Turkish Law Blog

CAATSA: A Brief Overview

Mehmet Baysan Mehmet Baysan/ Breeding Henry Baysan
Grace Van Dyke James Grace Van Dyke James/ Breeding Henry Baysan
11 July, 2019
1244

I. INTRODUCTION

The Countering America’s Adversaries Through Sanctions Act (“CAATSA”) requires the President to sanction targeted Iranian, Russian, and North Korean sectors, and penalize direct or indirect support of them. CAATSA was signed into U.S. federal law on August 2, 2017, and has imposed new economic sanctions on Iran, North Korea, and Russia. The Act has three sections: Title I – Countering Iran’s Destabilizing Activities Act; Title II – Countering Russian Influence in Europe and Eurasia Act; and Title III – Korean Interdiction and Modernization of Sanctions Act.

The passage of CAATSA seems to indicate the U.S. legislature’s growing willingness to enact sanctions laws, which traditionally lie in the purview of the President. By enacting CAATSA, Congress essentially usurped control, in most cases directing that the President “shall” make a determination as to whether very specifically defined sanctionable conduct has occurred and, upon making such a determination, requiring the President to implement sanctions for which Congress has provided the parameters.

The executive branch maintains a modicum of control in that the President sometimes makes the determination as to whether the activity is sanctionable. However, this determination is again subject to the very specific definitions provided by Congress. Some sections also allow the President to select which sanction(s) to implement, providing power over severity. In addition, the executive branch usually is able to waive or terminate sanctions under limited circumstances often involving congressional review and all with the common requirement that no adverse impact befall the US as a result. In addition, most sections applicable to Russia require congressional approval. As a practical matter, negotiations between the President and Congress usually ensue upon submission of a waiver or termination for review. However, the statute provides no further Congressional override once Presidential waiver or termination is in place.[1]

CAATSA passed 419-8 in the House and 98-2 in the Senate, making it “veto-proof.” Knowing legislative override was inevitable, President Trump quietly signed the bill into law, expressing concern that it will limit the President’s ability to make “far better deals” than Congress can.[2] He complained the law is a congressional infringement on his presidential power to set foreign policy.[3]

II. SUMMARY

A. Title I - Countering Iran’s Destabilizing Activities Act

Title I of CAATSA codified at 22 U.S.C. § 9401 et seq., provides for imposition of sanctions against (1) Iran’s ballistic missile and weapons of mass destruction programs, (2) sale and transfer to Iran of military equipment or the provision of related technical or financial assistance, (3) Iran’s Islamic Revolutionary Guard Corps (“IRGC”) and affiliated foreign persons, and (4) human rights abuses occurring in Iran. Id. §§ 9403-9406.

  1. Mandatory Sanctions

Anyone the President determines has knowingly engaged in activity materially contributing to Iranian ballistic missile or WMD programs, their successors, anyone owned or controlled by them, anyone acting on their behalf, and anyone providing support to them must be subjected to sanctions. Id. § 9403. In addition, anyone who knowingly and materiality contributes, directly or indirectly, arms or related materials to Iran or provides training or other resources must be sanctioned. Id. § 9606. Under both § 9403 and § 9606, all subject transactions within reach of the U.S. will be blocked, and any aliens responsible will be denied U.S. visas. Under § 9404, the President must impose sanctions provided for by IEEPA, 50 U.S.C. § 1701 et seq., against the IRGC and foreign persons who act on behalf of the IRGC. 22 U.S.C. § 9404.

  1. Discretionary Sanctions

Persons responsible for human rights violations may be sanctioned by the President under § 9405, which allows for blocking of all subject transactions within U.S. reach.

  1. Exemptions

The following are exempt from Title I: (1) activities subject to requirements of the National Security Act, 50 U.S.C. § 3091 et seq.; (2) admission of an alien necessary for the U.S. to comply with obligations to the U.N.; and (3) provision of humanitarian assistance to the people of Iran in the form of agricultural commodities, food, medicine, and medical devices. 22 U.S.C. § 9410. 

  1. Presidential Waiver

The President may waive requirements under §§ 9403 through 9407 for a maximum of 180 days upon the determination and report to the appropriate congressional committees that doing so is vital to U.S. national security. Id. § 9411. A waiver may be renewed for additional periods of a maximum of 180 days each by following the same procedure. Id. There is no requirement for Congressional approval or provision for the override of a Presidential waiver.

B. Title II - Countering Russian Influence in Europe and Eurasia Act[4]

In sum, Title II sanctions target activity involving Russia and certain operations outside of Russia, specifically including (1) cybersecurity, (2) transactions with Russian intelligence or defense sectors, (3) pipeline development, (4) investment or facilitation of privatization of state-owned assets by Russia, and (5) arms transfers to Syria. 22 U.S.C. §§ 9524-9528. It also specifically sets forth the U.S.’s objective to restore Ukrainian sovereignty. Id. § 9546. But for an extremely limited exception, the President must submit any action to terminate or waive sanctions under Title II for congressional review. Id. § 9511.

  1. Mandatory Sanctions

i. Section 9522 – Cyber Security and Ukraine

Section 9522 codifies “sanctions provided for in Executive Order No. 13660 (79 Fed. Reg. 13493; relating to blocking property of certain persons contributing to the situation in Ukraine), Executive Order No. 13661 (79 Fed. Reg. 15535; relating to blocking property of additional persons contributing to the situation in Ukraine), Executive Order No. 13662 (79 Fed. Reg. 16169; relating to blocking property of additional persons contributing to the situation in Ukraine), Executive Order No. 13685 (79 Fed. Reg. 77357; relating to blocking property of certain persons and prohibiting certain transactions with respect to the Crimea region of Ukraine), Executive Order No. 13694 (80 Fed. Reg. 18077; relating to blocking the property of certain persons engaging in significant malicious cyber-enabled activities), and Executive Order No. 13757 (82 Fed. Reg. 1; relating to taking additional steps to address the national emergency with respect to significant malicious cyber-enabled activities) . . . .” 22 U.S.C. § 9522(a).

The President is required to leave these sanctions in effect unless and until a notice is submitted to the appropriate congressional committee that (1) the activity is no longer being engaged in or significant steps have been taken to stop it and (2) the President has received reliable assurances that the activity will not occur again in the future. Id. § 9522(b).

The President has the discretion to waive sanctions imposed under § 9522. All waivers under this section share a common first requirement – the President must submit a written determination that the waiver is vital to U.S. national security and will further enforcement of Title II. Waiver of Order Nos. 13694 and 13757 (related to cybersecurity) additionally requires the President’s certification that Russia has made significant efforts to reduce its cyber intrusions. Id. § 9522(c). Waiver of sanctions implemented with the remaining Orders identified in § 9522 (related to the conflict in Ukraine) requires a certification that Russia is taking steps to implement the Minsk Agreement, which addresses the ongoing conflict in Ukraine. There is no provision for the length or renewal of these waivers. Id.

ii. Section 9523 – Expansion of OFAC Directives

Section 9523 expands OFAC Directives by decreasing the period during which U.S. individuals and entities may transact in “new debt” of sanctioned Russian sectors. The 30 days permitted by Directive 1 has been shortened to 14 days’ maturity as to the financial services sector, and the 90 days permitted under Directive 2 has been shortened to 60 days’ maturity as to the energy sector. Id. In addition, the geographic scope of Directive 4 was expanded to ensure the prohibition of U.S. persons’ provision of support for Russia’s endeavors for new deep-water, offshore, or shale projects to produce oil. Id.

iii. Section 9524 – Additional Cybersecurity Sanctions

Section 9524 requires the President to impose sanctions, namely asset blocking and exclusion from the U.S., against anyone the President determines has knowingly engaged in significant activity undermining cybersecurity on behalf or for the benefit of Russia. In addition, § 9524 requires the President to implement sanctions against any person who knowingly and materially supports or provides financial services to anyone engaged in such activity. Those providing support will be subjected to no less than five of the twelve possible sanctions set forth in § 9529, which the President has the authority to select.[5] Those providing financial services will be subjected to no less than three of the nine sanctions described in § 8923(c). There is no subsection specifically addressing Presidential waiver authority in § 9524.

iv. Section 9525 – Intelligence and Defense Transactions[6]

Those who have knowingly engaged in a significant transaction with the Russian intelligence or defense sectors will be subjected to no less than five sanctions (See Section vii) provided in § 9529. Section 7 of the Executive Order 13849 defines parties who may be subject to these sanctions broadly to include individuals, partnerships, associations, trusts, joint ventures, corporations, and groups. These sanctions may be waived by the President upon submission of a written determination that the waiver is vital to U.S. national security and will further enforcement of Title II, and certification that Russia has made significant efforts to reduce its cyber intrusions. Id. § 9525(b). Modified waiver not requiring § 9511 congressional reviews is available upon the President’s certification made in compliance with § 9525(d). The President may also delay the imposition of the sanctions by 180-day periods upon certification that the person is substantially reducing the number of sanctioned transactions. Id. § 9525(c).

v. Section 9527 – Privatization of State-Owned Assets

The President must impose five or more § 9529 sanctions against any person who knowingly makes or facilitates investment of $10,000,000 or more that directly and significantly contributes to Russia’s ability to privatize state-owned assets that unjustly benefits Russian government officials or their close associates or family members. These sanctions may be waived by the President upon submission of a written determination that the waiver is vital to U.S. national security and will further enforcement of Title II, and a certification that Russia has taken steps to implement the Minsk Agreement. There is no provision for the length or renewal of these waivers. Id.

vi. Section 9528 – Arms Transfers to Syria

The President must impose sanctions on any foreign person or entity that has knowingly provided Syria with significant support that materially contributes to Syria’s ability to acquire or develop weapons of mass destruction, missile capabilities, and other materials identified by the Arms Export Control Act, 22 U.S.C. § 2751 et seq. All transactions involving sanctioned persons or entities within reach of the U.S. will be blocked, and any aliens responsible will be denied U.S. visas. Id. § 9528(b). The President may waive the sanctions subject to congressional review under § 9511 if the President determines the waiver is in the national security interest of the U.S. Id. § 9528(c). There is no provision for the length or renewal of these waivers. Id.

vii. Section 9529 – List of Potential Sanctions

The President’s trove of sanctions are as follows:

  1. Prohibition of Export-Import Bank loans and assistance;
  2. Export sanctions;
  3. Prohibition of loans from United States institution;
  4. Prohibition of loans from international financial institutions, including but not limited to the World Bank and the International Monetary Fund;
  5. Prohibitions on financial institutions[7];
  6. Procurement sanctions[8];
  7. Prohibitions on foreign exchange;
  8. Prohibitions on banking transactions;
  9. Prohibitions on property transactions;
  10. Ban on investment in equity or debt of sanctioned person;
  11. Exclusion of corporate officers of sanctioned entity;
  12. Sanctions on principal executive officers of the sanctioned entity.

Tellingly, the President, upon the recommendations of the National Security Council and the Treasury, has broad discretion to impose a wide variety of sanctions on violating parties.

  1. Discretionary Sanctions: Section 9526 – Pipeline Investments

The President may impose five or more § 9529 sanctions upon determination that one knowingly invested in or engaged in transactions for the purposes of construction of Russian energy pipelines if (1) a single investment or exchange has a fair market value of $1,000,000 or more or (2) multiple investments or exchanges collectively have an aggregate fair market value of $5,000,000 or more. Id. § 9526.

  1. Exemptions

Activities subject to requirements of the National Security Act, 50 U.S.C. § 3091 et seq., and admission of an alien necessary for the U.S. to comply with obligations to the U.N. are exempt from Title II. 22. U.S.C. § 9530. In addition, Title II does not apply to activities of the National Aeronautics and Space Administration (“NASA”). Id. § 9531.

  1. Presidential Waiver and Termination

Requirements for waiver unique to certain sections of Title II are set forth above in the discussion of each section. In addition, subject to congressional review required by § 9511, the President may waive any sanction the President has imposed under Title II if the President determines such a waiver is in the national security interest of the U.S. § 9530(b).

The President may terminate sanctions under §§ 9524 through 9528, subject to § 9511 congressional review, upon submission of justification for the termination and a notice that (1) the activity is no longer being engaged in or significant steps have been taken to stop it and (2) the President has received reliable assurances that the activity will not occur again in the future. Id. § 9530(c).

Where required, the President must comply with § 9511 by submitting a report to the appropriate congressional committee. The committee has a thirty-day window to conduct its review during which the President cannot take any action, unless it is approved on an earlier date. During this period, Congress may enact joint resolutions of approval or disapproval, unless otherwise provided for in a given subsection discussed supra. In the case of disapproval, the President cannot waive or terminate the subject sanctions.

C. Title III - Korean Interdiction and Modernization of Sanctions Act

Title III targets North Korea by (1) barring US financial institutions from opening or maintaining accounts used by foreign financial institutions to provide indirect financial services to North Korea, § 9221a; (2) directing the President to withhold assistance under the Foreign Assistance Act of 1961, 22 U.S.C. § 2151, et seq. from any country receiving from or providing to North Korea any defense article or service, § 9223; (3) banning goods produced in whole or part by North Korean laborers, §§ 9241(b)(3), 9241a, 9241b; and (4) requiring sanctions against any foreign person who knowingly employs North Korean laborers, id.[9] Presidential waiver of sanctions requires only submission of a written determination from the President to Congress. Id. § 9228. Waivers are renewable for periods of between 30 days and 1 year. Id. Suspension and termination are also available upon the President’s certification to the appropriate congressional committee in compliance with §§ 9251 and 9252.

The Department of Homeland Security is strongly encouraging companies to conduct due diligence and ensure the company’s entire supply chain is free from North Korean workers, giving special attention to high-risk countries. See also The Department of Homeland Security’s Title III Section 321 Frequently Asked Questions, https://www.dhs.gov/news/2018/03/06/countering-america-s-adversaries-through-sanctions-act last accessed June 10, 2019. Countries at risk of forced labor organized by type of goods can be accessed at the Department of Labor’s Bureau of International Labor Affairs site.

III. PENALTY FOR VIOLATION OR ATTEMPTED VIOLATION

Penalties for violating or attempting to violate CAATSA sanctions are provided for by IEEPA, 50 U.S.C. § 1701 et seq. Where possible, these include civil penalties of $250,000 or twice the transaction amount, and criminal penalties up to a $1 million fine and/or 20 years imprisonment. 50 U.S.C. § 1705.

IV. AVOIDING SECONDARY CAATSA SANCTIONS

Identifying conduct directly sanctionable under CAATSA is relatively straightforward. These “primary sanctions” are explicitly set forth by CAATSA. However, compliance is complicated by CAATSA’s requirement that the President to impose sanctions against individuals and entities both in the U.S. and abroad, even when it seems conduct has nothing to do with the U.S. Such instances are often referred to as “secondary sanctions.”[10] These sanctions are aimed at quelling even indirect support for the targeted regimes. Id. This makes risk assessment difficult because the presence of sanctionable activity may not be readily apparent. Id.

Individuals and entities alike are responsible for ensuring that they do not engage in dealings that could result in sanctions. Id. Further, they must avoid assisting others who are already designated for sanctions, lest they will be sanctioned themselves. Id. Therefore, development of a compliance program that includes a sanctions list screening and other measures, depending on the unique requirements of each business, is strongly encouraged.

The Office of Foreign Assets Control (“OFAC”), in essence, wants individuals and entities in industries subject to CAATSA to ensure they are not doing business in such a way that would (1) assist or support others in evading sanctions or (2) supply resources – i.e. products and services – that would aid others in evading sanctions. Id. In the financial industry, this means foreign banks that do not comply with CAATSA can be blocked from any transactions using the U.S. dollar, which is probably a death sentence for most banks. Id.

Considerations in assessing risk should include, for example, whether an individual or entity is:

  1. Transacting business in the U.S.;
  2. Transacting business in Iran, North Korea, or Russia;
  3. Engaging in transactions with those listed as an SDN or appearing on other OFAC restricted party lists, or a company owned 50% or more by such parties;
  4. Using the U.S. dollar or financial system; and
  5. Engaging in transactions that could be viewed as “significant” or as supportive to sanctioned parties. Id.

[1] It may be worth pointing out that the impeachment power held by Congress is likely not lost on the President. The Constitution provides for impeachment in instances of “treason, bribery, and other high crimes and misdemeanors.” The odds weigh heavily in the President’s favor, however. Of only fifteen impeachments actually brought to a vote in U.S. history, the Senate has only convicted seven – all of which were federal judges. On the other hand, given the current political environment and Congress’s recent tendency to strong-arm the President using legislation such as CAATSA, it seems there may be increased willingness to resort to more aggressive measures.

[2] Statement by President Donald J. Trump on Signing CAATSA, https://www.whitehouse.gov/briefings-statements/statement-president-donald-j-trump-signing-countering-americas-adversaries-sanctions-act/ last accessed June 10, 2019; “Trump signs Russia sanctions bill, Moscow calls it ‘trade war,’” https://www.cnbc.com/2017/08/03/trump-signs-russia-sanctions-bill-moscow-calls-it-trade-war.html last accessed June 10, 2019.

[3] Specifically, Title II of CAATSA – applicable to Russia – directly conflicts with President Trump’s desire to improve relations with Russia. Indeed, Russian Prime Minister Medvedev called the sanctions a “full-scale trade war.” Id. Under Title II, Congress can effectively prevent Trump from reducing or eliminating sanctions against Russian trade. Id. Since its enactment, the Senate has expressed concern that the lack of sanctions issued by the President does not align with apparent violations. See “Senate Dems call for probe into why Trump has not issued Russia sanctions,” https://thehill.com/policy/cybersecurity/388364-senate-dems-call-investigation-into-why-trump-has-not-issued-russia last accessed June 10, 2019.

[4] Title II is the most complex and lengthy portion of CAATSA by a significant margin.

[5] (1) Directing the Export-Import Bank of the U.S. not to give approval to the issuance of credit in connection with the export of any goods or services to the sanctioned person; (2) Ordering the U.S. not to issue any specific license and not to grant any other specific permission or authority to export any goods or technology to the sanctioned person; (3) Prohibiting U.S. financial institutions from issuing loans or credits to the sanctioned person unless they are engaged in activities to relieve human suffering and the loans or credits are provided for such activities; (4) Directing the U.S. executive director to each international financial institution to oppose any loan from the international financial institution that would benefit the sanctioned person; (5) Prohibiting the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York from designating a subject financial institution as a primary dealer in U.S. debt instruments or allowing such a financial institution from serving as an agent of the U.S. or as a repository for United States Government funds; (6) Preventing the U.S. from procuring or entering into any contract for the procurement of any goods or services from the sanctioned person; (7) Prohibiting any transactions in foreign exchange that are subject to the jurisdiction of the U.S. and if the sanctioned person has any interest; (8) Prohibiting any transfers of credit or payments between financial institutions in the jurisdiction of the United States with any interest of the sanctioned person; (9) Prohibiting any person from exchanging any property that is subject to the jurisdiction of the United States and with respect to which the sanctioned person has any interest; (10) Prohibiting any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of the sanctioned person; (11) Directing the Secretary of State and Secretary of Homeland Security to exclude from the U.S. any alien that is a corporate officer or principal of, or a shareholder with a controlling interest in, the sanctioned entity; and (12) Imposing on the principal executive officer or officers of the sanctioned person, or similar authorities as such officer or officers.

[6] As a recent example, Turkish entities and/or individuals may be facing sanctions under Title II for Turkey’s recent decision to purchase Russian S-400 missile defense systems. See “How U.S. sanctions over a Russian weapon could rattle Turkey,” https://www.reuters.com/article/us-turkey-usa-sanctions-analysis/how-u-s-sanctions-over-a-russian-weapon-could-rattle-turkey-idUSKCN1T00WI last accessed June 11, 2019. If the S-400s are ultimately accepted, CAATSA gives President Trump no choice but to select and implement sanctions, likely including termination of Turkey’s participation in the U.S.’s F-35 program. The President has the power to do so and Congress has required it under § 9529 (id). On June 18, 2019, trusted news source Bloomberg reported that “Turkey has dug in on buying” the Russian system. “Distrust of U.S. Propels Turkey’s Russian S-400 Missile Purchase,” https://www.bloomberg.com/news/articles/2019-06-18/distrust-of-u-s-propels-turkey-s-russian-s-400-missile-purchase, last accessed June 18, 2019. The U.S. government has already stated it “will have to cut off Turkey from buying – and helping to build – F-35 fighter jets.” Id.

[7] For example, banks from a sanctioned country cannot sell U.S. debt instruments or act as a financial repository for U.S. Government funds.

[8] U.S. Government would not enter into a procurement contract (i.e. SAMS) with a sanctioned person/entity.

[9] There is a presumption that anything produced by any North Korean citizen or national anywhere in the world is a result of forced labor. Id. This presumption can be rebutted only if the Commissioner of Customs and Border Protection finds by clear and convincing evidence that the goods were not produced by convict, forced, or indentured labor. Id.

[10] “U.S. Sanctions Laws: Dangers Ahead For Foreign Companies (Part II), https://www.jdsupra.com/legalnews/u-s-sanctions-laws-dangers-ahead-for-18252/ last accessed on June 11, 2019.

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