Risks and Considerations for U.S. Businesses Operating in Sudan
OTHER RELEASE
MAY 23, 2022
Introduction[1]
The U.S. Department of State, the U.S. Department of the Treasury, the U.S. Department of Commerce, and the U.S. Department of Labor are issuing this advisory to highlight growing risks to American businesses and individuals associated with conducting business with Sudanese State-Owned Enterprises (SOE) which includes all companies under military control (hereafter collectively referred to as “SOEs and military-controlled companies”). These risks arise from recent actions undertaken by Sudan’s Sovereign Council and security forces under the military’s control and could adversely impact U.S. businesses, individuals, other persons, and their operations in the country and the region.
U.S. businesses, individuals, and other persons, including academic institutions, research service providers, and investors (hereafter “businesses and individuals”) that operate in Sudan should be aware of the role of SOEs and military-controlled companies in its economy. Though Sudan’s military has long controlled a network of entities, following its seizure of power on October 25, 2021, it is in effective control of all SOEs. Further, Sudan’s military is increasing its direct control of Sudan’s many SOEs and plans for civilian control over SOEs has been abandoned. Businesses and individuals operating in Sudan and the region should undertake increased due diligence related to human rights issues and be aware of the potential reputational risks of conducting business activities and/or transactions with SOEs and military-controlled companies. U.S. businesses and individuals should also take care to avoid interaction with any persons listed on the Department of the Treasury’s Office of Foreign Assets Controls’(OFAC) list of Specially Designated Nationals and Blocked Persons (SDN List) .
This advisory relates specifically to SOEs and military-controlled companies. The U.S. government does not seek to curtail or discourage responsible investment or business activities in Sudan with civilian-owned Sudanese counterparts.
Background on Sudan’s Economic Status
Following the removal from power of President Omar al Bashir, the United States government welcomed the steps Sudan’s civilian-led transitional government (CLTG) had taken to open space for civil society and political activism and to embark on free-market economic reforms. The United States and other donors also pledged billions of dollars in economic support and debt relief. As a condition for debt relief and as part of its efforts to advance a democratic transition, the CLTG committed to improve its business legal environment. While CLTG did initiate some fiscal reforms, it failed to significantly improve Sudan’s legal and commercial framework. Hence, much of Sudan’s commercial code foundationally supports a centralized economy, which continues to hold deference to SOEs and local industry.
The military seizure of power in October 2021 upended the reform process as well as the nation’s transition to democracy and prompted international donors, including the United States, to pause significant amounts of economic assistance and debt relief to the country. SOEs and military-controlled companies play an unusually large role in the Sudanese economy and are currently involved in a range of commercial activities including fuel storage, natural gas projects, solar panel manufacturing, infrastructure, the railroad sector, cotton and textiles, and food industries, including flour milling, bread production, and animal husbandry. While the exact number of SOEs are unknown, at least 650 of Sudan’s publicly listed companies are SOEs, of which at least 200 are directly owned by the military. These SOEs also have a history of sinecure and self-dealing that has sapped Sudan’s financial and economic resources. SOEs benefit from preferential treatment from the government and lax transparency and oversight compared to private companies , who are held to a higher standard by the government, which has allowed SOE to dominate Sudan’s economy. Sudan’s civilian-led transitional government had begun addressing the issue of SOEs in Sudan’s economy prior to the military takeover, including considering future SOE privatization, and published a partial list of SOEs .
However, despite some improvement under the civilian-led transitional government, Sudan is still ranked as one of the most corrupt countries in the world by Transparency International. Sudan is Africa’s third largest gold producer and SOEs and military-controlled companies control much of the gold trade in the country and its export abroad. The gold trade is poorly regulated in Sudan and is linked to child labor and the use of mercury for refinement, amongst other concerns.
The Sudanese military’s seizure of power triggered calls for a return to a civilian-led transition which were met with violence and human rights abuses. Since October 25, 2021, Sudan’s security forces under the military’s command have violently cracked down on peaceful demonstrations, reportedly killing over 90 civilian protesters, causing well over 3,000 injuries, preventing access to medical care, suppressing the media, and arresting and detaining political, civil society, media, humanitarian, and cultural representatives.
Heightened Risks for Businesses and Individuals Conducting Business with SOEs and Military-Controlled Companies
Investing with, forming partnerships, or facilitating the expansion of SOEs and military-controlled companies in Sudan may entail reputational risks for U.S. businesses and individuals. Any financial or technical assistance provided by U.S. companies to the military and/or the network of companies that it controls risks the potential association with human rights abuses and with actors impeding the country’s democratic transformation. Given these considerations, the U.S. government notes that engagement with SOEs and military-controlled companies could harm companies’ reputations in Sudan, as well as their reputations with shareholders, employees, and civil society.
Gold
The U.S. Department of Labor lists gold from Sudan as a good produced with child labor in its List of Goods Produced with Child Labor or Forced Labor , warning businesses to review their supply chains and take reasonable measures to guard against complicity in labor violations. The United Nations Panel of Experts for Sudan found that many of the gold mines in Darfur are under the control of the Rapid Support Forces (RSF), a part of the Sudanese security forces; the Panel of Experts also reported that the RSF smuggles most of this gold outside of the country to be sold in foreign markets. Labor and other human rights concerns have also been documented at mine sites in Blue Nile and the country’s northern states. We urge businesses engaging in the gold trade in Sudan or whose suppliers source gold from Sudan to adopt due diligence practices in line with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and specifically, the Gold
Supplement to the OECD Due Diligence Guidance.
Other Considerations for U.S. Businesses Operating in Sudan
The military is ill equipped to implement necessary legal and fiscal reforms needed to combat rising poverty and inflation rates. Sudan’s current commercial code provides limited legal mechanisms and tools to combat corruption, mitigate and resolve disputes, secure assets and collateral, or enforce contracts. In 2020, the World Bank’s Doing Business Report ranked Sudan 171 out of 190 for ease of doing business. Therefore, businesses and individuals should be aware that in addition to the apparent political and security risk that Sudan presents, it is also plagued with an unconducive commercial environment for trade and investment.
Additionally, the United States has designated certain individuals and entities in Sudan under various sanctions authorities, including sanctions programs related to Darfur, South Sudan, the Central African Republic, Libya, Russia/Ukraine, election interference, malicious cyber-enabled activity, terrorism, and the Global Magnitsky sanctions program. Most recently, the United States imposed sanctions on the Central Reserve Police under Executive Order 13818 (“Blocking the Property of Persons Involved in Serious Human Rights Abuse and Corruption”). Sanctioned persons are listed on the SDN List, which can be searched utilizing OFAC’s Sanctions List Search Tool , which is publicly available. All property or interests in property of designated persons that are in the United States or are in the possession or control of a U.S. person are blocked. U.S. individuals and entities, including businesses, are prohibited from engaging in transactions with designated persons absent a general or specific OFAC license or other exemption. Failure to comply with U.S. sanctions may result in civil and criminal penalties under U.S. law. OFAC strongly encourages organizations subject to U.S. jurisdiction, as well as foreign entities, including foreign financial institutions, that conduct business in or with the United States or U.S. persons, or deal in U.S. origin goods or services, to employ an appropriately tailored risk-based approach to sanctions compliance by developing, implementing, reviewing and routinely updating their sanctions compliance policies and procedures.
Arms, Military Equipment, and Related Activity
There remains a UN arms embargo on the supply of arms and related materiel and any related technical training or assistance in relation to actors operating in Darfur. The UN arms embargo is implemented by the U.S. Government in the International Traffic in Arms Regulations, which reflects the policy of the United States to deny licenses or other approvals for exports or imports of defense articles and defense services destined for or originating in Sudan with certain exceptions listed in ITAR § 126.1(v).
Human Rights Due Diligence
There are many publicly available resources for businesses on due diligence for human rights abuses and related issues. The UN Guiding Principles on Business and Human Rights , the OECD Guidelines for Multinational Enterprises , the International Labour Organization (ILO) publication, “Combating Forced Labour: A Handbook for Employers and Business ,” and the Office of the High Commissioner for Human Rights guide on “The Corporate Responsibility to Respect Human Rights ” (OHCHR guide) and others provide guidance for heightened due diligence in high-risk regions, including how to mitigate the risk of human rights abuses through the business value chain. The U.S. Department of Labor’s mobile app and web-based platform – Comply Chain: Business Tools for Labor Compliance – provides information on due diligence measures specific to forced labor and child labor in supply chains, offering an interactive resource to help companies assess risks and impacts and draw on lessons and good practices from over 50 real-life examples of due diligence in various sectors. FinCEN also issued specific guidance to U.S. financial institutions on identifying and reporting Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators . The advisory provides typologies on how actors exploit the financial system as well as several red flag indictors that financial institutions can use in their efforts to identify illicit activity. Businesses engaged with public and private security around their operations are encouraged to implement initiatives such as the Voluntary Principles on Security and Human Rights (VPI) , a multistakeholder initiative that includes governments, NGOs, businesses, and observers, providing security around business operations in a manner that respects human rights, including engagement with public and private security providers. VPI has made available on its website several public risk assessment tools and resources which businesses can use to mitigate risk and help that any of their business operations in Sudan which involve the use of public and private security forces are undertaken in a manner that incorporates respect for human rights and fundamental freedoms. Businesses that hire private security are encouraged to hire private security companies that are members or affiliates of the International Code of Conduct for Private Security Providers’ Association (ICoCA). Contracting ICoCA member and affiliate companies can provide increased confidence that security providers are operating in a manner that is consistent with international human rights law and international humanitarian law and the UN Guiding Principles on Business and Human Rights.
[1] This advisory is explanatory only and does not have the force of law. It does not supplement or modify statutory authorities, executive orders, or regulations. It is not intended to be, nor should it be interpreted as, comprehensive or as imposing requirements under U.S. law, drawing any legal conclusions about specific fact scenarios regarding particular businesses or entities, or otherwise addressing any particular requirements under applicable law. Its sole intent is to provide information to businesses and individuals that they may consider in assessing their potential exposure to involvement with entities engaged in human rights abuses, as part of a risk-based approach to due diligence.
1) As is common with most "advisories," this advisory on Risks and Considerations for U.S. Businesses Operating in Sudan does not clarify the scope and operation of any OFAC-administered sanctions provisions. Instead, it serves to alert the regulated community to certain sanctions risks. For practical purposes, the import of this document would be that, in the event that a person were investigated for engaging in prohibited or sanctionable conduct, OFAC would consider any such person to have been given notice as to the contents of this document, with the expectation that the contents were taken account of in the formation of a risk-based compliance program.
In that regard, the advisory is particularly notable for U.S. persons that do business in Sudan. The advisory is unusual insofar as it focuses primarily on conduct that is not actually prohibited by OFAC. Neither Sudan's miliary nor the SOEs controlled by it are sanctioned by OFAC. There is a reference to the SDN designation of Sudan's Central Reserve Police, but as of 5-23-22, that is the only Sudan-located entity designated pursuant to the Global Magnitsky Sanctions Regulations.