On September 20, 2018, President Trump released a 16-page Executive Order which delegated various Presidential powers established under the Countering America’s Adversaries Through Sanctions Act (“CAATSA”) to both the U.S. Secretary of Treasury and the U.S. Secretary of State. As a result of this delegation, the U.S. Treasury Department‘s Office of Foreign Assets Control (“OFAC”) and the U.S. State Department are now empowered to take actions which include (but are not limited to) designating parties to be sanctioned under various CAATSA provisions, selecting the specific menu-based sanctions to be imposed upon those parties and implementing those menu-based sanctions (we previously covered the CAATSA statute here, here and here). OFAC also updated its website to provide an additional FAQ response explaining the new Executive Order and indicating that it anticipates promulgating regulations to implement these sanctions.
In connection with the new Executive Order, the State Department also added a total of 33 entities and individuals to its CAATSA Section 231 List of Specified Persons (the “LSP list”), which identifies those persons and entities that the State Department has determined to be a part of or to operate for or on behalf of the defense or intelligence sectors of the Russian government. Under Section 231 of the CAATSA statute, the State Department is required to impose sanctions against anyone who conducts a significant transaction with a person or entity listed on its LSP list. The entire LSP list is available here and now includes a total of 72 entities and individuals.
The State Department also made its first use of its Section 231 CAATSA sanctions authority by sanctioning a Chinese company named Equipment Development Department (“EDD”) and its director, Li Shangfu. The State Department sanctioned EDD and Mr. Shangfu because of a transaction between EDD and a Russian export arms dealer and LSP list designee named Rosoboronexport OJSC (“ROE”), where EDD received 10 Sukhoi fighter aircraft delivered by ROE in December of 2017 and a batch of S-400 surface-to-air missile systems delivered by ROE in January of 2018. This action clearly indicates that the State Department will be unwilling to grandfather in transactions performed under contracts with LSP list entities that predate the CAATSA statute. Despite the fact that EDD negotiated its transactions with ROE before CAATSA officially became law, the State Department nonetheless imposed sanctions against EDD because the arms were delivered after ROE was named to the LSP list on October 27, 2017. In an official statement, the State Department said “We will continue to vigorously implement CAATSA and urge all countries to curtail relationships with Russia’s defense and intelligence sectors, both of which are linked to malign activities worldwide.” The State Department also conducted a press briefing where a senior official explained the State Department’s enforcement approach by stating “We are focusing most of our efforts upon the bigger ticket items, the transactions that involve significant qualitative changes in the nature of military equipment shipped abroad.”
As a result of today’s sanctions EDD and Mr. Shangfu are now listed on OFAC’s Specially Designated Nationals List (the “SDN list”) which generally prohibits U.S. persons from transacting with them and imposes a freeze on all of their assets held in the United States. The State Department also imposed additional CAATSA menu-based sanctions against the parties including a prohibition on foreign exchange transactions subject to U.S. jurisdiction and a visa ban against Mr. Shangfu. CAATSA Section 228 sanctions now also apply to EDD and Mr. Shangfu and, as a result, CAATSA now requires the imposition of SDN list blocking sanctions against any non-U.S. persons who facilitate any significant transaction for or on behalf of EDD, Mr. Shangfu or Mr. Shangfu’s family.