On December 18, 2014 President Obama signed into law the Ukraine Freedom Support Act of 2014 (UFSA), which authorizes further sanctions against parties in Russia, as well as military assistance to Ukraine. UFSA requires sanctions with respect to Russian weapons exporters, including Rosoboronexport, that the President determines are exporting arms to Syria , Ukraine, Georgia or Moldova. UFSA also authorizes—but does not require—sanctions and export controls against Russia’s energy sector. The European Union announced today that it would impose further restrictions, effective December 20, 2014, on opportunities to trade with and invest in Crimea and Sevastopol.
In addition, President Obama announced on December 17, 2014, that the United States and Cuba would renew diplomatic relations. As part of this deal, certain U.S. sanctions against Cuba and Cuban nationals will be lifted or eased. The changes will not become effective until the Treasury and Commerce Departments amend their regulations.
1. Ratcheting Up the Ukraine-Related Sanctions
a. United States
i. Sanctions on the Defense Sector
UFSA provides for new sanctions on Russia’s defense industry, and singled out Rosoboronexport, a key Russian weapons exporter, for sanctions. Specifically, UFSA requires the President to impose sanctions with respect to Russian entities that he determines have transferred, brokered, otherwise assisted in the transfer, or knowingly manufactured or sold defense articles that are transferred into Syria, Ukraine, Georgia or Moldova. UFSA also targets any foreign person who knowingly assists, sponsors or provides support for a Russian entity involved in the transfer of defense articles to Syria, Ukraine, Georgia or Moldova.
ii. Sanctions on the Energy Sector
UFSA authorizes the President to impose sanctions with respect to a foreign person who knowingly makes a significant investment in a project intended to extract crude oil from: (i) Russia’s exclusive economic zone in waters more than 500 feet deep; (ii) Russian Arctic offshore locations or (iii) shale formations located in Russia. It also authorizes export controls on equipment used in oil extraction in Russia. Both measures are left to the President’s discretion, by authorizing rather than requiring that the President impose such sanctions.
In addition, UFSA authorizes the President to impose sanctions with respect to Gazprom if he determines that Gazprom has interfered with the delivery of gas to NATO members in Europe, or further withholds gas supplies from Ukraine, Georgia or Moldova.
iii. Sanctions To Be Imposed
The sanctions that the President may impose under UFSA are similar to those that he may impose under the Iran Sanctions Act, and include a ban on ExIm Bank assistance, a government procurement ban and loss of access to the U.S. financial systems, among others. UFSA gives the President discretion not to impose sanctions in certain cases, including cases involving national security or pre-existing contracts.
iv. Foreign Financial Institutions
UFSA also authorizes the President to sanction any foreign financial institution that he determines has facilitated sanctionable activities related to Russia’s defense and energy sectors, or facilitated a significant financial transaction on behalf of any Russian Specially Designated National (SDN). Such sanctions include a prohibition or strict conditions on the maintenance of a correspondent or payable-through account in the United States.
v. Increased Assistance to Ukraine
The measure provides $510 million in assistance to the Ukrainian government, including $160 million for military aid. The balance would go to promoting energy efficiency and civil society and to broadcasting to counter Russian propaganda.
UFSA authorizes the President to provide Ukraine with military assistance. In addition, the Secretary of State is required to submit a plan to Congress to meet the need for the protection and assistance of internally displaced persons in Ukraine, and the Secretaries of State and Defense are to assist entities in Ukraine’s defense sector to reorient exports away from Russia.
The United States will also work with Ukraine to address Ukraine’s potentially severe short-term heating fuel and electricity shortages in 2014 and 2015 and will take steps to help Ukraine reduce its dependence on natural gas imported from Russia.
b. European Union
In parallel, the European Union further restricted opportunities to trade and invest in Crimea and Sevastopol with effect from December 20, 2014. The new sanctions were announced today; the official text of the updated legislation is expected to be released shortly.
The EU already banned any imports of goods from these territories in June. In July, it restricted investment and trade in the transport, telecommunications and energy sectors. It also prohibited any form of supply of certain goods to individuals and entities in Crimea or Sevastopol or for use in these territories. According to the press statement issued by the Council of the European Union, the new sanctions will be even more stringent.
Most importantly, new investment in the region – whether in real estate, Crimean companies or joint ventures – will be outlawed. The provision of any associated services will be prohibited as well.
Limited exceptions, notably in the form of grandfathering clauses, are very likely to be included, but were not addressed in today’s announcement.
According to the Council’s statement, visits to the region will also be made much more complicated: the EU will prevent operators from offering tourism services there. European cruise ships passing by the region will not call at Crimean ports, except in the context of existing cruise contracts, which may be executed until March 20, 2015.
In addition, the EU agreed to expand its sanctions against the transport, telecommunications and energy sectors in Crimea and Sevastopol (including the exploitation of oil, gas and mineral resources). The supply of goods and services will thus be further restricted.
The EU presented these new restrictive measures as a continuation of its policy not to recognize the annexation by Russia of Crimea and Sevastopol.
2. Easing the U.S. Embargo of Cuba
The President also announced on December 17, 2014, that the United States and Cuba will seek to normalize their relations, including an easing of U.S. sanctions against Cuba. In the coming weeks, the U.S. Treasury Department will amend the Cuban Assets Control Regulations and the U.S. Commerce Department will amend the Export Administration Regulations to implement the President’s announcement. The embargo remains unchanged until the regulations are amended. The amendments are expected to authorize the following activities.
a. Banking and Financial Services
U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions, thereby facilitating financial transfers between the two countries. In addition, travelers to Cuba will be permitted to use U.S. credit and debit cards. Financing trade to Cuba will also be made easier. Currently authorized sales to Cuba (mostly agricultural and medical sales) must be financed by cash in advance or by third-country banks. The definition of “cash in advance” will be liberalized to mean “cash before transfer of title,” which will facilitate such trade.
b. Communications with Cuba
The amended regulations will authorize commercial exports of certain items, including consumer communication devices, related software, applications hardware and services and items for the establishment and update of communications-related systems. Telecommunications providers will also be allowed to establish the necessary infrastructure and other mechanisms in Cuba to provide commercial telecommunications and internet services.
c. Trade with Cuba
The amendments will authorize the export to Cuba of certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs and agricultural equipment for small farmers. For imports, Americans returning from Cuba will be allowed to import $400 worth of goods from Cuba, but no more than $100 worth of tobacco and alcohol products.
d. Extraterritorial Application of the Embargo
The amendments will rein in the extraterritorial application of the Cuba embargo. Specifically, U.S. foreign subsidiaries will be permitted to provide services and engage in financial transactions with Cuban nationals in third countries. Accounts in U.S. banks of Cuban nationals who have relocated outside of Cuba will be unblocked. U.S. nationals will be allowed to participate in meetings and conferences in third countries related to Cuba. Finally, foreign vessels will be allowed to enter the United States after engaging in certain humanitarian trade with Cuba.
e. Personal Remittances
The President has indicated that permitted remittance levels will increase from $500 to $2,000 per quarter. In addition, donation remittances for humanitarian projects, support for the Cuban people and support for the development of private businesses in Cuba will no longer require a specific license.
The travel ban to Cuba will be relaxed through the issuance of twelve general licenses, covering twelve categories of travel: (1) family visits; (2) official governmental business; (3) journalistic activities; (4) professional research and meetings; (5) educational activities; (6) religious activities; (7) public performances, clinics, workshops, athletic and other competitions and exhibits; (8) support for the Cuban people; (9) humanitarian projects; (10) activities of private foundations or research or educational institutes; (11) export, import or transmission of information or informational materials; and (12) certain export transactions that may be considered for authorization under existing regulations and guidelines.
g. Review of Cuba’s Designation as a State Sponsor of Terrorism
The Secretary of State will review Cuba’s designation as a state sponsor of terrorism. This designation results in certain restrictions, including a ban on U.S. foreign assistance to Cuba, a ban on defense exports to Cuba and certain controls over the export of dual-use items to Cuba.
Although this announcement signals a significant change in U.S. policy, a complete lifting of the Cuba embargo will require Congressional action.