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CAATSA Sanctions and India

Dr. G. Balachandran was a Consulting Fellow at the Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • September 26, 2018

    Ever since the Countering American Adversaries Through Sanctions Act (CAATSA) was enacted on August 2, 2017, there had been much speculation in India about its potential impact on India-Russia defence relations especially in the context of India’s possible purchase of the S-400 missile system. That was because CAATSA was enacted to punish Russia by sanctioning persons engaging in business transactions with the Russian defence sector. It was felt that CAATSA sanctions would make difficult payments in US Dollars to Rosoboronexport for the S-400 purchase. Although CAATSA, meant to discourage exports of Russian defence equipment, was enacted more than a year ago, there were no CAATSA related sanctions until last week even though Rosoboronexport, the export arm of the Russian defence industry, had already concluded contracts worth more than USD eight billion this year.

    All this changed on September 20, when the US imposed CAATSA sanctions on a Chinese entity, the Equipment Development Department (EDD) of China’s Central Military Commission (CMC), and on its Director. The sanctions were in response to China’s purchase of Su-35 aircraft and the S-400 system. CAATSA had not specified any specific sanctions, only that five or more sanctions from a list of 12 had to be imposed on the person whom “the President determines, knowingly engaged in a significant transaction” with a person who is a part of Russia’s defence sector, in this case Rosoboronexport.

    What conclusions can be drawn from this episode in the event India decides to buy the S-400 from Russia? The conclusions are stark. 11 of the 12 prescribed sanctions will have little or no effect on India’s current dealings with Rosoboronexport, and hence on India-Russia defence relations. However, the twelfth sanction has the potential to completely derail the India-US Defence and Strategic Partnership unless the sanction were to be waived. This needs some elaboration and explanation.


    CAATSA is a specifically enacted legislation. Its “ultimate goal”, in the words of a senior State Department official, “is to prevent revenue from flowing to the Russian Government.” Towards that aim, the sanctions were meant to deter “significant transactions,” a term that the legislation had left undefined. However, in announcing the sanctions on EDD, the US Government classified the purchase of the S-400 system as a “significant transaction.”

    Therefore, India’s purchase of the S-400 system from Russia would also be regarded as a significant transaction and invite mandatory sanctions.

    Indian analysts, and reportedly the Indian Government as well, had hoped for a waiver from such an application of sanctions. While it is true that CAATSA had provided for the waiver of the ‘initial application’1 of the sanctions, it would have been difficult for any President to issue a certification, to be submitted to the US Congress for such a waiver, that “the Government of the Russian Federation has made significant efforts to reduce the number and intensity of cyber intrusions conducted by that Government.”

    Therefore, there would be no waiver of the initial application of the sanctions as desired by India.

    The sanctions, as stated, are to be imposed on the person “who knowingly engaged in a significant transaction.” In the case of China, it was the EDD which is responsible for managing procurements of the Chinese military.

    Who in India would be determined as the person who “knowingly entered into the transaction” for the S-400?

    It could either be (i) The Defence Acquisition Council (DAC) headed by the Defence Minister, or (ii) The Defence Procurement Board (DPB) headed by the Defence Secretary. The choice of person to be sanctioned would be made by the US President or the Secretary of State or the Secretary of Treasury who have been delegated these powers.

    What sanctions will be imposed?

    Section 231 of CAATSA does not specifically identify any particular sanction. It merely requires the President to “impose five or more of the sanctions described in section 235 (of CAATSA)”. That section lists 12 types of sanctions. Of these, 10 will have very little, or no, impact on India’s current relations with either Russia or the US. Some of these are:

    • prohibition on loans to the sanctioned person [sec. 235(a)(3)];
    • prohibition of Export-Import bank assistance for exports to sanctioned persons [Sec. 235(a)(1)];
    • prohibition on procurement by United States Government to procure goods or services from the sanctioned person [Sec. 235(a)(6)];
    • denial of visas to persons closely associated with the sanctioned person [Sec. 235(a)(11) and (12)], etc.

    None of these is of any material consequence. There are only two sanctions that may impact either India-Russia relations or India-US relations.

    The first of these, which is likely to have an impact on India-Russia relations, is the “Prohibition of Banking transactions” [Sec. 235(a)(8) of CAATSA]. Under this, the Secretary of the Treasury would prohibit the opening, and prohibit or impose strict conditions on maintaining, in the United States of correspondent accounts or payable-through accounts of Financial Institutions engaged in transfer of funds from the sanctioned person to the Russian defence sector. This would mean difficulties for India in making payments in US Dollars to Rosoboronexport for the purchase of the S-400 systems.

    The second sanction will have far greater consequences, not for India-Russia relations, but for India-US relations. And that is the “Export sanction” [Sec. 235(a)(2)], which has the potential to completely derail the India-US Strategic and Defence partnership, as it will deny the license for, and export of, any items controlled by the US to the sanctioned person under

    1. the Export Administration Act (EAA) (all dual-use high technology goods and technology);
    2. the Arms Export Control Act (AECA) (all defence related items);
    3. the Atomic Energy Act (AEA) (all nuclear related items); and
    4. all other items from the US requiring prior review and approval of the United States Government.

    Since neither the Defence Acquisition Council nor the Defence Procurement Board would apply for any license controlled by either the EAA or AEA, the denial of such licenses will have no impact. However, the denial of licenses under the other two heads will stop all commercial or FMS sales of major military equipment and systems to India. Therefore, if either the DAC or DPB, and it is a big if, were to be sanctioned under Sec. 235(a)(2), it will effectively bar India from buying any major defence equipment from the US. That will effectively put a stop to any Defence and Strategic Partnership between India and the US. The MDP (Major Defence Partner) designation would lose its relevance in that context.

    This will not, however, bar India from obtaining spares and replacements for the items already in the Indian inventory.

    It may therefore become necessary for the US to either not include these two types of sanctions on the DAC/DPB or give India a waiver from these sanctions.

    However, even if the President were to exercise the waiver authority, it would not in any manner whatsoever relieve any of India’s problems on payments to Rosoboronexport. That is because Rosoboronexport faces exactly identical multiple sanctions under various other legislative Acts and Executive Orders. These are:

    1. Executive Order 13582 of August 17, 2011: On April 6, 2018, Rosoboronexport was designated under E.O. 13582 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the Government of Syria inviting financial sanctions as described above. E.O. 13582 has no waiver option.
    2. Section 5 of the Ukraine Freedom Support Act of 2014: Rosoboronexport had been specifically designated under Section 4 of UFSA for sanctions relating to the defence sector. Section 5 dealt with financial sanctions on Financial Institutions knowingly facilitating financial transaction on behalf of Rosoboronexport. While sanction under Section 5 was optional, Section 226 of CAATSA amended Section 5 of UFSA and made mandatory the sanctions in that section which were previously discretionary. However, this sanction can be waived by the President under Section 236 of CAATSA by making a “determination that such a waiver is in the national security interest of the United States.”

    Therefore, even if the President were to exercise the waiver authority granted by the National Defense Authorisation Act (NDAA) 2019 and CAATSA, the problems faced by India in transferring payments to Rosoboronexport will still persist under E.O. 13582.

    However, including the “Export sanction” in the menu of sanctions imposed on the DAC/DPB will compulsorily require a waiver of the CAATSA sanction if the India-US strategic partnership is to survive.

    We thus have a paradoxical situation. For 11 of the 12 sanctions mentioned in Sec. 235 (a), it makes no difference whether or not a waiver is issued. For the twelfth (namely Export Sanctions), a waiver is absolutely essential to maintain the momentum of India-US relations.

    CAATSA has provided the President two mechanisms through which a waiver can be issued. Sec. 236(b) of CAATSA (“Waiver of Sanctions that are Imposed”) or Sec. 231(d) (“Modified Waiver Authority for Certain Sanctionable Transactions under Section 231 of CAATSA”). It is not clear why the US Congress chose to add Sec. 231(d) to CAATSA (through the National Defence Authorisation Act 2019), since waiver through that section has the potential to cause some heartache in India as it requires the President to certify that the government (of India) with primary jurisdiction over the person (in this case the DAC/DPB) —

    ‘‘(i) is taking or will take steps to reduce its inventory of major defense equipment and advanced conventional weapons produced by the defense sector of the Russian Federation as a share of its total inventory of major defense equipment and advanced conventional weapons over a specified period; or

    ‘‘(ii) is cooperating with the United States Government on other security matters that are critical to United States strategic interests.”

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

    • 1. Initial application refers to the first application of sanctions after the determination has been made.