International Law Advisory - OFAC Issues Regulation Unblocking Debt Owed by the Iraqi Government

This is to advise you that the Department of Treasury, Office of Foreign Assets Control (“OFAC”) issued a new regulation unblocking debt in which the Government of Iraq has an interest.  The regulation has been published in today’s Federal Register (70 Fed. Reg. 54,258) and is effective September 9, 2005.  Because the regulation involves a foreign affairs function of the United States, OFAC was not required to publish notice of proposed rulemaking or accept public comments.

The President originally imposed economic sanctions against Iraq, including the freezing of any debt owed by the Government of Iraq, on August 2, 1990 pursuant to Executive Order 12722.  While the sanctions were subsequently removed on July 30, 2004, any prohibitions with regard to transactions involving property (including Iraqi debt) that were blocked as of that date continued to be blocked.  OFAC has now unblocked Iraqi debt due to the lifting of multilateral and U.S. sanctions against Iraq, and the resolution of issues relating to the Iraqi debt.

The new general license is subject to two conditions.  First, transactions that remained prohibited  by 31 C.F.R. § 575.533(b)(3), (b)(5) continue to be prohibited.  These include:  (1) transactions with specially-designated national (“SDNs”) of the Government of Iraq, with the exception of certain listed Iraqi state bodies, corporations, and agencies; and (2) transactions with respect to Iraqi cultural property removed illegally from museums and other locations since August 6, 1990.  Second, the general license does not authorize the purchase, exchange or settlement of debt in which the Government of Iraq has an interest utilizing funds or other property that is otherwise blocked by the Iraqi Sanctions Regulations.

A copy of the new regulation is attached to this advisory.  OFAC maintains a list of SDNs, which it updates periodically (the list is available for review on OFAC’s website). Companies should update their OFAC compliance screening mechanisms to ensure that any existing business relationships or transactions, and any relationships or transactions in the future, are in compliance with most recent version of the SDN list.

We will advise you of any further developments regarding sanctions against Iraq.  If you have questions regarding the attached regulation, please contact Ed Krauland at 202-429-8083, David Lorello at 202-429-6757, or Mike Gershberg at 202-429-6208.