New Sanctions Law Complicates Trade Compliance

Politics and sanctions law go hand-in-hand. In a rare instance of bi-partisanship, Congress united to constrain the administration’s ability to modify the existing sanctions program against Russia. At the same time, Congress expanded the sanctions regime for Russia, Iran and North Korea. The administration was forced to sign the bill given the overwhelming vote in favor of the measure.

As a result, compliance practitioners have to review and update their trade compliance programs.

Russia Sanctions

The new law, Countering America’s Adversaries Through Sanctions Act (“CAATSA” or “Act”) includes a number of provisions restraining the administration’s ability to relax sanctions against Russia. For global business, however, the new law expands “sectoral” sanctions against Russian banks and oil and gas companies, and creates new “secondary sanctions” applicable to non-US persons who conduct certain transactions with Russia. It remains to be seen how much of the law is actually implemented by the Department of Treasury’s Office of Foreign Asset Control (“OFAC”).

The Act codifies all the existing Executive Orders relating to the Russia sanctions program, and sets out an elaborate Congressional procedure to review any proposed changes in existing Russia sanctions. Under the new procedures, the administration must submit a proposed change to Congress and Congress must act to reject the change. The procedures, however, does not apply to general licenses for specific transactions that would not harm the United States’ foreign policy interests.

The Act directs OFAC to expand existing Russia sectoral sanctions. Specifically, the Act requires OFAC to revise Directives 1 and 2 of the sectoral sanctions program to prohibit US persons’ involvement in new financing for designated Russian banks, and oil and gas companies. The Act expands coverage to new financing of 14 days or more (from 30 days) for banks, and 60 days or more (from 90 days) for oil and gas companies.

The impact of these changes is likely to be significant. The prohibition applies to payment terms of any invoice for goods or services involving these specified countries. As a result, companies may have to receive payment for goods or services within 14 and 60 days, respectively, from certain banks and oil and gas companies.

The Act also directs OFAC to expand Directive 4, which bars US persons from providing goods, technology and non-financial services for exploration and production by certain targeted Russian oil and gas companies involved in Russian deepwater, arctic offshore and shale oil and gas operations. Specifically, OFAC is required to expand Directive 4 to cover all deepwater, arctic offshore and shale oil and gas fields anywhere in the world beyond offshore Russia under current law, applicable to any company in which a prohibited Russian company has an ownership interest of 33 percent or more.

Finally, the Act also creates new secondary sanctions authorizing OFAC to penalize non-US persons engaged in certain sensitive activities even if the company has no connection to the United States. The sensitive activities include transactions relating to: (i) oil and gas export pipelines; (ii) privatization of state-owned Russian assets; and (iii) persons involved in defense or intelligence services in Russia.   It is unclear if OFAC will exercise its authority under this new provision.

Iran Sanctions

The provisions relating to the Iran sanctions program do not significantly alter the existing program. Most of the provisions overlap with existing sanctions measures and require the administration to report to Congress on a variety of topics. However, in one area relating to human rights abuses, the Act targets Iranian government officials and others engaged in gross violation of human rights against Iranians. The Act also retains the exclusion of humanitarian transactions, including the sale of agricultural commodities, and medicines and medical devices to Iran.

North Korea

The Act amends a 2016 law to expand US sanctions against North Korea and expands prohibited activities to include: (i) purchasing certain metals and minerals from North Korea, or selling to North Korea of rocket, aviation or jet fuel; (ii) promoting the operation of vessels and aircraft, and the insurance of such vessel and aircraft; and (iii) maintaining a correspondent banking account for a North Korean financial institution.

The Act prohibits vessels over 300 gross tons from entering US waters if the vessel is operated by the North Korean government, by a North Korean person, or by a country not complying with UN sanctions against North Korea. The Department of Homeland Security is required to publish within 180 days a list of all prohibited vessels.

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