United States: Sanctions Outlook: Congress To Consider Sanctions Provisions In FY2020 Defense Bill

Over the last few weeks, the U.S. House and Senate have separately passed a number of amendments to the National Defense Authorization Act for Fiscal Year 2020 (the "NDAA") that, if enacted, would expand sanctions on persons and activities related to North Korea, China, Russia, Burma, and certain Central American states.

At this time, it is uncertain which sanctions provisions will pass the conference committee as a part of the final NDAA. Among the various sanctions provisions under consideration, only two currently appear in both the House- and Senate-approved versions of the NDAA ("House Bill" and "Senate Bill," respectively):

• "Otto Warmbier North Korea Nuclear Sanctions Act of 2019": The House and Senate versions both authorize secondary sanctions in the form of restrictions on correspondent accounts of foreign financial institutions that knowingly provide "significant financial services" to persons or entities sanctioned under applicable North Korea-related Executive orders. See House Bill, Sec. 1099Z-3(a), Senate Bill, Sec. 6921.

The House version is more expansive, also targeting foreign financial institutions that knowingly facilitate or provide significant financial services to "[a]ny North Korean financial institution"; any person that knowingly facilitates imports or exports to or from North Korea; any North Korean person employed outside of North Korea (with applicable waivers); and any person who participates in a joint venture with a North Korean entity, provides financial services in North Korea, or insures or maintains registration for a North Korean vessel. House Bill, Sec. 1099Z-3(a), 1099Z-8(2).

• "Fentanyl Sanctions Act": The House and Senate versions are substantively identical, and direct the President to impose sanctions against foreign persons or entities identified as a "foreign opioid trafficker" and those that knowingly supply or source precursors for, or act on behalf of, such traffickers. See, e.g., House Bill, Sec. 1713. Sanctions are selected from a menu of nine and include prohibitions on banking, foreign exchange, and property transactions, receiving loans from U.S. financial institutions, and having "significant amounts" of debt or equity purchased by U.S. persons. See, e.g., id., Sec. 1714.

In addition to the above, the House-passed version of the NDAA includes the following sanctions provisions:

• Russian sovereign debt: Prohibits transactions within U.S. jurisdiction (including U.S. dollar transactions clearing through the U.S. financial system or services provided by U.S. persons) involving new issuances of sovereign debt of the Russian Federation. Sovereign debt includes bonds, "new" FX swaps with a duration of more than 14 days, and any other financial instrument identified by the President as sovereign debt with a duration of more than 14 days. See House Bill, Sec. 1240B(a). The prohibitions closely resemble similar provisions of a draft bill introduced earlier this year by a bipartisan group of senators, discussed previously on this blog. Unlike the earlier bill, the prohibition in the House Bill would continue until the Director of National Intelligence determines, and Congress certifies, that the Government of the Russian Federation has not interfered in the most recent U.S. Federal election. See House Bill, Sec. 1240B(c).
• Limitation on removal of Huawei from Entity List: Prohibits the Secretary of Commerce from removing Huawei from the U.S. Department of Commerce Bureau of Industry and Security "Entity List" until the Secretary certifies that Huawei and its officers have not engaged in sanctions violations or theft of U.S. intellectual property in the preceding five years and that Huawei does not pose an ongoing threat to U.S. or allied telecommunications and infrastructure. See House Bill, Sec. 1250D. (Separately from the NDAA, several senators have recently introduced bills with similar language limiting the removal of Huawei from the Entity List.)
• Sanctions on Central American officials: Directs the President to impose blocking sanctions and visa bans against each individual listed in reports related to narcotics trafficking and corruption in Central American states, provided by the Department of State to Congress pursuant to § 1287 of the FY2019 NDAA and § 7019(d) of the 2019 Department of State, Foreign Operations, and Related Programs Appropriations Act. See House Bill, Sec. 1270H.
• Burma sanctions: Directs the President to impose blocking sanctions and visa bans against current or former senior officials who perpetrated, directed, or impeded investigations of serious human rights abuses and entities that are owned or controlled by the military or security forces of Burma (including the Myanmar Economic Corporation and the Myanmar Economic Holding Corporation). See House Bill, Sec. 1292(b). The House Bill also directs the President to impose blocking sanctions and visa bans against Burmese officials, as well as sanctions against military-owned enterprises in Burma under existing Burma-related statutory authorities. See id., Sec. 1292(a).

In addition to the sanctions provisions on North Korea and opioid trafficking discussed above, the Senate Bill includes non-legally binding declarations of the sense of Congress concerning Hong Kong and Turkey:

• "[T]he United States should impose financial sanctions, visa bans, and other punitive economic measures against all individuals or entities violating the fundamental human rights and freedoms of the people of Hong Kong, consistent with United States and international law." Senate Bill, Sec. 6209(b)(3).
• With respect to the Government of Turkey's purchase of the S-400 air defense system from the Russian Federation, "the President should fully implement the Countering Russian Influence in Europe and Eurasia Act of 2017 . . . by imposing and applying sanctions under section 235 of that Act . . . with respect to any individual or entity determined to have engaged in such significant transaction as if such person were a sanctioned person for purposes of such section." Senate Bill, Sec. 6218(6)(B).

A conference committee will resolve the differences between the two bills, with the majority of the work likely to come after the House returns from recess after Labor Day. The resulting compromise bill is expected to be finalized and passed sometime this fall.

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