Congress Passes Landmark Russia Sanctions
Last night the U.S. Senate passed sweeping sanctions on Russia, Iran, and North Korea by a vote of 98-2. The Countering America’s Adversaries Through Sanctions Act (the Act) contains important changes to U.S. sectoral sanctions on Russia and provides enhanced authority to issue primary and secondary sanctions on that country.
The bill looks likely to become law because there is currently sufficient support in Congress to override a Presidential veto, should one be issued. Here are some of the key Russia sanctions issues U.S. and non-U.S. companies should keep in mind as the bill progresses:
Sectoral sanctions:
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- The bill would modify Directive 1 sectoral sanctions to prohibit U.S. persons from dealing in sanctioned party debt that has a maturity exceeding 14 days, down from 30 days. U.S. companies that do business with Directive 1 entities will need to update their business processes and contracts accordingly. The bill would similarly modify the maturity period in Directive 2 from 90 to 60 days.
- The bill would expand Directive 4 sectoral sanctions to prohibit U.S. persons from engaging in activities related to deepwater, offshore Artic, or shale oil projects anywhere in the world that involve Directive 4 entities. The Bill would also apply the Directive 4 prohibitions to entities controlled by Directive 4 parties and to entities in which Directive 4 parties have a significant, but not controlling, stake of 33 percent or more. This is an important change to the 50 percent rule and will require U.S. companies to up their due diligence game.
- Specially Designated Nationals (SDN) List: The bill would give the President new authority to block the assets of parties linked to the Russian railway industry, parties involved in cyber-attacks, parties involved in corruption in Russia, parties who evade or assist others with evading sanctions on Russia, and parties involved in human rights abuses in Russia. Although the President would retain discretion on whether and when to sanction parties under the bill, U.S. companies should review their Russian counterparties and assess the risk that they may become blocked under the bill.
- Secondary sanctions: The bill gives the President new power to issue ‘secondary sanctions’ against non-U.S. companies engaged in certain activities linked to Russia. The secondary sanctions proposed under the bill, if implemented fully, could be sweeping in scope. Non-U.S. companies should carefully consider the risk of becoming subject to secondary sanctions if they are linked in any way to the following activities: significant crude oil investments in Russia, the construction of Russian energy export pipelines, providing financial services to Russian SDNs, deal with Russian defense or intelligence agencies or projects, or may be involved in the corrupt privatization of Russian state-owned assets.