In recent weeks, the U.S. has imposed economic sanctions on a
number of parties related to the Libyan regime that have been
determined to be responsible for human rights abuses in Libya. On
February 25, 2011, the President issued an Executive Order blocking
the property and investments of numerous Libyan individuals and
entities, including the Libyan Government and agencies under its
control, the Central Bank of Libya, certain high-ranking government
officials, and members of the family of Libyan ruler Muammar
Qadhafi. This executive order requires the blocking of any
property, including investments, that is in the U.S. or the
possession of U.S. persons, as more fully described in our earlier
On April 8, the U.S. Department of the Treasury's Office of
Foreign Assets Control ("OFAC") issued General License
No. 4 ("General License"), providing specific guidance to
investment funds regarding the effect of the new Libya sanctions on
the operation of the funds, describing what actions the new
sanctions require, what they permit, and what they prohibit. The
following is a short description of the elements of OFAC's
guidance and the activities permitted under the General
Investment funds in which sanctioned Libyan individuals or
entities have only a non-controlling, minority interest can, for
the most part, continue to operate normally. Specifically,
investment funds organized or managed in the U.S. can generally
continue to operate normally, even if the Government of Libya or
another sanctioned Libyan individual or entity is an investor. For
example, such a fund:
can continue to purchase and sell portfolio investments;
can continue to make payments it owes to fund managers, service
providers, and government authorities;
can make payments to its investors, except for the sanctioned
Libyan investors (and other investors who may be subject to
can receive funds from any party other than a sanctioned
However, investment funds need to take special precautions if
any of their investors are subject to the new Libya sanctions.
These precautions include the following:
The fund cannot provide any immediate financial or economic
benefits to sanctioned Libyan investors;
The fund must provide to OFAC monthly reports providing an
accounting of the value of sanctioned Libyan individuals' and
entities' interest in the fund;
Payments owed by an investment fund to a sanctioned Libyan
investor may be paid only into a blocked account at a financial
institution in the U.S. that is held in the name of the sanctioned
The fund cannot debit the blocked account of a sanctioned
Libyan investor for repayment of loans or debts held by that
Transfers of funds, securities, or other assets may be made
between blocked accounts, so long as the transfer is made between
blocked accounts in the U.S. that are held in the same name.
In light of the new OFAC sanctions on the Libyan regime and the
extensive and often opaque nature of the Libyan government's
international investments, investment funds should carefully
scrutinize their investors to determine if any of them are subject
to these new Libya (or other) sanctions. Investment funds should
take action immediately to ensure compliance should they discover
an investor is subject to such sanctions.
Note that the above guidance does not apply to funds that are
majority-owned or controlled by sanctioned Libyan investors. Such
funds are blocked in their entirety, and U.S. persons should not
engage in any transactions with such funds.
Fried, Frank, Harris, Shriver & Jacobson LLP's
International Trade and Investment team has extensive
experience in OFAC, anti-money laundering, and other trade
compliance activities for investment funds and other financial
services clients, as well as providing regulatory support for
transactions, conducting compliance audits, and defending clients
in related enforcement actions, including filing voluntary
disclosures with the U.S. government.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This Thompson Coburn LLP Trade Compliance Handbook is intended to provide an overview of international trade regulatory compliance issues and related terms to corporate general counsel, as well as compliance and audit personnel.