Alert: United States Tightens Sanctions against Russia, Iran and North Korea
PUBLISHED ON: 08/11/2017
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- Increased US risk for non-US businesses dealing with Russia.
- Greater disconnects between US and European Union sanctions.
- Targeted restrictions against certain deals, anywhere in the world, involving several specific Russian oil companies.
Last week, President Trump signed the "Countering America’s Adversaries Through Sanctions Act" (HR 3364), which expands existing sanctions against Russia and adds new measures to the existing sanctions against Iran and North Korea. The expanded sanctions against Russia (“Countering Russian Influence in Europe and Eurasia Act”) in particular create the potential for more complex compliances challenge for non-US companies and is the focus of this update.
Under the Russia related sanctions measures, US sanctions that were adopted by the Obama Administration have been expanded, in particular by targeting non-US companies and individuals that carry out activities connected with Russia that are already prohibited for US companies and individuals (thereby introducing so-called “secondary sanctions” applicable to activities related to Russia). A complicating impact of the new sanctions is that they create a new regulatory divide between the US and EU sanctions, an area of sanctions policy that until now has been marked by mostly parallel efforts.
Among the key modifications to existing sanctions are reducing the existing maximum maturity period for “new debt” financing, including bonds or loans, from 30 to 14 days provided to specified Russian financial institutions. Similarly, the existing maximum maturity period for new debt financing provided to specified Russian energy companies has been reduced from 90 to 60 days.
The new Russian sanctions also prohibit support for any new “projects” worldwide in which certain Russian oil companies and their subsidiaries hold a 33 percent or greater interest – this restriction previously was limited to projects inside Russian territory.
The President also was given new discretionary authorities, meant to be managed in conjunction with US allies, to impose additional sanctions on US and non-US companies, or individuals, that in the future make investments that contribute to Russia’s effort to expand its pipelines to export energy or that sell, lease or provide certain goods, services, technology, information or support (above certain thresholds) to aid expansion of Russia’s export pipelines.
The US Congress also codified a number of existing US sanctions measures against Russia enacted by the Obama administration under executive orders in response to Russian's invasion of Crimea. The intent behind this measure is to limit President Trump’s room to maneuver in relaxing these sanctions without additional Congressional actions. Also added were a number of “mandatory” sanctions related to entities and individuals in Russia involved in cybersecurity, or against individuals who knowingly engage in transactions with Russian intelligence services, but these along with other energy related measures, allow the President to apply waivers under certain circumstances and with Congressional notifications.
The new Russia sanctions include a number of other measures that impact exports to Russia and transactions that may be considered to be deceptive or are intended to facilitate prohibited activities.
Iran and North Korea
"Countering America’s Adversaries Through Sanctions Act" also levies sanctions against North Korea and Iran. The North Korean provisions expand existing secondary sanctions, with a focus on trade, financial services and the energy sector. The Iranian provisions expand secondary sanctions against the Iranian Revolutionary Guard Corps and its affiliates and Iranian military activity.
EU member states, individually and collectively, have reacted strongly to the expansion of secondary sanctions aimed at restricting the business activity of non-US persons. The EU has long considered such sanctions, taken without a UN mandate, to have extraterritorial effects that are incompatible with international law. On July 26, 2017, European Commission President Jean-Claude Juncker warned against "unintended unilateral effects that impact the EU's energy security interests." Similarly, the French, German and Austrian governments opined that the extraterritorial reach of the new law may breach international law and objected to the impact that these could have on European energy supply matters.
It is unclear how the EU will respond to these latest sanctions against Russia. The EU is reviewing the potential to pursue similar steps taken in 1996, when it pursued a multi-pronged response following the adoption of US sanctions again Cuba, which had extraterritorial effects. At that time, the European Commission initiated a World Trade Organization dispute resolution proceeding but ultimately shelved that track following negotiations with the US administration. The EU also adopted a blocking statute (Regulation 2271/ 96), and the Member States agreed to work together to prohibit compliance by EU nationals and companies with any identified extraterritorial third country legislation.
Please contact Brown Rudnick’s sanctions team for further details and analysis on the impact of these measures on previously permissible activities by US and non-US persons. The Brown Rudnick team includes lawyers in Washington well-versed in US government sanctions and export control law and policy and with experience in the intelligence and foreign policy community, and lawyers in London and Paris with experience assisting non-US clients in complying with US and EU laws.
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