OFAC Sanctions Compliance: A Guide for Turkish Companies with U.S. Operations

The Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury, administers and enforces U.S. economic sanctions programs against targeted foreign countries, governments, entities, and individuals. OFAC sanctions are among the most powerful tools in the U.S. foreign policy arsenal — and among the most consequential compliance obligations for companies with any connection to the United States.

For Turkish companies, OFAC compliance is not optional. Turkish companies with U.S. subsidiaries, U.S. dollar transactions, U.S. counterparties, or U.S. employees are subject to OFAC's jurisdiction and must maintain a robust sanctions compliance program.

OFAC sanctions apply to U.S. persons, which includes:

• U.S. citizens and permanent residents, wherever located
• U.S. corporations and their branches
• Any person in the United States

Critical point for Turkish companies: A Turkish company's U.S. subsidiary is a U.S. person and is fully subject to OFAC sanctions. The Turkish parent company itself is generally not subject to OFAC sanctions unless it is transacting in U.S. dollars, using U.S. financial institutions, or dealing with U.S. counterparties.

However, OFAC has broad secondary sanctions authority that can affect non-U.S. companies that engage in certain transactions with sanctioned parties — even if those transactions have no U.S. nexus. Turkish companies that do business with sanctioned countries or entities risk being designated themselves or losing access to the U.S. financial system.

Following Russia's invasion of Ukraine in 2022, the United States imposed sweeping sanctions on Russia, including:

• Designation of major Russian financial institutions
• Prohibition on new investment in Russia
• Export controls on a wide range of goods and technology
• Prohibition on importing Russian oil, gas, and other commodities

Relevance for Turkish companies: Turkey has maintained trade and economic relations with Russia despite Western sanctions. Turkish companies with U.S. operations must ensure that their U.S. subsidiaries and U.S. dollar transactions do not violate Russia sanctions. Turkish companies that facilitate Russian sanctions evasion risk secondary sanctions designation.

The United States maintains comprehensive sanctions against Iran, prohibiting virtually all transactions with Iran by U.S. persons. Secondary sanctions target non-U.S. companies that engage in significant transactions with Iran's energy sector, financial sector, or designated entities.

Relevance for Turkish companies: Turkey has historically had significant trade relations with Iran. Turkish companies with U.S. operations must ensure that their U.S. subsidiaries have no Iran-related transactions. Turkish parent companies that engage in significant Iran transactions risk secondary sanctions that could affect their access to the U.S. financial system.

OFAC maintains the Specially Designated Nationals and Blocked Persons (SDN) List — a list of individuals and entities with whom U.S. persons are prohibited from transacting. The SDN List includes:

• Designated Russian oligarchs and entities
• Iranian government officials and entities
• North Korean government entities
• Terrorist organizations and their financiers
• Drug traffickers

Compliance obligation: Turkish companies with U.S. operations must screen all counterparties, customers, suppliers, and employees against the SDN List before transacting.

OFAC expects companies subject to its jurisdiction to maintain a risk-based compliance program that includes:

Senior management must be committed to sanctions compliance and must allocate sufficient resources to the compliance program.

Companies must conduct a sanctions risk assessment that identifies:

• The company's exposure to sanctioned countries, entities, and individuals
• The products, services, and transactions that pose the highest sanctions risk
• The geographic markets and customer segments with the highest risk

Companies must implement internal controls to mitigate identified sanctions risks, including:

• Screening: Automated screening of counterparties, transactions, and payments against OFAC lists
• Transaction monitoring: Monitoring of transactions for sanctions red flags
• Due diligence: Enhanced due diligence for high-risk counterparties and transactions
• Approval processes: Escalation and approval processes for transactions that raise sanctions concerns

All relevant employees must receive regular sanctions compliance training, including:

• Overview of OFAC sanctions programs
• How to identify sanctions red flags
• Escalation procedures for potential sanctions issues

Companies must regularly audit and test their sanctions compliance program to identify gaps and weaknesses.

OFAC penalties for sanctions violations can be severe:

Voluntary self-disclosure: OFAC provides significant penalty mitigation for companies that voluntarily self-disclose violations. A voluntary self-disclosure can reduce the base penalty by up to 50%.

1. Implement a U.S. sanctions compliance program: Your U.S. subsidiary must have a standalone sanctions compliance program that meets OFAC's expectations.

2. Screen all counterparties: Implement automated SDN List screening for all customers, suppliers, and business partners of your U.S. subsidiary.

3. Train U.S. employees: Ensure that all employees of your U.S. subsidiary receive regular OFAC compliance training.

4. Separate U.S. and non-U.S. operations: Maintain clear separation between your U.S. subsidiary's operations and any operations that involve sanctioned countries or entities.

5. Engage U.S. sanctions counsel: OFAC compliance is a specialized area of law. Engage U.S. counsel with specific OFAC expertise.

1. Assess secondary sanctions risk: If your Turkish parent company engages in transactions with Russia, Iran, or other sanctioned countries, assess the secondary sanctions risk to your U.S. operations and U.S. dollar access.

2. Monitor OFAC guidance: OFAC regularly issues guidance, FAQs, and general licenses that affect compliance obligations. Monitor OFAC's website for updates.

3. Consider OFAC licenses: For transactions that may implicate OFAC sanctions, consider applying for a specific license from OFAC.

OFAC sanctions compliance is a critical obligation for Turkish companies with U.S. operations. The penalties for violations are severe, and the reputational consequences of a sanctions violation can be devastating. A proactive, risk-based compliance program is the best protection.

ULF New York advises Turkish clients on OFAC sanctions compliance, sanctions risk assessments, voluntary self-disclosures, and OFAC license applications. Contact us to discuss your sanctions compliance needs.

This article is for informational purposes only and does not constitute legal advice. OFAC sanctions programs are subject to frequent change; consult qualified sanctions counsel for current guidance.