Crimea: U.S. Response Intensifies As Congress, President Obama Issue More Sanctions
APRIL 1, 2014
This alert provides only general
information and should not be
relied upon as legal advice.
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court and bar rules in certain
For more information, contact
your Patton Boggs LLP attorney
or the authors listed below.
JOSEPH L. BRAND
STEPHEN J. McHALE
DANIEL E. WALTZ
ALEXIS J. EARLY
ELIZABETH S. RYAN
STACY A. SWANSON
PattonBoggs.com Client Alert: Crimea: U.S. Response Intensifies 1
INTERNATIONAL BUSINESS CLIENT ALERT
CRIMEA: U.S. RESPONSE INTENSIFIES
AS CONGRESS, PRESIDENT OBAMA
ISSUE MORE SANCTIONS
The U.S. government recently has taken a number of actions to intensify its
response to the Russian Federation. Today, the House passed by a vote of 378-
34 the Support for the Sovereignty, Integrity, Democracy, and Economic
Stability of Ukraine Act of 2014 (Ukraine Act, H.R. 4152), as amended and
passed by the Senate on March 27. It provides financial support to Ukraine and
authorizes the imposition of further sanctions against the Russian Federation.
U.S. President Barack Obama has announced that he will sign this bill into law.
On March 20, the U.S. Treasury imposed sanctions against additional Russian
politicians and business leaders and one Russian bank under Executive Order
13661, and President Obama signed a third, broader Executive Order (E.O.
13662) authorizing the imposition of additional sanctions against broad
categories of individuals and economic sectors in Russia. While the third E.O.
creates the legal framework for additional sector-based sanctions, the Obama
administration has not yet sanctioned any individuals or entities pursuant to its
On March 27, the Department of Commerce Bureau of Industry and Security
(BIS) and the Department of State Directorate of Defense Trade Controls
(DDTC) disclosed that they had stopped processing applications for U.S.
business licenses to export items to Russia on March 1, reflecting administration
effort to put additional pressure on Moscow.
ANALYSIS OF RECENT CONGRESSIONAL ACTION
The Ukraine Act provides financial support to Ukraine, authorizes sanctions
against categories of Ukrainian and Russian persons already targeted by the three
Executive Orders as well as persons responsible for corruption in Russia, and
authorizes the appropriation of funds for security and civil society programs in
Eastern and Central Europe. It does not contain controversial provisions to
ratify reforms to the International Monetary Fund.
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Specifically, the new legislation authorizes sanctions against the following persons:
1. Any person who ordered, controlled, directed, or perpetrated significant acts of violence or gross human
rights abuses against anti-government protesters in Ukraine;
2. Any person who ordered, controlled, directed, or perpetrated significant acts (including economic
extortion) to undermine the peace, security, sovereignty, or territorial integrity of Ukraine;
3. Any Russian government official, close associate, or family member who is responsible for, complicit in,
ordered, controlled, or directed acts of significant corruption in Ukraine;
4. Any individual who materially assisted, sponsored, or provided financial, material, or technological support
for, or goods or services in support of the above acts; and
5. Any person who orders, controls, directs, or perpetrates significant acts of corruption in Russia.
As passed, the new legislation does not mandate an expansion of U.S. sanctions targeting Russia, but it provides
additional authority for the Obama administration to designate more Russian persons in the future, even if the
Executive Orders are lifted.
While the first four categories of sanctioned persons largely mirror those announced by the Obama
administration in the first three Executive Orders, the fifth category expands U.S. sanctions to include persons
responsible for corruption in Russia. This largely reflects Congress’ current willingness to give deference to the
President on the issue of Russia sanctions, but this political perspective is likely to change if there is a further
escalation of the crisis.
Sanctions bills have been increasingly popular in Congress, and passing the Ukraine Act allows lawmakers to
show strong action in response to the situation in Ukraine, which is an important political consideration in
advance of the mid-term elections in November 2014. Like the three Executive Orders issued by President
Obama, the legislation authorizes the following sanctions against the above categories of persons:
→ Asset blocking: Any person or entity meeting the above criteria may be listed as a Specially
Designated National (SDN) by the U.S. Department of the Treasury’s Office of Foreign Assets
→ Visa bans or revocations: The U.S. will deny visas to travel to the U.S. for persons who meet the
above criteria, as well as revoke the visas of such persons already in the United States.
The bill also contains a number of non-sanctions provisions, including: authorizing $50 million to improve
democracy and governance in Eastern and Central Europe; authorizing $100 million for increased security
cooperation in the region; and providing for U.S. assistance in recovering Ukrainian state assets allegedly stolen
by former Ukrainian President Viktor Yanukovych and his former officials.
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In conjunction with H.R. 4152, both chambers of Congress also passed an act authorizing United States
International Programming to Ukraine and Neighboring Regions (S. 2183), which authorizes the appropriation
of $10 million to fund Ukrainian, Russian, and Tatar language broadcasts on U.S. public diplomacy channels to
counter perceived Russian propaganda. This is a priority issue for House Foreign Affairs Committee Chairman
Ed Royce (R-California).
ANALYSIS OF RECENT EXECUTIVE BRANCH ACTION
Executive Order 13662
On March 20, President Obama signed a third Executive Order (E.O. 13662), which authorizes the imposition
of sanctions against additional categories of persons who operate in sectors of the Russian Federation economy,
such as the financial services, energy, metals and mining, engineering, and defense and related materiel
industries. To date, no individuals or entities have been sanctioned pursuant to E.O. 13662, although this
measure is designed to serve notice to broad sectors of the Russian economy that they may be targeted in the
In particular, E.O. 13662 authorizes the imposition of sanctions against the following three categories of
→ Persons who operate in sectors of the Russian Federation economy that have been the subject of a
joint U.S. Treasury and Department of State “determination,” (such as financial services, energy, metals
and mining, engineering, and defense and related material industries);
→ Persons who materially assist, sponsor, or provide financial, material, or technological support for, or
goods or services to or in support of a senior official in the Government of the Russian Federation or a
person designated pursuant to the new E.O; or
→ Persons directly or indirectly owned or controlled by, or acting for or on behalf of, a senior official in
the Government of the Russian Federation or a person designated pursuant to the new E.O.
The E.O. authorizes the same sanctions – asset freezes and visa bans – as the Congressional legislation.
Notably, it authorizes the imposition of sanctions against persons who operate in “such sectors of the Russian
Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, such as
financial services, energy, metals and mining, engineering, and defense and related materials.” (emphasis added).
This indicates that the U.S. government views the list of industry sectors as an illustrative non-exhaustive list,
and the U.S. Treasury and State Departments have authority to determine that additional sectors of the Russian
economy should be targeted in the future. E.O. 13662 is silent, however, as to the criteria that should be
applied in making these determinations.
PattonBoggs.com Client Alert: Crimea: U.S. Response Intensifies 4
It is significant that the new E.O. authorizes sanctions against persons who operate in these sectors of the
Russian economy, but does not immediately impose sanctions on them for doing so. In addition to determining
the economic sectors to be targeted, the E.O. requires the U.S. Treasury, in consultation with the U.S.
Department of State, to then determine that a the person operates in one of these sectors of the Russian
Federation economy. Presumably, a person will be sanctioned only after both determinations have been made.
The U.S. government has wide discretion in making these determinations.
In our view, the Obama administration issued this E.O. in part to get out ahead of Congress as a means of
discouraging Congress from adopting further legislation in the near term, especially legislation that could go
beyond the level of sanctions that the President considers appropriate under the circumstances or that would
otherwise interfere with the Obama administration's diplomatic negotiations to advance the national interest.
Moreover, by issuing the E.O. prospectively, the Obama administration signaled clearly that it is prepared to
impose sanctions on sectors that could have a significant impact on the Russian economy.
ADDITIONAL DESIGNATIONS UNDER E.O. 13661
On March 20, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated sixteen senior
Russian government officials, four Russian business leaders described by the U.S. Treasury as members of
Russian President Vladimir Putin’s “inner circle,” and one Russian bank pursuant to E.O. 13661. E.O. 13661
authorizes the imposition of sanctions against senior Russian government officials, as well as those determined
to be “acting for or on behalf of or materially assisting, sponsoring, or providing financial, material, or
technological support for, or goods or services to or in support of, a senior Russian government official.” The
U.S. government determined that the four Russian business leaders and one Russia bank are each controlled by,
acting for or on behalf of, or providing material or other support to, a senior Russian government officials. (For
more information on E.O. 13661, see Patton Boggs’ Client Alert here.)
These designations are in addition to sanctions imposed against seven Russian persons and four Ukrainian
persons pursuant to E.O. 13660 on March 6. (For more information on E.O. 13660, see Patton Boggs Client
Alert here.) The complete Specially Designated Nationals and Blocked Persons List is available here.
ADMINISTRATIVE LICENSING FREEZE
The Bureau of Industry and Security (U.S. Department of Commerce) disclosed that beginning March 1 it
placed a hold on all applications for licenses to export items from the U.S. to Russia until further notice. In
2013, the Bureau approved over 1,800 applications to export “dual use” items to Russia – worth $1.5 billion.
The Directorate of Defense Trade Controls (U.S. Department of State) also announced that it has stopped
processing applications for licenses to export “defense articles and defense services” to Russia until further
notice. U.S. industry has expressed concern that these policies will only hurt U.S. businesses because they need
export licenses to ship their products to Russia. Russian companies are still able to procure these items from
manufacturers in other countries.
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POTENTIAL FURTHER DEVELOPMENTS
Both the White House and Congress have indicated that they may impose further sanctions against the Russian
Federation depending on how the situation in Ukraine continues to develop. During his trip to Europe last
week, President Obama suggested that the United States and its allies will hold off on implementing additional
economic sanctions, but indicated that this may change if the situation in Ukraine deteriorates. His statement
does not preclude sanctioning more individuals and entities under existing sanctions authorities.
In the near term, we do not expect Congress to pass additional sanctions legislation, as long as the President
remains out front on the issue and developments in the region do not change materially. That said, the risk
remains high that, for political and other reasons, members of Congress will continue to push for additional
sanctions. Thus, the risk remains high that the White House will be forced to impose additional sanctions to
head off legislation or will be forced by events to negotiate with Congress over an acceptable range of
additional measures to be imposed by statute.
Moreover, the G-7 countries, the White House, and Congress also agree that further sanctions would be
warranted if Russia takes additional actions, such as invading eastern or southern Ukraine or the Transnistria
region of Moldova, or interfering in the May 25 Ukrainian presidential election. In the March 31 White House
Press Briefing, Press Secretary Carney stated the White House’s position that: “there will be potentially more,
and more serious consequences imposed by the United States and our partners, should Russia engage in further
acts that violate Ukraine’s territorial integrity and sovereignty.”
By all indications, this is still a very fluid situation. Companies should examine the nature and extent of any
business operations in Russia and/or Ukraine to understand their potential exposure under these sanctions
measures. For advice on specific transactions related to Russia and/or Ukraine, please contact Joseph L. Brand
(firstname.lastname@example.org), Stephen J. McHale (email@example.com), or Daniel E. Waltz