Syrian Sanctions Update: The European Union Implements Council Regulation on Restrictive Measures Against Syria

January 27, 2012 Authors: Lista M. Cannon, David Harris, Nicola Kelly

As reports have continued to emerge of the repression of anti-government protests in Syria, the European Union has gradually increased restrictive measures against the country. Recent reports of continuing levels of violence have now led to another widening of existing sanctions.  

From the outset, the EU has aimed to isolate the Assad regime in an attempt to influence a change of government policy. The impact of the new wave of sanctions remains to be seen. It has been reported recently that the Gulf Cooperation Council has pulled out their observers from the Arab League mission in Syria, which could result in further instability within Syria.

With a genuine democratic transition in Syria not yet in sight, companies doing business in the region should monitor developments closely. A number of major energy companies have reportedly already ceased activities in Syria to ensure compliance with EU sanctions.

This briefing summarises some of the new sanctions, with a particular focus on the oil and gas sectors, finance and insurance. Companies conducting business in or with Syrian-related entities and individuals should review carefully the provisions of the Regulation to analyse the impact sanctions may have on their business activities. 

Introduction

Last week, the foreign ministers of the European Union adopted additional sanctions over Syria by way of Council Regulation 36/2012[1] (referred to as the "Regulation"). The Regulation clarifies the provisions originally outlined by EU Council Decision 2011/782/CFSP[2] and repeals and consolidates the previous regulations.

Given reports of the Syrian regime's continued use of violence against civilians, on 23 January 2012 the EU also designated a further 22 individuals and eight entities to be subject to restrictive measures.

Sanctions affecting the oil and gas sector

Pursuant to the Regulation, the sale, supply, transfer or export of equipment or technology listed in Annex VI (as described below), directly or indirectly, to any Syrian person, entity or body, or for use in Syria, is prohibited.

Annex VI includes key equipment and technology for the following sectors of the oil and gas industry in Syria: (i) exploration of crude oil and natural gas; (ii) production of crude oil and natural gas; (iii) refining; and (iv) liquefaction of natural gas.

The provision of the following, directly or indirectly, to any Syrian person, entity or body, or for use in Syria, is also prohibited:

  1. technical assistance or brokering systems related to the equipment and technology listed in Annex VI, or related to the provision, manufacture, maintenance and use of goods listed in Annex VI; and
  2. financing or financial assistance related to the equipment and technology listed in Annex VI.

The knowing or intentional participation in any activity that has the effect of circumventing the restrictions referred to in points 1 and 2 above are also prohibited.

The new oil and gas prohibitions do not apply to the performance of contracts awarded or concluded prior to 19 January 2012, provided that the person or entity seeking to rely on this provision has notified the competent authority of the relevant Member State at least 21 calendar days in advance of performing under the contract. A contract is deemed to have been "awarded" to a person or entity if express written confirmation of the award of the contract to that person or entity has been sent by the other contracting party, following the conclusion of a formal tender process.

Restrictions on participation in infrastructure projects

It is prohibited to: (i) sell, supply, transfer or export equipment or technology to be used in the construction or installation in Syria of new power plants for electricity production as listed in Annex VII (e.g. certain steam and gas turbines, electric motors and generators); and (ii) provide, directly or indirectly, financial or technical assistance in relation to any project referred to above at point (i).

Similarly to oil and gas contracts, these prohibitions do not apply to the performance of contracts or agreements concluded prior to 19 January 2012, provided that the person or entity seeking to rely on this article has notified the competent authority of the relevant Member State at least 21 calendar days in advance of performing under the contract.

Financial Restrictions

The Regulation prohibits credit and financial institutions (as defined in the Regulation) from:

  1. opening a new bank account with any Syrian credit or financial institution;
  2. establishing a new correspondent banking relationship with any Syrian credit or financial institution;
  3. opening a new representative office in Syria or establishing a new branch or subsidiary in Syria; and
  4. establishing a new joint venture with any Syrian credit or financial institution.

In addition, it is prohibited to:

  1. authorise the opening of a representative office or the establishment of a branch or subsidiary, in the European Union, of any Syrian credit or financial institution;
  2. conclude agreements for, or on behalf of, any Syrian credit or financial institution, pertaining to the opening of a representative office or the establishment of a branch or subsidiary in the European Union;
  3. grant an authorisation for taking up and pursuing the business of a credit or financial institution or for any other business requiring prior authorisation, by a representative office, branch or subsidiary of any Syrian credit or financial institution, if the representative office, branch or subsidiary was not operational before 19 January 2012; and
  4. acquire or to extend a participation, or to acquire any other ownership interest in a credit or financial institution within the scope of the Regulation by any Syrian credit or financial institution.

The Regulation contains further prohibitions regarding Syrian public or public-guaranteed bonds issued after 19 January 2012.

Insurance and Re-insurance

The sanctions placed on the insurance sector are broad. Subject to certain exceptions, the provision of insurance or reinsurance to: (i) the state of Syria, its Government, its public bodies, corporations or agencies; or (ii) any natural or legal person, entity or body when acting on behalf or at the direction of the state of Syria, its Government, its public bodies, corporations or agencies, is prohibited.[3]

Comment

The EU's relationship with Syria and the sanctions regime in place is under constant review. With that in mind, EU companies, and foreign companies with EU subsidiaries, should monitor the developments closely as the situation continues to develop.

This article was prepared by Lista M. Cannon, Partner (lcannon@fulbright.com or +44 020 7832 3601), David M. Harris, Senior Associate (dharris@fulbright.com or +44 0 20 7832 3637) and Nicola Kelly, Associate (nkelly@fulbright.com or +44 0 20 7832 3630) of Fulbright & Jaworski International LLP in London. Lista, David and Nicola are lawyers in Fulbright's International Trade Practice Group. Lista Cannon is head of the firm's UK and EU Trade and Sanctions Practice in London. Stephen M. McNabb (smcnabb@fulbright.com or +1 202 662 4528) is Partner and Chair of Fulbright's International Trade Practice Group. Fulbright's International Trade Practice Group advises clients worldwide in matters concerning international trade laws and regulations; including economic sanctions regulations, export/import control regulations, anti-boycott regulations, and anti-corruption laws.

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[1] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:016:0001:0032:EN:PDF
[2] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:319:0056:0070:EN:PDF
[3] The knowing or intentional participation in any activity that has the effect of circumventing the restrictions referred to above is prohibited