Testimony of Assistant Secretary for Terrorist Financing and Monetary Crimes Elizabeth Rosenberg Earlier than the Committee on Banking, Housing, and City Affairs, U.S. Senate – Treasury

As Ready for Supply

Chairman Brown, Rating Member Toomey, and distinguished Members of the Banking Committee, thanks for the chance to talk with you at present and supply an replace on the Division of the Treasury’s efforts to carry Russia accountable for its brutal and unjustified additional invasion of Ukraine.

The U.S. Division of the Treasury is a key company working alongside others throughout the Administration to implement the U.S. authorities’s holistic response to Putin’s battle. Because the additional invasion started six months in the past, we’ve got been advancing President Biden’s promise to “squeeze Russia’s entry to finance and know-how for strategic sectors of its economic system and degrade its industrial capability for years to come back.”[1]

Simply final week, we imposed extra sanctions to additional degrade Russia’s capacity to rebuild its army, maintain the perpetrators of this battle accountable, and additional financially isolate Putin.  Thus far, Treasury has sanctioned a whole lot of Russian people and entities, chopping them off from the U.S. monetary system. This features a majority of Russia’s largest monetary establishments, key nodes of their military-industrial provide chains, and the oligarchs and cronies who steal from the Russian individuals to line their very own pockets and assist Putin perpetuate his battle. For instance, Treasury’s sanctions over the previous few months, together with our newest tranche final week, have focused elites tied to the Kremlin, companies related to Russian metal manufacturing and the military-industrial base, and sanctions evasion networks working on behalf of designated Russian entities. They’ve additionally uncovered Russian brokers and entities concerned with Russian authorities efforts to promulgate disinformation and election interference within the U.S. and Ukraine.

Treasury has additionally carried out restrictions on dealings in Russian sovereign debt; prohibited financial dealings with the so-called Donetsk Individuals’s Republic and Luhansk Individuals’s Republic areas of Ukraine; prohibited new funding within the Russian Federation, and imposed companies bans masking the supply of quantum computing, accounting, belief and company formation, and administration consulting companies to any individual situated within the Russian federation. We have now additionally imposed prohibitions on importing sure commodities from Russia into the USA, together with oil and pure fuel, and equally imposed prohibitions on exporting sure gadgets like luxurious items and dollar-denominated banknotes.

The US has been joined by over 30 nations—representing greater than half of the worldwide economic system—in imposing these measures. The G7, the EU, and different companions like South Korea, Singapore, and Australia have joined us in implementing the biggest sanctions regime in fashionable historical past. To enhance these focused measures, Treasury has labored alongside colleagues on the Division of Justice to develop unprecedented and wide-reaching worldwide data alternate actions with accomplice nations, together with by way of the Russian Elites, Proxies, and Oligarchs (REPO) Job Pressure. These efforts facilitate our capacity to share intelligence, legislation enforcement knowledge, and related monetary information to be able to expose shadowy financial and business Russian evasion networks. We’re additionally working with allies and the Authorities of Ukraine to look at how we might finest use Russian property which were frozen and forfeited to assist the individuals of Ukraine.

As well as, Treasury has mounted an aggressive marketing campaign to shut the worldwide monetary coverage and regulatory loopholes throughout jurisdictions that Russian aiders and abettors of this battle, and different criminals, use to perpetuate their illicit exercise. At house, this consists of three key regulatory efforts: FinCEN’s work to face up a useful possession database pursuant to the Company Transparency Act, growing new disclosure necessities for non-financed purchases of actual property, and ongoing evaluation associated to the illicit finance dangers offered by funding advisers and funds. FinCEN has additionally issued a number of Russia-related alerts, together with on Russia’s makes an attempt to evade sanctions.  Overseas, Treasury is working to strengthen international requirements for company transparency by way of the Monetary Motion Job Pressure (FATF) and improve its give attention to utilizing monetary transparency instruments to fight the scourge of corruption. This consists of launching new efforts on the FATF to handle abuse of Citizenship by Funding, or so-called golden passport packages, and the dangers for cash laundering, corruption, and evasion of sanctions posed by monetary gatekeepers and Politically Uncovered Individuals (PEPs).  Notably, FATF has additionally taken the unprecedented step of downgrading Russia’s standing inside FATF because of its battle in Ukraine, additional delegitimizing it within the eyes of the worldwide monetary neighborhood.

On the opposite facet, Russian propagandists have been arduous at work. Within the model of the previous Soviet Union, Moscow is aggressively making an attempt to bury any unfavorable information and push the paradoxical narrative—and misinformation—that sanctions are concurrently not working and but additionally trigger meals insecurity. Actually, Russia’s invasion spiked the value of vitality earlier this yr by 21 %. Russia’s months-long blockade of Ukraine’s Black Sea ports, coupled with the purposeful destruction and theft of agricultural infrastructure, crippled Ukraine’s farming and export economic system, dramatically drove up international grain costs, and outrageously disadvantaged food-insecure recipients of a lot wanted sources.  Its assaults on a serious meals exporter produced comparable shocks to international meals costs. To detract focus from its brutal ways, Russia continues to reduce the dislocations it has precipitated to international commodity markets and its inhumane deprivation of individuals in Ukraine and throughout the globe. 

This lies in stark distinction with the efforts of the U.S. and others to assist Ukraine and growing nations world wide affected by Putin’s actions. Foremost amongst these efforts are the Congressional commitments to supply Ukraine with price range assist and financial help to maintain important authorities features going. As well as, we’re pushing worldwide donors to speed up their complementary bilateral assist. We thank Congress for already granting $8.5 billion for Ukraine help that has gone towards these efforts.

The financial actions we’ve got taken, each independently and collectively with our worldwide companions, have had and can proceed to have a big impact on the Russian economic system. Russia had been pressured to impose draconian capital controls and is burning by way of its rainy-day fund, dramatically eroding its financial base and buffers in unsustainable methods. Russia will likely be in fiscal deficit by the top of this yr. The IMF expects Russia’s economic system will contract for no less than the subsequent two years, a pointy reversal from its 4.7 % progress in 2021.[2] Russia’s inflation price after its invasion reached as much as 21.3 %, nearly triple the speed from 2021, and stays within the double digits.[3] The Russian inventory market additionally displays pessimism—its valuation stays depressed, sitting about 35 % under pre-war ranges.[4] Additional, the Central Financial institution Governor of Russia has began to advocate for “structural transformation.” [5] The underside line is that Russia’s financial image is bleak and deteriorating.

Considerably, these financial constraints are translating into actual battlefield difficulties for Russia. The Russian Duma proposed wartime financial controls over the economic system which might permit the state to commandeer non-public companies as mandatory and pressure staff of sure enterprises to work time beyond regulation.[6] Struggling to import a number of commercial items and know-how, Russia has been pressured to cannibalize its home business to assemble battlefield {hardware} it could not purchase from accountable nations. Russia has been pressured to show to outdated tools and strategy international pariahs like North Korea and Iran to supply the instruments to combat.   

Essentially, the problem we face in utilizing monetary measures to carry Russia accountable whereas mitigating the consequences of the battle on third nations is of a special form than we face in different sanctions packages. Russia isn’t North Korea, Iran, or Venezuela. Furthermore, Russia is a sizeable worldwide economic system, a globally essential vitality producer, and over the past 30 years has grown intently tied—and in some situations inextricably intertwined—with a few of our closest worldwide companions and allies. Imposing monetary prices on Russia for its brutal insurance policies whereas mitigating the results of Russia’s actions has required extraordinary planning, coordination, financial evaluation and diplomacy, and inventive policymaking, all alongside a big group of worldwide companions.

In step with the 2021 Treasury Sanctions Assessment, we’re continually re-evaluating and reassessing our plan of action. We ask ourselves: Do our insurance policies obtain our meant objectives? How has the goal tailored to our measures? What changes do we have to make to extend our effectiveness and mitigate unintended penalties? How will we maintain and strengthen the worldwide coalition of nations working collectively to carry President Putin accountable for his horrific battle?

Examples of the actual time adjustment Treasury has made to our monetary insurance policies embrace the a number of reality sheets we’ve got issued simply this yr, together with Preserving Agricultural Commerce, Entry to Communication, and Different Help to These Impacted by Russia’s Struggle In opposition to Ukraine in April 2022 and the Meals Safety Truth Sheet printed in July 2022, which each supply expansive details about how sanctions are calibrated to keep away from unintended impacts in addition to to counter Russian disinformation. These public steering paperwork additionally make clear, in writing, to each business and the worldwide neighborhood that agricultural and medical merchandise aren’t the targets of U.S. sanctions. Quite, any impediments to the supply of those very important commodities lie squarely with Russia and its battle, theft of meals merchandise, and shelling of agricultural websites, along with Russia’s personal export restrictions on meals and fertilizer.

We have now additionally been keenly centered on Russia’s oil exports as we’ve got carried out our evolving coverage strategy to disclaim Russia the cash wanted to maintain its battle. At this level, these exports characterize Russia’s main supply of arduous forex. Furthermore, Russia is reaping windfall earnings from oil and petroleum merchandise as a result of rising vitality prices, spurred by the geopolitical uncertainty Russia attributable to selecting to pursue a land battle in Europe. We’re involved with the way in which vitality revenues gasoline Russia’s battle efforts however the international nature of the oil market requires a cautious strategy.

Vitality safety impacts us all—together with American households which have seen rising costs on the pump and elsewhere because the downstream results of rising vitality prices have utilized inflationary pressures throughout the economic system. Elevated vitality costs hit the poorest the toughest, in our nation and the world over. Merely put, making use of monetary strain to curb Russia’s windfall vitality earnings requires a special, artistic strategy to ensure that Russian coffers, not common residents in our economic system and the remainder of the world, bear the prices we impose. That problem—and the necessity for a fastidiously tailor-made coverage strategy—is pressing. We can not permit Russia to proceed to fund its atrocities, and we should do all we will to stop the recessionary dangers that observe prolonged painful, unaffordable vitality costs.

Our dedication to counter Russia’s vitality battle profiteering facilities on our effort—alongside a global coalition, starting with the G7 countries—to impose a “value cap” on maritime Russian oil and product exports. Finally, the value cap coverage is essentially the most viable choice to assist the safety and affordability of the worldwide oil provide.

The oil value cap mechanism is a instrument for different importers—primarily growing and rising economies struggling most because of Putin’s battle—to demand a lower cost for Russian oil that they buy. We’re already seeing this happen with Russia negotiating steep reductions for the oil it sells to consumers in Asia. These reductions are already depriving Russia of revenues it will in any other case use to finance its reckless battle.

As a technical matter, this coverage creates a framework for firms in price-cap-coalition nations providing companies for Russia’s maritime transport of oil: They’ll proceed to supply these companies for Russian oil priced under the cap, and will not for any Russian oil offered above that value. Provided that premium service suppliers and the vast majority of suppliers of some maritime companies—like insurance coverage, funds, and commerce finance—are situated in G7 and EU nations, there may be an awesome financial incentive for consumers to buy beneath the value cap to allow them to interact these service suppliers. Will probably be cheaper and fewer dangerous to maneuver Russian oil cargoes this manner. We are going to proceed to speak intently with service suppliers, as we’ve got already executed in growing this framework, to collectively, constructively, and aggressively maintain participation in and the success of this coverage.

However make no mistake: That is and can stay very arduous work. That is a wholly new manner to make use of monetary measures in opposition to a worldwide bully. A value cap coalition requires unprecedented coordination with worldwide companions, in addition to shut partnership with international maritime industries, and distinctive resolve within the face of hostile Russian bluster and threats, together with the chance that Russia might search to retaliate. I can inform you confidently that we at Treasury—and our companions throughout the U.S. Authorities—are terribly diligent in terms of these financial insurance policies and the dedication to in depth and inventive multilateral engagement. Furthermore, we’re laser-focused on the crucial to carry Russia accountable and assist the individuals of Ukraine, to continually perceive the chance surroundings, and to advance a international and monetary coverage that embodies our objectives and doesn’t bend to the rants and coercion of a brutal bully.

We all know that Russia’s battle in Ukraine isn’t the one problem for which the Treasury Division will likely be known as upon to behave. Different threats demand our consideration as nicely, and the illicit finance panorama continues to evolve. Moreover, whereas the U.S. greenback, U.S. monetary establishments and companies, and our capital markets are nonetheless dominant in worldwide finance and commerce, our adversaries are actively discovering methods to assault this centrality and insulate themselves from touchpoints with the U.S. monetary system. These are long-term challenges that we can not sanction ourselves out of. We should proceed to strengthen the U.S. monetary system and innovate new methods to make use of financial insurance policies and authorities to fulfill each our home and international coverage aims. The worth cap—a daring coverage by no means beforehand tried by the U.S. Treasury—is the vanguard for a brand new type of financial statecraft, and I’m proud to be part of the workforce pushing these boundaries within the curiosity of U.S. nationwide safety.

Lastly, I’d prefer to echo Secretary Yellen and Deputy Secretary Adeyemo’s sentiments from once they have been final right here and specific my gratitude for the extra sources Congress has offered within the Ukraine supplemental appropriations packages. Your well timed actions are what permit me and the devoted profession employees at Treasury to surge on this pressing nationwide safety precedence. The partnership between Congress and the Administration has all the time been essential to U.S. coverage towards Russia, sanctions, and responding to the disaster in Ukraine. I’d be completely happy to reply your questions and sit up for working with you as we transfer ahead. Thanks.

[1] https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/02/24/remarks-by-president-biden-on-russias-unprovoked-and-unjustified-attack-on-ukraine/

_{[2] https://www.imf.org/en/Publications/WEO/Issues/2022/07/26/world-economic-outlook-update-july-2022}

_{[3] https://www.cbr.ru/eng/press/keypr/}

_{[4] Knowledge from time sequence Moscow Inventory Alternate Index accessible right here: https://www.moex.com/}

_{[5] https://www.cbr.ru/eng/press/event/?id=14034}

_{[6] As reported by Russian media: https://tass.com/economy/1476563}