Tuesday, August 15, 2017

The U.S. “Countering America’s Adversaries Through Sanctions Act” – What does it mean for Russia?

On August 2, 2017, the U.S. President Donald Trump has signed new sanctions on Iran, Russia, and North Korea. For constitutional and other reasons, he was not happy:

I favor tough measures to punish and deter bad behavior by the rogue regimes in Tehran and Pyongyang. I also support making clear that America will not tolerate interference in our democratic process, and that we will side with our allies and friends against Russian subversion and destabilization.”

But, in the U.S. President’s view, “the Congress included a number of clearly unconstitutional provisions”, relating to the distribution of competences amongst U.S. constitutional institutions. Donald Trump says, the bill “encroaches on the executive branch’s authority to negotiate” and, probably most importantly, “I built a truly great company worth many billions of dollars. That is a big part of the reason I was elected. As President, I can make far better deals with foreign countries than Congress”.

Let’s put the political controversy aside for a minute and look at what is actually new about U.S. sanctions on Russia.

Why the U.S. burdens Russia with new sanctions

The U.S. Congress answers in its press release:

Vladimir Putin has actively undermined U.S. national security for years. Putin has a long record of aggressive acts that threaten global stability. […] Left unchecked, Russia is sure to continue its aggression. […] Putin and his cronies must face serious consequences for these dangerous and threatening acts.”

The bill is more specific, imploring that “Russia undermines the democratic processes and institutions in Ukraine and “Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the United States presidential election”.

Who undergoes which additional sanctions?

1. Modification of existing sanctions

As a reminder, the U.S. administration, until now, already established four separate categories of sanctioned persons, according to their degree of threat for the U.S.. The new bill tightens the sanctions for each of those groups:

Prior Interdictions
New Interdictions
Category 1
No new equity and no new debt maturing after 30 days or more
No new equity and no new debt maturing after 14 days or more
Category 2
No new debt maturing after 90 days or more
No new debt maturing after 60 days or more
Category 3
No new debt maturing after 30 days or more
No modification of prior interdictions
Category 4
No provision of goods or services for the oil exploration and production business if the project is a deepwater, Artic offshore, or shale project situated in the Russian Federation
No provision of goods or services for the oil exploration and production business if the project is a deepwater, Arctic offshore, or shale project and held at least at 33 % by the sanctioned person

The most far-reaching modification seems to be in category 4. Indeed, Russian upstream oil projects may, potentially, be sanctioned word-wide.

2. Sanctions with respect to cybersecurity and human rights abuses

The U.S. President shall identify persons

  • who engage, on behalf of the Russian Government, in activities undermining the cybersecurity of any person or democratic institution;
  • who are responsible for committing human rights violations in any territory occupied or otherwise controlled by Russia.

He may than block assets of and exclude such person from the U.S. territory.

3. Sanctions on the Russian intelligence & defense sector, Russian pipelines, and privatizations of state-owned assets in Russia

The bill allows for new U.S. sanctions to be taken against

  • persons engaging in transactions with the intelligence or defense sectors of the Russian Governments;
  • a person who participates in the construction or maintenance of Russian energy export pipelines through providing goods, services, technology, information, and support to Russia in the amount of 1 MUSD for each individual support or 5 MUSD for cumulative transactions over 12 months;
  • people who invest at least 10 MUSD in a privatization in Russia which unduly benefits officials of the Russian federation or their associates or family members.

There is a long list describing of what such sanctions can consist of:

  • No U.S. EXIM Bank assistance;
  • Refusal of export licenses;
  • Prohibit a U.S. financial institution to grant loans totaling at least 10 MUSD over any 12 months period;
  • Influence on international financial institutions (meaning multilaterals such as the IMF, IFC, EBRD, MIGA, and ADB) to avoid their financing;
  • No permission for the sanctioned person to act as primary dealer of U.S. Government debt instruments and prohibition to serve as a repository of U.S. Government funds;
  • Exclusion from U.S. Government procurement contracts;
  • Prohibition for the sanctioned party to participate in FOREX transactions which are subject to U.S. jurisdiction;
  • Suspension of banking transfers and payment flows which are subject to U.S. jurisdiction;
  • Ban on property transfers which are subject to U.S. jurisdiction;
  • Ban on investment in equity or debt of the sanctioned person;
  • Exclusion of executives and corporate officers of the sanctioned person.

In some cases, the U.S. President can waive sanctions if this is in the national security interest of the USA.

4. Sanctions targeting Russian financial, material, or technological support to the Government of Syria

In case this support relates to chemical, biological, nuclear, or conventional weapons, ballistic or cruise missile capabilities, or significant defense articles, the U.S. President can order the blocking of property or exclude individuals from the U.S. territory.

However, he also has capacity to waive such sanctions if this is in the national security interest of the USA.

All of the above still needs to be implemented in the weeks and months to come. Signing the bill by the U.S. President is certainly not the end of the story...


Bill H.R. 3364 (Countering America’s Adversaries Through Sanctions Act”) dated August 2, 2017