Over the past month, we have closely monitored efforts by the U.S. Congress to tie the president’s hands over sanctions on Russia. Today, the president signed the Countering America’s Adversaries Through Sanctions Act (CAATSA or the Act), which will have a significant impact on numerous U.S. industries operating in Russia. And Russia’s response to the legislation indicates that further tensions between the United States and Russia – and possibly additional sanctions on both sides – are likely to follow.
At its most basic level, CAATSA introduces new sanctions and codifies existing sanctions against Russia – significantly restricting the president’s power to unilaterally remove them. CAATSA especially affects the energy and the financial industries. Among other things, the Act tightens restrictions on the provision of financing and the issuance of new debt, and prohibits certain exports in support of Russian off-shore drilling and shale projects. More broadly, it targets individuals who are responsible for cyber-attacks against the United States, contributing to instability in Ukraine, and/or associated with the Russian government. These individual sanctions, in particular, are likely to be felt across industries.
Beyond its business impact, CAATSA may cause further erosion in the diplomatic relationship between the United States and Russia. Even before CAATSA became law, the Kremlin demanded that the U.S. State Department reduce its staff in Russia by 755 individuals, meaning Russia is unlikely to cower to the new sanctions without a fight. Reports indicate that such a significant reduction in U.S. diplomatic personnel will limit U.S. consular services in Russia and diminish the U.S. government’s ability to support U.S. businesses there.
Sanctions imposed under CAATSA are likely to be particularly sticky, as their removal requires broad Congressional support, which seems difficult to achieve these days. (U.S. sanctions are typically implemented primarily by way of Executive Order, which the president can effectively terminate at any time.) Regardless, Congress seems unlikely to undo CAATSA anytime soon: the law passed with a super-majority in both the House and Senate, one of the few examples of bipartisan agreement under the current administration.
Although the continued existence of U.S. sanctions may be frustrating for U.S. companies trying to do business in Russia, their codification should at least bring with it increased stability and more predictable compliance obligations. With that in mind, in the wake of CAATSA’s passage, any U.S. business operating in Russia should re-evaluate its sanctions and export controls compliance program, closely review any Russian business dealings, and communicate new restrictions quickly and clearly to company personnel. CAATSA is just the latest example of the need for a compliance culture that is nimble enough to react when changes to U.S. sanctions – inevitably – occur.
Special thanks to Tim Pellegrino, a Bass, Berry & Sims summer associate based in our Washington, D.C. office, for his assistance in drafting this post.