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Introduction
Sanctions have become one of the most frequently used instruments of international policy, shaping the contours of global trade and dispute settlement alike. For compliance professionals, the intersection between sanctions regimes and arbitration represents a sensitive and increasingly complex area. On the one hand, sanctions are designed to impose restrictions on trade, financial transactions, and access to resources, aiming to influence the behavior of targeted states or entities. On the other hand, arbitration, particularly international arbitration, is founded on the principles of neutrality, enforceability, and the sanctity of contracts. When these two regimes collide, they give rise to legal uncertainty, practical enforcement difficulties, and heightened compliance risks.
In recent years, Türkiye has emerged as a focal point in this debate, situated at the crossroads of international commerce, energy routes, and political alliances. As a jurisdiction that is party to the New York Convention and hosts the Istanbul Arbitration Centre (ISTAC), Türkiye aspires to strengthen its reputation as a neutral forum for cross-border disputes. Yet it must also navigate the constraints imposed by international sanctions, whether emanating from the United Nations, the European Union, or the United States, as well as its own domestic controls. These dynamics are further complicated when disputes involve parties linked to sanctioned jurisdictions such as Syria or Iran, where compliance with sanctions obligations can directly impact the validity, enforceability, or performance of arbitral awards.
For practitioners working in sanctions compliance, this evolving landscape requires careful attention not only to the underlying arbitration agreements and applicable procedural rules, but also to the broader regulatory framework governing financial flows, export controls, and asset freezes. The challenge lies in reconciling the principle of pacta sunt servanda with the imperative of adhering to mandatory sanctions laws. This introduction sets the stage for examining how sanctions interact with arbitration in the Turkish legal framework, how Syrian and Iranian sanctions present unique challenges, and what compliance professionals must anticipate as these regimes continue to evolve.
Sanctions in the Turkish Legal Framework
Türkiye’s sanctions and export control regime is anchored in a combination of domestic legislation and its obligations under international law, creating a layered compliance environment that directly affects arbitration practice. The principal domestic sources include Law No. 6415 on the Prevention of Financing of Terrorism, which provides the mechanism for implementing United Nations Security Council sanctions, and the broader legal instruments administered by the Ministry of Treasury and Finance and the Financial Crimes Investigation Board (MASAK). These measures establish the framework for asset freezes, restrictions on transfers of funds, and reporting obligations for financial institutions and businesses operating in sensitive sectors.
Complementing these financial restrictions are the export control provisions of Law No. 5201 and its implementing regulation, which govern the production, export, and import of military equipment and related technologies, as well as Law No. 5202 on Defense Industry Security. Both laws are closely linked to the Defense Industry Security Directive (Savunma Sanayii Güvenliği Yönergesi), which prescribes licensing procedures, facility and personnel security requirements, and the controls surrounding the Kontrole Tâbi Liste (Controlled Items List) that reflects Türkiye’s adherence to international arrangements such as the Wassenaar Arrangement and the Missile Technology Control Regime.
From a compliance perspective, these instruments demonstrate how Türkiye must reconcile its obligations under multilateral export control regimes with its domestic policy objectives and the realities of regional trade. For arbitration practitioners, this creates a critical overlay: any arbitral proceedings involving dual-use goods, defense technologies, or parties subject to sanctions must take into account not only contractual and procedural norms, but also whether the underlying transactions are permissible under Turkish law. The enforcement of arbitral awards in such cases is contingent upon compliance with these mandatory rules, as Turkish courts retain discretion to refuse recognition on public policy grounds if the award would result in a breach of sanctions or export control restrictions.
This dual role of Türkiye as both a sanctions enforcer and an arbitration forum places a particular responsibility on compliance professionals to ensure that contractual performance, dispute resolution, and enforcement strategies are aligned with the evolving sanctions architecture.
Sanctions and Arbitration: Legal Dilemmas in Türkiye
The collision between sanctions law and arbitration in Türkiye unfolds in a manner that is both legally intricate and commercially consequential. Arbitration, by its very nature, is meant to provide certainty, predictability, and neutrality to parties engaged in cross-border commerce. Yet sanctions, especially those imposed by the United Nations, the European Union, or the United States, operate as mandatory rules of law that override contractual commitments. For practitioners in Türkiye, where arbitration has gained significant ground through the adoption of the International Arbitration Law (Law No. 4686) and the country’s membership in the New York Convention, this interplay creates a series of dilemmas that cannot be ignored.
One of the most pressing challenges is enforcement. Turkish courts are bound to recognize and enforce foreign arbitral awards unless one of the limited grounds for refusal set out in the New York Convention applies. Among these is the public policy exception, which has become a critical tool in the hands of judges when an award appears to conflict with sanctions obligations. The concept of public policy in Türkiye has historically been interpreted broadly to include not only domestic public order but also compliance with international commitments. In practice, this means that if an arbitral award compels a Turkish entity to make a payment to a sanctioned Syrian or Iranian counterparty, enforcement may be refused on the grounds that compliance would breach sanctions or export control measures. For compliance professionals, this creates an additional risk layer: the possibility that a hard-fought arbitral award may ultimately prove unenforceable in Türkiye due to overriding sanctions concerns.
A second dimension is the practical impossibility of performance. Even where a tribunal issues an award in favor of a sanctioned entity, the restrictions imposed on financial transactions by MASAK and the Turkish banking sector often render payment infeasible. Banks operating in Türkiye must adhere strictly to asset freezes and reporting obligations. Attempting to transfer funds to a blacklisted account can expose financial institutions and individuals to severe administrative and criminal penalties. In such cases, the arbitral award may stand formally valid but remain practically unexecutable. This duality—validity on the arbitral plane and nullity on the enforcement plane—creates deep uncertainty for parties operating in high-risk markets.
Furthermore, the presence of export controls under Law No. 5201 and Law No. 5202 adds a unique dimension to arbitration disputes in Türkiye. These laws, reinforced by the Defense Industry Security Directive and the Kontrole Tâbi Liste, make clear that certain goods and technologies, especially those with military or dual-use applications, cannot be transferred without prior governmental approval. If an arbitral award obliges a Turkish company to deliver equipment or technology to a sanctioned jurisdiction, the company is placed in an impossible position: comply with the award and risk violating domestic and international law, or comply with sanctions and face allegations of breach of contract. For tribunals seated in Türkiye, such cases raise the question of whether sanctions should be treated as force majeure, impossibility, or overriding mandatory norms that excuse non-performance.
The jurisprudence emerging from arbitral tribunals and national courts worldwide offers instructive parallels. Some tribunals have adopted a pragmatic stance, treating sanctions as external legal impediments beyond the control of the parties and thereby excusing non-performance. Others have applied sanctions strictly, finding that parties who voluntarily entered into contracts with high-risk counterparties must bear the consequences. In Türkiye, the tension lies in reconciling these approaches with the broad conception of public policy embraced by the judiciary. For compliance officers, this means that risk assessments cannot end with identifying sanctions exposure at the transactional stage; they must extend to the dispute resolution process itself, anticipating how sanctions may alter the enforceability of arbitral awards.
This convergence of sanctions and arbitration in Türkiye underscores the importance of proactive compliance strategies. Parties must draft arbitration agreements with sanctions in mind, incorporating clauses that address the possibility of sanctions disrupting performance. They must also ensure continuous monitoring of sanctions developments, given the volatility of regimes applied to Syria, Iran, and other high-risk jurisdictions. From a practical standpoint, compliance teams should engage with counsel early to map out enforcement risks in Türkiye, recognizing that sanctions are not a peripheral issue but a central factor in the viability of arbitral proceedings.
What emerges is a picture of arbitration in Türkiye that is simultaneously robust and fragile—robust in its institutional capacity and legal infrastructure, yet fragile in its exposure to the unpredictable force of sanctions. For compliance professionals, navigating this landscape requires a blend of legal foresight, operational diligence, and constant vigilance, ensuring that arbitration does not become an arena where sanctions risks are overlooked but rather one where they are managed with precision and strategic foresight.
Case Studies: Syria and Iran
The impact of sanctions on arbitration in Türkiye becomes even more vivid when examined through the lens of disputes involving Syrian and Iranian parties. Both jurisdictions have long been subject to extensive sanctions regimes, creating persistent challenges for commercial transactions and their resolution through arbitration. These cases illustrate the practical consequences of sanctions compliance obligations on arbitral proceedings seated in Türkiye, and they highlight the dilemmas faced by tribunals, parties, and enforcement courts alike.
In the Syrian context, the European Union’s restrictive measures and the United States’ Caesar Act have effectively isolated the Syrian economy from most formal channels of trade and finance. For Turkish companies, this creates a paradox. Türkiye shares a long border with Syria and historically maintained close commercial ties, yet any transaction involving sanctioned Syrian entities is now subject to heavy scrutiny. In arbitration disputes arising out of pre-sanctions contracts, tribunals seated in Türkiye have been asked to consider whether Syrian counterparties could claim damages for non-performance. The answer has often hinged on whether sanctions were to be treated as force majeure or as a supervening illegality that permanently frustrated the contract. For compliance professionals, the lesson is clear: transactions with Syrian entities carry not only immediate sanctions exposure but also long-tail arbitration risks where the enforceability of awards may be curtailed by sanctions compliance requirements.
Iran presents an equally complex, though somewhat different, case. The oscillation between the Joint Comprehensive Plan of Action (JCPOA) framework and the re-imposition of United States sanctions has left Turkish companies caught in shifting legal and commercial realities. EU sanctions against Iran were partially lifted under the JCPOA but remain in place in sensitive areas, while U.S. secondary sanctions continue to exert extraterritorial pressure on non-U.S. actors, including Turkish businesses. Arbitration disputes involving Iranian counterparties have frequently confronted issues such as blocked payments, restrictions on financial transfers, and the inability to deliver goods covered by export control laws. Turkish courts, when asked to enforce arbitral awards in favor of Iranian entities, have had to consider whether doing so would expose local institutions to liability under international sanctions frameworks. This has reinforced the importance of public policy exceptions under the New York Convention as a safeguard against enforcement in contravention of sanctions.
For compliance professionals, Syrian and Iranian disputes illustrate how sanctions permeate every stage of arbitration. They affect the validity of contracts at the outset, dictate the ability of tribunals to fashion remedies, and ultimately shape whether awards can be recognized and enforced in Türkiye. They also demonstrate that compliance is not a static exercise but an evolving process that must track geopolitical shifts, new legislative measures, and the extraterritorial reach of foreign sanctions regimes. In both cases, the decisive factor is not only the law of arbitration but the ability of parties to align their dispute resolution strategies with the broader sanctions compliance environment. This alignment is increasingly what determines whether arbitration serves as an effective mechanism of redress or whether it collapses under the weight of sanctions-related constraints.
International Arbitration Tribunals’ Approach
The question of how arbitral tribunals should respond when sanctions collide with contractual performance has given rise to a steadily developing body of practice, and this jurisprudence is directly relevant to Türkiye’s position as a regional arbitration hub. Tribunals are increasingly confronted with cases where one party argues that compliance with sanctions renders performance of a contract illegal, while the other insists that obligations must be upheld regardless of external restrictions. The result is a delicate balancing act between honoring the sanctity of contracts and recognizing the binding nature of international sanctions.
In many disputes, tribunals have turned to doctrines such as force majeure, frustration, or supervening illegality to assess whether sanctions excuse non-performance. For example, when a supplier is unable to deliver goods because export control regulations prohibit shipment to a sanctioned country, the tribunal may conclude that the contractual obligation has become impossible to perform without breaching mandatory law. In other cases, tribunals have rejected such defenses, reasoning that parties who knowingly contracted with counterparties in high-risk jurisdictions assumed the possibility of sanctions as a commercial risk. This divergence highlights the unpredictability of outcomes, making it essential for compliance professionals to incorporate sanctions analysis into their risk allocation strategies from the outset.
The procedural dimension is equally significant. Some arbitral institutions have issued guidance on the impact of sanctions, addressing questions such as whether payments of arbitration fees can be made on behalf of sanctioned parties or whether arbitrators themselves may face restrictions in engaging with such disputes. The Istanbul Arbitration Centre (ISTAC), seeking to strengthen its international profile, is acutely aware that its credibility depends on ensuring compliance with international obligations while preserving the neutrality of its proceedings. This requires careful coordination with Turkish regulatory authorities, particularly where proceedings might involve transfers of funds or disclosure of sensitive information subject to export controls under Law No. 5201 and the Defense Industry Security Directive.
Tribunals also play a role in shaping the broader compliance culture by scrutinizing the conduct of parties. Where evidence shows attempts to circumvent sanctions, arbitral panels have not hesitated to sanction such behavior through adverse inferences or cost orders. Conversely, where parties have demonstrated proactive compliance efforts—such as seeking licenses, disclosing sanctions exposure, or restructuring performance around permissible channels—tribunals have been more inclined to uphold their claims. This practice underscores the importance of integrating compliance considerations into arbitral strategy, not as an afterthought but as a central component of case management.
From the perspective of Turkish courts tasked with enforcing arbitral awards, the approach taken by tribunals matters greatly. An award that demonstrates sensitivity to sanctions obligations is more likely to withstand scrutiny under the public policy exception of the New York Convention. Conversely, awards that ignore or minimize the effect of sanctions may be vulnerable to refusal of recognition in Türkiye, where compliance with international obligations is treated as a matter of ordre public. For compliance professionals and legal advisors, the lesson is that sanctions are not just a backdrop to arbitration but an active force that shapes proceedings, remedies, and enforcement, requiring constant vigilance and strategic foresight throughout the dispute resolution process.
Strategic Outlook for Türkiye
Türkiye’s geographic location and its role as a bridge between East and West place it at the center of the global debate on the interaction between sanctions and arbitration. On one side, Türkiye is a NATO member aligned with Western security priorities, bound to implement United Nations sanctions, and exposed to the extraterritorial reach of United States and European Union measures. On the other, it maintains complex trade and energy ties with neighboring states such as Iran and Syria, both of which are heavily sanctioned. This dual positioning creates a compliance environment where arbitration is not simply a private dispute resolution mechanism but a tool that must operate within the boundaries of shifting geopolitical constraints.
For Türkiye to consolidate its role as a regional arbitration hub, institutions like the Istanbul Arbitration Centre must actively demonstrate their capacity to handle sanctions-sensitive disputes with neutrality and predictability. This requires not only procedural safeguards but also a deep integration with domestic compliance mechanisms, including MASAK’s financial monitoring framework, the Ministry of Treasury and Finance’s asset-freezing powers, and the Ministry of National Defense’s control over defense-related exports under Laws No. 5201 and 5202. The coordination of these authorities with arbitral institutions and courts will be decisive in ensuring that arbitral awards remain enforceable without undermining Türkiye’s international obligations.
From a compliance perspective, the strategic challenge is ensuring that arbitration proceedings do not become conduits for sanctions evasion. This means that Turkish financial institutions, law firms, and corporates involved in arbitration must strengthen their due diligence protocols, screening procedures, and reporting obligations. The stakes are high: failure to comply could expose Türkiye to reputational damage or even secondary sanctions that undermine its role as a trusted forum for cross-border dispute resolution. At the same time, strict adherence to sanctions must not erode the credibility of arbitration as a neutral and effective process. The delicate balance lies in designing frameworks where tribunals can recognize the legal force of sanctions while still safeguarding the integrity of contracts and arbitral outcomes.
Looking ahead, Türkiye’s unique position may also present opportunities. By carefully developing jurisprudence and institutional practices that address the interplay between sanctions and arbitration, it could position itself as a model jurisdiction capable of resolving disputes that other forums shy away from. In a world where sanctions are likely to remain a dominant instrument of international policy, this capability could become a distinctive strength. For compliance professionals, the outlook underscores the importance of continuous monitoring, robust internal controls, and proactive engagement with both arbitration rules and sanctions regulations. In Türkiye, the path forward will require not only legal precision but also strategic foresight, ensuring that arbitration remains viable even in an era defined by sanctions.
Conclusion
The intersection of sanctions and arbitration in Türkiye illustrates how compliance considerations have moved from the margins of commercial practice to the very core of dispute resolution. Sanctions are no longer incidental risks; they are central determinants of whether contracts can be performed, whether arbitral awards can be rendered, and whether those awards can ultimately be enforced. In disputes involving jurisdictions such as Syria and Iran, these challenges are amplified by the extraterritorial impact of U.S. measures, the rigor of EU restrictive regimes, and Türkiye’s own obligations under domestic legislation and international export control commitments.
For Türkiye, the legal and compliance dilemmas are sharpened by its geopolitical position. The country must reconcile its ambition to be a neutral and reliable arbitration forum with its duty to uphold sanctions and export control measures rooted in Laws No. 5201 and 5202, the Defense Industry Security Directive, and its adherence to multilateral regimes such as the Wassenaar Arrangement and the Missile Technology Control Regime. Turkish courts, applying the New York Convention, are increasingly called upon to test the limits of public policy by balancing the enforcement of arbitral awards against the imperatives of sanctions compliance.
For compliance professionals, this evolving landscape requires more than routine due diligence. It demands an integrated approach where sanctions monitoring, counterparty screening, and risk assessments are embedded in every stage of the dispute resolution process. It also requires foresight in drafting arbitration clauses, anticipating that sanctions may disrupt performance, and preparing enforcement strategies that align with both domestic and international legal frameworks. Arbitration seated in Türkiye will remain viable, but only to the extent that compliance obligations are treated as inseparable from the arbitral process itself.
Ultimately, sanctions and arbitration are no longer parallel regimes; they are converging fields that define one another. In Türkiye, where commercial opportunity intersects with regulatory complexity, success will depend on the ability of practitioners to navigate this convergence with precision, discipline, and adaptability. For those charged with ensuring compliance, the task is clear: to transform sanctions from disruptive obstacles into managed risks, allowing arbitration to continue serving as a credible and effective mechanism of cross-border dispute resolution even in an era dominated by restrictions and controls.
