Groundbreaking Russia Sanctions Bill Introduced in the Senate

On January 11, 2017, a bipartisan group of US Senators introduced a bill – the Countering Russian Hostilities Act of 2017 – to impose unprecedented sanctions on Russia and persons and entities conducting certain types of business involving Russia.  The bill would codify into statute most of the existing sanctions on Russia, making it more difficult (though not impossible) for the incoming administration to reverse those measures through executive action.  It would also impose broad new sanctions aimed at both US and non-US persons that would target broad swaths of activity involving the Russian oil/gas, technology, financial, defense/intelligence, construction, engineering, and civil nuclear sectors. 

The new sanctions contemplated by this bill are much broader than the current US sanctions regime targeting Russia.  For example, rather than focusing more narrowly on the emerging fields of Russia’s oil and gas development (deepwater, Arctic offshore and shale), as current sanctions do, this bill targets the entirety of Russia’s oil and gas sector, among other sectors.  Similarly, rather than targeting only debt of certain maturity periods issued by certain Russian entities, this bill targets all debt issued by the Russian government or by any entity owned or controlled by the Russian government, along with Russia’s efforts to privatize its state-owned sector.  Moreover, the statute adopts a “secondary sanctions” approach by extending the sanctions regime to the activities of non-US persons, whereas current US sanctions are focused on the activities of US persons.  If enacted, there would be a significant question about how the incoming Trump Administration would implement these measures, mandatory though they are under the language of this bill.

The bill is co-sponsored by a senior and bipartisan group of senators (Cardin, McCain, Menendez, Graham, Shaheen, Rubio, Klobuchar, Sasse, Durbin, and Portman).  It was introduced in response to Russia’s reported cyber intrusions involving the 2016 US elections and its other “aggressive” activities around the world, including in Syria and Ukraine/Crimea.  

If enacted into law, this bill has the potential to be a game-changer for sanctions policy, diplomacy and security policy involving Russia.  Even if not enacted into law, it shows strong congressional opposition to any move by the incoming administration to change drastically the course of US-Russia relations or to lift existing Russia sanctions. 

The bill’s focus on the activities of non-US persons could put pressure on EU states and others to maintain their own sanctions on Russia – in fact, it could reignite a debate in those countries about whether to ratchet up their sanctions on Russia in order to prevent their companies and nationals from crossing the lines set by this bill, which goes much further than any major country’s existing sanctions on Russia.  Alternatively, it could have the opposite effect, creating diplomatic tension between the United States and its major trading partners that may not want their companies and nationals to face restrictions that go beyond their own domestic law and policy. 

Ultimately, it remains to be seen whether this bill will be enacted and in what form, and, if enacted, how the Trump Administration and the rest of the world will react.  What is clear is that this bill sets a new foundation for the debate on Russia policy and challenges many of the preexisting assumptions about the future course of Russia sanctions under President-elect Trump.  Below we summarize the detailed provisions of this bill and discuss their possible impact.

Codifying Existing Sanctions

Section 104 of the bill codifies into statute Executive Order 13694, on which we have previously commented, and requires that the sanctions imposed under that order remain in effect until the president certifies to Congress that the Russian government “has ceased cyberattacks against United States official and unofficial entities.”  Presumably, the bill’s use of the word “cyberattacks” rather than cyber “intrusions” or other broader language would set a high bar for activities that would complicate the president’s ability to terminate these sanctions, such as activities that involve publicly releasing hacked information, damaging facilities, etc.

Section 206 codifies into statute various current sanctions regimes targeting Russia through executive action, including all of the executive orders relating to Ukraine and Crimea (specifically, Executive Orders 13660, 13661, 13662, and 13685).  It also codifies into statute the “sanctions imposed pursuant to” those orders, which would presumably include the directives issued by the US Treasury Department’s Office of Foreign Assets Control (OFAC), and the designations on OFAC’s Specially Designated Nationals (SDN) and Sectoral Sanctions Identifications (SSI) lists that were made under those orders and directives, along with the Entity List designations made by the US Commerce Department’s Bureau of Industry and Security (BIS).  Some export controls on Russia probably would not be codified into law by this provision because they do not appear to have relied on the authority of those executive orders, such as the restrictions imposed by BIS on transactions involving Russia’s deepwater, Arctic offshore and shale oil and gas resources, and those involving military end-users or end-uses in Russia.  However, all of these questions will be important for the Senate Foreign Relations Committee to clarify during the bill’s markup.  It is worth keeping in mind that there are other sanctions impacting Russia, not affected by this bill, that are imposed under other authorities, many of which have a statutory basis, such as the Magnitsky Act, Syria-related sanctions, nonproliferation sanctions, and others. 

It is noteworthy that there is no presidential waiver authority applicable to Section 206, although the bill provides for the termination of all of the sanctions imposed under Title II upon a certification by the president 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.”  Unlike the provision allowing for the termination of the sanctions under Section 104, this is a very high bar. 

New Secondary Sanctions

Section 103 requires the president to block the assets and ban the entry into the United States of any person that the president determines knowingly engaged in significant activities on behalf of Russia undermining cybersecurity and either having a detrimental effect on infrastructure or compromising democratic institutions of the US or an ally.  It also requires the president to impose those sanctions on any party that materially assists with such activity, along with agents, affiliates, etc. of the actor.  This section is noteworthy in that it expands the cyber-related sanctions of Executive Order 13694 to include impacts on US allies, rather than being limited to impacts on the United States itself, likely, at least in part, in anticipation of upcoming elections in Europe and concerns about possible Russian interference.  Any business with any entity linked to Russia that may have a role in such activity would be subject to sanctions risk – that could potentially include large portions of the technology sector, along with the Russian government/security sector.

Section 105 requires the president, within 180 days after the bill’s enactment, to impose five or more measures from a menu of available sanctions against persons knowingly engaging in significant transactions with a person that is part of, or operates for or on behalf of, the Russian defense or intelligence sectors, including the GRU and FSB, which, as we previously discussed, are already sanctioned.  The menu of sanctions includes:

1. Prohibiting “any person” from conducting any transactions or dealings involving property in which the sanctioned person has any interest;
2. Prohibiting payments and transfers of credit through financial institutions subject to US jurisdiction, in which the sanctioned person has an interest;
3. Prohibiting transactions in foreign exchange that are subject to US jurisdiction, in which the sanctioned person has an interest; 
4. Prohibiting US persons from investing in or purchasing “significant amounts” of equity or debt instruments of the sanctioned person;
5. Prohibiting US financial institutions from providing  loans or credit to the sanctioned person above $10 million in any 12-month period (with an exception for activities to relieve human suffering);
6. Denying export licenses for exports or reexports to the sanctioned person;
7. Excluding the corporate officers, principals or controlling shareholders of the sanctioned person from entry into the United States;
8. Cutting off loans from international financial institutions that would benefit the sanctioned person;
9. Cutting off assistance from the Export-Import Bank of the United States for exports to the sanctioned person; and
10. Prohibiting the US Government from procuring goods or services from the sanctioned person.

For financial institutions, the menu also includes:

1. Precluding the sanctioned person from being designated as a primary dealer in US Government debt; and
2. Prohibiting the sanctioned person from serving as an agent of the US Government or as a repository for US Government funds.

The president is also authorized to impose any of these sanctions on the “principal executive officer or officers” of the sanctioned person, or on persons “performing similar functions and with similar authorities as such officer or officers.”

The bill allows the president to waive the mandatory sanctions in Sections 103 and 105 with a determination that the waiver is “vital to the national security interests of the United States” or that it “will further the enforcement” of these provisions.  However, in order to waive the applicability of Sections 103 and 105, the president must also certify that the Russian government “has made significant efforts to reduce the number and intensity of the cyber intrusions conducted by that government.”

Sections 207 through 211 require the president to impose five or more measures from a substantially identical menu of available sanctions against persons who knowingly:

1. Make an investment of $20 million or more (or a combination of investments that equal or exceed $20 million over a 12-month period, but only if each such investment is of $5 million or more) that would “directly and significantly” contribute to the “enhancement” of Russia’s ability to develop oil or gas resources; (It is noteworthy that the bill does not limit this to oil/gas resources located in Russia, given that Russian state-owned companies are involved in oil/gas developments in several other countries.)
2. Sell, lease or provide to Russia goods, services, technology, information, or support valued at $1 million or more (or $5 million over a 12-month period) that could “directly and significantly facilitate the maintenance or expansion” of oil or gas production in Russia, including constructing, modernizing or repairing oil refineries and natural gas infrastructure;
3. Make “an investment that directly and significantly contributes to the enhancement” of Russia’s ability to construct energy export pipelines, or sell, lease or provide to Russia goods, services, technology, information or support “that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy pipelines” by Russia, when either such type of activity is valued at $1 million or more (or $5 million over a 12-month period);
4. Make “an investment that directly and significantly contributes to the enhancement” of Russia’s ability to construct civil nuclear power plants, or sell, lease or provide goods, services, technology, information or support that “could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of civil nuclear plants” by Russia, when either such type of activity is valued at $1 million or more (or $5 million over a 12-month period);
5. Purchase, subscribe to, or facilitate the issuance of Russian sovereign debt or the debt of any entity owned or controlled by the Russian government, if issued on or after the date of enactment; or
6. Make or facilitate an investment of $10 million or more (or several investments each of $1 million or more aggregating to $10 million or more in any 12-month period) that “directly and significantly contributes” to Russia’s ability to privatize state-owned assets. (It is noteworthy that this last provision requires that the person act with “actual knowledge.”)

The bill authorizes the president to waive the sanctions in Sections 207 through 211 with a determination that doing so would be “vital to the national security interests of the United States” or would “further the enforcement” of these provisions, but only if he first certifies that the Russian government “is taking steps to implement the Minsk Agreements [involving the conflict in Ukraine] and to substantially decrease its military activities in Syria.” 

Section 212 requires the president to block the assets and ban entry into the United States of a foreign person determined, based on credible information, to be “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, or to have provided material assistance to such a person, along with agents, affiliates, etc. of such a person.  This could affect any dealings with Russian entities operating in Crimea, and possibly also eastern Ukraine, the Russia-supported regions of South Ossetia and Abkhazia in northern Georgia and potentially elsewhere (e.g., the Transnistria region of Moldova).  The bill allows the president to waive these sanctions with a determination that doing so would be “vital to the national interests of the United States,” along with a certification that Russia has “made efforts to reduce serious human rights abuses in any territory forcibly occupied or otherwise controlled by” Russia.

Other Measures

On the diplomatic front, the bill prohibits US federal agencies from recognizing Russian sovereignty over Crimea or the independence of two Russian-supported regions of Georgia, although it is not clear how far such a legislative mandate would curtail the president’s constitutional power to “receive ambassadors” and recognize states.  Among other measures, it prohibits US vessels and aircraft from taking any action that would implicitly recognize Russian sovereignty over Crimea or the independence of the two regions of Georgia, presumably including seeking overflight rights and related requirements.  It also states that it is “the policy of the United States . . . to ensure that any relevant sanctions relief” for Russia “is contingent on” Russia’s recognizing Ukraine’s sovereignty over Crimea and restoring Ukraine’s control “of the entirety of its eastern border” with Russia in the conflict zone. 

The bill also purports to require the US government to provide lethal defensive weapons to Ukraine to “contain, reverse, and deter” Russian “aggression,” although such a provision could conflict with the president’s constitutional authority as Commander in Chief.  

Title III of this bill makes several findings regarding corruption in Russia that could lead to increased enforcement of anti-corruption, money laundering, forfeiture and related laws against Russian government officials.  In this context, it is noteworthy that the bill specifically requires the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish a “high-level task force” along with OFAC and other agencies to focus on Russian financial crimes, including by issuing additional real estate geographic targeting orders.  It also requires public reporting on Russian-supported media activities, to include naming US companies that advertise in such media outlets.  Further, it would authorize a $100 million two-year appropriation for an anti-corruption fund to combat Russian influence and other rule of law issues in Europe and Eurasia.

Conclusion

The bill is supported by a number of senior senators, including Senate Armed Services Committee Chairman John McCain (R-AZ) and Senate Foreign Relations Committee Ranking Member Ben Cardin (D-MD).  Notably absent among the co-sponsors is Senate Foreign Relations Committee Chairman Bob Corker (R-TN), who co-sponsored the Ukraine Freedom Support Act in 2014.  He and other Senate Republican leaders, such as Senate Majority Leader Mitch McConnell (R-KY) and Senate Majority Whip John Cornyn (R-TX) have been careful not to wade too deeply into the US-Russia fray before President-elect Trump is inaugurated.  Moreover, Chairman Corker may not schedule a markup of the bill until the nomination for President-elect Trump’s Secretary of State, former ExxonMobil CEO Rex Tillerson, is successfully voted out of the Senate Foreign Relations Committee and reported to the full Senate.  Even if that occurs, the House is in recess the week of January 16; therefore, the likelihood of either chamber voting on the bill and sending it to President Obama before President-elect Trump is inaugurated becomes more remote by the day.  Once President-elect Trump takes office, supporters of the bill may need to whip a veto-proof majority that includes Republicans Republicans willing to vote against their new president in order to advance the legislation.

Whatever the outcome of this or any other legislation concerning Russia, the mere introduction of such a strongly anti-Russia bill by a senior and bipartisan group of senators illustrates the intensity of the environment that the new administration will confront as it seeks to formulate its approach to US-Russia relations. 

We will continue to keep you apprised of sanctions developments.  You can also follow us on Twitter @SteptoeIntlReg.