    [Senate Hearing 115-15]
    [From the U.S. Government Publishing Office]

                                                         S. Hrg. 115-15

                 ASSESSING U.S. SANCTIONS ON RUSSIA: NEXT STEPS

    =======================================================================

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

     EXAMINING THE EXISTING RUSSIAN SANCTIONS ARCHITECTURE IN TERMS OF ITS
    EFFECTIVENESS AND ECONOMIC IMPACT AND ASSESSING WHAT CORRECTIVE ACTION,
     IF ANY, THE UNITED STATES SHOULD TAKE IN LIGHT OF RECENT DEVELOPMENTS
     INVOLVING RUSSIA'S ACTIONS IN UKRAINE, SYRIA, AND WITH CYBER ATTACKS
                         TARGETED IN THE UNITED STATES

                                   __________

                                 MARCH 15, 2017

                                   __________

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                          MIKE CRAPO, Idaho, Chairman

    RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    DEAN HELLER, Nevada                  JON TESTER, Montana
    TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
    THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
    JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                         Gregg Richard, Staff Director

                     Mark Powden, Democratic Staff Director

                          Elad Roisman, Chief Counsel

           John V. O'Hara, Chief Counsel for National Security Policy

                   Kristine Johnson, Professionl Staff Member

                   Sierra Robinson, Professional Staff Member

                    Graham Steele, Democratic Chief Counsel

                Laura Swanson, Democratic Deputy Staff Director

              Colin McGinnis, Democratic Professional Staff Member

                           Dawn Ratliff, Chief Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                           WEDNESDAY, MARCH 15, 2017

                                                                       Page

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

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2

                                   WITNESSES

    Elizabeth Rosenberg, Senior Fellow and Director, Energy,
      Economics and Security Program, Center for a New American
      Security.......................................................     4
        Prepared statement...........................................    32
    Eric B. Lorber, Senior Advisor, Center on Sanctions and Illicit
      Finance, Foundation for Defense of Democracies.................     6
        Prepared statement...........................................    44
        Responses to written questions of:
            Senator Toomey...........................................    70
            Senator Tillis...........................................    71
    Rodney D. Ludema, Ph.D., Associate Professor, School of Foreign
      Service and Department of Economics, Georgetown University.....     7
        Prepared statement...........................................    67

                                     (iii)

                 ASSESSING U.S. SANCTIONS ON RUSSIA: NEXT STEPS

                                  ----------

                           WEDNESDAY, MARCH 15, 2017

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:23 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Mike Crapo, Chairman of the
    Committee, presiding.

                OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

        Chairman Crapo. This hearing will come to order.
        Today we will examine the existing Russian sanctions
    architecture in terms of its effectiveness and economic impact
    and assess what corrective action, if any, the United States
    should take in light of recent developments.
        Three years ago this week, Russia solidified its actions in
    Crimea by illegally annexing the Ukrainian territory and moving
    the fight to its eastern border regions.
        In response, the United States, the European Union, and
    several other allied countries imposed several rounds of
    targeted economic sanctions against Russia. And 2 years ago,
    the Obama administration imposed a separate set of sanctions
    against Russia in response to its malicious cyber-enabled
    information warfare activities.
        Today the Committee will hear testimony on the effect and
    utility of these U.S.-imposed sanctions and the potential for
    next steps.
        The existing U.S. sanctions against Russia pertaining to
    the Ukraine were designed to change Putin's behavior.
        Authority for the sanctions is found in a series of four
    Executive orders issued in 2014, as well as in the Ukraine
    Freedom Support Act, which was signed into law in December of
    that same year.
        These authorities prescribe asset freezes and transaction
    prohibitions with specific Russian individuals and entities
    with ties to the Kremlin, including a bank, businesses tied to
    Putin, and a state-owned defense company.
        Sanctions also include restrictions on financial
    transactions, such as 1- to 3-month restrictions on debt
    maturities of Russian firms operating in the financial
    services, energy, and defense sectors.
        The United States also restricts its individuals and
    entities from exporting oil-related goods, services, and
    technology in support of deep water, Arctic offshore, or shale
    projects in the maritime areas claimed by Russia.
        Pursuant to these measures, the United States Department of
    Treasury has identified and designated more than 520
    individuals and entities for their sanctionable activities.
    Those persons designated are subject to the blocking or
    freezing of assets under U.S. jurisdiction, prohibitions on
    transactions with U.S. persons, and visa denials.
        During the last 3 years, Russia was stung by the twin
    shocks of international sanctions and low oil prices. This was
    compounded by Russia's own ill-conceived retaliatory measures.
        As a result, Russia is now challenged by a contraction of
    economic growth, capital flight, depreciation of the ruble, a
    higher rate of inflation, budgetary pressures, drawing on its
    international reserves, and more widespread poverty generally.
        Yet Russia remains a hostile, recalcitrant power, deploying
    its military, cyber-enabled information espionage activities,
    and economic tactics to harm the United States and drive a
    wedge between it and its allies.
        With all this in mind, I trust the witnesses today will
    help the Committee understand the impact of the existing
    sanctions generally, and discuss where the real pressure points
    are in Russia's economy, the costs of inaction, and any
    associated unintended consequences that could arise if
    sanctions were imposed either unilaterally or too rapidly.
        The extent to which the sanctions on Russia alone
    contributed to its economic downturn is an important question
    in terms of preserving the existing sanctions or expanding the
    breadth of existing sanctions.
        One thing is clear: Any reduction to the level of sanctions
    in the absence of a corresponding shift in Russian behavior
    will be interpreted as a change in U.S. policy on Russia's
    involvement in Ukraine, and that would run counter to the norms
    of international law and give Russia license to engage in
    further adventurism.
        Russia must be held accountable for its actions, and if
    sanctions are to be a part of that strategy, they must be
    targeted and staged appropriately according to a set of
    realistic conditions.
        With that, I conclude my opening statement and turn to
    Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman. Sorry for being
    late.
        Thanks for calling this hearing. Thanks for your
    willingness to explore on a bipartisan basis how the current
    U.S. and multilateral sanctions regime is working and possible
    next steps to strengthen it while preserving unity with our
    allies. Congress has worked together to craft the current U.S.
    sanctions regime and to hold Russia accountable for a long line
    of misdeeds from its violations of international law and of the
    sovereignty and territorial integrity of Ukraine to its role in
    the brutal repression of the war in Syria and its cyber attacks
    on the United States, including U.S. elections.
        More recently, Russia has engaged in efforts to influence
    our elections and systematically sowed disinformation here at
    home. We should focus now on what the Committee might do to
    strengthen our response to Russia for the actions I mentioned
    and for its continuing efforts to destabilize states in Europe,
    including the Balkans and beyond.
        Russia's interference in our election, confirmed
    unanimously by the U.S. intelligence community in a
    declassified report, as we know, in early January, poses a
    problem that goes far beyond foreign policy and strikes at the
    core of our democracy. As the joint report makes clear, there
    is no disagreement within the U.S. intelligence community about
    what happened here. None. Zero. They wrote:

            Russian efforts to influence the 2016 U.S. Presidential
            election represent the most recent expression of Moscow's
            longstanding desire to undermine the U.S.-led liberal
            democratic order . . . these activities demonstrated a
            significant escalation in directness, level of activity, and
            scope of effort compared to previous operations.

            We assess Russian President Vladimir Putin ordered an influence
            campaign in 2016 aimed at the U.S. Presidential election.
            Russia's goals were to undermine public faith in the U.S.
            democratic process, denigrate [Democratic candidate] Secretary
            Clinton, and harm her electability and potential presidency. We
            further assess Putin and the Russian Government developed a
            clear preference for President-elect Trump. We have high
            confidence in these judgments.

    Those were words from the U.S. intelligence community.
        The report went on to note that similar efforts would
    likely be undertaken by Russia against U.S. allies and others.
    ``We assess Moscow will apply lessons learned from its Putin-
    ordered campaign aimed at the U.S. Presidential election to
    future influence efforts worldwide, including against U.S.
    allies and their election processes.''
        While we have begun to impose sanctions for Russia's cyber
    attacks, we have not yet responded to the interference with our
    electoral process. The Ukrainian community, rather large in
    Ohio, and around the world, knows firsthand the dangers of
    unchecked Russian aggression. We should strengthen, not weaken,
    Russian sanctions, and the President must work with Congress on
    a Russia
    policy that is clear-eyed about our adversaries and their
    behavior.
        In Syria, the U.N. and others have charged Syrian military
    units and allied Russian forces with war crimes, including
    attacks on hospitals and an aid convoy, and indiscriminate
    bombing of civilian populations in eastern Aleppo.
        The recent escalation of violence by Russian-based
    separatists in eastern Ukraine and the lack of a consistent
    policy to deter further Russian aggression is also dangerous.
        Since Putin's illegal annexation of Crimea in 2014, 3 years
    ago this week exactly, there have been at least 10,000 dead,
    20,000 wounded, 2 million internally displaced, according to
    the U.N. The situation remains unstable with some 300,000
    cease-fire violations in 2016, according to the Organization
    for Security and Cooperation in Europe.
        It seems clear from the surge of violence since the U.S.
    elections that Russia is testing our resolve to support the
    Ukrainian Government and people. We must leave no doubt that
    Russia must comply with the Minsk agreement. Until it does,
    Russia deserves no sanctions relief for the conflict it created
    and continues to fuel.
        I hope the President ends any ambiguity in our policy in
    both his words and the vigorous enforcement and strengthening
    of current sanctions. All of us in both parties are very
    concerned about what the President has done or not done so far.
    So far, he has sent mixed signals. On the one hand, he raises
    questions about moral equivalence between the United States and
    Russia and flirts publicly with relaxing Russian sanctions. On
    the other hand, he has said he intends for now to maintain U.S.
    sanctions, and U.N. Ambassador Haley has condemned Russian
    aggression in Ukraine.
        Today we are joined by three sanctions experts who will
    help us assess where we are and what effects the current
    sanctions regime is having on the economy and the behavior of
    Russia. We will also discuss how stricter sanctions
    enforcement, closing administrative loopholes, strengthening
    statutory requirements where appropriate, and other measures
    can send a clear, unambiguous signal of our resolve.
        I welcome the witnesses and thank the three of you for
    joining us.
        Chairman Crapo. Thank you very much, Senator Brown.
        I would like to remind all of our Senators today to try to
    stay very close to the 5-minute time limit. We have a hard stop
    at about 5 minutes to 12, and I think we will have a lot of
    interest in this hearing, and so I encourage us all to pay
    close attention to the time restrictions.
        And to our witnesses, I ask you to please pay attention to
    the 5 minutes as well. I know that you are not going to be done
    with everything you have to say in 5 minutes, but you are going
    to have a lot of opportunity with questions to get into it all.
        Today we are joined by three excellent witnesses. First we
    will receive testimony from Ms. Elizabeth Rosenberg, who is the
    Senior Fellow and Director of the Energy, Economics, and
    Security Program at the Center for a New American Security.
        Next we will hear from Mr. Eric Lorber, who is a Senior
    Advisor at the Center on Sanctions and Illicit Finance at the
    Foundation for Defense of Democracies.
        And, finally, Dr. Rodney Ludema, Associate Professor of
    Economics at Georgetown University, will give us his assessment
    of the economic impact of the current sanctions regime.
        Ms. Rosenberg, you may proceed.

     STATEMENT OF ELIZABETH ROSENBERG, SENIOR FELLOW AND DIRECTOR,
       ENERGY, ECONOMICS AND SECURITY PROGRAM, CENTER FOR A NEW
                           AMERICAN SECURITY

        Ms. Rosenberg. Thank you. Chairman Crapo, Ranking Member
    Brown, and distinguished Members of this Committee, thank you
    for the opportunity to testify today on Russia sanctions.
        U.S. and European sanctions imposed on Russian entities and
    individuals since 2014 have been remarkably innovative and
    forceful. Responding to Russia's aggression in Ukraine, they
    powerfully demonstrate transatlantic unity, and they have
    delivered economic leverage. Their impact was augmented, as was
    noted, by an oil price collapse and Russia's resulting loss of
    hard currency.
        Additional recent U.S. sanctions have exposed Russia's
    human rights record, its destabilizing involvement in Syria,
    and its insidious cyber intrusions into U.S. institutions and
    political processes.
        The recent record of Russian economic performance
    demonstrates a period of distress. From the beginning of 2014
    to December 2016, Russian external debt shrank from $729
    billion to $519 billion, and officials drew down the Reserve
    Fund from $87 billion to $16 billion. Russian officials slashed
    state spending in education, health care, and defense, and
    allowed the ruble to plunge in value. Capital fled Russia,
    roughly $210 billion in 2014 and 2015 combined, and GDP
    contracted from 0.7 percent in 2014 to negative 3.7 percent in
    2015. It recovered last year but remained negative.
        Russian officials, including President Putin, have
    acknowledged that sanctions hurt Russia. They were a meaningful
    contributor to Russia's agreement to the Minsk accords, and
    Russia, arguably,
    refrained from more expansionist territorial aims because of
    sanctions pressure.
        However, the force of sanctions has diminished over time as
    investors have adapted to lower oil prices, the Russian economy
    stabilized and U.S. and EU leaders have not kept up sanctions
    pressure. In 2016, Russian capital flight was one-tenth of the
    2014 record. Russian economic growth is expected to rebound to
    just over 1 percent in 2017. Russia expanded its already
    massive energy output by 4.4 percent between January 2014 and
    January 2017, taking advantage of higher prices to draw in
    critical new revenue streams.
        A primary reason for declining sanctions effects is a lack
    of their maintenance by the United States and the European
    Union. In particular, European leaders have struggled over the
    last 2 years to hold the line on sanctions, doubting their
    utility and advisability in some instances.
        Now, political signals from the new U.S. administration as
    well as from nationalist political leaders in Europe that a
    warmer relationship with Russia may be forthcoming indicate to
    the private sector that sanctions are weakening further. Russia
    has actively taken advantage of this crumbling resolve on
    sanctions. Through military posturing, media and cyber
    manipulation, and economic interventions, President Putin has
    been transparently engaged in a reproach of Western interests
    and Western unity.
        U.S. leaders are now contemplating policy toward Russia,
    including sanctions measures. The White House has not yet
    outlined a definitive strategy with the Kremlin or European
    allies. Congress is in the position to enhance pressure on
    Russia in response to
    increasing aggression in eastern Ukraine and Russia's cyber
    interference in the United States.
        Legislators can lead on the direction for an updated
    sanctions
    response and set the tone for diplomacy toward European allies
    and Russian counterparts. To maintain effective sanctions, U.S.
    and European leaders must closely coordinate. This will be
    difficult, but the alternatives--stasis or conflicting
    sanctions policy, delivers economic and political benefits to
    President Putin and undermines U.S. interests. It is far
    preferable to maintain Western economic leverage with Russia
    and negotiate from a position of strength. In this context,
    U.S. leaders, with Congress at the fore, must proactively
    update sanctions and forge new transatlantic coordination on
    this critical policy challenge.
        Thank you for the opportunity to speak with you this
    morning, and I look forward to your questions.
        Chairman Crapo. Thank you very much.
        Next we will hear from Mr. Lorber.

        STATEMENT OF ERIC B. LORBER, SENIOR ADVISOR, CENTER ON
       SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF
                              DEMOCRACIES

        Mr. Lorber. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Senate Committee on Banking,
    Housing, and Urban Affairs, I am honored to appear before you
    today to discuss U.S. sanctions on Russia.
        I would like to focus my testimony on the effectiveness of
    the current U.S. sanctions targeting Russia, as well as what
    the United States can do to responsibly ramp up economic
    pressure to convince Moscow to cease destabilizing activities
    in eastern Ukraine, stop committing human rights abuses, and
    reduce malicious cyber
    activities targeting the United States and its allies.
        To date, U.S. sanctions on Russia have a mixed record of
    success. Many macroeconomic indicators and recent studies
    suggest that the sanctions have had an impact on overall
    Russian economic health. Likewise, Russian Government officials
    repeatedly push for sanctions relief, both in public statements
    and by trying to undermine EU sanctions, suggesting that Russia
    is feeling the pinch.
        Nevertheless, the United States has not achieved many of
    the core objectives it sought when deploying these tools, and
    Russia continues to engage in threatening activity across a
    range of areas.
        In eastern Ukraine, Russian-backed forces continue to
    violate the cease-fire, routinely attacking Ukrainian villages
    and military personnel. Moscow also continues to target
    opposition leaders, often with lethal means.
        In the cyber realm, Russia has continued its efforts to
    influence and undermine U.S. allies, in recent months focusing
    these efforts on upcoming elections in Western Europe.
        Beyond the activities for which the United States has
    imposed sanctions, in Syria, Russia continues to support
    President Bashar al-Assad with direct military intervention,
    including during the Syrian Government's brutal assault on
    Aleppo.
        This Committee should make no mistake; Russian activity in
    these areas poses a serious threat to U.S. interests, and the
    United States should be prepared to use all elements of its
    national power--including its economic power--to blunt Moscow's
    ability to undermine U.S. interests at home and abroad.
        Additional, responsibly crafted U.S. sanctions can be a
    powerful tool to impact Russia's decisionmaking. Specific types
    of sanctions that, if properly calibrated, could be
    particularly effective in increasing the pressure on Russia
    include:
        The codification of certain executive orders, as well as
    additional statutory designations under these EOs;
        Establishment of a FinCEN-led task force to identify and
    seize assets of targeted Russian persons, including those with
    close to ties to Russian President Vladimir Putin;
        Certain restrictions related to the purchase or
    facilitation of Russian sovereign debt;
        And certain primary and secondary sanctions on elements of
    Russia's oil and gas industry.
        However, any new sanctions on Russia must take into account
    four important considerations.
        First, while additional sanctions are appropriate, Congress
    should be wary of imposing sanctions that are too powerful. If
    the United States attempts to impose broad, Iran-like sanctions
    on Russia that target large swaths of the Russian economy, this
    could limit critical European willingness to participate in our
    sanctions campaign.
        Similarly, such sanctions could do serious damage to the
    Russian economy in ways that actually threaten our interests.
    While we want to pressure Russia to cease its activities,
    destroying the Russian financial system or cratering its
    economy would have worldwide impact, threatening markets across
    the globe.
        Second, Congress should think through how it can unwind
    sanctions pressure in the case that Moscow--even partially--
    changes its behavior. As we have learned over the past few
    years, unwinding sanctions can often be a difficult and fraught
    process. Any such new sanctions legislation could include
    built-in ``off ramps''--namely, elements of the sanctions
    regime, such as specific designations or directives--that could
    be undone in a situation of partial Russian compliance with its
    various obligations, such as those under the Minsk agreements.
    Such partial sanctions relief could be traded for Russian
    fulfillment of these obligations, and this approach, while not
    achieving all of our objectives certainly, could help the
    United States limit challenges to U.S. interests.
        Third, any such sanctions must be nested in a larger
    strategy of pressuring Moscow, including aggressive diplomacy
    and responding in kind to malign Russian activities such as
    offensive cyber operations. Sanctions are a means to an end,
    and Congress and the
    Administration must be clear as to what that end is and how
    they intend to achieve it. Ramping up economic pressure on
    Moscow without clear objectives, the employment of other
    coercive tools, and buy-in from the Administration is unlikely
    to be effective in getting Moscow to fully change its behavior.
        Fourth, the United States must be prepared to address
    Russian retaliation for these sanctions, including in the form
    of countersanctions, increased cyber attacks, and even kinetic
    action in ways that threaten U.S. interests.
        Congress has a key role to play in ramping up pressure on
    Moscow, and the various sanctions proposals put forth in recent
    weeks are excellent steps in this direction. I look forward to
    discussing these proposals during the question-and-answer
    session.
        Thank you.
        Chairman Crapo. Thank you very much.
        Dr. Ludema.

      STATEMENT OF RODNEY D. LUDEMA, Ph.D., ASSOCIATE PROFESSOR,
        SCHOOL OF FOREIGN SERVICE AND DEPARTMENT OF ECONOMICS,
                         GEORGETOWN UNIVERSITY

        Mr. Ludema. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Committee, thank you for the
    opportunity to testify at today's hearing assessing U.S.
    sanctions on
    Russia. My name is Rodney Ludema, and I am a Professor of
    Economics at Georgetown University.
        Earlier this year, my co-author Daniel Ahn and I published
    a
    report titled, ``Measuring Smartness: Understanding the
    Economic Impact of Targeted Sanctions,'' and I would like to
    take this opportunity to share some of the conclusions of that
    study with you.
        As you know, Russian intervention in Ukraine in early 2014
    prompted the United States and the European Union to impose
    series of targeted sanctions aimed at specific individuals,
    companies, and transactions believed to be involved in the
    illegal annexation of Crimea and the ongoing crisis in eastern
    Ukraine. Sanctions of this type are often referred to as
    ``smart,'' and their defining
    feature is that they seek to impact their intended targets with
    minimal collateral damage.
        Our study seeks to understand just how ``smart'' these
    sanctions have been in practice, and what we find is that the
    sanctions have indeed inflicted significant damage on the
    intended targets, with relatively little short-run impact on
    the overall Russian economy or on neighboring economies such as
    the European Union.
        Just to put sanctions a little bit in context, decades of
    experience with economic sanctions indicate that sanctions are
    most effective at altering the behavior of the targeted
    government when they are multilateral, focused, sustainable,
    and clearly contingent on an achievable goal.
        Smart sanctions are meant to achieve these ends. They are
    focused because they target the government and its domestic
    constituencies responsible for the offending policy rather than
    the general population, which may have little political
    influence.
        They are sustainable because by minimizing collateral
    damage, they lower the cost to the countries imposing them, and
    this is
    especially important when we are talking about a target country
    that is large and internationally integrated, such as Russia.
        So how do we go about assessing the smartness of Russian
    sanctions? First, we look at the sanctioned companies
    themselves. All told, we were able to find 584 companies that
    are either listed by the United States or the European Union in
    one or more of their sanctions lists or are associated with
    individuals on those lists. In addition, there are another
    2,000 or so subsidiaries of these companies.
        Our method is to compare the performance of sanctioned
    companies to nonsanctioned peer companies before and after the
    sanctions were imposed. Our main finding is that sanctioned
    companies are indeed harmed by sanctions relative to their
    nonsanctioned peers. On average, a sanctioned company loses an
    estimated one-third of its operating revenue, over half of its
    asset value, and about one-third of its employees after being
    sanctioned compared to nonsanctioned companies. These estimates
    suggest that the targeted sanctions do indeed have a powerful
    impact on the targets themselves.
        The second part of our study estimates the collateral
    damage. In particular, we consider the impact that the
    sanctions have had on Russian GDP and on Russia's imports from
    the European Union. The challenge in doing this is the fact
    that the conflict coincided with a series of powerful
    macroeconomic shocks, most notably an enormous decline in the
    price of oil, which is Russia's main export.
        We find that the vast majority of the decline in Russia's
    GDP and the vast majority of its import demand from the
    European Union is caused by the decline in the price of oil and
    other
    long-term trend factors, with very little left to be explained
    by sanctions or other short-term factors. Thus, we conclude
    that either sanctions have had only a small negative effect on
    Russia's GDP, as they were designed to do, or other positive
    factors coincident with sanctions largely canceled out their
    effect.
        Finally, we find that sanctions have had only a small
    effect on the economies of most European countries. Adding
    together the impacts of sanctions imposed on Russia along with
    Russia's retaliatory countersanctions on agricultural products,
    we find that EU exports declined only slightly, causing less
    than two-tenths of 1 percent reduction in the GDP of the median
    EU country.
        Those are the results of our study, and I am happy to
    entertain questions about that in the Q&A session. Thank you.
        Chairman Crapo. Thank you very much, Dr. Ludema.
        Let me go first to you, Ms. Rosenberg. Moscow remains
    undeterred in its Ukraine ambitions despite at least 2 years of
    sanctions, which were even compounded by an oil shock. What are
    the limits of employing sanctions against a large economy like
    Russia's? And what sanctions tend to be the most effective to
    deter Russian aggression?
        Ms. Rosenberg. Thank you for the question. As you note,
    Russia is a massive economy, and even in the period from 2014
    to now, when we have seen the Russian economy shrink somewhat,
    it still represents one of the largest economies globally.
    Furthermore, it has a tremendous volume of external assets that
    are traded
    actively, including by U.S. financial entities and individuals.
    So the cautionary note on sanctions is to be careful about
    collateral damage for the United States. Going after Russia,
    particularly in the financial services realm, in ways that
    could affect U.S. institutions may be damaging to U.S. economic
    interests. Also, if the United States oversteps and goes too
    far on sanctions, in addition to the consequences my colleague
    laid out, it could invite retaliation.
        I would offer the same cautionary note about aiming too
    aggressively at its energy sector given the effect that that
    could have for consumers globally, including in the United
    States.
        Chairman Crapo. Thank you very much.
        Mr. Lorber, some proposals put forth for increasing
    sanctions against Russia include various sanctions on Russian
    sovereign debt. Could you please explain what placing sanctions
    on entities transacting in issuances of Russian sovereign debt
    would have on the Russian economy and on global financial
    markets?
        Mr. Lorber. Absolutely, Senator. The macroeconomic impact
    of going after prohibiting purchase or facilitation of Russian
    sovereign debt is fairly uncertain. However, what the impact
    likely would do is it would put additional pressure on those
    SSI designated entities from 2014 that have effectively been to
    an extent propped up by the Russian Government. So it would
    continue to target entities that we have gone after previously.
        But the unknown about what the overall impact of
    sanctioning Russian sovereign debt would be is part of the
    reason that in my testimony I suggest ways that you can, in
    effect, ratchet up that pressure in a graduated manner so that
    you can, in effect, see what that impact is; and if the
    economic impact on those entities is not what we want it to be,
    you can sort of come back and have a second bite at the apple.
        Chairman Crapo. Thank you very much.
        Dr. Ludema, your study finds that while targeted firms are
    impacted by sanctions, Russia's GDP is largely unaffected,
    noting that the most plausible candidate factor for this would
    be the Russian policy response.
        Explain what you mean by the ``Russian policy response,''
    and how do you think the Russians responded to the sanctions
    within this context?
        Mr. Ludema. Thank you for the question. I would say that
    there are actually two reasons why the sanctions have had very
    little effect on the Russian GDP. One is that they were
    designed to not have an immediate effect. The biggest companies
    that are under sanctions are sanctioned under the SSI regime
    which simply restricts their borrowing of long-term debt and
    certain technologies. That is designed to kick in later as
    these companies start to roll over their debt. They are not
    likely to have a short-term effect, and we find that they
    generally do not.
        But, yes, you are right; there are things that the Russian
    Government can do and has done to also counter the effects. For
    example, the biggest thing that they did was allow the ruble to
    depreciate quite dramatically in 2014.
        Another thing that they can do is bail out certain firms,
    so they have a list of firms that they refer to as
    ``strategic,'' that are strategic by virtue of their economic
    or national security importance, and these firms qualify for
    state largesse in the form of state loan guarantees, capital
    participation, extra government contracts, tax breaks, and so
    on.
        I would point out, however, that all of these policy
    responses are costly to the Russian Government, so even if you
    see a company that is not obviously affected by Russia
    sanctions, if it is being bailed out, that cost is being
    imposed on the Russian Government in a different way. We have a
    saying in economics, which is that ``There is no free lunch.''
    And there is no free lunch for the Russian Government when it
    comes to dealing with sanctions.
        Chairman Crapo. Thank you very much.
        Senator Brown.
        Senator Brown. Thank you, Mr. Chairman.
        Ms. Rosenberg, if I could start with you, you described
    four principles you think policymakers should observe:
    maintaining broad support of allies; using sanctions as a tool,
    while including other diplomatic, political, economic, and
    military measures; tying sanctions relief tightly to specific
    policy goals; and, fourth, crafting a policy that is tough and
    constructive and also flexible enough to be workable.
        What are the greatest obstacles to maintaining these
    principles on Russia policymaking in this environment?
        Ms. Rosenberg. Thank you for the question. One of those
    principles that is most vulnerable is finding unification and
    multilateralism on Russia sanctions. The reason why I say that
    is because of the conflicting political suggestions that we
    have seen coming out of the current U.S. administration, as has
    been mentioned by you. They suggest that there is an interest
    in pulling back or reversing sanctions measures. Also signaling
    from within Europe, including from a couple of the leaders on
    European sanctions, France and in Germany, not to mention the
    Brexit vote, which suggests movement toward strong nationalism
    and away from the project of EU unification and transatlantic
    unity that has underpinned these sanctions on Russia.
        The difficulty in holding together that coalition is the
    greatest challenge to advancing further strong, cogent,
    meaningful, and strategic sanctions policy.
        Senator Brown. You are suggesting, as I think you mentioned
    in the response to Chairman Crapo's question, that there is a
    danger--you may not have used the word ``danger,'' but you said
    if we are too aggressive, especially on energy, when you think
    of how bound so many countries, especially those that were
    long-time Soviet--a long time part of the Soviet Union, how
    bound they are, especially on energy. Talk about that effect
    with our allies and how other proposed measures imposing
    secondary sanctions on those who facilitate Russia Soviet debt
    transactions, how that plays out and what concerns you have and
    which countries are most affected that way.
        Ms. Rosenberg. On energy in particular, the challenge here
    about being too aggressive, I would like to condition that and
    say there are two challenges: one is being too aggressive too
    fast. It would be appropriate to move incrementally toward a
    more aggressive posture. The second one is that sanctions
    should always aim at what is realistically achievable. This is
    particularly important on energy where aiming too aggressively
    is infeasible ultimately. It would be impossible for the United
    States to implement aggressive sanctions on the Russian energy
    supply. European leaders would not join the United States on
    something that aggressive. For them, it would constitute a
    decision to cutoff some of their most significant energy supply
    sources. Literally, the lights go out, the heat goes off. That
    is a very difficult thing for many countries, particularly in
    Russia's near abroad, its periphery, that rely so heavily on
    Russian refined products and natural gas in particular. The
    energy market is so large and so many nodes and relatively
    unregulated globally that it would be near to impossible to
    achieve broad implementation; and even if it were, what it
    could do--even if there was to be broad implementation of
    strong sanctions that go after Russia's energy supply, it would
    have the effect of increasing prices, which some may welcome in
    the current oil price environment. But, of course, that
    benefits producers, including Russia, and disadvantages
    consumers, such as those in the Baltic States and all of us as
    consumers.
        Senator Brown. Thank you.
        Real quickly, Mr. Lorber, talk about what conditions you
    think Russia should have to meet besides abiding by Minsk and
    stopping cyber attacks before any future relaxation of
    sanctions.
        Mr. Lorber. Thank you, Senator. I actually think that the
    Minsk II agreement does provide for 13 very specific
    obligations that Russia should meet and, frankly, is not
    meeting at the current time. And so it gives us, in a sense, a
    road map for sanctions relief. If Russia meets these
    objectives, then we should be willing to provide them at least
    partial relief as----
        Senator Brown. They are meeting none of them now of the 13?
        Mr. Lorber. That is my understanding, so the major ones,
    for example, allowing Ukraine to have control over the Ukraine-
    Russia border; the removal of heavy weaponry; the allowance of
    OSCE monitors into the country; the return of Crimea to
    Ukrainian control. My understanding is that they have not met--
    they have certainly not met those, but they have not met many
    of the others of the 13.
        Senator Brown. Thank you.
        Chairman Crapo. Thank you.
        Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        Mr. Lorber, I am just curious. We have talked a little bit
    about the issuance of sovereign debt and the challenges that we
    may place on the Russian economy and so forth if we were to
    restrict, either in a primary or primary and secondary basis,
    the purchase of Russian sovereign debt. How would that impact
    the individuals who are the decisionmakers or the impacters
    within Russia today? Would we be able to actually impact those
    individuals who are the decisionmakers?
        Mr. Lorber. Thank you, Senator. I think so, yes. The
    rationale behind the sovereign debt restriction is basically
    that when Russian entities were designated as SSIs, they were
    unable to secure new debt or in some cases new equity. And so
    the Russian Government injected capital assets into them to
    basically keep them going, in effect. And then Russia turned
    around and wanted to offer sovereign debt issuances so that it
    could then continue injecting more funds into those SSIs and
    SSI entities.
        To the extent that you can hurt those of the largest
    companies in Russia, the CEOs and major leaders of whom many
    are within Vladimir Putin's close inner circle, I do think that
    will have an impact on their decisionmaking.
        Senator Rounds. How practical is the imposition of both
    primary and secondary attempts, anyway, at limiting the
    purchase of that debt? Would we have any support in the
    European Union?
        Mr. Lorber. So I think that is actually a fantastic
    question because I think that in terms of the imposition of
    primary sanctions that would prohibit U.S. persons, or any
    transaction with a U.S. nexus, from going forward, from doing
    transactions in that debt. That would not directly impact
    foreign financial institutions in the European Union, for
    example, but there would still be a significant market impact.
    So many of the sort of top-line European banks, financial
    institutions, would be unwilling to transact in that debt for
    fear that they might accidentally run afoul of U.S. sanctions.
    So I do think that there would be a practical effect of it,
    yes.
        Senator Rounds. Thank you.
        Ms. Rosenberg. Senator, may I speak to this issue?
        Senator Rounds. Yes.
        Ms. Rosenberg. Thank you. I wanted to point out something
    that all policymakers contemplating this kind of a sanction
    should bear in mind going forward, which is, of course, that
    aiming at Russian sovereign debt is a major escalation. It may
    be appropriate as circumstances merit, but particularly because
    you are going after the ability of the sovereign to raise
    money, there will be a major public perception in Russia and
    elsewhere that this will constrain the ability of Russia to
    provide social services. This has worked to President Putin's
    favor in bolstering his domestic popularity and support, and so
    this has to be carefully calibrated in order not to have the
    reverse effect, which is to say empowering President Putin at
    the expense of the pressure it is supposed to create.
        Senator Rounds. I think your point is well made, and the
    reason why I asked the question is specifically that. Does the
    emphasis actually fall on the decisionmakers, or does it fall
    on the general Russian economy itself?
        Let me just continue on, and I do have a question for Dr.
    Ludema. A significant portion of your testimony focused on
    smart sanctions and minimizing collateral damage, specifically
    as we just discussed with regard to the imposition of any
    sanctions on the purchase of sovereign debt.
        As you know, the United States has implemented a ban on the
    investment and now prohibits essentially all trade with Crimea,
    which is, in essence, an embargo on Crimea.
        To what extent does the U.S. trade and investment embargo
    on Crimea cause collateral damage on the average citizen of
    that Ukrainian population? And what role does this policy play
    in the grander strategy, of course, in Russia and Russian-
    supported groups to cease their malicious and destabilizing
    activity in the region? And does the value of this coercion
    outweigh the collateral damage to the majority of Crimea'
    Ukrainian citizens now under Russian rule? A three-part
    question.
        Mr. Ludema. Thank you for the question. I think that if by
    collateral damage you mean damage to the general population in
    Crimea, I would say that there is collateral damage, certainly.
    Crimea is a relatively small entity so it does not have
    substantial impact on the European Union or the United States.
    And so in that sense, I think sanctions of that type would,
    nevertheless, remain sustainable.
        I think the idea behind the sanctions on Crimea is that it
    will make it difficult for the Russian Government to solidify
    its control in the area, and I think that is the purpose of it.
    Whether it succeeds is something that is beyond that.
        Senator Rounds. Thank you.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Reed.
        Senator Reed. Thank you very much, Mr. Chairman, and I want
    to thank the panel for their presence here today and their
    testimony.
        Senator Rounds brought up the European Union, and I have
    just three general questions I would like to pose to everyone,
    beginning with Ms. Rosenberg. What is their role today? Second,
    can that role be enhanced to benefit the doing--and I presume
    they are--to undermine the European Union as they are trying to
    undermine so many institutions? So if you could generally
    respond to those questions. Ms. Rosenberg?
        Ms. Rosenberg. Thank you for the question. The role of the
    European Union as counterpart to the United States in
    imposition of these sanctions is significant, primarily because
    it has great economic integration with Russia--trade,
    investment, et cetera, for banks, companies, and the like. So
    the EU's holding the line on these sanctions constitutes a
    bigger economic sacrifice for them in many respects,
    particularly for those countries heavily linked to Russia
    through trade on Russia's periphery.
        The sanctions can be enhanced by the European Union, and,
    in fact, they are well placed to do so. There are a number of
    what have been referred to as loopholes in the European
    sanctions on Russia by comparison to the United States
    sanctions, involving the grandfathering of certain business and
    the availability of certain Russian firms to raise funds in
    European capital markets. That could be closed off. That would
    be at a great sacrifice to the European economy, one which many
    in Europe believe is worth it.
        And what is Russia doing to undermine the European Union?
    What we witnessed in the United States in terms of Russia's
    malicious cyber intrusion into our electoral process in 2016 is
    occurring in Europe. It is active. It is well documented,
    including support for political parties and disinformation
    campaigns.
        Senator Reed. Just let me qualify. The European Union is an
    institution itself with an elected President, et cetera. Are
    they targeting the European Union as an institution as well as
    the countries?
        Ms. Rosenberg. I think it would be fair to characterize the
    effort by Russia primarily aimed at individual countries
    because giving rise to nationalist political currents in these
    individual countries undermines the project of European
    unification, which is Russia's aim, and undermines
    transatlantic unity.
        Senator Reed. Mr. Lorber and Mr. Ludema, any other comments
    that you think would supplement Ms. Rosenberg's comments?
        Mr. Lorber. A couple. Thank you, Senator.
        On the first point, what is the EU role, I agree with Ms.
    Rosenberg and would also like to say that the EU program is
    actually very, very similar to the U.S. program. They have an
    SSI type of program. They have a list of designations. There
    are a number of designations which are different, so they do
    not have a number of people on their list that we have on ours,
    and vice versa. And so that is one particular area where we
    could align better and have them ramp up pressure.
        Also building off of her comments in ways that we can
    enhance the EU sanctions or have the European Union enhance
    their own sanctions, one area in particular is related to
    entities that are owned by Russian companies that are operating
    in the European Union. In general, these entities are not
    subject to the EU SSI sanctions, and that is a European
    decision to limit the damage to their economy. That could be a
    particular area where we focus on to have them go after.
        And then on your last point, the question about what is
    Russia trying to do to undermine EU unity, in effect, in
    addition to the cyber activity Russia has engaged in and the
    empowerment of far right parties, Russia has actively engaged
    in trying to pull one or two EU countries out of the sanctions
    sort of cooperative regime, because EU voting rules require
    unanimity and the sanctions must be renewed every 6 months.
    They were actually renewed a couple days ago. And to the extent
    that the Russians can basically buy off one or two EU
    countries, such as Hungary, that can actually undermine the
    entire sanctions campaign from the EU side.
        Senator Reed. Doctor, your comments?
        Mr. Ludema. Yes. I think that EU participation in this has
    been extremely important. The European Union is much more
    integrated with the Russian economy than we are. They have
    potentially more influence, but, of course, they are also more
    sensitive when it comes to collateral damage.
        On the question of what is Russia doing, they are
    constantly--constantly--filling the airwaves in Europe with
    negative news stories about the impact of sanctions on European
    companies, claiming way beyond the evidence that these things
    are having a
    devastating effect on European economies. And part of the
    reason that we wrote our paper was to demonstrate that, by and
    large, that is not true.
        Senator Reed. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator.
        Senator Sasse.
        Senator Sasse. Thank you, Chairman. Thank you to all of you
    for being here.
        How rich is Vladimir Putin?
        Ms. Rosenberg. We should assume very rich, although the
    amount of his assets has been a longstanding question. There is
    no full disclosure.
        Mr. Lorber. Again, there is no full disclosure, so it is
    unknown. My understanding based on public source reporting is
    that it is in the billions, if not tens of billions of dollars.
        Mr. Ludema. Yeah, I do not have a number on that either,
    but certainly his ability to tap into vast sums of money
    through his cronies and his network is--well, it is enormous.
        Senator Sasse. Can you remind us of his sort of resume, his
    work history? How did he get rich?
        Mr. Ludema. Corruption.
        Mr. Lorber. I am not a Vladimir Putin expert, but,
    obviously, he was in the KGB as a colonel for a long time, and
    then----
        Senator Sasse. They make tens of billions of dollars,
    right?
        Mr. Lorber. They make tens of billions of dollars primarily
    through corruption and proceeds from state enterprises, is my
    understanding.
        Senator Sasse. So could you bound the illicit economy for
    us in Russia? What are its key industries? And how did it
    happen? Give us sort of a sweep--you know, Nebraskans, when
    they think about the demise of the Soviet Union, we remember
    sort of Warsaw Pact versus NATO. And in 1989 the wall falls. In
    1991 the Soviet Union dissolves. Nineteen ninety-one (1991) to
    1994 or 1995, we have this vision that there is going to be
    this sort of rise of democratic capitalism in Russia. That does
    not happen. So from 1995 until maybe 2 years ago, give us a 20-
    year sweep of the Russian economy and sort of the role that
    illicit industries and cronies play. How does this develop?
        [Pause.]
        Senator Sasse. Not all at once, please.
        Mr. Ludema. I will take a stab. I do not know if I would
    call them ``illicit industries,'' but certainly crony
    capitalism has been on the rise ever since Putin took power.
    One of the reasons, despite high oil prices, prior to the
    sanctions regime, despite high oil prices, the Russian economy
    was underperforming was precisely because of crony capitalism,
    that is, almost all of the big industries are controlled by
    Putin cronies. They used them as their personal piggy banks.
    They failed to invest adequately, and it has significantly
    sapped the dynamism of the Russian economy, such that even if
    oil prices were to recover and sanctions were to be removed, I
    do not think you would see a miraculous rebound of the Russian
    economy.
        Mr. Lorber. Thank you Senator. Important, I think, to add
    to this point as well is that as Putin's cronies were enriched
    and took over state-owned enterprises, Putin also privatized--
    or, sorry, made public certain Russian Government entities,
    oil-producing, and put his individual sort of inner circle in
    charge of them to see the proceeds. And then of particular
    note, I think, to this Committee, Russian oligarchs set up a
    large set of shell companies, of mechanisms for transferring
    illicit funds, and, frankly, got a lot of those funds out of
    Russia. And so we know now that through Cyprus and other
    jurisdictions with lax anti-money-laundering laws and
    regulations, Putin and his oligarchs have actually managed to
    get all these funds into Western economies, into real estate,
    both in the United States and in London and other parts of
    Western
    Europe.
        Ms. Rosenberg. I think my colleagues have offered a number
    of strong comments, and so I will not add more.
        Senator Sasse. Great. Well, we would love to follow up with
    you. My team will reach back out, because I think one of the
    core questions we face is the efficacy of the current sanctions
    regime, the possibility of a new sanctions regime and its
    cooperation with EU and other members, but also to what degree
    is it going to be efficacious if we do not have a lot of
    clarity about other places where money is housed that is not
    actually on the books in ways that can be transparent. Please,
    take a final word. We have a couple seconds left.
        Mr. Lorber. Thank you. The Counteracting Russian
    Hostilities Act of 2017 has a provision in it related, as I
    mentioned in my testimony, to a FinCEN-led task force or some
    type of task force to assess, identify, and eventually seize
    illicit funds that are in the United States. We know they are
    here; we just do not actually know where they are. And so I
    think that is one good proposal you could walk forward with.
        Senator Sasse. We would love to figure out ways to assist
    you in the work of being more transparent about those assets.
    Thanks.
        Chairman Crapo. Thank you.
        Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman, for holding what
    I think is an incredibly important hearing, and I appreciate
    the testimony of the expertise we have here. I look forward to
    Administration witnesses so that we can actually move forward
    on developing policy at some point, but certainly this is
    incredibly helpful.
        As the original author of many of the networks of sanctions
    that we have on foreign adversaries and belligerent actors, I
    certainly believe that economic sanctions remain one of the
    most effective tools we have in our peaceful diplomacy arsenal,
    which is rather limited. When you speak about nonmilitary
    engagement, it is the use of aid or trade to induce a country
    to act a certain way. International opinion, to the extent that
    our country is subjected to or willing to be affected by that--
    I do not think that Kim Jong-Un really cares that much--and the
    denial of aid or trade and/or something that we have used as an
    increasingly effective tool, which is financial sanctions to
    the most significant economy and financial system in the world.
        And so when we do not want to engage militarily, this is
    the universe that we have in peaceful diplomacy engagement. So
    I do not believe it is a sword to take out all the time, but I
    do believe that in certain cases it is incredibly important.
        In the case of Russia, they have violated the international
    order by invading and occupying sovereign countries,
    interfering in elections across the globe to sow distrust in
    the foundations of democracy, including here in the United
    States, and oppressing their own citizens. And if we want to
    ultimately have Russia and send a global message that there are
    going to be consequences for violating the international order
    and to send it not just in Russia's case but in the case of
    others who may consider violating the international order, it
    is sanctions that very often can be the tool.
        I particularly get concerned about Russia not only
    interfering in our elections but violating arms treaties, which
    has lost some attention but is incredibly important. So I was
    pleased to join my colleagues in sponsoring the Countering
    Russian Hostilities Act. Like anything, it can be perfected,
    but I think it is a way forward.
        So I want to ask our witnesses, I know that some of you
    have talked about the reticence of sanctions use and getting
    our partners, particularly Europeans, on board. But isn't it
    true that when we started the sanctions on Iran, we did not
    have European partners on board at the beginning. We brought
    them on board. There are times in which the United States must
    lead, and in leading, it then creates an international
    coalition. Isn't that a fair statement? Any one of you want to
    answer?
        Ms. Rosenberg. Yes, certainly. Someone has to lead and this
    body has in the past very effectively.
        Senator Menendez. And if we waited for a coalition to take
    place first before we led, we would not have brought Iran to
    the negotiating table as we subsequently did. So I get
    concerned sometimes when I hear about that we will have
    reticence from our partners. Our partners very often will have
    reticence, but it is when we lead that we ultimately--and it is
    a robust diplomacy that is necessary to assure that and to show
    them why it is in their interest as well.
        Do you believe that among your discussion--which I have
    read your testimony and got a synthesis of what you said--is
    that having targets--do you believe, for example, that the
    violation of the Intermediate-Range Nuclear Forces Treaty that
    Russia recently conducted a violation of by deploying a ground
    launched cruise missile system, do you believe that sanctions
    play a role in ensuring, for example, Russia complies with
    international arms control treaty obligations?
        Ms. Rosenberg. Sanctions have not traditionally been a tool
    used to address that kind of violation, and as was demonstrated
    by the previous U.S. administration. There are other messages
    of diplomacy or engagement that have been a first step toward
    addressing and disclosing those, and working toward a
    remediation of them.
        I would offer that I think that kind of diplomatic and
    direct engagement and disclosure is a first, most important
    step and would reserve the option to consider sanctions, but
    not as a first step.
        Senator Menendez. Well, I hope that the Administration
    engages Russia on its violation of that treaty. That to me is
    one of the most significant violations that have taken place
    that are a real consequence to U.S. national interest and
    security, as well as, of course, what they have done here in
    the cyber attack against our own democracy. I consider that an
    attack against the United States, one that, if it was in any
    other dimension, we would be responding to vigorously. And we
    seem not to have been engaged in responding to it vigorously,
    and I hope that we look at sanctions, the perfecting of
    sanctions in that regard.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman.
        Mr. Lorber, do you believe the current sanctions against
    Russia have had any meaningful impact on Mr. Putin's behavior?
        Mr. Lorber. Yes, Senator, I do. I think that there are
    multiple indications of this impact. The first element of this
    impact is from a deterrence perspective. So there were
    indications, so I have been told, that Russia was persistent to
    engage in even more aggressive activity in 2014, and they
    stopped short because of the fear of sanctions.
        Senator Kennedy. Well, how do you know that? That is like
    saying let me tell you how many fish I did not catch on
    Saturday
    because I did not go fishing. You do not know that, do you?
        Mr. Lorber. That is a fair--I do not know that for certain.
        Senator Kennedy. It did not stop Mr. Putin from--it did not
    stop his aggression in Syria, did it?
        Mr. Lorber. No. We did not have sanctions on Russia in
    response to Syria, but that is correct. It did not stop his
    activities in Syria.
        Senator Kennedy. It did not stop him from trying to
    influence the American elections, did it?
        Mr. Lorber. I do not know--I assume it did not, no.
        Senator Kennedy. It has not stopped him from implementing a
    disinformation campaign in countries in the European Union, has
    it?
        Mr. Lorber. I think that is correct.
        Senator Kennedy. OK. What would be the most Draconian
    sanctions that the United States could impose upon Mr. Putin
    unilaterally?
        Mr. Lorber. So the United States--I am not recommending to
    do this----
        Senator Kennedy. I understand. This is just information
    gathering.
        Mr. Lorber. Yeah, sure. The United States could take a
    number of actions. It could basically shut off the Russian
    financial system from the U.S. financial system. It could order
    all of the U.S. banks to close correspondent accounts on behalf
    of Russian financial entities, which would very likely have the
    impact of crashing the Russian financial system.
        Senator Kennedy. Right. Now, you talked about--the three of
    you, any of you could answer this. I do not mean to pick on Mr.
    Lorber. You talked about Mr. Putin in response to Senator
    Sasse's questions and his net worth. He is only the tallest hog
    at the trough. There are others at the trough, right? Do we
    know where their assets are?
        Mr. Lorber. We have some indications of where some of their
    assets are in the United States. That was information that has
    been developed through FinCEN, through one of their geographic
    targeting orders. But we do not have a broad understanding of
    where their assets are.
        Senator Kennedy. But you know where some of them are.
        Mr. Lorber. We have been told that there is information
    suggesting that a lot of their assets are New York and San
    Antonio and Miami and San Francisco real estate properties.
        Senator Kennedy. And you know where some of Mr. Putin's
    assets are, do you not? Ms. Rosenberg, did you not say we could
    trace some of their assets to real estate in Europe and in the
    United States?
        Ms. Rosenberg. Well, that may have been Mr. Lorber's
    comment, but I would agree that there is a broad perception,
    backed up by certain evidence disclosed by the geographic
    targeting order from FinCEN indicating that Russian elite
    assets, not specifically Mr. Putin's, which----
        Senator Kennedy. Do you know where Mr. Putin's assets are,
    some of them?
        Ms. Rosenberg. I do not know----
        Senator Kennedy. Do you think anybody does?
        Ms. Rosenberg. Yes, I think someone does.
        Senator Kennedy. OK. What would happen if we froze his
    assets and those of his participants in the crony capitalism?
        Ms. Rosenberg. That I am not sure is--that seems to me a
    very challenging proposition, in part because----
        Senator Kennedy. Let us assume for a second we could do it.
    What would be the consequences of that in terms of the global
    economy? And in answering that, what percentage of the world
    gross national product is the Russian economy?
        Ms. Rosenberg. I can speak to the first one first. So if we
    are thinking about this hypothetical situation, the assets of
    President Putin and his close associates, what may be
    beneficially owned by them directly as well as indirectly, are
    talking about a massive amount of money. If it were possible to
    go after that, I think there would be profound collateral
    consequences across the global economy and certainly in the
    United States. This is----
        Senator Kennedy. He owns assets of that size that would
    affect the global economy if they were frozen?
        Ms. Rosenberg. What I said was his assets, both direct
    beneficial ownership as well as indirect beneficial ownership,
    and those of his associates.
        Senator Kennedy. Well, what would be the collateral
    consequences other than changing his behavior?
        Ms. Rosenberg. Well, I will set aside changing his
    behavior, but as far as the economic consequences, I think it
    would be profound probably for all large U.S. global banks
    which would be in the position of implementing such a sanction.
    It would be a compliance and liability nightmare for them, as
    well as----
        Senator Kennedy. I have got 6 more seconds, so I have to
    interrupt you. We have just been nibbling around the edges
    here. The man is, your testimony is, worth tens of billions of
    dollars. Time Magazine says he is the most powerful man in the
    world. You cannot seriously believe that nibbling around the
    edges is going to change his behavior; we either put sanctions
    on or not.
        I went over. I am sorry, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Warren.
        Senator Warren. Thank you, Mr. Chairman. And thank you all
    for being here today.
        Our intelligence community has determined that Russia
    engaged in cyber attacks on the United States to interfere with
    our election, and several members of the Trump administration
    and campaign have questionable ties to Russia. There is good
    reason to believe that President Trump himself has substantial
    financial ties to Russia, only we do not know the details
    because he will not release his tax returns.
        None of this is normal. We are not even 2 months into the
    Trump administration, and FBI counterintelligence
    investigations and congressional inquiries have already been
    launched. Senior officials were caught lying to Congress. A
    national security adviser resigned in disgrace because he
    misled White House officials and the FBI about his Russian
    ties. And in the middle of all of this, Donald Trump incredibly
    continues to consider lifting sanctions against Russia.
        Now, last week, a Senate Subcommittee held a hearing with
    Ambassadors from six European countries--Ukraine, Poland,
    Georgia, Latvia, Lithuania, and Estonia. Four of these
    countries are members of the European and the NATO Alliance.
    They are all American partners living on the front lines of
    Russia's destabilizing
    influences.
        At this hearing the Ambassadors agreed that the United
    States should not ease sanctions on Russia unless Putin
    actually makes some changes. So let me start there.
        Ms. Rosenberg, if we ignore our allies and ease sanctions
    without meaningful changes in Russia's behavior, does that
    increase
    or decrease Putin's ability to destabilize countries along its
    border, in the rest of Europe, and around the world?
        Ms. Rosenberg. Certainly that would increase it. Russia
    thrives in that kind of environment. With its information
    campaigns and its destabilization conducted through information
    and funding of political parties, we would throw our European
    allies under the bus. It would be difficult and damaging to
    transatlantic unity, which is challenging for the pursuit of
    our national interests.
        Senator Warren. Yeah, and let us start with that basic
    principle that the purpose of sanctions is to discourage and
    change bad behavior. If Russia stands firm and we drop our
    sanctions in exchange for nothing, we are just weak. So
    sanctions work better, as you note, when we coordinate with our
    allies and our partners. Right now, the United States and the
    European Union coordinate sanctions on Russia's financial,
    energy, and defense industries for invading Ukraine's territory
    and undermining its sovereignty. These sanctions have taken a
    toll on Russia's economy. The EU sanctions must be renewed
    every 6 months, and they did just that, renewing them now until
    the end of July.
        Ms. Rosenberg, is it fair to say that it is not easy for
    the European Union to keep doing this given the close economic
    ties between Europe and Russia?
        Ms. Rosenberg. Yes, I think that is fair to say and
    particularly for some more economically exposed countries than
    others.
        Senator Warren. And yet they keep doing it. Why?
        Ms. Rosenberg. For a variety of reasons. I would suggest
    that they value their unity with the United States and the
    messaging effect that this has. They want to send a clear
    signal about what it means to violate Ukrainian sovereignty.
    And notwithstanding the economic pain for them, they still
    believe that this project and the self-sacrifice economically
    is worth it for the political and strategic benefit they may
    gain.
        Senator Warren. And I understand from what you are saying
    here that one of our strongest tools against Russia is joint
    EU-U.S. economic pressure, that this is much stronger if we are
    working together. But if the United States unilaterally lifts
    its sanctions on Russia, which, of course, then encourages the
    European Union to do the same, how effective will U.S. and
    European efforts be to hold Russia accountable?
        Ms. Rosenberg. Well, it may be very difficult to
    reestablish a united transatlantic front with economic measures
    toward Russia, particularly given the nationalist political
    currents that are more prominent now than they were in 2014. So
    that is one primary problem that will be an impediment.
        Also, I would suggest that the United States and the
    European Union will lack credibility if they try and do this
    again because we look fickle if we impose and then remove,
    particularly with no behavior change on the part of Russia.
        Senator Warren. Fickle and weak. Congress must be able to
    review any attempts by this President to roll back our
    sanctions against Russia. I have cosponsored legislation that
    would do just that. We still do not know what is going on with
    this Administration's ties to Russia, but as we wait for the
    facts to come out, strong congressional oversight is needed to
    ensure that the
    President does not throw away our leverage against Russia for
    nothing. Thank you.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator
        Senator Tillis.
        Senator Tillis. Thank you, Mr. Chair. Thank you all for
    being here.
        First and foremost, I think it is an absurd notion to think
    that this Administration would act unilaterally to ease
    sanctions on Russia knowing what this President knows now. So
    that is great for talking points, great for the midnight news
    cycle, but not a practical reality. This body would probably
    vote unanimously against any of that activity, so we need to
    make it very clear that is not on the table, except for the
    political rhetoric.
        And my answer to Senator Sasse's question is Putin is as
    rich as he wanted to be. He is a totalitarian dictator who is
    putting the lives of 140 million-plus Russians at risk in terms
    of them being able to feed themselves and live a secure
    existence.
        What I think we need to talk about--look, I am all for
    projection of U.S. might, but I happen to agree right now that
    Vladimir Putin is probably the most powerful man in the world.
    He does not happen to lead the most powerful nation, but either
    legally or illegally, he can bring weapons to bear and devices
    to bear that the United States would not. And so we have to
    recognize him for what he is.
        But by the same token, we should not take the bait and
    overreact at the expense of hopefully winning the hearts and
    minds of the Russian people. Right now, the Russian people--you
    know, it is kind of difficult to figure out in the mind of
    somebody who you call up and ask what is your opinion of
    Vladimir Putin if you live in Russia. You are probably inclined
    to say you like him whether you do or not. But the reality is
    he is polling at 80 or 83 percent in terms of public opinion.
    So if we attack Putin and, I think, to use your words, Mr.
    Lorber, our response is too powerful, it could be at the
    expense of ultimately achieving what we want to achieve.
        So my question to you all is: What would be a more
    exquisite, more sustaining regimen of sanctions that--you know,
    we can talk about the money laundering, we can talk about their
    weapons laundering. We can talk about any number of
    manipulative practices that either Putin knew about or should
    have known about. We can talk about their sovereign incursions
    and everything else. But have you all thought about like an
    idealized framework, a multilateral engagement with the EU or
    NATO partners, what you would consider to be an idealized
    framework to really get to a point where you do not harm the
    individuals in Russia who are really, I think, peaceful people
    that we would like to develop a good relationship with, but
    these greedy, lawless leaders at the top, what sorts of
    regimens could we put into place that would make them start
    producing a better behavior that is to our mutual best
    interest? And in that, we talk about energy policy relating to
    sanctions making it harder for them to extract and distribute
    their natural gas in particular because there is a heavy
    reliance in Europe, and I understand that and the effect that
    it would have on our partners, which would make them
    apprehensive about going that direction. But I do believe U.S.
    energy policy can play a very important role in providing
    European nations with a choice that will make them have more
    options as we have to move forward and ratchet up sanctions.
        So in my remaining time, if you can give us an idea of--let
    us cut the politics out of this, let us get to a good,
    sustainable place in sanctions--what does that look like from
    an idealized perspective, your idealized perspective? We will
    just go down the line.
        Thank you, Mr. Chair.
        Ms. Rosenberg. Thank you for the question. I think this is
    a really important question to think about the framework and
    the strategy for an incremental and sustainable imposition of
    sanctions, escalation of sanctions.
        I would offer two principles right at the beginning, and
    the first is that sanctions should not be the only policy tool
    used to increase pressure on Russia; and, furthermore, that in
    addition to pressure on Russia economically, I would suggest
    and urge a corresponding outreach to the people of Russia to
    try and counteract along the lines that have been used in other
    sanctions programs, people-to-people exchanges, encouraging
    that to counteract the narrative that will be prominent in
    Russia, even more prominent than it is now, that these
    sanctions are meant to punish and penalize the Russian people.
        The first best step for enforcing and strengthening these
    sanctions is to further enforce sanctions already in place,
    authorities already on the books, and there is plenty of scope
    within the existing authorities. So in your capacity of
    oversight of the Administration, urging them to do things like
    add additional entities or sectors to the SSI list, further
    restrict new kinds of financial products that are restricted
    for those entities on the SSI list, and adding more names, that
    will all have an economic effect and a strong signaling and
    deterrence effect, and that is an area, apropos of Senator
    Menendez's question, where the United States can and should
    lead partners who can and should do that in addition. There are
    opportunities there for Europe along with the United States.
    After that is a good opportunity for new sanctions authorities,
    as are being considered in the Senate and the House right now.
        Chairman Crapo. Our time has expired, and we are going to
    be really tight getting through all of our Senators, so if the
    remaining two witnesses have anything to add, you could briefly
    do so, please.
        Senator Tillis. Actually, I would prefer just to defer, and
    if you would contact my office, this is particularly important
    to me. I sit on Senate Armed Services, so I would like this
    feedback. I would like to act on this, not just hear your
    comments and wait for the next hearing.
        Thank you, Mr. Chair.
        Chairman Crapo. Thank you, Senator.
        Senator Tester.
        Senator Tester. Yeah, thank you, Mr. Chairman, for holding
    this hearing, and to you, too, Ranking Member Brown. I think
    this is a critically important hearing. It is important for the
    American public and all of their elected representatives to
    remember this: Russia attacked the United States and sought to
    undermine our bureaucracy. It is not a partisan issue. It is
    not something we should be playing politics with, though I am
    increasingly concerned that we may be heading in exactly that
    direction. We all took a solemn oath to this office to defend
    our Nation from foreign threats, and we must not lose sight of
    that duty.
        Before I talk about the sanctions, I want to talk about
    where this Nation and Congress is currently. We have become far
    too
    politicized, which really threatens our national security, and
    I am troubled when I see respected voices like John McCain and
    Lindsey Graham, hear their voices fall on deaf ears of their
    leadership when they call for a bipartisan, transparent
    investigation into Russia's action. I am troubled when the
    American people are stonewalled from learning more about the
    connections between Trump's team and Russia. Just this past
    week, we had a close associate admitting that he communicated
    privately--a Trump close associate admitting that he
    communicated privately with a hacker who was believed to be a
    front for the Russian military. Before that, General Flynn lost
    his job for misleading the Vice President of the United States
    over the contents of conversations that he had with the Russian
    ambassador.
        Americans deserve an independent, transparent view of these
    types of relationships, and that will strengthen our democracy.
    Failure to do so would play into the hands of nations like
    Russia and Putin, who seek to do us harm.
        I believe that the sanctions that are in place in response
    to Russia's attacks on our democracy and aggression in Ukraine
    are a starting point, but I believe more needs to be done.
        I will cut right to the chase. We have put sanctions on a
    lot of different folks out there. I need to know from the folks
    here--and I thank you for being here, by the way--your opinion
    on what would be the impacts if we sanctioned Putin. How would
    that be viewed? Anybody can jump in on that.
        Ms. Rosenberg. I think that would be an incredibly
    aggressive step, particularly as a next step. And as I was
    suggesting in my previous comments, I think there is a range of
    appropriate steps that could and should be considered before
    then.
        There are very powerful implications of going after a head
    of state in this way that I think may not be the next step
    amongst the variety of tools that Congress should consider.
        Senator Tester. And before we get to you, you have laid out
    your steps--you do not have to do it again, but you have laid
    out the steps that this Committee should be looking at?
        Ms. Rosenberg. I have laid out a number of them in my
    testimony and would be happy to discuss them further.
        Senator Tester. OK. Go ahead.
        Mr. Lorber. I agree with Ms. Rosenberg's assessment. I
    think it would be a very aggressive action that might not have
    economic effect on Vladimir Putin, but certainly would send a
    very strong, and perhaps too strong, diplomatic signal.
        Senator Tester. OK. Good.
        Mr. Ludema. I think that, putting aside the wisdom of
    taking such an action from a political point of view, the
    economic effect of doing that would be--according to our
    research, would probably be quite negative for Mr. Putin and
    probably would not have a substantial economic effect on the
    United States or the European Union.
        Senator Tester. OK. Could you just quickly go through--and
    then I will give up the rest of my time--the steps you think we
    need to be considering, Elizabeth?
        Ms. Rosenberg. I would offer that the first of those would
    include encouraging the Administration to enforce--as well as
    EU counterparts--existing sanctions further. That may mean
    adding new entities----
        Senator Tester. OK.
        Ms. Rosenberg.----or sectors to the SSI list, restricting
    different kinds of financial services that are----
        Senator Tester. OK.
        Ms. Rosenberg. Right. And then perhaps additional
    authorities, some of which have been discussed or proposed in
    legislation before the Congress right now having to do with
    financial services and
    energy.
        Senator Tester. OK. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator.
        Senator Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman.
        You know billions and billions of dollars, if you were just
    into this for money, you would take the money and go someplace
    else. Obviously, this accumulation of Putin's is really related
    to power and continuing and maintaining power. And, obviously,
    what you get from this Committee and the discussion that we are
    having today is that sanctions on Russia do not necessarily
    curb behavior when someone is accumulating enough power that he
    can, in fact, continue to behave with impunity on the world
    stage in ways that all of us should find reprehensible,
    including the absolutely brazen attacks on our electoral
    system.
        And so we continue to be concerned about the amount of
    power that Putin has accumulated, especially given that he has
    made this seemingly in the interest of the Russian people. It
    makes this really complicated on how you deal with changing his
    behavior.
        There are two things I want to talk about. Number one is
    this sense that if we cooperate with Russia, if we turn the
    page and have a different relationship with Russia, Russia will
    be on the same page in the fight against ISIS. That was one of
    the expressed theories of this Administration going forward. I
    would like to hear your comments on whether you think that is a
    wise course, even assuming that we have the same interest as it
    relates to ISIS.
        Mr. Lorber. Do you mind if I take that first? So putting
    aside whether or not Russia would be a good partner in the
    fight against ISIS, which I know there is a lot of debate
    about, I still think it would be a mistake to trade sanctions
    for cooperation in the fight against ISIS, in large part
    because that would signal to Russia--for example, if we said,
    ``Well, you know what? We are going to drop sanctions against
    Crimea that we have imposed,'' it would signal to Russia that
    they can go ahead and continue their types of destabilizing
    activities in Eastern Europe, and it would also signal frankly
    to the rest of the world that principles of international law
    such as sovereignty are not as important to the United States
    as are other potential norms.
        Ms. Rosenberg. If I could add to that, I think it is
    important to bear in mind that the bilateral relationship we
    are talking about with the United States and Russia is very
    broad. It, of course, includes a variety of different files
    even in just the security domain. It is completely feasible to
    envision a relationship with Russia that may involve some
    element of cooperation or coordination in,
    perhaps, the Syria file where there could be some kind of
    transactional politics and agreement, and simultaneously
    envisioning in, for example, the Ukraine file a maintenance of
    current sanctions and a relationship of pressure. That was the
    case with Russia in the last Administration, for example, when
    we saw the amplification of Russia sanctions while seeing
    simultaneously coordination with Russia on the Iran file to
    remove sanctions. I think that principle of a variegated
    relationship is one we should hold forefront.
        Senator Heitkamp. We have spent a lot of time talking about
    the European Union. We have not looked much into Asia and the
    relationship that Putin has with China, that Russia has with
    China, and the opportunity that he sees right now with the
    Arctic opening up and the challenges that we have in the
    Arctic. I would like just a quick--I only have about a minute
    left, but anyone who feels comfortable talking about how we
    need to engage with China in this discussion and also what
    opening up the Arctic has meant to his potential expansion on
    energy.
        Ms. Rosenberg. Speaking to the Russia-China relationship,
    this is one in which Russia is the junior partner to China,
    which has been very aggressive with Russia in its contractual
    demands for energy, for example. It has not, as some feared it
    might, been the backfill for European and U.S. sanctions,
    providing lots of capital where it was not available from the
    United States and European Union.
        Senator Heitkamp. We want China to continue to drive really
    hard bargains.
        Ms. Rosenberg. And for that reason, this Administration and
    Congress should set a tone of communication with China rather
    than antagonism in order for China to continue to set those
    hard bargains.
        Senator Heitkamp. I am out of time, and I want to respect
    the Chairman's desire that this move along. But I did want to
    maybe follow up with you on the Arctic question. I think it is
    critical.
        Chairman Crapo. Thank you, Senator.
        Mr. Ludema. Can I just give a quick answer on that one? I
    think the ability of the Russian energy companies to take
    advantage of the Arctic is already being severely limited by
    the existing SSI sanctions because that is precisely the
    technologies that are being restricted.
        Senator Heitkamp. Thank you.
        Chairman Crapo. Thank you.
        Senator Donnelly.
        Senator Donnelly. Thank you, Mr. Chairman. I think that
    weakening sanctions against Russia is like saying that we
    support their invasion and occupation of Crimea, of Eastern
    Ukraine, of their actions in Syria, of their destabilizing
    Eastern Europe, of their attack on our election system and our
    country, and their cyber attacks as well. And so I think to
    even discuss that is astonishing to me for any Government
    officials to be talking like that.
        Mr. Lorber, the question I wanted to ask you is that you
    noted in your testimony the fact that large sums of Russian
    money have been flowing into U.S. real estate markets. Russian
    oligarchs close to Putin are likely laundering funds through a
    network of shell companies and depositing them in the United
    States through real estate investments.
        How can we work with the Financial Crimes Enforcement
    Network to discover these suspect investments and to better
    find them and to seize them?
        Mr. Lorber. Thanks, Senator. So the Financial Crimes
    Enforcement, or FinCEN, has over the past 2 years established
    geographic targeting orders which track cash payments or cash
    purchases of high-end real estate in a variety of markets, and
    that has provided FinCEN with information as to who is actually
    making these purchase. And often in cases it has turned out
    apparently to be Russian oligarchs. That is kind of the first
    step, which would be not only identifying that information but
    then having FinCEN work with the Department of Justice and with
    OFAC to identify who those individuals are, if any of those
    individuals are sanctioned entities, sanctioned persons, to
    seize those funds----
        Senator Donnelly. Have any of these real estate purchases
    been seized here in the United States?
        Mr. Lorber. Not to my knowledge, but I----
        Senator Donnelly. So why would they be hesitant to continue
    to launder their money through this if zero have been seized at
    this time?
        Mr. Lorber. So I do not have particular knowledge of where
    FinCEN is in terms of the information that they already have.
    If I had to guess, it would probably be to say that they are
    developing cases against particular individuals. But I do not
    know that.
        Senator Donnelly. I think a very cursory effort could
    provide them with about 100 quick targets throughout the United
    States, don't you? I mean, you know, the joke in New York is
    all you have to do is walk through Midtown at night, and you
    can see all of the luxury developments where, you know, floor
    after floor after floor are completely dark.
        Mr. Lorber. I agree. I think that these targets are sort of
    low-hanging fruit or ones that we probably have readily
    available to us to be the subject of enforcement.
        Senator Donnelly. So what do we have to do to get FinCEN to
    move on these?
        Mr. Lorber. Again, I do not know where FinCEN is
    specifically in terms of this process. They could be just at
    the cusp of going after them, though.
        Senator Donnelly. Well, my next question is: There are
    public reports indicating that the FBI may be investigating in
    one way or another Alpha Bank, which is a Russian bank. My
    understanding is Alpha Bank and its key stakeholders are not on
    the U.S. or EU sanctions list. Is that correct? That is for any
    of you.
        Mr. Lorber. I do not know off the top of my head. I can run
    their names through the SDN list and come back to you with an
    answer.
        Senator Donnelly. OK. Elizabeth?
        Ms. Rosenberg. I believe that is correct.
        Senator Donnelly. OK. Are any of you familiar enough with
    Alpha Bank to assess its relationship to the Russian Government
    and to the network of oligarchs tied to Putin?
        Mr. Lorber. Unfortunately, I am not, no.
        Senator Donnelly. OK. It seems the most effective sanctions
    are the ones against the financial sector. I mean, that is just
    what it seems to me. What can we do to make those sanctions
    against the financial sector more effective? If you had one
    suggestion--I just have a minute to go--I would love to hear
    each of your suggestions about what we can do to make financial
    sector sanctions more effective. You each have 20 seconds.
        Ms. Rosenberg. Broadly expand the entities targeted by SSI
    sanctions and certain of the financial products restricted to
    them.
        Mr. Lorber. Increase the OFAC and relevant European Union
    and EU member state enforcement authorities so that they clamp
    down and make sure that no sanctions violations are occurring.
        Mr. Ludema. Well, you could ban holding of existing paper
    rather than just new issues of paper.
        Senator Donnelly. OK. Thank you all, and I just want to say
    one other thing, Mr. Chairman. I want to thank Adam Szubin for
    his service to this country over the years. He did an
    extraordinary job at great sacrifice to his family, and we are
    much safer and better off because of his efforts.
        Chairman Crapo. Thank you, Senator.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. I want to
    thank all the witnesses. My State of Maryland is home to the
    U.S. Cyber Command, and I think we all know that cyber attacks,
    cyber warfare, cyber interference is sort of the new dimension
    of international conflict. So I just have a few questions with
    respect to how we can use sanctions to deter that kind of
    interference. We see it, of course, on the commercial side as
    well as on the political side.
        On the commercial side, my understanding is that the
    Department of Justice actually just announced that it is going
    to indict two Russian Government officers for the cyber
    hacking, wire fraud, and trade secret theft regarding Yahoo's
    breach of about 500 email accounts. That has obviously been an
    ongoing investigation. Under President Obama, we also had the
    sanctions targeted against certain Chinese individuals who were
    engaged in cyber theft.
        But I want to just focus for a second on using sanctions
    with respect to cyber interference for political purposes. We
    have all talked about how the Russians interfered in our
    elections. There is no dispute about that. They use cyber, they
    use fake news. They did it to support Donald Trump's candidacy.
    That is the unanimous verdict of our intelligence agencies. And
    we also know they are doing it on an ongoing basis to interfere
    in the elections of our European allies--France, Germany--and
    we are going to get the results later today of the Netherlands
    elections. And they are doing it for the purpose of trying to
    undermine cohesion in the NATO Alliance, trying to undermine
    the European Union, because they want to encourage these
    nationalist sentiments that try to disrupt the unity that has
    been the cornerstone of our defense and our economic
    relationship. So we know what their strategy is.
        My question is--and I could not agree more with my
    colleagues that not only should we make sure we pass
    legislation to prevent the rolling back of any sanctions
    currently in place by the United States and others, but I think
    we also need to join with our
    European partners to respond with sanctions to the interference
    in our elections, these cyber attacks.
        My question for all of you is: What do you think the
    appetite of our allies would be to ratcheting up sanctions
    against Russia
    specifically for their interference in our elections through
    cyber attacks and interference and hacking? And how would we
    best go about doing that, persuading our European partners that
    it is in our collective security and economic interest to do
    that?
        Ms. Rosenberg. Thank you for the question. In answering
    this, I want to step back for a second and say I think that
    there would be appetite in Europe and here to use policy
    instruments to
    respond to malicious cyber activity. However, in the framework
    of cyber deterrence, I would suggest that these are still very
    early days, and the development of a broad strategic doctrine
    for cyber deterrence may take decades, as it did for nuclear
    deterrence during the cold war. And there are no set rules of
    the road or a concrete escalation ladder for deterrence. And
    once those are in place, there will be an opportunity to
    discuss in more specific terms which measures would be amenable
    or advisable for European colleagues as well as in the United
    States.
        However, I would just say in this hybrid warfare, including
    cyber activity and others, there is certainly a place for
    sanctions amongst other tools.
        Mr. Lorber. I agree with Ms. Rosenberg. I think the first
    step here is deciding for ourselves what the rules of the road
    are, and then once we have made that decision, then we target
    actors in a public way that we feel step outside those bounds.
    And the sanctions for cyber activity in many cases may not have
    as much of an economic pinch as they do sort of a symbolic
    deterrence effect. And so I think that making sure that we have
    established those rules first will send clear signals to our
    adversaries that this activity is outside the bounds of what we
    consider to be acceptable.
        Mr. Ludema. We have already identified quite a number of
    cyber companies and individuals associated with the cyber
    attacks and singled them out for sanctions. I would say that we
    would need to continue to find them and continue to sanction
    them.
        What our analysis shows is that when you impose blocking
    sanctions upon these individuals, it does have a significant
    effect and will degrade their ability to conduct further
    action.
        Senator Van Hollen. Thank you. I think that the
    prosecutions we brought against the Chinese actors certainly
    helped establish the U.S.-China cyber agreement. So I
    appreciate your testimony. I know time is limited, but I look
    forward to following up with you. Thanks.
        Chairman Crapo. Senator Cortez Masto.
        Senator Cortez Masto. Thank you. Thank you, Mr. Chair. I
    appreciate the opportunity to participate in this important
    discussion. Thank you to the panelists. I apologize for my
    tardiness. I have a competing Commerce Committee meeting going
    on at the same time. But thank you for the discussion, and I
    have had the opportunity to review your written testimony as
    well.
        Let me turn to the G-7. As we all are aware, Russia was
    suspended from the G-8 after their incursion into Crimea in
    disregard for international law. Has Russia's suspension from
    the G-8 had any meaningful impact on their economy, their
    security, or their influence? And I am going to open that up to
    the panel. And then along with that, what can the coalition of
    G-7 countries do to be most effective in influencing Russia to
    abide by international norms and the laws moving forward?
        Ms. Rosenberg. I can start. I think that it may be
    difficult to disaggregate the effect of removing Russia from
    the G-8 from other effects taken effectively and
    simultaneously, including sanctions, U.S. and EU sanctions, and
    a reinvigoration of NATO with respect to the Russia threat.
    However, I think that a primary effect of this removal had to
    do with signaling and the message that it sent to Russia and
    the global community about the interest of this group in
    holding to norms, particularly global norms, sovereignty, and
    what it means for Russia to no longer be welcome in that group
    of nations holding these norms.
        Senator Cortez Masto. Thank you.
        Mr. Lorber. I agree. Thank you for your question. And I
    think that the primary thing that the G-8, now G-7 could do is
    offer as a carrot for Russia's reintegration in the case is
    that Russia fulfills its obligations laid out under Minsk or
    reduces its cyber activities, et cetera. So I think that is a
    very serious carrot that we can offer.
        Senator Cortez Masto. Thank you.
        Mr. Ludema. Yeah, I would say that it was a political move
    and not an economic one. I do not think that there is a great
    deal of economic benefit per se to being part of the G-8 or G-
    7, despite the fact that it is an important body for
    coordinating economic policy.
        Senator Cortez Masto. No, and I agree, it is a symbolic
    move, like the hearing we are having today I think is a
    symbolic move that is important for the United States.
        You have also discussed expanding sanctions or improving on
    the current sanctions regime in some way. And while there
    certainly must be repercussions for Moscow's actions and they
    cannot be allowed to act with impunity, how is this not just
    more of the same? In other words, what in Putin's behavior or
    in Russia's current standing makes you believe that this will
    produce any of the behavioral changes we are seeking from
    Moscow?
        Ms. Rosenberg. I do not think it is redundant to engage in
    the active reaffirmation of principles, particularly when
    political circumstances change, including in the United States
    and in Europe. So reaffirmation of the posture toward Russia
    and condemnation of its aggression and foreign adventurism has
    political and messaging merit, and it may have economic effect
    as well. So I see it more as a reaffirmation rather than
    redundancy.
        Mr. Lorber. And I think there is some indication--as I was
    speaking about with Senator Kennedy, there is some indication
    that the sanctions have had an impact on Russian
    decisionmaking. So, for example, you see Vladimir Putin and
    Foreign Minister Lavrov coming out on fairly regular occasions
    saying, ``We want to get the EU sanctions off of us; we want to
    get the U.S. sanctions off of us. They must be pulled down.''
    And so I do think to an extent it is impacting their choices.
        Senator Cortez Masto. OK.
        Mr. Ludema. I would say that standing pat is not the same
    thing as standing still. The existing sanctions that we have,
    particularly the SSI sanctions, will tighten over time as more
    companies roll over their debt, as the Russian energy companies
    are forced to move out of conventional drilling and into more
    exotic drilling. These things are going to slowly and
    systematically degrade the long-term growth prospects for the
    Russian economy. So I do not think that we should think that
    just because we have not imposed new sanctions up to this point
    that these sanctions are not going to have a continued effect.
        Senator Cortez Masto. Thank you. My time is running out,
    and I just want clarification on one thing you were talking
    about, Financial Crimes division, FinCEN. And as the Attorney
    General of Nevada, I had the opportunity to work with them. So
    let me just clarify. It was not that you were saying they were
    not taking action with whatever information they are gathering
    with respect to real estate purchase by Russian oligarchs,
    correct?
        Mr. Lorber. That is correct.
        Senator Cortez Masto. You just do not know of the action.
        Mr. Lorber. That is absolutely correct. I do not know what
    action they are taking, but I do not----
        Senator Cortez Masto. That does not mean they are not
    taking that action----
        Mr. Lorber. That is correct.
        Senator Cortez Masto.----as a body that gathers that data
    and working with those law enforcement agencies, correct?
        Mr. Lorber. That is correct, Senator.
        Senator Cortez Masto. Federal law enforcement. Thank you. I
    appreciate it. Thank you so much for the comments today.
        Chairman Crapo. Thank you very much, Senator. And I want to
    thank all of our Senators and our witnesses for following the
    time. We made it almost by 5 minutes to 12. We just ran over a
    little bit.
        To our witnesses, I want to say thank you again also for
    coming. I do ask that you respond promptly to questions that
    you will receive from the Senators who have 7 days to submit
    follow-up questions to you. You have been very helpful to us.
        When I hit the gavel, I am going to be heading out the door
    fast because I am already late to another meeting. But once
    again, we appreciate this. It is a critical issue, and we will
    be working together to try to move forward on making sure that
    we develop the right policy for this country.
        This hearing is adjourned.
        [Whereupon, at 12:01 p.m., the hearing was adjourned.]
        [Prepared statements and responses to written questions
    supplied for the record follow:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                 PREPARED STATEMENT OF RODNEY D. LUDEMA, Ph.D.
       Associate Professor, School of Foreign Service and Department of
                        Economics, Georgetown University
                                 March 15, 2017
    Introduction
        Chairman Crapo, Ranking Member Brown and distinguished Members of
    the Committee, thank you for the opportunity to testify at today's
    hearing assessing U.S. Sanctions on Russia. My name is Rodney Ludema,
    and I am a professor of economics at Georgetown University. Earlier
    this year, my co-author Daniel Ahn and I published a report titled,
    ``Measuring Smartness: Understanding the Economic Impact of Targeted
    Sanctions,''\1\ and I would like to take the opportunity to share some
    of its conclusions.
    ---------------------------------------------------------------------------
        \1\ The public link to the report can be found at https://
    www.state.gov/documents/organization/267590.
    ---------------------------------------------------------------------------
        As you know, Russia's intervention in Ukraine in early 2014
    prompted the United States and the European Union to impose series of
    ``smart'' sanctions--sanctions against specific individuals and
    companies, primarily in Russia and Ukraine. The sanctions began in
    March 2014, and the list of targets has grown steadily, now affecting
    several hundred companies explicitly and thousands more by association.
    Our study seeks to understand just how ``smart'' these sanctions have
    been in practice. That is, have they hit the intended targets with
    minimal collateral damage? We find that, with a few notable exceptions,
    the sanctions have inflicted significant damage on the intended
    targets, with relatively little short-run impact on the overall Russian
    economy.
    Smart Sanctions in Context
        While broad economic sanctions and trade embargoes have long been
    used as instruments of foreign policy, targeted sanctions focusing on
    specific individuals, companies, and transactions are relatively new.
    They are an outgrowth of a recognition that the effectiveness of an
    economic sanction in gaining compliance from a target government does
    not depend on the overall economic damage the sanction causes but on
    whether the target government itself and its key domestic
    constituencies feel the economic pain from noncompliance. Thus,
    sanctions are considered ``smart'' if they target responsible parties
    while minimizing collateral damage. For this reason, assessing the
    smartness of targeted sanctions on Russia is essential to assessing
    their efficacy.
        Clouding the picture, however, is the fact that the conflict in
    2014 roughly coincided with a series of powerful macroeconomic shocks,
    especially a dramatic decline in the price of oil (Russia's main
    export), which jolted both the Russian and world economies. The Russian
    economy slowed dramatically in 2014 and entered recession in 2015. This
    makes it difficult to determine with the naked eye whether the poor
    economic performance of a sanctioned company is due to sanctions or to
    the broader economic problems of the country. Likewise, it is difficult
    to determine whether the broader economic problems of the country are
    due to the oil shock or to collateral damage from sanctions.
        The difficulty inherent in attributing Russia's poor economic
    performance following sanctions to a single cause has allowed for a
    wide range of conflicting claims regarding the economic costs of the
    sanctions to Russia and to neighboring economies. Opponents of
    sanctions, in particular, claim that sanctions have caused little pain
    to the specific targets, while inflicting untold economic damage on the
    Russian people and on neighboring countries (principally members of the
    European Union).
    Effects on Sanctioned and Associated Companies
        The first part of our study examines whether the sanctions impacted
    the intended targets. We assemble all companies listed on the Specially
    Designated Nationals and Blocked Persons (SDN) List and Sectoral
    Sanctions Identifications (SSI) List, along with all companies
    associated with individuals on the SDN list. Together with overlapping
    targets from a similar set of sanctions by the European Union, this
    comprises 584 unique targets. (In continuing research, we have also
    considered some 2,000 subsidiaries of these targeted companies and
    found similar results.)
        Our method is to compare the performance of sanctioned companies to
    that of nonsanctioned peer companies before and after the sanctions
    were imposed. As sanctioned and nonsanctioned companies all face the
    same macroeconomic environment, comparing the two groups is a way to
    isolate the effect of sanctions. Our main
    finding is that sanctioned companies are indeed harmed by sanctions
    relative to their nonsanctioned peers. On average, a sanctioned company
    loses an estimated:

        one-third of its operating revenue

        over one-half of its asset value

        about one-third of its employees

    after being targeted compared to nonsanctioned companies. These
    estimates, which are large and appear highly statistically robust,
    suggest targeted sanctions do have a powerful impact of the targets
    themselves.
        Beyond the broader strategic implications, these sanctions may
    therefore be tactically impairing the ability of the Russian Federation
    through these companies to further the illegal annexation of Crimea and
    the ongoing crisis in Eastern Ukraine.
    Macroeconomic Impacts
        The second part of our study examines collateral damage. In
    particular, we consider the impact the sanctions have on Russian GDP
    and on its imports from the European Union. In contrast to the firm-
    level approach, it is not possible to cleanly separate out the effect
    of sanctions from the effect of other macroeconomic factors in the
    aggregate analysis. Instead, we pose a much simpler question: How much
    of the post-sanction performance of the Russian economy can be
    explained either directly or indirectly by falling oil prices?
        The world oil price (Brent) fell from over $100 in 2013 to under
    $60 by the end of 2014, and declined further in the second half of
    2015. A common rule of thumb for oil exporters suggests a $40 drop in
    the world price of oil should shrink energy-dependent Russia's GDP by 4
    to 5 percent. Indeed, we find that the oil price change explains the
    vast majority of the decline in Russia's GDP and import demand, with
    very little left to be explained by sanctions or other factors. We
    conclude that either sanctions had only a small negative effect on
    Russia's GDP or other positive factors largely canceled out the effect
    of sanctions.
        There is good reason to believe that sanctions have had only a
    small negative macroeconomic effect in the first 2 years of their
    imposition. By far the largest companies on the sanctions list (energy
    companies, banks and defense companies, which make up a large fraction
    of the Russian economy) were not subject to blocking sanctions. Rather,
    they were subject to limitations on long-term borrowing and new
    technologies that, by design, should have a delayed effect. The reason
    for this design was to mitigate the potential negative impacts on U.S.
    companies and those of our allies.
        As for positive factors that may have countered the effect of
    sanctions, the most plausible candidate factor would be the Russian
    policy response. Notable policy responses were the large depreciation
    of the Ruble in 2014, and government bailouts certain ``strategic''
    firms. The government of Russia designates certain firms as strategic
    because of their economic and national security importance to be
    prioritized to receive state largess in the form of state loans
    guarantees, capital participation, more government contracts, and tax
    breaks. It is important to note that such policy responses are costly
    to the Russian government, and thus this constitutes an indirect avenue
    by which the sanction effect is felt.
        Finally, we find that sanctions have had a small effect on the
    economies of most EU countries. Adding together the impacts of
    sanctions and Russia's agricultural countersanctions on EU exports
    gives a median impact across EU countries of just 0.13 percent of GDP
    (though with considerable variation across the EU members). The reasons
    for this are: (1) Russia generally accounts for a small share of total
    EU countries' exports; and (2) most of the decline in Russian imports
    is explained by lower oil prices and trend factors.
    Conclusions and Implications for Future Sanctions
        Economic sanctions are meant to signal international disapproval,
    deter further aggression, and create leverage in negotiations with the
    targeted country aimed at reversing the offending policies. Whether the
    current set of sanctions against Russia will ultimately accomplish
    these goals is unknown, but good sanctions design gives the United
    States and its allies the best chance of success.
        History teaches that sanctions are most effective when they are
    multilateral,
    sustainable, focused, and clearly contingent on an achievable goal. The
    current sanctions on Russia were designed with these principles in
    mind. While not fully multilateral, they include the European Union,
    which is a region of great importance to the Russian economy. They were
    designed to cause minimal collateral damage in the short term and thus
    have proven sustainable so far. Our study largely confirms the success
    of this design element. Any new sanctions, if targeted at the broader
    Russian economy, could easily cause collateral damage and thus should
    be approached with caution. The current sanctions were designed to
    focus their impact on the companies and individuals involved furthering
    Russia's illegal annexation of Crimea and ongoing Ukraine policy. Our
    study largely confirms the success of this design aspect as well. Any
    new sanctions targeting different policies should be similarly
    targeted.
        Finally, current sanctions are contingent on certain Minsk II
    milestones, and while they have yet to be reached, they are clear.
    Sanctions policies that tie the hands of negotiators in such a way as
    to prevent achieving the goal should be
    avoided.

      RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY FROM ERIC B.
                                 LORBER

    Q.1. Following the imposition of sanctions, many Russians may
    have believed that sanctions were a cause of Russia's economic
    downturn. How could sanctions be better targeted to restrict
    Russia's capabilities without encouraging anti-American
    sentiment?

    A.1. Sanctions that focus on Russian President Vladimir Putin
    and his cronies' corruption could be particularly effective at
    putting pressure on Russia while not encouraging anti-American
    sentiment.
        President Vladimir Putin is adept at manipulating state-
    controlled media sources to put the blame for Russian's
    economic struggles squarely on Western sanctions. While
    factually untrue, large swaths of the Russian population
    believe the United States is the cause of the economic anguish
    they feel. Additional, broad-based sanctions that target
    Russia's economy or particular sectors within that economy
    (such as sectoral sanctions) may exacerbate this problem, and
    while putting additional pressure on Vladimir Putin, may also
    increase anti-American sentiment within Russia.
        Sanctions--and sanctions-like tools--could be better
    targeted to pressure Russia's elites and ruling class while
    limiting the impact on the Russian population more generally.
    One way to do this--as I mentioned in my written testimony--
    would be to identify, track, and as appropriate, seize assets
    of sanctioned Russian elites in the United States and in
    certain foreign jurisdictions.
        Russian oligarchs are well known to launder money coming
    out of Russia through high-end real estate purchases in urban
    centers, often paying cash for these properties. Recently, the
    Financial Crimes Enforcement Network at the United States
    Department of the Treasury has collected information related to
    high-end real estate purchases by anonymous parties through its
    recent Geographic Targeting Order.\1\ It is widely believed
    that FinCEN's information collection has produced substantial
    relevant information on these flows and where some of these
    individuals' assets are. Identifying these assets in the United
    States and partner jurisdictions (such as the United Kingdom,
    where Russian oligarchs have purchased large amounts of luxury
    real estate in London) and seizing them if necessary (e.g., if
    they belong to designated Russian persons) could put additional
    pressure on individuals within Vladimir Putin's circle of
    cronies in ways that would not directly impact common Russians.
    ---------------------------------------------------------------------------
        \1\ See, e.g., ``FinCEN Renews Real Estate `Geographic Targeting
    Orders' to Identify High-End Cash Buyers in Six Major Metropolitan
    Areas,'' Financial Crimes Enforcement Network Press Release, Feb. 23,
    2017, available at https://www.fincen.gov/news/news-releases/fincen-
    renews-real-estate-geographic-targeting-orders-identify-high-end-cash.
    ---------------------------------------------------------------------------
        An additional benefit of such action would be that it
    directly plays into one of the primary grievances ordinary
    Russians do have against the Putin government and Russia's
    oligarchs more broadly: corruption. As recent street protests
    have illustrated, significant elements in Russia are frustrated
    with the substantial level of corruption at the highest levels
    of government.\2\ To the extent that U.S. sanctions and
    sanctions-like measures focus on the Russian elites' corrupt
    activities, they will in turn be less likely to produce anti-
    American sentiment. Congress should therefore consider focusing
    its legislative authority on measures--such as setting up a
    Russian corruption task force at FinCEN--that target Russian
    corruption and that freeze illicit Russian assets in ways that
    hurt the bank accounts of key Russian oligarchs. While such a
    task force would put pressure on Putin and his cronies,
    Congress should remain clear eyed that such measures--while
    powerful--would be unlikely to change Russian activity if not
    situated as part of a well-developed strategy using all means
    of U.S. statecraft.
    ---------------------------------------------------------------------------
        \2\Andrew Higgins, ``Aleksei Navalny, Top Putin Critic, Arrested as
    Protests Flare in Russia,'' New York Times, Mar. 26, 2017, available at
    https://www.nytimes.com/2017/03/26/world/europe/moscow-protests-
    aleksei-navalny.html?_r=0.
    ---------------------------------------------------------------------------
                                    ------

      RESPONSE TO WRITTEN QUESTION OF SENATOR TILLIS FROM ERIC B.
                                 LORBER

    Q.1. Can you please outline what a sustained regimen of Russia
    sanctions might look like. I am interested in your opinions on
    what an idealized sanctions framework looks like, one where the
    United States potentially has a multilateral engagement with EU
    or NATO partners, so that we move toward a goal of isolating
    Russian leaders (oligarchs? Putin's cronies?) and bad actors as
    opposed to harming innocent Russian civilians. What concrete
    policies could the United States put in place that would make
    Russian leaders start to produce a mutually beneficial behavior
    over the long term? How does U.S. energy policy influence the
    ability of the United States and other nations to exercise
    effective sanctions?

       LPlease outline a framework and strategy for
            exercising and implementing incremental and sustainable
            sanctions, and what other policy tools should be used
            to couple sanctions. At what point is an escalation of
            engagement appropriate? What are the next steps when
            sanctions and other diplomatic avenues in controlling
            malign activities? How do you counteract negative
            messaging about sanctions in Russia--to win the hearts
            and minds of individuals in Russia?

    A.1. One of the core tenets of a sustainable sanctions program
    to effectively pressure Russia is close U.S. and EU
    cooperation. The EU sanctions have been instrumental in
    ensuring that Russia cannot offset much of the economic pain
    imposed by U.S. sanctions. To the extent that the United States
    and European Union can continue to closely coordinate their
    sanctions programs, those programs will be more effective. Any
    new U.S. sanctions should--at the very least--take into account
    whether the European Union will be willing to join with its own
    regulations.
        With that as background, an idealized sanctions program is
    one that gradually ramps up the pressure on Russia and in
    particular on Russian oligarchs and cronies, specifically by
    targeting their
    corrupt activities. Such gradual pressure--where the United
    States tightens the vice slowly but deliberately--will be
    significantly more likely to achieve EU buy-in than a fast,
    powerful escalation of sanctions (such as imposing broad import
    restrictions on Russian energy products). Likewise, such
    gradual and deliberate pressure can help U.S. diplomats make
    the case for additional sanctions; if Russia refuses to change
    its behavior as a result of limited escalation, the United
    States can argue to our European counterparts that more means
    are necessary.
        My written testimony lays out a number of options for
    incrementally increasing the pressure on Moscow, and I
    reproduce them at a high level here:

       LThe codification of certain executive orders
            (``EOs''), including EOs 13660, 13661, 13662, 13685,
            and 13694, as well as additional statutory designations
            under these codified EOs;

       LEstablishment of a task force, potentially led by
            the Financial Crimes Enforcement Network (``FinCEN''),
            to identify and seize assets of targeted Russian
            persons, including those with close ties to Russian
            President Vladimir Putin;

       LCertain restrictions related to U.S. and European
            financial institutions' purchase or facilitation of
            Russian sovereign debt, which has been a way for Russia
            to prop up Russian state-owned enterprises and
            financial institutions in the face of
            sectoral sanctions; and

       LPrimary sanctions on elements of Russia's oil and
            gas industry, with possible carve-outs for certain
            countries particularly dependent on the Russian energy
            sector.

        Note that, as I explain in my response to Senator Toomey's
    question above, the FinCEN task force and its focus on Russian
    corruption may be the tool least likely to engender anti-
    American sentiment. Most of the more powerful sanctions options
    will likely have macroeconomic effects on Russia's economy, and
    Putin will be more able to use them for propaganda purposes.
        In terms of coupling sanctions with other policy tools,
    these economic measures must be nested in a larger strategy of
    pressuring Moscow, including aggressive diplomacy and
    responding in kind to malign Russian activities such as
    offensive cyber operations. Sanctions are a means to an end,
    and Congress and the Administration must be clear as to what
    that end is and how they intend to achieve it. Ramping up
    economic pressure on Moscow without clear objectives, the
    employment of other coercive tools, and buy-in from the
    Administration--is unlikely to be effective in getting Moscow
    to change its behavior. While it imposes sanctions, the United
    States should be actively combating Russian aggression in cyber
    space, for example.
        Finally, Congress should think through how it can unwind
    sanctions pressure in the case that Moscow--even partially--
    changes its behavior. Current sanctions bills, including the
    Counteracting Russian Hostilities Act of 2017 (``Counteracting
    Russian Hostilities Act''),\1\ ramp up the pressure on Russia
    significantly. Yet, as we have learned over the past few years,
    unwinding sanctions can often be a difficult and fraught
    process, and Congress should think about how and when it will
    unwind sanctions even as it builds pressure. Any such new
    sanctions legislation should include built-in ``off-ramps''--
    namely elements of the sanctions regime, such as specific
    designations or specific Directives--that could be undone in a
    situation of partial Russian compliance with its various
    obligations, such as those under the Minsk agreements. Such
    partial sanctions relief could be traded for Russian
    fulfillment of these obligations, and this approach would
    increase the chances the United States could limit--though not
    completely eliminate--Russian challenges to U.S. interests. I
    have explained how to construct a sanctions framework that
    focuses on ``smart unwinding'' in my written testimony.
    ---------------------------------------------------------------------------
        \1\ S. 94, ``Counteracting Russian Hostilities Act of 2017,'' 115th
    Cong. (2017).