Article by Simeon M. Kriesberg and Carol J. Bilzi
Originally published May 13, 2004
The U.S. Government recently lifted most of its economic sanctions against Libya, authorizing U.S. citizens and residents, and entities organized under U.S. laws, to engage in trade and investment in Libya for the first time in 18 years. Further, the President is no longer authorized to impose penalties on foreign companies that invest in Libya’s petroleum industry. Any person seeking to do business with Libya, however, must still navigate through a complex set of restrictions on exports and re-exports to Libya of U.S.-origin goods, software, and technology. In another recent development, President Bush imposed more stringent sanctions on Syria. New sanctions on Syria will cut off most U.S. exports to Syria. This Update describes the current state of U.S. sanctions against Libya, Syria, and other countries.
Most Economic Sanctions Against Libya Are Lifted, But Export Restrictions Remain
On April 23, 2004, President Bush issued a presidential determination concluding that Libya had fulfilled its requirements under various U.N. Security Council Resolutions. As a result, the Iran and Libya Sanctions Act of 1996 ("ILSA") no longer applies to Libya. ILSA authorizes the President to impose penalties on foreign companies and individuals that engage in certain prohibited activities, including making significant investments in the petroleum sectors of Iran and Libya. ILSA continues to apply to Iran.
On the same day, the Office of Foreign Assets Control ("OFAC") of the Treasury Department issued a general license terminating most of the Libya sanctions applicable to U.S. persons, pending the publication of revised regulations dealing with exports to Libya issued by the Bureau of Industry and Security ("BIS") of the Commerce Department. The BIS regulations were published on April 29. OFAC’s general license authorizes a wide variety of transactions with Libya, including commercial agreements, financial transactions, and the importation and exportation of goods and services, subject to the BIS licensing requirements. Also, OFAC issued a general license in February authorizing travel to Libya, as well as certain travel-related transactions.
Certain restrictions on doing business with Libya remain:
- All previously blocked Libyan property and interests in Libyan property remain blocked, unless specifically authorized for release.
- Certain travel-related services continue to be prohibited, including flights to and from Libya by U.S. air carriers, code-sharing involving flights to and from Libya, and flights to or from the United States by Libyan air carriers.
- Exports and re-exports of U.S.-origin goods, software, and technology (including technical data) to Libya are permitted only if the proper license or authorization is obtained from BIS.
- Libya continues to be designated as a terrorist-supporting state and is subject to strict export controls.
Pursuant to the new BIS regulations, a license from the Commerce Department is required before exporting or reexporting to Libya virtually all items on the Commerce Control List ("CCL"), subject to a small number of license exceptions. For many items on the CCL, BIS will continue to operate under a policy of licensing denial. Items that are not specifically listed on the CCL (i.e., those classified as EAR 99) generally do not require a license for exportation to Libya, unless the items will be used in activities related to nuclear, chemical, or biological weapons, or missile delivery systems.
The lifting of the Libyan embargo after nearly two decades is a major policy shift for the United States. While U.S. persons may move forward with most business transactions in Libya, if those transactions involve the export or re-export of U.S.-origin goods, software, or technology, a license may be needed. In addition, there are certain people and entities in Libya that U.S. persons may not do business with, such as individuals and groups designated as terrorists. Depending upon Libya’s actions in the coming months, U.S. controls on trade with Libya may be further relaxed.
Sanctions Against Syria Are Expanded
Due to Syria’s designation by the United States in 1979 as a sponsor of terrorism, Syria has been subject to controls on certain exports of U.S. goods and technology and on certain financial transactions by U.S. persons. On May 11, 2004, President Bush signed an Executive Order imposing much more stringent sanctions on Syria, pursuant to the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (the "Act"). The Act requires the President to impose sanctions from a list set forth in the Act, unless he exercises his waiver authority on national security grounds.
The sanctions imposed by the President:
- prohibit the export and re-export to Syria of all U.S.-origin products, other than food and medicine, with the exception of certain products whose exportation is deemed to serve national security interests, such as certain telecommunications equipment; aircraft parts required for flight safety; products in support of the activities of the U.S. Government and the United Nations; certain software and technology; and information and informational materials;
- prohibit aircraft owned or controlled by the Syrian government to take off or land in the United States, unless on official Syrian government business;
- call for the Treasury Department to issue proposed rules that would require U.S. financial institutions to sever correspondent accounts with the Commercial Bank of Syria; and
- freeze assets in the United States belonging to certain Syrian individuals and government entities.
President Bush stopped short of prohibiting U.S. businesses from investing or operating in Syria, one of the optional sanctions authorized by the Act. Nevertheless, U.S. persons doing business in Syria must not deal with certain individuals and groups, such as those designated as terrorists. In addition, the Treasury Department has designated the Commercial Bank of Syria as a financial institution of "primary money laundering concern," which triggers enhanced due diligence responsibilities by U.S. financial institutions that have private banking or correspondent bank accounts involving the Commercial Bank of Syria and its subsidiary, Syrian Lebanese Commercial Bank.
The President stated that he may impose additional sanctions on Syria if it does not take steps to cease its support for terrorist groups, terminate its weapons-of-mass-destruction programs, withdraw its troops from Lebanon, and cooperate in promoting the stabilization and reconstruction of Iraq.
Embargoes Against Other Countries Continue To Be Enforced
The United States continues to maintain comprehensive economic embargoes against Cuba, Iran, and Sudan. The comprehensive embargoes are implemented through regulations administered by OFAC. (Note that OFAC also administers sanctions programs with respect to Burma, North Korea, targets in the Balkans and Zimbabwe, diamond trading, terrorist-supporting individuals and groups, and narcotics traffickers. The former embargo against Iraq has been lifted, although some restrictions remain.)
U.S. citizens and permanent residents, wherever they are located, business entities located in the United States or organized under U.S. law, including foreign branches, and, in the case of Cuba, foreign subsidiaries, are severely restricted in doing business with Cuba, Iran, and Sudan, or with so-called Specially Designated Nationals of these countries. OFAC maintains a List of Specially Designated Nationals and Blocked Persons on its website, which is updated frequently. (The SDN List also includes individuals and groups designated as terrorists and narcotics traffickers.) It is important to screen contemplated transactions against the SDN List to ensure compliance with U.S. sanctions programs.
In the post-September 11 environment, there has been increased scrutiny of corporate transactions by OFAC. OFAC publishes on its website the names of corporations that have been assessed civil penalties for violations of the sanctions programs or that have entered into informal settlements with OFAC. This information can be reviewed at www.ustreas. gov/offices/eotffc/ofac/civpen/penalties/index.html. Many companies have established corporate compliance programs to minimize the risk of violations, and, in the event that a violation occurs, to enable the company to mitigate penalties by demonstrating that the violation occurred despite a strong compliance program.
The sanctions programs and export control laws of the United States are subject to frequent change. Thus, it is essential that a transaction under consideration be screened for compliance with currently applicable laws and regulations.
Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
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