In light of the ongoing unrest in Syria, a number of countries have extended their sanctions regimes. This client alert reviews the recent developments to the sanctions applied by the European Union, the United States, Canada, Australia and Switzerland.
The current EU sanctions are set out in Regulation 36/2012, brought into force on 19 January 2012 and discussed in our previous client alert accessible here. This Regulation has been progressively amended to include prohibitions on dealings in gold, precious metals, diamonds, luxury items, items for use in internal repression, and to impose asset freezes on further individuals and entities. Key developments are explained in detail below.
- Freezing of funds and economic resources. A further 45 individuals and 19 entities have been added to the list of natural and legal persons subject to freezing of funds and economic resources. The further designations include government officials, oil companies, tobacco companies and banks, including the Central Bank of Syria. A consolidated list of Syrian entities and individuals subject to the freeze (which now includes key actors across the Syrian economy) is available here.
- Prohibition on dealings in gold, precious metals and diamonds. There is now a prohibition on selling, purchasing, supplying, transferring, transporting, exporting or importing, whether directly or indirectly, gold, precious metals and diamonds (as listed in Annex VIII of the amended Regulation), regardless of origin, to the Government of Syria, the Central Bank of Syria, and related bodies. The prohibition extends to the direct or indirect provision of technical or financial assistance, as well as brokering services in relation to such products.
- Prohibition on dealings in luxury items. Selling, supplying, transferring, or exporting, directly or indirectly, luxury items listed in Annex X of the Regulation is also prohibited. Examples of listed luxury items include cigars, cigarillos, perfumes, cosmetics, luxury vehicles, garments, works of art, coins and banknotes.
- Items for use in internal repression. The controls on items for use in internal repression have been extended to include, among other items, certain items listed chemicals under the EU Dual-Use List.
On 17 August 2011, the U.S. Government significantly expanded existing sanctions against Syria by issuing Executive Order 13582 (“EO 13582”) that, among other measures, blocked the property of the Government of Syria (including its agencies, instrumentalities, and controlled entities). EO 13582 further imposed a prohibition on the export of services to Syria, thus effectively prohibiting U.S. persons (i.e., U.S. legal entities and their foreign branches; U.S. citizens and permanent resident aliens; and persons in the United States) from engaging in any transactions, directly or indirectly, with Syria. Since then, President Obama has issued two additional executive orders further strengthening U.S. sanctions against Syria (and also Iran). These are Executive Order 13606 (“EO 13606”) of 23 April 2012 targeting persons who assist in or enable human rights abuses by or on behalf of the Governments of Syria or Iran and Executive Order 13608 (“EO 13608”) of 1 May 2012 targeting non-U.S. persons who have engaged in evasive and deceptive activities with respect to Syria or Iran.
Executive Order 13606 blocks the property of and designates as Specially Designated Nationals (“SDNs”) those who:
- have operated, or directed the operation of, information and communications technology that facilitates computer or network disruption, monitoring, or tracking that could assist in or enable serious human rights abuses by or on behalf of the Government of Iran or the Government of Syria;
- have sold, leased, or otherwise provided, directly or indirectly, goods, services, or technology to Iran or Syria likely to be used to facilitate computer or network disruption, monitoring, or tracking that could assist in or enable serious human rights abuses by or on behalf of the Government of Iran or the Government of Syria;
- have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, the activities described above of any person whose property and interests in property are blocked pursuant to this order; or
- are owned or controlled by, or have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to EO 13606.
Parties designated as SDNs pursuant to EO 13606 will have their property blocked and will be banned from entry into the United States. EO 13606 applies to anyone engaged in the above identified activities, and designation under EO 13606 does not require any violation, or attempted violation, of existing U.S. sanctions. Three entities and individuals in Syria and four in Iran have thus far been designated as SDNs under this measure. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has issued Frequently Asked Questions regarding EO 13606.
Executive Order 13608 prohibits certain transactions with, and entry into the United States of, persons designated as “foreign sanctions evaders” (“FSEs”) with respect to Syria and Iran. EO 13608 allows the U.S. Government to identify as FSEs non-U.S. persons who:
- violate, attempt or conspire to violate, or cause violations of U.S. sanctions against Iran or Syria or violations of the U.S. terrorism or weapons of mass destruction (“WMD”) proliferation sanctions programs that involve persons subject to U.S. sanctions (defined to include any person targeted under the U.S. sanctions against Iran and Syria or under the U.S. terrorism or WMD proliferation sanctions programs);
- facilitate deceptive transactions, i.e., withhold or obscure the identity of persons subject to U.S. sanctions from other parties to a transaction concerning Iran or Syria; or
- are owned or controlled by, or acting on behalf of, any of the above.
The targeted activities noted above in paragraph (i) are premised upon some violation of U.S. sanctions such as EO 13582 or the Iranian Transactions Regulations, 31 C.F.R. Part 560. In contrast, based upon the plain language of paragraph 1(a)(ii) of EO 13606, no underlying violation—or attempted violation—of U.S. sanctions appears to be required for a person to have facilitated deceptive transactions. OFAC has informally advised that this provision is intended to target any non-U.S. person withholding or obscuring the identity of Syrian or Iranian parties (including SDNs) in a transaction even if there is no U.S. nexus whatsoever -- i.e., no U.S. persons, no items subject to the Export Administration Regulations, and it is not U.S. Dollar transaction.
Persons designated as FSEs will be publicly listed by OFAC. Although FSEs will not be SDNs and their property will not be blocked/frozen, U.S. Persons are prohibited from engaging in any dealings with them and they are banned from entry into the United States. These measures would thus effectively block FSEs from doing business with the United States. No persons have yet been designated as FSEs under EO 13608. OFAC has issued Frequently Asked Questions regarding EO 13608.
Further to amendments the Government of Canada made to the Special Economic Measures (Syria) Regulations (SEMA Regulations) between December 2011 and July 2012, the sanctions were extended to an additional 73 individuals and 26 entities, including the Syrian Petroleum Company, the Central Bank of Syria, the Syrian International Islamic Bank and the Syrian National Security Bureau. With these amendments, the total number of designated persons under the SEMA Regulations rose to 133 individuals and 46 entities.
These various amendments have also introduced new prohibitions to stop certain activities with Syria. The Canadian measures now prohibit persons in Canada and Canadians outside Canada from doing the following:
- providing or acquiring financial or other related services to, from or for the benefit of or on the direction or order of Syria or any person in Syria for the purpose of facilitating the importation, purchase, acquisition, carriage or shipment of any petroleum or petroleum products, excluding natural gas, from Syria;
- making an investment in Syria if that investment involves a dealing in any property, wherever situated, held by or on behalf of Syria, a person in Syria or a national of Syria who does not ordinarily reside in Canada, including providing or acquiring financial or other related services to, from or for the benefit of or on the direction or order of Syria or any person in Syria for the purpose of making such an investment;
- exporting, selling, supplying or shipping to Syria or any person in Syria any “luxury goods”, which is a term defined under the SEMA Regulations as including such items as jewellery, gems, precious metals, watches, cigarettes, alcoholic beverages, perfume, designer clothing and accessories, furs, sporting goods, private aircraft, gourmet foods and ingredients, lobster, computers, televisions and other electronic devices;
- exporting, selling, supplying or shipping to Syria or any person in Syria any goods, including technical data, for use in the monitoring of telecommunications;
- importing, purchasing, acquiring, carrying or shipping any goods — other than food for human consumption — that are exported, supplied or shipped from Syria after 23 December 2011; and
- providing or acquiring financial or other related services — other than those whose provision or acquisition is otherwise prohibited by the SEMA Regulations — to, from or for the benefit of or on the direction or order of Syria or any person in Syria.
Finally, the most recent amendments of 6 July 2012 introduced restrictions targeting exports of certain goods (as set out in Schedule 2 of the SEMA Regulations) and technical data to Syria, beyond those already controlled for export by Canada, that could be used to produce chemical and biological weapons.
On 25 June 2012, Australia announced expanded sanctions on Syria. The new sanctions cover trade in oil, petroleum, financial services, telecommunications and precious metals. The existing arms and related materiel sanctions covering Syria will be retained. The changes are expected to take effect in August 2012.
Draft amendments to the Autonomous Sanctions Regulations 2011 have been released. They would give effect to the new sanctions covering Syria and additional sanctions relating to Iran announced on 6 December 2011 and 24 January 2012. The draft includes new prohibitions for “sanctioned imports” and “sanctioned commercial activity”. These terms are broadly defined. The proposed amendments reinforce the need for businesses to exercise caution regarding where goods are from and whom they are dealing with.
Under the proposed amendments, a sanctioned import would be made if a person imports or purchases goods of a listed type from another person or transports the goods. Goods will be import sanctioned goods for a listed country, if the goods originate in or are exported from that country.
Under the proposed amendments, sanctioned commercial activity will capture a range of business associations with an entity or person in one of the categories listed (i.e., with one of the described connections to Syria or Iran in the relevant industry sector). Business associations covered include acquisitions, joint ventures and loans or extending credit. Sanctioned commercial activity also covers dealing with an interest in a commercial activity in Australia related (generally-speaking) to the oil and gas industry if that involves an entity or person in one of the categories listed. Finally, there is a third category of sanctioned commercial activity applying to certain dealings involving financial services for an entity or person in one of the categories listed.
Australia has financial and travel sanctions on individuals and entities associated with the Assad regime. The designated individuals and entities for the existing sanctions are set out in the Autonomous Sanctions (Designated Persons and Entities and Declared Persons – Syria) List 2012. As part of the expansion of sanctions announced on 25 June, the Australian government also announced that it intends to expand this list of individuals and entities.
In view of the recent developments in Syria, on 8 June 2012, the Swiss government completely overhauled and tightened the Swiss sanctions against Syria by issuing a new Ordinance, replacing that of May 2011. The new set of restrictive measures against Syria, aligning them to those previously adopted by the EU, include further trade restrictions, including prohibiting the export of key equipment for the oil and gas industry and the provision of related services and financial resources. The supply and purchase of precious metals and diamonds to or from the Syrian government are also no longer allowed.
The Central Bank of Syria is now also subject to the financial sanctions, and thus its funds have been frozen in Switzerland. The trading of newly issued government bonds from Syria is prohibited. In Switzerland, financial institutions may not enter into new relationships with Syrian banks and the conclusion of new insurance and reinsurance agreements with the Syrian government is prohibited. Due to the financial sanctions, assets worth approximately CHF 70m have already been frozen in Switzerland.In addition to those trade restrictions and financial sanctions, the previously enacted measures include an arms embargo, an embargo on goods that can be used for internal repression, an oil embargo, and a ban on the supply of banknotes and coins.
What should you do?
All companies conducting business directly or indirectly in Syria should conduct a risk assessment in respect of the application of the EU, US, Australian, Canadian and Swiss sanctions to their business.
In particular, due diligence should be conducted on:
- counterparties (including their directors and shareholders) in order to ensure that the business is not dealing directly or indirectly with designated persons as these lists have been extended.
- any products or services intended for Syria, ensuring that they comply with the sanctions. Particular attention should be given to goods and services that require prior authorisation from the relevant competent authority.
It is crucial for organisations to take swift action to ensure full compliance with these measures. Breach of these sanctions can undoubtedly lead to significant reputational damage, as well as legal exposure (very often criminal) under national law.