New EU-Syria sanctions come into force

Jan 17, 2012 12:00 AM

The EU has implemented new sanctions against Syria, as set out in Regulation 36/2012 (the "New Regulation") repealing and replacing the existing sanctions regime. The New Regulation came into force on 19 January 2012.
This implements the measures adopted under the EU Council Decision of 1 December 2011 (the "Council Decision").

The key points to note from the New Regulation are as follows:

  • The concept of a Syrian person, entity or body (a "Syrian Person") is defined widely, including non-Syrian companies outside Syria which are owned or controlled by Syrian parties. This concept is applied in the context of a number of the restrictions through the New Regulation, though not all.
  • There is an outright prohibition on supply of key listed oil and gas equipment and technology to Syrian Persons or for use in Syria, together with provision of supporting ancillary services.
  • Supply of certain equipment, technology and software, together with related services, in the telecoms and information security sectors is controlled and subject to licence.
  • Provision of certain listed equipment and technology for use in new Syrian power plants is prohibited.
  • There are restrictions on investment in Syrian Persons engaged in construction or installation of Syrian power plants (supplementing the existing investment restrictions in relation to the oil and gas sector).
  • There are restrictions on financial services, in particular targeting dealings with the Central Bank of Syria, together with restrictions on various forms of relationship with other Syrian banks.
  • Provision of insurance to the Syrian Government, its agencies and persons acting on its behalf is prohibited, subject to a limited number of exemptions.
  • The existing export restrictions on arms and internal repression items, together with existing import controls on crude oil, continue to remain in force, together with the designated party controls.

Historic regime
The EU has imposed a series of measures against Syria over the preceding year, largely in response to the violence against and repression of the civilian population.
The key pre-existing measures in this respect are set out below.

  • The EU Member States operate an arms embargo in respect of Syria, together with restrictions on related technical and financial assistance.
  • It is prohibited to supply to Syria certain sensitive items used in internal repression of the civilian population, including certain devices used to initiate explosions (which may have alternative use in the energy or mining sectors) and certain chemicals.
  • There is a ban on purchase from Syria of crude oil and petroleum products.
  • Investment (including provision of loans and purchase of shares) in certain oil and gas sectors is restricted.
  • It is prohibited to make available funds or economic resources, directly or indirectly, to or for the benefit of designated parties in Syria. Any funds or economic resources received from such parties are to be frozen and a notification made to HM Treasury (or alternative national authority in other EU Member States).
  • The list of designated parties has not as yet been expanded further since the previous extension on 1 December 2011.
    As discussed previously, this now includes a number of media organisations and oil companies, including the Syria Trading Oil Company which is generally thought to be responsible for the entire export of oil from Syria. It is likely that the list of designated parties will be further extended following a meeting of the EU Foreign Affairs Council later in January 2012.

These measures continue to be applicable and are included as part of the New Regulation.

Syrian person
The New Regulation provides that a Syrian Person shall mean:

  • Syrian companies;
  • the Syrian State or Syrian public authorities;
  • natural persons in, or resident in, Syria; or
  • any legal persons owned or controlled directly or indirectly by any of the above.

This to a large extent follows the approach adopted in relation to an Iranian person under the EU Iran sanctions, further details of which can be found in our client alert addressing the EU Iran sanctions introduced in October 2010.
Similar to the Iran sanctions, it is the last limb of the definition that is most significant regarding the scope of the application of the New Regulation. This would potentially extend the scope of the New Regulation to non-Syrian companies located outside Syria in which Syrian parties hold a stake. This definition is applied to a number of the restrictions set out in the New Regulation, though not all, as discussed in further detail below.

Oil and gas
Oil and gas equipment and technology listed in Annex VI to the New Regulation are prohibited from being supplied to Syrian Persons or for use in Syria.
Equally, the provision of supporting ancillary services such as financial or technical assistance is prohibited in respect of Annex VI items being supplied to Syrian Persons or for use in Syria.

Annex VI to a large extent mirrors the list of controlled oil and gas items under the EU Iran sanctions, including basic mechanical apparatus, sophisticated equipment, chemicals, catalysts, software and broadly defined technologies.
Generally, these items are included on the basis that they may be used in the following areas of the oil and natural gas industry (though supply of listed items is prohibited irrespective of whether they are intended for end-use in these sectors):

  • exploration of crude oil and natural gas;
  • production of crude oil and natural gas;
  • refining; and
  • liquefaction of natural gas.

Annex VI is exhaustive. Any oil and gas equipment not falling within Annex VI is not subject to the oil and gas controls. However, the fact that Annex VI is intended to catch all key equipment and technology required for exploration through production phases means that it has a wide ranging impact on the supply of equipment and technology to Syria's oil and gas industry (including operations outside the territory of Syria).
Supply of restricted oil and gas items cannot be licensed, though there is an exemption for pre-existing contracts where advanced notice is provided to the relevant competent authorities.

Telecoms and information security
Subject to the possibility of obtaining a licence, there are restrictions on supply to Syria of certain listed equipment, technology and software which may be used for monitoring or interception of internet or telephone communications.
This is listed in Annex V to the New Regulation, which includes items used for speaker recognition, radio frequency monitoring, network interception, remote infection and various other telephonic and IT surveillance and monitoring equipment, together with related software and technology.

In addition, subject to the possibility of obtaining a licence, it is prohibited to supply any kind (listed or non-listed) of telecommunications or internet monitoring or interception services to Syrian public authorities or persons acting on their behalf (in or outside Syria).
This is intended to cover services used to access incoming and outgoing telecommunications and associated data for the purpose of extraction, recording, decoding or other analytical processes.

Power sector
Supply of key listed equipment and technology used in construction or installation of new power plants in Syria is prohibited. The list of restricted items includes various forms of turbines and electric motors and generators. It appears that the intention is to control these items only where supplied for end-use in new power plants used for electricity production, but not for other applications.
Supply of restricted items in this respect cannot be licensed, though there is an exemption for pre-existing contracts where advanced notice is provided to the relevant competent authority.

Investment restrictions
The investment restrictions have been extended to cover Syrian Persons engaged in the construction or installation of new power plants. This supplements the existing investment restrictions on Syrian Persons engaged in exploration, production or refining of crude oil.
The types of activities restricted under the investment controls remain the same, including providing finance to, acquiring shares in or forming joint ventures with Syrian Persons engaged in the above oil and gas and power sector activities.

Banking and insurance
Syrian banks are prohibited from opening new branches, subsidiaries or representative offices in EU Member States and similarly will generally be prohibited from establishing new joint ventures, acquiring an interest in or maintaining correspondent relationships with banks in EU Member States.
Conversely, EU financial institutions are prohibited from doing the same in Syria.

The New Regulation introduces restrictions on the supply of banknotes and coinage to the Central Bank of Syria. Involvement in the sale of Syrian public bonds is also prohibited, together with supporting activities in the brokering or issuance of such bonds.
No funds transfer controls have been introduced though in respect of movements of funds between (non-listed) private parties, akin to the EU or UK sanctions against Iran.

It is prohibited to provide insurance or reinsurance to the Syrian Government or persons acting on its behalf. This could potentially extend to a number of Syrian commercial parties given the widespread nature of Government involvement in Syrian industry and commerce.
As with the EU Iran sanctions, there is a carve-out for compliance with existing insurance and re-insurance agreements (for example payment of claims), subject to the designated party controls referred to above. This carve-out does not extend to renewal of coverage though.

There are also exemptions for provision of travel/health insurance, third party or compulsory insurance and provision of insurance to the owners of vehicles, vessels or aircraft.
The new obligations on the financial services sector, particularly when combined with the pre-existing designation of various Syrian financial institutions, will likely create increased delays and difficulties in obtaining finance and insurance for Syrian transactions and payments from Syrian customers.

In ensuring compliance with the new sanctions regime, the key practical take-away points for business are:

  • the need to consider the application of the sanctions not only to business with Syria but also to transactions with non-Syrian companies located anywhere in the world (including in the EU) which are nevertheless to some extent owned or controlled by Syrian parties;
  • the need to consider the application of the sanctions not only to natural persons in Syria but also to natural persons located anywhere in the world (including in the EU) who are normally resident in Syria;
  • the need to screen goods, technology, software and supporting financial and technical services supplied to Syria and Syrian Persons, particularly in relation to the following sectors: oil and gas, chemicals, mining, electricity/power generation, telecoms, hi-tech, IT and military;
  • the increased practical difficulties in obtaining payment from Syrian customers and/or financial support and insurance for Syrian transactions;
  • the prohibition on provision of insurance and reinsurance to the Syrian Government and related parties; and
  • the continuing need to screen counter-parties, end-users, banks and other third parties benefiting from the transaction against the list of designated parties.


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