U.S. Senator Proposes New Legislation to Enact More Aggressive Sanctions against Russia (with Turza Comment)

U.S. Senator Bob Corker (R-TN), the ranking member of the Senate Foreign Relations Committee, introduced legislation on April 30, 2014, providing for the imposition of more aggressive sanctions against Russia, including measures directed against all Russian senior officials, the country's largest energy companies and Russian financial institutions. In a statement, Senator Corker took exception to what he described as the Obama Administration's reactive approach to the crisis in Ukraine, and expressed his desire to "inflict more direct consequences on Russia prior to Vladimir Putin taking additional steps that will be very difficult to undo."

The draft bill calls on the President to impose escalating sanctions under three scenarios. First, if Russia has not withdrawn from Crimea within seven days of the legislation's enactment, then the President is to impose asset freezes and travel bans on Russian government officials (as well as their family members, associates, etc.) responsible for violations of Ukrainian territorial integrity and sovereignty. Under this scenario, the President is also called upon to impose sanctions on those responsible for "significant corruption" in Russia.

Second, if Russia has not, within seven days of the legislation's enactment, withdrawn "substantially all" of its forces from the border with eastern Ukraine and ceased activities to destabilize the country, the President is to impose asset freezes and travel bans on eight listed Russian companies, as well as senior executives of those companies who are Russian citizens. The eight named entities are energy giants Gazprom, Rosneft and Novatek, the state-owned arms exporter Rosoboronexport, and four Russian financial institutions: Sberbank, VTB Bank, Vnesheconombank and Gazprombank. If Russia has not withdrawn its forces from the border with eastern Ukraine and ceased destabilizing the country within 30 days, the Secretary of Commerce is to revise the Export Administration Regulations to limit strictly the transfer or export to Russia of advanced oil and gas discovery, exploration and extraction technologies.

Third, in the event of increased aggression by Russia towards Ukraine or other countries (cf. Georgia, Moldova and the Baltic states), asset freezes and travel bans are to be applied by action of law against (1) any senior Russian official; (2) any entity owned or controlled by a senior Russian official; and (3) any close associate of a senior Russian official who provides significant support or resources to that senior Russian official. These automatic asset freezes and travel bans would also be applied to any entity (or senior executive thereof who is a Russian citizen) that operates in the arms, defense, energy, financial services, metals or mining sectors, and that is owned by the Russian government, a senior Russian official (or their family members, associates, etc.) or other person sanctioned pursuant to Executive Order in connection with violations of Ukraine's territorial integrity and sovereignty.

These provisions relating to further Russian aggression also would impose prohibitions and limitations on the opening and maintaining of U.S. correspondent and payable-through accounts by a foreign financial institution determined to have knowingly conducted transactions (following the date of enactment of the legislation) with sanctioned senior Russian officials and their entities and associates. This measure is intended to bar senior Russian officials, as well as their companies and supporters, from access to the international financial system.

Finally, the provisions relating to further Russian aggression direct the President to exercise his authority under the International Emergency Economic Powers Act to prohibit transactions (other than routine interest and service fees) with Russian financial institutions. In effect, this measure is designed to cut off all Russian banks from the U.S. banking system.

Turza Comment: Apparently unimpressed by the relatively limited sanctions imposed by the United States and its allies to date, Senate Republicans have moved to generate their own pressure. The measures called for in Senator Corker's draft bill are far more aggressive than even the sector-based sanctions authorized in Executive Order 13662 (which to date remain unimplemented), and are clearly intended to communicate to Russian President Vladimir Putin that "staying the course" could entail significant additional costs. Ultimately, however, absent a significant move by Russia into Ukraine or elsewhere, it is unlikely that Senator Corker's bill will gain the Democratic support necessary to survive a Senate vote (much less a presidential veto). Therefore, the draft legislation's most immediate impact may be to exert pressure on President Obama to pursue a harder line in the face of perceived Russian intransigence whether or not Europe is willing and able to do the same. In this context, in the absence of a visible Russian withdrawal from the border and a stabilization of the situation in eastern Ukraine, the likelihood of U.S. sector-based sanctions continues to grow. For the moment, however, the initiation of such sanctions does not appear imminent.

See: Draft Legislation; Senator Corker's Statement; E.O. 13662.See also: Cabinet Sanctions Page (accessible to Cabinet subscribers only). For more information, please contact Dale Turza and James Treanor.