On August 2, US President Donald Trump signed into law the Countering America’s Adversaries Through Sanctions Act, which enacts a significant expansion of US sanctions against Russia as well as new measures relating to Iran and North Korea.
Title II of the new law—the Countering Russian Influence in Europe and Eurasia Act of 2017 (the “new Act”)—contains the Russian sanctions. This LawFlash provides a high-level summary of key provisions in the new Act and also comments briefly on the statements issued by the US president concurrent with signing.
The new Act broadens and toughens the preexisting US sanctions against Russia as adopted by the administration of former US President Barack Obama in response to the Ukraine crisis of 2014 and subsequent events. These preexisting sanctions appeared in Executive Orders 13660, 13661, 13662, 13685, 13694, and 13757; the Ukraine Freedom Support Act of 2014 (UFSA); and the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014.
The new Act creates additional sanctions and expands the scope and application of preexisting sanctions. Notably, the new Act targets non-US companies and individuals that engage in activities vis-à-vis Russia that are prohibited for US companies and individuals. These so-called “secondary sanctions” would have extraterritorial reach. Similar measures have long been a feature of the US sanctions programs against Cuba, Iran, and Libya.
The new Act also dramatically widens the differences between US and EU sanctions against Russia. The European Union recently extended its own sectoral sanctions until January 31, 2018 but is unlikely to approve new, broader sanctions like those in the new Act. Instead, some EU leaders have discussed possible “blocking” or retaliatory measures in response to those US secondary sanctions that may adversely affect European companies (similar to past EU reactions to US sanctions against other countries such as Cuba).
The main features of the new Act include the following:
1. Companies and individuals that, on behalf of the Russian government, knowingly engage in activities undermining cybersecurity.
2. Non-US companies and individuals that knowingly make a significant investment in deepwater, Arctic offshore, or shale oil projects in Russia. It appears that such sanctions apply even if the relevant project does not involve one of the Russian energy companies designated in Directive 4. Such sanctions would be of special concern to international energy companies, among other interested parties.
3. Russian and other foreign financial institutions that knowingly engage in significant transactions involving (i) significant investments in deepwater, Arctic offshore, or shale oil projects in Russia; (ii) withholding of significant natural gas supplies by Gazprom from NATO member countries, Ukraine, Georgia, or Moldova; or (iii) Russian-owned or controlled producers, transferors, or brokers of certain defense articles transferred to Syria and other designated countries. In such cases, the sanctions would involve blocking or restricting use of US correspondent banking accounts by the targeted financial institutions.
4. US or foreign companies and individuals that knowingly engage in a significant transaction with a person who is a part of or operates on behalf of the defense and intelligence sectors of the Russian government, including the Federal Security Service (known as the FSB for its Russian acronym).
5. US or foreign companies and individuals that, with actual knowledge, make or facilitate investments of $10 million or more (or combinations of investments of $1 million each aggregating to $10 million or more over a 12-month period) that directly and significantly contribute to Russia’s privatization of state-owned assets in a manner that “unjustly benefits” Russian government officials or their close associates or family members.
6. Foreign companies and individuals that act knowingly to (i) materially violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition contained in or issued pursuant to the Russia-focused Executive Orders, the new Act, or the UFSA; or (ii) facilitate a significant transaction or transactions, including “deceptive or structured transactions,” for or on behalf of persons subject to the sanctions or certain of their family members.
7. Russian government officials and family members who are responsible for, complicit in, or otherwise support “significant corruption” in Russia (e.g., expropriation of natural resources, bribery, or facilitation or transfer of the proceeds of corruption outside of Russia).
8. Foreign persons responsible for “serious human rights abuses” or assisting such persons in Russian-controlled territory.
9. Foreign companies and individuals that knowingly export, transfer, or otherwise provide significant financial, material, or technological support contributing materially to Syrian military capabilities.
Each of these sanctions would appear to have prospective application only (either immediately or after a specified number of months). Certain sanctions would be triggered only upon presidential findings that certain facts exist, and in some cases waivers may be obtained. The term “knowingly” will be construed to mean “has actual knowledge, or should have known.”
The new Act also would require the executive branch of the US government to prepare and submit certain reports to Congress to aid in determining whether further sanctions should be imposed against Russia. These relate to the following:
President Trump issued two statements in connection with the new Act, commenting that the legislation is “significantly flawed” and arguing that certain provisions are unconstitutional and contravene presidential authority. The president also stated the following:
. . . my Administration particularly expects the Congress to refrain from using this flawed bill to hinder our important work with European allies to resolve the conflict in Ukraine, and from using it to hinder our efforts to address any unintended consequences it may have for American businesses, our friends, or our allies.
This suggests that the executive branch of the US government will give weight to the above concerns in connection with future implementation of the new Act.
Read the official text of the Countering America’s Adversaries Through Sanctions Act.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
 EU Council Decision 2014/512/CFSP of June 28, 2017.
 OFAC issued Directives 1–4 on July 16 and September 12, 2014 to implement the Russia sanctions, and there have been certain subsequent amendments.
 It is unclear how this provision would affect US technology companies needing to deal with the FSB for import, distribution, and use of encryption-related products in Russia, or the existing OFAC general license of February 2, 2017 that permits certain activities in this area.