Authors: Compliance Department, Atty. Mustafa Şahin

The expanding scope of economic sanctions in international trade and financial transactions increasingly requires companies to consider not only the laws of the jurisdictions in which they operate but also foreign sanctions regimes capable of producing extraterritorial effects. In this context, the economic and trade sanctions administered by the Office of Foreign Assets Control ("OFAC"), an agency of the United States Department of the Treasury, are of particular importance due to their significant impact on the international financial system.

OFAC sanctions are not limited to restricting the activities of individuals and entities established or operating in the United States ("U.S."). Under certain circumstances, they may also give rise to direct or indirect legal consequences for companies and financial institutions operating outside the U.S. In particular, transactions conducted through international payment systems, relationships with foreign financial institutions and commercial activities involving sanctioned persons or sectors may trigger the application of U.S. sanctions regulations.

Recent sanctions advisories issued by OFAC in October 2026 concerning foreign financial institutions have further highlighted the potential sanctions exposure of entities operating outside the U.S. in connection with certain transactions.

Against this background, it is important to examine the legal nature of OFAC sanctions, the scope of the relevant sanctions lists, the distinction between primary and secondary sanctions, and the potential legal implications of such measures under Turkish law.

Legal Nature of OFAC and the Sources of Its Sanctioning Authority

OFAC is the U.S. administrative authority responsible for administering and enforcing economic and trade sanctions in furtherance of U.S. foreign policy and national security objectives.

OFAC's sanctioning authority derives primarily from federal legislation, including the International Emergency Economic Powers Act ("IEEPA") and the Trading with the Enemy Act ("TWEA"), executive orders issued by the U.S. President, and federal regulations adopted pursuant to the relevant statutory authorities. The detailed provisions governing OFAC sanctions programs are generally set out in Chapter V of Title 31 of the Code of Federal Regulations ("CFR").

The sanctions administered by OFAC may take the form of comprehensive trade and financial restrictions targeting particular countries or regions, or targeted measures directed at specific individuals, entities, sectors or activities.

Accordingly, OFAC sanctions should not be regarded as a single, uniform set of prohibitions. The scope, legal basis, addressees, prohibited transactions and applicable exceptions of each sanctions program are determined separately under the relevant legal framework.

Furthermore, economic sanctions administered by OFAC should be distinguished from U.S. export control regulations. The export and re-export of U.S.-origin goods, software and technology may also be subject to the Export Administration Regulations (\"EAR\") administered by the Bureau of Industry and Security ("BIS"), as well as other applicable export control requirements. Consequently, the fact that a particular transaction is not prohibited under OFAC sanctions does not necessarily mean that it is permissible under U.S. export control regulations.

The SDN List and the Legal Consequences of Designation

One of the principal instruments of the OFAC sanctions regime is the Specially Designated Nationals and Blocked Persons List (the "SDN List").

The SDN List identifies individuals and entities whose property and interests in property are blocked pursuant to applicable U.S. sanctions authorities. Property and interests in property belonging to designated persons are subject to blocking requirements where they are located in the U.S. or come within the possession or control of U.S. persons.

In addition, U.S. persons are generally prohibited from engaging, directly or indirectly, in transactions or dealings involving persons included on the SDN List. However, certain transactions may be permitted under exemptions provided for in the relevant sanctions program or authorizations issued by OFAC.

In this context, it is important to distinguish between the blocking of property and its seizure or confiscation. Blocking under OFAC regulations does not, in itself, extinguish ownership rights over the relevant property. Rather, it generally prohibits the transfer, withdrawal, use or other dealings involving such property unless the necessary authorization has been obtained.

Furthermore, an individual or entity does not necessarily have to be expressly identified on the SDN List for its property to be treated as blocked under OFAC sanctions. Persons or entities falling within the definitions established under certain sanctions programs, as well as entities owned by blocked persons at specified ownership thresholds, may be treated as blocked even where they have not been separately designated.

It should also be noted that not all sanctions administered by OFAC result in asset blocking. In addition to the SDN List, OFAC maintains other sanctions lists, including the Sectoral Sanctions Identifications List ("SSI List") and the Correspondent Account or Payable-Through Account Sanctions List ("CAPTA List").

While the SSI List may impose restrictions on certain financing or commercial transactions, the CAPTA List identifies foreign financial institutions subject to particular prohibitions or restrictions concerning correspondent and payable-through accounts in the U.S.

Accordingly, where an individual or entity appears on an OFAC sanctions list, it is essential to assess not only the fact of designation but also the applicable legal authority and the specific restrictions arising from that designation.

OFAC's 50 Percent Rule

The scope of OFAC sanctions is not limited to individuals and entities expressly identified on the SDN List. OFAC's 50 Percent Rule provides that entities owned, directly or indirectly, by blocked persons may themselves be treated as blocked under certain circumstances.

Under this rule, an entity is generally treated as blocked where one or more blocked persons own, directly or indirectly, 50 percent or more of that entity in the aggregate. This consequence applies even where the entity itself does not separately appear on the SDN List.

In calculating the relevant ownership threshold, ownership interests held by persons blocked under different sanctions programs are aggregated. For example, where two blocked persons each hold a 25 percent ownership interest in the same company, the company will generally be treated as blocked because their aggregate ownership reaches 50 percent.

In determining indirect ownership, OFAC also takes into account multi-tiered ownership structures involving entities in which blocked persons hold direct or indirect ownership interests of at least 50 percent. Accordingly, an assessment of complex corporate structures should not be limited to calculating the ultimate economic ownership percentage, but should also consider the ownership chain in accordance with OFAC's approach to indirect ownership.

However, the 50 Percent Rule is based on ownership rather than control alone. Entities in which blocked persons hold an ownership interest of less than 50 percent are not automatically treated as blocked solely because such persons exercise effective control over them.

Nevertheless, such entities may themselves become subject to designation where the relevant sanctions program permits such measures. In addition, the representation of an entity by a blocked person or the involvement of a blocked person's property interests in a particular transaction may give rise to separate sanctions concerns.

Therefore, sanctions due diligence should not be limited to determining whether an immediate contractual counterparty appears on the SDN List. It should also include an assessment of the relevant entity\'s direct and indirect ownership structure.

Distinction Between Primary and Secondary Sanctions

The distinction between primary and secondary sanctions is fundamental to determining the implications of OFAC sanctions for companies operating in Türkiye.

Primary sanctions generally apply to persons and transactions falling within U.S. jurisdiction. These include U.S. citizens and lawful permanent residents, regardless of their location, persons located in the U.S., and entities organized under U.S. law, including their foreign branches. Under certain sanctions programs, foreign entities owned or controlled by U.S. persons may also be subject to specified prohibitions.

The involvement of U.S. banks or other U.S. persons in transactions conducted by companies established outside the U.S. may also require the relevant transactions to be assessed under U.S. sanctions regulations. Furthermore, activities that cause U.S. persons to violate applicable sanctions, involve the evasion of sanctions or otherwise result in prohibited conduct by U.S. persons may give rise to liability under the relevant regulations.

Secondary sanctions, on the other hand, may apply under certain sanctions programs to foreign individuals or entities engaging in specified activities, even in the absence of a direct U.S. jurisdictional connection.

In this context, certain transactions involving sanctioned persons or sectors may result in foreign companies or financial institutions themselves becoming subject to sanctions or facing restrictions on their access to the U.S. financial system.

In particular, under certain sanctions regimes, foreign financial institutions that knowingly conduct or facilitate significant transactions on behalf of sanctioned persons may become subject to prohibitions or restrictions on opening or maintaining correspondent or payable-through accounts in the U.S.

Nevertheless, not every transaction between a foreign person and a sanctioned counterparty automatically triggers secondary sanctions. Such consequences depend on the satisfaction of the requirements established under the relevant sanctions program and, where applicable, the completion of the necessary administrative assessment.

For example, in determining whether a transaction is significant under certain sanctions regimes, factors such as the size, number and frequency of transactions, their nature, the level of awareness of the relevant institution\'s management, the impact on the objectives of the sanctions program and the use of deceptive practices may be considered.

Accordingly, a direct violation of a transaction prohibition under primary sanctions and the potential imposition of sanctions on a foreign person under a secondary sanctions regime should be distinguished as separate legal mechanisms.

Legal Implications of OFAC Sanctions Under Turkish Law

One of the principal questions concerning OFAC sanctions and Turkish companies is whether sanctions imposed by U.S. authorities automatically produce legal consequences under Turkish law.

As a general principle, an OFAC designation does not, solely by virtue of its status as a measure adopted under U.S. law, constitute an asset-freezing order directly enforceable under Turkish law.

Türkiye maintains its own legal framework governing asset-freezing measures and the implementation of economic sanctions. In this regard, Law No. 6415 on the Prevention of the Financing of Terrorism and Law No. 7262 on the Prevention of the Financing of the Proliferation of Weapons of Mass Destruction establish mechanisms for implementing relevant United Nations Security Council resolutions and imposing asset-freezing measures under specified circumstances.

Article 5 of Law No. 6415 governs the implementation in Türkiye of asset-freezing decisions based on relevant United Nations Security Council resolutions. Article 6 of the same Law provides a mechanism for assessing asset-freezing requests submitted by foreign states, subject to certain conditions. Article 7 sets out the procedures and principles governing domestic asset-freezing decisions concerning property located in Türkiye under specified circumstances.

Law No. 7262 also contains provisions concerning asset-freezing measures and restrictions on certain activities in connection with the implementation of relevant United Nations Security Council resolutions aimed at preventing the financing of the proliferation of weapons of mass destruction.

Against this legal background, the inclusion of a Turkish company or financial institution on the SDN List does not, in itself, mean that its assets located in Türkiye are automatically frozen under Turkish law, that its operating license is revoked or that its shareholder rights are automatically restricted.

Nevertheless, where the conditions prescribed under applicable Turkish legislation are satisfied, the competent Turkish authorities may independently assess and adopt measures concerning individuals or entities that are subject to sanctions imposed by foreign states.

With respect to banks, the relevant provisions of Banking Law No. 5411 must also be taken into account. Under Article 18(5) of Banking Law No. 5411, where shareholders holding qualifying interests in a bank cease to satisfy the qualifications required of bank founders, they are no longer entitled to exercise their shareholder rights other than dividend rights. The remaining shareholder rights are exercised by the Savings Deposit Insurance Fund (\"SDIF\") upon notification by the Banking Regulation and Supervision Agency ("BRSA").

However, this provision does not constitute a mechanism for the direct enforcement of OFAC sanctions. Its application is conditional upon the loss of the qualifications prescribed under Banking Law No. 5411 and the completion of the relevant assessments and procedures under the applicable regulatory framework. Accordingly, the legal basis for an OFAC designation must be distinguished from that of administrative measures that may be imposed under Turkish banking legislation.

Furthermore, the obligations imposed on financial institutions under Law No. 5549 on the Prevention of Laundering Proceeds of Crime and its secondary legislation, including customer due diligence, suspicious transaction reporting and other compliance requirements, may also become relevant depending on the circumstances of the transaction. However, these obligations should not be interpreted as rendering OFAC sanctions directly enforceable under Turkish law.

Consequently, the absence of automatic enforceability of OFAC sanctions under Turkish law does not mean that such sanctions are without consequences for Turkish companies. Direct obligations arising under U.S. sanctions regulations, exposure to secondary sanctions and indirect effects arising from international commercial relationships must be assessed separately.

Implications for Banking and International Financing Transactions

One of the most significant areas in which OFAC sanctions affect Turkish companies is banking and international payment transactions.

The involvement of U.S. correspondent banks or the U.S. financial system in international money transfers may bring the relevant transactions within the scope of U.S. sanctions requirements.

For example, where a payment arising from a commercial relationship between two companies established in Türkiye is processed through a U.S. financial institution, it becomes necessary to determine whether the transaction involves a sanctioned person, an interest in blocked property or another prohibited activity.

However, the mere denomination of a transaction in U.S. dollars does not, in every case, automatically establish a sufficient jurisdictional connection for the direct application of OFAC sanctions. The financial institutions involved, the payment mechanism and the transaction\'s connection to U.S. jurisdiction must be assessed separately.

Under applicable OFAC regulations, certain transactions require the blocking of property, whereas other transactions may be prohibited even where no blockable property interest is involved.

In the former case, the relevant U.S. financial institution may be required to block the property and comply with applicable reporting obligations. In the latter case, the institution may be required to reject the transaction rather than block the underlying property.

These two mechanisms have different legal consequences. While blocking restricts dealings in the relevant property, rejecting a transaction prevents the payment or commercial transaction from being carried out.

Furthermore, restrictions on foreign financial institutions\' correspondent banking relationships in the U.S. may arise under certain secondary sanctions regimes. Such restrictions may have significant implications for access to international payment infrastructure and the execution of foreign currency transactions.

The effects of OFAC sanctions may also extend beyond financial institutions directly subject to sanctions. International banks may, in accordance with their internal compliance policies and risk assessments, restrict certain customer relationships or transactions, decline new transaction requests or consider terminating existing banking relationships.

Nevertheless, decisions adopted by banks pursuant to their own commercial and compliance policies must be distinguished from obligations arising directly from applicable legal prohibitions. Where a bank operating in Türkiye rejects a transaction or terminates a customer relationship on the basis of a foreign sanctions measure, the legal basis for such action must be independently assessed under Turkish law, the relevant contractual provisions and applicable banking regulations.

Consequences for Commercial Contracts and Financing Agreements

OFAC sanctions may also affect the performance of existing commercial agreements and the establishment of new contractual relationships.

Sanctions-related provisions, commonly referred to as sanctions clauses, are frequently included in international loan agreements, share purchase agreements, joint venture agreements, supply contracts and other cross-border commercial arrangements.

Such provisions may require parties to represent that they are not included on specified sanctions lists, undertake not to engage in certain business dealings with sanctioned persons or activities, and notify their counterparties of subsequent developments affecting their sanctions status.

In international financing agreements, sanctions-related representations and undertakings may be structured as conditions precedent to the utilization of a loan or as continuing obligations applicable throughout the term of the agreement.

In this context, a breach of the relevant representations or undertakings may, depending on the contractual provisions, result in the suspension of further drawdowns, the occurrence of an event of default, the acceleration of outstanding amounts or the exercise of contractual termination rights.

However, becoming subject to sanctions and violating applicable sanctions regulations do not necessarily produce identical contractual consequences. It is therefore necessary to examine whether designation under a sanctions regime constitutes an independent event of default, the dates as of which sanctions-related representations are given and the specific sanctions regimes referred to in the relevant contractual provisions.

Similarly, the subsequent designation of a contractual party under an OFAC sanctions program does not automatically render an existing agreement invalid under Turkish law or discharge all obligations arising from that agreement.

In such circumstances, the governing law of the contract, the scope of the relevant sanctions clauses, the legal or practical possibility of performance and, where applicable, Article 136 of the Turkish Code of Obligations No. 6098 concerning impossibility of performance and Article 138 concerning excessive difficulty of performance must be considered.

In particular, the rejection of a payment by a foreign financial institution does not necessarily mean that performance of the underlying payment obligation has become legally impossible. The availability of alternative payment methods, the contractual allocation of risks between the parties and the scope of the applicable sanctions are relevant considerations.

Accordingly, the contractual consequences of OFAC sanctions require a combined assessment of the nature of the relevant sanctions measure and the rights and obligations established under the applicable agreement.

Legal Consequences of Violations of OFAC Sanctions

In assessing OFAC sanctions, it is important to distinguish between the designation of a person under a sanctions program and the administrative or criminal liability that may arise from violations of applicable sanctions regulations.

OFAC has the authority to impose administrative penalties for violations of sanctions regulations within its jurisdiction. Depending on the relevant federal legislation and the nature of the violation, civil monetary penalties and other administrative enforcement measures may apply.

Under certain OFAC sanctions regulations, administrative enforcement may be based on a strict liability standard. Accordingly, a person or entity subject to U.S. sanctions regulations may incur civil liability for engaging in a prohibited transaction even where it was unaware that the transaction was prohibited.

Nevertheless, in determining the nature and amount of an administrative penalty, OFAC may consider factors such as the nature of the violation, the existence of willful misconduct or gross negligence, the relevant entity\'s level of awareness, the harm caused to the objectives of the sanctions program, the effectiveness of its compliance program and the remedial measures adopted following the discovery of the violation.

Sanctions violations may also give rise to criminal liability where the relevant statutory requirements are satisfied. In particular, willful violations of sanctions imposed under IEEPA may be subject to criminal enforcement proceedings conducted by the U.S. Department of Justice.

In this context, OFAC's authority to impose civil administrative penalties must be distinguished from criminal proceedings initiated under applicable U.S. federal criminal laws.

The financial consequences of sanctions violations may also vary depending on the statutory authority underlying the relevant sanctions program, the penalty limits applicable at the time of the violation and the specific circumstances of the case. Therefore, no single administrative or criminal penalty amount can be regarded as universally applicable to all OFAC sanctions programs.

Furthermore, under OFAC's Economic Sanctions Enforcement Guidelines, voluntary self-disclosure of an apparent violation before its discovery by the relevant authorities may, subject to certain conditions, be taken into account as a mitigating factor in the assessment of civil penalties.

Accordingly, sanctions compliance requires not only appropriate risk assessments before transactions are carried out but also effective legal and internal procedures for addressing potential violations once they have been identified.

Delisting Procedures and Licensing Mechanisms

Sanctions administered by OFAC are not necessarily permanent or incapable of modification. Applicable sanctions programs may provide mechanisms permitting certain transactions that would otherwise be prohibited.

In this regard, transactions may be authorized through general licenses or specific licenses.

General licenses authorize specified categories of transactions that satisfy the relevant conditions without requiring separate individual authorization. Specific licenses, on the other hand, are issued by OFAC in response to individual applications concerning particular persons or transactions.

However, the existence of a license does not mean that all transactions falling within the relevant sanctions program are permitted. The scope, duration, conditions and authorized activities under the license must be assessed separately.

Furthermore, individuals and entities designated under applicable sanctions programs may request administrative reconsideration of their designation and seek removal from the relevant sanctions list, commonly referred to as delisting, pursuant to 31 CFR § 501.807.

Such requests may be based on arguments that the circumstances underlying the designation were incorrect, no longer exist or have materially changed, or that the relevant conditions for designation are no longer satisfied.

Nevertheless, the submission of a delisting petition does not, in itself, suspend the application of existing sanctions. The relevant legal consequences may arise only once the requirements prescribed under the applicable regulatory framework have been satisfied and the necessary authorization or delisting decision has been obtained.

Sanctions Compliance Considerations for Turkish Companies

The broad and evolving nature of OFAC sanctions makes it increasingly important for internationally active companies to assess sanctions risks both before entering into transactions and throughout the course of their commercial relationships.

In its publication entitled A Framework for OFAC Compliance Commitments, OFAC identifies five essential components of an effective sanctions compliance program: management commitment, risk assessment, internal controls, testing and auditing, and training.

For Turkish companies, an appropriate sanctions risk assessment may therefore involve reviewing the sanctions status and ownership structures of contractual counterparties, assessing the payment and financing mechanisms used in transactions, monitoring relevant regulatory developments and incorporating suitable sanctions provisions into contractual documentation.

In particular, sanctions due diligence in international trade and financing transactions may require an assessment not only of the immediate contractual counterparties but also, where appropriate, of ultimate beneficial owners, intermediaries, financial institutions involved in the transaction and other relevant beneficiaries.

Furthermore, given that sanctions lists and applicable regulations may change over time, assessments conducted before entering into a transaction may need to be updated throughout the relevant commercial relationship.

However, OFAC's recommended compliance framework does not, in itself, impose identical statutory compliance obligations on every company established in Türkiye. The nature and extent of any applicable obligations must be assessed in light of the company's exposure to U.S. sanctions jurisdiction, the sector in which it operates, the counterparties involved, the payment mechanisms used and the scope of the relevant sanctions program.

Accordingly, sanctions compliance procedures should be developed on a risk-based and proportionate basis, taking into account each company's business activities and international transaction structure.

Conclusion

Although OFAC sanctions constitute an economic sanctions regime established under U.S. law, their implications extend beyond U.S. jurisdiction due to the interconnected nature of international trade and financial markets.

In particular, asset-blocking measures associated with the SDN List, OFAC's 50 Percent Rule, secondary sanctions and restrictions affecting foreign financial institutions' correspondent banking relationships may require transactions conducted outside the U.S. to be assessed from a U.S. sanctions perspective.

Nevertheless, the legal consequences of OFAC sanctions under U.S. law must be distinguished from those arising under Turkish law. The inclusion of an individual or entity on an OFAC sanctions list does not, in itself, automatically result in the freezing of assets, revocation of operating licenses or restriction of shareholder rights under Turkish law. However, where the conditions prescribed under applicable Turkish legislation are satisfied, the competent authorities may independently adopt the relevant measures.

Furthermore, the absence of automatic domestic enforceability does not mean that Turkish companies are insulated from direct obligations arising under U.S. sanctions regulations or from exposure to secondary sanctions. Significant legal and commercial consequences may arise in connection with access to international financing, cross-border payments, relationships with foreign banks and existing commercial agreements.

Accordingly, Turkish companies should assess their exposure to OFAC sanctions by considering not only the relevant sanctions lists but also the legal basis and scope of the applicable sanctions program, the transaction's connection to U.S. jurisdiction, the requirements of Turkish law and their existing contractual obligations.