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By Mengqi Sun
Companies conducting business in Turkey are bracing for possibly more restrictions and lost revenue in the wake of President Trump's authorization of new sanctions on the country -- a move that could further complicate compliance as geopolitical tensions grow.
The U.S. Treasury Department on Monday levied sanctions against Turkey's Defense, Interior and Energy ministers and the Ministry of National Defence and Ministry of Energy and Natural Resources. The U.S. also warned that any individuals or entities engaging with them risk being blacklisted as well, including banks losing access to dollar markets.
While the initial designations, which aim to stop Ankara's incursion into Syria, are limited, the executive order signed by President Trump authorizes the U.S. Treasury Department to issue a broad range of sanctions. That could pose more significant consequences to multinational companies -- especially if the Treasury imposes more sanctions on Turkish government bodies, industries, companies and individuals, according to sanctions lawyers.
Several U.S. lawmakers also are preparing legislation to place sanctions on Turkey. Last week, Sen. Lindsey Graham (R., S.C.) said in a tweet that he had reached a bipartisan agreement to impose sanctions on Turkey. The tweet also included a proposed list of sanctions, including sanctions against the Turkish energy sector.
The U.S. has ramped up its use of sanctions in recent years to advance a range of foreign policy goals. The country reimposed sanctions on Iran after the U.S. pulled out of a 2015 nuclear accord. The U.S. also has used sanctions to pressure Venezuelan leaders that the U.S. considers illegitimate.
Sanctions on Turkey could pose a new level of compliance challenges for companies because of the size of the Turkish economy and its integration with the global economy.
"This is a major G-20 economy," said Adam M. Smith, a sanctions lawyer at Gibson, Dunn & Crutcher LLP.
"So long as you're going after jurisdictions that big and integrated, the knockoff effect of the consequence will be broad," he said.
Volkswagen AG on Tuesday delayed approval of a new car plant in Turkey. Meanwhile, Siemens AG, which has about 3,000 employees in Turkey, said it is watching the events but doesn't yet see a direct impact on its business.
Harsher U.S. sanctions on Turkey's energy sector would have a "significant detrimental impact" for TransAtlantic Petroleum Ltd., a publicly listed energy producer, because the company derives all of its revenue from Turkey, said Malone Mitchell, the company's chief executive and chairman.
"Sanctions affecting the domestic producers would not be meaningful and probably have negligible impact for Turkey and a significant detrimental impact for the U.S. companies operating in the country," Mr. Mitchell said.
The Treasury's Office of Foreign Assets Control, which enforces U.S. economic sanctions, has issued three general licenses related to the Turkey sanctions, including one that allows a 30-day wind-down period for companies to end transactions or activities that involve Turkey's ministries of energy or defense.
Companies doing business in Turkey should make sure that their arrangements there have contractual protections and exit rights, if the situation changes further, according to Jonathan Cross, a sanctions lawyer at Herbert Smith Freehills. Companies also should take a look at their exposure and maintain robust sanctions-compliance procedures in relation to Turkey.
"When you're imposing on a jurisdiction that is as substantial as Russia or Turkey, it's very difficult to immediately unwind," Mr. Smith said. "It seems that companies would need to take advantage of this general license to unwind properly."
TransAtlantic Petroleum, which produces oil and gas, has been operating in Turkey for more than a decade and has employees in the Kurdish region of Turkey, according to Mr. Mitchell. Company executives had a conference call Tuesday to discuss the latest U.S. actions.
The company's operations are ongoing as normal, Mr. Mitchell said, and it continues to monitor the situation to make sure the company remains in compliance.
It has reached out to the U.S. State Department and legislators, Mr. Mitchell said, hoping to maintain a dialogue on the petroleum industry in Turkey, which he said relies heavily on imports for its energy use.
"Every normal person is concerned," he said. "We've had 11 years of good relationship, and we hope to have ongoing relationships."
The company hopes that any temporary actions would be resolved through the political process.
The "U.S. and Turkey have been long-term allies," he said. "We'll comply with whatever actions by the U.S. or Turkey."
--Nina Trentmann contributed to this article.
Write to Mengqi Sun at email@example.com
(END) Dow Jones Newswires
October 16, 2019 17:50 ET (21:50 GMT)
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