Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), enacted on August 2, 2017, mandates that the president must impose certain sanctions on persons the president determines knowingly engage in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the government of the Russian Federation. The sanctions include, among others, prohibitions concerning property transactions, export license restrictions, Export-Import Bank assistance restrictions, debt and equity restrictions, visa ramifications for corporate officers, and U.S. government procurement prohibitions. The intent of Section 231 of the CAATSA is to respond to Russia’s behavior as to the crisis in eastern Ukraine, cyber intrusions and attacks, and human rights abuses.
On October 27, 2017, the State Department provided a list of those Russian defense and intelligence agencies that may face sanctions under CAATSA. At this time, however, this designation is not a determination regarding imposition of actual sanctions against these Russian entities; the CAATSA requires the imposition of sanctions beginning on or after January 29, 2018. In a short briefing, senior State Department staff indicated that over the next 180 days, the department will take a close look at transactions and dealings with these entities that it thinks may fall within the scope of the sanctions provision of CAATSA, and engage with partners and allies to determine whether any transactions undertaken with entities on the list are problematic. At that time, sanctions may be implemented.
Over the course of the next three months, U.S. companies should assess the amount and type of business transactions they may be conducting with Russian entities on the State Department list. Ultimately, persons who are determined to “knowingly engage in a significant transaction” with a person specified on the list may face sanctions. In determining whether a transaction is “significant” for purposes of CAATSA, the Department of State will consider the totality of the facts and circumstances surrounding the transaction and weigh various factors on a case-by-case basis. Clearly, issues of national security and U.S. foreign policy interests will be factors in such an analysis.