Some of the comprehensive sanctions programs administered by the OFAC are on Burma (Myanmar), Cuba, Iran, Sudan, and Syria. Noncomprehensive sanctions programs include the Western Balkans, Belarus, Cote d’Ivoire, Democratic Republic of the Congo, Iraq, Liberia (former regime of Charles Taylor), Persons Undermining the Sovereignty of Lebanon or Its Democratic Processes and Institutions, Libya, North Korea, Somalia, and Zimbabwe, as well as other programs targeting individuals and entities located around the world. See www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx.
All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, and all U.S. incorporated entities and their foreign branches. Seewww.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx. Depending on the sanctioning program, the criminal penalties that may be imposed for those who fail to comply with the respective sanction can include fines ranging from $50,000 to $10,000,000 and imprisonment terms ranging from 10 to 30 years for willful violations. Seewww.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx. Similarly, civil penalties range from $250,000 or twice the amount of each underlying transaction to $1,075,000 for each violation.
Comprehensive sanctions programs currently administered by the OFAC concern foreign narcotics traffickers, foreign terrorists, transnational criminal organizations, and weapon of mass destruction proliferators. Noncomprehensive programs, on the other hand, do not involve broad prohibitions relating to countries, but, rather, specific named individuals and entities. These are listed on the OFAC’s list of Specially Designated Nationals and Blocked Persons (the SDN list), which lists approximately 6,000 names of individuals and entities connected with sanctions targets. The assets of those on the SDN list are blocked and U.S. persons are prohibited from transacting with them. Individuals who have a direct or indirect ownership interest of 50 percent or more of entities on the SDN list are also blocked, regardless of whether that entity is separately named on the relevant list. Some listed individuals and entities move from one country to another, and they may relocate to parts of the world where they would be “safer” and where they would be least expected. There are a number of individuals and entities on the SDN list whose residence or incorporation are located in Turkey. See SDN List by Country, www.treasury.gov/ofac/downloads/ctrylst.txt; see also SDN by Programs, www.treasury.gov/ofac/downloads/prgrmlst.txt.
On August 10, 2012, President Obama signed into law section 504 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA), which amended the National Defense Authorization Act for Fiscal Year 2012, Public Law 112-81 (NDAA, signed into law on December 31, 2011). TRA imposed restrictions on foreign financial institutions (FFI) for loss of correspondent accounts and access to payable-through U.S. accounts that knowingly transact with the Central Bank of Iran (CBI) or a designated Iranian financial institution. The NDAA foresaw a reduction exception whereby the secretary of State, in consultation with the secretary of Treasury and other agencies, can determine that the country with primary jurisdiction over the FFI has significantly reduced its purchases of Iranian crude oil during a specified period of time.
As of February 6, 2013, section 504 of the TRA introduces significant amendments to the NDAA. One of these amendments is narrowing down its reduction exception to (a) exempt from sanctions only those transactions that conduct or facilitate bilateral trade in goods or services between the country granted the exception and Iran and (b) require that funds owed to Iran as a result of the bilateral trade be credited to an account located in the country granted the exception and not be repatriated to Iran. Section 504 further eliminates the distinction between state-owned or -controlled FFIs (not including foreign central banks) and private FFIs, thereby expanding the scope of sanctionable transactions for state-owned or -controlled FFIs with the CBI or designated Iranian financial institutions. It also clarifies that countries that have reduced their Iranian crude oil purchases to zero may continue to receive the significant reduction exception. See www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#222.
As of February 6, 2013, 20 jurisdictions have been granted a 180-day significant reduction exception. Jurisdictions receiving their exception on September 14, 2012, were Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and the United Kingdom. Jurisdictions receiving theirs on December 7, 2012, were China, India, Malaysia, Republic of Korea, Singapore, South Africa, Sri Lanka, Taiwan, and Turkey. See www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#222.
As the U.S. sanctions include the aerospace and defense sectors, the currently applicable sanctions program over Iran also prohibits the Boeing Company from selling aircraft to Iranian aviation companies, irrespective of the fact that authorization for importing aviation parts to Iran is allowed on the basis that such parts are a necessary component of aircraft safety. Iranian financial institutions are furthermore affected by these sanction programs in that they are prohibited from directly accessing the U.S. financial system, even though, again, these institutions are able to gain access indirectly through other banking institutions in other countries.
On a global level, in addition to the U.S. sanctions, the UN Security Council is also empowered under Chapter VII of the UN Charter to take enforcement measures (such as economic or other sanctions that do not involve the use of armed force to international military action) in order to maintain or restore international peace and security. Sanctions imposed by the UN against South Africa, Iran, and Libya are some of the notable examples. Apart from the U.S. sanctions imposed on various countries, the European Union (EU), can impose restrictive measures in the form of diplomatic sanctions (such as expulsion of diplomats, suspension of official visits), trade sanctions (such as arms embargoes), and financial sanctions (such as freezing funds and prohibition on financial transactions). The EU recently imposed additional sanctions on Iran with two regulations that were implemented by the European Council on December 21, 2012: Council Regulation (EU) No. 1263/2012 and Council Regulation (EU) No. 1264/2012. The former, which came into force on December 23, 2012, implements additional financial and trade sanctions against Iran, whereas the latter, which will come into force on December 22, 2013, amends the list of “designated persons” subject to the EU asset freeze regime.
Some of the commercial implications of the U.S. sanctions on Turkey’s neighboring countries may involve the issue of whether and to what extent a U.S.-based company operating in Turkey can engage in international commercial transactions with a neighboring country—such as Iran or Syria—on which a U.S. sanction is imposed. These sanctions affect the commercial flow of imports from and exports to a country neighboring Turkey and where a U.S.-originating company has incorporated affiliates in Turkey. While there is no U.S. sanction imposed on commercial transactions in Turkey, given the embargoes over certain countries implemented within the U.S. sanction programs, the affiliates of companies of the U.S.-originated companies that carry out activities in Turkey and frequently transact with other countries in order to further their own operations in Turkey are faced with prohibitions against exporting goods and services from, and even engaging in financial transactions with, countries where there are strict U.S.-sanction programs in place.
By way of example, the U.S. sanction imposed on Iran stipulates that no U.S. person may approve or facilitate the entry into Iran or performance of transactions or contracts with Iran by a foreign subsidiary of a U.S. firm that the U.S. person is precluded from performing directly. Similarly, no U.S. person may facilitate such transactions by unaffiliated foreign persons. See www.treasury.gov/resource-center/sanctions/Programs/ Documents/iran.pdf. On the other hand, it is also a common practice that, as a matter of company policy, Turkish companies that are affiliates of the U.S.-originated companies do not engage in “any kind of transactions” with the countries subject to U.S. sanction programs—even with respect to transactions that do not involve any U.S.-restricted action.
Although Turkey managed to qualify for a significant reduction exemption under section 1245 of the NDAA for having significantly reduced its crude oil transfer from Iran, still the transactions conducted between the two countries for natural gas managed to pump Iranian foreign exchange reserves. Accordingly, Turkey would pay for the natural gas acquired from Iran in Turkish liras, which would be kept in bank accounts in Turkey, and Iranian traders would buy gold from the Turkish market with these funds. Subsequently, the gold would be transferred to United Arab Emirates to get encashed there, leading to the enrichment of Iran’s foreign exchange reserves. See www.reuters.com/article/2013/03/29/turkey-iran-sanctions-idUSL5N0CL0UK20130329. Addressing this loophole in the U.S. sanctions, on January 2013, the U.S. government adopted a blanket sanction against all gold sales made to Iran. The sanctions will be effective as of July 2013, and they are expected to reshape the gas-for-gold transactions between Turkey and Iran. Seewww.theatlantic.com/international/archive/2013/05/how-iran-benefits-from-an-illicit-gold-trade-with-turkey/275948/.
In conclusion, one can note the evolving nature of the restrictions on financing activities and transactions involving sensitive goods and services for high-risk countries and counterparties. One can also understand that the various challenges for sanction compliance operations may include frequent monitoring and mapping of updates in sanction regulations and regimes, addressing different sanction regimes (such as those between the EU and the United States, as well as local sanction regimes), and intensified due diligence work on companies and transactions in order to assess possible high sanction risk. Finally, companies must be aware of the growing need to embed specific sanction risk controls into governance frameworks such as the corporate culture, checks and balances, personal integrity, and financial inducements and their effect on personal conduct, especially in countries such as Turkey that neighbor those states subject to rigid sanctions by both the United States and the EU.