[co-author: Milana Karayanidi]
Building on prior extensive Russia-related sanctions, the U.S. government has further sanctioned Russia by intensifying controls on exports and reexports to the country. Alone, this step is unlikely to affect major volumes of U.S.-Russia commerce. However, possible additional sanctions could be much more far-reaching.
Description of New Sanctions and Possible Additional Sanctions
CBW Act Sanctions
On August 27, 2018, new export control sanctions imposed by the United States on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBW Act”) came into effect.
The sanctions implement the U.S. State Department’s August 6, 2018 determination that the Russian government used chemical weapons in violation of international law or lethal chemical weapons against its own nationals. The alleged violation is sanctionable under the CBW Act. Whether the U.S. government imposes additional sanctions under the CBW Act and if so, the character of those sanctions will depend on the U.S. government’s findings on corrective and cooperative measures by the Russian government within the next three months.
Initial round of CBW Act sanctions: The principal U.S. export control agency, the Commerce Department’s Bureau of Industry and Security (“BIS”), is generally to deny applications for licenses to export or reexport goods, software and technology to Russia under the Export Administration Regulations (the “EAR”). BIS is not expanding the scope of items that are export-licensable to Russia. The exporters can continue to rely on applicable license exceptions set forth in the regulations. In addition, standard case-by-case licensing is preserved for exports and reexports of goods pursuant to new licenses for (i) goods relating to safety of commercial passenger aviation; (ii) deemed exports and reexports to Russian nationals; (iii) exports to wholly owned U.S. subsidiaries in Russia; (iv) exports in support of government space cooperation and commercial space launches; and (v) exports to commercial end users for civilian end uses.
Other initial sanctions include termination of arms sales to Russia and termination of licenses for the export to Russia of defense-related articles and services, except in support of government space cooperation and commercial space launches, where licensing shall continue on a case-by-case review basis. The U.S. government has also undertaken to terminate foreign military financing and to deny any credit, credit guarantees, or other financial assistance by any U.S. government agency (including by the Export-Import Bank) to Russia.
Possible second round of CBW Act sanctions: As specified by the CBW Act, the U.S. government may impose additional sanctions against Russia. If the additional sanctions are imposed, the CBW Act generally requires them to include at least three of the following: (i) opposition by the U.S. government of extension of any loan or financial or technical assistance to Russia by international financial institutions; (ii) prohibition for any U.S. Bank to make any loan or provide any credit to the Russian government, except with respect to the purchase of food or other agricultural commodities or products; (iii) export prohibition of all other goods and technology to Russia, excluding food and other agricultural commodities and products; (iv) import restrictions of products grown, produced or manufactured in Russia (which may include petroleum or any petroleum product); (v) downgrading or suspending diplomatic relations between the United States and Russia; and/or (vi) suspension of the authority of the Russian state-owned or- controlled- air carriers to transport to or from the United States, notwithstanding any agreement relating to air services, or termination of such agreement, resulting in the revocation of such authority.
In the wake of the 2017 Countering America’s Adversaries Through Sanctions Act of August 2017 (the “CAATSA”), the U.S. Congress is considering proposals to further expand statutorily mandated sanctions against Russia. The principal current proposal is the Defending American Security from Kremlin Aggression Act (the “DASKAA”). The DASKAA, if adopted, would:
prescribe a series of immediate sanctions –
blocking of major Russian state-owned banks – Vnesheconombank, Sberbank, VTB Bank, Gazprombank, Bank of Moscow, Rosselkhozbank, or Promsvyazbank (the “Banks”) – which would generally ban all direct and indirect commercial interaction with U.S. persons; and
ban on U.S. persons executing investment in and other dealings with the Russian government’s issued bonds, foreign exchange swap agreements, and any other financial instrument that represents Russian sovereign debt – including the Banks.
mandate sanctions on persons (i) knowingly carrying out transactions worth $1 million or more (or $5 million or more during a 12-month period) pertaining to goods and services that support Russia’s crude oil resources development, on or after 180 days after the enactment of the DASKAA, or (ii) investing in energy projects worth $250 million outside of Russia that are supported by Russian state-owned or state-controlled entities, on or after the enactment of the DASKAA.
Other measures could include blocking measures with respect to persons whom the U.S. government finds facilitate illicit and corrupt activities on behalf of the Putin administration, and persons, including financial institutions, engaging in significant transactions with such persons.
The DAASKA remains under consideration by the U.S. Senate Committee on Foreign Relations. Some sources indicate that adopting the DASKAA, as currently drafted, is unlikely. Even if the Congress does not pass the DASKAA, there is a good chance that the Congress will pass portions of it and other Russia-sanctions proposals as portions of one or more other bills.