The Obama Administration continued to refine its economic sanctions programs in April 2011: opening slightly the door to transactions with Libya, closely it slightly with Syria, and shutting it more firmly with North Korea.

Libya Sanctions Update – Favorable Licensing Policy for Certain Hydrocarbons Exported from Libya under the control of Transitional National Council of Libya
As we recently reported, on February 25, 2011, President Obama issued Executive Order 13566 blocking transactions with the Government of Libya, its agencies and instrumentalities, and certain Specially Designated Nationals (SDNs), including Muammar Qadhafi, members of his family, and entities owned and controlled by them. On four occasions since February 25, the Office of Foreign Assets Controls (OFAC) has designated persons as SDNs under the Libya sanctions, including Libyan government officials, banks, petroleum companies, and other business entities associated with the Government of Libya, Muammar Qadhafi, his family and associates.

OFAC has also issued four new General Licenses authorizing certain kinds of transactions that would be otherwise prohibited, and a statement of favorable licensing policy. The new General Licenses include:

• General License No. 2 Libyan Diplomatic Missions in the United States
• General License No. 3 Authorizing Provision of Certain Legal Services
• General License No. 4 with Respect to Investment Funds in Which There Is a Blocked Non-Controlling, Minority Interest of the government of Libya
• General License No. 5 Authorizing Transactions Related to Certain Oil, Gas, or Petroleum Products Exported from Libya

Of particular interest is General License No. 5.¹ Under this General License, issued on April 26, US persons are authorized to engage in transactions involving Qatar Petroleum or the Vitol group of companies related to oil, gas, and petroleum products exported from Libya under the control of Transitional National Council of Libya (TNC), provided that neither the Government of Libya nor any SDN, except the Arab Gulf Oil Company (Agoco), would receive any benefit from the transaction. Persons engaging in such transactions are required to submit a report to OFAC within 30 days of the transactions detailing their activities and describing the due diligence performed to ensure no blocked person benefits from the transaction.

On the same day, OFAC issued a Statement of Licensing Policy on Trade in Oil, Gas, and Petroleum Products Exported Under the Auspices of the TNC. This Statement establishes a favorable licensing policy for trade in hydrocarbon fuel exported under the control of the TNC. This means US persons will need to apply for a license to trade in hydrocarbons with entities other than Qatar Petroleum and the Vitol group, but they will receive favorable consideration. In particular, licenses will be available for the following activities and transactions:

• Purchase, export from Libya, and import into the United States of hydrocarbon fuel products from the TNC and produced in areas of Libya under the control of the TNC;
• Trading, import, and export in hydrocarbon fuel products produced in areas of Libya under the control of the TNC;
• Other transactions, including investment in the production of hydrocarbon fuel products in areas of Libya under the control of the TNC.

Licensing of these activities is conditioned on the Government of Libya and its agencies and instrumentalities receiving no benefit from the transactions, except for the public facilities now under the control of the TNC (e.g., a state-owned port facility now controlled by the TNC may be involved in the transaction).

General License No. 5 and the Statement of Licensing policy reflect a willingness on the part of the US government to distinguish between the government of Libya under the control of Muammar Qadhafi vs. the rebel-led TNC, and to permit hydrocarbons trade involving the latter. That being said, OFAC expects companies trading with the TNC to conduct thorough due diligence to ensure that the Government of Libya will not derive any benefit from such hydrocarbon trade. Further complicating compliance due diligence, determining which oil-producing facilities are under the control of the TNC at a given time depends on the shifting fortunes of war in Libya.

OFAC Responds to Syrian Government’s Violent Suppression of Demonstrators by Designating Five Additional SDNs
The US Commerce Department's Bureau of Industry and Security (BIS) has maintained a prohibition on exports and reexports to Syria of nearly all items subject to the US Export Administration Regulations (with narrow exceptions), and OFAC regulations have required the blocking of transactions with a number of Syrian government officials and SDNs since 2004. On April 29, 2011, President Obama issued a new Executive Order responding to the latest human rights abuses by the Government of Syria in the process of violent suppression of the peaceful protests in Syria in recent days.

The April 29 Executive Order prohibits transactions with three individuals (Mahir Al-Asad, Brigade Commander in the Syrian Army's Fourth Armored Division; Ali Mamluk, director of the Syrian General Intelligence Directorate; and Atif Najib, former head of the Syrian Political Security Directorate for Dar'a Province), and two entities – Syrian General Intelligence Directorate, and Islamic Revolutionary Guard Corps – Qods Force. The Executive Order also establishes additional criteria for designating SDNs. Specifically, OFAC may designate as SDNs::

• persons responsible for or complicit in, ordering, controlling, or otherwise directing, or persons who have participated in, the commission of human rights abuses in Syria, including those related to repression; or
• senior officials of an entity whose property and interests in property are blocked pursuant to this order.

In addition to these actions, BIS responded to violent suppression of demonstrations in Syria by revoking certain previously granted export licenses for items related to the aircraft used to transport senior officials of the Syrian government.

It is noteworthy, however, that the United States still has not designated the Government of Syria as a blocked entity. This stands in marked contrast to the Libya sanctions. Yet, over the course of the past seven years, the US government has designated as SDNs numerous individual members of the Syrian government as well as entities they own or control. In no fewer than four Executive Orders, the US government has established a long list of criteria for designating Syrian SDNs based on the reprehensible acts of Syrian officials. To assist with compliance, we have consolidated these criteria into one list. Under these criteria the following persons may be designated as SDNs:

• Persons who have been directing or otherwise significantly contributing to the Government of Syria’s provision of safe haven to or other support for [SDNs designated] for terrorism-related reasons, including, but not limited to, Hamas, Hizballah, Palestinian Islamic Jihad, the Popular Front for the Liberation of Palestine, the Popular Front for the Liberation of Palestine-General Command;
• Persons who have been directing or otherwise significantly contributing to the Government of Syria’s military or security presence in Lebanon;
• Persons who have been directing or otherwise significantly contributing to the Government of Syria’s pursuit of the development and production of chemical, biological, or nuclear weapons and medium- and long-range surface-to-surface missiles;
• Persons who have been responsible for or otherwise significantly contributing to actions taken or decisions made by the Government of Syria that have the purpose or effect of undermining efforts to stabilize Iraq or of allowing the use of Syrian territory or facilities to undermine efforts to stabilize Iraq;
• Persons who are or have been involved in the planning, sponsoring, organizing, or perpetrating of: (A) the terrorist act in Beirut, Lebanon, that resulted in the assassination of former Lebanese Prime Minister Rafiq Hariri and the deaths of 22 others; or (B) any other bombing, assassination, or assassination attempt in Lebanon since October 1, 2004, that is related to Hariri’s assassination or that implicates the Government of Syria or its officers or agents;
• Persons who have obstructed or otherwise impeded the work of the Commission established pursuant to UNSCR 1595 (UN commission established to investigate the assassination of former Lebanese Prime Minister Rafiq Hariri and the deaths of 22 others);
• Persons responsible for, or who have engaged in, have facilitated, or have secured improper advantage as a result of, public corruption by senior officials within the Government of Syria;
• Persons who are responsible for or complicit in, ordering, controlling, or otherwise directing, or to have participated in, the commission of human rights abuses in Syria, including those related to repression;
• Senior officials of an [SDN] entity;
• Persons who have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the activities described above, or any [SDN]; or
• Persons who are owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any [SDN].

As the bases for designation grow and US-Syrian relations remain tense, companies considering business involving Syria would be well advised to conduct thorough due diligence and evaluate the risks before proceeding. In addition, Syria remains a staunch adherent to the Arab League boycott of Israel, making US antiboycott compliance an important element of the review.

President Obama Prohibits Imports from North Korea
On April 18, 2011, President Obama signed Executive Order 13570, prohibiting the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea. OFAC was previously able, at least in theory, to license import transactions.

Conclusion
The United States Government is using its sanctions with considerable flexibility to target entities and individuals while allowing certain business within the same country and even within the same government to continue. While such targeted sanctions are preferable to full embargoes, they create compliance challenges for those engaged in business in the target countries. This places a premium on implementing a due diligence process that enables your company to know its transactions and all parties to those transactions, as well as to make proper compliance determinations based on that information before moving forward.

Should you have any questions, please contact Valentin Povarchuk, Michael Burton, Kay Georgi, or a member of Arent Fox's International Trade Group or the Arent Fox attorney who handles your matters. Thank you.

¹ Note that we discussed General License No. 1, which authorizes transactions with certain banks that may be owned or controlled by the Government of Libya but organized under the laws of other countries, in our alert of February 28.