US Marshals to Sell Seized North Korean Cargo Ship 

The U.S. Marshals Service, which has custody of the North Korean-owned ship Wise Honest, is reviewing how to sell the seized vessel as ordered by a federal court that has yet to decide officially if the Otto Warmbier family will receive the sale proceeds.

“The Marshals are in the process of developing a disposal plan, taking into consideration things such as age, condition, and location of the vessel,” said a spokesperson for the U.S. Marshals Service (USMS) earlier this week. The USMS oversees managing and selling assets seized by the U.S. through the Justice Department’s Asset Forfeiture Program.

The U.S. federal court in the Southern District of New York (SDNY) authorized the sale of the seized North Korean cargo vessel last week, following a claim filed by the parents of Otto Warmbier, an American student who died shortly after returning to the U.S. from detention in North Korea.

The North Korean cargo ship, Wise Honest, middle, was towed into the Port of Pago Pago, May 11, 2019, in Pago Pago, American Samoa.

Warmbiers file claim, lawsuit

On July 3, Frederick and Cynthia Warmbier filed a claim in the SDNY against the North Korean flagged vessel. The U.S. seized the ship in May for ship-to-ship transfers of banned North Korean coal, an apparent violation of U.S. and U.N. sanctions. 

The claim was their attempt to obtain the North Korean government asset as a way to pay part of the $500 million judgment the federal court in the District of Columbia ordered against North Korea in December.

In April 2018, the Wise Honest left the North Korean port of Nampo, carrying 26,500 metric tons of North Korean coal and transferred the coal to another ship off the coast of Indonesia. Indonesian authorities detained the Wise Honest until the U.S. Justice Department authorized a seizure in May. The ship was then hauled to Pago Pago, America Samoa where it remains docked.

Also in April 2018, the Warmbiers filed a lawsuit against North Korea, holding the country liable for the torture, hostage-taking, and extrajudicial killing of their son.

FILE – American student Otto Warmbier is escorted at the Supreme Court in Pyongyang, North Korea, March 16, 2016. Warmbier was sentenced to 15 years in prison with hard labor.

Wrongful death

Otto Warmbier, an Ohio native, was a student at the University of Virginia. He visited North Korea on a guided tour in January 2016. North Korea accused him of attempting to steal a propaganda poster, and sentenced him to 15 years of hard labor in March 2016. He died shortly after returning to the U.S. in a vegetative state in June 2017.

In the wrongful death suit filed by the Warmbiers, U.S. District Judge Beryl Howell of Washington, D.C., ordered in December that North Korea pay them more than $500 million in punitive and compensatory damages.

Because North Korea never defended itself against the lawsuit or responded to compensatory negotiations, the Warmbiers themselves must track down North Korean assets to collect money to pay the half billion-dollar award.

Sale of ship authorized

Last week, Judge Kevin Castel at the federal court in SDNY authorized an interlocutory sale order in agreement with the Warmbiers and permitted the USMS to sell the ship.

Usually, a court needs to issue a final order of forfeiture before the USMS can sell properties seized by the U.S. that are in its custody. A forfeiture order permits the ownership exchange of a seized property to take place.

The interlocutory sale order issued last week, however, allows the USMS to sell the Wise Honest before issuance of a final order of forfeiture to reduce the cost of maintaining the ship, according to a spokesperson for the U.S. Attorney’s Office in SDNY.

“The proceeds of the sales are then treated as a substitute for the boat,” said the spokesperson.

Sorting out the money 

The USMS holds the money from the sale of any seized property in a Seized Asset Deposit Fund until the court orders a final forfeiture. Once that is issued, the money can be distributed to the claimants.

However, because the interlocutory sale order does not specify the Warmbiers are automatically entitled to the proceeds, the court must make an official determination as to who gets the money from the sale of the Wise Honest.

The spokesperson for the U.S. Attorney’s Office in SDNY said, “No determination has been made regarding … who gets the sale proceeds.”

According to Joshua Stanton, a Washington, D.C.-based attorney who helped draft the North Korean Sanctions Act in 2016, several steps need to be taken before the court officially decides whether the Warmbiers will get the money.

“The [Washington] D.C. district is the district that entered the judgment against the government of North Korea,” Stanton said. “And the court in [the Southern District of] New York is going to have to determine that the ship is the property of the government of North Korea” to satisfy the $500 million judgment the district court in Washington ordered against North Korea. “So, it’s not a done deal.” 

How to sell a ship

The USMS, in the meantime, must determine the best way to sell the Wise Honest, which may be selling at auction.

“Sales methods are driven by the asset type, value, and the pool of knowledgeable, willing buyers available for the specific asset type,” the spokesperson said.

The service sells small personal seized items through online auctions. It sells seized cars at live auctions. USMS usually sells seized real estate properties through real estate companies.

That’s how the service dealt with the seized real estate properties of Bernie Madoff, the spokesperson said. Madoff stole billions of dollars from his clients by turning his wealth management company into the world’s largest Ponzi scheme and was sentenced to 150 years in prison in 2009.

As for the Wise Honest, “We don’t have an estimate yet for when we will sell the ship,” said the USMS spokesperson, adding it remains uncertain how the vessel will be valued and sold.

The 17,061-ton cargo ship is estimated to be worth between $1.5 million and $3 million.

An American Society of Appraisers certified U.S. marine appraiser who asked not to be identified by name said a $3 million price tag “sounds about right.”

The appraiser said, “If the vessel Wise Honest is going to be sold at an auction or a Marshal sale, it probably would not fetch fair market value.”

North Korea notified

According to the court order issued last week, North Korean shipping and trading companies that used the Wise Honest were offered a chance to claim the ownership of the Wise Honest.

As required by the general rules of civil forfeiture proceedings, the U.S. sent written letters of notice on May 14 to Korea Songi Shipping Company and Korea Songi General Trading Corporation, the parties that could have potential interests in claiming the ownership of the ship.

The Wise Honest was used by Korea Songi Shipping Company, an affiliate of Korean Songi General Trading Corporation, in exporting coal from North Korea. Songi Trading Corporation, sanctioned by the U.S. in 2017, is operated by the Korean People’s Army.

Although North Korea had 60 days to reply, it failed to respond, missed the deadline, and by default, lost the chance to claim the ship.

“North Korea not only lost the $500 million lawsuit, but now it has lost the chance to claim an interest in its second largest bulk cargo carrier,” Stanton said.

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