Overview
On January 17, 2017, the US Treasury Department’s Office of Foreign Assets Control (OFAC) published an amendment to the Sudanese Sanctions Regulations (SSR), 31 C.F.R. Part 538, authorizing all transactions that had previously been prohibited under the SSR, including transactions that involve the Government of Sudan. OFAC’s SSR amendment takes the form of a broad general license at Section 538.540. In addition, the US Commerce Department’s Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to set out a favorable licensing policy for certain exports or reexports to Sudan of items intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft, along with certain items related to railroads. The lifting of OFAC’s sanctions against Sudan and the new BIS licensing policy will open significant new opportunities for business in that country, and will greatly simplify non-commercial activity there.
Introduction
Executive Order 13067 (November 5, 1997) and Executive Order 13412 (October 17, 2006) blocked the property of the Government of Sudan, prohibiting US persons (defined as US citizens, US lawful permanent residents, persons located in the United States, and entities organized under the laws of the United States, including their non-US branches) from dealing with that government. Those executive orders also prohibited US persons from engaging in imports from, exports/reexports to, contracts in, and other transactions involving Sudan, including transactions related to its petroleum and petrochemical sectors. The new general license that OFAC has issued is effective immediately, which in effect lifts the United States’ longstanding comprehensive sanctions on Sudan. However, OFAC has made clear that this action does not affect past, present, or future enforcement actions or investigations with respect to any violations of the SSR that occurred prior to January 17, 2017. Nor does this change the Darfur Sanctions Regulations, 31 C.F.R. Part 546, or other sanctions or export control risks impacting business with Sudan. OFAC has issued a press release and frequently asked questions (FAQs) explaining this action and its ramifications in more detail.
Some of the reasons for this change in policy toward Sudan likely can be found in a State Department press release that Sudan “has taken important steps” to counter ISIS and other terrorist groups, along with recent press reports that Sudan has broken ties with Iran and improved relations with Saudi Arabia and its allies.
However, even in the wake of this significant move by the Obama Administration, the future course of US sanctions on Sudan remains uncertain. Because this move is based solely on executive action, it can be modified or reversed by the incoming Trump Administration. Sudan’s president has expressed optimism that President-elect Trump will adopt a more favorable policy toward Sudan, and Sudan’s counter-terrorism efforts, assuming they continue, might help in that regard. While the lifting of sanctions was reportedly approved in advance by the Trump transition team, the incoming administration’s views on Sudan remain unclear. For example, if the Trump Administration is not satisfied with the “positive actions” the Obama Administration has said that the Government of Sudan has taken, it could reactivate the SSR’s prohibitions by revoking this new general license.
Executive Order Dated January 13, 2017
OFAC issued this comprehensive general license under the SSR pursuant to an Executive Order, dated January 13, 2017 (“New Executive Order”), which waives certain statutory provisions mandating sanctions on Sudan and its government, providing OFAC with the authority to issue the general license at Section 538.540. The New Executive Order also calls for the sanctions provisions of Executive Order 13067, and Executive Order 13412 in its entirety, to be revoked on July 12, 2017, if the Secretary of State has, on or prior to that date, published in the Federal Register a notice stating that the Government of Sudan has “sustained the positive actions that gave rise to this order,” along with a public report describing the basis for that finding. Such findings and reports will then be required on an annual basis in order to continue the lifting of sanctions under the New Executive Order. Although OFAC is under a statutory obligation to review this action every year, it does not have a specific expiration date.
Sanctions Lifted Pursuant to the New Executive Order
OFAC amended the SSR by adding a broad general license at Section 538.540, authorizing all previously prohibited activity under the SSR and unblocking the property of the Government of Sudan. With the addition of Section 538.540 to the SSR, US persons are now authorized to conduct transfers, transactions, and dealings with the Government of Sudan, including its departments, agencies, instrumentalities (e.g., state-owned or controlled enterprises), officers, or agents, wherever located. US persons, including financial institutions, now holding property that was blocked under the SSR, are authorized pursuant to Section 538.540 to unblock such property, including taking steps necessary for the return or processing of funds. Furthermore, the prohibitions previously applicable to contracts with persons in Sudan, investments into Sudan, and the petroleum, petrochemical, and banking sectors of Sudan are superseded by the general license at Section 538.540.
In addition, US persons are now authorized to conduct transactions or dealings with the 157 individuals and entities currently included on OFAC’s list of Specially Designated Nationals (SDNs) under the [SUDAN] program tag. This includes numerous banks, petroleum sector companies, manufacturing companies, trading companies, and others, including Sudan Airways.
Section 538.540 supersedes all other general licenses issued under the SSR, such as those authorizing certain personal remittances, trade in agricultural commodities, medicine and medical devices (subject to certain limitations), and personal communication. It should be noted that many of the SSR’s prohibitions had been covered by an exemption when involving certain “Specified Areas of Sudan” (Southern Kordofan/Nuba Mountains State, Blue Nile State, Abyei, Darfur, and certain marginalized areas in and around Khartoum), but now even the prohibitions that were in place are superseded by the new general license. In addition, US persons with specific licenses and NGO registrations issued by OFAC authorizing activities under the SSR will not be able to renew those licenses or registrations, because the prohibitions have been lifted and these licenses and registrations are no longer needed.
Furthermore, OFAC no longer requires specific licenses to export or reexport agricultural commodities, medicines or medical devices to Sudan. However, certain restrictions remain, under the Trade Sanctions Reform and Export Enhancement Act of 2000, 22 U.S.C. § 7201 et seq. (TSRA). Pursuant to Section 906 of TSRA, OFAC has implemented a requirement that any exports or reexports of agricultural commodities, medicines, or medical devices to the Government of Sudan, to any individual or entity in Sudan, or to any person in a third country purchasing specifically for resale to Sudan or the Government of Sudan, must be shipped within 12 months after the contract is concluded. OFAC stated that this 12 month time restriction, along with the counter-terrorism sanctions set forth in 31 C.F.R. Chapter V and other continuing requirements and authorities, satisfies TSRA’s requirement that procedures be in place to deny authorization for exports to Sudan that are determined to be promoting international terrorism. This underscores that due diligence in connection with any TSRA trade is still an important step. OFAC noted in particular that 31 C.F.R. § 501.601 (the Reporting, Procedures and Penalties Regulations) requires that all US persons maintain records of authorized transactions for a period of not less than five years and provides that OFAC may obtain these records at any time to monitor activities related to Sudan. These ongoing statutory obligations for OFAC to monitor Sudan-related transactions may continue to subject authorized TSRA trade with Sudan to somewhat heightened risk.
The New Executive Order also paves the way for the commencement of certain types of US government assistance to Sudan by waiving with respect to Sudan Section 908(a)(1) of TSRA, which otherwise prohibits US government assistance to Sudan and certain other countries, including foreign assistance, export assistance, and credit, or guarantees for commercial exports. It remains to be seen, however, whether the US government will in fact commence such assistance.
Sudan remains designated by the US State Department as a state sponsor of terrorism, along with Iran and Syria. This designation continues to restrict US foreign assistance, defense-related activity, and exports of many items subject to the EAR and the International Traffic in Arms Regulations (ITAR). However, the sanctions on financial transactions with the Government of Sudan that had been in effect under OFAC’s Terrorism List Governments Sanctions Regulations, 31 C.F.R. § 596.201, are superseded by the new general license at Section 538.540 of the SSR, as those regulations permit transactions with designated governments “as authorized by regulations,” which would include the new general license.
Favorable Licensing Policy for Trade Related to Aircraft and Railroads
In a more limited, but still significant, action, BIS has amended the EAR to change its general policy of denial into a general policy of approval for applications for licenses to export or reexport to Sudan:
1) parts, components, materials, equipment, and technology controlled only for anti-terrorism (AT) reasons and intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft; or
2) items controlled only for AT reasons that will be used to inspect, design, construct, operate, improve, maintain, repair, overhaul or refurbish railroads in Sudan.
Items controlled only for AT reasons are generally less sensitive in nature. These favorable licensing policies apply only to exports and reexports to Sudan for civil (i.e., non-military) end-uses by “non-sensitive end-users” in Sudan, which excludes Sudan’s military, police, and intelligence services, and persons owned by, part of, or operated or controlled by any of those services. Additionally, license applications will generally be denied for transactions that would substantially benefit any of those “sensitive end-users,” even when they may not be a party to the transaction. In general, BIS still maintains a case-by-case licensing policy for exports or reexports to Sudan, not destined for military end-uses or end-users (which remain subject to a policy of denial), of items controlled only for AT reasons and not listed in § 742.10(b) of the EAR. While this BIS action opens a significant new opportunity for exports and reexports to Sudan, important risks will continue to complicate any such trade.
Restrictions on Sudan That Will Remain in Place
Not all sanctions affecting Sudan have been lifted. As an initial matter, this action does not impact the sanctions in place targeting certain actors and activities in the separate country of South Sudan, some of which also impact Sudan. Regarding Sudan itself, OFAC’s general recordkeeping and reporting obligations continue to apply as long as the SSR remain in effect. See, e.g., id. §§ 501.601, 501.602. The New Executive Order implicitly contemplates the possibility that the SSR may be revoked on or after July 12, 2017 if the conditions discussed above are met, but it is also possible that OFAC may leave the SSR in place (e.g., under statutory or revised executive authority) and revoke only the executive orders. In any case, OFAC’s recordkeeping and reporting requirements for Sudan continue to apply until they are revoked.
Furthermore, Executive Order 13400 (April 26, 2006), and the Darfur Sanctions Regulations, 31 C.F.R. Part 546, remain in effect, blocking the property of those involved in threatening the peace or stability of the Sudanese region of Darfur, including through human rights abuses or arms dealings. A handful of Sudanese officials and others remain listed as SDNs under that authority. There are also individuals and entities in Sudan that remain designated as SDNs under OFAC’s terrorism-related and other authorities. This SDN risk in Sudan again underscores the continuing importance of due diligence and other compliance steps.
Moreover, Sudan remains subject to a US arms embargo under Section 126.1 of the ITAR, with very limited exceptions related to peacekeeping and humanitarian operations. This ITAR policy is based, in part, on a UN Security Council arms embargo on Sudan that remains in place. As discussed above, export controls under the EAR remain in place, though with the recent addition of limited favorable licensing policies.
Conclusion
In a noteworthy statement of policy, Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence, Adam Szubin, stated that “Treasury’s sanctions are aimed at encouraging a change in behavior, and in the case of Sudan, our sanctions were intended to pressure the Government of Sudan to change the way it treats its people.” OFAC’s amendments to the SSR, he said, “recognize the positive steps taken by the Government of Sudan over the past several months and aim to further incentivize the Government of Sudan to continue to improve its conduct.”
Although the lifting of sanctions against Sudan has taken many observers by surprise, this forward-leaning sanctions policy is also reflected in the recent lifting of sanctions against Myanmar (Burma), on which we previously advised. However, it remains to be seen whether the incoming Trump Administration will take a similar approach.
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