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Sanctions Imposed on Libya

AUTHOR(S): Joe Beashel
PRACTICE AREA GROUP: Regulatory Risk Management and Compliance, Financial Regulation
DATE: 21.03.2011

On 8 March 2011 the European Union (Libya) (Financial Sanctions) Regulations 2011 and the Financial Transfers (Libya) (Prohibition) Order 2011 were signed, giving domestic legislative effect to recent sanctions imposed on Libya by the United Nations and the European Union which were implemented by way of directly applicable regulation. The Key Points section below deals with how this will impact on financial institutions.

The Council of the European Union (the “Council”) adopted Council Regulation no 204/2011 (the “Regulation”) implementing the UN Security Council Resolution on Libya of 26 February (“UNSCR 1970/2011”). In line with the UNSCR, the Regulation enacted inter alia, a freeze of the assets of Muammar Qadhafi, members of his family and his associates as listed at Annex II and III of the Regulation. As the Regulation is directly applicable its provisions were immediately binding from 3 March 2011. The abovementioned Irish statutory instruments apply criminal sanctions for any breach of the Regulation occurring after 8 March 2011.

On 10 March 2011, the Council adopted Regulation no 233/2011, extending the asset freeze imposed under UNSCR 1970/2011 by designating five entities, including the Libyan Investment Authority (LIA), as additional sanctions targets on the grounds that they are under the control of Muammar Qadhafi and his family. This Regulation is applicable in Ireland from 10 March 2011 and criminal sanctions for a breach apply from this date.

The US took a similar action on Friday 25 February 2011, by Executive Order 13566, to locate and freeze assets in the US jurisdiction linked to Qadhafi, his family and associates. This is reported to be the largest blocking action ever taken by the US.

Key Provisions of the EU Regulation

Regulation 5(1) states that "All funds and economic resources belonging to, owned, held or controlled by the natural or legal persons, entities or bodies listed in Annexes II and III shall be frozen". The Regulation goes beyond UNSCR 1970/2011 in that it lists 20 further individuals whose assets are to be frozen.

Regulation 5(2) states that "No funds or economic resources shall be made available directly or indirectly to or for the benefit of the natural or legal persons, entities or bodies listed in Annexes II and III."

Regulation 8 permits the member states’ competent authorities to authorise the release or making available of certain funds in limited circumstances. In Ireland such authorisations can be issued by the Central Bank of Ireland.

Libyan State Entities

It is important to note that the asset freeze is not limited to assets held in the name of Qadhafi, the 20 listed individuals and the 5 entities referred to above, but also extends to assets, funds or entities which any of them own or control (directly or indirectly). Therefore, it is necessary to consider whether Libyan state entities or entities otherwise controlled by the Libyan state are directly or indirectly owned or controlled by individuals listed in the annexes to the Regulation. There is some protection from liability in the Regulation where a firm acts in good faith but this protection does not apply where a firm acts negligently.

Key Points

Firms need to review their screening processes to ensure that clients which are ultimately owned or controlled by individuals sanctioned under the Regulation are identified. This may involve re-screening the customer due diligence on entities to identify beneficial owners.

Firms will have committed an offence if they release funds which they have a “reasonable cause to suspect” are owned or controlled by a sanctioned person.

The Regulation provides that liability will not arise where funds are frozen in good faith. However, this protection will not apply where funds have been frozen negligently.

The Central Bank of Ireland is the appropriate authority to resolve any issue in respect of all regulated entities.

For more information, please contact Joe Beashel or your usual contact in the Regulatory Risk Management and Compliance Group.

 

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