President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the CAATS Act) on August 2, 2017. The CAATS Act impacts sanctions related to Russia, Iran and North Korea. Although the new law codifies certain existing sanctions and establishes criteria for the imposition of additional sanctions, it does not introduce significant changes to the current U.S. sanctions landscape.
While most of the new law is focused on Russia, here are some of the highlights with respect to each affected sanctions program:
The CAATS act requires the President to file a report with Congress before he acts “to terminate” existing Russia sanctions, acts “to waive the application” of the sanctions against specific persons, or takes “a licensing action that significantly alters United States’ foreign policy with regard to the Russian Federation.” The President’s proposed action may not take effect within the 30 day review period (the review period is 60 days if submitted from July 10 to September 7) unless specifically authorized by a joint resolution of both houses of Congress. The Act also codifies the sanctions provided for pursuant to Executive Orders 13660, 13661, 13662, 13685, 13694, and 13757.
Additional sanctions criteria are set forth in the Act for activities related to cyber security, corruption, human rights abuses, evasion of sanctions, and arms transfers to Syria, among others. Sanctions must be imposed on parties that knowingly engage in certain transactions with the intelligence or defense sectors of the Russian Government and on parties that make investments in or facilitate privatization of state-owned assets by the Russian Federation. Sanctions may also be imposed on any party that engages in certain activities related to Russian energy export pipelines.
Changes were also made to Directives 1, 2 and 4 under Executive Order 13662. The period for which debt may be extended to sectoral sanctions targets under Directives 1 and 2 have been shorted to 14 days and 60 days, respectively (down from 30 and 90 days). The scope of Directive 4 has been expanded to include deepwater, Arctic offshore or shale projects with the potential to produce oil anywhere in the world and involve a party designated pursuant to Directive 4 or involve property or interests in property of such a person who has a controlling interest or a substantial non-controlling ownership interest in such a project (defined as not less than a 33 percent interest). No longer do these projects have to be located in Russia or its claimed maritime area for the restrictions of Directive 4 to apply. In addition, the CAATS Act makes clear that the property interests of designated individuals targeted by Directive 4 are not restricted to majority owned companies but also “controlled” companies where the designated individual owns at least 33 percent.
The President is required to impose sanctions pursuant to the CAATS Act related to Iran’s ballistic missile program, the IRGC and affiliated parties, and the supply of arms and armaments (and related technical and other support) to Iran. In addition, the Act gives the President authority to impose sanctions against persons responsible for human rights violations against individuals in Iran.
The Act reinforces United Nations sanctions against North Korea by providing additional authority to the U.S. President to impose sanctions on parties that violate UN Security Council resolutions concerning North Korea and identifies six parties for which the President must consider whether to impose sanctions and offer a justification if sanctions are not to be imposed. The CAATS Act places restrictions on North Korean cargo and shipping and on the importation into the United States of goods produced by North Korean convict or forced labor. It also provides for the imposition of sanctions on foreign persons that employ North Korean laborers. The Act further prohibits U.S. financial institution activities related to the use of correspondent accounts of foreign financial institutions to provide indirect financial services to North Korea.
With few exceptions, the CAATS Act continues the practice of sanctions legislation by giving the President the authority to impose sanctions without the law itself imposing specific affirmative sanctions on any individuals or entities in North Korea, Iran or Russia. And while the legislation attempts to limit the President’s authority to reverse the Russia sanctions, it does not prohibit the issuance of broad general licenses which have, in the case of both the Cuba and Iran programs, been used to limit the application of those sanctions programs. Of course, Congressional review would be required before such a general license goes into effect if it would “significantly [alter] United States’ foreign policy with regard to the Russian Federation.” However, no standards are provided to determine whether a particular general license might “significantly alter” U.S. foreign policy toward Russia. Congress could have, of course, limited all general licenses under the Russia sanctions, but it did not, effectively leaving the President significant authority to limit the application of these sanctions.
Companies and other parties should continue to stay focused on sanctions compliance. Even if the CAATS Act did not significantly expand the scope of sanctions against these three countries, it does send a message that sanctions continue to be viewed by the United States as a tool to impact foreign policy. Moreover, it is likely, given the provisions of the Act, that additional parties will be designated as subject to U.S. sanctions, and particularly subject to blocking provisions. Companies must continue to ensure that they regularly conduct restricted party screening (including on existing business partners) and do adequate due diligence regarding the ownership of business partners to address the potential flow-down of blocking provisions. The possible imposition of secondary sanctions in certain circumstances make the stakes particularly high, including for non-U.S. parties.