Over the past month I have been inundated with calls from clients, potential clients, and reporters seeking answers to a number of questions related to the recently imposed sanctions against Libya. Due to the recency of such sanctions, the regulations that will serve as the legal framework of Libya sanctions have not yet been promulgated. As a result, a lot of people are scratching their heads on what compliance with these new sanctions requires. Some of the more common questions are answered below:
Question #1: Who is effected as the result of U.S. sanctions against Libya? Those individuals and entities targeted as owned or controlled by the Libyan Government and identified on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List are the targets of the sanctions. However, the burden of compliance with the sanctions falls upon the shoulders of U.S. persons. U.S. persons are defined as U.S. citizens, U.S. permanent legal residents and entities organized under the laws of the United States. In addition, any other entity or individual within the jurisdictional control of the United States would also be impacted by these sanctions.
Question #2: What if an entity is partially owned by an entity or individual designated under the Libya Sanctions? If an entity is owned or controlled by an entity designated on the OFAC SDN List under the Libya sanctions, then U.S. persons should be way of transacting with that entity, except for in certain circumstances. This is true even if a sanctioned Libyan party only owns a portion of the foreign entity in question.
Question #3: What can happen if I violate the Libya Sanctions? Penalties for failure to comply with the Libya sanctions can be found in the International Emergency Economic Powers Act (IEEPA). Such penalties include up to twenty (20) years imprisonment and up to $250,000 per transaction in civil penalties.
Question 4: I have heard some banks report that they have exemptions or general licenses which exempt them from Libya Sanctions. Is this true? There might be an authorization from OFAC for transactions involving parties designated under the Libya sanctions, but they are not “exemptions” and they are not “general licenses.” An exemption from an OFAC administered sanctions program is an actual carve out found in the statutory authority underlying such sanctions: The International Emergency Economic Powers Act (IEEPA). There are certain exemptions found in IEEPA which preclude the U.S. President from sanctioning certain types of activity. General licenses, on the other hand, are open ended authorizations which allow for a certain type of activity to be engaged in which would otherwise be prohibited. General licenses can be revoked at any time by OFAC.
What these banks are likely referring to is a specific license authorization. A specific license authorization is granted on a case by case basis and is limited in time and scope. OFAC will issue such specific licenses in response to a properly drafted OFAC specific license application.
Question #5: What should I do if I am unsure whether or not to proceed with a transactions which potentially involves a blocked Libyan party? Logic dictates the safest path is abstinence. In other words, avoid any transactions which might potentially lead to running afoul of the Libya sanctions. On the other hand, business considerations dictate finding a way to address these issues. One way of doing this is by obtaining the appropriate specific licenses referred to above.
For questions that might not necessarily be best addressed by applying for specific license authorization, one could file a request for interpretative guidance with OFAC. In this guidance you could outline the proposed transactions and ask for OFAC’s opinion as to whether they are exempted, authorized, licensable, or strictly prohibited. A request for interpretative guidance is a valuable tool, especially when dealing with a newly issued sanctions regime like the Libya sanctions.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or firstname.lastname@example.org.