The US Congress has passed and President Obama is expected to sign the “Ukraine Freedom Support Act of 2014” (“the Act”), which gives the President authority to impose certain secondary sanctions on non-US persons that make “significant” investments in special Russian crude oil projects. In addition, the President is authorized to impose a specified sanction on foreign financial institutions that are determined to have knowingly engaged in significant transactions involving certain defense and energy-related transactions or facilitated certain transactions for any Russian person that is a Specially Designated National (SDN) under the Act or Ukraine-related Executive Orders. While imposition of these secondary sanctions is generally discretionary on the part of President, they will no doubt increase the already felt chilling effect on even permissible financial transactions and other trade involving Russia.

In addition to these discretionary secondary sanctions, the new legislation requires the President to impose at least 3 or more of several specified sanctions on Rosoboronexport, as well as on entities that are owned or controlled by the Russian government or by Russian nationals and that the President determines knowingly manufacture or sell defense articles transferred to, or transfer, broker or assist the transfer of defense articles to, Syria, or to other specified countries (including Ukraine, Georgia and Moldova) without the consent of the internationally recognized government of that other country.

If the President determines that Gazprom is withholding significant natural gas supplies from NATO member countries or further withholding such supplies from Ukraine, Georgia or Moldova, the new legislation requires the President to prohibit US persons from dealing in new debt of more than 90 days maturity or equity of Gazprom and to impose at least one more of the specified sanctions.

The sanctions that the Act specifies and authorizes (or, in some cases requires) the President to impose, are the following:

  • Export-Import Bank assistance prohibition
  • USG procurement prohibition
  • Arms export prohibition
  • Dual-use export prohibition
  • Blocking property subject to US jurisdiction in which the sanctioned foreign person has an interest
  • Prohibitions on transfers of credit or payment between financial institutions to the extent payments or credits are subject to US jurisdiction and involve any interest of the sanctioned foreign person
  • Prohibition on transacting in, providing financing for, or otherwise dealing in new debt (with maturity of 30 days or 90 days, depending on whom the sanctions are imposed), or equity of the sanctioned foreign person
  • Exclusion from the United States and visa revocation

These sanctions may also be imposed on the principal executive officers of sanctioned foreign entities.

The sanction that the President may impose on foreign financial institutions that are determined to have engaged in certain defense and energy-related transactions or facilitated transactions on behalf of an SDN is a prohibition on the opening or maintaining of, correspondent or payable-through accounts in the United States or the imposition on maintaining such accounts.

The legislation permits the President to waive sanctions on national security grounds provided he submits a detailed report to Congress of the specific reasons for the waiver. The President may also terminate sanctions imposed under the new legislation (except with respect to transfers of defense articles to Syria) if he submits to Congress a determination that Russia has ceased significant acts undermining the peace, security, stability, sovereignty or territorial integrity of Ukraine, including through agreement of the parties.

What effect this new legislation will have on the ability of the President to coordinate with the EU and EU member states on the approach to be taken with respect to sanctions on Russia remains to be seen. EU sanctions are scheduled to expire later in 2015 and would require unanimous consent of the EU member states for renewal.