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Sanctions Imposed Against Russia And The Situation Of Turkish Companies
Global competition, conflicting of interests, and political disagreements often lead to countries imposing sanctions on each other. These sanctions can be applied not only against an individual, a group, or a specific product but also directly against an entire country. For various reasons, the United States has imposed sanctions on countries like North Korea and Iran, which directly impact the entire country.
Recently, the United States, European Union countries, and the United Kingdom have imposed legal and economic sanctions on Russia for various reasons. These sanctions have affected the relationship between Russia and many countries, including Turkey. In this article, we will focus on the sanctions imposed on Russia and their impact on Turkish companies.
1. Sanctions Imposed on Russia by the European Union (EU)
All medical products intended for sale in Turkey must be licensed by the TİTCK. The procedures and evaluation process for obtaining a license for a medical product are outlined in the "Regulation on the Licensing of Human Medicinal Products." It is primarily determined by the "Law on Cosmetics and Medical Products No.1262" whether a product intended for trade is considered as "any herbal or chemical substance with therapeutic properties" or "materials, devices, tools, or equipment used for medical purposes." It can also be said that this law serves as a pharmacy law. If blood, blood components, and products are to be used in the products, a separate licensing process exists, and this special condition is regulated by the “Law on Blood and Blood Products No. 5624”.
Importation Categories
Sanctions imposed on Russia by the European Union (EU) are carried out by the European Council. These sanctions have been implemented since Russia's operation in Crimea in 2014. Up until the present day, sanctions have been imposed on 11 different issues for various reasons. These sanctions are notable for directly targeting not only countries but also individuals. The sanctions are as follows:
a) Sanctions in 2014
After the 2014 Russian military intervention in Crimea, certain individuals and legal entities were subjected to political and economic sanctions on the grounds of violating Ukraine's sovereignty. Visa restrictions were imposed on these individuals, their assets and those of related legal entities were frozen, and political summits between the EU and Russia were cancelled.
b) Global Sanctions
The European Union has published worldwide decisions as three separate lists of freezing the assets of certain individuals and companies in Russia due to trade and dissemination of chemical weapons in 2018, global cyber-attacks in 2019 and human rights violations in 2020.
c) 2022- 2023 Ukraine Sanctions
In 2022, due to Russia's military intervention in the Donetsk and Luhansk regions of Ukraine, the Council of Europe implemented a comprehensive package of sanctions. These sanctions were imposed on individuals, legal entities, and Russian government officials. The sanction package includes freezing the assets of relevant individuals and legal entities, blocking their trade, preventing the import and export of certain goods, imposing visa restrictions, and blocking banking activities. The sanctions have led to certain geographically significant countries such as India, China, and Turkey developing their relations with Russia, particularly in the energy sector. Additionally, some export practices are conducted through these countries, potentially bypassing the impact of the sanctions. The European Union is currently in the process of creating a "sanctions diplomacy" to encourage more countries to adopt these sanctions.
The sanctions imposed by the European Union on Russia between 2022-2023 are as follows:
i. Asset Freezing and Travel Restrictions
These sanctions have been imposed on various entities in Russia, including heads of state, businesspeople, high-ranking military officials and officers, banks and financial institutions, companies operating in the defense industry, companies involved in aviation and ship production, political parties, paramilitary groups, and media organizations.
ii. Sanctions Related to the Financial Sector
As a result of these sanctions, a SWIFT blockade has been imposed on 10 different Russian banks, restrictions have been implemented on Russia's access to the EU economic area, measures have been taken regarding transfers with the Russian Central Bank, and precautions have been taken regarding cryptocurrency wallets.
iii. Sanctions Related to Travelling
Under these sanctions, the entry of all Russian-origin aircraft into the airspace of the EU has been banned, EU ports have been closed to all Russian-origin vessels, land trade with Russia has been blocked, the transportation of Russian oil by sea to third countries has been prohibited, the export of products and technologies used in aviation, maritime, and space sectors to Russia has been restricted, and visa restrictions have been imposed on Russian diplomats and businesspeople.
iv. Sanctions Related to Energy
As part of these sanctions, the export of coal and oil from Russia has been halted, a price ceiling has been implemented for the transportation of Russian oil by sea, investment in Russia's energy and mining sectors has been prohibited, and capacity restrictions have been imposed on natural gas storage by Russian nationals. The price ceiling application on oil has restricted the petroleum revenues, which constitute nearly half of Russia's national income. This price is determined to be updated every two months, aiming for the average market price of Russian oil to be at least 5% cheaper than the prevailing market price.
v. Sanctions Related to Defence Industry
As part of these sanctions, the export of "dual-use goods" that can be used in both civilian and military sectors, such as motors used in drones and unmanned aerial vehicles, as well as weapons and ammunition that can be used for any purpose, has been prohibited to Russia.
vi. Sanctions Related to Raw Materials
Under these sanctions, the export of luxury consumer goods to Russia has been prohibited. Additionally, the import of products such as iron, steel, cement, alcohol, cigarettes, cosmetics, jewellery, and gold from Russia has been banned.
vii. Sanctions Related to Service Industry
As part of the sanctions, the provision of services in the field of architecture and engineering to Russia has been banned. Furthermore, providing services in areas such as IT consulting, legal consulting, advertising, surveys, and market research to Russian nationals has been prevented.
viii. Sanctions Related to the Media Sector
Under these sanctions, broadcasting restrictions have been imposed on the Russian state news agency Sputnik and various private channels.
d) The 11th Sanctions Package
As of May 15, 2023, the European Union has implemented its 11th sanctions package to prevent the circumvention of sanctions through transit trade by third countries. This sanctions package has been prepared with the aim of prohibiting the export of products such as dual-use items, advanced technology products, and aerospace industry products to Russia by third countries. In this regard, methods have been developed to prevent third countries that act as intermediaries in exports to Russia from facilitating such trade. These methods focus on imposing sanctions on individuals and institutions in the countries that act as intermediaries. These sanction packages have opened the way for imposing sanctions on individuals and institutions that disregard the sanctions imposed by the European Union.
e) The Impact of European Union Sanctions on Turkey
The sanctions imposed by the EU are theoretically applicable to the member states for implementation. However, in practice, it is observed that many non-EU countries also enforce these sanctions. Therefore, individuals and legal entities of EU nationality will be directly subject to these sanctions, and individuals and legal entities in which they will participate in Turkey will be indirectly subject to the sanctions.
Individuals and legal entities in Turkey are not obligated to comply with the sanctions imposed by the European Union. However, these individuals and entities are indirectly dependent on these sanctions to avoid encountering difficulties in their future commercial relationships with European Union countries.
Many products subject to sanctions can be imported and exported to Russia through Turkey by being processed within the country, especially due to Turkey's participation in the EU customs union. In this context, the European Union has taken regulatory measures, including its 11th sanctions package, targeting third countries, including Turkey.
2. Sanctions Imposed on Russia by the United States
The sanctions imposed on Russia by the United States are administered by the Office of Foreign Assets Control (OFAC), which operates under the U.S. Department of the Treasury. Non-compliance with these sanctions can result in monetary fines or imprisonment. Furthermore, these sanctions are binding not only on U.S. citizens but also on all individuals within U.S. jurisdiction. The sanctions are listed as follows:
a) CAATSA Sanctions
The "Countering America's Adversaries Through Sanctions Act" (CAATSA) was enacted in the United States in 2017, imposing various sanctions on North Korea, Iran, and Russia. Under this law, sanctions are outlined for several areas, including cybersecurity, processing of petroleum and petrochemical products, financial institutions, combating corruption and bribery, human rights violations, violations of sanctions, establishing commercial relationships with Russian defence industry and intelligence, export networks, privatization processes, and the supply of weapons to Syria.
b) Sanctions on Russia
These sanctions are referred to as "Sanctions on Russia's Harmful Activities". They target Russia's military-industrial complex, agricultural trade with Russia, lending in foreign currency or Rubles to the Russian Central Bank and establishing correspondent banking relationships with Russia. These sanctions also apply to third parties who violate these measures. Transactions contrary to these measures are subject to authorization from OFAC (Office of Foreign Assets Control).
c) Sanctions Related to Ukraine
The sanctions imposed by the United States on Russia in relation to its actions in Ukraine include the following:
i. Blocked Transactions
Transactions involving individuals listed on the sanctions list regulated by OFAC are prohibited for U.S. nationals or individuals present in the United States. This includes restrictions on money transfers, trade, exports, and other related transactions.
ii. Sectoral Restrictions
Under these restrictions, U.S. nationals or individuals present in the United States are prohibited from engaging in any form of borrowing and capital relationships with individuals listed on the sanctions list regulated by OFAC, subject to certain conditions. Additionally, any services, products, supplies, and export transactions that would enable Russia to access its underwater production and research operations, such as its oil resourcesare prohibited.
iii. Trade and Investment Embargo
Certain embargoes have been imposed on the Crimea region as well. For example, it is prohibited for U.S. citizens to make investments in the Crimea region, export any goods, services, or technology items from the Crimea region, or import such items into the Crimea region.
d) Impact of US Sanctions on Turkey
Certain arms trade deals between Turkey and Russia in the past have raised concerns about the possibility of the United States imposing sanctions on Turkey. Additionally, export licenses and technology transfers to the Presidency of Defence Industries (PDI) within the Turkish Presidency have been banned by the United States, and precautionary measures have been imposed on the assets of PDI President Dr. İsmail Demir by the United States.
Similarly, former Deputy General Manager of Halkbank, Hakan Atilla, was prosecuted by the United States on the grounds of allegedly evading the embargoes imposed on Iran. These trials were conducted more as a political pressure tool rather than strictly legal proceedings.
3. Sanctions Imposed on Russia by the United Kingdom
The sanctions imposed on Russia by the United Kingdom are administered by the Office of Financial Sanctions Implementation (OFSI) within the UK Treasury. These sanctions include:
a) SAMLA Legislation
After its departure from the EU, the United Kingdom has enacted its own sanctions and policies under the "Sanctions and Anti-Money Laundering Act (SAMLA)" to regulate money laundering activities and establish its own framework. This legislation includes various restrictions such as asset freezing, limitations on access to financial services and markets, closure of businesses, travel restrictions related to entry and exit from the UK, and trade restrictions on the exchange of air and sea vehicles.
b) 2019 Russia Regulations
Following the United Kingdom's departure from the European Union, direct sanctions targeting Russia were imposed by the UK in 2019 and appended into the legislation under the name "Russia Regulations". Some of these regulations include:
i. Financial Sanctions
The provision of financial instruments such as credit, investment vehicles, and money market instruments to individuals and entities listed under sanctions is prohibited. Additionally, establishing correspondent banking relationships with these individuals and entities are prohibited. Restrictions are imposed on the acquisition of real estate located in Russia. Establishing partnerships with entities connected to Russia is prohibited. Furthermore, companies are banned from opening liaison offices, branches, or subsidiaries in Russia.
ii. Sanctions on Dual-Use Goods
The supply, delivery, sale, and export of goods that can be used for both civilian and military purposes are prohibited. Investing in industries related to dual-use goods, providing technical services, and facilitating the sale of these goods are also prohibited. Additionally, the trade of petroleum refining products, luxury goods, and iron and steel products are banned. Due to the broad scope of dual-use goods, these sanctions can be applied to various product types. For example, although aluminium is used in many industries, its sale to Russia is prohibited due to its utilization in the defense industry.
iii. Sanctions on the Service Sector
The provision of services such as business management, consultancy, accounting, financial reporting, and human resources to Russia is prohibited. The provision of services by UK ports to vessels of Russian origin is also prohibited.
4. Conclusion
In order to avoid being subject to the mentioned sanctions and continue their business activities, companies in Turkey and other countries worldwide need to pay attention to various aspects:
• Companies should first assess whether their business partners are subject to sanctions and then evaluate whether their partners are exceeding the limits of these sanctions.
• Companies should regularly check whether the products they trade are listed under sanctions and make sure to avoid trading dual-use products with Russia. The metal content in the products, including the percentage of aluminium, should be taken into consideration during the evaluation. It is important to assess which products fall under the scope of dual-use goods since the concept is broad and subject to interpretation.
• The regulations introduced by OFAC and OFSI should be closely monitored, and companies should ensure compliance with these regulations.
• Companies can consider evaluating alternative country options for long-term strategies and assessing other potential markets for their trade. For instance, a company that primarily exports to Western countries may find it less beneficial to enhance its relations with Russia in the current context.
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Nazli OZKUL
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Irem TOPSAKAL
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