What Can We Say About The Trump Administration’s First Russia Sanctions?

The Treasury Department’s Office of Foreign Assets Control (OFAC) today designated 38 individuals and entities in order to “reinforce[] existing sanctions on Russia.”  This announcement came while President Trump was meeting the President of Ukraine in the White House.  These were the first new sanctions under the Trump Administration related to the conflict in Ukraine and could provide some insight about where Russia sanctions may be heading under this Administration.  OFAC has sanctioned Russian individuals and entities since January 20^th, but for other reasons, such as for activity related to North Korea. This may be the first concrete signal that the Trump Administration intends to adhere to a tough line on Russia’s involvement in Ukraine.  While this may seem unremarkable, recall reports that the Trump Administration had directed the State Department soon after Inauguration Day to develop plans for lifting sanctions against Russia.  There were also the very recent reports that the Administration was considering returning the Russian government’s diplomatic properties that had been closed for counterintelligence reasons as part of a broader sanctions action, which raised questions about whether the Trump Administration may have been open to unilateral concessions to Russia.  Even just a few weeks ago, National Economic Council Director Gary Cohn said that the President was still “looking at” what to do about Russia sanctions, and, “right now, we don’t have a position." Even many of this Administration’s official policy statements on the topic have been qualified in a way that raised questions about how firm the policy really was.  For example, at his January 11, 2017 confirmation hearing before the Senate Foreign Relations Committee, in response to a question about whether the United States would ever recognize the annexation of Crimea while he was in office, Secretary Tillerson stated, “The only way that that could ever happen is if there were some broader agreement that was satisfactory to the Ukrainian people. So, absent that, no, we would never recognize (that).”  As to whether the United States should maintain sanctions against Russia for its actions in Ukraine, Secretary Tillerson stated at the same hearing, “I would recommend maintaining the status quo until we are able to engage with Russia and understand better what their intentions are.”  Secretary Mnuchin at his January 19, 2017 confirmation hearing before the Senate Finance Committee was even more open-ended in answering a question about whether he would be committed to enforcing Russia sanctions:

100 percent so. And I think the president-elect has made it very clear that he would only change those sanctions if he got quote, ‘A better deal and we got something in return,’ whether it was on nuclear arms or -- or -- or other areas, but yes...

These statements were anything but certain about whether the Trump Administration planned to continue or change US sanctions policy towards Russia. What is different about today’s designations is that this is the first time the Trump Administration has taken action in the area of Ukraine-related sanctions, and this was accompanied by clear policy statements.  The action reinforces the reliability of the policy statements, and the policy statements explain the action.  Moreover, the policy statements were clear and direct.  This is new. So what is the Trump Administration’s Russia sanctions policy?  OFAC’s announcement said that today’s designations were “consistent” with the US “commitment” to “facilitate Crimea’s return to Ukraine.”  It also stated that “US sanctions on Russia related to the situation in eastern Ukraine will remain in place until Russia fully honors its obligations under the Minsk Agreements.  US sanctions related to Crimea will not be lifted until Russia ends its occupation of the peninsula.”  Treasury Secretary Mnuchin added that “there should be no sanctions relief until Russia meets its obligations under the Minsk agreements.” These statements are clear and fully consistent with the Obama Administration’s policy.  The position that there will be no sanctions relief until Russia “fully” implements the Minsk Agreements should put to rest speculation that this Administration would consider, for example, piecemeal sanctions relief in exchange for piecemeal progress in Ukraine, or sanctions relief in exchange for progress on an unrelated front like nuclear weapons.  What this really may tell us is that there may be no Russia sanctions relief for the foreseeable future, absent a dramatic change in circumstances. The domestic political challenge for President Putin to implement the Minsk Agreements “fully” should not be underestimated. What about last week’s Senate bill that would tie the President’s hands on Russia sanctions – doesn’t that make this a moot point?  No.  While that was a remarkable bill that sends a strong message on Russia sanctions (see our post about this bill), it may not make it through the House (where leadership has reportedly thrown up obstacles to moving it forward), let alone the White House, and may never become law.  As things stand today, President Trump retains the unilateral authority to lift any or all Russia sanctions, for any reason, or no reason at all.  So the Administration’s policy on Russia sanctions is of paramount importance. Some would say that the policy statements in OFAC’s announcement are watered down in comparison with similar statements under the Obama Administration and represent a softening of tone towards Russia.  That is a fair point, but the core substance is consistent.  For example, last December, OFAC’s Acting Director stated in a similar sanctions announcement that “Today’s action is in response to Russia’s unlawful occupation of Crimea and continued aggression in Ukraine . . . These targeted sanctions aim to maintain pressure on Russia by sustaining the costs of its occupation of Crimea and disrupting the activities of those who support the violence and instability in Ukraine.”  The difference in tone is clear, using terms like “unlawful” and “aggression” and referring to policy objectives such as “sustaining the costs” of Russia’s occupation of Crimea and “disrupting” its support for “violence and instability” in Ukraine.  Still, though, the underlying policy then was the same: “The United States remains steadfast in our commitment to maintain sanctions until Russia fully implements its commitments under the Minsk agreements.” Today’s action was not a particularly aggressive set of designations and may indicate some level of continuing caution by the Trump Administration in its dealings with Russia.  Most of the designations involved officials and entities of the purported governments of Crimea, Luhansk (LPR) and Donetsk (DPR), which are at the core of US sanctions targeting and not in any way surprising, along with subsidiaries of already-sanctioned entities, equally unremarkable.  But there were a few noteworthy designations that show that the Administration is willing to take action on Ukraine-related sanctions targets that impose real costs on Russia.  For example:

• KPSK, OOO is “one of Russia’s top corporate property insurers,” which was designated for operating in Crimea and participating in insuring the bridge being constructed across the Kerch Strait connecting Crimea to Russia.  The designation of this entity could have ramifications across the Russian insurance and real estate sectors.  This continues the Obama Administration’s policy of aggressively targeting entities associated with the Kerch bridge project.
• IFD Kapital is a Moscow-based “diversified holding company with investments in several sectors of the Russian economy” that was designated because it “claimed control” of a hotel complex in Crimea “after its previous managers halted operations in the Crimea region due to US sanctions.”  Taking action against a Russia-based investment company with a presence throughout the Russian economy could impose real economic costs in Russia proper, not just in Crimea, DPR and LPR.
• Moscow-based Oboronlogistika, OOO is “the Russian Defense Ministry’s sole executor for the procurement of goods, works, and services for maritime transport of military troops and freight” in Crimea that owns vessels “operating in and around the Kerch ferry and the Baltic Sea.”  This designation adds another layer of complexity to any dealings with the Russian defense industry, and may also impact the Baltic Sea ferry service.
• TSMRBANK, OOO is a Russian bank that provides services in the LPR and DPR.  OFAC also designated the following six banks for operating in Crimea: Taatta, AO; Joint Stock Company Black Sea Bank of Development and Reconstruction; Joint Stock Commercial Bank Rublev; Joint Stock Company Commercial Bank North Credit; IS Bank, AO; and VVB, PAO.

These designations show that the Trump Administration is willing to put teeth into its Russia sanctions policy.  The bigger question that this raises is whether talks with Russia are not proceeding well and whether the Trump Administration may be giving up on its efforts to reach some sort of “deal” with Russia.  Recall Secretary Tillerson’s statement last week that "what we would like is the flexibility to turn that heat up when we sense that our efforts" are failing to secure more cooperation from Russia on counterterrorism and Syria.  So, what conclusion should we draw now that the Administration has “turned up the heat”?  Are these efforts failing?  Alternatively, is this the Administration’s way of trying to take the wind out of the sails of the Senate-led effort to ratchet up sanctions on Russia and buy more time to reach a “deal”? Another possibility is that some of the details of OFAC’s action may not have been fully coordinated with the White House or senior levels of the State Department, which may not be entirely surprising given the continuing absence of senior appointees at the State Department.  While the OFAC press release did contain clear policy statements, there remains a lingering possibility that this may not in fact represent “Administration” policy.  A look at recent statements from Secretary Tillerson and the State Department could be viewed as casting continuing doubt about what exactly this Administration’s Russia sanctions policy is.  At a June 14, 2017 budget hearing before the House Foreign Affairs Committee, Secretary Tillerson stated “I think it is important that we be given sufficient flexibility to achieve the Minsk objectives. It is very possible that the government of Ukraine and the government of Russia could come to a satisfactory resolution through some structure other than Minsk, but would achieve the objectives of Minsk, which we're committed to.  So my caution is I wouldn't want to have ourselves handcuffed to Minsk if it turns out the parties decide to settle this through another -- a different agreement.”  This echoes some of the statements from earlier in the Administration, mixing firmness with flexibility.  At today’s press briefing, after OFAC had announced its designations, State Department spokesperson Heather Nauert said “We remain committed to the Minsk agreements. We continue to call on Russia to adhere to the Minsk agreements. That hasn't changed. The only thing that's new about this, is the secretary . . . likes results.  So we, the United States, has stood by, we have watched very little happen with regard to the Minsk agreements. It's been about two and half years, three years or so.  We would like to see something happen.  If Russia and Ukraine would like to come together and work out some separate channel of sorts their own agreement, we could be OK with that. . . . the results wouldn't change, but if there is a different mechanism, by which they can work out those results, then -- then that would be OK.”  One could interpret that as going beyond mere flexibility, as an outright repudiation of the Minsk Agreements. While today’s OFAC announcement was clear and consistent with US Government policy since the beginning of the crisis in Ukraine, and showed a willingness to impose costs on Russia for its actions in Ukraine, there still seems to be some doubt about what the “Administration’s” policy, and the President’s policy, toward Russia is.