Introduction

On October 14, 2019, President Trump issued an Executive Order Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria. This Order provides authority for the imposition of sanctions (including secondary sanctions) on certain entities and individuals in response to Turkey’s military operations in Syria, which the Order states endanger innocent civilians, destabilize the region, and undermine the campaign to defeat the Islamic State.

The Executive Order provides authority to impose sanctions on parts of the Government of Turkey, current and former officials of the Government of Turkey, sectors of Turkey’s economy, and persons who are otherwise determined to be involved in actions or policies that threaten the peace, security, stability, or territorial integrity of Syria. The Executive Order provides additional authority to impose sanctions on foreign persons engaged in a range of activities that disrupt or prevent a ceasefire in northern Syria, the voluntary return to Syria of displaced persons, or efforts to promote a political solution to the conflict in Syria, or involve the commission of serious human rights abuses in relation to Syria. It further authorizes various secondary sanctions (a) for certain dealings in support of persons whose property is blocked pursuant to the Executive Order, and (b) against foreign financial institutions that knowingly conduct or facilitate any significant financial transaction on behalf of such a blocked party.

Relying on the Executive Order, the Administration blocked all property and interests in property of the Government of Turkey’s Ministry of National Defense and Ministry of Energy and Natural Resources, as well as the property and interests in property of the Minister of National Defense, Minister of Energy and Natural Resources, and Minister of the Interior.

The Treasury Department’s Office of Foreign Assets Control (“OFAC”) also issued three general licenses, authorizing U.S. persons to engage in certain activities that otherwise would be prohibited by the new Executive Order because they involve these designated parties or entities owned 50% or more by one or more of them. These licenses authorize the wind-down through November 12, 2019 of pre-existing operations, contracts, or other agreements involving the Ministry of National Defense or the Ministry of Energy and Natural Resources, or entities in which one or more of them own a 50% or greater interest, as well as activities for the official business of the U.S. government and of the United Nations. The Treasury Department announced in this regard that the sanctions “are not intended to affect or disrupt the operation of international humanitarian NGOs or the United Nations in Turkey rendering humanitarian assistance to Syrian communities in need.”

Separately, the U.S. Congress is considering legislation to impose additional sanctions on Turkey in response to its intervention in northeastern Syria, with bipartisan bills announced in both the House of Representatives and the Senate. Relatedly, the European Union has taken steps to restrict arms transfers to Turkey and impose sanctions on persons involved in drilling for oil and gas under Turkish auspices in waters claimed by Cyprus (an EU member state).

Background

On October 9, as widely reported, President Donald Trump ordered U.S. troops in Syria to pull back from the border areas near southern Turkey. Then, on October 13, President Trump ordered the withdrawal of all U.S. armed forces from northeastern Syria. Immediately following the pullback, President Recep Tayyip Erdogan of Turkey launched an offensive into Kurdish-controlled regions of Syria with the stated aim of pushing back the Kurdish-led Syrian Democratic Forces (“SDF”) from areas near Turkey’s southern border. According to the United Nations Office for the Coordination of Humanitarian Affairs, the incursion into Syrian territory already has displaced at least 160,000 civilians in the region.

On October 14, 2019, in response to the Turkish incursion into Syria, the Trump Administration announced new sanctions, stating that “[t]he Turkish government’s actions are endangering innocent civilians, and destabilizing the region, including undermining the campaign to defeat ISIS.” In a statement released on Twitter accompanying the Executive Order, President Trump also announced a planned 50% tariff on Turkish steel and the termination of “negotiations, being led by the Department of Commerce, with respect to a $100 billion trade deal with Turkey.”

Executive Order

The Executive Order authorizes a range of separate sanctions measures, only portions of which have been implemented to date.

Sections 1(a)(i)(A)-(D) of the Executive Order require the blocking of property and property interests in the United States or the possession or control of a U.S. person of those persons determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be any part of the Government of Turkey, current or former officials of  the Government of Turkey, sectors of Turkey’s economy, or persons who are otherwise involved in actions or policies that threaten the peace, security, stability, or territorial integrity of Syria, or are engaged in the commission of serious human rights abuses in relation to Syria. Importantly, these blocking measures are not self-executing; rather, they come into effect only when the Secretary of the Treasury makes the required determination that a person or entity falls within one or more of the specified categories and adds such party to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”).

Section 1(a)(i)(E) of Executive Order also requires the blocking of property and property interests that are or come into the United States or the possession or control of a U.S. person of those persons who are determined by the Secretary of the Treasury, in consultation with the Secretary of State, to have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property or interests in property are  blocked pursuant to [the] Order.” Such sanctions, which in effect are secondary sanctions, may be imposed even if a person’s dealings are conducted entirely outside the United States and without any U.S. nexus.

And Section 1(a)(i)(F) of the Executive Order further requires the imposition of property blocking measures against persons determined by the Secretary of the Treasury to be owned or controlled by, or to have acted for on behalf of, directly or indirectly, any person whose property is blocked pursuant to the Order.

Without OFAC authorization, property that is blocked pursuant to the Executive Order may not be transferred, paid, exported, withdrawn, or otherwise dealt in by U.S. persons. U.S. persons also are prohibited from engaging in virtually any dealings with parties designated under the Order, including providing or receiving any funds, goods, or services to or from such parties. Moreover, pursuant to OFAC’s “50% Rule” all of the above blocking measures and prohibitions also apply to entities that are owned 50% more, directly or indirectly, individually or collectively by one or more parties that are blocked under the Order, even if no action is taken by the Secretary of the Treasury separately to designate such owned entities under Section 1(a)(i)(F) of the Order.

Relatedly, Section 3 of the Executive Order authorizes secondary sanctions against foreign financial institutions that knowingly conduct or facilitate any significant financial transaction for or on behalf of any person subject to property blocking under Section 1 of the Order (which would cover both designated parties and entities owned 50% or more by one or more of those parties). Such measures can include prohibitions or restrictions on the opening or maintaining of correspondent accounts or payable-through accounts in the United States. Imposition of such a sanctions measure would effectively cut off direct access to the U.S. financial system by such foreign financial institutions.

Section 2 of the Executive Order authorizes the Secretary of State, in consultation with the Secretary of the Treasury, to impose sanctions (from a menu of measures discussed below) on any foreign person for the obstruction, disruption, or prevention of a ceasefire in northern Syria, the intimidation or prevention of displaced persons from voluntarily returning to Syria, acts of refoulement, and the obstruction, disruption, or prevention of efforts to promote a political solution to the conflict in Syria. Moreover, any person who is an adult family member of persons designated by the Secretary of State under Section 2 may also be subject to sanctions. Further, persons who are complicit in, or have been directly or indirectly engaged in, or attempted to engage in, the expropriation of property for personal gain or political purpose may be designated pursuant to Section 2.

Section 2 provides for a wide range of potential sanctions measures, ranging from property-blocking sanctions; capping loans from U.S. financial institutions to no more than $10 million in any 12-month period (unless the party is engaged in activity to relieve human suffering and the loan is in support of such activity); the termination of U.S. government procurement from sanctioned parties; restrictions on investments or purchases by U.S. persons involving significant amounts of debt or equity of the sanctioned party; to a ban on U.S. imports of goods, technology or services from the sanctioned party, among other options.

Designations

Under the Executive Order, OFAC blocked all property and interests in property of the Government of Turkey’s Ministry of National Defense and Ministry of Energy and Natural Resources, as well as the property and interests in property of the Minister of National Defense (Hulisi Akar), Minister of Energy and Natural Resources (Fatih Dönmez), and Minister of the Interior (Süleyman Soylu).

As noted above, except as licensed by OFAC, U.S. persons are prohibited from engaging in transactions or dealings with such entities and persons, and all property and interests in property of such persons that are in, or come into, the United States or the possession or control of a U.S. person are blocked. Moreover, these restrictions extend not just to the listed parties, but also to entities in which those parties directly or indirectly own a 50% or greater interest, individually or collectively with other blocked parties, even if such owned entities are not themselves on the SDN List.

General Licenses

In connection with the Executive Order, OFAC issued three General Licenses (“GLs”) that authorize U.S. persons to engage in various transactions and activities that otherwise would be prohibited by the Order. These three GLs are summarized below. Further detail and additional licensing conditions can be found in the full text of the GLs on OFAC’s website:

  • General License 1 authorizes all transactions and activities otherwise prohibited by the Order that are for the conduct of the official business of the U.S. Government by employees, grantees, or contractors.
  • General License 2 authorizes through November 12, 2019 all transactions and activities ordinarily incident and necessary to wind down any operations, contracts, or other agreements that were in effect prior to October 14, 2019 involving the designated Ministry of National Defense or the Ministry of Energy and Natural Resources, or any entity in which one or more of such ministries owns, directly or indirectly, a 50% or greater interest.
  • General License 3 authorizes all transactions and activities otherwise prohibited by the Order that are for the official business of the United Nations, including its programmes and funds, specialized agencies and related organizations (including, among others, the World Bank, International Monetary Fund, World Food Program, and Office of the UN High Commissioner for Refugees).

Potential for Further Congressional Actions

As noted above, there appears to be growing bipartisan support in Congress for responding to the current crisis by enacting additional sanctions against Turkey. Bipartisan sanctions proposals have emerged in both the House of Representatives and the Senate.

To date, most attention has focused on an initiative announced by Senators Lindsey Graham (R-SC) and Chris Van Hollen (D-MD). Though the two Senators have not yet introduced their bill, a fact sheet issued by the two Senators sets forth details about the potential legislation. It envisions, among other measures, property-blocking against a wide range of senior officials in Turkey, including President Erdogan, the designation of Turkey’s recent S-400 purchase from Russia as a significant transaction under section 231 of the Countering America’s Adversaries Through Sanctions Act, and a prohibition on all sales of U.S. defense articles, services, technology, and materials to the Turkish Armed Forces.

Similarly, on October 11, House Foreign Affairs Committee Chairman Eliot Engel (D-NY) and Ranking Republican Mike McCaul (R-TX) announced that they had introduced a bipartisan bill to sanction Turkey. The bill appears to command broad bipartisan support, and thus, it is well-positioned to progress quickly through the House. Notably, this bill includes targeted financial sanctions against the Turkish state-run bank Halk Bankasi (a.k.a. Halkbank) and a provision requiring sanctions against any financial institution (including non-Turkish financial institutions) determined by specified U.S. officials to have “knowingly facilitated transactions for the Turkish military or defense industry relating to Turkey’s military operations in Syria.”

On October 14, it was also reported that Speaker Nancy Pelosi (D-CA) is coordinating with Senator Graham to develop bipartisan, bicameral sanctions legislation against Turkey. Speaker Pelosi was quoted as saying “we must put together the strongest bipartisan, bicameral sanctions package similar to the bipartisan bill the House is advancing.”  Bipartisan collaboration between the Speaker of the House and a senior Senator from the opposite party will likely facilitate quick action in one, if not both, chambers of Congress.

While the Executive Order may have been intended in part to forestall congressional action to mandate sanctions on Turkey, it will not necessarily have that effect. For example, Senator Van Hollen released a press statement declaring that notwithstanding the Executive Order he will “continu[e] to work on bipartisan legislation to immediately apply tough sanctions against Turkey until it ends its aggression and withdraws [from Syria].”

EU Sanctions

In addition to the foregoing U.S. sanctions, the European Council also announced earlier this week two EU sanctions measures pertaining to Turkey.

First, in light of events in Syria, the Council announced a commitment on the part of the EU Member States to “strong national positions regarding their arms export policy to Turkey”, noting that Council working groups would meet later this week to coordinate and review the Member States’ positions on this matter. That decision follows unilateral actions undertaken earlier this week by several EU Member States to suspend exports of military goods, software, and technology to Turkey under those Member States’ national military export controls laws. While the announcement by the Council falls short of a full, EU-wide arms embargo against Turkey, it is anticipated that the Council’s position could cause EU Member States to largely curtail their arms exports to Turkey for as long as the EU position remains in place.

Second, the Council also announced further sanctions against Turkey in light of Turkey’s efforts, which commenced earlier this year, to drill for oil and gas in offshore production blocks claimed by the Government of Cyprus (an EU Member State) as within Cyprus’ exclusive economic zone. The announcement signaled, in particular, that the EU will implement “a framework regime of restrictive measures targeting natural and legal persons responsible for or involved in the illegal drilling activity of hydrocarbons in the Eastern Mediterranean”. The Council did not publish further details concerning this new regime, although it is anticipated that regulations will be issued in the coming days and will include a framework for the implementation of asset-freezing sanctions against designated parties who have been instrumental to Turkey’s drilling efforts in the disputed waters. This new regime follows measures implemented in July by the European Council, shortly after Turkey’s drilling activities commenced, to suspend certain EU-Turkey bilateral government initiatives and EU funding for certain Turkey-focused projects. It also follows actions by the Government of Cyprus, under Cypriot national criminal laws, to investigate and pursue enforcement actions against persons involved in the drilling projects in question.

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Covington has deep experience advising clients on the legal, policy, and practical dimensions of U.S. and EU sanctions. We will continue to monitor developments with respect to Turkey and more generally in this area, and we are well positioned to assist clients in understanding how these developments may affect their business operations.