ILMA Compoundings – December 2019 - 10

INDUSTRY RUNDOWN

International Insight
Turkey: The Next Risk in the U.S. Sanctions
Framework
By James Eggenschwiler
If you can imagine setting aside the China-U.S. trade
war for a few moments, the risks now associated with
Turkey are a worthy reason. This past October included U.S. actions intended to help end Turkey's military
aggression toward removing the Kurds from Turkish
territory. These actions included the imposition of Executive Order 13894, which created broad authority for the
U.S. Office of Foreign Assets Control (OFAC) and other
agencies to issue sanctions against Turkish government
officials, past and present, and any commercial entities
they own or control, and to block related financial
assets of the sanctioned parties within the control of
U.S. persons. OFAC proceeded immediately with issuing
corresponding sanctions, designating two Turkish
government ministries and three Turkish government
ministers to its Specially Designated Nationals and
Blocked Persons List (SDN).
The good news is that OFAC withdrew the sanctions
against the government ministries and ministers on Oct.
23, 2019 - just nine days later. This withdrawal was
precipitated by Turkey's actions to bring its military conduct
substantially in line with U.S. demands. However, the
executive order itself remains in force, making the threat of
enforcement a very real risk that can be imposed by OFAC,
without further action by the president or Congress.
EXECUTIVE ORDER 13894 - DIRECT SANCTIONS
The most important aspect of this executive order is the broad
foundation it lays for sweeping sanctions against Turkey
and its entire economy. OFAC is specifically authorized to
impose sanctions against broad categories of government
agencies, commercial entities and Turkish nationals - wherever located. Considering Turkey's continuing path toward
becoming a European Union (EU) member state, Turkish
businesses have fostered strong ties with European customers
and suppliers. Beyond the EU, Turkey continues to grow similar commercial relationships with customers and suppliers
around the world, particularly in the U.S. and Asia.
The actions taken by OFAC under this executive order
constituted direct sanctions aimed at the designated government ministries and minsters and any U.S. person or entity

DECEMBER 2019

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engaging with them, their actions or their assets, whether in
their official governmental capacity or personally. The effect
of the sanctions prohibited any U.S. person or any U.S.-made
product or technology from coming into the possession of,
or under the influence of, any of the named ministries or
ministers. As a collateral impact, the prohibition included
non-U.S. origin products from any origin, where the product
content includes 25% or more U.S. technology.
For example, if U.S. Company A sells product to Turkish
Company B that is owned by a sanctioned Turkish national,
then Company A would face sanctions violation liability
for its activity, regardless of the physical location of the two
parties. Similarly, if U.S. Company A sells a U.S. product to
French Company B, and French Company B sells that U.S.
product to a prohibited Turkish national residing in France,
U.S. Company A could again face sanctions violation liability,
unless U.S. Company A can demonstrate that it took adequate measures to prohibit and prevent the French Company
B infraction. Please note that policies and other measures that
prohibit proscribed conduct are never enough. They must
be accompanied by preventive measures that are adequate to
prevent the proscribed conduct. Unfortunately, enforcement
agencies and courts are the ultimate judges of adequacy.

EXECUTIVE ORDER 13894 - SECONDARY SANCTIONS
Another feature within this executive order is its authorization for OFAC to impose secondary sanctions, in addition
to any direct sanctions. Secondary sanctions impose
penalties on other foreign nationals who violate the sanction
by engaging in the proscribed conduct. For instance, if
OFAC issued a secondary sanction against Turkish persons
and entities, non-U.S. persons or entities would be subject
to U.S. penalties by engaging in any prohibited conduct,
depending on the wording of the sanction. In addition, that
non-U.S. person would likely become an ineligible party to
any dealings with U.S. persons or U.S. technology.
To make this point clearer, consider some additional examples. For instance, if Canadian Company A sells U.S.-origin
product to French Company B (wherever located), that in
turn sells the U.S.-origin product to a prohibited party in
Turkey, then Canadian Company A and French Company
B could each face secondary sanctions penalties. Also in this
example, the U.S. source of the U.S.-origin product could
also face sanctions penalties for exporting the U.S.-origin

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ILMA Compoundings – December 2019

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