Yesterday, the U.S. government issued an Executive Order (E.O.) imposing new primary and secondary sanctions that target the government of Turkey in response to the escalating conflict in northern Syria. Pursuant to the new sanctions, the Office of Foreign Assets Control (OFAC) also added the Turkish Ministry of Energy and Natural Resources, the Turkish Ministry of National Defense, and the Turkish ministers of Defense, Energy and Natural Resources, and Interior to the SDN List, formally blocking (freezing) those parties’ property and interests in property, subject to U.S. jurisdiction. Entities owned 50 percent or more, directly or indirectly, by these SDNs are also subject to blocking sanctions pursuant to OFAC’s “50 percent rule.”

While the sanctions are currently narrowly targeted, the E.O. authorizes a broad array of future possible sanctions against other parties connected to the Turkish government and companies operating in Turkey. Whether and to what extent sanctions are expanded on Turkey will depend on developments on the ground in Syria and U.S. domestic politics. Various groups, including prominent voices in Congress, are pushing the administration for more aggressive action against Turkey, which could portend an expansion of sanctions against the Ankara government.

Blocking sanctions

The October 14, 2019 E.O. authorizes the U.S. government to block any person (e.g., designate that person as a Specially Designated National (SDN)) that the Secretary of the Treasury determines to:

  • Be engaged in activities related to undermining peace or security in Syria or the commission of serious human rights abuses;
  • Be a current or former official of the Government of Turkey (GoT)
  • Be a subdivision of instrumentality of the GoT;
  • Operate in certain sectors of the Turkish economy that have yet to be specified by the Secretary of Treasury;
  • Materially assist or provide support for persons blocked pursuant to the Executive Order; or
  • Owned or controlled by a person blocked pursuant to the Executive Order.

While this first round of designations was limited, the scope of the new blocking authorities in the E.O. authorize OFAC to designate a broad array of parties in the future that are related to the Turkish government or that operate in Turkey. Companies subject to U.S. jurisdiction and all financial institutions should review their engagements with parties subject to the new sanctions and with parties that may become subject to the sanctions in the future, as dealings involving this U.S. NATO ally now present heightened sanctions risk.

Menu-based sanctions

The E.O. also authorizes the U.S. State Department to issue a menu of sanctions against non-U.S. persons that are:

  • Responsible for, complicit in, or financed any of the following:
    1. The prevention of a ceasefire in Syria;
    2. Preventing persons from voluntarily returning to Syria or forcibly repatriating refugees to Syria; or
    3. Preventing a political solution to the conflict in Syria;
  • An adult family member of a person engaged in the foregoing; or
  • Engaged in the expropriation of property in Syria for personal gain or political purposes.

After determining that a party meets one of the criteria above, the U.S. State and Treasury Departments are authorized to impose the following sanctions on that party:

  • Bar on U.S. government procurement from that party;
  • Denial of visas to that party and to corporate officers, principals, or controlling shareholdings of that party;
  • Prohibit U.S. financial institutions from making loans to that party totaling more than $10 million in a 12-month period, except for certain humanitarian-related loans;
  • Prohibit transactions in foreign exchange subject to U.S. jurisdiction;
  • Prohibit transfers of credit or payment subject to U.S. jurisdiction through any financial institution;
  • Block the property or interests in property of that party (i.e., add the party to the SDN List);
  • Prohibit investments in or purchases of significant amounts of debt or equity of that party;
  • Restrict imports to the United States from that party; and/or
  • Impose certain sanctions on principal executive officers of that party.

Secondary Sanctions

The E.O. authorizes the U.S. government to impose the menu-based sanctions described above against any non-U.S. financial institution that knowingly conducts or facilitates a significant financial transaction for or on behalf of a person blocked pursuant to the E.O. The U.S. Treasury Department may also prohibit such financial institutions from opening a correspondent account or payable-through account in the United States and may prohibit or impose strict conditions on such financial institutions maintaining accounts in the United States.

General Licenses

OFAC issued three general licenses authorizing certain, limited activities involving the newly blocked parties. General License 1 authorizes transactions and activities that are for the conduct of the official business of the U.S. government by its employees, grantees, and contractors.

General License 2 allows parties to engage in transactions and activities that are ordinarily incident and necessary to wind down operations, contracts, or other agreements involving the Turkish Ministry of Energy and Natural Resources and the Turkish Ministry of National Defense or involving entities owned 50 percent or more by those ministries. Authorized wind down activities must be completed by 12:01 am EST on November 13, 2019. The wind down general license does not authorize debits from blocked accounts held by U.S. financial institutions.

General License 3 authorizes transactions and activities involving the Turkish Ministry of Energy and Natural Resources or the Turkish Ministry of National Defense and entities owned 50 percent or more by those ministries for the official business of the United Nations, its Programmes and Funds, and its Specialized Agencies and Related Organizations, including twelve specifically listed organizations.