On January 10, 2017, Senate Republicans and Democrats introduced bi-partisan legislation called the “Countering Russian Hostilities Act of 2017,” which would impose broad sanctions on Russia. The Act would codify the sanctions President Obama imposed in response to the Russian cyberattack on the United States to influence the 2016 U.S. Presidential election and the Ukraine-related sanctions President Obama issued in 2014. Importantly, the legislation introduces beefed up economic sanctions against Russia’s energy and financial sectors.

Donald Trump has regularly praised Russia’s President Vladmir Putin and has indicated his desire for the United States to have a warmer relationship with our former cold-war adversary. Up until Wednesday’s press conference, Mr. Trump openly questioned whether Russia was involved at all in hacking the Democratic National Committee during the 2016 campaign. Additionally, Mr. Trump’s nomination for Secretary of State, Rex Tillerson, when CEO of ExxonMobil, was reportedly friendly with Mr. Putin; his company also reportedly explored multiple large business deals related to Russia’s energy sector.

If enacted, the new sanctions embodied in the Act would have a significant impact on the global energy and financial markets, broadening the restrictions on companies looking to invest in Russia. It would also make reversing the 2014 Ukraine-related sanctions very difficult. Currently, those sanctions have been implemented through executive action. If Trump were inclined to ease those sanctions, he could do so quite easily through revocation of executive orders. Though there is reportedly strong bipartisan support for the Act in Congress, it is unclear whether and how fast the bill will move through Congress.

But if this legislation comes to Trump’s desk, what will he do? If he vetoes the bill, he openly defies Republican leaders in Congress. And given the most recent allegations that Russia gathered compromising information on Mr. Trump, if he takes a soft line on Russia it may give rise to more speculation about his foreign entanglements. But if he signs the bill, then his bromance with Putin might end in an awkward “It’s not you, it’s me” conversation. And the United States would likely face significant reciprocal action from the Russian government.

Background

On December 29, 2016, President Obama announced targeted sanctions against Russia in response to Russia’s cyberattack on the United States aimed at the 2016 presidential election. Since the sanctions were announced, U.S. intelligence agencies have published declassified reports about Russia’s activities and intentions. Specifically, a joint report issued on December 30, 2016 by the FBI and the Department of Homeland Security described the tools and infrastructure used by Russian civilian and military intelligence services to exploit U.S. networks associated with U.S. election. On January 6, 2017, U.S. intelligence agencies released a declassified version of a report assessing that Mr. Putin ordered an influence campaign aimed at the 2016 U.S. Presidential election “to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency.” The report also assessed that “Putin and the Russian Government developed a clear preference for President-elect Trump.” During the span of these reports being released, Mr. Trump continued to question whether the Russian government was behind the hacking of the DNC.

In response to these cyberattacks, President Obama amended Executive Order 13694 the “Cyber Sanctions Executive Order” to authorize sanctions on Russian entities. EO 13694 was originally issued in April 2015 to respond to cyber-enabled malicious activities that are intended to:

• Harm or significantly compromise the provision of services by networks that support the critical infrastructure sector;

• Cause significant disruptions to the availability of networks; or

• Cause significant misappropriations of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial advantage or private financial gain (for example, by stealing large quantities of credit card information, trade secrets, or sensitive information).

President Obama amended EO 13694 to expand the scope of the EO’s authorization to impose sanctions on those who:

• Tamper with, alter, or cause a misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions.

Using this authority, President Obama imposed blocking sanctions against four individual Russian officers of the Main Intelligence Directorate (a.k.a. Glavnoe Razvedyvatel’noe Upravlenie) (GR”); two Russian intelligence services: the GRU and the Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (FSB); and three Russian companies that provided material support to the GRU’s cyber activities.  Additionally, under the pre-existing authority to sanction cyber-activities, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) designated two Russian individuals for stealing funds and personal information through cyber-means. Finally, in response to increased harassment of U.S. diplomats in Russia by security personnel and Russian police, the United States expelled 35 Russian diplomats from the United States and closed two Russian compounds in Maryland and New York.

Rejecting a proposal from his foreign minister to expel 35 U.S. diplomats from Russia and close two U.S.-owned properties in Moscow, Russian President Putin publicly announced that Russia will not expel anyone or “prevent their families and children from using their traditional leisure sites.” In another expression of Donald Trump’s seeming admiration for the Russian leader, Mr. Trump tweeted: “Great move on delay (by V. Putin) — I always knew he was very smart!”

But President Obama received criticism from both sides of the aisle that the sanctions were not tough enough.

“It cannot be business as usual” —  Senator Ben Cardin

“We have been attacked by Russia,” said Senator Ben Cardin (D-MD), a co-sponsor of the Act. “It cannot be business as usual.” If passed, the Act would require the President-elect to impose sanctions on an individual or entity that:

• Conducts transactions of more than $1 million or transactions over $5 million over a 12-month period that support Russia’s energy sector.

• Makes an investment of over $20 million that would enhance Russia’s energy sector.

• Conducts transactions of more than $1 million or transactions over $5 million over a 12-month period that facilitate the building of Russian pipelines.

• Conducts transactions of more than $1 million or transactions over $5 million over a 12-month period that support Russia’s ability to construct civil nuclear power plants.

• Purchases, subscribes, or facilitates the issuance of Russian sovereign debt.

• Makes an investment of over $10 million in support of privatizing Russian state-owned assets.

• Conducts transactions with persons responsible for human rights abuses in Russia.

The legislation includes the authority for the President to waive the sanctions, but only after certain certification requirements are met showing Russia’s progress on human rights and other issues. The menu of sanctions include export restrictions, denial of loans from U.S. banks, visa bans, asset freezes, among others.

There has been an ongoing debate about whether Mr. Trump would roll back the Ukraine-related sanctions against Russia. During his confirmation hearing on Wednesday, Mr. Tillerson said that he supported maintaining the Ukraine-related sanctions for now. However, despite stating that NATO allies had a right to be concerned about Russia’s aggression, he was evasive about his support for the measures President Obama took in response to the cyberattacks and for the proposed legislation that would impose tougher sanctions to further isolate Russia economically.

Though the cosponsors of the bill have indicated that they have wide-ranging, strong support, and Democratic leader Senator Chuck Schumer has reportedly asked that Congress take up the bill “promptly,” it is unclear if and when the legislation would actually pass Congress and come to the President-elect for his signature.

If it the legislation were to reach Mr. Trump’s desk, it would put him in an awkward position. If Mr. Trump signs these sanctions into law, they would have far-reaching consequences for the global business community. As we have seen in the last few months, sanctions are not only a powerful foreign policy tool, but can also have implications for domestic politics. The future of sanctions on Russia is uncertain, but as always, we will keep you apprised of the legal implications of as they develop.