Back to General Resources

SBC Treasury Sanctions Hearing

Senate Committee on Banking, Housing, and Urban Affairs

International Policy Update: The Treasury Department’s Sanctions Policy Review and Other Issues

Tuesday, October 19, 2021

Witnesses

  • Wally Adeyemo, Deputy Secretary, U.S. Department of the Treasury

Opening Statements
Chairman Sherrod Brown (D-Ohio)
In his opening statement, Brown discussed the situation in Afghanistan and the need to provide aid despite sanctions. He outlined five guiding bipartisan principles on sanctions including: (1) sanctions done on a multilateral basis whenever possible, (2) preserving humanitarian exceptions, (3) maintaining clear targets, goals, and objectives, (4) regularly assessing the effectiveness of sanctions, and (5) empowering public servants charged with sanctions enforcement.

Ranking Member Pat Toomey (R-Penn.)
In his opening statement, Toomey criticized the Biden Administration’s sanctions strategy on Iran and Russia, the Organization for Economic Cooperation and Development (OECD) tax agreement, the Financial Stability Oversight Council’s (FSOC) climate risk report.

Testimony
Wally Adeyemo, Deputy Secretary, Department of the Treasury
In his testimony, Adeyemo discussed international tax system reforms and said countries compete too often over who can offer the lowest tax rate rather than who has the most innovative ideas, the strongest workforce, or the best infrastructure, leading to many companies moving production and jobs offshore to take advantage of tax loopholes and increasing their profits at the expense of American workers. He said currently, more than 135 countries have signed onto a reform framework that would set a global minimum tax of at least 15 percent. Adeyemo then discussed the sanctions policy review and its findings which suggest (1) the Administration must use sanctions in coordination and collaboration with our allies, (2) Treasury must modernize its sanctions infrastructure, technology, and workforce to adapt to evolving threats from cybercriminals and ransomware, and (3) we must take further steps to minimize the collateral costs of sanctions, such as those on domestic groups (small businesses and community banks) as well as international ones.

Question & Answer
IRS Bank Reporting Requirement
Sen. Tim Scott (R-S.C.) expressed many concerns surrounding the IRS bank reporting proposal and said if they are looking for tax cheats, this is a terrible way to go about it. Adeyemo said the goal is for wealthy taxpayers to pay the taxes they owe as the top one percent of income earners fail to pay many taxes every year, and that the President is seeking to level the playing field. Scott said a threshold of $600 or $10,000 captures nearly every American. Adeyemo said the President is willing to work with Congress on the threshold.

Sen. Elizabeth Warren (D-Mass.) asked Adeyemo different hypotheticals about the tax payment of wealthy individuals, and Adeyemo highlighted the loss of tax revenue from top earners. Warren, through a series of hypotheticals, asked if the current bank reporting proposal would include individual transactions. Adeyemo said no. Warren asked Adeyemo why bank lobbyists are pushing back on the proposals, and Adeyemo said that those who seek to avoid pay their fair share will do whatever they can to avoid taxation.

Pillar One
Toomey asked if the Administration intends to bypass the Senate’s treaty approval process to implement Pillar One of the tax agreement. Adeyemo said they look forward to working with Congress on the international tax agreement, and though it is not completed yet, he said the American business community is supportive of Pillar One for creating a level playing field. Toomey said Pillar One was the motivation for countries to agree to Pillar Two, so if there is reason to doubt Pillar One, we are unlikely to ever reach Pillar Two. He added that before a tax increase is implemented on American multinationals, to pause and get it figured out. Adeyemo said other European countries have higher minimum taxes than the U.S. and are committed to increasing the global minimum tax.

China’s CBDC
Sen. Jerry Moran (R-Kans.) said China is on its way to issuing a CBDC and that he is concerned it will be used to evade U.S. sanctions and fund authoritarian regimes, and asked what steps are being taken to mitigate these attempts. Adeyemo said the best way to maintain the dollar’s role in the world is by making investments at home, and for any currency to have staying power, it needs to be permitted to be used outside of that country going forward. He added that while it is hard to get around the dollar-based financial system, it is even harder to get around the Euro, Pound, and Yen, and that taking actions together puts us in a better position to hold adversaries accountable.

Yuan versus USD
Sen. Steve Daines (R-Mont.) mentioned China trying to strengthen the Yuan and asked how to ensure our sanctions policy does not risk the centrality of the USD and U.S. payment networks. Adeyemo said they need to think about how to enhance the dollar-based financial system and work more with our allies and partners to ensure they remain bought into that system. Adeyemo added that China is finding ways around the financial system to avoid sanctions, so our sanctions policy needs to be part of a clearly defined strategy. Sen. Jon Tester (D-Mont.) asked what the most effective way is to address China’s currency manipulation. Adeyemo said we can make U.S. investments, like the infrastructure bill, and hold China accountable by working multilaterally with our allies.

China’s Anti-Foreign Sanctions Law
Daines mentioned the new anti-sanctions laws and asked how China’s decision to not extend these laws into Hong Kong informs our own strategy for deterring aggression and assuring our allies in the South Pacific. Adeyemo said this is why it is critical to look for every opportunity to do sanctions multilaterally.

Hong Kong
Sen. Chris Van Hollen (D-Md.) asked if Treasury can identify any institutions that facilitate the transactions of the individuals Treasury has applied Hong Kong sanctions to. Adeyemo said Treasury has not found financial institutions of that kind but that is important to raise the cost of actions that would trigger sanctions.

Cryptocurrency and Ransomware
Brown and Tester asked if cryptocurrency has changed how Treasury deals with sanctions. Adeyemo said cryptocurrency has required Treasury to take certain actions in response to certain crypto actors and ransomware and discussed the importance of having a workforce that understands crypto and ransomware threats. Sen. Bill Hagerty (R-Tenn.) asked how the Administration will continue to lead in the digital assets arena in a way that protects against the criminal activities being discussed. Adeyemo said innovation is something that has been good for our economy, and we need to create an environment that allows innovation to exist but also make sure regulatory rules will protect consumers and national security.

Sens. Catherine Cortez Masto (D-Nev.) and Brown asked what the U.S. government recommends for businesses to address and prevent against ransomware attacks, and possible international cooperation. Adeyemo stressed the need for companies to improve their cybersecurity and that once attached, companies should immediately contact the FBI. Adeyemo added that Treasury’s goal is to disrupt international ransomware actors and ensure that other countries are taking action as well. Cortez Masto asked if sanctioning crypto makes it riskier for firms to pay ransoms. Adeyemo said paying ransoms is risky and that Treasury is committed to using all of its tools to address ransomware attacks.

Russia Pipeline Sanctions
Toomey said sanctions seem increasingly optional and asked why they have been imposed on Gazprom but not Nord Stream 2, arguing Gazprom created Nord Stream 2 to evade sanctions. Adeyemo said he agrees they need to do everything they can to implement the Countering America’s Adversaries Through Sanctions Act (CAATSA). Sen. Kevin Cramer (R-N.D.) asked why these sanctions have been lifted. Adeyemo said Treasury is looking for any evidence possible to use mandatory sanctions where they can.

North Korea
Van Hollen asked if Treasury has identified any institutions violating the North Korea sanctions regime under the BRINK Act. Adeyemo said that while Treasury has not identified any institutions under the Act, the agency appreciates the authority Congress has given it, and will take action as they find institutions that fit within the Act.

Institutional Cooperation
Sen. Bob Menendez (D-N.J.) asked whether Treasury would consider a joint sanctions effort with the U.S. State Department (State) moving forward, and Adeyemo confirmed ongoing plans for a joint effort.

Humanitarian Assistance
Sens. Jack Reed (D-R.I.) and Brown asked what new steps Treasury should take to reduce harm to humanitarian aid efforts. Adeyemo explained ways Treasury has met on a regular basis with humanitarian groups in Afghanistan, issued licenses for them, and taken steps to make clear to humanitarian groups that Treasury wants to ensure the flow of humanitarian assistance. Cortez Masto asked Adeyemo to expand on the sanctions review recommendation for careful calibration to limit the impact of sanctions on humanitarian aid. Adeyemo said Treasury intends to find ways to create exceptions for humanitarian assistance early on and work with financial institutions to allow for that assistance. Reed asked who is monitoring the flow of assistance. Adeyemo said Treasury is working with State and the United Nations.

For more information on this hearing, please click here.