Six Crucial Points About the New Russia, Iran and North Korea-Related Sanctions Law

International Trade & Compliance Alert | August.09.2017

Crucial Points

As detailed below:

  • Russia-Related Sanctions Codification:  The new law codifies sanctions executive orders related to circumstances in Ukraine and Crimea as well as certain cyber-enabled activities, restricting the U.S. President's authority to unilaterally terminate foremost U.S. sanctions relating to Russia.
  • Russia-Related Sanctions Congressional Review:  The statute also purports to limit the President's discretion to terminate, waive or license activity forbidden by sanctions through a congressional review procedure regarding such actions.
  • Russia-Related Blocking and Sectoral Sanctions Expansion:  In a variety of ways, the new law expands authority for and mandates requiring the President to broadly sanction ("block") entities and individuals in connection with various Russia-related activities.  The statute also strengthens more limited "sectoral" sanctions targeting Russian finance and energy sectors, including regarding certain energy activity outside of Russia.
  • Russia-Related Secondary Sanctions:  The new law introduces mandatory so-called "secondary" sanctions that generally provide for sanctions against companies that engage in specified types of activities relating to Russia and its interests.
  • Expansion of Iran-Related Sanctions Measures:  The statute expands authority for the President to block entities and individuals involved in specified arms transfers and related assistance, ballistic missile and other weapons of mass destruction programs, the Islamic Revolutionary Guard Corps ("IRGC") and certain of its affiliates and other support for international terrorism.  This broadened authority to sanction is generally limited to non-nuclear-related activity, indicating an intention to preserve U.S. compliance with the 2015 Iran nuclear agreement.
  • Expansion of North Korea-Related Sanctions Measures:  The new statute intensifies blocking sanctions authorizations and mandates that form part of the North Korea-related sanctions regime, including by targeting sectors of the North Korean economy such as financial services, energy, mining, transportation, agriculture, fishing and textiles.  The statute seeks to dissuade Chinese and other third-country companies from engaging in North Korea-related business through the threat of U.S. sanctions against them in response to such business.

Background

On August 2, 2017, President Trump signed the Countering America's Adversaries Through Sanctions Act (the "Sanctions Act") into law.  The Sanctions Act passed both the U.S. House of Representatives and Senate with overwhelming bipartisan support on July 25 and 27, 2017.

President Trump expressed concerns regarding constitutionality of certain of the Sanctions Act's measures, but these statements are unlikely to lead to relief from sanctions measures that are of most concern to U.S. and non-U.S. businesses.  At the same time, President Trump generally committed to implementing the Sanctions Act's requirements.

Russia-Related Sanctions Measures

The Sanctions Act strengthens the current Russia-related sanctions regime in several ways:

  • The Sanctions Act codifies all Russia-related sanctions imposed under Executive Orders 13,660, 13,661, 13,662 and 13,685.  These orders underpin:  blocking sanctions against Russian and Russia-related persons; sectoral sanctions against Russian and Russia-related financial institutions and defense and energy businesses; and an embargo of Crimea.  The Sanctions Act also codifies Executive Orders 13,694 and 13,757, which address certain cyber-enabled activities.  As a result, the President, subject to limited exceptions, no longer has authority to unilaterally terminate the principal U.S. sanctions relating to Russia.
  • In addition to codifying existing sanctions, the Sanctions Act provides for congressional review of any action by the President to terminate the application of Russia-related sanctions; waive the application of Russia-related sanctions with respect to a sanctioned person; or take certain licensing actions that significantly alter U.S. foreign policy in relation to Russia.  The scope of Russia-related sanctions subject to congressional review is comprehensive, including the Sanctions Act and certain prior Russia-related sanctions legislation as well as all Russia-related executive orders (now codified).[1]
  • The Sanctions Act also provides for strengthened sectoral sanctions targeting Russia's energy and finance sectors.  First, the Sanctions Act expands sectoral sanctions prohibitions on U.S. persons' dealings involving certain debt of sanctioned persons to cover debt of longer than 14 days (currently the threshold is 30 days) and 60 days (currently the threshold is 90 days) maturity if issued by, respectively, sanctioned banks and sanctioned energy companies and certain of their affiliates.  This strengthening of sectoral sanctions measures is expected to significantly complicate and limit sanctioned persons' access to financing and financial resources.  The designated banks are also subject to a prohibition on U.S. persons' dealings in their equity issued after the relevant sanctions effective date, which is expected to remain unchanged under the Sanctions Act.

Second, the Sanctions Act seeks to generally extend energy sector-related prohibitions on supply of certain goods, services and technology for deepwater, Arctic offshore or shale projects in Russia to such projects outside of Russia if a sanctioned Russian entity has a 33% or higher interest in them.

  • The Sanctions Act provides new authorizations and, in some instances, mandates for imposition of broad blocking sanctions against Russian and Russia-related individuals and companies.  These provisions cover: 
  • In addition to strengthening existing Russia-related sanctions, the Sanctions Act creates a mandatory "secondary" sanctions regime targeting persons in connection with specified Russia-related activities.  New secondary sanctions measures target persons in connection with:

The new secondary sanctions regime is also intended to target non-U.S. banks for identified activities in connection with certain significant defense- or energy-related or financial transactions involving specified sanctioned persons.

Finally, the Sanctions Act introduces a controversial discretionary secondary sanctions measure to target certain investments in connection with and support for Russian energy export pipelines.  The Sanctions Act, however, provides for a degree of cooperation with U.S. allies on this issue, which may ultimately determine whether any sanctions would be imposed under this secondary sanctions measure.

Secondary sanctions provisions authorize or mandate imposition of sanctions from a list of sanction types including, for example, bans on issuance of licenses for exports to a sanctioned person and prohibitions on acquisitions of a sanctioned entity's securities by U.S. persons as well as broad blocking sanctions.  

Iran-Related Sanctions Measures

The Sanctions Act mainly strengthens blocking sanctions measures in connection with Iran's proliferation of weapons of mass destruction, international terrorism, human rights abuse and arms supply.  For example, the Sanctions Act makes express authorizations or mandates, depending on the reason for each sanctions action, for the President to impose blocking sanctions in connection with:

  • certain activities materially contributing to Iran's ballistic missile and other weapons of mass destruction proliferation programs;
  • identified extrajudicial killings, torture and other gross human rights violations committed against certain individuals in Iran; and
  • specified activities materially contributing to certain arms transfers, direct or indirect, involving Iran and related services and assistance.

The Sanctions Act also mandates adding already blocked IRGC and certain of its affiliates to the list of supporters of terrorism and conducting a review, within five years, of all Iran-related List of Specially Designated Nationals and Blocked Persons designations to determine if such persons must also be designated in connection with Iran's ballistic missile program or international terrorism support.

Expanded Iran-related sanctions measures are generally non-nuclear-related, indicating a congressional intention to preserve the 2015 Joint Comprehensive Plan of Action among Iran, the United States and the EU, which addresses Iranian nuclear activity.

North Korea-Related Sanctions Measures

The Sanctions Act generally strengthens North Korea-related blocking sanctions measures.  For example, it includes authorizations and mandates, depending on the reason for each sanctions action, for imposition of blocking sanctions generally targeting:

  • specified North Korean government funds and other resources;
  • North Korea's financial institutions and access to financial markets;
  • North Korea's ability to obtain rocket, aviation and jet fuel as well as crude oil, refined petroleum and certain other energy resources;
  • certain North Korean vessels and aircrafts; and
  • identified North Korean industries, including financial services; transportation; energy; mining and, in particular, certain, including rare, metals and minerals; fishing; food and agriculture and textiles.

The Sanctions Act further seeks to prevent use of third-country financial institutions' correspondent accounts with U.S. financial institutions for the benefit of specified North Korean and North Korea-related blocked persons through additional compliance requirements.

Other expanded sanctions measures include those targeting North Korea's cargo and shipping industry, use of convict and forced labor and other human rights abuses.

A significant part of these sanctions measures appear to target Chinese, as well as other third-country, business dealings with North Korea, trying to cut it off from any significant international support. 


[1] Questions have emerged about the validity of these congressional review provisions in light of a U.S. Supreme Court decision indicating that the Constitution does not authorize the Congress to restrict the President's actions by means short of the full legislative process.  See INS v. Chadha, 462 U.S. 919, 951-59 (1983).