April 27, 2017 | Senate Committee on Banking, Housing and Urban Affairs

Countering Russia: Further Assessing Options for Sanctions

Download the full testimony here. 

This is the Committee’s second hearing in the past several weeks on assessing next steps and further options for U.S. sanctions on Russia. I commend your attention to this issue of growing urgency to our national security and to the collective security of the international order that the United States has led since the founding of the United Nations over 70 years ago.

I am also grateful for the substantial contribution of the expert witnesses who testified before you on this topic last month. Their prior testimony and ongoing work, together with the contributions of other dedicated experts studying this topic, continue to inform our thinking at the Financial Integrity Network and the testimony that I will deliver to you today.

The primary basis of my testimony, however, is the experience that I have gained in helping to shape and implement sanctions policy over the past fifteen years, in the U.S. Government, the international community, and in the private sector. Based on this experience and as explained in greater detail below, I believe there are important steps that Congress should take to protect our national and collective security by clarifying and strengthening sanctions on Russia, summarized as follows:

1) Prioritize targeted sanctions against Russian leadership engaged in illicit conduct. Congress should target sanctions against Russian leadership engaged in illicit conduct by:

(i) Calling for the establishment of a Russian Counter-Illicit Financing Task Force dedicated to tracing, mapping, sanctioning, and prosecuting illicit Russian financial flows that intersect with the U.S. financial system, and for working with allied governments to similarly track, trace, and combat illicit Russian financial flows, largely as proposed in the Countering Russian Hostilities Act Bill;

(ii) Providing specific funding for the Russian Counter-Illicit Financing Task Force, to be managed by Treasury and the Department of Justice to ensure interagency participation and support as needed across law enforcement, intelligence, regulatory, and financial authorities;

(iii) Codifying and consolidating existing sanctions authority to specifically target Russian leadership engaged in illicit conduct, largely as proposed in the Countering Russian Hostilities Act Bill;

(iv) Expanding existing sanctions authority to specifically target Russian leadership engaged in illicit conduct that, with respect to any foreign state: (a) undermines democratic processes or institutions; (b) threatens the peace, security, territorial integrity or sovereignty; or (c) misappropriates state assets;

(v) Prioritizing and expanding derivative sanctions against persons and entities owned or controlled by; acting for or on behalf of; or materially, financially, or technologically assisting Russian leadership engaged in illicit conduct, including by calling upon Treasury to lower the ownership threshold for derivative designations from 50 percent to 25 percent, consistent with Treasury’s final rule on customer due diligence for U.S. financial institutions;

(vi) Creating a Europe and Eurasia Democracy and Anti-Corruption Fund as proposed in the Countering Russian Hostilities Act, and further creating specific funding for publication of studies and research on corruption of Russian leadership.

Prioritizing targeted sanctions against illicit conduct by Russian leadership will expose, contain, disrupt, and potentially deter such conduct. Efforts that can expose corruption of Russian leadership may be particularly powerful in raising opposition to such conduct in Russia. Prioritizing derivative designations in particular will give much greater economic impact to primary designations against Russian leadership by going after the networks that support and benefit from illicit conduct engaged in by such leadership.

2) Call upon Treasury to consider designating under Section 311 of the USA PATRIOT Act any Russian financial institutions engaging in substantial transactions associated with any illicit conduct by Russian leadership;

3) Heighten controlled pressure on the Russian economy. Congress should consider building upon Treasury’s sectoral sanctions program to heighten controlled economic pressure on Russia, including by:

(i) Calling upon Treasury to expanding designations of Russian financial institutions, defense firms, and energy companies under the sectoral sanctions program;

(ii) Applying new sanctions against any persons with respect to purchase, subscription to, or facilitation of the issuance of sovereign debt of Russia, as proposed in the Countering Russian Hostilities Act Bill;

(iii) Applying new sanctions against any persons with respect to investments in the Russian energy sector, as proposed in the Countering Russian Hostilities Act Bill;

(iv) Considering new sanctions against any persons with respect to investments in the Russian financial or defense sectors;

(v) Calling upon Treasury and the intelligence community to produce a study of key Russian sectors exposed to economic sanctions and U.S. and allied countries’ exposure to potential counter-sanctions by Russia; and

(vi) Based on such a study, considering new sectors for possible designations under the sectoral sanctions program.

4) Strengthen the effectiveness of U.S. sanctions in general. Congress should strengthen the operational effectiveness of U.S. sanctions by:

(i) Providing funding for Treasury to expand its sanctions targeting, compliance, and enforcement resources and capabilities, particularly with respect to derivative designations of key node primary sanctions targets;

(ii) Considering requiring Treasury to issue regulations specifying sanctions program and training requirements for global financial institutions operating in the United States and for other sectors vulnerable to sanctions busting and sanctions evasion;

(iii) Calling upon FinCEN to issue final anti-money laundering (“AML”) rules on the reporting of cross-border wire transfers and on AML program, SAR reporting, and customer due diligence (“CDD”) requirements for investment advisors to heighten the transparency of the U.S. financial system in accordance with international standards;

(iv) Calling upon FinCEN to consider rulemaking extending AML requirements to title insurance companies and/or others involved in the sale of high-end real estate as necessary to close proven sanctions evasion and money laundering vulnerabilities in the U.S. real estate market;

(v) Calling upon Treasury to issue a report offering recommendations for expanding information sharing under Section 314 of the USA PATRIOT Act to enhance the effectiveness and reduce the costs associated with counter-illicit financing analysis by U.S. authorities and across the U.S. financial system.

5) Facilitate operational sanctions capability in allied countries. Congress should enhance foreign partner capacity in key allied countries by providing funding to Treasury to launch a Foreign Partner Training Program across sanctions administration, implementation, and enforcement.

These recommendations are based in large part upon key developments, conditions, and challenges evident in the recent evolution of sanctions policy and implementation, as discussed in greater detail below.