Last month, the US Senate passed significant Russia sanctions legislation as an amendment to an Iran sanctions bill targeting Iran’s ballistic missile program. The Russia sanctions provisions sought to limit the President’s ability to relax existing US sanctions targeting Russia while imposing additional restrictions impacting various sectors of the Russian economy. The key provisions of the Senate bill are summarized in our earlier blog post.
Last Friday, the Senate and House of Representatives reached agreement to advance the bill and published a revised version of the legislation, now titled the “Countering America’s Adversaries Through Sanctions Act” (H.R. 3364). H.R. 3364 introduces a number of revisions to the Russia sanctions portions of the Senate bill, and adds a new section regarding US sanctions targeting North Korea. H.R. 3364 did not revise the Iran sanctions-related provisions in the Senate bill.
The House approved H.R. 3364 by a 419-3 vote on July 25, 2017, and it appears likely that the Senate will also approve it with broad bipartisan support given that the Senate approved the original bill by a 98-2 vote. The White House has issued conflicting statements about whether the President will sign H.R. 3364.
The changes to the Russia-related provisions and the key North Korea provisions of H.R. 3364 are summarized below.
- Directives 1 and 2 under US Sectoral Sanctions
- Directive 2 will be revised to prohibit transactions by US Persons involving new debt with a maturity of longer than 60 days. This is down from 90 days in the current version of Directive 2 but up from 30 days in the Senate bill.
- We note that H.R. 3364 retains the Directive 1 provisions in the Senate bill, which would revise Directive 1 to prohibit transactions by US Persons involving new debt with a maturity of longer than 14 days. This is down from 30 days in the current version of Directive 1.
- H.R. 3364 provides that these changes will take effect 60 days after the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) modifies Directives 1 and 2.
- Directive 4 under US Sectoral Sanctions
- Under H.R. 3364, Directive 4 would now cover only “new” deepwater, Arctic offshore, or shale projects that have the potential to produce oil anywhere in the world (expanding the current scope of Directive 4, which is limited to projects in Russia) and that involve a Directive 4 entity. The addition of the word “new,” which did not appear in the Senate bill, appears to “grandfather” existing projects at least to some extent, though the term “new” is not defined.
- Furthermore, H.R. 3364 provides that Directive 4 would only cover new projects in which a Directive 4 entity has a 33 percent or greater ownership interest. The Senate bill did not include the 33 percent threshold.
- H.R. 3364 provides that these changes will take effect 90 days after OFAC modifies Directive 4.
- Sanctions Targeting Russian Intelligence and Defense Sectors
- H.R. 3364 authorizes the President to delay the imposition of sanctions that the Senate bill made mandatory with respect to parties knowingly engaging in significant transactions with the intelligence or defense sectors of the Russian government, including persons acting for the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.
- In order to delay the imposition of these sanctions, the President will be required to submit certifications to Congress every 180 days that the person is substantially reducing the number of significant transactions.
- H.R. 3364 would also require the President to issue guidance or regulations to identify persons that are part of or operate for or on behalf of the Russian defense and intelligence sectors.
- Sanctions Targeting Construction of Russian Energy Export Pipelines
- H.R. 3364 retains the Senate bill provision authorizing the President to impose discretionary sanctions against persons that make certain investments that contribute to Russia’s ability to construct energy export pipelines, but now requires the President to coordinate with allies of the United States in doing so.
- Presumably this revision is intended to address EU allies’ concerns about this particular provision and its impact on projects in Europe.
- Congressional Review of President’s Efforts to Relax Sanctions Against Russia
- Notwithstanding reported objections from the White House and State Department, H.R. 3364 retains provisions requiring congressional review if the President proposes to relax, suspend, or terminate US sanctions targeting Russia.
- In this respect, one change from the Senate bill is that the “routine issuance of a license that does not significantly alter United States foreign policy with regard to the Russian Federation” is exempt from this congressional review process under H.R. 3364.
North Korea-Related Provisions
H.R. 3364 incorporates a North Korea sanctions bill that was passed by the House in May 2017 called the “Korean Interdiction and Modernization of Sanctions Act.” The key North Korea provisions in H.R. 3364 include the following:
- H.R. 3364 would require the President to designate to the Specially Designated and Blocked Persons List (“SDN List”) persons that engage in certain North Korea-related activities that are prohibited under UN Security Council resolutions.
- H.R. 3364 would provide the President with discretionary authority to designate persons to the SDN List that engage in certain activities involving North Korea, including:
- Purchasing significant types or amounts of textiles from the Government of North Korea,
- Selling or transferring significant amounts of crude oil, petroleum products, liquefied natural gas, or other natural gas resources to the Government of North Korea,
- Conducting significant transactions in North Korea’s transportation, mining, energy, and financial services industries,
- Engaging in certain other North Korea-related activities prohibited under UN Security Council resolutions.
- H.R. 3364 would prohibit US financial institutions from maintaining, administering, or managing indirect correspondent accounts that benefit any parties designated under this legislation. However, US financial institutions would be authorized to process transfers of funds to or from North Korea if the transfer is authorized by an OFAC specific or general license and does not involve debiting or crediting a North Korean account.
- H.R. 3364 would impose shipping sanctions against North Korea that include a prohibition on the entry of certain foreign vessels over 300 gross tons in navigable waters of the United States. These prohibitions would apply to:
- Vessels owned or operated by or on behalf of the Government of North Korea or a North Korean person, and
- Vessels owned or operated by or on behalf of a foreign country in which a sea port is identified as having failed to implement or comply with certain UN Security Council resolutions targeting North Korea. Such sea ports will be identified in reports submitted by the President to Congress identifying the operators of such foreign sea ports. H.R. 3364 specifically requires the reports to include findings related to certain sea ports in China, Iran, Russia, and Syria.
- H.R. 3364 would prohibit the importation of any significant goods, wares, articles, and merchandise manufactured by the labor of North Korean nationals unless a finding by U.S. Customs and Border Protection establishes that they are not the products of convict labor, forced labor, or indentured labor.