Following the further unrest in Syria, the EU on 23 August added further names to the list of individuals and entities subject to the asset freezing provisions of the Syrian sanctions regime. Further developments are expected in the near future, which may include an oil embargo. This briefing provides an update on the new individuals and entities added to the list, and provides a brief recap on the Syrian sanctions regime.
Background and recent developments
On 9 May 2011, the European Union adopted Council Regulation (EU) No 270/2011 (the "EU Regulation") which imposes, amongst other measures, an asset freeze on named individuals and entities identified as being responsible for the violent repression of the civilian population in Syria and persons and entities associated with them. The UK enacted the Syria (Asset-Freezing) Regulations 2011 (the "UK Regulations") on 10 May 2011 to give effect to the financial sanctions aspects of the EU Regulation, which also entered into force on 10 May 2011.
These EU and UK sanctions, summarised in more detail below, are currently significantly more limited than the US OFAC regime. In particular, US Executive Order 13582 of 17 August 2011 imposes prohibitions on:
- new investment in Syria by a US person;
- exportation, re-exportation, sale or supply from the US or by a US person of any services to Syria;
- the importation into the US of petroleum productions of Syrian origin;
- any transactions or dealings by US persons in relation to petroleum products of Syrian origin; and
- any approving, financing, facilitation or guarantees by US persons of transactions which would be prohibited if done by a US person or within the US.
The Executive Order also extended the US asset freeze to cover, amongst others, a number of Syrian oil and gas companies including the General Petroleum Corporation, the state-owned company that controls the Syrian oil and gas industry. Earlier in the month, the Commercial Bank of Syria, its subsidiary the Syria Lebanese Commercial Bank, and Syriatel, Syria's largest mobile phone company, had been added to the US freeze, whilst further individuals were added on 30 August. The US position is therefore extremely wide ranging in its scope.
On 18 August 2011, Baroness Ashton, the EU High Representative, announced that further names would be added to the EU sanctions list, and said that the EU was moving ahead with discussing further restrictive measures to broaden its sanctions against the Syrian regime. To date, however, the only change (on 23 August) has been to add 15 individuals and five entities to the sanctions list. A more extensive trade embargo has not yet been implemented.
Press reports, however, suggest that this is still under discussion. It is said that an oil embargo may be agreed by EU member states as early as the end of this week, although the implementation date for any embargo is said to be under discussion. We will report further on any new regime as and when the details become clearer. In the interim, we summarise below the current UK position.
EU and UK asset freezing and financial sanctions
The UK and EU Regulations follow the usual format for financial sanctions legislation.
Under the UK Regulations it is an offence to:
- deal with funds or economic resources belonging to, or owned, held or controlled by, a 'designated person' (i.e. a person on the EU sanctions list), knowing or having reasonable cause to suspect that you are dealing with such funds or economic resources;
- make funds or economic resources available (1) directly or indirectly to a designated person or (2) to any person for the benefit of a designated person, knowing or having reasonable cause to suspect that you are so making funds or economic resources available. ("Funds" and "economic resources" are both very widely defined, covering all sorts of tangible and intangible assets and benefits of any kind. However, the offence of making "economic resources" available "to" a designated person is only committed where there is reasonable cause to suspect that, in making the economic resources available, the designated person would be likely to exchange the economic resources, or use them in exchange for funds, goods or services. Similarly, the offences of making either "funds" or "economic resources" available "for the benefit of" a designated person is only committed if the person thereby obtains, or is able to obtain, a significant financial benefit (including the discharge of a financial obligation for which they are responsible));
- intentionally participate in activities knowing that the object or effect of them is (directly or indirectly) to circumvent, or enable to facilitate the contravention of, any of these prohibitions.
The EU and UK Regulations also provide for a licensing and reporting regime. The UK Regulation, on its face, confers a broad licensing power on HM Treasury. In practice, however, this power is generally exercised only where the transaction for which the licence is sought would fall within one of the categories specified in the EU Regulation. In summary, the EU Regulation provides that licences may be granted where a transaction (which would otherwise be prohibited by the sanctions regime) is:
- necessary to satisfy the basic needs of designated persons and their dependent families;
- intended exclusively for the payment of reasonable professional fees or the reimbursement of incurred expenses associated with the provision of legal services;
- intended exclusively for the payment of fees or service charges for routine holding or maintenance of frozen funds or economic resources;
- necessary for extraordinary expenses (this is commonly interpreted very narrowly by HM Treasury);
- within a very limited exception for judicial, administrative or arbitral judgments or liens; or
- within a carve out for payments due from a designated person, entity or body under a contract or agreement that was concluded by, or from an obligation that arose before the date on which, that person, entity or body was designated (assuming that the payment is not directly or indirectly received by another designated person).
The EU and UK Regulations also allow frozen accounts to be credited with interest or other earnings or payments due under contracts, agreements or obligations that were concluded or arose before the date on which the account became subject to the asset freeze. Where such amounts are credited, the relevant institution is required to notify HM Treasury.
The UK Regulations apply extraterritorially to the conduct of UK nationals or UK incorporated companies both inside and outside the UK. Similarly, the EU Regulation applies to any legal person, entity or body in respect of any business done in whole or in part within the EU, and extraterritorially to nationals of EU members states.
The EU Regulation imposes obligations on entities to notify member state competent authorities (in the UK, HM Treasury) of "any information which would facilitate compliance with this Regulation". The UK Regulation imposes specific requirements on "relevant institutions" (broadly, FSA-authorised firms, certain passported firms and money services businesses) to report customers who are designated persons, frozen funds, and certain breaches of the UK Regulation.
Trade sanctions - military and internal repression items
The EU Regulation also prohibits the sale, supply, transfer or export of equipment which might be used for internal repression to any person or entity in Syria or for use in Syria. The provision of technical or financial assistance or brokering services related to items that may be used for internal repression, and the provision of technical or financial assistance related to items on the EU Common Military List, are also forbidden.
Companies should bear these restrictions in mind when considering transactions or financing projects in Syria, as the lists of restricted items comprise certain 'dual use' items such as explosives which may be used for a range of activities.
The full list of designated individuals and entities is available here.
The names that were added to the list of individuals and entities subject to the Syrian asset freeze on 23 August were:
AL-TURKMANI, Hassan, Bin-Ali BUKHAYTAN, Muhammad, Said
AIR FORCE INTELLIGENCE AGENCY
GENERAL INTELLIGENCE DIRECTORATE
IRGC QODS FORCE
MILITARY INTELLIGENCE DIRECTORATE
POLITICAL SECURITY DIRECTORATE
IRGC Qods Force is listed by the EU and included on the Treasury’s consolidated list under Council Regulation (EU) No 961/2010 (Iran – Nuclear Proliferation).