United States: OFAC Revises Sanctions Against Sudan And North Korea

The United States continues to refine its sanctions against Sudan and North Korea in light of changing political realities on the ground. Specifically, on Oct. 17, 2006, President Bush signed Executive Order 13412 (the "Executive Order") which provides certain exceptions to the Sudanese sanctions for designated areas of the country (Southern Sudan, Southern Kordofan/Nuba Mountains State, Blue Nile State, Abyei, Darfur, and marginalized areas in and around Khartoum; henceforth, the "Exempt Areas"). In addition, in light of recent U.N. Security Council resolutions, the United States on Jan. 26, 2007 formally imposed restrictions on the export and re-export of luxury items, as well as virtually all items subject to the Export Administration Regulations ("EAR") to North Korea, except food and medicines not listed on the Commerce Control List ("CCL").

The United States has maintained a comprehensive sanctions regime against Sudan since Nov. 3, 1997. Subject to certain standard exceptions (information and informational materials, certain humanitarian assistance, etc.), the Sudan sanctions prohibit both the import and export of goods and services between the two countries. The Sudan sanctions further require U.S. persons to block all property and interests in property of the Government of Sudan.

Section 1 of the Executive Order maintains the countrywide blocking of the property and interests in property of the Government of Sudan. At the same time, section 4(b) of the Executive Order states that none of the prohibitions in the original sanctions apply to the Exempt Areas, with one critical exception. Pursuant to Section 2 of the Executive Order, no U.S. person may conduct transactions relating to Sudan’s petroleum or petrochemical industries, including, but not limited to, oilfield services and oil or gas pipelines.

The Office of Foreign Assets Control ("OFAC") subsequently issued an interpretative guidance of the Executive Order (the "Guidance") to clarify how the new requirements relate to the original sanctions. According to the Guidance, trade is no longer prohibited in the Exempt Areas, provided that these activities do not involve Sudan’s petroleum or petrochemical industries, or any property or property interests of the Government of Sudan. The Guidance further notes that the lifting of trade restrictions on the Exempt Areas does not affect the licensing requirements for exports of agricultural commodities, medicine and medical devices to those exempt regions. Thus, while some humanitarian assistance destined to the Exempt Areas no longer needs license, the OFAC licensing requirements remain for food, medicine, and medical devices.

The Guidance provides additional examples of transshipments and financial transactions that are now permitted under the revised Sudan sanctions program. For example, exports from the United States or by a U.S. person, wherever located, to the Exempt Areas that do not transit non-exempt areas of Sudan no longer require OFAC authorization, provided that the Government of Sudan does not have an interest in the transaction and that the transaction does not relate to Sudan’s petroleum or petrochemical industries. Similarly, imports into the United States of Sudanese-origin goods from the Exempt Areas that do not transit through non-exempt areas no longer require authorization from OFAC, as long the Government of Sudan retains no interest in the transaction and the transaction does not relate to Sudan’s petroleum or petrochemical industries.

Financial transactions fall under similar restraints. Specifically, financial transactions involving third-country depository institutions or non-prohibited Sudanese depository institutions located and headquartered in the Exempt Areas that do not involve activity in the non-exempt areas of Sudan are no longer prohibited, provided that the Government of Sudan does not have an interest in the transaction and that the transaction does not relate to Sudan’s petroleum or petrochemical industries. Thus, according to the Guidance, if a financial transaction involves a branch of a depository institution in the Exempt Areas, but that depository institution is headquartered in Khartoum and requires all transactions to be routed through the headquarters or another branch located in the non-exempt areas of Sudan, that transaction remains prohibited and requires an OFAC license.

Sudan’s new bifurcated sanction regulations require careful consideration. To begin with, a U.S. person must ensure that no transshipments or other contacts will occur between exempt and non-exempt areas of Sudan. Otherwise, a U.S. person may easily run afoul of the U.S. sanctions regime. Moreover, certain humanitarian assistance (food, medicine) to Exempt Areas still requires OFAC authorization. Finally, the new exceptions do not cover Sudanese petroleum and petrochemical products, wherever located. As a result, the prohibition on any dealings by U.S. persons with such products—including any clearing operation by a U.S. bank involving Sudanese petroleum—remains in place and possesses a significant extra-territorial reach as well. Therefore, while permitting certain transactions in the Exempt Areas, the United States otherwise remains committed to a comprehensive sanctions regime against Sudan, and all dealings with the country must be reviewed carefully to ensure compliance with the revised OFAC requirements.

This past summer, the United Nations Security Council unanimously adopted a resolution condemning North Korea for launching and testing several ballistic missiles. The U.S. supported the Japanese-sponsored resolution and, on Jan. 26, 2007, the Department of Commerce, Bureau of Industry and Security ("BIS") issued a final rule imposing new foreign policy controls on North Korea.

Henceforth, a license will be required to export or re-export any item subject to the EAR to North Korea, except for food and medicines classified as EAR99. In addition, the North Korea sanctions now have a general policy of denial for export or re-export of luxury goods. Luxury goods include, but are not limited to, such items as luxury automobiles, yachts, perfumes, furs, designer clothing, electronic equipment, wine, or collectible items such as rare coins and stamps. However, please note that agricultural commodities and medical devices judged not to be luxury items are subject to a general policy of approval under the revised North Korea sanctions.

The United States government continues to update and adapt its sanctions program in light of changing international developments. The Sudan sanctions represent a rather sophisticated attempt to apply trade restrictions to specific parts of the country, while the North Korea program takes a more traditional approach toward implementing comprehensive trade sanctions. Reed Smith will continue to monitor developments in this increasingly fluid area of U.S. foreign policy.

This article is presented for informational purposes only and is not intended to constitute legal advice.