[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

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
                                
   [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                             


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

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
25-434 PDF                  WASHINGTON : 2017                     
          
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). 
E-mail, [email protected].             
                 
                 


            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).