Sudan Sanctions 2017
Sanctions Revocation Formalized, But Compliance Challenges Remain
On October 6, the US government announced that it will revoke its economic sanctions regime with respect to Sudan and the Government of Sudan. The Treasury Department’s Office of Foreign Assets Control (OFAC) issued a frequently asked questions as a guideline with respect to the revocation, as well as a new general license authorizing certain agricultural and medical-related exports. (This development does not affect sanctions on South Sudan, as discussed below.)
The US State Department provided a report on the Government of Sudan’s sustained positive actions for the mandated reporting period spanning the last nine months, recognizing Sudan’s improved humanitarian access and its cooperation with the US in addressing regional conflict and threats of terrorism. In exchange for ending the sanctions program, the US also said it had secured a commitment from Sudan that it would not engage in weapons trade with North Korea.
However, sanctions remain in place on certain individuals and entities, as do export control regulations for certain defense-related items. This article will briefly detail recent updates to Sudan’s sanction regimes in 2017.
Sudanese Sanctions Regulations
Sudan’s established links with international terrorist groups and attempts to destabilize neighboring regions led to the US designating it as a State Sponsor of Terrorism in 1993. The Sudan sanctions program began in 1997, when the US imposed a comprehensive trade embargo on Sudan, as well as an asset freeze against the Sudanese government. In light of persistent violence against civilians and severe human rights violations in Sudan’s Darfur region, in 2006 the US government blocked the property of individuals involved with the conflict. For years, the comprehensive sanctions regime prohibited US entities from engaging in nearly any transactions involving Sudan or its government.
On January 13, President Obama issued Executive Order (EO) 13761, (Recognizing Positive Actions by the Government of Sudan and Providing for the Revocation of Certain Sudan-Related Sanctions). It called for a revocation of the Sudanese Sanctions Regulations (SSR) if the government of Sudan met certain benchmarks over a six-month period, including reduced military activity, improved humanitarian access and cooperation with the US in addressing regional threats. The EO was amended July 11 by President Trump to extend the review period through October.
In conjunction with the EO, OFAC issued a general license on January 17 authorizing transactions formerly prohibited under the SSR. That general license will no longer be needed after October 12 to engage in transactions that were previously prohibited by the SSR.
In addition, the State Department’s Bureau of Industry and Security (BIS) has amended the Export Administration Regulations (EAR) to change its general policy of denial into a general policy of approval for applications for licenses to export certain goods into Sudan, including 1) equipment and technology controlled only for anti-terrorism reasons and intended to ensure the safety of commercial passenger aircraft; and 2) items controlled only for anti-terrorism reasons that will be used to construct, operate, maintain or refurbish railroads in Sudan.
These favorable licensing policies apply only to civil, non-military end uses by “non-sensitive end-users” in Sudan, which excludes Sudan’s military, police, and intelligence services. BIS will still impose specific licensing requirements for most exports to Sudan of items (e.g. software, technology) subject to the EAR and described on the EAR’s Commerce Control List.
As noted in the recent FAQs sheet promulgated by OFAC, a number of Sudan-related sanctions will remain in place, including its designation as a State Sponsor of Terrorism and the blocking of property for the individuals and entities involved with undermining stability in Darfur. There are also individuals in Sudan that remain designated as Specially Designated Nationals (SDNs) under OFAC’s terrorism-related authorities.
Sudan remains subject to a US arms embargo pursuant to the State Department’s International Traffic in Arms Regulations (ITAR), with limited exceptions related to peacekeeping and humanitarian operations. This ITAR policy is based in part on a U.N. Security Council arms embargo on Sudan that is currently in place.
It is critical to note that US companies that engaged in illicit transactions in violation of the SSR before the issuance of the January 2017 EO can still be held liable for those activities. For example, on October 5, the Connecticut-based paper company BD White Birch Investment agreed to pay OFAC over $370,000 to settle allegations it violated the SSR by using a Canadian subsidiary to facilitate the sale and shipment of Canadian-origin paper to Sudan in 2013. This reinforces the notion that OFAC will not hesitate to investigate and pursue pre-2017 transactions that violated the SSR.
The formal revocation of the SSR on October 12 will create new opportunities for US businesses in Sudan, as well as help the debt-ridden Sudanese economy that currently owes foreign creditors $51 billion, representing 60 percent of the nation’s GDP, according to The New York Times. State Department officials noted the removal of the sanctions would unfreeze Sudanese government assets, which in turn will greatly benefit the aviation and energy sectors. These industries have been particularly affected by the 2011 secession of South Sudan, which currently holds 75 percent of former Sudan’s oil wells.
While the decision reflects progress towards the normalization of bilateral relations between the US and Sudan, US companies and multi-national exporters should remain wary of the sanctions regimes and trade restrictions that remain in force through authorities in the US, the European Union and the U.N. Comprehensive due diligence remains a necessity for doing business in the region, particularly for the defense industry. As international OFAC enforcement trends shift from sweeping, country-based sanctions to more targeted, individual-based sanctions regimes, it will be critical for exporters to stay up to date on increasingly nuanced compliance challenges when transacting in high-risk regions around the world.
South Sudan, which became an independent country in 2011, has not been subject to the comprehensive restrictions imposed upon Sudan, though some designated parties in South Sudan and certain South Sudanese activities relating to Sudan’s economy have been restricted. On September 6, the Treasury Department announced new sanctions designations for three South Sudanese individuals and their business entities. The sanctions prohibit any US individual from dealing with the designated entities and individuals, and further states that “all of these individuals’ and entities’ assets within US jurisdiction are blocked.”
Doreen M. Edelman is a shareholder and co-leader of the Global Business Team at Baker Donelson (Washington, D.C.). With more than 25 years of experience in import and export compliance, foreign investment and global expansion, she advises both US and foreign-based companies on international business matters.