On October 6, 2017, the U.S. Department of State announced the revocation of economic sanctions on Sudan and the Government of Sudan under Executive Orders 13067 and 13412. The State Department cited “the Government of Sudan’s sustained positive actions to maintain a cessation of hostilities in conflict areas in Sudan, improve humanitarian access throughout Sudan, and maintain cooperation with the United States on addressing regional conflicts and the threat of terrorism” as the basis for the revocation. The revocation became effective on October 12, 2017.

The Sudanese Sanctions Regulations (SSR), first issued in 1998, have greatly restricted business involving Sudan for almost two decades. The sanctions blocked transactions by U.S. persons with the Government of Sudan and prohibited U.S. persons from exporting goods, technology, or services to Sudan. The regulations further prohibited the performance by any U.S. person of a contract “in support of an industrial, commercial, public utility, or governmental project in Sudan” as well as transactions related to the petroleum or petrochemical industries there. Consequently, dealings involving Sudan entailed high regulatory risk.

As a result of the revocation, effective, October 12, 2017, U.S. persons are no longer prohibited from engaging in transactions previously prohibited under the SSR. The State Department’s announcement represents the culmination of a process that began with a general license on January 17, 2017, providing relief from the SSR based on progress made by Sudan on the issues noted above, and was coupled with a process set forth in a new Executive Order, 13761 (and later amended by Executive Order 13804), for a permanent revocation of sanctions if progress was sustained. Although the revocation of these sanctions eliminates many risks involved with dealings in Sudan, some risks still remain. These include:

  • Risks under other sanctions programs. The revocation does not affect sanctions imposed under Executive Orders other than 13067 and 13412, including sanctions relating to Darfur, South Sudan, or Global Terrorism. This means that various Sudanese persons, and persons that operate in Sudan, designated under other programs remain designated. Vigilant screening remains important. Furthermore, because Sudan remains designated as a “State Sponsor of Terrorism” (SST), the Terrorism List Governments Sanctions Regulations (TLGSR) prohibit U.S. persons from engaging in transfers from the Government of Sudan that would constitute a donation to a U.S. person, or with respect to which a U.S. person knows, or has reasonable cause to believe, would pose a risk of furthering terrorist acts in the United States. A general license in the TLGSR authorizes U.S. persons to engage in financial transactions with respect to stipends and scholarships covering tuition and related educational, living, and travel expenses provided by the Government of Sudan to Sudanese nationals who are enrolled as students in an accredited educational institution in the United States. Likewise, OFAC regulations continue require a license for the export of agricultural commodities, medicine, or medical devices to the Government of Sudan or to entities there. OFAC has provided a new general license to allow such exports.
  • Export control risks. Goods, technology, and software subject to the Export Administration Regulations (EAR) enforced by the Department of Commerce that are controlled for anti-terrorism purposes still require a license for export, re-export, or transfer to Sudan. The effect of this is that nearly any item on the Commerce Control List (CCL) requires a license for export to Sudan. Items not listed on the CCL but which are subject to the EAR (known as EAR99 items) also will require a license for certain end uses or end users. In addition to the licensing requirements for items subject to the EAR, any item subject to the International Traffic in Arms Regulations (ITAR) administered by the Department of State also requires a license to export to Sudan or South Sudan. Because the ITAR lists Sudan (not the Republic of South Sudan) as a proscribed destination pursuant to a United Nations Security Council arms embargo, the U.S. does not grant such licenses.
  • Risk that sanctions will be re-imposed. The State Department’s decision to keep Sudan listed as a State Sponsor of Terrorism and its identification of many areas of continued concern there are a reminder that the U.S. government could choose at a later date to re-impose sanctions should Sudan backslide on its progress to date. In particular, the State Department has said that it will be looking to Sudan to fully implement U.N. resolutions relating to North Korea’s nuclear program. Sudan’s continued listing as a State Sponsor of Terrorism also carries a continued risk of negative publicity and reputational harm for companies conducting business with Sudan. Reporting of such transactions by public companies is monitored, and may be requested, by the Office of Global Security Risk at the Securities and Exchange Commission.
  • Outstanding judgments against Sudan. Plaintiffs with outstanding judgments against the government of Sudan related to its support of terrorism, such as the recent $10.2 billion judgment against the nation for harboring terrorists responsible for the 1998 U.S. embassy bombings, could seek to attach any of Sudan’s interests in property that enters into the United States.

In addition to these risks, U.S. persons remain liable for violations of the SSR that predate January 18, 2017.

In sum, the revocation of economic sanctions against Sudan under Executive Orders 13067 and 13412 represents a substantial easing of commercial restrictions and an opportunity for new business, but significant risks remain. Companies considering dealings with Sudan should be aware of the various “rump” restrictions that remain in place and should maintain a vigilant screening process given the many sanctioned parties that still may operate there. They also may wish to consider whether any past dealings they may have had with Sudan before January 18, 2017 complied with the SSR, as there remains the possibility that OFAC may bring enforcement actions for older activity that predates the loosening of sanctions.

On January 13, 2017, the United States suspended most of the comprehensive embargo that it has maintained on Sudan since the Clinton Administration. As described further below, new authorizations have been issued to permit U.S. persons to engage in most commercial activity with Sudan, including the exportation of most goods or services to Sudan and persons in Sudan, and to unblock property previously frozen under these sanctions. However, sanctions relating to the Darfur region of Sudan remain, and these, along with other sanctions programs relating to terrorism and weapons of mass destruction, may continue to affect transactions with Sudan.

 

Issuance of New Executive Order

 

On January 13, President Obama issued Executive Order (EO) 13761 which announced the new U.S. policy changes towards Sudan. In recognition of a series of “positive actions” by the Government of Sudan, the EO announced that it would terminate most aspects of the two previous EOs—EO 13067 (Nov. 3, 1997) and EO 13412 (Oct. 13, 2006)—that had authorized the comprehensive embargo on Sudan. Importantly, however, this revocation will only occur on July 12, 2017 and only after the Secretary of State, in consultation with other Administration colleagues, publishes a notice that “the Government of Sudan has sustained the positive actions that gave rise to this order….”

 

Relaxation of OFAC Sanctions

 

In parallel to the new Executive Order, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) dramatically relaxed the existing restrictions imposed in the Sudanese Sanctions Regulations (SSR). Specifically, OFAC issued a final rule establishing a new General License (31 C.F.R. 538.540) (which it refers to as the “2017 Sudan Rule”), authorizing all transactions prohibited by the SSR, including transactions in which the Government of Sudan has an interest.

As OFAC has clarified in a Fact Sheet on its website, pursuant to the 2017 Sudan Rule, “U.S. persons will generally be able to transact with individuals and entities in Sudan, and the property of the Government of Sudan subject to U.S. jurisdiction will be unblocked.” In particular, this means that U.S. persons can:

  • Import goods or services of Sudanese origin.
  • Export most goods, technology, and services to Sudan (a separate licensing requirement may apply to goods or technology subject to the Export Administration Regulations (EAR) as summarized in the subsection below).
  • Engage in transactions with persons blocked pursuant to the SSR (designated by the tag [SUDAN]).
  • Engage in transactions in which the Government of Sudan has an interest.
  • Engage in “all transactions necessary to unblock any property or interests in property that were blocked pursuant to 31 C.F.R. 538.201″.
  • Engage in transactions relating to the petroleum or petrochemical industries in Sudan.

OFAC has clarified in a set of Frequently Asked Questions posted on its website that the 2017 Sudan Rule supersedes existing general licenses as well as existing specific licenses or pending specific license applications. U.S. persons need only now comply with the terms of the 2017 Sudan Rule and not with any additional conditions contained in pre-existing and more restrictive general or specific licenses.

The 2017 Sudan Rule did not remove all restrictions on transactions with Sudan. In particular, the following restrictions remain:

  • Export of Agricultural Commodities, Medicine, or Medical Devices: Due to a statutory restriction, exports or re-exports of agricultural commodities, medicine, or medical devices eligible for export under the Trade Sanctions Reform and Export Enhancement Act (TSRA) “must be shipped within the 12 month period beginning on the date of the signing of the contract for export or reexport.”
  • Transactions with Other SDNs: While U.S. persons may now engage in transactions with persons designated pursuant to the SSR (identified with a [SUDAN] tag), the changes did not remove any other designations. U.S. persons, therefore, remain prohibited from engaging in virtually all transactions with persons remaining on the SDN list designated pursuant to other programs, including inter alia, Darfur ([DARFUR]), South Sudan ([SOUTH SUDAN]), terrorism ([SDGT]), or proliferation ([NPWMD]).
  • Other Agency Restrictions: OFAC’s 2017 Sudan Rule also did not affect any restrictions administered by other agencies, including but not limited to the export restrictions administered by the Bureau of Industry and Security (BIS) (see below).

 

BIS Relaxations

 

Simultaneously, BIS issued a new review policy for certain limited Sudan-related exports. BIS will continue to require a license for the export or re-export to Sudan of nearly all goods, technology, or software subject to the EAR that are specified on the Commerce Control List, and will continue to maintain its general policy of denial for applications to export or reexport most controlled items when intended for any end-user or end-use in Sudan, with two exceptions. BIS has now adopted a general policy of approval for the following two types of exports or reexports:

  • Civil Aircraft: items controlled only for AT reasons and “that are intended to ensure the safety of civil aviation or the safe operation of fixed-wing commercial passenger aircraft.”
  • Railroads: items controlled only for AT reasons that “will be used to inspect, design, construct, operate, improve, maintain, repair, overhaul or refurbish railroads in Sudan.”

This general policy of approval, however, does not apply to transactions involving “sensitive” end-users, including Sudan’s “military, police, and/or intelligence services and persons that are owned by or are part of or are operated or controlled by those services.”

 

Additional Risk Factors

 

In addition to the lingering sanctions and export control restrictions summarized above, there are additional risk factors to consider before undertaking any transactions with Sudan. These include, inter alia:

  • State Sponsor of Terrorism: These relaxations did not affect Sudan’s current designation as a state sponsor of terrorism.
  • Skepticism from the New Administration and the Hill: The continuation of the relaxations will be heavily dependent on the views of the incoming Administration. President Trump’s administration will be responsible for making the notification required in the EO and it could revoke these changes as quickly as President Obama’s administration implemented them.
  • Corruption Risks: Sudan currently ranks 165th out of 168 in Transparency International’s 2015 Corruption Perceptions Index.