Today, President Trump officially signed H.R. 3364, the “Countering America’s Adversaries Through Sanctions Act” (CAATSA) into law. CAATSA originated as a bill which was focused on only Iran. However, partially in response to Russian cyber-interference with the 2016 election, the Senate expanded CAATSA to impose additional sanctions against Russia and also codify into law various sanctions imposed by the Obama Administration in the form of Executive Orders. The House of Representatives then approved these additions and added further sanctions against North Korea. Eventually, the House and Senate approved the final version of CAATSA by a margin of 419-3 and 98-2, respectively. For additional detail on CAATSA’s legislative history, please see our previous alerts here, here and here.

While President Trump criticized several aspects of CAATSA, its overwhelming Congressional support would have been sufficient to override any Presidential veto. As a result, President Trump somewhat reluctantly signed the legislation into law while also issuing an official statement calling the legislation “seriously flawed” and noting that it “improperly encroaches on Executive power, disadvantages American companies, and hurts the interest of our European allies.”

Many of CAATSA’s provisions are subject to delays of either 90 or 180 days before they become effective and will require further implementing action from the President, the Secretary of Treasury or the Secretary of State. To the extent that CAATSA requires the President to impose sanctions on any individuals or entities, it does provide discretion in some instances to avoid comprehensive blocking sanctions and instead impose less severe sanctions that would limit access to the U.S. financial system or deny financing otherwise available from a variety of U.S. government programs.

Expected or potential changes which may take place under CAATSA include, but are not limited to:

Sanctions against Russia

In response to Russia’s occupation of the Crimea region of Ukraine, the Obama Administration previously issued Executive Orders 13660, 13661, 13662 and 13685 imposing blocking sanctions and sectoral sanctions against certain individuals and sectors of the Russian economy. Those sanctions also prohibit new investments in and exports or imports of goods, technology, or services to or from the Crimea region of Ukraine. Near the end of President Obama’s term, the Obama administration also issued Executive Orders 13694 and 13757 to impose blocking sanctions against various Russian officials, government agencies and vendors who were determined to have interfered in the November 2016 U.S. elections through cyber operations. Because those sanctions were implemented as Executive Orders, President Trump could have theoretically unilaterally repealed them at any time. However, CAATSA codifies those sanctions into law, modifies them in several ways (as discussed below) and also imposes restrictions which will allow Congress to prevent or delay any action which a President might take to lift or relax them.

CAATSA’s modifications or additions to current Russian sanctions policy include:

  • Expanding the Directive 4 sectoral sanctions against deepwater, Arctic offshore or shale oil production projects so that those sanctions apply to any “new” projects throughout the world where a Directive 4 sanctioned entity holds an ownership interest of 33% or greater. Notably, the Directive 4 sanctions previously only applied to projects in the Russian Federation where a sanctioned entity held an ownership interest of 50% or greater, so this is a significant expansion. However, it is currently unclear how OFAC will determine which projects qualify as “new” when enforcing this expanded requirement.
  • Further restricting financing which may be provided to or dealings in new debt which may be made involving entities subject to sectoral sanctions by reducing the maturity limit for such instruments: (i) from 30 days down to 14 days for entities subject to Directive 1 sectoral sanctions, and (ii) from 90 days down to 60 days for entities subject to Directive 2 sectoral sanctions.
  • Requiring the President to impose sanctions against anyone who undertakes to undermine cybersecurity on behalf of the Russian government;
  • Requiring the President to impose sanctions on any person who knowingly engages in transactions with the Russian defense or intelligence sectors;
  • Amending the Sovereignty, Integrity, Democracy and Economic Stability of Ukraine Act of 2014 in order to require the President to impose sanctions on Russian government officials, their close associates and family members who are responsible for or complicit in “acts of significant corruption in the Russian Federation” and on anyone who makes an investment of greater than $10 million in any transaction which contributes towards the privatization of state-owned assets in a manner that unjustly benefits Russian government officials, their close associates or family members. The CAATSA also requires OFAC, the Director of the National Intelligence and the Secretary of State to prepare a detailed report on the “most significant senior foreign political figures and oligarchs in the Russian Federation” detailing their ties to President Vladimir Putin, their net worth, their business operations and other indices of potential corruption. This report will presumably serve as a resource to facilitate any corruption-based sanctions;
  • Authorizing (but not requiring) the President to impose sanctions against persons making investments in or supplying goods or services to Russia for the construction of Russian energy export pipelines;
  • Authorizing (but not requiring) OFAC to implement blocking sanctions against Russia’s state-owned railway sector if OFAC and the Secretary of State determine such blocking sanctions would be appropriate;
  • Appropriating $US 250 million over fiscal years 2018 and 2019 in order to protect various NATO and European Union countries’ critical infrastructure and electoral mechanisms from influence from Russia; and
  • Appropriating $US 30 million over fiscal years 2018 and 2019 to increase Ukraine’s energy security and reduce Ukraine’s reliance on energy imported from Russia.

When CAATSA received full Congressional approval, Russia reacted by initiating proceedings to expel over 750 U.S. diplomats and seized holiday properties and a warehouse within Russia used by U.S. diplomatic personnel. It is currently unclear whether Russia might take any additional action now that CAATSA has been officially signed into law.

Sanctions against North Korea

While the expanded Russia sanctions make up the majority of CAATSA, the legislation also includes sanctions on North Korea. Specifically, the bill modifies and increases the President’s authority to impose sanctions on persons in violation of certain UN Security Council resolutions regarding North Korea. It also prohibits U.S. financial institutions from maintaining correspondent accounts in relation to North Korea and provides new sanctions against North Korean cargo and shipping. Furthermore, CAATSA will require the State Department to submit a determination regarding whether North Korea meets the criteria for designation as a state sponsor of terrorism.

Sanctions against Iran

CAATSA also directs the President to impose sanctions against Iran’s missile program and the sale of military equipment or related assistance. However, unlike the Russia sanctions, the legislation provides the President more flexibility to temporarily waive the imposition or continuation of sanctions under specified circumstances.