On January 10, 2017, a bipartisan group of senators released proposed sanctions legislation targeting Russia, entitled the “Counteracting Russian Hostilities Act of 2017” (the “Bill”). If enacted, the Bill would require the President to impose new sanctions on persons who engage in certain activities involving various sectors of the Russian economy. The Bill would also codify existing sanctions, which have been imposed pursuant to Executive Orders (EOs), thus preventing the lifting of those sanctions by executive action.
As drafted, the Bill does not impose new self-implementing prohibitions on U.S. persons, other than those related to blocking the assets of sanctioned persons or denying sanctioned persons access to certain services. Instead, the portions of the Bill imposing new sanctions are drafted largely in the form of “secondary” sanctions, which make certain conduct “sanctionable” (i.e., subject to “menu-based” sanctions). Secondary sanctions have typically targeted the conduct of non-U.S. persons, and the menu of sanctions includes some items that are more appropriate for non-U.S. companies. Even so, the proposed sanctions could also be imposed on U.S. persons. In all cases, the imposition of sanctions would depend on a finding of sanctionable conduct by the President. It remains to be seen whether corresponding “primary” sanctions will be imposed should this proposed legislation gain traction. Such primary sanctions could have far reaching impact on U.S. companies with Russian business exposure.
Key aspects of the Bill
Russian infrastructure (Sections 207–211 and 213)
- Portions of Title II of the Bill would require that the President impose sanctions on persons the President determines knowingly engaged in certain activity involving Russia:
- Investments or support, above specified financial thresholds, for petroleum and natural gas production (Section 207), construction of energy export pipeline (Section 208), and construction of civil nuclear projects (Section 209);
- The purchase, subscription to, or facilitation of the issuance of new sovereign debt, including the debt of any entity owned or controlled by the Russian Federation (Section 210); and
- Investments in or facilitation of investments in privatization of Russian state-owned assets (Section 211).
- If the President determines a person knowingly committed a sanctionable act described in Sections 207 through 211, the President would be required to impose five or more of the following menu-based sanctions: (1) denial of Export-Import Bank assistance; (2) denial of export licenses; (3) prohibition on loans above $10 million from U.S. financial institutions; (4) U.S. opposition to loans from international financial institutions; (5) inability to deal in U.S. Government debt instruments; (6) inability to serve as repository of U.S. Government funds; (7) debarment from U.S. Government contracting; (8) prohibition on foreign exchange transactions involving U.S. persons; (9) prohibition on banking transactions involving U.S. financial institutions; (10) prohibition on dealings involving the property of sanctioned persons; (11) ban on U.S. persons investing in or purchasing significant amounts of the equity or debt of the sanctioned person; (12) visa and entry restrictions for corporate officers, principals, and controlling shareholders; and (13) imposition of any of the above sanctions on certain corporate officers. These sanctions provide the President wide latitude to impose sanctions varying from limited in impact to severe (i.e., blocking).
Russian defense and intelligence sectors (Section 105)
- Title I of the Bill targets cyber-related activities. Section 105 would require the President to impose five or more menu-based sanctions on persons the President determines knowingly engaged in significant transactions with persons that are part of or act on behalf of the defense or intelligence sectors of the Russian government. The available sanctions are the same as those set forth in Section 213, discussed above.
- The President would be required to submit a report to Congress every 180 days listing persons meeting the sanctions criteria.
Waiver of menu-based sanctions (Sections 106 and 214)
- The President could waive imposition of sanctions under Sections 207, 208, 209, 210, or 211 by advising Congress that the waiver is necessary for national security or will further enforcement of the Bill, and certifying to Congress that Russia is taking steps to implement the Minsk Agreements on Ukraine and substantially decreasing its military activities in Syria. The last requirement may limit the ability of the President to waive sanctions, assuming the President complies faithfully with the Bill.
- Similarly, the President could waive application of sanctions under Sections 103 and 105 by advising Congress that the waiver is necessary for national security or will further enforcement of the Bill, and certifying to Congress that the Government of the Russian Federation has made significant efforts to reduce the frequency and severity of cyber intrusions it perpetrates.
Cybersecurity-related designations (Sections 103 and 104)
- Section 103 would require the President to block the assets of persons engaged in activities on behalf of the Russian Government that undermine cybersecurity for infrastructure or democratic institutions of the U.S. or its allies. This provision requires the President to respond to inquiries from Congress regarding whether certain persons meet the sanctions criteria. The imposition of sanctions may be waived subject to the requirements set forth in Section 106 (discussed above).
- Section 104 would codify EO 13694 (April 1, 2015), as amended, which subjects persons determined to be engaging in certain cyber-enabled activities aimed at national security, foreign policy, or economic health or financial stability of the United States to asset blocking and designates certain Russian Government entities and individuals as subject to asset blocking. Codification of the EO would limit the President’s ability to revoke it and lift existing designations.
Codification of Ukraine-related Executive Orders (Section 206)
- Section 206 would codify four EOs that have been implemented in response to the situation in Ukraine (EO 13660, EO 13661, EO 13662, and EO 13685) as well as all of the sanctions that have been imposed pursuant to those sanctions. Three of these EOs require the blocking of persons engaged in or providing support for certain activities contributing to the situation in Ukraine, and the fourth effectively imposes comprehensive sanctions on Crimea. The EOs have led to the designation of numerous individuals and entities — including Russian oligarchs, former Ukrainian officials, Russian companies, and separatists — and are used as a basis for “sectoral sanctions” that restrict certain long-term debt and equity transactions and certain transactions in support of the Russian oil sector. If implemented, all current sanctions imposed under the EOs would remain in effect until the termination criteria in the Bill have been met or until Congress takes further action.
Sanctions termination criteria (Sections 108 and 216)
- The criterion for the termination of the cyber-related sanctions (Sections 103–105) would require that the President certify to the appropriate congressional committees that the Russian Government has ceased cyberattacks against U.S. entities.
- The criterion for termination of the sanctions targeting Russian aggression (Sections 206–213) would require that the President certify to the appropriate congressional committees that the Russian Government has (1) ceased ordering, controlling, or otherwise directing, supporting, or financing significant acts intended to undermine the peace, security, stability, sovereignty, or territorial integrity of Ukraine, including through an agreement between the appropriate parties and (2) halted military operations in Syria.
It is not clear, at this time, whether the Counteracting Russian Hostilities Act of 2017 will be enacted in its present form or otherwise, but the Bill is the strongest statement to date of a bipartisan Congressional effort to use sanctions to chill transactions with large portions of the Russian economy and to restrict the President’s ability to revoke these sanctions. It also bears noting that the President may not comply faithfully, or at least comply as intended by Congress, with the requirements of the Bill. Even if it is not enacted, the Bill provides important insight into sanctions that could be expected to be imposed if relations with Russia continue to deteriorate.
Jim Slear, Robert Shapiro, Tyler Black and Devin Sefton are attorneys in Thompson Coburn's International Commerce practice.