EU's 13th and 14th Sanctions Packages on Russia: Implications for Turkish Businesses
Sanctions and Export Control Update
The European Union's (EU) 13th and 14th sanctions packages against Russia mark a significant shift in the EU's approach to sanctions enforcement. Notably, these packages extend beyond territorial boundaries, targeting entities outside the EU that may be assisting Russia in circumventing sanctions. This extraterritorial reach has profound implications for Turkish companies, given Turkey's strategic economic and geopolitical ties with both the EU and Russia.
Understanding Territorial vs. Extraterritorial Sanctions
Territorial sanctions operate within the EU's jurisdiction, applying to EU nationals and companies regardless of location, as well as to vessels and aircraft under EU jurisdiction. Conversely, extraterritorial or secondary sanctions extend beyond the EU's borders, targeting entities and individuals not directly within its territory. This approach, also utilized by countries like the United States, aims to prevent sanctioned entities from evading restrictions through third-party intermediaries or offshore activities.
For instance, the U.S. imposes secondary sanctions on Turkish companies and individuals for conducting business with sanctioned Russian entities. These sanctions have involved adding individuals to the Office of Foreign Assets Control's (OFAC) Specially Designated Nationals (SDN) list, effectively cutting them off from the U.S. financial system.
Historically, the EU has refrained from imposing extraterritorial sanctions. However, the 13th sanctions package signals a change in this stance, as it specifically targets a Turkish company for allegedly supporting Russia's defense sector. This demonstrates a more assertive approach by the EU in ensuring compliance and enforcement of its sanctions regime, mirroring the secondary sanctions of the U.S.
Key Extraterritorial Elements Affecting Turkish Companies
Inclusion of Turkish Companies in Sanctions: The explicit inclusion of a Turkish company in the 13th sanctions package underscores the EU's unwavering commitment to targeting entities that support Russia's military and technological capabilities, regardless of their location. This serves as a clear warning to Turkish businesses engaged in activities that could be construed as aiding sanctioned entities.
Expanded Scope to Third Countries: The EU now actively restricts European companies from conducting business with designated entities in third countries like China and India. These measures aim to prevent businesses from facilitating Russia's evasion of EU sanctions, illustrating the expanding reach of European sanctions beyond the EU's borders.
Anti-Circumvention Measures: The sanctions require EU operators to make their best efforts to ensure their non-EU subsidiaries, including those in Turkey, do not engage in activities undermining EU sanctions. Turkish subsidiaries must implement robust compliance measures, such as due diligence procedures, risk assessments, and internal controls.
Trade and Export Controls: The sanctions expand the list of goods subject to export controls, particularly dual-use items that could have military applications. Turkish companies involved in the supply chain of such goods must ensure their products are not diverted to Russia, necessitating "No Russia" contract clauses and close compliance monitoring.
Financial Sector Restrictions: The EU's ban on EU financial institutions connecting to the Financial Messaging System of the Bank of Russia (SPFS) requires Turkish financial institutions to carefully assess their interactions with EU banks to avoid prohibited transactions.
Energy Sector Sanctions: The sanctions prohibit new investments and the provision of services for completing Russian LNG projects. Turkish companies operating in the energy sector, particularly those involved in LNG, must discontinue any new contracts or services related to Russian LNG infrastructure and may need to gradually wind down existing projects to ensure compliance.
Intellectual Property and Trade Secret Protections: The sanctions impose restrictions on intellectual property (IP) and trade secrets related to high-priority goods. EU operators must ensure their IP rights and trade secrets are not utilized to produce goods destined for Russia. Turkish companies holding IP licenses from EU entities must include stringent contractual provisions to prevent using this IP in goods exported to Russia.
Future Implications for Turkish Companies
Turkish companies must strengthen their compliance frameworks to comply with the new sanctions regime. Comprehensive due diligence on their entire supply chain and rigorous internal controls are essential to prevent indirect support of Russia.
Non-compliance can lead to significant legal and financial risks, including asset freezes and prohibitions from business transactions. Turkish businesses must reassess their partnerships and supply chains, particularly with entities in third countries like China and India, to ensure they are not inadvertently aiding Russia.
This may involve renegotiating contracts or seeking legal counsel to ensure adherence to EU sanctions. To navigate these complex regulatory changes effectively, it is strongly recommended that you consult with legal experts specializing in international sanctions.
Conclusion
The EU's 13th and 14th sanctions packages have far-reaching implications for Turkish companies with direct or indirect ties to Russia. By understanding and complying with these new regulations, Turkish businesses can mitigate potential risks, avoid penalties, and maintain their operations within the bounds of international law.
