• Proposed legislation would extend sanctions on Russia and Iran
  • New restrictions aimed at Russian energy sector and cybercriminals
  • Legislation may pit Senate against House and the president

On June 19, 2017, the U.S. Senate overwhelmingly passed a bill mandating sanctions against Russia and Iran and a 30-day congressional review period should the president attempt to reduce those sanctions.

The bill remains in the House after congressional leaders challenged the fact that the revenue-raising bill did not originate in the House. The White House nonetheless is in the unenviable position of having to defend (or oppose) the implementation of sanctions against both Iran and Russia while attempting to conduct diplomacy with the Kremlin. With a veto-proof majority in at least one chamber, the president’s options appear limited.

Background. As many readers know, it is traditionally the executive branch, via its foreign affairs powers, that levies and implements economic sanctions. When sanctions originate from the executive branch, the president alone can decide to withdraw or modify them. Typically, such changes do not require congressional approval and take effect immediately. That dynamic was evident, for example, when President Obama imposed sanctions against Russia in 2014, and again when he relaxed sanctions against Iran in 2016.

But the executive’s power to implement sanctions is not absolute, as Congress can introduce legislation that requires the president to take specific sanctions-related actions. Sanctions imposed by legislation are often time consuming to remove. For example, President Obama’s efforts to normalize relations with Cuba were hamstrung by a statutory embargo that prevented him from removing or relaxing restrictions on certain exports of U.S.-origin goods to Cuba.

Details of proposed legislation. The Senate bill is intended to (1) codify existing sanctions against Russia and (2) introduce new sanctions against Iran and Russia. Under the proposed law, the president would be authorized to impose trading restrictions on and block property of a number of groups and individuals, including persons involved with or in:

  • The Iranian Revolutionary Guard Corp
  • Iran’s ballistic missile program
  • Human rights abuses in Iran and Russia
  • Attempts to evade or avoid U.S. sanctions against Iran and Russia
  • Efforts to undermine cybersecurity
  • Crude oil projects or the development of pipelines in Russia
  • Transactions on behalf of Specially Designated Nationals
  • Russian government corruption
  • Privatization of Russian state-owned assets
  • Russia’s intelligence and defense sectors

Analysis. We believe the proposed legislation raises several issues that are worth considering, as follows:

  1. Division between President and Congress: When Congress mandates economic sanctions, it suggests congressional disagreement with how the president is handling foreign affairs. The president’s power is strongest when he acts in conjunction with Congress. Congressional skepticism of the president could limit his leverage when conducting negotiations with international partners.
  2. Executive Office Protectionism: Presidents typically try to protect the office of the president from congressional encroachment. Under the proposed sanctions legislation, the president would be unable to remove sanctions without a period of congressional review. It is thus not surprising that some members of the administration have expressed concern that the pending legislation unduly limits presidential powers.
  3. Presidential Veto: By tying together sanctions against both Iran (which the president has said he supports) and Russia (which he does not appear to support), Congress may have reduced the chance of a veto. A veto is also unlikely given that it could be overcome by the strong majority who passed the legislation in the Senate. President Trump thus may try to work with Congressional Republicans to lessen the impact of the legislation before it reaches his desk.
  4. Economic Impact of Russian Sanctions: While addressing Russian interference in the presidential election remains important to many lawmakers, sanctions against Russia are likely to continue to have a significant economic impact both at home and abroad. By some estimates, U.S. and EU sanctions have caused a 1% reduction in Russia’s gross domestic product.

    When sanctions on Russia were introduced in 2014, many U.S. businesses scrambled to implement policies and procedures to comply with the nuanced and targeted restrictions. When Donald Trump took office, many wondered if the Russia sanctions would be scaled back or removed entirely. Perversely, by codifying sanctions on Russia, the proposed legislation could introduce stability: U.S. businesses would have more assurance that existing sanctions will remain in place. On the other hand, the U.S. economy could be negatively affected by the sanctions legislation if it drives Russian business from U.S. to non-U.S. companies that are not limited when operating in and with Russia.

  5. Minimal Impact of Iranian Sanctions: Additional sanctions against Iran may not have a major effect on U.S. companies considering that comprehensive sanctions on Iran already exist. Still, statutory sanctions could have a detrimental impact on the Iranian economy and could prove difficult to navigate for non-U.S. corporations seeking to do business with Iran. Importantly, this would include non-U.S. subsidiaries of U.S. companies that, under current U.S. sanctions regulations, can conduct some business in Iran.

Conclusion. The scope and impact of this new sanctions legislation could change dramatically as it maneuvers through the House. And the extent to which it is implemented , and how, very much remain to be seen. It will be important to watch this legislation closely, and be prepared to move quickly to address new compliance obligations that it creates.