John E. Smith, John P. Carlin, David A. Newman, Marc-Alain Galeazzi, Michael V. Dobson, Panagiotis C. Bayz, and Alex Iftimie
National Security, CFIUS, Sanctions + Export Controls
Last Wednesday, February 13, a bipartisan group of senators sent Presidents Trump and Putin a Valentine's Eve present by reintroducing a revised Defending American Security from Kremlin Aggression Act, or “DASKA” – a tough economic sanctions bill that had policymakers in capitals across the world scrambling when it was first unveiled last year. The bill demonstrates that the new Congress continues to prioritize responding forcefully to the Russian threat. Many remember all too well being surprised by the severity of the Countering America’s Adversaries Act (CAATSA) of 2017 – and how quickly it passed both houses of Congress.
Like CAATSA, this latest iteration of DASKA is intended to push the Trump Administration to confront the Kremlin on a range of issues, including Russia’s continued interference in democratic processes in the United States and abroad, malign influence in Syria, continued aggression toward Ukraine, and support of criminal organizations and other malicious actors in cyberspace. The bill contains a grab bag of measures to match its broad focus, including requiring two-thirds of the Senate to approve any decision by President Trump to leave NATO; a variety of initiatives to combat cyber and disinformation threats; and a long-debated provision to require the collection of beneficial ownership information.
While DASKA is one of a handful of competing legislative proposals expected to be introduced this year, it will likely set the tone for things to come. With that in mind, here are some key takeaways:
1. Bipartisanship. Sanctions against Russia are perhaps the only topic these days on which Democrats and Republicans in Congress stand unequivocally united. CAATSA passed 419 to 3 in the House. It passed 98 to 2 in the Senate. Whether DASKA in its current form or something else, expect new Russia sanctions legislation to pass before the year is out, if not significantly sooner.
2. Sovereign debt. CAATSA required the Treasury Department to draft a report on the potential consequences of imposing sanctions on new issuances of Russian sovereign debt. Apparently the Senators behind DASKA read that report and liked what they saw, or at least they were not scared off by it. The new bill would prohibit U.S. persons from dealing in new Russian sovereign debt -- including bonds issued by, and foreign exchange swap agreements with, the Russian Central Bank, National Wealth Fund, or Federal Treasury – exceeding 14 days’ maturity.
3. Energy. DASKA includes several provisions ostensibly promoting continued transatlantic unity, but it is the bill’s energy provisions that international partners and allies are likely to pay most attention to. Among them are mandates that the Trump Administration sanction any person that knowingly makes a new large investment in a liquefied natural gas (LNG) export facility outside Russia or any energy project outside Russia “supported by” a Russian parastatal entity or an entity owned or controlled by the Russian Government. DASKA would also target for sanctions the sale, lease, or provision of high-value goods, services, technology, financing, or other support, including infrastructure repair or modernization, that significantly contributes to the Russian Government’s development and production of crude oil resources in Russia. This measure would not apply to efforts to maintain projects already ongoing on the date of DASKA’s enactment.
4. Oligarchs. Still nursing hard feelings over the Treasury Departicment’s Office of Foreign Assets Control (OFAC) recently lifting sanctions on entities linked to a Russian oligarch, under DASKA, Congress would force the Administration to sanction billionaires (and others) linked to President Putin who facilitate bad acts on his behalf. The bill also mandates that the Administration update the CAATSA-required report on Russian oligarchs that preceded OFAC sanctioning several of them last April, as well as provide a separate report on President Putin’s finances and a listing of Russia’s most significant oligarchs and officials, as judged by their proximity to Putin. The bottom line here is that Congress continues to view Russian oligarchs as extensions of the Kremlin, and it is designing sanctions accordingly.
5. Russian financial institutions. Congress is still exercised about the Kremlin interfering in U.S. elections. Consequently, DASKA would force the Administration to sanction Russian financial institutions that provide financial or other support for Russian government interference in democratic processes outside Russia. This is a significantly tamer alternative to prior proposals that would have required the President to engage in a scorched-earth sanctions campaign against Russian banks and other institutions if evidence showed continued interference in U.S. elections. Again, though, DASKA is only a draft bill, so stronger measures might still make their way into whatever Congress ultimately ends up passing. Notably, the provision is not limited to democratic processes in the United States, so it could be used to respond to Russian meddling in several upcoming foreign elections (in India, Eastern Europe, and Africa, among others) ahead of the 2020 U.S. presidential election.
6. Shipbuilding sector. The draft legislation would require the Secretary of State to make a quarterly determination about whether the Russian Government was interfering with freedom of navigation anywhere in the world. If the Secretary were to determine that Russia was indeed playing pirate, then the Trump Administration would be required to sanction all entities operating in the Russian shipbuilding sector. This is a nod to Russia’s Federal Security Service (FSB) seizing three Ukrainian vessels in the Kerch Strait last November and detaining their crewmembers. A separate DASKA provision offers a more direct response to the incident, requiring the President to sanction not less than 24 senior FSB officers and maintain the sanctions until Russia releases the detained naval personnel.
7. State sponsor of terrorism. The bill would require the Secretary of State to determine, within three months, whether Russia is a state sponsor of terrorism, which – in the event of an affirmative determination – would result in additional sanctions and export restrictions.
8. Global impact. Much of the anxiety around CAATSA stems from its so-called secondary, or “extraterritorial,” sanctions, whereby the Administration must impose sanctions on parties who engage in specified dealings with sanctioned Russian individuals and entities even if such dealings have no U.S. nexus. For European and Asian companies with deep, longstanding ties to Russia, DASKA only exacerbates those concerns by adding a swath of new activity for which Russian persons could find themselves sanctioned.
9. Cyber. DASKA also incorporates the International Cybercrime Prevention Act (ICPA), which has been introduced in Congress in various forms since 2015 and seeks to raise the costs on malicious cyber activity. The bill would create additional authorities to seize botnets and prohibit cyber criminals from selling access to botnets to carry out cyber attacks—seeking to build on the U.S. government’s successful disruption of the Coreflood botnet in 2011 and the Gameover Zeus botnet in 2014, both of which emanated from Russia. The bill would impose enhanced penalties on persons who hack into critical infrastructure, such as the country’s energy grid or financial system. Lastly, it would make certain cybercrimes subject to the Racketeering Influenced and Corrupt Organizations Act (RICO) and its associated heavy penalties – a nod to the growing link between the Russian government and criminal hacking syndicates and the degree to which computer technology has become a key tool of organized crime. Not surprisingly, the U.S. Department of Justice broadly supports ICPA’s enactment.
10. Disinformation and Election Interference. The legislative proposal would give prosecutors additional authorities to pursue federal charges for the hacking of voting systems and create a National Fusion Center to respond to hybrid threats of disinformation and other emerging threats from Russia and an Office of Cyberspace and the Digital Economy within the State Department.
11. Beneficial ownership. The bill would require domestic title insurance companies to obtain, maintain, and report information on beneficial owners of entities that purchase high-value residential real estate in the United States. This requirement is similar to FinCEN’s temporary geographic targeting orders that require companies to collect and report beneficial ownership and other ownership information for all cash transactions exceeding $300,000 by legal entities for real estate located in specific metropolitan areas in Texas, Florida, New York, California, Hawaii, Nevada, Washington, Massachusetts, and Illinois.
As noted above, DASKA is likely only the latest word in the ongoing conversation in Congress about how to deal with Russia and an Administration oft-criticized for not taking a harder line against the Kremlin. We in MoFo’s National Security Practice Group will continue to keep you informed as the dialogue progresses.
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