By Alexis Early*
July 27, 2017
On July 27, the Senate passed 98-2 the Countering America’s Adversaries Through Sanctions Act (HR 3364), which previously passed the House 419-3 on July 25, setting up a showdown with President Trump. This bill is an omnibus of three separate sanctions measures: the Countering Iran’s Destabilizing Activities Act (“CIDAA”), the Countering Russian Influence in Europe and Eurasia Act (“CRIEEA”), and the North Korean Interdiction and Modernization of Sanctions Act (“NKIMSA”).
Together, they make a forceful, bipartisan statement that Congress supports the application of robust sanctions as a cornerstone of US foreign policy. However, they also may put President Trump in the difficult position of receiving a strong Russia sanctions bill as he seeks to repair relations with Russia and members of his administration are embroiled in Russia-related controversies.
Russia Sanctions: Congress Flexes its Muscle
As Steptoe has previously discussed in our alert and on the blog, CRIEEA would authorize – and at times require – the President to impose significant new sanctions on the Russian energy, financial, and defense sectors. The Senate has previously passed two versions of this bill, and the House version includes further amendments designed to allay some concerns from the US energy industry and EU allies. In particular, CRIEEA would do the following:
- Codify Authorities: Codify Executive Orders (EOs) 13660 and 13661(blocking property of persons contributing to the situation in Ukraine), EO 13662 (sectoral sanctions targeting persons contributing to the situation in Ukraine), EO 13685 (blocking property of persons and prohibiting certain transactions related to Crimea), and EOs 13694 and 13757 (blocking the property of persons with respect to significant malicious cyber-enabled activities). By codifying these authorities, Congress would reduce the Executive Branch’s flexibility to lift sanctions.
Moreover, CRIEEA would create a mechanism to allow Congress to review and disapprove of attempts by the President to terminate or waive Russia-related sanctions or issue licenses that significantly alter US sanctions policy.
- Energy Sector Sanctions:
- Financing Restrictions: Expand existing restrictions on US persons transacting in new debt of Russian energy companies on the Office of Foreign Assets Control’s Sectoral Sanctions Identification (“SSI”) List pursuant to Directive 2. US persons can currently deal in Directive 2 entities’ new debt with a maturity of 90 days or less, but CRIEEA would reduce this threshold to 60 days. This would further restrict Directive 2 entities’ ability to obtain short-term financing in international markets and would cause sellers to reduce their sales terms to 60 day payment terms. The House amendments to CRIEEA provide a 60-day grace period before this reduced new debt threshold would become effective.
- Exploration and Production: Broaden existing prohibitions on US persons providing goods, services, or technology in support of deep water, Arctic offshore, and shale oil projects. These restrictions are currently limited to projects in Russian territory or maritime waters, but CRIEEA would extend them to new projects anywhere in the world if a Directive 4 entity has at least a 33% interest in the project. Moreover, this provision would apply to US persons and persons in the United States, which could include EU energy firms with US operations. A prior version of the bill extended this restriction to all new and existing projects globally with any Directive 4 entity involvement, but the 33% ownership threshold, as well as the reference to “new” projects, for new projects were added to address concerns from the US and EU energy industries. The House amendments to CRIEEA provide a 90-day grace period before this provision would become effective.
- Energy Export Pipelines: Modeled after Iran sanctions laws, CRIEEA would authorize (but not require) the imposition of sanctions for investments in or the provision of goods, services, technology, information, or support for the construction, modernization, or repair of Russian energy export pipelines. The threshold for such investments would be $1 million or $5 million over a 12-month period. The House bill added that the US would coordinate with allies in determining whether to impose such sanctions, but many energy companies – especially in the EU – fear that this provision could imperil the completion of the Nord Stream 2 pipeline.
- Crude Oil: Make mandatory a provision in the Ukraine Freedom Support Act that authorizes the imposition of sanctions for “significant” investments in a “special Russian crude oil project,” which is defined as a crude deep water, Arctic offshore, or shale oil project.
- Financial Sector Sanctions
- Financing Restrictions: Expand existing restrictions on US persons transacting in new debt of Russian financial institutions on the SSI List pursuant to Directive 1. US persons can currently deal in Directive 1 entities’ new debt with a maturity of 30 days, but CRIEEA would reduce this threshold to a mere 14 days, which could severely constrict short-term financing for Russian banks. The House amendments to CRIEEA provide a 60-day grace period before this reduced new debt threshold would become effective.
- Correspondent Banking Restrictions: Limit the opening or maintaining of correspondent bank accounts for foreign financial institutions that facilitate certain Russian energy projects or defense activities.
- Privatization: Mandate the imposition of sanctions against persons that invest $10 million or more to facilitate the Russian government’s privatization of state assets in a manner that allows Russian government officials or their family members to benefit unjustly.
- Defense Sector Sanctions
- Defense Transactions: Mandate the imposition of sanctions against persons engaged in significant transactions with the Russian defense or intelligence sectors. The House amendments provide a 180 day grace period before this provision would become effective and would require the President to provide guidance regarding the scope of companies defined to be operating in the Russian defense or intelligence sectors. Furthermore, the House amendments would permit the President to delay the imposition of sanctions, for a renewable period of 180 days, against a person who substantially reduced its significant transactions during those 180 day periods.
- Syria: Mandate the imposition of sanctions against persons providing certain defense articles to Syria.
- Additional Sanctions:
- Authorize the imposition of sectoral sanctions against persons operating in the Russian railway, metals, and mining sectors. The House version removed a reference to the Russian shipping sector included in the Senate bill.
- Mandate the imposition of sanctions against any person engaged in malicious cyber activity on behalf of Russia, any person involved in evading Russia or Ukraine sanctions, any person involved in human rights abuses in Russia or Russian-occupied territories, and any person facilitating Russian corruption.
Iran Sanctions: Balancing Sanctions with the JCPOA
As Steptoe previously blogged, CIDAA would impose additional non-nuclear sanctions against Iran that aim to avoid running afoul of the Iran nuclear deal (the Joint Comprehensive Plan of Action, or “JCPOA”). In particular, CIDAA would mandate the imposition of sanctions against any person that knowingly engages in any activity that materially contributes to the Government of Iran’s (“GOI”) development of WMDs or its ballistic missile program, thus codifying the major provisions of EO 13382. CIDAA would also authorize the imposition of sanctions against persons responsible for certain human rights abuses in Iran, including extrajudicial killings and torture, and strengthen the UN arms embargo.
CIDAA would also apply terrorism sanctions pursuant to EO 13224 to the Islamic Revolutionary Guard Corps (“IRGC”). Although the US already imposes sanctions against the IRGC and its leaders and agents, and the IRGC’s elite Quds Force is designated under EO 13224 for support of terrorism, this provision would send a political message that the whole IRGC is a supporter of terrorism. This echoes congressional calls for the Trump administration to designate the IRGC as a Foreign Terrorist Organization, which some believe could imperil the JCPOA because of the IRGC’s political power and economic clout in the country.
The Senate already passed a prior version of CIDAA, and the House version makes no changes to the bill.
North Korea Sanctions: Turning Up the Pressure
The Trump administration and Congress have both taken steps to penalize North Korea for its continued nuclear ambitions and other transgressions. The Trump administration has increased designations against North Korean government officials and industries and has recently begun to target Chinese persons and entities for supporting North Korea. On May 4, the House passed NKIMSA by an overwhelmingly bipartisan vote of 419-1, and neither chamber has expressed desire to amend it as part of the omnibus sanctions package.
NKIMSA would follow recent UN Security Council resolutions and Executive Branch actions by: mandating the imposition of sanctions contained in the North Korea Sanctions and Policy Enhancement Act to further deter North Korea’s nuclear weapons program; targeting third country persons who employ North Korean slave labor for the government’s profit; mandating the imposition of additional sanctions targeting the North Korean shipping industry and the ability of third-country ships to call on US ports if they also call on North Korean ports; and prohibiting persons from selling to North Korea of a variety of products, including aviation or jet fuel, certain metals, and luxury goods.
NKIMSA would also require the President to determine whether North Korea is a state sponsor of terrorism and should be put back on the State Department’s State Sponsors of Terrorism List, which carries additional sanctions.
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It remains unclear whether President Trump will sign the bill into law. White House officials have sent mixed messages over the past week, meaning that the fate of these new sanctions provisions remains uncertain. Steptoe will continue to monitor the situation, and stay tuned to our blog for more developments in the coming days.
*Alexis Early is an attorney with Steptoe& Johnson LLP. This article was published on July 27, 2017, on Steptoe Compliance Blog and reprinted with permission. http://www.steptoeinternationalcomplianceblog.com/2017/07/congress-moves-closer-to-passing-sweeping-iran-russia-and-north-korea-sanctions-legislation/#more-1720