Client Alert

National Defense Authorization Act – Implications for U.S. Sanctions Programs

03 Jan 2022

In a closely followed and much anticipated action, President Biden signed the National Defense Authorization Act for Fiscal Year 2022 (NDAA) on December 27, 2021 – following its approval by the U.S. Senate and House of Representatives earlier in December. The final NDAA, viewed as a “must-pass” piece of legislation because it provides annual funding for the U.S. military, represents a compromise measure incorporating provisions of a different version previously passed by the House together with Senate amendments.

The NDAA impacts a wide range of national security concerns and may have important long-term implications for multiple sanctions programs, as we discuss below.  However, its overall impact on U.S. sanctions is relatively minor – especially when compared to all of the proposed amendments touching on U.S. sanctions that could have made their way into the final bill. Indeed, the NDAA’s passage through the Senate was forestalled by a number of Senators trying to maneuver their respective sanctions-related amendments into the bill. For example, Sen. Jim Risch (R-ID) attempted to secure an amendment on Nord Stream 2 sanctions, and Sen. Marco Rubio (R-FL) unsuccessfully tried to add sanctions language from the Uyghur Forced Labor Prevention Act to the text of the NDAA. While the impact of the final version of the NDAA is less than what it could have been vis-à-vis sanctions, there are still important considerations to be aware of, which we discuss below.

What Made it into the NDAA?

Report on Potential Sanctions Regarding South Sudan

The NDAA requires the Secretary of State to submit an annual report on U.S. policy toward South Sudan to appropriate congressional committees, including the Senate Committee on Foreign Relations and the House Committee on Foreign Affairs, among others. The report must include an analysis, in relation to the region, of the “impact of domestic and international sanctions on deterring and combatting corruption, mitigating and reducing conflict, and holding those responsible for human rights abuses accountable.” While the NDAA does not implement such sanctions on its own, the required report could prompt a change in the U.S. Treasury’s sanctions program concerning South Sudan down the road through future legislation or executive action.

Supporting Democracy in Burma

In the section promoting democracy in Burma (a.k.a. Myanmar), the NDAA calls for mandatory briefings from various officials to Congress that must provide, among other items, an assessment of the impact of existing U.S. and international sanctions and a description of “potential prospects for additional sanctions” that would “impose costs on Myanmar’s military junta.” Similar to the provisions concerning South Sudan, this section might lead to changes in U.S. sanctions on Burma, but it does not create or modify existing sanctions on its own.

Defense Strategy for Syria

The NDAA calls for a report outlining elements of the U.S. defense and diplomatic strategy for Syria, including an assessment of progress toward meeting criteria specified in the Caesar Syria Civilian Protection Act of 2019 (“Caesar Act”) for the suspension of sanctions against the Assad regime. The criteria under that section of the Caesar Act, which lay out how the president can suspend the sanctions that are otherwise required under the Act, include whether the air space over Syria is being utilized by the governments of Syria or Russia to target civilian populations; whether Syria is releasing political prisoners held by the Assad regime; and whether the Syrian government is permitting the return of Syrians displaced by the conflict, among similar considerations examining the Syrian government’s efforts to diminish and ameliorate the effects of the conflict. The Caesar Act otherwise lays out a broad set of sanctions with respect to foreign persons who engage in transactions with the Syrian government, sanctions that remain in effect unless the criteria for suspending them are met or the Act’s “sunset” clause kicks in (five years after the date of enactment in 2019). The report required by the NDAA would, therefore, examine the ongoing validity of sanctions imposed pursuant to the Caesar Act and whether suspension of those sanctions is warranted.

Coordination of Sanctions Regimes in Southeast Asia

The NDAA also seeks to coordinate international enforcement of multilateral sanctions, focusing on Southeast Asia with the goal to “deepen and expand Southeast Asian alliances, partnerships, and multilateral engagements, including efforts to expand broad based and inclusive economic growth, securities ties . . . and expand opportunities for [the Association of Southeast Asian Nations (ASEAN)] to work with other like-minded partners in the region.” Specifically, the NDAA calls for a strategy report to be submitted to Congress no later than 180 days after the enactment of the NDAA. Similar to the provisions above, this does not create or modify existing sanctions programs on its own but could spur developments in U.S. sanctions programs in the future.

Preventing Illicit Finance

The NDAA also attempts to curb sanctions evasion by amending a provision of the prior year’s NDAA (i.e., of Fiscal Year 2021). That provision created a supervisory team of federal agencies and private sector experts to examine strategies to increase cooperation between the public and private sectors to counter illicit finance. The 2022 NDAA now amends the prior Act’s language to make it clear that the supervisory team shall meet to discuss strategies relating not only to “proliferation financing” but also “for the purposes of countering illicit finance, including . . . sanctions evasion.” This revision re-emphasizes the supervisory team’s scope of operations.

What Did Not Make it into the NDAA?

The NDAA signed into law by President Biden contains surprisingly few of the proposed sanctions provisions seen during the bill’s development in the House and Senate. We highlight a few of these omitted provisions below.

Nord Stream 2 Sanctions

The final NDAA does not include various provisions from proposed amendments that would have led to the imposition of broader sanctions for entities engaged in activities related to the construction or operation of the Nord Stream 2 natural gas pipeline. For a discussion of some of these earlier proposals that would have imposed such sanctions, see our previous client alert here. This is an important and striking omission given the ongoing political stakes of the Nord Stream 2 pipeline.

However, it is possible that future legislation could create new or modify existing U.S. sanctions against individuals and entities related to the pipeline’s development and operation. For instance, Sen. Ted Cruz (R-TX) has proposed such legislation, which, following a deal between Democrats and Senator Cruz, is now set for a vote in January.

Menendez Amendment

Another Russia-related amendment, proposed by Sen. Bob Menendez (D-NJ), also did not make it into the NDAA. That amendment would have led to the imposition of property-blocking and visa sanctions on many individual Russian officials as well as on a number of Russian financial institutions. The sanctions contemplated under the amendment were contingent on a determination by the president that Russia is engaged in planning or supporting an escalation in hostilities in Ukraine with the purpose of undermining or dismantling the Ukrainian government. The amendment would have also prohibited transactions by U.S. persons involving Russian sovereign debt. Additionally, the amendment would have imposed sanctions for entities involved in the “planning, construction, or operation of the Nord Stream 2 pipeline” and foreign persons engaged in various “extractive industries” – i.e., oil and gas, coal, and minerals extraction.

Uyghur Forced Labor Prevention Amendment

Sen. Rubio attempted to introduce language from the Uyghur Forced Labor Prevention Act to the NDAA and stalled the bill’s progress through the Senate while trying to do so. The amendment would have banned U.S. imports from China’s Xinjiang region out of concern for reported human rights violations against the Uyghur population. The NDAA does contain, however, a prohibition on the use of funds authorized by the NDAA to procure any products produced in the Xinjiang Uyghur Autonomous Region.

Congress ultimately approved a consolidated version of the Uyghur Forced Labor Prevention Act after reaching a bipartisan agreement on the bill, mooting Sen. Rubio’s proposed amendment. The Uyghur Forced Labor Prevention Act was signed into law by President Biden on December 23, 2021 and requires sanctions to be imposed on parties identified by the president as being responsible for human rights abuses in connection with forced labor in the Xinjiang region.

Other Measures in the House-Passed Version of the NDAA Not Included in Final Version

The original House version of the NDAA, passed back in September 2021, contained a number of other provisions not present in the NDAA signed by President Biden. (For a thorough summary of that version’s sanctions-related provisions, see our prior client alert, here.) For example, the prior House version could have spurred the creation of an oversight committee to oversee sanctions against Chinese military companies. Other sanctions provisions in that version included review of sanctions on Russian “kleptocrats and human rights abusers,” the reauthorization and modification of sanctions with respect to human rights violations, visa sanctions against persons engaged in acts of corruption in Central America, sanctions on foreign persons allegedly involved in the murder of Jamal Khashoggi, and broad authorization of sanctions against foreign persons engaged in public corruption activities. None of these broad measures made it into the NDAA.

Conclusion

In short, the NDAA, now signed into law by President Biden, has only a few provisions on sanctions, most of which do not create new sanctions or modify existing sanctions programs on their own but rather require reports concerning existing and potential sanctions – although such reports could lead to further sanctions legislation or executive action in the future. This is not to say that the sanctions provisions that did not make it into the NDAA will never become law: it is possible that other legislation including versions of the sanctions measures discussed above will be passed in the near future. For that reason, it is important that the international business community continue to keep its eyes on Congress as it contemplates sanctions-related legislation. As always, we will continue to keep our clients apprised of the latest developments. 

Logan Wren, a law clerk in MoFo’s D.C. office, contributed to this alert.

Close
Feedback

Disclaimer

Unsolicited e-mails and information sent to Morrison & Foerster will not be considered confidential, may be disclosed to others pursuant to our Privacy Policy, may not receive a response, and do not create an attorney-client relationship with Morrison & Foerster. If you are not already a client of Morrison & Foerster, do not include any confidential information in this message. Also, please note that our attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.