On Jan. 10, 2017, a bipartisan group of five Republican and five Democratic senators announced their support for the Countering Russian Hostilities Act of 2017. Lindsey Graham, one of the senators who announced the proposed legislation, told The Wall Street Journal that he is confident the bill will get overwhelming support. One reporter agreed, stating the bill “has a good chance of being passed in the Senate.”
Title I of the Countering Russian Hostilities Act would codify the sanctions imposed by President Barack Obama in the April 1, 2015, Executive Order 13694, as amended on Dec. 28, 2016. Title II of the legislation would codify sanctions imposed on Russia in response to its annexation of Crimea, its occupation of South Ossetia and Abkhazia, its invasion of Ukraine, and its actions in Syria.
Obama promulgated Executive Order 13694 in response to hacking by Chinese state-supported groups against U.S. government agencies and private businesses. The executive order directed the secretary of the Treasury, in consultation with the attorney general and the secretary of state, to take actions against individuals and organizations that engaged in cyber-enabled activities originating from persons located outside the United States that were likely to result in or contribute to a threat to the national security, foreign policy, economic health or financial stability of the United States. The authorized actions included barring such individuals from traveling to the United States and blocking the transfer of U.S.-based funds and other assets of such persons.
The threat that sanctions would be imposed pursuant to Executive Order 13694 had an apparent effect on Chinese cyberattacks. In early September 2015, a high-ranking Chinese Communist Party official in charge of political and legal affairs, Meng Jianzhu, made an unscheduled visit to Washington just after the U.S. announced that it was planning to push ahead with sanctions against Chinese actors for cyber espionage. On Sept. 25, 2015, following Chinese President Xi’s visit to Washington, the U.S. and China announced an agreement that included a commitment by China not to knowingly support cyber-enabled theft of intellectual property, trade secrets or other confidential business information. FireEye, which has monitored Chinese cyberattacks for several years, reported in June 2016 that although Chinese-based compromises of U.S. computer networks had begun decreasing in mid-2014, the attacks decreased significantly in 2016. FireEye cited the proposed sanctions in Executive Order 13694 as one factor that contributed to the decrease in Chinese attacks. “We attribute the changes we have observed among China-based groups to factors including President Xi’s military and political initiatives, the widespread exposure of Chinese cyber operations, and mounting pressure from the U.S. Government.”
Obama amended Executive Order 13694 in response to the U.S. intelligence community report finding that Russian government agencies, directed by high-level Russian government officials, had attempted to interfere in the 2016 U.S. presidential election. The amendments to the executive order added an annex that named the Russian Main Intelligence Directorate (GRU), the Russian Federal Security Service (FSB), two companies and a nonprofit organization that work with the Russian spy agencies, and four individuals as being subject to the sanctions described in Executive Order 13694. The amendment also added a new basis for imposing sanctions on individuals and organizations, that is, “tampering with, altering, or causing a misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions.” For more information about the December 2016 amendments to Executive Order 13694, see the Jan. 5, 2017, Executive Alert from BakerHostetler’s International Trade Compliance group.
In addition to codifying the sanctions imposed by Executive Order 13694 in Title I, Title II of the Countering Russian Hostilities Act would require the president to impose sanctions on persons and organizations that enter into transactions of more than $1 million or more than $5 million in a 12-month period to support Russia’s energy sector; invest more than $20 million to enhance Russia’s energy sector; enter into transactions for more than $1 million or more than $5 million over a 12-month period to help build Russian pipelines; enter into transactions of more than $1 million or more than $5 million over a 12-month period to help Russia build civil nuclear power plants; purchase, subscribe or facilitate the issuance of Russian sovereign debt; make investments of over $10 million in support of privatizing state-owned Russian assets; or enter into transactions with persons responsible for violating human rights in Russia or Syria.
The proposed legislation also would create the “Russia Unit,” a high-level task force within the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to trace, map and prosecute illicit financial flows to the Russian Federation through or touching the U.S. financial system. U.S. embassy staff would be enlisted to work with local country authorities to uncover and prosecute networks responsible for these financial flows. In an effort to collect more links to these illicit financial flows, FinCEN would be directed to expand its use of real estate geographic targeting orders beyond the six major metropolitan areas where such orders currently require title insurance companies to report cash real estate transactions in excess of between $100,000 and $3 million, depending on the city.
If the proponents of the Countering Russian Hostilities Act are correct about support for the bill among their colleagues and the bill passes in both the Senate and the House, it is possible that President Donald Trump will veto the bill. Kellyanne Conway, Counselor to the President, has stated that Trump may roll back sanctions against Russia. If Trump vetoes the Countering Russian Hostilities Act, proponents of the legislation will have to determine whether there is sufficient support to override the veto.
Even if the Countering Russian Hostilities Act is enacted, some commentators have suggested Russia may not react the same way as China did to the threat of sanctions. Other commenters have observed that the proposed sanctions “would markedly increase Moscow’s economic isolation.” If the legislation is enacted, the severity of the sanctions codified in the legislation will test Russian resolve to continue its cyberattacks.
Regardless of possible Russian reactions to the sanctions, Sen. John McCain, one of the sponsors of the legislation, stated that Congress has no choice but to act. He criticized former President Obama for failing to take more aggressive steps against cyberattacks, stating “[t]his appearance of weakness has been provocative to our adversaries.” Another sponsor of the bill, Sen. Ben Cardin, stated “[w]e have been attacked by Russia. That’s no longer up to any debate. It cannot be business as usual.” If the Countering Russian Hostilities Act is enacted, the legislation will provide a second test, similar to the one in 2015 related to China, of whether imposing economic sanctions can stop cyberattacks.