As we approach year's end, and the pace of legislative activity ramps up, it remains critical to keep a close eye on the sanctions-related bills currently making their way, at varying speeds, through the U.S. legislative process. There are dozens of bills that could change the U.S. sanctions landscape, either by establishing new regimes or expanding the existing sanctions programs implemented and enforced by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"), indicating the voracious appetite of both Democrats and Republicans in Congress to continue to legislate sanctions as a tool to advance U.S. foreign policy and national security goals. China, Russia, and Iran are the focus of many pending sanctions bills, and human rights, corruption, and democracy abroad continue to be cross-programmatic themes to watch.
Regardless of how this congressional session progresses, we expect that Congress will take further action on the sanctions front by the end of its term. This client alert identifies key trends and major sanctions-related legislation and outlines our recommendations for how the private sector can best prepare for any proposed legislation that may become law.
- The National Defense Authorization Act for Fiscal Year 2022 ("NDAA"), which the House passed in September, is going to become law in some form and currently features sanctions provisions targeting China, Russia (see our prior client alert), Iran, public corruption, and human rights.
- The United States Innovation and Competition Act of 2021, which the Senate passed in June, is also likely to become law and would authorize sanctions related to China's alleged undermining of cybersecurity, theft of trade secrets, and human rights abuses against the Uyghur population in the Xinjiang Uygur Autonomous Region of China ("Xinjiang").
- Pending sanctions legislation targeting Russia - both the NDAA and separate bills - builds on, and in part confronts, recent actions by the Biden Administration regarding Russia's role in the energy sector of the global economy (especially as it relates to the Nord Stream 2 gas pipeline) and its alleged human rights abuses, corruption, and malign foreign influence abroad.
- Notable proposed legislation also contemplates the United States' reentry into the Joint Comprehensive Plan of Action ("JCPOA") - a.k.a. the Iran Nuclear Deal - but would place conditions on any such reentry or related actions involving Iran, including limits on the suspension of existing sanctions or the removal of individuals and entities from OFAC's List of Specially Designated Nationals and Blocked Persons ("SDN List").
- Congress may enact thematic sanctions legislation that focuses on corruption, human rights, and the promotion of democratic elections abroad, as there are many bills that spotlight discrete political events and other impactful movements around the globe.
There are multiple proposed bills targeting China, relating to a wide range of issues, such as human rights, COVID-19, cybersecurity, and Chinese military operations. The United States Innovation and Competition Act of 2021 - which seeks to enhance the United States' science and technology-related capabilities in the international arena - calls for the imposition of sanctions with respect to China's activities that are viewed as undermining cybersecurity, including cyberattacks on the U.S. government or private sector networks, and with respect to theft of trade secrets of United States persons.2 The Act also proposes sanctions in response to the alleged human rights abuses against the Uyghur population in Xinjiang.
Relatedly, the Uyghur Forced Labor Prevention Act, which also passed in the Senate and is likely to pass in the House as well given its strong bipartisan support, would revitalize sanctions under the Uyghur Human Rights Policy Act of 2020 in response to reported human rights abuses and forced labor in Xinjiang. This and a House bill with a similar provision, the Ensuring American Global Leadership and Engagement ("EAGLE") Act, would build on previous actions that OFAC and U.S. Customs and Border Protection have taken to address the alleged human rights violations in Xinjiang, which include sanctions against individuals and entities and restrictions on U.S. imports of cotton, tomatoes, and related products from Xinjiang.
Building on previous actions from the Trump and Biden Administrations to sanction companies defined as Chinese Military-Industrial Complex Companies ("CMICs") (see our most recent client alert on these developments), several proposed bills seek to expand sanctions against companies with ties to Chinese military operations. For example, the Chinese Military and Surveillance Company Sanctions Act of 2021, which has been introduced in the House, would grant OFAC the authority to impose traditional blocking sanctions on "Communist Chinese military and surveillance companies," finding that the current prohibition on purchases or sales of certain publicly traded CMIC securities by U.S. persons does not go far enough. Moreover, the version of the NDAA passed by the House (and now being considered in the Senate) could lead to the creation of an oversight committee for sanctions against Chinese military companies.2 And Senator Marco Rubio introduced a bill with bipartisan support that would allow sanctions to be imposed on Chinese individuals and entities identified as contributing to the development of controversial projects in the South China Sea and East China Sea or threatening the peace and stability of that region. That bill was recently reported out of committee - a good sign it could ultimately pass.
Finally, two Republican-led parallel bills in the House and Senate would impose sanctions on individuals affiliated with the state-run Chinese Academy of Sciences for China's alleged failure to investigate the origins of COVID-19. While these bills are unlikely to gain traction, another House bill, the Never Again International Outbreak Prevention Act, has some early bipartisan support and would allow sanctions to be imposed more broadly on foreign government officials for deliberately concealing or distorting information about a public health emergency.
Russia is the target of proposed sanctions legislation in a number of areas, such as natural gas exports and the Nord Stream 2 pipeline, foreign influence abroad, human rights, and corruption. Any enacted legislation would likely toughen steps the Biden Administration has already taken to expand sanctions on Russia, especially Executive Order ("E.O.") 14024, which authorized sanctions on any person (individual or entity) determined to meet criteria related to the Russian Federation's involvement in, among other things, election interference, political destabilization, cyber-enabled activities, and corruption (see our previous client alert on E.O. 14024).
For example, a pending House bill, Holding Russia Accountable for Malign Activities Act of 2021 - which targets public corruption and is garnering bipartisan support - would impose sanctions with respect to individuals associated with the poisoning of Russian opposition leader Alexei Navalny. The Biden Administration has already taken steps in this direction by designating entities and individuals for their role in the poisoning of Navalny, but such legislation could push the administration to sanction more individuals and entities.
In addition, the House has passed California Democratic Representatives Brad Sherman and Maxine Waters' amendment to the NDAA to impose sanctions to prohibit Americans from purchasing or selling newly-issued Russian sovereign debt in primary and secondary markets. If it becomes law, this amendment would expand on previous OFAC actions pursuant to E.O. 14024 that prohibit U.S. financial institutions from participating in the primary market for ruble- and non-ruble-denominated bonds and in the funds of three major Russian government entities3 as well as lending to those entities. Representative Tom Malinowski introduced another amendment to the NDAA that would impose sanctions under the Global Magnitsky Act against 35 Russian officials for public corruption.4 OFAC already sanctioned many of these Russian officials, including Oleg Deripaska, Igor Sechin, and Gennady Timchenko, pursuant to different authorities in connection with Russia's annexation of Crimea in 2014, but most of the remaining individuals remain unsanctioned.
Further, proposed legislation could lead to greater sanctions on Russian energy exports, especially relating to the Nord Stream 2 pipeline. In particular, an amendment to the NDAA that passed the House would mandate new sanctions on entities and individuals responsible for the construction and operation of Nord Stream 2 and would remove the Biden Administration's national interest waiver, which exempted Nord Stream 2 and certain executives from sanctions. (We previously covered the amendment in this client alert.) A Senate bill reported out of committee, the Combating Global Corruption Act of 2021, would also require the Secretary of State to submit a report listing foreign persons found to have been engaged in significant corruption in relation to the planning, construction, or operation of Nord Stream 2. Another Senate bill (also reported out of committee), the Ukraine Security Partnership Act of 2021, requires a determination by the President as to whether Nord Stream 2 meets the criteria for sanctions under the Protecting Europe's Energy Security Act of 2019.
Finally, other proposed bills threaten sanctions in connection with Russia's influence abroad, specifically in Libya and Georgia. The Libya Stabilization Act, for instance, broadly mandates sanctions against foreign persons supporting foreign government involvement in Libya and could become law, having already passed in the House with bipartisan support. The Georgia Support Act would mandate sanctions on foreign persons determined to be responsible for or complicit in human rights abuses in Georgia.
In light of the Biden Administration's calls for the United States to rejoin the JCPOA, and negotiations with Iran expected to resume in the near future, several Senate Republicans have proposed legislation that would restrict various sanctions-related actions the United States could take vis-à-vis Iran. For example, the Iran Sanctions Preservation Act would restrict the President's ability to authorize purchases of petroleum from Iran and condition the President's removal of Iranian individuals and financial institutions from the SDN List on the submission and certification of information to certain congressional committees. In addition, the Iran Nuclear Treaty Act would require any agreement reached by the President relating to Iran's nuclear program to be considered a treaty subject to the advice and consent of the Senate. However, these bills are in early stages, and it is unclear if they are likely to move forward and doubtful they could overcome a presidential veto.
In addition, House Republicans have proposed legislation to enhance sanctions on Iran. For example, the aptly named Maximum Pressure Act would impose additional sanctions on Iran to address state-sponsored terrorism and nuclear arms development by targeting Iranian officials, persons involved in international arms sales to Iran, foreign persons who support Iran's Revolutionary Guard Corps or other sanctioned individuals, and financial institutions that engage in transactions on behalf of persons involved in human rights abuses.
Finally, the House-passed version of the NDAA calls for a number of reports on the impact that the suspension, issuance, or revocation of any sanctions on Iran might have on Iran-China military ties, Iranian military capabilities, and state-backed terrorism organizations. If these provisions remain in the NDAA when it is passed by both houses of Congress, those reports could prompt further sanctions action.
Cross-programmatic concerns relating to corruption, human rights, and the promotion of democracy abroad, evidenced in the NDAA and the country-specific legislation above, are also the focus of other, more discrete proposed legislation. For instance, some proposed bills target specific terrorist groups (including the Taliban, Hizballah, and Hamas, with the last featuring significant bipartisan support). Others seek to impose sanctions to promote the free press (e.g., in response to the killing of Jamal Khashoggi) or democracy abroad (e.g., regarding Cambodia - a bill that passed the House with overwhelming bipartisan support). Already, Congress recently passed a bill targeting sanctions to support fair elections in Nicaragua, which now awaits President Biden's signature. A variety of Republicans and Democrats from both chambers of Congress introduced these bills, which illustrates the reliance of both parties on sanctions to advance their (at-times overlapping) national security and foreign policy agendas.
The sanctions space continues to evolve and remains a popular foreign policy tool for both the Legislative and Executive Branches of the U.S. Government. This is not to say that the use of sanctions will follow the same trajectory moving forward. For instance, the Treasury Department recently reviewed U.S. sanctions programs and suggested long-term plans to modify and even constrain the use of economic and financial sanctions, citing a need to adapt and modernize sanctions in order to meet modern national security and foreign policy realities (see our recent client alert on the review). Nevertheless, it remains to be seen whether political leaders will be able to resist the allure of the sanctions tool to confront global crises. In the meantime, we are likely to continue to see significant developments on the sanctions front from Congress, even as the Executive contemplates broader changes for the implementation of sanctions.
In light of the above, the global business community should take this opportunity to reevaluate sanctions compliance programs to ensure that they remain up-to-date and adaptable to any changes resulting from upcoming legislative or executive action. In particular, businesses should update their third party due diligence processes to account for potential connections to targeted countries - especially China, Russia, and Iran - and new or anticipated individuals and entities on the SDN List. Given that much of the proposed legislation broadly targets foreign corruption, businesses must also ensure that their anti-corruption and fraud compliance programs are robust and frequently updated to remain compliant and effective. MoFo's National Security group will continue to follow these developments and keep you apprised of any significant actions.
Logan Wren, a law clerk in Morrison & Foerster LLP's Litigation group, contributed to this alert.
1 A proposed Senate bill, Protecting American Intellectual Property Act of 2021, similarly seeks to leverage sanctions to protect American intellectual property from cyberattacks and theft.
2 The House-passed version of the NDAA requires a report to be submitted on the feasibility of establishing such an office. A separate bill introduced by Representative Ronny Jackson in late September similarly seeks to establish an office in the Department of Defense to oversee sanctions with respect to Chinese military companies.
3 The three entities are the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.
4 The same list of individuals is included in a separate sanctions bill introduced in early October by Senator Ben Cardin that requires a presidential determination as to whether sanctions should be imposed on those individuals.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Morrison & Foerster LLP. All rights reserved