An examination of US sanctions (OFAC) and export control law from the perspective of Turkish companies: the SDN List, the 50 percent rule, primary and secondary sanctions, export controls (EAR, ITAR), the Entity List, the EU and UK regimes, compliance programmes and OFAC voluntary self-disclosure processes in a comprehensive legal analysis.
United States sanctions and export control law constitute one of the most complex and highest-risk regulatory areas in global trade. Given Türkiye's geographical position, its commercial proximity to Iran, Russia, Syria and other countries subject to sanctions regimes, and the steadily increasing international trade volume of Turkish companies, compliance with US sanctions is now on the agenda not only of multinational corporations but of every Turkish business engaged in exports and foreign trade. This article examines, from the perspective of Turkish companies, the institutional structure of the US sanctions regime, the powers of OFAC, the SDN List, the 50 percent rule, the distinction between primary and secondary sanctions, export control legislation, the European Union and United Kingdom regimes, the elements of compliance programmes, and the voluntary disclosure mechanisms available in the event of a violation.
1. The Institutional Structure of the US Sanctions Regime and OFAC
At the centre of the US sanctions regime stands the Office of Foreign Assets Control (OFAC), a unit of the Department of the Treasury. OFAC is the principal body that administers economic and trade sanctions in furtherance of US foreign policy and national security objectives. OFAC's authority derives from various federal statutes and Executive Orders, principally the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). OFAC sanctions fall into two basic categories: country-based comprehensive sanctions and list-based targeted sanctions. Comprehensive sanctions target the entire economy of certain countries (for example Iran, North Korea, Syria, Cuba and the Russian-occupied regions of Ukraine), whereas targeted sanctions are directed at specific individuals, institutions and entities. Both categories carry serious risk for Turkish companies, and the status of the counterparty and the country involved must be examined meticulously.
2. The SDN List (Specially Designated Nationals) and Other Restricted Party Lists
OFAC's most important instrument is the list of specially designated nationals and blocked persons, known as the SDN List. The assets in the United States of individuals and entities on the SDN List are blocked, and US persons are prohibited from transacting with these parties. In addition to the SDN List, OFAC administers other restricted party lists: the Sectoral Sanctions Identifications List (SSI), the Foreign Sanctions Evaders List (FSE), the Non-SDN Menu-Based Sanctions List (NS-MBS) and the Correspondent Account or Payable-Through Account Sanctions List (CAPTA). Before entering into a commercial relationship, it is vital for Turkish companies to screen the counterparty, its owners, its ultimate beneficial owners and all related parties against these lists. Screening should not be limited to exact name matches; similar names, aliases and indirect connections must also be assessed.
3. The 50 Percent Rule (OFAC 50 Percent Rule)
One of the most critical and most frequently overlooked aspects of OFAC sanctions is the regulation known as the 50 percent rule. Under this rule, entities owned, directly or indirectly, 50 percent or more by one or more persons on the SDN List are automatically deemed to be blocked, even if they do not appear on the list themselves. This rule aims to prevent sanctioned persons from circumventing sanctions through corporate structures. The practical consequence of the 50 percent rule is that Turkish companies must investigate not only the party with which they transact directly but also that party's shareholding structure, ultimate beneficial owners and control relationships. It must also be assessed whether the 50 percent threshold is exceeded by aggregating the shares held separately by more than one SDN. As this rule also captures indirect ownership chains, it requires in-depth due diligence in multi-layered holding structures.
4. The Distinction Between Primary and Secondary Sanctions
The most critical distinction in US sanctions law for Turkish companies is that between primary sanctions and secondary sanctions. Primary sanctions bind US persons. The concept of a US person covers US citizens, US permanent residents (green card holders), entities established under US law, and anyone physically present in the United States. In addition, transactions involving US-origin goods, transactions denominated in US dollars and transactions using the US financial system may also fall within the scope of primary sanctions. Secondary sanctions, on the other hand, may target even foreign individuals and entities (non-US persons) that have no connection whatsoever with the United States. Under secondary sanctions, foreign companies that conduct certain transactions with sanctioned parties may themselves be added to sanctions lists by the United States, may have their access to the US financial system restricted, or may lose the ability to trade with the United States. For Turkish companies, secondary sanctions pose a serious risk even in the absence of any direct connection with the United States, and this risk increases markedly in trade with Iran and Russia in particular.
5. Iran Sanctions and Particular Risks for Turkish Companies
Iran sanctions have historically been one of the highest-risk areas for Turkish companies. The comprehensive US sanctions regime against Iran was reinstated and expanded in 2018 following the fluctuations in the JCPOA (Joint Comprehensive Plan of Action) process. The distinguishing feature of the Iran sanctions is their strong secondary sanctions dimension. Foreign companies that transact with Iran's oil, petrochemical, banking, shipping and automotive sectors may be exposed to US secondary sanctions. Given Türkiye's geographical and economic proximity to Iran, Turkish banks and trading companies are particularly exposed to this risk. High-profile investigations in the past have shown how closely financial transactions connected to Iran are monitored by US authorities. In transactions of Iranian origin or destined for Iran, Turkish companies must meticulously document the payment channels, the origin of the goods and the end user.
6. Russia Sanctions and the Regime Expanded After 2022
Following Russia's military operation against Ukraine in 2022, many countries, principally the United States, the European Union and the United Kingdom, expanded sanctions against Russia on an unprecedented scale. This new regime includes the removal of Russian banks from the SWIFT system, the blocking of central bank reserves, restrictions on technology exports, price cap mechanisms and extensive list-based sanctions. The fact that Türkiye has not formally joined the sanctions does not mean that Turkish companies are exempt from US and EU secondary sanctions. On the contrary, Turkish companies trading with Russia are under intense scrutiny, particularly regarding the re-export of dual-use goods, sanctions circumvention and the concealed involvement of sanctioned parties. US and EU authorities tend to add to their sanctions lists third-country companies assessed to have facilitated sanctions circumvention. For this reason, Turkish companies must be regarded as being under an extraordinary duty of care in trade with Russia.
7. US Export Control Law: EAR and ITAR
Another area closely connected with sanctions is US export control law. This area is regulated principally by two sets of regulations: the Export Administration Regulations (EAR), administered by the Bureau of Industry and Security (BIS) within the Department of Commerce, and the International Traffic in Arms Regulations (ITAR), administered by the Department of State. The EAR governs dual-use goods (products that can be used for both civilian and military purposes) and commercial technologies, while the ITAR covers defence industry products and military technologies. One of the most important concepts in US export control law is the de minimis rule. Under this rule, if a foreign product contains more than a certain proportion of US-origin controlled content, even the re-export of that product to third countries may be subject to US export controls. Another critical concept is the foreign direct product rule; products manufactured abroad using certain US technologies or software may also be brought within US control. Turkish manufacturers and exporters must take these rules into account where their products contain US-origin components or technology.
8. The Entity List and Other BIS Restrictions
The Entity List, administered by BIS, is a restricted party list that imposes a special licensing requirement for export, re-export and in-country transfer transactions to certain foreign individuals and entities. Transactions involving parties on the Entity List are generally subject to a presumption of denial, meaning that a licence application is likely to be refused. In addition to the Entity List, BIS also administers other lists such as the Denied Persons List and the Unverified List. As these lists are independent of OFAC's SDN List, a comprehensive compliance programme must screen against both OFAC and BIS lists. Turkish companies, particularly those operating in the technology, electronics, aviation and defence sectors, must regularly monitor these lists and assess all parties in their supply chain against them.
9. The European Union and United Kingdom Sanctions Regimes
Although US sanctions have the broadest global reach, Turkish companies must also take into account the European Union and United Kingdom sanctions regimes. EU sanctions are implemented through Council decisions and regulations within the framework of the Common Foreign and Security Policy (CFSP). An important difference between the EU regime and the US regime is that the EU has traditionally not adopted secondary sanctions; however, the EU is increasingly taking stricter measures against sanctions circumvention. Following its departure from the EU, the United Kingdom established its own independent sanctions regime, administered by the Office of Financial Sanctions Implementation (OFSI). The EU's Blocking Statute prohibits the application of certain US secondary sanctions to EU companies, thereby creating a legal tension between the EU and US regimes. Turkish companies trading with both the EU and the United States must strike a careful balance between these conflicting obligations.
10. The Essential Elements of a Sanctions Compliance Programme
In its 2019 guidance entitled "A Framework for OFAC Compliance Commitments", OFAC set out the five essential elements of an effective sanctions compliance programme: management commitment, risk assessment, internal controls, testing and auditing, and training. An effective compliance programme must be tailored to the company's field of activity, geographical risk profile and customer base. The core components of a compliance programme include customer and counterparty screening systems, geographical risk-based controls, red flag detection mechanisms, transaction monitoring, record-keeping obligations and regular staff training. For Turkish companies, even businesses with no direct connection to the United States find it beneficial to establish a compliance programme where they transact in US dollars, use US-origin goods or technology, or access the US financial system. The existence of a compliance programme is an important factor in mitigating the severity of any penalty OFAC would impose in the event of a violation.
11. Red Flags and Indicators of Sanctions Evasion
A critical issue in sanctions compliance is the recognition of red flags indicating sanctions evasion. Typical red flags include the absence of an economic rationale for the transaction, unusual payment structures, complex transaction chains routed through third countries, uncertainty as to the end user or final destination, shipping routes inconsistent with the nature of the goods, the involvement of newly established or opaque intermediary companies, and unusual confidentiality requests from the counterparty. In the context of Russia and Iran sanctions in particular, the transshipment of dual-use goods through third countries is under intense scrutiny. When Turkish companies encounter such indicators, they must conduct additional due diligence, document the transaction and, where necessary, refrain from the transaction. Ignoring red flags may be assessed as willful blindness and may aggravate liability.
12. Liability in the Event of a Violation: The Strict Liability Principle
One of the most severe aspects of OFAC sanctions is that the principle of strict liability applies with respect to civil (administrative) liability. Under this principle, a person or entity may be subject to an administrative penalty even if it did not know, and had no reason to know, that a sanctions violation had occurred. In other words, intent or negligence is not required for a violation to arise; the occurrence of the violation is sufficient. Criminal liability, on the other hand, requires the element of willfulness, and criminal penalties are far more severe. In determining the amount of administrative fines, OFAC assesses various factors: the severity of the violation, whether the party has a compliance programme, whether the violation was voluntarily disclosed, the level of cooperation and prior violations. The strict liability principle demonstrates how critical proactive compliance measures are for Turkish companies, since ignorance of the violation alone does not constitute a defence.
13. Voluntary Self-Disclosure and the Enforcement Process
Where a sanctions violation is detected, an important mechanism available to companies is voluntary self-disclosure (VSD). Reporting the violation to OFAC voluntarily, before any investigation has commenced, is a mitigating factor that significantly reduces the administrative fine to be imposed. Under OFAC's Economic Sanctions Enforcement Guidelines, voluntary self-disclosure can reduce the base penalty amount by approximately half. The VSD process requires the full identification of the violation, the conduct of a comprehensive internal investigation, the timely and complete reporting of the violation to OFAC, and the adoption of corrective measures. However, the decision to make a VSD is a strategic decision that must be taken after careful assessment of the legal consequences; it is therefore of great importance that the process be conducted with expert legal advice. The timing, scope and manner of the disclosure directly affect the outcome of the process.
14. Practical Compliance Steps and Contractual Protection for Turkish Companies
Among the practical steps Turkish companies can take to manage sanctions risks are the following: establishing a comprehensive sanctions screening system; regularly screening customers, suppliers and all counterparties against the SDN and other lists; conducting beneficial ownership analysis within the framework of the 50 percent rule; separately assessing US dollar transactions and US-origin components; and documenting all transactions. In terms of contractual protection, it is of great importance to include in international commercial contracts sanctions compliance representations, sanctions termination clauses and indemnity clauses governing sanctions-related liability. It is also recommended that contracts provide for end-user statements, re-export prohibition undertakings and automatic suspension mechanisms in the event of a listing on sanctions lists. Such contractual protections both reduce risk and demonstrate, in the event of a possible violation, that the company acted in good faith and fulfilled its duty of care.
15. Conclusion and Assessment
US sanctions and export control law have become a compliance area that Turkish companies can no longer afford to ignore. The fact that global trade operates through the US dollar and the US financial system can bring even Turkish companies with no direct connection to the United States within the scope of this regime. The expanding scope of secondary sanctions, the complexity of the 50 percent rule, the severity of the strict liability principle, and the intense scrutiny in the context of Iran and Russia in particular necessitate a proactive compliance approach. Turkish companies must establish a risk-based compliance programme, screen their counterparties meticulously, conduct in-depth beneficial ownership analysis, deploy contractual protections and, in the event of a violation, assess all options including voluntary self-disclosure with expert legal advice. Sanctions compliance is not merely a legal obligation; it is also a fundamental element in protecting a company's international commercial reputation and its access to the financial system.
For advisory services on US sanctions (OFAC) and export control law, sanctions screening and compliance programmes, voluntary self-disclosure processes, contractual sanctions protections and transactions under Iran and Russia sanctions, you may contact us at info@guzeloglu.legal.