Since anti-government protests began in Syria in March, unrest has continued and spread across the country. The Syrian government has responded with military force, and it is estimated by the UN that more that 2,000 people have been killed, with thousands of refugees crossing the border into Turkey and thousands more injured or arrested.
Against this background, sanctions against Syria have been introduced by the EU, UK and the US. This note summarises these sanctions regimes, with a particular emphasis on the EU and UK sanctions.
Background to the EU and UK sanctions
On 9 May 2011, the European Union adopted Council Regulation (EU) No 270/2011 (the "EU Regulation"). The EU regulation 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 sanctions are carefully targeted, and intended to encourage President Assad and those around him to reject the use of violence to control protests, and to embrace political reform. 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.
On 18 August 2011, the EU High Representative, Baroness Ashton, announced that further names would be added to the EU sanctions list, and on 23 August a further 15 individuals and 5 entities were added to the sanctions list (bringing the total to 50 individuals and 9 entities). The full list of designated individuals and entities is available at http://www.hm-treasury.gov.uk/d/syria.htm.
Since then, the EU has continued to consider more extensive trade restrictions to put pressure on the Syrian government, and on 2 September 2011 the EU imposed a ban on the importation of oil from Syria by EU Member States (which previously bought 90% of Syria’s oil exports). A similar ban had already been introduced by the US.
EU and UK asset freezing and financial sanctions
The UK and EU Regulations follow the same format for financial sanctions legislation as used previously, for example in relation to Libya and Iran. Under the UK Regulations, the following activities are a criminal offence:
- Dealing 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.
- Making funds or economic resources available either (i) directly or indirectly to a designated person, or (ii) 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. For these purposes, "funds" and "economic resources" are both very widely defined, covering all sorts of tangible and intangible assets and benefits of any kind.
- Intentionally participating 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 licensing regime for transactions with Syrian entities
The EU and UK Regulations also provide for a licensing and reporting regime in relation to transactions with Syrian entities which would otherwise be prohibited bythe sanctions. In summary, the EU Regulation provides that licences may be granted where a transaction 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 usually interpreted very narrowly);
- 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 or entity under a contract or agreement or obligation that was concluded by or arose before the date on which sanctions were imposed against that person or entity.
The EU and UK Regulations also allow frozen bank 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 (in the case of the UK) is required to notify HM Treasury.
Application of the UK Regulations
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 Member States.
Similarly, the UK Regulations apply extraterritorially to the conduct of UK nationals or UK incorporated companies both inside and outside the UK.
The EU Regulation imposes obligations on entities to notify Member State authorities (e.g. 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, firms authorised by the Financial Services Authorities, 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, since the lists of restricted items comprise certain 'dual use' items such as explosives which may be used for a range of activities.
The US Sanctions
These EU and UK sanctions summarised above are more limited than those imposed by the US. 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 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. The Commercial Bank of Syria, its subsidiary the Syria Lebanese Commercial Bank, and Syriatel, Syria's largest mobile phone company, are also subject to the US freeze, and further individuals were added to the list on 30 August 2011. The US position is therefore extremely wide ranging in its scope.
The sanctions imposed on Syria by the international community are broad in scope and continue to evolve. Breach of these sanctions carries the risk of significant penalties and reputational damage. It is therefore important for any Japanese companies doing business in Syria to monitor the sanctions regimes and to carry out thorough due diligence on their contractual counterparties to ensure that they are not designated individuals or entities. You may also wish to consider incorporating contractual protections (such as force majeure clauses) into any new contracts, and to check the scope of the protection offered by the terms of any existing contracts.