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S. HRG. 115–55 

COUNTERING RUSSIA: FURTHER ASSESSING 

OPTIONS FOR SANCTIONS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

ON 

CONTINUING EXAMINATION OF EXISTING RUSSIAN SANCTIONS 

APRIL 27, 2017 

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

( 

Available at: http://www.govinfo.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 

SIERRA ROBINSON, Professional Staff Member 

GRAHAM STEELE, Democratic Chief Counsel 

COLIN MCGINNIS, Democratic Policy Director 

DAWN RATLIFF, Chief Clerk 

CAMERON RICKER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, APRIL 27, 2017 

Page 

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

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

Opening statements, comments, or prepared statements of: 

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

WITNESSES 

R. Nicholas Burns, Roy and Barbara Goodman Family Professor of Diplomacy 

and International Relations, Harvard University, John F. Kennedy School 

of Government ...................................................................................................... 4 

Prepared statement .......................................................................................... 33 

Senator Tester ........................................................................................... 43 

Chip Poncy, President and Co-Founder, Financial Integrity Network, and 

Senior Advisor, Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance ....................................................................................... 6 

Prepared statement .......................................................................................... 36 

(III)

(1) 

COUNTERING RUSSIA: FURTHER ASSESSING 

OPTIONS FOR SANCTIONS 

THURSDAY, APRIL 27, 2017 

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

The Committee met, at 10:04 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. The hearing will come to order. 

This morning, the Committee will receive testimony on the smart 

use of sanctions to counter Kremlin military incursions in Ukraine, 

Syria, and its increased reliance on cyber warfare against many nations. 

The Committee met 6 weeks ago to begin an inquiry into the effectiveness of the United States sanctions regime imposed 3 years 

ago against the Russian Federation for its invasion of Crimea, continuing violence and interference in the Ukraine, and cyber intrusions against the United States. 

At that hearing, we learned that, alone, United States-imposed 

targeted sanctions have had a somewhat limited impact on the 

economy of the Russian Federation. That impact was magnified by 

the combined effect of sanctions imposed by other Western nations 

coupled with the severe drop in world oil prices. 

It was less clear, however, if the existing sanctions were affecting 

any change in the aggressive geopolitical calculations that President Putin continues to make. 

Some analysts say that the economic sanctions have had a deterrent effect on Putin pushing even farther into Ukraine territory, 

and that is a good start. 

Others look to Putin’s continued actions in the Ukraine and 

Syria in the weeks since this Committee last met and conclude that 

we should target additional sanctions on the Russian Federation. 

Despite existing U.S. and Western sanctions, Putin has not shown 

any intention to cease his aggressive behavior. 

For the Committee, today’s inquiry is not about punishing the 

people of the Russian Federation but, rather, those responsible for 

Russia’s misbehavior. 

The goal now is to transform the initial, limited application of financial leverage into the next step of what must become a general 

campaign to impose real costs that impact Putin’s ability to conduct 

hostile activities in an already troubled world. 

2 

A good starting point might include a codification of existing Executive orders and a deepening and broadening of sanctions in 

certain economic sectors, addressing cyber activity and financial 

corruption, and making mandatory certain existing discretionary 

sanctions. 

Vital in all of this is harmonizing the conditions to lift sanctions 

so that if Putin were to try to reverse course, overlapping or misdirected sanctions would not defeat the potential for meaningful 

change in Kremlin policy. 

Since sanctions were first imposed 3 years ago, the Obama administration, the U.S. Congress, and now the Trump administration have been prepared to impose additional sanctions as 

circumstances warrant or until Putin follows through with his commitments to the Minsk cease-fire agreement. In fact, several 

rounds of new designations have been implemented under existing 

sanctions laws over the last 3 years. 

Make no mistake, these sanctions currently in place, and those 

that may yet come, are Putin’s fault and a result of Putin’s confused notions of Russian power and pride. Putin is not defending 

the interests of his people but exploiting opportunities to seize 

neighboring lands by fomenting disorder and seeking to perpetuate 

Mideast conflict to advance Russia’s military influence. 

America must lead on the issue since the most successful sanctions result from a united front of the United States and EU 

cooperation. 

Since the unlawful annexation of the Crimea, the years of destabilizing Eastern Ukraine through relentless war, the global spread 

of cyber intrusions, and Putin’s indefensible support of Assad’s 

leadership of Syria, particularly in light of the recent chemical attack, fewer are left in Europe to defend Putin’s policies. 

The European Union must ask itself if it is prepared to join the 

United States to take the necessary financial actions in the foreseeable future to deny Putin the resources he needs to take whatever 

his next steps may be. 

The last thing the European Union, the United States, or this 

Congress can be is divided in the face of Putin’s uncertain path. 

The times call for clarity of purpose and a correct amount of pressure. 

I thank our witnesses for coming here today to help the Committee understand what a next course of action might look like, 

what the repercussions of taking such actions might look like, and 

how even those may be mitigated. 

Senator Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman, for calling this 

second important Committee hearing on Russian sanctions. I appreciate your willingness to explore how the current U.S. and multilateral sanctions regime is working and next steps to strengthen 

it while preserving unity among our allies. 

Mr. Poncy, welcome to our Committee. Ambassador Burns, good 

to see you again. Thank you for your public service. 

As witnesses underscored in the last hearing, U.S.-EU unity is 

critical if multilateral sanctions on Russia are to continue to be 

3 

effective. In our last hearing, witnesses discussed how Congress 

has worked together on a bipartisan basis to craft the current U.S. 

sanctions regime and to hold Russia accountable for its aggressive 

activity. This encompasses Russia’s violations of international law 

and of the territorial integrity of Ukraine, including its illegal annexation of Crimea, its role in the brutal repression in the war in 

Syria, and the Assad regime’s recent gassing of its own people and 

its cyber attacks on the United States, including on the U.S. financial system and on our elections. 

In the last hearing, witnesses also outlined their ideas on ways 

to strengthen the current sanctions in response to Russian aggression. We should focus today on the broader strategic questions, 

including on what the Committee might do to strengthen our response to Russia, and for its continuing efforts to destabilize states 

in Europe and beyond. We should talk about what the Administration should be doing now on this front. 

Russia’s interference in our election, confirmed unanimously by 

the U.S. intelligence community in a declassified report issued in 

early January, as we all know and recognize, poses a problem that 

goes far beyond foreign policy and strikes at the core of our democracy. It should not be a partisan issue. As their joint report made 

clear, there was no disagreement within the U.S. intelligence community about the Russian role, and it noted that similar efforts 

would likely be undertaken by Russia against U.S. allies and others. It is clear that it is happening in European elections now as 

Russia intervenes to bolster extreme anti-democratic forces there. 

Just this week, we see reports of cyber attacks against one of the 

French Presidential candidates, attacks that look very similar to 

the Russian attacks and disinformation efforts in our election last 

year. The same reportedly happened in the German elections. Earlier this week, we read of Russia’s attacks on Danish military computer systems over the last couple of years. 

It is not subtle. It is a blatant, unprecedented attack on Western 

governments and on democracies. While we have started to impose 

sanctions for Russia’s cyber attacks, we have not yet fully responded to these challenges. Congress must look backward, as various committees are doing, to determine and describe precisely 

what happened. But we must also look forward, strengthening our 

election processes and cyber systems to prevent future interference 

and imposing strengthened sanctions to deter the Russians from 

future activity like this. 

We should be clear-eyed. The Ukrainian community in my State 

and around the world knows firsthand, like our Baltic NATO allies 

Latvia, Lithuania, and Estonia, they know firsthand the dangers of 

unchecked Russian aggression. The recent escalation of violence by 

Russian-backed separatists in Eastern Ukraine, the lack of a consistent policy to deter further Russian aggression, those acts are 

dangerous. 

It seems clear from the surge of violence in recent months that 

Russia and its allies are testing our resolve. 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. 

4 

We should strengthen not weaken sanctions, and the President 

must work with Congress on a principled, bipartisan Russia policy 

that firmly counters this aggressive behavior. 

We are joined by two people today, Mr. Chairman: an accomplished former senior career diplomat who has held important positions in Republican and Democratic Administrations, and a former 

Treasury official and sanctions expert who will help us assess 

where we are and what effects the current sanctions regime is having on Russia’s economy and behavior. We will discuss how stricter 

sanctions enforcement, how closing loopholes, how strengthening 

statutory requirements where appropriate, and how taking other 

measures can send a clear and unambiguous signal of U.S. resolve 

to deter future Russian aggressions. 

I welcome our witnesses. Thank you. 

Chairman CRAPO. Thank you very much, Senator Brown. 

Before I introduce the witnesses, I again want to remind the 

Members of the Senate Committee that we want to be very careful 

about the 5-minute rule. I will try to remind you if you forget. And 

that is also a reminder to the witnesses. We ask you each to keep 

your testimony to 5 minutes. Your full statements will be included 

in the record, and you will have ample opportunity to respond to 

questions as well. 

First among our witnesses we will receive testimony from Ambassador Nicholas Burns, who is the Roy and Barbara Goodman 

Family Professor of the Practice of Diplomacy and International 

Relations—that is a long title, and I am not done yet—at the Harvard Kennedy School of Government. And he is a 27-year veteran 

diplomat at the United States Department of State. 

Next we will hear from Mr. Chip Poncy, who is the President and 

Co-Founder of the Financial Integrity Network and Senior Advisor 

at the Center on Sanctions and Illicit Finance at the Foundation 

for Defense of Democracies. Another long one. Mr. Poncy was also 

a Senior Advisor at the U.S. Treasury Department’s Office of Terrorism and Financial Intelligence. 

To both of you, we welcome you here, and you may begin, Mr. 

Burns. 

STATEMENT OF R. NICHOLAS BURNS, ROY AND BARBARA 

GOODMAN FAMILY PROFESSOR OF DIPLOMACY AND INTERNATIONAL RELATIONS, HARVARD UNIVERSITY, JOHN F. 

KENNEDY SCHOOL OF GOVERNMENT 

Mr. BURNS. Mr. Chairman, thank you. Ranking Member Brown, 

Members of the Committee, thank you very much for this invitation to be with you. I will try to be very brief. You have my full 

testimony. 

Mr. Chairman, I would start by saying that Russia is the most 

dangerous adversary that the United States has in the world today, 

and I think that is pretty much agreed by most national security 

experts. And President Putin has used the power of the Kremlin 

to undermine America’s global interests in the Middle East and 

Europe and around the world. He launched a deliberate assault on 

the heart of our democracy, designed to discredit the American 

Presidential elections in 2016. Russia is actively contesting the 

democratic peace that we established 25 years ago with our allies 

5 

and the people of Eastern Europe to create this peaceful, democratic, united Europe. That was the great victory at the end of the 

cold war. 

During the last 8 years, Putin has invaded Georgia and Eastern 

Ukraine and divided both countries. He invaded, occupied, and 

then annexed Crimea, and no European leader had annexed another country’s territory since the Second World War. He has kept 

Moldova divided, and he has sought to undermine the internal stability—and you mentioned this, Senator Brown mentioned it—of 

Estonia, Latvia, and Lithuania. 

So, essentially, Putin has redivided Europe on a dotted line from 

the south and west of the Russian Federation, and that is a serious 

strategic challenge to the United States and to our European allies. 

I just returned from France last evening, and I would just repeat 

some of what Senator Brown said. Many leaders in the Netherlands and France and Germany are convinced that the Russian 

government is intervening right now in their elections, in this 

three-tiered election in Europe in 2017. He is attempting to do to 

them what he did to us: discredit, disrupt, and possibly alter the 

results of democratic elections in Europe as well as in our country. 

This is a blatant, unprecedented, and deadly serious attack on 

democracy, and that is why we need a vigorous bipartisan investigation by the Senate and House Intelligence Committees and, of 

course, an investigation by the FBI. And if bipartisan investigations in Congress are not possible, then the President and Congress 

should agree to form a bipartisan commission to study this issue, 

investigate, and report to the American people. 

Sanctions are one of the most important instruments we have to 

contain Russian power and eventually—and this may take quite a 

long time—roll back Putin’s territorial aggression. That is why I 

support continuing without exception our current sanctions on Russia and Ukraine. 

I also recommend that Congress should consider a strong and unmistakable response, additional sanctions against Russia, following 

its interference in our elections. This is the only leverage, toughness, that President Putin understands. 

President Trump’s response to Russian interference in the elections, however, has been extremely disappointing. I would say it 

has been weak. President Trump has repeatedly questioned the 

judgments of both the FBI and the intelligence community about 

Russia’s attempt to undermine our elections. He has taken no initiative of his own to have the executive branch investigate these allegations. He has failed even to criticize President Putin in clear 

and harsh terms on this or any other issue, including Ukraine. 

I have worked, as you noted, for three American Presidents on 

the Russia issue: President George H.W. Bush, President George 

W. Bush, and President Bill Clinton. I cannot imagine any of President Trump’s predecessors since the Second World War failing to 

act swiftly to let Russia know how unacceptable these actions are 

to the American people and to our Government. But that is the unfortunate reality with President Trump’s administration, and it is 

why Congress must now take the lead on the sanctions issue on a 

bipartisan basis, because our national security depends on it. 

6 

The American, Canadian, and European sanctions are having a 

negative impact on the Russian economy—not decisive, Mr. Chairman, as you noted, but they are an effective way to isolate and to 

shame and pressure the Russian government. Sanctions alone cannot contain Russian power, but we know that they can act in concert with other measures. We can provide lethal military support 

to Ukraine. We can make permanent the stationing of NATO forces 

in Poland and the Baltic States. We can rebuild the strength of the 

United States military in Europe. As the Congress funded in 2016, 

that package of initiatives to strengthen the U.S. military in Europe with the sanctions can help over the longer term to contain 

President Putin. 

So much depends on what Congress will do, and thank you for 

the honor of testifying today. 

Chairman CRAPO. Thank you, Ambassador Burns. 

Mr. Poncy. 

STATEMENT OF CHIP PONCY, PRESIDENT AND CO-FOUNDER, 

FINANCIAL INTEGRITY NETWORK, AND SENIOR ADVISOR, 

FOUNDATION FOR DEFENSE OF DEMOCRACIES’ CENTER ON 

SANCTIONS AND ILLICIT FINANCE 

Mr. PONCY. Thank you, Mr. Chairman. 

Chairman Crapo, Ranking Member Brown, distinguished Members of the Committee, thank you for inviting me to testify here 

today. It is truly an honor. And it is an honor to testify alongside 

a career diplomat and distinguished public servant, Mr. Ambassador Nicholas Burns. 

I was extraordinarily privileged to serve at the United States Department of the Treasury for 11 years following the terrorist attacks on 9/11. I worked with an extraordinary group of individuals 

across the Government, the private sector, and allied governments 

to develop sanctions policies and financial and economic authorities 

to protect our national collective security. 

With bipartisan leadership across the Congress and four Administrations, we further developed and institutionalized financial and 

economic power as an increasingly important component of our foreign policy and our national security. 

I have continued to focus on this work in the past 4 years with 

an extraordinary group of colleagues at the Financial Integrity Network and the Center on Sanctions and Illicit Finance. These experiences inform the recommendations in my written testimony, 

which focuses on specific sanctions-related steps that the Congress 

can take to protect our national collective security moving forward. 

However, it is critical at the outset to recognize that sanctions 

cannot be effective in isolation. To be effective, sanctions policy 

should be crafted within a broader strategy—a strategy that incorporates regulatory, diplomatic, law enforcement, intelligence, military, and positive economic power in pursuit of clear national security and foreign policy objectives. 

Moving forward, there are steps that we can now take to do this, 

and with a unified approach to a broader strategy in pursuit of 

clear objectives, these steps can include sanctions against 

dangerous, illicit, and aggressive actions taken by the Russian 

Government. 

7 

Many of these steps are consistent with those set forth in the 

Senate bill proposing the Counteracting Russian Hostilities Act of 

2017. I will take a minute to review these. 

First, Congress should prioritize targeted sanctions against illicit 

conduct by the Russian leadership. This includes calling for the establishment of a Russian Counter-Illicit Financing Task Force dedicated to tracing, mapping, tracking, sanctioning, and prosecuting 

illicit flows from Russian leadership that touch our financial system. Such a task force should also work with allied governments 

to similarly track and trace illicit flows abroad. 

Congress should also codify, consolidate, and expand existing 

sanctions authority to specifically target Russian leadership engaged in illicit conduct, including conduct that, with respect to any 

state, undermines democratic processes or institutions; threatens 

the peace, security, territorial integrity, or political sovereignty of 

our allies; or misappropriates state assets. 

Congress should also create specific funding for publication of 

studies and research on the corruption of Russian leadership. And 

Congress should call upon Treasury to consider applying Section 

311 of the USA PATRIOT Act to any foreign financial institution, 

including Russian financial institutions, that engage in substantial 

transactions associated with illicit conduct by Russian leadership. 

Beyond these steps targeting illicit conduct by the Russian leadership, there are steps that Congress can take to heighten controlled pressure on the Russian economy. This should include steps 

that build upon the sectoral sanctions issued by the United States, 

the European Union, Australia, Japan, and Canada in 2014. 

To strengthen the effectiveness of U.S. sanctions in general, Congress should take additional steps. This includes: 

Providing funding for Treasury to expand its sanctions targeting, 

compliance, and enforcement resources and capabilities. Sanctions 

are here to stay, and we need to resource them appropriately. 

Authorize Treasury to issue regulations specifying sanctions program and training requirements for global financial institutions operating in the United States and for other sectors vulnerable to 

sanctions evasion. We have had over $20 billion of enforcement actions levied against banks for breakdowns in controls that have led 

to sanctioned parties getting access to our financial system. 

Congress should call upon FinCEN to finalize pending antimoney laundering (AML) rules that enhance the transparency of 

the financial system. That transparency is critical to allow us to 

understand where illicit flows are, including sanctioned assets. 

And Congress should issue a report—Congress should call upon 

Treasury to issue a report offering recommendations for expanding 

information sharing in ways that reduce costs and enhance the effectiveness of our illicit finance analysis efforts. 

These recommendations are based in large part upon key developments, conditions, and challenges evident in the recent evolution 

of sanctions policy and implementation as discussed in greater detail in my written testimony. 

I am grateful for the opportunity to testify before you today. I 

look forward to your questions. Thank you. 

Chairman CRAPO. Thank you, Mr. Poncy. 

8 

The first question I have is for both of you, and either of you 

please respond as you choose. There are elements in the Russian 

Federation that are unparalleled in black and gray market operations, bulk cash smuggling, and general corruption practices. And 

it is equally clear that Russia will put up a significant resistance 

to sanctions pressure. 

Could you comment on to what extent and through what mechanisms the Kremlin is able to evade or circumvent sanctions, particularly those relating to its oil, financial sectors, and individual 

oligarchs? 

Mr. PONCY. I will take the first shot. Thank you, Mr. Chairman. 

It is a great question. Sanctions evasion is an area about which we 

do not know a lot. What we do know is that there are holes in our 

financial system, globally and at home, that prevent us from really 

understanding whose assets we are holding and transacting, and 

we have seen this with cases that law enforcement has brought. 

We have seen this with regulation that is targeting vulnerable sectors, including geographic targeting orders against high-end real 

estate where we know we have had Russian organized crime buying high-end real estate in Manhattan and Miami. We have also 

seen this in regulatory rulemaking around customer due diligence, 

the final rule that is going to impose beneficial ownership requirements on due diligence for financial institutions next year. 

These actions turn the lights on in our financial system. That is 

going to allow us to get smarter on where money, whether it is 

Russian organized crime or Russian leadership or other illicit assets, may be in our financial system. 

What is clear—and I do not know if you have seen the expose 

from ‘‘60 Minutes’’ last year on Anonymous, Inc., or obviously everyone has heard of the Panama Papers or the 1MDB scandal on 

corruption—is that we are exposed at the highest levels of the financial system, high end, capital markets, gatekeeper accounts, 

top-tier firms—not willingly, but exploited because of a lack of understanding or diligence or requirements to understand who to do 

business with. Closing those loopholes will give us a better understanding. 

That said, I do not think that the sanctions that we have imposed have been ineffective. I think how we define a success here 

is making it harder, costlier, and riskier to do business in the 

United States if you are conducting illicit activity abroad. And I 

think we have done a decent job of that. 

Chairman CRAPO. Ambassador? 

Mr. BURNS. Mr. Chairman, I would just add very quickly—because Chip is the sanctions expert and I agree with what he said— 

one thing that Congress could do, as we reflect on the interference 

in our elections and the Ukraine sanctions issue, is to ask the Administration to step back—it is a good thing for the Trump administration to do, too—assess the effectiveness of the sanctions so far, 

and how effectively they are being implemented and how tightly 

and comprehensively they are being implemented by the United 

States. That is the first. 

Second, to make sure that the European governments are making sure that their companies are actually implementing the sanctions, so that the sacrifices made by European companies are equal 

9 

to the sacrifices made by American companies, because we all know 

there is sometimes a double standard. 

And, third, this is an opportunity, I think as both of us have 

said, and you have also said, to tighten and strengthen the sanctions in 2017. So it is an opportunity for Congress to ask the Administration, and hopefully the Administration would welcome 

that, to do a fundamental review. 

Chairman CRAPO. Thank you very much. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Ambassador Burns, I would like to start with you. In January, 

the U.S. intelligence community unanimously said, and I will 

quote, please: 

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, but these activities demonstrated a 

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

They then noted they expected similar efforts by Russia against 

U.S. allies. 

Talk about their grand strategy. Talk about, if you would, how 

best we increase the cost of that strategy to Putin, how we change 

his calculus, how we deter that behavior, and wrapping that into 

fundamentally what you would suggest the State Department does 

and what you would recommend that President Trump personally 

do. 

Mr. BURNS. Thank you, Senator. As I said in my full testimony, 

there is no question—and we saw this in the Bush administration; 

I think the Obama administration had the same assessment—no 

question that President Putin has set out to undermine the basis 

of America’s power position around the world. He knows that we 

are by far, by a great extent, much more powerful militarily, politically, economically than Russia will ever be. But he is trying, in essence, to cut us down to size. He thinks he has an opportunity to 

do that. 

One way he has done it is through the last 8 years these territorial attacks on Georgia, Moldova, Ukraine, Crimea, pressure in 

the Baltics. 

A second way is to discredit the ability of the United States to 

be a good allied leader, so he is really preying upon the weaker 

members of both NATO and the EU—Bulgaria, Greece—trying to 

convince them not to uphold the unanimous sanctions that the European Union has voted. 

And he is also trying to undercut America’s democratic leadership. We saw that by the interference in our elections. We have 

seen it—he alleges that the United States does not protect its allies. We saw that in his response to the Arab revolutions. He has 

tried to move into Egypt to replace the United States, now into 

Libya to replace American influence there. 

This is a concerted campaign. He is skillful. He is very opportunistic. He is cynical. And he is attempting to weaken the United 

States, and I think he believes that there is a rising tide of 

authoritarianism—China, Turkey, Russia itself, and nationalism in 

other countries—and he can take advantage of that. 

10 

So that is part of the strategy of President Putin, is to cut the 

United States down to size, to limit our effectiveness, especially in 

Europe. But he has also displaced us in the Middle East. 

What can we do to respond to it? Well, I think that President 

Obama and the Congress, Republicans and Democrats, had a good 

start: strengthen the American military in Europe. We hollowed it 

out to fight the two wars after 9/11. We need to rebuild our armor 

and our army capacity and our air capacity in Europe, and there 

is a congressional appropriations to help the U.S. military do that. 

Make permanent the stationing of our forces in Eastern Europe. 

These are very small contingents, our battalions in Poland and in 

the Baltic States. But they are a signal to him that we are going 

to defend the NATO allies. And we set a red line, must defend the 

red line—and the red line is the territory of the Baltic States themselves. 

I would also say, Senator, I testified before House Foreign Affairs 

last month. The idea that you reduce the budget of the State Department and aid by 31 percent at a time like this, when we need 

our diplomats to be on the front lines, we need Radio Free Europe, 

Radio Liberty to be fully funded, to fight the intelligence war and 

the information war against fake news that the Russians are propagating, this is a comprehensive strategic response that the United 

States needs to make, and I think President Trump has done well 

to put in place a strategy against the Islamic State, and he has a 

theory of the case on North Korea, which you heard about yesterday. 

What we have not seen from the Trump administration is how 

do we strengthen America’s strategic position militarily and diplomatically in Europe, how do we respond to Putin, and that is 

what needs to happen from Secretary Mattis, Secretary Tillerson. 

I think both of them have been very tough-minded, but we have 

not seen that from the White House and the President. 

Senator BROWN. And if you were advising the President and he 

were listening, what would you say he should say? 

Mr. BURNS. As I said in my testimony—and I am not accustomed 

as a career Foreign Service Officer to be publicly critical of a President in the way I was in my opening remarks, but I feel quite profoundly that his reluctance to be critical of President Putin is a 

mistake strategically and tactically, that Putin does not respect 

nice, flowery words. He respects strength. And what we need now 

from the American President is strength, especially on this issue 

of Russian interference in our election. There has been no response 

from President Trump except to question the intelligence community and the FBI. 

So that would be my recommendation, a toughening of American 

policy toward Russia. 

Senator BROWN. Thank you, Ambassador. 

Chairman CRAPO. Thank you. 

Senator Shelby. 

Senator SHELBY. Thank you. 

I believe both of you are spot on, on what you are talking about 

about Russia, but the fact remains that there has been no real response, real concrete response to Putin’s moves in Georgia, in the 

Ukraine, the threats of the Baltics, the other stuff. But how do we 

11 

really do this without sweeping, biting sanctions? And that would 

take our European allies to go all the way with us. 

Of course, they are dependent, as you guys know well, on Russia 

for energy, and that is Russia’s lifeblood for money. Their economy 

is based on that, and their military comes from that, too, everything funded. 

So how do we do it? I could see sanctions if they were sweeping 

and if they meant something, they were not porous, not tepid sanctions. You would get somebody’s attention, including Putin’s. But 

short of that, Putin is an opportunist. He is tough, he is smart, he 

is tactical. He looks for opportunities, and he has found some. But 

how do we get our allies behind us when they are doing business 

in different ways with Russia? And how do we get them, including 

Germany, of all people, the biggest economy there and the biggest 

population, to come forth with more defense money? You know, a 

lot of them are not even meeting the 2 percent, as you well know. 

Secretary Burns? 

Mr. BURNS. Thank you, Senator. I think three things in answer 

to your question. 

Number one, the most direct thing we can do to change the game 

with Putin is to help arm the Ukrainians, lethal, defensive weaponry—not offensive. They can defend themselves from these attacks, and the attacks have actually accelerated over the last 3 

months, instigated by Russia inside Eastern Ukraine. 

Number two, I think you are exactly right. We need to act in tandem with Europe and hopefully some of the Asian allies—Japan, 

Australia, South Korea. Germany is the key, so the President 

needs to have a close strategic relationship with Chancellor Merkel 

as long as she is in power. We will see what happens in the September elections. Whoever is in power in Berlin is going to be the 

key European leader. There are some weak states. Germany is the 

key to act in tandem with the United States on sanctions to make 

them that much more effective. And so I think those are the most 

important principles we have got to follow right now. 

Senator SHELBY. What about financial crimes and financial sanctions? I do not believe we have done enough in the banking area 

as far as Russia is concerned, because you can choke off an economy fast if we had sweeping sanctions, could we not? 

Mr. PONCY. There are certainly steps that we can take to elevate 

and escalate our pressure on Russia. What I tried to outline in my 

testimony is sensitive to what you have raised about the possibility 

of blowback, particularly on our allies that are highly exposed to 

Russian potential retaliatory sanctions. So how do we escalate this 

pressure in a way that is going to be strategically meaningful in 

addition to tactically significant? 

I really think that the starting point here is to go after the conduct that we see in Russian leadership associated with corruption. 

We have not studied this with the resources that we should be applying toward this. I do think the creation of a task force that is 

dedicated, that has protected funding, and that does this for the 

longer term—this is a 17-year picture that we have seen evolving, 

as you pointed out. And rather than wait for a regime change and 

trying to find assets after the fact or hope that the policies that we 

have had over the past 17 years, which have not necessarily been 

12 

dissuasive, let us figure out where Russian leadership money actually is. Let us figure out where the corruption is that we can highlight. Let us go after that illicit conduct, and let us make it very 

public. We need to make investments into investigations, analysis, 

tracking, tracing here, and we need to get our allies to do the same 

abroad. If we focus on that, that is one element. 

A second element would be to look at the pressure that we have 

put through our sectoral sanctions in 2014 and ways that we could 

ramp that up, but calibrate it in a way that is sensitive to 

blowback that we may get. 

I do not know that we know enough about this either. It is clear 

that the Russian economy has been reeling. It is also clear there 

are a lot of contributing factors to that. Sanctions are one of those 

factors, but, clearly, depressed oil prices were a big part of the picture. 

Ways that we could ramp this up depend on, one, additional designations in sectors we have already identified as critical. To your 

point, finance is one of them; energy is another, and so is defense. 

There are other industries that may also be relevant, whether it is 

mining or it is aerospace or other industries that we should understand are highly exposed to vulnerability in sanctions that we could 

impose. 

At the same time, there are ways to broaden the sectoral sanctions by taking sectoral-wide investment bans against anyone who 

is going to be investing in the Russian energy market as an example. 

Again, the bill on counteracting Russian hostilities proposes this 

sort of a ban on any person. And to the Ambassador’s point, you 

do not want U.S. businesses sitting on the sidelines while the Europeans that we are trying to assist are investing in energy markets 

that are lining the pockets of the Russian government. At the same 

time, I do not know that the Europeans can join us politically in 

that because of the blowback. 

So you know more than anyone, sir, how effective secondary 

sanctions can be in sanctioning regimes that we have problems 

with. We have to be very careful how we do it, but this might be 

an instance where we provide the cover by saying that we will 

sanction anyone who is going to be investing in the Russian energy 

sector. And we do that in a way that we can manage and be flexible with, but that also starts to heighten the economic pressure on 

Russia. 

Senator SHELBY. Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Cortez Masto. 

Senator CORTEZ MASTO. Thank you. 

To follow up on that conversation, do you anticipate FinCEN 

would be an integral partner of any task force that would be created? And along with that question, also, are there additional 

resources or tools that FinCEN needs now to be able to go after 

any type of illicit Russian money or activity? 

Mr. PONCY. Thank you, Senator. I do think FinCEN is a critical 

component of the task force, but I also think that the task force 

needs to rely on all the assets that we have in the investigative 

and analytic community. 

13 

I would propose putting that task force in Treasury itself where 

the office that I came from, Terrorism and Financial Intelligence, 

of which FinCEN is a part, relies on joint analysis across FinCEN, 

the Office of Foreign Asset Control that administers and implements our sanctions, the Office of Intelligence and Analysis that 

has a dual reporting function to the Director of National Intelligence in addition to the Under Secretary for TFI. That will allow 

us to do the joint analysis where we are at our best at Treasury 

and to merge that or combine it with the investigative assets and 

expertise from the Department of Justice. At Justice, you have a 

National Security Division and a Criminal Division that are highly 

skilled in these issues as well. 

So the funding should be at a level where we are demanding the 

interagency support and participation and prioritization that this 

task force will need across intelligence, law enforcement, and analysis. FinCEN is a part of it, but it is only a part. 

So I do think it is important to dedicate that funding in a way 

that everyone can participate. I think it is important to provide the 

leadership at a senior level to include the Under Secretary for TFI 

and potentially the Deputy Attorney General of the United States 

to co-chair something like this, and to give it a 2- or 3-year mandate with regular reporting so that this is a long-term and sustained commitment against a regime that has had 17 years to consolidate its power around this. 

Senator CORTEZ MASTO. Thank you. And further discussion on 

this topic. At the earlier hearing of this Committee, there was discussion of possible options for Congress in countering Russian aggression, and at that time witnesses urged that we move cautiously 

on imposing further, more draconian sanctions. In particular, one 

witness noted the possible profound consequences for all large U.S. 

global banks if we targeted President Putin and his associates’ direct and indirect assets. 

How concerned should we be in Congress about potential systemic risk to large banking institutions if we impose significantly 

tougher sanctions? 

Mr. PONCY. Thank you, Senator. I do not think that there is risk 

to our financial institutions for going after illicit conduct. The Russians themselves, the entire international community has agreed 

upon the criminality associated with corruption, associated with 

fraud, associated with organized crime and the interests that we 

should be pursuing in the task force. I do think those issues are 

front and center when we start talking about pressure on the Russian economy. But that is where I believe the experience we have 

gained in sectoral sanctions has been critical. 

Those sanctions, having worked in the industry for the past 4 

years across the global banking community, have been implemented effectively and responsibly, in ways that have produced 

economic pressure, and that can be ratcheted up in ways that global banks understand. 

There are going to have to be sensitive and ongoing consultations 

with industry as that happens. There is going to have to be a 

broader strategy that also looks at engaging our foreign partners 

so that we can calibrate this as we go. We have to be careful how 

we do it, but we can certainly do it. And I do think the notion that 

14 

we have to go this alone is inaccurate when you look at the fact 

that we have the European Union, Japan, Australia, and Canada 

that have moved in lockstep with us on these sectoral sanctions. So 

we will have support experience from the global banking community and not just U.S. banks. 

Senator CORTEZ MASTO. Thank you. 

Ambassador, anything else to add? 

Mr. BURNS. Senator, I would say there has to be a response. 

Putin acts in a zero-sum fashion. He is expecting a response. And 

I agree with Chip that it has to be multilateral, it has to be with 

Europe and our Asian allies. And we can start with some of the 

sanctions that President Obama put in place at the very end of his 

term, deepen them and broaden them, go to different areas like 

mining, expand the energy sanctions, expand the number of individuals in the Russian government that we identify for personal 

sanctions, travel bans, that kind of thing. 

I did not think the Obama sanctions went far enough, and certainly what we have seen in the three European countries and the 

United States merits a tougher American response. 

Senator CORTEZ MASTO. Thank you. 

Chairman CRAPO. Thank you. 

Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Gentlemen, before Russia invaded the Ukraine, clearly Mr. Putin 

would have thought about what the responses would have been. 

Part of that planning perhaps would have been how they could defend their assets against the possible retaliation for their invasion. 

They knew there had to be something. I am just curious. Prior to 

the implementation of the sanctions following Russia’s invasion, 

how exposed was Russia’s targeted assets to both U.S. and EU 

sanctions? Basically what I am trying to ask, I guess, is: To what 

extent did Mr. Putin have the opportunity, along with his supporters, to protect or isolate their assets from the reaches of our 

proposed sanctions? 

Mr. PONCY. Thank you, Mr. Senator. That is a great question, 

and it is one of the reasons why I feel there has to be urgency 

around this task force. 

Hindsight is always 20/20, but it is very clear that President 

Putin had allegations associated with corruption when he was in 

St. Petersburg pre-2000, investigations the Russians themselves 

were running. They were shut down when he was elected President. It is very clear that he has marginalized, that he has intimidated, that he has expelled oligarchs that do not share his political 

pathway or support for his political leadership. And this is a picture, when you look in hindsight, you see has emerged where he 

strengthened and consolidated his power and protected his assets 

over 17-plus years. So I do believe that when the invasion happened in 2014, he was already in a great position of relative 

security. 

That said, without any effort to combat that, that pathway continues. And as a G–8 economy, there are only so many steps he can 

take to protect the Russian economy from exposure to heightened 

sanctions pressure. 

15 

The challenge for us is, I think, how effective can we be in going 

after illicit assets—right?—of the Russian leadership, and that is 

what the task force is designed to do, is to figure that out, and at 

the same time, ramp up what is not targeted at illicit conduct, 

what is very deliberately targeted at economic pressure on key sectors, and to do that in a way that minimizes the possibility for 

blowback, which may require, even with broad-based political support, the United States taking a unilateral position on the most aggressive measures where we would apply secondary sanctions 

against European companies or others that would be investing in 

sectors that are important for the Russian economy, because the 

Europeans, if they were to do something like this, would probably 

engender blowback in a retaliatory sanctions manner. 

We do not have as much exposure. For us to do that well and 

to do it carefully, I think we need to have a study of our economic 

exposure, that of our allies, and the exposure of the Russian economy beyond the steps we have taken. But those are recommendations I have advocated in my testimony to take immediate actions 

to escalate responsibly, but to take immediate actions to also get 

a better picture of illicit assets and of our exposure, our allies’ exposure, and the exposure of the Russian economy to where we can 

be most effective in ramping up economic pressure while minimizing blowback. 

Senator ROUNDS. Mr. Ambassador? 

Mr. BURNS. Senator, I think it is reasonable to assume that 

President Putin did not anticipate that the European Union, Canada, the United States, and some of the Asian countries would actually come together in a coherent sanctions package. He thought 

he could divide the Europeans, because traditionally, as you know, 

the Germans, the Italians, the business communities have resisted 

these types of sanctions. I think he was surprised by Merkel’s view 

and her toughness. 

And so we have got to keep that coalition together. I am here to 

support stronger U.S. sanctions across the board against Russia. 

But if we maximize it with the others, we will be in much better 

shape. 

Senator ROUNDS. Can we identify who his most important and 

influential associates are, the people that really are the decisionmakers? Can we identify them appropriately now? 

Mr. BURNS. I think so, after so many years in power. There is 

a group around him from his youth in St. Petersburg. He has enriched them. They run some of the big state enterprise firms. We 

know who they are. Treasury knows who they are. They can go 

after them. He also has loyalists from the KGB—— 

Senator ROUNDS. The reason why I ask is—and I am going to 

run out of time, but we have heard talk about sectorizing it and 

going after particular segments of the industries that really do impact Russia as a whole. But some of the reports we are getting and 

some of the recommendations we are receiving is that we need to 

go after the decisionmakers and after their assets. There is a difference between the two—and I would really like to hear just very, 

very briefly—what your thoughts are on that. 

16 

Mr. BURNS. I think we should investigate that possibility. That 

is one way to toughen sanctions, is to make it direct, somebody in 

his inner circle is hurt financially because of what they have done. 

Chairman CRAPO. Thank you. 

Senator ROUNDS. Thank you. 

Chairman CRAPO. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

I want to get to the issue here that goes beyond kind of sanctions 

but our own, I think, vulnerability. I think Putin understands that 

the greatest vulnerability we have internally in this country is 

hyper-partisanship, is that you can say one thing and people will 

believe it because we have no longer let foreign policy happen at 

the water’s edge. We just keep sending a message that we cannot 

get along and we cannot get things done, and so it gets easier to 

drive a wedge through. 

I want to applaud the Chairman for these hearings. I think they 

have just been very—not bipartisan. They have been nonpartisan. 

And when you read the questions, you would not know if it was a 

Democrat or a Republican asking the questions. This is our challenge to send that message. 

And so my question is: Do you believe that today Vladimir Putin 

believes that there is a unified U.S. internal policy to combat his 

aggression? Ambassador. 

Mr. BURNS. I do not believe that President Putin sees a unified 

response by the Congress and the Administration to what he has 

done on the hacking issue and in a way even the Ukraine issue. 

And I believe he now thinks that maybe the Congress is the party 

that might take action and the Administration is the party that 

might not. He might seek to divide the two, just as he has divided 

us, tried to, from the Europeans. That is a danger, that we have 

to act on a bipartisan basis and between the Congress and the Administration on both grounds, on Ukraine as well as on the interference in our election. 

Senator HEITKAMP. Mr. Poncy? 

Mr. PONCY. Thank you, Senator. I could not agree more that 

unity is essential. It is essential for sanctions policy to be effective 

for the industry to understand that these are intended, expected, 

and will be enforced as operational measures, for our allies to understand that these are not sanctions where they can sit on the 

sidelines with their investments ready to go in, but where they 

have to start to impact their long-term business strategies, and 

sanctions where our adversaries understand that until there is a 

serious change in behavior, there is no serious discussion of sanctions relief. I fully agree with all of that. 

I have confidence that if we were to do that, our sanctions would 

be much stronger. I have confidence that President Putin has misjudged us. I think our best unifying moments are often in the face 

of adversity, and the question is—it is like family. The minute that 

somebody outside the family starts yelling at your brother or sister 

or your mom or dad, you forget about whatever quarrels you had 

over the dinner table. And I am hoping that is what happens here. 

Senator HEITKAMP. In the 2 minutes that I have left, what more 

can we do to send the signal, other than hearings like this, where 

we come together and you do not know who is on either side here, 

17 

what more can we do in Congress, absent passing additional sanctions or doing something legislatively, that will send a clear message that we stand united in this country against this aggression? 

Mr. BURNS. Well, there has to be new legislation. 

Senator HEITKAMP. Right. I agree with that. 

Mr. BURNS. There has to be a response. Right now, there has not 

really been a significant response by the Congress or the White 

House, either President Obama or President Trump, to what happened in the interference in our election. So that has to happen, 

a unanimous denunciation of what the Russians did by both the 

Administration and both parties in Congress on a nonpartisan 

basis. 

Senator HEITKAMP. OK. Mr. Poncy? 

Mr. PONCY. Thank you, and I fully agree with that. I think just 

for simplifying it as clearly as possible, the response should include 

immediate legislation to codify what we have already done. There 

is no going back. Two, to escalate as aggressively as possible on illicit conduct. 

In response to Senator Rounds’ question earlier, that conduct 

should focus on the nepotism associated with the Putin regime. The 

fact that the sanctions we have issued have translated into the passage of assets from those who are closest to him to nominal accounts held by their kids or their nephews or their close associates 

is something that we can track and trace, but we need the resources to do it. That is what the task force is about. 

Senator HEITKAMP. Can I just ask, there is a young gentleman 

in the audience. I do not know whose son or nephew he is, but we 

welcome you. And I want you to know when you are watching this 

that all these people really want to create a very safe America for 

you in the future. So thank you for coming. 

Is he related to either one of you? 

Mr. PONCY. I believe the proud mom is right behind you. 

Senator HEITKAMP. Oh, great. 

[Laughter.] 

Senator HEITKAMP. Anyway, I want to acknowledge—you know, 

sometimes when we get into this, we forget that this is about our 

children and about our future and our country and making our 

country and the world safe for them to thrive. 

Chairman CRAPO. Thank you, Senator Heitkamp. 

Senator Scott. 

Senator SCOTT. As Senator Heitkamp has pointed out, today is 

‘‘Bring Your Kid to Work Day.’’ I would imagine that the Banking 

sanctioning hearing is an interesting and perplexing conversation—— 

[Laughter.] 

Senator SCOTT.——for many of us on this side of the aisle, much 

less this attentive young man. I will say that Senator Heitkamp 

also mentioned the fact that the need for legislation, enhanced 

sanctions, is important, and I know that Senator Lindsey Graham 

and others have been talking about that for the last couple of 

months from my perspective. 

I do thank you both for being here, and, Mr. Chairman, I thank 

you for having another hearing on such a critical topic. Whether it 

be unwarranted aggression in Eastern Europe or propping up the 

18 

Assad regime in Syria or meddling in our elections here at home, 

Russia’s actions have shocked the entire free world. 

I would like to counter one of the main arguments used against 

the sanctioning of Russia. In 2014, the United States and the European Union deployed targeted sanctions against Russia in response 

to its actions in Ukraine. Targets were determined by Treasury and 

State after a careful investigation and vetting process. Russia’s economic growth slowed dramatically, and critics of our targeting 

claimed that we unfairly hurt neighboring countries and innocent 

parties. These critics conveniently ignore the dramatic drop in oil 

prices that occurred during the same time. And my understanding 

is that the drop of the oil prices had about a 4-percent impact on 

Russia’s economy; whereas, our sanctions had about a 1.4-percent 

impact, thereabouts, on the Russian economy, at least under 2 percent. So the drop in the oil prices had a significant impact, and our 

targeted sanctions had a targeted impact. 

The State Department released a report in December 2016 detailing the strong evidence it found that our targeted sanctions, 

and I quote, ‘‘affected the financial health of the targeted firms or 

firms associated with sanctioned individuals, while causing minimal collateral damage,’’ which I think is consistent with the impact 

of 1.4 or 1.5 percent of the GDP. 

Mr. Poncy and Mr. Burns, you have already spoken to part of 

this. I want to ask you a similar question. I would like to get your 

thoughts. Can targeted sanctions be used to effectively pressure 

those who threaten our national interests while limiting collateral 

damage on innocent parties or other countries? 

Mr. PONCY. Thank you, Mr. Senator. I could not agree more that 

the evolution of sanctions—and I spent a lot of time on this in my 

written testimony—but the evolution of sanctions in recent years 

has clearly reflected a migration toward conduct-based sanctions 

that are targeted on behavior and are intended to minimize collateral damage on innocent parties or populations. 

I do think that the advent of sectoral sanctions we have seen in 

Russia, they are a new breed of targeted sanctions because they 

are not targeting illicit conduct. They are targeting pressure points 

in an economy, but they are attempting to do it in a way that is 

still tailored. And I think we have had some success with that. If 

they are sophisticated, our sanctions implementation, our compliance, our oversight in the market and in authorities here at home 

have made those sanctions effective. 

I think combining the two is the best approach, and the way we 

do that is to identify the key firms that are owned or controlled by 

the close associates of Vladimir Putin. To do that well, we need resources that are targeting what we call derivative designations. 

This is how this works. We identify at a primary level close associates that are associated with the illicit activity of the Russian government, that are the decisionmakers in the regime that are engaged in illicit conduct, and they put all their assets in the hands 

of others, right, that are not named as sanctions, that evade our 

filters and our controls, the way that we operationalize this stuff. 

And then it is a game of cops and robbers, and as fast as we can 

identify those who are acting for, on behalf of, or supporting the 

19 

regime, the faster they continue to change color, change shape, 

change form. 

We can keep up with them, but we need the resources to do it. 

And when you have got Iran on the radar screen and North Korea 

and ISIS and all the other challenges that we face, this is why we 

need the task force. And in getting to the task force, we should also 

make sure that we are resourcing targeting over at OFAC and at 

TFI to specifically go after sanctions—to levy sanctions against 

those who are close to the regime and are holding assets in the 

names of others that are materially significant to the Russian economy. I think that is the strategy. 

Senator SCOTT. Thank you. I will skip to my last question because I think you really have hit on the whole nepotism nature of 

the sanctions and what we have to do to pull a larger net to get 

more folks. But, Mr. Burns, you talked a little bit earlier about the 

necessity of not only our sanctions being enhanced, but perhaps the 

European Union and others joining that team. Can you talk a little 

bit more about—— 

Chairman CRAPO. Briefly, please. 

Senator SCOTT. Briefly. No more than 7 or 8 minutes, sir. 

[Laughter.] 

Mr. BURNS. I will be very brief, Mr. Chairman and Senator Scott. 

The key is going to be built on this consensus that is growing in 

Europe that they have been hacked, in the Netherlands, France, 

and Germany. And the key country is always going to be Germany. 

Germany has enforced the sanctions implementation against Putin. 

A lot of countries have wanted to cut and run, and Chancellor 

Merkel has not let them. So I think consolidating that relationship 

is going to be key for us. 

Senator SCOTT. Thank you. 

Chairman CRAPO. Thank you. 

Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. And thank you 

both for your testimony. 

You know, I am amazed that the Congress and the Administration has not responded to a cyber attack on the United States seeking to affect its national elections. Whether or not one believes they 

succeeded at it is not the question. The mere fact of launching a 

cyber attack with that purpose should create an outrage from the 

President of the United States on down. If we had any other form 

of attack, believe me, we would have imminently responded. And 

yet in this context, there seems to be a reticence to ultimately pursue what is one of a handful of peaceful diplomacy tools, which is 

the use of sanctions. And as the architect of the Iran sanctions, I 

can tell you that that brought Iran to the table. And we have just 

touched the surface on Russia as it relates to a sanctions policy. 

That is why I was a co-author of the Countering Russian Hostilities Act, which I think would go a long way toward moving us 

in the right direction here. And when former Secretary Burns says 

this statement—this is an extraordinary statement: ‘‘Russia is the 

most dangerous U.S. adversary in the world today.’’ 

‘‘Russia is the most dangerous U.S. adversary in the world 

today.’’ Wow. And we seem to be frozen in time. 

20 

So I strongly believe that where we are missing the boat, at least 

as it relates to a sanctions policy, is where sanctions work the best, 

which are financial sanctions—and sectoral sanctions, of course. I 

mean, Russia’s economy is basically an extraction economy, so it 

depends overwhelmingly on its oil and related enterprises. 

And so while we have had some sanctions in that regard, there 

are far more pervasive sanctions that could be pursued there. And 

above all, Putin and his cronies care about where their money 

flows. And so, therefore, sanctions against financial institutions, of 

which we have at best scratched the surface, is sorely, sorely missing. 

Mr. Poncy, would you agree that sanctions against financial institutions that are appropriately designated would go a long way 

toward moving our policy along? 

Mr. PONCY. Thank you, Senator, and thank you for all of your 

work on the Iran sanctions campaign. It was tremendous, and I 

was proud to be a part of that when I was at Treasury. And I fully 

agree. I think that there is plenty of powder in the keg to apply 

in sanctions if the intent is to disrupt and overwhelm the Russian 

economy. We can do that. The question is: How do we do it in a 

way that preserves a multilateral approach that will ultimately be 

necessary within a broader strategy that allows us to escalate in 

a manner that drives settlements toward whatever the aggression 

is, whether it is Georgia or it is Ukraine or it is Syria or it is cyber. 

And there is a lot, obviously, with the Russian government. 

What you have in the Counteracting Russian Hostilities Act I 

think is a tremendous start. My written testimony supports virtually everything in there. I want to focus on two issues that you 

have just identified in particular. One is the investment ban in the 

energy sector. I think that is a very interesting idea because it is 

a ban in which we would sanction any person who invests in energy. And as I tried to say earlier, I think that is an area where 

we are going to have to lead unilaterally, just as we did in the Iran 

campaign, because of the blowback on the Europeans. 

Senator MENENDEZ. And if you can briefly talk to the second one, 

because there is one more question I want to ask before my time 

runs out. You said the investment—— 

Mr. PONCY. The second one is sovereign debt, and you have got 

that one in there as well. 

Senator MENENDEZ. Now, the United States imposed sanctions 

on state-owned oil company, Rosneft, and its effective owner, Putin 

crony Igor Sachin. Russian owns 69 percent of Rosneft and sanctions that both the United States and European countries have imposed intend to prevent financing of Rosneft. However, Rosneft, as 

well as other Russian state-owned enterprises, they are still operating. 

For example, Rosneft recently purchased nearly 50 percent ownership of Venezuela state-owned oil company PDVSA, which, incidentally, wholly owns and operates Citgo in the United States, 

which has a large amount of critical infrastructure in the United 

States, with the possibility that Venezuela may collapse in its economic standings and default. And I have no doubt that Rosneft 

purchased on the open market other shares to put them over 50 

percent ownership. Is that not something that we should be taking 

21 

as an action to make sure that Russian state-owned companies 

cannot further expand into international markets? 

Mr. PONCY. I could not agree more. That is part of the study that 

needs to be done, not just the task force to track and trace illicit 

finance, but to better understand the points of vulnerability that 

we have to Russian economic and financial influence, that our allies have, our exposure, and the leverage that we have on a Russian economy that is, as you say, highly extractive. 

I do not think we have studied this enough. I do not think our 

defenses are up where they need to be. I think those sorts of actions are actions that we need to be highly attentive toward, and 

where we see those, escalate with a sanction where we are not allowing a vulnerability like our own dependence on imported oil, 

with Venezuela in particular, to be controlled by a regime that we 

are trying to sanction. 

Senator MENENDEZ. Thank you. 

Senator TILLIS. [Presiding.] Senator Cotton. 

Senator COTTON. Thank you. Gentlemen, thank you for your testimony today. 

In November 2015, I wrote an article in Foreign Affairs talking 

about how to counteract Russia’s aggression across the world. It 

was caused most immediately by their surge into Syria and their 

attacks on the proxy forces that we were supporting there. But it 

ranged more widely—security, intelligence, economic, legal, diplomatic measures. 

I would like to go through some of the measures I suggested 

there. Ambassador Burns, I know you state in your testimony that 

you are not an economist or a sanctions expert, so maybe, Mr. 

Poncy, if I could just run through those discrete items with you, 

and then, Ambassador Burns, you could back him up on the kind 

of geopolitical implications of that basket of measures. 

So, first, I called for expanding individualized sanctions against 

regime cronies much further than they had been, but also to include immediate family members, spouses and children, so wives 

can no longer have apartments in Paris and villas on the French 

Riviera and kids can no longer go to private schools in the United 

Kingdom. Is that still a feasible option? 

Mr. PONCY. It is not only feasible; it is part of the targeting criteria now under, I believe, Executive Order 13661. The challenge 

there, Senator—and I fully agree with that as a point that we 

ought to be pressing—is putting these dedicated resources in place 

where they are not getting pulled into Iran and North Korea and 

ISIS, which are equal national security threats, as you are aware, 

but that require resources to map that transfer from principal to 

family to close associate to front company to shell company to offshore. That takes a lot of homework, as you know, and under the 

legal principles that we operate under, we have to have 

evidentiaries in place before we can take those actions, and that 

takes time. 

So given the urgency of the threat, given the importance of the 

issue, we should be investing the resources to make that work. 

Senator COTTON. Direct and secondary sanctions against the energy sector, in particular the refining industry? 

22 

Mr. PONCY. Absolutely, and very much in support of some of 

those provisions in the Counteracting Russian Hostilities Act. 

Senator COTTON. Reciprocal provisions of arms, so, for instance, 

if Russia sells weapons to Iran and Syria, then Ukraine gets defensive anti-armor, anti-tank weapons? 

Mr. PONCY. That certainly makes sense to me. I will defer to the 

Ambassador on that. 

Senator COTTON. Extending the long arm of U.S. law to Russia? 

As you know, since I wrote that article, Russia was punished severely by the World Anti-Doping Agency not only in the Olympics 

but in the Paralympics. They cheated in the Paralympics. They are 

hosting the World Cup next year. I suspect that bid was greased 

with all kinds of kickbacks and other bribes. Should our investigators, as they did with FIFA and in the Olympics, extend the long 

arm of U.S. law into all Russian activities? 

Mr. PONCY. Targeting all illicit conduct by the Russian leadership should be a priority. 

Senator COTTON. Finally, one other example, and there are many 

more in the article: Extending laws in the direction of the HelmsBurton Act or the Alien Tort Claims Act to open U.S. courts to victims of Russian aggression, theft, war crimes, and so forth, exposing the regime to reputational and litigation harms and costs? 

Mr. PONCY. Expanding the intent of the Magnitsky Act in that 

direction makes sense to me. 

Senator COTTON. OK. As I said, there are many more measures 

in the article, but just after giving you a flavor of those, Ambassador Burns, would you like to now give your geopolitical take on 

what that kind of approach to Russia might yield from Russia? 

Mr. BURNS. Thank you, Senator. First, I sense strength in the 

Congress in both parties on this issue; not so much from the White 

House. I hope we could close that gap, number one. 

Number two, we are going to have to ask the allies to do more. 

In 2007, I took Stuart Levy with me to meet the European allies 

on the Iran sanctions. The Europeans were very resistant. They 

came around when they saw the effectiveness of what congressional 

and Administration sanctions did with Iran. We have to replicate 

that on the Russia side, and Germany will be key. 

Third, yes to deeper sanctions by the United States on energy, 

in mining, and sanction more of these individuals who are Putin 

cronies throughout the Government. And you have written about 

that. 

And, finally, yes to arms to Ukraine. We have got to do more on 

the military side, and you know a lot about this, strengthen the 

U.S. military in Europe to be a deterrent to Putin, defensive arms 

to Ukraine. That puts pressure on Putin, and he will respond to 

that. He will understand that. In a way we will have greater deterrent power over him. 

Senator COTTON. Thank you. I have just a few seconds here, so 

I will ask one final question along these lines coming out of recent 

news. What are the implications of Gazprom receiving the approvals and financing that it needs to proceed with Nord Stream 2 in 

Europe? 

Mr. BURNS. This does get back to the question of having Europe 

make the same kind of sacrifices that we are making and having 

23 

an identical policy with Europe, which we do not have at the 

present time. 

Senator COTTON. And European action matching European rhetoric. 

Mr. BURNS. Right. 

Senator COTTON. Thank you. 

Senator TILLIS. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

We all know that there are a lot of unresolved questions about 

the disturbing ties between this Administration and the Russian 

government, and the President has suggested that he might unilaterally start waiving sanctions against the Russians. Thanks in part 

to the pressure from Congress, the Trump administration is currently enforcing those sanctions. The Treasury Department recently rejected Exxon-Mobil’s request for a waiver from our Russian sanctions so it could get its hands on more Russian oil. 

But just 2 months ago, their CEO bragged that, and I am going 

to quote him here, ‘‘In Russia, we are there for the long term. We 

have got a successful business there, and we will continue to invest 

in that business.’’ This sounds like Exxon does not plan to give up 

on this deal. 

So the Trump administration could face more requests for 

waiving Russian sanctions in the future. So let me ask the question. We have talked a little bit about pending legislation here, but 

let me ask, Ambassador Burns, given the questionable ties between 

the Trump administration and Russia and the fact that the Trump 

administration has wide latitude to waive our Russia sanctions, 

would a law to require congressional review before the President 

can waive or suspend our sanctions on Russia be a good insurance 

policy here? 

Mr. BURNS. Thank you, Senator. Before I answer, I want to let 

you know that I informed Committee staff a couple of days ago that 

I consult with the Cohen Group in Washington. The Cohen Group 

has a client relationship with Exxon-Mobil, and I wanted to disclose that to the Committee. 

Senator WARREN. All right. 

Mr. BURNS. Having said that, I very much supported what the 

Administration did in denying the license to Exxon-Mobil. I do not 

think that we should have any kind of waivers or weakening of the 

sanctions regime. I generally am a disciple of executive branch 

power, having been a creature of the executive branch. But in this 

case, given the weakness of the President’s statements on Russia, 

I do favor a law that would require congressional consent, congressional review, whatever, before the Administration could waive 

sanctions, either on the hacking of our elections or on Ukraine. 

Senator WARREN. That is powerfully important. Thank you. 

I think it is also clear that our sanctions work better when we 

coordinate with our allies and our partners, a point you have made. 

Right now, the United States and the European Union coordinate 

their sanctions on Russia’s energy, financial, and defense industries, and those sanctions were designed to try to push back on 

Russia’s actions in the Ukraine. 

Ambassador Burns, if we ease our sanctions on Russia without 

meaningful changes in Russia’s behavior, does that increase or 

24 

decrease Putin’s ability to destabilize the countries along its border 

and in the rest of Europe and, frankly, around the rest of the 

world? 

Mr. BURNS. Senator, it would increase Putin’s ability to be aggressive against the countries around his borders, mainly because 

he would not have paid a price; and, second, because some of the 

countries in the European Union that do not really want to implement tough sanctions would have an excuse, if the United States 

eased up, they would argue in the EU councils—and they have to 

agree by unanimity on these sanctions. They would argue that Europe should weaken correspondingly. So it would not be in our interest. 

Senator WARREN. Right. And let me just ask a related question 

on this. Obviously, one of our strongest tools against Russia is the 

U.S.-EU economic pressure. If we unilaterally ease our pressure on 

Russia without meaningful changes in Russia’s behavior, can Europe on its own effectively hold Russia accountable? 

Mr. BURNS. I do not think so. Europe has a greater trade relationship, as you know. 

Senator WARREN. Yes. 

Mr. BURNS. But Europe does not have the political and military 

weight to be an effective deterrent. It needs the United States. 

That is why we have had NATO since 1949. So we have got to have 

an integrated strategy. 

Senator WARREN. Good. Thank you very much. You know, I am 

very glad that the Administration denied Exxon this recent waiver 

from our current Russian sanctions for now. But we have to be 

clear about the broader context for this. Our intelligence community has determined that Russia engaged in cyber attacks on the 

United States to interfere with our election. The FBI has active 

and ongoing investigations into connections between Russia and 

the Trump campaign. Members of the Trump administration and 

campaign have questionable ties to Russia and were forced to resign in disgrace. And there is good reason to believe that President 

Trump himself has substantial financial relationships with Russia, 

but we will not actually know the details of that so long as he will 

not release his taxes. 

If ever there was a time for Congress to serve as a check on any 

attempts to roll back sanctions against Russia, now is that time. 

I have cosponsored the legislation to do that, and I hope we can 

pass it. Thank you. 

Thank you, Mr. Chair. 

Senator TILLIS. Thank you. 

Mr. Ambassador, I think this should be directed to you. I just 

want to clarify for the record on what Exxon sought. I thought they 

sought a license from Treasury, not a waiver from State. Is that 

correct? And they were denied that license back in March under 

the Trump administration? 

Mr. BURNS. I am not the best person to answer that. I am not 

aware of what the specific obligation—— 

Senator TILLIS. I believe that is right. So I do think you are right 

that at least particularly last year some of the words about Russia 

out of the then candidate concerned many of us here. But it seems 

25 

like that action is an action that you agree was an appropriate action. Thank you. 

Mr. BURNS. I certainly do. 

Senator TILLIS. Yeah. I have a question about when we identify 

targets—are the people in Russia that we identify as targets of potential sanctions aware—are they aware—they know that they are 

actually a part of people that we may go after? And if they are, 

how do they behave? What do they do financially to try and inoculate themselves from the effect of some of those sanctions? 

Mr. PONCY. Thank you, Senator. I think they are keenly aware, 

and in the discourse with Senator Rounds, I was explaining that 

the Putin regime has had 17 years to consolidate its power around 

behavior that has been remarkably consistent, marginalizing anyone that does not support the regime and rewarding those that do. 

And as our sanctions were levied, they followed years of investigations into corruption by the regime, initially by the Russians themselves, then through opposition parties, all of which have been suffocated. And so this is not a new game for them. They understand 

how to do this. 

By the time that we started issuing sanctions, they were well insulated into the financial system, into the global economy, with 

holdings that are derivative in nature. And I do think we can get 

to those holdings, but that requires a lot of research, analysis, and 

intelligence. And this is the point about funding the task force 

again on illicit finance, but also funding the task force on the economic ties and relationships between their economy and their leadership and between their economy, ours, and that of our allies, so 

that we can start to connect the dots, understand where the pressure points are, and then start to go after it. 

It is not going to be an immediate picture. We have got to get 

smart before we shoot. But I think we can get there with a dedicated investment from the Congress, a dedicated commitment from 

the Administration. And given that this has been a 17-year behavior pattern and it does not look like it is going to change, this is 

what we should be doing. 

Senator TILLIS. Another question I thought about as Senator 

Menendez was talking about some of his concern with the lack of 

action. One area that I have a significant concern with is the lack 

of action of using our energy assets as a tool that begins to put us 

in a different posture with European nations. You know, it is easy 

for us to say that they need to join us. It is a little bit more difficult 

if, I do not know, a quarter of our energy supply was coming from 

the very nation that you want me to put pressure on. 

So, you know, for the last 8 or so years, we have more or less 

made it very difficult to extract natural gas, to export natural gas, 

to wean European nations off of Russian energy. Do you believe 

that that is a very important part of how we change the dynamic 

and make it more likely that people in Europe will work with us 

when it will not have the kind of consequences it could have if they 

came down too heavy? Ambassador? 

Mr. BURNS. I agree with you. The Europeans are trying to diversify through Norway, natural gas through Algeria, but they do 

want to have natural gas exports from the United States. They 

26 

want to over the long term reorient their energy dependencies and 

escape it. So I agree this is an option for us. 

Senator TILLIS. And to the extent that we reduce some of the regulatory barriers, responsible, environmentally sound regulations, 

but reduce the regulatory barriers and reduce the underlying cost 

of natural gas, doesn’t that also directly affect the resources that 

Russia has available for any malign activities? In other words, if 

gas is cheaper, they are making less money? 

Mr. BURNS. Well, that certainly is the case, and the Russians 

have a stranglehold on the European market and have had for 35 

years. 

Senator TILLIS. The last question that I have in my time remaining is—we have focused a lot on how we can create new sanctions, 

enforce the sanctions regime—but what other things would you encourage us to think about that go beyond the traditional sanctions 

regimes that we have used in the past that maybe we have not 

thought about? And to the extent that it would require congressional approval, what advice could you give this Committee? 

Mr. BURNS. We have to have greater capacity to resist Russia’s 

propaganda efforts, Sputnik and RT, and we need to rebuild our 

ability to have an effective information program of our own. This 

gets to the Broadcast Board of Governors, with Radio Free Europe, 

Radio Liberty. It gets to reconstituting in the State Department a 

much more effective organization to try to distribute factual facts 

around the world and combat the fake news of the Russian Federation. State is being defunded right now, a 31-percent proposed 

budget cut by this Administration. And I hope the Congress will resist that because we need a strong State Department in order to 

counter Russia in that sphere. That is very important. 

Mr. PONCY. Thank you, Senator, and I fully agree with that. 

Again, I think the Counteracting Russian Hostilities Act and the 

dedication of what I believe was $100 million in 2017–18 to go toward these sorts of programs, and not only information programs 

but programs to highlight the corruption that we know is associated with Russian leadership, we have to be much more aggressive 

in the public messaging campaign here. Sanctions, as I was saying 

earlier, cannot work in isolation. It requires a very strong diplomatic push, a very strong push on law enforcement, which the task 

force will also use the long arm of U.S. jurisdiction to go after anyone associated with corruption in Russia. It has to be part of a 

broader strategy. 

Senator TILLIS. Thank you. 

Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman, and I want to 

thank the witnesses for being here. It is clear to me that Russia 

actively engaged and actively interfered in United States elections 

this past election, that they worked nonstop in that effort, and in 

my book, among many other reasons, that certainly gives us the 

right to impose sanctions. And my question would be, Ambassador, 

what do you think is the most effective sanction that could be imposed right now? 

Mr. BURNS. Senator, first, we need to be better aligned with the 

Europeans, the Japanese, the Australians, and others to have 

27 

maximal impact, and I think there is work to be done diplomatically to do that. 

Second, deepen the sectoral sanctions and even broaden some of 

them into mining, for instance, deepen the energy sanctions, make 

it more difficult. Senator Tillis talked about this. This is Russia’s 

comparative advantage. Make it more difficult for them in their 

supposed area of strength. 

And, third, we do have—Congress voted sanctions, and the President did as well, initiated sanctions in 2014 to go after certain individuals around Putin. Other Members have raised this today. I 

think that is an area where we begin to pressure Putin personally. 

He is not—he does not govern alone. He actually in a way has—— 

Senator DONNELLY. And there is a real perception that it is just 

him. 

Mr. BURNS. It is not. I mean, he has got full autocratic power 

over the machinery of the state, but for his continuation as President, he depends on the oligarchs, he depends on the people who 

run these state enterprises. He needs to keep them happy by 

throwing them contracts. If you go after those people, you are more 

liable to really influence the thinking and the behavior of Putin. 

Senator DONNELLY. Mr. Poncy? 

Mr. PONCY. Thank you, Senator, and I fully agree with that. I 

believe the most immediate step is to codify sanctions in a way that 

sends a strong message. And this is not about politics. It is just 

about unity and saying, look, this is a position where the United 

States is not going to be entertaining any sort of a walk-back. That 

is not a message that I would weigh in on internally. It is a message I want to weigh in vis-a-vis an external audience that says the 

United States is united on this. We have open discourse disagreements, sometimes very hostile, as a democracy does. But on this 

issue we are united. So that is step one, no rollback, we are united 

on that. 

Two, we are going after illicit assets by the Russian leadership. 

Three, we are going to prioritize task forces to look into where 

that money is, and our economic vulnerability and opportunities associated with interconnections with the Russian economy and that 

of our allies. And we are going to heighten economic pressure responsibly, using the sectoral sanctions we have, expanding them 

where it makes sense, and doing that in concert with our allies; all 

that makes sense. 

That entire package has to sit within that broader strategy that 

we were just talking about with military reinforcements in Europe, 

with an intelligence capability, law enforcement ramped up, diplomatic outreach to our allies, and positive economic power, something that we have not talked a lot about, but how do we reinforce 

opposition? How do we counter this not just playing defense but 

some offense? How do we use our export credits to—how do we do 

a substitution for the European—— 

Senator DONNELLY. It is about a five- or six-front effort. 

Mr. PONCY. Yes, exactly. And that is really what has been missing, is a prioritization of that, the integration of that, and the consistency behind it from a unified Government. 

Senator DONNELLY. Ambassador, let me ask you this: How powerful is denying access to things like the SWIFT transfer payment 

28 

system for his oligarchs and for the country? And is that something 

that, if we do, sets off a whole cataclysm of events at that point? 

Mr. BURNS. I do think this gets into the range from a national 

security perspective. We are going to have to be careful and think 

through this. I am all for tougher, deeper, broader sanctions. He 

needs to feel the pain. 

If you go to SWIFT—that is just one example—he may take that 

as an existential threat against the Russian state, not just against 

himself but the Russian state. And I am not sure the United States 

wants to go there. This is a very dangerous adversary. They have 

nuclear weapons. He is not unpredictable. He is rational. But he 

would, I think, in a rational sense take that as a blow to undermine the very existence of this particular Russian government. So 

I think the Congress needs to be careful here but tough. 

Senator DONNELLY. So how do you best ensure that—obviously, 

we hope he rolls back in Ukraine and in Crimea, but how do you 

ensure that he does not go further, do you think? 

Mr. BURNS. I think the place he would have gone further would 

have been the Baltic countries had we not deployed forces there 

and had President Obama not gone to Tallinn in September 2014 

to say we will defend these countries. And you have to make that 

meaningful. That gets to building up the American military in Europe right now and adding to the strength of our armor and our 

air capacity now because he is testing us there. So strategic deterrence of the type we practiced in the cold war is definitely back in 

this equation. 

Senator DONNELLY. Mr. Poncy? 

Mr. PONCY. Just to reinforce the Ambassador on this, particularly with respect to the SWIFT action, not only would that be a 

potential existential threat, but it is also one that starts to lose the 

message campaign that we want, which is this is not about Russia, 

this is about a leadership that we can and should be targeting 

more aggressively than we have been and where we can be dissuasive by focusing on their illicit conduct, their cronyism, and then 

the key ties between that leadership and the Russian economy 

rather than a broad-based hit against a G–8 economy that has a 

lot of people who may be on our side on this. 

Senator DONNELLY. Thank you. 

Thank you, Mr. Chairman. 

Senator TILLIS. Senator Cortez Masto, I want to apologize. I am 

surprised Senator—— 

Senator BROWN. She went already. 

Senator TILLIS. You have already gone? OK. Then I withdraw the 

apology. 

[Laughter.] 

Senator TILLIS. I thought I skipped over—I will save it for another time, but I thought I skipped over you for Senator Donnelly. 

Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman, and thank you 

both for your testimony today. Thank you for your service both in 

and out of Government, and I appreciate your comments. 

I think there is a growing consensus, at least in the Congress, 

that we need to not only codify the existing sanctions that are currently operating through Executive order, but also that we need to 

29 

go further as a result of the interference in our democratic process, 

something that concerns Democrats and Republicans alike, both for 

what happened and the potential for it to happen again. So I am 

hoping that the Congress is moving quickly in that direction. 

As you have indicated, we have also seen this kind of interference among our Western European allies. We know that the proEU centrist French Presidential candidate Emmanuel Macron’s 

campaign was hacked by the Russians. We know that Russians targeted Angela Merkel and the Christian Democratic Party and also 

hacked into the German parliament. We know that the Russians 

provided more than a million euros to the National Front Party in 

2014, and, Ambassador Burns, as you indicated, President Trump 

made some very positive remarks just recently about Le Pen’s campaign, even though the Russians would love to see a victory by that 

particular party because, as you have indicated, their overall strategy is to undermine the democratic processes within Europe and 

try to increase the rise in authoritarianism more to Putin’s liking. 

So I am glad that we are focusing on how we can make sanctions 

more effective. 

I want to focus for a minute on developing a broader strategy to 

combat cyber attacks and hacking. Punishing via sanctions for past 

behavior is one thing. How can we develop a strategy going forward? I had hoped we were moving forward very early on. President-elect Trump said he was going to establish an anti-hacking 

plan. He asked for a plan to be put forward within 90 days. That 

deadline passed last week, and apparently there is no team in 

place, no plan, and nobody at the White House has been able to 

indicate who, in fact, would be in charge of that plan. 

I am in the process right now of finalizing some legislation with 

Senator Cory Gardner to try to establish a working group and 

strategy with the United States and our allies to really coordinate 

our efforts with respect to responding to cyber attacks. And as you 

indicated in your testimony, Ambassador Burns, we have a right to 

sanction Russian individuals and firms. The tougher question is, of 

course, how to address the Russian state. 

But we also need to try to find a way to not only respond but 

deter going forward, and I would ask both of you, beyond economic 

sanctions and financial penalties, what diplomatic measures, what 

counter cybersecurity actions can be taken to sort of set up rules 

of the road so the Russians know that when they try to interfere 

in American elections or European elections, there will be a response? What suggestions or ideas do you have in establishing a 

kind of structure that could do that? 

Mr. BURNS. Senator, thank you, and let me just say I agree with 

all of your comments about the need for bipartisanship, the fact 

that the Europeans are being harassed and interfered with right 

now in these elections. And I agree with your comments on Marine 

Le Pen. I cannot remember a time when an American President 

said anything positive about an anti-democratic leader in Europe, 

but it happened last week. 

Your question is the key question. I think we know what to do 

on Ukraine sanctions, less clear what to do on cyber sanctions. A 

couple of thoughts. 

30 

One is we know that the United Kingdom, Germany, France, and 

Israel have capacity here. We should be working in tandem with 

them and have a common response with them. That will impress 

the Russians more, first. 

Second, we have got to strengthen defense, obviously. We are in 

a defensive mode. We have to think about our offensive capabilities 

as well, as the Trump and Obama administrations have been trying to do. 

Third, you are right that some of the new sanctions proposed by 

Congress have to be directed at the Russian state, not just Russian 

companies that might be working in a cyber capacity, a wink and 

a nod with Russian security services, but with the state itself and 

the people and organizations around Putin. 

And, finally—and this is going to be difficult—President Obama 

did succeed in having a conversation with President Xi Jinping on 

the cyber issue, what we will not do against each other, kind of unwritten rules of the road. President Trump is going to have to have 

that conversation with President Putin. President Trump should 

want to be in a position of strength and not weakness, and right 

now he is in a position of weakness. And I am sorry to say that, 

because if we are going to be effective, we have to have a tougherminded and much more serious approach by our Government. 

Senator VAN HOLLEN. Thank you for raising the example of 

President Xi, and I know my time is up, but I would like to continue the conversation about whether you think that model, backed 

up with the kind of sanctions we are talking about, can actually 

be effective in dealing with Putin. 

Thank you. 

Senator TILLIS. Any other questions on the part of the Members? 

Senator Cortez Masto. 

Senator CORTEZ MASTO. This is for the Ambassador. Yesterday 

we had a briefing on North Korean, and last week the Russian 

Federation vetoed a resolution at the United Nations seeking to 

condemn North Korea for their nuclear tests. At the same time, 

this week, unconfirmed reports indicate that Russia may be moving 

troops to the North Korea border for fear of military, potential military conflict and/or refugees flowing across the border into Russia. 

Do you think that with respect to North Korea the United States’ 

and Russia’s interests may be aligned in terms of constraining 

North Korea? And if so, do you think that that should be a consideration when we are looking to impose severe economic sanctions 

against Russia? 

Mr. BURNS. Thank you, Senator. For a long time, when I was involved in the Bush administration in our policy to try to work with 

Russia on North Korea, the Russians did not deviate much from 

what we wanted to have happen. This was back in 2007 and 2008. 

The same was true with the Agreed Framework in the Clinton administration. But, you know, now, I think because President Putin 

does have this objective of trying to undercut and undermine American power, we have seen it in Egypt, we have seen it in Libya, we 

have seen it in Syria, we may now be seeing it in North Korea. 

And your question also gives me the opportunity to say I think 

that Russia is important in North Korea, China is much more important. I think President Trump has been right to publicly 

31 

challenge China to do more. I worry, however, that China is going 

to disappoint him the way it disappointed President Obama and 

President George W. Bush. In the end, the Chinese prefer the status quo in the Korean peninsula to the potential collapse of the 

North Korean regime and the emergence of a unified Korean peninsula under the control of a democratic government, our ally in 

Seoul. 

And so I think that the Administration should temper public expectations that China is going to resolve this for us. I do not think 

that is going to happen. But I do agree with President Trump that 

we have to face this squarely. I believe that putting THAAD into 

operation makes sense. That is going to happen, as I understand 

from news reports, this week, and to up the pressure on both the 

Chinese and North Koreans over this unacceptable threat to the 

west coast, to Nevada, to the Mountain States, to the west coast 

of the United States, maybe in the next 5 to 6 years from North 

Korea. 

Senator TILLIS. Mr. Ambassador, Mr. Poncy, thank you both for 

being here. 

This will conclude the hearing. The record will remain open for 

a period of 1 week for follow-up questions. Thank you again, and 

thank you for your service. 

The hearing is adjourned. 

[Whereupon, at 11:39 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

32 

PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman Mike Crapo delivered the following opening remarks during the full 

Committee hearing: 

‘‘This morning, the Committee will receive testimony on the smart use of sanctions to counter Kremlin military incursions in Ukraine, Syria, and its increased reliance on cyber warfare against many nations. 

‘‘The Committee met 6 weeks ago to begin an inquiry into the effectiveness of the 

United States sanctions regime imposed 3 years ago against the Russian Federation 

for its invasion of Crimea, continuing violence and interference in Ukraine, and 

cyber intrusions against the United States. 

‘‘At that hearing, we learned that alone, U.S.-imposed targeted sanctions have 

had a somewhat limited impact on the economy of the Russian Federation. 

‘‘That impact was magnified by the combined effect of sanctions imposed by other 

Western nations coupled with the severe drop in world oil prices. 

‘‘It was less clear, however, if the existing sanctions were affecting any change in 

the aggressive geopolitical calculations that President Putin continues to make. 

‘‘Some analysts say that the economic sanctions have had a deterrent effect on 

Putin pushing even farther into Ukraine territory. That is a good start. 

‘‘Others look to Putin’s continued actions in Ukraine and Syria in the weeks since 

this Committee last met and conclude we should target additional sanctions on the 

Russian Federation. 

‘‘Despite existing U.S. and Western sanctions, Putin has not shown any intention 

to cease his aggressive behavior. 

‘‘For the Committee, today’s inquiry is not about punishing the people of the Russian Federation, but rather those responsible for Russia’s misbehavior. 

‘‘The goal now is to transform the initial, limited application of financial leverage 

into the next step of what must become a general campaign to impose real costs 

that impact Putin’s ability to conduct hostile activities in an already-troubled world. 

‘‘A good starting point might include a codification of existing Executive orders, 

and a deepening and broadening of sanctions in certain economic sectors, addressing 

cyber activity and financial corruption, and making mandatory certain existing discretionary sanctions. 

‘‘Vital in all of this is harmonizing the conditions to lift sanctions so that if Putin 

were to try to reverse course, overlapping or misdirected sanctions would not defeat 

the potential for meaningful change in Kremlin policy. 

‘‘Since sanctions were first imposed 3 years ago, the Obama administration, the 

U.S. Congress, and now the Trump administration have been prepared to impose 

additional sanctions as circumstances warrant, or until Putin follows through with 

his commitments to the Minsk cease-fire agreement. 

‘‘In fact, several rounds of new designations have been implemented under existing sanctions laws over the last 3 years. 

‘‘Make no mistake, these sanctions currently in place, and those that may yet 

come, are Putin’s fault and a result of Putin’s confused notions of Russian power 

and pride. 

‘‘Putin is not defending the interests of his people, but is exploiting opportunities 

to seize neighboring lands by fomenting disorder and seeking to perpetuate Mideast 

conflict to advance Russia’s military influence. 

‘‘America must lead on the issue, since the most successful sanctions result from 

a united front of U.S. and EU cooperation. 

‘‘Since the unlawful annexation of Crimea, the years of destabilizing Eastern 

Ukraine through relentless war, the global spread of cyber-intrusions and Putin’s 

indefensible support of Assad’s leadership of Syria, particularly in light of the recent 

chemical attack, fewer are left in Europe to defend Putin’s policies. 

‘‘The European Union must ask itself if it is prepared to join the United States 

to take the necessary financial actions in the foreseeable future to deny Putin the 

resources he needs to take whatever his next steps may be. 

‘‘The last thing the European Union, the United States or this Congress can be 

is divided in the face of Putin’s uncertain path. 

‘‘The times call for clarity of purpose, and a correct amount of pressure. 

‘‘I thank our witnesses for coming here today to help the Committee understand 

what a next course of action might look like, what the repercussions of taking such 

action might look like, and how even those may be mitigated.’’ 

33 

PREPARED STATEMENT OF R. NICHOLAS BURNS 

ROY AND BARBARA GOODMAN FAMILY PROFESSOR OF DIPLOMACY AND INTERNATIONAL

RELATIONS, HARVARD UNIVERSITY, JOHN F. KENNEDY SCHOOL OF GOVERNMENT

APRIL 27, 2017 

Mr. Chairman and Ranking Member Brown, it is an honor to testify before the 

Senate Committee on Banking, Housing and Urban Affairs on United States sanctions against the Russian Federation. 

The United States should maintain sanctions on Russia due to its continued aggression in Ukraine. The Congress and the Trump administration should now also 

consider additional sanctions over the Russian government’s interference in the 

2016 U.S. Presidential elections. 

Russia is the most dangerous U.S. adversary in the world today. For more than 

a decade, Russian President Vladimir Putin has used the power of the Russian state 

to undermine American interests in Europe, the Middle East and now in the heart 

of our democratic system here in the United States. 

Russia is attempting to undermine the democratic peace in Europe that the 

United States helped to bring about after the dissolution of the former Soviet Union 

and communism in Eastern Europe a quarter century ago. In August 2008, Russia 

invaded Georgia and has kept that country divided since. Russia has imposed a 

false territorial conflict in Moldova. In 2014, Russia invaded and then annexed Crimea, violating the territorial integrity of Ukraine. This was the first outright theft 

in Europe of one country’s sovereign territory by another since the Second World 

War. 

Russia has helped to instigate, fund and arm an insurrection against the Ukrainian government in Eastern Ukraine through the continued presence of Moscow’s 

military forces in that region. Russia has also attempted to undermine the internal 

stability of our NATO allies, Estonia, Latvia, and Lithuania. 

To the south and west of the Russian Federation, Putin has acted to undermine 

neighboring states and to gain effective control over their futures so that they may 

not seek closer ties to either the European Union or NATO. He wants to attain what 

the Tsars and Stalin sought in the past—strategic depth along his borders to separate Russia from the West. In this regard, he views the United States as his most 

serious competitor for power and influence in Europe. He understands that the 

United States, as the leader of NATO, is the pivotal country in organizing an effective defense against his plan to expand Russia’s sway in Eastern Europe. 

In response to Russia’s invasion of Ukraine, President Obama was right to join 

European countries and Canada in imposing economic sanctions on Russia in 2014. 

The Trump administration should not lift those sanctions until all the provisions of 

the Minsk agreements have been implemented fully. 

These sanctions are a critical component of the ability of the United States to 

counter Russia in Europe and to assist those European countries that are victims 

of Russian aggression. Helping to create a free, united and democratic Europe has 

been one of America’s most important and historic global objectives for a century. 

The United States fought in the First World War, World War Two and during the 

long decades of the cold war to secure freedom in Europe. 

Putin has now put that all at risk. Europe has been divided again by his illegal 

actions. It is thus a vital national interest of the United States to contain Russian 

power in Eastern Europe. Sanctions are one of the principal tools the United States 

and Europe have to ensure the success of this common strategy. 

Russia’s clear interference in the American Presidential election in 2016 should 

also strengthen our determination to undercut Putin’s ambitions and to raise the 

costs to his government of this unprecedented assault on American sovereignty. The 

U.S. Intelligence Community report to the country in January was unequivocal. 

Russia attempted to undermine the credibility of our 2016 election by intervening 

through a variety of nefarious means. 

This is a blatant, unprecedented and deadly serious attack on our democracy. Vigorous investigations by the FBI and the Senate and House Intelligence Committees 

are necessary to unearth the full truth of this attack on our electoral system. It also 

warrants a response from the Congress by the imposition of further and stronger 

sanctions in addition to those already in place. 

The United States must respond swiftly and with conviction or Putin’s government will only be encouraged to continue its campaign to undermine our democracy 

and those of our allies. Indeed, there is ample evidence that Moscow has already 

been interfering in the Dutch, French, and German elections this year on behalf of 

extreme anti-democratic populist parties. Russian Television, Sputnik and other organs of the Russian state have been dispersing fake news, misleading articles and 

34 

outright lies about those democratic leaders in Europe that oppose Russian policies. 

The Russians will very likely continue these activities unless we work together with 

the European Union to impose substantial costs on them for doing so. 

The response by President Trump to Russia’s actions has been extremely disappointing. 

President Trump has repeatedly contested the judgments of the intelligence community and of the FBI on this issue. 

He has downplayed the need for investigations by the Congress. He has ordered 

no serious investigation of his own and has not demonstrated any sense of urgency 

to discover the extent of Russia’s interference in our election. He has failed to criticize President Putin for this brazen attack on our democracy. Based on my experience working for Republican and Democrat Presidents on Russia, I cannot imagine 

any of President Trump’s predecessors adopting such a weak approach on such a 

grave national security challenge. 

One of President Trump’s fundamental responsibilities as President is to defend 

our country from foreign aggression. He has failed to do so in not responding to a 

serious attempt to undermine American democracy. 

That is why Congress must now act by undertaking a comprehensive, bipartisan 

investigation of Russia’s actions and by adopting a far stronger and more forceful 

response than the Trump administration has to date. Indeed, a recent NBC/Wall St. 

Journal poll showed that 73 percent of the American respondents supported an 

independent investigation into this attack. 

With this in mind, I support many of the goals of the proposed bipartisan Russia 

Sanctions Review Act of 2017. Congress should consider imposing more comprehensive sanctions on Russia to build on the cyber sanctions initiated by President 

Obama in late December 2016. 

At the very least, the President and Congressional leaders must make clear directly to the Russian government that interference in our elections or attacks on our 

critical infrastructure will not be tolerated by the United States. We must warn that 

the United States will retaliate further if these attacks continue. And we should coordinate our response with our key allies to maximize its impact. 

The United States has every right to sanction those Russian individuals and firms 

who have carried out hacking attacks during our election campaign on behalf of the 

Russian government. But, the far greater challenge is to decide how to respond to 

hacking attacks, the use of false information, fake news sites and other interference 

by the Russian state itself. Depending on the results of the FBI and Congressional 

investigations, our response must be forceful and unmistakable in our determination 

to deter future attacks. 

As a career Foreign Service Officer, I worked for three American Presidents as 

they sought to respond to challenges from Russia. From 1990 until 1995, I served 

in the Administration of President George H.W. Bush as Director for Soviet Affairs 

at the National Security Council and then in the Administration of President Bill 

Clinton as Special Assistant to the President and Senior Director for Russia, 

Ukraine, and Eurasian Affairs. 

During the Administration of President George W. Bush when I was Ambassador 

to NATO (2001–2005) and Under Secretary of State for Political Affairs (2005– 

2008), I worked extensively on our often difficult relationship with the Russian Federation. While we cooperated reasonably well with the Russian government for a 

time after the 9/11 attacks, President Putin eventually adopted a much more aggressive, competitive and distrustful attitude toward the United States and Europe. 

Our relationship with Moscow has suffered as a consequence. 

All three Presidents worked within a carefully constructed and bipartisan strategic framework that emphasized the freedom and security of our allies and friends 

in Europe as a primary priority. President Trump has not made these principles a 

point of emphasis in his first months in office. He is the first American president 

in seven decades who has not made clear his unequivocal commitment to NATO and 

the European Union and to the preservation of democratic governments in Europe. 

He has been reluctant to embrace U.S. leadership of the NATO Alliance. He has 

been even more lukewarm on our historic support for European integration. Just 

last week, he made laudatory comments about the French anti-democratic populist, 

Marine Le Pen. This is an abrupt and misguided departure from seven decades of 

resolute American policy in support of democratic governments in Europe. 

Congress must thus remain vigilant on the issue of U.S. sanctions against Russia 

over its outright violation of Ukraine’s sovereignty. Congress should make it difficult 

for the Trump administration to lift sanctions without Congressional concurrence. 

And if the Russian-supported separatist forces continue to expand their territorial 

control in Eastern Ukraine, Congress should consider adding sanctions in response. 

A December 2016 report by the Atlantic Council (where I am a board member) 

35 

details a variety of options from strengthening sanctions on key individuals in the 

Russian government to expanding financial sanctions, including in energy. It would 

also be beneficial for Congress to request from the Trump administration a full accounting of Russia’s ongoing violations of the Minsk accords during recent months. 

I am neither an economist nor a sanctions expert and am thus not in a position 

to judge the precise impact of the sanctions on the Russian economy to date. Many 

experts believe lower world oil prices have been the main factor contributing to Russia’s negative economic growth during this period. But, many also believe sanctions 

have had an impact in helping to slow Russia’s GDP growth rate and robbing its 

economy of badly needed investment capital in energy and other areas. 

Sanctions have not been sufficiently robust to cause the Russian government to 

withdraw its military forces from Crimea and Eastern Ukraine. But, the sanctions 

have isolated Russia internationally and have been a unifying factor in galvanizing 

Western opposition to Putin and in ensuring nonrecognition of Russia’s land grab 

in Ukraine. 

The fact that Putin and his government have worked so hard to have the sanctions lifted is an indication that they are a cause of great concern for Moscow. The 

Russian government continues to attempt to divide the European Union on this 

issue. German Chancellor Angela Merkel has been the key leader in insisting that 

Russia meet all of its Minsk agreement commitments before sanctions can be lifted. 

She deserves our full support in maintaining unanimity within the European Union 

in the months ahead. 

As Congress debates the right mix of sanctions in response to Russia’s actions in 

Ukraine as well as its interference in our elections, it will be important to integrate 

U.S. sanctions with those of Canada and the European Union. Congress should request a full report on sanctions implementation by the United States and all the 

other countries to ensure they are being carried out in a rigorous manner. The 

United States would be right to insist that the sanctions also be equitable on both 

sides of the Atlantic so that the sacrifices made by European companies are equal 

to those being made by American companies. 

Sanctions are the main tool the United States and Europe can employ to send a 

message of tough opposition to Russia’s territorial aggression in Eastern Europe. 

When Russian military forces entered Crimea and then Eastern Ukraine in early 

2014, President Obama, Chancellor Merkel, and other allied leaders made the right 

decision not to use military force in response. As Ukraine is not a member of NATO, 

we had no legal or ethical obligation to do so. And military force would have created 

a dangerous confrontation between two nuclear weapons powers. Sanctions were the 

only effective way the United States, Canada, and Europe could respond forcefully 

to Putin and inflict economic damage that might, over time, cause him to rethink 

his strategy. 

For now, however, Russia is far from compliance with the Minsk accords. During 

the last 3 months alone, Moscow has instigated more intensive fighting by the separatist movements it supports directly. Indeed, the Russian government took an unprecedented step earlier this year of treating passports of the separatist government 

in the Donbass region as legitimate. It has even acquiesced in the use of the Russian ruble in territory that clearly belongs to Ukraine under international law. The 

trends are both obvious and ominous in Ukraine, Moldova and Georgia-Russia is attempting to subvert the independence of all three countries. 

The United States must now mount a renewed strategy to combat this dangerous 

Russian campaign. The first step is for the Administration to maintain and possibly 

increase sanctions on Russia. A second step is for Congress and the Administration 

to agree to provide lethal defensive arms to Ukraine so that it can defend its people 

and its borders. A third step is to make permanent the recent stationing of NATO 

military forces on the territory of Poland, Estonia, Latvia, and Lithuania. Finally, 

the Trump administration should also continue the policy of President Obama to rebuild the strength and armored capacity of U.S. military forces in Europe as a deterrent to Putin’s truculent behavior. 

While there will be some issues where cooperation with Russia may be possible— 

implementation of the Iran Nuclear Deal, North Korea, and counter-narcotics are 

examples—we will likely remain in a competitive and hostile relationship with Russia until Putin’s Soviet-trained and inspired generation passes from power some 

years from now. 

Our long-term goal must thus be to contain Russian power in Eastern Europe to 

preserve, in the words of President George H.W. Bush, the ‘‘Europe whole, free, and 

at peace’’ that was the historic result of the end of the Cold War in 1991. 

Russia, however, is clearly attempting to rebuild its power base in Europe and 

the Middle East at the expense of the United States and its allies. Its brutal air 

campaign in Syria has resulted in the deaths of thousands of civilians. By 

36 

weakening both NATO and the European Union, Moscow also hopes to undermine 

the credibility of our democratic systems. 

Finally, Mr. Chairman, these aggressive Russian actions are a warning to the 

American people and our Government. We must be vigilant in defending the Western values upon which our country was founded and on the Transatlantic Alliance 

that is critical to our long-term security. 

Just as during the Cold War, Russia’s assault is focused on our concrete interests 

in Europe but also on the values that are at the heart of our democratic system 

of government. Russia is contesting the victory of the democratic countries at the 

end of the Cold War. Putin’s actions are a carefully coordinated power move to divide the West and reduce American power in the world. 

With this in mind, I hope President Trump will speak and act more resolutely 

in defense of those values—freedom of speech and of the press and the separation 

of powers, including an independent judiciary. The United States is the natural 

leader of the West and is an exceptional global power. We must give confidence to 

the American people, as well as hundreds of millions of Europeans who are our treaty allies, that we will act to protect the freedom and independence of the Western 

democracies against a cynical and opportunistic Russian autocrat. 

We urgently need a principled, bipartisan American response, led by the Congress, to the threat of Russian attacks on our friends in Europe and on our democracy at home. 

PREPARED STATEMENT OF CHIP PONCY 

PRESIDENT AND CO-FOUNDER OF THE FINANCIAL INTEGRITY NETWORK, AND SENIOR

ADVISOR TO THE CENTER ON SANCTIONS AND ILLICIT FINANCE

APRIL 27, 2017 

Chairman Crapo, Ranking Member Brown, and other distinguished Members of 

the Senate Committee on Banking, Housing & Urban Affairs, I am honored by your 

invitation to testify before you today. 

This is the Committee’s second hearing in the past several weeks on assessing 

next steps and further options for U.S. sanctions on Russia. I commend your attention to this issue of growing urgency to our national security and to the collective 

security of the international order that the United States has led since the founding 

of the United Nations over 70 years ago. 

I am also grateful for the substantial contribution of the expert witnesses who testified before you on this topic last month. Their prior testimony and ongoing work, 

together with the contributions of other dedicated experts studying this topic, continue to inform our thinking at the Financial Integrity Network and the testimony 

that I will deliver to you today. 

The primary basis of my testimony, however, is the experience that I have gained 

in helping to shape and implement sanctions policy over the past 15 years, in the 

U.S. Government, the international community, and in the private sector. Based on 

this experience and as explained in greater detail below, I believe there are important steps that Congress should take to protect our national and collective security 

by clarifying and strengthening sanctions on Russia, summarized as follows: 

1) Prioritize targeted sanctions against Russian leadership engaged in illicit 

conduct. Congress should target sanctions against Russian leadership engaged in illicit conduct by: 

(i) Calling for the establishment of a Russian Counter-Illicit Financing Task 

Force dedicated to tracing, mapping, sanctioning, and prosecuting illicit Russian financial flows that intersect with the U.S. financial system, and for 

working with allied governments to similarly track, trace, and combat illicit 

Russian financial flows, largely as proposed in the Countering Russian Hostilities Act Bill; 

(ii) Providing specific funding for the Russian Counter-Illicit Financing Task 

Force, to be managed by Treasury and the Department of Justice to ensure 

interagency participation and support as needed across law enforcement, intelligence, regulatory, and financial authorities; 

(iii) Codifying and consolidating existing sanctions authority to specifically target 

Russian leadership engaged in illicit conduct, largely as proposed in the 

Countering Russian Hostilities Act Bill; 

(iv) Expanding existing sanctions authority to specifically target Russian leadership engaged in illicit conduct that, with respect to any foreign state: (a) 

37 

undermines democratic processes or institutions; (b) threatens the peace, security, territorial integrity or sovereignty; or (c) misappropriates state assets; 

(v) Prioritizing and expanding derivative sanctions against persons and entities 

owned or controlled by; acting for or on behalf of; or materially, financially, 

or technologically assisting Russian leadership engaged in illicit conduct, including by calling upon Treasury to lower the ownership threshold for derivative designations from 50 percent to 25 percent, consistent with Treasury’s 

final rule on customer due diligence for U.S. financial institutions; 

(vi) Creating a Europe and Eurasia Democracy and Anti-Corruption Fund as proposed in the Countering Russian Hostilities Act, and further creating specific 

funding for publication of studies and research on corruption of Russian leadership. 

Prioritizing targeted sanctions against illicit conduct by Russian leadership will 

expose, contain, disrupt, and potentially deter such conduct. Efforts that can expose 

corruption of Russian leadership may be particularly powerful in raising opposition 

to such conduct in Russia. Prioritizing derivative designations in particular will give 

much greater economic impact to primary designations against Russian leadership 

by going after the networks that support and benefit from illicit conduct engaged 

in by such leadership. 

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

3) Heighten controlled pressure on the Russian economy. Congress should consider 

building upon Treasury’s sectoral sanctions program to heighten controlled economic pressure on Russia, including by: 

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

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

(iii) Applying new sanctions against any persons with respect to investments in 

the Russian energy sector, as proposed in the Countering Russian Hostilities 

Act bill; 

(iv) Considering new sanctions against any persons with respect to investments 

in the Russian financial or defense sectors; 

(v) Calling upon Treasury and the intelligence community to produce a study of 

key Russian sectors exposed to economic sanctions and U.S. and allied countries’ exposure to potential counter-sanctions by Russia; and 

(vi) Based on such a study, considering new sectors for possible designations 

under the sectoral sanctions program. 

4) Strengthen the effectiveness of U.S. sanctions in general. Congress should 

strengthen the operational effectiveness of U.S. sanctions by: 

(i) Providing funding for Treasury to expand its sanctions targeting, compliance, and enforcement resources and capabilities, particularly with respect 

to derivative designations of key node primary sanctions targets; 

(ii) Considering requiring Treasury to issue regulations specifying sanctions program and training requirements for global financial institutions operating in 

the United States and for other sectors vulnerable to sanctions busting and 

sanctions evasion; 

(iii) Calling upon FinCEN to issue final anti-money laundering (AML) rules on 

the reporting of cross-border wire transfers and on AML program, SAR reporting, and customer due diligence (CDD) requirements for investment advisors to heighten the transparency of the U.S. financial system in accordance 

with international standards; 

(iv) Calling upon FinCEN to consider rulemaking extending AML requirements 

to title insurance companies and/or others involved in the sale of high-end 

real estate as necessary to close proven sanctions evasion and money laundering vulnerabilities in the U.S. real estate market; 

(v) Calling upon Treasury to issue a report offering recommendations for expanding information sharing under Section 314 of the USA PATRIOT Act to 

38 

enhance the effectiveness and reduce the costs associated with counter-illicit 

financing analysis by U.S. authorities and across the U.S. financial system. 

5) Facilitate operational sanctions capability in allied countries. Congress should 

enhance foreign partner capacity in key allied countries by providing funding 

to Treasury to launch a Foreign Partner Training Program across sanctions administration, implementation, and enforcement. 

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

Background 

I was extraordinarily privileged to serve our country at the United States Department of the Treasury for 11 years following the terrorist attacks of 9/11. I worked 

for and with an immensely talented and dedicated group of individuals from across 

the U.S. Government, the financial services industries, and various governments 

with shared interests in our collective security. This was a pivotal period in the development and institutionalization of financial and economic power as an increasingly important component of our national and global security. 

With bipartisan leadership across the Congress and four Administrations, we collectively constructed, secured, and deployed an unmatched capability to exploit 

financial information and apply financial and economic pressure to identify and attack threats to our national security. We also secured, strengthened, and expanded 

enduring multilateral support for these efforts, including through global frameworks, relationships, and mechanisms that continue to protect the international financial system from a wide range of illicit activity and actors. Developing and 

applying a broad array of financial and economic sanctions against various threats 

to our collective security constituted a core component of these efforts. 

For the past 4 years at the Financial Integrity Network, our mission has focused 

on assisting allied governments, the global banking sector, and critical industries in 

developing and implementing financial policies that advance our collective security 

and protect the international financial system from abuse. A key area of our work 

has been collaborating with clients and partners to design, implement, assess, and 

strengthen effective and workable sanctions policies within broader financial security risk management regimes. 

Throughout my experiences in Government and the private sector over the past 

15 years, U.S. sanctions policy has continued to evolve, benefiting from lessons 

learned over time. My recommendations above for strengthening sanctions against 

Russia are based on this recent history of sanctions evolution, and how this history 

has revealed key conditions and challenges to strengthening the effectiveness of 

sanctions policy in general, including with respect to sanctions against Russia. 

Important Developments in the Recent Evolution of Sanctions Policy 

Designing, implementing, assessing, and strengthening current sanctions programs requires an understanding of the recent evolution of sanctions policy within 

the broader rise of financial power and economic statecraft. This evolution is 

marked by four inter-related and fundamental developments: 

(i) The emergence of sanctions and targeted financial measures as a core component of foreign policy, national security, and collective security strategies; 

(ii) Shifting expectations of sanctions policy as an increasingly operational, targeted, and nuanced tool designed to achieve real financial and economic impact; 

(iii) Expanded application of sanctions against a broader range of illicit conduct, 

and 

(iv) The increased blending and interdependence of sanctions and AML regimes. 

These developments, briefly explained below, help shape the conditions and challenges that sanctions policymakers should consider in developing, assessing, and 

strengthening sanctions programs, including with respect to sanctions against Russia. 

The emergence of sanctions as a core component of foreign policy, national security, 

and collective security strategies 

The emergence of sanctions and targeted financial and economic measures as an 

essential component of foreign policy and national and collective security strategies 

is evident in the relatively recent and rapid expansion of sanctions programs at 

global, multilateral, and national levels. Since the terrorist attacks of 9/11, virtually 

every United Nations Security Council resolution addressing various threats to 

39 

global peace and security has included heightened sanctions and other targeted financial and economic measures. This includes global responses to illicit activities 

ranging from terrorism to the proliferation of weapons of mass destruction, as well 

as global responses to rogue regimes and destabilizing elites in various countries 

such as Afghanistan, the Central African Republic, the Democratic Republic of the 

Congo, Iran, Libya, North Korea, Somalia, Sudan, South Sudan, and Yemen. 

In addition to this global expansion of sanctions programs, the United States has 

prominently coordinated multilateral sanctions campaigns targeting collective security threats associated with the Bashar al-Assad regime in Syria and Russian aggression in the Ukraine. The United States also continues to work with the European Union and other partners in maintaining other multilateral sanctions programs against oppressive and corrupt governing regimes in countries such as 

Belarus and Zimbabwe, and in implementing conduct-based sanctions against designated terrorist groups and their support networks. 

At a national level, the United States continues to impose broad economic sanctions against Cuba, notwithstanding the substantial relaxations introduced in the 

last years of the second Obama administration. The United States has also introduced and heightened unilateral sanctions against oppressive and corrupt elements 

of the governing regime in Venezuela. And the United States has expanded conductbased sanctions against threats ranging from drug trafficking and terrorism to proliferation and malicious cyber-enabled activities, as well as against transnational 

criminal organizations more broadly. 

Similarly, other jurisdictions, most notably the European Union, have developed 

unilateral sanctions programs to advance foreign policy interests such as combating 

kleptocracy, including with respect to ongoing asset recovery efforts against the 

former Mubarak regime in Egypt. 

This broad expansion of various types of sanctions programs underscores the increasing importance of sanctions as a core component of global, multilateral, and jurisdictional strategies to advance fundamental foreign policy interests and address 

various threats to national and collective security. 

Shifting expectations of sanctions policy 

The emergence of sanctions as a fundamental component of foreign policy and national and collective security strategies is due in part to the shifting expectations 

of sanctions policy. This is notwithstanding the historically consistent overarching 

purpose of sanctions as a means of advancing core foreign policy interests and addressing threats to national and collective security. 

In general and with a few notable exceptions, expectations associated with sanctions policy have shifted in two fundamental ways. First, sanctions have evolved 

from primarily political ‘‘name and shame’’ symbolic measures to operationally 

meaningful tools to deter, change, disrupt, and/or contain activity that threatens 

core foreign policy or national or collective security interests. As operational rather 

than purely political or symbolic measures, sanctions are increasingly expected to 

create real financial and economic pressure on their intended targets. 

Second, as sanctions have become more operational, they have also become more 

tailored and nuanced, targeting specific actors or conduct of concern while minimizing collateral damage to third parties or related interests. Policymakers increasingly craft, tailor, and adapt specific types of sanctions to address specific types of 

threats, maximizing the effectiveness of sanctions while minimizing collateral harm. 

This is evident in the rise of conduct-based sanctions and the general move away 

from comprehensive jurisdictional embargoes and toward regime-based sanctions, 

targeting specific elites responsible for the threatening behavior of concern. 

Expanded application of sanctions against a broader range of illicit conduct 

As sanctions have shifted toward a more operational and targeted approach, they 

have been applied against a wider range of illicit conduct previously addressed exclusively by criminal law enforcement, or occasionally by the use of force. Such illicit 

conduct includes drug trafficking, terrorism, the proliferation of weapons of mass destruction, cybercrime, and transnational organized crime more broadly. 

This emergence and expansion of such conduct-based sanctions have been driven 

by both necessity and opportunity. Such sanctions are increasingly necessary to protect and advance core foreign policy and national and collective security interests 

against an expanding array of threats that have become more sophisticated and 

globalized in an increasingly globalized economy. And such conduct-based sanctions 

provide us with an opportunity to apply our considerable financial and economic 

power in a manner that directly attacks these threats, in support of law enforcement, foreign policy, and other national security interests. 

40 

The emergence of conduct-based sanctions has also been critical in targeting jurisdictional sanctions programs against government elites that are responsible for a 

targeted country’s threatening behavior. Such sanctions have increasingly targeted 

a sanctioned country’s government officials and related individuals responsible for 

activities such as: (i) threatening the peace, security, territorial integrity or sovereignty of other states; (ii) misappropriating state assets; (iii) undermining democratic processes or institutions; or (iv) engaging in gross human rights abuses. 

Increased blending and interdependence of sanctions and AML regimes 

As sanctions have become more expansive, operational, and targeted, they have 

also increasingly depended upon and overlapped with AML regimes. This is particularly true with financial sanctions or economic sanctions that are primarily implemented and enforced through the financial system. At a fundamental level, the effectiveness of such sanctions depends critically on the financial transparency 

achieved through sound implementation of robust AML preventive measures by the 

banking and financial services industries. The customer and transactional due diligence conducted by financial institutions pursuant to AML regulation enables such 

institutions to identify and manage risks associated with sanctioned parties, activities, and jurisdictions. Without the financial transparency achieved through implementation of such AML requirements, compliance with many sanctions policies 

would be substantially limited or even unachievable. 

In addition to this fundamental reliance of operational sanctions effectiveness on 

financial transparency gained through implementation of AML preventive measures, 

most conduct targeted by sanctions is also criminalized as predicate offenses to 

money laundering. This includes drug trafficking, terrorist financing, WMD proliferation (smuggling/violation of export controls), organized crime more broadly, and 

corruption. This overlap enables sanctions policy to benefit from the support of AML 

regimes across governments and the global financial system, where such conduct is 

targeted for as a basis for suspicious activity reporting, investigation, prosecution, 

and asset forfeiture. 

Finally, sanctions policy may focus on targeted financial measures that may also 

be required or authorized by AML authorities. Depending on the particular sanctions program and scenario, sanctions may not require an asset freeze, but may prohibit certain financial relationships, investments, or transactions, akin to certain 

AML measures such as in applying Section 311 authorities of the USA PATRIOT 

Act. And as a practical matter, sanctions implementation increasingly requires AML 

risk management measures, such as certifications, representations, and enhanced 

due diligence. 

This is particularly true with respect to the sectoral sanctions levied by the 

United States, the European Union, Canada, and other countries against Russia. 

While such sectoral sanctions do not require asset freezing or outright prohibition 

of relationships or dealings with sectoral sanctioned parties, they do impose certain 

debt or equity financing prohibitions with respect to such designated parties, as well 

as other restrictions. These complex sanctions were deliberately designed to enable 

ongoing relationships with sanctioned parties while putting financial and economic 

pressure on key parts of the Russian economy. Financial institutions that must comply with these sanctions while remaining engaged in business with sectoral sanctioned entities rely upon a combination of sanctions screening and AML-like enhanced due diligence measures and controls. 

These developments in the recent evolution of sanctions policy as described above 

can assist policymakers understand conditions and challenges that impact sanctions 

effectiveness. 

General Conditions and Challenges for Assessing Sanctions Effectiveness 

The recent evolution of sanctions policy reveals general conditions and challenges 

for assessing sanctions effectiveness as follows: 

• First, effective sanctions policy and implementation requires clear sanctions objectives and criteria. With respect to sanctions against countries, the evolution 

of sanctions policies and programs, and in particular the complex combination 

of sanctions relevant to some countries such as Russia, has raised challenges 

of clarity and common understanding regarding sanctions objectives and criteria. Policymakers should ensure that objectives and criteria for specific sanctions programs are clear, and that these remain clear as underlying circumstances change. Policymakers should also ensure that sanctions objectives 

and criteria are well understood, including among allied countries, across affected business communities and the compliance industry, in the popular media, 

and within sanctioned countries—particularly when sanctions target corruption 

by ruling regimes. Such clarity and understanding may facilitate greater 

41 

1For similar reasons, policymakers should also consider converting existing comprehensive 

jurisdictional sanctions against Cuba and Sudan to regime-based programs targeting illicit 

conduct. 

compliance with and more active support for various sanctions programs among 

allied countries, within affected industries, and among the general public. 

• Second, as sanctions programs have become more operational and nuanced, 

they must be flexible to adapt to changing circumstances. Such flexibility is crucial to maintain the effectiveness of sanctions against intended targets while 

preserving their workability for compliance and implementation purposes. Policymakers should ensure that authority is delegated to the Treasury with sufficient discretion to manage, administer, and implement sanctions programs in 

a dynamic and complex environment. 

• Third, the general shift away from classic jurisdictional embargoes and toward 

regime-based sanctions targeting illicit conduct by governing elites not only 

minimizes collateral damage to innocent parties, but also highlights and holds 

accountable specific individuals engaged in such illicit conduct. When such illicit 

conduct includes corruption, it may make it more difficult for sanctioned regimes to blame the United States or sanctions programs for economic problems 

that are likely due to the corruption and failed policies of the sanctioned regime. 

Policymakers should generally favor developing such regime-based programs 

targeting illicit conduct over comprehensive jurisdictional sanctions. Derivative 

designations associated with such targeted programs can still introduce largely 

prohibitive jurisdictional risk in such countries for outside markets; however, 

the cause of intended or collateral economic pain in the sanctioned regime’s 

country may be more visibly attributed to the illicit conduct of the regime and 

its control over the country’s economy. This may help create internal pressure 

for the ruling regime to change its behavior.1

• Fourth, the growth and complexity of operationally focused sanctions have put 

substantial pressure on sanctions implementation, administration, and enforcement resources, both within the Government and across the private sector. As 

policymakers consider strengthening or expanding sanctions programs, they 

should ensure that appropriate Government resources are available to implement these programs effectively, including for purposes of providing clear and 

workable guidance for the financial community and other industries whose compliance systems are critical in making sanctions operationally meaningful. 

• Fifth, effective implementation of and compliance with increasingly complex 

sanctions programs and requirements demand specialized expertise, particularly in global finance and other industries exposed to sanctioned parties, activities, and jurisdictions. Policymakers should support sanctions implementation 

and compliance by considering requiring training programs that specifically 

focus on developing such expertise in highly exposed industries. 

• Sixth, the disparity between the United States and the rest of the world in 

sanctions administration, implementation, and enforcement—including with respect to global and multilateral sanctions programs—weakens sanctions effectiveness and heightens the burden of sanctions compliance for U.S. persons and 

authorities. Policymakers should prioritize not only global or multi-lateral political support for sanctions, but global and multi-lateral operational capability in 

sanctions administration, implementation, and enforcement. It is astonishing 

that 16 years after 9/11 and the adoption of United Nations Security Council 

Resolution 1373 requiring all countries to develop targeted sanctions against 

global terrorism, that only a handful of countries have invested in any meaningful sanctions administration, implementation, oversight, guidance, or enforcement. By and large, the Treasury’s Office of Foreign Assets Control (OFAC) remains a singular source of expertise, authority, and capability on sanctions administration, oversight, and enforcement, and the Treasury’s broader Office of 

Terrorism and Financial Intelligence remains a unique institutional authority 

in targeting and implementing sanctions programs within a broader financial 

security approach and framework. 

Policymakers should consider training budgets and personnel to assist foreign 

partners who commit to developing operational sanctions capabilities, particularly within a broader financial security framework. Facilitating such foreign 

capability may also make it easier to engender political support for using such 

capabilities against common threats to collective security. 

• Seventh, notwithstanding the need for greater multilateral capability in sanctions administration, implementation, and enforcement, the increasing use of 

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sanctions by authorities around the world may expose the United States and 

its allies to retaliatory sanctions by countries subject to U.S. and allied sanctions. This concern should limit our consideration of technical assistance to allied countries and should drive a proactive study of our exposure to retaliatory 

sanctions by countries currently or potentially subject to U.S. sanctions. Policymakers should consider financing such a study. 

• Eighth, the increased blending and interdependence of sanctions and AML regimes underscore the importance of investing in AML regimes not only to combat money laundering and financial crime, but also to facilitate compliance and 

implementation of sanctions policy. Where holes in AML regulation, implementation, supervision, or enforcement prevent financial institutions from truly understanding their customers or transactions, sanctions evasion becomes an elevated and real risk. In recent years, several enforcement actions resulting in 

billions of dollars of fines levied against global financial institutions for breakdowns in sanctions and AML compliance underscore this reality. 

To facilitate effective sanctions implementation, policymakers should ensure 

that sound and robust AML regimes extend across the financial system and deliver the financial transparency required to identify and manage sanctions risk. 

Sanctions policymakers should also leverage AML authorities and resources to 

provide investigative, analytic, and prosecutorial expertise and support to combat illicit conduct targeted by both sanctions and AML regimes. 

Conclusion 

Over the past generation, the United States has led the global development and 

institutionalization of global and national frameworks to combat financial crime, exploit financial information, and leverage financial and economic power, including 

through the development and implementation of sanctions policy. We must continue 

to invest in this capability, at home and abroad, and fully utilize this capability to 

combat threats to our national security, including with respect to dangerous behavior by the Russian government. I am hopeful that my testimony will assist the Congress and the Administration in continuing to lead these efforts. 

I am grateful for the opportunity to testify before you today, and I look forward 

to your questions. 

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RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER 

FROM NICHOLAS BURNS 

Cyber-Deterrence 

Q.1. During a recent meeting with sanctions experts, a few Senators discussed the concept of ‘‘cyber-deterrence.’’ We are fighting 

and fending off—at all levels of Government and industry—a persistent and growing threat from foreign government hackers and 

armies of online trolls. This endangers our financial systems, our 

interconnected infrastructure, and our electoral process. 

• Do you believe there are any number of sanctions we could 

place on Russian entities or officials that could deter further 

cyberattacks? 

• What other actions do you believe the United States could 

take, such as increasing our ‘‘cyber-offense,’’ that could deter 

future meddling and cyber-attacks from Russia? 

A.1. Did not respond by publication deadline. 

European Support for Sanctions 

Q.2. Our allies in Europe depend on us to spearhead efforts against 

Russian aggression. For decades, they have relied on American 

leadership and the promise that we are going to be there to back 

them up. Now, in order for the current sanctions regime against 

Russia to work, we need our allies to back us up. But right now, 

there does not seem to be a unified voice for foreign policy coming 

out of the White House and the State Department. 

What message does this lack of a leading, unified voice send to 

our allies in Europe? How is Russian domestic and foreign policy 

leadership reacting to current U.S. foreign policy in Europe? 

A.2. Did not respond by publication deadline. 

Russian Energy Production 

Q.3. Many of our allies in Europe, despite having sanctions on Russia for its incursions into Ukraine, are still highly dependent on 

natural gas from Russia. Clearly, this reduces the European 

Union’s leverage to levy sanctions where it really hurts Russia the 

most. 

What policy recommendations would you make to us in Congress 

that would help our allies in Europe to wean themselves from Russian natural gas? 

A.3. Did not respond by publication deadline.