On December 8, 2011, the Department of the Treasury, Office of Foreign Assets Control (OFAC) amended the Sudanese Sanctions Regulations (SSR) to add general licenses authorizing almost all activities and transactions relating to the petroleum and petrochemical sectors in the Republic of South Sudan and transshipments of goods, technology, and services through Sudan to and from South Sudan without the need to apply for individual licenses. These new authorizations are designed to boost U.S. investment activity in South Sudan that to date has been hampered by the continuing U.S. sanctions on Sudan, which had the effect of restricting most transactions in South Sudan as a result of the close interdependence between the economies of the two nations. U.S. businesses seeking to engage in petroleum, petrochemical, or other projects in South Sudan under the new general licenses will almost certainly benefit, given the generous scope of these new authorizations, but should exercise appropriate compliance measures to ensure that activities do not run afoul of continuing limitations arising from the SSR and other U.S. export controls and sanctions.

Former Obstacles to U.S. Investment in South Sudan

The SSR prohibits U.S. persons and entities (including foreign branches of U.S. companies) from conducting or facilitating virtually all trade and investment activities in, and financial dealing with, Sudan. In 2006, the President exempted from the SSR sanctions certain "Specified Areas" in southern regions of Sudan but, at the same time, imposed a country-wide prohibition on transactions relating to Sudan's petroleum or petrochemical industries.

After the Republic of South Sudan achieved independence and recognition as a new nation on July 9, 2011, OFAC confirmed that the SSR does not apply to the newly formed state. However, the broad reach of the SSR hindered U.S. investment in South Sudan due to the close interdependence of its economy with that of Sudan. U.S. companies were prohibited, for instance, from investing in petroleum or petrochemical projects in South Sudan if the transaction would involve transporting petroleum or petrochemical products through Sudan; if the Government of Sudan (GOS) (including GOS-owned or controlled entities) held any interest in the transaction; or if the transaction related in other ways to the petroleum or petrochemical industry in Sudan. Since the petroleum industries of the two countries are closely interconnected through shared pipelines and revenue-sharing arrangements, these restrictions in practice barred most activity and investment by U.S. companies in South Sudan without a license from OFAC.

New Authorizations for Petroleum and Petrochemical Activities and Transshipments

To encourage U.S. investment in South Sudan, the first December 8, 2011 general license authorizes "all activities and transactions that relate to the petroleum and petrochemical industries" in South Sudan, including exploration, development, production, field auditing services, oilfield services, activities related to oil and gas pipelines, investment, payment of pipeline, port, and other fees to the GOS, or GOS-owned, or controlled entities, and the refining, sale and transport of petroleum from South Sudan, except for refining in Sudan of petroleum from South Sudan. These express examples of authorized activities appear more relevant to the petroleum industry, and there is less guidance on the scope of permissible activities in the petrochemical industry.

U.S. companies seeking to invest in South Sudan in industries unrelated to petroleum or petrochemicals may benefit from a second general license issued by OFAC, which authorizes transshipment of goods, technology, and services, including those unrelated to the petroleum or petrochemical industries, through Sudan to and from South Sudan. This general license addresses the obstacle that U.S. investors previously faced in transporting goods to and from South Sudan, as transshipping them through Sudan, including the Port of Sudan, required specific authorization under the SSR.

Financial transactions ordinarily incident to the activities authorized under the two new general licenses are also authorized, including financial transactions with GOS-owned, or controlled depository institutions. However, any transaction between a U.S. depository institution and a GOS-owned, or controlled depository institution must first transit through a non-GOS-owned, or controlled depository institution.

Impact and Continuing Limitations

These two new general licenses appear generous in scope and likely will pave the way for an influx of welcome U.S. investment into the developing South Sudan. However, U.S. companies interested in taking advantage of these authorizations to engage in projects in South Sudan should be aware of the continuing limitations on such projects under the SSR and other U.S. export controls and sanctions:

  • First, the general licenses do not authorize U.S. companies to do business in Sudan's oil sector. Most notably, refining in Sudan of petroleum from South Sudan continues to be prohibited.
  • Second, the export of goods and technology from the U.S. to South Sudan could still require an export license from the Department of Commerce or, for defense articles or services, the Department of State. Under the Department of Commerce's dual-use export controls, South Sudan is a highly controlled destination to which export and re-export of many items on the Commerce Control List (CCL) would require prior BIS authorization. U.S. businesses engaging in projects in South Sudan should carefully analyze potential export licensing requirements applicable to the transfer of U.S.-origin goods or technologies involved.
  • Third, the general licenses only extend to activity that otherwise would be prohibited under the SSR. As an example, the general licenses appear to authorize dealings with persons or entities blocked under the SSR, to the extent such dealings relate to a petroleum or petrochemical project in South Sudan. However, if an individual or entity has been placed on OFAC's Specially Designated Nationals (SDN) List for reasons in addition to or other than the Sudanese sanctions, such as OFAC's Counter Terrorism Sanctions or other programs, U.S. persons continue to be prohibited from dealing in any transaction in which such an individual or entity has an interest.

OFAC also issued a third general license on December 8 authorizing importation of certain Sudanese-origin services relating to public conferences and similar events, and the provision of certain visa assistance services for travel by Sudanese persons to the United States. U.S. companies interested in doing business in South Sudan under any of the new general licenses should carefully analyze the scope of these new authorizations and the limitations and restrictions that may continue to apply to their projects.

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.