Yesterday, the United States Department of the Treasury Office of Foreign Assets Control (OFAC) issued guidance stating that the Sudanese Sanctions Regulations (SSR) will not apply to the new state of Southern Sudan. This new state is not fully formed, however, in the recent referendum conducted pursuant to the Comprehensive Peace Agreement of 2005, voters in Southern Sudan elected to secede from the Republic of the Sudan. The new state of Southern Sudan is expected to be formed on July 9, 2011.

Since 1997, the United States, through OFAC, have imposed economic sanctions against Sudan and the Government of Sudan. These sanctions generally prohibit the exportation or reexportation of goods, technology, or services to Sudan, the importation of goods or services of Sudanese origin, and the dealing in property and interests in property of the Government of Sudan.

OFAC has indicated that the new state of Southern Sudan will not be targeted as part of the SSR. As such, the SSR will continue to apply only to Sudan and the Government of Sudan and those U.S. persons dealing only with Southern Sudan will not be in violation of the SSR for such transactions. Of course, the SSR will still apply to the smaller “Sudan” state remaining after the secession.

Additionally, OFAChas warned that while the SSR does not completely apply to the new state there are still some prohibitions that will apply to it. For example, 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.

Essentially, OFACon one hand is stating there are no sanctions against Southern Sudan, while keeping the door open for punishing violations of the SSR which may occur due to Southern Sudan’s geographical proximity and continuing ties to Sudan. In all honesty, while the SSR may not technically apply to the new state of Southern Sudan, there is still plenty of opportunity to violate the SSR by dealing with Southern Sudan. In other words, caveat emptor; the new Southern Sudan might not exactly be the ideal place to do business.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.