President Joe Biden on Thursday announced harsh new financial sanctions on Russia that the Treasury Department contends will impact four-fifths of the country’s banking assets as punishment for Moscow’s invasion of Ukraine.
Also as part of the week’s second tranche of sanctions on Russia, the Commerce Department imposed a series of trade restrictions on Moscow’s ability to import certain technologies that originate in the United States and are used by Russia’s military and defense sector.
Additionally, the Biden administration expanded sanctions announced on Tuesday on the Russian government’s ability to raise capital by selling its sovereign debt to now encompass Russia’s biggest state-owned enterprises that together have combined assets in excess of $1.4 trillion.
In announcing the new sanctions, Biden used a midday White House address to emphasize the multilateral coordination that went into their development, as well as the expectation that their impact on Moscow’s military and technological ambitions will be felt over the long-term.
“Some of the most powerful impacts of our actions will come over time as we squeeze Russia’s access to finances and technology, for strategic sectors of its economy, and degrade its industrial capacity for years to come,” the president said.
Biden emphasized this latest round of sanctions was developed in coordination with the 27 countries of the European Union, as well as the United Kingdom, Japan, Australia, Canada, New Zealand and other unnamed countries.
“We will limit Russia’s ability to do business in dollars, euros, pounds, and yen to be part of the global economy,” he said.
‘Strike a blow’
The latest financial sanctions will impact nearly 80 percent of Russia’s banking assets, according to a Treasury news release, including its two largest banks.
Notably, the strongest financial restrictions possible, known as “full blocking sanctions,” were imposed on Russia’s second-biggest bank, VTB Bank, as well as upon three other large Russian financial firms: Bank Otkritie, Novikombank and Sovcombank OJSC. Such blacklisting means it is now illegal to do any kind of business transaction with those banks.
A slightly less severe sanction was imposed on Russia’s biggest bank, Sberbank, that prohibits the bank from conducting – beginning in one month – any U.S. dollar-based transactions, though other types of less-popular foreign currency-denominated transactions aren’t prohibited, according to Adam M. Smith, a sanctions lawyer with the firm Gibson, Dunn & Crutcher.
“On a daily basis, Russian financial institutions conduct about $46 billion worth of foreign exchange transactions globally, 80 percent of which are in U.S. dollars,” states the Treasury release. “The vast majority of those transactions will now be disrupted. By cutting off Russia’s two largest banks – which combined make up more than half of the total banking system in Russia by asset value – from processing payments through the U.S. financial system.”
The list of Russia’s largest-state owned enterprises that are now forbidden from raising funds through the U.S. market include Gazprombank, Russia’s third-largest financial institution, which is tied to the country’s energy sector; the Russian Agricultural Bank, which is Russia’s fifth-biggest bank and tied to its agriculture sector; Gazprom, the world’s largest natural gas company; and Gazprom Neft, one of the country’s biggest oil producers and refiners.
A senior administration official briefing reporters Thursday evening said the financial sanctions will have a “compounding” effect over time.
Export controls
Perhaps the most novel economic penalty the U.S. announced were export controls on technologies that Russia’s defense, aviation and maritime sectors rely upon.
In addition to cutting off access to things like U.S.-made semiconductors, telecommunication-related technologies, lasers, sensors and encryption security, the new restrictions also cover such products made abroad but that rely on U.S.-origin equipment, software, blueprints and components.
The Commerce Department said the export controls amounted to “the most comprehensive application” targeting any single country of the agency’s export authorities on U.S.-made products and U.S.-origin intellectual property.
“Between our actions and those of our allies and partners, we estimate it will cut off more than half of Russia’s high-tech imports” Biden said. “It will strike a blow to their ability to continue to modernize the military. It will degrade their aerospace industry, including their space program. It will hurt their ability to build ships, reducing their ability to compete economically. And it will be a major hit to [Russian President Vladimir] Putin’s long-term strategic ambitions.”
A second administration official noted that European Union member states, Japan, Australia, the United Kingdom, New Zealand and Canada have announced parallel actions. “Our historic cooperation serves as a critical force multiplier, will restrict more than $50 billion in key inputs to Russia, which will have a devastating consequence for Russia’s ability to produce items it needs,” the official said.
Differences of views
Though some lawmakers criticized the Biden administration for not including sanctions that would force the de-listing of Russian banks from the SWIFT global financial transactions payment system, Smith argued that doing so would amount to overkill, considering the full blocking and dollar-prohibition sanctions that were just imposed on Russia’s biggest retail banks.
Kicking Russia out of SWIFT would certainly “be an annoyance” to Russian bankers and their clients, said Smith, who was a senior sanctions official at Treasury during the Obama administration. But there are ways to conduct international transactions that skirt SWIFT — such as via fax machine, he added.
Biden indicated European partners were not ready to kick Russian banks out of SWIFT, but that it might still happen.
“The sanctions that we have proposed on all their banks have equal consequence, maybe more consequence than SWIFT, No. 1,” the president said. “No. 2, it is always an option, but right now, that’s not the position that the rest of Europe wishes to take.”
Early reaction to the sanctions package from lawmakers was mostly positive from Democrats, though some Republicans urged Biden to go even further.
“While the sanctions announced today are a small step in the right direction, I fear they will be inadequate to deter Putin from further aggression. By failing to impose significant sanctions on the Russian oil and gas industry, which accounts for the majority of all Russian exports, the administration is intentionally leaving the biggest industry in Russia’s economy virtually untouched,” said Senate Banking ranking member Patrick J. Toomey, R-Pa., calling on the administration to also impose “Iran-style secondary sanctions” on Russia’s banking sector.
Senate Foreign Relations Chairman Bob Menendez, D-N.J. said he was pleased to see so many of the announced sanctions match what was in contained in legislation (S 3488) he previously wrote.
“Congress and the Biden administration must not shy away from any options – including sanctioning the Russian Central Bank, removing Russian banks from the SWIFT payment system, crippling Russia’s key industries, sanctioning Putin personally, and taking all steps to deprive Putin and his inner circle of their assets,” said Menendez in a statement.
In an interview shortly before the administration’s Thursday announcement, Emily Kilcrease, who leads the Center for a New American Security think tank’s Energy, Economics and Security Program, said she was chiefly looking to see how, with Europe and other partner countries, the sanctions are coordinated in their severity, targets and the swiftness of their implementation.
“As long as the overall message, coordination and severity is moving in lockstep, that is the important piece,” said Kilcrease, who correctly predicted that Biden would announce the full blocking sanctions on the biggest banks and the technology export controls.
“We’re just at the point where if we don’t do something that is clearly crippling [to Russia], there is clearly not going to be any change in posture and even if we do do crippling, it’s not clear that any of this will work,” she added.
Joseph Morton contributed to this report.
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