Arent Fox's International Trade Practice Group and White Collar and Government Investigations Practice Group examine recent developments regarding: (i) economic sanctions regulations on the Government of Sudan and their potential impact on Southern Sudan, which is expected to become an independent state in July 2011; and (ii) the US Commerce Department, Bureau of Industry and Security's (BIS) official announcement of a policy to target individuals who violate the US Export Administration Regulations.

Giving with One Hand but Taking with the Other: OFAC Cautions of Indirect Application of Sudan Sanctions to Transactions Involving Independent Southern Sudan

On April 12, 2011, the US Treasury Department’s Office of Foreign Assets Control (OFAC) published Guidance Regarding the Application of the Sudanese Sanctions Regulations to the New State to be Formed by the Secession of Southern Sudan (Guidance). Southern Sudan is expected to become an independent state on July 9, 2011. Thus, in publishing the Guidance, OFAC took the commendable and somewhat novel approach of publishing useful (if not welcome) information regarding a sanctions program in advance of a change in the law.

Though instructive, the Guidance effectively cautions US persons against engaging in a broad range of activities involving Southern Sudan absent OFAC authorization, notwithstanding that an interagency group has determined that Southern Sudan will no longer be "directly subject" to the Sudanese Sanctions Regulations (SSR). According to OFAC,

[G]iven the interdependence between some sectors of the Southern Sudanese economy and infrastructure and those of the rest of present-day Sudan[,] [t]he SSR will continue to prohibit US persons from dealing in property and interests in property of the Government of Sudan, from performing services that benefit Sudan or the Government of Sudan, from engaging in transactions relating to the petroleum or petrochemical industry in Sudan, and from participating in exports to or imports from the new state that transit through Sudan, see 31 C.F.R. §§ 538.406, 538.210, and 538.417.

OFAC goes on to list several examples of the types of linkages between (Northern) Sudan and Southern Sudan, particularly in the petroleum sector, that could trigger application of the SSR, including:

• Providing services to the petroleum sector in Southern Sudan, if such services relate to or benefit the Government of (Northern) Sudan or its industry;
• Transporting exports of petroleum or derivatives through (Northern) Sudan; or
• Revenue-sharing between Southern Sudan and (Northern) Sudan for the sale of petroleum from Southern Sudan.

As a practical matter, this means US companies and individuals should be cautious before entering into any commercial arrangements involving Southern Sudan post-independence, and should exercise heightened due diligence to identify potential indirect linkages between the contemplated transaction and (Northern) Sudan or the Government of (Northern) Sudan. In the petroleum and petrochemical sectors, OFAC has essentially communicated a presumption that some Government of (Northern) Sudan interest exists, given the current integration of the industry. That being said, OFAC seems to be encouraging the filing of license applications, which might indicate a favorable licensing policy at least where the benefit to the Government of (Northern) Sudan is modest relative to the benefit to the fledgling Southern Sudan state.

We will continue to monitor the status of Southern Sudan and highlight the sanctions compliance considerations as US policy takes shape.

A copy of the Guidance may be found by clicking here.

In the Crosshairs: BIS Poised to Target More Individuals in Export Enforcement Actions

Pursuing a strategy previously adopted by their colleagues enforcing the Foreign Corrupt Practices Act, the US Commerce Department’s Bureau of Industry and Security (BIS) has officially announced a policy of targeting individuals who violate the US Export Administration Regulations. In his speech at Update West on February 28, 2011, Undersecretary for Industry and Security Eric Hirschorn stated:

BIS is adjusting how we penalize those who violate US export controls. In the past, BIS typically has imposed penalties on companies involved in export violations. Going forward, where a violation is the deliberate action of an individual, we will consider seeking penalties against that individual -- including heavy fines, imprisonment, and the denial of export privileges -- as well as against the company. The same will be true for supervisors who are complicit in deliberate violations by their subordinates.

At a recent export enforcement seminar, a senior official within BIS’s Office of Export Enforcement (OEE) (speaking in his individual capacity) confirmed that OEE has implemented this policy and that it is a priority to hold culpable individuals accountable. He indicated that additional cases against individuals will be announced in the future. Even in the case of voluntary disclosures, the official noted that a company making a voluntary disclosure might be well advised to distance itself from an employee who willfully violated the law.

Among other things, this new policy makes even more critical the difficult question of how companies treat employees determined to have engaged in significant violations of company policy or US export control and sanctions laws. It also underscores the importance of ensuring that your company has implemented an export compliance management system that includes employee training as a major component.

The OEE official went on to note that, in an effort to streamline and resolve voluntary disclosures more quickly, voluntary disclosures would be handled by OEE headquarters in Washington, DC, unless an OEE Field Office requested to take the lead on a voluntary disclosure. He further indicated that the Office of Chief Counsel is reviewing BIS and OFAC penalty guidelines with a view towards comparing the two approaches, and in particular OFAC’s approach of looking to the transaction value as a guideline for the penalty in certain cases.

Should you have any questions, please contact Michael Burton, Kay Georgi, a member of Arent Fox’s International Trade Group  or White Collar and Government Investigations Group or the Arent Fox attorney who handles your matters. Thank you.