EU and UK Sanctions on Libya: Latest Developments

EU and UK Sanctions on Libya: Latest Developments

Fulbright Briefing
BY: Lista M. Cannon, David M. Harris, Nicola Kelly and Stephen M. McNabb

The increasing number of sanctions imposed on Libya have resulted in further difficulties for companies conducting business in the embattled country. Companies currently and prospectively conducting business in or in connection with Libya should continue to review the provisions of the new sanctions carefully and analyse the effect they may have on their business activities (including international companies with subsidiaries and operations in the EU and UK).

Recently strengthened sanctions provisions on Libya have resulted in the following:

  • An extended list of persons and entities subject to the financial sanctions;
  • Enhanced targeting of the Libyan oil industry;
  • Increased pressure to conduct detailed due diligence in respect of Libyan entities and individuals;
  • New rules concerning entities not subject to the sanctions, in which entities or individuals subject to the sanctions hold a stake; and
  • Six port authorities are now included in the list of entities to which it is prohibited to make funds or financial assets or economic resources available.

This briefing, which follows our article entitled "Companies and Individuals Face New Sanctions on Libya"[1] dated 8 March 2011 highlights recent developments in Libya and the practical effect of the sanctions regime over the last few months.

Extension of Restrictions

In response to increased volatility in Libya, financial sanctions have been extended to apply to additional persons and entities. These sanctions are imposed on designated persons and entities.

The restrictions now target the Libyan oil industry, which is viewed as an attempt to cut off Gaddafi's source of funds for his regime's war efforts. In addition, the UN has passed a further resolution enforcing the 'no-fly zone' and 'necessary military intervention' provisions.

By way of guidance, a list of certain of the existing sanctions and additional sanctions and amendments imposed since our last briefing are set out in the endnote to this briefing (although it is not intended to be an exhaustive list and we note that the legislative framework is constantly evolving).[2]

Practical Effect of the Sanctions: Targeting the Oil Industry

Enhanced restrictions now target the Libyan oil industry including the National Oil Corporation ("NOC"). The principal aim of including NOC and five of its subsidiaries within the scope of the financial sanctions is to cut off the source of funds available to Gaddafi's regime. The NOC reportedly accounts for half of the country's output. Around 85% of the oil produced by Libya was being exported into Europe. However, the impact of these wider measures is potentially limited as Libya's oil industry has already been brought to a near standstill by the heavy fighting.

While entities in Libya are free to sell and purchase oil and refined oil products as long as the companies involved are not included on the UN or EU sanctions lists and none of the 'blacklisted' Libyan individuals benefit from such trades, in practice, traders are wary of purchasing any Libyan oil due to fears that rebel shipments might somehow be linked to the NOC or other designated individuals. Further, the uncertainty in the region has inevitably led to an increase in oil prices.

Practical Effect of the Sanctions: Requirement for Enhanced Due Diligence

Companies and financial institutions, in particular, are under increased pressure to ensure that their due diligence procedures are adequate and effectively implemented due to Gaddafi's control over the Libyan state and its enterprises. For example, in effect, companies are required to know intricate details of the parties to any transaction which may be of a concern, by whom the relevant entities are ultimately owned, by whom they are controlled, who else may be involved and who else may benefit from the transaction (for example the spouse of an individual listed).[3]

Companies should be particularly vigilant. It is often not sufficient to rely on checks carried out by financial institutions that may control the funds of the company involved in the transaction. The responsibility for establishing the initial source or final destination of funds rests with the relevant EU or UK company or individual involved in the transaction.

The importance of due diligence is particularly significant given the apparent increase in the use by Libyan entities and individuals of front companies to avoid sanctions. Any EU or UK companies or individuals doing business with a Libyan entity or with those connected to the Libyan market should consider carefully the corporate structure and carry out necessary compliance checks. 

As mentioned above, the use of front companies in order to avoid sanctions has become more prevalent as designated entities and individuals seek to continue trading with the international community. Robust compliance procedures are essential to reduce the risks that arise from dealing with such companies.

Regulation (EU) No. 296/2011: Dealings with Businesses Controlled by Designated Entities

On 25 March 2011, the EU passed Regulation (EU) No 296/2011 ("Regulation 296") in response to concerns about the practical impact of the scope of EU Council Regulation 204/2011, which appeared to prevent a non-designated entity in which a designated entity holds a stake from carrying on business.

Article 6a of Regulation 296 allows a non-designated entity to continue trading legitimately where a designated entity holds a stake in it, provided that the business does not involve making funds or economic resources available to a designated person, entity or body and provided that the non-designated entity can demonstrate that no funds or economic resources will be provided to a designated person or entity.

In effect, Article 6a provides that the prohibitions in the Regulation do not automatically apply to the funds and economic resources of non-designated entities that are owned or controlled by a designated person or entity simply by virtue of that ownership stake. It would not be the same if there were grounds to conclude or suspect that transacting with such an entity would result in funds or economic resources being made available to a designated person or entity. As a practical measure, HM Treasury issued a General Licence which permits dealings with financial institutions incorporated outside of Libya that may be owned or controlled by the Libyan government.

In addition, the EU has previously issued guidance which provides that funds and economic resources of a non-designated entity having a separate legal personality from a designated person or entity, are not covered by the asset freeze, unless the assets are held or controlled by the designated entity. Further guidance can be sought from the relevant authorities in each Member State.

What is next for Libya...?

On 7 June 2011, the EU imposed further sanctions on the Libyan government (Council Decision 2011/322/CFSP).  The port authorities of Tripoli, Khoms, Brega, Ras Lanuf, Zawia and Zuwara are now included in Annex IV of the Council Decision, as entities to which it is prohibited to make funds or financial assets or economic resources available. This shall not prevent the execution, until 15 July 2011, of contracts concluded before the date of entry into force of this decision, except for contracts relating to oil, gas and refined products. 

On 27 June 2011, the International Criminal Court ("ICC") issued an arrest warrant for Gaddafi, his son Saif al-Islam and intelligence chief, Abdullah al-Sanussi. The arrest warrants refer to the early weeks of the uprising, from 15 February until at least 28 February 2011. The ICC stated that there were "reasonable grounds to believe" that the three men were "criminally responsible" for the murder and persecution of civilians. It is alleged that Gaddafi introduced a state policy " aimed at deterring and quelling by any means, including by the use of force, the demonstrations of civilians against the regime". Although Saif al-Islam Gaddafi holds no official position in Libya, the ICC stated that he is "the most influential person" in Gaddafi's inner circle. The warrant should make it difficult for Gaddafi to live in exile, as all UN Member States would be obliged to arrest him on entry to their territory. However, a number of nations have in the past refused to recognise international arrest warrants. For example, despite an international arrest warrant, three countries allowed Sudanese ex-President Omar al-Bashir to visit without hindrance.

The questions currently being posed at an international level cover the effectiveness of the sanctions on Libya. The three-pronged approach which has been adopted by the UN, involving a no-fly zone, aerial patrols and bombardment, and a wide-ranging asset freeze, has not as yet yielded any apparent abatement of the situation on the ground for civilians. A war of attrition appears likely, unless the balance of military power shifts in a significant manner, or the Gaddafi regime capitulates. Recently, NATO agreed to extend its air operations over Libya for a further 90 days, as it increased the scope and intensity of its campaign to protect civilians. The Libyan government has announced a number of ceasefires in its offensive against rebels. However, the Gaddafi regime has not honoured the ceasefires, and it remains to be seen whether the restrictions placed on his regime will force a solution.

This briefing was prepared by Lista M. Cannon, Partner ( or +44 020 7832 3601), David Harris, Senior Associate ( or +44 0 20 7832 3637) and Nicola Kelly, Associate ( or +44 0 20 7832 3630) of Fulbright & Jaworski International LLP in London. Lista, David and Nicola are lawyers in Fulbright & Jaworski L.L.P.'s International Trade Practice Group. Fulbright's International Trade Practice Group, chaired by Stephen McNabb, Partner ( or +1 202 662 4528), advises clients worldwide in the areas of economic sanctions, export controls, munitions exports and other areas of international trade regulation.



[2] Libya: Existing and Additional Sanctions / Amendments (Not Exhaustive):

  1. United Nations Security Council Resolution 1970 (2011) (the "UN Resolution") came into effect on 26 February 2011 introducing restrictive measures against Libya.
  2. EU Council Decision 2011/137 CFSP ("the Council Decision") came into effect on 28 February 2011.
  3. The EU Council Regulation 204/2011 (the "Regulation") came into effect on 3 March 2011.  The Regulation states that all funds and economic resources belonging to, owned, held or controlled by the natural or legal persons, entities and bodies listed in Annexes II and III shall be frozen.  In addition, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities or bodies listed in Annexes II and III of the Regulation.  It is prohibited to participate, knowingly and intentionally in activities the object or effect of which is, directly or indirectly, to circumvent the financial sanctions referred to above.
  4. The Regulation, subject to certain exceptions, prohibits the sale, supply, transfer or export, directly or indirectly, of equipment which might be used for internal repressions as listed in Annex I of the Regulation, whether or not originating in the European Union, to any person, entity or body in Libya or for use in Libya.  It is also prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent this prohibition.  However, the competent authorities in the Member States have the power to authorise the sale, supply, transfer or export of equipment which may be used for internal repression if they determine that such equipment is intended solely for humanitarian or protective use.
  5. The UK responded to the UN Resolution by implementing: (i) the Libya (Financial Sanctions) Order 2011 on 27 February 2011, which gave effect to certain provisions of the UN Resolution, and (ii) the Libya (Asset-Freezing) Regulation 2011 on 3 March 2011, which sets out provisions relating to the enforcement of the Regulation.
  6. On 17 March 2011, the United Nations Security Council passed a second resolution (Resolution 1973 (2011))  (the "Second UN Resolution") which authorised: (i) the enforcement of a no-fly zone over Libya, (ii) an "all necessary measures", i.e. military intervention to protect civilians, (iii) expanded the number of individuals subject to the travel ban, (iv) expanded the number of individuals subject to the asset freeze, and (v) blacklisted five companies.
  7. As a result, the European Union implemented Council Decision 2011/175/CFSP and Regulation (EU) No 272/2011 on 21 March 2011 which extended the restrictive measures, adding a further eleven individuals and nine entities to the Council Decision and Regulation. 
  8. On 23 March 2011, Council Decision 2011/178/CFSP amended the earlier Council Decision providing that Member States shall take the necessary measures to prevent flights by aircraft under the jurisdiction in their airspace of Libya, in view of the need to help protect civilians.  However, this shall not apply to flights the sole purpose of which is humanitarian.  Member States shall deny permission to any aircraft registered in Libya or owned or operated by Libyan nationals or companies to take off from, land in or overfly their territory unless the particular flight has been approved in advance by the Sanctions Committee.  Member States shall deny permission to any aircraft to take off from, land in or overfly their territory, if they have information that provides reasonable grounds to believe that the aircraft contains items the supply, sale, transfer, or export of which is prohibited under this Decision.  The visa ban and the asset freeze imposed by the Council Decision are extended to the additional persons listed in the Resolution deemed to be involved in or complicit in serious human rights abuses that violate international law, including those resulting from aerial bombardments or other attacks on civilian populations and facilities.  The asset freeze is extended to the new entities on the UN list under the Resolution, and include the National Oil Corporation and five subsidiaries of the company.
  9. On 25 March 2011, Regulation (EU) No 296/2011 provided further amendments to the Regulation due to concerns about its scope.
  10. On 1 April 2011, the Council adopted a decision on a European Union military operation in support of humanitarian assistance operations in response to the crisis situation in Libya.  The operation aims to underpin the mandates of the two UN Resolutions.
  11. On 12 April 2011, Regulation (EU) No 360/2011 added additional individuals and entities to which the financial sanctions apply, and the removal of one individual.
  12. On 7 June 2011, Council Decision 2011/322/CFSP amended the earlier Council Decision.  The prohibition of making funds, financial assets or economic resources available to persons or entities who are involved or complicit in ordering and controlling or otherwise directing, the commission of serious human rights abuses against persons in Libya (listed in Annex IV of the Council Decision), in so far as it applies to port authorities, shall not prevent the execution, until 15 July 2011, of contracts concluded before the date of entry into force of this Decision, with the exception of contracts relating to oil, gas and refined products.  The following port authorities have been added to Annex IV: Tripoli, Khoms, Brega, Ras Lanuf, Zawia and Zuwara.

[3] EU Council Regulation 204/2011.

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