Overview
The Treasury Department late last night issued several reports to Congress pursuant to mandates in the Countering America’s Adversaries Through Sanctions Act (CAATSA), including under CAATSA Sections 241 (Report on Senior Foreign Political Figures and Oligarchs in the Russian Federation) and 242 (Report on Effects of Expanding Sanctions to Include Sovereign Debt and Derivative Products). While the headlines on the Section 241 report on Russian oligarchs, senior government officials, and parastatal entities blare “no sanctions imposed,” the details are less reassuring.
In response to a question from Senator Robert Menendez (D-NJ) in testimony before the Senate Banking Committee today, Treasury Secretary Mnuchin stated “There will be sanctions that come out of this,” seemingly referring to the Section 241 report. Secretary Mnuchin went on later, in response to a separate question from Senator Brian Schatz (D-HI), to describe that intelligence work that went into this report and stated “And now, we will take the basis of that report and look at kind of – as we do in the normal course, where it’s appropriate to put sanctions. . . . So this should in no way be interpreted as we’re not putting sanctions on any of the people in that report.” While the Secretary’s statements were not entirely clear, they suggest the possibility of sanctions on at least some of the individuals or entities on the Section 241 list as Treasury rolls out additional Russia sanctions going forward.
The unclassified version of the Section 241 report has been posted online by media organizations. It includes a list of Russia’s 1) senior political figures (which includes the senior executives of major state owned enterprises, among others), 2) “oligarchs” (defined for the purpose of this report as individuals with an estimated net worth of $1 billion or more), and 3) parastatal entities (defined for the purpose of this report as companies owned 25% or more by the state with 2016 revenues of approximately $2 billion or more). The names in the list were selected based on “objective criteria” drawn from “reliable public sources,” according to Treasury. According to Bloomberg, the unclassified Section 241 list matches that published by the Russian edition of Forbes magazine last year. Critics have been quick to point out the fundamental flaws of this unclassified list. Yet the more relevant information is likely contained in the classified annex.
The Section 241 report states clearly that it “is not a sanctions list,” and that inclusion on the list “does not, in and of itself, imply, give rise to, or create any other restrictions, prohibitions, or limitations on dealings with such persons by either US or foreign persons.” An OFAC Frequently Asked Question says essentially the same thing.
The report also states that inclusion on the list “does not constitute the determination by any agency that any of those individuals or entities meet the criteria for designation under any sanctions program.” However, a side-by-side comparison of the criteria in Section 241 of CAATSA and those in Section 1(a) of Executive Order 13661 shows a possible basis for future sanctions designations against at least some of the individuals and entities in the Section 241 report. Executive Order 13661 “blocks” the property of any person that the Secretary of the Treasury, in consultation with the Secretary of State, determines to be, among other things, “an official of the Government of the Russian Federation,” or “to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly,” or “to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of,” a senior official of the Government of the Russian Federation. Treasury’s decision to include at least some of the individuals and entities on the Section 241 list (for example, the individuals in the list of “senior political figures”) would seem to be a possible basis for a Treasury “determination” that they also meet the broad criteria in Executive Order 13661. Based on Secretary Mnuchin’s testimony today, that apparent discrepancy may be in the process of being resolved – in the form of more sanctions.
Section 241 mandates the inclusion of additional information that the unclassified report does not contain (but which is presumably contained in the classified annex), such as:
- Listing oligarchs “as determined by their closeness to the Russian regime” in addition to their net worth, and assessing their relationship with “President Vladimir Putin or other members of the Russian ruling elite.”
- Identifying the “indices of corruption with respect to” Russia’s senior political figures and oligarchs, and their “estimated net worth and known sources of income,” along with those of “their family members (including spouses, children, parents, and siblings), including assets, investments, other business interests, and relevant beneficial ownership information.” It also requires an “identification of the non-Russian business affiliations of those individuals.”
- The “beneficial ownership” of Russian “parastatal entities” and “scope of the non-Russian business affiliations of those entities.”
- “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.”
- The likely effects of imposing additional sanctions on Russian oligarchs, parastatal entities and state-owned enterprises, “including impacts on the entities themselves and on the economy of the Russian Federation, as well as on the economies of the United States and allies of the United States.”
