by Grant Leach and Cortney Morgan
Husch Blackwell LLP is an IMA member…
Congress enacted the “Countering America’s Adversaries Through Sanctions Act” (CAATSA) on August 2, 2017 in response to Russia’s continuing occupation of the Crimea region of Ukraine and cyber-interference in the 2018 United States Presidential elections. CAATSA was notable because it passed the House of Representatives with a 419-3 approval margin and passed the Senate with a 98-2 approval margin. Among other things, CAATSA required President Donald Trump to take certain actions on the 180-day anniversary of CAATSA’s adoption, which included (but were not limited to): (i) imposing sanctions (commonly referred to as the “CAATSA Section 231 sanctions”) against persons engaged in “significant transactions” with Russia’s defense or intelligence sectors; and (ii) preparing and submitting a report (commonly referred to as the “CAATSA Section 241 report”) to various congressional committees identifying senior political figures and oligarchs within Russia. January 29, 2018 marked CAATSA’s 180-day anniversary and, as a result, it sparked a flurry of activity related to the CAATSA Section 231 sanctions and the CAATSA Section 241 report.
CAATSA Section 231 Sanctions
On September 29, 2017, President Trump delegated authority for issuing the CAATSA Section 231 sanctions to the Secretary of State. Shortly thereafter, the Secretary of State published a list of persons that it had determined to be a part of or operating for or on behalf of the Russian defense or intelligence sectors as well as FAQ Guidance explaining the State Department’s intended approach to implementing the CAATSA Section 231 sanctions.
On January 29, 2018, the State Department did not issue any CAATSA Section 231 sanctions. Instead, media outlets began reporting that the State Department had stated that it would not issue the CAATSA 231 sanctions because, in the State Department’s opinion, the existence of CAATSA itself was already having a deterrent effect on trade with the Russian intelligence and defense sectors. After receiving significant criticism that this was an inadequate response, senior State Department officials held a press briefing on January 30, 2018 in order to clarify that the Department viewed January 29, 2018 “[N]ot [as] a deadline to impose sanctions; it was actually a start date. It was the start of the race. It was the day on or after which we could start imposing sanctions if we make the determination . . . [that] activity falls under the provision.” During the press briefing, State Department officials further explained that if the State Department does make a determination that a party’s conduct violates CAATSA Section 231 then the State Department will impose CAATSA Section 231 sanctions against that party.
CAATSA Section 241 Report
The Treasury Department issued the required CAATSA Section 241 report on January 29, 2018 (please note that the previous link directs to a version of the unclassified section of the report obtained by media outlet CNBC – as of this blog’s posting date, OFAC has not officially posted the CAATSA Section 241 report on its website). The report identified 94 “Senior Political Figures” within the Russian government and identified an additional 96 Russian “Oligarchs”. In preparing the report, the Treasury Department chose to define an “Oligarch” as anyone with an estimated net worth of $1 billion or more.
The classified section of the CAATSA Section 241 report presumably includes additional information required by the CAATSA statute which includes (but is not limited to): (i) corrupt activities undertaken by the named political figures or oligarchs, (ii) sources of income for those political figures, oligarchs and their extended family members, and (iii) the potential impact of imposing secondary sanctions against the named oligarchs. Although CAATSA requires the Treasury Department (under authority delegated by President Trump) to impose sanctions for activities such as Russian government officials’ engagement in significant corruption and/or significant investments privatizing Russian state-owned assets in a manner that unjustly benefits Russian government officials, the CAATSA Section 241 report and accompanying FAQ Guidance issued by the Treasury Department’s Office of Foreign Assets Control (“OFAC”) both expressly stated that the Treasury Department and OFAC were not imposing sanctions on the persons named in the CAATSA Section 241 report (with the exception of approximately 20 individuals who were already subject to sanctions prior to their inclusion in the report).
The decision to forego the imposition of sanctions against the persons listed in the CAATSA Section 241 report also received significant criticism. On January 30, 2018, under questioning from the Senate Committee on Banking, Housing & Urban Affairs, Treasury Secretary Steven T. Mnuchin defended this decision by stating “There was an enormous amount of intel work that went into creating this report and that’s what we did. And now we will take the basis of that report and look at, as we do in the normal course, where it’s appropriate to place sanctions. This should in no way be interpreted as we’re not putting sanctions on any of the people in that report.”
Additional OFAC Russian SDN and SSIL Designations
On January 26, 2018, in an action unrelated to the CAATSA statute, OFAC added 21 individuals and 9 entities to its Specially Designated Nationals (SDN) list and added an additional 12 entities to its Sectoral Sanctions Identification (SSI) List. OFAC used authority granted under existing Executive Orders to issue these sanctions and in a press release explained that it targeted some of the sanctioned individuals for their support of various Ukrainian separatist republics and that it targeted other individuals and entities for their role in a shipment of wind turbines from the Russian government to an annexed portion of Ukraine’s Crimea region.
Outlook for Future Russian Sanctions
In light of recent statements made by the State Department and Treasury Secretary Mnuchin, we anticipate both the State Department and OFAC will issue additional CAATSA sanctions at some point. However, the timing of such sanctions is unclear as well as what form those sanctions might take. Because Congress passed CAATSA with such overwhelming support, to the extent Congress is unhappy with the actions taken by President Trump, the State Department or OFAC, then Congress might alternatively decide to use the information contained in both the classified and unclassified versions of the CAATSA Section 241 report and enact its own separate statutory sanctions against Russia and/or the persons identified in the CAATSA Section 241 report. The Export Controls and Economic Sanctions team at Husch Blackwell LLP will continue to monitor this situation as it develops.
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