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New Economic Sanctions Targeting Libya Issued by the United States Will Have a Significant Impact on U.S. and International Business Interests

March 1, 2011

 

Recent sanctions measures adopted by the United States, the United Nations, and European jurisdictions in response to the ongoing Libyan conflict impose significant restrictions on US and international business interests in the region.

President Obama imposed US sanctions pursuant to an Executive Order on Friday, February 25, 2011, after finding that continued violence in Libya poses an “unusual and extraordinary threat” to America’s national security and foreign policy. The Executive Order took immediate effect.

Scope of New US Sanctions

The US provisions include a blocking order freezing all US property interests of the Libyan leader Moammar Qadhafi and members of his family. Importantly, the freezing order extends to property interests of the Government of Libya, its agencies, instrumentalities, and controlled entities, and the Central Bank of Libya. The order effectively prohibits all transactions with these blocked entities, including any transfers of funds, goods and services. The order applies to US persons, which includes US citizens and permanent residents, entities organized under the laws of the United States (including foreign branches), or any person in the United States.

In addition to the freezing order, the Department of State has suspended all existing licenses and other approvals issued under the International Traffic in Arms Regulations for the export of defense articles and services to Libya.

As most commercial activity in Libya involves state-owned entities, the US blocking order has very broad effect. Violations of the sanctions can lead to significant criminal and civil penalties. Companies with on-going business should review their existing and projected activities in Libya to determine how the new provisions impact their business. In some circumstances, specific license requests may the appropriate course.

The Office of Foreign Assets Control (“OFAC”) has issued a General License (Libya General License No. 1) authorizing transactions with financial institutions owned by the government of Libya that are organized under the laws of a third country. It is possible that OFAC may issue additional general licenses as the situation in Libya continues to develop and the impact of the sanctions on US business interests becomes more apparent.

Other Sanctions Measures

The United States is not alone in imposing sanctions targeting the Qadhafi regime, although its restrictions are broader than other initiatives. United Nations Resolution 1970, adopted by the UN Security Council on February 26, 2011, prohibits the sale of arms to Libya and requires member states to freeze the assets and ban the travel of specific members of the Ghadafi regime.

On February 27, 2011, the United Kingdom adopted the Libya (Financial Sanctions) Order, which implements the requirements of Resolution 1970 by imposing restrictions on the assets and travel of persons designated in Annex II to the Resolution, and entities owned or controlled by those designated persons.

The European Union has also adopted sanctions measures. While the full text of the EU measure has not been published, it appears to be similarly targeted at specific individuals.



O’Melveny & Myers has significant depth of experience in the economic sanctions and export controls areas. Its lawyers are actively engaged in conducting internal investigations and transactional due diligence; responding to criminal and regulatory enforcement inquiries and proceedings; evaluating and implementing compliance programs; and providing prospective advice about economic sanctions and export control issues in international business transactions. Our clients include U.S. and international companies, among them Fortune 100 companies, the world’s largest financial institutions, and diversified U.S. and offshore companies.