CAATSA Me If You Can: Russia has escaped new sanctions … for now

Guest contribution from Ian Bugbee

A few days after the expected levying of further sanctions and the publishing of sanctions reports as required by the Countering America’s Adversaries Through Sanctions Act (CAATSA), precious little has gone as expected due to some interesting choices of the Trump administration.  Both Russian and American observers have been surprised by the lack of sanctions implementation and the non-existence of the sanctions reports as they were described in the law.

So what exactly happened to cause such surprise, and why is the landscape now so confusing?

The Prelude

On 29 January, three different actions mandated by HR 3364 CAATSA were supposed to happen:

  1. Trump selecting no fewer than 5 sanctions (out of a menu of 12 options) against identified entities that engaged with major transactions with Russian defense/intelligence entities named in October 2017 by the White House
  2. The publishing of a report related to section 241 of CAATSA, the Report on Oligarchs and Parastatal Entities which would include:
    • The list of those oligarchs and political figures closest to the Kremlin, their net worth and assets including those of their spouses, and implications of sanctioning these individuals combined with the likely repercussions
  3. The publishing of a report related to section 242 of CAATSA, the Report on the expansion of financial sanctions to cover Russian sovereign bonds (OFZs) and derivatives which would include:
    • The likely effects of expanding financial sanctions so that they prohibit U.S. persons and financial institutions from dealing in OFZs, and whatever effects and repercussions would result from that

Therefore, on the 29th, it was largely expected that the Trump administration would have the reports published by the Treasury, and keeping with the deadlines, they would levy sanctions against those who performed “major transactions” with the entities named on 26 October.  While not expected as sanctions themselves due to the wording of the law, it was expected that the two reports would serve as a more public road map towards further sanctions.  This would be keeping in how the CAATSA legislation had set clear deadlines on the imposition of further sanctions.  The best example of this was the clearly publicized, and thus expected by the market, reduction of the accessible debt maturity window for certain sanctioned Russian entities on 28 November.

Yet as we will see, a better example of the confusion of yesterday however was also seen as the result of a deadline, when the Trump administration flouted a 1 October deadline to publish a list of Russian defense/intelligence firms, for which conducting “significant transactions” with worldwide would become a sanctionable offense.  The Trump administration dragged its feet on this measure and the White House only coughed up a list a few weeks later under bipartisan congressional pressure.

29 January, 2018

However, come publication day nothing fell into place as had been expected on either side.  For most of the day, reports from Sections 241 and 242 were nowhere to be found, and the Section 241 report was only published late at night (more on that later).  Regarding the implementation of the defense/intelligence related sanctions, the Trump administration abstained.  A statement by the Department of State spokesperson explained that no sanctions would go forward. The reasoning was that significant amounts of defense procurements had been stopped by the threat of the sanctions, and that they were operating well as a deterrent.  Further, a classified report on this evidence of deterrence had been sent to Congress for review.

There were two ways for the Trump administration to avoid levying further sanctions against these entities as written into CAATSA:

  1. The Trump administration could have submitted a waiver for Congressional review, in order to not apply sanctions, explaining that not doing so was in the national security interest of the United States
  2. The Trump administration needed to submit a “certification” to the appropriate Congressional committee that the sanctions were working insofar that they were deterring further malicious Russian cyber action

It is unclear if the Trump administration formally used either option, but it seems as if they used the certification variant without calling it so based on their actions.  The lack of clarity regarding the route the Trump administration was using to avoid putting on the sanctions, and the uproar it was causing in a surprised Congress; however, was eclipsed by the publishing of the long-awaited “oligarch” list.  Upon its final publication, both American and Russian experts were shocked to find it contained an alphabetical list of government officials, SOE big-wigs, and Russian Forbes billionaires, taken from the Kremlin’s website, RBK, and Russian Forbes respectively.  The culmination of 6 months’ work was very strangely a 210-person list that was missing the bulk of what had been stipulated by law: the estimation of assets, the possibilities for sanctions, and the consequences of sanctions.  Of course, it is important to note that there was a classified version given to Congress, but it is necessarily unclear if that contains the missing information.  Either way, the report was supposed to be public.

The list, in its broadness – for it made no nuanced distinction between those close to the Kremlin or not – included several businessmen on the Forbes list who have prided to keep themselves from keeping their distance from politics.  Putin cited the list as evidence that the United States viewed all 146 million Russians as adversaries, and members of the elite had their fun with the list calling it a “Kremlin phonebook” or a “who’s who list.”  Even the much maligned, brunt of domestic jokes, ex-President Dmitry Medvedev joked that an official not finding themselves on the list should be grounds for their resignation.

As for the other list on OFZs, the report from CAATSA section 242, it was nowhere to be found and was not mentioned in the Treasury press release.  In culmination of the broad non-event of the sanctions day: Trump’s abstention from further sanctions, the vague 241 report and the missing 242 report, the Russian ruble rallied 0.8% against the dollar and the yield on Russian bonds fell to their lowest level since the annexation of Crimea.

30 January

 The next day, in response to allegations of foot-dragging by Ohio Senator Sherrod Brown (D), U.S. Treasury Secretary Mnuchin replied that the classified portion of the oligarch list contained a road map for further sanctions, which he promised would be implemented sometime in the near future.  Of course, the confinement of the potential sanctions to the classified portion creates considerable uncertainty regarding the future of sanctions – especially with the uncertain imposition of the earlier mentioned defense/intelligence sanctions.

More news continues to trickle out that may undermine the legitimacy of the oligarch list.  Anders Aslund, a Russia expert at the Atlantic Council, argues in an article that he alongside other experts were consulted for the report – yet at the last minute that report was thrown out by someone “high up”.  According to Aslund, the current vagueness of the report, its lack of real nuance over who is close to the center of power, and its preponderance on publically available information like the Forbes list is a direct result of this action.  The Trump administration can always deny this charge and claim that this missing report has been incorporated into the classified version, but Aslund’s claim that this is Trump’s “revenge” for not wanting to sign CAATSA in the first place does hold some weight.  There is a clear disparity between what was intended by the law and the speciousness of the published unclassified report.

Going Forward

More news will undoubtedly continue to trickle out, yet it is important to remember these are the three unknowns that will need to be clarified if we are going to regain some certainty on the future of the sanctions landscape:

  1. On what basis is Trump holding up the implementation of the Defense/Intelligence sanctions? Is he using a waiver or a certification?  If he is using a certification before Congress that the Russians are deterred, how will the administration defend it against CIA Director Mike Pompeo’s statement that the Russians are planning to interfere in the 2018 midterms?  The implementation of these sanctions hinge on the administration’s method of abstention, despite promises to eventually take next steps.
  2. With the allegations coming out regarding the “oligarch” list, will it be challenged in Congress, or will members of that body be mollified by the contents of the classified report? If it does include an adequate sanctions road map as Mnuchin claims, then the only uncertainty that will remain is the unknown targets and timeline for implementation. Although those listed in the report have already begun to suffer financial losses of over $1 bil since its publication as financial institutions preemptively reorient themselves.
  3. What is the status of the section 242 report and why has it not been brought up by the Treasury, the Trump administration, or by Congress? The absence of the report is conspicuous, as it was among the most economically serious sanctions that the United States was considering against Russia.  Does its absence mean it is completely off the table, that it is to be published sometime soon, or conversely that has it been consigned to total secrecy?  This needs to be clarified, at the very least.

Ian Bugbee is graduate of Johns Hopkins SAIS and is a currently an Alfa Fellow working in Moscow. You can follow him on twitter here, and don’t miss his foreign policy blog, Beyond the Pomerium.

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