On August 2, US President Donald Trump signed into law the Countering America’s Adversaries Through Sanctions Act, which enacts a significant expansion of US sanctions against Russia as well as new measures relating to Iran and North Korea.
Title II of the new law—the Countering Russian Influence in Europe and Eurasia Act of 2017 (the “new Act”)—contains the Russian sanctions. This LawFlash provides a high-level summary of key provisions in the new Act and also comments briefly on the statements issued by the US president concurrent with signing.
Overview of the New Act
The new Act broadens and toughens the preexisting US sanctions against Russia as adopted by the administration of former US President Barack Obama in response to the Ukraine crisis of 2014 and subsequent events. These preexisting sanctions appeared in Executive Orders 13660, 13661, 13662, 13685, 13694, and 13757; the Ukraine Freedom Support Act of 2014 (UFSA); and the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014.
The new Act creates additional sanctions and expands the scope and application of preexisting sanctions. Notably, the new Act targets non-US companies and individuals that engage in activities vis-à-vis Russia that are prohibited for US companies and individuals. These so-called “secondary sanctions” would have extraterritorial reach. Similar measures have long been a feature of the US sanctions programs against Cuba, Iran, and Libya.
The new Act also dramatically widens the differences between US and EU sanctions against Russia. The European Union recently extended its own sectoral sanctions until January 31, 2018 but is unlikely to approve new, broader sanctions like those in the new Act. Instead, some EU leaders have discussed possible “blocking” or retaliatory measures in response to those US secondary sanctions that may adversely affect European companies (similar to past EU reactions to US sanctions against other countries such as Cuba).
Key Changes to Existing Sanctions
The main features of the new Act include the following:
- Reducing the existing maximum maturity period—from 30 to 14 days—for “new debt” financing (including bonds or loans) provided to certain leading Russian financial institutions. The relevant sanctions on new debt apply to Bank of Moscow, Gazprombank, Russian Agricultural Bank, Sberbank, VEB, and VTB Bank (and their subsidiaries) as listed in Directive 1 issued by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury. The new Act seeks to further reduce such institutions’ access to international debt financing by shortening the permissible maturity period. (Investments in “new equity” of the designated banks were and remain prohibited by Directive 1.)
- Reducing the existing maximum maturity period—from 90 to 60 days—for new debt financing provided to certain large Russian energy companies. This applies to Gazpromneft, Novatek, Rosneft, and Transneft (and their subsidiaries) as listed in Directive 2.
- Expanding preexisting energy sanctions that prohibit the direct or indirect provision of goods, nonfinancial services, and technology for certain Russian oil projects (deepwater, Arctic offshore, or shale). The new Act prohibits such support for any “new” project worldwide in which a designated Russian energy company has an interest of 33% or more. This rule applies to Gazprom, Gazpromneft, Lukoil, Rosneft, and Surgutneftegaz (and their subsidiaries) as listed in Directive 4. Previously, the United States only targeted such projects if they were located in Russian territory.
- Creating new discretionary powers for the US president “in coordination with allies of the United States” to impose certain sanctions against any US or foreign company or individual that in the future knowingly
- makes an investment that directly and significantly contributes to Russia’s ability to construct energy export pipelines, or
- sells, leases, or provides to Russia, for the construction of Russian energy export pipelines, certain goods, services, technology, information, or support that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of such pipelines by Russia. This applies if the items provided would have a fair market value of at least $1 million, or $5 million in the aggregate over a 12-month period.
- Confirming that US policy continues to oppose the pending Nord Stream 2 gas pipeline from Russia to Europe.
- Expanding the US president’s powers to impose new sanctions on state-owned entities operating in the Russian railway, metals, and mining sectors under preexisting Executive Order 13662.
- Codifying preexisting Executive Orders 13660, 13661, 13662, 13685, 13694 and 13757, as amended, so that they cannot be further amended without congressional approval. Generally, these include both “blacklist” sanctions (naming Specially Designated Nationals (SDNs), with whom all dealings are prohibited) and Sectoral Sanctions Identifications (SSI) prohibiting certain transactions with specified persons (primarily Russian companies and banks).
- Specific requirements for mandatory review and approval by the US Congress if the president wishes to terminate or waive application of any sanctions, issue a license granting an exemption from sanctions, or take other licensing action “that significantly alters [the] United States’ foreign policy with regard to Russia.” These provisions would grant to Congress an unusual degree of control over sanctions-related policies. Previously, such matters typically have been handled by OFAC without mandatory congressional oversight.
- Requiring the US president to impose mandatory sanctions from a designated list of measures, under certain circumstances. However, in some cases, there is an exception if the president determines that imposing sanctions would not be in the US national interest. These mandatory sanctions target the following:
1. Companies and individuals that, on behalf of the Russian government, knowingly engage in activities undermining cybersecurity.
2. Non-US companies and individuals that knowingly make a significant investment in deepwater, Arctic offshore, or shale oil projects in Russia. It appears that such sanctions apply even if the relevant project does not involve one of the Russian energy companies designated in Directive 4. Such sanctions would be of special concern to international energy companies, among other interested parties.
3. Russian and other foreign financial institutions that knowingly engage in significant transactions involving (i) significant investments in deepwater, Arctic offshore, or shale oil projects in Russia; (ii) withholding of significant natural gas supplies by Gazprom from NATO member countries, Ukraine, Georgia, or Moldova; or (iii) Russian-owned or controlled producers, transferors, or brokers of certain defense articles transferred to Syria and other designated countries. In such cases, the sanctions would involve blocking or restricting use of US correspondent banking accounts by the targeted financial institutions.
4. US or foreign companies and individuals that knowingly engage in a significant transaction with a person who is a part of or operates on behalf of the defense and intelligence sectors of the Russian government, including the Federal Security Service (known as the FSB for its Russian acronym).
5. US or foreign companies and individuals that, with actual knowledge, make or facilitate investments of $10 million or more (or combinations of investments of $1 million each aggregating to $10 million or more over a 12-month period) that directly and significantly contribute to Russia’s privatization of state-owned assets in a manner that “unjustly benefits” Russian government officials or their close associates or family members.
6. Foreign companies and individuals that act knowingly to (i) materially violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition contained in or issued pursuant to the Russia-focused Executive Orders, the new Act, or the UFSA; or (ii) facilitate a significant transaction or transactions, including “deceptive or structured transactions,” for or on behalf of persons subject to the sanctions or certain of their family members.
7. Russian government officials and family members who are responsible for, complicit in, or otherwise support “significant corruption” in Russia (e.g., expropriation of natural resources, bribery, or facilitation or transfer of the proceeds of corruption outside of Russia).
8. Foreign persons responsible for “serious human rights abuses” or assisting such persons in Russian-controlled territory.
9. Foreign companies and individuals that knowingly export, transfer, or otherwise provide significant financial, material, or technological support contributing materially to Syrian military capabilities.
Each of these sanctions would appear to have prospective application only (either immediately or after a specified number of months). Certain sanctions would be triggered only upon presidential findings that certain facts exist, and in some cases waivers may be obtained. The term “knowingly” will be construed to mean “has actual knowledge, or should have known.”
Reports and Possible Future Sanctions
The new Act also would require the executive branch of the US government to prepare and submit certain reports to Congress to aid in determining whether further sanctions should be imposed against Russia. These relate to the following:
- Russian senior political figures and “oligarchs” (also referred to as “Russian politically exposed persons”), including assessment of their “closeness to the Russian regime” and the estimated net worth, known sources of income, assets, beneficial ownership of entities, and business affiliations (inside and outside of Russia) of such persons and their family members; similar analysis of “Russian parastatal entities”; and with regard to both categories, the exposure of key US economic sectors to such persons and entities and the likely impacts of imposing various possible sanctions on them.
- The effects of potentially expanding the Directive 1 debt sanctions, which prohibit US persons from dealing in certain new debt of designated Russian financial institutions, to include “Russian sovereign debt and the full range of derivative products.”
- US interagency efforts to combat “illicit finance” relating to Russia, including (i) identifying, investigating, mapping, and disrupting such financial flows if they affect the financial systems of the United States or its allies; (ii) related outreach to and information sharing with the private sector; (iii) engaging and coordinating such efforts with European and other allied countries; (iv) identifying foreign sanctions evaders and loopholes within the sanctions regimes of foreign allied countries; and (v) enhanced law enforcement.
President Trump issued two statements in connection with the new Act, commenting that the legislation is “significantly flawed” and arguing that certain provisions are unconstitutional and contravene presidential authority. The president also stated the following:
. . . my Administration particularly expects the Congress to refrain from using this flawed bill to hinder our important work with European allies to resolve the conflict in Ukraine, and from using it to hinder our efforts to address any unintended consequences it may have for American businesses, our friends, or our allies.
This suggests that the executive branch of the US government will give weight to the above concerns in connection with future implementation of the new Act.
Read the official text of the Countering America’s Adversaries Through Sanctions Act.