The United Nations, the Council of the European Union, the United States, the United Kingdom, and other countries have imposed targeted financial sanctions on Libya. The sanctions primarily target Muammar Qadhafi, his family, their assets, and in the case of US sanctions, Libyan government-owned or controlled entities. Many other countries are also reportedly considering the imposition of sanctions against Libya.
On February 26, 2011, the United Nations Security Council adopted Resolution 1970 (2011) in response to the Qadhafi regime’s actions against political protestors and the civilian population in Libya. UNSCR 1970 requires blocking assets of Muammar Qadhafi, specified members of his family, persons acting on behalf or at the direction of those persons, or entities owned or controlled by Muammar Qadhafi or his family.
On February 28, 2011, the Council of the European Union announced that an arms embargo and targeted sanctions were being imposed against Libya. In accordance with UNSCR 1970, the sanctions would consist of a visa ban and a freeze of assets against Muammar Qadhafi, his close family members, and other persons responsible for the internal crackdown. It also appeared that the Council intended to adopt an asset freeze on other individuals beyond those named in UNSCR 1970.
A number of nations moved rapidly over the weekend to implement the Security Council Resolution. The United Kingdom, for example, enacted Libya (Financial Sanctions) Order 2011 on February 26, 2011, which gives effect to UNSCR 1970. Canada and Australia have also imposed sanctions.
One day prior to the UNSCR 1970, President Obama issued an Executive Order blocking the assets of (and prohibiting business by US persons with) the same persons designated in UNSCR 1970, known as Specially Designated Nationals and Blocked Persons (SDNs), and also imposing broader sanctions against the Government of Libya; its agencies, instrumentalities, and controlled entities; and the Central Bank of Libya. Effective February 25, 2011, any property or interests in property of the Government of Libya, its “controlled” entities, or the Central Bank of Libya now must be blocked, and US persons are prohibited from conducting transactions and dealings with those persons and entities, e.g., transfers; payments; performing contracts; exports of goods, services, or technology; or withdrawals. Any property so blocked must be notified to OFAC by written report within 10 days. (The Executive Order does not define the meaning of “control,” but one common threshold of control, among others, would include 50 percent or greater ownership by the Government of Libya.)
Consistent with most other US sanctions regimes, the Executive Order defines “US persons” to include US citizens and permanent residents (wherever located), entities organized under US laws and their foreign branches, and any person or entity acting within the territorial jurisdiction of the United States. The Executive Order does not explicitly define the phrase “property and interests in property.” However, that phrase is used in other US sanctions regimes, and it has been interpreted broadly by the US Department of Treasury, Office of Foreign Assets Control (OFAC), which is responsible for administering and enforcing the US sanctions regulations and orders. For example, the definition of “property and property interests” found in the Sudanese Sanctions Regulations, 31 C.F.R. § 538.310, includes:
“[M]oney, checks, bullion, bank deposits, savings accounts, debts, indebtedness, obligations, notes, guarantees, debentures, stocks, bonds, coupons, any other financial instruments, bankers acceptances, mortgages, pledges, liens or other rights in the nature of security, warehouse receipts, bills of lading, trust receipts, bills of sale, any other evidences of title, ownership or indebtedness, letters of credit and any other documents relating to any rights or obligations thereunder, powers of attorney, goods, wares, merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, deeds of trust, vendors’ sales agreements, land contracts, leaseholds, ground rents, real estate and any other interest therein, options, negotiable instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks or copyrights, insurance policies, safe deposit boxes and their contents, annuities, pooling agreements, services of any nature whatsoever, contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future or contingent.”
Any activities in furtherance of the performance of contracts by US companies with the Libyan Government or government-owned or controlled entities would appear to fall within these new restrictions, as well as the movement of funds associated with those contracts. Note that the Executive Order broadly prohibits US persons from evading or avoiding its prohibitions, and provides that any conspiracy to violate any of the restrictions is prohibited.
Accompanying the Executive Order, OFAC issued General License No. 1, authorizing transactions with third country financial institutions that are owned or controlled by the Government of Libya, but are organized under the laws of a country other than Libya (or the United States).
Given the breadth of the US measures, companies that qualify as “US persons” should scrutinize any business dealings with Libya carefully, and assess whether the Executive Order restricts those dealings, and whether the OFAC-issued General License No. 1 might permit ongoing transactions. Companies that are subject to these new restrictions also should evaluate whether any sanctions-related contractual safeguards exist in their agreements to permit forbearance of contractual performance, to the extent such forbearance is required. It is expected that OFAC General License No. 1 will not be sufficiently broad for many companies, in which case OFAC may issue specific licenses at the request of individual companies. OFAC’s willingness to issue broad specific licenses is, however, at this point unclear. Any such licenses are likely to be limited to efforts by US persons to wind down activities or to minimize commercial liability in the event of litigation.
It is possible that additional general licenses will be issued by OFAC. Moreover, we expect OFAC will issue regulations to further elaborate on the restrictions, definitions, and interpretation of the blocking provision set forth in the Executive Order. However, the blocking requirement and associated restrictions are now effective.