United States: Do Svidaniya For Now: Obama Administration Imposes New Sanctions In Response To Russian Cyber-Interference In 2016 Election

As 2016 comes to a close, the Obama Administration announced a series of new sanctions against specific Russian government agencies and related persons and entities in response to cyber operations aimed at influencing the 2016 presidential election (as well as harassment of US officials in Russia).1 In particular:

  • The State Department ejected from the United States (declared "persona non grata" or "PNG'd") 35 Russian officials in the US, and closed two Russian government-owned facilities in Maryland and New York.2
  • The Federal Bureau of Investigation (FBI) and Department of Homeland Security (DHS) National Cybersecurity and Communications Integration Center (NCCIC) released a joint analysis report (JAR) providing "technical details regarding the tools and infrastructure used by the Russian civilian and military intelligence Services (RIS) to compromise and exploit networks and endpoints associated with the US election, as well as a range of US Government, political, and private sector entities." (The JAR also lists a number of suggestions for organizations to improve their cybersecurity posture and promotes DHS cyber information sharing programs.)
  • The White House amended its Executive Order Related to Significant Malicious Cyber-Enabled Activities (EO 13694), which has sat dormant for 18 months, to authorize sanctions on persons found to have engaged in cyber-enabled activities with the purpose or effect of "tampering with, altering, or causing a misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions[.]"3 This authority has been deployed to sanction five Russian entities (including both the GRU and FSB, Russia's two main intelligence agencies) as well as four Russian individuals.4
  • The Treasury Department further deployed EO 13694 to sanction two additional Russian individuals for cybercriminal activities, including "activities related to the significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for private financial gain."5

While these actions may have far-reaching diplomatic and political implications and may elicit a Russian response, their impact on the US business community and Russian economy may be more muted than previous sanctions that the US imposed on Russia in response to the Russian invasion of Crimea. In fact, the primary sanctions tool deployed here – the designation of six individuals and five entities on the Specially Designated Nationals (SDN) List – is a fairly limited measure. By contrast, in response to the crisis in Ukraine, 78 Russian persons have been placed on the SDN List over the past two years, an entirely new sanctions regime (the "Sectoral Sanctions Identifications List") affecting 219 more persons (including major Russian banks and energy companies) was stood up, and the Department of Commerce has issued a series of new export regulations targeting Russia and Russian entities.

Thus, companies and any organizations that interact with Russian entities should pay close attention to this developing situation, and should consider carefully reviewing the JAR issued by the FBI and DHS to ensure that their systems and networks address the technical and security recommendations included in the JAR.

Equally of interest may be the potential fate of these and other sanctions targeting Russia, which will shortly become subject to the executive prerogative of a new presidential administration. No one can be certain what actions President-elect Trump might take with respect to Russia once in office, but this is a rapidly developing situation and companies and others that do business or engage in other activities in Russia should anticipate that we may be moving toward a new, more unpredictable landscape in US-Russia relations. During the Cold War, US companies, particularly those operating in the former Soviet Union, were often pawns in disputes between the US and the Soviet Union. Companies and other entities operating in Russia should be alert to any indications that Russian policy or conduct could adversely impact their operations or their personnel in Russia.

The Effect of the Sanctions Designations

The upshot of the sanctions, at least with respect to the eleven designated persons, is that US persons may not do business with, nor provide any services to (whether or not for consideration) the designated persons. It is unclear, however, how much business involves the designated entities, such as the Russian intelligence agencies or their support apparatus, and the few additional Russian individuals who have been placed on the SDN List. According to news reports, these individuals are, for the most part, high-ranking Russian intelligence officials, not likely to be closely tied to US business interests (unlike many of the Russian oligarchs who were previously targeted by US sanctions and who did have close ties to the US economy).

The SDN List is administered by the Office of Foreign Assets Control (OFAC) at the Treasury Department and the designations are governed by OFAC's Cyber-Related Sanctions Regulations, 32 C.F.R. Part 578, which until the December 29th sanctions had been unused. The persons placed on the SDN List have had their property and interests in property "blocked."6 For the persons placed on the SDN List, this consequence can be severe, if they currently do any business involving US persons, engage in any transactions in US dollars (which are typically processed through US banks with or without the consent of third parties using dollars), or otherwise hold any assets in the US or under the control of US persons.

Under the Cyber-Related Sanctions Regulations (like most OFAC sanctions programs), the term US persons is defined to mean:

  • any United States citizen or permanent resident (i.e., "green card" holder);
  • any entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches); or
  • any person physically in the United States (for example, a UK citizen on a ski vacation in Utah).

Unless licensed through OFAC, US persons are prohibited from dealing with blocked persons, save for a few general authorizations that OFAC has promulgated under the new regulations that permit, among other activities, US persons to provide legal services and emergency legal services to designated persons. Any property or property interest of such designated persons that comes within the jurisdiction of the US (typically, transactions in US dollars are cleared through US banks and are subject to US jurisdiction) or under the control or possession of a US person will be frozen. The regulations also define the terms "property" and "transfer" extremely broadly, underscoring that once a person is designated that person is virtually excluded from any direct or indirect economic activity with persons in the United States.

Additionally, like many sanctions programs, the Cyber-Related Sanctions Regulations restrict not only all economic transactions with persons on the SDN List, but also "the making of donations," even of humanitarian items (such as food, clothing, and medicine), to such persons, and the executive order contains prohibitions against evading, avoiding, causing, attempting, or conspiring to violate the prohibitions of the order. Violations of the sanctions program can lead to both criminal and civil penalties under the International Emergency Economic Powers Act.

A full description of the scope of the Cyber-Related Sanctions Regulations and the Cyber-Related Sanctions Executive Order can be found here and here, respectively.

Can the Trump Administration Roll Back These Sanctions?

The President-elect, in response to questions about the sanctions, appeared to be dismissive of the effort, stating:

"It's time for our country to move on to bigger and better things. Nevertheless, in the interest of our country and its great people, I will meet with leaders of the intelligence community next week in order to be updated on the facts of this situation."7

While this statement far from telegraphs an intent to roll back the recent sanctions, the President-elect is widely seen to be inclined towards a more conciliatory relationship with Russia. If President-elect Trump were to seek to lift these recent sanctions, or previous sanctions imposed on Russia in response to the crisis in Ukraine, he would largely have the ability to do so once in office. All of the sanctions that have, thus far, been imposed on Russia have been done through executive order. Thus, without notice and without congressional approval, the new President could remove Russian persons from the SDN List or lift any other element of the sanctions.

In fact, while high-ranking members of Congress from both parties have indicated that they support the new Russia sanctions (or are demanding even tougher measures),8 the imposition and enforcement of sanctions are largely prerogatives of the president. For example, in December 2014 Congress passed the Ukraine Freedom Support Act, which includes additional and harsher sanctions on Russia in response to its annexation of Crimea. While President Obama signed the Act, he declined to impose sanctions under it at the time,9 and has never since invoked it. Likewise, the Obama Administration has invoked both express and implicit statutory waiver authorities in carrying out its opening of the Cuban embargo and suspension of Iran sanctions in response to the Iran nuclear deal (the so-called "Joint Comprehensive Plan of Action"). While Congress could design new sanctions on Russia, the president would of course need to sign any such statutory measures (or they would need to be passed by a super-majority of both houses of Congress) and, even then, the president may be able to invoke long-standing deference afforded the president with respect to national security and foreign policy if he were to decline to enforce or impose statutory sanctions. In short, if President-elect Trump sought to lift Russia sanctions, it is likely he would be able to do so.

Conclusion

While high profile, the recent actions in response to the Russian hacking to influence the 2016 election are not likely to significantly impact the Russian economy in the way the Crimea-related sanctions have, nor are they set in stone once the new administration takes power. It will only be clear once the President-elect is inaugurated whether the Russian Government's alleged support for the next administration will have an actual effect on the US sanctions or whether the US will stay the course. In the interim, companies and others with Russian interests should prepare for the possibility that US-Russian relations will continue to shift rapidly. Companies and others with interest in Russia should also consider JAR's recommendations for improving system and network security.

Footnotes

1. The White House, Statements and Releases, "FACT SHEET: Actions in Response to Russian Malicious Cyber Activity and Harassment" (Dec. 29, 2016).

2. US Department of State, Press Release, "Department of State Actions in Response to Russian Harassment" (Dec. 29, 2016).

3. The White House, Executive Order, Taking Additional Steps to Address the National Emergency with Respect to Significant Malicious Cyber-Enabled Activities (Dec.29, 2016).

4. The White House, Executive Order, Annex to Executive Order -- Taking Additional Steps to Address the National Emergency with Respect to Significant Malicious Cyber-Enabled Activities (Dec. 29, 2016).

5. US Department of the Treasury, Press Release, Treasury Sanctions Two Individuals for Malicious Cyber-Enabled Activities.

6. OFAC maintains a searchable electronic version of the SDN List on its website, available at https://sanctionssearch.ofac.treas.gov/. The newly designated individuals and entities affected by the sanctions are already included on the electronic version of the list.

7. The New York Times, "Donald Trump, After Dismissing Hacking, Agrees to an Intelligence Briefing" (Dec. 29, 2016).

8. House Speaker Paul Ryan called the sanctions "overdue" (Reuters article); Republican Sens. John McCain and Lindsay Graham indicated they will lead efforts to impose stronger sanctions on Russia (U.S. News & World Report article); Democratic Senate Minority Leader Chuck Schumer signaled his strong support for the sanctions (The Wall Street Journal article), as has House Minority Leader Nancy Pelosi (Press Release, "Pelosi Statement on New U.S. Sanctions For Russia's Cyber Assault on Elections" (Dec. 29, 2016)).

9. The White House, Statements & Releases, "Statement by the President on the Ukraine Freedom Support Act" (Dec. 18, 2014).

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