January 31, 2018

CNAS Commentary: Trump Administration Implementation of U.S. Sanctions on Russia and Next Steps in Russia Policy

By Peter Harrell and Elizabeth Rosenberg

On January 29, the Trump administration published a list of Russian oligarchs and senior Russian government officials and issued a public statement describing diplomatic efforts to deter foreign countries from purchasing Russian military equipment. The administration also sent a classified report to Congress on potential sanctions on Russian sovereign debt. These actions were required under the Countering America’s Adversaries Through Sanctions Act (CAATSA), a law that Congress passed last July to impose new sanctions on Russia, Iran, and North Korea.

The Treasury Department’s “oligarch report” and sovereign debt report, and the State Department statement on Russian arms sales met CAATSA’s legal requirements, and in recent months both agencies appear to have invested significant time and effort in implementing CAATSA. However, these administration activities are unlikely to have a material impact on Russia’s economy or deter Russia from continuing to challenge the United States at home and abroad. 

In recent days and weeks Trump administration officials have sharply criticized Russia for continuing to intervene in Western elections, for providing economic support to North Korea in violation of United Nations sanctions, for dangerous and provocative activities in international air space, and for backing Syrian President Bashar Assad’s use of chemical weapons. The Trump administration and Congress urgently need to match those tough statements with smart, tailored actions designed to strengthen sanctions enforcement, curb Moscow’s ambitions, and protect U.S. democratic institutions.


The Administration’s Recent Russia Sanctions Actions

CAATSA Section 241 required the administration to compile a report on senior Russian officials and businessmen “as determined by their closeness to the Russian regime and their net worth.” Treasury was also directed to assess the relationship between the named individuals and Russian President Vladimir Putin, as well as whether the individuals were involved in corrupt activities. Congress’s goal in enacting Section 241 was to identify and put pressure on Putin cronies and key officials and to begin to identify potential targets for future U.S. sanctions, if such sanctions might in the future be deemed appropriate.

The Treasury Department report listed the names of approximately 110 well-known Russian government officials and 96 Russian businessmen, with the businessmen consisting of a list of Russian billionaires originally compiled by Forbes Magazine in 2017. Treasury Secretary Steven Mnuchin said on January 30 that the report has a classified annex “hundreds of pages” long and suggested that it contained extensive details about the listed individuals. The public version of the report offered no detail on which officials or oligarchs are close to Putin’s inner circle or their involvement in malign activities, such as corruption or supporting Russian aggression outside of Russia.

Significantly, the public version of the report offers no basis for determining whether any of the individuals named should or will be subject to sanctions or other measures in the future, or whether international businesses should be cautious about engaging in business with any specific individual or individuals named in the report.

The State Department’s statement on Russian arms sales was pursuant to CAATSA Section 231, which requires the administration, starting January 29, 2018, to begin imposing sanctions on companies and governments that engage in a “significant transaction” with the Russian defense or intelligence sectors, such as purchasing a major new weapons system from Russia. However, Section 231 authorized the administration to refrain from imposing sanctions on governments and companies that made progress in reducing the volume of their arms purchases from Russia. This provision reflected the long-term nature of many arms deals and the fact that a number of U.S. allies use Russian military equipment and would be adversely affected if forced to suddenly curtail purchases of spare parts and related goods and services from Russia.

The State Department apparently relied on this “wind down” provision to refrain from imposing specific sanctions under Section 231. Instead, the agency argued that Section 231 and its own aggressive diplomatic outreach around the sanctions had deterred “several billion” dollars of Russian arms sales. Furthermore, State officials insisted that the Department remains committed to imposing sanctions if it sees violations in the future.  It did not provide any public information about specific transactions that the sanctions and diplomacy had prevented, but the Department did provide a classified brief on the subject to some congressional staff. 

CAATSA section 242 required the Treasury Department to submit a report to Congress by January 29 on the potential effects of expanding existing sanctions on Russian debt instruments to Russian sovereign debt and the full range of derivative products. This report was classified and received somewhat less public attention than the other, previously mentioned provisions, though it is a major focus for financial services market participants.

Although Moscow’s early reactions to these various actions have been sharply critical, with President Putin calling the oligarch list an “unfriendly act,” none of the actions are likely to have a material impact on Russia’s economy or deter Russia’s ongoing challenges to U.S and allied interests. The public version of the oligarch and government officials list is simply too broad and general to have any meaningful impact on business that illicitly benefits Russia’s ruling elite, or to signal to oligarchs that they may experience consequences from the United States for their support of Putin’s agenda. While the State Department is correct that the defense sector sanctions can and should have a deterrent effect and that a company should not be sanctioned if early diplomatic engagement prompts the company to cease prohibited business, Russia has been aggressively marketing its military wares in recent years and found a broad global market. Absent sanctions on at least a handful of entities that are continuing to purchase new Russian defense systems, foreign governments will not take the threat of sanctions seriously over time.

Strengthening measures to deter Russia 

The Trump administration and Congress should move quickly to follow this week’s announcements with more aggressive actions to respond to Russia’s ongoing intervention in Western elections and support for destabilizing actors in in Europe, Syria, and Asia. Last week, the Trump administration sanctioned several dozen individuals and companies involved in pro-Russian separatist activities in eastern Ukraine and in Russian occupied Crimea, sending a signal that the Trump administration is continuing to implement sanctions in response to Russia’s violations of Ukraine’s territorial sovereignty.

This was a welcome move that showed that the U.S. administration is continuing to implement sanctions dating from 2014. Similar moves related to CAATSA are needed to demonstrate a similar commitment to implementing the sanctions that Congress passed last year.

First, the Trump administration should provide additional public information about the oligarchs and officials named in the Section 241 list and publicly describe which oligarchs and officials have engaged in acts of corruption and/or supported Putin’s malign activities. Presumably, much of this information is contained in the classified portions of the report, and can be declassified following appropriate review. Where this information demonstrates that a named individual has engaged in actions subject to U.S. sanctions, such as acts of corruption prohibited by the Magnitsky Sanctions Act, the Treasury Department should impose appropriate sanctions.

Meanwhile, Congress should require that Trump disclose relevant information and require the administration to impose appropriate sanctions on individuals on the list if Trump fails to act on his own in the coming weeks and months.

Second, the administration needs to provide additional public guidance about the kinds of defense purchases that will trigger sanctions and transactions that the sanctions have already deterred. For example, Russia has publicly announced sales of new high-end air defense systems to Turkey and Saudi Arabia, which would appear to be squarely prohibited by the sanctions.

The State Department should make publicly clear that these are the types of transactions that CAATSA Section 231 is designed to prohibit and that the Trump administration will impose sanctions on entities involved in those transactions if the sales proceed. In addition, the Trump administration should move to rapidly impose sanctions on a number of smaller, clear violations of the Section 231 sanctions, such as an Iranian or Chinese purchase of Russian defense equipment, to send a practical message that violations will be punished.

Third, the Trump administration needs to redouble its diplomatic efforts to seek European and other allied support for sanctions measures. Last fall, the Trump administration worked to minimize friction with the European Union over CAATSA. This reflected the importance of maintaining transatlantic unity on Russia. But the Trump administration should also aggressively seek E.U. support for sanctions on key Kremlin insiders and cronies and the Russian defense sector.

Finally, the Trump administration and Congress need to send a stronger deterrent message regarding Russia’s intervention in western elections. CIA Director Mike Pompeo warned just this week that he expected Russia would try to intervene in the U.S. 2018 mid-term elections, though he also expressed confidence in America’s elections infrastructure. Congress should consider legislation, such as the recent DETER Act introduced by Republican Sen. Marco Rubio and Democratic Sen. Chris Van Hollen, to penalize Russia if it is determined that Russia intervenes in U.S. elections.

The specifics of any such penalties tied to interference in U.S. elections must be considered carefully to ensure that they are both credible and avoid unintended, adverse consequences. However with America’s next elections less than a year away, it is important to deter Russia’s aggression against the United States and its democratic institutions, as well as against U.S. allies and interests overseas.

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