US sanctions Turkish Ministries of Defense and Energy, authorizes potential broader future sanctions

The US sanctions space is very active and changes are made frequently. This publication is current as of October 15, 2019.

President Trump signed an executive order (the Order) on October 14, 2019, authorizing sanctions on Turkey related to its military actions in Syria.¹The sanctions, at least for now, apply only to the following Turkish government entities and officials, including any entities they own a 50 percent or greater interest in (the Sanctioned Persons).

• Republic of Turkey Ministry of Energy and Natural Resources (the Ministry of Energy)
• Republic of Turkey Ministry of National Defense (the Ministry of Defense)
• Hulusi Akar (Turkish Minister of Defense)
• Fatih Dönmez (Turkish Minister of Energy)
• Süleyman Soylu (Turkish Minister of the Interior)

Each of the Sanctioned Persons are now designated on the US Department of Treasury, Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons List (SDN List).²As a result, all of their property and interests in property that are in the United States or in the possession or control of US persons are blocked and US persons, absent authorization from OFAC, are prohibited from engaging in any transactions or other dealings involving the Sanctioned Persons. The Order also authorizes, but does not require, OFAC to designate as SDNs any entities that are otherwise controlled by any of the Sanctioned Persons.

Any foreign transactions with a US nexus (e.g., participation by US person employees or US dollar transactions), including such transactions by Turkish companies, will also potentially be subject to the sanctions. Foreign (non-US) entities, including foreign financial institutions, may also be subjected to restrictive or adverse measures under the Order, regardless of whether there is a US nexus, to the extent they materially assist, or facilitate any significant financial transactions for, or on behalf of, any of the Sanctioned Persons.

While the initial sanctions are limited to the specified individuals and entities, the Order authorizes the US Secretaries of Treasury and State (in consultation with each other) to impose more stringent sanctions on Turkey should Turkey continue its military operation in Northern Syria. In particular, the Order authorizes, but does not require, sanctions on those, including foreign persons, determined to be involved in: (i) serious human rights abuses; (ii) obstructing any potential ceasefire; (iii) preventing displaced persons from returning home; (iv) forcibly repatriating refugees; or (v) otherwise threatening the peace, security, or stability in Syria.

The scope of any such future sanctions remains to be seen, but potential future sanctions targets, as identified in the Order, include the Government of Turkey (including any subdivision, agency, instrumentality, or owned or controlled entity) or individuals or entities operating in yet to be determined sectors of the Turkish economy. Potential penalties on sanctioned individuals and entities (possibly including principal executive officers or persons performing similar functions of the sanctioned entity) include: (i) a prohibition on federal government procurement; (ii) denial of visas to visit the United States; (iii) restrictions on US financial institution loans, credit, or payments; (iv) prohibitions on transactions in foreign exchange; (v) prohibition on transactions involving debt or equity of the sanctioned person; (vi) restrictions on importing goods, technology, or services from the sanctioned person; or (vii) being designed to the SDN List.

Contemporaneous with the Order, OFAC issued a general license that authorizes, through 12:01 am ET on November 13, 2019, all transactions and activities that are ordinarily incident and necessary to the wind-down of pre-existing (prior to October 14, 2019) operations, contracts or other agreements involving the Turkish Ministries of Defense or Energy (or entities they own a 50 percent or greater interest in). OFAC also issued general licenses authorizing transactions involving the official business of the US Government or certain international organizations.

While the number of designated entities and individuals is currently small, the existing sanctions could have a marked impact on those engaged in transactions involving the defense or energy sectors of the Turkish economy, particularly given the prevalence of state-owned enterprises in those industries in Turkey. Anyone continuing to participate in transactions in, or involving, Turkey should examine the transaction for any connection to either ministry and, if they have not already done so, implement related compliance policies and procedures, to address these, and potential future, risks.

The EU has issued a press release stating that a Council working group would be meeting to review the EU’s position on this issue, however on October 16, 2019 the UK Foreign Secretary indicated that the EU had decided against sanctions at this stage, but would keep the position under review. Separately, a framework regime of sanctions has been agreed by the Council of the EU to target people and entities responsible or involved in Turkey’s “continued illegal drilling activities” for oil and gas in the eastern Mediterranean region.

We will continue to monitor events related to Turkey and Syria closely and publish additional updates, as appropriate.

The US sanctions space is very active and changes are made frequently. This publication is current as of October 15, 2019.