Sanctions

Calm Down, Trump Did Not Just Relax Russia Sanctions

By Samuel Cutler
Thursday, February 2, 2017, 3:38 PM

For sanctions-watchers, the familiar rhythm of responding to new general licenses issued by Treasury’s Office of Foreign Assets Control (OFAC) is typically uneventful. You receive an email from OFAC announcing the measure, you momentarily consider its impact, and then return to whatever you were doing before. The era of Donald Trump, however, has injected “observe Twitter have a complete meltdown” into the cycle. I admire the passion and welcome new devotees to the exciting world of sanctions, but for today, a deep breath is required.

This morning, OFAC issued a new general license authorizing certain transactions with Russia’s Federal Security Service (FSB) previously prohibited under Executive Order 13757, which President Obama signed in January to respond to Russian interference in the U.S. election. Under the general license, U.S. persons are authorized to engage in activities ordinarily incident to

Requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications issued or registered by the Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (a.k.a. FSB) for the importation, distribution, or use of information technology products in the Russian Federation.

This is not a lifting of sanctions. In Russia, the FSB is the regulatory agency responsible for authorizing the importation of IT products that incorporate encryption technology. That means in order to export items like cell phones or computers to Russia, U.S. companies must seek and pay for a license from the FSB. However, the above-mentioned Executive Order prohibits transactions with the FSB, leaving U.S. exporters in a bind. In all likelihood, for the past month OFAC has been issuing individual specific licenses in a large enough volume to warrant a general authorization. In essence, this is designed to save the Treasury Department some work. It’s also important to note that these exports must already by licensed by the Commerce Department’s Bureau of Industry and Security and payments to the FSB are capped at $5,000 per calendar year.

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The general license also authorizes U.S. persons to comply with FSB investigations or other law enforcement activity involving the FSB, as well as compliance with other FSB rules and regulations.

While President Trump’s statements on Russia have led to heightened concern, this new general license is not in any way a nefarious stealth relaxation of sanctions targeting Russia. The current breathless reporting is wrong and Russian government comments are empty posturing. The intent of the original sanctions was to target the FSB for its involvement in hacks of the DNC and former Clinton campaign chair John Podesta. The export of goods and services to the FSB remains prohibited and any FSB assets subject to U.S. jurisdiction remain blocked. However, adverse impacts on U.S. companies’ IT exports to Russia was an unintended consequence of the sanctions which the general license now seeks to remedy.

And even moving beyond the text itself, it doesn’t make much sense that this action is meant as major sanctions relaxation. Since President Trump’s inauguration, he has embraced a bombastic and confrontational approach to controversial policy shift, through major announcements and the theatrical signing of executive orders. So it would be out of character for this White House to use a relatively obscure agency action to sneak through significant revision to Russia sanctions. And furthermore, at the moment there is still no Treasury Secretary. That means this action would have been approved by acting Undersecretary for Terrorism and Financial Intelligence Adam Szubin. Szubin is a universally-respected career civil servant and former OFAC director who has helped craft U.S. sanctions policy for over a decade. It is highly doubtful that Szubin would be a willing party to the quiet shredding of U.S. cyber sanctions.

There are a great many reasons to be concerned about the Administration’s future plans for Russia sanctions, but this is not one of them. Effectively debating those problematic future actions, requires discipline in discussing regulatory changes now. Commentators issuing careless, definitive statements creates confusion and risks being counterproductive in the long run. To that end, I urge anyone new to sanctions issues to consult experts before deciding whether it’s time to freak out. 

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