Proposed Changes to U.S. Sanctions Against Russia
"Countering Russian Influence in Europe and Eurasia Act of 2017"
June 22, 2017
| Milos Barutciski and Nick Bryanskiy
On June 15, 2017, the U.S. Senate voted 98-2 in favour of new sanctions against Russia in the face of express opposition from President Trump's administration. The proposed law includes significant changes to the current U.S. sanctions regime against Russia. In view of the overwhelming bi-partisan support in the Senate, the proposed law is likely to be approved by the House of Representatives and, if it attains anything close to the level of support received in the Senate, it would be sufficient to override a Presidential veto.
The "Countering Russian Influence in Europe and Eurasia Act of 2017" would introduce new sanctions against Russia, codify and strengthen existing sanctions, and impose onerous positive duties on the U.S. President as described below. It would also establish a Countering Russian Influence Fund, and allocate $250M for 2018 and 2019 to protecting critical infrastructure and electoral mechanisms in NATO member and certain other countries from cyber-attacks and other interference. The Act also requires the President to prepare and submit annual reports to Congress on a broad range of sanctions-related issues.
Companies should be mindful of the potential impact of these changes on their business and future plans to mitigate their risk exposure when dealing with Russian entities or certain sectors of the Russian economy. The most important changes are summarized below.
Introducing New Sanctions Against Russia
The Act would authorize the U.S. Department of Treasury to impose new sanctions with respect to:
- stated-owned entities operating in the railway, shipping, or metal and mining sector of the economy of the Russian Federation (Section 223(a));
- "significant activities undermining cybersecurity against any person, including a democratic institution, or government on behalf of the Russian Federation" (Section 224);
- transactions with persons that evade sanctions imposed on Russia (Section 228, Sec. 10);
- transactions with persons responsible for human rights abuses (Section 228, Sec. 11);
- transactions with the intelligence or defence sectors of the Russian Government (Section 231);
- investment in or provision of goods and services for the development of Russian energy export pipelines, with a low fair market value threshold of $1M or $5M over 12 months (Section 232);
- investment in or facilitation of privatization of state-owned assets by the Russian Federation, if such investment directly and significantly contributes to the ability of the Russian Federation to privatize state-owned assets in a manner that unjustly benefits officials of the Russian Government, their close associates or family members, with another low threshold of $10M (Section 233); and
- transfer of arms and materiel to Syria (Section 234).
A notable exception in the new sanctions regime relates to activities of the National Aeronautics and Space Administration (Section 237) to allow the U.S. Government to continue cooperating with Russia and Russian entities as part of its space program.
Strengthening Existing Sanctions Against Russia
The Act would codify all existing Russian sanctions adopted pursuant to President Obama's Executive Orders (Section 222). As such, transactions with persons currently designated by U.S. law as subject to sanctions will continue to be prohibited as a matter of statute rather than Presidential discretion. The Act would further restrict the President's discretion by requiring him to go through a lengthy, complex and onerous Congressional review process if he seeks to relax or lift any Russian sanctions.
The Act would also strengthen existing sanctions against Russia by:
- reducing the terms of prohibited financing from 90 to 30 days for long-term financing and from 30 to 14 days for short-term financing;
- specifying that sectoral sanctions applicable to deepwater, Arctic offshore projects include projects that (1) have the potential to produce oil; (2) in which a Russian energy firm is involved; and (3) that involve any person determined to be subject to the directive or the property or interests in property of such a person; and
- requiring (rather than merely authorizing as at present) the President to impose previously unimplemented sanctions with respect to special Russian crude oil projects (Section 225), Russian and other foreign financial institutions (Section 226) and significant corruption in the Russian Federation (Section 227), unless "the President determines that it is not in the national interest of the United States to do so".
Presidential Reports to Congress
The Act would requires the President to prepare and submit the following annual reports to the Congress:
- report on senior political figures, oligarchs and parastatal entities of the Russian Federation (Section 241);
- report on effects of expanding sanctions to include sovereign debt and derivative products (Section 242);
- report on illicit financing relating to the Russian Federation (Section 243);
- report on media organizations controlled and funded by the Russian Government (Section 255); and
- report on Russian Federation influence on elections in Europe and Eurasia (Section 256).
If you have any questions regarding these proposed legislative changes and their potential impact on projects involving Russia or Russian entities, please contact Milos Barutciski
or Nick Bryanskiy.