Companies with interests in Turkey should monitor developments in Congress, which may consider legislation to impose new sanctions on Turkey in the coming weeks.

The President’s plan was developed after a meeting with administration officials including Treasury Secretary Steve Mnuchin, Secretary of State Mike Pompeo, and National Security Advisor Robert O’Brien. The increased steel tariffs will work in tandem with sanctions imposed by an Executive Order issued on Monday and enforced by the Secretary of the Treasury in consultation with the Secretary of State. Our sanctions analysis can be found here.

While the Trump Administration has taken heat on Capitol Hill for its liberal use of tariffs to achieve its policy goals, there is broad, bipartisan and international support for some form of action against Turkey. President Trump’s statement on Turkey notes he is “fully prepared to swiftly destroy Turkey’s economy if Turkish leaders continue down this dangerous and destructive path.” Others, including Speaker Nancy Pelosi, have voiced the opinion that stronger sanctions are appropriate now. Finland, France, Germany, and Sweden also announced on Monday that they will suspend arms exports to Turkey.

The impact and duration of the sanctions are as of yet unclear. Hours after President Trump’s announcement, Turkish President Erdoğan expanded the military operation amidst broad domestic support.

At this time, Turkish President Erdoğan is still expected to visit Washington, D.C. next month.

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.

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.

• 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.

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.

Please contact our sanctions team with any questions or concerns related to these developments.