On July 27, 2017, Congress passed the Countering America's Adversaries Through Sanctions Act ("Sanctions Act" or "Act"), which called for sweeping sanctions to punish Russia for its election meddling, aggression toward its neighbors, and human rights abuses, and on August 2, 2017, President Trump signed the Act into law (albeit with an accompanying signing statement raising constitutional concerns). The Act sharply limits the President's ability to suspend or terminate sanctions against Russia by requiring him to first seek Congress's permission and justify a suspension or termination of sanctions based on the national security interests of the United States. The Act also imposes additional significant sanctions against Iran and North Korea.
The Senate passed the original version of the Act, 97 to 2, and the House passed an amended version which also includes sanctions on Iran and North Korea, 419 to 3.
In brief, the Act codifies existing sanctions against Russia, tightens restrictions on the extension of credit to Russian entities, and prevents foreign companies from engaging in transactions with Russian businesses in the Russian defense and intelligence sectors. In addition to imposing sanctions, the Act requires a variety of studies of and reports on the exposure of the U.S. economy to certain Russia-related risk.
Locks in Existing Russia Sanctions and Checks the President's Ability to Lift Sanctions
The Act codifies existing U.S. sanctions against Russia—including three executive orders tied to Russia's aggression in Ukraine, one tied explicitly to Russia's annexation of Crimea, and two tied to malicious cyber activities. By codifying the Executive Orders, the Act constrains the executive branch's ability to remove any of the sanctions currently in place. In order to remove sanctions, the Act requires the President to submit a report to Congress explaining the rationale for lifting the sanctions. Congress would then have the discretion to approve or reject the lifting of sanctions.
Significantly Expands U.S. Sanctions on Russia's Energy Sector and Imposes Secondary Sanctions
While the Sectoral Sanctions Identifications (SSI) sanctions currently restrict U.S. persons and companies from providing goods or services to designated entities for certain types of oil projects in Russia (specifically, next-generation Arctic offshore, deepwater, and shale projects), the Act codifies and extends the prohibition by also imposing restrictions to cover not just projects that have the potential to produce oil in Russia, but also certain global projects, which involve a Russian energy firm. The Act also requires the President to impose secondary sanctions on any foreign persons who knowingly make a significant investment in special Russian crude oil projects. Furthermore, the Act allows the President, in coordination with U.S. allies, to impose sanctions on persons who invest more than a certain amount in the construction of Russian energy export pipelines, goods, services, technology, information, or support.
The European Union has raised alarm over these updates to the SSI sanctions, as they essentially ban U.S. oil companies from investing in oil projects and pipelines, not just in Russia but around the world if a Russian oil and gas company or companies hold more than a 33 percent interest in the project. Moreover, the Act allows the President to impose secondary sanctions on non-U.S. companies that may invest in such projects. For example, the new sanctions target the disputed Nord Stream 2 project for a new pipeline running from Russia to Germany under the Baltic Sea, but EU officials have stated that the impact would in reality be much wider. In a statement regarding the Act, EU chief executive Jean-Claude Junker expressed concerns that the "U.S. bill could have unintended unilateral effects that impact the EU's energy security interests."
Imposes Mandatory Secondary Sanctions on Entities Dealing with Russian Defense and Intelligence
The Act imposes mandatory secondary sanctions on any individual or entity "that engages in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation." Among other things, this would include any foreign companies, worldwide, which buy substantial numbers of military arms from Russia.
Imposes Sanctions on Entities Undermining Cybersecurity, Committing Human Rights Abuses, and or Engaging in Significant Corruption
Furthermore, the Act imposes mandatory sanctions on those who knowingly engage in significant activities undermining cybersecurity against any person or government on behalf of Russia; those responsible for serious human rights abuses; and those responsible for directing acts of "significant corruption" in Russia, including the expropriation of private or public assets for personal gain. In virtually all cases, these sanctions were subject to the discretion of the President. Under the new legislation, the President is required to impose sanctions on those designated.
Additional Sanctions on Iran
The bill imposes additional mandatory sanctions against Iran in response to its ballistic missile program, and terrorism-related sanctions against the Iranian Revolutionary Guard Corps (IRGC) and other Iranian sponsors of terrorism. Blocking sanctions can be imposed on persons responsible for human rights abuses, at the discretion of the President, and blocking sanctions will be implemented against Iranian persons who violate the arms embargo against Iran.
Additional Sanctions on North Korea
Last, the Act strengthens the North Korea Sanctions and Policy Enhancement Act of 2016 (22 U.S.C. § 9221 et seq.) and designates additional North Korean entities as Specially Designated Nationals (SDNs). The Act also requires the President to impose sanctions on purchasing certain metals or minerals from North Korea and providing financial services to the North Korean government.
Significantly, the Act requires the President to designate companies and other persons, including non-U.S. persons, if they, among other things, provide significant amounts of fuel or supplies, provide bunkering services, or facilitate a transaction to operate or maintain a designated vessel or a vessel that is owned or controlled by a designated (i.e., North Korean) person.
These designations would apply not only to the company providing such services, but also to all subsidiaries and agents of said company. If designated, a company would have all assets blocked under U.S. jurisdiction. In addition, the President would also have the discretion to impose criminal or civil penalties, loss of access to the U.S. financial system, denial of visas for entry to the U.S., loss of procurement opportunities, and seizure of any vessels and aircraft used to facilitate sanctioned activities.
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Please contact Venable's International Trade Team should you have any questions or would like to discuss the potential impact of the Act on your organization.