In the midst of the ongoing Department of Justice investigation into the Trump campaign ties with Russian officials, on June 15, 2017, the US Senate voted unanimously (98-2) to pass a comprehensive Russia sanctions package. These measures were offered as an amendment to, and largely overshadowed, separate Iran sanctions legislation – the Countering Iran’s Destabilizing Activities Act of 2017 (S. 722).
If enacted, the Russia-related measures would severely limit the President’s ability to relax existing sanctions against Russia (including existing sanctions designations), increase financial and energy-related sanctions, target new sectors of the Russian economy as well as corruption and foreign sanctions evaders, and also impose a raft of extra-territorial “secondary sanctions” in the cybersecurity, energy, defense, and other sectors that could have a significant impact also on non-US companies. The move has been sharply criticized by US allies. The Iran-related measures further target Iran’s ballistic missile program, its support for terrorism, and human rights abuses, while seeking to preserve the Iran nuclear deal. The legislation will now go to the US House of Representatives for consideration.
Key provisions of this legislation are summarized below.
Restrictions on the President’s Authority to Relax Sanctions
Any efforts by the President to relax, suspend, or terminate the Russia-related sanctions currently in effect will be subject to mandatory review by Congress. The President must submit to Congress a report describing the reasons for any proposed relaxation, suspension, or termination of sanctions, including whether such action is intended to achieve a reciprocal diplomatic outcome, and a description of the effect of the action on the national security of the United States and on the underlying policy objectives for the sanctions (including whether Russia has taken steps to reduce cyber intrusions or implement the Minsk Agreement). Congress would then consider the report and vote on whether to approve or disapprove it.
Codification of Existing Russia Sanctions
The legislation would codify the Russia-related sanctions currently in effect under Executive Orders 13660, 13661, 13662, 13685, 13694, and 13757, including sanctions against parties designated pursuant to those Executive Orders to date (i.e., those currently designated as Specially Designated Nationals (“SDNs”) or under the sectoral sanctions). Codifying these sanctions would also make it more difficult for the President to modify the Russia-related sanctions without Congressional action.
Tightening of Existing Sectoral Sanctions, New Sector Targets
The legislation would modify the Russian sectoral sanctions implemented by the Office of Foreign Assets Control (“OFAC”) pursuant to Executive Order 13662. This includes:
- Reducing the allowable “new debt” maturity periods under the financial and energy sector sanctions in OFAC Directives 1 and 2 with a corresponding impact on loans, extended credit terms, and other forms of debt. Specifically:
- Directive 1 would be modified to prohibit dealings in new debt of longer than 14 days (down from 30 days) maturity (or new equity) of Russian financial institutions designated pursuant to Directive 1.
- Directive 2 would be modified to prohibit dealings in new debt of longer than 30 days (down from 90 days) maturity of Russian energy companies designated pursuant to Directive 2.
- Expanding OFAC Directive 4 to prohibit the provision of goods, non-financial services, or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil anywhere in the world (i.e., no longer limited to Russia) in which a Russian energy firm is involved and that involve any person subject to Directive 4.
- The new legislation would also authorize the expansion of sectoral sanctions to cover additional sectors of the Russian economy, including the railway, shipping, metals, and mining sectors.
Imposition of Additional/New Sanctions Against Non-US Persons
The legislation would make mandatory the imposition of certain pre-existing discretionary sanctions, including certain sanctions under the Ukraine Freedom Support Act of 2014 and the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, as well as impose mandatory and some discretionary new sanctions targeting activities of non-US persons. These are reminiscent of the type of “secondary” punitive sanctions previously seen under the Iran sanctions program and include:
- Mandatory sanctions on non-US persons who knowingly make significant investments in “special Russian crude oil projects” (projects intended to extract crude oil from the exclusive economic zone of Russia in waters more than 500 feet deep, Russian Arctic offshore locations, or shale formations located in Russia).
- Mandatory correspondent banking restrictions on non-US financial institutions that knowingly engage in significant transactions involving activities related to the sale of defense articles to Syria or “special Russian crude oil projects” or knowingly facilitate significant transactions with SDNs.
- Mandatory sanctions on Russian government officials and their close associates and family members for acts of “significant corruption” in Russia or elsewhere.
- Mandatory sanctions with respect to any person who knowingly engages in activities that undermine cybersecurity “against any person, including a democratic institution, or government” on behalf of the Russian government. This includes significant denial of service and significant malware attacks as well as “influence operations.”
- Mandatory sanctions on foreign sanctions evaders, i.e., persons facilitating significant deceptive or structured transactions (related to currency reporting) for or on behalf of any person subject to the Russia-related sanctions or any child, spouse, parent, or sibling of a sanctioned person. This builds on the existing Foreign Sanctions Evader Executive Order 13608 applicable to Syria and Iran.
- Mandatory sanctions on parties knowingly engaging in significant transactions with the intelligence or defense sectors of the Russian government, including persons acting for the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation (“GRU”) or the Federal Security Service of the Russian Federation (“FSB”). These agencies are already designated as SDNs by OFAC and are on the Commerce Department’s Entity List. The FSB, in particular, plays a critical regulatory role in approving the import, distribution, and use of encryption products in Russia as well as in enforcement actions. Its original designation caused significant concern amongst US technology companies needing to deal with the FSB. In response, OFAC and the Commerce Department eventually issued a general license and eased the Entity List restrictions respectively to permit limited dealings with the FSB. It is not clear whether or what impact new mandatory sanctions would have on that. (See our blog posts on the earlier GRU/FSB developments here, here, here, and here.)
- Discretionary sanctions relating to the construction of Russian energy export pipelines, targeting parties that (i) knowingly make an investment that directly and significantly contributes to the enhancement of the ability of Russia to construct energy export pipelines, or (ii) sell, lease, or provide to Russia goods, services, technology, information, or support that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy pipelines, and where the investment or transaction has a fair market value of $1,000,000 or more, or that, during a 12-month period, has an aggregate fair market value of $5,000,000 or more.
- Mandatory sanctions related to investments in, or facilitation of investments in, the privatization of Russia’s state-owned assets for $10,000,000 or more (or any combination of investments of not less than $1,000,000 each, which in the aggregate equals or exceeds $10,000,000 in any 12-month period), if the investment contributes to Russia’s ability to privatize state-owned assets in a manner that unjustly benefits Russian government officials or their close associates or family members.
- Mandatory sanctions for non-US persons involved in serious human rights abuses in any territory forcibly occupied or otherwise controlled by the Russian government.
- Mandatory sanctions on non-US persons that export or transfer to Syria significant financial, material, or technological support that contributes materially to the Syrian government’s ability to acquire weapons and other defense articles.
The types of punitive sanctions measures that could be imposed include restrictions on Export-Import Bank assistance, restrictions on US export licenses, restrictions on payments or banking transactions, prohibitions on loans from US financial institutions, a ban on activities related to procurement contracts with the US government, and, in some cases, blocking of property, exclusion from the United States, and revocation of visas to enter the United States, among others.
The legislation would also require various periodic reports to be provided by US government agencies to appropriate Congressional committees, including detailed reports on Russian senior political figures and oligarchs (and their close family members) as to their assets, ties to President Putin, evidence of corruption, etc.
The aspects of the legislation addressing Iran include mandatory blocking sanctions on any person who knowingly contributes to Iran’s ballistic missile program, who are officials, agents or affiliates of the Islamic Revolutionary Guard Corps, or who knowingly supply or support the supply of arms, combat vehicles, etc., to Iran or provide related technical training or services to Iran. The sanctions would also provide for designation of persons responsible for human rights violations in Iran. These build on recent ballistic missile-related designations and are designed to continue pressure on Iran while remaining consistent with the Joint Comprehensive Plan of Action under which the United States agreed not to impose nuclear-related sanctions. Iran, however, has already described this as an “unquestionable” violation of the nuclear deal and there are concerns that this could trigger retaliation.
The legislation has been passed to the House of Representatives for consideration where its future is uncertain. House Speaker, Paul Ryan, has reportedly given tentative support to the idea of imposing new sanctions on Russia. The fact that the Senate Russia-related measures are attached to a broadly popular Iran sanctions measure may boost prospects for the bill in the House.