On December 14, 2020, the United States (US) imposed sanctions on Turkey pursuant to Countering America’s Adversaries Through Sanctions Act (CAATSA) for “knowingly engaging in a significant transaction with Rosoboronexport (ROE), Russia’s main arms export entity, by procuring the S-400 surface-to-air missile system.”

Background

•  In 2017, Turkey announced that it would purchase the S-400 missile defense system from Russia.
•  In July 2019, Turkey closed the purchase deal with Russia. 
•  On October 14, 2019, in response to Turkey’s military offensive into northeast Syria the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury designated two ministries of the Turkish Government and three Turkish Ministers on the Specially Designated Nationals (SDN) List.
•  On October 23, 2019, President Trump announced that he was lifting the October 14, 2019 sanctions against Turkey.
•  President Trump has been opposed to sanctions against Turkey due to his close relationship with Turkish President Erdoğan.
•  There has been bipartisan support for sanctions against Turkey in US Congress.
•  The 2021 National Defense Authorization Act, which passed on Friday, December 11, 2020 with sufficient support to override a veto by  President Trump, requires the Trump Administration to impose sanctions against Turkey, as required under CAATSA, within 30 days.

CAATSA

Section 231 of CAATSA requires that at least five of the following twelve sanctions described in Section 235 of CAATSA be imposed on any person determined to have knowingly engaged in a significant transaction with the defense or intelligence sectors of the Government of the Russian Federation:

1.  prohibition on Export-Import Bank assistance for exports to sanctioned persons; 
2.  export sanctions (e.g., denial of specific license requests to export any goods or technology to the sanctioned person under the Export  Administration Act, the Arms Export Control Act, and the Atomic Energy Act);
3.  prohibition on loans from US financial institutions totaling more than US$10 million in any 12-month period;
4.  requirement on the US to oppose loans from international financial institutions to which the US is a party; 
5.  certain prohibitions if the sanctioned person is a financial institution; 
6.  procurement sanctions (i.e., no US Government contracts); 
7.  prohibitions on transactions in foreign exchange that are subject to US jurisdiction; 
8.  prohibitions on certain banking transactions; 
9.  prohibitions on certain property transactions; 
10.  ban on investment in equity or debt of sanctioned person;
11.  exclusion from the US of corporate officers of sanctioned entities; and 
12.  sanctions on principal executive officers of sanctioned entities.

New Turkey sanctions 

The US is imposing sanctions against Turkey’s Savunma Sanayii Başkanlığı (Presidency of Defense Industries or SSB). SSB was originally founded in 1985 as “SaGeB” under the Turkish Ministry of Defense, and renamed “SSM” in 1989.  Under the new 2017 Turkish constitution, which expanded President Erdoğan’s authority, SSB was restructured and put directly under President Erdoğan’s control, and renamed “SSB” in 2018. 

The Secretary of State, in consultation with the Secretary of Treasury, has selected the following five sanctions from among the twelve sanctions listed above under Section 235 of CAATSA, as implemented by Executive Order 13849, to impose on Turkey:

•  #1: a ban on US Export-Import Bank assistance for exports to SSB (Section 235(a)(1));
•  #2: a prohibition on granting specific US export licenses and authorizations for any goods or technology transferred to SSB (Section 235(a)(2));
•  #3: a prohibition on loans or credits by US financial institutions to SSB totaling more than US$10 million in any 12-month period (Section 235(a)(3));
•  #4: a requirement for the US to oppose loans benefitting SSB by international financial institutions (Section 235(a)(4)); and
•  imposition of full blocking sanctions and visa restrictions (which include sanctions #7, #8, #9, #11, and #12 of the sanctions listed above) on the following individuals:

•  Dr. Ismail Demir, president of SSB;
•  Faruk Yigit, SSB’s vice president;
•  Serhat Gencoglu, Head of SSB’s Department of Air Defense and Space; and
•  Mustafa Alper Deniz, Program Manager for SSB’s Regional Air Defense Systems Directorate.

Pursuant to the last sanction above, OFAC designated Messrs. Demir, Yigit, Gencoglu, and Deniz on the SDN List.  As a result, these individuals are subject to US blocking requirements (asset freeze).

Key takeaways

•  The sanctioned entity, SSB, manages the defense industry of Turkey and system and supply of military technology.  The sanctioned individuals are principal executive officers of SSB.
•  Other than the SDN designations (SSB and the four principal executive officers of SSB), the new sanctions are limited to prohibitions on exports to SSB and financial restrictions relating to SSB. 
•  Therefore the new sanctions will mainly have an impact on US companies in the defense sector and financial institutions who deal with SSB.  They are unlikely to impact non-US companies, except for those exporting US goods or technology to SSB or those who may engage in “significant” transactions with SSB or the above-listed individual SDNs. 

Looking ahead

When announcing the new sanctions against Turkey, US Secretary of State Pompeo has stated:

The United States made clear to Turkey at the highest levels and on numerous occasions that its purchase of the S-400 system would endanger the security of U.S. military technology and personnel and provide substantial funds to Russia’s defense sector, as well as Russian access to the Turkish armed forces and defense industry. Turkey nevertheless decided to move ahead with the procurement and testing of the S-400, despite the availability of alternative, NATO-interoperable systems to meet its defense requirements. This decision resulted in Turkey’s suspension and pending removal from the global F-35 Joint Strike Fighter partnership.

Today’s action sends a clear signal that the United States will fully implement CAATSA Section 231 and will not tolerate significant transactions with Russia’s defense and intelligence sectors. I also urge Turkey to resolve the S-400 problem immediately in coordination with the United States. Turkey is a valued ally and an important regional security partner for the United States, and we seek to continue our decades-long history of productive defense-sector cooperation by removing the obstacle of Turkey’s S-400 possession as soon as possible.

While Secretary Pompeo’s speech signals that the sanctions against Turkey will be removed if Turkey returns the S-400 missile defense system, Turkey has refused to do so. In the meantime, individuals and companies in the defense and financial sectors should be vigilant as usual to ensure compliance with US sanctions and export controls. These sanctions are strictly and heavily enforced, and violations risk potential criminal and/or civil penalties.

[View source.]