On October 14, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added Turkey’s Ministries of National Defence and Energy and Natural Resources, as well as three senior Turkish government officials, to OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List) pursuant to a new executive order issued on the same day. The executive order, issued in response to Turkey’s incursion into northern Syria, contains both primary (i.e., prohibitions applicable to U.S. persons) and secondary sanctions elements (i.e., consequences for non-U.S. persons) for those who engage in certain actions specified in the executive order.
On the primary sanctions front, U.S. persons are prohibited from engaging in any transaction with the designated parties and are required to block (or “freeze”) any assets of such parties that come within their possession or control. Under OFAC’s so-called 50% rule, entities owned 50% or more, in the aggregate, by one or more SDNs must also be treated as SDNs by U.S. persons.
On the secondary sanctions front, the executive order authorizes blocking of persons determined to have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” SDNs designated pursuant to the order. In addition, the order provides a “menu” of sanctions that can be imposed on persons found to have engaged in sanctionable activities specified in the order (including prevention of a ceasefire in northern Syria, prevention of efforts to promote a political solution to the Syrian conflict, and expropriation of property in Syria). The sanctions menu includes bans on eligibility for U.S. government procurement, prohibitions on foreign exchange transactions and certain transactions with U.S. financial institutions, import bans and visa denials, and blocking. In addition, any foreign financial institutions that knowingly facilitate significant financial transactions for or on behalf of SDNs designated under the executive order may be prohibited from opening or maintaining a correspondent or payable-through account. Although these secondary sanctions have not yet been the subject of additional guidance from OFAC, it may be that, as under other secondary sanctions programs, OFAC will not target activities of non-U.S. persons that are authorized as to U.S. persons under general licenses (see below).
Simultaneously with the designations, OFAC issued three general licenses, including one that authorizes the conduct of official business of the United States Government by employees, grantees or contractors otherwise prohibited by the order (General License 1), and another that allows companies to wind down all transactions and activities with the designated ministries and entities owned 50% or more by them within 30 days (General License 2). A third general license authorizes “official business” of the United Nations (General License 3) and certain other international organizations, including the World Bank and the International Monetary Fund. Each general license is subject to specific terms and conditions that must be read carefully before being relied upon; for example, the general license allowing companies 30 days to wind down all transactions and activities only authorizes transactions and activities that are “ordinarily incident” and “necessary” to the wind down of operations, contracts or other agreements.
In addition, OFAC has signaled willingness to “issue ... specific licenses, as appropriate, to ensure that [the designations do] not disrupt Turkey’s ability to meet its energy needs.”
The three senior Turkish government officials added to the SDN List are the Minister of National Defence, the Minister of Energy and Natural Resources, and the Minister of the Interior. The 50% rule does not extend to control (as opposed to ownership), but previously issued OFAC guidance advises U.S. persons to act with caution when dealing with entities “which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC. Furthermore, a U.S. person may not procure goods, services, or technology from, or engage in transactions with, a blocked person directly or indirectly (including through a third party intermediary).” Thus, although the Ministry of the Interior has not itself been designated, U.S. persons should take steps to ensure that their dealings with this ministry do not constitute impermissible dealings with its minister. Non-U.S. persons, for their part, should consider whether dealings with the Ministry of the Interior will create secondary sanctions exposure.
Although broadly titled as focused on persons contributing to the situation in Syria, the October 15 executive order and accompanying designations were aimed squarely at the Turkish government. However, it should be noted that the order also provides for designations of persons determined to be operating in as yet unnamed sectors of the Turkish economy. This opens the door for additional, broader sanctions in the event that Turkey does not cease its military operations in Syria. As a result, all persons doing business in Turkey should monitor the situation closely for further developments.
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