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By Carl
A. Valenstein and Jerome
P. Akman
Thelen Reid Brown Raysman & Steiner LLP
After
President Bush announced the formal end to the U.S.-Iraq
conflict, both the United States and the United Nations
significantly liberalized trade restrictions against Iraq.
While these recent changes lift most of the Iraqi sanctions
in place since 1990, any contractor performing work in Iraq
should be aware of restrictions that remain at both the
international and national levels.
Remaining U.N. Restrictions
At
the urging of the U.S. delegation, the U.N. Security Council
adopted Resolution 1483 on May 22, 2003. Resolution 1483
removed most of the trade and financial sanctions against
Iraq in an effort to facilitate the re-building of Iraq's
infrastructure and to promote trade with Iraq. However,
the following restrictions still remain in place under Resolution
1483:
- The
sale or supply to Iraq of items such as chemical, biological
and nuclear materials and weapons is forbidden. These
items are more specifically described on the United Nations
Goods Review List, which is linked above.
-
The financial assets of senior Iraqi officials will be
frozen and transferred to the Development Fund for Iraq.
The U.N. established the Development Fund to hold confiscated
funds. Such funds will be used to finance the Iraqi reconstruction
effort. The U.N. Security Council issued a blacklist of
55 persons whose assets must be frozen under Resolution
1483. This list, linked above, includes Saddam Hussein,
Iraqi military commanders and high-ranking officials.
Remaining U.S. Restrictions
Although
the U.N. removed most of the trade and financial sanctions
against Iraq at the international level, the United States
continues to enforce certain trade, financial and licensing
restrictions.
The
President delegated his statutory authority to regulate
foreign trade and financial transactions with Iraq to the
Treasury Department and the Commerce Department. Since 1990,
the Office of Foreign Assets Control (OFAC) has been the
principal agency administering the embargo against Iraq.
OFAC
is subdivision of the Treasury Department. It enforces economic
and trade restrictions in accordance with U.S. foreign policy
and national security objectives. In addition, OFAC regulations
implement and typically are consistent with the current
U.N. sanctions policies. OFAC is authorized to freeze foreign
assets within the reach of the U.S. government and to impose
regulations on foreign transactions.
It
also establishes lists of "prohibited transactions"
that prevent U.S. individuals and businesses from trading
or transacting business with certain countries and of "Specially
Designated Nationals" of those countries. OFAC, however,
frequently issues "general licenses" that authorize
certain types of transactions that otherwise would be on
the prohibited transactions list. If a type of transaction
is covered under a general license, contractors may engage
in such transactions without applying for a "specific
license."
The
Bureau of Industry and Security (BIS) is part of the Department
of Commerce. One of its main functions is to put into effect
U.S. export and re-export control policies regarding dual-use
products, which are goods and technology that have both
commercial and military uses.
The
U.S. sanctions policy against Iraq is principally contained
in OFAC's Iraqi Sanctions Regulations (ISR), which apply
to all U.S. citizens, entities organized under the laws
of the United States, persons in the United States and non-U.S.
contractors incorporating U.S. parts or technology into
their goods. Since 1990, virtually all transactions with
Iraq have required a specific license from OFAC, and except
for limited exceptions under the U.N.-administered oil for
food program, such licenses usually were denied.
On
May 7, 2003, OFAC issued four new general licenses liberalizing
its Iraqi sanctions policy. OFAC issued a fifth general
license on June 27, 2003, which recognizes and adopts the
policies of U.N. Security Council Resolution 1483. The five
new general licenses can be summarized as follows:
- License
No. 1 provides for the transfer of funds into Iraq for
non-commercial, humanitarian transactions.
- License
No. 2 authorizes U.S. government contractors to perform
certain work previously prohibited under the ISR. Specifically,
this license allows contractors to perform work in Iraq
under a U.S. government agency contract involving humanitarian
assistance to Iraq and reconstruction of Iraq's infrastructure.
- License
No. 3 allows private entities to finance humanitarian
efforts related to Iraq.
- License
No. 4 permits the export of goods to Iraq unless such
goods are controlled by the Commerce Department or are
listed on the U.N. Goods Review List.
- License
No. 5 permits most transactions previously restricted
under the ISR, including: (1) transferring or exporting
to Iraq property or property interests located in the
United States and belonging to the Government of Iraq;
(2) importing goods or services, including technical
data, from Iraq; (3) transporting U.S. citizens
to Iraq; (4) performing Iraqi government contracts;
and (5) transferring funds to the Government of
Iraq, subject to the restrictions discussed below.
Contractors
should be aware of the restrictions that remain in place
through OFAC and the Commerce Department and should not
assume that the new OFAC licenses create an open market
for trade and performing work in Iraq. Also, non-U.S. contractors
should pay attention to these continuing restrictions if
they are incorporating U.S. parts, components or technology
into goods that will be re-exported to Iraq because the
re-export of some of these items may require a license from
OFAC or, at some later date, from BIS. The restrictions
that remain in place are:
- Property
and persons blocked by OFAC under the ISR will continue
to be blocked. OFAC keeps a list of these persons and
entities (such as terrorists and terrorist organizations)
that are subject to restrictions and sanctions. Transactions
with "blocked" persons or entities are prohibited.
- Transactions
with the following persons are prohibited:
- "Specially-Designated
Nationals" of the Government of Iraq. OFAC created
and frequently updates this list. It is linked above.
- People
on the Defense Department's "55 Person Watch
List." It is linked above.
- People
on the U.N. blacklist whose assets must be frozen
pursuant to Resolution 1483. It is linked above.
- Transactions
relating to Iraqi cultural items and other artifacts.
- Exportation
or re-exportation to Iraq of goods and technology that
require a license under BIS' Iraqi licensing policy. Although
OFAC now has authority to issue these licenses, OFAC looks
to the list maintained by BIS. BIS created its Commerce
Control List (CCL) to describe goods and technology that
cannot be exported or re-exported. Products on the CCL
that are restricted for exportation or re-exportation
to Iraq include goods and technology related to crime
control, regional stability, missile technology, national
security, nuclear proliferation, and biological and chemical
weapons.
BIS
is in the process of publishing new regulations that will
clarify the licensing requirements for Iraq. At some point,
licensing jurisdiction will shift from OFAC back to BIS.
OFAC and BIS have not established a date for such a transfer.
Contractors should be aware of this upcoming shift in licensing
jurisdiction and should check BIS restrictions before exporting
or re-exporting any U.S.-origin goods or technology to Iraq.
Department of State Lifts Travel Restrictions Through
or to Iraq
In
keeping with the liberalization of Iraqi sanctions, the
State Department recently lifted its passport restrictions
on travel to or through Iraq. (The notice is linked above.)
Starting in the early 1990s, the State Department authorized
only a few U.S. citizens and residents to travel to Iraq.
As of July 15, 2003, all U.S. passport restrictions regarding
travel to or through Iraq were removed. However, U.S. contractors
should be aware that the State Department continues to warn
of the high security threat to all U.S. citizens in Iraq.
President Bush and OFAC Safeguard Funds for Iraqi Reconstruction
President
Bush issued Executive Orders on March 20, 2003, and May
22, 2003, that set aside and protect confiscated Iraqi government
funds and property for use in the reconstruction of Iraq.
In response to this White House policy, OFAC announced on
July 7, 2003, that the Development Fund for Iraq, established
by the U.N., and other accounts established in the United
States for the Iraqi reconstruction effort would be immunized
from attachment or garnishment.
This
protection, however, may not be absolute. Plaintiffs who
have obtained civil judgments against the Government of
Iraq likely will seek presidential approval to release blocked
Iraqi funds to satisfy their judgments in whole or part.
These plaintiffs have history on their side. Congress struck
a compromise with the Clinton administration to authorize
the use of frozen assets from Cuba to satisfy a civil judgment
in favor of the families of the pilots shot down by Cuban
aircraft in 1996. Under the same policy, the U.S. government
paid judgments against Iran from the U.S. Treasury and planned
to later recover the payments from seized Iranian funds.
Conclusion
The
trade and financial restrictions once imposed by the United
Nations and United States on Iraq have been significantly
liberalized and are subject to rapid change. However, contractors
involved with Iraqi transactions should take note that certain
restrictions remain, should ensure that they comply with
those restrictions and should monitor any future changes.
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For more information about the issues covered in this report, please contact Carl A. Valenstein in our Washington, D.C. office at 202-508-4195 or at cvalenstein@thelen.com, or Jerome P. Akman in our Washington, D.C. office at 202-508-4154 or at jakman@thelen.com, or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2003 Thelen Reid Brown Raysman & Steiner LLP
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