Fulbright Briefing: EU Expands Sanction Regime to Target Syrian Industry

By: Lista M. Cannon and David M. Harris

In response to the escalation in the level of violence perpetrated by the current Syrian regime against its people, the EU has recently implemented additional measures directly targeted at depriving the current regime of financial revenues and the support base necessary for maintaining the internal repression.  This client briefing provides an update on the recent expansion of the EU sanctions on Syria, following our client briefing of 16 May 2011 entitled "Further Controls on Doing Business in the Middle East: New EU Sanctions on Syria",[1] and our client briefing of 19 August 2011 entitled, "The United States Imposes Significant New Sanctions Against Syria; European Union May Soon Follow Suit".[2]

The EU has dramatically increased the pressure on President Bashar al-Assad's government by agreeing to a new round of sanctions against Syria, including a ban on purchases of Syrian oil. With this new sanctions regime reportedly affecting 95% of Syrian exports, companies based in the EU, including international companies with subsidiaries and operations in the EU, should carefully consider whether the new sanctions have any effect on their business activities in the region.

In summary, the new sanctions provisions:

  • impose a prohibition on the purchase, import or transportation from Syria of crude oil and petroleum products;
  • partially suspend the EU-Syria Cooperation Agreement as it relates to trade in oil and petroleum products;
  • extend the list of persons and entities subject to financial sanctions;
  • expand the criteria for imposing financial sanctions; and
  • introduce an exemption to financial sanctions for humanitarian purposes.

International organisations should be aware that the new sanctions do not go as far as instituting an investment ban, which was imposed by the U.S. in August 2011.

Background

On 9 May 2011, the Council of the European Union adopted Council Regulation (EU) No. 442/2011 (the "Regulation") and a Council Decision 2011/273/CFSP (the "Council Decision").[3]  The Regulation and Council Decision, which came into force on 10 May 2011, implemented amongst other restrictions asset freezing measures on 13 officials and associates of the Syrian regime who have been identified by the Council as being responsible for the violent repression against the civilian population in Syria, as well as an embargo on exports of certain arms and equipment that could be used for internal repression.

Ban on the Purchase of Syrian Oil

In an effort to restrict funding for the current Syrian regime and increase political pressure on President Bashar al-Assad, the EU has now agreed to ban all EU imports of Syrian oil products with effect from 3 September 2011 (subject to certain exceptions set out below).

The newly implemented Council Regulation (EU) No 878/2011 (the "New Regulation")[4] amends the previously existing Regulation to prohibit:

1. the importation into the EU of all crude oil and petroleum products which are located in or originated in Syria;

2. the purchase of all crude oil or petroleum products which are located in or originated in Syria;

3. the transportation of crude oil or petroleum products originating in Syria, or being exported from Syria to any other country;

4. the provision, directly or indirectly, of finance or financial assistance, including financial derivatives, as well as insurance and re-insurance, as they relate to points (1), (2) and (3) above; and

5. the participation, knowing and intentional, in activities whose object or effect is, directly or indirectly, to circumvent the prohibitions set out in point (1), (2), (3) or (4) above.

This prohibition does not, however, apply to:

  • the execution, on or before 15 November 2011, of contracts concluded before 2 September 2011; or
  • the purchase, on or before 15 November 2011, of crude oil or petroleum products exported from Syria before 2 September 2011, or where the export was made pursuant to a contract concluded before 2 September 2011.

When acting under the first of these exceptions, companies must notify the competent authority of the Member State in which it is established at least seven days in advance of any shipment.[5]

Importantly, the Regulation has also been amended to protect EU persons and entities from claims by the Syrian Government in relation to contracts or transactions, the performance of which was affected, directly, in whole or in part, by the measures imposed under the Regulation.[6]

To facilitate the implementation of the New Regulation, the EU has suspended Articles 12, 14 and 15 of the Cooperation Agreement between the European Economic Community and the Syrian Arab Republic ("EU-Syria Cooperation Agreement"), as it relates to the trade in crude oil and petroleum products.[7]

Expansion of List of Individuals and Entities Subject to Sanctions

The Council has added a further four Syrian individuals and three Syrian entities to the "Annex II" list of individuals, entities and bodies which are subject to financial sanctions (including asset freezes) and travel bans imposed by the Regulation and the Council Decision. The extended Annex II list includes fifty four individuals and twelve entities.[8]  A consolidated list of the current individuals and entities listed in Annex II, as it applies to the UK, can be found on the HM Treasury website.[9]

In addition, the New Regulation expands the criteria for imposing financial sanctions by permitting the European Council to add to Annex II any persons and entities determined by the Council as benefiting from or supporting the Syrian regime.

Reporting Requirements

The Regulation already requires that if financial institutions maintain any accounts or otherwise hold any funds or economic resources for the persons or entities listed in Annex II, they are obliged to freeze those accounts and report their findings to the relevant authority (e.g., HM Treasury in the UK), together with any additional information that would facilitate compliance with the Regulation.  Unless licensed by the relevant authority, affected companies and individuals must refrain from making funds or other economic resources available to the designated persons or entities.

The New Regulation expands the circumstances under which the competent authorities are permitted to license the release of frozen funds or make funds available for certain activities for humanitarian purposes.

As with the previous EU measures, primary national legislation is not required to implement the restrictive measures. However, Member States are required to implement their own rules on the penalties applicable which must be effective, proportionate and dissuasive.[10]

Next Steps

EU government ministers are expected to have further talks on additional sanctions as events unfold in Syria. French Foreign Minister, Alain Juppe and his British counterpart, William Hague, have both already indicated that further sanctions on Syria's oil industry may be required.

With further prospective restrictions in mind, companies currently and prospectively conducting business in or in connection with Syria should review the provisions of the new sanctions carefully (bearing in mind the scope of the new restrictions and the revised list of designated individuals and entities), analyse the effect they may have on their business activities and existing compliance programmes, and monitor the situation as it continues to develop.

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[1] http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=4881&site_id=494&detail=yes

[2] http://www.fulbright.com/index.cfm?fuseaction=publications.detail&site_id=494&pub_id=5062

[3] A full copy of the Regulation and Council Decision can be found at www.eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:121:FULL:EN:PDF

[4] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:228:0001:0005:EN:PDF; See also Council Decision 2011/522/CFSP http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:228:0016:0018:EN:PDF

[5] For example, in the UK the Competent Authority is the Department for Business, Innovation and Skills.

[6] As amended by Council Regulation (EU) No 878/2011.

[7] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:228:0019:0021:EN:PDF

[8] Council Regulation (EC) No 442/2011, Council Implementing Regulation (EU) No 504/2011, Council Implementing Regulation (EU) No 611/2011, Council Implementing Regulation (EU) No 755/2011, Council Implementing Regulation (EU) No 843/2011, Council Regulation (EU) No 878/2011

[9] http://www.hm-treasury.gov.uk/d/syria.htm

[10] For example, in the UK; The Syria (Restrictive Measures) (Overseas Territories) Order 2011 and The Export Control (Syria and Miscellaneous Amendments) Order 2011