A Detailed Look at the Countering America's Adversaries Through Sanctions Act

Introduction

On August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act, targeting Russia, North Korea, and Iran.  This law is a forceful, bipartisan statement that the US Congress continues to view robust economic sanctions as a cornerstone of US foreign policy, in which Congress will play a leading role in restricting trade, sometimes in conflict with the president’s authority to conduct diplomacy.  The Russia section of the law significantly expands the scope of the US sanctions regime and requires careful review by both US and non-US companies.  The North Korea and Iran sections do not materially affect most US companies, which already face broad restrictions in those countries, but the North Korea section in particular includes additional secondary sanctions that create new risk areas for non-US companies.

Sanctions on Russia

The Russia section of the law, called the Countering Russian Influence in Europe and Eurasia Act of 2017 (CRIEEA), expands existing restrictions on US persons doing business with Russia, and adds some potentially significant secondary sanctions targeting non-US person activity involving Russia and certain operations outside of Russia.  Most of the new Russia sanctions are mandatory, which means that the president must impose them (subject to possible waivers, discussed below).  This is the first time the United States has implemented mandatory secondary sanctions targeting Russia – Iran and North Korea have been the primary targets of recent US secondary sanctions – which is a possible turning point that non-US persons should watch carefully.  While CRIEEA does not go as far as the proposed Russia sanctions legislation on which we previously advised, CRIEEA imposes considerable new complexity and risk for any future economic engagement with Russia.

In addition to imposing new sanctions and tightening existing measures, CRIEEA enshrines in statute the presidential executive orders imposing sanctions on Russia, as well as the designations of individuals and entities under those orders.  CRIEEA also requires congressional review of any decision by the president to terminate Russia sanctions provisions, waive the applicability of Russia sanctions with respect to a particular person, or take any “licensing action that significantly alters United States’ foreign policy” on Russia.  The requirement for congressional review of licensing actions could discourage (or at least delay) favorable review by the US Treasury Department’s Office of Foreign Assets Control (OFAC) of any potentially significant Russia-related license applications. 

Under the congressional review provisions, if the president seeks to terminate or modify Russia sanctions, he must first submit a report to Congress, after which Congress has 30 days to hold hearings on the matter.  The president is prohibited from proceeding with the proposed action during that 30-day review period, unless Congress passes a joint resolution of approval.  While there are many other details set out for this review process, the key point is that the president can proceed after 30 days unless both chambers of Congress are able to agree on and pass a resolution of disapproval, and even in such a case the president can veto that resolution, subject to additional waiting periods and a possible veto override.  But if a resolution of disapproval is enacted, CRIEEA states that the president “may not take” the proposed action to terminate or modify Russia sanctions.  Whether the president has the independent constitutional authority to take action in the interests of US foreign policy and national security, despite congressional disapproval, is a separate question.

CRIEEA provides the president the authority to waive each of the new sanctions mandates, subject to presidential determinations that the relevant waiver standard has been met, and in some cases subject to congressional review.  Many of CRIEEA’s waiver provisions require a finding by the president that the waiver would be in the US national security interest or would “further enforcement” of CRIEEA, coupled with more specific factual findings.  For example, waiver of many of the secondary sanctions in CRIEEA requires a certification that “the Government of the Russian Federation is taking steps to implement the Minsk Agreement to address the ongoing conflict in eastern Ukraine,” along with the Minsk Protocol “and any successor agreements that are agreed to by the Government of Ukraine.”  Congress must be notified in advance of any proposed waiver, and, in at least some circumstances, may disapprove and prevent it from taking effect, as discussed above.  (By identifying implementation of the Minsk Agreement as a condition for waiver, CRIEEA potentially sets up a policy clash with Secretary of State Tillerson, who, as we have previously discussed, has said that he is considering other ways to resolve the Ukraine crisis outside of the Minsk framework.)

Below, we analyze the key sanctions provisions of CRIEEA. 

I. Mandatory Changes to the Russia Sanctions Regime

Most of the sanctions provisions contained in CRIEEA are mandatory, in that they require the president to implement the new sanctions (even if, by necessity, these statutory mandates leave some implementation and enforcement discretion with the president).

A. Mandatory Sanctions Focused on US Person Activity

Expansion of prohibitions on supplying Russian oil projects: Under CRIEEA, US persons will be prohibited from providing goods, services (except for financial services), or technology in support of exploration or production for “new” deepwater, Arctic offshore, or shale oil projects involving a sanctioned Russian oil firm or individual with a controlling interest or a 33% or more non-controlling ownership interest.  This will significantly expand the geographic scope of the current prohibitions (under OFAC’s “Directive 4”), which apply only to deepwater, Arctic offshore, or shale projects “that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory.”  One question for the executive branch to address through implementation is whether “new” projects include expansions of existing projects, new developments of existing exploration prospects, etc., or only projects initiated in their entirety after CRIEEA’s enactment.  The US Senate’s original version of CRIEEA, which generated significant opposition from the oil and gas industry, was not limited only to “new” such projects, and would have applied more broadly to any such project in which a sanctioned Russian energy firm was “involved” (rather than applying the narrower 33% or more ownership test). 

Expansion of prohibitions on transactions involving new debt of sanctioned Russian energy companies: CRIEEA also expands the existing prohibitions (under OFAC’s “Directive 2”), on US persons’ transacting in “new debt” of sanctioned Russian energy companies.  Rather than allowing dealings in these companies’ new debt of 90 days maturity or less, as is currently the case, CRIEEA would allow only dealings in their new debt of 60 days maturity or less.  (The June version of CRIEEA would have further lowered this period to 30 days.)  This change will further limit Russian energy companies’ ability to obtain short-term financing in international markets, and will impact the sales terms that US companies can offer these Russian customers. 

Expansion of prohibitions on transactions involving new debt of sanctioned Russian financial institutions: CRIEEA also expands the existing prohibitions (under OFAC’s “Directive 1”), on US persons’ transacting in “new debt” of sanctioned Russian financial institutions.  CRIEEA will only allow dealings in their new debt of 14 days’ maturity or less, versus 30 days currently (while maintaining the current restriction on dealings in their new equity).  This change could have a real impact on the liquidity and health of the Russian financial sector.

Delayed effective dates: OFAC has up to 60 days after August 2 (or October 1, 2017) to implement the changes to Directives 1 and 2; it has up to 90 days for Directive 4 (or October 31, 2017).  After OFAC issues the implementing rules, the changes to Directives 1 and 2 do not become effective for another 60 days (or November 30, 2017), and another 90 days for Directive 4 (or January 29, 2018).  These 120 to 180-day implementation delays are intended to give US businesses time to adjust to the newly tightened prohibitions.

CRIEEA did not amend or modify the “new debt” restrictions, with a current maturity limitation of 30 days, applicable to the Russian defense sector under Directive 3.

B. Mandatory Sanctions Targeting Non-US Person Activity

For the first time, CRIEEA sets out a number of mandatory secondary sanctions on Russia-related activities of non-US persons.

Investments in “Special” Russian Crude Oil Projects: CRIEEA requires the president to impose at least three measures from a menu of sanctions on “foreign” persons (which include an entity’s principal executive officers), that the president determines “knowingly” make a “significant investment” in a “special Russian crude oil project,” which means deepwater, Arctic offshore, or shale.  The menu of sanctions includes the following:

• Directing the US Export-Import Bank not to issue any guarantee, insurance, credit, etc. for the export of goods or services to the sanctioned person
• Ordering the US government not to issue any specific license or other authority to export goods or technology to the sanctioned person that would be subject to US export controls
• Prohibiting US financial institutions from extending most types of loans or credit to the sanctioned person of more than $10,000,000 in a 12-month period
• Opposing any loan from international financial institutions benefitting the sanctioned person
• Prohibiting US government procurement of any goods or services from the sanctioned person
• Broader property-based and financial sanctions that are similar to being placed on OFAC’s Specially Designated Nationals (SDN) list
• Additional possible sanctions for financial institutions

To date, foreign investment in Russia’s frontier oil exploration and production has continued (particularly in projects predating the imposition of sanctions by the US, EU and others in 2014).  This new provision could impact that investment activity.  Although the executive branch will have discretion in determining which investments are “significant” (there is some potentially applicable guidance on that point in OFAC’s Iranian Financial Sanctions Regulations), this new sanctions provision likely will make non-US oil companies more hesitant to make additional investments in these areas in Russia, and could also impact the viability of existing projects of these specific types. 

Foreign Financial Institutions: CRIEEA requires the president to impose restrictions on US correspondent and payable-through accounts (which could include terminating or suspending such accounts) for foreign financial institutions that “knowingly” engage in “significant” transactions 1) on behalf of Russian persons designated on OFAC’s SDN list under the Ukraine-related authorities or certain other sanctioned persons, or 2) in connection with significant investments in a Russian deepwater, Arctic offshore, or shale oil project.  Foreign banks and other financial institutions will need to review this provision closely, as there are important Russian companies and individuals on the SDN list, and this would also impose risk for any significant financial activity in the Russian energy sector.  While the executive branch will have discretion in determining whether a transaction is “significant,” this provision is expansive. 

Sanctions Evasion: CRIEEA requires the president to impose blocking sanctions (i.e., designation on OFAC’s SDN list) on a “foreign person” that the president determines “knowingly” does either of the following:

• “Materially violates, attempts to violate, conspires to violate, or causes a violation of” any Russia sanctions executive order or statute
• “Facilitates a significant transaction or transactions, including deceptive or structured transactions, for or on behalf of” any person subject to Russia sanctions or their immediate family members

These provisions are remarkably broad and, depending on how the executive branch interprets terms like “materially” and “significant,” could have a wide-ranging deterrent effect on non-US person dealings involving sanctioned Russian persons and their families, business partners, and associates.  It is particularly noteworthy that the “facilitation” provision does not apply on its face only to transactions that would be inconsistent with US sanctions on Russia, but appears to apply to any significant transaction on behalf of sanctioned persons or their immediate family.  This provision may represent a new development in the course of aggressive attempts by the United States to target offshore activity through secondary sanctions.  For example, Executive Order 13608 (May 1, 2012), targeting “foreign sanctions evaders with respect to Iran and Syria,” only includes, in relevant part, facilitating “deceptive transactions” for or on behalf of sanctioned persons.  Depending on how it is interpreted and applied, this provision could deter many international companies from doing any significant business with sanctioned Russian persons, which includes major Russian companies. 

Investments in Russian State-Owned Assets: CRIEEA requires the president to impose five or more of the menu-based sanctions listed above on “a person,” who, “with actual knowledge…makes an investment of $10,000,000 or more (or any combination of investments of not less than $1,000,000 each, which in the aggregate equals or exceeds $10,000,000 in any 12-month period), or facilitates such an investment, if the investment directly and significantly contributes to [Russia’s ability to] privatize state-owned assets in a manner that unjustly benefits – (1) officials of the Government of the Russian Federation; or (2) close associates or family members of those officials.”  

The impact of this new sanctions provision is harder to assess, in light of the “actual knowledge” requirement combined with the subjective nature of the “unjustly benefits” determination.  These factors may be refined by further guidance from the executive branch.  Still, any investment or related activity involving Russia’s state-owned assets (including infrastructure and other sectors that may not necessarily operate as commercial entities) may carry increased sanctions risk. 

Corruption: CRIEEA requires the president to impose blocking sanctions on “any official of the Government of the Russian Federation, or a close associate or family member of such an official, that the president determines is responsible for, or complicit in, or responsible for ordering, controlling, or otherwise directing, acts of significant corruption in the Russian Federation or elsewhere, including the expropriation of private or public assets for personal gain, corruption related to government contracts or the extraction of natural resources, bribery, or the facilitation or transfer of the proceeds of corruption to foreign jurisdictions.”  The same sanctions are to be imposed on “any individual who has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of,” such activity.  Law firms, financial institutions, and other service providers should take note of the provision on materially assisting international transfers of corrupt proceeds.  Even persons that may not fall within the jurisdiction of US foreign anti-corruption laws now face sanctions risk for corruption-related activity involving Russia or Russian officials (or their family or associates) outside of Russia.

CRIEEA also mandates reporting to Congress with detailed information on Russian officials and their families, including net worth, sources of income and “indices of corruption” for them, along with their “non-Russian business affiliations.”  This reporting could eventually lead to additional sanctions or law enforcement action involving these individuals or their business partners. 

Cyber Sanctions: CRIEEA requires the president to impose blocking sanctions on “any person” determined to “knowingly” engage in “significant activities undermining cybersecurity against any person, including a democratic institution, or government on behalf of” the Russian government, or to be owned or controlled by, or acting for or on behalf of, such a person.  The law also requires the president to impose five or more of the menu-based sanctions on “any person that the president determines knowingly materially assists, sponsors, or provides financial, material, or technological support for, or goods or services (except financial services) in support of” such activity.  Finally, CRIEEA requires the president to impose menu-based sanctions on “any person that the president determines knowingly provides financial services in support of” such activity.  This provision significantly expands OFAC’s existing cyber-related sanctions program, in particular by applying to cyber activity that does damage anywhere in the world, as opposed to only that which impacts the United States. 

Russian Intelligence or Defense Sectors: CRIEEA requires the president to impose five or more of the menu-based sanctions 180 days after CRIEEA’s enactment  on “a person” that the president determines “knowingly…engages in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors” of Russia.  This provision expands on the existing sectoral sanctions, prohibiting certain US person transactions involving sanctioned Russian defense entities, under OFAC’s Directive 3, along with the SDN designations of Russia’s primary intelligence agencies.  Unlike the June version of CRIEEA, the enacted law allows the president to delay implementation of these sanctions against a particular person, with continuing certifications to Congress every 180 days that the person is “substantially reducing the number of significant transactions” in which it engages that would be sanctionable.  CRIEEA also requires the president to issue regulations or other guidance within 60 days after its enactment to specify the persons that are part of, or operate for or on behalf of, the Russian defense and intelligence sectors.  This provision adds to other Russia sanctions risks in the technology and defense sectors, among others.

“Serious Human Rights Abusers” in Russia: CRIEEA requires the president to impose blocking sanctions on a “foreign person” that the president determines meets any of the following criteria:

• “Is responsible for, complicit in, or responsible for ordering, controlling, or otherwise directing, the commission of serious human rights abuses in any territory forcibly occupied or otherwise controlled” by Russia
• “Materially assists, sponsors, or provides financial, material, or technological support for, or goods or services to” such a person
• Is owned or controlled by or acts for or on behalf of such a person

This provision similarly adds to the existing level of sanctions risk in sectors such as technology and defense and may call for an additional level of due diligence. 

Transferring Arms and Related Materiel to Syria: In light of Russia’s involvement in Syria, CRIEEA requires the President to impose blocking sanctions on a “foreign person” that the President determines has “knowingly exported, transferred, or otherwise provided to Syria significant financial, material, or technological support that contributes materially to the ability of the Government of Syria to” acquire or develop chemical, biological, or nuclear weapons or related technologies, ballistic or cruise missile capabilities, “destabilizing numbers and types of advanced conventional weapons,” or “significant defense articles, defense services, or defense information” (as defined under US export control law), or to acquire items controlled under the US International Traffic in Arms Regulations (ITAR).  These sanctions also apply to entities that are successors to, owned or controlled by, or acting for or on behalf of, persons engaged in this sanctionable activity. 

II. Non-Mandatory Changes to the Russia Sanctions Regime

CRIEEA also includes a few new non-mandatory authorities, which the president is not required to implement.  These provisions are essentially a signal from Congress that it is important for the president to consider taking action in these areas.

Non-mandatory pipeline sanctions: CRIEEA authorizes the president to impose five or more of the menu-based sanctions on “a person” that the president determines “knowingly” engages in either of the following types of activity on or after August 2, 2017, with “a fair market value of $1,000,000 or more” or, during a 12-month period, “an aggregate fair market value of $5,000,000 or more:”

• Makes an “investment that directly and significantly contributes to the enhancement” of Russia’s ability to construct “energy export pipelines”
• Sells, leases, or provides to Russia, for the construction of “Russian energy export pipelines,” goods, services, technology, information, or support “that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy export pipelines” by Russia

Unlike the Senate’s earlier version of CRIEEA, the enacted provision specifies that these sanctions are to be imposed “in coordination with allies of the United States” (without further elaboration).  This enacted provision also clarifies that these sanctions only apply to energy “export” pipelines, as opposed to pipelines that only run within Russia.  CRIEEA also states that “it is the policy of the United States” to “continue to oppose the NordStream 2 pipeline given its detrimental impacts on the European Union’s energy security…”  Such a congressional policy declaration does not, however, have any direct impact on sanctions implementation.  Given the discretionary nature of this provision and the strong backlash against unilateral US pipeline sanctions in Europe and elsewhere, it appears to be unlikely that the president will impose these sanctions at this time.  Still, the existence of this discretionary authority could chill investment in Russian pipeline projects.  Given the apparent level of congressional interest in this type of sanctions authority, it is not inconceivable that Congress could in the future modify this provision to make it mandatory for the president. 

Non-mandatory “sectoral sanctions:” CRIEEA authorizes the US Secretary of the Treasury to impose sectoral sanctions on any “state-owned entity operating in the railway or metals and mining” sectors of Russia.  The statute does not list the shipping sector or other sectors as targets.  Note: to date, sectoral sanctions have been imposed on the energy, financial and defense sectors of Russia, and OFAC already has the authority to impose sanctions on other sectors of the Russian economy.

 III. Other Russia Provisions

CRIEEA calls for a variety of studies and reports into the exposure of the US economy to certain Russia-related risk areas, presumably with an eye towards assessing the feasibility of yet another major expansion of Russia sanctions down the road.  One example is a mandatory report on “the exposure of key economic sectors of the United States to Russian politically exposed persons and parastatal entities, including, at a minimum, the banking, securities, insurance, and real estate sectors,” along with “the likely effects of imposing” debt and equity restrictions, blocking sanctions or secondary sanctions on Russian parastatal entities, including the impact on the Russian economy, the US economy and those of US allies.  Financial institutions and others should also take note of the detailed reporting requirement on the potential effects of expanding sectoral sanctions on the Russian financial sector – to include “sovereign debt and the full range of derivative products.”

CRIEEA sets out a broad exception (which was not included in the Senate’s earlier version), covering activities of NASA, including “the supply by any entity of the Russian Federation of any product or service, or the procurement of such product or service by any contractor or subcontractor of the United States or any other entity, relating to or in connection with any space launch conducted for” NASA or “any other non-Department of Defense customer.”  The law also has an exception covering the use of rocket engines for national security purposes provided for under existing US law, and the procurement of related components.

Sanctions on North Korea

The North Korean section of the law is substantially similar to H.R. 1644, the Korean Interdiction and Modernization of Sanctions Act, which the US House of Representatives passed in May.  It imposes additional measures to reinforce existing UN Security Council sanctions against North Korea (although it was enacted before the passage of UN Security Council Resolution 2371, passed on August 5), along with reporting requirements to help determine whether additional sanctions may be required in the future.  The law requires the president to promulgate implementing regulations no later than 180 days after its enactment.

The new North Korea sanctions will have little impact on US businesses, which are already largely prohibited from doing business in North Korea.  Therefore, the impact of these new sanctions will depend on how aggressively the Trump Administration implements them against individuals and entities in China, Russia, and other countries that still conduct material commercial transactions with North Korea.  In the current environment, there is every reason to believe the Trump Administration will implement these sanctions aggressively.  For example, on June 29, 2017, OFAC designated Chinese individuals and entities for facilitating transactions on behalf of North Korea.  On the same day, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) named a Chinese bank, Bank of Dandong, as a foreign bank of primary money laundering concern under Section 311 of the USA PATRIOT Act. 

New Mandatory North Korea Sanctions: The law builds on the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA), on which we previously advised, by imposing mandatory blocking sanctions on persons that “knowingly” do any of the following:  

• Import from or export or reexport to North Korea any defense article or defense service
• Purchase or acquire from North Korea “significant” amounts of gold, titanium ore, vanadium ore, copper, silver, nickel, zinc, or rare earth minerals
• Sell or transfer to North Korea “significant” amounts of rocket, aviation, or jet fuel (except for use by a civilian passenger aircraft outside North Korea, exclusively for consumption during its flight to North Korea or its return flight)
• Provide “significant” amounts of fuel or supplies, provide bunkering services, or facilitate a significant transaction to operate or maintain, a vessel or aircraft designated by the US or UN for North Korea-related activity or owned or controlled by such a designated person
• Insure or register, facilitate the registration of, or maintain insurance or a registration for, a vessel owned or controlled by the Government of North Korea (except as specifically approved by the UN Security Council)
• Maintain a correspondent account with any North Korean financial institution (except as specifically approved by the UN Security Council)

The law also provides for mandatory blocking sanctions against foreign persons that “knowingly” employ North Korean laborers (with an exception if the employment does not result in the direct or indirect transfer of convertible currency, luxury goods, or other stores of value to the Government of North Korea; all wages and benefits are provided directly to the laborers; and the laborers are subject to working conditions consistent with international standards).  Further, it creates a rebuttable presumption that goods made with North Korean labor may not enter the United States.  These provisions appear primarily to target Russia, China, and several Arab and African states that employ the bulk of North Korean expatriate laborers. 

In addition, the law requires US financial institutions to ensure that correspondent accounts are not used to provide “significant” financial services indirectly to certain designated persons if the US financial institution “has or obtains knowledge” that a correspondent account is being used for such purposes.  

Furthermore, the law contains shipping restrictions, such as allowing the Secretary of Homeland Security to require enhanced screening of cargo on vessels or aircraft that have entered North Korean territory or waters in the preceding 365 days, and prohibiting vessels owned or operated by the Government of North Korea or North Korean persons from entering US waters or transferring cargo inside US jurisdiction.

New Non-Mandatory North Korea Sanctions: The law also creates a number of new non-mandatory sanctions authorities (providing for asset blocking, prohibiting transactions in foreign exchange and use of financial institutions subject to US jurisdiction, correspondent account restrictions, visa bans, vessel/aircraft seizure, and government contracting restrictions), on persons determined to be “knowingly” doing any of the following:

• Purchasing or acquiring from the Government of North Korea significant quantities of coal, iron, or iron ore, in excess of the limitations provided in applicable UN Security Council resolutions
• Purchasing or acquiring significant types or amounts of textiles from the Government of North Korea
• Facilitating a significant transfer of funds or property of the Government of North Korea that materially contributes to any violation of an applicable UN Security Council resolution
• Facilitating a significant transfer to or from the Government of North Korea of bulk cash, precious metals, gemstones, or other stores of value (other than those listed above)
• Selling, transferring, or providing significant amounts of crude oil, condensates, refined petroleum, other types of petroleum or petroleum byproducts, liquefied natural gas, or other natural gas resources to the Government of North Korea (except for heavy fuel oil, gasoline, or diesel fuel for humanitarian use or as covered by an exception)
• Engaging in, being responsible for, or facilitating the online commercial activities of the Government of North Korea, including online gambling
• Purchasing or acquiring fishing rights from the Government of North Korea
• Purchasing or acquiring significant types or amounts of food or agricultural products from the Government of North Korea
• Engaging in, being responsible for, or facilitating the exportation of workers from North Korea in a manner intended to generate significant revenue, directly or indirectly, for use by the Government of North Korea or by the Workers’ Party of Korea
• Conducting a significant transaction in North Korea’s transportation, mining, energy, or financial services industries
• Facilitating the operation of any branch, subsidiary, or office of a North Korean financial institution (except as specifically approved by the UN Security Council, and other than through a correspondent account as described above)

The law sets the stage for a possible future expansion of sanctions in new areas by requiring that the president report on, among other things, whether reasonable grounds exist to designate additional North Korean individuals and entities, including the Central Bank, the degree to which individuals and foreign governments provide specialized financial messaging services (e.g., SWIFT) to North Korean financial institutions, and the degree to which other governments and foreign ports have knowingly failed to implement existing UN Security Council resolutions against North Korea.  In addition, the president must evaluate whether North Korea meets the criteria for designation as a state sponsor of terrorism, a label that the US government removed from North Korea in 2008.

Additional congressional sanctions against North Korea may be in the works.  According to Senator Bob Corker (R-Tenn.), “the House has committed to approving additional enhancements to the North Korea sanctions provisions in the near future.”  That could include some elements of the Banking Restrictions Involving North Korea (BRINK) Act of 2017, which was modeled on the Iran secondary sanctions laws passed by Congress in 2010 and 2012 and would impose new types of secondary sanctions on financial institutions doing business with North Korea.

It is also important to note that the State Department issued a travel ban to North Korea for US passport holders on August 2, 2017, which is set to take effect on September 1, 2017.  Certain details of the ban are undergoing revision during a 21-day comment period.  In addition, the House has marked up the North Korea Travel Control Act, H.R. 2732, which would prohibit travel to, from, or within North Korea. 

Sanctions on Iran

The Iran section of the law, called the Countering Iran’s Destabilizing Activities Act (CIDAA), does not significantly change existing US sanctions against Iran.  Among other provisions, it requires the president to impose sanctions pursuant to Executive Order 13224 (targeting terrorists and their supporters) against Iran’s Islamic Revolutionary Guard Corps (IRGC) and its officials, agents and affiliates.  This change will not have a significant practical effect for US persons, because the IRGC and its affiliates are already subject to similar sanctions based on a weapons of mass destruction proliferation authority, among others, and the IRGC’s Quds Force is already designated under Executive Order 13224 and other authorities.  Still, this sends the message that the US Congress views the entire IRGC, not just the Quds Force, as being responsible for Iran’s support for acts of international terrorism, which raises potential counter-terrorism finance risks for US and non-US persons.  This provision of CIDAA is much less aggressive than the Trump Administration’s earlier proposal to designate the IRGC as a Foreign Terrorist Organization, which has some support in Congress, and would have quite a significant legal and practical impact.

CIDAA also seeks to reinforce the UN Security Council arms embargo against Iran by imposing secondary sanctions for the supply, sale, or transfer of arms to Iran. 

CIDAA’s supporters argue that these provisions do not violate the Iran nuclear deal (called the JCPOA), because, among other reasons, they are not related to Iran’s nuclear program.  However, the Government of Iran has taken the position that CIDAA does violate the deal and has already taken the issue to the JCPOA’s dispute commission.  It will be important to watch how the commission handles this complaint.  Perhaps even more significant for the fate of the JCPOA, President Trump has stated he expects the US government not to certify Iran’s compliance with the deal in the fall, and he “would have had them noncompliant 180 days ago.”  President Trump even said he will overrule his staff on this issue.  If the State Department declines to certify Iran’s compliance with the JCPOA this fall, this could set in motion events that may jeopardize the future of the deal.  It remains to be seen whether the Trump Administration would in fact take such a drastic step, or if they will settle on a compromise that does not actually threaten the continuing viability of the JCPOA.  

Conclusion

This far-reaching sanctions law is a major step by Congress to assert itself in the sanctions arena and constrain the Trump Administration’s discretion to ease sanctions on Russia.  Despite some lingering doubts about how this law will be implemented, the new sanctions on Russia are unprecedented, particularly those targeting non-US persons, and could have a significant effect on commerce with Russia.

President Trump issued a signing statement disputing the constitutionality of some of the provisions, including the congressional review requirement for any move to lift Russia sanctions (although the president said he would “honor” these provisions nonetheless).  The president also disputed the provisions on recognizing Crimea and other disputed areas occupied by Russia, and on visa bans that could conflict with the president’s power of diplomacy.  The presidential signing statement underscored that the law should not be used “to hinder our important work with European allies to resolve the conflict in Ukraine” or “to hinder our efforts to address any unintended consequences it may have for American businesses, our friends, or our allies.”  Those statements raise some doubt about how the administration will implement and enforce some of the core provisions, which we will continue to monitor. 

As Congress considered this legislation, some European governments and the EU objected vociferously, arguing that some of the proposed Russia sanctions violated international norms by targeting European energy companies and projects to export Russian energy supplies to Europe.  While the European Commission’s president noted that the final version addressed many of the EU’s initial concerns, the EU threatened to respond “within days” if “the US sanctions specifically disadvantage EU companies trading with Russia in the energy sector.” 

We will continue to keep you informed about sanctions developments.  Further commentary is available on the Steptoe International Compliance Blog.  You can also follow us on Twitter (@SteptoeIntlReg).