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Transactions with Sudan, Regulations

Summary of U.S. Economic Sanctions on northern Sudan affecting  Church and Humanitarian Work in northern and South Sudan.

MEMORANDUM

 

To: AFRECS Members
From: Russ Randle, Eric Rasmussen, Patton Boggs, LLP
Date: September 13, 2011
Subject: Summary of U.S. Economic Sanctions on northern Sudan affecting Church and Humanitarian Work in northern and South Sudan.

OVERVIEW

In the January 2011 referendum conducted pursuant to the Comprehensive Peace Agreement of 2005 (CPA), voters in south Sudan elected to secede from the Islamic Republic of Sudan (now northern Sudan).  A new state, the Republic of South Sudan (ROSS or South Sudan), became independent on July 9, 2011, and has been recognized both by the United States and by northern Sudan. 

Because of these political developments, U.S. sanctions and export control rules affecting northern Sudan and the newly formed Republic of South Sudan (ROSS) have significantly changed.  These rules --- the Sudan Sanctions Regulations (SSR) --  are administered by the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury.  31 C.F.R. Part 538.   Although these changes mean that work by United States persons (individuals, churches and church organizations) with the Episcopal Church of Sudan (ECS) in ROSS is much less affected than before independence on July 9, 2011, the sanctions and export control rules remain important factors for such work in ROSS because:

(a) Financial transactions that involve banks located in northern Sudan are prohibited, unless specifically licensed by OFAC or unless conducted a non-governmental organization (NGO) with an OFAC registration number under the SSR. 

(b) the import or export of goods (other than tangible donations or personal effects) by U.S. persons to or from ROSS which transit northern Sudan will continue to require OFAC. licensing; the NGO registration number held by some church entities for their religious and humanitarian work does not authorize such transactions.

Because the existing financial and transportation systems, particularly in border dioceses such as Renk and Malakel, are geared towards Khartoum and Port Sudan, the SSR restrictions will continue to be a compliance headache and practical obstacle for U.S. and Sudanese church work in many areas of ROSS.  Among other things, these rules will probably make it impractical to establish Sudanese micro-enterprise businesses to serve a U.S. market, as some churches have proposed as a means to make Episcopal Church operations in ROSS more sustainable.

Work in northern Sudan will remain subject to these sanctions rules, thereby complicating fund transfers to any of the five current dioceses in north Sudan (Khartoum, Port Sudan, Kadugli, El Obeid, Wad Medani) as well as transfers to the ECS provincial office in Khartoum and other church organizations, such as All Saints Cathedral in Khartoum.   Such transfers by U.S. person will continue to require either an OFAC license or to be made by a registered NGO such as the Episcopal Diocese of Virginia.  Additionally, the export to northern Sudan of some items such as laptop computers used in humanitarian or religious work must also be checked to assure compliance with the Export Administration Regulations (EAR).

BACKGROUND

This memo summarizes key U.S. sanctions rules and some related export control and money laundering rules affecting church work with and in northern Sudan and ROSS by Americans and U.S. persons.  In very broad terms, most transactions involving northern Sudan require that a non-governmental organization, like a church, must, in advance of the transaction, have either a specific license for the transaction (or program) or be registered with OFAC and have a registration number as a registered NGO.  That registration number (or license number) is needed in order for banks to complete financial transactions.  Most transactions with entities in ROSS are exempt from the sanctions regulations, BUT they cannot involve financial transactions with banks in northern Sudan or transportation of goods across northern Sudan territory.   Thus transactions or activities in Sudan, whether in ROSS or northern Sudan territory, still need to be reviewed for compliance, in order to assure that they do not involve unauthorized activity involving northern Sudan, as many such transactions may need to do for practical reasons.

THIS MEMO IS FOR GENERAL GUIDANCE AND IS NOT LEGAL ADVICE RELATED TO ANY SPECIFIC TRANSACTION.  Non-compliance can result in government seizure of the funds involved, disruption of your ministry, civil penalties, and in extreme cases, criminal prosecution.  Please also note that this memo describes the rules in effect as of September 2, 2011.  The government’s Sudan regulations, both the Sudan Sanctions Regulations (SSR), 31 C.F.R. Parts 538, 546 (Darfur sanctions) administered by the OFAC, and the EAR, 15 C.F.R. Parts 730-774, administered by the Bureau of Industry and Security (BIS) at the Department of Commerce, have been amended in the past year to change Sudan requirements and are subject to further change without advance notice.

Please review specific plans or transactions carefully under the most current version of the rules and get legal advice or partner with other U.S. church organizations with strong compliance programs to help you on these issues. 

Key Issues for Church Work under the Sudan Sanctions Regulations.

When discussing permissible actions with respect to Sudan, it is important to distinguish between northern Sudan and the Republic of South Sudan (ROSS).  The Sudan Sanctions Regulations (SSR), 31 C.F.R. Part 538, impose numerous restrictions on transferring money, equipment, or supplies to northern Sudan.  In general, they forbid most transactions by Americans and U.S. persons involving northern Sudan or operations within its territory unless such transactions are licensed by the OFAC at the U.S. Department of the Treasury.  Fund transfers involving any reference to Sudan are often stopped by the banks involved, which have strong compliance programs, and automated software which will flag unlicensed transactions with northern Sudan.  With a few specific exceptions, unlicensed exports to or from northern Sudan are also generally forbidden.  In addition, the EAR limit the importation into northern Sudan of many high technology items, including commonly available computers and cell phones which have encryption technology. 

Rules to prevent money laundering under the Bank Secrecy Act require advance reporting before carrying more than $10,000 in cash (or other financial instruments) out of the United States.  These rules apply to church work, like any other work, whether with northern Sudan, south Sudan, or somewhere else outside the United States.  There is no “church” exemption from the Bank Secrecy Act and it is not permissible to split up money among a group in order to avoid the reporting requirements, which taken quite seriously by the U.S. government, as violations of these rules are felonies.

Following the creation of the Republic of South Sudan (ROSS), OFAC concluded that the SSR rules generally apply only to northern Sudan, the territory of the Islamic Republic of Sudan.  While South Sudan is not directly subject to the SSR, certain activities by U.S. persons in South Sudan will continue to be prohibited by the SSR absent OFAC authorization.  The SSR will continue to prohibit U.S. persons from:

·         dealing in property and interests in property of the Government of northern Sudan

·         performing services that benefit northern Sudan or the Government of Sudan

·         engaging in transactions relating to the petroleum or petrochemical industry in Sudan

·         participating in exports to or imports from South Sudan that transit through northern Sudan

·         and unlicensed dealings with any bank in northern Sudan, even if the transaction is with a southern branch of that bank.  (Registered NGOs can deal with some banks in northern Sudan, those few not owned or controlled by the Government of [northern] Sudan.)

Key points for U.S. church workers and organizations to know:

A.  General Rule: Unlicensed Transactions with northern Sudan Are Forbidden Unless Exempted by Rule.

In general, the SSR forbid Americans from entering into any transaction with anyone in northern Sudan, or with the northern Sudanese government, including fund transfers, imports, exports, or insurance without either a specific OFAC license, a registration number as a NGO, or a specific exemption in the regulations.  Transactions in violation of these rules can result in seizure of money and goods, forfeiture, and civil and criminal enforcement action.  OFAC has brought successful enforcement actions against churches and church workers for violation of similar rules governing Cuba. 

In practical terms, these rules mean that American credit cards, checks, and travelers checks generally will not work in northern Sudan.  Their use may trigger an enforcement investigation.  Because of the lack of financial infrastructure in ROSS territory, these financial instruments may not work there for practical reasons.

B. South Sudan: Now Largely Exempt, BUT . . .

In guidance issued in April 2011, OFAC concluded that most SSR restrictions will not apply to South Sudan.  Most dioceses in the Episcopal Church of Sudan are located in South Sudan as defined in the regulations, but five are located in areas that are still subject to sanctions, including Khartoum.  Additionally, transfers to the Provincial Office of the Episcopal Church of Sudan in Khartoum continue to be subject to the SSR.

C. South Sudan: Most Financial Transactions Require Compliance Review.

While the compliance burden has eased, the rules continue to forbid unlicensed dealings with any bank in northern Sudan and with most Sudanese banks, wherever located.  Thus, fund transfers by U.S. church organizations must continue to be checked to assure compliance, because most of the Sudanese banking system remains off-limits to U.S. persons unless they have a specific license authorizing the transaction(s).  Most of Sudan’s financial infrastructure is focused on Khartoum, so that transfers to southern dioceses in the ECS will still be subject to the sanctions rules if they have to be transmitted through Khartoum.  Please note that most registrations contain a proviso that continues to prohibit funds transfers from the United States to a bank owned or controlled by the government of Sudan, which are most banks in northern Sudan.  Thus, the fact that an NGO has been issued an OFAC registration number does not typically lift this prohibition or allow such transactions.

With independence for ROSS, banks from Uganda and Kenya are establishing a presence in Juba and elsewhere in ROSS, but progress has been slow.  Continued scrutiny of fund transfers is important for compliance purposes and important to assure receipt of the funds by the proper person, given the inconsistent quality of banking work in Sudan, north and south.

D. South Sudan: Exports from Church Projects to the United States Must Either Transit South or Need a License.

Many churches have suggested helping the Sudanese Church towards self-sufficiency by establishing enterprises and importing the resulting products, e.g., textiles made by women’s cooperatives, artwork, and similar craft items.  While such imports from South Sudan are now permissible without an OFAC license, an OFAC license is still needed if the goods are to transit northern Sudan.  Thus, unless the goods are shipped south through Uganda or Kenya, an OFAC license is still required for such exports to the United States.  Thus, if the goods are to transit through Khartoum, Port Sudan, or other portions of northern Sudan the exports will need to be licensed by OFAC and it is not clear whether any such license would be issued.   In general, NGO registration numbers do NOT authorize the importation of products into the United States, SSR, § 538.521, but authorize the transfer of funds and export of items from the United States (and elsewhere) to Sudan for religious and humanitarian purposes. 

Goods shipped to the United States from the northern Sudan as well as through the territory of northern Sudan from South Sudan in violation of the OFAC rules can be seized and are subject to forfeiture; those people arranging for such transportation and sale are subject to enforcement action.  Thus, before American churches embark on any import/export venture, even with the purest of motives, they must first determine how such goods are to be brought to the United States and how the transportation route can be documented in order to comply with sanctions rules.  Churches must also determine the treatment of such imports for Customs and tariff purposes.   These additional compliance costs may make proposed import/export projects with South Sudan impractical if they plan to rely on imports to the United States.

E. Travel Transactions and Living Expenses of U.S. Church Workers in northern Sudan Are Permissible and Do Not Require Licensing.

Americans doing religious or humanitarian work in northern Sudan may pay for the ordinary costs of traveling and living there, including lodging, food, transportation, and similar items.  31 C.F.R. § 538.212(d) (travel expenses), § 538.522 (ordinary living expenses for U.S. citizens who are permanent residents of Sudan).  The rules allow Americans moving into northern Sudan to bring in their actual household goods and personal effects. Id. § 538.511 (accompanied baggage), § 538.518(a) (transfer of household and personal effects to Sudan).  These rules no longer apply to U.S. church workers for their expenditures in ROSS.

F.  American Donations of Food, Clothing and Medicine May Be Lawfully Shipped to northern Sudan, BUT ...

Americans may donate tangible articles of food, clothing and medicine intended to relieve human suffering in northern Sudan, and arrange for their shipment to northern Sudan.  31 C.F.R. § 538.212(b).This approach, however, is often impractical.

Customs duties and other import clearance problems in northern Sudan often make this approach unworkable, resulting in the effective loss of the tangible items. These losses can occur because of spoilage of medicines during unrefrigerated delays, theft, seizures for lack of import permits, or prohibitive and discriminatory customs duties.  These problems also often arise in other Third World venues, but are acute for church shipments into northern Sudan because of the strong animus against Christians by many northern Sudanese government personnel.   While ROSS government officials do not bear that kind of animus against Americans or Christians, shipment of bulk items through Kenya or Uganda can be logistically challenging and costly.

G. Personal Remittances Are Allowed But May Not Be Used to Transfer Funds for Church Work Without a Valid NGO Registration Number.

As explained below, it is lawful to make personal, non-commercial remittances to northern Sudan, such as remittances to family members.  These remittances are often made on behalf of Sudanese nationals in the United States, such as refugees, who may be trying to help support families at home.  There are “U.S. registered money transmitters,” legitimate businesses registered with the Treasury Department, which make such fund transfers in compliance with the law.  31 C.F.R. § 538.528.  Western Union is reportedly an example.  These non-bank institutions generally impose significant charges on such transfers; they are also supposed to insist on the registration number for transfers to NGOs in Sudan.  Some churches have successfully used these services for funds transfers to ECS church entities, using appropriate NGO registration numbers, but this is a costly way to proceed if there are banking channels available.

H. Hand-Carried Donations of Money: Subject to SSR and Money Laundering Rules.

Donors sometimes ask if hand-carrying donations of U.S. currency will avoid compliance headaches under the SSR.  Changes in the rules in June 2005 and consultations with OFAC have made it clear that the NGO registration requirement applies to hand-carried donations.  These rules still apply to northern Sudan.  OFAC encourages cooperation among churches to help assure compliance with the registration requirement for such transfers.

Whether for northern Sudan church work or South Sudan (or anywhere else outside the U.S.) those making hand-carried donations with funds hand-carried from the United States must comply with U.S. currency rules requiring the report of exports of currency (including negotiable instruments like travelers checks) of $10,000 or more.  There is no limit on the amount of currency that can be hand-carried but it is essential to complete and file the relatively simple form before attempting to leave the U.S. with funds in excess of $10,000.  The form and instructions can be downloaded from http://www.fincen.gov/forms/files/fin104_ctr.pdfIT IS A FELONY TO VIOLATE THIS RULE and a violation can also result in forfeiture of the money carried.

I. Gifts Are Permissible in northern Sudan Within Financial Limits.

In the course of church work, it is often customary to bring gift items to hosts and colleagues. The sanctions rules governing work in northern Sudan provide that an individual may bring and receive gifts provided that:

the value of the gift is not more than $100; the goods are of a type and in quantities normally given as gifts between individuals; and the goods are not controlled for chemical and biological warfare, missile technology, national security or nuclear proliferation [reasons].

31 C.F.R. § 538.510.  The gift provision as written will allow most transfers of clothing, books, or art objects without problems under U.S. law, and allow their lawful importation into the United States when the church worker returns. Be aware that unprocessed agricultural products, e.g., drums using unprocessed hides, may be subject to forfeiture under U.S. phyto-sanitary rules intended to stop the spread of animal diseases. 

Gifts of money are governed by the personal remittance provision.  § 538.528(a).  Such gifts must be given to individuals for their own use, and not for the support of the ministry in question.  Thus, for example, a gift of money for the medical treatment of a clergyman’s family member would be a personal remittance.  A gift to support a church clinic would need to be made pursuant to the correct OFAC registration number, even if it is handed to the bishop in cash.

Once again, these SSR gift restrictions do not apply to work in ROSS territory

J.  U.S. Computer and Software Restrictions Apply to northern Sudan.

American church personnel may want to bring laptop computers, satellite phones, GPS equipment, and PDA’s with them as part of their work in northern Sudan.  Exports to northern Sudan, even temporarily as part of the church worker’s equipment, are subject to the Export Administration Regulations (EAR), a separate body of rules administered by the Bureau of Industry and Security (BIS) at the Department of Commerce.   

While such mass-marketed equipment can be freely exported to most countries of the world, including ROSS, the United States classifies northern Sudan as a country that supports terrorism, triggering restrictions on the exports of such equipment. This is because such equipment usually contains encryption software, which the United States strictly controls. 

BIS now allows the export of such equipment on a temporary basis for workers of NGOs registered with OFAC to work in northern Sudan to relieve human suffering.  Such NGOs include numerous church organizations. 

The license exception applies to “individual staff members, employees, and contractors,” language that BIS guidance makes clear can apply to volunteer workers.  According to that guidance, the Temporary License Exception (“TNP”) applies to “persons traveling to Sudan at the direction of, or with knowledge of, an organization eligible for this License Exception, even if that person is not employed by that organization.”  Workers may bring in such equipment temporarily, but if the equipment is to remain in northern Sudan for a year or longer, an export license from BIS should be obtained. 

The determination of whether specific computer, satellite phone, or GPS equipment qualifies for this exception also requires a determination of the specific capabilities of the equipment, something the vendor or manufacturer can often provide.  If a church worker plans to bring such equipment into northern Sudan, she should make sure (a) that she is proceeding “as a staff member or with the knowledge of” a registered NGO, (b) determine that the specific equipment she is bringing does not exceed the limits provided in the rules, and (c) not keep the equipment in northern Sudan longer than a year without a specific BIS export license.  If the transfer is to be permanent, an export license will be required if the computer software meets encryption definitions.

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As long as the northern Sudan continues its warfare in Darfur and now the Nuba Mountains and Blue Nile State, and continues to commit other human rights abuses, including persecution of Christians and other religious minorities, U.S. sanctions rules will likely remain in place and church workers and other NGO personnel are likely to face questions under U.S. sanctions and export control rules.  This memo is intended to provide some basic pointers, the most important of which is to carefully check specific transactions and exports to northern and South Sudan for compliance with these rules well in advance of the proposed transaction or export.

rvr:rvr

cc:  The Rt. Rev. David C. Jones, President, AFRECS