In recent weeks, the US Treasury Department’s Office of Foreign Assets Control (OFAC) published and updated two new general licenses under the Libyan sanctions program, effectively authorizing most transactions involving the Government of Libya (GOL) and Libyan state-owned petroleum companies. Read together, these licenses permit a broad range of transactions involving past and new business in Libya, subject to several significant limitations. We review the incremental relaxation of the Libyan sanctions below.
September 9, 2011: General License 7 authorized transactions with certain entities owned by the Libyan National Oil Company (LNOC) going forward
General Licenses 7 and 7A both address the status of the Libyan National Oil Company and previously-designated related entities. General License 7 (September 9) allowed all transactions involving most entities owned or controlled by the LNOC, but still prohibited dealings with the parent company itself. The license provided an illustrative, non-exhaustive list of sixteen authorized subsidiaries, all of which had previously been named as blocked parties. Formally, the entities remained blocked, but General License 7 applied to transactions with them.
The scope of General License 7, particularly whether it was prospective only or retrospective as well, was unclear when it was issued. In informal guidance to the trade community, OFAC stated that General License 7 was meant to be prospective in its application only and not unblock any financial assets of the parties themselves, consistent with the requirements of the relevant UN Security Council resolutions imposing sanctions on the GOL and entities thereof.
September 19, 2011: General License 7A unblocked assets of the LNOC and subsidiaries and authorizes transactions with the LNOC going forward
On September 19, OFAC issued General License 7A to supersede General License 7 and expressly unblocked the assets of the parent company and its subsidiaries (subject only to a ten business day reporting requirement). It also allowed transactions with the LNOC itself.
September 19, 2011: General License 8 authorized transactions going forward with the GOL, but kept past transactions blocked and maintained 18 Qadhafi regime individuals on the SDN List
Simultaneous with the issuance of General License 7A, OFAC implemented the United Nations and US Government's recognition of the Transitional National Council of Libya as the new, legitimate government of the country by issuing General License 8. The license authorized all transactions with the GOL; its agencies, instrumentalities, and controlled entities; and the Central Bank of Libya. OFAC confirmed orally that this authorization extended to transactions involving banks owned or controlled by the GOL or the Central Bank of Libya. Thus, General License 8 relaxed virtually all of the trade sanctions that had prevented US persons from engaging in a wide range of transactions involving the GOL.
Notwithstanding this broad authorization, all previously blocked property and interests in property of the GOL remained blocked, except with respect to the petroleum companies covered by General License 7A. In an annex to the license, it also maintained restrictions on eighteen former GOL officials and members of the Qadhafi family, along with two organizations linked to the Qadhafi family (Annex SDNs).
September 23, 2011: General License 8A authorizes transactions going forward with the GOL and unblocks all past GOL transactions that were blocked, except for certain “fund” blockings that remain blocked
Late Friday afternoon (September 23) as industry and the OFAC bar debated the proper interpretation of the general licenses, OFAC issued General License 8A to supersede General License 8. Engaging in transactions involving the GOL was authorized (retroactively to September 19), and the remaining blocking of GOL property interests was limited to “funds, including cash, securities, bank accounts, investment accounts, and precious metals.” Whereas General License 8 had maintained the blocking of all property and interests in property of the GOL, General License 8A expressly permits the performance of past contracts and other obligations that could be viewed as involving property interests of the GOL or SDNs thereof. General License 8A also, however, maintains the blocking of actual financial assets that previously had been blocked.
Taken together, the effect of these licenses may be summarized as follows:
- US persons are no longer prohibited from engaging in or facilitating the resumption of past or initiation of future business with or involving:
- private Libyan entities or third-country companies operating in Libya;
- the LNOC and its affiliates; or
- the GOL or entities thereof, including Libyan banks.
- Previously blocked assets of the LNOC and its affiliates may now be released or dealt in, subject to a 10-day reporting requirement.
- But funds or other financial assets of the GOL or its entities (other than the LNOC and its affiliates) that had been blocked remain frozen. All other types of GOL property interests are unblocked and may be released or dealt in.
- US persons remain prohibited from engaging in transactions with the Annex SDNs. (Transactions with most other [Libya 2] SDNs are now authorized.)
- Companies should continue to perform restricted party screening for any project involving Libya to ensure that any individuals or entities remaining blocked under the Libya sanctions or for any other reason are not involved in the transactions.
For links to all of OFAC’s recent actions on Libya, click here.
Syrian Sanctions – Additional General Licenses Provide Limited Flexibility
On September 9, 2011, OFAC also issued the following four new general licenses under the Syrian sanctions program:
- General License 7 - Winding Down Contracts Involving the Government of Syria; Divestiture of a US Person's Investments or Winding Down of Contracts Involving Syria
- General License 8 - Official Activities of International Organizations
- General License 9 - Transactions Related to US Persons Residing in Syria
- General License 10 - Operation of Accounts
General License 7 is particularly significant for any US persons who were involved in trade with Syria before the August imposition of strict sanctions on the Syrian government. This license authorizes transactions necessary and incidental to the winding down of pre-August 18th contracts and agreements involving the Government of Syria and export of services to Syria, subject to the following limitations:
- The winding down of such contracts and agreements must be completed no later than November 25, 2011;
- Debits to the blocked accounts of the Government of Syria are not authorized;
- Transactions with other Syrian SDNs except the Government of Syria, its agencies, instrumentalities, or controlled entities are not authorized; and
- US persons using General License 7 must file a detailed report to OFAC within 10 business days describing the parties involved, as well as the dates and the values of the transactions.
Although the scope of General License 7 appears broad, we recommend careful analysis for anyone seeking to rely upon this authorization because numerous questions remain unanswered and licensed activities involving Syria still must be reported to OFAC. For example, there is no definition in the license of precisely what it means to “wind down” a contract. Would it cover only activities leading to the direct termination or suspension of a contract, or could a US party seek to accelerate its performance in order to complete the contract by November 25? Similarly, if the contract is wound down by November 25, may payment still take place after that date? The answers to these questions are by no means clear, requiring legal interpretation and, depending on the facts, consultation with OFAC. Despite this uncertainty, we believe OFAC’s decision to issue General License 7 was pragmatic and reflects a degree of appreciation of at least some of the challenges US industry faces when sanctions are imposed.
With respect to transactions by US persons in Syria permitted under General License 9, the license distinguishes between allowed personal support vs. prohibited employment and business support. In any particular case, the lines between those types of support may be difficult to draw with any specificity, and persons intending to use that license for Syrian activities should seek counsel.
For links to all of OFAC’s recent actions on Syria, click here.
Because both sets of sanctions are evolving rapidly, we recommend staying alert to further developments and obtaining transaction-specific legal advice.