean goods.

"Businesses should be aware of these deceptive practices in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chain," the advisory says.

Apparel, textile and footwear joint ventures in North Korea

Sector Joint venture company
FootwearChinyo'n Shoemaking Industry Joint Venture Company
Naso'n Shoemaking Industry Joint Venture Company
Textiles and ApparelChangch'o'ng Joint Venture Company
Ch'o'ngjin, North Hamgyo'ng Province Myo'nguk Trading Company
Choso'n Kyo'ngcho Joint Venture Company
Choso'n So'ngo'p Company
Choyang Textile Joint Venture Company
Haeyang Knitwear Processing Company
Hongbong Industrial Development Co., Ltd.
Hwau'i Logistics Quality Inspection Center
Inner Mongolia Dagenlai Industrial and Trading Co., Ltd. Pyongyang Municipality Branch
Korea Changch'o'ng Nonwoven Product Co., Ltd.
Korea Cho'ngyang Joint Venture Company
Korea Manbok Cooperative Company
Korea Najin Hyesu'ng Company
Ku'mbo Apparel Co., Ltd.
Nakcho'n Apparel Co., Ltd.
Naso'n Chohwang (North Korea) International Trading Company
Naso'n City P'unghwa Apparel Co., Ltd.
Naso'n Myo'nguk Trading Company
Naso'n Ryo'ngso'n Joint Venture Company
So'nwo'n Sock Processing Factory

The State Department emphasises that the advisory does not impose new sanctions on North Korea, and that the US remains committed to the joint statement signed on 12 June by President Trump and Chairman Kim. But it adds: "As the President has said, sanctions will be enforced and remain in effect. The international community cannot let up on pressure until the DPRK denuclearises."