U.S. Expands Syria Sanctions By Targeting Non-U.S. Persons Who Support the Assad Regime

Background

The U.S. Government, through the Treasury Department’s Office of Foreign Assets Control (“OFAC”), has imposed comprehensive sanctions against Syria since 2011. These sanctions generally have been “primary” in nature and restrict almost all activities involving Syria involving U.S. persons or that otherwise have a U.S. nexus. Non-U.S. persons generally have not been subject to potential exposure under U.S. sanctions against Syria unless they were directly involved in violence, human rights abuses, or other targeted malign activities in Syria.

In December 2019, as part of the U.S. National Defense Authorization Act for Fiscal Year 2020, President Trump signed into law the Caesar Act, named after a Syrian military photographer who documented alleged war crimes perpetrated by the Syrian government.

In a press release announcing the passage of the Caesar Act, U.S. Secretary of State Mike Pompeo stated that the Caesar Act is intended to hold accountable those persons responsible for the widespread death of Syrian civilians and those that support the Assad regime, and also to deny the Assad regime financial resources used for violent acts by the Syrian government. This message was repeated in a recent fact sheet published by the U.S. State Department which emphasized the Caesar Act is meant to send a clear message to foreign businesses that no one should enter into business with, or otherwise enrich, the Assad regime. 

The Caesar Act became effective on June 17, 2020, at which point OFAC and the State Department imposed sanctions on nine persons under the Act and an additional thirty persons under other authorities. The initial designations target Syrian individuals and entities and include Syrian persons involved in reconstruction efforts led by the Syrian government, Syrian President Bashar Assad, and members of his family. Thus far, no non-Syrian entities or persons have been designated under the Caesar Act, but the U.S. has vowed to actively impose and enforce U.S. sanctions against the Assad regime and any entities or persons that the Trump Administration considers to be enablers of the regime.

Activities Targeted by the Caesar Act

Under the Caesar Act, sanctions can be imposed against any non-U.S. person who:

• Provides significant financial, material or technological support to, or engages in significant transactions with, the Syrian government, senior Syrian government officials, Syrian military personnel, or any sanctioned Syrian persons;
• Knowingly sells or provides significant goods, services technology, information, or other support for Syria’s domestic production of natural gas, petroleum, or petroleum products;
• Knowingly sells or provides aircraft, spare aircraft parts, or aircraft services in support of Syrian military activities;
• Knowingly provides significant construction or engineering services to the Syrian government; or
• Knowingly is responsible for or complicit in serious human rights abuses committed against Syrian citizens. 

Definition of Significant Transactions

One of the most important categories of covered activities under the Caesar Act are “significant transactions with” the Syrian government, senior Syrian government officials, Syrian military personnel, or any sanctioned Syrian persons. The Caesar Act contains no monetary threshold in assessing whether a transaction is “significant.” Instead, when making this determination OFAC will look to a number of factors that include the following:

• The size, number, and frequency of the transaction(s);
• The nature of the transaction(s);
• The level of awareness of management and whether the transaction(s) are part of a pattern of conduct;
• The nexus between the transaction(s) and a blocked person;
• The impact of the transaction(s) on statutory objectives;
• Whether the transaction(s) involve deceptive practices (attempts to obscure or conceal the actual parties or true nature of a transaction, or to evade sanctions); and
• Any other factors that the Secretary of the Treasury deems relevant on a case-by-case basis.

The Caesar Act includes an exception in order to allow humanitarian assistance to, and activity within, Syria to continue. This exception includes persons engaged in financial transactions in support of humanitarian services and or the transfer of funds to or from Syria in support of these activities. Such financial transactions still might need to be reported to OFAC, including information such as the parties involved, the value of the transactions, the services provided, and the dates of the transaction.

Potential Sanctions

The sanctions that can be imposed on any non-U.S. person that engages in activities targeted under the Caesar Act include:

• Blocking of property and interest in property within the United States (by being added to the U.S. List of Specially Designated Nationals (“SDN List”));
• The revocation of any current U.S. visas; and
• A bar from entry into the United States.

The addition to the SDN List is the most significant of these measures. U.S. persons are prohibited from engaging in any transactions with SDNs and entities in which SDNs hold a 50% or more aggregate ownership interest, and also are required to block any property of SDNs under U.S. possession or control. As a result, SDNs are effectively cut off from the U.S. financial system. 

Recommendations

The Caesar Act represents a significant expansion of U.S. sanctions against Syria as it targets transactions by non-U.S. persons acting outside U.S. jurisdiction. These “secondary” sanctions are similar to U.S. measures related to Iran and Russia, which also authorize sanctions against non-U.S. persons who engage in significant transactions with sanctioned Iranian and Russian persons or involving certain sectors of the Iranian or Russian economy. 

Non-U.S. persons – particularly non-U.S. financial institutions – should take steps to mitigate their exposure under the Caesar Act. These include implementing mechanisms to ensure that they do not engage in or facilitate transactions involving:

• Syrian persons identified on the SDN List;
• Syrian government, senior Syrian government officials, Syrian military personnel;
• Syria’s domestic production of natural gas, petroleum, or petroleum products;
• Aircraft, spare aircraft parts, or aircraft services in support of Syrian military activities; or
• Significant construction or engineering services to the Syrian government.

Conclusion

The U.S. continues to increase sanctions pressure against President Assad and the Syrian government. Non-U.S. persons should anticipate an aggressive enforcement posture from OFAC as designations are made under the Caesar Act and the U.S. seeks to continue to raise the cost of doing business with the Assad regime. Non-U.S. companies who engage in business in Syria and the Middle East more broadly should consider the risks raised by their activities under the Act and also consider recalibrating risk models for their businesses.

Dechert is available to advise regarding the impact of the Caesar Act and the changes to the Syrian sanctions regime still to come.