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S. HRG. 115–15 

ASSESSING U.S. SANCTIONS ON RUSSIA: NEXT 

STEPS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE EXISTING RUSSIAN SANCTIONS ARCHITECTURE IN 

TERMS OF ITS EFFECTIVENESS AND ECONOMIC IMPACT AND ASSESSING WHAT CORRECTIVE ACTION, IF ANY, THE UNITED STATES 

SHOULD TAKE IN LIGHT OF RECENT DEVELOPMENTS INVOLVING 

RUSSIA’S ACTIONS IN UKRAINE, SYRIA, AND WITH CYBER ATTACKS 

TARGETED IN THE UNITED STATES 

MARCH 15, 2017 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

MIKE CRAPO, Idaho, Chairman 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID PERDUE, Georgia 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

BRIAN SCHATZ, Hawaii 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

GREGG RICHARD, Staff Director 

MARK POWDEN, Democratic Staff Director 

ELAD ROISMAN, Chief Counsel 

JOHN V. O’HARA, Chief Counsel for National Security Policy 

KRISTINE JOHNSON, Professionl Staff Member 

SIERRA ROBINSON, Professional Staff Member 

GRAHAM STEELE, Democratic Chief Counsel 

LAURA SWANSON, Democratic Deputy Staff Director 

COLIN MCGINNIS, Democratic Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

WEDNESDAY, MARCH 15, 2017 

Page 

Opening statement of Chairman Crapo ................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESSES 

Elizabeth Rosenberg, Senior Fellow and Director, Energy, Economics and 

Security Program, Center for a New American Security .................................. 4 

Prepared statement .......................................................................................... 32 

Eric B. Lorber, Senior Advisor, Center on Sanctions and Illicit Finance, 

Foundation for Defense of Democracies ............................................................. 6 

Prepared statement .......................................................................................... 44 

Responses to written questions of: 

Senator Toomey ......................................................................................... 70 

Senator Tillis ............................................................................................. 71 

Rodney D. Ludema, Ph.D., Associate Professor, School of Foreign Service 

and Department of Economics, Georgetown University ................................... 7 

Prepared statement .......................................................................................... 67 

(III)

(1) 

ASSESSING U.S. SANCTIONS ON RUSSIA: NEXT 

STEPS 

WEDNESDAY, MARCH 15, 2017 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10:23 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Mike Crapo, Chairman of the Committee, 

presiding. 

OPENING STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman CRAPO. This hearing will come to order. 

Today we will examine the existing Russian sanctions architecture in terms of its effectiveness and economic impact and assess 

what corrective action, if any, the United States should take in 

light of recent developments. 

Three years ago this week, Russia solidified its actions in Crimea 

by illegally annexing the Ukrainian territory and moving the fight 

to its eastern border regions. 

In response, the United States, the European Union, and several 

other allied countries imposed several rounds of targeted economic 

sanctions against Russia. And 2 years ago, the Obama administration imposed a separate set of sanctions against Russia in response 

to its malicious cyber-enabled information warfare activities. 

Today the Committee will hear testimony on the effect and utility of these U.S.-imposed sanctions and the potential for next steps. 

The existing U.S. sanctions against Russia pertaining to the 

Ukraine were designed to change Putin’s behavior. 

Authority for the sanctions is found in a series of four Executive 

orders issued in 2014, as well as in the Ukraine Freedom Support 

Act, which was signed into law in December of that same year. 

These authorities prescribe asset freezes and transaction prohibitions with specific Russian individuals and entities with ties to the 

Kremlin, including a bank, businesses tied to Putin, and a stateowned defense company. 

Sanctions also include restrictions on financial transactions, such 

as 1- to 3-month restrictions on debt maturities of Russian firms 

operating in the financial services, energy, and defense sectors. 

The United States also restricts its individuals and entities from 

exporting oil-related goods, services, and technology in support of 

deep water, Arctic offshore, or shale projects in the maritime areas 

claimed by Russia. 

Pursuant to these measures, the United States Department of 

Treasury has identified and designated more than 520 individuals 

2 

and entities for their sanctionable activities. Those persons designated are subject to the blocking or freezing of assets under U.S. 

jurisdiction, prohibitions on transactions with U.S. persons, and 

visa denials. 

During the last 3 years, Russia was stung by the twin shocks of 

international sanctions and low oil prices. This was compounded by 

Russia’s own ill-conceived retaliatory measures. 

As a result, Russia is now challenged by a contraction of economic growth, capital flight, depreciation of the ruble, a higher rate 

of inflation, budgetary pressures, drawing on its international reserves, and more widespread poverty generally. 

Yet Russia remains a hostile, recalcitrant power, deploying its 

military, cyber-enabled information espionage activities, and economic tactics to harm the United States and drive a wedge between 

it and its allies. 

With all this in mind, I trust the witnesses today will help the 

Committee understand the impact of the existing sanctions generally, and discuss where the real pressure points are in Russia’s 

economy, the costs of inaction, and any associated unintended consequences that could arise if sanctions were imposed either unilaterally or too rapidly. 

The extent to which the sanctions on Russia alone contributed to 

its economic downturn is an important question in terms of preserving the existing sanctions or expanding the breadth of existing 

sanctions. 

One thing is clear: Any reduction to the level of sanctions in the 

absence of a corresponding shift in Russian behavior will be interpreted as a change in U.S. policy on Russia’s involvement in 

Ukraine, and that would run counter to the norms of international 

law and give Russia license to engage in further adventurism. 

Russia must be held accountable for its actions, and if sanctions 

are to be a part of that strategy, they must be targeted and staged 

appropriately according to a set of realistic conditions. 

With that, I conclude my opening statement and turn to Senator 

Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. Sorry for being late. 

Thanks for calling this hearing. Thanks for your willingness to 

explore on a bipartisan basis how the current U.S. and multilateral 

sanctions regime is working and possible next steps to strengthen 

it while preserving unity with our allies. Congress has worked together to craft the current U.S. sanctions regime and to hold Russia accountable for a long line of misdeeds from its violations of 

international law and of the sovereignty and territorial integrity of 

Ukraine to its role in the brutal repression of the war in Syria and 

its cyber attacks on the United States, including U.S. elections. 

More recently, Russia has engaged in efforts to influence our 

elections and systematically sowed disinformation here at home. 

We should focus now on what the Committee might do to strengthen our response to Russia for the actions I mentioned and for its 

continuing efforts to destabilize states in Europe, including the Balkans and beyond. 

3 

Russia’s interference in our election, confirmed unanimously by 

the U.S. intelligence community in a declassified report, as we 

know, in early January, poses a problem that goes far beyond foreign policy and strikes at the core of our democracy. As the joint 

report makes clear, there is no disagreement within the U.S. intelligence community about what happened here. None. Zero. They 

wrote: 

Russian efforts to influence the 2016 U.S. Presidential election represent 

the most recent expression of Moscow’s longstanding desire to undermine 

the U.S.-led liberal democratic order . . . these activities demonstrated a 

significant escalation in directness, level of activity, and scope of effort compared to previous operations. 

We assess Russian President Vladimir Putin ordered an influence campaign 

in 2016 aimed at the U.S. Presidential election. Russia’s goals were to undermine public faith in the U.S. democratic process, denigrate [Democratic 

candidate] Secretary Clinton, and harm her electability and potential presidency. We further assess Putin and the Russian Government developed a 

clear preference for President-elect Trump. We have high confidence in 

these judgments. 

Those were words from the U.S. intelligence community. 

The report went on to note that similar efforts would likely be 

undertaken by Russia against U.S. allies and others. ‘‘We assess 

Moscow will apply lessons learned from its Putin-ordered campaign 

aimed at the U.S. Presidential election to future influence efforts 

worldwide, including against U.S. allies and their election processes.’’ 

While we have begun to impose sanctions for Russia’s cyber attacks, we have not yet responded to the interference with our electoral process. The Ukrainian community, rather large in Ohio, and 

around the world, knows firsthand the dangers of unchecked Russian aggression. We should strengthen, not weaken, Russian sanctions, and the President must work with Congress on a Russia 

policy that is clear-eyed about our adversaries and their behavior. 

In Syria, the U.N. and others have charged Syrian military units 

and allied Russian forces with war crimes, including attacks on 

hospitals and an aid convoy, and indiscriminate bombing of civilian 

populations in eastern Aleppo. 

The recent escalation of violence by Russian-based separatists in 

eastern Ukraine and the lack of a consistent policy to deter further 

Russian aggression is also dangerous. 

Since Putin’s illegal annexation of Crimea in 2014, 3 years ago 

this week exactly, there have been at least 10,000 dead, 20,000 

wounded, 2 million internally displaced, according to the U.N. The 

situation remains unstable with some 300,000 cease-fire violations 

in 2016, according to the Organization for Security and Cooperation 

in Europe. 

It seems clear from the surge of violence since the U.S. elections 

that Russia is testing our resolve to support the Ukrainian Government and people. We must leave no doubt that Russia must comply 

with the Minsk agreement. Until it does, Russia deserves no sanctions relief for the conflict it created and continues to fuel. 

I hope the President ends any ambiguity in our policy in both his 

words and the vigorous enforcement and strengthening of current 

sanctions. All of us in both parties are very concerned about what 

the President has done or not done so far. So far, he has sent 

4 

mixed signals. On the one hand, he raises questions about moral 

equivalence between the United States and Russia and flirts publicly with relaxing Russian sanctions. On the other hand, he has 

said he intends for now to maintain U.S. sanctions, and U.N. Ambassador Haley has condemned Russian aggression in Ukraine. 

Today we are joined by three sanctions experts who will help us 

assess where we are and what effects the current sanctions regime 

is having on the economy and the behavior of Russia. We will also 

discuss how stricter sanctions enforcement, closing administrative 

loopholes, strengthening statutory requirements where appropriate, 

and other measures can send a clear, unambiguous signal of our 

resolve. 

I welcome the witnesses and thank the three of you for joining 

us. 

Chairman CRAPO. Thank you very much, Senator Brown. 

I would like to remind all of our Senators today to try to stay 

very close to the 5-minute time limit. We have a hard stop at about 

5 minutes to 12, and I think we will have a lot of interest in this 

hearing, and so I encourage us all to pay close attention to the time 

restrictions. 

And to our witnesses, I ask you to please pay attention to the 

5 minutes as well. I know that you are not going to be done with 

everything you have to say in 5 minutes, but you are going to have 

a lot of opportunity with questions to get into it all. 

Today we are joined by three excellent witnesses. First we will 

receive testimony from Ms. Elizabeth Rosenberg, who is the Senior 

Fellow and Director of the Energy, Economics, and Security Program at the Center for a New American Security. 

Next we will hear from Mr. Eric Lorber, who is a Senior Advisor 

at the Center on Sanctions and Illicit Finance at the Foundation 

for Defense of Democracies. 

And, finally, Dr. Rodney Ludema, Associate Professor of Economics at Georgetown University, will give us his assessment of the 

economic impact of the current sanctions regime. 

Ms. Rosenberg, you may proceed. 

STATEMENT OF ELIZABETH ROSENBERG, SENIOR FELLOW 

AND DIRECTOR, ENERGY, ECONOMICS AND SECURITY PROGRAM, CENTER FOR A NEW AMERICAN SECURITY 

Ms. ROSENBERG. Thank you. Chairman Crapo, Ranking Member 

Brown, and distinguished Members of this Committee, thank you 

for the opportunity to testify today on Russia sanctions. 

U.S. and European sanctions imposed on Russian entities and 

individuals since 2014 have been remarkably innovative and forceful. Responding to Russia’s aggression in Ukraine, they powerfully 

demonstrate transatlantic unity, and they have delivered economic 

leverage. Their impact was augmented, as was noted, by an oil 

price collapse and Russia’s resulting loss of hard currency. 

Additional recent U.S. sanctions have exposed Russia’s human 

rights record, its destabilizing involvement in Syria, and its insidious cyber intrusions into U.S. institutions and political processes. 

The recent record of Russian economic performance demonstrates 

a period of distress. From the beginning of 2014 to December 2016, 

Russian external debt shrank from $729 billion to $519 billion, and 

5 

officials drew down the Reserve Fund from $87 billion to $16 billion. Russian officials slashed state spending in education, health 

care, and defense, and allowed the ruble to plunge in value. Capital 

fled Russia, roughly $210 billion in 2014 and 2015 combined, and 

GDP contracted from 0.7 percent in 2014 to negative 3.7 percent 

in 2015. It recovered last year but remained negative. 

Russian officials, including President Putin, have acknowledged 

that sanctions hurt Russia. They were a meaningful contributor to 

Russia’s agreement to the Minsk accords, and Russia, arguably, 

refrained from more expansionist territorial aims because of sanctions pressure. 

However, the force of sanctions has diminished over time as 

investors have adapted to lower oil prices, the Russian economy 

stabilized and U.S. and EU leaders have not kept up sanctions 

pressure. In 2016, Russian capital flight was one-tenth of the 2014 

record. Russian economic growth is expected to rebound to just over 

1 percent in 2017. Russia expanded its already massive energy output by 4.4 percent between January 2014 and January 2017, taking advantage of higher prices to draw in critical new revenue 

streams. 

A primary reason for declining sanctions effects is a lack of their 

maintenance by the United States and the European Union. In 

particular, European leaders have struggled over the last 2 years 

to hold the line on sanctions, doubting their utility and advisability 

in some instances. 

Now, political signals from the new U.S. administration as well 

as from nationalist political leaders in Europe that a warmer relationship with Russia may be forthcoming indicate to the private 

sector that sanctions are weakening further. Russia has actively 

taken advantage of this crumbling resolve on sanctions. Through 

military posturing, media and cyber manipulation, and economic 

interventions, President Putin has been transparently engaged in 

a reproach of Western interests and Western unity. 

U.S. leaders are now contemplating policy toward Russia, including sanctions measures. The White House has not yet outlined a 

definitive strategy with the Kremlin or European allies. Congress 

is in the position to enhance pressure on Russia in response to 

increasing aggression in eastern Ukraine and Russia’s cyber interference in the United States. 

Legislators can lead on the direction for an updated sanctions 

response and set the tone for diplomacy toward European allies 

and Russian counterparts. To maintain effective sanctions, U.S. 

and European leaders must closely coordinate. This will be difficult, but the alternatives—stasis or conflicting sanctions policy, 

delivers economic and political benefits to President Putin and undermines U.S. interests. It is far preferable to maintain Western 

economic leverage with Russia and negotiate from a position of 

strength. In this context, U.S. leaders, with Congress at the fore, 

must proactively update sanctions and forge new transatlantic coordination on this critical policy challenge. 

Thank you for the opportunity to speak with you this morning, 

and I look forward to your questions. 

Chairman CRAPO. Thank you very much. 

Next we will hear from Mr. Lorber. 

6 

STATEMENT OF ERIC B. LORBER, SENIOR ADVISOR, CENTER 

ON SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR 

DEFENSE OF DEMOCRACIES 

Mr. LORBER. Chairman Crapo, Ranking Member Brown, and 

distinguished Members of the Senate Committee on Banking, 

Housing, and Urban Affairs, I am honored to appear before you 

today to discuss U.S. sanctions on Russia. 

I would like to focus my testimony on the effectiveness of the current U.S. sanctions targeting Russia, as well as what the United 

States can do to responsibly ramp up economic pressure to convince 

Moscow to cease destabilizing activities in eastern Ukraine, stop 

committing human rights abuses, and reduce malicious cyber 

activities targeting the United States and its allies. 

To date, U.S. sanctions on Russia have a mixed record of success. 

Many macroeconomic indicators and recent studies suggest that 

the sanctions have had an impact on overall Russian economic 

health. Likewise, Russian Government officials repeatedly push for 

sanctions relief, both in public statements and by trying to undermine EU sanctions, suggesting that Russia is feeling the pinch. 

Nevertheless, the United States has not achieved many of the 

core objectives it sought when deploying these tools, and Russia 

continues to engage in threatening activity across a range of areas. 

In eastern Ukraine, Russian-backed forces continue to violate the 

cease-fire, routinely attacking Ukrainian villages and military personnel. Moscow also continues to target opposition leaders, often 

with lethal means. 

In the cyber realm, Russia has continued its efforts to influence 

and undermine U.S. allies, in recent months focusing these efforts 

on upcoming elections in Western Europe. 

Beyond the activities for which the United States has imposed 

sanctions, in Syria, Russia continues to support President Bashar 

al-Assad with direct military intervention, including during the 

Syrian Government’s brutal assault on Aleppo. 

This Committee should make no mistake; Russian activity in 

these areas poses a serious threat to U.S. interests, and the United 

States should be prepared to use all elements of its national 

power—including its economic power—to blunt Moscow’s ability to 

undermine U.S. interests at home and abroad. 

Additional, responsibly crafted U.S. sanctions can be a powerful 

tool to impact Russia’s decisionmaking. Specific types of sanctions 

that, if properly calibrated, could be particularly effective in increasing the pressure on Russia include: 

The codification of certain executive orders, as well as additional 

statutory designations under these EOs; 

Establishment of a FinCEN-led task force to identify and seize 

assets of targeted Russian persons, including those with close to 

ties to Russian President Vladimir Putin; 

Certain restrictions related to the purchase or facilitation of Russian sovereign debt; 

And certain primary and secondary sanctions on elements of 

Russia’s oil and gas industry. 

However, any new sanctions on Russia must take into account 

four important considerations. 

7 

First, while additional sanctions are appropriate, Congress 

should be wary of imposing sanctions that are too powerful. If the 

United States attempts to impose broad, Iran-like sanctions on 

Russia that target large swaths of the Russian economy, this could 

limit critical European willingness to participate in our sanctions 

campaign. 

Similarly, such sanctions could do serious damage to the Russian 

economy in ways that actually threaten our interests. While we 

want to pressure Russia to cease its activities, destroying the Russian financial system or cratering its economy would have worldwide impact, threatening markets across the globe. 

Second, Congress should think through how it can unwind sanctions pressure in the case that Moscow—even partially—changes 

its behavior. As we have learned over the past few years, 

unwinding sanctions can often be a difficult and fraught process. 

Any such new sanctions legislation could include built-in ‘‘off 

ramps’’—namely, elements of the sanctions regime, such as specific 

designations or directives—that could be undone in a situation of 

partial Russian compliance with its various obligations, such as 

those under the Minsk agreements. Such partial sanctions relief 

could be traded for Russian fulfillment of these obligations, and 

this approach, while not achieving all of our objectives certainly, 

could help the United States limit challenges to U.S. interests. 

Third, any such sanctions must be nested in a larger strategy of 

pressuring Moscow, including aggressive diplomacy and responding 

in kind to malign Russian activities such as offensive cyber operations. Sanctions are a means to an end, and Congress and the 

Administration must be clear as to what that end is and how they 

intend to achieve it. Ramping up economic pressure on Moscow 

without clear objectives, the employment of other coercive tools, 

and buy-in from the Administration is unlikely to be effective in 

getting Moscow to fully change its behavior. 

Fourth, the United States must be prepared to address Russian 

retaliation for these sanctions, including in the form of countersanctions, increased cyber attacks, and even kinetic action in ways 

that threaten U.S. interests. 

Congress has a key role to play in ramping up pressure on Moscow, and the various sanctions proposals put forth in recent weeks 

are excellent steps in this direction. I look forward to discussing 

these proposals during the question-and-answer session. 

Thank you. 

Chairman CRAPO. Thank you very much. 

Dr. Ludema. 

STATEMENT OF RODNEY D. LUDEMA, PH.D., ASSOCIATE PROFESSOR, SCHOOL OF FOREIGN SERVICE AND DEPARTMENT 

OF ECONOMICS, GEORGETOWN UNIVERSITY 

Mr. LUDEMA. Chairman Crapo, Ranking Member Brown, and distinguished Members of the Committee, thank you for the opportunity to testify at today’s hearing assessing U.S. sanctions on 

Russia. My name is Rodney Ludema, and I am a Professor of Economics at Georgetown University. 

Earlier this year, my co-author Daniel Ahn and I published a 

report titled, ‘‘Measuring Smartness: Understanding the Economic 

8 

Impact of Targeted Sanctions,’’ and I would like to take this opportunity to share some of the conclusions of that study with you. 

As you know, Russian intervention in Ukraine in early 2014 

prompted the United States and the European Union to impose series of targeted sanctions aimed at specific individuals, companies, 

and transactions believed to be involved in the illegal annexation 

of Crimea and the ongoing crisis in eastern Ukraine. Sanctions of 

this type are often referred to as ‘‘smart,’’ and their defining 

feature is that they seek to impact their intended targets with 

minimal collateral damage. 

Our study seeks to understand just how ‘‘smart’’ these sanctions 

have been in practice, and what we find is that the sanctions have 

indeed inflicted significant damage on the intended targets, with 

relatively little short-run impact on the overall Russian economy or 

on neighboring economies such as the European Union. 

Just to put sanctions a little bit in context, decades of experience 

with economic sanctions indicate that sanctions are most effective 

at altering the behavior of the targeted government when they are 

multilateral, focused, sustainable, and clearly contingent on an 

achievable goal. 

Smart sanctions are meant to achieve these ends. They are 

focused because they target the government and its domestic constituencies responsible for the offending policy rather than the general population, which may have little political influence. 

They are sustainable because by minimizing collateral damage, 

they lower the cost to the countries imposing them, and this is 

especially important when we are talking about a target country 

that is large and internationally integrated, such as Russia. 

So how do we go about assessing the smartness of Russian sanctions? First, we look at the sanctioned companies themselves. All 

told, we were able to find 584 companies that are either listed by 

the United States or the European Union in one or more of their 

sanctions lists or are associated with individuals on those lists. In 

addition, there are another 2,000 or so subsidiaries of these companies. 

Our method is to compare the performance of sanctioned companies to nonsanctioned peer companies before and after the sanctions were imposed. Our main finding is that sanctioned companies 

are indeed harmed by sanctions relative to their nonsanctioned 

peers. On average, a sanctioned company loses an estimated onethird of its operating revenue, over half of its asset value, and 

about one-third of its employees after being sanctioned compared to 

nonsanctioned companies. These estimates suggest that the targeted sanctions do indeed have a powerful impact on the targets 

themselves. 

The second part of our study estimates the collateral damage. In 

particular, we consider the impact that the sanctions have had on 

Russian GDP and on Russia’s imports from the European Union. 

The challenge in doing this is the fact that the conflict coincided 

with a series of powerful macroeconomic shocks, most notably an 

enormous decline in the price of oil, which is Russia’s main export. 

We find that the vast majority of the decline in Russia’s GDP 

and the vast majority of its import demand from the European 

Union is caused by the decline in the price of oil and other 

9 

long-term trend factors, with very little left to be explained by 

sanctions or other short-term factors. Thus, we conclude that either 

sanctions have had only a small negative effect on Russia’s GDP, 

as they were designed to do, or other positive factors coincident 

with sanctions largely canceled out their effect. 

Finally, we find that sanctions have had only a small effect on 

the economies of most European countries. Adding together the impacts of sanctions imposed on Russia along with Russia’s retaliatory countersanctions on agricultural products, we find that EU exports declined only slightly, causing less than two-tenths of 1 percent reduction in the GDP of the median EU country. 

Those are the results of our study, and I am happy to entertain 

questions about that in the Q&A session. Thank you. 

Chairman CRAPO. Thank you very much, Dr. Ludema. 

Let me go first to you, Ms. Rosenberg. Moscow remains 

undeterred in its Ukraine ambitions despite at least 2 years of 

sanctions, which were even compounded by an oil shock. What are 

the limits of employing sanctions against a large economy like Russia’s? And what sanctions tend to be the most effective to deter 

Russian aggression? 

Ms. ROSENBERG. Thank you for the question. As you note, Russia 

is a massive economy, and even in the period from 2014 to now, 

when we have seen the Russian economy shrink somewhat, it still 

represents one of the largest economies globally. Furthermore, it 

has a tremendous volume of external assets that are traded 

actively, including by U.S. financial entities and individuals. So the 

cautionary note on sanctions is to be careful about collateral damage for the United States. Going after Russia, particularly in the 

financial services realm, in ways that could affect U.S. institutions 

may be damaging to U.S. economic interests. Also, if the United 

States oversteps and goes too far on sanctions, in addition to the 

consequences my colleague laid out, it could invite retaliation. 

I would offer the same cautionary note about aiming too aggressively at its energy sector given the effect that that could have for 

consumers globally, including in the United States. 

Chairman CRAPO. Thank you very much. 

Mr. Lorber, some proposals put forth for increasing sanctions 

against Russia include various sanctions on Russian sovereign 

debt. Could you please explain what placing sanctions on entities 

transacting in issuances of Russian sovereign debt would have on 

the Russian economy and on global financial markets? 

Mr. LORBER. Absolutely, Senator. The macroeconomic impact of 

going after prohibiting purchase or facilitation of Russian sovereign 

debt is fairly uncertain. However, what the impact likely would do 

is it would put additional pressure on those SSI designated entities 

from 2014 that have effectively been to an extent propped up by 

the Russian Government. So it would continue to target entities 

that we have gone after previously. 

But the unknown about what the overall impact of sanctioning 

Russian sovereign debt would be is part of the reason that in my 

testimony I suggest ways that you can, in effect, ratchet up that 

pressure in a graduated manner so that you can, in effect, see what 

that impact is; and if the economic impact on those entities is not 

10 

what we want it to be, you can sort of come back and have a second 

bite at the apple. 

Chairman CRAPO. Thank you very much. 

Dr. Ludema, your study finds that while targeted firms are impacted by sanctions, Russia’s GDP is largely unaffected, noting that 

the most plausible candidate factor for this would be the Russian 

policy response. 

Explain what you mean by the ‘‘Russian policy response,’’ and 

how do you think the Russians responded to the sanctions within 

this context? 

Mr. LUDEMA. Thank you for the question. I would say that there 

are actually two reasons why the sanctions have had very little effect on the Russian GDP. One is that they were designed to not 

have an immediate effect. The biggest companies that are under 

sanctions are sanctioned under the SSI regime which simply restricts their borrowing of long-term debt and certain technologies. 

That is designed to kick in later as these companies start to roll 

over their debt. They are not likely to have a short-term effect, and 

we find that they generally do not. 

But, yes, you are right; there are things that the Russian Government can do and has done to also counter the effects. For example, the biggest thing that they did was allow the ruble to depreciate quite dramatically in 2014. 

Another thing that they can do is bail out certain firms, so they 

have a list of firms that they refer to as ‘‘strategic,’’ that are strategic by virtue of their economic or national security importance, 

and these firms qualify for state largesse in the form of state loan 

guarantees, capital participation, extra government contracts, tax 

breaks, and so on. 

I would point out, however, that all of these policy responses are 

costly to the Russian Government, so even if you see a company 

that is not obviously affected by Russia sanctions, if it is being 

bailed out, that cost is being imposed on the Russian Government 

in a different way. We have a saying in economics, which is that 

‘‘There is no free lunch.’’ And there is no free lunch for the Russian 

Government when it comes to dealing with sanctions. 

Chairman CRAPO. Thank you very much. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Ms. Rosenberg, if I could start with you, you described four principles you think policymakers should observe: maintaining broad 

support of allies; using sanctions as a tool, while including other 

diplomatic, political, economic, and military measures; tying sanctions relief tightly to specific policy goals; and, fourth, crafting a 

policy that is tough and constructive and also flexible enough to be 

workable. 

What are the greatest obstacles to maintaining these principles 

on Russia policymaking in this environment? 

Ms. ROSENBERG. Thank you for the question. One of those principles that is most vulnerable is finding unification and 

multilateralism on Russia sanctions. The reason why I say that is 

because of the conflicting political suggestions that we have seen 

coming out of the current U.S. administration, as has been mentioned by you. They suggest that there is an interest in pulling 

11 

back or reversing sanctions measures. Also signaling from within 

Europe, including from a couple of the leaders on European sanctions, France and in Germany, not to mention the Brexit vote, 

which suggests movement toward strong nationalism and away 

from the project of EU unification and transatlantic unity that has 

underpinned these sanctions on Russia. 

The difficulty in holding together that coalition is the greatest 

challenge to advancing further strong, cogent, meaningful, and 

strategic sanctions policy. 

Senator BROWN. You are suggesting, as I think you mentioned in 

the response to Chairman Crapo’s question, that there is a danger—you may not have used the word ‘‘danger,’’ but you said if we 

are too aggressive, especially on energy, when you think of how 

bound so many countries, especially those that were long-time Soviet—a long time part of the Soviet Union, how bound they are, especially on energy. Talk about that effect with our allies and how 

other proposed measures imposing secondary sanctions on those 

who facilitate Russia Soviet debt transactions, how that plays out 

and what concerns you have and which countries are most affected 

that way. 

Ms. ROSENBERG. On energy in particular, the challenge here 

about being too aggressive, I would like to condition that and say 

there are two challenges: one is being too aggressive too fast. It 

would be appropriate to move incrementally toward a more aggressive posture. The second one is that sanctions should always aim 

at what is realistically achievable. This is particularly important on 

energy where aiming too aggressively is infeasible ultimately. It 

would be impossible for the United States to implement aggressive 

sanctions on the Russian energy supply. European leaders would 

not join the United States on something that aggressive. For them, 

it would constitute a decision to cutoff some of their most significant energy supply sources. Literally, the lights go out, the heat 

goes off. That is a very difficult thing for many countries, particularly in Russia’s near abroad, its periphery, that rely so heavily on 

Russian refined products and natural gas in particular. The energy 

market is so large and so many nodes and relatively unregulated 

globally that it would be near to impossible to achieve broad implementation; and even if it were, what it could do—even if there was 

to be broad implementation of strong sanctions that go after Russia’s energy supply, it would have the effect of increasing prices, 

which some may welcome in the current oil price environment. But, 

of course, that benefits producers, including Russia, and disadvantages consumers, such as those in the Baltic States and all of us 

as consumers. 

Senator BROWN. Thank you. 

Real quickly, Mr. Lorber, talk about what conditions you think 

Russia should have to meet besides abiding by Minsk and stopping 

cyber attacks before any future relaxation of sanctions. 

Mr. LORBER. Thank you, Senator. I actually think that the Minsk 

II agreement does provide for 13 very specific obligations that Russia should meet and, frankly, is not meeting at the current time. 

And so it gives us, in a sense, a road map for sanctions relief. If 

Russia meets these objectives, then we should be willing to provide 

them at least partial relief as—— 

12 

Senator BROWN. They are meeting none of them now of the 13? 

Mr. LORBER. That is my understanding, so the major ones, for 

example, allowing Ukraine to have control over the Ukraine-Russia 

border; the removal of heavy weaponry; the allowance of OSCE 

monitors into the country; the return of Crimea to Ukrainian control. My understanding is that they have not met—they have certainly not met those, but they have not met many of the others of 

the 13. 

Senator BROWN. Thank you. 

Chairman CRAPO. Thank you. 

Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Mr. Lorber, I am just curious. We have talked a little bit about 

the issuance of sovereign debt and the challenges that we may 

place on the Russian economy and so forth if we were to restrict, 

either in a primary or primary and secondary basis, the purchase 

of Russian sovereign debt. How would that impact the individuals 

who are the decisionmakers or the impacters within Russia today? 

Would we be able to actually impact those individuals who are the 

decisionmakers? 

Mr. LORBER. Thank you, Senator. I think so, yes. The rationale 

behind the sovereign debt restriction is basically that when Russian entities were designated as SSIs, they were unable to secure 

new debt or in some cases new equity. And so the Russian Government injected capital assets into them to basically keep them going, 

in effect. And then Russia turned around and wanted to offer sovereign debt issuances so that it could then continue injecting more 

funds into those SSIs and SSI entities. 

To the extent that you can hurt those of the largest companies 

in Russia, the CEOs and major leaders of whom many are within 

Vladimir Putin’s close inner circle, I do think that will have an impact on their decisionmaking. 

Senator ROUNDS. How practical is the imposition of both primary 

and secondary attempts, anyway, at limiting the purchase of that 

debt? Would we have any support in the European Union? 

Mr. LORBER. So I think that is actually a fantastic question because I think that in terms of the imposition of primary sanctions 

that would prohibit U.S. persons, or any transaction with a U.S. 

nexus, from going forward, from doing transactions in that debt. 

That would not directly impact foreign financial institutions in the 

European Union, for example, but there would still be a significant 

market impact. So many of the sort of top-line European banks, financial institutions, would be unwilling to transact in that debt for 

fear that they might accidentally run afoul of U.S. sanctions. So I 

do think that there would be a practical effect of it, yes. 

Senator ROUNDS. Thank you. 

Ms. ROSENBERG. Senator, may I speak to this issue? 

Senator ROUNDS. Yes. 

Ms. ROSENBERG. Thank you. I wanted to point out something 

that all policymakers contemplating this kind of a sanction should 

bear in mind going forward, which is, of course, that aiming at 

Russian sovereign debt is a major escalation. It may be appropriate 

as circumstances merit, but particularly because you are going 

after the ability of the sovereign to raise money, there will be a 

13 

major public perception in Russia and elsewhere that this will constrain the ability of Russia to provide social services. This has 

worked to President Putin’s favor in bolstering his domestic popularity and support, and so this has to be carefully calibrated in 

order not to have the reverse effect, which is to say empowering 

President Putin at the expense of the pressure it is supposed to 

create. 

Senator ROUNDS. I think your point is well made, and the reason 

why I asked the question is specifically that. Does the emphasis actually fall on the decisionmakers, or does it fall on the general Russian economy itself? 

Let me just continue on, and I do have a question for Dr. 

Ludema. A significant portion of your testimony focused on smart 

sanctions and minimizing collateral damage, specifically as we just 

discussed with regard to the imposition of any sanctions on the 

purchase of sovereign debt. 

As you know, the United States has implemented a ban on the 

investment and now prohibits essentially all trade with Crimea, 

which is, in essence, an embargo on Crimea. 

To what extent does the U.S. trade and investment embargo on 

Crimea cause collateral damage on the average citizen of that 

Ukrainian population? And what role does this policy play in the 

grander strategy, of course, in Russia and Russian-supported 

groups to cease their malicious and destabilizing activity in the region? And does the value of this coercion outweigh the collateral 

damage to the majority of Crimea’ Ukrainian citizens now under 

Russian rule? A three-part question. 

Mr. LUDEMA. Thank you for the question. I think that if by collateral damage you mean damage to the general population in Crimea, I would say that there is collateral damage, certainly. Crimea 

is a relatively small entity so it does not have substantial impact 

on the European Union or the United States. And so in that sense, 

I think sanctions of that type would, nevertheless, remain sustainable. 

I think the idea behind the sanctions on Crimea is that it will 

make it difficult for the Russian Government to solidify its control 

in the area, and I think that is the purpose of it. Whether it succeeds is something that is beyond that. 

Senator ROUNDS. Thank you. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman, and I want 

to thank the panel for their presence here today and their testimony. 

Senator Rounds brought up the European Union, and I have just 

three general questions I would like to pose to everyone, beginning 

with Ms. Rosenberg. What is their role today? Second, can that role 

be enhanced to benefit the doing—and I presume they are—to undermine the European Union as they are trying to undermine so 

many institutions? So if you could generally respond to those questions. Ms. Rosenberg? 

Ms. ROSENBERG. Thank you for the question. The role of the European Union as counterpart to the United States in imposition of 

14 

these sanctions is significant, primarily because it has great economic integration with Russia—trade, investment, et cetera, for 

banks, companies, and the like. So the EU’s holding the line on 

these sanctions constitutes a bigger economic sacrifice for them in 

many respects, particularly for those countries heavily linked to 

Russia through trade on Russia’s periphery. 

The sanctions can be enhanced by the European Union, and, in 

fact, they are well placed to do so. There are a number of what 

have been referred to as loopholes in the European sanctions on 

Russia by comparison to the United States sanctions, involving the 

grandfathering of certain business and the availability of certain 

Russian firms to raise funds in European capital markets. That 

could be closed off. That would be at a great sacrifice to the European economy, one which many in Europe believe is worth it. 

And what is Russia doing to undermine the European Union? 

What we witnessed in the United States in terms of Russia’s malicious cyber intrusion into our electoral process in 2016 is occurring 

in Europe. It is active. It is well documented, including support for 

political parties and disinformation campaigns. 

Senator REED. Just let me qualify. The European Union is an institution itself with an elected President, et cetera. Are they targeting the European Union as an institution as well as the countries? 

Ms. ROSENBERG. I think it would be fair to characterize the effort 

by Russia primarily aimed at individual countries because giving 

rise to nationalist political currents in these individual countries 

undermines the project of European unification, which is Russia’s 

aim, and undermines transatlantic unity. 

Senator REED. Mr. Lorber and Mr. Ludema, any other comments 

that you think would supplement Ms. Rosenberg’s comments? 

Mr. LORBER. A couple. Thank you, Senator. 

On the first point, what is the EU role, I agree with Ms. Rosenberg and would also like to say that the EU program is actually 

very, very similar to the U.S. program. They have an SSI type of 

program. They have a list of designations. There are a number of 

designations which are different, so they do not have a number of 

people on their list that we have on ours, and vice versa. And so 

that is one particular area where we could align better and have 

them ramp up pressure. 

Also building off of her comments in ways that we can enhance 

the EU sanctions or have the European Union enhance their own 

sanctions, one area in particular is related to entities that are 

owned by Russian companies that are operating in the European 

Union. In general, these entities are not subject to the EU SSI 

sanctions, and that is a European decision to limit the damage to 

their economy. That could be a particular area where we focus on 

to have them go after. 

And then on your last point, the question about what is Russia 

trying to do to undermine EU unity, in effect, in addition to the 

cyber activity Russia has engaged in and the empowerment of far 

right parties, Russia has actively engaged in trying to pull one or 

two EU countries out of the sanctions sort of cooperative regime, 

because EU voting rules require unanimity and the sanctions must 

be renewed every 6 months. They were actually renewed a couple 

15 

days ago. And to the extent that the Russians can basically buy off 

one or two EU countries, such as Hungary, that can actually undermine the entire sanctions campaign from the EU side. 

Senator REED. Doctor, your comments? 

Mr. LUDEMA. Yes. I think that EU participation in this has been 

extremely important. The European Union is much more integrated with the Russian economy than we are. They have potentially more influence, but, of course, they are also more sensitive 

when it comes to collateral damage. 

On the question of what is Russia doing, they are constantly— 

constantly—filling the airwaves in Europe with negative news stories about the impact of sanctions on European companies, claiming way beyond the evidence that these things are having a 

devastating effect on European economies. And part of the reason 

that we wrote our paper was to demonstrate that, by and large, 

that is not true. 

Senator REED. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator. 

Senator Sasse. 

Senator SASSE. Thank you, Chairman. Thank you to all of you 

for being here. 

How rich is Vladimir Putin? 

Ms. ROSENBERG. We should assume very rich, although the 

amount of his assets has been a longstanding question. There is no 

full disclosure. 

Mr. LORBER. Again, there is no full disclosure, so it is unknown. 

My understanding based on public source reporting is that it is in 

the billions, if not tens of billions of dollars. 

Mr. LUDEMA. Yeah, I do not have a number on that either, but 

certainly his ability to tap into vast sums of money through his cronies and his network is—well, it is enormous. 

Senator SASSE. Can you remind us of his sort of resume, his 

work history? How did he get rich? 

Mr. LUDEMA. Corruption. 

Mr. LORBER. I am not a Vladimir Putin expert, but, obviously, he 

was in the KGB as a colonel for a long time, and then—— 

Senator SASSE. They make tens of billions of dollars, right? 

Mr. LORBER. They make tens of billions of dollars primarily 

through corruption and proceeds from state enterprises, is my understanding. 

Senator SASSE. So could you bound the illicit economy for us in 

Russia? What are its key industries? And how did it happen? Give 

us sort of a sweep—you know, Nebraskans, when they think about 

the demise of the Soviet Union, we remember sort of Warsaw Pact 

versus NATO. And in 1989 the wall falls. In 1991 the Soviet Union 

dissolves. Nineteen ninety-one (1991) to 1994 or 1995, we have this 

vision that there is going to be this sort of rise of democratic capitalism in Russia. That does not happen. So from 1995 until maybe 

2 years ago, give us a 20-year sweep of the Russian economy and 

sort of the role that illicit industries and cronies play. How does 

this develop? 

[Pause.] 

Senator SASSE. Not all at once, please. 

16 

Mr. LUDEMA. I will take a stab. I do not know if I would call 

them ‘‘illicit industries,’’ but certainly crony capitalism has been on 

the rise ever since Putin took power. One of the reasons, despite 

high oil prices, prior to the sanctions regime, despite high oil 

prices, the Russian economy was underperforming was precisely 

because of crony capitalism, that is, almost all of the big industries 

are controlled by Putin cronies. They used them as their personal 

piggy banks. They failed to invest adequately, and it has significantly sapped the dynamism of the Russian economy, such that 

even if oil prices were to recover and sanctions were to be removed, 

I do not think you would see a miraculous rebound of the Russian 

economy. 

Mr. LORBER. Thank you Senator. Important, I think, to add to 

this point as well is that as Putin’s cronies were enriched and took 

over state-owned enterprises, Putin also privatized—or, sorry, 

made public certain Russian Government entities, oil-producing, 

and put his individual sort of inner circle in charge of them to see 

the proceeds. And then of particular note, I think, to this Committee, Russian oligarchs set up a large set of shell companies, of 

mechanisms for transferring illicit funds, and, frankly, got a lot of 

those funds out of Russia. And so we know now that through Cyprus and other jurisdictions with lax anti-money-laundering laws 

and regulations, Putin and his oligarchs have actually managed to 

get all these funds into Western economies, into real estate, both 

in the United States and in London and other parts of Western 

Europe. 

Ms. ROSENBERG. I think my colleagues have offered a number of 

strong comments, and so I will not add more. 

Senator SASSE. Great. Well, we would love to follow up with you. 

My team will reach back out, because I think one of the core questions we face is the efficacy of the current sanctions regime, the 

possibility of a new sanctions regime and its cooperation with EU 

and other members, but also to what degree is it going to be efficacious if we do not have a lot of clarity about other places where 

money is housed that is not actually on the books in ways that can 

be transparent. Please, take a final word. We have a couple seconds left. 

Mr. LORBER. Thank you. The Counteracting Russian Hostilities 

Act of 2017 has a provision in it related, as I mentioned in my testimony, to a FinCEN-led task force or some type of task force to 

assess, identify, and eventually seize illicit funds that are in the 

United States. We know they are here; we just do not actually 

know where they are. And so I think that is one good proposal you 

could walk forward with. 

Senator SASSE. We would love to figure out ways to assist you 

in the work of being more transparent about those assets. Thanks. 

Chairman CRAPO. Thank you. 

Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman, for holding what 

I think is an incredibly important hearing, and I appreciate the 

testimony of the expertise we have here. I look forward to Administration witnesses so that we can actually move forward on developing policy at some point, but certainly this is incredibly helpful. 

17 

As the original author of many of the networks of sanctions that 

we have on foreign adversaries and belligerent actors, I certainly 

believe that economic sanctions remain one of the most effective 

tools we have in our peaceful diplomacy arsenal, which is rather 

limited. When you speak about nonmilitary engagement, it is the 

use of aid or trade to induce a country to act a certain way. International opinion, to the extent that our country is subjected to or 

willing to be affected by that—I do not think that Kim Jong-Un 

really cares that much—and the denial of aid or trade and/or something that we have used as an increasingly effective tool, which is 

financial sanctions to the most significant economy and financial 

system in the world. 

And so when we do not want to engage militarily, this is the universe that we have in peaceful diplomacy engagement. So I do not 

believe it is a sword to take out all the time, but I do believe that 

in certain cases it is incredibly important. 

In the case of Russia, they have violated the international order 

by invading and occupying sovereign countries, interfering in elections across the globe to sow distrust in the foundations of democracy, including here in the United States, and oppressing their own 

citizens. And if we want to ultimately have Russia and send a global message that there are going to be consequences for violating the 

international order and to send it not just in Russia’s case but in 

the case of others who may consider violating the international 

order, it is sanctions that very often can be the tool. 

I particularly get concerned about Russia not only interfering in 

our elections but violating arms treaties, which has lost some attention but is incredibly important. So I was pleased to join my colleagues in sponsoring the Countering Russian Hostilities Act. Like 

anything, it can be perfected, but I think it is a way forward. 

So I want to ask our witnesses, I know that some of you have 

talked about the reticence of sanctions use and getting our partners, particularly Europeans, on board. But isn’t it true that when 

we started the sanctions on Iran, we did not have European partners on board at the beginning. We brought them on board. There 

are times in which the United States must lead, and in leading, it 

then creates an international coalition. Isn’t that a fair statement? 

Any one of you want to answer? 

Ms. ROSENBERG. Yes, certainly. Someone has to lead and this 

body has in the past very effectively. 

Senator MENENDEZ. And if we waited for a coalition to take place 

first before we led, we would not have brought Iran to the negotiating table as we subsequently did. So I get concerned sometimes 

when I hear about that we will have reticence from our partners. 

Our partners very often will have reticence, but it is when we lead 

that we ultimately—and it is a robust diplomacy that is necessary 

to assure that and to show them why it is in their interest as well. 

Do you believe that among your discussion—which I have read 

your testimony and got a synthesis of what you said—is that having targets—do you believe, for example, that the violation of the 

Intermediate-Range Nuclear Forces Treaty that Russia recently 

conducted a violation of by deploying a ground launched cruise missile system, do you believe that sanctions play a role in ensuring, 

18 

for example, Russia complies with international arms control treaty 

obligations? 

Ms. ROSENBERG. Sanctions have not traditionally been a tool 

used to address that kind of violation, and as was demonstrated by 

the previous U.S. administration. There are other messages of diplomacy or engagement that have been a first step toward addressing and disclosing those, and working toward a remediation of 

them. 

I would offer that I think that kind of diplomatic and direct engagement and disclosure is a first, most important step and would 

reserve the option to consider sanctions, but not as a first step. 

Senator MENENDEZ. Well, I hope that the Administration engages Russia on its violation of that treaty. That to me is one of 

the most significant violations that have taken place that are a real 

consequence to U.S. national interest and security, as well as, of 

course, what they have done here in the cyber attack against our 

own democracy. I consider that an attack against the United 

States, one that, if it was in any other dimension, we would be responding to vigorously. And we seem not to have been engaged in 

responding to it vigorously, and I hope that we look at sanctions, 

the perfecting of sanctions in that regard. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. 

Mr. Lorber, do you believe the current sanctions against Russia 

have had any meaningful impact on Mr. Putin’s behavior? 

Mr. LORBER. Yes, Senator, I do. I think that there are multiple 

indications of this impact. The first element of this impact is from 

a deterrence perspective. So there were indications, so I have been 

told, that Russia was persistent to engage in even more aggressive 

activity in 2014, and they stopped short because of the fear of sanctions. 

Senator KENNEDY. Well, how do you know that? That is like saying let me tell you how many fish I did not catch on Saturday 

because I did not go fishing. You do not know that, do you? 

Mr. LORBER. That is a fair—I do not know that for certain. 

Senator KENNEDY. It did not stop Mr. Putin from—it did not stop 

his aggression in Syria, did it? 

Mr. LORBER. No. We did not have sanctions on Russia in response to Syria, but that is correct. It did not stop his activities in 

Syria. 

Senator KENNEDY. It did not stop him from trying to influence 

the American elections, did it? 

Mr. LORBER. I do not know—I assume it did not, no. 

Senator KENNEDY. It has not stopped him from implementing a 

disinformation campaign in countries in the European Union, has 

it? 

Mr. LORBER. I think that is correct. 

Senator KENNEDY. OK. What would be the most Draconian sanctions that the United States could impose upon Mr. Putin unilaterally? 

Mr. LORBER. So the United States—I am not recommending to 

do this—— 

19 

Senator KENNEDY. I understand. This is just information gathering. 

Mr. LORBER. Yeah, sure. The United States could take a number 

of actions. It could basically shut off the Russian financial system 

from the U.S. financial system. It could order all of the U.S. banks 

to close correspondent accounts on behalf of Russian financial entities, which would very likely have the impact of crashing the Russian financial system. 

Senator KENNEDY. Right. Now, you talked about—the three of 

you, any of you could answer this. I do not mean to pick on Mr. 

Lorber. You talked about Mr. Putin in response to Senator Sasse’s 

questions and his net worth. He is only the tallest hog at the 

trough. There are others at the trough, right? Do we know where 

their assets are? 

Mr. LORBER. We have some indications of where some of their assets are in the United States. That was information that has been 

developed through FinCEN, through one of their geographic targeting orders. But we do not have a broad understanding of where 

their assets are. 

Senator KENNEDY. But you know where some of them are. 

Mr. LORBER. We have been told that there is information suggesting that a lot of their assets are New York and San Antonio 

and Miami and San Francisco real estate properties. 

Senator KENNEDY. And you know where some of Mr. Putin’s assets are, do you not? Ms. Rosenberg, did you not say we could trace 

some of their assets to real estate in Europe and in the United 

States? 

Ms. ROSENBERG. Well, that may have been Mr. Lorber’s comment, but I would agree that there is a broad perception, backed 

up by certain evidence disclosed by the geographic targeting order 

from FinCEN indicating that Russian elite assets, not specifically 

Mr. Putin’s, which—— 

Senator KENNEDY. Do you know where Mr. Putin’s assets are, 

some of them? 

Ms. ROSENBERG. I do not know—— 

Senator KENNEDY. Do you think anybody does? 

Ms. ROSENBERG. Yes, I think someone does. 

Senator KENNEDY. OK. What would happen if we froze his assets 

and those of his participants in the crony capitalism? 

Ms. ROSENBERG. That I am not sure is—that seems to me a very 

challenging proposition, in part because—— 

Senator KENNEDY. Let us assume for a second we could do it. 

What would be the consequences of that in terms of the global 

economy? And in answering that, what percentage of the world 

gross national product is the Russian economy? 

Ms. ROSENBERG. I can speak to the first one first. So if we are 

thinking about this hypothetical situation, the assets of President 

Putin and his close associates, what may be beneficially owned by 

them directly as well as indirectly, are talking about a massive 

amount of money. If it were possible to go after that, I think there 

would be profound collateral consequences across the global economy and certainly in the United States. This is—— 

Senator KENNEDY. He owns assets of that size that would affect 

the global economy if they were frozen? 

20 

Ms. ROSENBERG. What I said was his assets, both direct beneficial ownership as well as indirect beneficial ownership, and those 

of his associates. 

Senator KENNEDY. Well, what would be the collateral consequences other than changing his behavior? 

Ms. ROSENBERG. Well, I will set aside changing his behavior, but 

as far as the economic consequences, I think it would be profound 

probably for all large U.S. global banks which would be in the position of implementing such a sanction. It would be a compliance and 

liability nightmare for them, as well as—— 

Senator KENNEDY. I have got 6 more seconds, so I have to interrupt you. We have just been nibbling around the edges here. The 

man is, your testimony is, worth tens of billions of dollars. Time 

Magazine says he is the most powerful man in the world. You cannot seriously believe that nibbling around the edges is going to 

change his behavior; we either put sanctions on or not. 

I went over. I am sorry, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. And thank you all 

for being here today. 

Our intelligence community has determined that Russia engaged 

in cyber attacks on the United States to interfere with our election, 

and several members of the Trump administration and campaign 

have questionable ties to Russia. There is good reason to believe 

that President Trump himself has substantial financial ties to Russia, only we do not know the details because he will not release his 

tax returns. 

None of this is normal. We are not even 2 months into the 

Trump administration, and FBI counterintelligence investigations 

and congressional inquiries have already been launched. Senior officials were caught lying to Congress. A national security adviser 

resigned in disgrace because he misled White House officials and 

the FBI about his Russian ties. And in the middle of all of this, 

Donald Trump incredibly continues to consider lifting sanctions 

against Russia. 

Now, last week, a Senate Subcommittee held a hearing with Ambassadors from six European countries—Ukraine, Poland, Georgia, 

Latvia, Lithuania, and Estonia. Four of these countries are members of the European and the NATO Alliance. They are all American partners living on the front lines of Russia’s destabilizing 

influences. 

At this hearing the Ambassadors agreed that the United States 

should not ease sanctions on Russia unless Putin actually makes 

some changes. So let me start there. 

Ms. Rosenberg, if we ignore our allies and ease sanctions without 

meaningful changes in Russia’s behavior, does that increase 

or decrease Putin’s ability to destabilize countries along its border, 

in the rest of Europe, and around the world? 

Ms. ROSENBERG. Certainly that would increase it. Russia thrives 

in that kind of environment. With its information campaigns and 

its destabilization conducted through information and funding of 

political parties, we would throw our European allies under the 

21 

bus. It would be difficult and damaging to transatlantic unity, 

which is challenging for the pursuit of our national interests. 

Senator WARREN. Yeah, and let us start with that basic principle 

that the purpose of sanctions is to discourage and change bad behavior. If Russia stands firm and we drop our sanctions in exchange for nothing, we are just weak. So sanctions work better, as 

you note, when we coordinate with our allies and our partners. 

Right now, the United States and the European Union coordinate 

sanctions on Russia’s financial, energy, and defense industries for 

invading Ukraine’s territory and undermining its sovereignty. 

These sanctions have taken a toll on Russia’s economy. The EU 

sanctions must be renewed every 6 months, and they did just that, 

renewing them now until the end of July. 

Ms. Rosenberg, is it fair to say that it is not easy for the European Union to keep doing this given the close economic ties between Europe and Russia? 

Ms. ROSENBERG. Yes, I think that is fair to say and particularly 

for some more economically exposed countries than others. 

Senator WARREN. And yet they keep doing it. Why? 

Ms. ROSENBERG. For a variety of reasons. I would suggest that 

they value their unity with the United States and the messaging 

effect that this has. They want to send a clear signal about what 

it means to violate Ukrainian sovereignty. And notwithstanding 

the economic pain for them, they still believe that this project and 

the self-sacrifice economically is worth it for the political and strategic benefit they may gain. 

Senator WARREN. And I understand from what you are saying 

here that one of our strongest tools against Russia is joint EU–U.S. 

economic pressure, that this is much stronger if we are working together. But if the United States unilaterally lifts its sanctions on 

Russia, which, of course, then encourages the European Union to 

do the same, how effective will U.S. and European efforts be to 

hold Russia accountable? 

Ms. ROSENBERG. Well, it may be very difficult to reestablish a 

united transatlantic front with economic measures toward Russia, 

particularly given the nationalist political currents that are more 

prominent now than they were in 2014. So that is one primary 

problem that will be an impediment. 

Also, I would suggest that the United States and the European 

Union will lack credibility if they try and do this again because we 

look fickle if we impose and then remove, particularly with no behavior change on the part of Russia. 

Senator WARREN. Fickle and weak. Congress must be able to review any attempts by this President to roll back our sanctions 

against Russia. I have cosponsored legislation that would do just 

that. We still do not know what is going on with this Administration’s ties to Russia, but as we wait for the facts to come out, 

strong congressional oversight is needed to ensure that the 

President does not throw away our leverage against Russia for 

nothing. Thank you. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator 

Senator Tillis. 

22 

Senator TILLIS. Thank you, Mr. Chair. Thank you all for being 

here. 

First and foremost, I think it is an absurd notion to think that 

this Administration would act unilaterally to ease sanctions on 

Russia knowing what this President knows now. So that is great 

for talking points, great for the midnight news cycle, but not a 

practical reality. This body would probably vote unanimously 

against any of that activity, so we need to make it very clear that 

is not on the table, except for the political rhetoric. 

And my answer to Senator Sasse’s question is Putin is as rich 

as he wanted to be. He is a totalitarian dictator who is putting the 

lives of 140 million-plus Russians at risk in terms of them being 

able to feed themselves and live a secure existence. 

What I think we need to talk about—look, I am all for projection 

of U.S. might, but I happen to agree right now that Vladimir Putin 

is probably the most powerful man in the world. He does not happen to lead the most powerful nation, but either legally or illegally, 

he can bring weapons to bear and devices to bear that the United 

States would not. And so we have to recognize him for what he is. 

But by the same token, we should not take the bait and overreact at the expense of hopefully winning the hearts and minds of 

the Russian people. Right now, the Russian people—you know, it 

is kind of difficult to figure out in the mind of somebody who you 

call up and ask what is your opinion of Vladimir Putin if you live 

in Russia. You are probably inclined to say you like him whether 

you do or not. But the reality is he is polling at 80 or 83 percent 

in terms of public opinion. So if we attack Putin and, I think, to 

use your words, Mr. Lorber, our response is too powerful, it could 

be at the expense of ultimately achieving what we want to achieve. 

So my question to you all is: What would be a more exquisite, 

more sustaining regimen of sanctions that—you know, we can talk 

about the money laundering, we can talk about their weapons 

laundering. We can talk about any number of manipulative practices that either Putin knew about or should have known about. 

We can talk about their sovereign incursions and everything else. 

But have you all thought about like an idealized framework, a multilateral engagement with the EU or NATO partners, what you 

would consider to be an idealized framework to really get to a point 

where you do not harm the individuals in Russia who are really, 

I think, peaceful people that we would like to develop a good relationship with, but these greedy, lawless leaders at the top, what 

sorts of regimens could we put into place that would make them 

start producing a better behavior that is to our mutual best interest? And in that, we talk about energy policy relating to sanctions 

making it harder for them to extract and distribute their natural 

gas in particular because there is a heavy reliance in Europe, and 

I understand that and the effect that it would have on our partners, which would make them apprehensive about going that direction. But I do believe U.S. energy policy can play a very important 

role in providing European nations with a choice that will make 

them have more options as we have to move forward and ratchet 

up sanctions. 

So in my remaining time, if you can give us an idea of—let us 

cut the politics out of this, let us get to a good, sustainable place 

23 

in sanctions—what does that look like from an idealized perspective, your idealized perspective? We will just go down the line. 

Thank you, Mr. Chair. 

Ms. ROSENBERG. Thank you for the question. I think this is a 

really important question to think about the framework and the 

strategy for an incremental and sustainable imposition of sanctions, escalation of sanctions. 

I would offer two principles right at the beginning, and the first 

is that sanctions should not be the only policy tool used to increase 

pressure on Russia; and, furthermore, that in addition to pressure 

on Russia economically, I would suggest and urge a corresponding 

outreach to the people of Russia to try and counteract along the 

lines that have been used in other sanctions programs, people-topeople exchanges, encouraging that to counteract the narrative 

that will be prominent in Russia, even more prominent than it is 

now, that these sanctions are meant to punish and penalize the 

Russian people. 

The first best step for enforcing and strengthening these sanctions is to further enforce sanctions already in place, authorities already on the books, and there is plenty of scope within the existing 

authorities. So in your capacity of oversight of the Administration, 

urging them to do things like add additional entities or sectors to 

the SSI list, further restrict new kinds of financial products that 

are restricted for those entities on the SSI list, and adding more 

names, that will all have an economic effect and a strong signaling 

and deterrence effect, and that is an area, apropos of Senator 

Menendez’s question, where the United States can and should lead 

partners who can and should do that in addition. There are opportunities there for Europe along with the United States. After that 

is a good opportunity for new sanctions authorities, as are being 

considered in the Senate and the House right now. 

Chairman CRAPO. Our time has expired, and we are going to be 

really tight getting through all of our Senators, so if the remaining 

two witnesses have anything to add, you could briefly do so, please. 

Senator TILLIS. Actually, I would prefer just to defer, and if you 

would contact my office, this is particularly important to me. I sit 

on Senate Armed Services, so I would like this feedback. I would 

like to act on this, not just hear your comments and wait for the 

next hearing. 

Thank you, Mr. Chair. 

Chairman CRAPO. Thank you, Senator. 

Senator Tester. 

Senator TESTER. Yeah, thank you, Mr. Chairman, for holding 

this hearing, and to you, too, Ranking Member Brown. I think this 

is a critically important hearing. It is important for the American 

public and all of their elected representatives to remember this: 

Russia attacked the United States and sought to undermine our 

bureaucracy. It is not a partisan issue. It is not something we 

should be playing politics with, though I am increasingly concerned 

that we may be heading in exactly that direction. We all took a solemn oath to this office to defend our Nation from foreign threats, 

and we must not lose sight of that duty. 

Before I talk about the sanctions, I want to talk about where this 

Nation and Congress is currently. We have become far too 

24 

politicized, which really threatens our national security, and I am 

troubled when I see respected voices like John McCain and Lindsey 

Graham, hear their voices fall on deaf ears of their leadership 

when they call for a bipartisan, transparent investigation into Russia’s action. I am troubled when the American people are 

stonewalled from learning more about the connections between 

Trump’s team and Russia. Just this past week, we had a close associate admitting that he communicated privately—a Trump close 

associate admitting that he communicated privately with a hacker 

who was believed to be a front for the Russian military. Before 

that, General Flynn lost his job for misleading the Vice President 

of the United States over the contents of conversations that he had 

with the Russian ambassador. 

Americans deserve an independent, transparent view of these 

types of relationships, and that will strengthen our democracy. 

Failure to do so would play into the hands of nations like Russia 

and Putin, who seek to do us harm. 

I believe that the sanctions that are in place in response to Russia’s attacks on our democracy and aggression in Ukraine are a 

starting point, but I believe more needs to be done. 

I will cut right to the chase. We have put sanctions on a lot of 

different folks out there. I need to know from the folks here—and 

I thank you for being here, by the way—your opinion on what 

would be the impacts if we sanctioned Putin. How would that be 

viewed? Anybody can jump in on that. 

Ms. ROSENBERG. I think that would be an incredibly aggressive 

step, particularly as a next step. And as I was suggesting in my 

previous comments, I think there is a range of appropriate steps 

that could and should be considered before then. 

There are very powerful implications of going after a head of 

state in this way that I think may not be the next step amongst 

the variety of tools that Congress should consider. 

Senator TESTER. And before we get to you, you have laid out your 

steps—you do not have to do it again, but you have laid out the 

steps that this Committee should be looking at? 

Ms. ROSENBERG. I have laid out a number of them in my testimony and would be happy to discuss them further. 

Senator TESTER. OK. Go ahead. 

Mr. LORBER. I agree with Ms. Rosenberg’s assessment. I think it 

would be a very aggressive action that might not have economic effect on Vladimir Putin, but certainly would send a very strong, and 

perhaps too strong, diplomatic signal. 

Senator TESTER. OK. Good. 

Mr. LUDEMA. I think that, putting aside the wisdom of taking 

such an action from a political point of view, the economic effect 

of doing that would be—according to our research, would probably 

be quite negative for Mr. Putin and probably would not have a substantial economic effect on the United States or the European 

Union. 

Senator TESTER. OK. Could you just quickly go through—and 

then I will give up the rest of my time—the steps you think we 

need to be considering, Elizabeth? 

Ms. ROSENBERG. I would offer that the first of those would include encouraging the Administration to enforce—as well as EU 

25 

counterparts—existing sanctions further. That may mean adding 

new entities—— 

Senator TESTER. OK. 

Ms. ROSENBERG.——or sectors to the SSI list, restricting different kinds of financial services that are—— 

Senator TESTER. OK. 

Ms. ROSENBERG. Right. And then perhaps additional authorities, 

some of which have been discussed or proposed in legislation before 

the Congress right now having to do with financial services and 

energy. 

Senator TESTER. OK. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator. 

Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

You know billions and billions of dollars, if you were just into 

this for money, you would take the money and go someplace else. 

Obviously, this accumulation of Putin’s is really related to power 

and continuing and maintaining power. And, obviously, what you 

get from this Committee and the discussion that we are having 

today is that sanctions on Russia do not necessarily curb behavior 

when someone is accumulating enough power that he can, in fact, 

continue to behave with impunity on the world stage in ways that 

all of us should find reprehensible, including the absolutely brazen 

attacks on our electoral system. 

And so we continue to be concerned about the amount of power 

that Putin has accumulated, especially given that he has made this 

seemingly in the interest of the Russian people. It makes this really complicated on how you deal with changing his behavior. 

There are two things I want to talk about. Number one is this 

sense that if we cooperate with Russia, if we turn the page and 

have a different relationship with Russia, Russia will be on the 

same page in the fight against ISIS. That was one of the expressed 

theories of this Administration going forward. I would like to hear 

your comments on whether you think that is a wise course, even 

assuming that we have the same interest as it relates to ISIS. 

Mr. LORBER. Do you mind if I take that first? So putting aside 

whether or not Russia would be a good partner in the fight against 

ISIS, which I know there is a lot of debate about, I still think it 

would be a mistake to trade sanctions for cooperation in the fight 

against ISIS, in large part because that would signal to Russia— 

for example, if we said, ‘‘Well, you know what? We are going to 

drop sanctions against Crimea that we have imposed,’’ it would signal to Russia that they can go ahead and continue their types of 

destabilizing activities in Eastern Europe, and it would also signal 

frankly to the rest of the world that principles of international law 

such as sovereignty are not as important to the United States as 

are other potential norms. 

Ms. ROSENBERG. If I could add to that, I think it is important 

to bear in mind that the bilateral relationship we are talking about 

with the United States and Russia is very broad. It, of course, includes a variety of different files even in just the security domain. 

It is completely feasible to envision a relationship with Russia that 

may involve some element of cooperation or coordination in, 

26 

perhaps, the Syria file where there could be some kind of transactional politics and agreement, and simultaneously envisioning in, 

for example, the Ukraine file a maintenance of current sanctions 

and a relationship of pressure. That was the case with Russia in 

the last Administration, for example, when we saw the amplification of Russia sanctions while seeing simultaneously coordination 

with Russia on the Iran file to remove sanctions. I think that principle of a variegated relationship is one we should hold forefront. 

Senator HEITKAMP. We have spent a lot of time talking about the 

European Union. We have not looked much into Asia and the relationship that Putin has with China, that Russia has with China, 

and the opportunity that he sees right now with the Arctic opening 

up and the challenges that we have in the Arctic. I would like just 

a quick—I only have about a minute left, but anyone who feels 

comfortable talking about how we need to engage with China in 

this discussion and also what opening up the Arctic has meant to 

his potential expansion on energy. 

Ms. ROSENBERG. Speaking to the Russia-China relationship, this 

is one in which Russia is the junior partner to China, which has 

been very aggressive with Russia in its contractual demands for energy, for example. It has not, as some feared it might, been the 

backfill for European and U.S. sanctions, providing lots of capital 

where it was not available from the United States and European 

Union. 

Senator HEITKAMP. We want China to continue to drive really 

hard bargains. 

Ms. ROSENBERG. And for that reason, this Administration and 

Congress should set a tone of communication with China rather 

than antagonism in order for China to continue to set those hard 

bargains. 

Senator HEITKAMP. I am out of time, and I want to respect the 

Chairman’s desire that this move along. But I did want to maybe 

follow up with you on the Arctic question. I think it is critical. 

Chairman CRAPO. Thank you, Senator. 

Mr. LUDEMA. Can I just give a quick answer on that one? I think 

the ability of the Russian energy companies to take advantage of 

the Arctic is already being severely limited by the existing SSI 

sanctions because that is precisely the technologies that are being 

restricted. 

Senator HEITKAMP. Thank you. 

Chairman CRAPO. Thank you. 

Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman. I think that 

weakening sanctions against Russia is like saying that we support 

their invasion and occupation of Crimea, of Eastern Ukraine, of 

their actions in Syria, of their destabilizing Eastern Europe, of 

their attack on our election system and our country, and their 

cyber attacks as well. And so I think to even discuss that is astonishing to me for any Government officials to be talking like that. 

Mr. Lorber, the question I wanted to ask you is that you noted 

in your testimony the fact that large sums of Russian money have 

been flowing into U.S. real estate markets. Russian oligarchs close 

to Putin are likely laundering funds through a network of shell 

27 

companies and depositing them in the United States through real 

estate investments. 

How can we work with the Financial Crimes Enforcement Network to discover these suspect investments and to better find them 

and to seize them? 

Mr. LORBER. Thanks, Senator. So the Financial Crimes Enforcement, or FinCEN, has over the past 2 years established geographic 

targeting orders which track cash payments or cash purchases of 

high-end real estate in a variety of markets, and that has provided 

FinCEN with information as to who is actually making these purchase. And often in cases it has turned out apparently to be Russian oligarchs. That is kind of the first step, which would be not 

only identifying that information but then having FinCEN work 

with the Department of Justice and with OFAC to identify who 

those individuals are, if any of those individuals are sanctioned entities, sanctioned persons, to seize those funds—— 

Senator DONNELLY. Have any of these real estate purchases been 

seized here in the United States? 

Mr. LORBER. Not to my knowledge, but I—— 

Senator DONNELLY. So why would they be hesitant to continue 

to launder their money through this if zero have been seized at this 

time? 

Mr. LORBER. So I do not have particular knowledge of where 

FinCEN is in terms of the information that they already have. If 

I had to guess, it would probably be to say that they are developing 

cases against particular individuals. But I do not know that. 

Senator DONNELLY. I think a very cursory effort could provide 

them with about 100 quick targets throughout the United States, 

don’t you? I mean, you know, the joke in New York is all you have 

to do is walk through Midtown at night, and you can see all of the 

luxury developments where, you know, floor after floor after floor 

are completely dark. 

Mr. LORBER. I agree. I think that these targets are sort of lowhanging fruit or ones that we probably have readily available to us 

to be the subject of enforcement. 

Senator DONNELLY. So what do we have to do to get FinCEN to 

move on these? 

Mr. LORBER. Again, I do not know where FinCEN is specifically 

in terms of this process. They could be just at the cusp of going 

after them, though. 

Senator DONNELLY. Well, my next question is: There are public 

reports indicating that the FBI may be investigating in one way or 

another Alpha Bank, which is a Russian bank. My understanding 

is Alpha Bank and its key stakeholders are not on the U.S. or EU 

sanctions list. Is that correct? That is for any of you. 

Mr. LORBER. I do not know off the top of my head. I can run their 

names through the SDN list and come back to you with an answer. 

Senator DONNELLY. OK. Elizabeth? 

Ms. ROSENBERG. I believe that is correct. 

Senator DONNELLY. OK. Are any of you familiar enough with 

Alpha Bank to assess its relationship to the Russian Government 

and to the network of oligarchs tied to Putin? 

Mr. LORBER. Unfortunately, I am not, no. 

28 

Senator DONNELLY. OK. It seems the most effective sanctions are 

the ones against the financial sector. I mean, that is just what it 

seems to me. What can we do to make those sanctions against the 

financial sector more effective? If you had one suggestion—I just 

have a minute to go—I would love to hear each of your suggestions 

about what we can do to make financial sector sanctions more effective. You each have 20 seconds. 

Ms. ROSENBERG. Broadly expand the entities targeted by SSI 

sanctions and certain of the financial products restricted to them. 

Mr. LORBER. Increase the OFAC and relevant European Union 

and EU member state enforcement authorities so that they clamp 

down and make sure that no sanctions violations are occurring. 

Mr. LUDEMA. Well, you could ban holding of existing paper rather than just new issues of paper. 

Senator DONNELLY. OK. Thank you all, and I just want to say 

one other thing, Mr. Chairman. I want to thank Adam Szubin for 

his service to this country over the years. He did an extraordinary 

job at great sacrifice to his family, and we are much safer and better off because of his efforts. 

Chairman CRAPO. Thank you, Senator. 

Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. I want to 

thank all the witnesses. My State of Maryland is home to the U.S. 

Cyber Command, and I think we all know that cyber attacks, cyber 

warfare, cyber interference is sort of the new dimension of international conflict. So I just have a few questions with respect to how 

we can use sanctions to deter that kind of interference. We see it, 

of course, on the commercial side as well as on the political side. 

On the commercial side, my understanding is that the Department of Justice actually just announced that it is going to indict 

two Russian Government officers for the cyber hacking, wire fraud, 

and trade secret theft regarding Yahoo’s breach of about 500 email 

accounts. That has obviously been an ongoing investigation. Under 

President Obama, we also had the sanctions targeted against certain Chinese individuals who were engaged in cyber theft. 

But I want to just focus for a second on using sanctions with respect to cyber interference for political purposes. We have all 

talked about how the Russians interfered in our elections. There is 

no dispute about that. They use cyber, they use fake news. They 

did it to support Donald Trump’s candidacy. That is the unanimous 

verdict of our intelligence agencies. And we also know they are 

doing it on an ongoing basis to interfere in the elections of our European allies—France, Germany—and we are going to get the results later today of the Netherlands elections. And they are doing 

it for the purpose of trying to undermine cohesion in the NATO Alliance, trying to undermine the European Union, because they 

want to encourage these nationalist sentiments that try to disrupt 

the unity that has been the cornerstone of our defense and our economic relationship. So we know what their strategy is. 

My question is—and I could not agree more with my colleagues 

that not only should we make sure we pass legislation to prevent 

the rolling back of any sanctions currently in place by the United 

States and others, but I think we also need to join with our 

29 

European partners to respond with sanctions to the interference in 

our elections, these cyber attacks. 

My question for all of you is: What do you think the appetite of 

our allies would be to ratcheting up sanctions against Russia 

specifically for their interference in our elections through cyber attacks and interference and hacking? And how would we best go 

about doing that, persuading our European partners that it is in 

our collective security and economic interest to do that? 

Ms. ROSENBERG. Thank you for the question. In answering this, 

I want to step back for a second and say I think that there would 

be appetite in Europe and here to use policy instruments to 

respond to malicious cyber activity. However, in the framework of 

cyber deterrence, I would suggest that these are still very early 

days, and the development of a broad strategic doctrine for cyber 

deterrence may take decades, as it did for nuclear deterrence during the cold war. And there are no set rules of the road or a concrete escalation ladder for deterrence. And once those are in place, 

there will be an opportunity to discuss in more specific terms which 

measures would be amenable or advisable for European colleagues 

as well as in the United States. 

However, I would just say in this hybrid warfare, including cyber 

activity and others, there is certainly a place for sanctions amongst 

other tools. 

Mr. LORBER. I agree with Ms. Rosenberg. I think the first step 

here is deciding for ourselves what the rules of the road are, and 

then once we have made that decision, then we target actors in a 

public way that we feel step outside those bounds. And the sanctions for cyber activity in many cases may not have as much of an 

economic pinch as they do sort of a symbolic deterrence effect. And 

so I think that making sure that we have established those rules 

first will send clear signals to our adversaries that this activity is 

outside the bounds of what we consider to be acceptable. 

Mr. LUDEMA. We have already identified quite a number of cyber 

companies and individuals associated with the cyber attacks and 

singled them out for sanctions. I would say that we would need to 

continue to find them and continue to sanction them. 

What our analysis shows is that when you impose blocking sanctions upon these individuals, it does have a significant effect and 

will degrade their ability to conduct further action. 

Senator VAN HOLLEN. Thank you. I think that the prosecutions 

we brought against the Chinese actors certainly helped establish 

the U.S.-China cyber agreement. So I appreciate your testimony. I 

know time is limited, but I look forward to following up with you. 

Thanks. 

Chairman CRAPO. Senator Cortez Masto. 

Senator CORTEZ MASTO. Thank you. Thank you, Mr. Chair. I appreciate the opportunity to participate in this important discussion. 

Thank you to the panelists. I apologize for my tardiness. I have a 

competing Commerce Committee meeting going on at the same 

time. But thank you for the discussion, and I have had the opportunity to review your written testimony as well. 

Let me turn to the G–7. As we all are aware, Russia was suspended from the G–8 after their incursion into Crimea in disregard 

for international law. Has Russia’s suspension from the G–8 had 

30 

any meaningful impact on their economy, their security, or their influence? And I am going to open that up to the panel. And then 

along with that, what can the coalition of G–7 countries do to be 

most effective in influencing Russia to abide by international 

norms and the laws moving forward? 

Ms. ROSENBERG. I can start. I think that it may be difficult to 

disaggregate the effect of removing Russia from the G–8 from other 

effects taken effectively and simultaneously, including sanctions, 

U.S. and EU sanctions, and a reinvigoration of NATO with respect 

to the Russia threat. However, I think that a primary effect of this 

removal had to do with signaling and the message that it sent to 

Russia and the global community about the interest of this group 

in holding to norms, particularly global norms, sovereignty, and 

what it means for Russia to no longer be welcome in that group 

of nations holding these norms. 

Senator CORTEZ MASTO. Thank you. 

Mr. LORBER. I agree. Thank you for your question. And I think 

that the primary thing that the G–8, now G–7 could do is offer as 

a carrot for Russia’s reintegration in the case is that Russia fulfills 

its obligations laid out under Minsk or reduces its cyber activities, 

et cetera. So I think that is a very serious carrot that we can offer. 

Senator CORTEZ MASTO. Thank you. 

Mr. LUDEMA. Yeah, I would say that it was a political move and 

not an economic one. I do not think that there is a great deal of 

economic benefit per se to being part of the G–8 or G–7, despite the 

fact that it is an important body for coordinating economic policy. 

Senator CORTEZ MASTO. No, and I agree, it is a symbolic move, 

like the hearing we are having today I think is a symbolic move 

that is important for the United States. 

You have also discussed expanding sanctions or improving on the 

current sanctions regime in some way. And while there certainly 

must be repercussions for Moscow’s actions and they cannot be allowed to act with impunity, how is this not just more of the same? 

In other words, what in Putin’s behavior or in Russia’s current 

standing makes you believe that this will produce any of the behavioral changes we are seeking from Moscow? 

Ms. ROSENBERG. I do not think it is redundant to engage in the 

active reaffirmation of principles, particularly when political circumstances change, including in the United States and in Europe. 

So reaffirmation of the posture toward Russia and condemnation of 

its aggression and foreign adventurism has political and messaging 

merit, and it may have economic effect as well. So I see it more 

as a reaffirmation rather than redundancy. 

Mr. LORBER. And I think there is some indication—as I was 

speaking about with Senator Kennedy, there is some indication 

that the sanctions have had an impact on Russian decisionmaking. 

So, for example, you see Vladimir Putin and Foreign Minister 

Lavrov coming out on fairly regular occasions saying, ‘‘We want to 

get the EU sanctions off of us; we want to get the U.S. sanctions 

off of us. They must be pulled down.’’ And so I do think to an extent it is impacting their choices. 

Senator CORTEZ MASTO. OK. 

Mr. LUDEMA. I would say that standing pat is not the same thing 

as standing still. The existing sanctions that we have, particularly 

31 

the SSI sanctions, will tighten over time as more companies roll 

over their debt, as the Russian energy companies are forced to 

move out of conventional drilling and into more exotic drilling. 

These things are going to slowly and systematically degrade the 

long-term growth prospects for the Russian economy. So I do not 

think that we should think that just because we have not imposed 

new sanctions up to this point that these sanctions are not going 

to have a continued effect. 

Senator CORTEZ MASTO. Thank you. My time is running out, and 

I just want clarification on one thing you were talking about, Financial Crimes division, FinCEN. And as the Attorney General of 

Nevada, I had the opportunity to work with them. So let me just 

clarify. It was not that you were saying they were not taking action 

with whatever information they are gathering with respect to real 

estate purchase by Russian oligarchs, correct? 

Mr. LORBER. That is correct. 

Senator CORTEZ MASTO. You just do not know of the action. 

Mr. LORBER. That is absolutely correct. I do not know what action they are taking, but I do not—— 

Senator CORTEZ MASTO. That does not mean they are not taking 

that action—— 

Mr. LORBER. That is correct. 

Senator CORTEZ MASTO.——as a body that gathers that data and 

working with those law enforcement agencies, correct? 

Mr. LORBER. That is correct, Senator. 

Senator CORTEZ MASTO. Federal law enforcement. Thank you. I 

appreciate it. Thank you so much for the comments today. 

Chairman CRAPO. Thank you very much, Senator. And I want to 

thank all of our Senators and our witnesses for following the time. 

We made it almost by 5 minutes to 12. We just ran over a little 

bit. 

To our witnesses, I want to say thank you again also for coming. 

I do ask that you respond promptly to questions that you will receive from the Senators who have 7 days to submit follow-up questions to you. You have been very helpful to us. 

When I hit the gavel, I am going to be heading out the door fast 

because I am already late to another meeting. But once again, we 

appreciate this. It is a critical issue, and we will be working together to try to move forward on making sure that we develop the 

right policy for this country. 

This hearing is adjourned. 

[Whereupon, at 12:01 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

32 


31517001.eps

March 15, 2017 

Center fora 

New American 

Security 

Testimony before the Senate Committee on Banking, 

Housing, and Urban Affairs 

Assessing U.S. Sanctions on Russia: Next Steps 

Elizabeth Rosenberg, Senior Fellow and Director, Energy, Eoonomies. and Security Program 

Center for a New American Security 

Chainnan CrApo, Ranking Member Brown, and distinguished members of the Committee, thank 

you for the opportunity to testify today on the topic of U.S. sanctions on Russia. 

The ~nctions that the United Stttcs and the European L:nion imposed on Russian entities and 

individuals O\'Cr the last se\'cral ye-ars have been among rltc most innovati\'C, tllrgetcd, and forceful 

examples of modem coercive economic statecraft. Designed to respond to Russia's illegal 

ann=tion of C'.rimea and aggression in Eastern Ukraine, the most powerful of these sanctions 

targeted Russia's financial services, energy, and anns sectors, as well as individuals dose to President 

Vladimir Putin. l11ese multilateral measures de~vered a powerful message of transatlantic unity 

regarding Russia's breach of Ukrainian sovereignty and cultivated substllltial economic le\'erage for 

the West. 'llteir impact and b·erage were significantly augmented by the oil price collapse in 2014 

and Russia's resulting loss of hard currency to cope with the sanctions '"ce. Transadantic leaders 

have linked implementation of the ~finsk agreements, including a cessation of hostilities, withdrawal 

of heavy weapons from the front lines, restoration of Ukraine's borde~ sovereignty, and political 

refonn, to removal of sanctions.' Sanctions linked to Crimea can be removed when Russia returns 

control over the peninsula to Ukraine.' Additional recent U.S. and EU sanctions have exposed 

Russia's human rights record, its destabilizing im·olvement in the conflict in Syria, as well as its 

insidious cyber intrusions into U.S. institutions and political processes. 

The e<:onomic force of these sanctions has diminished orer time as investors haYe adapted their 

business operations, the Russian e<:onomy has stabilized, and U.S. and EU leaders have not kept up 

the pressure of sanctions. Now, political sigmls from the new U.S. administration, as well as from 

nationalist political movements in Europe that could impact upcoming ele.:rions and leadership in 

France and Germany, that a warmer relationship with Russia may be forthcoming indicate to the 

1 Andmt 1nomas. .. Gcnn:m Chancellor Mtd:d Sars No Quick End 10 Sant ion~ Ag.tinsl Ru:ssia,"1'htU7JISirttljfNmftt/, 

October 23, 2015. hups;.//v.vov.'.\\'$j.com/articln/gtnnan<hancdlor-m~rktl-sa)'$-+nO-quick.cnd-lo-saoctionwgainstrussia·l.W561 J095; «J,ackag.e of Mtasucts for tbt lmpkmeotatioo of !he- Mt.~sk Apemtnts,» FtbNal)' 12,2015, 

:~cceS!>Cd ~brc:h 10. 2017. bup://v.v..vu-1)-s«.fr/:lS:stts/t.:p&cnds/P:tek~~f-Mtasurts-for-lh -lmpJemcnUiion-of-the­

.\linsk-Agrtemeols.pdf. 

! Nikki Halty, .. RtmarL at a Ur\ Securit)' Council Brieftng on Ukr.tine;'-' (U't' Security Counca Briefing on Uk!'lline, 

New Yodc, Ftbruary 2, 2017), hnp$;/ /USUlUI!ote.gov/mnt<ks/7668.. 

Bold 

lnnovat1ve 

B1part1san. 
33 


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pri,<!tC sector that sanctions may present event less of an impediment going fol\v-ard. 'fllc U.S. 

Congress is in the position to enhance pressure through new sanctions in response to Russia's 

increasing aggression in Eastern Ukraine, as well as its deeply concerning cyber interference in U.S. 

insti1Utions and e~1oral processes. Congress can offer leadership on the direction for an updated 

economic response, and set the tone for appropriate diplomatic ovcr1Urcs to both European allies 

and Russian counterparts. 

The Effects of Russia Sanctions 

The powerful economic effects of Western sanctions on Russia in 2014 arc dear, and they have had 

an influence on Russia's forcign policy since that time. J'inancial sanctions' locked major Russian 

entities out ofWestem capital markets and forced a scramble for hard currency, and pressure on 

state savings, to quickly repa)' massive debts.' They compelled U.S. and European oil companies to 

pull back from frontier oil development~ with Russian firms' and hampered Russia's access to 

military technology necessary to its broader security modernization efforts.' 

'flle record of Russian economic performance o,·er the last few years demonstrates a period of 

distress. From the beginning of2014 to December 2016 Russian external debt shrank from $729 

billion to $519 billion,' and oflicials drew down t:he Resel\·e Pund (one of the country's two 

SO\'ereign wealth funds) from $87 billion to S 16 billion' In an effon to s~abilize the economy 

Russian officials put in place a series of spending cuts, to take effect over t:he 2017-2019 period, in 

education (20 percent in real terms),' healthcare (25 percent in real terms)" and defense (17 percent 

in real terms)." Russian economic managers also allowed t:he ntble to plunge in value from 33.15 

rubles per U.S. dollar at the beginning of 2014 to as low as 83.59 ntbles per U.S. dollar in January 

> &ecuti•< Order 13662 of Marth 20, 2014, Blocking Prop<rty of Additio"~ p,...,., Co,tributio>g to lhe 

Si""tioo o1 t:kninc. c.de ofFtdmJ&g.h.> .. ,tide 3 (2014): 16169·16171 , bup~//wv.w.trt1.Suty.ff>''/rtsou«<· 

ccntcrhaoctioruo/Prognms/Documents/uk.ninc_co3.pdf. See Directi\'t$ l, 2. and 3 under Executive Otdcr 13662. 

'SCmond JftGalhcrt, "A YurofSanctK~nsAg:tin.c;t RU$su: A European Asstssmcnt oithe Outc()m(: and Puturt of 

Russi.a Sanctioo.s, ... (Cmtc,r for S!rntegic and International Srudj(~ Octobtr 2015), hups.:://csisprod . .S ... n:l.l.O<"v.'·"''"/.Jfs·pubhc/legtcy file•/fiks/pubtiootioo> 150929 deG~b<rt_S..o>crio>l$Russi• Wcb.pdf, 7. 

s Ibid.; See tlso Dirccti\'t 4 under Executi'-c Otder 13662; Guy Chazan and Jack Ft.cthy. "'Rw.na Arc1ic Enctgy 

Ambitions J~pardis«< by \V"-tem Sanction.(, .. Fi!JM.ia!Timu, Septemb('f I. 2014, 

huP'://www.fLCom/cO<IIm1/41dl9b 16-31c9-llc4·al9b.OOJ44Icabdc0. 

'Ex~ulivt Orckr 13661 of M.toch 16,2014, Blocking Pro!)(rty of Additional Persons Contributing to the Situation in 

Uk..inc, c.Je.jl'.krui ~·""""'""' 3 (2014): 1m;.1;;38, huJ"'//wv.w.trearury.ff>v/resoutt:t· 

ceoter/s""tioos/Programs/Doc:umcnl$/ukr1in<_eo2.pdf. 

'C<nttal Bank of R,.,;a, "Bolan« of P•Y"""" and Other Sut~tic> Comp~cd under th< Melhodology of th< 61h 

Edition of "Balanct of Payments and lntcm.alional hl\lt$lmcnt Position ManuAl" (8PM6}," Exttmal StiJqr SJaJish·a, 

)111uary 17,lll17, hup;//•"w.d>r.n>/eog/sutislic•/?P.OO="•· '~GnisllT of Fintnce of the RW$i11n F«<crtti.oll, ... Key Figures of Res(l'\'t Fund Mttlf,gtmel'lt," Rtsmv FHd~ Mtr(h 9, 

2017, hup://old.minfu1.1u/cn/....,,<fuod/soatisoocs/ re•_key/. 

"Russia's Restl'\'t fund LiuJc Clungcd Over J:t.ntl21'}\'" Rt~tlm, February 2. 2017, http:/ /v."\\'W.rtUIC(S.com/article/russi.afwuls·idUSR4N ICJ02C. 

9 Andrt)' Movchan, f(Pt:nOOns and Securicy: Rus$lan Budgtl Rt\'t:llls Go,·emmml POoritif!S.," Carnegie Moscow Centcr, 

D«nnb<r 1;, 2016, hnp://c.nt<gi<.ru/eommcnta')'/?fa=66-1;4, JO lbicl 

11 Luct(' Ikrtud-Sudrtau and Dougb.s Bamc, "Russia's Ckfcncc Sptnding: The fmpact of Econormc Contr.tetion," 

Miii"'JIJnlm.r Jll.g (P•IIs f-iht /ISS Dtfi»« .. J Miit"'J AM!Jsis Prog..,m), Mon:h 6, 2017, 

http;//•"w.uss.org/en/militarybolanccblog/blogsections/2017 .. &:c/fll1r<h·ro.5/russiu-<lcfm«.sp<nding·1dc6. 

C\AS ORG ~ C~ASDC 
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2016." Capital has Aed Russia, roughly $210 billion in 2014 and 2015 combined,'' and GOP gt'0\'1h 

con!racted from 0.7 percent in 2014to negative 3.7 percent in20l5, and while it climbed back last 

year growd1 remained negative." 

Russian officials have acknowledged publicly that sanctions had an economic effect President Putin 

stued in January 2016 that "sanctions are hurting us."" Sanctions were a meaningful contributor to 

Russia's agreement to the Minsk accord in September 2014 and the Minsk II revil·al in February 

2015. Arguably, Russia refrained from more expansionist political and territorial aims because of 

Western sanctions pressure. Despite the ongoing and serious violence in Eastern Ukraine, Russia 

and separatists are not pushing deeper into Eastern Ukraine or seeking a potential land bridge to 

Crimea. During this time, howe,·er, under the cover oi a retaliatory sanctions campaign, President 

1\Jtin implemented an import-substitution program to prop up the Russian agricultural sector and 

decried Western economic attacks. His popularity grew from 61 percent prior to dte conflict in 

Ukraine to 84 percent in February 2017." 

A Diminishing Economic Force 

Over the last couple of years the effects of Russian sanctions have significandy diminished. This has 

been one tmportant f.lctor in the recent Russian economtc stabilization. Cautious investors scared 

off by the sanctions are beginning to return and Russian fums have succeeded in bringing in 

financing that can be shifted to some of the state owned finns direcdy targeted by sanctions, a 

loophole in the sanctions on Russia. For e'"'mple, the 2017 Eurobond issuances are expected to be 

almost t:riple the 2016 amount" Also, in 2016, capital flight ""'s d1e lowest since the iinancial crisis 

in 2008 and one tenth of the 2014 rocord'' Russian economic growth is expected to rebound to 1.1 

percent growth in 2017,19 and currency value has smbilized at 58.91 ntbles per U.S. dollar." Oil 

prices have risen roughly 108 percent from lows in Januat)' 2016," and Russia has expanded its 

ak,>ady massive energy output by 4.4 percent between January 20 1~ and January 2017, drawing in 

ctitical new revenue streams for smte budgetS." In February 2017, Moody's upgrAded Russia's 

outlook to "Srnble" from the "Negative" rating it had given in ilpril2016." 

""Exchange !Utt A«hn·<S by Moo~th." (lnttmatiooal ~'"'"'")'Fund: M:u.:h 9, 2011), 

hnp:/ /w•w.imf.otg/<Xtemal/np/ fin/dafl/P'ro.m.;ms.Jllth.tSpx. 

u Leonid (kl'$hidsl:~·. '"Ocutf..Chc &nJ.:'s Ru~<.i:m Scheme lsntr Netdcdin 2011.'' 8.h9m~January 31,2017, 

http$:/ v.-v."A .bloombtrg.co 'iC'Y.·/arti<:ks/2017.01 31 drut~ht-bank-Hwsian...s<:hcme-isn+ «<kd-in-2 17. 

14 ''Subdued [)('mand: Symptoms and Remedies.," Wtm'J &114f!ri(OtttWM:. (lnttmalional onttary Fund; Octolxor 2016), 

h up;/ I """'.unf.otg/ tx ttnul/ pubs / ft/ weo/2016/02/ #21>nex. 15 Kenneth R.Jpou, •Putin Admits Sanctions Sapping Russia,~ Fltbu, O<:tobtr 21,2016, 

hnps:/ /•;•w.folb<•-<om/sit"/ken..,poz>J:llll6/ 10/21/putin"ldmiiS·S»Ktions·s:lj)ping·ruci•/ #6505•76c25d4. 

'' ''Putin's Appro,·al Rating," (Yuri u,·ad.t ArWytical Ctnter. February 2011). np://~·wwJewda.ru/en/. 

17 Kira z.s,')'l!O\'t, ~stars Align for Russil.n Euroboad )$$U(S After Thrte-Y ~~ Drought, ... RtN1d1, February 21, 2017, 

http:/ /•'<w.rtut<n.«>on/atticle/ruci>-<uroboods.idUSI.SNI G61QS. 

11 6el'$h.ici$J:y. "Deutsche Ba-ok's Russian Sch¢roe Jsn't N'«<kd in 2017. .. 

19•"Subducd [)cm:md" V'orkll!tr~«mtit0ullt»l 

3l As of March 3,2017. "Bxch.ange Rate Archi,'fs by Month!' 

" U.S. lln<rgr lofonn>tion Agen<y (EIA), "Europ< Brent Spot Price FOB," .\larch 3, 2017. Act=<! Ma.:h 13,2017. 

https;//•-.w.eiLgo,•/do~••/pe•/h st/LetrH .. >dkr .. shx?n=PilT&s=rone&f=D. 12 Ministry of Enrrgy of RU$$i21l F«ien.tion. "St:ttishcs." Acct'S$ed ~h.n:h 9, 2017. 

http://rnincnerrp.ffJ'·.ru/ro/acti,ity/statistic. 

!l Arney Stone, ·~\food)"$ Sees Rw.s.ia'' Crtchtwor1hineu Stabaiting." Bartrms, Ftbru-uy 17, 2017. 

http;/ /b ~barrom.oo.n/in<omeio,..,ting/2017/02/17/mood)'s"'"'....,;,,..,lt((j"'""ohi"'""'"bilizu>g/. 

C\AS ORG ~ C~ASDC 
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Surely the Russian economy is nor li,ing up to its t\11! potential, with property ownership rules and 

macroeconomic 1mnagement ar significant faul~ However, the resilience and smbilization of rhe 

Russian economy confirms that re<:ent impediments ro investment and growth, specifically 

sanctions, are no longer cultirating truly difficult economic conditions. At presen~ cl1ey do not 

appear to be impeding plodding growrl1, and seem highly unlikely to compel President Putin ro 

make any concessions to the West. 

All sanction.~ programs will lose their force over time as economic aCtO I'$ find work -arounds and 

circum,·ention opportunities. Simply put, the leverage d1at sanctions generate is a perishable asset. If 

policymakCJ'$ do nothing to alter or update sanctions, or enforcement authorities do not mke actions 

against violations, the effects of sanctions will continue to diminish. In the Russia case, diminishing 

sanctions cffccri,•cness redounds to the benefit of Russian econonric and inremational business 

interests. 

13roadly speaking. the reason for declining economiC efti:<:rs of the Russ1a sanctions is due primarily 

to alack of their maintenance. U.S. and EU policymakers made only very limited cffom in this area 

in d1e last couple of years, signiticand)' due to a lack of political will in Europe to craft and impose 

new sanctions." European leaders hare increasingly struggled over the last two years ro hold the line 

on these sanctions, doubting their utility and advisability. 

Since the U.S. presidential election, President Donald Trump's friendly smnce toward President 

llutin has given rise to the perception that the L:nited Smtes will pull back from sanctions, or ar least 

from their enforcement. President Trump has stated, "I would love to be able to getalong with 

Russia."!! For m,1ny,this indicateS an impending removal of U.S. sanctions on Russia and dte 

viability of signing new contracts with Russian firms. Upcoming e~:tions in France and German)' in 

which Russia-friendly parries are making a strong showing also contribute to the perception that 

Russia will soon come in from the cold and sanctions will ce~sc ro be the threat the)' once were."' 

Additionall)•, the slow departure of the United Kingdom, Europe's major fmancial center, from the 

European Union signals to the business community the appearance of crJcks in the oommon 

European foreign policy that hold e~:onomic sanctions in place." 

Russia is actively exposing and seeking to deepen these various tissures among transaclantic partnCJ'$ 

and pushing back against the weakening sanctions edifice. Through military posn1ring. media and 

cyber manipulation, and selected economic intenoention.~. President Putin has bt.>en trJnsparently 

engaged in a reprO'ach of Western interests and unity. Ht has directed an aggressive role in Syria in 

!4 Michatl Bin•baum, "Europun ttdtrSihttttt ~ t'IC\1/ sanctions against Rooia,>' Thr 7t1JliR~.f(JR PM, Oetober 20, 2016, 

hups:/ v.'\\ W.\\-'1.-~iogtonpost.oom wor european ktdct$ thtt.uen lltW•sancoons·agtinst• 

Nssia/2016/10/20/c6f82-l().%()e.tle6·9ote.2a357.fc296>6_stocy.bunl?utm_lenn=..:9bf•9f.l79<0. 

25 Brim Naylor, "'Nobody that I know oP: Trump lftnics Clmpaign Contxts \\~lh Rtmla., .. NPR, ebruacy 26,2017, 

http:/ /v. '\\w.npr.org/2017/02/16/)1 S624391/oob dy~that-i-know-o(-trump..dcnies-ca paign,ontac: $·\\~th-nmia. 

"'M:mhcw Dahon, "FaoC< l'oised for Pro.Ru,ja Pi•'OI," Tbr lflaO Shu/ J"""""- Occ<mbcr28, 20t6, 

hups;//•-.w.wsj.<om/ artick>/ frtn«·poiS«J.for-pro·NSSi.a·pi"ol·l482946472; S~tfan \'(/agst)i. "G<nna>> politi"' 

Russi2's nrX"I targtt?." Fi~~t~MJT;mr~,Januuy 29. 2017~ hltJ»=/ v.'YI.w flcom conl.rnl./31~758<:-('3d8- ll c6-%4). 

c93)7a7)844<. 

n Lturtn<:e Nonnan, "Brexit Likdf to Alte-r EU's Sanctions Polic-,-," Tht WJ Simi Jwn~al, Ottobcr 6, 2016, 

h ups;//"''"''· ""j.com/ utic.b/brtxil·~k< lr·•o-th<Hu..,an< li<>ns·poticy-147 S 726> l.l. 
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31517005.eps

support of President Bashar al-:\ssad under the guise of counterterrorism. Russia has backed 

continued hostilities in Eastern Ukraine, which have ticked up recendy, and in a newly provocative 

step has recenrly begun ro recognize passpons from the break-away Republics of Luhansk and 

Donetsk." Russia is in ongoing ,·iolation of the Intermediate Range ~uclear Force Tre-aty, a 

conterstone of post-Cold War nuclear arms control." Russian airplanes rccendy buzzed a U.S. 

aircraft carrier in the Black Sea,"' and they have approached the airspace of Japan" and allegedly 

violated cl1e airspace of the Baltic states, all allies of the United Stares'' At the preeminent global 

energy forum last week in Houston, a massive Russian delegation boasted about lucmtive and ,·ast 

ntw opportunities for Western firms with Russia, the world's largest oil producer. Energy minister 

Alexander ovak told the industry "Russia is open, it is open to invcstmenL'"' ·n,ese projections of 

Russian force and the assertion of its economic strength clarify that Russia is a serious, if more 

limited, international competitor. The West increasingly wdl have to contend with Moscow to 

advance its security interests and leverage. 

Evaluating New Sanctions Choices 

The new U.S. administration and Congress are now contemplating policy tO\vard Russia, and how to 

handle sanctions measures as part of that policy. 1be White House has not yet charted a definitive 

path forward with the Kremlin or, for that matter, with European allies. Just before tlking oflice 

President Trump suggested d1at a removal of sanctions is possible ifRussia helps the United States 

to counter the Islamic State of Iraq and Syria QSJS) and achieve other goals. He said: "if you get 

along and if ussi<~ is ~ly helping us, why would anybody have sanctions if somebodfs doing 

some reall)' great things?'"' More recendy, Secretary Tillerson has aitirmed the adminismuion's 

intent to hold d1e line on sanctions'' Members of Congress have met re1•elations by the U.S. 

!8 ~'East em Ul;r.Uoe \\itness~ '~t ,;o(cnt' v.'ttk in o,·er a year, $t)"S OSCE;'' Dtlt!stlx 111tl.lr, February 10, 2011, 

http;/ vlYi'Yi w.com/t /ta$ttm·ukninr-witutsScd~nost-\ioknt-Wttk·illoQ\'tr·t·)'tU·S2}'S~.c/•·3750256S; 

"'Gemta.ll)': 'Unacceptable' Tlut Rw.:si1 Aocepts SC'ptn~tiH Uk.raiJ,e Pus.portst Dr1111thr Wtlk, F'<b®ty ~> 2017. 

http:/ /v.Vi.w dw.oo /cn/gtwmy·uJUC«ptttble-th:at-ru..~lN.c«pts·sepa.uiUt·uk.rmne·plssports/ a-.>7~. 

l9 Michael R. Gordon, "Russial-hsOcployed Missile lhrrtdbr T~a y, U.S. Gener:t1 TdhCon~ss," Ntw Yo.rk: 7iMts, 

Mardt 8, W17, hHps://www.nytim.s.com/20t7/03/08/us/politics/russia-in(-mWil<-ln:aty.htmt? _r=O. 

» h·an Watson aud Sebastian Shukla, .,"RU$Si:ao Fighter Jeu tBw.t US Wa.rs.hip in Blaclt ~~.Photos Show," CNN.erJM. 

Febtu'l)' 16, W17. http:/ /www.am.com/ 20t 7 /02/t6/us/ !U..U-us·ship·!ly-by/. 

ll Frmz..SttJ:m Gady. "'Japll!l Scrunblcs Fighl_cr Jets to Intercept 3 RU$.S.ian StDtegic Bombers," Tbt Vipt.at,Ja.nuary 26, 

2017, http:/ / thcdiplomalcom/2017 /01/japan·m'llmh cs·f-ighttr·~ls· o·int~rccpl·3·nw.~an·stnt~~bomber.s . 

l2 DamienSha.Xo\·, 4(Ru:isit PromplS 20~a o Air Forte Scr.unbles In Baltic." Nn•f11.rtk, October 10,2017, 

hnp;/ / v.'\\W.t'lcv.'S-wttk.c:om/ russi.a-prompL.s·2il-nAtO·air-for««n.mbles-bahic..SOS727; Lia Fcrdinando, RussUn 

Airspoce Violotions in Noroic·Baltic Region Dtngtroos, Wo.k Say•," /)1)/) ,v,.., Oetobcc 7, 20t 7, 

http,f w\\w.ddeo~<.gov/No">/ Artidc/ Mi<lc/%$,71/)/ IUS'i>n ·:Urspocc·•i atioos·oH>ordic:~>ahic ·..gion -<bo>g<rous· 

wort·Sl}"'$. 

"Altundec No•-.k, "RIWia'sEn<rgy Futwt," (CERA\Veok, Houston, Ma.eh 7, 20t7). 

"Pet<r Nicbob.\ Paul B«kott, .OOGo..Jd F. Scib, 'Trump Optn toShiCt on R~• Sane1ioos, 'One Chint'Policy," J'hr 

IJ'1ttU Slrttt j6Hmo/. JtnW.r)' 13, 2017, ps://u~wwsj.oom/t1rtKks dooald-trump-sets·t·b:ar·for·N$Sia·~d-dUna · 

148436QjW, 

"C.d Schn:ck, "Uimmi.n l~ t S.ys TiDmoo Pttdg<s U.S. Suppott Against 'R an Aggre,.;.n ~ RFI!/RI., Ma.:h 7, 

2017, http:/ f• ... n<d.org/o ukrnnNays-u~tili<IS()n-pi<dg<HuppOtt-vs-nusia-aggression 2S356t88 hunl; ·~tini.s <r 

of Fon:igo Arfai .. <>( Ukrou>c Pavl<> Klimkiu hddo m<<ting.;th d>< U.S. S..:n:lal}'<>fS.at< RexTilknon," finistl}'O( 

Fomg,> Arfai" o( Uk<ai"'· N.-.>, M•rch 7, 2017. http:/ /m(o.gov.u:l/en/press-cent<r/•leu•/5538t-mini11r· 

zskordo h-spnt\ ·ukraji i-pavlo-klimkin-pro,iv-z :i-ltich-z.~erzhami ·sekrctarem ·ssha·rekso ill~nommin st · 

uk rd nih·!!prA\ ·uk rajini-podra.kuva\ ·~a-solid mis. y-l!polochenih ~hllli\··u-borotybi-uknjilli-proti-agrmjirfposlidoma·pral:tichna·pi. 
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31517006.eps

intelligence community of Russian intruSion inro the U.S. electoral process with ~larm and critique. 

Man)' have indicated the in rent to conduct~ full investigation intO chese practices.36 Members of me 

Senate ha1·e also propooed strong new sanctions on Russia" and an effort to prevent me LJ.S. 

administration from withdrawing sanctions without congressional approval." 

If LJ.S. policy leaders do decide tO alter Russia policy, specifically by making changes to sanctions, 

the primary challenge will be creating a unified srance between Congress and me administration. If, 

for example, the U.S. Congress adopts tough new sanctions on Russia, over and agJinst the wishes 

of the U.S. administration, it may ironically empowc1' President Purin and creaic serious confusion in 

me business community. Pri1>ate sector ftrms ma)' be unconvinced mat the Trump administration 

will enforce harsh new congressional sanctions. They will also face conflict of law problems as U.S. 

and EU sanctions move out of step, creating a complex web of potential liability. Cautious firms will 

hang back, and opporturlliric entrepreneurs will move forward to sign deals with Russian firms. 

President Putin has demonstrated acumen leveraging this kind of confusion and disunity in Western 

political relationships to deflect attention and ad1-ance Russian interests. 

Looking beyond this hypothetical scenario for Russia sanctions, there arc two other li.kd)' policy 

courses d1at also would have the effect of empowering President Putin eoonomicall)' and 

strategically, at the expense of LJ.S. interests and transadantic leverage. First, if rransadanric partner.; 

maint1in stAtus quo san•'tions on Russia but neither update nor enforce them, the effects of 

sanctions will diminish further over time. The business community and Russian poliricallcader.; will 

infer a lack of commianent by the West. In this environment new business "~dl sanctioned Russian 

firms will emerge, and Russian political leaders will perceive an opportunity to pur.;ue foreign 

ad1·enn•rism unchecked. 

The second alternative policy course is one in which the U.S. administration unilaterally rolls back 

sanctions on Russia, perhaps as part of a deal with Moscow, signaling greater politicallcC\11ay to 

President Putin in his imem.1tional dealings. Appearing to appease President l'utin in this way will 

suggest to him that his hybrid warfare approach, milit1ry posturing, direct interference in U.S. and 

omer elections, and adventunsm are acceptable. It could serve to encourage an escalation in such 

aggressive behavior, particularly on Russia's periphery. Additionally, it would constitute a truly 

historic signal from the new administration that imerference in a U.S. presidential elecrion will go 

unaddressed and invite our enemies to violate me sanctity of U.S. elections and our democracy 

openly and wimout restraint. 

Moreover, unilaterally lifting U.S. sanctions will create a very dif6cuh sirumion for allies in Europe. 

There may be some European articulations of concern about the current sanctions approach and its 

impact. Howe,·er, there is no popular desire to capitulate to Russia, rescinding the demand that 

Russia implement the ~finsk agreements and throwing out sanctions. European leader.; prioritize 

and >'lliue d1eir alliance with me United StAtes and the international inAuence mis confers. Without 

)6 Austin \Vrlght and Martin Matishak, ,,.Sc-tutors $('t lO hudcUI:' on Russia ru.dcing probc:/t Politico, February 2, 2017, 

hup;/ /w"w.polili<o.con>/.,ol)'/'lf)t7 /f'f2/ru.,ia-hodcing.,.nate·i.-·esligation·23+156. 

l ? U.S. SctUte, CA~mttr~1i~ RMssitt•llosti!iJits Ad {Mil, S. 94, 11jd• Cong .. 1•

1 scss. 

https:/ wv.w.ro y;=.fpv/IIS/b~ls{$94/B LLS- tt 5s94is pdf. 

" U.S. S.n>t<, RHS!W S.,di<mt P,,;,, Att of :!Oil, S. 341, II ;• Cong., t• "'"' 

hups:/ /www.oo grm fp\ ll5/b~b/•34 1/B LLS-115.J.ltis.pdf. 
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U.S. sanctions on Russia they will scramble to push oock on Russia and simultancouslr maintain 

alliance 1\;m the United States. Countries on the European periphery, particularly the Baltic 

countries, ";11 be left vulnerable by the abandonment of Washington on sanctions and the policy 

chaos that will ensue in Europe. The f jthuaniln Ambassador to the United S~atcs praised the U.S. 

sanctions at a Senate hearing last week, call in~ them "the strongest tool we have in our toolbox," 

and indicating that they '\vill unite Europe." 

In the economic realm, unilaterally remo,ing U.S. sanctions will create some confusion for the 

private sector, as U.S. sanctions move awa)' from Et.: sanctions. This move will also create new 

commercial opponunities with Russia. The United States is a more aggressive enforcer of sanctions 

than Europe and is perceived to set a very strong bar on sanctions compliance. So, in the absence of 

U.S. sanctions and a clear signal from the U.S. administration that it is rejecting this economic check, 

the White I louse will be validating Russia's message that it is open for business. 

The only effective strategy for cogent and credible sanctions on Russia in the furure is one in which 

the U.S. Congress and admims~n~tion are at least loosely coordinated. Whether sanctions are 

expanded, or if they are pt~llcd back, policymakers must coordinate signaling and clearly express legal 

expectations for the private sector. ~loreover, a new direction for sanctions will be forceful if d1e 

sanctions are coordinated ,,;th European counterparts. Notwithstanding me previoosly mentioned 

political views in Europe and the United States that undermine, or call into question, common 

European foreign policy, NATO, and the tr.tnsadantic alliance, it is not impossible tO envision a 

coordinated transadanric po~cy emerging on Russia in the furure. t.:ltimately, coordination between 

the U.S. Congress, the U.S. administration, and EU leaders on sanctions is essential for clarity of 

messaging and to prevent them from being. in practice, a sham policy effort rife with opportunities 

for cil'C\Jmvcntion. 

The Role tor Congress 

(.ongress has an important role to play in the adaptation and management of future U.S. sanctions 

policy toward Russia. There is considerable e.'pertise in cl1is policymaking body on both the crafting 

of sanctions and the exercise of U.S. policy tow:u:d Russia. Congress plays a fundamental role in 

offering ideas for sanctions policy. It can also deepen me public conver.l3tion over the strategic basis 

and consequences of sanctions enforcement, or non-enforcement, for the United States and other 

smkelloldcrs. Pundamentall)', legislators hare a powerful ability to signal polic)' imperari1·es to the 

U.S. administration, its allies in ~rope, and in this case direcdy to President Putin and his 

associates, about the economic consequences of aggression and foreign ad,·enturism. 

More broad!)' on Russia policy, members of Congress are m a unique oversight position, capable of 

soliciting and making public expert ,;C\vs on the threats that Russia poses to U.S. institutions and 

core interestS at home and abroad. Mentbers of Congress working to set d1e right tone for U.S. 

engagement with Russia is crucial; they can be a source of important leadership in the overall 

e.'ecurion of U.S. policy toward an aggressive adversary. Moreover, d1e decisions of Congress 

l9 U.S. Congrtss, &nate, Commiucc on .AppropriabOn$.. Subcommittee on St:ttc~ Fortign Optr:ttions.and Rdated 

Programs. HNringon Rus:s.ian PoGtie:s.& lntentiom Toward Specific Europc'1n ou:nllie)~ Ll5th Cong .• ht SC:sll., 2017, 

230. 
39 


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regarding appropriations and law.mker;' guidance on force posture and projection, and foreign 

assisrnnce, is fundamental ro advancing U.S. national sa:uriry intereslll. 

On Russia sanctions going forward, Congress can and should eng•ge me administration to urge 

continued enforcement of sanctions and make clear the folly of an)' policy ro remore !>.1nctions 

without Russian fulfillmem of ~tinsk oomn~tments or cessation of malicious cyber intn1sions. 

Congress must also ensure !hat outcomes of congressional investigations into Russian actions during 

the 2016 U.S. elections are factored into !his discussion. Additionally, given me technical expertise 

of me Banking Committee in particular, members can offer a sober reminder to ad~nistration 

officials and colleagues in Congress of some of the core principles necessary to carry out a successful 

sanctions policy. There are four principles in particular to bear in ~nd wi!h regard to Russia 

sanctions. 

Pin;t among mese is the necessiry to mainttin a broad coalition of support for d1e economic 

measures, for clariry of message and to prevent circum1·ention. This requires U.S. policr leader; 10 

coordinate and mo1·e together "'th ~ropean allies, as prenously mentioned. Second, sanctions 

cannot be me only foreign policy tool 11> usc against Russia to advance U.S. interests in Ukraine, 

Syria, or with regard to Russian cyber intrusion. They must be accompanied by broad and imensi1·e 

diplomatic engagemen~ a sustained commitment to NATO, and thot1ghtful use of U.S. foreign 

assistance and securiry assets abroad. When it comes to Ukraine, mey must also be accompanied by 

trdllsatlantic allies' provision of a serious pacbge of economic, securiry, and technical a.~sisrnnce 

with specific conditionalities and assurances. 

A mird policymaking principle mat is particuL1rly importmt in the Russia sanctions case is the need 

to keep sanctions implcmcnrntion consistent!)' tied to specific foreign policy objec.civcs. Decision 

maker; cannot let them evolre into mere expressions of blunt hostiliry, punishment, or antagonism. 

Any new sanction must be accompanied by an artiet1larion of the behavior change that U.S. leader; 

seek from Russia, and there must be a practical pam laid out for re.lief from sanctions if Russia 

changes its behavior. If this is absen~ sanctions cannot be the deterrent or inducement of beha,;or 

change that they are meant to be. 

A fitr.d principle to guide Russia sanctions is that the development of new sanctions ideas, and their 

possible deplormen~ should not preclude a U.S. approach to Russia policr mat can be bod1 

constructive and tough. It can feature sanctions on one policr issue area, such as lJkrnine, but 

engagement and potential collabor.•tion in another issue area, such as Syria and countering ISIS. The 

U.S.-Russian bilareral relationship is, of course, broad, featuring a variery of serious security interests. 

Over the last several years mis relationship was able 11> accommodate strong coordination in me 

n''gOtiation of me Iran nuclear deal and remo1·al of sanctions, while simultaneously experiencing a 

sharp dererior•rion in relations due to Russian actions in Ukraine and the expansion of targeted 

sanctions on Russia. Going forward, d1e U.S. approach 11> sanctions c-atl and must be as variegated as 

it has been in d1e past, featuring adaprntion and tightening of sanctions in some areas, and possibly 

relief in others if poli'J circumstances merit. 

New Measures for Consideration 

Members of mis Committee and other legislators in the Senate and House arc considering a variery 

of approaches to maintain and deepen the effects of Russia sanctions. These include efforts to 
40 


31517009.eps

compel the adminismtion to hold the line on current L:kraine-linked sanctions; codif~ng existing 

e.'ecuti1·e sanclions authorities imo law by statute; and urging enforcement of these executive 

aucl1orities. These ideas ha1·e considerable scope and merit and should be seriously considered. In 

addition, newly proposed legislation to address Russia's malicious cyber activit)' would create new 

financial penalties for such action. !any legislators expect and demand a penalty for d1ese intrusions 

and are looking expectancly to sanctions options. This is reason enough to carefully sn•dy and refine 

these new cyber sanctions ideas, along with additional cyber, imelligence, coven action, and other 

poliq• options, to expose and counter Russia's insidious q·ber acti'"cies. 

New sanctions proposals introduced in the Senate to deepen the penalties on Russia for its 

aggression in Llkmine would create aggressil'e new authorilies to tighten Russia's access to financial 

sen"ces and its ability to gamer investment in its \'ast oil and gds producing or pipeline deli1·ery and 

expon sector. These energy-focused m('l\Surcs could be tremendously damaging to m.'lrkets, to U.S. 

credibility, and to the enterprise of U.S. economic statecraft more broad!)'. 

Specifically, d1e aggressil'e new Russia energy sanctions currencly under Senate consideration w()uld 

be "inually impossible to implemem, even with full European cooperation gi\'en the tremendous 

size and scope of the Russian energy and transporntion sector. Europeans will not participate in 

such sanclions, even if they are inclined to strenuously expand economic pressure on Russia, given 

the disastrous economic consequences of, in effect, suddenly cutting ofi one of their most impornnt 

sources of energy. U.S. lawmakers will look unscrious if they impose policy that is impossible to 

implement. Even worse, it will undermine the ability of U.S. policymakers to use sanctions in any 

future instance because it will strengthen the impression of some that U.S. sanctions are a paper 

tiger lacking force and credibilil)•. 

Even if such sweeping energy sanctions could be implemented they would be deeply d.1maging to 

the econontic interests of dte United States and its allies. Russia is the largest oil producer" and cl1e 

second largest producer of natural gas;" severely crippling thts suppl)' by halting foreign investment 

into its production and pipeline distribution would cause painful energy spikes and volatility that 

would ripple through the entire global economy. Any new energy sanctions on Russia should be the 

subject of serious discussion with European counterparts and U.S. economic managers. 

There are oclter more targeted ways that U.S. policy leaders can expand financial and energy pressure 

on Russia if they determine that sud• steps are appropriate to address Russian threats. I believe this 

chamber is considering the idea of crtllcing restrictions on the participation of U.S. individuals and 

irt~titutions in the issuance of Russian sovereign debt, a powerful cscailltion in s:\llcrions pressure. 

Legislators are also considering narrowing cl1e access of Russian firms to U.S. capital markets by 

shrinking the maturity length of debt instruments, or access to deri1o:tti"es trdding. available to to 

Russian firms. These ideas would make it significantly more difticult for Russian entities to raise 

money and access hard currcncy.ll1ey could be rclati,·ely ~argeted and implemented in an 

incremental fashion to minimize unintended consequences . 

., Oaudia Caq><nttr, "Russia Ovtnakcs Saudi Anbia"' \'!'odd's TopCrudt Oil Prodootr; 81oo b<~ February 20, 

2017. ttp~/ /v.v.w bloo co news/!l.rlidcs/20 17 .4J2-1fJ N$$ia~v«t!l.kts-saudi mbia-:u-world-s la~st<rude

produ«r. 

•t U.S. i?J,l·rgy lnfonnallOn Adminis1ntion, "Ru'SSla," b.st updat«< Oe1olxr 2.;, 2016, acce~ atth 10,2017, 

hups:/ /W\l"'W,C'iil.g<>\1/bett/inlemalioual/ anslysiufm?iso=RUS.. 
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Other ideas that I believe this chambet is considering in the energy domain include dte expansion of 

restrictions on U.S. firms from providing teclmology, equipment, and services to the Russtln 

refining sector. Additionally, under cons den~tion is the idea of expanding the shale, deepwater and 

Arctic restrictions in current sanctions to co,·er Russian oil venrures outside of Russia's territorial 

boundaries. These ideas would create some limitations on Russia's ability to upgrade its refining fleet 

to be able to deliver higher qualil)' and higher Yalue products for domestic use and e.xpon, prim.1rily 

to Europe. It would also impose limirntions on Russia's abilil)' to launch frontier oil projects abroad 

in the furure. In the current oil price cm·ironment, and given Russia's abundant untapped domestic 

crude resources, the new frontier oil measure would have no real immediate effect but would instead 

represent a clip on prospective enerm• developments and a symbolic gesture to limit Russia's 

international economic expansion. 

lleyond d1ese new sanctions ideas, Congress could lobby European leaders to expand economic 

pressure on Russia by toughening their own set of sanctions. European sanctions currendy allow for 

some grdndfathering of European business with Russia as well as some European financing for 

projects with Russia where such activities arc not offered by U.S. Clltitics. 1llcrc nmy be opporrunil)' 

for Europe to more closely circumscribe these permitted business arrangements. Congress should 

urge European counterparts to consider such options, while being cognizant of the broader 

economic burden European businesses shouldered when it comes to sanctions and their greater 

economic 'ulnerabilil)' to Russian retaliation. 

These ideas, and others, are worth the careful consideration of the Congress. 'Otey can be measures 

to prepare for deplorment, along with othex policy options, to address Russian aggression and 

incursions in the furure. They can also be a set of ideas to form the basis for discourse and 

negotiation between Congress and the administration to ultimately formulate a coordinated Russia 

poli<.T· Additionallr, they can be discussion poin~ in a conrers.1rion with European allies about how 

to proceed on Russia pol.icy. Wicl1 a wide array of diplomatic relationships in Europe, foreign policr 

leaders in Congress can play a crucial role in this domain. i\s previously mentioned, any sanctions 

approach on Russtl is stronger and more credible if it is coordinated between brooches of the U.S. 

go,·cmment and multilatemllr, underpinned by dose transatL1nric communication and a clear-eyed 

appreciation oi stal<cholders' goals and challenges. 

Conclusion 

The grave n<trure of U.S. securil)' concerns at home and abroad regarding Russia means that the 

stal<es are high for sanctions policy. 1\ow, as U.S. Ieaders are contemplating recalibration of this 

policy they have less leverage than they did a couple of years ago and a much more challenging 

footing to keep transatlantic ties strong and respond to Russian aggression. The only path for 

continued cffecti,·c s.1ncrions on Russia is a difficult one. It involves negotiation and coordination 

among various leaders whose political and wor dl'ie~vs may render such activity distasteful and 

frustrating. Yet the altematives, srnsis or conflicting sanctions policy, delivers economic, security, 

and political benefits to President Putin and undero1ines U.S. interests. These arc losing 

propositions. It is fur preferoble to mainrnin Western economic leverage with Russia and negotiate 

from a position of strength, whether or not an ultimate goal is a deal with the Kremlin. In this 

tO 
42 


31517011.eps

context, U.S. lc:tdcrs must pro-<~ct vcly take on the project of updating sanctions and forging what 

will be a new sctge in transadantic coordination on this critical poliq• challenge. 

II 
43 


31517012.eps

Biography 

Elizabeth Rosenberg 

Senior Fellow and Director, Energy, Economics, and Security Program, Center for a 

New American Security 

F.li?.abcth Rosenberg is a Senior Pellow and Dirwor of the Energy, 

Economics and Sccuri~· Program at rhe Center for a New • \mcrican 

Sccurity.Jn this capacity, she publishes and speaks on the national 

security and foreign policy implications of energy market shif!S and 

rhe cn1ironmcntal effects of climare change. She ha.• restified before 

Congress on energy issues and been quoted 11idely by leading media 

oudets in the United States and Europe. 

f'rom May 2009through September 2013, Ms. Rosenberg served as 

a Senior ,\dlisor at the U.S. Department of the Treasury, to the 

Assistant Sttrerary for TerroriSt Financing and Financial Crimes, 

and then to the Under Secretary forT errorism and Financial 

lmdligcnce. In these senior roles she helped ro dc1·clopand 

imptemenr financial and energy sanctions. Key initiatii'CS she helped to oversee include the tightening of 

global sanctions on Iran, the launching of new, comprehensive sancrions against Ubya and Syria and 

modiflcarion of Bumta sanctions in step 11;rh normalizarion of diplomaric rclarions. She also helped ro 

formulate anti-money laundering and counrcr·terrodst financing policy and OYcrsce financial regulatory 

cnforcCnlCnt activities. 

From 2005 to 2009 ~Is. Rosenberg ll'liS an enetro• policy correspondent at ,\rgus Media in Washington 

D.C., analyzing U.S and ~fidd e Eastern enetro· policy, regulation aod trading. She spoke and published 

cxrens.ively on OPEC, strategic reserves, energy sanctions and narional security po1ic)', oil and oarurnl gas 

innstmcnt and production. and renc\,:ab1e fuels. 

Ms. Rosenberg studied Cnttg)· subsidy reform and Arabic dw:Utg a 2()0.1.2005 fellowship in Cairo, 

Egypt. She""'' an editor of the Arnb Studies Journal from 2002-2005 and researche-d and wrote on 

)fjddte Eastern politics at the Council on Foreign Relarions in 2003. She received an MAin >iear 

Eastern Studies from New York UniYcrsityand a B.\ in Politics and Religion from Oberlin College. 

CNAS ORG I " ~CNASDC 12 
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31517013.eps

CONGRESSIONAL TESTIMONY: FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Senate Banking, Housing and Urban Affairs Committee 

Assessing U.S. Sanctions 

on Russia: 

Next Steps 

ERIC LORBER 

Senior Advisor 

Center on Sanctions and Illicit Finance, 

Foundation for Defense of Democracies 

Senior Associate 

Financial lnttogrity Netll'ork 

Adjunct Fellow 

Cemerfor 11 New American Security 

Washington, DC 

March 15, 2017 

~FDD DEIT.NSE OPDEM()CRACIFS 

·IDe vic\\s c.xpresW in lbis 

lcstuoooy art my O\\n nnd 

do ""' Jqn'S<fllli>< viC\\ s of 10)' inShlutiXl \\11h 

•bKb lam llffilgtcd 

w11w.defenddemocracy.org 
45 


31517014.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

lntrodur.tion 

Cl1ainnan Cmpo, Rrutking Member Brown, and distinguished members of the Senate Committee 

on Brutking, Housing & Urban Affairs, I am honored to appear before you today to discuss 

assessing U.S. sanctions on Russia rutd ne~1 steps. 

I would like to focus my testimony on the effectiveness of the current U.S. sanctions programs 

targeting Russia, as well as what \be United States can do to responsibly mmp up economic 

pressure on Russia to convince Moscow to cease destabilizing activities in Eastem Ukmine, reduce 

malicious cyber activities targeting the United States and its allies, ru1d limit their military 

operations in Syria. 

To date, U.S. sanctions on Russia have a mixed record of success. Many macroeconomic 

indicators and recent studies suggest the variOtiS fonns of sanctions- in particular the sectoral 

sanctions imposed on key Russian economic sectors-have had an impact on overall Russiru1 

economic health. Likewise, RtiSsian Govemment officials continually push for S<lllctions relief, 

eitl1er in public statements' or by trying to undennine EU sanctions,2 suggesting that Russia is 

feeling tlte pinch. 

Nevertl!eless, the United States has not achieved many of the core objectives it sought \\1ten 

deploying these tools; while the United States has imposed one oftl1e most sophisticated sanctions 

regime ever constructed- iucludiog list-based sanctions targeting Russian individuals supporting 

separatist activities in ea~te m Ukraine, as well a<> individuals engaged in human rights ab11ses, a 

comprehensive embargo on Crimea, sectoml sanctions focused on key sectors of tl1e Russian 

economy, srutctions targeting Russian malicious cyber acti,~ty, and secondary sanctions 

authority- Russia continues to engage in threatening activity in a range of areas. In Eastem 

Ukraine, Russian-backed forces continue to violate tlte ceasefire, routinely attacking Ukminian 

villages and military personnel. Likewise, Moscow continues to target Russian opposition leaders, 

often with lethal means. Last year rutd again more reoently, Russian opposition leader Vladimir 

Kam-Murza was poisoned after speaking out about Russian h11man rights abuses and comtption, 

with many believing the Russian Govenunent was behind the attempt on his life.l This poisoning 

1 David Haszenlx>m, "Putin Calb for End to Use of Sanclions and Criticizes U.S. in Afghanistan," Tire New l'orl< 

Times, July 10, 2015, hnns:l/www.n,1imrs.com/20[ 5({)7!1[/worldleurooe/putin-<;riticizcs-us-role·inafghanistan.html; "Russia Can't Mend Time$ with U.S. While it Bach Sanct on~ Lavrov," Reute11, Dec. 10,2015, 

htto //www.reuters.cgmffirtjclelus-l!l!§ia-!!!i!-lav[(W-jd!JSJ...'!lNOTTQYR?OJS ['[0; Roland Oliphant, ~Cancel 

Swlctions and Scale Back NATO' Russia Tells US as Vladimir Putin ~Nuclear Deal," The Telegraph. Oct 3, 

2016, htto1/www.telegrnph.co.uklnews!Nt611()!03/putm-sgaos-deal-to-<lispose-of-bomb-grnde-plutonium-mswipe-atl; ·Russia Demands U.S. End Sane! ions, l'lly Compensation if Plutonium Accord to be Resumed; Drllfi 

Law," ReuJtrs. Oct. 3, 20t6, http1/www reutet~eom articlelus !111Sia-wa-nuclear-lawm ak ng

idUSKCN1231HA?il=O. 

' "Putin Steps Up Dril'clOKill Sanctions Amid SignsofEU Disunity," Voice of AmericaN ... s,July29, 2016, 

http://www.voancws.comlalputin.stepo.uR=<irivc-kill·sanclions .. igns .. u.disunitv/3440262.html. 3 Andrew Kramer, "MoreofKremlin'sOpponents Aie Ending Up Dead, 11~tNew Yorl<Times, Aug, 20, 2016, 

https://www.nytimes.CQm!Nl6108!21/world/eurqpe!mO&:ow-kremlin-silence-critics-poison.html. 

2 
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31517015.eps

Eric Lorber 

Center on Sanctions and lllicit Finance, Foundation for Defense of 

Democracies 

Financial Integrity Network 

followed the shooting death of Russian opposition leader Boris Nemtsov in Febmary 2015, a 

killing widely perceived as a response to Nemtsov's outspoken protests against tl1e govenmlent.• 

In Syria, Russia continues to support President &shar al-Assad with direct military intervention,' 

including during the Syrian Govemment's brutal assault on Aleppo.

6 And final ly, in the cyber 

realm, according to the intelligence community, Russia has continued its efforts to influence and 

undennine U.S. allies across Europe, in recent months focusing these efforts on upcoming 

elections u1 Western Europe.7 

l11is Committee should make no mistake; Russian acti,~ty in these areas poses a serious threat to 

U.S. interests and the United States should be prepared to tll;e all elements of its national powerincluding its economic power-to bhmt Moscow's ability to undem1ine U.S. interests at home and 

abroad. 

Additional, responsibly crafted U.S. sanctions can be a powerful tool to unpact Russia's decision 

making and reduce its nefarious activities in each of these areas. Specific types of sanctions that, 

if properly calibrated, could be particularly effective in increasing the pressure on Russia include: 

• The codification of certain executive orders C'EOs"), including EOs 13660. 13661, 13662. 

13685, and 13694, as well as additional statutory designations w1der tl1ese codified EOs: 

• Establishment of a task force, potentially led by the Financial Crimes Enforcement 

Network ("FinCEN"), to identify and seize assets of targeted Russian persons, including 

those witb close to ties to Russian President Vladimir Putin; 

• Certain restrictions related to U.S. and European financial institutions' purchase or 

facilitation of Russian sovereign debt, which has been a way for Russia to prop up Russian 

state-owned enterprises and financial illstitutions in the face of sectoral sanctions; and 

• Primary and secondary sanctions on elements of Russia's oil and gas industry, with 

possible carve-outs for certain countries particularly dependent on the Russian energy 

sector. 

However, any new sanctions on Russia must take into accotun four important considerations. Firs~ 

while additional sanctions are appropriate here, Congress should be wary of imposing sanctions 

that are too powerful. If the United States attempts to impose broad, !.ran-like sanctions on Russia 

U1at target large swaths of the Russian economy and do not contain carve-outs for allies and 

'AndrewKrruner, "Boris Nemt.sov, Putim Foe, Is Shot Dead in Shadow of Kremlin." T11e New York Times, Feb. 27, 

2015, bun:rffwww nvtjmes CQ!Df2()1 5/0?.n8JwoddfeytooeJboris-oemt;QY·NS$jM:OO{)Q§jljon-feader·i$·SboJ· 

l Sam Heller, "Russia in Charge in SyTia: How Moscow Took Control of the Battlefield and Negotiating Table," 

War On The R<XIa, J111e 28, 2016, hnoo:/lwarontherocks.com/2016106/russia-is-in-eg-in-svria-how-moscowtook-eootrOI-of.tht.haulefJOid.and-n<gotiating-table/ 

• Auson Meuse, "U.N. Rcpon Says Syrian Forces and Rebel fa(tions Coo!miucd Aleppc> ·war Crimes'," National 

Public Radio, Mar. 3, 2017, ht!p://www npr om!se<~ionsiwallels/2017/0 1031518134951/u-n-r<pOn-s.1Vs·syrianforces-and-rebe1-factionS=CQmmitted-aleppo-war-crimes. 

'"Background to 'Assessing Russian Activities and Intentions in Recent US Elections': The Analytic Process and 

Cyber Incident Altribution, • DirectorofNotionallntelligence,/ntelligmreCommunii)IAssessmem, Jan. 6, 2017, 

huoo1/www.dni !lQII/files!documenJs/ICA 2017 Ol.odf. 
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31517016.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

panners, this could backfire, limiting critical European willingness to participate in our sanctions 

campaign and making it more difficult tor Moscow to fultill- at least partially- U.S. demands. 

Similarly, such sanctions C·ould do serious damage to the Russian economy in ways that tltreaten 

our interests; while we wru1t to pressure Russia to cease its malign activities, destro)ing the Russian 

financial system or cratering its economy would have worldwide blowback, threatening markets 

across the globe. 

Second, Congress should think through how it can unwind sanctions pressure in the case that 

Moscow-even partially-changes its behavior. C\•rrent sanctions bills, including the 

Countemcting Russian Hostilities Act of2017 ("Cow1temcting Russian Hostilities Act")/ mmp 

up tlte pressure on Russia significantly. Ye~ as we have leamed over tlte past few years, unwinding 

sanctions can often be a difficult and fraught process, and Congress should think abotrt how and 

when it will unwind sanctions even as it builds pressure. Any such new sanctions legjslation 

should include buill-in "off-ramps"- namcly elements of the sanctions regime, such as specific 

designations or specific Directives- that could be undone in a situation of panial Russian 

compliance with its various obligations, such as those under the Minsk agreements. Such panial 

srutetions relief could be traded for Russian fulfillment of tl1ese obligations, and Ibis approach 

would increase the chances tlte United States could limit- though not completely eliminateRus~ian challenges to U.S. interests. 

Third, any such sanctions must be nested in a larger stmtegy of pressuring }<loscow, inchldiog 

aggressive diplomacy and responding in kind to malign Russian activities such as offensive cyber 

operations. Sru1ctions are a means to ru1 end, and Congress and the administration must be clear 

as to what that end is and how they intend to achieve it. Ramping up economic pressure on 

Moscow without clear objectives, tlte en1plo)1nent of otl1er coercive tools, and buy-in from the 

administration- is unlikely to be effective in getting Moscow to change its behavior. 

Fourth rutd as I discuss below, the United States must be prepared to address Russian retaliation 

for such sanctions, including in the fonn of countersru1ctions, increased cyber attacks, and even 

kinetic action in ways that threaten U.S. interests. 

I will focus my conmtents today on four main areas. First, I discuss the various elements of t11e 

U.S. sanctions program on Russia, including srutctions on Russia related to Ukraine, cyber 

activities, and corruption (together, the "U.S. Russia Sanctions Program"). Second, I discuss 

whether the U.S. Russia Sanctions Program has been effective, both in impacting the Russiru1 

economy and in chru1ging Russian behavior in desired ways. 1l1ird, 1 discuss ways to further 

increase the pressure on Moscow in responsible ways, drawing in pan on existing legjslativc 

proposals such as tl1e Counteracting Russian Hostilities Act. Finally, I provide lcgjslative 

suggestions to ensure that we are able to mmp down sru.tetions pressure when appropriate as 

effectively as we can mmp it up, increasing the likelihood tl1at we will at least limit many of 

M=ow's malign activities. 

•s.94, "CounteractiJ'4! Russian HostililiesAct of2017; t 15'Cong. (2017). 

4 
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31517017.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

I. Current U.S. Sanctions on Russill 

Taken together, the current U.S. Russia Sanctions Progmm constitutes one of the most 

sophisticated economic sanctions progmms ever devised and implemented. Because each 

component of the sanctions program is a targeted and justified response to a specific fom1 of 

Russian aggression, many of our partners around the world- including European states as well as 

Canada, Australia, and Japan- have joined tlte United States in emplo;'ing economic and financial 

restrictions. 

TI1e U.S. Russia Sanctions Program- which is now comprised of sectoral sanctions, list-based 

designations, secondary sanctions authority, and a comprehensive embargo-expanded most 

rapidly in 2014 following Russia's destabiliziug activities in Ukraine-including the annexation 

of Crimea. Despite its sophistication, however, the Program is not comprehensive, and a number 

of avenues exist for a measured expansion. Assessing the benefits :md drawbacks of those 

recommendations requires a baseliJIC understanditlg of the current types of sanctions the United 

States has imposed on Russia, including the tmderlying mtionale for their imposition. The current 

se;:tion provides an overview of U.S. sanctions already in place with respect to Russia's activities 

in Ukraine, cyher-enabled malicious activities, and human rights violalions. It explains the 

reasoning beltind each sanctions imposition- reasoning that infonns when and how tl1e U1tited 

States should eventually unwind sanctions components based on changes in Russian beha1~or. 

Destabilizing Activities in Ukraine 

In late Febntary 2014, shortly after Uknine's ex-president Vik1or Yanukovych was forced out of 

Kiev by mass protests, Vladimir Put in gave an order for Russian Special Forces to begin ''retuming 

Crimea to Russia. ~ Gumnen planted the Russian flag at the local parliament in early March, 

selling tl1e scene for a sham March 16 referendum in which Crimea purportedly voted to join the 

Russian Federation. to 

Russian aggression continued following this de facto annexation of Crimea. Russian-backed 

separatists began seizing cities in east em Ukraine; when Ukrainian forces appeared able to retake 

separatist-held territories, Russian reinforcements pushed tlte Ukrainians back. 11 An initial peace 

deal called the Minsk Protocol (or "Minsk !") failed, but in February 2015, the Minsk II ceaseftre 

agreement ("Minsk fl") was negotiated by the leaders of France, Gennany, Ukraine, and Russia. 

Minsk II contains 13 points including, firs~ a commitment to the witl1drawal of heavy weapons by 

both sides, monitored by the Organization for Security and Co-operation in Europe ("OSCE"). 

• Mat)· EUen Connel and Ryan Evans, "Russia's ·Ambiguous Warfare· and Implications for~ U.S. Marine Corps," 

Center for Naral Analy.sis, May 2015, httos1/www cna.org/CNA filos!POFIDOP-20JS-U.()J0447-Fiml pdf 

.. Alissa de Carbonnel, "How the SeparatistsDtlil'ered Crimea to Moscow; Reu1ers, Mar. 13, 2014, 

http://in.rc'Utcrs.comfarticleluknlinc-crisis-russia-aksyoool' -id!NL6NOM93AH201403 13. 11 "What Are The Minsk Agreements?" The Ec<Jitomist, Sept. 14, 2016, 

http://www.ecooomistcom/blog<leoonomist-explains/2()16!091eC!)!l()!!!ist-explains-7. 
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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

Minsk l1 also calls for the restoration of Ukmine's full control over its borders and for 

oonstillrtional refom1 in Ukmine, among otl1er points. tl 

In response to Russian aggression, the United States has employed three general categories of 

sanctions. First, tlte United States has imposed blocking sanctions on designated individuals and 

entities, adding them to the Treasury Department 's Specially Designated Nationals List (SDN 

List"), thereby freezing their assets and prohibiting transactions with U.S. persons. The blocking 

sanctions have been imposed on those undennining democratic processes and institutions in 

Ukraine; threatening the peace, security, stability, sovereignty, and territorial integrity ofUkmine; 

and contributing to the misappropriation ofUkraine's assets. Shortly after their initial imposition, 

tltese sanctions were e~ ded to cover Russian govenmtent officials and persons operating in tlte 

Russian anus or related material sector. 

Second, tl1e United States has developed "sectoral sanctions" targeti11g selected entities in the 

financial, energy, and anus sectors of the Russian economy. These entities are listed on the 

Sectoral Sanctions Identification List ("SSJ List"). Such sectoral sanctions generally prohibit U.S. 

persons from engaging in certain kinds of medium-and long-tenu transactions but generally allow 

day-to·day business activity; tltey also prohibit U.S. person involvement in many activities related 

to deep· water, Arctic offshore, or shale oil projects. 

lltird, the United States has imposed an investment ban and prohibition on tlte exportation or 

importation of goods, technology, or services to or from tlte Crimea region. These prohibitions 

constitute, in effect, a comprehensive entbargo on Crimea. 

TI1e following authorities related to sanctions on Russia in response to its invasion ofUkmine are 

codified in the Ukmine Related Sanctions Regulations (31 C.F.R. Part 589). 

11 The core 13 components of the Mnt<;k fl Agreement include: 

I. Immediate, full bilateral ceasef~e as of 15 February 2015 at 00:00: 

2. Withdrawal of aU heavy weapons by both side$, to be COOtpleted within 14 days; 

3. Effective monitorin8 regime for the oeasefrre and withdrawal of heavy weapons by the OSCS; 

4. l.aunch of dialogue on modalities of local elections in accordanct wilh Ukrainian legislation; 

5. Pardon and amnesty of figures involved in the eonOict; 

6. Release of all hostages and other illegally cktained people, bosed on the "all forall" principle; 

7. Safe delil·ery ofhumanitariM aid to \hose in need, b:t;ed on an intermtional mechanism: 

8. Restoration of full $0Cial and economic links with affected 3f<a$; 

9. Full Ukrainian con1tol <Wer its border wilh Russia throughout lhe conflict zone: 

I 0. Withdrawal of all foreigJ~ anned gr~. weapons and mercenaries from Uk'llliniM territory; 

II. Constitutional reform in Ukraine wilh decentralisation as a key element; a new constitution by the end 

of2015; 

12. Local elections in Donetsk and Luhansk regions to be held according to OSCE starxlard:l; aud 

13. lntensifying of lhe wOfk of the T rilaitntl Contact Group. 

Su Naja Bm!Un, "Ukraine and the Minsk D Agreement In a Frozen l'lnh to Peace?" Europeo11 Porliomentory 

Rmon:h Smice, PE 573.951, Jan. 2016, 

http://www.ell'opar! eurow.euiRegData/etudes/BRIF./20161573951/EPRS BRI(2016\573951 EN.pdf. 

6 
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31517019.eps

Eric Lorber 

Center on Sanctions and Illicit Finance, Foundation for Defense of 

!Xmocracies 

Financial Integrity Network 

• Executive Orders 136601' and 13661 ~ (Mar. 6 and 16, 2014; 99 and 107 designations, 

respectively). By authorizing additions to the SDN List, these Orders block the property 

and interests in property of individuals and entities who have been detennined to be 

responsible for, or complicit in actions or policies that undermine democratic processes or 

institutions in Ukraine or that threaten the peace, security, stability, sovereignty, or 

territorial integrity of Ukraine. ht general, these designations include fomter Ukrainian 

public officials working with the Govenmtent of Russia, as well as individuals close to 

Russian President Vladimir Put in and other senior Russian govenuuent officials involved 

in planning activities in Ukraine. 

• Executive Order 13662ts (Mar. 20, 2014; 258 entities listed). ·ntis Executive Order 

authorizes tlte use of U.S. sectoral sanctions, which impose transaction-specific 

prohibitions on designated entities. U.S. sectoral sanctions are divided into four Directives, 

which target the Russian financial, defense, and energy sectors. 

o Directive I (financial sector) prohibits U.S. persons from transacting in new debt 

oflonger than 30 da~-s maturity or new equity of designated financial institutions. 

o Directive 2 (energy sector) prohibits U.S. persons from transacting in new debt of 

longer than 90 days maturity of designated energy companies. 

o Directive 3 (defense sector) prohibits U.S. from transacting in new debt of longer 

than 30 days maturity of designated defense companies. 

o Directive 4 (energy/unconventional oil) prohibits U.S. persons from providing 

goods, services (except for financial services), or technology in suppon of 

exploration or production for deep-water, Arctic offshore, or shale projects that 

have the potential to produce oil in Russia. 

• Executive Order 1368514 (Dec. 19, 2014; 47 designations). 11tis Executive Order 

establishes a comprehensive embargo oo the territory of Crimea, aod U.S. persons are 

prohibited from investing in Crimea, and importing goods from-or exponing goods totlte area 

• Ukraine Freedom Supp011 Act17 (Dec. 18, 2014). Congress passed tltis Act to assist 

Ukraine in restoring its sovereignty and territorial integrity and to deter Russia from fun her 

destabilizing activities. Wllile the Act did not result in new sanctions designations. it does 

establish new secondary sanctions authority. It provides the President with tlte autl1ority 

11 E.xec. Order No. 13,660, 79 Fed. Reg. 13,493 (Mar. 10, 2014), tn•azfable at hups://www.l!easurv.•ov/reso..-ce- center/g nctionsiProgmm$/l?ocumentshtrajne eo.rxff 

"E.xec. Order No. 13,661, 79 Fed. Reg. 15,535(Mar. 19, 2014}, tn•ailable at httoo://www.lr<l!SllrV.gov/resoorce- <enterlsanctiozWI'r0!!11!msiDocumentslukraine eo2 pdf 

" E,,ec. Order No. 13,662, 79 Fed. Reg. 16,167 (Mar. 24, 2014), tn-oilablt at hht!pS:/Iwww treasury.govlresoureeoenterlsanctions!ProoramsiDocumentsluknline eo3.odf. 

"E.xec. Order No. 13685, 79 Fed Red. 247 (Dec. 19, 2014), tn'tlzlabk at hti)JSJ/www.lrea$Uf)'.govlresourceoenterlsanctions/Prosrams1Documentsl.trnine _ eo4 pdf. 11Uialline Freedom Support Act of2014, Pub. L No. 113-272, 128 Stat. 2952(2014), 

httm:llwww.congress.govn 131pJaws/oobi272/PLA IV-1 13publ272.odf 

7 
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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

to impose sanctions on foreign companies that make significant investments in "special 

Russian cnade oil projects," which include Russia's deep-water, Arctic oOsbore and shale 

projects. The Act also allows the President to prohibit or restrict the dealings of foreigJt 

financial institutions with the U.S. banking system if he detemtines that they have 

knowingly engaged in sigJtifical\1 transactions involving srutctionable activities or 

sanctioned entities. To date the President has not designated entities under this atnhority. 

Malicious Cyber-Enabled Acttvities 

In late December, the United States acted in response to tlte Russian govenunent 's cyber 

operations aimed at tlte United States. According to multiple U.S. intelligence agencies, Russia's 

cyber activities were intended to sow doubt about the integrity of our electoral process and erode 

faith in liberal democracy.'* 

A pre-existing version of Executive Order 13694 of April 2015 bad created a targeted authority 

for the U.S. Govenuuent to address cyber-enabled malicious activities that: (i) hmn or 

significantly compromise the provision of services by entities in a critical infrastructure sector; (ii) 

significantly disrupt the a\'<lilability of a computer or network of oomputers; or (iii) cause a 

significant misappropriation of funds or econom.ic resources. trade secrets, personal identifiers. or 

financial information for oom.mercial or competitive advantage or private fimUicial gain. 

Yet Russia's use of cyber-euabled melUIS to undenuine democratic processes at home and abroad 

made clear that a tool explicitly targeting attempts to interfere with elections wa~ also warranted. 

19 

'll1e Exectrtive Order wa~ thus amended to authorize sanctions on those who tamper witlt, alter, or 

cause a iS<~p ti n of infomtation with the ptrrpose or eflect of interfering with or 

undem1ining election processes or institutions. 

Using this new authority, the United States added nine entities and individuals to the SDN List: 

two Russian intelligence en~ces (the GRU and tlte FSB); four oflicers of the GRU; and three 

companies tltat provided material suppon to the GRU's cyber operations. The Treasury 

Department also desigJiated two additional Russian individuals under the pre-existing Executive 

Order: one is responsible for the tlteft of over SIOO million from U.S. finns, tutiversities, and 

agencies; the other compromised the computer networks of major U.S.-based e-commerce 

companies and misappropriated personal identifiers for financial gain.

20 

""Backgroond to· Assessing Russian Activities and Intentions in Recent US Elections': The Ana ~tic Prooess and 

Cyber lro::ident Anribwon." Direcwr ofNalional/nteHigenct, /nulligence Commrutity Assmmoll, Jan. 6, 2017, 

hnps1/www.dni govlfile<fdocumentsiiCA 2017 Ol.odf. 19 "F ACf SHEET: Actions in Response 10 Ruosian Maliciou. Cyber Activil)' and Harassmem," The White Hou.re, 

Dec. 29, Wl6, https1/obamawhilehoose.archive<•ovlthe-prcss-offioe/2()16fl21291fa(l-sh<e!-aelions.resp91!!Crussian.malicious-cvber .acti,·itv -and. 

"'ld 
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31517021.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

• Executh•e Order 1369411 (amended by E.O. 13757 of Dec. 28, 2016;

22 II designations). 

E.O. 13694 authorized the imposition of sauctious on individuals and entities detennined 

to be responsible for malicious cyber-enabled activities 01at constitute a significant Om~.at 

to the national security, foreign policy, or economic health or financial stability of the 

United States. 

Human Rights Violations 

Following Ote death of Sergei Magnitsky, a political activist who suspiciously died in prison on 

November 16, 2009 after uncovering fmud involving Russian tax officials,23 Congress passed the 

Magnitsky Act. This act aimed to punish Russian officials involved in his de-ath and in the 

comtption be lutcovered as well as individuals detennined to be responsible for gross violations 

of human rights. Most recently, on January 9, 2017, the United Stales designated five additional 

Russians, "including powerful senior law-enforcement official Aleksandr Bastrykin and lawmaker 

Andrei Lugovoi, who has been aCCJJSed in Britain in the poisoning of Kremlin critic Aleksandr 

Litvinenko."H 

• SHgei Magnitsky Rule of Law Accountability Act of 20122.1 (Dec. 14. 2012; 44 

designations). 'lltis legislation requires that sanctions be imposed on individuals 

determined, based on credible infonnation, to be responsible for the detention, abuse, or 

Math of Sergei Magnitsky; who have participated in efforts to conceal tlte legal liability 

for. or who have financially benefited from the detention, abuse, or death ofMagnitsky; or 

were involved in the criminal conspiracy uncovered by Magnitsky. 26 11tis legislation also 

req11ires thai sanctions be imposed on individuals detennined to be responsible for 

extrajudicial killings, torture, or other gross violations ofintemationally recognized hwnan 

rights committed against individuals seeking to expose illegal activity carried out by 

ofilcials of the Russian Govenunent, or seeking to obt ai1~ exercise, defend, or promote 

internationally recognized human rights and freedoms in Russia. 

27 

11. Gauging the Effectiveness of U.S. Sanctions on Russia 

21 Exec. Order No. 13694, 80 f(-d. R~. 18,077 (Apr. 2, 2015), available at hll!!§:/lwww.trruury.gov/rcsourcectntcrlsanctions!Proornms!Documcntslcyber oo.pdf. 

"Exec. Order No. 13757, 82 Fed. R~. I (Jan. 3, 2017), m'11ilab/e at hltps:J/www.trcawrv.gov/resourcecenler/sanctions!Progrnms!DocumenL<;/cyber2 00 pd( 

" • Announcement of Sanctions Under Jhe Sergei Magnitsl:y Rule of Law AcoounJabilily Act,· TreasUf)' 

Department Pnss Center, May 20, 2014, https://www.treasurv.gov/press-centerloress-releases!Paw'ii24Q8.asnx. 

"Carl Shreck, "U.S. Sanc ionsRussia sllasuykinandAII~ed LitvinenkoKille!\ · Radio Free Europe Radio 

liberty, Jan. 10. 2017, http·f/www rferl.org/altu.~Sia bos!yJ!:in lugovoi magnitsky-$3JICiionsl28222295 html. 

"Russia and Moldova Jackson-Yanik Repeal and S¢rgei Magnistsky Rule of Law Acoountability Act of201 2, Pub. 

L. No. I 12-208, ~c. 2014, hlllJS:IIwww congross.~ov/J t21plawslpubJ2081PLAW-t 12publ208.pdf 

,. "Announcement of Sanctions Under Jhc Sttgei Magnitsky Rule of Law Acoountability A~" Treo.sury 

Department Press Center, May 20, 2014, https:llwww.treasurv.gov/press-<entulpress-releases!Pages!jt2408.aspx. 11 /d 

9 
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31517022.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

TI1e effectiveness of these various sanctions programs is mixed; economic and political indicators 

suggest that they have had an impact on tl1e Russian economy and Russian decision·making, 

though not sufficient to coerce Russia to cease its aggressive cyber act ,~ty, relinquish control over 

Crimea, or cease its support for separatists in Eastem Ukraine28 

Imposing Economic Costs 

The Russian economy has clearly stn•ggled since the broadest sanctions were imposed in 2014, ~ 

but the downturn was likely driven both by the collapse in global oil prices and the imposition of 

sectoml sanctions. For example, the Congressional Research Service notes that most sanctions hit 

just as tl1e oil price was dropping by more than 60% between the start of2014 and tl1e end of 

2015.!0 Yet the sanctions do appear to have had an independent impact at the macroeconomic 

level; a 2015 L\1F estimate that "U.S. and EU sanctions in response to the conflict in Ukraine and 

Russia's countervailing ban on agricultural imports reduced Russian output over the short tcrn1 by 

as much as 1.5%."31 h1 April2015, speaking to tl1e lower house of parliament in Moscow about 

"w1precedentedly harsh sanctions pressure," Russian Prime Minister Dmitl)' Medvedev said that 

e sanctions had cost Russia ~6.7 billion in 20 I 4 and would cost $80 billion more in 2015.32 

The sanctions may have exerted their grea1est impact tlmmgh changes in foreign investment and 

at the firn1 level. As the work of one of my fellow witnesses showcases, the sanctions created an 

atmosphere that discouraged foreign direct investment and tltat tl1is "lower investment in Russia 

could lead to a cumulative loss of output of up to 9 percent ofGDP.'>ll Likewise, her work also 

found that U.S. targeted sanctions, while not specific to the Russia program, ca\LSe countries to 

"face significantly e.levated levels of political risk, depressing investment in the target's 

economy."34 Data compiled by tl1e Congressional Research Service corrobomtes this finding, 

'*The question of whether ID<$C san<:tions hm been effective touches on a wid< raJ'4l• of olhet issues not addressed 

here, such a.s ~'hethet the empiO)'lllent oflhese tools in the current siruatioo will deter fUiure aggressioo by Moscow 

or by olherstnes whooe leaders are observing Russia's laCtics with great inter<st. This tts~imony fo<:""'s directly 

on the coonomic impael of these tools and wt.:ther and how they mve changed Russian decision making in the short 

Iron, related to the 1ssues of Ulcraine, cyber activities, and human ri~s abuses. 19 Note that it is diflicuh to differentiate beh1~en the economic impacts of the Y11rious sa~Xtions prog13ms desaibed 

above. Most of the studies focused oo the economic impocl of lhese sanctions poy particular atttntioo 10 the 

UlcrainHelated sanctions, and in particular the SS! progn~m, a.s ID<$C are the broadest coerci1·e measures the United 

States and the EU have employed against Russia. ln rtality, thtst sanctions progmms have internctil'e effects, to an 

extent; fO< tlOimple, additional designations related 10 Russia's maliciow; c~-<nablcd activities likely signal to 

foreign inrestors thaltemions will continue bctween the United Slates and Rwia, likely depressing FDI. 

"Rebecca Nelson, "lJ.S. Sanctions and Russiis Economy," Congmsitmal Research Sen;ce, Feb. 17, 2()17, 

httosJ/fa<orWp/crs/row!R4)895 pdf. 

"/d.At6-7. 

nEd Adamczyk, "Medvedev: Sanctions Co& Russia$106 Billion," UP/, Apr. 22, 2()15, 

hnp;//www,upi com/Top News/World-Newsl2015i<W221Medvedev,')anctions.<OSt-Russia·I06· 

billionl3551429nl 8511. 31 Elizabcth Rosenbelg, Daniel Dremer, Julia Solomon·Sitauss, and Zachary Goldman, "The New Tools of 

Economic Warfare: Effects and Effectiveness of Con1tmponuy U.S. Finaocial Sanctions," Center for a New 

Americmr Secruity, Apr. 2()16, https'i/www.cms.org/publicati01'6ireoonsilhe·new·tools-of-<eonomie.warfare· 

effccts.-.and..effecti\'enssoOf-contemporary-u-s-fmancial-sanctions. 

"Jd at I. 

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31517023.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

showing that net inward FDI into Russia "essentially came to a halt in late 2014 and early 2015," 

consistent with the general finding.

15 As a former economic ad1~sor to the Russian government 

stated in 2015, the sectoral sanctions in particular had "worked out as far more severe in their effect 

than anyone seems to have believed."

16 

Likewise, research conducted by another witness on tl1is panel suggests that targeted fim1s are also 

feeling this impact, finding tl1at ''the average sanctioned company or associated company loses 

about one· third of its operating revenue, over one· half of its asset value, and about one·third of its 

employees relative to their non-sanctioned peers.'m That U.S. sanctions are "hitting their intended 

iargels" without causing too much "collateral damage," as tl1e paper concludes, is important, as it 

suggests that designations can be carefully ran1ped up to respond to funl1er Russian provocations. 

As former Deputy National Security Advisor Juan Zarate and Russia expert at the Center on 

Sru1ctions and Illicit Finru1cc at the Foundation for Defense of Democracies Doris Zilhenuan argue, 

''Russia's corporations, particularly tl1c titans of industry, arc heavily ~liked to Putin and his ituJer 

circle. As ucl~ the Kremlin is often forced to bail 01rt companies via corporate debt assistance as 

they deal with fallout from sanctions ru1d low oil prices. By maintaining and potentially increasing 

economic pressure 011 these companies, the U.S. and E.U. can force the Kremlin to spend more of 

its money, more often, to prop up a growing list of state-dependent corporatior.s."38 

Despite the macroeconomic and finn-level impact of the U.S. sancti011s on Russia, both the IMF 

and the Bru1k of Russia's research and forecasting department project positive Russian GDP 

gro11th in 2017.39 This does not nec$sarily mean that sanctions have ceased to cause 

macroeconomic pain: a survey of experts suggests that the Russian economy would receive an 

additionallift-of0.2% this year and 0.5% in 2018-ifU.S. sanctions were relaxed40 Still, Russia 

has weathered d1e sanctions program and the concurrent oil price collapse, ru1d improvements in 

its economy do suggest that U.S. restrictions impose less cost now than they have in the past. The 

bottom line is that these sanctions have had an impact on tlte Russian econom)', though that impact 

appears to be diminishing. 

"Rebeoca Nelson. -u.s. Sanctions and Russia's Economy." CQ'!gr<ssional Research $mice, Feb. 17,2017. 

httos:/l a~org/sgplc!Mow 389S pdf 

"Priyanka Boghani, "Whal'sBeenlheEITectof\Vestern Sanctions on Russia?" PBS Frontline, Jan. 13,2015, 

bttp·I(Www obs prg/wgbilffrpndine/anjcle/wbats·heen-ti!MO'ecc:Of·weS!cm§W!ions:9D·!I!SSia/ 31 Daniel Ahn and Roch:y Ludtma, "Measuring Sma.r1ncs;: Und i'Slalldi~ the Economic lmpoct ofT argeted 

Sanctions." Woricing Paper 2017 .()I, US. Department ofS/alt, Office of the ChiefEcunomist, Doc. 2016, 

httos iw~'V.Slat~ gov documentslorgani?ation/267500 pdf. 

"Juan Zatatt and Boris Zilbennan, "U.S. Russian Financial Wetfare: Conduct-Based Approach to CoWJtering 

Russian influence and Increasing Western Le1·etlltle; \Vo~ Paper, Center on SIDlCtions and fllicu Finance, 

Fo•mdanonfor Defense o/DtmO<rat:ies, on file with author. 

"'IMF StaiTConclude$ Visit to Russian Fed<ration," lnlimalional Montlill)• Fund Press Release. No. 161529, 

Nov. 29,2016, htrp·ll\"vw imf oozlen!NewsiArticles/20l6111/291PRI6529-Russian-Federation-IMF-StaiTConcludes. Visit Ste a/sf) Anna Andrianova, "Russia is Running on MOte Than JUS\lhe Black Sluff, • Bloomberg, 

Mar. 7, 2017, htt[!\·//www.bloombem.coml...,wsla.rticles/2017-03.07/russia·JS·runnii!!!:On·m2re·lhan.jl6t·the.black· 

stuff. 

"'Anm Andriaoora, "Russia is Running on More Than Just 1he Black Stu[," 8/IJOIIIberg, Mar. 7, 2017, 

httre11www.hloomberg.comlnews/articles/20t7.0?.()71russia-is-running-on-more-lhan-just-the-black,wff. 

I I 
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31517024.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

Coercing Change in Behavior 

II is harder to point to tangible indicat ions that sanctions have altered Russian behavior 11~ th respect 

to Ukraine, malicious cyber-enabled activities, or luunan rights violations. Joumalists, rights 

advocates, opposition politicians, and whistleblowers are still treated harshly and sometimes 

killed4 t On the cyber front, Ukraine last month "accused Russian hackers of targeting its power 

grid, financial system and other infrastructure with a new type of '~rus that attacks industrial 

processes.'"2 Montenegro claimed in mid-Febn•ary that government and media websites came 

under Russian anack for severn! days.'3 A French presidential candidate claims that he is being 

targeted with "[ijntemet attacks from within Russia with the goal of helping tbecampaigJIS of his 

pro-Moscow rivals.',... In short, R11SSia's malicious cyber efforts are continuing. 

Russia shows no sign of relinquishing control of Crimea, and it continues to destabilize eastern 

Ukraine. Just last week, Kiev threatened sanctions against 1c Ukrainian subsidiary of Kremlinowned Sberbank bec.1use the bank said it would comply with an order from Vladimir Putin to 

recog,1ize identity documents issued in the separatist-held regiotiS of Donetsk and Luhansk.

45 

Fighting recently !Jared up in places like Sanana, a f.mning village near e Ukrainian-held pon 

of Mariupol, after montl\S of relative quiet: on the Ukrainian side alone, ai least 26 people were 

killed and 124 wounded in the month after January28 compared to eight dead and 46 wo1o1ded in 

the month prior

44 A new ceasefire to address the flare-up seems to have failed.47 On Febntary 

26, the State Department, recognizing Russia's unwillingness to meet its obligations under Minsk 

II, called on "Russia and the separatist forces it backs" to "honor the cease-fire cal led for under 

the Minsk agreement1" and to "withdraw all heavy weapons, and allow full and unfettered access 

to the OSCE rs •~S 

Nevenheless, some organizations and analysts believe that sanctions have had some impact on 

eha,~or because, in their absence, Russia would likely have gone further in Ukraine. Forn1er 

" Andrew Kromer, "More ofKremlin'sOpponentsAreEndingUp Dead," The New YorliTmlts,Ang 20,2016, 

httos:/lwww.nvtimes.com0016108!21/world/eurooelmnscow-bemlin-silence-critics.-ooison.html 

"NataliaZmelS. "Ulcra~Cbarg sRussia withNewCybet Attacks on lnfraslnr;ture." Reuttrs. Fell. IS. 2017. 

http://www reuttrs.comronie!elus-ukr.line-crisis-ovber-idUSKBNISU2CN. "'&n Farmer, "Montenegro Asks for British Help after Cyber Attacks in Wake of'Russian-oocked ooup plo!'; The 

Telegraph, Feb. 28, 2017, hnp·l/www teleomp!too uklnewsl201 W2/281montenegro-asl<s-briti!ltlltl!M:yber-auacks-

~~ke russiaP.bac edl 

" "France Drops Electtonlc Voting for Citizens Abroad over Cyber.;~urity Fears," Reuter>, Mar. 6, 2017, 

hno://www.reultrs.comlanicl<ht<-franculecrion-cJ1>er-idUSKBNt6D233?i!=O. ""Ulcra~Eyes SancJiomon SubeidiaryofRussia'sSbetballk," Reuters, Mar. 7, 2017. 

hnp·//www reuteB comfnniclelus·ukmjne-s;nsjs.SMctjft'dlJSKBNI§E2KI. 

"Mark Maclcinnon, "As Russia-U.S. Ties Sttengthen, Violence Escalates in Ukraine," The Glebe and Mail, Feb. 

26, 2017. htm:l/www theglobear.lmail.cominewslworld!a-s-ll!SSia-us-ties-strengthen-violence-escalatesinukr.line/article34! 43679/. 

"Euan McKirdy, "Ubame Ceaseflfe. No Sign ofWithdmwal, Official Says; CNN, Feb. 23,2017, 

hnp://www.cnncom/2017102fn/europe/ltraine-<:tas<ftre-violationsl. 

" Malic C. T ontt, "Unlted States Condemns Allack on Special Mc:nitoring ~issions in Eas1em Ukraine," Press 

State en~ United States Department of State, Feb. 26, 2017, 

httP":IIwww.state.gov/rffiamrs/w?!)I7JWI.,6fiJ)9.htm. 

12 
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31517025.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

Deputy Assistant Secretary of State Peter Harrell observed in September 2015 that "Russia does 

appear to have made tactical adjustments to its strategy at different points during the crisis to 

minimize the odds of [further] sanctions being impose .'~9 In his view, 1e demonstrated effect 

of sanctions and the threat of broader measures "may have helped deter Russia from moving 

forward and seizing the strategic city ofMariupol" in Febmary 2015.

50 A March 2016 publication 

of the European Parliament argued ~1nt sanctions were deterring further '~olence, again pointing 

to tbe Black Sea port of Mariupot.51 

In addition, at least in the contex1 of Ukraine, Vladimir Putin and Foreign Minister Sergei La\'TOV 

have explicitly called fo.S2 and even demanded 5

3 an end to sanctions. Russia has also worked to 

undennine EU unity on sanctions, including by "methodically lobbying southem and eastem EU 

member states," with Italy, Greece, Hungary. Cypms, Slovenia, Slovakia and Bulgaria as prime 

targets.s. Some ana y~ts believe that Moscow may be aiding populist parties- including in 

Westem European countries- because it sees these parties as "useful allies in pursuing its 

objectives in Europe, such as ending economic sanctions or undcnniniog European support for 

Ukmine."15 1ltese demands and efforts suggest that, even if the sanctions have not fulfilled all of 

e objectives they were initially employed to achieve, they do appear to be impacting Russian 

decision making. In addition, ~comm ts suggest that the sanctions provide the United Stales 

with le.verage it would not otherwise have; clearly the Russian leadership would like. to have the 

sanctions lifted. and this desire means that the United States can exchange relief for certain 

concessions from Mosc-ow. To unwind them without on. ider n of this fact and without seeiog 

change in Russian behavior would be a strategic mistak 

"lltus, whi le our sanctions on Russia have not proven to be a silver bullet, there are indications that 

y have had an impact on the Russian economy and on Russian decision-making. Additional 

satlC·tions pressure would likely further impact Russia's decision calculus, and, if done responsibly, 

" Ptlcr Harrell, "Lessons from Russia on the Fururc of Sanctions," Ct11/<r for a New America11 SlCUri/y, Sept 2015, 

httooJ/s3.amaronaws.comlfiles.cnas.orgldowmen!SitNAS-Reoort-Economic.Stat<crnft-2-FINAL.pdf. 

"Id at6. 

"Martin Russell, "Sanctl\lns over Ukraine: Impact on Russia: EuroJNan Par/iamelliQf)' Reuarch Setvi<e, PE 

579.084, Mat. 2016, httpJfwww.eurooorl europaeu/EPRSIEPRS-Briefing-5790$4-S.nctions-over-Ukraine-imoa«t· 

Russia.FJNAL.pdf. 

""Russia Can't Mend Times with U.S. While it Backs Sanctions: Lavrov: Reuter;, ])t(. 10, 201 5, 

hn //www rtuters.co /a rt ic!tlus:JUSSia·~&·!avrov.idUSKBWOIIQYR.?O! S 1210: David H<'rsunhorn, "Putin Calls 

for End to Use ofSane1ions and Criticius U.S. in Afghanistan, • 7),. ,v.,. York Times, July 10, 2015, 

bttps /w~'"-"vlim~< com!201 S/07/lllwqld/europe/pUin-critici7.es-us-ro!e-in-afgh:miSl.an.html; On statement 

r<gardirG EU sanct ons,~ "EU Re~ Details on Exrended Sanctions Agai"" Russia.'' Vcice of AJ~Wrica News, 

June 18, 2016, btto·/Jwww \'QADYWS comfatewopeM-UQjon-rdeases-degjls-exttnded-SMCtiooS; 

Q!SS!al338'180.html 

" Roland Oliphant, ··cancel Sane~ ions and Scale Back NATO' Russia Tells US as Vladimir Pulin Saa!» Nuclear 

Dea~ "The Telegraph, Oc~ 3, 2016, http1/www.telewph co,uklnews/2016/!Q,IJ31putin-sernps-deal-ux lispose=<>fboml>gn! de. on um-m·swipe-t~tl 

""l''lin S!eps UpDrivetoKiiiSanelions Amid SignsofEU Disunity; VciceofAmtricaNews,luly29, 2016, 

http://www.voancws.comlalputin-steps.uP=<[ivc-kill·sanctions..iw..:u-disunity/3440262.html. "Arth,. Beesley, "EU Leaders to Hold Talks on Russian Political Meddlif€," FinanCJal Times, Oct. 16, 2016, 

httooJiwww.ft.comlcootenUtTI flcdc-9227-lle6-&lf8-d3778bS5a923. 

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Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

could help the United States pressure Moscow to change its behavior in Ukraine, cyber, and in the 

realm of human rights abuses. 

Ill. Increasing the Pressure on Russia, Responsibly 

ll1e United States and its partners can take a number of steps to increase pressure on Russia in a 

way that will squeeze its ec.onomy and- more importantly- impact its decision making, Recent 

legislative initiatives in the Senate, including the proposed Counteracting Russian Hostilities Act 

of2017 ("Counteracting Russian Hostilities Act')l6 and the proposed Russia Sanctions Review 

Act of2017 ("Russia Sanctions Review Act"),s1 are right steps in ~ti s direction. In particular, the 

Countemcting Russian Hostilities Act would impose powerful sanctions on Russia, includ.ing 

primary and secondary sanctions related to its petroleum industry, the Russian defense sector, and 

the Russian financial sector. 

However, as Congress considers ramping up sanctions on Russia, it should keep in mind that while 

such pressure is importanl tlte United States should try- to tlte extent possible-to ensure that the 

sanctions are carefully targeted and do not ha1•e unintended rutd undesimble impacts. For exrunple 

ru!d as occurred during the initial Sectoml Sanctions Identifications List progrant mmp up in the 

fall and winter of2014, the sru1ctions pressure on Russia deq>ly shook investor confidence and 

threatened the stability of the Russiru1 financial system. Indeed, in December 2014, U.S. 

sanctions-in conjunction witl1 other f.1ctors- led to a near run on tltc Ruble, which was 

supposedly triggered by the Centml Bank of Russia promising to effectively print money to prop 

up certain companies owned by Putin's coofederate.s and hurt by Westem sru1ctions.58 While the 

U.S. sanctions on Russia were meant to impact the R11ssian economy in the medium·t<r long·tenn 

ru!d to put pressure on Vladimir Putin and his elite circle, they were not intended to cause a nUl on 

the currency, 11i1ich could have seriously undennined the stability of the Russian financial sector. 

While the United States certainly should pressure Moscow, undennining the stability of one of the 

world's largest economies would have serious and detrimental ripple effects. ht effect, Congress 

should carefully balance increasing the economic pressure on Russia while making sure tl1at any 

steps it takes do not risk collapsing the Russian economy or seriously impacting tbe economic 

health of our partners, particularly in the European Union and Eastern Eltrope. 

On this point, Congress mtiSt consider the impact mmping up sanctions will have on our Europeru1 

partners, ruJd in particular 11i1ether they will be willing to join our efforts. Over the past tllfee 

years, tlte United States and tlte Europeru1 Union have worked rery closely to ramp up pressure on 

Russia; while there are minor differences between the U.S. rutd the EU sanctions programs in 

"S.94, "Counteracting Russian Hostilities Act of2017." liS• ~ (2017). 

"S._, "'Russia Sanctions Review Act of2017," liS ~ (2017). 

hnp:/lbiussets huffmtonQ()!\t.CO<I11RU'ISia Sanctions Review Act.pd( 

,. Ptter Feaver and Erie LO<ber, "The Sanctions Myth," Tht Naticnal RINitw, July· A~ 2015, 

http://nationalinterCSLorg/featur<hhe-sanctions-m\'lh·I3JI0?paee•2. Set ais<> Sergey Aleksashenko, "Evaluating 

Westem Sanctions on Russia," Atlmttic Cau11cil, llc<. 2016 a110, 

hnp //www adanticoouncit.org/imagesffi~licationYF.vatuat ng Western Sanctions on Ru.,<ia web 1206.pdf. 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

response to Russian aggression in Ukraine, in geuemlthese progmms- and targeted entities- are 

the same. In fact, the EU SSI-type progmm is in some ways more restrictive than the U.S. SSI 

program. This close partnership has significantly increased the economic impact on Moscow; 

Russian emities were unable to hun to attmctive altemative partners in the EU to secure financing, 

for example, when tl1ey were cut off from U.S. debt markets. 

While certain countries such as Gennany have signaled a willingness to ramp up pressure on 

Russia, other EU countries may be less willing to join U.S. efforts. To the ex1ent that we can 

secure European buy-in- and pamllel European escalation of economic pressure-our sanctions 

will stand a greater chance of success. Likewise, when considering certain s:mctions proposals 

put fortl1 below, Congress should be mindful of tl1eir impact on European cooperation. For 

example, those proposals tl1ai impose restrictions on the activities of both U.S. and non-U.S. 

companies will likely raise political tensions with the Europeans. To the ex1cnl that the United 

States can secure EU cooperation on many of these matters without resorting to U.S. domestic 

legislation that conditions access to U.S. markets on compliance with our sanctions policy, the 

more likely our approach will be to succeed. 

Recent legislative proposals contain excellent steps for imposing powerful sanctions that will 

likely impact Russian decision-making. By further sharpening tl1ese tools. Congress can ensure 

that it mises the pressure on Russia i11 a way that botl1 directly targets Moscow·s decision makers 

and limits the impact on our allies and partners. llte proposals outlined below are generally 

ordered from least likely to impose sigJ1ilicant additional economic pain and create possible 

unintended cnnsequences to most likely io impose such pain and create such consequences. In 

ell'ect, each subsequent option is likely more powerful, yet also likely riskier, than the preceding 

option. 5

9 For those more-powerful-yet-riskier tools, I have suggested adjustments that may limit 

some of their potential downsides. 

This sanctions rscalation ladder should provide Congress with a range of options, depending on 

how much pressure it wants to put on Moscow. 

• Rung #1: Codification of existing Executive Orders, including Executive Orders 13660, 

13661, 13662, 13685, and 13694. At a minimum, Congress should act to preserve tl1e 

sanctions currently in place on Russia. 1l1e reason for the creation of these executive 

authorities-and the designations issued pursuant to them- has not changed; Russia has 

nol fulfilled its obligations under Minsk 11, has not meaningfully reduced its aggressive 

cyber activity towards the United States, and as the recent episode with Vladimir Kam-

"Note that l do not review the proposals contained in the Russia Sanctions Review ~L While there is oettainly 

room for congressional apprml and disapproval of waiving certain components of the U.S. Russia Sanctions 

Progtam, the Russia Sanctions Review AI!. fOCUS<S on now to limit the administration from unwinding cwr~t 

sanctions on Russia, not on how to increase the pressure on Moscow. Given that sanctions on RU$Sia ha\•e been 

somewhat effective and that additional economic pressure may likewise have an impact. I have focused on how to 

responsibly ramp up pressure rather than maintain the status quo. 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

Murza gges s,~ has not signilicru1tly improved its human rights record. Witholll 

improvements in these areas, Moscow should not be rewarded with tl1e lifting of sanctions, 

and Congress should take steps to ensure that does not happen. Uuwinding these programs 

and de·designating entities in exchange for Moscow's help in lighting certain extremist 

elements, eitl1er in Syria or elsewhere, risks seriously undemtining the international 

principles that underpinned the U.S. and EU decisions to impose such measures. For 

exrunple, if the United States 1onwinds its sanctions program on Russia as part of a "grand 

bargain" for Russian help fighting e~1remism-and Russia is allowed to maintain control 

of Crimea and continue supporting separatist movements in East em Ukraine-states that 

seek to violate the sovereignty of neighboring countries will know tl1at tlte United States 

does not prioritize enforcement in response to territorial aggression. Such an unwinding 

also undennines the future etTectiveness ofU.S. sanctions. If srutctions targets crut simply 

wait for a ~hange in political circumstances, they will not be motivated to make the 

concl'SSions tl1atthe United States demands. Instead, violators will take increased hope in 

the possibility tl1at tltey can o1nlast economic restrictions because the United Stales will 

inevitably shift its foreign policy priorities. 

In addition to simply codifying tltese Executive Orders, Congress could statutorily 

designate a mnge of other targets pursuant to these autltorities. For example, Congress 

could designate additional individuals kll0\\11 to engage in cybcr operations against the 

United States, military or administrative officials a}~ g an active role in Eastern Ukraine 

or Crimea, or other high·level officials within the Russirut govenunent. Such additional 

pressure-particularly coupled witl1 au increased focus by the proposed FinCEN-led task 

force discussed bclow-<:ould significantly impact Ptttin 's inner circle, bottom line, and 

decision· making." [n addition, Congress could specify that tltese designations only be 

lifted in the case of tangible and measumble progress by Russia on a range of issues, such 

as fulfillment of certain obligations 1mder Minsk II. 

• Rung #2: Establishing a task force dedicated to iden il)~ng, tracking. tracing and-as 

appropriate-seizin• assets of designated Russian indh1duals. pru1icularly those close 

to Russian President Vladimir Ptrtin. TI1e Counteracting Russian Hostilities Act 

recommends the creation of a Russia task force within ~1e Financial Crimes Enforcement 

Network at ~1e Treasury Depanment, which will work with the Office of Foreign Assets 

Control ("OFAC") and the Office of bttelligence and Analysis ("OIA") to identify ceotain 

illicit Russian assets within tl1e United States. A creation of this type of standing entity 

could be particularly powerful; based on infonnation gathered in recent years from title 

insurers under the FinCEN Geographic Targeting Order targeting certain high·end real 

estate marl<ets, it is clear that large sums of Russian money arc flowing into U.S. real estate 

60 Andrew Kramer, "More ofKremlin'sOpponenos Are Ending Up Dead," The New l'ork T~mts, Aug. 20,2016, 

httooJ/wWiv.nvtimes.com12016/0812llwO<ldleurope/m06Cow-kremlin-silerx:e-critics-ooison.hlml. 

•

1 S.94, "Counleractin.g Russian Hoslitioies Act of2017." I ts• ~ (2017) at 47-48. 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

markets.'2 It is very likely that designated Russian persons- including Russian oligarchs 

close to Russian President Vladimir Putin- are laundering their funds through a network 

of sheU companies and depositing them within the United States. Seizing the assets of 

these designated persons would have an immediate impact on their pocketbooks and could 

put direct pressure on Putin's inner circle. 

To be effective, s1•ch a task Ioree would need to focus more broadly ~Jan high-end real 

estate, and would need to conduct deep dives into company fom1atiou infom1ation and 

beneficial ownership infonnation of key bank accounts. In addition, it would need to be 

properlyresourood; effectively establishing such a task force would require proper starting, 

including e creation of dedicated positions (wi~10ut simply shifting personnel from o~ er 

important roles within Treasury). In addition, while FinCEN in some ways is a natural fit 

for this task force, given its acooss to infomtation provided by U.S. financial institutions, 

Congress should consider including other, relevant agencies, such as tbe Department of 

Justice. 

Congress should also consider requiring regular reporting from this task force on its 

findings and, based on tl1at infom1ation, statutory PATRIOT Act 311 designations of 

Rnssian financial institutions engaged in illicit activity. Such designations would further 

squeeze the Russian financial sector and c1rt off illicit financial actors from the legitimate 

global banking system, tllQugh such efforts may take year.; to reach fmition. 

• Rung 113: Prohibiting the pru-c a~, subscription to, or facilitation of the lssuanre of 

Russian so,•erelgn debt. This suggestion- contained in the Countemcting Russian 

HostiJjties Act- is me~nt to address a gap in the current SSI progmm; that Russia may be 

using capital injections to prop 11p govenunent-owned entities, as well as designated 

private companies owned or controlled by Vladimir f>l•tin 's allies in Russia. h1 effect, 

though financial institutions designated as SSJs pursuaJ\1 to Directive I may not be able to 

secure debt financing, Russia itself can, and tl1en can provide direct funds to those entities 

in a scheme that looks very much like sanctions evasion. By prohibiting U.S. and foreign 

persons from purchasing or generally dealing in such debt, this suggestion could cut off 

this sanctions evasion mechanism and make it significantly more difficult for Russia to 

prop up a number of its core timUicial institutions. 

According to e IMF, Russia's international reserves dropped from $509.6 billion at the 

beginning of2014 to $368.4 billion at the end of2015, but they bave increased sligbtty 

and remained stable at just below $400 billion since the dcc ine. 1 1ltat decline during 

2014-15 coincided 11~tb the sharpest oil price drop, during which time Russia was forced 

to sell foreign exchange to support Ote mble. 

"Josh Barbane~ Samutl Rli>enfeld, and Laura Kusisto, ·u.s. E>q>allds Real-Estate Data Targeting Order,"Tht 

Wall S~reet Jcuma/, luly 27, 2016, hum:/lwww.wsj.com/articleslu·s-exponds-real-estalt-<iata·tan\tlim-<Xdtr· 

Note thll this Order was again extended in Febnmy 2017. 

""Russian Federatioo, S~1ffRcport fO< 1he 2016 Article IV Consullalion," lntematiooa/Monetary Fund, IMF 

Counlry Repon No. 161229, /uly 2016, http://www.imf.orglextemal/pubs/fl/scr@l61cr16229.pd[ 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

Russia has drained one of its sovereign wealth Funds, the Reserve Fund, from $87 billion 

in 2014 to roughly Sl6 billion currently; its other sovereign wealth fund, Ute National 

Wealth Fund- designed to support pensions and social spending-contains $73 billion, 

but most of that amount has already been allocatedM Still, as noted above, international 

reserves have ren1ained stable. According to Bloomberg, "'by printing mbles for U1e 

Finance Ministry and crediting foreigu currency to its own account, the central bank has 

kept intemationaln.'Serves- wbich include Ute government's savings- almost intact even 

as the (Reserve FtuJdl has dwindled."65 Analysts expect that tltc Reserve Fund will be 

drained in2017, but it is w1clear what significance this will have.66 

One of the. major unknowns of this proposal is the magJlitude of the economic impact it 

would have on Russia. While it would no doubt impact SS! desiguated·entities' ability to 

balance their sheets and remain solvent, concerns exist Utat it would significantly 

destabilize the Russian financial S}~ m and create a significant contagion effect. To 

mitigate such concems, Congress could stmcture such a prohibition to apply only to U.S. 

persons or where a U.S. nexus is involved. Such a stmcture would permit fordgn fin<Ulcial 

institutions to transact in this foreign debt without fear of secondary sanctions. However, 

given the expansive reach of U.S. jurisdiction over the international financial system and 

U.S. regulators' willing~1ess to imt>OSe significant fines on entities violating U.S. sanctions 

regulations, most large and reputable financial institutions would be understandably 

ex1remely reluctant to transact in such sovereign debt. l11is reluctance would translate into 

market impact; the decrease in buyers of the debt would mean tl1at Russia would have to 

offer higher interest mtes to find market partners, ensuring that Moscow would have to pay 

more to borrow. Such a move would increase Ute costs on Russia but would also be 

unlikely to seriously undem1ine tlte Russian tinancial sector. 

In addition, Congress could include a provision of the legislation that allows for the 

imposition of penalties to all persons (not simply U.S. persons) who transact in Russia 

sovereign debt in the case of continued Russian non-compliance on a range of items, such 

as fulfilling its Minsk n obligations. For example, Congress could build in a six-month 

assessment review of the impact of these sanctions and-if it was not satisfie-d that sucl1 a 

prohibition for U.S. persons on dealing in Russian sovereign debt was having a sufficient 

impact- could automatically expand the provision to apply to all persons. Such an 

expansion could be a powerful escalation, but undenaken only after verification tl1at the 

initial sanction was not ha,~ng tl1e desired impact. 

"Josh Meakins, "Why Russia is Far Less Threatening Than It Seems," Washington Post Menke)' Cage, Mar. 8, 

2017, ht!lJ!!:/Iwww. washingtonpost.c;om/newslmonkey-cagefwp/:l017/0.W81w!w-JUS.<ia-is-far-less-dueatening-lhllnit-sumsl'lutm term=.90tbc86a6fal 

"Olg;! Tanas, llya Atl:hipov. and Evgenia Pismennaya, •Russia Said to Shield Reserv~ asl'ulin Taps Sovereign 

Fund,· 8/oomh<rg, J111e 28, 2016, httosl/\vww.bloomberg.com!newslaniclts/2016-(16.28/bank.of.russia.said.Jo. 

hie d.rescr~ es<~S putin IAps wcaJJh. un . 

" Nadia Kazakova, "Russian Ruse Keeps Currency Rescr.-es AOoot, • Saxo Group, July 8, 2016, 

httos:llwww. tradingfloor.com!posts!russian-ruse-keeps-currencv-reserves-afloat-789751 0 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

• Rung 114: lncrmsing the pressure on the Russian oil, gas, and peti'Ochemical 

industries. Another pathway to significantly pressure Russia would be to more 

expansively target ils oil, gas and petrochemical industries. While Directives 2 and 4 of 

the SSI program target ti1e health of Russia's petroleum industry in the medium-to-long 

tenus (by targeting the development of resources that would come online during that time 

frame), they have not put as much pressure on Russia's economic resources in the shorter 

tenn. Similarly, proposals contained in the Counteracting Russian Hostilities Act also 

focus on the medium term; by penalizing U.S. and foreign persons that broadly invest in 

Russian energy resources, the United States would certainly impact tl1e ability of the 

Russian Federation to produce such resources in a cost-effective way. Yet with the rising 

price of oil, such measures might not have an immediate or powerful impact in the short 

tcrn1, and consequently may not change Russia's activity during that time frame. 

In addition to the recommendations proposed in the Countemcting Russian Hostilities Act 

particularly Section 207(a), Congress s[l{)u[d consider additional sanctions tl1at pressure 

Russian energy companies in the short tenn. 

First. Congress should consider intposing export restrictions on cmde oil produced by three 

Russian major companies, namely Gazpronmefl, Bashneft, and Rosneft. According to one 

study, these three companies account for almost 50% of Russian cmde oil exports. 67 While 

these targets could still sell oil elsewhere, it would cost more to do so and impose limited 

punishment on the Russian Government. 

To be eiJective, such sanctions would need to be constntcted as secondary innatlore, i.e., threatening to cut European and Asian companies off from U.S. markets if their home 

countries continue to import certain hydrocarbon producls from these companies. Such a 

step would likely cause significam diplomatic tension, particularly with our partners in the 

European Union. To mitigate such tension, ti1e statutory provision could be stmctured to 

give the administration six months to work with the E11topeans to draw down t11eir reliance 

on petroleum products produced by these entities. If, at tbe end of that period, an 

insufficient drawdown bad occurred, Congress could reserve tile prerogative to impose 

secondary sanctions on targeted companies in the EU and Asia. Congress could also write 

in a significant reduction or national security exception element to this prov ot~ much 

like the provision included in the National Defense Autl1orization Act Sec. 1245 in the Iran 

contex'l, to ensure that we would not unduly be punishing our allies or seriously 

undcnnining the economies of our partners, particularly those in Eastern Europe who are 

highly reliant on Russian energy exports. Such a provision could either be in lieu of, or in 

addition to, the six-month period to allow tlte administration to convince countries in 

Europe and Asia to draw down. 

" S<rgey Aleksashenko, "Eval..,ting Western Sanctions on Russia," Atlandc Cororcil, Dec. 2()16, 

http://www anl coouncil.org/imagesffi~ticationYEva ual ng Western Sanctions on Ru.,<ia web t2()6.pdf. 

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Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democracies 

Financial Integrity Network 

Second, Congress could consider prohibiting correspondeut accounts and payable access 

for financial institutions providing banking seTVices on behalf of key Russian oil-producing 

companies. S1ocb a move would have an immediate and powerful impact on these 

companies, as the global oil tmde is primarily dollar-based. In effect, if these companies 

were unable to do oil transactions in dollars, they would need to use altemative currencies, 

a time-consuming and expensive process. Note tltat this approach would likely cause major 

economic damage to the Russian energy sector and its economy as a whole. 

Third and building off this approach, Congr..>ss could go further and in1pose secondary 

sanctions on any financial institutions doing business witlt these Russian entities. Such a 

step would cut these entities off not only from the U.S. financial sector but would also limit 

their access to other markets as wel l. It would also likely limit tlteir access to Chinese and 

other fonns of financing. \VIrile wielding such a tool might cause a change in Russian 

b~havior, it would also likely cause significant damage to tl1e Russian economy and cause 

a serious diplomatic row with our European allies, which bave been working closely with 

the United States in ramping up tl1e pressure on Russia. 

When evaluating these various proposals, two additional considerations merit attention. The first 

is the likelil1ood- and severity-<>f Russian countersanctions or oU1er responses. As a result of 

U.S. and EU sanctions on Russia in re$ponse to its activities in Ukraine, Moscow imposed 

countersanctions on the EU. Iimiting food shipmeots. 

68 TI1e United States and the European Union 

should expect further symmetric and as}•nmetric responses in the case tltat we ramp up sanctions 

pressure. Such responses could include countersanctions or increased cyber activity. and could be 

proportional to degree of new pressure we impose on Moscow (i.e., tl1e more powerful sanctions 

we impose, the more significant Moscow's retaliation may be). 

TI1e second consideration is that while Russia poses many challenges to the United States, we still 

want the opportunity work with Moscow on a range of diftlcult issues, such as intemational 

terrorism, North Korea's nuclear weapons and ballistic missile programs, stability in Afghan sta ~ 

and a number of other areas. Ramping up sanctions pressure on Russia may impact their 

wiltingness to work constmctively witll tiS on these matters. While increased pressure is justiJied 

in response to Moscow's continued defiance of international law and aggressive actions towards 

tloe United States, we should recognize that further sanctions may make cooperation with Russia 

in other areas more diflicult. 

IV. Ensuring Russian Compliance 

As this Committee cooosiders imposing additional sanctions on Russia, it should also consider how 

to effectively unwind tl1is pressure in such a way that provides Russia witlt the incentive to change 

its behavior. One oftbe key sanctions lessons oftloe past few years is thai unwinding sanctions is 

'*"Russia )...lay F->tendCoonter-Sanctoons Umil F.nd-2017," Reutm, MayTI, Wl6, 

http://www.reuters.comfarttclehis-rus:sia.crisis-sanctions-idUSKCNOY11GI. 

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Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

often significantly more difficult than simply tuming a legal switch." btdeed, unwinding sanctions 

C<lll often prove complicated, and in many cases ill-considered or ineffective blunt unwinding of 

sanctions provides unnec~sary C·Oocessious to our adversaries and lingoes opportunities to 

continue to pressure these targets for a variety of other malign activities. 

70 Likewise, mmping up 

powerful sanctions but failing to provide realistic pathways for countries to change tl1eir beha,~or 

and enjoy even partial sanctions relief could lead to a situation of sanctions stalemate, where the 

United States has imposed powerful saru:tioos but the target is unwilling to abide by every one of 

our demands (and therefore does not see any relief). Such a situation can be highly problematic, 

as the target suffers ~ the United States docs not achieve its policy goals. 

Aggressive sanctions ramp-up must be coupled with a thoughtful unwinding process, one that 

provides for meaningful relief to a target ifthat target changes its beha~or and one that does not 

mise the bar for achieving such relief too high. 

In certain respects, elements of the current legislative proposals in tlte Senate may raise the bar for 

relief too high. For example, Section ll of the Cotmteracting Russian Hostilities Act- which 

imposes sanctions on Russia for its activities in Ukraine- sets a bigh threshold for tennination of 

tlte sanctions program, namely that Russia ceases ordering, centrolling, or otherwise supporting or 

financing sepamtist elements in Ukraine and also halts military opemtions in Syria. Whi le the 

United States should seek to achieve these goals. most Russia analysts have doubts as to whether 

Russia will fully relinquish control of Crimea or totally cease military opemtions in Syria as a 

result of sanctions pressure. Yet in order for tlte sanctions to be lifted, that is what is re<1uired. 

Setting the bar for tennination of these programs this high means tbat it is unlikely the United 

States will be able to IUiwind these sanctions in the foreseeable future. 

Further, such a threshold actually disincentivizes Russia from even partially complying with many 

of its obligations under Minsk II; if the only way Russia can secure sanctions relief is with total 

fulfillment of its obligations under Minsk II, it has limited incentive to fulfill only some of its 

obligations, as it will be unlikely to see sanctions relief from doing so. 

Wltile the waiver elements of this legislation do provide for some flexibility- namely permitting 

the President to waive the imposition of certain sanctions if he detemtines it is in tlte national 

security interests of the United States and certifies that Russia is taking certain steps in Ukraine 

and S)~ia what is needed is a statutorily constmcted set of "ofT-ramps" that provide a clear 

roadmap for tlte Russians to receive limited sanctions relief in exchange for meeting certain 

obligations under Minsk II or verifiably reducing tlteir malicious cyber activities against the United 

States and its partners. 

"Stt. t.g., Peter Feaver and Eric L(l(bet "Penally llo.'<, • Foreign Affairs, June 6, 2014, 

hnmilwww.f(l(<i•miTairs.comlru!icleshmit<d·slllle</2014.Q6.06!penaltv-box. 10 Eric LorlxT, "Securing American Interests: A New Em of Economic Pow a, • Cenltr on Sanclibns and Illicit 

FifUIIICe, Foundad<»• for Defense of Democracies, F<b. 2017, 

http://www.defenddemocrncv.org!contentluploodsfdocumenL-;/CSIF Securing American lnteresls.pdf. 

21 
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31517034.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

Such a stat\llory construct could work as follows: New legislation could include lhe c<>dilication 

of the Executive Orders related to Russia and Ukraine, along wilh additional, sta1Utory 

designatioas of certain parties (e.g., in an annex) involved in destabilizing Ukraine or currently 

goveming Crimea. 111e legislation could nuther specify that these additional designations will be 

lifted if Congress reviews and agrees that Russia has li1lfilled certain, delineated obligations under 

Minsk II. For example, if Russia withdraws all of its heavy weapons from the conflict zone, the 

United States will lift these designations. 111e level of sanctions unwinding provided oould be 

queued to the magnitude of lhe obligation Russia fulfills. For example, if the new legislation 

includes powerful sanctions related to Russian sovereign debt, the lifting of those sanctions could 

be tied to ~1e fulfillment of other, more significant obligations under Minsk I~ such as Russia 

allowing for full Ukrainian control over its border with Russia troug) out the conflict zone. In 

is way, the United Stales would not be providing significant sanctions relief to Russia in 

exchange for minor concessions. 

Such legislation could be structured in altemative ways tl1at achieve tbe same effect, as well. For 

example, the legislation oould rely on a presidential certification that Russia had fulfilled certain 

of its obligations under Minsk II or ~tat it bad significantly reduced its cyber-attacks against the 

United States and its partners, but lhen provide Congress Ote opportunity to r~view and approvt 

(or disapprove) oftbat certific.atioo followiog briefings by t11e administration and the intelligence 

community. ~y upon approval would the statutorily imposed sanctions specified be unwound. 

Any such provisions should include a degree of built-in flexibility. such as specifying that if 

Congress deems it appropriate, additional or altemate sanctions can be relaxed as a result of 

Russian actions. Such flexibility will ensure that while Congress demarcates a clear path in from 

tl1e cold to Moscow, it can adjust to changes in the situation as necessary. 

TI1is "off ramp" approach provides a number of important benefits. First, it increases the 

likelihood that the United States will achieve some- albeit not all-of its objectives, particularly 

with regard to Ukraine. By ramping up pressure on Moscow and then providing such off-ramps, 

the United States will give Russia a clear path to sanctions relief and will increase the prospects 

that Mosoow will live up to at least some of its Minsk II obligations. Otherwise and based on the 

current sanctions stalemate, it does not appear likely that Russia will change its activities in 

Ukraine and indeed may simply try to wait 01rt U.S. sanctions until the pamllel EU sanctions 

regime falls apart or 111th the hope that the Trump Administmtion will make a decision to relax 

some of~1e current S<~nct ons on Russia. 

Second. while providing limited sanctions relief, this approach also keeps the pressure on Russia 

to change its other undesirable behavior. While Russia may receive S\ICh limited rcUef, it will still 

be w1der significant economic pressure, particularly if some of the more powerful sanctions on the 

c<>unlry remain in place. As a result, Ote United States can continue to pressure Russia even while 

granting it some relief. TI1is approach overcomes one of the primary critiques of a major recent 

sanctions unwinding episode-the Joint Comprehensive Plan of Action ("JCPOA") between tbe 

P5+ 1 and Iran. In that case, the ObanJa Administration was arguably reluctant to enforce 

remaining sanctions on Iran for fear of undennining the agreemen~ and as critics of the deal argue, 

22 
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31517035.eps

Eric Lorber 

Center on Sanctions and Jllicit Finance. Fo1mdation for Defense of 

Democmcies 

Financial Integrity Network 

partially as a result Iran oontinued 10 engage in des1abilizing ac!ivily througho\11 the region, 

including exporting terrorism, ballistic missile eve opmen~ and supporting Syrian President 

Bashar ai-Assad and the HO\tthis in Yemen. Utilizing this "off ramp" mechanism may help avoid 

!his pitfall by making it clear tl1at a number of sanctions on Russia will remain in place even with 

the partial relief and thai Russia should not expectlo see relief related to those remaining sanctions 

unless and umil it changes its behavior tied direc!ly to tl1em. 

V. Moving F01ward 

Russia continues to tl1reaten U.S. national interests in a number of ways, including its destabilizing 

activities in Ukraine and ils cyber-atlacks aimed at undermining democratic institmions, lo say 

nothing of its blatant human rights abuses and bmtal military campaign in Syria. l11e United States 

should be prepared to use all the tools at its disposal-diplomatic, cyber, eoonomic, and militaryto counler these Russian threats. But as Congress, which bas a key role to play i11 these efforts, 

decides whether to ramp up c-oonomic pressure on Russia, it should do so in a way that is botl1 

responsible and provides Moscow with a clear pathway for drawing down 1ensions and gradually 

relieving tl1at economic pressure as a reward for improved behavior. 

Thank you for your lime. I look fonvard to your questions. 

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1The public link to the report can be found at https://www.state.gov/documents/organization/267590. 

PREPARED STATEMENT OF RODNEY D. LUDEMA, PH.D. 

ASSOCIATE PROFESSOR, SCHOOL OF FOREIGN SERVICE AND DEPARTMENT OF

ECONOMICS, GEORGETOWN UNIVERSITY

MARCH 15, 2017 

Introduction 

Chairman Crapo, Ranking Member Brown and distinguished Members of the 

Committee, thank you for the opportunity to testify at today’s hearing assessing 

U.S. Sanctions on Russia. My name is Rodney Ludema, and I am a professor of economics at Georgetown University. Earlier this year, my co-author Daniel Ahn and 

I published a report titled, ‘‘Measuring Smartness: Understanding the Economic Impact of Targeted Sanctions,’’1 and I would like to take the opportunity to share some 

of its conclusions. 

As you know, Russia’s intervention in Ukraine in early 2014 prompted the United 

States and the European Union to impose series of ‘‘smart’’ sanctions—sanctions 

against specific individuals and companies, primarily in Russia and Ukraine. The 

sanctions began in March 2014, and the list of targets has grown steadily, now affecting several hundred companies explicitly and thousands more by association. 

Our study seeks to understand just how ‘‘smart’’ these sanctions have been in practice. That is, have they hit the intended targets with minimal collateral damage? 

We find that, with a few notable exceptions, the sanctions have inflicted significant 

damage on the intended targets, with relatively little short-run impact on the overall Russian economy. 

Smart Sanctions in Context 

While broad economic sanctions and trade embargoes have long been used as instruments of foreign policy, targeted sanctions focusing on specific individuals, companies, and transactions are relatively new. They are an outgrowth of a recognition 

that the effectiveness of an economic sanction in gaining compliance from a target 

government does not depend on the overall economic damage the sanction causes 

but on whether the target government itself and its key domestic constituencies feel 

the economic pain from noncompliance. Thus, sanctions are considered ‘‘smart’’ if 

they target responsible parties while minimizing collateral damage. For this reason, 

assessing the smartness of targeted sanctions on Russia is essential to assessing 

their efficacy. 

Clouding the picture, however, is the fact that the conflict in 2014 roughly coincided with a series of powerful macroeconomic shocks, especially a dramatic decline 

in the price of oil (Russia’s main export), which jolted both the Russian and world 

economies. The Russian economy slowed dramatically in 2014 and entered recession 

in 2015. This makes it difficult to determine with the naked eye whether the poor 

economic performance of a sanctioned company is due to sanctions or to the broader 

economic problems of the country. Likewise, it is difficult to determine whether the 

broader economic problems of the country are due to the oil shock or to collateral 

damage from sanctions. 

The difficulty inherent in attributing Russia’s poor economic performance following sanctions to a single cause has allowed for a wide range of conflicting claims 

regarding the economic costs of the sanctions to Russia and to neighboring economies. Opponents of sanctions, in particular, claim that sanctions have caused little 

pain to the specific targets, while inflicting untold economic damage on the Russian 

people and on neighboring countries (principally members of the European Union). 

Effects on Sanctioned and Associated Companies 

The first part of our study examines whether the sanctions impacted the intended 

targets. We assemble all companies listed on the Specially Designated Nationals 

and Blocked Persons (SDN) List and Sectoral Sanctions Identifications (SSI) List, 

along with all companies associated with individuals on the SDN list. Together with 

overlapping targets from a similar set of sanctions by the European Union, this 

comprises 584 unique targets. (In continuing research, we have also considered 

some 2,000 subsidiaries of these targeted companies and found similar results.) 

Our method is to compare the performance of sanctioned companies to that of 

nonsanctioned peer companies before and after the sanctions were imposed. As sanctioned and nonsanctioned companies all face the same macroeconomic environment, 

comparing the two groups is a way to isolate the effect of sanctions. Our main 

68 

finding is that sanctioned companies are indeed harmed by sanctions relative to 

their nonsanctioned peers. On average, a sanctioned company loses an estimated: 

• one-third of its operating revenue 

• over one-half of its asset value 

• about one-third of its employees 

after being targeted compared to nonsanctioned companies. These estimates, which 

are large and appear highly statistically robust, suggest targeted sanctions do have 

a powerful impact of the targets themselves. 

Beyond the broader strategic implications, these sanctions may therefore be 

tactically impairing the ability of the Russian Federation through these companies 

to further the illegal annexation of Crimea and the ongoing crisis in Eastern 

Ukraine. 

Macroeconomic Impacts 

The second part of our study examines collateral damage. In particular, we consider the impact the sanctions have on Russian GDP and on its imports from the 

European Union. In contrast to the firm-level approach, it is not possible to cleanly 

separate out the effect of sanctions from the effect of other macroeconomic factors 

in the aggregate analysis. Instead, we pose a much simpler question: How much of 

the post-sanction performance of the Russian economy can be explained either directly or indirectly by falling oil prices? The world oil price (Brent) fell from over $100 in 2013 to under $60 by the end 

of 2014, and declined further in the second half of 2015. A common rule of thumb 

for oil exporters suggests a $40 drop in the world price of oil should shrink energydependent Russia’s GDP by 4 to 5 percent. Indeed, we find that the oil price change 

explains the vast majority of the decline in Russia’s GDP and import demand, with 

very little left to be explained by sanctions or other factors. We conclude that either 

sanctions had only a small negative effect on Russia’s GDP or other positive factors 

largely canceled out the effect of sanctions. 

There is good reason to believe that sanctions have had only a small negative 

macroeconomic effect in the first 2 years of their imposition. By far the largest companies on the sanctions list (energy companies, banks and defense companies, which 

make up a large fraction of the Russian economy) were not subject to blocking sanctions. Rather, they were subject to limitations on long-term borrowing and new technologies that, by design, should have a delayed effect. The reason for this design 

was to mitigate the potential negative impacts on U.S. companies and those of our 

allies. 

As for positive factors that may have countered the effect of sanctions, the most 

plausible candidate factor would be the Russian policy response. Notable policy responses were the large depreciation of the Ruble in 2014, and government bailouts 

certain ‘‘strategic’’ firms. The government of Russia designates certain firms as strategic because of their economic and national security importance to be prioritized 

to receive state largess in the form of state loans guarantees, capital participation, 

more government contracts, and tax breaks. It is important to note that such policy 

responses are costly to the Russian government, and thus this constitutes an indirect avenue by which the sanction effect is felt. 

Finally, we find that sanctions have had a small effect on the economies of most 

EU countries. Adding together the impacts of sanctions and Russia’s agricultural 

countersanctions on EU exports gives a median impact across EU countries of just 

0.13 percent of GDP (though with considerable variation across the EU members). 

The reasons for this are: (1) Russia generally accounts for a small share of total EU 

countries’ exports; and (2) most of the decline in Russian imports is explained by 

lower oil prices and trend factors. 

Conclusions and Implications for Future Sanctions 

Economic sanctions are meant to signal international disapproval, deter further 

aggression, and create leverage in negotiations with the targeted country aimed at 

reversing the offending policies. Whether the current set of sanctions against Russia 

will ultimately accomplish these goals is unknown, but good sanctions design gives 

the United States and its allies the best chance of success. 

History teaches that sanctions are most effective when they are multilateral, 

sustainable, focused, and clearly contingent on an achievable goal. The current sanctions on Russia were designed with these principles in mind. While not fully multilateral, they include the European Union, which is a region of great importance to 

the Russian economy. They were designed to cause minimal collateral damage in 

the short term and thus have proven sustainable so far. Our study largely confirms 

the success of this design element. Any new sanctions, if targeted at the broader 

69 

Russian economy, could easily cause collateral damage and thus should be approached with caution. The current sanctions were designed to focus their impact 

on the companies and individuals involved furthering Russia’s illegal annexation of 

Crimea and ongoing Ukraine policy. Our study largely confirms the success of this 

design aspect as well. Any new sanctions targeting different policies should be similarly targeted. 

Finally, current sanctions are contingent on certain Minsk II milestones, and 

while they have yet to be reached, they are clear. Sanctions policies that tie the 

hands of negotiators in such a way as to prevent achieving the goal should be 

avoided. 

(70) 

1See, e.g., ‘‘FinCEN Renews Real Estate ‘Geographic Targeting Orders’ to Identify High-End 

Cash Buyers in Six Major Metropolitan Areas,’’ Financial Crimes Enforcement Network Press 

Release, Feb. 23, 2017, available at https://www.fincen.gov/news/news-releases/fincen-renewsreal-estate-geographic-targeting-orders-identify-high-end-cash. 

RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY 

FROM ERIC B. LORBER 

Q.1. Following the imposition of sanctions, many Russians may 

have believed that sanctions were a cause of Russia’s economic 

downturn. How could sanctions be better targeted to restrict Russia’s capabilities without encouraging anti-American sentiment? 

A.1. Sanctions that focus on Russian President Vladimir Putin and 

his cronies’ corruption could be particularly effective at putting 

pressure on Russia while not encouraging anti-American sentiment. 

President Vladimir Putin is adept at manipulating state-controlled media sources to put the blame for Russian’s economic 

struggles squarely on Western sanctions. While factually untrue, 

large swaths of the Russian population believe the United States 

is the cause of the economic anguish they feel. Additional, broadbased sanctions that target Russia’s economy or particular sectors 

within that economy (such as sectoral sanctions) may exacerbate 

this problem, and while putting additional pressure on Vladimir 

Putin, may also increase anti-American sentiment within Russia. 

Sanctions—and sanctions-like tools—could be better targeted to 

pressure Russia’s elites and ruling class while limiting the impact 

on the Russian population more generally. One way to do this—as 

I mentioned in my written testimony—would be to identify, track, 

and as appropriate, seize assets of sanctioned Russian elites in the 

United States and in certain foreign jurisdictions. 

Russian oligarchs are well known to launder money coming out 

of Russia through high-end real estate purchases in urban centers, 

often paying cash for these properties. Recently, the Financial 

Crimes Enforcement Network at the United States Department of 

the Treasury has collected information related to high-end real estate purchases by anonymous parties through its recent Geographic 

Targeting Order.1 It is widely believed that FinCEN’s information 

collection has produced substantial relevant information on these 

flows and where some of these individuals’ assets are. Identifying 

these assets in the United States and partner jurisdictions (such as 

the United Kingdom, where Russian oligarchs have purchased 

large amounts of luxury real estate in London) and seizing them 

if necessary (e.g., if they belong to designated Russian persons) 

could put additional pressure on individuals within Vladimir 

Putin’s circle of cronies in ways that would not directly impact common Russians. 

An additional benefit of such action would be that it directly 

plays into one of the primary grievances ordinary Russians do have 

71 

2Andrew Higgins, ‘‘Aleksei Navalny, Top Putin Critic, Arrested as Protests Flare in Russia,’’ 

New York Times, Mar. 26, 2017, available at https://www.nytimes.com/2017/03/26/world/europe/moscow-protests-aleksei-navalny.html?lr=0. 

against the Putin government and Russia’s oligarchs more broadly: 

corruption. As recent street protests have illustrated, significant 

elements in Russia are frustrated with the substantial level of corruption at the highest levels of government.2 To the extent that 

U.S. sanctions and sanctions-like measures focus on the Russian 

elites’ corrupt activities, they will in turn be less likely to produce 

anti-American sentiment. Congress should therefore consider focusing its legislative authority on measures—such as setting up a Russian corruption task force at FinCEN—that target Russian corruption and that freeze illicit Russian assets in ways that hurt the 

bank accounts of key Russian oligarchs. While such a task force 

would put pressure on Putin and his cronies, Congress should remain clear eyed that such measures—while powerful—would be 

unlikely to change Russian activity if not situated as part of a welldeveloped strategy using all means of U.S. statecraft. 

RESPONSE TO WRITTEN QUESTION OF SENATOR TILLIS FROM 

ERIC B. LORBER 

Q.1. Can you please outline what a sustained regimen of Russia 

sanctions might look like. I am interested in your opinions on what 

an idealized sanctions framework looks like, one where the United 

States potentially has a multilateral engagement with EU or 

NATO partners, so that we move toward a goal of isolating Russian 

leaders (oligarchs? Putin’s cronies?) and bad actors as opposed to 

harming innocent Russian civilians. What concrete policies could 

the United States put in place that would make Russian leaders 

start to produce a mutually beneficial behavior over the long term? 

How does U.S. energy policy influence the ability of the United 

States and other nations to exercise effective sanctions? 

• Please outline a framework and strategy for exercising and implementing incremental and sustainable sanctions, and what 

other policy tools should be used to couple sanctions. At what 

point is an escalation of engagement appropriate? What are 

the next steps when sanctions and other diplomatic avenues in 

controlling malign activities? How do you counteract negative 

messaging about sanctions in Russia—to win the hearts and 

minds of individuals in Russia? 

A.1. One of the core tenets of a sustainable sanctions program to 

effectively pressure Russia is close U.S. and EU cooperation. The 

EU sanctions have been instrumental in ensuring that Russia cannot offset much of the economic pain imposed by U.S. sanctions. To 

the extent that the United States and European Union can continue to closely coordinate their sanctions programs, those programs will be more effective. Any new U.S. sanctions should—at 

the very least—take into account whether the European Union will 

be willing to join with its own regulations. 

With that as background, an idealized sanctions program is one 

that gradually ramps up the pressure on Russia and in particular 

on Russian oligarchs and cronies, specifically by targeting their 

72 

1S. 94, ‘‘Counteracting Russian Hostilities Act of 2017,’’ 115th Cong. (2017). 

corrupt activities. Such gradual pressure—where the United States 

tightens the vice slowly but deliberately—will be significantly more 

likely to achieve EU buy-in than a fast, powerful escalation of sanctions (such as imposing broad import restrictions on Russian energy products). Likewise, such gradual and deliberate pressure can 

help U.S. diplomats make the case for additional sanctions; if Russia refuses to change its behavior as a result of limited escalation, 

the United States can argue to our European counterparts that 

more means are necessary. 

My written testimony lays out a number of options for incrementally increasing the pressure on Moscow, and I reproduce them at 

a high level here: 

• The codification of certain executive orders (‘‘EOs’’), including 

EOs 13660, 13661, 13662, 13685, and 13694, as well as additional statutory designations under these codified EOs; 

• Establishment of a task force, potentially led by the Financial 

Crimes Enforcement Network (‘‘FinCEN’’), to identify and seize 

assets of targeted Russian persons, including those with close 

ties to Russian President Vladimir Putin; 

• Certain restrictions related to U.S. and European financial institutions’ purchase or facilitation of Russian sovereign debt, 

which has been a way for Russia to prop up Russian stateowned enterprises and financial institutions in the face of 

sectoral sanctions; and 

• Primary sanctions on elements of Russia’s oil and gas industry, 

with possible carve-outs for certain countries particularly dependent on the Russian energy sector. 

Note that, as I explain in my response to Senator Toomey’s 

question above, the FinCEN task force and its focus on Russian 

corruption may be the tool least likely to engender anti-American 

sentiment. Most of the more powerful sanctions options will likely 

have macroeconomic effects on Russia’s economy, and Putin will be 

more able to use them for propaganda purposes. 

In terms of coupling sanctions with other policy tools, these economic measures must be nested in a larger strategy of pressuring 

Moscow, including aggressive diplomacy and responding in kind to 

malign Russian activities such as offensive cyber operations. Sanctions are a means to an end, and Congress and the Administration 

must be clear as to what that end is and how they intend to 

achieve it. Ramping up economic pressure on Moscow without clear 

objectives, the employment of other coercive tools, and buy-in from 

the Administration—is unlikely to be effective in getting Moscow to 

change its behavior. While it imposes sanctions, the United States 

should be actively combating Russian aggression in cyber space, for 

example. 

Finally, Congress should think through how it can unwind sanctions pressure in the case that Moscow—even partially—changes 

its behavior. Current sanctions bills, including the Counteracting 

Russian Hostilities Act of 2017 (‘‘Counteracting Russian Hostilities 

Act’’),1 ramp up the pressure on Russia significantly. Yet, as we 

have learned over the past few years, unwinding sanctions can 

73 

often be a difficult and fraught process, and Congress should think 

about how and when it will unwind sanctions even as it builds 

pressure. Any such new sanctions legislation should include builtin ‘‘off-ramps’’—namely elements of the sanctions regime, such as 

specific designations or specific Directives—that could be undone in 

a situation of partial Russian compliance with its various obligations, such as those under the Minsk agreements. Such partial 

sanctions relief could be traded for Russian fulfillment of these obligations, and this approach would increase the chances the United 

States could limit—though not completely eliminate—Russian challenges to U.S. interests. I have explained how to construct a sanctions framework that focuses on ‘‘smart unwinding’’ in my written 

testimony.