Centre for Eastern Studies NUMBER 259 | 05.02.2018 www.osw.waw.pl Washington’s game of ‘sanctions poker’ Russia awaits America’s decisions Iwona Wiśniewska, co-operation Marek Menkiszak, Witold Rodkiewicz On 29 January, the administration of President Donald Trump sent Congress a batch of doc- uments which provide the basis for a possible further expansion of sanctions against Russia: a report on the Russian business and political elite, and a report on the consequences of se- lected financial sanctions. At the same time, the authorisation for the possible introduction of extraterritorial sanctions against entities from the Russian security sector and arms industry came into effect. This was in line with the requirements of the Countering America’s Adversar- ies Through Sanctions Act, No. 3364 from 2 August 2017. This Act covers US sanctions against Iran, Russia and North Korea. As of now, President Trump’s administration has not decided to implement any new sanctions against Russia, although it has the ability to do so at any time. The absence of new sanctions and the publi- Therefore, even though no new sanctions have cation of an extensive and purely formal list of been introduced, they have partly achieved the members of the Russian business and political desired effects by creating an atmosphere of elites by the US administration has, on the one uncertainty and unpredictablity for the Kremlin. hand, been received in Russia with some relief. Russia’s future behaviour will depend on wheth- The Kremlin’s decisions and the actions taken by er and what kind of new sanctions the US gov- Russian businessmen have demonstrated that ernment will impose during the coming weeks Russia had been preparing itself for a ‘black and months. If Washington fails to impose sig- scenario’ of new, severe, and precisely targeted nificant new sanctions, or imposes merely sym- US sanctions. On the other hand, the Russian bolic ones, it will encourage Moscow to harden reactions reveal their continuing uncertainty its stance and become more assertive. Compre- regarding Washington’s intentions. The Krem- hensive and very painful sanctions, especially if lin is clearly unsure whether the US decisions introduced before the elections, could spur the represent a step back and a desire for a limit- Kremlin to respond aggressively and asymmetri- ed normalisation of relations with Russia (thus cally. In turn, painful but selective sanctions are revealing the relative weakness of the Ameri- likely to incline Moscow to make concessions, can government), or a sophisticated strategy especially with regard to regional conflicts. of keeping a constant threat over Russia’s head of increasingly tough sanctions that could be The US’s sanctions against Russia triggered at a time convenient for Washington. The Kremlin is obsessively worried that such Act No. 33641, adopted at the initiative of Con- sanctions might be introduced right before the gress, confirms all the previously introduced presidential elections in March, with the aim of destabilising the domestic political situation. 1 For the full text of Act No. 3364, see https://www.con- gress.gov/bill/115th-congress/house-bill/3364 OSW COMMENTARY NUMBER 259 1 sanctions against Russia and imposes new ones; and siblings. This part of the report is also said this not only makes it more difficult for Presi- to include assessments of Russian parastatal dent Donald Trump to lift them, should he wish entities, information about their management to, but also requires him to monitor and make structure and beneficial ownership and their periodic assessments of Russia’s behaviour, in international ties, as well as their significance order to consider imposing tougher sanctions for the Russian economy. The document also if the Kremlin perseveres with policies harmful allegedly presents the exposure of key sectors for American interests2. In accordance with the of US economy (in particular in banking, insur- requirements of this Act: ance, securities and real estate) to Russian po- • On 29 January 2018 (180 days after the act litical and business figures, and the parastatal comes into force), the US President sent Con- entities enumerated in the report. As suggest- gress a report on Russian parastatal entities ed by the US administration, the confidential (companies partially or entirely controlled by part may also contain the names of more Rus- the state) and members of the Russian busi- sian citizens. The presentation of this report to ness and political elite (Russian politicians and Congress did not mean the introduction of any oligarchs with close ties to Vladimir Putin, new sanctions against the Russian business and the Russian ruling elite, and members of their political elite, as underlined in the report itself. families). This report consists of two parts. The public part lists 210 individuals, includ- ing 114 Russian state officials: functionaries So far, President Trump’s administration of the President’s Administration, ministers, has not decided to introduce any new heads of government agencies, the speakers restrictions against Russia. of both chambers of Parliament, members of the Security Council, and the heads of the larg- est state-owned companies; as well as the 96 • Another report submitted to Congress on 29 richest Russians with fortunes that are valued January included an analysis of the potential at $1 billion or more3. 22 people from this list effects banning American entities from dealing have already been covered by individual sanc- in any new Russian sovereign debt . The report tions (i.e. a freeze of their assets in the United concludes that this type of restriction would States, a ban on American entities conclud- not only be a blow to the Russian economy, but ing any transactions with such persons or the would also affect American entities and have companies they control, and a ban on them negative consequences for the global financial entering the United States). The second part market. For the time being, the US administra- of the report – which is confidential – allegedly tion has decided not to take such steps. (in accordance with the requirements of Act • Act No. 3364 also obliged the President – at No. 3364) details the involvement of these per- any time starting on 29 January (i.e. 180 days sons in corrupt transactions, as well as the size after the act comes into force) – to impose and origins of their assets, including the finan- sanctions against persons engaging in ‘signifi- cial status of their spouses, children, parents cant’ transactions with the Russian intelligence, military and arms industry. In October 2017 the 2 For more on Act No. 3364, see I. Wiśniewska, S. Kardaś, administration had already specified 39 entities ‘Ustawa o amerykańskich sankcjach przeciwko Rosji’, in these sectors (of which 30 had already been OSW Analizy, 4 August 2017, https://www.osw.waw.pl/ pl/publikacje/analizy/2017-08-04/ustawa-o-amerykans- covered by US sanctions)4. The criteria under kich-sankcjach-przeciwko-rosji 3 For a complete list of the names listed in the public portion of the report: http://prod-upp-image-read. 4 For a complete list of entities: https://www.state.gov/t/ ft.com/40911a30-057c-11e8-9650-9c0ad2d7c5b5 isn/caatsa/275116.htm OSW COMMENTARY NUMBER 259 2 which these transactions will be considered political, military and special services (in March ‘significant’ have not been revealed. For the 2017); starting bilateral consultations concern- time being, the US administration has decided ing cyber-security; and an exchange of dec- not to exercise this option. larations between the two countries about In parallel with the sanctions against Russia not interfering in the other’s domestic affairs arising from Act No. 3364, the US Govern- (in July 2017). These proposals were rejected by ment is regularly updating the specially desig- Washington as insufficient. nated nationals and blocked persons list. For example, on 26 January 2018 these lists were expanded to include Russian companies and The Kremlin is obsessively worried that individuals associated with the delivery of Sie- the US might introduce sanctions to mens turbines to occupied Crimea, as well as destabilise the situation in Russia be- entities involved in trade (mainly steel and coal) fore the presidential elections. between the occupied Donbas region & Russia and other countries. However, Russian and US intelligence services Russia’s preventive actions and the military continued to maintain contacts in order to the fight against terrorism and to Act No. 3364, which obliges the US adminis- avoid incidents in Syria (the so-called ‘decon- tration to closely monitor the situation in Rus- fliction agreement’). In December 2017 Russia sia, and encourages it to implement successive announced that it had been able to prevent sanctions against that country, sparked huge a terrorist attack in St. Petersburg with the aid concern among the Russian business and po- of information obtained from the CIA. litical elite, as demonstrated by the actions It should be assumed that another element subsequently taken by the Kremlin and Russian of Russian policy aimed at persuading the oligarchs. The Kremlin has been clearly obses- United States not to introduce new sanctions, sively worried that sanctions would be imposed especially against the Russian secret servic- right before the presidential elections in March, es and enterprises in the armaments sector, which in their opinion would constitute a dest- was the unprecedented visit to Washington abilisation of the domestic political situation. at the end of January 2018 by three heads of In view of the above, the Kremlin has first of the Russian special services: Sergei Naryshkin, all tried to convince Washington of the need to the head of the Foreign Intelligence Service; normalise Russian/American relations, and of Aleksandr Bortnikov, the head of the Federal its readiness for constructive cooperation with Security Service; and Igor Korobov, the head the US, especially in the area of international of military intelligence (GRU).