In August 2017, U.S. President Donald Trump signed the Countering American Adversaries Through Sanctions Act (CAATSA) at the insistence of the U.S. Senate and House of Representatives. The sanctions foreseen by this legislation break with the previous policy of synchronizing anti-Russia measures between the United States and the EU. The legislation does not limit itself to U.S. citizens and U.S. companies; on the contrary, certain parts explicitly provide for the exterritorial application of U.S. law – that is, the application of U.S. law outside the United States and to people of other nationalities.
Facing strong criticism from Europe and elsewhere, the U.S. administration refrained from the broader enforcement and extraterritorial application of CAATSA until the spring of 2018. In addition, the rules for implementing CAATSA included a grandfather clause for contracts concluded before August 2017.
But at the beginning of April 2018, without having reached an agreement with the EU, the U.S. Treasury Department imposed new sanctions against the heads of seven Russian enterprises and twelve companies controlled by them, as well as 17 Russian government officials, one state weapons company and one bank. In June 2018, sanctions followed on another five Russian companies and three Russian individuals on the basis of Section 224 (on cybersecurity) of CAATSA.
Challenges for German Companies
A number of German companies, particularly in the aluminium and automobile sectors, that maintain intensive business relations with sanctioned individuals and companies, are now confronted with the problem of deciding whether to conduct business with Russia or with the United States. Long-term losses could run into the billions of euros. Since it is, above all, international banks that are threatened by secondary sanctions, companies must reckon with increasing problems in the financing business with Russian partners. Particularly alarming are the negative consequences for German and European aluminium processors – until now, the sanctioned Russian company Rusal has met 30 to 40 percent of European demand for aluminium or aluminium intermediate products; it also has plants located inside the EU.
Delisting Procedure Could Limit the Damage
Subsequent to considerable efforts on the part of German and European industry, the German government and the EU, the U.S. Treasury Department has issued several general licenses extending the deadline for winding down business with sanctioned companies. If sanctioned owners step down, companies could be removed from the sanctions list through a delisting procedure. The length and success of this procedure is, however, unclear and the future of the affected companies remains highly uncertain. The grace period will run until 7 January 2019.
To clarify various issues, German industry was encouraged to send detailed questions directly to the Office of Foreign Asset Control in Washington, D.C. at firstname.lastname@example.org.
New Sanctions in the Pipeline
Late August, further U.S. sanctions against Russia entered into force in connection with the Skripal case. In this instance, a law from the 1990s on controlling the use of chemical and biological weapons was cited; it allows the U.S. president to impose various sanctions against states when they have used such weapons, but it does not provide for secondary sanctions. Among other things, the sanctions imposed under this law require halting weapons and technology exports and putting a stop to aid funds. Russia had 90 days, until November, to offer proof that they did not process or use chemical and biological weapons. However, the Russian government did not react. Thus, more Skripal sanctions are expected to be implemented by the end of the year.
Various draft legislations have been discussed by Congress in the current legislative period. Analysts believe that the bipartisan proposal called the “Defending American Security from Kremlin Aggression Act” (DASKA) could be the blueprint for an initiative to be made by the next Congress starting in January 2019. From a European perspective, Sections 235–238 of DASKA are particularly critical as they are to be applied extraterritorially. Among other things, sanctions against energy projects involving Russian participation and against Russian government bonds and banks are being considered.
The German Eastern Business Association (OAOEV), together with its colleagues at the Washington-based Representative of German Industry and Trade (RGIT), continuously follow the developments in the United States and inform the affected German companies and associations. At the end of August/beginning of September, two more rounds of discussions on the subject of sanctions were held for companies, in which representatives from German ministries and dialogue partners from the U.S. House of Representatives took part.
Michael Harms is Chairman of the Executive Board of the German Eastern Business Association (OAOEV)