On August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (CAATSA).  As discussed below, while it mainly codifies certain existing U.S. sanctions against Iran, North Korea, and Russia, the CAATSA also establishes and expands a wide range of authorities for the imposition of new sanctions to address U.S. national security concerns with respect to these three countries that may make it very complicated for U.S. companies and their affiliates to do business in or with these countries or entities that trade with them.

As an initial matter, it should be noted that the CAATSA was overwhelming approved by Congress despite concerns that the Trump Administration raised about the law, especially regarding the Russian-related sanctions.  Since vetoing the legislation was not a viable option given the enormous margins by which the legislation was passed in the House and the Senate, President Trump signed the bill into law on August 2.  When doing so, however, President Trump noted in the Signing Statement relating to the CAATSA that “in its haste to pass this legislation, the Congress included a number of clearly unconstitutional provisions” and that “my administration particularly expects the Congress to refrain from using this flawed bill to hinder our important work with European allies to resolve the conflict in Ukraine, and from using it to hinder our efforts to address any unintended consequences it may have for American businesses, our friends, or our allies.”  In light of such language, companies that question whether certain transactions may be covered by the CAATSA should consider contacting counsel with significant familiarity and experience with U.S. sanctions matters to evaluate whether it may be beneficial to contact Trump Administration officials to discuss the viability of the contemplated transactions.

With respect to Iran, the CAATSA codifies certain existing sanctions, including those pertaining to Iran’s Islamic Revolutionary Guard Corps (IRGC) and its special forces unit, the Quds Force (IRGC–QF), and it provides the President with the authority to add additional entities associated with the IRGC that engage in terrorist activities to the SDN List, thereby prohibiting US persons from doing business with them.  The CAATSA also generally requires the President to impose sanctions on any person who knowingly violates the arms embargo against Iran.  In addition, the new law requires the Secretary of State to identify and notify Congress about Iranian human rights abusers, and it grants the President discretionary authority to impose sanctions against such human rights abusers.  The CAATSA allows the President to waive any sanctions specified under the new law on a case-by-case basis predicated on a determination that such a waiver is vital to U.S. national security interests.

The CAATSA also strengthens U.S. sanctions against North Korea.  The new law expands the list of activities for which sanctions can be applied to include those connected to trade with North Korea relating to, among other things:  various precious metals from North Korea; rocket, aviation or jet fuel to North Korea; and fuel or supplies for North Korean vessels or aircrafts designated by the U.S. or the United Nations.  The CAATSA also requires that sanctions be imposed against persons that provide insurance services for vessels owned or controlled by the North Korean regime and persons that maintain a correspondent account with any North Korean financial institution.

In addition, the CAATSA also expands the list of activities triggering discretionary designations to include certain kinds of transactions involving the Government of North Korea pertaining to among other things:  coal, iron, or iron ore; textiles; oil, natural gas, and certain other energy products; food and agricultural products; and funds or property transfers that materially contribute to a violation of a U.N. Security Council resolution.  Moreover, the new law also includes provisions to strengthen sanctions relating to North Korean correspondent accounts, the North Korean shipping sector, and North Korea’s use of forced labor.  In addition, the CAATSA requires that the Secretary of State submit a determination to the President as to whether North Korea meets the criteria for designation as a state sponsor of terrorism.

The CAATSA also codifies and expands sanctions against Russia.  To begin with, the new law codifies sectoral sanctions frameworks that were established pursuant to various Executive Orders issued by President Obama and authorizes the Secretary of the Treasury to expand the sectoral sanctions to include Russian state-owned entities operating in the railway and metals and mining sectors.  With respect to the sectoral sanctions relating to financing, CAATSA shortens the tenor for “new debt” relating to designated entities in the Russian financial sector under Directive 1 from 30 to 14 days and the tenor for “new debt” to designated entities in the Russian energy sector under Directive 2 from 90 to 60 days.  In addition, the CAATSA expands the scope of Directive 4 to make it applicable to new deepwater, Arctic offshore, or shale projects that have the potential to produce oil anywhere, if the project involves Russian entities designated under Directive 4 that have a property interest of at least 33 percent in such a project.

The new legislation also contains provisions relating to controversial secondary sanctions that can be imposed on non-U.S. persons.  Such secondary sanctions can be imposed on non-U.S. persons that knowingly provide a certain level of support to Russian energy export pipeline projects.  The CAATSA also mandates that the President impose sanctions on non-U.S. persons that engage in significant transactions with persons that are part of, or operate for or on behalf of, the Russian defense or intelligence sectors.  In addition, the new law requires that the President impose sanctions on non-U.S. persons that materially support certain efforts to undermine cybersecurity, invest in or otherwise facilitate the privatization of Russia’s state-owned assets, provide certain types of support to the Government of Syria, or seek to evade sanctions.

Given that the CAATSA significantly expands the scope of sanctions applicable to Iran, North Korea, and Russia, U.S. and non-U.S. companies should consider how to modify their compliance policies and procedures to address the sanctions-related risks that have been created by the CAATSA.

For additional information, please contact Geoffrey Goodale at geoffrey.goodale@fisherbroyles.legal or (202) 261-6644.