April 12, 2017
By: Anna Sayre, Legal Content Writer, SanctionsAlert.com

In this series, we present the comments and assertions made by President Donald Trump and his top assistants concerning economic sanctions and export controls so that compliance professionals can make informed decisions as to the likely positions of the new U.S.administration in the next four years.

In this fifth part, we present the views of the 69th U.S. Secretary of State, Rex Tillerson, long-time Republican from Texas and former CEO of the world’s largest publicly traded international oil and gas company – ExxonMobil.

A Historic Position

The role of U.S. Secretary of State is a lofty one, steeped in history.  Under the U.S. Constitution, it is for the President to determine U.S. foreign policy and the Secretary of State acts as his chief adviser in such matters. Created in 1789, the Department of State is the senior executive Department of the U.S. Government, with the Secretary of State at its head.

The Secretary of State’s main responsibilities, among other things, involve:

  • Advising the President on foreign affairs and policy (including sanctions policy);
  • Negotiating, interpreting, and/or terminating trade agreements and treaties; and
  • Participating in global conferences as well as keeping up international relations.

Four Ways the State Department Influences Sanctions

Mr. Tillerson’s views on foreign affairs are particularly important due to the significant role the State Department plays in sanctions policy and implementation. In fact, the U.S. State Department has, arguably, the greatest influence of any U.S. department over the implementation of U.S. sanctions policy.

Here are four examples:

  1. Coordinating the creation, modification and termination of sanctions regimes through the Counter Threat Finance and Sanctions Bureau (TFS);
  2. Monitoring and regulation of US exports, specifically exports of defense items and those exports that may violate global sanctions policy through the Directorate of Defense Trade Controls (DDTC);
  3. Designation of foreign individuals or entities who have committed, or pose a risk of committing, acts of terrorism that threaten U.S. national security, foreign policy, or its economy as Foreign Terrorist Organizations (FTOs) or Specially Designated Global Terrorists (SDGTs) under the Immigration and Nationality Act as well as Executive Order 13224.All FTOs and SDGTs are placed on OFAC’s Specially Designated Nationals (SDN) list; and
  4. Designations related to certain human rights abuse. The 2016 designations by OFAC of top officials within the North Korean regime was a direct result of their ties to human rights violations.

For another SanctionsAlert.com article on the role of State Department in shaping sanctions policy, click here

Close Ties with Russia, But Shift in Tone After Syrian Attack

Since the 1990s, Tillerson has had a consistent business relationship with Russia and has felt firsthand the effects of U.S. sanctions imposed against Russia. Such sanctions, which were imposed after Russia annexed Crimea and backed armed separatist movements in Ukraine in 2014,derailed Tillerson’s $500 billion deal on behalf of ExxonMobil to develop Arctic reserves with state-owned Russian oil major Rosneft.

As it stands, there is no congressional approval needed to lift the US sanctions on Russia, thus allowing the President much discretion.President Trump could simply lift several sanctions on Russia by Executive Order. According to the Washington Post, Tillerson still has around $218 million tied up in ExxonMobil stock.

Not surprisingly, Tillerson has been a critic of the effectiveness of some of economic sanctions against Russia and has said that he doesn’t“find them to be effective unless they are very well implemented comprehensively, and that’s a very hard thing to do.”

Nevertheless,in general, Tillerson has insisted on a hard line with Russia, ruling out lifting of the sanctions unless the country withdraws from Crimea.

Also, due to last week’s chemical attack in Syria, the relationship between the U.S. and Russia has somewhat cooled. The White House accused Putin’s government of covering up evidence that Syrian President Assad was responsible for the attack.

Today, Secretary Tillerson is in meetings with Russia’s Foreign Minister Sergey Lavrov, with a joint message from Western powers that Russia should withdraw its support for Assad.

In this light, the immediate prospects of the U.S. lifting sanctions against Russia are unlikely.

Syria

On April 11, 2017, Tillerson met with foreign Ministers from a group of seven major industrialized nations (the ‘G7’) in Italy to discuss, among other things, the tightening of sanctions against Syria and Russia, as proposed by Tillerson’s counterpart from the U.K., Boris Johnson.

According to the New York Times, at the meeting Tillerson warned that Russia was at risk of becoming irrelevant in the Middle East by continuing to support Syria’s president Assad, whose reign was “coming to an end”. The U.S. carried out missile strikes last week after a chemical weapons attack by Assad’s government in Syria. The strike was condemned by Russia and Iran.

The G7 ministers reached no agreement on the issue, and no new sanctions were imposed on either Russia or Syria.

Currently, the U.S.applies comprehensive sanctions against the government of Syria and targeted sanctions on individuals and entities supporting the Assad regime, in order to continue pressuring the Syrian government to stop its human rights abuses and other illicit activities. U.S. persons are not permitted to do business with these individuals or entities, who are placed on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), or with any entity 50 percent or more owned by an Specially Designated National (SDN), unless licensed by OFAC.

Navigating the JCPOA

The Trump Administration has repeatedly expressed an extreme aversion to the current nuclear deal with Iran, otherwise known as the Joint Comprehensive Plan of Action (JCPOA). The agreement partially suspends nuclear-related sanctions on Iran by the U.S., EU and UN, in exchange for Iran agreeing to dismantle its nuclear infrastructure.The JCPOA was largely put into force through executive orders and, therefore, does not need Congressional approval to be revoked.

Though Trump has denounced the deal as “disgraceful” and “horrible”, it is unclear whether he plans to scrap the deal altogether or renegotiate it with more favorable terms. Tillerson, though someone with very little political experience, has spent decades leading one of the world’s largest companies in negotiations with governments all over the world. As such, it is likely that he will play a key role should Trump seek new concessions from Tehran.

Despite Trump’s sharp criticisms, Tillerson has expressed openness to the possibility of U.S. companies doing business with Iran in the past. During an interview with CNBC’s Becky Quick on March 3, 2016, when asked about doing business outside the U.S., the then-CEO of ExxonMobil made it clear that the company would “certainly take a look” at investing in Iran “because it’s a huge resource-owning country.” Further, during his confirmation hearing, Tillerson said he would conduct a “full review” of the Iran deal as Secretary of State.

On March 2, 2017, Tillerson held private talks with the Director General, Yukiya Amano, Head of the International Atomic Energy Agency (IAEA), the UN’s atomic watchdog,regarding Iran. This was the first direct meeting between the agency monitoring the Iranian nuclear accord and a senior official from the Trump administration.As the meeting was a private one, the details and points discussed have been kept strictly confidential for now, however, it is likely that the JCPOA was a top item on the agenda.

Strengthening Ties with China

Throughout his short tenure, Tillerson has repeatedly expressed an intention to cement ties with China and improve trade relations in any way possible. This included a telephone call following a meeting with China’s Foreign Minister,Wang Yi, in February which “affirmed the importance of a constructive bilateral relationship,” as well as a meeting in Beijing with Chinese President,Xi Jinping, in March after which both parties agreed to “to strengthen ties between their countries.”

Most recently, on April 6, 2017, during the China Summit, Tillerson reiterated his intention to strengthen U.S.-China relations by saying: “High on the list of our priorities is an economic relationship that is fair on both sides…As President Trump has said, the chief goal of our trade policies is the prosperity of the American worker. To that end, we will pursue economic engagement with China that prioritizes the economic well-being of the American people…The Trump administration remains dedicated to working with China toward mutual goals of respect, security, and prosperity.”

Though economic sanctions have briefly been imposed against China in the past, these actions were always short lived and gave way to economic considerations. In response to the brutal treatment of protesters in Beijing’s famous Tiananmen Square incident, President George Bush Senior ordered sanctions against the Chinese government in 1989, which included a ban on arms shipments, the cessation of high-level talks with Chinese officials, and a suspension of talks about nuclear cooperation. Similarly, President George W. Bush ordered economic sanctions against five Chinese companies in 2003 and also a tariff on imports of glossy paper in 2007.

It is unclear at present whether the Trump administration will follow in the footsteps of its Republican predecessors, or maintain an amicable relationship with the Asian giant.Thus far, Tillerson has been more open than not to the idea of mutual cooperation between the world’s two biggest economies.

No Repeal of Cuban Sanctions

Since December 2014, when US President Obama vowed to improve relations with Cuba, sanctions on Cuba have been gradually eased. This has been done, for the most part, by amending the Cuban Assets Control Regulations (CACR), which has been the main regulatory mechanism of domestic enforcement of the US embargo against Cuba.

In order to completely end the long-standing embargo against Cuba, the CACR would have to be repealed by an act of Congress, something Secretary of State Tillerson has said he would strongly oppose.

In his confirmation hearing, when asked by Senator Marco Rubio if he would advise the President to veto any bill that would lift the embargo on Cuba if no democratic changes had happened, Tillerson resolutely responded, “Yes, I would”.Tillerson further stated during the hearing that he “will press Cuba to meet its pledge to become more democratic and consider placing conditions on trade or travel policies to motivate the release of political prisoners.”

 

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