Sudan Now Open For Business, But Risks Remain

by Orrick - Securities Litigation and Regulatory Enforcement Group
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[co-author: James Stanley]
 
On October 12, 2017, the United States made permanent its lifting of a longtime general embargo on trade and investment with Sudan. As a result, U.S. individuals and companies are now generally free to engage in transactions involving Sudan, the Government of Sudan or many formerly sanctioned Sudanese persons without a license from the Department of the Treasury’s Office of Foreign Assets Control (OFAC). While this presents opportunities for new business in Sudan, any U.S. person considering business relating to Sudan should be aware of the legal restrictions that remain in place and the risks associated with such an undertaking.
 

Background

For almost two decades, Executive Orders (EOs) by Presidents Bill Clinton (EO 13067) and George W. Bush (EO 13412), along with the Sudanese Sanctions Regulations (SSR), have generally prevented U.S. persons from conducting transactions involving the Government of Sudan or certain sanctioned Sudanese persons, importing goods or services of Sudanese origin, exporting any goods or services to Sudan, or performing any contract “in support of an industrial, commercial, public utility, or governmental project in Sudan,” among other things. This trade and investment embargo was prompted by findings that the Government of Sudan was engaged in support for international terrorism, efforts to destabilize its neighboring countries, and myriad human rights violations.

On January 13, 2017, President Obama issued EO 13761, which observed that the dangerous and unstable situation in Sudan that had prompted sanctions by his predecessors “has been altered by Sudan’s positive actions over the past 6 months.” In particular, the order praised Sudan for “a marked reduction in offensive military activity, culminating in a pledge to maintain a cessation of hostilities in conflict areas in Sudan, and steps toward the improvement of humanitarian access throughout Sudan, as well as cooperation with the United States on addressing regional conflicts and the threat of terrorism.” The order, which was one of President Obama’s final acts in office, called for a conditional return of U.S. trade and investment transactions with Sudan with permanent revocation of sanctions after a six-month monitoring period and approval by certain U.S. agencies. Consistent with this order, OFAC issued a temporary general license on January 17, 2017, authorizing transactions that were previously prohibited by the aforementioned sanctions. As it turns out, the January 17 general license marked the end of the main set of sanctions against Sudan.

On July 11, 2017, President Trump signed EO 13804, which extended the six-month period initially set forth by President Obama to October 12, 2017, so as to permit “a more comprehensive analysis of the Government of Sudan’s actions.” On October 6, 2017, OFAC announced that as of October 12, 2017, the revocation of the SSR and EOs 13067 and 13412 would take permanent effect.

Remaining Restrictions and Risks

As an initial matter, it is important to note that last month’s revocation only applies to those sanctions imposed pursuant to EOs 13067 and 13412. Sanctions imposed pursuant to other Executive Orders, such as those relating to the region of Darfur within Sudan (EO 13400), remain in place. And while a number of Sudanese individuals and entities have now been removed from OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), other Sudanese nationals and persons operating in Sudan that were designated because of their support for terrorist activities and/or their involvement in the Darfur and South Sudan conflicts will remain on the SDN List. Consequently, any US person seeking to do business in Sudan should maintain screening and due diligence processes to detect and prevent any transactions involving these restricted parties.

In addition, the revocation does not affect the U.S. State Department’s designation of Sudan as a State Sponsor of Terrorism (SST). This has several implications.

First, SSTs are subject to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), which requires licenses for all exports of agricultural commodities, medicine and medical devices. To that end, OFAC has issued General License A, which authorizes exports and re-exports of certain TSRA items to Sudan. Companies in the agricultural, pharmaceutical, or medical device industries who wish to do business in Sudan should ensure that they comply with the conditions of General License A.

Second, Sudan’s designation as an SST implicates the Terrorism List Governments Sanctions Regulations (TLGSR), which prohibit U.S. persons from engaging in transfers from the Government of Sudan that would pose a risk of furthering terrorist acts in the United States.

Third, as an SST, Sudan remains subject to far-reaching export controls implemented through the U.S. Export Administration Regulations (EAR). This means that the export or re-export to Sudan of items on the Commerce Control List (CCL), part of EAR, continues generally to require a license from the U.S. Commerce Department’s Bureau of Industry and Security. The CCL includes a variety of types of goods, software and technology, including items relating to computers, telecommunications systems, and aerospace. For exports to Sudan of items that are not on the CCL (aka “EAR99 items”), a license is generally not required, but, depending on factors relating to end users and end uses, any of a variety of other export license requirements could apply.

There are a few other practical concerns that should be considered by U.S. companies and individuals who have been doing, or intend to do, business in Sudan. One is the lack of retroactivity in the revocation of sanctions. OFAC has confirmed that the revocation will not affect past, present, or future OFAC enforcement investigations or actions related to activities that were prohibited prior to the embargo’s rescission. Another is the high risk of corruption in the form of bribery and money laundering. Sudan remains one of the most challenging environments for anti-corruption in the world as evidenced by its ranking of 170 out of 176 nations in the most recent Corruption Perceptions Index. Any transaction involving the Government of Sudan or Sudanese officials should thus be rigorously assessed and monitored to ensure compliance with the FCPA and any applicable AML regulations. Finally, that Sudan remains a SST in the eyes of the State Department and contains large groups of sanctioned persons suggests there is a risk that the U.S. could re-impose comprehensive sanctions if there is any breakdown in Sudan’s recent progress towards stability and cooperation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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