United States: UN and U.S. Economic Sanctions Against Iraq Lifted
Last Updated: May 27 2003

Consistent with last Thursday's UN Security Council Resolution lifting multilateral economic sanctions against Iraq, the Treasury Department's Office of Foreign Assets Control ("OFAC") has issued a general license on Friday 23, May, 2003 that lifts most of the U.S. economic sanctions against Iraq. That general license is effective immediately.

United Nations:

On Thursday, May 22, the UN Security Council (by a 14-0 vote, with Syria absent) adopted a resolution removing all trade, financial and economic sanctions against that nation established by prior UN resolutions, with the exception of prohibitions related to the sale or supply of arms to Iraq.

The resolution also contains a number of provisions relating to the governance of Iraq and the continuation of funding for reconstruction efforts:

  • The resolution recognizes the United States and the United Kingdom as "occupying powers" under unified command in Iraq (the "Authority") and specific authorities, obligations and responsibilities available to this entity under applicable international law. It supports the formation of an Iraqi interim administration (IIA) as a transitional administration run by Iraqis until an internationally recognized, representative government is established by the people of Iraq and assumes the responsibilities of the Authority. A UN Special Representative will also have a role in the coordination of humanitarian and reconstruction activities by UN agencies, relief organizations, and other international organizations.
  • The resolution establishes a new Development Fund for Iraq (DFI) to be held at the Central Bank of Iraq and notes that revenues from the Fund shall be dispersed at the direction of the Authority, in consultation with the IIA, to meet the humanitarian needs of the Iraqi people, to provide for the economic reconstruction and repair of Iraq's infrastructure, to continue disarmament activities, for the costs of civil administration and for other purposes.
  • The resolution calls for the orderly phase-out of the Secretary General's responsibilities under Security Council resolutions 1472 and 1476 over a six-month period and termination over this period of the Oil for Food Program. It also requests that the UN transfer $1 billion (US) to the DFI as soon as possible, calls upon international financial institutions to assist in the reconstruction and development of Iraq, and welcomes creditors to seek a solution to Iraq's debt problems.
  • With respect to oil and gas sales, the resolution calls for all export transactions to be made consistent with prevailing international market best practices with all revenues -except for a 5% set aside to be made available to a specially earmarked Compensation Fund - deposited into the DFI until an internationally recognized representative government in Iraq is properly constituted. The resolution also stipulates that until December 31, 2007 (unless the Council decides otherwise) petroleum, petroleum products and natural gas originating in Iraq shall be immune to legal challenges and claims, except for environmental damages resulting from ecological accidents, including oil spills.

U.S. Government Measures:

Effective today, Friday, May 23, 2003, OFAC has issued a general license authorizing virtually all prospective transactions involving Iraq. U.S. persons are thus authorized to engage in commercial activities in Iraq, including investment in Iraq and the provision of goods and services, although controls continue to exist in the following areas:

Exports and re-exports of U.S.-origin goods: Goods or technology that are controlled to Iraq for export or re-export under the current Export Administration Regulations must still be licensed by OFAC. It is expected that this licensing jurisdiction will shortly be transferred back to the Commerce Department's Bureau of Industrial Security, which is in turn expected to publish regulations as early as next week that set forth amended licensing requirements for exports and re-exports to Iraq. It is reportedly anticipated that the export controls will be liberalized.

The general license also does not eliminate the requirement to comply with State Department's International Traffic in Arms Regulations, which control the export and re-export of defense articles and associated technical data and defense services. These restrictions remain unchanged.

Blocked Property: All property and interests in property that were blocked under the Iraqi Sanctions Regulations continues to be blocked.

Transaction with certain Designated Persons Prohibited: Transactions are prohibited with persons on the Defense Department's watch list, other persons to be designated by the UN's 661 Committee, and any persons currently designated on OFAC's "specially designated nationals" list.

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The V&E Task Force on Iraq

To assist our clients in receiving updates on this situation and in understanding these developments, Vinson & Elkins has formed a Task Force on Iraq. The Task Force includes lawyers in our Middle East Energy, Infrastructure and Transactional Practice, Export Controls and Economic Sanctions, Public Policy, U.S. Government Contracts and International Procurement, and International Litigation, Arbitration, and Claims, who have experience in the Middle East and expertise in the issues presented by the current situation. The Task Force will provide briefings on selected key topics in the coming weeks, including a study of selected vital issues for clients wishing to do business in post-war Iraq. The Task Force will also continue to monitor the status of the Iraq economic sanctions and export control issues and inform those who wish of certain new developments. For further information, click here.

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