Yesterday, the U.S. Congress passed a new sanctions bill by an overwhelming majority. If Trump signs it, these will be the most significant additions to the sanctions against Russia since they were first introduced in 2014.
It seems that even pro-Kremlin media have no doubt that Trump will sign the bill. The Russian authorities decided not to wait for Trump’s signature and have already stripped the U.S. of a diplomatic retreat and are expelling diplomats. Any hopes that Trump’s election would somehow change U.S. policy toward Russia have now completely evaporated. Well, that’s exactly what we said.
The new law concerns not only Russia, but also sanctions against Iran and North Korea. Unfortunately, most of the document still relates to our country. As we’ve done many times before, let’s try to sort out what these new sanctions are and what effect they may have on us — Nikita Kulachenkov from ACF’s Investigations Department (the Anti-Corruption Foundation founded by Alexei Navalny) offers his traditional explainer. You can find our main previous publications on sanctions here, here, and here.
Before taking any action to lift or change sanctions already imposed on Russia, the U.S. president must notify the relevant congressional committees in advance and send them a detailed explanation of the reasons. If the congressional committees disagree with the changes, there is a set review period during which the president is not allowed to do anything on the matter until both chambers decide whether to approve or reject them.
The law bans the supply of goods, services, and technologies related to offshore, Arctic, and deepwater oil exploration and production. Such a ban already existed, but now it applies not only to projects on Russia’s continental shelf, but also to projects in other countries where companies on the sanctions list participate directly or indirectly with a stake of more than 33%. This means that we will no longer be able to use Western technology not only for our own offshore oil production, but also to take part in similar joint projects in other countries and thereby try to “copy” the technology or train personnel.
The new law gives the president the option (but not the obligation) to impose sanctions on any persons or entities involved in, or helping carry out, major transactions (over $10 million) involving the privatization of Russian assets, if those deals illegally enrich Russian officials, their family members, or associated persons. The specific sanctions will be determined by the president, but for individuals they would include the usual measures such as asset freezes and travel bans, while for legal entities they could include bans on international dollar transfers, borrowing from U.S. banks, participating in share offerings, buying assets in the United States, or selling their shares to American investors. Top managers of such organizations may be expelled from the U.S. and subjected to personal sanctions.
In our view, this is a very important provision, and it may be a response to last year’s opaque deal to sell a stake in Rosneft. Perhaps Sechin and Putin quietly set aside a few Rosneft shares for their retirement and structured the deal with sanctions and possible future attempts to reclaim assets after a change of power in mind. It is likely that the Americans have a good idea who the real beneficiary of that deal was, and want to warn Qatar, Glencore, and the Italian Intesa participants, who were awarded medals, that it is better not to get involved in deals like this.
The new law gives the president the option (but not the obligation) to impose sanctions on any persons involved in Russian export pipeline projects in amounts exceeding $1 million in a single transaction or $5 million over the course of a year. “Involvement” includes not only construction, but also the servicing and repair of existing pipelines.
It should be noted that these are the first sanctions that potentially bring an economic benefit to the United States. The U.S. supplies Europe with LNG (liquefied natural gas) and plans to increase those deliveries, so blocking the construction of new Russian pipelines and making existing ones harder to maintain is also a form of competitive pressure.
The very first sanctions law, from March 2014, allowed sanctions to be imposed on persons involved in or responsible for ongoing corruption in Russia. Now the text of that old law has been amended so that the president is REQUIRED to impose sanctions. It also adds an obligation for the president to sanction those who help evade sanctions or act on behalf of people on the sanctions lists. You can read more about the people facing asset freezes in our very first publication on sanctions. As I recall, sanctions were once imposed on some obscure Finnish business partner of Timchenko who helped circumvent sanctions. Now there may be more such “Finns” under sanctions, and even fewer people willing to help Timchenko or the Rotenbergs.
A later sanctions law, from December 2014, provided that the president could impose certain sanctions on any persons investing in Russian oil projects related to exploration and production on Russia’s continental shelf, in the Arctic, and in deepwater fields. That law has now been revised so that the president is REQUIRED to impose such sanctions. As previous sanctions have already shown, no one in the world — neither China nor Vanuatu — will risk getting involved in such projects with Russian participation.
That same December 2014 law stated that the president could impose certain sanctions on any financial institutions (in any country) that participate in the oil projects mentioned above or carry out transactions on behalf of persons whose assets are to be blocked. That law has now been revised so that the president is REQUIRED to impose such sanctions.
The new law includes a section requiring the U.S. Treasury Secretary, the Director of National Intelligence, and the Secretary of State to jointly prepare special unclassified reports for Congress.
A report on oligarchs and companies with state ownership and/or control, containing the following information.
A report on expanding sanctions to sovereign debt and derivatives, which must assess the impact of sanctions banning any such lending with maturities of more than 14 days. The introduction of such sanctions would amount to an effective ban on anyone other than Russian companies buying Russian OFZ government bonds.
A report on illicitly obtained funds connected to Russia.
At Congress’s request, the president must also prepare the following reports:
A report on media outlets controlled and financed by the Russian government, working for both domestic and foreign audiences.
A report on the financing by persons from Russia — whether the government, businesses, or private individuals — of political parties, election campaigns, lobbying, and NGOs.
What’s striking is that Congress could have requested all these reports privately, but instead it deliberately wrote them into the law, making this a kind of “final warning.” Let us repeat: a ban on buying Russian sovereign debt is a powerful measure, and its impact on the Russian economy would be felt quickly.
Sanctions involving asset freezes can now be extended to state-owned companies in the railway, metals, and mining sectors.
A ban is imposed on transactions involving loans with maturities of 14 days or more, as well as on dealings in new equity issuances, for certain companies. Previously, the loan restriction applied only to maturities of 30 days or more. These sanctions apply to VEB, Gazprombank, Rosselkhozbank, VTB, Sberbank, Bank of Moscow, and others.
A ban is imposed on transactions involving loans with maturities of 60 days or more for certain companies. Previously, the loan maturity threshold was 90 days. These sanctions apply to Rosneft, Novatek, Transneft, Gazprom Neft, and others.
The law also requires the president to impose sanctions on legal entities and individuals involved in any cyberattacks carried out on behalf of the Russian government. The specific sanctions will be determined by the president, but for individuals they would include the usual measures such as asset freezes and travel bans, while for legal entities they could include bans on international dollar transfers, borrowing from U.S. banks, participating in share offerings, buying assets in the United States, or selling their shares to American investors. Top managers of such organizations may be expelled from the U.S. and subjected to personal sanctions.
The president is now also required to impose sanctions on persons who violate human rights in territories controlled by Russia, as well as on those who conduct transactions with such persons.
The new law requires the president to impose sanctions on any persons carrying out significant transactions with persons acting in the interests of the military and intelligence sectors of the Russian government, including the GRU and the FSB. These sanctions effectively prohibit all manner of supplies, loans, banking services, international bank transfers, and so on, up to and including asset freezes.
The president is required to impose sanctions on persons who help Syria develop or acquire chemical, biological, or nuclear weapons, large quantities of conventional weapons, missiles, or intelligence capabilities. Sanctions against such persons include asset freezes, visa revocations, and so on.
The provisions of the new law do not apply to NASA’s activities and cannot interfere with purchases from Russia of rocket engines and other space components. The FSB is under sanctions, but if it suddenly starts selling rocket engines, then buying engines from it would still be allowed.
The final part of the new law sets out how Congress views Russian influence. For example, Congress believes that:
To counter all this, Congress expects the U.S. president to demand that the Russian government comply with the agreements mentioned above, withdraw troops from the territories of Georgia, Ukraine, and Moldova, return control over the borders of those territories to the respective countries, and cease all attempts to undermine the popularity of those countries’ governments.
Congress believes that the United States should work to strengthen unity in the EU, reinforce NATO, and help the EU counter Russian aggression. The U.S. should also work with countries in Europe and Eurasia to prevent those countries from being used for illicit financial flows by Russian officials and members of Putin’s inner circle who enriched themselves through corruption. For these and other purposes, the U.S. Congress is allocating $250 million for 2018 and 2019.
The concluding section sets out U.S. policy on supporting Ukraine. Among other things, this policy includes the following positions: “never recognize the illegal annexation of Crimea,” oppose the construction of Nord Stream 2, and help Ukraine and U.S. allies in Europe reduce their dependence on Russian energy resources.
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