UK: Sanctions Against Libya

From 25 February to 2 March 2011, the United States (US), United Nations (UN), European Union (EU) and United Kingdom (UK) all imposed various sanctions on Libya, implementing an arms embargo, freezing certain Libyan assets and narrowing the scope of permissible Libyan commerce for businesses and financial institutions.

The US, UN, EU and UK sanctions regimes all differ from each other in important ways, so that compliance with one regime does not guarantee compliance with the others.

What Are They And Who Do They Apply To?


On 25 February 2011, the US became the first to introduce sanctions targeted at the recent unrest when President Obama passed Executive Order 13566 (the US Order). The US Order requires US persons to block the transfer, payment, export, withdrawal or other dealings in property, or interests in property, belonging to the Libyan Government, the Central Bank of Libya or any individuals specified in the Order (Colonel Qadhafi, and members of his family) where the property and interests are within the US or being held by US persons, including US banks and overseas institutions.

The US Order applies to US persons which are defined as, "any US citizen or national, permanent residential alien, entity organised under the laws of the US or any jurisdiction within the US (including foreign branches), or any person in the US".

It is important to note that the prohibitions within the US Order apply "notwithstanding any contract entered into or any licence or permit granted prior to their enforcement" and therefore pre-existing contracts would appear to be subject to the US Order.


On 26 February 2011, the UN Security Council adopted UN Resolution 1970 (2011), which requires (under Article 17) UN Member States to freeze all funds, financial assets and economic resources on their territories which are owned or controlled, directly or indirectly, by Qadhafi and certain members of his family. In addition Member States are to ensure that funds, financial assets or economic resources are prevented from being made available to those people by their nationals or by individuals within their territories.

Importantly, UN Resolution 1970 (2011) states that its measures shall not prevent "payment due under a contract entered into prior to the listing of such person or entity" provided that certain other conditions, such as giving notice to the UN committee on administering Libyan sanctions, are met. This is in contrast to the US position, which appears to prohibit compliance with preexisting contracts falling within the US Order.


Next in time came the UK sanctions under The Libya (Financial Sanctions) Order 2011 (the UK Order) which came into force in the UK on 27 February 2011. It has since been supplemented by the Libya (Asset-Freezing) Regulations 2011, and separate legislative amendments since. The UK Order was brought into force to give effect to UN Resolution 1970 and applies to any person in the UK, any entity incorporated in the UK and any British national located outside the UK. Subsidiaries of UK companies operating wholly outside the UK that do not have legal personality under UK law fall outside the remit of the Order.

It is important to note that the asset freeze under the UK Order is not limited to assets held in the name of Qadhafi and other designated persons; it extends to any funds or assets directly or indirectly owned or controlled by those designated persons. The list of designated persons can be found at and has been supplemented by the EU Regulations which came into force after the UK Order (see below). Firms doing business with Libyan entities ought to consider carefully the extent to which entities with links to the Libyan state could be regarded as "owned or controlled, directly or indirectly" by the designated Libyan individuals or "acting on behalf or at the direction of" those individuals. Guidance published by HM Treasury on this point does not clarify which entities fall within this category and this has the potential to be a controversial issue, which may result in UK firms being reluctant to trade with Libyan entities so as to protect themselves from committing an offence under the sanctions legislation.

Following UN Resolution 1970 (2011), the UK Order does not expressly apply to the government of Libya in its own right.

However, HM Treasury guidance warns that "the financial sector and other persons should bear in mind that Muammar Qadhafi and his family have considerable control over the Libyan state and its enterprises in deciding how to conduct proper due diligence over any transactions involving Libyan assets" and as such dealings with State assets might be caught by the UK Order. This is to be contrasted with the US sanctions which expressly apply an asset freeze to the government of Libya, including the Central Bank and other state-controlled agencies.

Many of the offences under the UK Order only apply where a person "knows, or has reasonable cause to suspect" that the transaction is prohibited or relates to prohibited persons or property. This emphasises the importance of having effective compliance processes in place to ensure that a transaction does not directly or indirectly involve a designated person or entity.


Council Regulation 204/2011 (the Regulation) of 2 March 2011 came into force on 3 March 2011 to impose an arms embargo, a ban on the supply of internal repression equipment, and a freeze on funds and economic resources of Qadhafi and his family and other persons (close advisors and other key members of the regime) listed in the Annexes to the Regulation.

The Regulation is wide ranging in its application and applies within the territory of the EU to any person who is a national of a Member State, or any legal person incorporated under the law of a Member State and to any legal person, entity or body in respect of business done in whole or in part within the EU.

There are number of exceptions to the blanket prohibitions, including release of frozen funds or assets for "basic needs" which is defined to include the payment of insurance premiums (Article 7) and payments in respect of pre-existing contracts (Article 9), which again is in contrast to the US approach.

There is a defence under Article 11(2) whereby no liability for breach of sanctions will arise for any natural or legal persons who did not know, and had no reasonable cause to suspect that their actions would infringe the general prohibition in Article 5(2).

The list of individuals whose assets were frozen was expanded on 11 March 2011 by Council Implementing Regulation 233/2011 to include various Libyan state entities. It is understood that the EU may expand the sanctions further, and that measures under consideration include the possible targeting of Libya's oil and gas revenues.

Effect of the sanctions

These sanctions are not presently as wide ranging as those in relation to Iran, and (with the exception of the various export prohibitions) are focussed on restricting dealings with particular individuals and entities. For example, there is no general insurance ban, and no general restriction on payments to and from Libya, so long as banned individuals or entities are not involved.

However, all firms, companies or other institutions that carry out any form of business with Libya or Libyan establishments should take great care to familiarise themselves with the various sanctions regimes. It is important to recognise that the regimes all differ and that compliance with one does not guarantee compliance with others. Further, in addition to the sanctions discussed in this note, a number of other countries have taken measures against the Qadhafi family and associates of the regime. These countries include Australia, Austria, Canada, Germany, Italy, Luxembourg, Japan, Russia, Spain and Switzerland. The position is continuously changing and it is imperative that firms keep abreast of recent developments in order to properly monitor the sanctions regimes that apply to them.

Further, the importance of "knowing your client" (KYC) and having appropriate KYC procedures in place is emphasised by this latest round of sanctions. One of the most controversial issues is likely to be establishing whether any given transaction involving Libya involves individuals or entities with indirect links with designated persons. The latest amendments to the EU Regulation demonstrate that the list of designated persons and entities has the potential to expand.


Executive Order 13566

UN Resolution 1970 (2011)

The Libya (Financial Sanctions) Order 2011

EU Council Regulation 204/2011

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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