Briefings

Turkey: EU sanctions by Christmas?

On 11 November 2019 the EU adopted the legal framework to impose asset freezing measures against certain individuals and entities in Turkey.

At this stage, while the legal framework is in place, no individuals and entities have so far been made subject to the measures, and therefore there is no legal impact on businesses' ability to continue trading with Turkey.

Once individuals and entities are listed, this will potentially impact on businesses which trade with Turkey's offshore, drilling and energy sectors, as well as their banks, insurers and other related businesses. These organisations need to identify their potential exposure, and also keep the situation under close review and we encourage them to contact HFW now, so that we can advise them of any material updates as soon as these occur.

Detailed discussion

The EU has long-standing objections to certain Turkish drilling activities in the Eastern Mediterranean and the Aegean Sea. Following European Council conclusions in March 2018, further conclusions in June, July and October 2019 maintained that Turkey was engaged in continuing illegal actions in the Eastern Mediterranean and the Aegean Sea, including drilling operations west of Cyprus and within Cypriot territorial waters, and called on Turkey to refrain from such actions. The EU Council suspended negotiations on the Comprehensive Air Transport Agreement and agreed not to hold the Association Council and further meetings of the EU-Turkey high‐level dialogues.

On 11 November 2019, the EU Council agreed to put in place a framework for restrictive measures (i.e. sanctions) targeting natural and legal persons responsible for or involved in the unauthorised drilling activity of hydrocarbons in the Eastern Mediterranean.

As a result, on the same day Council Regulation (EU) No 2019/1890 (the Regulation) was published.

The Regulation provides for an asset freeze against natural and legal persons, entities and bodies which have been identified by the Council as meeting one or more of the following criteria:

(a) being responsible for or involved in, including by planning, preparing, participating in, directing, or assisting, drilling activities in relation to hydrocarbon exploration and production, or hydrocarbon extraction resulting from such activities, which have not been authorised by the Republic of Cyprus, within its territorial sea or in its exclusive economic zone or on its continental shelf, including in cases where the exclusive economic zone or continental shelf has not been delimited in accordance with international law with a State having an opposite coast, activities which may jeopardise or hamper the reaching of a delimitation agreement;

(b) providing financial, technical or material support for drilling activities in relation to hydrocarbon exploration and production, or hydrocarbon extraction resulting from such activities, referred to in point (a); or

(c) being associated with the natural or legal persons, entities or bodies referred to in points (a) and (b).

At this time, no individuals or entities have been identified as meeting this criteria. However, as and when they are identified, the names will be published and it will then be illegal for any company or individual which is subject to the jurisdiction of an EU member state, to make any funds or economic resources available directly, or indirectly to or for the benefit of the identified individuals and entities.

Both funds and economic resources are defined in the Regulation, and have very wide meanings. Funds is not limited to cash but also includes securities, bonds, rights of set off, letters of credit and bills of lading. Economic resources means assets of every kind, whether tangible or intangible, movable or immovable, which are not funds, but may be used to obtain funds, goods or service.

As a result, the effect of the sanctions is to prohibit virtually all commercial activities with sanctioned individuals or entities, unless authorised by the Regulation or by the relevant competent authority (for example with respect to pre-existing contracts).

As soon as individuals and entities are identified and listed, any business which trades with Turkey's offshore, drilling and energy sectors may find that their activities face disruption. This will impact not only on those who deal directly with Turkish counterparties in the affected sectors, but also their banks and insurers.

Recommendation

All businesses should

• identify any counterparties which could potentially be the target of these sanctions and
• review current arrangements with those parties, to identify in advance what steps should be taken in the event that the counterparty is listed.
• keep the situation under close review – we will of course be doing this and if you think that your business may be affected, feel free to contact us now, so that we can discuss further steps to take at this time.

For more information, please contact the authors of this briefing;

Daniel Martin
Partner, London
T +44 (0)20 7264 8189
E daniel.martin@hfw.com

Paul Dean
Partner and Head of Shipping, London
T +44 (0)20 7264 8363
E paul.dean@hfw.com