President Trump has issued an Executive Order (EO) "Imposing Certain Sanctions in the Event of Foreign Interference in a United States Election,"1 effective September 12, 2018. The EO authorizes the imposition of sanctions on parties determined to have interfered in or undermined public confidence in United States elections, including through the unauthorized accessing of election and campaign infrastructure or the covert distribution of propaganda and disinformation.
The new authority in the EO complements the existing designation authority in EO 13694 of April 1, 2015, as amended by EO 13757 of December 28, 2016, which provides for the designation on the Specially Designated Nationals and Blocked Persons List (SDN List) of parties determined to be responsible for or complicit in, or to have engaged in, directly or indirectly, malicious cyber-enabled activities. EO 13757 specifically lists among actions defined as malicious cyber-enabled activities the tampering with, altering, or causing a misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions. The EO states in the preamble that "there has been no evidence of a foreign power altering the outcome or vote tabulation in any United States election."
This EO has been issued against the backdrop of currently pending legislation entitled the "Defending Elections from Threats by Establishing Redlines Act of 2018," or DETER Act, which has garnered bipartisan support. Under the DETER Act, a determination by the Director of National Intelligence (DNI) that the Government of the Russian Federation has interfered in a US election would trigger mandatory sanctions on certain sectors of the Russian economy, including finance, energy, defense, metals and mining, and on certain Russian "political figures and oligarchs". The co-sponsors of the legislation, Senators Rubio and Van Hollen, have released a statement in the wake of the EO stating that the EO "recognizes the threat, but does not go far enough to address it." They further state that "[m]andatory sanctions on anyone who attacks our electoral systems serve as the best deterrent, which is the central tenet of the bipartisan DETER Act." The Senators therefore are urging Congress to swiftly approve the DETER Act, despite the issuance of the EO.
Assessment and Report
Under the EO, the DNI will have 45 days after each election to assess whether any foreign interference occurred. The DNI will then deliver its assessment to the President, the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the Attorney General and the Secretary of Homeland Security. At that point, the Department of Homeland Security and the Justice Department will have 45 more days to prepare and deliver a report to the President and relevant
- the extent to which any foreign interference that targeted election infrastructure materially affected the security or integrity of that infrastructure, the tabulation of votes, or the timely transmission of election results; and
- If any foreign interference involved activities targeting the infrastructure of, or pertaining to, a political organization, campaign, or candidate, the extent to which such activities materially affected the security or integrity of that infrastructure, including by unauthorized access to, disclosure or threatened disclosure of, or alteration or falsification of, information or data.
The Secretary of the Treasury shall review the DNI assessment and subsequent report, and, in consultation with the Secretary of State, the Attorney General, and the Secretary of Homeland Security, impose "all appropriate sanctions" pursuant to the EO.
The EO provides for the designation on the SDN List of foreign persons determined:
- to have directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in a United States election;
- to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any such interference or any person whose property and interests in property are blocked pursuant to the EO; or
- to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property or interests in property are blocked pursuant to the EO.
For parties designated on the SDN List, all of their property and interests in property located in the United States or within the possession or control of a US person2, wherever located, are considered blocked and may not be dealt in. Any entity in which one or more blocked persons directly or indirectly holds a 50 percent or greater ownership interest in the aggregate is itself considered blocked by operation of law. US persons may not engage in any dealings, directly or indirectly, with blocked persons.
The triggers for designation in the new EO mirror the designation criteria in EO 13694 of April 1, 2015, as amended by EO 13757 of December 28, 2016, which states "any person determined … to be responsible for or complicit in, or to have engaged in, directly or indirectly, cyber-enabled activities originating from, or directed by persons located, in whole or in substantial part, outside the United States that are reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that have the purpose or effect of … tampering with, altering, or causing a misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions." Both EO 13694 and EO 13757 remain in effect.
The new EO also provides the State Department and the Treasury Department, in consultation with other agencies, with the ability to recommend further sanctions with respect to the largest business entities in the country whose government authorized, directed, sponsored or supported election interference, including at least one entity from each of the following sectors:
- Financial services
The recommended sanctions may include one or more of the following with respect to each targeted foreign person:
- blocking and prohibiting all transactions in a person's property and interests in property subject to United States jurisdiction;
- export license restrictions under any statute or regulation that requires the prior review and approval of the United States Government as a condition for the export or re-export of goods or services;
- prohibitions on United States financial institutions making loans or providing credit to a person;
- restrictions on transactions in foreign exchange in which a person has any interest;
- prohibitions on transfers of credit or payments between financial institutions, or by, through, or to any financial institution, for the benefit of a person;
- prohibitions on United States persons investing in or purchasing equity or debt of a person;
- exclusion of a person's alien corporate officers from the United States;
- imposition on a person's alien principal executive officers of any of the sanctions described in this section; or
- any other measures authorized by law.
Prior to the new EO, members of Congress introduced legislation separately to address election interference as part of the DETER Act.
The DETER Act would require the DNI to determine, within 30 days after a US election, whether the government of a foreign country knowingly engaged in interference in that election. If the DNI determines that the foreign country that knowingly engaged in interference was the Government of the Russian Federation, the President would be required to take the following actions within 10 days after the determination:
- Block the assets or restrict correspondent/payable-through accounts of certain specified state-owned Russian financial institutions;
- Block the assets of (1) certain specified Russian energy companies; (2) certain entities in the Russian defense and intelligence sectors; (3) certain Russian state-owned entities in the railway, metals and mining, or aerospace sectors; and (4) certain entities acquired by Russian state-owned entities;
- Prohibit transactions involving certain Russian debt;
- Block the assets of senior Russian "political figures and oligarchs" identified by the Treasury Department pursuant to the Countering America's Adversaries Through Sanctions Act of 2017 (CAATSA), and prohibit those individuals from entering the United States.
The imposition of these sanctions would be mandatory following an affirmative determination of Russian Government interference in a US election, whereas many of the sanctions envisioned in the EO (e.g., on the financial services, defense, energy, technology, and transportation sectors) are discretionary. Additionally, the DETER Act does not provide for any waiver of the sanctions.
Proponents of the DETER Act have urged Congress to approve the legislation notwithstanding the issuance of the EO. The legislation is still in early stages in Senate Committees despite being introduced in January 2018, but was discussed during recent hearings on September 12, 2018 before the Senate Committee on Banking, Housing, and Urban Affairs, suggesting that the legislation may be picking up momentum. However, at this stage it is uncertain whether Congress will approve or even vote on the legislation.
In the event of blocking designations and the imposition of other sanctions measures under the new EO, the number of US sanctions targets will increase. Such measures will place additional importance on screening transaction parties and their ownership structures for US sanctions risk. Failure to do so may result in non-compliance and could result in severe penalties for sanctions violations.
1 The text of the Executive Order is available here: https://www.whitehouse.gov/presidential-actions/executive-order-imposing-certain-sanctions-event-foreign-interference-united-states-election
2 US persons are defined to include US citizens and permanent residents, wherever located; entities organized under US law, including foreign branches; and any person located in the United States.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2018 White & Case LLP