On 13 February, the EU published an Information Note to EU business operating and/or investing in Crimea/Sevastopol.

The new version of this note includes updates about relevant regulations as well as more information about precautions to take when doing business in the region.

On the last page, it provides links to further information on the implementation of restrictive measures in the following documents:

  • Guidelines on implementation and evaluation of restrictive measures, see here
  • Best Practices for effective implementation of restrictive measures, see here
  • Guidelines on the implementation of the prohibition on making indirectly available of funds and economic resources and the notions of ownership and control, see here
  • Frequently Asked Questions (FAQ), click here
  • EU sanctions map, see here

The Countering America’s Adversaries Through Sanctions Act (CAATSA) was signed into law by President Trump on August 2, 2017. This put in motion several deadlines, three of which are due next Monday, January 29, 2018.

Based on past experience, the Trump administration may not meet these deadlines. Nonetheless, it is clear that the impact of these sanctions will be felt differently by different sectors of the U.S. economy. This is an opportunity for industries to participate in a dialogue with State and the key sanctions architects to seek ways to mitigate the disruption of any sanctions while preserving their intended effect on Russian interests.

Section Title Action
231 Imposition Of Sanctions With Respect To Persons Engaging In Transactions With The Intelligence Or Defense Sectors Of The Government Of The Russian Federation. 231(a) states, “The President shall impose five or more of the sanctions described in section 235 with respect to a person the President determines knowingly, on or after such date of enactment, 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 the Government of the Russian Federation, including the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.”

 

Section Title/Responsible Agency Summary
241 Report On Oligarchs And Parastatal Entities Of The Russian Federation.

This report is to be submitted by the Secretary of the Treasury in consultation with the Director of National Intelligence and the Secretary of State.

241(a)(1) – (a)(5) describe the required elements of the report:

·         The identification and assessment of senior foreign political figures and oligarchs in the Russian Federation;

·         An assessment of Russian parastatal entities;

·         The exposure of key U.S. economic sectors to these entities;

·         The likely effects of imposing debt and equity restrictions on parastatal entities, as well as adding them to Treasury’s Specially Designated Nationals and Blocked Persons List (SDN); and

·         The potential impacts of imposing secondary sanctions on persons or entities identified in this report.

 

Section Title/Responsible Agency Summary
243 Report On Illicit Finance Relating To The Russian Federation.

This report is to be submitted by the Secretary of the Treasury in consultation with the Director of National Intelligence and the Secretary of State.

243(a) states this report will describe “in detail the potential effects of expanding sanctions under Directive 1 (as amended), dated September 12, 2014, issued by the Office of Foreign Assets Control under Executive Order No. 13662 (79 Fed. Reg. 16169; relating to blocking property of additional persons contributing to the situation in Ukraine), or any successor directive, to include sovereign debt and the full range of derivative products.”

 

In December 2017, the Government of Venezuela announced the adoption of a new digital currency called Petro—backed by Venezuelan oil resources—in what it described as an attempt to avoid the impact of U.S. Financial Sanctions. On January 19, OFAC published a new Frequently Asked Question (FAQ) offering its view that the proposed currency may be exposed to U.S. sanctions.

As previously reported by Crowell, on August 24, 2017, President Trump issued Executive Order (E.O.) 13808, prohibiting U.S. persons from dealing in new debt (of certain maturities)bonds (previously issued ones other than those identified by general license), and all new securities with the Government of Venezuela, and entities it owns or controls, including Petróleos de Venezuela (PDVSA) (but generally excluding CITGO Holdings Inc.).

According to OFAC, investing in the Petro could infringe these requirements.

Specifically, while OFAC offers very little insight into the structure of the Petro, the FAQ states that the new digital currency would carry rights to receive commodities in specified quantities at a later date. The new FAQ explains that a digital currency with these characteristics “would appear to be an extension of credit” to the Venezuelan Government, and therefore, U.S. persons engaging in transactions involving the Petro “may be exposed to U.S. sanctions risk.” The E.O. defines “new debt” broadly, including extension of credit. The FAQ makes no reference to the duration of any investment, but appears to assume that any investment would be for a maturity in excess of that permitted under U.S. sanctions.

Since its announcement, the Petro has been subject to controversy. The Venezuelan Government alleges that the new currency is intended to ease the deep economic recession in the country. However, commentators have expressed concern that the new Petro not only faces risks of corruption, but also is likely to have its own challenges under Venezuelan law. For instance, Article 3 of Venezuela’s Hydrocarbons Law establishes that oil reserves are part of the public domain, and as such, are not transferable. In early January, Venezuela’s Legislature rejected the issuance of the Petro, on the argument that it is illegal and unconstitutional. President Maduro, however, recently announced that the Petro is set to launch, ignoring the Legislature’s powers.

The Petro is also being closely watched by observers in Russia. Having been subject to financial sanctions that closely resemble those in force against Venezuela since July 2014, Russia recently announced it is considering following Venezuela’s steps and adopting a cryptocurrency it has also stated is intended to limit the impact of U.S. Sanctions.

Depending on how that currency is structured, OFAC’s FAQ on the Petro may give some insight into how it would view a similar effort undertaken by Russia.

For more details on Venezuela’s Financial Sanctions, please see Crowell’s Client Alerts from September and November 2017.

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) published new guidance in October related to the implementation of the Countering America’s Adversaries Through Sanctions Act (CAATSA). As we have previously summarized, the new law is divided into three parts: Title I-Sanctions with Respect to Iran; Title II-Sanctions with Respect to the Russian Federation and Combating Terrorism and Illicit Financing; and Title III-Sanctions with Respect to North Korea.

Although guidance is pending on Title III, OFAC has now published FAQs or updated FAQs on Titles I and II as follows.

Guidance on Title I / Iran Sanctions Developments

On October 13, in accordance with Section 105 of CAATSA, OFAC imposed sanctions on the Iranian Revolutionary Guard Corps (IRGC) applicable under global terrorism Executive Order 13224. On October 31, OFAC amended its Global Terrorism Sanctions Regulations to block the property and interests in property of foreign persons identified by OFAC as officials, agents, or affiliates of the IRGC.

As OFAC FAQs 533 and 534 explain, although the IRGC was previously sanctioned by OFAC under other programs, the new designation does not allow for certain exemptions related to personal communications, humanitarian donations, information or information materials, and travel, which were previously available.

Guidance on Title II / Russia Sanctions Guidance

OFAC and the State Department have also now published substantial guidance related to implementation of the various Russia-related sanctions. The following table summarizes the recent changes, issued at three separate times in the last six weeks (September 29, October 27, and October 31):

 

Section of CAATSA

Topic

Agency

Guidance / Regulations Issued

Section 223

Modification of sectoral sanctions

OFAC

Amended FAQs Nos. 370, 394-95, 405, 408-10, 415, & 419

Published Modified Directive 1
Published Modified Directive 2
Published Modified Directive 4

Sectoral sanctions related to railways and mining / metals

OFAC

Published New FAQ No. 539

Section 225

Secondary sanctions related to special Russian crude oil projects

State

Published New Guidance and FAQ

Section 226

Secondary sanctions on FFIs related to financing transactions with sanctioned persons and related to special crude oil projects

OFAC

Published New FAQs Nos. 541-543

Section 228

Primary sanctions related to foreign sanctions evaders and serious human rights abusers in the Russian Federation

OFAC

Published New FAQs Nos. 544-546

Section 231

Secondary sanctions related to Russian defense or intelligence sector

State

Published New Guidance and FAQs

Published List of Persons Operating in Russian Defense or Intelligence Sectors

Section 232

Secondary sanctions related to Russian energy export pipelines

State

Published New Guidance

Section 233

Secondary sanctions related to unjust privatization of Russian state-owned assets

OFAC

Published New FAQ No. 540

The guidance represents a continuation of OFAC’s recent trend of issuing guidance at the same time as implementing regulatory changes, but taken together with the State Department’s guidance, arguably represents the most substantial guidance ever issued by the two agencies in advance of implementation of newly enacted Congressional legislation.

For more details regarding the contents of the guidance, or with respect to any questions it raises, please contact one of the professionals listed below.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Chris Monahan, Dj Wolff

On August 2, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), which imposes new sanctions on Russia, Iran, and North Korea.

While President Trump noted his view that the legislation was “significantly flawed”, its passage represents the successful culmination of months of Congressional negotiations and its provisions will have an immediate and material impact, particularly on companies undertaking transactions in Russia.

CAATSA represents, in effect, the combination of three separate pieces of legislation imposing new sanctions on Russia, Iran, and North Korea. Each piece of the legislation contains a series of new restrictions, but several key highlights are summarized below:

  • Russia: New Primary Sanction Authorities: CAATSA provides the President with new authorities to sanction (1) persons knowingly engaging in significant activities undermining cybersecurity on behalf of the Russian Government; (2) non-U.S. persons who evade existing Russia-related sanctions; (3) non-U.S. persons responsible for, complicit in, or otherwise directing, the commission of serious human rights abuses in Russia; and (4) non-U.S. persons who provide significant support that materially contributes to the ability of the Government of Syria to acquire chemical, biological, or nuclear weapons, ballistic missiles, or other similar items (e.g., those on the U.S. Munitions List). The Legislation does not itself designate any persons
  • Russia: Sectoral Sanctions – Reduced Payment Terms and New Sectors: The Legislation modifies existing restrictions by reducing permissible maturity periods under Directive 1 and Directive 2 (from 30 and 90 days to 14 and 60 days, respectively) and expanding the territorial scope of Directive 4 to certain types of oil exploration and production activities globally, not just in Russia. Second, it also authorizes the expansion of sectoral sanctions to state-owned enterprises in Russia’s mining, metals, and railway sectors.
  • Russia: Secondary Sanctions on Defense, Intelligence, and Export Pipelines Sectors: The Legislation imposes several new mandatory and discretionary “secondary” sanctions. These include (1) mandatory secondary sanctions on persons conducting “significant” transactions with Russia’s defense or intelligence sectors (or persons operating in that sector); (2) discretionary secondary sanctions on non-U.S. persons undertaking an investment or providing goods, services, or support for the construction of Russian energy export pipelines; (3) mandatory secondary sanctions on persons making an investment in excess of certain thresholds in the privatization of Russian state-owned assets in a way that unjustly benefits Russian officials or their families; and (4) modifies, to make mandatory, existing secondary sanctions on non-U.S. persons undertaking significant transactions in support of exploration or production of oil from shale, arctic offshore, or deep-water locations in Russia.
  • Russia: Codification of Existing Sanctions: The Legislation also codifies all of the existing Executive Orders on Russia (both those related to Ukraine and to Cyber activities) as well as the existing designations as of August 2, 2017. While the President retains discretion to relax the provisions, the Legislation requires that he provide advance notice and written justification for any such relaxations, and then allow Congress at least 30 days to potentially object to the relaxation.
  • North Korea: The Legislation imposes a series of new designation authorities for the President, which broadly relate to persons that are in violation of existing U.S. and United Nations sanctions on North Korea. CAATSA also imposes new obligations on U.S. financial institutions to cut-off correspondent account access for non-U.S. financial institutions that might indirectly be benefiting North Korea. Finally, it calls on the administration to consider re-designating North Korea as a state sponsor of terrorism.
  • Iran: Similarly, the Iran-related aspects of the Legislation primarily focuses on providing the President with a series of new designation-related authorities that focus on Iran’s non-nuclear related activities (e.g., ballistic missile testing, support to terrorism, and enforcing arms embargoes).
  • National Strategy To Combat Terrorism Finance: Finally, the Legislation calls for the development of a national strategy to combat terrorism finance and it opens the opportunity for private sector engagement in the development of that strategy.

CAATSA’s passage has already provoked immediate responses from not only its targets – Russia has requested the removal of several hundred U.S. diplomatic personnel and threatened additional retaliation while Iran has accused the United States of violating the nuclear deal – but U.S. allies, including Germany and Austria who have called CAATSA’s provisions “unacceptable” and indicate they will not “tolerate” sanctions being imposed on their companies pursuant to its provisions.

For more information, contact: Jeffrey Snyder, Cari Stinebower, Carlton Greene, Dj Wolff, J.J. Saulino

With a pause on Capitol Hill because of the July 4th recess, many are taking stock of the prospects for the Senate passed legislation intended to dramatically expand sanctions on Russia. Specifically, a bipartisan group of Senators reached a compromise to combine several pending Russia-related measures and attach them as an amendment to S.722 – The Countering Iran’s Destabilizing Activities Act of 2017. For complete details on the extensive new Russia restrictions contained in the bill, please see Crowell & Moring’s June 19 Client Alert.

The Senate bill passed with a margin of 98-2 and appeared on track for quick approval in the House. However, it was sent back to the Senate last week after the House Parliamentarian objected because the bill ran afoul of the Origination Clause of the Constitution which requires the House to act before the Senate on any bill which raises revenue. With a few technical changes on the eve of the recess, Senate Foreign Relations Committee Chairman Bob Corker (R-TN) submitted a resolution correcting the bill, sending it back to the House for consideration.

The House will take up the bill on the 11th when it returns. Prospects for the bill in the House are cloudy, given not only the otherwise full agenda (including health care and tax reform), but also what appears to be growing opposition among House members to boxing President Trump into a very difficult position on Russia. Other objections are surfacing; including pushback from Representative Pete Sessions (R-TX) who is uncomfortable with the new energy restrictions, believing it could hurt energy companies. Many are awaiting details on this objection, before assessing its weight and validity.

The Trump administration fears the measure will complicate its ability to conduct diplomacy because the bill limits the president’s power to act on sanctions without congressional authorization. If it does pass the House, the administration has not ruled out a veto. If forced to have to consider a veto, Trump would be hard pressed to rely, no matter how much historical precedent there may be, on the valid concerns about constraints being placed on the office of the presidency, because a veto could be perceived as being “soft” on Russia.

For more information, contact: Jeffrey Snyder, Cari Stinebower, Carlton Greene, Dj Wolff

New U.S. sanctions were announced last week on Cuba, Russia, and Iran, though none of the new restrictions has an immediate effect.

After weeks of internal deliberations, President Trump on June 16 partially fulfilled a campaign pledge by announcing a limited re-implementation of sanctions on Cuba. The new Cuba measures will only take effect after the relevant agencies implement new regulations, a revision process that will begin within the next 30 days, but may take several months.

Separately, on June 15, the U.S. Senate overwhelmingly passed new sanctions on both Iran and Russia; that legislation must still be voted on by the U.S. House of Representatives, but appears likely to pass with strong bipartisan support in the next several weeks.

Please click below for more information on what was a busy week in Washington.

Cuba: Presidential Memorandum Announcing New Restrictions

Russia: Senate Legislation Imposes New Primary, Secondary, and Sectoral Sanctions

Iran: Senate Legislation Imposes New Non-Nuclear Sanctions

The U.S. Department of State issued a press release on the third anniversary of the occupation of Crimea stating, “The United States does not recognize Russia’s “referendum” of March 16, 2014, nor its attempted annexation of Crimea and continued violation of international law. We once again reaffirm our commitment to Ukraine’s sovereignty and territorial integrity.”

The press release also reiterated, “Crimea is a part of Ukraine. The United States again condemns the Russian occupation of Crimea and calls for its immediate end. Our Crimea-related sanctions will remain in place until Russia returns control of the peninsula to Ukraine.”

EU Extends Sanctions Related to Russian Annexation of Crimea

On March 3, the EU extended for one year its asset-freezing measures against certain persons responsible for the misappropriation of Ukrainian state funds or human rights violations in Ukraine. Subsequently on March 13, the EU extended for six months its sanctions against 150 individuals and 37 entities it finds responsible for “…actions which undermine or threaten the territorial integrity, sovereignty, and independence of Ukraine.” These two sets of sanctions will thus continue to apply until March 6, 2018, and September 15, 2017, respectively.

In parallel, EU restrictive measures remain in place on economic relations with Crimea and Sevastopol until June 23, 2017, while the EU’s sectoral sanctions against Russia remain in place until July 31, 2017.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Dj Wolff, Charles De Jager

On December 29, 2016, the President issued an Executive Order, “Taking Additional Steps To Address The National Emergency With Respect To Significant Malicious Cyber-Enabled Activities.” This amended Executive Order (EO) 13694, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities,” increasing its scope to allow for the “imposition of sanctions on individuals and entities determined to be responsible for tampering, altering, or causing the misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions.”

Sanctioned under the amended EO were six Russian individuals and five entities, including Russia’s Federal Security Service (a.k.a. the FSB), its Main Intelligence Directorate (a.k.a. the GRU), and four persons linked to the GRU. Additionally, the President expelled 35 suspected Russian spies from the U.S.

On January 6, 2017, after briefing both President Obama and President-elect Trump, U.S. intelligence officials released a declassified version of its report, “Assessing Russian Intentions and Activities in Recent US Elections: The Analytic Process and Cyber Incident Attribution.”

Interference in EU Member States’ National Elections in 2017?

The developments in the U.S. have sparked fears of Russian interference in the French presidential election this spring and, perhaps more importantly, in the German general election in the fall of this year. In France, the two leading candidates on the right, François Fillion of the Republican Party and Marine Le Pen of the National Front, are both clearly supportive of closer ties with Russia.

The election of either may lead to the unraveling of the EU consensus on maintaining sanctions and a tough overall stance against Russia. German Chancellor Angela Merkel has been instrumental in ensuring this EU consensus, such that Russia may stand to gain most if her bid for re-election were unsuccessful. Accordingly, German security services are reported to monitor closely the danger of Russia trying to turn a European election.

For more information, contact: Carlton Greene, Cari Stinebower, Charles De Jager, Dj Wolff