United States: New Law May Significantly Impact International Trade

The President signed into law the Countering America's Adversaries Through Sanctions Act ("CAATSA") on August 2, 2017, which could have a significant impact on international trade.

CAATSA targets three countries with new sanctions measures: Russia, Iran, and North Korea. The measures could have a variety of implications for U.S. persons (U.S. citizens and permanent residents, entities formed under US law, or those entities and individuals operating under U.S. jurisdiction), their foreign subsidiaries, and foreign persons alike, depending on the provision, but much remains to be settled through further executive action.

Russia: Codification of Prior Executive Actions, Expansion of Sectorial Sanctions, and Creation of Secondary Sanctions

Codification of sanctions. A defining feature of CAATSA's Russia sanctions Title is the codification of Prior Executive Orders, thus requiring congressional action before these sanctions can be reversed.1 The President can no longer terminate a Russian sanctions provision (including those based on authority from prior laws amended by the bill, prior Executive actions targeting Russia, or the seizure of Russian diplomatic compounds in the U.S.), or grant a waiver or significant license to those provisions, without Congressional review and approval.

Sectoral sanctions changes. CAATSA also strengthens Sectoral Sanctions Directives 1 (financial services sector), 2 (energy sector) and 4 (deepwater, Arctic offshore, or shale projects). It shortens some of the permissible debt maturity windows applicable to U.S. persons involved with designated parties in the financial and energy sectors in the U.S.: Directive 1 is reduced to 14 days from 30, Directive 2 to 60 days from 90). This restricts the ability of U.S. persons and persons subject to U.S. jurisdiction to deal normally with designated Sectoral Sanctions entities, as debt and equity take a wide variety of economic forms (bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper). Directive 4's prohibition on dealings with designated individuals in connection with the production of petroleum products from deepwater, Arctic offshore, and shale projects is expanded to cover new worldwide projects, rather than merely projects that have the potential to produce oil in Russia or in maritime area claimed by Russia, in which a designated person has a controlling or substantial non-controlling ownership interest (33 percent or more). The bill also authorizes the Secretary of the Treasury to impose sanctions on the railway, metals and mining sectors of the Russian economy. Expansion to the railway, metals and mining sectors is not a mandatory provision.

The bill further sanctions on the following, in some cases with delayed implementation:

  • Activities of the Russian Federation undermining cyber security (menu-based sanctions);
  • Significant investments by foreign persons in certain deepwater, Artic and shale crude oil projects in or near Russia (menu-based sanctions);
  • Russian and other foreign financial institutions engaged in significant transactions that are the subject of specified sanctions related to the situation in Ukraine (restrictions on access to U.S. financial system);
  • Russian Government officials, or their close associate or family members involved in significant corruption (blocking and travel restrictions for individuals);
  • Foreign persons engaged in activities knowingly seeking to evade Russian sanctions (blocking);
  • Foreign persons involved in human rights abuses in any territory forcibly occupied or otherwise controlled by the Government of the Russian Federation (blocking);
  • Persons engaging significant transactions with Russian defense or intelligence sectors (menu-based and IEEPA-based penalties if applicable)2
  • Persons that make investments in or that sell, lease, or provide certain related goods, services, technology, information, or support energy export pipelines valued at $1 million or more, or $5 million or more over 12 months (menu-based sanctions);
  • Persons that knowingly make or facilitate an investment of $10 million, including aggregated investments of $1 million or more) in connection with the privatization of state-owned assets that unjustly benefits Russian Government officials, or their close associate or family members (menu-based sanctions); and
  • Foreign persons involved in the transfer of arms and related material, technology, or support to Syria (blocking and travel restrictions for individuals).

Types of sanctions. Where "menu-based sanctions" have been directed, the President is required to impose at least five (5) sanctions from a menu of twelve (12) "secondary sanctions." These sanctions range from denial of assistance or approvals from U.S. agencies and/or financial institutions to investment bans and/or blocking. In other cases, the legislation specifically requires blocking of persons, restrictions on travel to the U.S., and/or penalties under IEEPA (where applicable).

Mandatory nature of most sanctions. Most of the new sanctions are mandatory: the President "shall impose" sanctions based on defined criteria unless a limited "vital national interest" exception applies). However, CAATSA permits the President (via "may impose" language) discretion with respect to sanctions on energy export pipelines, allowing coordination with U.S. allies in making the determination. Congressional unwillingness to require the President to impose sanctions in this arena likely stems from industry and European Union concerns that emerged about this provisions while the Bill was under consideration.

Reports. Congress also has requested several reports from the Secretary of the Treasury, including on oligarchs and parastatal entities, the effects of expanding sanctions to include sovereign debt and derivative products, and illicit financing in Russia. Since Congress is putting itself in the sanctions driver's seat, these reports may suggest where and how future thrusts of legislative action may come.

Iran: Ballistic Missile and WMD Sanctions, Additional Designations, and Adjustment to Existing Regimes

CAATSA imposes additional sanctions on Iran in response to Iran's ballistic missile program, terrorism-related sanctions with respect to the Iranian Revolutionary Guard Corps ("IRGC"), and human rights abuses-related sanctions. CAATSA requires blocking and travel exclusion restrictions on persons the President determines knowingly supplies various arms or related support to Iran, and calls for the development of a regional strategy for deterring destabilizing Iranian activities that threaten the United States and its allies. The bill also requires executive reporting on several matters, including the coordination of sanctions with the European Union.

These actions can be expected to expand the entities that are subject to residual post-JCPOA secondary sanctions, which have not been waived for transactions involving SDNs. They are likely to have no real effect on U.S. companies because they do not expand the prohibitions already in place for U.S. persons with respect to Iran and General License H presently prohibits their foreign-owned companies from engaging in transactions with IRGC affiliates.

North Korea: Expanding Designations, Restricting Trade and Shipping Involvement, and Targeting Indirect Correspondent Accounts

The most significant additions to the North Korea program are likely to be additions to the "mandatory" designation requirements contained in the North Korea Sanctions and Policy Enhancement Act of 2016 (22 USC 9214(a) inter alia). CAATSA modifies and expands requirements for the President to designate and sanction persons aiding North Korea with certain activities. Additional activities triggering a mandatory designation include providing North Korea with significant precious metals or ores and certain rocket, aviation, and jet fuels, facilitating significant transactions to operate vessels or aircraft already designated, or providing insurance or registration for vessels owned or controlled by the North Korean Government. Non-U.S. persons are designated under these authorities, which result in asset blocking and other consequences meant to isolate the designee from the U.S. markets. Secondary sanctions such as these are not new to the North Korea sanctions environment.

The President was also given new discretionary authority to make further designations of persons for activities that include facilitation of North Korean violations of UN sanctions laws, transfers of funds with the North Korean government, or conducts significant transactions in North Korea's transportation, mining, energy, or financial services industries. That authority could theoretically touch shippers, insurers, and a variety of other participants in international commerce, regardless of their nexus to the U.S.

CAATSA requires U.S. financial institutions to ensure correspondent accounts are not used to provide designated persons with financial services. Additionally, foreign vessels over 300 gross tons and designated by the Secretary of State may not enter or operate in the navigable waters of the U.S. or transfer cargo in any port or place under the jurisdiction of the U.S. The Secretary will designate vessels owned or operated by or on behalf of North Korea, a North Korean, a country that is non-compliant with applicable UN Security Council resolutions, or vessels otherwise designated per the authorities of the North Korea Sanctions and Policy Enhancement Act of 2016. CAATSA also limits U.S. foreign assistance to non-compliant governments.

Congress requires a series of reports from the President regarding various parties and industries, some of which may hint at future action. It requires a report from the President within 180 days regarding whether reasonable grounds exist to designate Korea Shipowners' Protection and Indemnity Association, a North Korean insurance company, and Chinpo Shipping Company (Private) Limited, a Singapore corporation, with respect to facilitating imports, exports, and reexports of arms and related materiel to and from North Korea. It also requires a report identifying foreign governments and the operators of foreign sea ports and airports that fail to implement or enforce United Nations requirements on inspection and transshipment of goods, or those who knowingly facilitate the same.

Conclusion

CAATSA passed both houses of Congress with a combined tally of 517-5, indicating particularly robust bipartisan support. It remains to be seen how aggressively the Trump Administration will be in making determinations, pursuing waivers, and imposing sanctions required by CAATSA. Further, many of the provisions are not effective immediately. The real impact of this legislation will be shaped by implementing guidance, orders, and regulations that are yet to be published.

Footnotes

1. CAATSA codifies the following Executive Orders: Executive Order No. 13660 (79 Fed. Reg. 13493; relating to blocking property of certain persons contributing to the situation in Ukraine), Executive Order No. 13661 (79 Fed. Reg. 15535; relating to blocking property of additional persons contributing to the situation in Ukraine), Executive Order No. 13662 (79 Fed. Reg. 16169; relating to blocking property of additional persons contributing to the situation in Ukraine), Executive Order No. 13685 (79 Fed. Reg. 77357; relating to blocking property of certain persons and prohibiting certain transactions with respect to the Crimea region of Ukraine), Executive Order No. 13694 (80 Fed. Reg. 18077; relating to blocking the property of certain persons engaging in significant malicious cyber-enabled activities), and Executive Order No. 13757 (82 Fed. Reg. 1; relating to taking additional steps to address the national emergency with respect to significant malicious cyber-enabled activities). Read the bill here.

2. This provision is not set to be applicable until 180 days after enactment and there is an authorization for additional 180 day delays for persons substantially reducing significant transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.