The U.S. Department of State (“State Department”) announced the imposition of sanctions on Turkey’s Presidency of Defense Industries (“SSB”) pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). The U.S. is sanctioning SSB over its procurement of the S-400 surface-to-air missile system from Russia’s Rosoboronexport (“ROE”). SSB is Turkey’s primary defense procurement entity and ROE is Russia’s main exporter of arms. As a result of Turkey’s actions, the U.S. is imposing full blocking sanctions on four SSB officials along with certain non-blocking CAATSA sanctions on the SSB entity.

CAATSA Section 231 requires the President to impose at least five sanctions from the menu of twelve available sanctions authorized under CAATSA Section 235 on any person determined to have knowingly engaged in a significant transaction with the defense or intelligence sectors of the Russian government. ROE is listed on the State Department’s List of Specified Persons (the “LSP”) and recognized as being a part of the defense sector of the Russian government, therefore the State Department determined that CAATSA required the imposition of sanctions on SSB.

The State Department and U.S. Department of Treasury (“Treasury Department”) have selected the following sanctions from CAATSA Section 235 to impose on SSB:

-“a prohibition on granting specific U.S. export licenses and authorizations for any goods or technology transferred to SSB (Section 235(a)(2));

-a prohibition on loans or credits by U.S. financial institutions to SSB totaling more than $10 million in any 12-month period (Section 235(a)(3));

-a ban on U.S. Export-Import Bank assistance for exports to SSB (Section 235(a)(1));

-a requirement for the United States to oppose loans benefitting SSB by international financial institutions (Section 235(a)(4)); and

-imposition of full blocking sanctions and visa restrictions (Section 235(a)(7), (8), (9), (11), and (12)) on 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.”

Although CAATSA Section 235 gave the State and Treasury Departments the discretion to impose full blocking sanctions on SSB, they chose not to do so and instead only imposed those blocking sanctions on the four previously-identified SSB senior officers.

In order to effectuate these sanctions, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added SSB to its new “Non-SDN Menu-Based Sanctions” list with designations specifying the above-listed non-blocking, menu-based CAATSA Section 235 sanctions. Additionally, OFAC added the four individual SSB officers to its Specially Designated Nationals and Blocked Persons (“SDN”) list. As a result, all of their property and interests within U.S. jurisdiction are blocked and U.S. persons are prohibited from conducting transactions with them without an OFAC license.

State Department’s Directorate of Defense Trade Controls (“DDTC”) is responsible for issuing and administering export licenses under the U.S. International Traffic in Arms Regulations (“ITAR”).  DDTC issued the following notice on December 14, 2020 explaining how it will implement the new export licensing restrictions which are now applicable to SSB under these new CAATSA sanctions:

“[E]ffective immediately DDTC will not approve any specific license or authorization to export or re-export any defense articles, including technical data, or defense services where SSB is a party to the transaction. This prohibition does not apply to temporary import authorizations or to current, valid, non-exhausted export and re-export authorizations. However, the prohibition does apply to new export and re-export authorizations – including amendments to previously approved licenses or agreements and licenses in furtherance of previously approved agreements. This sanction does not apply to subsidiaries of SSB; however, licenses submitted to DDTC which name subsidiaries of SSB are still subject to a standard case-by-case review, including a foreign policy and national security review. We are not imposing a prohibition on U.S. Government procurement from SSB as part of this action.”

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is responsible for issuing and administering export licenses under the U.S. Export Administration Regulations (“EAR”). BIS also issued its own notice on December 14, 2020 which generally stated BIS “has implemented a policy of denial for export license applications to [SSB].”  However, BIS’s notice did not address whether these new CAATSA sanctions would affect existing BIS export licenses issued for SSB or transactions with SSB subsidiaries under the EAR.

_______________________________________________________________________

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.