On 14 November 2011, the EU expanded its sanctions concerning Syria. The list of prohibited persons was expanded and prohibitions were imposed on the dealings of the European Investment Bank. Unlike the sanctions imposed on the Gaddafi regime (see our article "Libya - Are Sanctions A Proper Basis for Force Majeure Claims?", dated 20 April 2011), the current Syrian sanctions imposed by the EU have not been mandated by the UN. Even though they are not universally applicable, the United Kingdom has extended the reach of the EU sanctions beyond the borders of the EU to several territories. Furthermore, these sanctions are more targeted than previous sanctions regimes, focusing on key individuals, the Commercial Bank of Syria and, importantly, the Syrian energy industry. For these reasons, European and international companies should consider the prohibitions carefully.
We examine below the EU sanctions regime against Syria, how it has been extended to non-EU corporate entities and key issues that companies – and, in particular, energy firms – operating in Syria should consider.
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On 14 November 2011, the EU expanded its sanctions concerning
Syria. The list of prohibited persons was expanded and prohibitions
were imposed on the dealings of the European Investment Bank.
Unlike the sanctions imposed on the Gaddafi regime (see our article
"
Libya - Are Sanctions A Proper Basis for Force Majeure
Claims?", dated 20 April 2011), the current Syrian
sanctions imposed by the EU have not been mandated by the UN. Even
though they are not universally applicable, the United Kingdom has
extended the reach of the EU sanctions beyond the borders of the EU
to several territories. Furthermore, these sanctions are more
targeted than previous sanctions regimes, focusing on key
individuals, the Commercial Bank of Syria and, importantly, the
Syrian energy industry. For these reasons, European and
international companies should consider the prohibitions
carefully.
We examine the EU sanctions regime against Syria, how it has been
extended to non-EU corporate entities and key issues that companies
– and, in particular, energy firms – operating
in Syria should consider.
The Sanctions
On 9 May 2011, the EU published Council Regulation No 442/2011,
introducing asset freezing measures on certain listed persons
associated with violent repression in Syria. Since 9 May, the EU
has issued subsequent Council Regulations (set out at the
conclusion of this article) expanding the list of entities and
persons to whom the asset freezing measures apply and introducing
additional prohibitions.
The EU sanctions regime applies to citizens of EU Member States and
legal entities that are registered or conduct business within the
EU and prohibits them from participating in activities that
contravene the sanctions. Such activities may include a parent
company funding, engaging in or benefitting from the operations of
a subsidiary that contravene the sanctions. In this manner, a
corporate parent that is registered or conducting business in the
EU could face liability for the operations of a subsidiary that is
not directly subject to the EU sanctions.
While setting out the prohibitions, the EU Council Regulation
leaves the enforcement of sanctions to the relevant EU Member
States. This means that the application of the sanctions regime may
vary depending on the EU Member State that enforces the
prohibition. The UK, through the Syria (Asset-Freezing) Regulations
2011 (S.I. 2011/1244) (as amended) has provided various penalties
for violating the EU sanctions regulations. The UK has also,
through the Syria (Restrictive Measures) (Overseas Territories)
Order 2011 (S.I. 2011/1678) (the Order),
expanded the application of the EU sanctions set out in the Order
to legal entities registered in a number of UK overseas territories
including, among others, the Cayman Islands, British Virgin Islands
and Turks and Caicos Islands (as well as nationals of those UK
overseas territories). Accordingly, the EU sanctions may affect a
company or a company's subsidiary registered in those UK
overseas territories, regardless of whether the company or any
related entity is registered or active within the EU.
Interestingly, the Order is materially different from the current
EU Council Regulation. The Order has not been amended since 15 July
2011 and it does not reflect some of the prohibitions included in
the most recent amendments to the EU Council Regulation.
Additionally, the Order does not include several of the principle
exemptions or derogations set out in the EU Council Regulation. In
circumstances where a party may be subject to sanctions set out in
the Order, one should be aware that the differences between the
Order and the EU Council Regulations may significantly effect the
application of the sanctions and, if the sanctions do apply, the
options available.
Key Prohibitions for the Oil and Gas Industry
In addition to the asset freezing measures and embargoes on
certain goods (ranging from firearms to bank notes), the EU
sanctions specifically target the export of crude oil from Syria.
These prohibitions were motivated by the fact that the vast
majority of crude oil exports from Syria have been historically
delivered to the EU. To this end, several meaningful prohibitions
have been introduced that prevent entities that are subject to the
sanctions regime from importing (into the EU), purchasing or
transporting crude oil or petroleum products if they originate in,
or are exported from, Syria. Entities that are subject to the
sanctions also cannot provide financing, either directly or
indirectly, for any of these activities.
In addition to these petroleum products prohibitions, investment in
the Syrian oil industry is also limited. Entities that are subject
to the sanctions regime are prevented from offering loans or credit
to, acquiring or extending participation in or creating a new joint
venture with a Syrian entity engaged in the exploration, production
or refining of crude oil (subject to the exceptions that are
referenced below).
Possible Exemptions
The EU sanctions recognise a number of derogations (or,
exemptions). As discussed in more detail below, some derogations
principally relate to activities with Syrian entities engaged in
the exploration, production or refining of crude oil.
In many instances, these derogations must be applied for and are
subject to the approval of the relevant national governmental
authorities. For instance, where payment is owed from a
listed person or entity on the basis of an obligation or contract
made before the sanctions regime came into force, the
relevant government authority may approve such a payment. In a few
explicit instances, obligations arising from contracts signed
before the date that the relevant EU Council Regulation came into
force may be exempted from the prohibitions without approval of the
relevant government authority.
Some derogations are short-term and only exist for certain periods
of time. For instance, the ability to make payments through the
Commercial Bank of Syria on "trade contracts" (subject to
approval of the relevant government entity) closes on 13 December
2011.
Commercial Considerations
Parties are well advised to be cautious in interpreting the
effects of these sanctions. The language used in the EU Council
Regulation is ambiguous and, potentially, quite broad.
For instance, one of the key prohibitions under the EU Council
Regulation No 950/2011 (dated 23 September 2011) prevents
"[...] the acquisition or extension of a participation in any
Syrian person, entity or body; [or] the creation of any joint
venture in any Syrian person, entity or body [...] engaged in the
exploration, production or refining of crude oil." However,
this prohibition "shall not prevent the extension of a
participation, if such extension is an obligation under an
agreement concluded before 23 September 2011."
Production sharing contracts (including, in our experience,
production sharing contracts that involve the Syrian Government and
Syrian Petroleum Company (SPC)) require
that the international oil company (IOC)
and the SPC form a joint venture after a commercial discovery is
made. However, the declaration of a commercial discovery is
typically within an IOC's control. In the instance of a
commercial discovery made after this prohibition came into force,
would the formation of a joint venture be considered an obligation
flowing from the prior contract or, alternatively, would it be
considered the exercise of a new right? The answer likely depends
on an informed understanding of the production sharing contract and
familiarity with the sanctions regime.
Recent experience advising energy clients on their Syrian
operations can clarify the availability of licensed exemptions
provided for by the sanctions and allows us to provide informed
advice on the risks of doing business there.
Read more
concerning our experience Managing Opportunity and Uncertainty in
North Africa and the Middle East.
Relevant Legal Instruments
EU Council Regulations
Council Regulation No 1151/2011 (14 November
2011)
Council Regulation No 1150/2011 (14 November
2011)
Council Regulation No 1011/2011 (13 October
2011)
Council Regulation No 950/2011 (23 September
2011)
Council Regulation No 878/2011 (2 September
2011)
Council Implementing Regulation No 843/2011 (23
August 2011)
Council Implementing Regulation No 755/2011 (1
August 2011)
Council Implementing Regulation No 611/2011 (23
June 2011)
Council Implementing Regulation No 504/2011 (23
May 2011)
Council Regulation No 442/2011 (9 May
2011)
UK Legislation
The Syria (Asset-Freezing) (Amendment) Regulations
2011 (S.I. 2011/2479) (17 October 2011)
The Syria (Restrictive Measures) (Overseas
Territories) Order 2011 (S.I. 2011/1678) (13 July 2011)
The Syria (Asset-Freezing) Regulations 2011 (S.I.
2011/1244) (10 May 2011)
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 18/11/2011.
