On December 8, 2011, the Office of Foreign Assets Control, US Department of the Treasury (OFAC) issued a final rule adding two new general licenses to the Sudanese Sanctions Regulations (SSR), 31 C.F.R. Part 538. The new licenses authorize “all activities and transactions” pertaining to the petroleum and petrochemical industries in South Sudan and allow for the transshipment of goods, technology, and services through Sudan to South Sudan, as well as related financial transactions. OFAC also released an accompanying Fact Sheet that helps to clarify the new general licenses.
OFAC also amended preexisting general licenses to allow Sudanese nationals to perform services relating to public conferences or events, and to permit Sudanese national visa holders to perform services in the United States related to their visas. OFAC made a number of additional related and conforming alterations to the SSR.
As described in our April and July 2011 advisories, the new state of South Sudan became independent from Sudan in July 2011, pursuant to a referendum in January of that year. Following the vote, in April 2011, OFAC issued guidance stating that the new state would not be subject to the SSR. OFAC’s April 2011 guidance advised that the SSR nevertheless would continue to prohibit South Sudan-related transactions that benefited Sudan or its government, and warned that US companies would be barred from engaging in transactions relating to the petroleum industry in the new state if the transactions related to the Sudanese petroleum or petrochemical industry or benefited Sudan. Given the close relationship between the South Sudanese and Sudanese petroleum and petrochemical industries, this limitation imposed obstacles to pursuing business opportunities in South Sudan. The guidance also called attention to the SSR’s continued restriction of transshipments through Sudan to South Sudan outside of Sudan’s “Specified Areas” (e.g. Darfur and other marginalized regions).
In an effort to encourage investment in South Sudan, OFAC’s new rule reverses these prohibitions. OFAC has now made unequivocally clear that all South Sudan-related petroleum and petrochemical-related transactions are authorized, even if they benefit or relate to Sudan. This authorization also includes dealings with Sudanese banks subject to specific limitations discussed below. Given the comprehensive embargo the US has long imposed on Sudan, the other revisions contained in the new rule also are notable, if more limited.
All Petroleum and Petrochemical Related Transactions in South Sudan Now Authorized
The most far-reaching aspect of the new rule explicitly allows transactions related to the South Sudanese petroleum and petrochemical industry, even if they would otherwise run afoul of the SSR (see 31 C.F.R. 538.536). The new general license states that: “To the extent they are not exempt from the prohibitions of this part, all activities and transactions relating to the petroleum and petrochemical industries in the Republic of South Sudan are authorized.” The provision offers a broad list of illustrative activities now allowed. These include:
- Exploration, development and production
- Field auditing and oilfield services
- Activities related to oil and gas pipelines
- Payment to the Government of Sudan or to entities it owns or controls of pipeline, port, and other fees
- Refining, sale, and transport of petroleum from the Republic of South Sudan
In addition, the new general license allows all financial transactions ordinarily incident to such activities, including transactions with financial institutions owned or controlled by the Sudanese government or located in Sudan. To be eligible for the authorization, transactions involving US financial institutions and Sudanese government-controlled financial institutions must first transit through a depository institution that is not owned or controlled by the Sudanese government.
The SSR’s proscription of dealings in Sudan itself, however, remains. As OFAC’s accompanying Fact Sheet makes clear, transactions relating to the Sudanese petroleum and petrochemical industries remain prohibited, including refining South Sudanese oil in Sudan.
Transshipments Through Sudan to South Sudan Authorized Outside “Specified Areas”
The other new general license, at 31 C.F.R. 538.537, provides that to the extent otherwise prohibited, transshipments of goods, technology, and services through Sudan are authorized if they originate from or are destined for South Sudan. This authorization applies to all such transshipments, whether or not related to the new state’s petroleum or petrochemical industries. It also applies to all areas of Sudan, superseding the previous transshipment authorization, which applied only to defined “Specified Areas” of Sudan. The Specified Areas now comprise: Southern Kordofan/Nuba Mountains State, Blue Nile State, Abyei, Darfur, and marginalized areas in and around Khartoum. 31 C.F.R. 538.320.
Importation of Certain Sudanese-Origin Services
The new rule also revises the SSR to permit Sudanese citizens and nationals to engage in activities that are for the purpose of or directly relate to participation in public events, conferences and performances. In addition, Sudanese citizens or nationals who receive the following visas may perform the services for which the visa has been granted: A-3 or G-5 (personal employees of diplomats), D (crewmen), F (students), I (information media representatives), J (exchange visitors), M (non-academic students), O and P (athletes, artists, entertainers, aliens with extraordinary ability), R (religious workers) and S (witnesses). If not coming to work as an agent, employee or contractor of the Government of Sudan or a Sudanese-organized entity, recipients of E-2 (treaty investors), H (temporary worker) or L (intra-company transferee) visas may also perform relevant services. Further, US persons may now assist persons in Sudan with obtaining any of the above-listed visas. 31 C.F.R. 538.509.
Humanitarian Transshipments to Specified Areas of Sudan
The revisions also allow for transshipments of goods, services or technology made for humanitarian purposes to transit through non-Specified Areas of Sudan en route to Specified Areas of Sudan. 31 C.F.R. 538.532.
Transactions Incident to a Licensed Transaction
Further, the new rule revises the SSR’s exceptions to the general authorization at 31 C.F.R. 538.405 allowing transactions ordinary and incidental to licensed transactions.
Other Conforming Changes
Other revisions to the SSR include:
- Specifying that the definition of Government of Sudan does not include the Government of the Republic of South Sudan or its central bank
- Excluding goods or services that transship Sudan to or from South Sudan from the definition of “Sudanese origin”
- Removing “South Sudan” from the definition of “Specified Areas of Sudan”
Neither the new rule nor OFAC’s Fact Sheet specifies how transactions involving Specially Designated Nationals (SDNs) should be dealt with, and whether SDNs are also eligible to be parties to transactions pertaining to South Sudan. The language of the rule authorizes “[a]ll financial transactions ordinarily incident” to the listed petroleum/petrochemical related activities “to the extent they are not exempt from the prohibitions” of the SSR. This language, coupled with the requirement allowing only indirect dealings between banks owned or controlled by the Sudanese government or based in Sudan, conceivably could suggest that transactions involving Sudanese SDN banks such as the Bank of Sudan might be authorized to the extent the transaction fits within the general licenses set out under the new rule. If this is the case — and the question remains open — any such eligibility would appear to be limited to banks designated as SDNs specifically pursuant to the SSR, and not under other sanctions regimes (such as programs targeting terrorists or weapons of mass destruction proliferators). Caution and additional confirmation in this respect is warranted before undertaking transactions involving any entity on the SDN List.
The Export Administration Regulations, moreover, continue to control items listed on the Commerce Control List for export and reexport to Sudan and South Sudan. As our previous advisory describes, South Sudan is now a Country Group B nation under the EAR, and thus eligible to receive a wide range of U.S.-origin items without the need for a license. Sudan, however, remains subject to strict EAR controls that are separate from and additional to the OFAC restrictions.