Economic Sanctions Update: Door Opens to U.S. Business in Libya, Closes on Syria

By Barbara D. Linney

Recent changes to U.S. economic sanctions programs have resulted in both new opportunities and new restrictions for offshore service vessel operators. In April, the United States substantially reduced restrictions on trade with Libya. However, these actions were followed in early May by the imposition of a new embargo against Syria.

In addition, over the past several months, many additional individuals and entities have been designated as subject to trade sanctions, and the Secretary of Homeland Security has been granted authority to take various measures to prevent the unauthorized entry of vessels into Cuban territorial waters.

Libyan Sanctions

Effective April 23, 2004, the President issued a determination that had the effect of terminating the application of the Iran and Libya Sanctions Act to Libya. On the same date, the U.S. Department of the Treasury's Office of Foreign Assets Controls ("OFAC") issued a general license under which most transactions previously prohibited by the Libyan Sanctions Regulations ("LSR") were authorized effective April 29, 2004. In addition, restrictions on the use of U.S. passports for travel to Libya have been removed.

Operators interested in moving into the Libyan market should exercise caution, however, because these recent measures did not eliminate all restrictions on trade with Libya.

First, the General License explicitly states that all property and interests previously blocked under the LSR will remain blocked. Second, certain transportation-related transactions remain prohibited, including any transaction by a United States person relating to transportation to or from Libya, and MARAD regulations continue to prevent U.S. flag vessels from operating commercially in Libyan waters or carrying cargo to or from Libya. Third, exportation of goods, software or technology (including technical data or other information) to Libya from the United States is authorized only to the extent that such exportation is licensed or otherwise authorized by the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce under the Export Administration Regulations ("EAR").

Amendments to the EAR affecting trade with Libya (the "EAR Amendments") became effective on April 29, 2004. Items subject to the EAR but not listed on the Commerce Control List ("CCL") will not require a license for export or re-export to Libya. However, end user and end use controls relating to nuclear proliferation and chemical and biological warfare activities and denied parties will continue to apply to all "EAR 99" exports to all destinations, including Libya. In addition, most items on the CCL will be subject to licensing requirements for export or re-export to Libya.

The CCL consists of a list of commodities, technology and software that are controlled for export for reasons relating to National Security, Non Proliferation, Chemical and Biological Weapons, Missile Technology, Crime Control, Regional Stability, Encryption, Short Supply, Computers, and Significant Items. The CCL is divided into the following broad categories: Nuclear Materials, Facilities, and Equipment (and Miscellaneous Items such as firearms and accessories and crime control items); Materials, Chemicals, Microorganisms and Toxins; Materials Processing; Electronics; Computers; Telecommunications; Information Security; Sensors and Lasers; Navigation and Aviation; Marine; and Propulsion Systems, Space Vehicles and Related Equipment.

Under the EAR Amendments, exports and re-exports to Libya of items controlled for chemical biological, missile technology, or crime control reasons will be subject to a general policy of denial, as will exports and re-exports of items controlled for nuclear proliferation or national security reasons if destined for military, police, intelligence or other sensitive end uses or end users in Libya. Applications for authorization to export or re-export cryptographic, cryptoanalytic and cryptologic items also generally will be denied. The same general policy of denial applies to certain high performance computers if destined for military, police, intelligence or other sensitive end uses or end users in Libya.

As a result of the EAR Amendments, most items on the CCL are subject to export license requirements for export or re-export to Libya, so operators must take care to ensure that items listed on the CCL subject to the EAR are not carried into Libya by their personnel or vessels. Items "subject to the EAR" are those items that are (i) in the United States, (ii) of U.S. origin, (iii) U.S. origin parts, components, materials or other commodities incorporated abroad into foreign made products, U.S. origin software co-mingled with foreign software, and U.S. origin technology commingled with foreign technology, in quantities exceeding de minimis levels; (iv) certain foreign-made direct products (including processes and services) of U.S. origin technology or software; and (v) certain commodities produced by any plant or major component of a plant located outside the United States that is a direct product of that U.S. origin technology or software. Examples of such controlled items that may be of interest to offshore vessel operators include various navigation systems controlled under Category 7 of the CCL (Navigation and Avionics) various underwater systems or equipment controlled under Category 8 of the CCL (Marine), and certain marine gas turbine engines controlled under Category 9 of the CCL.

Syrian Sanctions

On May 11, 2004, the President issued an Executive Order blocking most trade with Syria effective May 12, 2004. The Executive Order implements the Syria Accountability and Lebanese Sovereignty Restoration Act (SAA) that was signed into law on December 12, 2003 to sanction Syria for its support of terrorism, its occupation of Lebanon, weapons of mass destruction programs, illegal imports of Iraqi oil, and its role in the ongoing security problems in the Middle East.

The Executive Order provides that no products of the United States may be exported or re-exported to Syria. The prohibition encompasses all products controlled for export by the U.S. Departments of State and Commerce as well as all "EAR99" items. The only exceptions are food and EAR99 medicines, which may be exported or re-exported without a license (but remain subject to end user and end use restrictions), and certain items not subject to the EAR, such as publicly available software and technology and informational materials. The MARAD restrictions on the activities of U.S. flag vessels in Syrian waters remain in force.

Other Developments

Comprehensive embargoes prohibiting all trade by U.S. persons with Cuba, Iran and Sudan remain in place, as do more limited or targeted embargoes that restrict trade with Burma (Myanmar), Iraq, North Korea, and Zimbabwe to varying degrees. Other sanctions programs prohibit trade with, and block assets of, numerous individuals and entities who have been designated on lists published by OFAC as representatives of embargoed countries or participants in activities that constitute threats to international stabilization or to the national security or foreign policy of the United States, such as terrorism, narcotics trafficking, or proliferation of weapons of mass destruction. OFAC frequently publishes additions and revisions to these lists of "specially designated nationals" (or "SDNs"), and these lists should be monitored closely to ensure that contemplated transactions are not prohibited. In this regard, it is important to note that general knowledge of the list of countries subject to economic sanctions is not a substitute for careful monitoring of the OFAC lists, because the nationalities or addresses of the individuals and entities on the lists do not necessarily match the list of embargoed countries. For example, individuals from Jordan and Yemen and Canadian and Swiss entities have recently been designated as SDNs. In addition to steady expansion of the SDN lists, recent developments have included the proclamation in February of an Executive Order authorizing the Secretary of Homeland Security to regulate the anchorage and movement of any vessel (domestic or foreign) that may be used, or is susceptible of being used, for voyage into Cuban territorial waters and that may result in unauthorized transactions. The Executive Order also authorizes inspection and seizure of vessels.

De minimis levels vary depending upon the commodity or software in question. In certain circumstances, no de minimis exception is available.

In other cases, the de minimis threshold ranges from 10 to 25 percent of the total value of the foreign commodity, software or technology. In general, re-exports to Libya are subject to the EAR when U.S. origin controlled content exceeds 10%. 2 In general, these embargoes apply to U.S. persons, i.e., any (i) U.S. person or permanent resident wherever located; (ii) person (individual, partnership, association, corporation or other organization) physically present in the United States; and (iii) any juridical person organized under U.S. law. A notable exception is the Cuban embargo, which extends to foreign subsidiaries of U.S. companies.

About the Author

The author is a partner in the Washington D.C. office of the law firm of Blank Rome LLP. She practices in the area of international trade and transactions, and regularly advises both U.S. and foreign clients regarding U.S. export controls and international economic sanctions, defense trade and security regulations, and other international trade and business issues. Ms. Linney also has considerable experience in all aspects of domestic and international corporate transactions, including mergers, acquisitions and financings. She represents clients before various federal agencies, including the Department of State, Department of Commerce, and Office of Foreign Assets Control. Ms. Linney, who holds a masters degree in international law from Georgetown University, also serves as General Counsel to Women in Federal Law Enforcement and the Washington D.C. chapter of Women in International Trade, of which she is a past President.

The author gratefully acknowledges the assistance of associate Brian J. Kelly, also of the Washington D.C. office of Blank Rome, in the preparation of this article.

The article reflects developments through June 1, 2004, the date of submission for publication. The views expressed herein are those of the author, do not necessarily reflect the opinion of the firm or other members of the firm, and should not be construed as legal advice or opinion or a substitute for the advice of counsel. Please contact Barbara Linney ([email protected]) at (202) 772-5935 if you have questions or desire assistance. Additional information on Blank Rome may be found at www.BlankRome.com.