Thread by @TomWlost

Given the rare and rather unprecedented nature of UK's seizure near Gibraltar of Grace 1, a Panamanian ship with Iran crude oil going to Syria, I wanted to share a few thoughts from sanctions perspective.

First, the standard caveat: I don't pretend nor claim to know it all. This won't be complete. Happy to hear comments, explanations or arguments (in style!) if anyone knows more.

Second, here is more on Grace 1. Its currently stationed in Gibraltar, where it was seized by the UK. marinetraffic.com/en/ais/details…

1/ According to press reports, UK seized the ship because it was allegedly breaching EU sanctions on Syria.

2/ EU sanctions on Syria are set out in two documents: more general Council Decision 2013/255/CFSP and Council Regulation (EU) 36/2012, both of which have been revised multiple times.

3/ Council decision is more general - covers both Member State actions (i.e. things EU cannot act on, like ban on admissions or arms embargo) and EU-level actions (economic, trade, investment) which get implemented directly through Council Regulation. There is overlap btw both.

4/ UK didn't exactly lay out publicly its legal case for the seizing the ship except that EU sanctions on Syria are violated. So lets look into the regs to see what is going on.

5/ Key issue: oil. An obvious thing would be a violation of an oil embargo on Syria. However, there is no oil embargo on Syria. In fact, it is not generally forbidden under EU sanctions to sell or transport or provide oil to Syria as such.

6/ In fact, it is the reverse. It is forbidden to BUY, IMPORT or TRANSPORT SYRIAN OIL. Art. 5 of Council Decision and Art. 6 of Council Reg make this clear. There is no similar provision for EXPORT TO SYRIA.

7/ There are some other provisions related to oil and exports to Syria, but nothing that would apply to an oil tanker heading to Syria. For example, it is forbidden to sell jet fuel & additives to Syria. (Arts. 7a of both Council Decision and Council Reg).

8/ There's also ban on exports of certain key equipment & technology for oil & gas sectors in Syria (i.e., for exploration & production of oil & gas, refining, and liquefaction of natural gas). (Art. 6 of both acts). Detailed list of such equipment is in Annex VI to Council Reg.

9/ Moving away from trade & export bans, there are also investment restrictions. It's forbidden to grant loans & credits, buy participation in or create joint-ventures w/ entities engaged in Syrian oil industry (exploration, production, refining). (art. 14 of CD, art. 13 of CR).

10/ Its hard to see how shipment of oil to Syria could violate any of the above. So it must be something else.

11/ This BBC piece probably points to the most likely legal reason: bbc.com/news/uk-488824…

12/ This article claims that the oil on the tanker was heading for the Baniyas Oil Refinery, which is subject to EU sanctions on Syria. Also, this excerpt from The Telegraph quotes Gibraltar's Chief Minister pointing to Baniyas as the reason.

13/ Indeed, Baniyas refinery is listed in Annex I to the Council Decision, and Annex II to the Council Regulation. These lists contains individuals subject to the ban on admission to the EU and asset freeze, as well as entities subject to the asset freeze.

14/ All "funds" and "economic resources" belonging to, owned, held or controlled by persons listed in these Annexes are "frozen". Also, no funds or economic resources can be provided to entities or persons on the list. (art. 28 of CD, art. 14 of CR).

15/ What are "funds" ? Art. 1 (j) of Council Regulation tell us that. In addition to typical monetary instrument, they include international shipping documents as well, like bills of lading, letters of credit, bills of sale.

16/ What are "economic resources" ? Art. 1 (f) of Council Regulation answers that stating that these are assets of any kind that can be used to obtain funds, good or services. Crude oil would certainly fall into this category.

17/ Finally, what does it mean to "freeze" such "economic resources? Art. 1 (h) of Council Regulation answer that question. Essentially preventing their use by the black-listed owner to obtain goods or funds.

18/ So moving towards conclusion, the UK authorities - by seizing Grace 1 & its crude oil - either decided they are "freezing economic resources (i.e. oil)" of black-listed person (Baniyas refinery) or "preventing making them available" to a black-listed person.

19/ We don't know enough about the transaction, i.e., was the oil already bought and paid for by Baniyas and Baniyas was the owner (in which case asset freeze seems generally justified) or .....

20/ ... whether oil still belonged to seller, transaction hadn't been concluded yet, and asset freeze couldnt have been effectuated (bz economic resources didnt belong to a listed owner), but instead UK acted preemptively to stop such a sanctioned person from acquiring resources.

21/ Note that in that second case, the UK must have had very good intel and evidence to be certain that the oil is heading for a black-listed entity to justify the seizure.

22/ One final point on jurisdiction. EU law generally applies on in the European Union. It applies to EU citizens and EU entities. It does not - as a general matter - apply to non-EU persons and outside of the EU jurisdiction.

23/ As shown in this graph from the The Telegraph, oil tanker left Iran on Panamanian ship, sailed south around Africa (Cape Horn), up north along Western Coast of Africa, probably on way to Syria. What link to EU? Probably none, except one stupid move by ship to enter EU waters

(source for the graph above: telegraph.co.uk/news/2019/07/0…

24/ This is where the legal provision, based on which UK authorities acted, plays a key role. I don't think UK authorities claim that EU sanctions apply to transactions between an Iranian seller and a Syrian buyer (two non-EU parties), carried out through a non-EU ship.

25/ This would be, after all, predominantly extraterritorial application of EU sanctions to a transaction carried out mainly outside of EU jurisdiction btw two foreign parties. EU law should not apply thereto.

26/ Side note: EU Council Decisions imposing sanctions do not include a jurisdictional clause. In other words, they do not specify - normally - to whom exactly prohibitions and bans included in such decisions apply.

27/ They succeed in this by addressing this key issue via general & torturous use of passive voice. Normally: "it shall be prohibited to". So its not clear who is bound by the prohibition. This is also mostly the case in the Council Decision on Syrian sanctions.

28/ Only few bans in Syria Decision add that prohibitions relate to acts "by nationals of [EU] Member States or from territories of Member States or using their flags vessels or aircraft". Most prohibitions (including ban on purchase of Syrian oil) don't have this addition.

29/ So Council Decision on Syria sanctions (as all sanctions decisions) is somewhat unclear.

30/ But Council Regulation - like all sanctions regulations - includes the following jurisdictional clause:

31/ Art. 35 (a) is the only potential "hook" to EU jurisdiction over this transaction, if we were seeking to enforce some ban on selling oil to Syria (which, as already discussed above, doesn't exist on the books). It woudl be hard to argue that art. 35(e) applies.

32/ But given that UK probably does not seek to enforce any prohibition, but only seeks to "freeze" assets (oil) of black-listed entity (Baniyas) that by coincidence (??) showed up in its jurisdiction, the entire jurisdictional problem gets avoided.

33/ To be precise legally, we need to distinguish two situations described in tweets (18)-(21) above. If oil already belongs to Baniyas (black-listed), then under EU sanctions UK must freeze this economic resource under Art. 28(1) of Council Decision & Art. 14(1) of Council Reg.

34/ But if the oil still has not changed ownership to Baniyas, then UK action runs into jurisdictional problems. UK has no legal basis to freeze the assets now (as they don't belong to a black-listed company yet, while in UK jurisdiction), but ...

35/ ... if it seeks to pre-emptively stop Iranian seller transfering oil to Syrian buyer in a Syrian port, it would be effectively trying to apply EU sanctions to extra-territorial transaction that would happen only in Syria, without any EU involvement and no EU parties involved.

36/ So to conclude, in my (preliminary) view, if oil does not belong now to Baniyas, then UK govt has no basis under EU sanctions law to seize it. It would be applying EU sanctions extraterritorially.

37/ One final twist: Council Decision has a special provision authorizing inspection of ships & seizing & disposing of cargo, but not in relation to oil nor asset freezes. This provision only applies to illegal shipments of equipment, goods & technology for internal repression.

38/ References to Art. 1 & 2 above clarify that this provision applies only to prohibitions listed in those articles, which bans on exports of goods, equipment & technology used or that could be used for internal repression.

39/ That Council Decision has special provision on ship inspection in relation to one prohibition, but not for others (incl. asset freezes) probably also undermines legality of UK action. Art. 26 would not have been needed if UK could do what it did without an express provision.

40/ So to conclude, if oil already belonged to Baniyas then seizure of Grace 1 is perfectly justified. If not, then I think UK action is questionable under EU sanctions law. Perhaps UK national law provides an additional basis, but I'll leave that to others. / END

One more issue: this article 👇explains why Grace 1 was travelling all the way around Africa, instead of just passing through the Suez Canal. It was denied passage through the Suez Canal, as reportedly are all ships travelling to Syria. bloomberg.com/opinion/articl…

This article explains why Grace 1 was taking such a circuituous way around Africa. Apparently passage through the Suez Canal, which would make the journey much shorter, was denied. bloomberg.com/opinion/articl…