On October 14, 2019, the Trump Administration followed through on its recent threats by issuing a new Executive Order (EO) (as yet unnumbered) establishing sanctions that effectively target the Turkish Government in response to the latter’s military intervention into Northern Syria. Using this authority, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) simultaneously added both the Turkish Ministry of Energy and Natural Resources and the Turkish Ministry of National Defence, as well as three Turkish Ministers to its list of Specially Designated Nationals (SDN), creating not only immediate risk for U.S. Persons (defined below) currently engaged in transactions with these new SDNs but also on-going risk of designation for non-U.S. persons that continue to transact with the targeted government agencies. Click through for more details.
Scope of New Authorities
On October 14, 2019, the Trump Administration issued a new EO titled “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria.” Declaring a national emergency arising from the “recent actions by the Government of Turkey to conduct a military offensive into northeast Syria,” the EO grants the Secretaries of the Treasury and State Department a series of new authorities to designate persons as follows:
- Asset-Freezing Authorities: The Secretary of the Treasury has the authority to freeze the assets of any person determined to be, inter alia:
- Responsible for, complicit in, or have directly or indirectly engaged in, or attempted to engage in (a) actions or policies that threaten the peace, security, stability, or territorial integrity of Syria or (b) the commission of serious human rights abuse;
- A current or former official of the Government of Turkey;
- An agency, instrumentality, or subdivision of the Government of Turkey;
- Operating in such sectors of the Turkish economy “as may be determined by the Secretary of the Treasury”; or
- To have materially assisted, sponsored, or provided financial material, or technological support for, or goods or services to or in support of, any person designated by the foregoing.
- Menu-Based Sanctions Authorities: In parallel, the Secretary of State has new authorities to designate non-U.S. persons that are determined to be, inter alia, responsible for, complicit in, or attempting to engage in or finance:
- The obstruction, disruption, or prevention of a ceasefire in north Syria;
- The intimidation or prevention of displaced persons from returning to residence in Syria;
- The forcible repatriation of persons to Syria; or
- The obstruction or prevention of a UN led Syrian constitutional process, elections, and creation of a representative Syrian government.
If the Secretary of State identifies a person under these authorities, it can impose the full range of traditional “menu-based” sanctions, ranging from denials of U.S. visas for senior executives, denial of U.S. government contracts, loss of U.S. export privileges, to full blocking of assets subject to U.S. jurisdiction.
- Foreign Financial Institution Authorities: The Secretary of the Treasury is authorized to prohibit or impose strict conditions on the maintaining or opening of U.S. correspondent accounts or payable through accounts for any foreign financial institution determined to be “knowingly” conducting or facilitating any “significant financial transaction for or on behalf of” any person subject to the asset-based designations described above.
Simultaneously with announcement of the EO, OFAC used the new authorities to identify a first group of designations while providing for a wind-down period and certain exceptions for government activities:
Using the authority contained in the new EO, OFAC designated the following five persons:
- Republic of Turkey Ministry of Energy and Natural Resources.
- Republic of Turkey Ministry of National Defence.
- Hulusi AKAR, Turkey’s Minister of Defence.
- Fatih DONMEZ, Turkey’s Minister of Energy and Natural Resources.
- Süleyman SOYLU, Turkey’s Minister of the Interior. Minister SOYLU had previously been designated as an SDN pursuant to the Global Magnitsky program (GLOMAG), but had been removed on November 2, 2018.
OFAC simultaneously issued three general licenses, authorizing otherwise newly prohibited activity as follows:
- Official U.S. Government Business: General License 1 (GL1) authorizes all transactions that are for the conduct of the official business of the U.S. Government by its employees, grantees, or contractors.
- 30 Day Wind Down Authorization: General License 2 (GL2) authorizes all transactions that are “ordinarily incident and necessary to the wind down of operations, contracts, or other agreements” that involve (a) the Ministry of National Defence, (b) the Ministry of Energy and Natural Resources, or (c) any entity in which one or both ministries has a 50 percent or greater interest. GL2 expires at 12:01 AM on November 13, 2019 and does not (1) authorize any debit to a blocked account on the books of a U.S. financial institution (USFI) or (2) authorize any transactions with the three designated Ministers.
- Certain International Organizations: Finally, General License 3 (GL3) authorizes all transactions involving (a) the Turkish Ministry of National Defence, (b) the Turkish Ministry of Energy and Natural Resources, or (c) any entity in which they hold a 50 percent or greater interest that are for the official business of the United Nations, including its “Specialized Agencies and Related Organizations” such as the World Bank, IMF, World Health Organization, World Food Program, and others. GL3 does not authorize the debiting of any blocked accounts at a USFI except for official business authorized by GL3(a).
While the full effects of these new sanctions will only emerge over the course of the next few days and weeks, we offer a few initial thoughts on their potential ramifications:
- Immediate Impact on U.S. Persons Transacting with the New SDNs: U.S. Persons—including all U.S. citizens and permanent residents, U.S. legal entities, and persons in the United States—currently involved in transactions with or for the Turkish National Defense or Energy and Natural Resources Ministries must wind down that exposure prior to November 13, 2019 and must immediately suspend activity with the three designated Ministers. Any company whose products or services are destined for the Turkish military will need to immediately evaluate how to extricate themselves where no GL applies.
- Designation Risk for Non-U.S. Persons Transacting with Designated Persons: While non-U.S. persons are not directly prohibited from transacting with the new SDNs, doing so now comes with a substantial risk of becoming designated for doing so. Specifically, non-U.S. persons that provide goods or services to these SDNs, could be considered to be providing material support or assistance, and thereby subject to designation as SDNs themselves. Moreover, FFIs that conduct significant financial transactions with these SDNs can lose access to U.S. correspondent accounts and, in effect, use of the U.S. dollar.
- Broad Authority To Target the Full Turkish Government: Currently, the sanctions target only the three designated Ministers and two government agencies. However, OFAC now has authority to designate any Turkish Government official and any of its agencies or instrumentalities. As a result, anyone transacting with a Turkish government counterpart now needs to consider the risk that their counterparty could be sanctioned if this program escalates further.
- Broad Authority To Expand Program Across Turkish Economy: Worse, the sanctions related risk is not just limited to government counterparties. Specifically, OFAC’s new authorities give it the ability to impose asset freezing measures on virtually the entire Turkish economy. Specifically, OFAC’s authority to target anyone operating in any “sector” of the Turkish economy that it chooses to designate is exactly the same authority that OFAC has in the Venezuela sanctions program (EO 13850). In that context, OFAC has steadily identified more sectors—now including oil, gold, finance, defense and intelligence—and used that authority to not only designate some of Venezuela’s largest companies (e.g., Petróleos de Venezuela, S.A. (PdVSA), MINERVEN, and the Central Bank), but also European companies transacting with them. OFAC now has similar authority to escalate in the pressure against Turkey if it chooses to do so.