Sudan Business Risk Advisory Update

The Departments of State, the Treasury, Commerce, Labor, and the United States Agency for International Development (USAID) are issuing this Update to the May 2022 Business Risk Advisory related to Sudan in light of the violent conflict between the Sudanese Armed Forces (SAF) and Rapid Support Forces (RSF) that erupted in April 2023.  The risks identified in the original Advisory related to the role of the military and armed groups in the Sudanese economy, including with respect to Sudanese state-owned enterprises, persist, and in most cases, have been exacerbated by the conflict.

On May 4, 2023, the President issued Executive Order (E.O.) 14098 authorizing the imposition of sanctions on persons destabilizing Sudan and undermining its democratic transition.  Under this order, the Treasury has authority to impose additional sanctions in response to the continued conflict, including sanctions related to RSF, SAF, and their respective leaders that threaten the peace, security, or stability of Sudan. The Department of the Treasury imposed economic sanctions pursuant to E.O. 14098 on key companies connected to the RSF and SAF on June 1.  The Departments of State and Commerce are also evaluating actions related to RSF, SAF, and other individuals and entities pursuant to their authorities, such as through the imposition of visa restrictions also announced on June 1.

In addition, businesses and individuals operating in Sudan, or potentially with value chain connections to Sudan and/or with Sudanese companies connected to the SAF and RSF, should continue to conduct heightened due diligence related to human rights issues and the potential that their activities could contribute to conflict, corruption, or other activities that threaten Sudan’s stability.  Businesses and individuals engaging in commerce involving gold that may be mined, processed, or exported from Sudan are urged to adopt practices in line with the OECD Due Diligence Guidance (OECD DDG) on Responsible Supply Chains of Minerals from Conflict Affected and High Risk Areas  to assess and mitigate the most serious risks associated with such activity.

Background on the Recent Conflict

Beginning on April 15, 2023, the RSF and SAF started a violent conflict that upended months of negotiations focused on the creation of a civilian-led democratic transition.  That conflict continues as of the issuance of this Update.  The United States is working closely with partners to facilitate a peaceful resolution to the conflict.

Sanctions

On May 4, 2023, President Biden issued E.O 14098, authorizing the imposition of sanctions on persons determined, among other things, to have engaged in undermining democratic processes or institutions, threatening peace and stability, targeting civilians, and obstructing humanitarian and United Nations activities in Sudan.  On June 1, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated four entities pursuant to E.O. 14098, including companies connected to the gold and defense sectors.  OFAC may impose sanctions on additional individuals or entities in Sudan pursuant to E.O. 14098 or other relevant sanctions authorities, as appropriate.

Prior to the conflict, pursuant to multiple authorities, sanctions had been imposed on over 20 individuals and entities in or connected to Sudan, including for connections to Russian operative Yevgeny Prigozhin and the Wagner Group, human rights abuses during peaceful protests, and terrorist activities.

Individuals and entities that conduct business with, materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, or in support of, a sanctioned individual or entity may expose themselves to an array of consequences, including the risk of being sanctioned themselves.

Gold from Sudan as a Mineral from a Conflict-Affected Area

As noted in the May 2022 Advisory, gold has been connected to forced labor, as well as other labor abuses including poor safety and health conditions, financing of the RSF, smuggling, and human rights concerns in Sudan.  Gold from Sudan is also listed for child labor on the Department of Labor’s List of Goods Produced by Child Labor or Forced Labor .  In addition, there are reports of unsafe mercury usage and other environmental degradation as well as gender discrimination connected to gold production in Sudan.  Gold in Sudan has also been connected to financing of the activities of Yevgeny Prigozhins’s Wagner Group, including through sanctioned entities Meroe Gold, M Invest, and their likely successor entities, as noted in open source reporting.

Reports indicate that the incidence of these practices has increased since April 2023, that the formal system for legal exports of gold from Sudan has collapsed¹, and that looting of gold from mining sites, markets, banks, and other locations is occurring.  Specific due diligence concerns related to the conflict include clashes in and around gold producing areas, forced labor in gold mining, taxation by armed groups along gold supply routes, and use of funds from gold sales to support the conflict.  Although there may continue to be some gold production that complies with local laws, it may be difficult to verify the source of such production. Open source reporting indicates that nearly all gold from Sudan is exported to the United Arab Emirates; one Italian refinery reportedly sourced gold from Sudan².

In light of the above, Sudanese gold should therefore be considered a mineral from a conflict-affected area for purposes of due diligence pursuant to the OECD DDG, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the UN Guiding Principles on Business and Human Rights, and other government- or industry-developed responsible sourcing frameworks. Consistent with these recommendations, actors with connections to gold value chains should conduct heightened due diligence to prevent or mitigate the risks associated with trading in gold from a conflict-affected area, as well as those risks identified in more detail in the May 2022 Advisory. Appropriate due diligence measures should include measures with respect to gold labeled as recycled that reasonably could be believed to include Sudanese gold.

There are significant risks of gold being used as a vehicle for money laundering during the period of conflict, particularly by criminal elements seeking to take advantage of the instability and actors involved in the conflict attempting to finance their activities; gold dealers and retailers as well as U.S. financial institutions have AML/CFT compliance requirements under the Bank Secrecy Act, which should be reviewed carefully, with appropriate analysis and assessment of potential elevated risks related to Sudan.

As the country’s leading export commodity, gold will have the potential to provide important financing for a civilian-led democratic transition at such time when the conflict subsides.  The United States will seek to work with stakeholders in Sudan and among partners to facilitate the development of sustainable and responsible gold supply chains.  At present, these conditions do not exist.

Companies Connected to RSF and SAF

Open source reporting indicates that both the RSF and SAF maintain extensive corporate networks, and the May 2022 Advisory noted concerns related to engagement with SOEs, particularly including corruption.  As the names of the specific companies in these networks may change, there is a significant risk of engaging with businesses beneficially owned by RSF or SAF and their senior officials, when operating in key sectors, particularly defense.

Individuals and entities engaged in business in or related to Sudan should conduct heightened due diligence to assess whether the RSF, SAF, or senior officials thereof may be beneficial owners of their partners, as well as whether other risks, such as doing business with corrupt actors, may be present.

Defense Articles, Defense Services, and Dual Use Goods

The May 2022 Advisory noted the UN-imposed arms embargo connected to Sudan’s Darfur region.  As a result of this embargo, export or re-export of defense articles or defense services to Sudan are regulated by the International Traffic in Arms Regulations.  In light of the ongoing conflict, dual use (or, those with both commercial and military application) goods, services, or technology are at heightened risk for diversion within Sudan.  Exporters are encouraged to conduct enhanced due diligence on arms and related materiel and contact the Department of Commerce’s Bureau of Industry and Security  and the Department of State’s Directorate of Defense Trade Controls with questions regarding potential licensing or other restrictions.

De-Risking, Including with Respect to Humanitarian Activities

Notwithstanding the above risks, it remains essential that humanitarian activities proceed with minimal impediment in Sudan and that the Sudanese people have access to the formal financial system.  As a result, we encourage financial institutions to implement a risk-based approach that ensures humanitarian activities continue.  Activities conducted by the U.S. Government (including USAID contractors and subcontractors) and the United Nations are exempt from the restrictions in E.O. 14098, and Treasury has issued general licenses (GLs) authorizing international organizations (including the Red Cross and Red Crescent Societies) and non-governmental organizations to continue to engage in activities to benefit the people of Sudan.  Treasury has also issued a GL authorizing activities involving the provision to Sudan of food, medicine, and other agricultural and medical items, and providing for continued exploration, treatment, transport, and distribution of water.  The United States encourages financial institutions to conduct appropriate due diligence that allows for the provision of financial services for humanitarian organizations and legitimate actors in and related to Sudan.

To review the original May 2022 Business Advisory, please click here.

¹Simon Marks, Conflict Brings Sudan’s Official Gold Trade to a Halt, May 22, 2023, available at https://www.bloomberg.com/news/articles/2023-05-17/conflict-brings-sudan-s-lucrative-official-gold-trade-to-a-halt#xj4y7vzkg

²SWISSAID, Out of the Shadows: Business relationships between industrial gold mines in Africa and refineries, March 30, 2023, available at https://swissaid.kinsta.cloud/wp-content/uploads/2023/03/2023-02-SWISSAID-Goldstudie_EN_final_web.pdf.