Lista M. Cannon, David M. Harris and Nicola Kelly
The “Arab Spring” has brought significant challenges for organisations doing business in the Middle East. In the latest development, the EU has imposed new sanctions on Syria. Organisations currently and prospectively conducting business in or in connection with Syria should pay close attention.
Against a backdrop of a constantly evolving situation in Syria, this client briefing highlights the impact of the new sanctions for UK, EU and international organisations and individuals doing business in or in connection with Syria.
EU Regulation and Council Decision
On 9 May 2011, the Council of the European Union adopted Council Regulation (EU) No 442/2011 (the “Regulation”) and a Council Decision 2011/273/CFSP (the “Council Decision”). The Regulation and Council Decision, which came into force on 10 May 2011, places, amongst other matters, asset freezing measures on 13 officials and associates of the Syrian regime who have been identified by the Council as being responsible for the violent repression against the civilian population in Syria, as well as an embargo on exports of certain arms and equipment that could be used for internal repression.
Somewhat controversially, and by way of apparent compromise following disagreement between the EU Member States, President Bashar al-Assad and his defence minister are not included in the list of individuals subject to the financial sanctions. Nevertheless, the EU has adopted the sanctions with the intention of achieving a swift change in policy by the Syrian leadership.
Implementation of the EU Regulation
The Regulation contains provisions broadly covering the freezing of funds and economic resources and export and import restrictions.
The Regulation is directly applicable in all Member States and therefore primary legislation within each country is not required to implement the restrictive measures. The Regulation states that Member States are required to implement rules on the penalties applicable to infringements of the Regulation. The Regulation states that the penalties provided for shall be effective, proportionate and dissuasive.
As a result of the Regulation, the UK has passed new laws to give effect to penalties for infringements of the Regulation. The Syria (Asset-Freezing) Regulations 2011 came into force on 10 May 2011 and includes provisions for granting a licence and details the penalties for infringing the Regulation.
Territorial scope of the Regulation
The Regulation applies:
- Within the territory of the European Union, including its airspace;
- On board any aircraft or any vessel under the jurisdiction of a Member State;
- To any person inside or outside the territory of the European Union who is a national of a Member State;
- To any legal person, entity or body which is incorporated or constituted under the law of a Member State; and
- To any legal person, entity or body in respect of any business done in whole or in part within the European Union.
Summary of Selected Provisions of the Council Decision and Regulation
The Regulation states that all funds and economic resources belonging to, owned, held or controlled by natural or legal persons, entities and bodies listed in Annex II shall be frozen. Annex II contains a list of individuals, entities and bodies who have been identified by the Council as being responsible for the violent repression against the civilian population in Syria and natural or legal persons and entities associated with them. In addition, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities and bodies listed in Annex II. It is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is, directly or indirectly, to circumvent the financial sanctions referred to above.
The terms “Funds” and “Economic Resources” have been interpreted broadly in the Regulation.
There are various derogations and exceptions to the financial sanctions, including but not limited to the following:
- the prohibition on making funds or economic resources available to or for the benefit of the natural or legal persons, entities or bodies listed in Annex II shall not apply to the additions to frozen accounts of: (i) interest or other earnings on those accounts; or (ii) payments due under contracts, agreements or obligations that were concluded or arose before the date on which the account became subject to this Regulation, provided that any such interest, other earnings and payments are frozen in accordance with the Regulation;
- the prohibition of making funds or economic resources available to or for the benefit of the natural or legal persons, entities or bodies listed in Annex II will not prevent financial or credit institutions in the European Union from crediting frozen accounts where they receive funds transferred to the account of a listed natural or legal person, entity or body, provided that any additions to such accounts will also be frozen. The financial or credit institution shall inform the relevant competent authority about any such transactions without delay;
- provided that a payment by a person, entity or body listed in Annex II is due under a contract or agreement that was concluded by, or an obligation that arose for the person, entity or body concerned before the date on which that person, entity or body had been designated, the competent authority of the Member States may authorise the release of certain frozen funds of economic resources, provided that the payment is not directly or indirectly received by a person or entity referred to in Annex II; and
- the competent authorities in Member States may authorise the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources if, for example, they have determined that the funds or economic resources are necessary to satisfy the basic needs of persons listed in Annex II of the Regulation, including payments for foodstuffs and rent.
The Regulation states that without prejudice to the applicable rules concerning reporting, confidentiality and professional secrecy, natural and legal persons, entities and bodies shall: (i) supply immediately any information which would facilitate compliance with this Regulation, such as accounts and amounts frozen, to the competent authority in the Member State and shall transmit such information, either directly or through the Member States, to the Commission; and (ii) cooperate with that competent authority in any verification of this information.
Export and Import Restriction
The Council Decision introduces an arms embargo on Syria.
The Regulation, subject to certain exceptions, prohibits the sale, supply, transfer or export, directly or indirectly, of equipment which might be used for internal repression as listed in Annex I, whether or not originating in the European Union, to any person, entity or body in Syria or for use in Syria. The type of equipment includes, but is not limited to, firearms and ammunition, bombs and grenades, vehicles modified for the purpose of riot control and certain protective equipment that is not controlled by the Common Military List. It is also prohibited to participate knowingly and intentionally, in activities the object or effect of which is to circumvent this prohibition. However, the competent authorities in the Member States have the power to authorise the sale, supply, transfer or export of equipment which may be used for internal repression if they determine that such equipment is intended solely for humanitarian or protective use.
It is also prohibited, subject to certain exemptions, to provide any person, entity or body in Syria or for use in Syria:
- directly or indirectly, technical assistance related to the goods and technology listed in the Common Military List of the European Union or related to the provision, manufacture, maintenance and use of goods included in that list;
- directly or indirectly, technical assistance or brokering services related to equipment which might be used for internal repression as listed in Annex I of the Regulation; and
- directly or indirectly, financing or financial assistance related to the goods and technology listed in the Common Military List or in Annex I, including in particular grants, loans and export credit insurance, for any sale, supply, transfer or export of such terms, or for any provision of related technical assistance.
It is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the prohibitions referred to above.
The competent authorities in Member States may authorise the provision of technical assistance, financing and financial assistance in certain situations, including if it is related to non lethal military equipment or equipment which might be used for internal repression if they determine that such equipment is intended solely for humanitarian or protective use.
The Council Decision also provides that subject to certain exceptions, Member States should take necessary measures to prevent the entry into, or transit through, their territories of the persons responsible for the violent repression against the civilian population in Syria, and persons associated with them, as contained in the Annex to the Decision.
 A full copy of the Regulation and Council Decision can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:121:FULL:EN:PDF