It now seems likely that Col Muammar Qaddafi will not be leading Libya this time next year - maybe not even this time next week. The UN Security Council has allowed "all necessary measures" to protect civilians short of an occupation (resolution 1973). Most of the rest of the world was quick to act on this while the permission remained. World leaders have taken the opportunity to use strong words to call for an end to the Qaddafi regime.
However, it is the pressure of the myriad sanctions imposed by the US, UK, UN and Europe that will have the biggest single impact on Col Qaddafi. The sanctions are widespread, covering weapons, travel and the assets of senior Libyan individuals and those of the Libyan Investment Authority.
But it is not only Col Qaddafi and his men who will feel the pinch. Foreign investors and other trade partners are having to look very carefully at the restrictions imposed to protect their assets.
Furthermore, sanctions against Libya are not necessarily co-ordinated, and so compliance with one source of sanctions, for example the US, does not guarantee compliance with another. A breach of any one of the sanctions incurs liability, and parties are therefore strongly advised to consult each sanctioning authority. Some of the detail of particular scenarios is given below.
In principle, payments under pre-existing contracts to persons or entities caught by the sanctions are likely to fall foul of the sanctions regime, unless parties can show they are covered by the express exemptions issued by the relevant national authorities. It may be possible to make a payment into an account that has been frozen under the EU or UK sanctions, although the US sanctions appear to be more prohibitive of any dealings with Libya, even where they relate to pre-existing contracts.
Nevertheless, investors wishing to make such payments would be prudent to create an audit trail by approaching the competent authorities and notifying them of the intended payment(s) as well as seeking further clarity as to whether licences are required. Alternatively, investors may prefer to rely on the sanctions as a defence to non-payment or to consider whether they have been released from their payment obligations pursuant to force majeure provisions in their contracts.
In the less likely event that payments are received from entities subject to the sanctions regime, investors should also notify the competent authorities to ensure that they are not considered accomplices to any breach of the sanctions.
Foreign investors running joint ventures with Libya will not only face difficulties in light of the political disruption, likely regime change and danger on the ground. There are complex issues relating to the legality under sanctions of continuing to do business with Libya.
Many of the oil exploration, drilling operations and production facilities in Libya are operated under joint ventures between foreign oil companies and the Libyan state. Where Libyans or entities subject to the sanctions regime own or exercise significant control over the assets of the joint venture, it is likely that these will be caught by the sanctions.
The assets of such joint ventures are likely to be frozen and investors should beware of continuing dealings with the joint venture without further consultation and dialogue with the competent authorities.
Even where the Libyan party in the joint venture does not own or exercise significant control over the joint-venture assets, any investor action that effectively provides a financial benefit to the other party may potentially constitute a breach of the sanctions.
There is still hope for investors. Some have been considering potential claims under bilateral investment treaties (BITs) as well as under the terms of political risk insurance policies effected by them. Investments made by an investor of one contracting state in the territory of the other are granted a number of guarantees by BITs. These guarantees typically include fair and equitable treatment, protection from expropriation and full protection and security.
BITs provide foreign investors effective recourse to enforce those rightsthrough claims for compensation before international tribunals from host states that have damaged their investments.
Libya is signatory to 30 BITs, 17 of which are in force, including those with France, Germany, Italy and the Russian Federation. Some of Libya's BITs contain specific rights to compensation for the destruction of investments by state forces or authorities where this could have been reasonably avoided in the circumstances of conflict. Other Libyan BITs contain full protection and security clauses placing the state forces and authorities under a duty of care to protect investors and their investments.
Foreign investors have questioned whether voluntary decisions by them to suspend operations and remove their personnel from Libya might prejudice their ability to be compensated for their losses. The circumstances of each case will require individual assessment, but investors are likely to be in a strong position if they can show that such immediate measures were taken to avoid risks to human life flowing from the Libyan state's failure to provide the requisite protections provided for under the BITs. This ruling certainly follows the spirit of UN Security Council resolution 1973. Col Qaddafi probably has other things on his mind.
Pervez Akhtar is a partner at Freshfields Bruckhaus Deringer