Arab-Syria Rapprochement Leading to Heightened Sanctions Risks for U.S. Investors

Just over 10 years since the start of Syria’s revolution and ensuing civil war, a rapprochement between Arab governments and Syria is leading to strong pushback from the U.S. The west, led by the U.S., has implemented a comprehensive sanctions regime against the Syrian government since 2011 for its human rights abuses and war crimes committed against the Syrian people. Some of the countries that are reopening diplomatic and economic channels with Syria, like Jordan and the United Arab Emirates (UAE), are also strategic economic and military allies of the U.S. These heightened economic ties are increasing sanctions risks for U.S. companies and individuals that might unknowingly be investing in the Syrian economy or enriching government-affiliated individuals.

Unsurprising to some, the UAE is leading this regional warming of relations with Syria — the country was Syria’s second largest Arab investor prior to 2011. However, the UAE, alongside other Gulf countries, was opposed to the rule of Bashar Al-Assad in Syria early in the conflict and actively supported rebel groups.

In 2012, as evidence of war crimes committed by the Syrian government against its own people were exposed, leaders inside and outside the Arab Middle East began to imagine a future Syria without Syrian President Bashar Al-Assad. Then U.S. President Barack Obama said that Assad’s “days are numbered,” which became common thinking in subsequent years as the violence continued.

Dubai’s ruler, Mohammed Bin Rashid Al-Maktoum, expressed sentiments in 2014 that aligned with many political leaders at the time: there will never be business as usual with Syria so long as Bashar Al-Assad is in power.

However, as the violence slowed down and Syria’s allies propped up the government, states began to abandon the idea of a Syria without Al-Assad in power. Throughout 2021, Arab countries including the UAE, Bahrain, and Jordan have all reopened embassies in the Syrian capital of Damascus.

The U.S. has remained steadfast in warning its allies against engaging with Syria, using the threat of sanctions as a potential punishment for actors that engage with the country in a way that would go against U.S. interests. They have set an example by sanctioning several Gulf companies in recent years because of their contribution towards Syria’s reconstruction. In 2019, the UAE Minister of Culture withdrew millions of USD intended for reconstruction projects in Aleppo because the structures involved were linked to the Syrian government, opening up the possibility of U.S. sanctions.

In June 2020, the U.S. Special Representative to Syria, James Jeffrey, said “in terms of economic activities that either somebody in the UAE or somebody in another country does that meets the criteria of these sanctions or legislation, they are a potential sanctions target.” A person or company could become a target for U.S. sanctions even if they indirectly or unknowingly circumvent U.S. sanctions laws, which are comprehensive and provide few exceptions.

The Arab-Syria rapprochement ought to be viewed as a clear increase in risk for U.S. investors looking to invest in the Gulf or in neighboring Arab countries that have a trading relationship with Syria — such as Jordan or Lebanon. As diplomatic relationships warm between the Gulf and Syria, we can expect investments from Gulf companies, some of which might have American partners and/or investors, to increase.

But what should U.S. companies look for when seeking to mitigate risk exposure with regards to Syria?

The top-level OFAC guidance specifies the following prohibitions when it comes to Syria:

• New investment in Syria by a U.S. person, wherever located
• The direct or indirect exportation, re-exportation, sale, or supply of any services to Syria from the United States or by a U.S. person, wherever located
• The importation into the United States of petroleum or petroleum products of Syrian origin
• Any transaction or dealing by a U.S. person, wherever located, in or related to petroleum or petroleum products of Syrian origin
• Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the United States.

The final point is particularly important as it pertains to Syria. Myriad general holding, investment, and construction companies based in U.S.-allied countries, such as Kuwait, Jordan, Lebanon, and the UAE, are actively doing business in Syria, which would clearly be a violation of U.S. sanctions if conducted by a U.S. national, either directly or indirectly.

OFAC has issued exemptions to the sanctions program through the use of general licenses. For example, federal regulations allow for a wide range of transactions by non-governmental organizations so long as they are part of a humanitarian mission to alleviate human suffering in Syria and address the issues of refugees, internally displaced people, and conflict victims. Examples include, but are not limited to: the purchase of refined petroleum for use in Syria, limited transactions with government-affiliated individuals or entities, medicine and food distribution, the provision of health services, and clean water infrastructure.