A draft law sanctioning companies working in Argentina whose affiliates perform and/or support oil exploration in Malvinas Islands

Currently, oil exploration activities such as drilling are taking place within South Atlantic waters located in the vicinity of the Malvinas Islands (hereinafter the “Islands”). These exploration activities have been authorized by the British Government and the Islands’ authorities without the involvement of Argentine authorities. 

Argentina has historically claimed sovereignty rights over the Islands’ territory and surrounding seawaters and thus opposes the oil exploration activities being performed. Therefore, the Argentine Government has issued certain measures targeted at attempting to stop the oil exploration or to deter companies from participating in it.

Among these measures, the Lower House of the Federal Congress has just passed a draft law sanctioning companies which perform and/or support oil exploration activities "within the Argentine continental platform" ("Near the Islands") and companies that have affiliates which perform and/or support oil exploration activities Near the Islands, when such activities lack any authorization from the Argentine Government.

The draft law will be sent to the Senate which may 

(i) reject it outright, in which case it cannot be reintroduced during the current congressional year; 

(ii) amend it, in which case it will go back to the Lower House; or 

(iii) approve the text of the draft law without changes, in which case it will be sent to the Executive Branch for its promulgation as a law, unless vetoed by this branch..

We describe below the text of the Law as approved by the Lower House (the “Law"). The text of the Law has narrowed down the initial draft law presented by some representatives.

According to the Law: 

a) Oil works Near the Islands must conform to the Law and other applicable Argentine legislation.

b) no Argentine or foreign company authorized to operate in Argentina, nor its shareholders, may: 

 

(i) carry out oil works Near the Islands without the Argentine Government’s authorization; 

(ii) have any direct or indirect participation in any companies operating in oil related activities Near the Islands without Argentine Government authorization or providing any service to such activities; or 

(iii) engage in any business with any individual or legal entity for the purpose of assisting them to carry out oil activities Near the Islands without Argentine Government authorization. 

c) Individuals or legal entities that violate the above prohibitions shall be disqualified from 5 to 20 years, in addition to any applicable criminal sanctions. If such persons have oil concessions, these shall revert to the State. Also, any tax and social welfare payment exemptions or facilities that they enjoy shall immediately lapse. 

d) No national, provincial or municipal official authority may enter into a contract with any company, or with any of its shareholders, that directly or indirectly carries out oil activities Near the Islands without an exploration or exploitation authorization from the Argentine Government. 

e) The Argentine Government shall issue a list of those Argentine and foreign companies that carry out oil activities Near the Islands without the proper authorization from the Argentine Government (hereinafter, "Unauthorized Businesses"). 

f) The Law shall enter into force 90 days after the date of its publication.

It is likely that the implementing regulations (that have to be issued by the Executive Branch within 60 days after the publication of the Law) will define the above rules more accurately. For example, it is not clear what "disqualification" means. A broad construction of this term would imply that the local company (whether national or foreign owned) found to violate the Law must be dissolved and cease to operate. Thus, not only oil concessions would be at risk.

Given the purpose of the Law, it might be expected that the Law will reach companies operating in Argentina that are controlled by a corporation which has a direct or indirect affiliate providing support to oil operators Near the Islands.

If (i) the Law is enacted without changes, (ii) the regulations do not narrow its possible scope, and (iii) the Law is strictly enforced, then all corporations that directly or indirectly have shares in corporations that perform Unauthorized Businesses or in companies providing any type of service to them might be affected by the Law.