On August 2, 2017, President Trump signed H.R. 3364 Countering America's Adversaries Through Sanctions Act into law. This Act impacts the U.S.'s sanctions regime against Iran, Russia, and North Korea.
Sanctions on Iran
Title 1 of this Act, also known as the Countering Iran's Destabilization Activities Act of 2017, directs the President to block all transactions in all property of any person who knowingly engages in any activity that materially contributes to Iran's ballistic missile program or materially contributes to the sale or transfer to Iran of military equipment. The Act also instructs the President to impose sanctions on the Iranian Revolutionary Guard Corps and foreign persons who are affiliated with them, as well as persons whom the Secretary of State determines are responsible for human rights abuses in Iran.
Sanctions on Russia
Title 2 of this Act, titled the Countering Russian Influence in Europe and Eurasia Act of 2017, is the most substantial section of H.R. 3364. This title codifies and strengthens existing sanctions against Russia, allows for the possibility of broad new sanctions on key sectors of Russia's economy, and limits the President's ability to revoke or weaken sanctions once imposed.
A key theme throughout the Russian sanctions portion of this Act is that Congress wanted to make it more difficult for the President to waive or remove currently existing sanctions against Russia. To achieve that goal, the Act codifies sanctions President Obama imposed on Russia in response to various events, including the situation in Ukraine and the alleged interference of Russia in the U.S.'s 2016 elections, which makes it more difficult for these sanctions to be modified or removed. Additionally, this Act creates a mechanism for the congressional review of any attempt by the President to waive or modify existing sanctions. If Congress issues a joint resolution of disapproval, the President may not take the action.
This Act gives the Secretary of the Treasury 60 days to modify Directives 1 and 2 under Executive Order 13662. Directive 1, which currently prohibits U.S. persons from dealing in a sanctioned individual's debt of more than 30 days' maturity, will now prohibit U.S. persons from dealing in debt of more than 14 days' maturity. Directive 2, which currently prohibits U.S. persons from dealing in a sanctioned individual's debt of more than 90 days' maturity, will now prohibit U.S. persons from dealing in debt of more than 60 days' maturity.
Railway, Metals, and Mining
An additional modification to E.O. 13662 allows for broad new sanctions against the Russian railway and metal and mining sectors.
Oil and Gas
H.R. 3364 also calls for the expansion of the current prohibition on U.S. persons providing goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects. Currently, U.S. persons are only prohibited from providing support for a project that is taking place within the Russian Federation. This Act will greatly expand the scope of the prohibition so that U.S. persons will not be allowed to provide support for these projects no matter where they occur if they involve a sanctioned entity. This will make it more difficult for Russia to obtain the goods, services, and technology necessary to expand its oil production outside of Russia.
Additionally, this Act amends the Ukraine Freedom Support Act of 2014 ("UFSA") to require the President to impose sanctions on a foreign person who knowingly makes a significant investment in a special Russian crude oil project which is a project intended to extract crude oil from (A) the exclusive economic zone of the Russian Federation in waters more than 500 feet deep; (B) Russian Arctic offshore locations; or (C) shale formations located in the Russian Federation.
Finally, new sanctions contained in this Act target the Russian energy export pipeline by authorizing the President to impose sanctions against a person who knowingly makes a single investment of $1 million or more or an aggregate investment of $5 million or more in a pipeline project within a 12- month period. The President is also authorized to impose sanctions against a person who sells, leases, or provides goods, services, technology, information, or support worth the same amount to the Russian Federation for the construction of the pipeline.
Russian Defense and Intelligence Sectors
Under this Act, the President is now required to impose sanctions on any person whom he determines knowingly engages in a significant transaction with a person that is a part of or operates on behalf of the defense or intelligence sectors of the Russian government.
This Act requires the President to impose sanctions on any person whom the President determines knowingly engages in significant activities which undermine cybersecurity on behalf of the Government of the Russian Federation.
Sanctions on North Korea
Title 3 of this Act, also known as the Korean Interdiction and Modernization of Sanctions Act, imposes sanctions against the North Korean cargo and shipping sectors, goods produced in whole or in part by North Korean forced labor, and foreign persons who employ North Korean forced laborers. This Act also creates a rebuttable presumption that any goods manufactured wholly or in part by the labor of North Korean nationals were made by forced or convicted laborers and thus these goods cannot be imported into the United States. Additionally, this Act amends the North Korea Sanctions and Policy Enhancement Act of 2016 to prohibit U.S. financial institutions from establishing or maintaining correspondent accounts used by foreign financial institutions to provide indirect financial services to North Korea.
Impact on Business
As always, U.S. companies should undertake careful diligence to ensure compliance with U.S. sanction laws.
- U.S. businesses that deal in debt, equity, provide credit, or sell goods on terms allowing payment after delivery should review their agreement terms with Russian entities to ensure that transactions going forward are in line with the new timing restrictions for debt and equity.
- Businesses should exercise additional caution when dealing with companies that may be involved in the Russian railway, metals and mining, or oil and gas sectors. Particular attention should be paid to whether the U.S. business is indirectly supplying goods or services to a sanctioned entity, which may require the U.S. business to conduct additional due diligence on purchasers and end-users.
- U.S. businesses should consider whether a transaction calls for additional due diligence on buyers and end users to ensure that they are not engaging in a transaction with an individual or entity considered to be part of the Russian defense or intelligence sectors.
- U.S. businesses should continue to increase their attentiveness to supply chains that may indirectly involve North Korean inputs. Past issues have arisen involving goods coming from Chinese suppliers with indirect North Korean input, and gold and rare metals in the supply chain.