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SBC Russia Sanctions Hearing

Senate Committee on Banking, Housing, and Urban Affairs

Tightening the Screws on Russia: Smart Sanctions, Economic Statecraft and Next Steps

Tuesday, September 20, 2022

 

Topline

  • The DOJ witness said the banking and financial services sectors have been enormous partners throughout the information sharing effort to combat sanctions evasion. He also said DOJ is looking at efforts to prevent sanctionable financing of controlled exports and looking specifically at new financiers, shell companies, and financial services firms attempting to hide money.
  • Toomey and Van Hollen touted their new framework outlining legislation to provide new sanctions authority to the Administration in its efforts to sever funding to Putin’s war machine. Sen. Warren engaged in a series of questions to highlight her Digital Assets Sanctions Compliance Enhancement Act.
  • The hearing focused mostly on the Administration’s price cap proposal.

 

Witnesses

 

Opening Statements
Chairman Sherrod Brown (D-Ohio)

In his opening statement, Brown summarized U.S. sanctions efforts against Russia and highlighted the multilateral coalition that President Biden assembled to roll out a sweeping series of rules designed to degrade Russia’s military and technological capabilities.

 

Ranking Member Patrick J. Toomey (R-PA.)

In his opening remarks, Toomey said sanctions can hasten an end to the war in Ukraine and that current sanctions have not come close to achieving this objection. He highlighted the Administration’s plan for price caps on purchase of Russian oil, a plan that limits service providers to only facilitate purchase of Russian oil below a set price. He said this plan has the potential to significantly curtail Russian oil revenue. Lastly, Toomey touted his legislation with Sen. Chris Van Hollen (D-Md.) to compliment the Administration’s price cap scheme and impose sanctions on foreign institutions involved in the transaction of Russian oil above the price cap.

 

Testimony

The Honorable Elizabeth Rosenberg, Assistant Secretary for Terrorist Financing and Financial Crimes, U.S. Department of the Treasury

In her testimony, Rosenberg provided an update on the Department of the Treasury’s efforts to hold Russia accountable for its invasion of Ukraine and expressed gratitude for the additional resources Congress provided in the Ukraine supplemental appropriations package.

 

Mr. Andrew C. Adams, Director, Task Force KleptoCapture, United States Department of Justice

In his testimony, Adams discussed the Department of Justice’s (DOJ) Russian sanctions Task Force,

KleptoCapture, and summarized the Task Force’s structure, scope, strategic priorities, tools utilized by the Task Force in its work to date, and tools that, if provided, would further enhance the Task Force’s ability to accomplish its strategic goals. He advocated for the Administration’s proposal to apply administrative civil forfeiture proceedings to new classes of assets and proposals to enable the transfer of the proceeds of forfeited Kleptocrat property to Ukraine, clamp down on facilitation of sanctions evasion, modernize racketeering to include sanctions evasion, expand the time limit to follow the money, and leverage foreign partners’ ability to recover oligarch wealth.

 

Question and Answer

The Administration’s Price Cap Proposal

Brown asked what impact the Administration’s proposed price cap on Russian oil would have on the Russian economy and if China should be opposed to the price cap. Rosenberg said the proposal would deprive Russia of revenue and that China and India can leverage the price cap to negotiate reduced prices for Russian energy. Toomey said the proposal does not apply to countries outside the G7 and raised concern that China and India will continue to buy Russian oil. Rosenberg said the price cap policy envisions a scenario that China and India continue to purchase Russian oil and that the key aspect of the policy is the broad coalition approach that ratchets down the price that Indian and Chinese buyers pay. Sen. Chris Van Hollen (D-Md.) highlighted his legislation with Toomey and asked about the need for additional leverage in negotiating the price cap. Rosenberg said the U.S. has a good deal of leverage already and that there should be a greater enforcement focus on fraudulent evasion of the price cap. Sens. Robert Menendez (D-N.J.) and Jon Ossoff (D-Ga.) highlighted support from other major economies for and implementation challenges with the price cap.

 

Financial Services Industry

Menendez asked about Russia’s efforts to create alternative insurance mechanisms and what the U.S. is doing to make those efforts ineffective. Rosenberg said Russia does not have enough insurance for all of the oil it exports and that purchasers of Russian oil are required to use European insurance. She added that it is not essential for current purchasers of Russian oil, like India, to join the price cap coalition in order for the price cap to be effective.

 

Menendez expressed concern for sanctions evasion by Turkish financial institutions through their Russian payments system and asked what the Administration is doing to close loopholes that allow sanctions evasion. Rosenberg said Treasury will continue to engage with Turkey to focus on that vulnerability.

 

Sen. Mike Rounds (R-S.D.) asked what role the private sector plays in identifying Russian sanction evasion efforts and about the quality of information sharing with the private sector. Adams said the banking and financial services sectors have been enormous partners throughout the information sharing effort. He said working with the banking sector is no different than working with the public sector and that private sector information sharing amplifies sanctions efforts.

 

Sen. Tina Smith (D-Minn.) asked about sanctions evasion, and Adams said DOJ is looking at efforts to prevent sanctionable financing of controlled exports and looking specifically at new financiers, shell companies, and financial services firms attempting to hide money. He added that DOJ is trying to create a roadmap for the private sector through its enforcement so that financial services firms can look at DOJ’s work product and take action to instill cultures of compliance.

 

Ossoff asked what due diligence financial institutions would have to take to ensure they are not facilitating oil trades noncompliant with the G-7 cap. Rosenberg said financial institutions would be held to a good faith standard.

 

Sanctions

Sens. Thom Tillis (R-N.C.), Rounds, and Brown discussed the effectiveness of sanctions and whether a price cap alone is enough or whether secondary sanctions are necessary. Sen. Catherine Cortez Masto (D-Nev.) asked about making sanctions evasion a crime under Racketeer Influenced and Corrupt Organizations Act (RICO). Adams said that would be helpful.

 

Sen. Elizabeth Warren (D-Mass.) highlighted her Digital Assets Sanctions Compliance Enhancement Act and asked if digital assets could be used by oligarchs to evade Russian sanctions. Rosenberg said yes. Warren then asked if methods of hiding crypto transactions enable sanctions evasions. Rosenberg confirmed the use of technologies, like mixers, to evade sanctions. Warren also asked if sanctions against mixers would strengthen our sanctions regime. Rosenberg said that would be an effective avenue.

 

Assets

Sen. Steve Daines (R-Mont.) and Tillis asked about seizing Russian assets and guidance on what the Biden Administration plans to do with already-seized Russian assets. Rosenberg said it is challenging to move from frozen to forfeited assets and deal with assets held in different jurisdictions and that we must act with consistency in tandem with international partners to maintain credibility.

 

For more information on this hearing, please click here.

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