Crimea: U.S. Congressional Action and Global Implications

    View Authors 14 March 2014

    On March 12, the U.S. Senate Foreign Relations Committee (SFRC) voted 14-3 to approve the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (S. 2124), which includes targeted sanctions against certain persons involved in the crisis in Ukraine. It builds on Executive Order 13660 and several non-binding congressional resolutions. It also coincided with a symbolic meeting between President Barack Obama and Ukrainian Prime Minister Arseniy Yatsenyuk at the White House in Washington. 

    Senate Bill

    On March 12, SFRC Chairman Robert Menendez (D-New Jersey) introduced the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, which includes $1 billion in loan guarantees to Ukraine and IMF reforms. It also builds on sanctions established under E.O. 13660 issued by President Obama on March 6. 

    Key Sanctions Provisions  

    Section 8 authorizes the imposition of sanctions against four categories of persons for the following activities:

    1. Any person – including current or former Ukrainian government officials – who ordered, controlled, directed, or perpetrated significant acts of violence or gross human rights abuses against anti-government protesters in Ukraine
    2. Any person who ordered, controlled, directed, or perpetrated significant acts – including economic extortion – to undermine the peace, security, sovereignty, or territorial integrity of Ukraine
    3. Any Russian government official, close associate, or family member who is responsible for, complicit in, ordered, controlled, or directed acts of significant corruption in Ukraine, including:
      • Expropriation of private or public assets for personal gain
      • Corruption related to government contracts or natural resources extraction
      • Bribery
      • Facilitation or transfer of the proceeds of corruption to a foreign jurisdiction
    4. Any individual who materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of the above acts

    These categories are broader than the E.O. 13660. While the second and fourth categories are substantially the same as the E.O. provisions, the first category adds Ukrainian government officials who repressed anti-government demonstrators, which goes beyond – and is more specific than – undermining the peace in Ukraine generally. The third category is significant because it specifically targets Russian government officials and their associates and relatives; the E.O. does not mention Russia or Russian government officials.

    During the markup, Senator John McCain (R-Arizona) introduced, and the committee voted to approve, an amendment that added a new section of sanctionable activity. In particular, this section would target persons who ordered, controlled, directed, or perpetrated significant acts of corruption in Russia. Senator McCain called this bill the “Magnitsky Act of corruption,” referring to a U.S. law that freezes the assets of and imposes travel bans on individuals the U.S. determines have committed human rights abuses in Russia. Senator McCain will lead a bipartisan congressional delegation to Ukraine on March 14, 2014.

    Section 9 authorizes the following sanctions against the above categories of persons:

    • Asset blocking: Any person or entity meeting the above criteria may be listed as a Specially Designated National (SDN) by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The effect of being designated as an SDN is threefold. First, all property of a listed SDN that comes within the possession or control of a U.S. Person is “blocked.” Second (and following from the first), an SDN is effectively cut off from the U.S. financial system. Thus, SDNs are generally unable to effect international payment denominated in U.S. dollars. Third, no U.S. Person can engage in any transaction or dealing with an SDN.
    • Visa bans or revocations: The U.S. will deny visas to travel to the U.S. for persons who meet the above criteria, as well as revoke the visas of such persons already in the United States.

    These are the same sanctions authorized under the E.O. The bill uses mandatory language, stating, “The President shall impose the sanctions described.” However, as a practical matter, if the bill is passed as drafted the administration will retain significant discretion in deciding whether to impose sanctions and against whom.

    Controversial IMF Provisions

    Section 9 would ratify a package of IMF reforms approved by the IMF Board of Governors in 2010. For key parts of the reform package to take effect, three-fifths of IMF members with 85 percent of the total IMF voting power must ratify them, making U.S. ratification essential. The Obama administration has urged Congress to ratify these reforms for three years, but a number of Republicans oppose ratification. The administration argues that Ukraine’s economic reforms are dependent upon Congress ratifying IMF reforms that will allow Ukraine to receive up to $15 billion in IMF loans and undertake necessary economic restructuring. However, a number of Republicans believe ratifying IMF reforms is unnecessary. They argue that Ukraine is able to borrow funds from the IMF, especially since the United States will guarantee up to $1 billion of the loans. Leaders in the Republican-controlled House requested the Senate omit Section 9 to ease its passage in the House, but the SFRC kept this provision intact.

    Additional Provisions

    Section 3 summarizes U.S. policy toward Ukraine, including: using “all appropriate economic elements of United States national power” to protect Ukraine’s independence, sovereignty, and territorial integrity; and supporting Ukraine’s  efforts to recover state funds “stolen by former President Yanukovych, his family, and other current and former members of the Ukrainian government and elites.”

    Section 4 authorizes the use of U.S. funds to provide loan guarantees to Ukraine.  This provision parallels the loan guarantee language H.R. 4152 and is non-controversial.

    Section 5 states that the U.S. shall assist Ukraine in recovering assets linked to corruption by former President Yanukovych, his family, current and former members of the Ukrainian government, and any of their accomplices in any jurisdiction.

    Section 6 authorizes the appropriation of $50,000,000 to improve democracy, civil society, and governance in Ukraine and other Central and Eastern European states.

    Section 7 authorizes the appropriation of $100,000,000 through 2017 for enhanced security cooperation with Ukraine and other Central and Eastern European states.

    None of these provisions are included in the Executive Order, and only the loan guarantee is included in the H.R. 4152.

    HOUSE BILL AND CONGRESSIONAL RESOLUTIONS

    On March 6, the U.S. House of Representatives passed a bill to provide for the costs of loan guarantees for Ukraine (H.R. 4152). It did not include sanctions or reforms to the International Monetary Fund (IMF).

    On March 11, the U.S. House of Representatives passed a resolution (H. Res. 499) co-sponsored by House Foreign Affairs Committee Chair Ed Royce (R-California) and Ranking Member Eliot Engel (D-New York). It calls for the United States and the EU to impose sanctions on Russian entities, including majority state-owned banks and commercial organizations.

    That same day, the U.S. Senate also passed by unanimous consent a resolution (S. Res. 378),co-sponsored by Senators Richard Durbin (D-Illinois) and Dan Coats (R-Indiana). It condemns Russian aggression in Ukraine and targets “those responsible for the illegal seizure of Crimea.”  

    Next Congressional Steps

    Senate Majority Leader Harry Reid (D-Nevada) filed cloture on S. 2124 on March 13 and scheduled a vote to proceed to the bill on Monday, March 24 at 5:30pm. If cloture is invoked and S. 2124 is brought to the Senate floor, it is highly likely amendments will be offered. For example, Senator John Barrasso (R-Wyoming) offered an amendment in the SFRC markup to expedite U.S. liquefied natural gas exports to Ukraine and NATO allies. 

    If the Senate passes S. 2124, the two chambers will need to conference their respective bills to resolve the discrepancies. Alternatively, one chamber could decide to advance the other chamber’s bill. The outcome of Crimea’s upcoming referendum may determine how both Congress and the White House proceed.

    For more information regarding the potential implications of sanctions, please contact Stephen McHale (smchale@pattonboggs.com) or Dan Waltz (dwaltz@pattonboggs.com).