Back to General Resources

Advancing National Security and Foreign Policy Through Sanctions, Export Controls, and Other Economic Tools

Senate Committee on Banking, Housing, and Urban Affairs

Advancing National Security and Foreign Policy Through Sanctions, Export Controls, and Other Economic Tools

Tuesday, February 28, 2023

Topline

  • The Chair, Ranking Member, and witnesses discussed outbound investment screening and export controls.
  • The hearing also focused on Russia’s invasion of Ukraine and the effectiveness of the U.S. economic response.
  • Witnesses and members highlighted how this experience could impact the U.S. approach to China and other nations.

Witnesses

  • Daleep Singh, Former Deputy National Security Advisor For International Economics, And Former Deputy Director, National Security Council, and National Economic Council
  • The Honorable Clay Lowery, Former Assistant Secretary For International Affairs, And Former Director Of International Finance, U.S. Department of the Treasury, and National Security Council
  • The Honorable Kevin Wolf, Former Assistant Secretary Of Export Administration, U.S. Department of Commerce

Opening Statements

Chairman Sherrod Brown (D-Ohio)

In his opening statement, Brown noted that the U.S. and its allies have responded to Putin’s war through significant sanctions and export controls that have been imposed to ensure that Russia bears the full cost of the criminal invasion. He added that Putin’s actions are forcing Russia to mortgage its economic future to save face. Next, the Chair remarked that Presidents in both parties have failed us on China, despite the fact that it has been obvious that China poses a real threat to U.S. economic security.

He argued that whether it relates to IP theft, human rights abusers, or foreign traffickers of fentanyl, the U.S. needs a robust economic policy to deter and disrupt behavior that hurts national security interests. He said that the Banking Committee led reforms to strengthen the investment screening process conducted by the Committee on Foreign Investment in the United States (CFIUS) and provided permanent statutory authority for the Bureau of Industry and Security (BIS) to administer and enforce the export control system.

Ranking Member Tim Scott (R-S.C.)

Scott opened by saying that preserving the U.S. status as a world leader requires continually honing and sharpening economic security tools to preserve and protect the role of America at home and abroad. He said that the tailored use of sanctions can be an effective foreign policy and national security apparatus but noted that unfortunately these tools have been wielded “as hammers instead of scalpels.” Furthermore, Scott argued that the Biden Administration’s failure to enforce existing sanctions has manifested as weakness. Instead of using American oil and natural gas resources to aid European allies, he claimed, the Administration restricted American energy production to promote liberal climate policies.

Finally, Scott said that when looking at tools like export controls and the investment screening process, the goal should be a holistic approach that combats economic aggression. He argued that the CCP has enacted laws to facilitate the theft and unfair treatment of American innovation and added that export controls are needed to ensure sensitive technologies are not shared with foreign adversaries. Scott concluded by stating that economic security requires precision and strength.

Testimony

Mr. Daleep Singh, Former Deputy National Security Advisor For International Economics, And Former Deputy Director, National Security Council, and National Economic Council

In his testimony, Singh addressed the goals, impacts, and lessons learned from U.S. sanctions against Russia and noted five channels that stood out. The first was the delivery of a capital account shock by denying capital to or transactions with the largest Russian banks. Second was the denial of cutting-edge technology to Putin. The third pillar was the removal of Russia’s privileges in the global economy. The fourth relates to the downgrade of Russia’s position as a leading energy supplier by shutting down its prized Nord Stream 2 pipeline, banning imports of Russian energy, undercutting revenues through a novel oil price cap, and speeding up the transition to renewables. And fifth was the launch of a global campaign to expose and hold to account Russia’s kleptocrats.

Finally, Singh promoted four actions to control the global narrative and prepare for what is ahead in the war, including articulating a doctrine of economic statecraft, building an analytical infrastructure that takes economic statecraft seriously, stress test tools of economic statecraft, and balancing the increased use of sanctions with an even greater emphasis on statecraft that offers mutual economic gain.

The Honorable Clay Lowery, Former Assistant Secretary For International Affairs, And Former Director Of International Finance, U.S. Department of the Treasury, and National Security Council

In his testimony, Lowery discussed consideration by the Administration and Congress to use an outward-bound investment screening mechanism to influence the economic relationship with China. He explained that the objective of CFIUS is to ensure national security while promoting foreign investment and said a few lessons that can be drawn for action on outward-bound investment. Specifically, he said not to use vague and ill-defined terms, avoid duplicating existing authorities, and understand that there is a resource burden on the Executive Branch that makes implementation difficult. Finally, Lowery said Congress must realize that placing government controls on private sector transactions is likely to harm competitiveness and may prove counterproductive to national security.

The Honorable Kevin Wolf, Former Assistant Secretary of Export Administration, U.S. Department of Commerce       

In his testimony, Wolf argued that allied export control systems generally cannot address contemporary national security issues such as strategic competition concerns, miliary civil fusion policies, human rights abuses, supply chain security, and the need to promote democracy. He recommended that Congress support the Administration’s efforts to work with allies to develop and articulate a significantly expanded vision for export controls to address contemporary strategic national security and human rights objectives that are outside the scopes of the post-Cold War era multilateral export regimes.

Next, he said that Congress should ensure that this vision can be implemented and should help update the domestic regulations of allies. He argued that Congress and the Administration should create a new regime with two mandates: address classical export control issues that cannot be addressed by the current regimes and address items of contemporary strategic security issues.

Wolf’s next recommendation was for Congress to work with allies to create and announce standards for the legal authorities that each of the allied governments should have in their export control systems. Additionally, they should echo in a regular and bipartisan way that this new vison for export control thinking is in the common security interests of the allies. To do so effectively, the U.S. should create incentives for allies to cooperate with the new vision for export controls, particularly through reduction of unnecessary trade barriers caused by export controls.

Finally, on enforcement, Wolf said that Congress can enhance the Administration’s and allied countries’ efforts to data mine, conduct investigations, work together, and coordinate on global enforcement efforts, and also support Administration efforts to harmonize the defense trade and dual use rules between close allies.

Question & Answer

Effectiveness of U.S. Actions Against Russia

Brown and Scott asked Singh to describe the effectiveness of the U.S. response to the war in Ukraine. Singh said that Russia is in recession and noted that, while the depth of the recession is not as large as many expected, this should not be seen as resilience. He explained that Putin is propping up the current economy at the expense of long-term economic gain and added that Russia’s own analysis shows that the economy will bottom 8-20% lower than in 2021. Lowery also said that there has been a falloff in oil revenue over the last few months, which could start having more of an impact on the overall economy. He also noted that Europe has put in place an embargo on Russian petroleum products, and the G7 has tried to put in a price cap on those products. He argued that the key areas are getting more countries to join in and doing more on natural gas. Scott followed up by asking if increasing production and exports of energy would give the U.S. another tool. Lowery responded by stating that boosting the ability to export would be helpful to allies and the American economy.

Sen. John Kennedy (R-La.) asked Singh if the Biden Administration needs to do more to get countries on board with Russian sanctions. Singh said that he wishes there was a broader coalition but warned against conflating population with power. He added that sanctions work where the U.S. has an asymmetrical advantage.

Sen. J.D. Vance (R-Ohio) said that the sanctions against Russia have not matched up with what the Biden Administration predicted. Singh defended the sanctions, saying that they are doing their job but are not the only tool being deployed. He reiterated that Putin has created a facade to prop up this year’s growth through capital controls, weaponizing energy, and spiking government spending. He said that these tactics will deplete national savings and drive up interest rates and inflation.

Export Control Regimes

Brown asked Wolf about the limitations of current export control regimes. Wolf explained that the current system was established in the 1990s to focus on items used in producing weapons of mass destruction (WMDs), so it does not address contemporary national security issues. Furthermore, he noted that each member of the regimes has a veto over any progress, and Russia is a member of three of the four regimes. Finally, he recommended creating a new regime to address both mandates led by the U.S.

China

Brown asked what lessons can be learned from the Russian response and applied to China. Singh said that the conversation must start with objectives and strategy and that there should be an analysis-driven understanding of how American strengths intersect with China’s vulnerabilities. After that, he added, the U.S. should choose which tools to use, including export controls, tariffs, de-listings, etc. He also highlighted positive inducements to win the narrative with countries that will have to join a coalition.

Sen. Mark Warner (D-Va.) said that technology competition, particularly with China, is where the future will be decided. He asked Wolf if it would be better to have a broad, holistic approach to address these issues. Wolf explained that Warner was referring to the information communication technology supply chain regulations that were published at the end of the Trump Administration. He said the senator’s bill to give congressional voices, mandates, and resources to implement that is critical. He added that the authority addresses a gap between export controls, CFIUS, and transactions or activities involving the communications supply stream. The key difficulty, Wolf noted, is how to scope it, because the number of transactions that would be affected as crafted is in the millions. He also said that trying to create a licensing structure or a CFIUS-like safe harbor approach would require the creation of a new department.

Ransomware and Crypto

Sen. Elizabeth Warren (D-Mass.) said that ransomware has hit everywhere and has dramatically increased in scale and amount of payment. She asked if these attacks would be possible without crypto, and Singh said that digital assets are essential to the business model of ransomware. Warren then asked if crypto is allowing Russian ransomware gangs to extort U.S. businesses and evade sanctions. Singh said that crypto likely is not allowing for evasion at scale but added that the U.S. should not tolerate any evasion. He noted that the Administration issued its Executive Order on digital asset regulations and pushing the government to launch a digital dollar in parallel with the sanctions, which would crowd out the ecosystem of crypto that allows adversaries to exploit U.S. weaknesses. Warren closed by saying that she and Sen. Roger Marshall (R-Kans.) are re-introducing their crypto anti money-laundering bill to protect the U.S. from ransomware attacks by stopping the flow of dirty money.

Farmland Purchases by Foreign Adversaries

Sen. Mike Rounds (R-S.D.) noted that there have been numerous reports of suspicious activity by U.S. adversaries in regard to U.S. agricultural land purchases. He asked Singh how foreign investment in U.S. land by adversarial nations could impact national security. Singh said that food security is economic and national security and added that if the land is used for the purpose of spying there are additional levels of concern. He also noted that CFIUS has the capacity to require notification of the acquisition of land above a certain threshold. Rounds concluded by highlighting his bipartisan legislation to prohibit China, Russia, Iran, and North Korea from purchasing U.S. farmland and agricultural companies and add the Secretary of Agriculture to CFIUS.

Sen. Jon Tester (D-Mont.) asked about the ability to track and stop the sale of farmland or an agricultural business. Lowery said that if the transaction was a green-field transaction within a certain mileage of sensitive areas, then CFIUS can investigate, determine whether it is a national security issue, and potentially block it. He did not know the exact mileage. Tester also mentioned the bill with Rounds and asked if it would be enforceable. Lowery said that CFIUS will need resources to look at every transaction on farmland from foreign buyers.

Sen. Katie Britt (R-Ala.) also discussed the CCP’s efforts to buy fertile U.S. farmland. She asked if it would be reasonable to have the Secretary of Agriculture involved as a member of CFIUS. Lowery agreed. She also asked how CFIUS enforces a national security agreement. Lowery explained that CFIUS has reviewed 275 transactions in the last year. He noted that about 30 had mitigation agreements, meaning the government had concerns so measures were added to potentially protect national security. He said if there are violations of these agreements, the agency in charge can step in to divest the transaction after the fact or impose a fine or warnings.

Sen. Kevin Cramer (R-N.D.) also agreed that the Secretary of Agriculture should be a permanent member of CFIUS.

Pollution Tariffs/Carbon Border Adjustment Mechanism (CBAM)

Cramer also asked the witnesses about their thoughts on a pollution tariff or CBAM that recognizes the high cost of production in the U.S. Lowery said that it is an interesting issue but noted that Congress will have to think about a price for carbon. Singh said that there are two approaches: set the tariff based on the cost of regulatory compliance (European approach) or judge it based on how much a country has done to reduce its emissions, which would then determine the degree to which a border adjustment is imposed. He said that latter approach is the best way forward.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.