United States: New US Sanctions Against Syria Impose Broad Embargo On Trade, Investment, Services And Business Activities

President Barack Obama has issued a new Executive Order (EO), effective as of August 18, 2011, imposing significant new economic sanctions on Syria.  This action greatly expands U.S. international trade restrictions against Syria and its government in certain important respects, representing a more comprehensive unilateral economic embargo.  Most notably, the sanctions now include the following:

• A freeze on the property and interests of property of the Government of Syria in the United States or held by U.S. persons (defined, per the typical approach in U.S. sanctions regulations, to include entities in the United States and their foreign branch offices, U.S. citizens or lawful permanent residents, and anyone of any nationality acting or located within the United States);

• Prohibitions on U.S. persons: (1) engaging in any transactions with the Syrian Government, (2) making "new investments" in Syria, (3) providing any services to Syria, or (4) conducting business dealings in or related to petroleum or petroleum products of Syrian origin;

• A ban on the importation of Syrian-origin petroleum products into the United States; and   

• A prohibition against U.S. persons facilitating, approving, financing, or guaranteeing a transaction or dealing with a foreign person related to any of the above prohibitions against Syria.

Under Section 1(a) of the EO, all property and interests of property of the Government of Syria (GOS) (defined as meaning "the Government of the Syrian Arab Republic, its agencies, instrumentalities, and controlled entities") located in the United States, or under the control of U.S. persons, are "blocked."  U.S. persons are thus prohibited from engaging in any payment, transfer, export, withdrawal, or other dealings involving blocked property or interest in property of the GOS.  Furthermore, Section 4 of the EO prohibits U.S. persons from making, contributing, or providing funds, goods, or services by, to, or for, or receiving any funds, goods, or services from, the GOS.   

The same blocking and transaction restrictions also apply to Specially Designated Nationals (SDNs).  Section 1(b) of the EO empowers the Secretary of Treasury to freeze the property and interests in property of any person it determines:

• To have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, any person whose property and interests in property are blocked; or

• To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked.

In particular, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) has listed the following entities as SDNs under this EO:  General Petroleum Corporation, Syrian Company for Oil Transport, Syrian Gas Company, Syrian Petroleum Company, and SYTROL.

Additionally, OFAC considers a "blocked" entity to have an interest in any property (including other entities) in which it owns, directly or indirectly, a 50 percent or greater interest.  See "Office of Foreign Assets Control, Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked," Feb. 14, 2008.  This policy, coupled by the EO, therefore effectively blocks the property and interests of property of all entities in which the GOS or Syrian SDNs own a 50 percent or greater interest, and prohibits U.S. persons from engaging in most transactions or dealings with such entities.

This EO imposes several new U.S. economic restrictions that previously did not exist against Syria.  Specifically, U.S. persons, whether inside or outside the United States, are prohibited from taking any the following actions:

• Making "new investments" in Syria:  The term "new investment" is not defined by the EO.  Absent OFAC promulgating further regulations or guidance, persons may want to review the definitions of "new investment" under the Burmese Sanctions Regulations (BSR), 31 C.F.R. § 537.311, and the Iranian Transaction Regulations (ITR), 31 C.F.R. § 560.316, in order to consider the term's potential scope.  Of course, OFAC may narrow, expand, or change the specific new investment restriction against Syria in comparison to such restrictions found in other U.S. sanctions regimes.

• Exporting, reexporting, selling, or supplying, directly or indirectly, any services to Syria:  The term "services" is not defined by the EO.  OFAC has the discretion to interpret this term broadly.  For example, U.S. persons may be restricted from undertaking a wide variety of activities vis-à-vis Syria, such as furnishing business, financial, accounting, education, logistical, or travel services (among others) to Syria.  Such services now may be cut-off completely for U.S. persons without licenses, authorizations, or exemptions being provided by OFAC.

• Purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing any transaction or dealing, in or related to petroleum or petroleum products of Syrian origin, OR  importing Syrian-origin petroleum or petroleum products into the United States :  The EO does not define the term "petroleum products."  It is unclear whether this would be defined to include only refined petroleum products such as gasoline, or would include products based on any petroleum constituent parts, such as petrochemicals or plastics.  Note that the products need not involve Syria directly, but would include any petroleum or petroleum products of "Syrian origin," which also is not defined in the EO.  Unless OFAC first issues a general authorization or specific license, caution is warranted before any U.S. person conducts a transaction or dealing in (including outside the United States), or import into the United States of, any Syrian origin, petroleum-based product.

• Approving, financing, facilitating, or guaranteeing any transaction, undertaken by a foreign person, where such a transaction would be prohibited by any actions set forth above if performed by a U.S. person or within the United States.   This prohibition mirrors U.S. person facilitation and approval prohibitions in other OFAC sanctions regimes, including those found in the BSR and ITR, by which a transaction or dealing involving a foreign person and Syria could be subject to U.S jurisdiction (i.e., enforcement for violations of the EO).   It should be noted that foreign persons could include both individuals and entities, whether or not affiliated with U.S. persons.

Since the uprising and protests began against the Assad regime in mid-March, the Obama Administration has implemented targeted economic sanctions to increase pressure on the GOS to refrain from repressing dissident groups and stifling free political expression.  As discussed in prior alerts here and here, on August 10, 2011, OFAC named the Commercial Bank of Syria, its subsidiary the Syrian Lebanese Commercial Bank, and Syriatel, Syria's largest mobile phone company, as SDNs; on May 18, 2011, President Obama issued Executive Order 13573, which imposed sanctions against senior members of the Assad regime; and, on April 29, 2011, President Obama issued Executive Order 13572, which imposed sanctions against persons involved in human rights abuses in Syria. 

Effective August 18, 2011, OFAC issued six general licenses related to Syria:

• The first license authorizes the provision of, and payment for, goods or services in the United States to the diplomatic missions, and employees of diplomatic missions, of the GOS to the United States and United Nations.

• The second license authorizes the provision of certain legal and compliance services to Syria.

• The third license authorizes U.S. financial institutions to debit any blocked account held at the financial institution in payment or reimbursement for normal service charges owed by the owner of that blocked account. 

• The fourth license authorizes the exportation or reexportation of items subject to the Export Administration Regulations (EAR) to the GOS, or any other person whose property and interests in property are blocked, and all transactions ordinarily incident thereto, and also authorizes services to install, repair, or replace such items subject to the EAR, provided that the exportation or reexportation of such items is licensed or otherwise authorized by the U.S. Department of Commerce, Bureau of Industry and Security (BIS).  In this regard, we note that under General Order No. 2 to Supplement No. 1 of Part 736 of the EAR, a license is required from BIS for export or reexport to Syria of all items subject to the EAR, including items designated EAR99 except for food and medicine classified as EAR99. 

• The fifth license authorizes the exportation from the United States or by U.S. Persons, wherever located, to persons in Syria of services incident to the exchange of personal communications over the Internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging, provided that such services are publicly available at no cost to the user.

• Lastly, the sixth license authorizes U.S. depository institutions, U.S. registered brokers or dealers in securities, and U.S. registered money transmitters to process transfers of funds to or from Syria or for or on behalf of an individual ordinarily resident in Syria in cases which the transfer involves a noncommercial, personal remittance, provided that the transfer is not by, to, or through the GOS or any other person whose property and interests in property are blocked.

The EO of August 18, 2011 represents a significant expansion to those prior sanctions, and, when combined with existing U.S. trade controls under the Export Administration Regulations, represents a much more comprehensive embargo against not only the GOS, but also Syria more generally and the Syrian petroleum industry.  Indeed, President Obama has issued an official statement calling for President Assad to step down from power, and the governments of Canada, France, UK, and Germany have also called for Assad to step down.  U.S. persons that are engaged in business in Syria should consider contingency plans and exit strategies.  In addition, OFAC and legal counsel may need to be consulted for further guidance prior to engaging in any transaction or dealing that may involve the EO's prohibitions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.