On August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (CAATSA), which strengthened U.S. sanctions on Russia, North Korea and Iran. CAATSA had been passed by overwhelming “veto-proof” majorities of Congress and President Trump signed the bill while expressing reservations concerning the limitations it placed on the President’s authority.
It remains unclear how vigorously the sanctions will be implemented, particularly for Russia. However, the new sanctions and their implementation could have far-reaching implications for companies and investors. Key provisions of CAATSA include:
- Codifying Sanctions and Congressional Review. The legislation codifies Russian sanctions executive orders and designations that are currently in effect, making them part of statute. The President must notify Congress if any sanctions imposed on a person under one of the executive orders are lifted and there are complex Congressional procedure to terminate any sanctions or to take a licensing action that “significantly alters” U.S. foreign policy with regard to the Russia. However, the bill clarifies that “routine licensing actions” are not subject to these requirements.
- Sectoral Sanctions.
- The Russian sectors subject to potential sectoral sanctions under Executive Order 13662 mayl be expanded to include state-owned entities operating in the Russian railway, metals or mining sectors. The shipping sector was originally included in the Senate bill but deleted.
- Of particular significance to the energy sector, CAATSA requires the Treasury Department to modify Directive 4 to prohibit exports of goods, technology or services by U.S. persons in support of “new” deepwater, Arctic offshore or shale projects that have the potential to produce oil that involve a designated Russian firm that has a controlling interest or substantial non-controlling interest in such a project (defined as not less than 33%). Prior to CAATSA, Directive 4 prohibitions on goods, technology and services had applied only to projects in Russian territory.
- Additionally, OFAC must modify both Directives 1 (applying to financial institutions) to prohibit new debt of longer than 14 days maturity (currently 30 days) and Directive 2 (applying to petroleum sector) to modify to prohibit new debt of longer than 60 days maturity (currently 90 days).
- Mandatory and Discretionary Primary and Secondary Sanctions. CAATSA mandates the imposition of primary sanctions, secondary sanctions, or in some cases both, on persons engaged in activities such as undermining cybersecurity, facilitation of transactions with sanctioned parties, serious human rights abuses, significant corruption in the Russian Federation, privatization of Russian state-owned assets to the benefit of officials or close family members, or significant transactions involving the Russian intelligence or defense sectors. CAATSA makes mandatory several secondary sanctions provisions in existing statutes that were previously discretionary (while still providing for national security or national interest waivers in most cases). This includes involvement in special Russian crude oil projects, and transactions by non-U.S. financial institutions with sanctioned parties. CAATSA also adds discretionary primary or secondary sanctions for persons determined to be involved in the construction, modification or repair of “energy export pipelines” which may be imposed in coordination with U.S. allies.
North Korea Sanctions
- Designations. CAATSA amends the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA) to expand secondary sanctions in relation to activities with North Korea. It makes mandatory several secondary sanctions currently in place under the NKSPEA and U.S. Executive Orders, including for persons knowingly involved in North Korean transfers of certain minerals, precious and other metals, jet fuel and fuel supplies, vessels. CAATSA also adds several discretionary secondary sanctions for persons who knowingly, directly or indirectly:
- Purchase or otherwise acquire from the Government of North Korea significant quantities of coal, iron, or iron ore, in excess of the limitations provided in applicable UN Security Council resolutions (UN Security Council Resolution 2371 strengthened these limits on August 5, 2017);
- Purchase or otherwise acquire significant types or amounts of textiles from the Government of North Korea;
- Facilitate a significant transfer of funds or property of the Government of North Korea that materially contributes to any violation of an applicable UN Security Council resolution;
- Facilitate a significant transfer to or from the Government of North Korea of bulk cash, precious metals, gemstones, or other stores of value (other than gold, titanium / vanadium ore, copper, silver, nickel, zinc and rare earth minerals, the knowing purchase of which is subject to mandatory secondary sanctions);
- Sell, transfer, or otherwise provide significant amounts of crude oil, condensates, refined petroleum, other types of petroleum or petroleum byproducts, liquefied natural gas, or other natural gas resources to the Government of North Korea (except for heavy fuel oil, gasoline, or diesel fuel for humanitarian use or use by civil aircraft on return flights from North Korea).
- Engage in, facilitate, or are responsible for the online commercial activities of the Government of North Korea, including online gambling;
- Purchase or otherwise acquire fishing rights from the Government of North Korea;
- Purchase or otherwise acquire significant types or amounts of food or agricultural products from the Government of North Korea;
- Engage in, facilitate, or are responsible for the exportation of workers from North Korea in a manner intended to generate significant revenue, directly or indirectly, for use by the Government of North Korea or by the Workers’ Party of Korea;
- Conduct a significant transaction(s) in North Korea’s transportation, mining, energy, or financial services industries; or
- Except as specifically approved by the UN Security Council, and other than through a correspondent account, facilitate the operation of any branch, subsidiary, or office of a North Korean financial institution.
- Correspondent Accounts. The law also amends the NKSPEA to make statutory and elaborate on existing prohibitions on North Korean access to U.S. correspondent accounts. S. financial institutions must ensure that correspondent accounts are not established, maintained, administered, managed or used to provide significant financial services to those designated under the NKSPEA. North Korea already was subject to Special Measures imposed in November 2016 under Section 311 of the USA PATRIOT Act which require the prohibition of correspondent accounts with North Korean financial institutions and due diligence obligations to ensure other correspondent accounts are not used to process transactions for North Korean financial institutions.
- State Sponsor of Terrorism. The law requires the Secretary of State to determine whether North Korea meets the criteria for a state sponsor of terrorism. This would trigger various restrictions, most of which have already been implemented for North Korea.
- Narrow impact. The section for Iran adds a small number of new sanctions that are highly targeted and will not impact most commerce which is permitted for non-U.S. persons with Iran under the JCPOA. Nor will it impact U.S. general licenses or activities relating to civil aviation under the Statement of Licensing Policy.
- Designations. The bill provides for mandatory and discretionary sanctions, including designations of persons in connection with supplies of arms to Iran, support for Iran’s ballistic missile program, and support for Iran’s Islamic Revolutionary Guard Corps and its officials, agents or affiliates.