President Obama today signed into law the Ukraine Freedom Support Act of 2014 (UFSA), which was passed unanimously last week by both the Senate and the House of Representatives. Upon signing the UFSA, the President stated that at this time the administration does not intend to impose sanctions under this law, but the UFSA gives the administration additional authorities that could be utilized if circumstances warranted.
Among several provisions related to the events in Ukraine, the UFSA gives the President authority to strengthen existing U.S. sanctions against Russia for its actions there. Notably, the UFSA authorizes the President to impose sanctions on non-U.S. individuals or entities that do business with or assist individuals or entities in Russia’s defense, energy, or financial sectors.
Below is a summary of certain key points in the UFSA involving new sanctions authority.
Sanctions on Defense & Energy Sectors
The previously issued U.S. sanctions against Russia, reported here, restrict or prohibit certain activities by “U.S. persons” – U.S. citizens, permanent residents or entities incorporated in the United States. Building on this base, the UFSA authorizes the President to impose certain specified sanctions on “foreign persons” – i.e., individuals or entities that are not U.S. persons – for various actions involving Russia’s defense, energy and financial sectors.
The UFSA’s structure is similar in many respects to the Iran Sanctions Act; both apply to actions by foreign persons and both instruct the President to choose from a list of specified sanctions that must be imposed. Also, both statutes provide exceptions that give the President some flexibility, based on national security considerations, on when and whether to apply sanctions.
Defense Sector Sanctions
These sanctions focus on actions by Russian entities involving Syria or another “specified country.” The UFSA designates Ukraine, Georgia and Moldova as specified countries, but leaves the door open for other countries to be added. The President must impose three or more of the sanctions specified in the UFSA if he/she finds that an entity owned or controlled by the Russian government or one of its nationals is:
- Knowingly manufacturing or selling defense articles that are transferred into Syria or a specified country
- Transferring defense articles into Syria or a specified country
- Brokering or otherwise assisting the transfer of defense articles into Syria or a specified country
In addition, if the President finds that a foreign person “assists, sponsors, or provides financial, material or technological support for, or goods or services to or in support of” a Russian entity indicated above for any of the activities indicated above, he/she must impose three or more of the sanctions specified in the UFSA.
Third, the UFSA directs the President to impose three or more of the specified sanctions on a specific Russian entity, Rosoboronexport.
Energy Sector Sanctions
The UFSA’s energy sector sanctions focus on “special Russian crude oil projects” – i.e., projects in:
- Waters deeper than 500 feet in the Russian exclusive economic zone
- Russian Arctic offshore locations
- Shale formations in Russian territory
This is the same focus as in the previously issued “sectoral sanctions” against Russia. But those sanctions apply to U.S. persons; the UFSA authorizes the President to impose three or more of the specified sanctions on foreign persons, if he/she determines that the foreign person has knowingly made a significant investment in one of these special Russian crude oil projects.
In addition, the UFSA authorizes the U.S. Department of Commerce, Bureau of Industry and Security (BIS) and the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) to impose additional licensing requirements or other restrictions on exports or reexports to Russia’s energy sector. Although this may not give the executive branch any new statutory authority, it is a clear signal from Congress for BIS and OFAC to take a more stringent line toward Russia’s energy sector.
Third, the UFSA provides a “contingent sanction” with respect to Gazprom. If the President determines that Gazprom is withholding significant natural gas supplies from NATO member countries or Ukraine, Georgia or Moldova, he/she must impose two of the specified sanctions on Gazprom.
As noted above, the UFSA provides a “menu” of specific sanctions from which the President must choose a certain number to impose on foreign persons, after making one of the determinations described above. The specified sanctions from which the President may choose are:
- Deny assistance from the U.S. Export-Import Bank for exports to the foreign person
- Prohibit federal agencies from procuring goods or services from the foreign person
- Prohibit the export or provision of any defense article or defense service to the foreign person
- Prohibit or suspend an export license for the transfer of a dual-use item to the foreign person
- Block the property of the foreign person, in a manner consistent with existing blocked party regulations
- Prohibit transfer of credit or payments between U.S. financial institutions and foreign financial institutions involving any interest of the foreign person
- Prohibit U.S. persons from any dealing in debt of the foreign person of
- greater than 30 days maturity, if the activity pertains to the defense sector, or
- greater than 90 days maturity, if the activity pertains to the energy sector
- Prohibit U.S. persons from any dealing in equity of the foreign person
- If the foreign person is an individual, deny a visa to that person and exclude him/her from the United States
As noted above, the UFSA specifies a number of exceptions to the sanctions, which give the President some flexibility based on national security considerations. The President may allow procurement of certain items by federal agencies from a foreign person that is otherwise sanctionable. The President may also waive the application of the sanctions with respect to a particular foreign person or a particular transaction. In addition, imports are excluded from the property blocking sanction.
Sanctions on Foreign Financial Institutions
The UFSA authorizes the President to impose a fairly onerous specified sanction on foreign financial institutions (including Russian financial institutions) for certain activities.
A foreign financial institution may be sanctioned if it:
- Knowingly engages in significant transactions involving
- the sanctionable activities in the defense or energy sectors described above, or
- a foreign person who is sanctioned for those activities
- Knowingly facilitates a significant financial transaction on behalf of any Russian person on OFAC’s lists of specially designated nationals (SDNs) or its list of blocked parties related to Russia’s actions in Ukraine
If the President determines that the foreign financial institution has engaged in sanctionable activity, he/she may prohibit the opening of a correspondent account or a payable-through account in the United States by the foreign financial institution, or impose strict conditions on the maintenance of either such accounts.