The U.S. Treasury Department has issued sanctions designations against Turkey’s Ministry of National Defense, Ministry of Energy and Natural Resources, and the Ministers of Defense, Energy and Interior pursuant to a new Executive Order issued on October 14, 2019 by President Trump in response to Turkey’s military operation in northern Syria. The Executive Order authorizes secondary sanctions and can expose non-U.S. companies and financial institutions interacting with designated Turkish parties to risk of penalties.
All property and interests in property of these government agencies and officials are blocked and transactions and services are prohibited. This includes any entities in which the ministries or individual ministers have a 50 percent or more interest (individually or in the aggregate). U.S. sanctions jurisdiction applies to:
- Persons, activity and property in the United States;
- U.S. persons wherever they are located in the world; and
- Transactions in U.S. dollars that clear the U.S. financial system.
U.S. persons and non-U.S. persons in the United States may not facilitate activity with blocked persons or property outside the United States that would be prohibited for them directly.
There are three general licenses issued with the Executive Order that (1) allow the official business of the U.S. government to continue with the sanctioned parties (which would include military cooperation and foreign military sales); (2) authorize until November 13, 2019 certain activities necessary for the wind down of existing contracts relating to the Ministry of National Defense and Ministry of Energy and Natural Resources; and (3) permit certain activities by international organization.
The Executive Order provides for secondary sanctions on persons not subject to U.S. jurisdiction that materially assist, provide financial, material or technological support, or goods or services to persons designated under the Executive Order. In addition, for non-U.S. financial institutions determined to knowingly conduct or facilitate a significant financial transaction for, or on behalf of, a person blocked by the Treasury Department, the Executive Order authorizes secondary sanctions to prohibit or restrict correspondent and payable-through accounts with U.S. banks.
The Executive Order provides broad authority to the U.S. Treasury Secretary to make additional sanctions designations for persons determined to engage in actions that threaten peace, security, stability or territorial integrity of Syria; commission of human rights abuses; being a Government of Turkey official or subdivision / agency / instrumentality; or operate in a sector of the Turkish economy (making any Turkish company or foreign company operating in the country a potential target). The Secretary of State is given authority to designate (i) persons engaging in activity or finance that disrupts peace, ceasefire, resettlement and other ongoing or future diplomatic efforts in Syria; (ii) an adult family member of such persons; or (iii) persons responsible for or complicit in the expropriation of property, including real property, for personal gain or political purposes in Syria. The Executive Order provides for a menu of sanctions including procurement and visa bans; limitations on access to loans, finance, foreign exchange or transfers of credits and payments; equity and investment prohibitions; import/trade prohibitions; and sanctions on officers of legal entities.
In addition to sanctions pursuant to the Executive Order, the U.S. Congress is actively working on legislation that could apply additional sanctions to Turkey and parties in Syria. Legislative drafts and related negotiations are moving quickly, and it is not yet clear what form these sanctions will take.
The conflict along the Turkey-Syria border is ongoing and unpredictable, as is the course of U.S. policy. Turkey is a NATO ally and the Turkish economy is integrated with the west. Companies doing business in or with Turkey, companies in the energy or defense industries operating in Europe or the Middle East, and all banks should be aware of and monitor for exposure to these existing sanctions and for any developments.