by Melissa Proctor, Miller Proctor Law PLLC
The first month of 2018 ushered in a flurry of new developments on the U.S. sanctions front which will impact U.S. companies doing business in Russia. On January 29, 2018, the U.S. Treasury Department submitted a series of reports1 to Congress as required by Section 241 of the Countering America's Adversaries Through Sanctions Act ("CAATSA")2, including a list identifying senior Russian political figures, oligarchs and entities that play a significant role in the Russian economy and Vladimir Putin's inner circle – it is possible that such parties may be targeted by U.S. sanctions in the near future under the CCATSA. The Treasury Department's reports also coincided with President Trump's recent decision not to impose retaliatory sanctions against parties dealing with Russian defense or intelligence sector entities, as well as the entry into force of expanded Directive 4 under Executive Order 13662 as mandated by the CAATSA.3 This article summarizes these key events and urges U.S. companies and their foreign affiliates doing business in Russia to stay vigilant as new developments arise.
1. Section 241 of the CAATSA & the Treasury Department's Report
Per Section 241 of the CAATSA, the Treasury Department was required to submit a report ("Section 241 Report") to Congress, no later than January 29, 2018, identifying Russian oligarchs, significant senior Russian political figures, and Russian parastatal entities based on their associations with the Russian government, their net worth, indications of any corrupt activities, and their involvement in the Russian economy. The Section 241 Report lists over 200 individuals, including the Russian Prime Minister and other senior members of the government who have an estimate net worth of at least $1 billion. The identified parastatal entities, which were included in a classified section of the report that was not made publicly available, include those that are at least 25% owned by the Russian government and were determined to have had revenues of at least $2 billion in 2016. The Section 241 Report also identified the U.S. economic and industry sectors that could be exposed to the identified Russian actors, the potential impact of future sanctions against the Russian actors (e.g., restrictions on dealings in new debt and equity involving these parties, adding them to the Specially Designated Nationals Lists, etc.), and the likely impact of secondary sanctions targeting non-U.S. entities that deal with them.
The key take-away? The Section 241 Report is not a sanctions list. Granted, some of the identified Russian actors are already listed in the Specially Designated Nationals List ("SDN List") enforced by the Treasury Department's Office of Foreign Assets Control ("OFAC") for reasons not relating to the Section 241 Report, and the Report identifies those preexisting SDNs by placing an asterisk by their names. U.S. persons are of course prohibited from dealing with those SDNs without prior authorization from OFAC. However, the remaining individuals and entities in the Section 241 Report have not been added to the SDN List or the Sectoral Sanctions Identification List, and they are not currently subject to other U.S. sanctions – this means that U.S. persons are not yet prohibited from dealing with these parties. Nonetheless, it is possible that they may be targeted by U.S. sanctions in the near future, such as under the Global Magnitsky Sanctions,4 the Magnitsky Sanctions,5 or the Ukraine-Related Sanctions.6
2. President Trump Decides Not to Withhold Sanctions on the Russian Defense or Intelligence Sectors
By way of background, on October 27, 2017, the U.S. State Department published a list of 39 Russian entities that are known to be part of (or that operate on behalf of) the Russian defense or intelligence sector, as well as formal guidance about the forthcoming sanctions anticipated in early 2018.7 Section 231 of the CAATSA requires the President, on or after January 29, 2018, to impose retaliatory sanctions to punish U.S. or non-U.S. parties that knowingly engage in a significant transaction with the Russian entities identified on the State Department's list. However, on January 29th, the Trump Administration announced that it would not impose the sanctions as it believed that the mere threat of the imposition of sanctions would serve as a sufficient deterrent.8
The key take-away? The State Department's List of Russian Defense and Intelligence Sector Entities under Section 231 of the CAATSA is not a sanctions list. Like the Section 241 List discussed above, some of the entities identified in the State Department's list are already included in OFAC's SDN List for reasons separate and apart from CAATSA. However, the remaining individuals and entities in the State Department's list are not currently on the SDN List or Sectoral Sanctions Identification List, and they are not currently subject to other U.S. sanctions – this means that U.S. persons are not yet prohibited from dealing with these parties. Keep in mind that these parties have the potential for being added to U.S. sanctions programs in the future, such as the Global Magnitsky Sanctions, the Magnitsky Sanctions, or the Ukraine-Related Sanctions.
3. Enhanced Directive 4 Prohibitions Are Now in Effect
On January 29th, the enhanced Directive 4 prohibitions on certain activities involving Russian energy companies and oil and gas projects formally took effect. The enactment of CAATSA required OFAC to amend and reissue the various directives9 that were made under Executive Order 13662.10 As originally written, Directive 4 previously prohibited U.S. persons from providing, exporting or reexporting (directly or indirectly) goods, certain services or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that: (1) have the potential to produce oil in the Russian Federation, maritime claimed by the Russian Federation and extending from its territory; and, (2) involve parties designated on the Sectoral Sanctions Identification List that are subject to the mandates of Directive 4.
However, the amended Directive 4 now prohibits U.S. persons from providing, exporting or reexporting (directly or indirectly), goods, certain services or technology in support of the exploration or production for deepwater, Arctic offshore or shale projects that: (1) are commenced on or after January 29, 2018; (2) have the potential to produce oil anywhere in the world (not just in Russia); and, (3) involve SSIL parties subject to Directive 4, entities 33% or more owned by SSIL parties, or entities in which a SSIL party owns a majority of voting interests.
U.S. companies and their foreign affiliates doing business in Russia or testing the waters there should closely monitor the U.S. sanctions and policy posture towards Russia – especially with respect to certain activities involving the key sectors of the Russian Federation such as the financial, energy, defense and intelligence sectors. Companies should adopt a wait-and-see approach as to whether the U.S. government will continue its aggressive stance towards the Russian bear. And only time will tell if the Russian government will decide to retaliate against these measures.
 Pub. L. 115-44, August 2, 2017
 Directives 1 and 2 were amended and reissued by OFAC, as required by CAATSA, on September 29, 2017. Their prohibitions against engaging in certain new debts involving Russian parties designated on the Sectoral Sanctions Identification List were expanded and became effective on November 28, 2017.
Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or email@example.com.
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