Russian Roulette: Congress Gives President Discretion to Impose New Sanctions Against Russia

3 min

The White House has announced that President Obama plans to sign The Ukraine Freedom Support Act of 2014 (the Act), which passed the Senate and House unanimously last week. The Act would build on current sanctions against Russia in response to the country's ongoing interference in Ukraine.

Earlier this year, the Office of Foreign Assets Control of the Department of the Treasury (OFAC) issued the Ukraine-Related Sanctions Regulations (31 C.F.R. Part 589) as well as a series of Directives imposing targeted sanctions on entities listed on the new Sectoral Sanctions Identifications List (SSI List). The four Directives touch upon Russia's financial, energy, and defense sectors. Moreover, the Bureau of Industry and Security of the Department of Commerce (BIS) imposed additional license requirements on the export to Russia of certain items if the item "will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia, or are unable to determine whether the item will be used in such projects." Export Administration Regulations, 15 C.F.R. Part 746.5.

Now, this new legislation would mandate a variety of sanctions relating to certain additional entities involved in the Russian defense sector. Specifically, the Act mandates sanctions against Rosoboronexport, the state agency that promotes Russia's defense exports and arms trade. It also would require sanctions on:

  • Russian-owned or controlled entities that transfer, manufacture, or sell defense articles to Syria or another specified country (defined as Ukraine, Georgia, Moldova, or any other country of significant concern for purposes of this Act, such as Poland, Lithuania, Latvia, Estonia, and the Central Asia republics) without its government's consent; and
  • Any person that knowingly sponsors or provides financial, material, or technological support for, or goods or services to or in support of, such an entity.

Similar to the structure of OFAC's Iranian sanctions program, the Act would provide a variety of further restrictions that may be imposed on the parties described above. The President would be directed to impose three or more of the available sanctions described below, not later than 30 days after the Act goes into effect. These potential sanctions would include:

  1. Limitations on assistance from the US Import-Export Bank;
  2. Prohibitions on exports of defense article and/or dual-use items;
  3. Blocking of property interests (e.g., designation as a "Specially Designated National" (SDN));
  4. Ban on transfers of credit and payments between US financial institutions;
  5. Limits on investment or dealings in a sanctioned party's debt or equity mirroring the current prohibitions found in OFAC's Directive 4; and
  6. Visa bans for sanctioned individuals or executives of sanctioned companies.

The Act further allows for optional sanctions related to the energy sector. President Obama would have the discretion to impose three or more of the aforementioned restrictive sanctions provisions on a foreign person that knowingly makes a "significant investment in a special Russian crude oil project." Further, the Act authorizes the President, through BIS or OFAC, to impose additional licensing requirements or other restrictions on the export of items for Russia's energy sector, including equipment used for "tertiary oil recovery." Finally, OAO Gazprom, an entity already designated under OFAC's Directives 2 and 4, would become subject to additional sanctions if the state-controlled company withholds supplies to other European nations.

While currently without legal effect, once enacted, this legislation would give the President, along with BIS and OFAC, tremendous flexibility in crafting a targeted sanctions program for these entities. Please contact Venable's International Trade Group if you have any questions about how these new sanctions may impact your business operations.