March 1, 2011

United States Imposes Sanctions on Qadhafi Family and the Libyan Government and Its Entities

Holland & Knight Alert
Jonathan M. Epstein

On the evening of February 25, 2011, President Obama issued an Executive Order requiring U.S. persons (e.g., U.S. banks, companies and individual citizens) to block the assets of Muammar Qadhafi and four of his family members. The Executive Order also requires U.S. persons to block all assets of the Government of Libya (including its instrumentalities and controlled entities) and assets of the Central Bank of Libya. This Executive Order was issued just hours after a briefing by the White House Press Secretary indicating that sanctions were being finalized, and just one day after the Department of Treasury Financial Crimes Enforcement Network (FINCEN) issued a notice advising U.S. financial institutions to use enhanced scrutiny with respect to transactions by senior Libyan political figures.

Press reports indicate that U.S. officials have been working to identify Libya's financial assets abroad, which by some estimates may total more than $100 billion in foreign-exchange reserves and $30 billion in assets held by the Libyan Investment Authority, Libya's foreign sovereign wealth fund. While the Obama administration had been criticized for its inaction, it appears the delay and timing of these sanctions were in part based on confirmation that U.S. embassy officials and other U.S. citizens had been successfully evacuated from Libya.

Overview of U.S. Sanctions

OFAC Designations and General Order. The Department of Treasury Office of Foreign Assets Control (OFAC), the agency that principally administers sanctions, acted in concert with the White House by:

  • designating Muammar Qadhafi and the family members identified in the Executive Order as Specially Designated Nationals (SDN)
  • issuing a general license authorizing transactions with financial institutions owned by the Government of Libya that are organized under the laws of a country other than Libya; we note that the Bahrain-based Arab Banking Corp. announced that it was not subject to U.S. or UN sanctions; press reports indicate that the Central Bank of Libya holds a 59.3 percent interest in Arab Banking Corp.

Entities Owned and Controlled by the Government of Libya. One of the most far reaching aspects of the Executive Order is the requirement for U.S. persons to block assets of Libyan Government-owned entities (other than as exempted in the General License). The Libyan Government owns and controls a number of entities in the aviation, maritime and energy sectors. For example, it is likely that all of the following are owed by the Government of Libya and thus subject to blocking:

  • The Libyan National Oil Company
  • Libyan Airlines
  • United Aviation (a Libyan business aviation company)
  • General National Maritime Transport Company (a Libyan shipping line)
  • Libyan National Oil Company (NOC) (which has a large number of subsidiaries)
  • Libya Investment Authority

Further, there will likely be considerable concern as to whether OFAC will subsequently designate as SDNs other Libyan entities, or even certain entities organized in countries other than Libya, that OFAC determines are owned and controlled by the Libyan Government.

U.S. Dollar Clearing Transactions. This Executive Order will also affect transactions not involving U.S. entities but denominated in U.S. dollars, as U.S. banks would be required to block assets in transactions relating to these blocked individuals or entities.

Suspension of Arms Export License. The President also instructed the U.S. State Department to suspend all licenses for sale of defense articles and defense service to Libya.

Commercial Exports. The U.S. Commerce Department Bureau of Industry and Security (BIS) has not yet issued any new restrictions on exports of commercial goods to Libya. However, existing regulations already require a license for most sophisticated commercial goods (e.g., those items listed on the Commerce Control List).

International Sanctions

UN Sanctions. On Saturday, February 26, 2011, the UN Security Council unanimously passed Resolution 1970 calling on all UN members to impose:

  • an arms embargo on Libya
  • a freeze on assets of Muammar Qadhafi and five other designated individuals
  • a travel ban on 16 designated individuals

European Union (EU) Sanctions. A press report from the Council of the EU on February 28, 2011, announced the freezing of assets and a visa ban on Qadhafi and other individuals. It is likely further sanctions will be forthcoming.

Fluid Situation

This alert is current as of March 1, 2011. Given the fast pace with which events are transpiring in Libya, the U.S. sanctions policies toward Libyan entities will also most likely change. Further, to the extent that the opposition to the Qadhafi Government gains control of instrumentalities of the Libyan Government, the U.S. may issue general licenses or alter the scope of the sanctions.

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