New legislation presents impactful but measured way forward on Russia sanctions

Driven by understandable distrust of US President Donald Trump’s continued relationship with Russian President Vladimir Putin, a bipartisan group of US senators have introduced legislation that, if passed, compels the Trump administration to increase the pressure on Moscow. The Defending American Security from Kremlin Aggression Act of 2019, or DASKAA, is a revisited, and improved version of the similarly named bill that was introduced in response to Trump’s widely panned July 2018 summit with Putin in Helsinki. Several additional Russian-related outrages later, this bill introduced by Senators Graham, Menendez, Cardin, Gardner, and Shaheen likely has a better chance of becoming law than its predecessor, which languished in a Congress distracted by a Supreme Court fight, the summer recess, a competing Russia sanctions bill, and the pre-election environment.

This updated DASKAA is a nuanced and thoughtful law that clearly reflects the efforts its authors undertook to address issues with the initial draft. It contains several provisions that will have a serious impact on Moscow, provide deterrence in other key areas, and has removed some of the sanctions previously considered by the prior Congress that caused serious alarm among European allies and those concerned with sanctions blowback to the global economy. It also addresses a number of other bipartisan policy priorities to entice members who may otherwise be on the fence regarding additional Russia sanctions legislation.

The legislation contains a number of sanctions that are divided between (1) those related to Russia’s interference in democratic processes and elections, and (2) those related to Russia’s ongoing aggression against Ukraine. Linking the sanctions to specified policy issues provides a useful roadmap for lifting such sanctions should Moscow finally decide to cease its aggressive behavior. It is crucial to note, however, that the cumbersome congressional review provision in Section 216 of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) will apply to any lifting of sanctions imposed by DASKAA 2.0.

Although the legislation divides the sanctions topically, this analysis considers (1) those sanctions that are mandatory within a prescribed period of time after DASKAA becomes law irrespective of further provocations, and (2) those that require a determination by the administration of specified bad behavior prior to being imposed. Specifically, the bill requires the Trump administration to impose the following prohibitions in reaction to Kremlin aggression already committed:

  • A ban on participation by US persons in any new issuance of Russian sovereign debt within 150 days of the legislation’s enactment. As others and we have argued before, this is an appropriate measure to take in response to Russia’s aggression, and one that is probably overdue. The focus on only new issuance is right, and means that existing holders of Russian sovereign debt – some of which are US persons – will not face undue burden from the sanctions. What this measure will do is prevent the Kremlin from easily accessing cheaper western capital markets to raise foreign currency and backstop its domestic fiscal decisions. It will also send a strong message to financial markets – some of which seem to have priced out sanctions risk since the middle of 2017 – that sanctions on Russia have not plateaued and significant risk remains.
  • Imposition of a menu of sanctions on any person participating in new crude oil development within Russia on or after the day the bill becomes law. This is a potentially significant sanction that could draw outcry from Europe, as it is the first attempt to target conventional crude oil production in Russia. However, Congress has calibrated this to target only new development, and deferred flexibility on the scope to the Trump administration. Given concerns over harming US and European energy companies already in Russia, the scope would likely be limited to projects not yet conceived of, which may have limited immediate impact on Russian production, but will likely hamper its longer-term planning for oil exploration and development.
  • Imposition of a menu of sanctions on any person making certain investments in Russian liquified natural gas (LNG) export facilities located outside of Russia beginning 180 days after the bill’s enactment. While there may currently be few such projects, this sanction constrains Russia’s ability to expand its gas investments and has a valuable messaging component that gas sanctions are not sacrosanct when it comes to Russia. This more narrowly defined measure appears to address some earlier concerns from the Japanese and several European governments at direct sanctions on LNG platforms in Russia, which would undermine their own energy security.
  • Within ninety days of the bill’s enactment, the administration must impose blocking sanctions on at least twenty-four Russian federal security service (FSB) officers in response to Russia’s continued detention of twenty-four Ukrainian sailors from a November 2018 clash in which Russian vessels attacked and seized three Ukrainian navy ships transiting the Kerch Strait. These sanctions may seem futile as they won’t have a practical impact, but the legislation contains an important messaging point that these sanctions should be lifted when Russia releases the Ukrainian sailors. Congress has done well in this instance to demonstrate in the DASKAA text its explicit support for lifting sanctions in response to appropriate actions by Russia, perhaps in the hope it is instructive for future Russian actions and sanctions lifting.
  • Imposition of a menu of sanctions on investments in Russian state-owned energy projects outside of Russia 180 days after the bill’s enactment. This measure is one that will likely require some refinement to be viable, as it is possible that it would encompass the Nord Stream II pipeline project, a significant pain point for Germany in prior sanctions legislation. A tweak to target only new projects of this type may help solve the issue and assuage Berlin, which has been the most important EU ally in preserving the sanctions regime on Russia. As many have observed before, the Nord Stream II pipeline is a bad project, but US sanctions are not the appropriate tool to address the issues it presents.

The other sanctions provisions require the administration to make a determination before imposing sanctions related to future Kremlin aggression in specified areas of concern, ranging from Russian destabilization of Ukraine to attempts to undermine democratic institutions. They include:

  • Blocking sanctions on Russian banks that support Russian efforts to undermine democratic processes or elections outside of Russia. This bank sanctions measure is the most improved provision from prior bills, as it requires a determination of specified bad conduct by the banks to impose sanctions that could have significant spillover to US, EU, and global financial markets. Critically, these sanctions do not necessarily require specific knowledge of the interference itself to impose sanctions, which puts an onus on Russian banks to know what their customers are doing and avoid funding such activity.
  • Sanctions on all entities in Russia’s shipbuilding sector if Russia interferes in the freedom of navigation in the Kerch Strait or elsewhere in contravention of international law. This provision is clearly in response to a perceived lack of Trump administration reaction to Russia’s interference with freedom of navigation in the Kerch Strait. While the provocation was limited to Kerch Strait, the new bill’s authors cast a wide net in applying the sanction across the shipbuilding sector (rather than narrowing it to companies with operations in the Kerch Strait, for example, or the defense shipbuilding sector). As a result, the administration will need to clearly define any sanctioned entities for the private sector to be able to successfully comply with such sanctions and to minimize potential spillover to third countries. This provision also illustrates the difficulty with enforcing a true change of Russian behavior in allowing freedom of navigation, as the provision requires that any sanctions imposed last a minimum of three years. That condition provides a strong deterrent, but also significantly constrains the flexibility typically afforded the administration, which could prove problematic in the event of real change not anticipated by the legislation (leadership change, for example). The potential implications of this provision should be carefully considered before moving the bill forward, and Congress should be willing to modify it if substantial concerns are raised.
  • Sanctions on those knowingly dealing with Russia’s malicious cyber activities. This is a measure largely complementary to sanctions already in place, but extends the reach of the existing measures and reinforces the rationale for more sanctions: Russia’s malign cyber activity.
  • Sanctions on political figures, oligarchs, and family members and other persons that facilitate illicit and corrupt activities of Putin. This provision is redundant of existing authorities that have been used since 2014, but does well to call out legitimate targets for sanctions and highlight the massive corruption of Putin and his regime.

That’s an exhaustive list of the included sanctions, but the bill also contains a number of other provisions that advance bipartisan priorities with regard to Russia and US foreign policy in general. Most notably among them, a mandated congressional vote on any decision by a president to leave NATO, a report on Putin’s personal wealth that is sure to be an annoyance for the Russian leader for whom corruption is a domestic political weakness, an expansion of transparency requirements on high-value real estate purchases, and funding for the reestablishment of the State Department’s office of the sanctions coordinator, which was terminated in the early days of the Trump administration. The bill also reiterates Congress’s prioritization of the bilateral relationship with the European Union – a perspective the Trump administration has repeatedly been at odds with – though there are a couple sanctions provisions we mentioned above that may test that relationship.

This bill seems far more likely to become law than the previous version given these sanctions improvements, the broad array of bipartisan priorities it advances, and ample congressional angst over the administration’s Russia policy. There remains great anger within Congress over the Trump administration’s inadequate response to Russia’s 2016 and 2018 election interference, Russia’s Kerch Strait aggression and the continued detention of twenty-four Ukrainian sailors, the lack of timely implementation of the 1991 Chemical and Biological Weapons Act in response to the Skripal assassination attempt in Salisbury, and the recent delisting of international aluminum giant Rusal (despite our belief that the decision was appropriate). Members on both sides of the aisle also continue to view the administration as not having fully implemented CAATSA.

The revised DASKAA legislation does have weaknesses, including an overabundance of reports that will chew up administration resources better utilized elsewhere on implementation and an inane section requiring a determination on Russia as a state sponsor of terrorism. We continue to believe that the congressional review in Section 216 of CAATSA has significant pitfalls and that the professionals at the Treasury Department’s Office of Foreign Assets Control (OFAC) should be given deference on administrative sanctions implementation matters. Finally, DASKAA sets up several menu-based sanctions that are secondary sanctions constructs, but without explicit primary prohibitions. While those prohibitions are implied by the menu, Congress should make the primary sanctions prohibitions clear in the bill, as many sanctions in the menu format are not applicable to US persons (a visa ban for corporate officers, for example).

There are also likely to be unanticipated consequences of these sanctions to EU, Japanese, and other US partners that Congress should try to resolve prior to passing the legislation, while also ensuring sufficient flexibility is afforded the implementing agencies to respond reasonably when those governments raise them.

There are a couple key indicators that may foreshadow whether DASKAA 2.0 eventually will become law. First, press reporting suggests that new sanctions against Russia, coordinated with the EU, may be coming soon. While some Trump allies in Congress may point to such actions as sufficient, anything falling short of broader congressional expectations will only accelerate a push for new sanctions by the legislature. Second, while it’s hard to see the Democrat-controlled House saying no to new Russia sanctions, if Senate Majority Leader Mitch McConnell is able to stonewall DASKAA 2.0, this bill may never come to a vote.

Whatever happens in the near term, Putin’s track records suggest that he is likely to continue testing US resolve with another international event sooner rather than later; he just cannot seem to help himself. This bill, at the very least, will serve as the blueprint for any congressional reaction to new Russian aggression in that eventuality. It will be fascinating to see if conditions are ripe for it to move faster.

Brian O’Toole is a nonresident senior fellow with the Atlantic Council’s Global Business and Economics Program. He is a former senior adviser to the director of the Office of Foreign Assets Control (OFAC) at the US Department of the Treasury. Follow him on Twitter @brianoftoole.

Samantha Sultoon is a visiting senior fellow with the Atlantic Council’s Global Business and Economics Program and the Scowcroft Center for Strategy and Security. She is a former sanctions policy expert for the Department of the Treasury’s Office of Foreign Assets Control (OFAC).

Related Experts: Brian O’Toole and Samantha Sultoon

Image: Russian President Vladimir Putin attends talks with Iranian President Hassan Rouhani and Turkish President Recep Tayyip Erdogan, during their meeting in the Black sea resort of Sochi, Russia, 14 February 2019. (Sergei Chirikov/Pool via REUTERS)