U.S. Congress slaps Russia with new sanctions

Afbeeldingsresultaat voor US and Russia Flags images

On 14 June 2017, the U.S. Senate slapped more sanctions on Russia by voting on the so-called The Countering Russian Influence in Europe and Eurasia Act of 2017 (CRIEEA). The bill was introduced on the most recent U.S. Iran Sanctions – Countering Iran’s Destabilizing Activities Act of 2017 (CIDAA – S.722).  CRIEEA expands on existing U.S. Russia related sanctions

CRIEEA aims to codify existing Russia-related sanctions and obligate a congressional review of any attempts by the Trump Administration to modify or terminate them. In a rare bi-partisan co-operation between Democrats and Republicans, the CRIEEA aims to impose new sanctions on Russia in view of it’s controversial involvement in the ongoing crisis in the Ukraine and the last U.S. presidential elections. It’s unclear whether the CRIEEA will become law, given that’s there’s less Congressional support (the House of Representatives must decide on further Russia related sanctions) for further sanctions against Russia and the fact that the Trump Administration opposes the bill. 

Summary of CRIEEA related sanctions
CRIEEA aims to imposes a broad range of sanctions spanning a number of sectors of the Russian economy, or tightens specific components of the existing sanctions regime, namely:

  • New sanctions authority under EO 13662 to sanction State-Owned Entities (SOE’s) – Section 223 CRIEEA

New sanctions targeting SOE’s in the “shipping, metals, railway, or mining sector”- Section 223 expands the scope of persons who may be blacklisted under section 1(a) of EO 13662. These terms are all still undefined. 

  • Shortening of SSI debt maturity periods – Section 223 CRIEEA

Section 223 also directs OFAC to modify the SSI regulations to tighten restrictions on the financing of or transactions in debt issued by any person named on a related sanctions list.

  • Directive 1 (September 12, 2014) will be modified to impose a 14-day maturity limit (from 30 days); while Directive 2 will be modified to impose a 30-day maturity limit (from 90 days). 
  • Mandatory report on expanding SSI under Directive 1 to include sovereign debt and derivatives: Section 242 mandates the Secretary of the Treasury to submit a report to Congress within 180 days of its enactment into law that details the “potential effects” of expanding the scope of application of Directive 1 under EO 13662 to include “sovereign debt and the full range of derivative products.” 
  • Modification of Directive 4 to expand scope of application: Section 223 would modify the scope of Directive 4, applying its restrictions to the provision of any goods, services, or technology supporting the “exploration or production for deep-water, Arctic offshore, or shale projects” in which “a Russian energy firm [is] involved,” even if the project is outside of Russia.
  • Making UFSA crude oil and financial institution sanctions mandatory

The Ukraine Freedom Support Act of 2014 (“UFSA”) created two tiers of Ukraine-related sanctions against Russia:

  1. sanctions relating to the Russian defence sector that the President was required to impose (subject to waiver authority); and
  2. sanctions relating to other economic sectors, such as the energy sector and the financial sector, which the Act merely authorized the President to impose.
  • Section 225 CRIEEA aims to make b. mandatory sanctions (subject to waiver authority).
  • With regard to Russia’s energy sector, UFSA authorized the imposition of three of nine categories of sanctions against any person determined by the President to have made a “significant investment” in projects related to the extraction of crude oil from Russian territory. The UFSA further authorized the President:
    • to impose sanctions on OAO Gazprom, if Gazprom were determined by the President to have withheld “significant” natural gas supplies from a number of countries, including members of NATO, Ukraine, Georgia, or Moldova.
    • to impose sanctions on non-U.S. financial institutions, where the President determines that they “knowingly” engaged in “significant” transactions related to targeted entities or individuals within the defense or energy sectors; or
    • where the non-U.S. financial institution, on behalf of a Russian SDN (U.S. blacklisted entity), facilitated a “significant” financial transaction.
  • Making corruption sanctions mandatory – Section 227 CRIEEA

Section 227 aims to impose mandatory sanctions  on “persons in the Russian Federation” that the President has determined are “complicit in or responsible for significant corruption under Section 9 of the Sovereign, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (“SUA”). Further, Section 227 also eliminates the Russian territorial nexus required under SUA.   

  • New mandatory secondary sanctions on “facilitators” of proscribed transactions – Section 228 CRIEEA

Section 228 significantly expands the scope of sanctions under SUA by introducing mandatory secondary sanctions against persons that the President has determined have knowingly “facilitate” significant deceptive or structured transactions,” and do so “on behalf of” any person currently included on Russia-related sanctions lists or any child, spouse, parent, or sibling of such persons.

  • New mandatory human rights sanctions – Section 229 CRIEEA 

Section 229 further expands the scope of SUA to include mandatory sanctions against persons that the President has determined are responsible for or materially assisted in the commission of “serious human rights abuses.”

  • New mandatory sanctions on those “engaging in transactions” with Russian intelligence or defense personnel – Sections 231 CRIEEA

Section 231 requires the President to impose five or more items from the menu of sanctions provided under Section 235 to any person determined by the President to have “knowingly” engaged in a “significant transaction” with members or persons acting on behalf of members of the Russian defense or intelligence sectors.

  • New authorization for elective sanctions related to development of pipelines – Section 232 CRIEEA

Section 232 authorizes the President to impose secondary sanctions on any person determined by the President to have “knowingly” made an investment exceeding $1M in fair market value, or exceeding $5M in aggregate fair market value over a 12-month period, in the export-pipeline infrastructure of Russia.

The investment must either “directly and significantly contribute to the enhancement” of Russia’s ability to construct such pipelines, or must consist in “goods, services, technology, information, or support” that could “directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy pipelines” by Russia. The President is authorized to impose, at his discretion, a selection of five out of the menu of sanctions provided for under Section 235.

  • New mandatory sanctions related to privatization of state-owned assets – Section 233 CRIEEA 

Section 233 requires the President to impose secondary sanctions on any person determined by the President to have, with “actual knowledge,”

(i) made an investment exceeding $10M (or a combination of investments, each greater than $1M where the aggregate exceeds $10M in a 12-month period) or (ii) “facilitate[d]” such an investment.

To fall within the scope of the sanctions, the investment must “directly and significantly contribute[]” to Russia’s ability to privatize state assets and must “unjustly benefit[]” either government “officials” or their “close associates or family members.” The scope of the application of this provision is unclear; the text “unjustly benefits” is nowhere defined. 

  • New mandatory sanctions on the transfer of arms and materiel to Syria – Section 234 CRIEEA

Section 234 requires the President to impose sanctions on any person determined by the President to have “knowingly exported, transferred, or otherwise provided . . . significant financial, material, or technological support” to the Government of Syria. The sanctions apply only to support that promotes the Syrian Government’s ability to acquire certain classes of weapons and munitions, including chemical, biological, and nuclear weapons and related technologies, but also extending to articles, services and information defined under the Arms Export Control Act.

Key Provisions of CRIEEA

New Mechanism for Congressional Review of Presidential Action

Section 216 of CRIEEA imposes a congressional review regime with respect to any Presidential “action” that would modify or terminate the existing sanctions regime against Russia. Ultimately, this could mean that Congress could not only block Presidential action, but also reverse it.Prior  Congressional approval is not required for the imposition of new sanctions.

The section was introduced following concerns of the U.S. Congress that President Trump wanted to ease or even terminate certain U.S. Russia related sanctions. 

Scope of Section 216

Under the CRIEEA, Presidential “action,” is defined broadly:

  1. to terminate sanctions regulations,
  2. waive the application of sanctions to specific U.S. blacklisted parties under Russia related sanctions, or
  3. to take any “licensing action that significantly alters U.S. foreign policy with regard to the Russian Federation.”  

It appears that Section 216 applies to Russian entities blacklisted under the authority of the four Executive Orders (“EO’s”) related to the events in Ukraine (EO’s 13660, 13661, 13662, 13685) and to U.S. related cyber-security (EO’s 13694, 13757).

It would appear that Section 216 does not apply to Russian persons or entities sanctioned under the Magnitsky Act or under non-Russia-related sanctions programs.

 

Codification of Existing Executive Orders and Sanctions Regime

CRIEEA aims to also codify the six existing Russia-related Executive Orders (see above links). This would have the effect of stopping President Trump from altering them without affirmative Congressional action. 

CRIEEA thus attempts to limit the President’s authority to terminate the sanctions imposed under the listed Executive Orders (EO’s) or otherwise repeal the sanctions created under the EO’s. The new sanctions regime imposed by CRIEEA is, in many cases, mandatory, subject only to the President’s discretion with regard to whether an individual or entity warrants inclusion on an applicable sanctions list.

While the President would retain authority to waive the application of the EO’s and “mandatory,” provisions of the new sanctions regime with respect to specific individuals and entities, Congress wishes to limit President Trump’s authority by imposing a cumbersome, three-stage process of certification and Congressional review before Presidential waivers would be given effect.

Note that in regard to Ukraine and U.S. cyber-security-related sanctions, any waiver would require a certification by the President that Russia is, respectively, “taking significant steps to implement the Minsk Agreement,” or “has made significant efforts to reduce the number and intensity of cyber intrusions,” conducted by the Russian Government.

Afbeeldingsresultaat voor image of US Flag with Congress as backgroundPotential Added Value of CRIEEA?

CRIEEA is another example of the U.S. Congress’ lack of trust for a U.S. President in the field of sanctions. Think of the Iran Nuclear Agreement Review Act of 2015 (INARA). 

Under the INARA, Congress established a formal review period to evaluate any agreement reached with Iran prior to the lifting of sanctions (in the context of the Nuclear Deal – JCPOA). Here, President Obama was forced to transmit the text of an agreement reached with Iran and relating to Iran’s nuclear program to Congress, similarly to the CRIEEA, according to specific timelines.

If enacted into law, the proposed review process could signal more Congressional control in the field of terminating, waiving or otherwise reducing sanctions vis-a-vis targets of U.S. sanctions. This could be triggered by a growing concern of Congress to limit the President’s power to alter U.S. sanctions.

Question is whether a Congressional review process will be a permanent feature of U.S. statutory sanctions? The review process was not only triggered by President Trump’s wishes to lift Russia related sanctions, but also by former President Obama’s policies to lift sanctions in the context of Myanmar, Iran, and Cuba.

Whether such Congressional review will contribute to achieving the underlying policy objectives of U.S. sanctions programs, is far from clear. Given the experience which President Obama underwent with the Republican Congress, now its President Trump time to face the music of an intransigent Congress.

Right or wrong, CRIEEA in my opinion has to do more with internal U.S. politics than attempting to solve U.S., and possibly global, foreign security issues.  A further politicization of sanctions is a distraction to solve the real issues. Finally, given that former President Obama was able to negotiate the landmark JCPOA under intense opposition of Republicans. Thus, it might still be possible for President Trump to ease U.S. related Russia sanctions…. We await and see. 

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