New Law Regarding Unauthorized Oil Exploration in the Malvinas Islands

The Argentine Government is enacting measures targeted at stopping the oil exploration which is being carried out without its permission in the vicinity of the Islas Malvinas, in an area that the Argentine Government deems as belonging to the Argentine Economic Exclusivity Zone (200 nautical miles from the coastline or the continental platform’s outer rim, whichever is greater).

The Federal Congress approved a bill sanctioning companies which, directly or indirectly, perform or support oil exploration activities in the Argentine continental platform as-and-when such activities lack authorization from the Argentine Government (“Unauthorized Business”).

On June 23, 2010, the Lower House approved the bill and on March 16, 2011 this bill was approved by the Senate. No changes were introduced by the Senate in the text approved by the Lower House. This bill is likely to be enacted in the next few days (the “Law”).

1. Main provisions of the Law

According to the Law, oil exploration and production activities in the Argentine continental shelf must comply with the Law and other applicable Argentine legislation.

No Argentine or foreign company authorized to operate in Argentina, nor its shareholders, may:

1. carry out Unauthorized Business;
   
   
2. have any direct or indirect participation in any companies operating an Unauthorized Business (which also includes those providing any kind of service for such activities); or
   
   
3. engage in business with any individual or legal entity for the purpose of assisting them to carry out Unauthorized Business.

Physical or legal persons that violate the prohibitions mentioned above shall be “disqualified” from 5 to 20 years, without prejudice 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 benefits that they enjoy shall immediately be revoked.

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 Unauthorized Business.

The Government shall draw up a list of those Argentine and foreign companies carrying out Unauthorized Business.

2. Current status of the Law

Until such time as the Executive Branch has enacted the Law and it is published in the Official Gazette, it shall not enter into force. The Law shall be considered to be enacted by the Executive within ten business days from its receipt from Congress, if the bill is not vetoed within this period of time.

Pursuant to the information provided in the Congress the Law will be sent to the Executive Branch this week.

The Executive Branch may veto the Law, but it this is unlikely given the political support behind it. Nevertheless, should that be the case, the bill would have to be approved again by two-thirds of both Houses of Congress in order to be enacted.

3. Entry into force of the Law

After the Law is enacted by the Executive Branch, it will be published in the Official Gazette.

The Law shall enter into force 90 days after the date of its publication in the Official Gazette. Thus, if the Law were published in the Official Gazette, for example, on April 15, 2011, it would enter into force on July 14, 2011.

The implementing regulations of the Law must be issued by the Executive Branch within 60 days after its publication in the Official Gazette. However, even if the Executive Branch does not issue the implementing regulations within the 60 days according to Federal Supreme Court jurisprudence, this omission is not sufficient to foster the assumption that the Law has not entered into force and is not in operation at the end of the afore-mentioned 90-day period since its publication.

Under the constitutional rule of non-retroactivity of sanctions, any activity prohibited by the Law that took place but has ceased before it enters into force, would not constitute a breach of the Law and thus, should not be reasonably subject to sanctions under it.

It is to be hoped that the implementing regulations will clarify the term “indirect participation” in order to avoid an otherwise “universal” reach of the Law in today’s globalized world. It is also to be hoped that the implementing regulation will clarify what “disqualification” means.