BY ASLI KINSIZ, ORCUN TURAN, DENIZ YONTUK
Direct implementation of a sanction imposed by the US or another country against Russia and Russian companies will not be imposed directly on Turkish companies under Turkish law. However, it has to be noted that the fact that these sanctions are not legally applied to Turkish companies does not mean that Turkish companies will not be affected by them in their activities and operations. In today’s global economy, trade is like dominoes and the overturning of one stone means that the whole system is affected, especially if this domino is one of the most powerful economies in the world. Therefore, we can express the extent to which Turkish companies may be affected by the relevant sanctions, especially in terms of what will be encountered in practice.
To see if Turkish companies established with domestic or foreign capital under Turkish law are affected by the sanctions issued, first, the company’s sector must be identified. Then, some questions should be asked regarding the company’s industry such as: Does the company import or export raw materials or goods? Does the company work with foreign companies in Turkey? Does the company have any contracts with these companies in dollars or rubles (or any currency of a sanctioning or sanctioned country)? The answers to these questions will determine the likelihood of companies being affected by foreign sanctions or even being directly subject to them, even if they are Turkish companies.
It can be said that Turkish companies can be subject to such sanctions regardless of their region, especially if there is a group of companies, subsidiaries, or a company with which they have a business relationship in the sanctioned countries. This implementation is based on the substantial Nexus from Anglo-Saxon law, i.e., the assessment that economic sanctions in international law have cross-border effects. The most basic example given to the concept of Nexus is the US/Dollar connection; for example, a French Bank’s transactions with Iran at the dollar exchange rate may cause the United States to consider the relevant Bank under sanctions through the Nexus connection. As can be seen from past examples, the Nexus doctrine can cause companies to be included in sanctions regimes even from very weak connections, so every transaction must be carefully examined.
Another situation that Turkish companies may face is that they may be directly subject to reputational sanctions if a multinational company announces that it will not work with companies that trade with Russian companies due to their Code of Conduct and ends its commercial relationship with a Turkish company still involved in commercial transactions with Russian companies. These kinds of reputational sanctions are regularly seen in international commercial relations, as sanctioning authorities mostly hold domestic actors responsible even for the actions of their business partners or subsidiaries. Therefore, this approach causes multinational companies to conduct broad examinations of their business partners and even work with intelligence companies to investigate the trading activities of their business partners.
The aforementioned explanations can also be considered by Turkish companies operating abroad. However, the first thing that comes to mind is what the consequences will be if Turkish companies operating in Russia receive payments from their accounts in Russian banks, get loans from Russian banks, or receive letters of guarantee.
Since most of the banks linked to Russia or originating in Russia are considered SDNs, it is very problematic for a Turkish company operating abroad to access, transfer to or receive transfers from that account (except between Russian Banks) through other banks. The US has banned companies from working with these banks, but it has also given them a WindDown Period to end their transactions with those banks. At this stage, it remains unclear how loan payments from SDN-listed banks will be made, how default interest will work, and whether this will create a force majeure in terms of non-performance of the payment.
ACTIONS SHOULD BE TAKEN
Here are our recommendations that will significantly reduce risk:
►Companies, especially those who conduct global business, should be able to clearly define their work descriptions by taking into account the phrases in the definitions of sanctions.
►Companies should determine the origin of all companies with which they have had a contractual relationship to date, and whether they have any connection with Russia.
►If there is any possibility to use a raw material originating from a banned country, the companies should also determine the origin of the raw materials they use.
►Companies should deepen their background checks when choosing their partners abroad by taking into account the existing sanctions.
► Companies need to reconsider all contractual provisions they have and ensure that legal choices are made that specifically accept force measure in terms of the law to be applied in their contracts and that the force majeure version is interpreted as widely as possible, and if these are incomplete, they should consider the amendment of the agreements accordingly.
►Companies should establish teams in compliance departments or legal departments to monitor existing sanctions, and these teams should be deployed within the organization in order to circulate all the information in a format that the relevant department can actually read daily enforcement updates.
► Companies should consider employing the legal consultancy of local experts before making business decisions regarding the sanctioned areas.
►Companies should start taking the measures mentioned above early, even if the sector in which they operate is not subject to sanctions, and should always be in a position to keep their backup and alternative plans on the sidelines.