On October 14, 2019, President Donald J. Trump issued a new executive order (EO) authorizing far reaching sanctions against Turkey in connection with the country's military operations in northeastern Syria. These broad new authorities—and the first round of sanctions implemented pursuant to them—are an unusual action by the United States against a fellow NATO member with which the US has a long history of economic and military cooperation.
The EO targets Turkish government officials, government agencies and "instrumentalities," and individuals or entities operating in certain sectors of the Turkish economy (to be identified later). The EO also authorizes "secondary sanctions" on foreign financial institutions for knowingly engaging in or facilitating significant transactions with certain targeted individuals and entities. Concurrent with the issuance of the new EO, the US Department of Treasury's Office of Foreign Assets Control (OFAC) implemented some of those authorities by adding the Turkish Ministry of National Defense, the Turkish Ministry of Energy and Natural Resources and three Turkish senior government officials—the Minister of National Defense, the Minister of Energy and Natural Resources and the Minister of Interior—to the List of Specially Designated Nationals and Blocked Persons (SDN List). OFAC also issued three general licenses authorizing otherwise prohibited or sanctionable activity, as outlined below.
As a result of the October 14 EO and designations, US persons (i.e., US citizens or green card holders, people present in the US, and US companies and their foreign branches or representative offices) are prohibited from dealing with SDNs designated pursuant to the new EO or with entities in which such SDNs hold a 50 percent or greater interest, absent a specific or general license. The property of sanctioned persons and entities in the United States is blocked, and US persons must block any such property that is in their possession or control. Furthermore, foreign financial institutions that knowingly conduct or facilitate any significant transaction on behalf of a person sanctioned under the EO may also find themselves cut off from the US banking system. Finally, the EO—as with most other sanctions executive orders—authorizes sanctions on any person (including non-US persons) that provides material assistance, financial, material or technological support to, or goods and services in support of, a sanctioned person.
Broad executive order details sanctions risks and hints at future designations
The October 14, 2019, EO under which the designations were issued authorizes a wide array of sanctions that may be deployed in the future, without any requirement for advance or additional notice.
Section 1 of the new EO authorizes blocking the US property and interests in property of any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, to:
- Have been involved in "actions or policies that threaten the peace, security, stability, or territorial integrity of Syria" or in "the commission of serious human rights abuses";
- Be a current or former Turkish government official;
- Be a Turkish state agency or "instrumentality" (a term that covers state-owned enterprises);
- Operate in such sectors of the Turkish economy as the US may identify for sanctions going forward;
- Have materially assisted, sponsored or provided financial, material or technological support for, or goods or services to or in support of, any person blocked pursuant to the October 14 EO; or
- Be owned or controlled by, or have acted or purported to act on behalf of, directly or indirectly, any person blocked pursuant to the October 14 EO.
Section 2 authorizes menu-based sanctions on any foreign person who the Secretary of State, in consultation with the Secretary of the Treasury and other officials, determines (1) to have been involved in various destabilizing activities in Syria, (2) to be an adult family member of such persons or (3) to have been involved in the expropriation of property in Syria for personal gain or political purpose. The menu of sanctions that could be imposed on persons targeted in Section 2 include a range of actions up to and including blocking sanctions. Other potential sanctions include the denial of entry to the United States; exclusion from US government contracts; correspondent and payable-through-account restrictions; lending restrictions and limits on other transactions in debt or equity; and trade restrictions. Senior executives of entities targeted under Section 2 may also be targeted themselves as individuals.
Finally, in Section 3, the EO authorizes so-called "secondary sanctions" in the form of correspondent and payable-through-account sanctions on foreign financial institutions who the Secretary of the Treasury determines to have knowingly conducted or facilitated any significant financial transaction for or on behalf of any person whose property and interests in property are blocked pursuant to the provisions in Section 1. These secondary sanctions can be applied regardless of whether the "significant financial transaction" at issue has any connection to the United States.
General licenses authorize specified activities, including time-limited wind-down of pre-sanctions contracts
Alongside the EO, OFAC issued three general licenses to authorize certain otherwise prohibited conduct.
The three general licenses cover:
- "Official business" of the US government;
- Transactions "ordinarily incident and necessary to wind-down contracts" entered into before 12:01 a.m. ET October 14, 2019, with the Turkish Energy Ministry and/or Defense Ministry (and/or any entity owned 50 percent or more, directly or indirectly, by either or both ministries) until 12:01 a.m. ET on November 13, 2019; and
- Activities involving the sanctioned ministries (and 50 percent–owned entities) that are for the official business of the United Nations, World Bank, International Monetary Fund or other related entities.
As in other programs, the activity must comply with all aspects of a general license to be authorized. Anything outside the scope of a general license remains prohibited, absent a specific license issued by OFAC or other applicable regulatory exemption.
Now is the time to review compliance and consider risk mitigation
In light of the new sanctions designations and authorities, US and non-US persons who may be impacted should carefully assess their relevant business activity for sanctions risk, including whether that activity may be authorized under one of the new general licenses. Moreover, active monitoring of US policy developments will remain critical, as the EO provides for a wide range of additional sanctions that may be implemented, and there are significant moves in the US Congress to further strengthen these measures already.
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