Today the Office of Foreign Assets Control (“OFAC”) released guidance on the application of the Sudan sanctions to the new state to be formed in Southern Sudan as a result of the secession referendum held in January 2011. The new state is expected to be formed and to come into existence on July 9, 2011. Not surprisingly, the guidance stated that the current sanctions on the Government of Sudan would not apply to the new state in Southern Sudan.
That being said, there was a major caveat pointed out by OFAC:
While the new state formed by Southern Sudan will no longer be directly subject to OFAC sanctions, certain activities by U.S. persons in the new state will continue to be prohibited by the SSR absent OFAC authorization given the interdependence between some sectors of the Southern Sudanese economy and infrastructure and those of the rest of present-day Sudan. The SSR will continue to prohibit U.S. persons from dealing in property and interests in property of the Government of Sudan, from performing services that benefit Sudan or the Government of Sudan, from engaging in transactions relating to the petroleum or petrochemical industry in Sudan, and from participating in exports to or imports from the new state that transit through Sudan, see 31 C.F.R. §§ 538.406, 538.210, and 538.417. … [S]hould a revenue-sharing arrangement between Sudan and the new state result in a situation where the government of the new state makes payments to the Government of Sudan from the sale of Southern Sudanese petroleum, U.S. persons generally could not engage in transactions involving the oil industry in the new state unless authorized by OFAC.
That last sentence is the tail that may swallow the snake. Right now, under the Comprehensive Peace Agreement, the South, which produces about 85 percent of the oil in Sudan, shares oil revenue 50-50 with the North. Upon independence, the land-locked state in Southern Sudan won’t be bound by the 50-50 split in the Comprehensive Peace Agreement, but it is now negotiating a post-independence revenue split, possibly as much as 30-70, to compensate for transiting its oil through facilities in the North. In that case, all activity by U.S. oil companies in the newly independent, and allegedly non-sanctioned, state in Southern Sudan will still require an OFAC license. The new guidance provides no guidance as to what OFAC’s policy will be for granting those licenses.