The Defending American Security From Kremlin Aggression Act – What’s the Impact?

  • The act imposes sanctions on Russian banks, like VTB.
  • The sanctions are against Russian sovereign debt, but only newly issued bonds.
  • The act simplifies the procedure for the US to transfer weapons to NATO member nations.

The US Senate approved additional anti-Russian sanctions. The Defending American Security from Kremlin Aggression Act was introduced by Sen. Lindsey Graham (R-SC) back in February 2019.  US President Donald Trump is forced to put restrictions on Russian Sovereign debt but it is only applicable to newly issued bonds.  It is possible Trump will veto the Defending American Security from Kremlin Aggression Act.

Sen. Lindsey Graham (R-SC).

Furthermore, the act has outdated paragraphs, especially one pertaining to the release of Ukrainian sailors by Russia. The two countries already made a swap on September 7, 2019 and the 24 Ukrainian sailors in question have already been released. There are sanctions against 24 FSB employees involved in the Kerch Canal issue. The Federal Security Service of the Russian Federation is the principal security agency of Russia and the main successor agency to the USSR’s KGB.

There are calls for President Trump to publicly demand the return of Crimea to Ukraine. The Crimean peninsula was annexed by the Russian Federation between February and March 2014.

The legislation implements sanctions against individuals investing in Russian projects outside of the country. The threshold would be anything over $1 million invested within a calendar year. Russian sovereign debt is impacted as well as parties investing in Russian crude oil. The document also includes energy and shipbuilding industries, as well as impacting Russian banks. One of the banks is Putin’s bank VTB, one of the leading universal banks of Russia. VTB Bank and its subsidiaries form a leading Russian financial group – VTB Group.

The act also contains a clause creating multiple steps before the US can leave NATO. It will require two thirds of senators to approve the proposal to leave. Nevertheless, the act provides a simplified procedure for weapons transfer by the US to the NATO member nations. President Trump, under the act, is expected to impose sanctions against Russian politicians and oligarchs, who aide corruption and support cyber warfare activities outside of Russia.

It is speculated the Act will not have Trump’s support. This is the second time since 2018 such an initiative has been proposed and thus far it has not been successful. The US Chamber of Commerce sent a letter this week to the Senate expressing their concerns about the impact of these types of sanctions on US businesses. The letter says the bill would:

Red Square in Moscow.

“Institute a broad ban on Russian sovereign debt that would prohibit U.S. banks from purchasing ruble-denominated bonds, which would limit the ability of these U.S. banks to serve their U.S. corporate clients operating in Russia. Basic operations relating to payroll and vendor payments would become impossible. While intended to impose constraints on the Russian government, the legislation would have little effect on its ability to secure funds in global markets—given the Russian government’s strong foreign exchange and gold reserves—while severely harming U.S. companies’ operations in Russia.

Force US firms to divest from energy projects outside Russia in the event a Russian entity acquires even a small minority stake, which would force termination of U.S. participation in more than 100 such projects around the world and obligate U.S. firms to leave their non-portable assets and investments behind or sell them suddenly at deeply discounted prices. This measure would create a uniquely harmful new tool for U.S. competitors to target American firms.

Jeopardize U.S. business operations in Russia by sanctioning transactions with Russian parastatal entities that are not clearly defined. It lacks an exception for essential transactions necessary for U.S. firms to continue to operate in Russia, including payments for basic governmental functions such as business registration, inspection, notification, and certification of commercial operations, the use of rail and air cargo services, and basic financial operations such as invoice processing and payment of salaries and utilities.”

In conclusion, it is clear the Act will also cause a negative impact on US businesses and definitely needs to be refined, to minimize the impact on the US economy, even though certain sanctions are necessary against Russia.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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