Update: EU, UK, and US Sanctions Against Turkey

Morgan Lewis
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Morgan Lewis

Recent sanctions imposed by the European Union, United Kingdom, and the United States on Turkey and certain Turkish persons will be of interest to European and American investors in Turkey’s defense and energy sectors. The following update contains a summary of each regime.

EU SANCTIONS

Since 2019 there have been ongoing tensions between the Cyprus and Turkey as a result of drilling activities conducted by Turkey in the Eastern Mediterranean and not authorised by Cyprus. On 11 November 2019, EU member states adopted a series of sanctions measures to be imposed on “natural and legal persons, entities and bodies” which “have been identified by the Council as:

(a) being responsible for or involved in, including by planning, preparing, participating in, directing, or assisting, drilling activities in relation to hydrocarbon exploration and production, or hydrocarbon extraction resulting from such activities, which have not been authorised by the Republic of Cyprus, within its territorial sea or in its exclusive economic zone or on its continental shelf, including in cases where the exclusive economic zone or continental shelf has not been delimited in accordance with international law with a State having an opposite coast, activities which may jeopardise or hamper the reaching of a delimitation agreement;

(b) providing financial, technical or material support for drilling activities in relation to hydrocarbon exploration and production, or hydrocarbon extraction resulting from such activities, referred to in point (a);

(c) being associated with the natural or legal persons, entities or bodies referred to in points (a) and (b).”

The sanctions framework includes provisions for asset freeze measures and travel bans.

At its meetings of 10 and 11 December 2020, the European Council concluded that “Turkish unilateral and provocative activities in the Eastern Mediterranean are still taking place in Cyprus’ Exclusive Economic Zone.” As a result, the European Council stated that it would consider extending the scope of and adopting additional listings to, the restrictive measures adopted in November 2019.

The European Council additionally noted that the EU would seek to coordinate with the United States on matters relating to Turkey and the Eastern Mediterranean, and it may be interesting to watch how this coordinated response develops throughout President Biden’s term.

There have as yet been no confirmed details regarding the potential expansion of EU sanctions against Turkey, and notably the European Council suggested that details would be considered by March 2021 at the latest. Following a meeting of the Foreign Affairs Council on 25 January 2021, High Representative Josep Borrell remarked that the Council is closely following developments between Turkey and Greece, as well as between Turkey and Cyprus. He confirmed that “the irritants that had poisoned life during the last summer and autumn, have been stopped. There are no Turkish boats and there are no drilling activities,” and noted that the Council would consider how the situation develops in the coming weeks.

These developments will be of particular interest given the report that Borrell is expected to present before the European Council in March 2021, which may recommend additional sanctions. When questioned about the preparation of the additional listings that had been discussed at the European Council meetings in December 2020, Borrell stated that, “The list is not ready but it has not been put aside, the work continues.” Therefore, it may still be some time before the extent of any additional sanctions will become known, and it may largely depend upon whether Turkey is able to successfully reach any agreements with Greece or Cyprus in the coming weeks.

UK SANCTIONS

Following the conclusion of the Brexit Transition Period on 31 December 2020, The Unauthorised Drilling Activities in the Eastern Mediterranean (Sanctions) (EU Exit) Regulations 2020 (SI 2020/1474) (the Regulations) came into effect. The Regulations were introduced to revoke and replace the existing EU sanctions regime relating to Turkey’s unauthorised drilling activities in the Eastern Mediterranean.

The UK government has stated that the Regulations “impose financial and immigration sanctions for the purpose of discouraging any hydrocarbons exploration, production or extraction activity which has not been authorised by the Republic of Cyprus within its territorial sea or in its exclusive economic zone or on its continental shelf. This includes, in cases where the exclusive economic zone or continental shelf has not been delimited in accordance with international law with a State having an opposite coast, activities which may jeopardise or hamper the reaching of a delimitation agreement.”

The Regulations provide that persons may be designated under the UK Sanctions List if they are or have been involved in activities subject to the Regulations. At present no persons or entities have been so designated, therefore the scope of application is yet to be seen.

US SANCTIONS

On 14 December 2020, the United States imposed certain sanctions upon the Republic of Turkey’s Presidency of Defence Industries (SSB). The sanctions were implemented pursuant to Section 231 of the Countering American’s Adversaries Through Sanctions Act (CAATSA) and were imposed as a result of SSB’s dealings with Russia’s Rosoboronexport, from whom SSB procured an S-400 surface-to-air missile system. Rosoboronexport is included in the CAATSA List of Specified Persons and was previously added by the United States Treasury Office of Foreign Assets Control (OFAC) to the List of Specially Designated Nationals and Blocked Persons (SDN List) for its support of the Syrian government, thus SSB’s dealings with the Russian entity have been strongly condemned by the United States government.

Although there had been initial concerns that action taken by the United States as a result of SSB’s actions could be wide ranging and have a significant effect upon individuals and entities wishing to do business in Turkey or with Turkish entities, the sanctions imposed are relatively limited. Generally, the new suite of sanctions

  1. prohibit grants of export licences and authorisations for goods or technology transferred to SSB;
  2. prohibit the provision of loans or credit by US financial institutions to SSB, which total more than $10 million in any 12-month period;
  3. prohibit the provision of US Export-Import Bank assistance for exports to SSB; and
  4. require the United States to oppose loans made by international financial institutions which will benefit SSB.

In addition, the US Secretary of State has imposed full blocking sanctions and visa restrictions on four key individuals within SSB: Dr. Ismail Demir (SSB’s president); Faruk Yigit (SSB’s vice president); Serhat Gencoglu (head of SSB’s Department of Air Defence and Space); and Mustafa Alper Deniz (programme manager for SSB’s Regional Air Defence Systems Directorate).

In parallel, OFAC added SSB to its Non-SDN Menu-Based Sanctions List, and each of the above-listed individuals was added to the SDN List. As a result, all property and any interests in property of these individuals within the United States have been blocked, and United States persons are prohibited from transacting with them without a general or specific licence, or an exemption. This includes making any contribution or provision of funds, goods, or services to, or for the benefit of, these individuals.

As noted above, the sanctions adopted by the United States in December 2020 have been limited to dealings with SSB and its key personnel. They will not affect those wishing to do business in Turkey more generally or with other Turkish entities in general. Having said that, with the recent inauguration of President Biden, the US sanctions landscape and relationship between Turkey and the United States will need to continue to be monitored as it remains unclear as to whether President Biden will take a harder line, or a more cooperative approach when dealing with Turkey. President Biden’s choice for Secretary of State, Antony Blinken, in testimony to the Senate Foreign Relations Committee, hinted that more sanctions could be imposed: “I think we need to take a look to see the impact that the existing sanctions have had and then determine whether there is more that needs to be done."

In addition, Senator Bob Menendez (D-NJ), the incoming chairman of the Senate Foreign Relations Committee, cited Turkey’s support of Azerbaijan’s “aggression in Nagorno-Karabakh” and aggressive behaviour against Greece and Cyprus. That, of course, is in addition to the acquisition of the S-400 air defence system from Russia. The top Republican on the Senate Foreign Relations Committee, Senator Jim Risch, also noted at the Blinken confirmation hearing that “we have serious problems with Turkey.” Menendez and Risch are in lockstep on Turkey, so we can expect bipartisan Senate pressure on the Biden administration to be tough on Turkey.

While President Biden has been a more outspoken critic of Turkish President Recep Tayyip Erdogan and his policies, the imposition of further US sanctions on Turkey risks pushing Turkey more towards Russia, which will have implications for the NATO alliance. We expect a period of review by the Biden administration but no immediate further sanctions on Turkey, assuming no action by Turkey that provokes a US response.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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