In the Gutter we will stay: US Senate Calls for Designation of Russia as a “State Sponsor of Terrorism” | Sanctions notes

August 8, 2022

On July 27, 2022, the US Senate unanimously passed a nonbinding, bipartisan resolution to designate the Russian Federation as a “State Sponsor of Terrorism” (SST). In parallel, a bipartisan group of members of the US House of Representatives introduced a bill on July 28, 2022 to designate Russia as an SST. See H.R.8568. These actions follow repeated, public calls for designation from Ukrainian President Zelenskyy and other US allies. The Biden Administration has thus far not taken any action in this regard, but the issue is likely to attract continued attention from US policymakers.

Designation of Russia as an SST would mark the first time that an economy as large and integrated into world markets as Russia would be targeted with an SST designation. The consequences of designation may include, among other things

The ability of US plaintiffs to obtain jurisdiction to bring civil suits against the Russian Federation in US courts for claims arising out of certain activities and, if successful, to execute any money judgments they receive against Russian sovereign assets in the United States; and
An expansion of the already historic prohibitions and restrictions on trade with Russia pursuant to US sanctions, US export controls, and other US regulatory regimes.

We provide further detail of these points below.

Background on “State Sponsors of Terrorism”

The US Secretary of State is empowered to designate a foreign nation as an SST under various statutory authorities. See 50 U.S.C. § 4813; 22 U.S.C. § 2371; 22 U.S.C. § 2780. While these authorities do not provide a single, unified definition of “international terrorism,” Section 1754(c) of the Export Controls Act of 2018 requires the Secretary to make a determination that (i) the government of the country in question “has repeatedly provided support for acts of international terrorism,” and (ii) that “[t]he export, reexport, or in-country transfer of such items could make a significant contribution to the military potential of such country, including its military logistics capability, or could enhance the ability of such country to support acts of international terrorism.” 50 U.S.C. § 4813(c)(1)(a).

There are currently only four states designated as SSTs, i.e., Cuba (re-designated in January 2021), North Korea (re-designated in November 2017), Iran (designated since 1984), and Syria (designated in in 1979).

Targeting Russian assets in the United States

The consequences of a designation as an SST are far-reaching. Some of the most significant consequences relate to the potential abrogation, in certain circumstances, of Russia’s sovereign immunity from litigation and enforcement of judgments against its sovereign assets in the United States.

Pursuant to the Foreign Sovereign Immunities Act (FSIA), foreign states are generally entitled to immunity from suit in US courts (unless one of the narrow, enumerated exceptions applies) and immunity from execution against their sovereign assets in the United States. As a practical matter, this means that plaintiffs can only sue a sovereign state such as Russia in limited circumstances and, if successful, may only execute against a limited set of Russian assets in the United States.

Section 1605A(a)(1) of FSIA states that a foreign state “shall not be immune” from civil suits where:

money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act if such act or provision of material support or resources is engaged in by an official, employee, or agent of such foreign state while acting within the scope of his or her office, employment, or agency.

28 U.S.C. § 1605A(a)(1).

Section 1605A(a)(2) in turn provides that a US court “shall hear a claim under this section if,’” for example, “the foreign state was designated as a state sponsor of terrorism” at the time that the alleged act under paragraph (a)(1), above, occurred, “or was so designated as a result of such act” and remained designated when the claim is filed or was designated six months prior to the filing of the claim, and the plaintiff is a proper plaintiff. 28 U.S.C. § 1605A(a)(2)(A)(i)(I), (ii) (emphasis added). In other words, Section 1605A(a) makes it mandatory for the court to hear the claim, provided the conditions are met.

Similarly, Section 1610(f) of FSIA strips sovereign assets of immunity from execution in the event that a plaintiff is successful in obtaining a judgment. Pursuant to Section 1610(f)(1)(A), “any property” of the foreign sovereign “with respect to which financial transactions are prohibited or regulated . . . shall be subject to execution or attachment in aid of execution of any judgment relating to a claim for which a foreign state (including any agency or instrumentality or such state) . . . .” 28 U.S.C. § 1610(f)(1)(A).

The only authorized plaintiffs are US nationals, members of the US military, and US government employees or contractors for the US government acting within the scope of their employment. However, depending upon the basis for any designation of Russia, the scope of potential litigation may be quite broad (e.g., the Senate resolution cites Russia’s actions in Chechnya, Georgia, Syria, and Ukraine as a basis for designation). See 28 U.S.C. § 1605A(a)(2)(A)(ii). Plaintiffs have obtained judgments totalling billions of dollars against other SSTs.

Other potential consequences of designation as an SST

In addition to the consequences under the FSIA, designation as an SST would generally broaden the scope of prohibitions and restrictions targeting Russia under US sanctions, US export controls, and other US regulatory regimes. Given the expansive restrictions that have been imposed since Russia’s invasion of Ukraine in February 2022, the additional restrictions that accompany designation as an SST may not substantially alter practices that companies have already put in place for compliance. However, as a commercial matter, the added stigma of dealing with an SST may have an impact (See e.g., the experience of Sudan prior to its de-designation as an SST on December 14, 2020).

Some of the trade-related consequences of designation as an SST include the following:

US immigration regulations provide that a “personal appearance” to obtain a visa “may not be waived” for certain categories of persons travelling to the United States, including “[a]ny nonimmigrant applicant who is from a country designated” as an SST. 22 C.F.R. § 41.102(e)(3).
Pursuant to Section 1754(c) of the Export Controls Act, an SST will be subject to additional licensing requirements under the Export Administration Regulations (EAR) for common commercial and dual-use goods. See 50 U.S.C. § 4813(c)(1)(A). Since the Bureau of Industry and Security (BIS) of the US Department of Commerce, the office that primarily administers US export controls, has already enhanced US export controls applicable to Russia to a level that may be described as one step short of an embargo, the additional licensing requirements may not have as noticeable an impact as the controls imposed earlier this year with the invasion of Ukraine.
Pursuant to Section 40 of the Arms Export Control Act (22 U.S. Code § 2780(a)), a complete ban will be imposed on exporting any items subject to the International Traffic in Arms Regulations (ITAR). See 22 C.F.R. § 126.1(c)(2). Since the level of exports to Russia under the ITAR is already likely to be low, the SST designation may not significantly alter the current situation as a practical matter. However, it is notable that Section 2780(a) calls for the suspension of delivery of any covered ITAR item and the termination of any covered lease or loan as soon as the country is designated an SST.
While it is likely that few Russian-owned or Russia-based entities currently have US federal contracts, we note that subcontracting with any firm that is “owned or controlled” by the government of a country that is a SST is prohibited, absent “compelling reasons.” See 48 C.F.R. § 209.405-2.
Pursuant to Section 620A of the Foreign Assistance Act, as amended, most aid would be prohibited. However, given the negligible quantity of aid that Russia received from the United States in the year 2020, the loss of such assistance is unlikely to be significant.

The above is not an exhaustive list, and an SST designation may have additional consequences depending upon the specific US regulatory regime at issue.

Removal from the SST list

One reason why the SST designation is rarely invoked may be because it is difficult to lift once imposed.

For example, pursuant to Section 1754(c)(4)(A) of the Export Controls Act, in order for the Secretary of State’s determination that a country is an SST to be rescinded, the President must certify to Congress that (i) there has been a fundamental change in the leadership and policies of the government of the country; (ii) the government is not supporting acts of international terrorism; and (iii) the government has provided assurances that it will not support acts of international terrorism in the future. 50 U.S.C. § 4813(c)(4)(A).

Alternatively, forty-five days before the President intends to de-list the country, the President must certify to Congress that (i) the government has not provided any support for acts of international terrorism during the preceding 6-month period; and (ii) the government has provided assurances that it will not support acts of international terrorism in the future. 50 U.S.C. § 4813(c)(4)(B).

Countries such as Sudan (2020), Libya (2006), Iraq (2004), and South Yemen (1990) were all removed from the SST list. Cuba was removed (2015) and relisted (2021), as was North Korea removed (2008) and relisted (2017). However, most of these delisting were achieved following a regime change. In the absence of regime change, it is unclear whether the criteria for delisting could be met.

The President may also waive the restrictions imposed under the various statutes, but only with respect to a specific transaction and only if the President determines the transaction is “essential to the national security of the United States.”

Source: US Senate Calls for Designation of Russia as a “State Sponsor of Terrorism” | Sanctions notes

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Hi Ho, Hi Ho off to the Gutter we go…

WtR

A survivor of six heart attacks and a brain tumor, a grumpy bear of a man, whom has declared Russia as his new and wonderful home. His wife is a true Russian Sweet Pea of a girl and she puts up with this bear of a guy and keeps him in line. Thank God for my Sweet Pea and Russia.