On December 14, 2020, the U.S. Department of State initiated a series of sanctions pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) that target the Turkish Presidency of Defense Industries (SSB). The sanctions deny new U.S. export licenses to SSB and limit the SSB’s access to credit from U.S. and international financial institutions. In addition, the Office of Foreign Assets Control (OFAC) designated several principal executive officers of SSB as Specially Designated Nationals (SDNs). However, the U.S. action is calibrated, and does not designate SSB or its affiliates as SDNs, nor does it apply broader sanctions on Turkey or the Turkish defense industry.
The action comes in response to Turkey’s purchase of the S-400 surface-to-air missile defense system from Russia, and after bipartisan pressure from the U.S. Congress to push back against the purchase of sensitive military hardware from Russia by a NATO member country. These sanctions under CAATSA are not the first actions taken by the U.S. in response to the S-400 purchase, as Turkey was ousted from the F-35 advanced fighter program in 2019.
Menu-Based Sanctions Under CAATSA
Section 231 of CAATSA prohibits any person from knowingly engaging in a significant transaction with a person that is a part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation. Where Section 231 is invoked, the President is required to impose at least five of the 12 sanctions listed in CAATSA Section 235.
The Trump Administration has opted for a “scalpel” response, imposing the following sanctions under Section 235.
- Export Controls – New licenses for export of dual-use items under the Export Administration Regulations (EAR) and defense items under the International Traffic in Arms Regulations (ITAR) are now subject to a policy of denial where SSB is a party to the transaction. However, existing licenses remain valid and license exceptions remain available. The State Department indicated that it has not banned procurement on purchases from SSB.
- Sanctions on Principal Executive Officers – OFAC added to the SDN List multiple executive officers of SSB, including SSB’s president Ismail Demir. The full list of individuals added to the SDN List is available here.
- Loans from U.S. Financial Institutions – U.S. financial institutions are prohibited from making loans or providing credits to SSB totaling more than $10,000,000 in any 12-month period unless SSB is engaged in activities to relieve human suffering and the loans or credits are provided for such activities.
- Loans from International Financial Institutions – The U.S. government will oppose loans from international financial institutions (e.g., development banks) that would benefit SSB.
- Export-Import Bank Assistance for Exports to Sanctioned Persons – The Export-Import Bank of the US will not give approval to the issuance of any guarantee, insurance, extension of credit, or participation in the extension of credit in connection with the export of any goods or services to SSB.
In conjunction with the actions under Section 231 of CAATSA, OFAC published a new “Non-SDN Menu-Based Sanctions List”. This list identifies sanctions responses other than SDN designation where imposed under statutory authorities that offer the President a menu of alternate penalty options. This tool is available here.
The sanctions have potential implications for a number of U.S., European and Asian companies and financial institutions. SSB is at the center of defense-related procurement for Turkey, a top-20 economy and NATO ally with a large military and intelligence sector.
This marks only the second implementation of CAATSA Section 231. The first invocation occurred in September 2018 against the Chinese entity Equipment Development Department (EDD) and its director in connection with EDD’s purchase of Su-35 combat aircraft and S-400 equipment, also from Rosoboronexport.
The relationship between the United States, NATO, Turkey and Russia remains complicated. The U.S. announcement comes shortly after the European Union announced sanctions related to Turkish energy exploration in the eastern Mediterranean Sea. The U.S. government added and then quickly removed sanctions on Turkey in 2019 related to its activities in Syria. (See here.) We expect further changes as the Biden Administration reviews U.S. policy with respect to Turkey after January 2021.