March 28, 2019 | Congressional Testimony

Putin’s Playbook: The Kremlin’s Use of Oligarchs, Money, and Intelligence in 2016 and Beyond

March 28, 2019 | Congressional Testimony

Putin’s Playbook: The Kremlin’s Use of Oligarchs, Money, and Intelligence in 2016 and Beyond

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Full written testimony

Introduction

Chairman Schiff, Ranking Member Nunes, and distinguished members of the Permanent Select Committee on Intelligence, I am honored to appear before you today to discuss Putin’s Playbook: The Kremlin’s Use of Oligarchs, Money and Intelligence in 2016 and Beyond. As an economic sanctions compliance and illicit finance professional, I will focus my testimony on the impact – and limits – of U.S. sanctions in countering Russia’s continued malign activity. I will also discuss a number of additional measures that could be undertaken by the administration and Congress to limit the ability of Moscow and its cronies to surreptitiously move their funds and assets around the world.

As this committee knows well, Russia poses a serious national security challenge to the United States. In the last few years alone, Russia has illegally occupied Crimea; destabilized Ukraine through the use of the Russian military and its proxies; attempted to subvert Western democracies, including by attacking the integrity of U.S. elections; launched cyberattacks against the United States and our allies; supported the murderous Assad regime in Syria; and used chemical weapons to conduct assassinations in Western Europe, harming numerous civilians. The United States and its allies and partners must respond forcefully and thoughtfully to this threat, including through the use of targeted economic measures.

I will focus my testimony today on three key points. First, our sanctions on Russia have had an impact. Through the use of coercive economic measures, we have put pressure on particular Russian targets (including Russian oligarchs) and caused economic pain to the Russian economy writ large.

Second, this impact has been limited. While resulting in some changes in Russian behavior, existing sanctions are unlikely to significantly alter Russian decision making absent an escalation that would be costly to both our allies and partners in Europe and many in the private sector. Third, we need to look beyond sanctions to additional economic measures. Such measures should include tracking, tracing, and preventing illicit Russian funds from entering the legitimate international financial system to counter certain types of malign Russian influence and activity, as well as to pressure corrupt actors within Russia. This requires strengthening the anti-money laundering/combating the financing of terrorism (AML/CFT) backbone of the international financial system to limit Russian illicit finance. But members of Congress and the administration should be cautious in relying too heavily on these economic tools. In recent years, sanctions and related tools have become the tool of first resort in addressing a range of Russian malign activity. While they are powerful, they must be properly situated in a strategic framework and used to complement other elements of national power.

The Current Sanctions Framework

The sanctions program targeting Russia is one of the most comprehensive sanctions programs currently administered by the United States. This program consists of all types of U.S. economic sanctions: a comprehensive jurisdictional embargo on the annexed Ukrainian region of Crimea; a list-based designation program targeting specific Russian persons, such as the so-called “oligarchs” and those engaged in corruption and human rights abuses; a sectoral sanctions program that limits certain types of transactions with key Russian economic sectors and entities; an export-control regime designed to prevent Russian firms from accessing American technology important to the development of the Russian energy sector; and a secondary sanctions program on foreign firms doing business with malign Russian actors in the defense and intelligence sector or with Russian specially designated nationals (SDNs).

Combined with EU sectoral sanctions, a list-based designation program, and export control restrictions, our sanctions on Russia are designed to target individuals and entities closely associated with the Putin regime, impose economic pain on key sectors of the Russian economy, and impact the long-term growth of certain Russian industries through limiting key financing and access to technology.

Like the Obama administration, the Trump administration has relied heavily on economic pressure as a way to counter Russia’s range of malign activities. To date, the Trump administration has sanctioned more than 270 Russia-related individuals and entities, including a set of designations on April 6, 2018 that targeted key Russian oligarchs close to Russian President Vladimir Putin who are engaged in illicit activity, as well as companies they own and control. The administration has also targeted Russian companies and financial institutions involved in sanctions evasion, including for their efforts to support Nicholas Maduro’s illegitimate regime in Venezuela and to provide support to North Korea, Syria, and Iran. As Treasury Under Secretary Sigal Mandelker noted in testimony in August 2018, the Russia sanctions program is among Treasury’s most active; through it, both Congress and the Treasury Department have imposed major costs on Russia.

As part of its efforts to impose economic costs on key Russian actors for their malign activities, the Treasury Department has not shied away from targeting large and important Russian companies. Beyond the sectoral sanctions designations put into place by the Obama administration that imposed debt and equity restrictions on important Russian energy, financial, and defense companies – which Congress tightened with the passage of the Countering America’s Adversaries Through Sanctions Act (CAATSA) – the Treasury Department has targeted major Russian-owned companies. This includes EN+ Group, UC Rusal, and JSC EuroSibEnergo, which were owned or controlled by Oleg Deripaska, a Russian national designated for allegedly “threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering” as well as being close to the Russian State and Vladimir Putin.3 Just two weeks ago, for example, Treasury sanctioned Evrofinance Mosnarbank, a Moscow-based bank that is jointly owned by Russian and Venezuelan state-owned companies (including Russian Bank VTB owning a 25 percent stake), for, among other things, providing financing for the illicit Venezuelan cryptocurrency, the Petro.

Issues:

Russia Sanctions and Illicit Finance