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Sanctions Law
What It Does and How to Make
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SEPTEMBER 2017 DANIEL FRIED AND BRIAN OTOOLE
that while the steep decline in oil and gas prices had Exercise caution in implementing some
the largest contributing effect in Russias economic problematic authorities (and mandates), e.g.,
recession, sanctions accelerated the economic against governments purchasing Russian defense
downturn and have played a role in hampering equipment and against investments or upkeep of
Russias ability to climb out of it. The sanctions, which energy pipelines, including gas pipelines;
demonstrated US-EU unity while pointedly isolating
Russia, also undermined Russias self-image as a Maintain flexibility in sanctions implementation for
rising world power and highlighted President Putins the US Treasury Departments Office of Foreign
inability to shield some of his closest associates from Assets Control (OFAC), especially with respect
international sanction. In passing this new act, Congress to licensing, a critical tool in dealing with the
was able to reasonably conclude that sanctions were a unanticipated consequences of strong sanctions
useful tool in bringing about a settlement in Ukraine, programs, and to delisting individuals and entities
which was their original purpose, and could be used from sanctions lists; and
to put in place a strong framework to deter additional
As the law directs, continue to work closely
Russian aggression in Europe.
with Europe to maintain, enforce, and if needed
Beyond the headlines, HR 3364 is a substantive and intensify sanctions related to Ukraine. Also, explore
complex sanctions law, with workable sanctions with Europe potential new sanctions, especially in
provisions but also several potential traps. On Ukraine, response to Russias use of cyber tools to interfere
HR 3364 formally writes into law existing sanctions on with elections and otherwise disrupt democratic
Russia and tightens several measures; it further imposes institutions.
new sanctions mandates in response to Russian cyber
hacking, corruption, human rights abuses, and military Substantive Provisions: Analysis and
adventurism in Syria. Some of its provisions could help Implications
the administration advance a strong Russia policy; Ukraine-related sanctions
othersreflecting the Senates haste to write the bill
Provisions to prevent unilateral lifting of current
contain pitfalls that will need to be managed by the
Ukraine-related sanctions.
administration or amended by Congress in the future.
Section 216 on the Sanctions Act of 2017 (HR
This paper includes an analysis of the laws key
3364) draws from previous legislation (which
sanctions provisions, suggestions to the administration
authorized congressional review of the Joint
about how to implement them, and key areas for
Comprehensive Plan of Action on Iran) to
the business community to watch, from two former
provide for both congressional review and
officials who (full disclosure) helped design and run US
the potential rejection of sanctions lifting.
sanctions on Russia until earlier this year. Among other
Its language suggests that Congress would
things, we urge the administration to:
support easing of sanctions in response to
Use the leverage of the existing Ukraine-related fulfillment or implementation of the Minsk
sanctionsnow written into lawto push, along Accords (which outline a settlement in the
with our allies, for a diplomatic settlement for Donbas that removes Russian forces and
the Donbas that restores Ukraines sovereignty, advisors and restores Ukrainian sovereignty
making clear that the US government will, as it including over its Eastern borderin return for
has committed, lift Donbas-related sanctions (not local autonomy, local elections, and amnesty).
those related to Crimea) once a settlement is The Minsk Accords are currently the agreed US
reached and implemented; and European benchmark for sanctions easing.
This provision reflects congressional concerns
Use the slightly expanded cyber authority to pursue that the administration might lift sanctions as a
sanctions designations for malicious cyber activity unilateral gesture to Russia.
by Russia, including activity aimed at undermining
democratic institutions or governments; As written, however, Section 216 goes well
beyond congressional review of significant
sanctions lifting. Under its terms, Congress
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ISSU E B RIEF The New Russia Sanctions Law
Ambassador Kurt Volker, United States Special Representative for Ukraine Negotiations.
Photo credit: US Embassy Kyiv Ukraine/Flickr.
must review, and can disapprove of, any successor agreements that are agreed to by
delisting of individuals or entities by OFAC, Ukraine. Section 222 also subjects termination
any waiver of the sanctions measures passed of sanctions to the same congressional review
by Congress, or any licensing actions that process laid out in Section 216.
significantly alter United States Foreign Policy
with regard to Russia. Critically, and happily, Provisions to increase Ukraine-related sanctions.
a last-minute addition to Section 216 exempts
Section 223 tightens OFACs Directives 1 and
from review routine licenses that OFAC uses
2 (under EO 13662 of July 16, 2014, which
to limit the spillover effects of sanctions on
imposed broad sectoral economic sanctions
the United States and its partners and to fix
on Russia) by decreasing the allowable term
unanticipated effects of sanctions.
of extensions of debt and credit to Russian
Section 222 writes into law six executive orders banks and energy companies. It also extends
(EOs) from the Obama administrationfour of worldwide the restrictions of EO 13662s
which established the Ukraine-related Russia Directive 4 on Russian firms involved in
sanctions program in mid-2014 and two of special oil production technology (for shale,
which established the cyber sanctions program deep water, and Arctic offshore projects),
used against Russian targets in December 2016. although a late amendment requires at least
Additionally, Section 222 requires that, in order 33 percent interest in such a project. Section
to waive any new sanctions, the administration 233 additionally authorizes Treasury to add
must certify that Russia is taking steps the railway or metals and mining sectors to
to implement the Minsk Accords and any the list of Russian economic sectors subject to
discretionary sanctions.
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ISSU E B RIEF The New Russia Sanctions Law
Implications and recommendations: By locking in Despite the carve-out for routine licensing
current Ukraine-related sanctions against Russia action, the business community should be
and requiring congressional review of sanctions ready to make its case for such licenses to
easing, the law blocks the administration from avoid them becoming political footballs. It
acting on its apparent earlier temptation to lift them should emphasize that they are necessary to
unilaterally, as an unearned gift (a good will or avoid unintended impacts or consequences
trade-off gesture) to Russia. This review provision that unfairly put US firms at a disadvantage,
is probably the most important provision of the law, taking care that its arguments are credible and
and, while understandable in its motivations, it puts accurate. Congressional leadership appeared
Congress in the unusual, and potentially awkward, willing to listen to reasonable analysis from the
position of managing this element of US foreign business community, judging from changes in
policy toward Russia. The escalatory provisions are the final bill.
relatively modest, and generally in line with current
US-EU joint sanctions, assuming the administration Despite potential drawbacks, congressional
uses the flexibility built into the more problematic oversight of sanctions has one significant
measures (discussed later) to maintain solidarity advantage: the Russian government can no
with European and Group of Seven allies. longer count on the United States to abandon
sanctions unilaterally, which places Europe and
By giving itself a role in sanctions the United Statesincluding Ambassador Kurt
implementationtraditionally the purview Volker, the new US Special Representative for
of the executive branchthe congressional Ukraine Negotiationsin a stronger position
leadership must make clear that Congress to push for a Minsk-based diplomatic solution.
will support lifting Ukraine-related sanctions, The laws confirmation of Minsk (and any
except those with respect to Crimea, if Russia successor agreement Ukraine agrees to) as a
fulfills its commitments under the Minsk criterion for sanctions waiver, maintains the US
Accords or a successor agreement, as the US governments ability to respond to diplomatic
has committed. The Ukraine-related sanctions, progress. The law thus sets up the United States
like sanctions generally, are intended to to make a push alongside Europe to settle at
change behavior. If Congress were to move least the Donbas part of the Ukraine conflict.
the goalposts, US leverage using sanctions
to advance a Ukraine settlement (the original New sanctions authorities. The law includes new,
purpose of the sanctions) would be weakened mandatory authorities for cyber-, corruption-, and
or lost, and US objectives thus undermined. human rights-related sanctions. These new mandates
For example, Russia would have less incentive generally duplicate existing authorities (e.g., cyber-
to de-escalate attacks on the line of contact sanctions EOs from the Obama administration and
or refrain from other destabilizing acts or the Global Magnitsky Act, which provide sanctions
escalation against Ukraine. authorities but do not mandate their use), and thus
convey both congressional determination to impose
Section 222s provision for waiving sanctions sanctions in these areas and frustration with the
if Russia is taking steps to implement the Obama and Trump administrations responses to cyber
Minsk agreements provides flexibility for the hacking during the 2016 elections.
administration to provide some easing of
sanctions in return for partial progress on Minsk. Cyber security. Section 224 mandates sanctions
We would counsel, however, against a small- against those helping Russia to undermine cyber
for-small approach, as progress on the ground security against any democratic institution or
might be too easily reversible, while sanctions, government (including, but not limited to, US
once lifted, might not be. Nevertheless, we institutions). The administration will have some
applaud Congress for building in this flexibility latitude to define undermining cybersecurity
should it become a viable option for restoring against any person, including a democratic
Ukrainian sovereignty, stability, and territorial institution, which appears broader than the
integrity. current Obama-era authorities.
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ISSU E B RIEF The New Russia Sanctions Law
Section 224 modestly expands current cyber- the provision, given the knowingly and corrupt
related authorities, which have only been thresholds.
used sparingly, and makes it potentially a
more flexible tool to deter cyber hacking by Congress appears to have intended this
Russia. A subsection [224(a)(1)(A)] requires provision to be used, given its mandatory
the sanctioned person to be acting on behalf nature and broader authorities. Implementation
of the Russian government, an additional will be difficult, however, given the challenge
designation hurdle. If it intends to act on of assembling a fact base sufficient to meet
these authorities, the administration will need OFACs properly rigorous standards. In
to prioritize information collection and use practice, this administration, or a successor,
authorities to allow for clearer identification of could pursue these authorities in conjunction
malicious cyber actors and their sponsors, a with even more flexible and easily-substantiated
more difficult issue in cyber-related sanctions authorities, such as the Ukraine-related EO
than in most other sanctions authorities. 13661, which authorizes sanctions against any
Russian official and against certain associates
Such expanded authority may allow for more of senior officials; or EO 13662, which authorizes
effective targeting, potentially to include sectoral sanctions. However, we caution against
disinformation-related campaigns designed to using Ukraine-related sanctions authorities to
interfere with election processes (e.g., officially make non-Ukraine-related Russia sanctions
sponsored bots and trolls). The administration designations to avoid muddying disparate
could also use a broader authority to work policy objectives.
with willing allied and friendly governments
threatened by Russian cyber aggression, e.g., Implementing these provisions will require
Estonia and Ukraine, and consult with the EU intense effort, similar to the labor-intensive
about common approaches to Russian malign process of implementing the original Magnitsky
cyber actions, including sanctions. Act (not Global Magnitsky, which has yet to be
implemented). Designations, similar to those
As malicious cyber activity frequently targets in the Magnitsky Act, therefore are likely to
the business community, companies should be few in number, though the political impact
be quick to share information with their could be significant.
governments (or even fellow victims) that can
help authorities to identify the perpetrators and Potentially problematic authorities. The act includes
pursue action against them, as well as bolster several provisions so broadly scoped that careless
defense and deterrence efforts. implementation could damage American interests,
including by forcing sanctions on US allies and partners
Corruption and human rights abuses. Sections 227 or otherwise going beyond current Ukraine-related
and 228 mandate sanctions against Russian officials authorities in ways that damage US-EU solidarity on
(and family members) involved in significant sanctions. This solidarity has been key to increasing and
corruption and those involved in serious human maintaining pressure on Russia, which has frustrated
rights abuses in areas forcibly occupied by Russia, Moscows efforts to drive wedges between allies and
including occupied areas of Ukraine and Russian- otherwise deflect pressure directed at the Kremlin.
sponsored breakaway territories of Georgia. These
authorities are similar to, but slightly broader than, Dealings with the defense or intelligence
those available under the Global Magnitsky Act, sectors. Section 231 mandates sanctions on
which is discretionary. In addition, Section 233 persons engaging in significant transactions with
mandates sanctions for those knowingly facilitating the Russian defense or intelligence sectors. It
corrupt privatization deals with Russia, a standard may be intended to force reductions in Russian
that likely would also meet the law enforcement arms exports (using the model of Iran sanctions
threshold under most anti-bribery laws, such as for significant reductions of Iranian oil exports).
the United States Foreign Corrupt Practices Act or But it also may have unintended and potentially
the UKs Bribery Act, suggesting that the business damaging consequences. For example, the Russian
community should not be unduly concerned about defense technology firm Rostec is already subject
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ISSU E B RIEF The New Russia Sanctions Law
to sanctions (financial restrictions) for being part allies and partners that cannot easily cease
of the defense sector under Directive 3 of EO Russian arms dealings without serious risk to
13662, along with up to 700 entities connected to operational readiness.
Rostec that stretch across both military and civilian
sectors. 2 This measure could, if broadly interpreted, President Trump, notably, cited in one of his
impair legitimate, civilian trade due to the breadth signing statements the need to use Section 231s
of business Rostec engages in, which would go well flexibility to delay sanctions on the intelligence
beyond the current US-EU construct of sanctions. and defense sectors, because those sanctions
Additionally, because Russia is the worlds second could negatively affect American companies
largest arms exporter, this provision could be and those of our allies.4
construed to apply to many countries, including US
Energy pipelines. Section 232 provides authority
friends and partners like India, Vietnam, and Iraq
for discretionary sanctions against those
and even arms market competitors, such as China. 3
supporting or investing even nominal amounts to
In addition to generating significant problems with
develop Russias oil and gas pipeline networks,
friends and partners, this provision could open the
including the provision of technical services and
United States to charges that it was using sanctions
support. The EU, Germany in particular, objected
to boost US arms sales.
to this provision on the (accurate) grounds that
With these potentially damaging consequences, the United States and Europe had agreed early on
the administration will need to make use of not to target current or conventional Russian oil
the provision requiring guidance within sixty production and delivery or the Russian gas sector,
days of the acts passage to lay out a clear despite long-standing US opposition to Germanys
and implementable scope of sanctions that Nord Stream 2 gas pipeline through the Baltic
targets Moscows arms exports and intelligence Sea. Some of the public objection raised to this
structures without harming allies and partners. provision in Germany may have reflected political
posturing for the then-ongoing German electoral
There may be outcry from some corners at any campaign, and, due to its permissive nature,
definition that narrows the aperture, but such Congress may also have intended this to be largely
narrowing is critical to preserving the integrity symbolic. While the restrictions seem limited to
of the broader international sanctions regime pipeline construction, energy companies and some
on Russia and avoiding a pointless fight with experts have noted that the language, although
allies and friends. discretionary, could chill even routine maintenance
in otherwise non-sanctioned pipeline projects.
The remaining 120 days between the time the
guidance is issued and when the sanctions The administration should show caution in
become active will provide opportunities for implementing this discretionary sanction,
the business community as well as allied and which happily contains the explicit instruction
friendly governments to assess the impact, and that it be coordinated with allies, a late addition
potentially to approach the administration to that should largely assuage European and US
adjust the definition to allow for the sustainable parties, including businesses, critical of the
application of sanctions. provision. While not defined, this would seem
to discourage unilateral US sanctions action in
The administration may also seek to use the most cases. Although the administration failed
waiver and significantly reducing provision to address this provision in the presidential
(modeled on Iran sanctions authorities) to signing statements, it could announce its
mitigate the impact of these sanctions targeting intentions to use Section 232 in only limited
ways and only in coordination with allies, when
2 Company Organizational Structure, Rostec, accessed August 11,
2017, http://rostec.ru/en/about/structure. 4 Statement by President Donald J. Trump on Signing the Coun-
3 TIV of arms exports from Russia, 2000-2016, Stockholm Inter- tering Americas Adversaries Through Sanctions Act, White
national Peace Research Institute, last modified August 11, 2017, House, August 2, 2017, https://www.whitehouse.gov/the-press-
available for download at http://armstrade.sipri.org/armstrade/ office/2017/08/02/statement-president-donald-j-trump-sign-
page/values.php. ing-countering-americas.
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ISSU E B RIEF The New Russia Sanctions Law
United States Senator Bob Corker, Chairman of the Senate Committee on Foreign Relations.
Photo credit: US Department of State.
issuing and implementing EO or in delegating The types of special oil projects addressed in
presidential authorities under the act. Section 225 are already under EU restrictions,
but the EU allows exemptions for pre-existing
Special crude oil projects and foreign financial contracts. Those companies exempted by the
institutions. Sections 225 and 226, respectively, European Union could then end up exposed
mandate sanctions on foreign persons making to sanctions under this provision. To date, this
significant investments in special Russian crude has not been a major problem in practice, and
oil projects covered by Directive 4 of EO 13662, 5 Section 225s restriction seems designed to
and on foreign financial institutions conducting deter non-US companies from aggressively
significant financial transactions with any person backfilling on such projects; however, it would
placed on the Specially Designated Nationals (SDN) need to be applied carefully, only in egregious
List (those who are subject to full OFAC blocking cases.
sanctions) pursuant to existing Ukraine-related
sanctions authorities. As with Section 231, these More critically, Section 226s provisions, if
measures, if implemented, could have far-reaching implemented aggressively, could have a major
effects on US allies and partners, risking US-EU escalatory impact because the sanctions would
unity on sanctions, and on otherwise legitimate likely end up forcing the administration to cut
trade with Russia. US banking relations with all major Russian
financial institutions, damaging otherwise
legitimate trade with Russia and opening
a significant gap between the US and EU
5 Projects with the potential to produce oil in shale, Arctic off- sanctions that could also potentially expose EU
shore, or deep water locations.
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ISSU E B RIEF The New Russia Sanctions Law
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ISSU E B RIEF The New Russia Sanctions Law
ATLANTIC COUNCIL 9
Russia (and elsewhere) are made. National Security Foreign Service career, Ambassador Fried played a key
Council staff need to lead the interagency effort role in designing and implementing American policy in
to implement the new law, hopefully along the Europe after the fall of the Soviet Union.
lines we have suggested, and require the authority
Brian OToole is a nonresident senior fellow of the Atlantic
to act, with credibility, as the presidents foreign Councils Global Business & Economics Program. Mr.
policy staff. OToole is a Senior Vice President and the AML Executive
for Sanctions at BB&T Bank. Previously, Mr. OToole
Ambassador Daniel Fried is a Distinguished Fellow at
was the Senior Advisor to the Director of the Treasury
the Atlantic Councils Future Europe Initiative and Dinu
Departments Office of Foreign Assets Control (OFAC).
Patriciu Eurasia Center. In the course of his forty-year
Atlantic Council Board of Directors
Atlantic Council