Last Friday, the United States Department of the Treasury Office of Foreign Assets Control (OFAC) issued its fourth general license in respect to the recently imposed sanctions which target the Government of Libya and the Qaddafi regime. This new general license pertains to investment funds in which there is a blocked, non-controlling minority interest held by the Government of Libya.
The Libya sanctions have effectively blocked those interests held by the Government of Libya, the Qaddafi family and officials within the regime, and those individuals and entities affiliated with such parties that were under U.S. jurisdiction. In addition, the Libya sanctions have enacted prohibitions on U.S. persons engaging in transactions with those parties targeted by the sanctions; namely those parties mentioned above.
The new general license promulgated by OFAC allows for U.S. investment funds to continue to transact in those funds regardless of whether a party blocked pursuant to the Libya sanctions holds a non-controlling minority interest in the fund. The activities allowed by this general license include:
1. Investment management functions;
2. The purchase and disposition of portfolio investments;
3. The custody of portfolio investments;
4. The making of payments owed by the investment fund to its managers, other service providers, directors, govemment regulators, tax authorities, or investors whose property and interests in property are not blocked; and/or
5. The receipt of funds, securities, or other assets.
Keep in mind that there are several caveats to this license. For example, payments of funds or assets to any blocked person made pursuant to this general license must be made to a blocked account at a U.S. financial institution. Moreover, transfers between blocked accounts must not result in the funds or assets being transferred to an account outside of the United States. In essence, no financial benefit inuring as a result of this general license is to be accessible to a party blocked pursuant to the Libya sanctions. Finally, no loans are to be made to any person blocked pursuant to the Libya Sanctions. OFAC has also instituted a monthly reporting requirementon these investment funds. As such, investment funds in which a blocked Libyan party holds a non-controlling, minority interest must provide an accounting of the value of that interest every 30 days.
The monthly reporting requirement seems quite burdensome for these funds and it might lead quite a few investment funds to utilize the general license to dispose of these Libyan interests and transfer them to a blocked account at a U.S. financial institution. While some might view this general license as OFAC easing up on the enforcement of Libya sanctions, it seems like it might be the opposite; it may be a calculated move to provide investment funds in which blocked Libyan parties hold an interest the impetus to transfer those funds out of their investment funds–where they might obtain greater value–and into a blocked account. Even if this was not OFAC’s intent, it still might be the effect of this general license. All things considered, the promulgation of the general license by OFAC was a smart move.
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.