On September 20, 2018, the State Department announced sanctions on China’s Equipment Development Department (EDD) (formerly known as the General Armaments Department (GAD)) and its director, Li Shangfu, for engaging in significant transactions with Russia’s Rosoboronexport for the delivery to China of Su-35 combat aircraft in 2017 and equipment for S-400 surface-to-air missile systems in 2018. The EDD is part of the Chinese State Council’s Central Military Commission and plays a key role in the Chinese government’s international military cooperation efforts.

This marks the first time the US government has imposed sanctions under Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA). It is also the most significant sanctions action taken by the US government to date under the CAATSA Russia sanctions authorities. Notably, the Trump Administration chose the most severe measure available under the “menu” of sanctions available under Section 231 of CAATSA – the addition of the targeted persons to the Specially Designated Nationals (“SDN”) list – along with some other restrictions.

The State Department stated that these sanctions on a Chinese military entity and its director were “not intended to undermine the military capabilities or combat readiness of any country, but rather to impose costs on Russia in response to its interference in the United States election process, its unacceptable behavior in eastern Ukraine, and other malign activities.” However, many observers will note that it comes during a period of escalating trade and national security friction between the United States and China.

The State Department indicated that its focus in implementing Section 231 of CAATSA would be on “high-value, major transactions for sophisticated weapons systems,” which suggests that these will be important criteria for State in determining whether transactions are “significant” under Section 231. The State Department also acknowledged that both of these sanctionable transactions resulted from deals that were negotiated prior to August 2, 2017, with delivery taking place after August 2, 2017. Section 231 of CAATSA calls for sanctions on persons engaging in significant transactions with the Russian defense or intelligence sectors on or after that date. Therefore, the State Department appears to have taken the position that merely accepting delivery of items resulting from a pre-existing deal is sufficient to bring about sanctions on the parties where the transaction is otherwise determined to be “significant.”

In addition, the State Department added 33 names to the CAATSA Section 231 List of Specified Persons (LSP) “for being a part of, or operating for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation.” While persons included on the LSP are not themselves sanctioned, any person that knowingly engages in a significant transaction with any of these persons is subject to mandatory sanctions under Section 231. The LSP now includes 72 entities and individuals in total. Many of the names added to the LSP are the same as those that were indicted in connection with Russia’s interference in US elections, so those particular additions are unlikely to carry much practical significance (assuming these indicted individuals will not be engaged in significant international commercial activity).

Finally, the President issued Executive Order 13849, a measure for the internal administration of CAATSA’s Russia sanctions within the US government. Specifically, the order authorizes the Secretary of the Treasury, and other relevant officials, to implement the sanctions menus that are contained in Section 235 of CAATSA and in Section 4(c) of the Ukraine Freedom Support Act of 2014 (UFSA).

The addition of the EDD and its director to the SDN list for taking delivery of Russian military equipment, particularly given that the relevant deals were negotiated prior to the effective date of CAATSA, is an aggressive move by the US government to implement Section 231. However, it remains to be seen if the Trump Administration will take equally aggressive measures against Russian military customers other than China, many of which, including Turkey and India, are reportedly contemplating similar transactions.