The US State Department has issued guidance on s231 of the Countering America’s Adversaries Through Sanctions Act (‘CAATSA’), which imposed new sanctions on Russia, Iran and North Korea (‘DPRK’) in August 2017.
Section 231 concerns the imposition of retaliatory sanctions on individuals or entities – of either US or foreign origin – that knowingly engage in a ‘significant transaction’ with those deemed to be working for the Russian defence or intelligence sectors.
The new guidance does not impose any sanctions, but rather identifies 39 Russian entities which fall under the scope of s231. These may already appear on the Specially Designated Nationals and Blocked Parties (‘SDN’) List, or other sanctions lists. Section 231 provides that parties engaging in ‘significant transactions’ with these entities could be subject to retaliatory sanctions, similar to secondary sanctions. Retaliatory sanctions will be imposed from 29 January 2018.
To determine a ‘significant transaction’, the State Department has considerable leeway, looking at ‘the totality of the facts and circumstances surrounding the transaction and weigh various factors on a case-by-case basis.’ Relevant factors are:
- A significant adverse impact on US national security and foreign policy interests;
- The nature and magnitude of the transaction; and
- The relation and significance of the transaction to the defence or intelligence sectors of the Russian government.
The guidance states that the State Department will focus on transactions of a ‘defence or intelligence nature’, rather than civilian transactions that do not involve intelligence entities. If a transaction with the Federal Security Service (‘FSB’) is necessary to comply with domestic rules involving, for example, the importation, distribution or use of information technology products in Russia, this does not necessarily mean that the transaction will be considered ‘significant’.
If the State Department finds that a person has engaged in a ‘significant transaction’ with an entity on the s231 lists after 29 January 2018, it must impose five or more sanctions. These include prohibitions on property transactions; export licence restrictions; Export-Import Bank assistance restrictions; debt and equity restrictions; visa ramifications for corporate officers; and United States government procurement prohibitions. The act also allows for sanctions on persons that engage in covered transactions, as well as on the principal executive officer or officers of the sanctioned person.
The CAATSA Section 231(d) Lists Regarding the Defense Sector and Intelligence Sector of the Government of the Russian Federation List can be found here: https://www.state.gov/t/isn/caatsa/275116.htm
The US State Department’s FAQ can be found here: https://www.state.gov/t/isn/caatsa/275118.htm