[Senate Hearing 115-378]
[From the U.S. Government Publishing Office]












                                                        S. Hrg. 115-378


                 COUNTERING RUSSIA: ASSESSING NEW TOOLS

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

                                HEARING

                               before the

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING A LIST OF POTENTIAL POLICY RESPONSES TO RUSSIA DRAWN FROM 
     VARIOUS SPHERES, INCLUDING TRADE, LAW ENFORCEMENT, MILITARY, 
                 CYBERSECURITY, ENERGY, AND FOREIGN AID

                               __________

                           SEPTEMBER 12, 2018

                               __________

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



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                Available at: https: //www.govinfo.gov/








                                  ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

32-665 PDF                     WASHINGTON : 2019 

















  
            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
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

        John O'Hara, Chief Counsel for National Security Policy

                      Kristine Johnson, Economist

            Laura Swanson, Democratic Deputy Staff Director

               Colin McGinnis, Democratic Policy Director

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                     James Guiliano, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)




















                            C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 12, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    26

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     3
        Prepared statement.......................................    27

                               WITNESSES

Leon Aron, Resident Scholar and Director of Russian Studies, 
  American Enterprise Institute..................................     4
    Prepared statement...........................................    28
    Responses to written questions of:
        Chairman Crapo...........................................    41
Elizabeth Rosenberg, Senior Fellow and Director, Energy, 
  Economics, and Security Program, Center for a New American 
  Security.......................................................     6
    Prepared statement...........................................    30
    Responses to written questions of:
        Chairman Crapo...........................................    42
        Senator Reed.............................................    44
        Senator Tester...........................................    45
Daleep Singh, Senior Fellow, Atlantic Council, and Adjunct 
  Professor, Johns Hopkins University............................     8
    Prepared statement...........................................    36
    Responses to written questions of:
        Chairman Crapo...........................................    46
        Senator Reed.............................................    49

                                 (iii)

 
                 COUNTERING RUSSIA: ASSESSING NEW TOOLS

                              ----------                              


                     WEDNESDAY, SEPTEMBER 12, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 2:31 p.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.
    Let me begin by thanking our witnesses for agreeing to 
testify this afternoon and to help the Committee gain a better 
understanding of what might motivate the Russian Federation's 
President Vladimir Putin to change his present dangerous and 
destabilizing course.
    Further to the Administration's commitment to protecting 
our Nation's elections from foreign interference, the White 
House announced this morning a new Executive order, based on 
its finding that the ability of foreigners to interfere in U.S. 
elections is an unusual and extraordinary threat to the 
national security of the United States.
    The Executive order is entitled, ``Imposing Sanctions in 
the Event of Foreign Interference in a United States Election'' 
and requires the Director of National Intelligence to analyze 
and report on foreign Government actions, the AG and Homeland 
Security to report on whether or not the election was 
materially affected by any foreign interference, and then 
requires the Secretaries of Treasury and State to impose 
whatever sanctions they determine appropriate. A little bit 
later, I am sure we may want to know what the impression of 
this is from our witnesses.
    Today the Committee meets for the third time in as many 
weeks on the subject of Russia and President Putin's 
aggressive, malign activities directed against the United 
States, its allies, and spheres of influence.
    The hearings we have held so far have centered on the 
implementation status and the economic and political 
effectiveness of the existing sanctions architecture on Russia, 
including an assessment of the Countering America's Adversaries 
through Sanctions Act of 2017, or ``CAATSA'', as it is now 
known, and the Administration's use of its own authorities to 
sanction Russia.
    In the course of those hearings, the Committee also 
explored the potential for expanding on the existing set of 
sanctions authorities in order to amplify the economic effects 
on Russia sufficient to cause a change in Putin's behavior and 
strategic calculus.
    In our first hearing, we asked Administration officials 
drawn from the Departments of Treasury, State, and Homeland 
Security to testify on the question of whether or not the 
implementation of existing sanctions against Russia are working 
to deter or otherwise change Putin's behavior or strategic 
calculus with regard to the Kremlin's complete lack of regard 
for sovereign territorial integrity and independence of 
democratic institutions.
    The Administration has sanctioned over 230 individuals and 
entities for violations of congressional and Administration 
sanctions authorities, and further reported that it was 
stepping up its efforts to defend our Nation's critical 
infrastructure and aggressively support State and local efforts 
to secure the 2018 U.S. midterm elections.
    Those targeted include the heads of major State-owned banks 
and energy companies, many of Putin's closest associates or 
oligarchs, and several Russian actors for interference in the 
2016 elections.
    On the issue of electoral interference, the Homeland 
Security official reported that malicious cyberoperations are 
not just State-run, not just run by a single actor, and remain 
one of the most significant strategic threats to the United 
States.
    In our second hearing, a panel of outside experts testified 
on the same question as the Administration, offering their own 
views on the need for the Administration to have a cohesive 
Russia strategy and implement CAATSA fully, while Congress 
considers enacting new sanctions legislation.
    The Committee received testimony from the outside experts 
on the need for new, increased sanctions, since Russia has 
adapted itself to the current round of sanctions and, in fact, 
its economy has developed a resilience to the sanctions imposed 
by the United States and Europe.
    As Rachel Ziemba explained in her testimony from our last 
hearing, ``Russia's economy may not be thriving, but it is 
surviving.'' And many analysts believe that situation can exist 
for a long time.
    Yet we also received testimony from each witness that a 
serious amplification of sanctions is fraught with the 
potential for unacceptable blowback against the United States 
and European interests and our interests in the Middle East and 
Asia, unless carefully constructed and tied to specific 
behaviors while appropriate discretion and off-ramps are 
carefully tailored.
    Sanctions alone are no silver bullet and do not guarantee 
quick reversals of undesirable behaviors no matter how 
draconian the sanction, especially since the more draconian the 
sanction, the more difficult multilateral participation and 
enforcement become.
    It stands to reason then that new sanctions must at least 
be accompanied by other tools to constrain a large Nation like 
Russia and deter a ruler like Putin from future malign 
activities.
    I look forward to a broader discussion this afternoon on 
resisting Putin's aggression from a broader range of 
geoeconomic and strategic policy options available to the 
United States and its allies.
    In addition to the sanctions discussed in our previous 
hearings, what other proposals should Congress and the 
President be considering to reach a desirable outcome with 
Russia? How susceptible to domestic unrest is Putin's regime? 
How important is it that the United States and Europe support 
each other's Russia strategy, and what would that have to look 
like?
    We must, as a Nation, find that prescription for sanctions 
and other measures that break the factors contributing to a 
Russian resilience to economic sanctions and put real pressure 
on Putin to change his map for Kremlin hegemony.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, for calling this 
hearing and our earlier hearings on the impact of Russia 
sanctions and what we might do to bolster them and to encourage 
the Administration to do its job.
    We are joined by a distinguished panel of witnesses. I look 
forward to hearing from the three of you. Thank you.
    We will hear some new ideas--sanctions and nonsanctions 
tools alike--that might be more aggressively deployed to 
counter Russian aggression.
    This may include new sovereign debt and energy sanctions, 
transparency and anticorruption measures to combat Russian-
generated money laundering through U.S. real estate 
transactions and offshore sources; and other measures to combat 
Russian illicit finance risks, or even to codify limits on 
Russia's access to World Bank and other international financial 
institution resources.
    Our last hearing made clear that additional transparency 
would hit Russian elites where it hurts--in their pocketbooks, 
including their multimillion-dollar Manhattan and Miami condos.
    As we have heard in prior hearings, there is little 
disagreement that while sanctions have had some effect on 
Russia's economy, they are not having much effect on Putin's 
decision making.
    Russian abuses in Crimea and Eastern Ukraine, Syria, and 
here in the U.S. against our elections and other critical 
infrastructure are common knowledge.
    Just this week, reports surfaced that the Russians may be 
behind the attacks on the health of our personnel in Cuba. They 
are supporting Assad's efforts to overtake the holdout province 
of Idlib, potentially with the use of chemical weapons, just as 
they have so brutally used barrel bombs against civilians 
there. With over 3 million refugees and other civilians trapped 
by intensified bombing, the U.N. has described Idlib as 
``potentially the largest humanitarian catastrophe of our new 
century.''
    Russian aggression continues unchecked here. During our 
hearings, no one on this Committee has challenged established 
conclusions of fact by the U.S. intelligence community about 
Russia's involvement in ongoing attacks against our elections 
and our infrastructure.
    And as our witnesses observed last week, we have to quickly 
resolve the growing tension between what military, 
intelligence, diplomatic, sanctions, and other professionals in 
the U.S. Government are doing to punish and deter Russia and, 
conversely, too often what the President is saying and doing.
    Our Government must speak with one voice. The President 
should make clear how he will use CAATSA to forcefully respond 
to Russian attacks and actually use the Executive order being 
issued today to sanction Russian actors found responsible for 
attacks directed at the midterms.
    But as Ms. Rosenberg points out in her written testimony, a 
permissive--and underwhelming, my word--Executive order on 
election meddling is no substitute for further congressionally 
mandated actions and sanctions.
    An order which effectively permits but does not 
automatically require sanctions for continued illegal Russian 
attacks on our democracy will not substitute for mandatory 
sanctions required by law and should not be used to preempt or 
slow building congressional momentum on new legislated Russia 
sanctions.
    We should work with our allies on this rather than alienate 
them. Putin would like nothing more than to drive division 
between the United States and Europe and amongst the Nations of 
Europe. He seems to be having that help from the executive 
branch here. Europe can contribute more to NATO, as it 
committed to do in 2014 and has been doing since.
    Today, September 12th, marks the day 17 years ago that NATO 
invoked Article 5, committing to take action alongside the U.S. 
if those responsible for 9/11 were identified. Isolation is a 
poor foreign or national security policy--then or now.
    The same spirit of unity that marked our response in the 
weeks and months after 9/11 should also infuse our response to 
Russian attacks on our Nation's infrastructure and on our 
democracy.
    Thank you Mr. Chairman.
    Chairman Crapo. Thank you, Senator Brown.
    We will hear testimony today from three experts drawn from 
the think tank community, each of them with a particular 
expertise in the use of sanctions and a deep understanding of 
Russia, its leadership, and its position in the world.
    We will begin with testimony from Dr. Leon Aron, a Russian 
emigre to the United States during the cold war, and now a 
prolific writer and expert analyst of all things Russian. He is 
a resident scholar and director of Russian studies at the 
American Enterprise Institute.
    Following Dr. Aron, we will turn to Ms. Elizabeth Rosenberg 
for her testimony. She is a senior fellow and director at the 
Center for a New American Security and a recognized expert on 
energy, market shifts, and the use of sanctions and economic 
statecraft.
    Finally, we will hear from Mr. Daleep Singh, a finance 
professional and an architect of the 2014 sanctions on Russia 
while at the Obama administration's Treasury Department. He is 
now with the Atlantic Council and a Johns Hopkins professor of 
geoeconomics.
    Dr. Aron, you may please begin.

   STATEMENT OF LEON ARON, RESIDENT SCHOLAR AND DIRECTOR OF 
         RUSSIAN STUDIES, AMERICAN ENTERPRISE INSTITUTE

    Mr. Aron. Thank you, Chairman Crapo, Ranking Member Brown, 
and Members of the Committee.
    Before we discuss and evaluate specific measures, I think 
it might be useful to begin by placing the sanctions on 
Vladimir Putin's regime--which is not to be equated with Russia 
or the Russian people--in a larger context.
    Why do we impose these sanctions? Essentially to exact 
domestic political costs on a country's foreign policy.
    If that is the main purpose, there are two distinctions 
that need to be made in evaluating the impact of these 
sanctions. One is short-term versus medium- and long-term 
effects; and the other, more important, is the difference 
between economic effects and political effectiveness. The 
former are relatively easy to achieve, especially when the 
disparity between the respective economies is as great as it is 
today between the United States and Russia. But the latter 
purpose, to change the policies of the sanctioned regime, is 
almost never achieved in the short term and has not been 
especially successful even in the medium term.
    The reasons for that are very simple. First, the regimes 
are always--the sanctioned regimes are always hoping that the 
sanctions will be lifted or at least lightened. And, more 
importantly, authoritarian regimes, even the seemingly stable 
ones, carry on what Churchill called the ``fight of bulldogs 
under the carpet.'' A quick retreat could lead to a 
hemorrhaging and eventually loss of the leader's power, which 
could also be accompanied by the loss of his life. Hence, 
defiance is almost always the first reaction.
    Thus far, Russia has fit the general pattern, both with 
respect to the economic effects of the sanctions and their 
political effectiveness--which is to say that the economic 
effects, while hardly overwhelming, have been undeniable, 
damaging, and growing, but equally predictable has been the 
regime's defiance in the face of these sanctions. And in my 
written testimony, I provide details for both developments.
    But the seeming absence of immediate political effects of 
the sanctions must not be confused with their long-term 
effectiveness.
    To begin with, we should not underestimate the power of 
moral outrage which the sanctions represent--especially if they 
are initiated by the only country that ultimately matters to 
Russia and the Russians, which is America. As we learned from 
the Soviet Union experience after its collapse, the moral 
outrage by the West has chipped at the legitimacy of the 
regime, and Russia is not a totalitarian country. Public 
opinion still matters.
    We should keep in mind and not be disheartened by the fact 
there are no silver bullets, as the Chairman said in the 
introduction, and it is very hard to invent something that 
would be both new and effective.
    As a result, the several packages of measures in the 
pipeline today, including the DETER legislation, appear to be 
most promising when they build on or deepen those existing 
sanctions that are most likely to have a domestic political 
impact. I would single out two such measures.
    First, building on the earlier ban on investment in and 
transfer of technology to the Russian oil industry. In my 
written testimony, I provide argumentation for this, but let me 
just mention one quote from a leading Russian expert, a former 
head of the Russia office of an oil multinational who commented 
in an elite online Russian journal last month that, I quote my 
translation from Russian, ``From my own experience . . . I know 
that without Western technologies and investors the oil-and-gas 
sector of Russia would be on a deathbed.''
    The second measure I would like to mention as seeming quite 
promising to me is a sizable domestic political effect on the 
ban or at least restrictions on the buying of Russian sovereign 
debt. This policy builds already, as I said, on the existing 
restrictions on raising capital by several Russian private 
companies and banks.
    This past August, Russian media labeled the 14-day limit on 
operations with sovereign debt one of the ``most serious 
threats to the Russian economy.''
    An outright ban on the sale of the OFZ, which is the 
Russian acronym for Obligatsii Federal'nogo Zayoma, or Federal 
loan bonds, would be a very serious blow. As a Russia expert 
put it, the OFZs are the ``Finance Ministry's workhorse funding 
instrument for the budget.''
    In conclusion, making Vladimir Putin moderate, not to 
mention retreat from, his current aggressive policies will 
require measures targeted as precisely as possible at 
increasing the domestic political costs of his regime's 
policies, as well as a lot of patience from us.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Doctor.
    Ms. Rosenberg.

 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, for 
inviting me to appear today.
    At present, the security and integrity of the United States 
is under attack by Russia's threats to our democratic 
institutions and our core values. Russia's malign activities 
undermine sovereignty, rule of law, prohibitions against the 
use of weapons of mass destruction, and protection of human 
rights. Moreover, Russia's foreign interference is a 
destabilizing affront to U.S. global leadership and to the 
national interests of our closest allies.
    Equally as alarming as these grave harms wrought by Russia 
is the inadequate U.S. policy response. The directors of our 
intelligence agencies, U.S. Cabinet-level officials, and the 
executives of the most prominent social media companies have 
spoken clearly about the threat. But the Administration's 
policy response has appeared uncoordinated or contradictory and 
has been insufficiently bold in indicating to Russia that its 
activities will not be tolerated. How U.S. policy leaders 
proceed now is of fundamental importance to the character of, 
and future for, our democracy and national interests. I 
strongly encourage the Members of this Committee to continue 
your strong leadership in articulating a strategic vision for 
addressing Russia's threats and deploying an array of policy 
tools to respond.
    You have convened this hearing because you all know that 
sanctions, tools of choice to counter rogue regimes and 
security threats, are not the only option when dealing with 
Russia. Indeed, there is a robust debate about whether 
sanctions have effectively delivered policy success since 
implementation of the major measures targeting Russia in 2014 
and how much efficacy they can have in the future. Mixed 
messages from the Administration and uneven sanctions 
implementation provide a poor framework from which to expect 
foreign policy success, even if foreign policy success were 
clearly defined by the Administration. It is not.
    Now, truly deterring Russia's malicious activities requires 
a holistic foreign policy strategy, coordinated with 
international allies as much as possible, the renewal of 
sanctions and economic pressure to deliver consequences for new 
offenses, and the use of an array of complementary U.S. policy 
tools in the defense, economic, diplomacy, foreign assistance, 
and intelligence operations arenas.
    With regard to U.S. economic policy tools to address 
Russia, I would like to take two points today in my oral 
statement.
    The first is a note of caution about potential new 
sanctions which must aim at Russian interests rather than at 
Russia's trading partners. I support a core goal of the leading 
legislative proposals under consideration, and that is the 
presentation of powerful consequences to deter Russia's threats 
and interference in our democratic institutions, Russia's 
territorial aggression, and its unacceptable breaches of 
sovereignty and human rights.
    To achieve these goals and avoid unintended consequences 
that hurt our economy and the economies of our allies and that 
undermine U.S. credibility, lawmakers must select sanctions 
targets directly involved in threatening and insidious 
activities to expose and undermine them. Where sanctions target 
major Russian firms or financial sectors, lawmakers should 
strive to impede future economic activity and foreclose future 
growth rather than disrupt and distort current economic trading 
flows. This will help to preserve U.S. leverage and prevent an 
inadvertent enriching of Russian firms if foreign partners are 
suddenly shut out of Russia. It may also help keep some U.S. 
security partners aligned with the United States and avoid 
undercutting, for example, U.S. oil sanctions on Iran.
    My second point is one of strong encouragement to Congress, 
and to this Committee in particular, to enact a requirement to 
gather and disclose beneficial ownership information in the 
corporate formation process. It must go beyond narrow 
beneficial ownership requirements only for high-end real estate 
purchase. Ultimately, passing sound beneficial ownership 
legislation may be the most important policy that you all adopt 
to promote transparency in our financial system, to close an 
alarming gap in our national security defenses, and to directly 
undermine and deter malicious Russian interference and 
misinformation campaigns that warp our democratic processes and 
sow discord in our homeland.
    I address these points in detail in my written testimony 
and would be happy to discuss them with you all further today. 
I look forward to your questions.
    Chairman Crapo. Thank you, Ms. Rosenberg.
    Mr. Singh.

STATEMENT OF DALEEP SINGH, SENIOR FELLOW, ATLANTIC COUNCIL, AND 
          ADJUNCT PROFESSOR, JOHNS HOPKINS UNIVERSITY

    Mr. Singh. Mr. Chairman, Ranking Member Brown, 
distinguished Members of the Committee, thank you for convening 
this hearing. I am honored to be here.
    I have spent my career around financial markets, mostly as 
a market participant, but from 2011 until 2016, I was a 
Treasury official. My focus was to work on economic policies 
that could help our country and others to recover from crisis. 
But 2014 was very different. Together with a team of colleagues 
from across the U.S. Government, our challenge was to impose 
economic costs on Russia for its aggression in Ukraine. For me, 
the mental exercise was to flip everything I had learned about 
what makes economies succeed.
    Of course, the stakes were high, both on the geopolitics 
and the economics. Before 2014, the United States had never 
imposed sanctions on a country with the size, complexity, and 
connectedness of Russia. A number of principles guided our work 
that I think remain instructive today.
    Sanctions, number one, should be powerful enough to 
demonstrate our capacity to impose overwhelming costs.
    Number two, responsible to limit contagion and to preserve 
our reputation as a trustworthy steward of the global economy.
    Three, targeted to avoid the appearance of punishing 
average Russian civilians.
    Four, calibrated to increase the chance of partnering with 
allies.
    And, five, staged to preserve scope for escalation or 
deescalation.
    Putting these principles into action requires an 
understanding of asymmetries. Where did our economic leverage 
intersect with Russia's vulnerability? Foreign capital was and 
is an obvious choice. So is energy technology. U.S. and 
European firms are the dominant suppliers of something Russia 
needs in large quantity and cannot easily replace.
    What were the results? Restricting foreign capital proved 
even more potent than we anticipated. It triggered a market-
driven negative feedback loop between capital outflows, the 
depletion of Russia's reserves, a dramatic weakening of the 
ruble, a spike of inflation and interest rates, and the 
beginning of a 2-year recession.
    Throughout this process, our words mattered at least as 
much as our actions. They shaped market expectations about our 
staying power and the capacity to do more. By the second half 
of 2014, further sanctions had the potential to deliver a 
knockout blow. But our purpose was not to cause panic. Due in 
large part to this restraint, the depth of Russia's economic 
recession and the breadth of spillovers were very much in line 
with our expectations. Over the medium term, these sanctions 
dealt Putin a weak strategic hand, a structurally weak, one-
dimensional economy.
    Do these costs matter to Putin? Answering this question 
goes beyond my expertise, but my observation is that even 
autocrats are sensitive to recession. Yes, Putin's tolerance 
for economic pain and his control of the domestic narrative are 
higher than most. But there is a threshold above which his 
calculus would change. If only we had the stamina, the 
discipline, and the political will to get there.
    For now, Russian aggression and violations of sovereignty 
continue to spread while economic conditions in Russia have 
improved markedly. The recession has ended. Inflation recently 
hit an all-time low. Foreign reserves are back to presanctions 
levels. Were it not for the threat of sanctions, Russia might 
be the darling of global bond investors searching for yield.
    Why is this happening? Because markets judge our words, not 
just our actions, the President's more than any other. Markets 
take signal from his words to shape their expectations of 
sanctions policy and, therefore, the direction of Russia's 
economy. I can only conclude that markets doubt our collective 
resolve to hold Putin to account with a coherent and 
coordinated strategy.
    What can we do about it? I suggest five actions.
    First, costs should be broadened to include the very 
highest levels of the Russian Government. At a minimum, 
Treasury and other authorities should conduct a study that 
attempts to identify the holdings and intermediaries that 
manage and benefit from Putin's wealth. Besides signaling to 
the Russian people that our quarrel is not with them, this step 
would provide a measure of transparency on his fortunes held 
abroad.
    Two, U.S. investors should be prohibited from purchasing 
new Russian sovereign debt. In 2014, I was more cautious about 
taking aim at Russia's risk-free asset when it was on the cusp 
of full-fledged crisis. To be clear, this is still a serious 
step, but circumstances have changed. Russia is far better able 
to absorb a hit; investors have had years to reduce exposures; 
and the contagion effects would be small. More to the point, I 
can think of no credible reason why U.S. public pension funds 
and savings vehicles should fund a Government that is actively 
violating our sovereignty.
    Fourth, a comprehensive package to counter Russian 
aggression requires an offensive economic strategy, not only to 
Ukraine but also Georgia, the Baltics, Moldova, and possibly 
Central Asia. The overarching purpose is to create successful 
alternatives to Russian-style autocracy.
    And, finally, I would encourage a robust campaign to 
improve transparency within Russia. Distributing verifiable 
evidence of kleptocracy would help to counter the Government's 
disinformation campaign and its control of the media.
    To close on a positive note, we should still leave scope 
for genuine exchange between U.S. and Russian businesses. If we 
are ever to have better relations with Russia, the private 
sector is not a bad place to start.
    Mr. Chairman, Ranking Member Brown, I look forward to your 
questions.
    Chairman Crapo. Thank you, Mr. Singh.
    I will start the questioning. As I indicated in my opening 
statement, there is a new Executive order issued today. Have 
any of the three of you have an opportunity to read it or to 
become familiar with its terms?
    Ms. Rosenberg. Thank you, Mr. Chairman, for the question. I 
have not had a chance to see that. I do not believe, as of the 
time we started this hearing, that they had released the text 
of it, although in a press call this morning and also in 
messages to you and some of your staff, they outlined some of 
the principles for it.
    Chairman Crapo. All right. I think that it is now out, but 
it may have just come out as we were assembling for this 
hearing. So I am not surprised that you have not seen its full 
text.
    According to the reports, the Director of National 
Intelligence, with the input from all of the intelligence 
community, will assess and identify foreign actors responsible 
for election meddling, and then the Attorney General and 
Homeland Security Secretary will report on the materiality of 
that interference, followed by the Secretaries of Treasury and 
State, who will determine what appropriate sanctions should be 
imposed and then engage in the imposition of those sanctions. 
It appears to me to be a pretty broad authority to Treasury and 
State with regard to determining sanctions.
    Right now I would just like an initial reaction from each 
of you, if you have one, as to whether this is now a helpful 
signal and a step toward combating election meddling, no matter 
what the foreign source. Mr. Singh.
    Mr. Singh. Mr. Chairman, at the risk of not knowing enough 
of the details, it strikes me as more of a press release than a 
change of policy. I do not know what costs are now authorized 
to be imposed on Russia that were not authorized previously. 
And my view is that if there is still complete discretion--in 
other words, if nothing is made mandatory--the background 
conditions in Russia, which have improved markedly, will just 
continue to improve.
    Chairman Crapo. Ms. Rosenberg.
    Ms. Rosenberg. If I can add to that, by definition, this 
authority for the Administration is discretionary. So while it 
may outline the intent or resolve to take action should there 
be a finding, a report, and a determination, there is supreme 
discretion and flexibility for the Administration regarding 
execution of sanctions. If such execution is not matched with a 
clear message and a strategy to respond, then it is not an 
advance in the policy, and it may even be a step backwards.
    Chairman Crapo. Dr. Aron.
    Mr. Aron. I am just a mere----
    Chairman Crapo. Turn on your microphone.
    Mr. Aron. I am just a mere Russia scholar, and I will defer 
to my colleagues on this.
    Chairman Crapo. Thank you. Both of you who responded on 
that focused on the discretion that is available there. That is 
actually one of the issues that has been brought to our 
attention throughout this process of trying to determine how to 
respond to Russia. I think historically there has always been 
significant discretion given to the Administration in sanctions 
law, and the reason I guess you probably know far better than I 
do, and that is we are already at a point with the sanctions 
being imposed against Russia where there is blowback from our 
allies and concern about whether we are actually having--or 
achieving results that are counterproductive to our own 
interests in terms of our own alliances and to whether--well, 
whether other Nations are willing to work with us. So the 
argument made to the Committee is that we need to have 
discretion.
    I assume that you are not saying that discretion should not 
be a part of a sanctions regime. So could you discuss that 
conflict, the need for discretion with what I heard you saying 
is that the discretion was too broad?
    Mr. Aron. If I may at this point say something.
    Chairman Crapo. Yes.
    Mr. Aron. I think the key here is a balance, to find a 
balance that gives the President, any President, enough 
flexibility to conduct diplomacy and take care of national 
security, and at the same time preserve the Congress' powers of 
supervision and, I would say, morality and the expression of 
public opinion in foreign policy. So I think this is--I am not 
a constitutional scholar. The AEI has plenty of brilliant 
constitutional scholars. But it seems to me it is the tug of 
war that I hope will arrive at this balance.
    Chairman Crapo. All right. Thank you. I am down to just a 
few seconds, and I am pretty tough on my colleagues to stay 
within their timeframe. And so, Ms. Rosenberg and Mr. Singh, I 
am going to ask you if you would--I may get back to a second 
round. I am not sure about that. But if not, I am going to ask 
you to respond to me in writing to that question about the 
balance for discretion and how we should work that issue into 
whatever we develop as a Committee.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    None of us have had time to really digest the Executive 
order, but pardon my suspicion, but when I hear in this 
Executive order, no matter what the foreign source of attacks 
in our elections, you know, until the President is willing to 
say unequivocally the Russians are attacking our elections, are 
trying to meddle in our elections, I do not know how we, or 
Vladimir Putin for that matter, can take seriously our 
Government's efforts, and that means it is up to us in this 
Congress to write strong, strong sanctions language and push 
and push and push this equivocating, or worse, that President 
to take decisive action to protect American national interests.
    Mr. Aron, you said something that made me smile when you 
were talking about the Russian-U.S. oil technology. It made me 
kind of harken back to Armand Hammer and all of that. But let 
me ask Ms. Rosenberg and Mr. Aron about energy. Two main 
sanctions bills--we are looking at the DETER Act and the 
Graham-Menendez bill--urge different approaches on additional 
energy sanctions against Russia. Of the possible approaches we 
can take--blocking the assets of the largest Russian energy 
companies if Putin continues his attacks, limiting access to 
sophisticated Western fracking services and technology, 
prohibiting or limiting investments in new Russian oil and gas 
projects, or otherwise expanding CAATSA oil and gas project-
based sanctions--which one or two, to start with you, Mr. Aron 
and Ms. Rosenberg, would be the most effective without unduly 
harming ourselves and our allies?
    Mr. Aron. Well, Russia is not a petro State like Saudi 
Arabia. Only 15 percent of its GDP comes from oil and gas, but 
50 percent of its State budget.
    Senator Brown. Right.
    Mr. Aron. And so this is what Putin uses as ready cash for 
his key political constituencies: security services, the armed 
forces, over 36 million pensioners, and millions of public 
service workers.
    The ban on financing and technology transfer is a ticking 
bomb under Putin's regime because, while Russia is not running 
out of oil, it is running out of cheap oil. Western Siberia, 
there is plenty of oil, and it is all, unfortunately for 
Russia, in northeast Siberia, above the Arctic Circle, under 
the permafrost, offshore, Kara Sea, Laptev Sea, East Siberia, 
where the temperatures go between minus 22 and minus 55 degrees 
Fahrenheit. Just to start explorations, Russia would need 
hundreds of billions of dollars, which it does not have, and 
the technology cannot even imagine, much less touch.
    So I think this is one of the sets of sanctions where I 
would recommend really strengthening what we already have, 
which is a complete ban on investment in Russian oil and 
industry and complete ban on financing it.
    Senator Brown. Thank you.
    Ms. Rosenberg.
    Ms. Rosenberg. To embrace an approach that would disrupt 
the market now, such as by restricting the ability of U.S. or 
non-Russian companies to participate in joint ventures or to 
invest, could have a major impact on supply, on the market, and 
on prices. That means an impact for us, U.S. consumers, 
consumers everywhere else in the world, including, for example, 
in Europe who are important consumers of Russian energy, oil, 
and gas supplies. That would undermine our interest in European 
energy security. If it also disrupts supply and has an enhanced 
market effect, it will undercut our own goal with respect to 
Russia because a higher price will compensate Russia somewhat 
for a diminishment in its supply to the global market. It may 
also undercut our policy with respect to Iran sanctions where 
the United States Administration is trying to pull Iranian 
supplies off the market. So further disrupting supply will 
undermine the ability to enforce that policy.
    I want to make a point about the technology. Right now most 
of that sophisticated technology for extracting hydrocarbons 
from low permeability formations, rock formations, the so-
called fracking technology, right now most of that technology 
and the expertise, including supply chain expertise, is 
proprietary and exists in Western upstream companies and 
service companies that are European and American. However, 
there are a broad array of Russian service companies, and while 
it would be disruptive to Russia for those technologies to no 
longer be available to Russia, it is not a certainty that 
Russia will not be able to engineer and find substitutes over 
time to be able to continue broad production of its hydrocarbon 
base.
    Senator Brown. Thank you.
    Chairman Crapo. Thank you.
    Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much. Thanks to 
our witnesses for being here, and I appreciate what I have 
heard so far, and it is capturing my attention.
    Let me ask about--both our DETER and DASKA Acts have 
recognized the importance of coordinating with European allies. 
Last week in the Foreign Relations Committee here in the 
Senate, a conversation was had about the effects of weaponizing 
our financial power. Germany's Foreign Minister raised the need 
for an alternative payment system to the United States to get 
around ours. Chancellor Merkel rejected that idea. How 
legitimate do you think a threat is against--what kind of 
backlash would we expect from our friends in Europe if we take 
those steps?
    Ms. Rosenberg. There is interest in Europe by its political 
leaders who are outraged about the U.S. departure from the 
Iranian nuclear deal. That has precipitated the conversation 
you have referenced about being able to conduct transactions 
that might avoid U.S. jurisdiction. It is possible that that 
could be, if you will, a laboratory experiment for future 
activities that would get around U.S. jurisdiction for the 
purpose of, for example, conducting business between Europe and 
Russia. So another unintended consequence of aggressive U.S. 
sanctions on Russia could be to accelerate the movement to 
create these ecosystems, if you will, of financial transactions 
that exist outside of U.S. jurisdiction. It is surely not in 
our interest to accelerate those developments.
    Senator Moran. How easy would those developments be--how 
easy could Europe pursue that kind of development, that change? 
Is that realistic?
    Ms. Rosenberg. In its simplest form, these are barter 
arrangements. They can be barter arrangements, and they can 
grow into more sophisticated accounting schemes or even bespoke 
currencies to be able to engineer this. It is not in the realm 
of the impossible, and, in fact, that is a development that we 
should look on with great concern in thinking about at what 
point they could scale so as to undermine some of our economic 
strength and the long arm of U.S. jurisdiction and U.S. 
leverage. I would defer to my colleague Daleep who has also 
worked on this issue.
    Mr. Singh. I would just echo what Elizabeth just mentioned, 
but I think the incentive for Europe or other regions or 
countries in the world to develop alternate payment structures, 
alternate financial infrastructures, that incentive grows when 
the U.S. is perceived as abusing its power, abusing its 
leverage. In my judgment, I do not think responding to Russia 
in this context constitutes that.
    There are many other examples that we could talk about, but 
I think with respect to today's subject, I do not think we are 
there.
    Senator Moran. Dr. Aron, if we go after the kleptocracy of 
Putin, we go after his inner circle, what would you expect to 
be the reaction? What tools would they use to retaliate or 
respond?
    Mr. Aron. Well, thanks very much for the question. Going 
after the oligarchs I think is the equivalent of--sort of 
political or diplomatic equivalent of fast food. It feels very 
good at the time. You can put the face on the sanction. But it 
is very hard for me to believe that somebody like the Rotenberg 
brothers or the Timchenkos or the Kovalovs will come to Putin 
and say, ``I am sanctioned, Vladimir. How about you change your 
policy?'' They will not leave that office if they do so. Nobody 
in Russia today owns anything. They are managers of their 
wealth if Putin allows them. The wealth could be taken away at 
any time.
    So I think that sanctioning oligarchs is probably a worthy 
moral goal, an expression of our moral outrage. But I do not 
think it is a formidable policy tool for us.
    Senator Moran. So one of the things I should learn from 
your response is that the power rests with Putin, not the 
oligarchs?
    Mr. Aron. Absolutely, 100 percent.
    Senator Moran. OK. Thank you very much.
    Chairman Crapo. Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman. And thank you to 
the witnesses.
    Let me start by saying that if our Government has a 
strategy to counter and deter Russia, it is not working. We 
have not been able to change Russian behavior, and in some 
cases their behavior has gotten worse. Our witnesses have 
persuasively argued we need a coherent strategy, policies with 
teeth, clear signaling, and smarter sanctions. I think it is up 
to Congress and hearings like this to help provide a vision and 
develop a strategy to counter the threat from Russia. And I 
would like to ask all witnesses and, Dr. Aron, I will begin 
with you, what is the number one action Congress can take in 
the next several months to change Putin's calculus?
    Mr. Aron. To be honest, Senator, I cannot think of an 
action that would change Putin's policy within several months.
    Senator Donnelly. Let me say to begin----
    Mr. Aron. To begin, we have to be realistic. I said that, 
you know, for Putin now, it is not just my opinion, it is the 
opinion of my independent Russian colleagues. The opposition to 
the United States, the opposition to the sanctions is one of 
the key legitimizing factors of his regime. He cannot give it 
up.
    As I said in the introduction, I think nothing new--I 
cannot think of a silver bullet, but I think if we stick with 
some policies which have--and we should always look at the 
domestic political effects. Putin's audience is not the West. 
Putin's audience is his own constituencies inside the country. 
It is not a totalitarian police State yet. He cares about 
public opinion. And so I think the ones that I mentioned, 
depriving him of an inflow of foreign money via the sales of 
sovereign debt and the ticking bomb under his regime, and that 
is depriving him of funding and technology for his oil 
industry. The former is proximate. It could be implemented, 
obviously with the discretion and the expertise of people who 
know better than I how to do it delicately without damaging the 
interests of the United States and our allies. The latter, 
which is the restriction on Russian oil policy and oil business 
and oil industry, is something that we have to stick with if we 
want to see results.
    Senator Donnelly. Ms. Rosenberg.
    Ms. Rosenberg. Thank you. To begin with, over the next 
couple of months I would strongly urge a focus on Russia's 
involvement in election interference and misinformation in our 
democratic process. I note that this is the organizing 
principle around today's Administration EO and, of course, the 
organizing principle behind the DETER Act.
    A couple of things that can be part of the strategy in the 
immediate future are to urge the Administration to bring 
forward further designations. It could have been helpful to put 
them in the annex to today's EO, for example, to explain to the 
public what methodologies Russia is using to interfere in U.S. 
democratic institutions or processes. This could have included 
which actors are involved to give information to U.S. social 
media companies, and financial institutions in order to 
understand when such malicious activity could occur. This 
information could also help Congress to take action toward 
enacting beneficial ownership legislation which will signal to 
Russia that there will be no tolerance for anonymous companies 
that facilitate their ad buying and interference in our 
democratic process ahead of significant midterm elections 
coming in the next several months.
    Thank you.
    Mr. Singh. Senator, I will give you three things: Number 
one, exposing the scale of corruption in Putin's inner circle 
and from Putin himself; Number two, increasing economic costs 
on Russia by sanctioning new purchases of sovereign debt; 
Number three, creating a successful alternative in Russia's 
backyard--in other words, helping Ukraine, helping Georgia, 
helping Moldova, helping Central Asia succeed as an alternative 
to Russian-style autocracy.
    Senator Donnelly. Let me ask one last question for any of 
you. Would legislation requiring corporate beneficial ownership 
transparency increase the ability to effectively apply 
sanctions against corrupt oligarchs and officials? Ms. 
Rosenberg.
    Ms. Rosenberg. Absolutely. And, in fact, this is one of the 
reasons why the law enforcement community has been asking for 
quite a long time for such legislation. They come to a dead end 
when there is no information behind shell companies or front 
companies that they believe to be involved in such corrupt or 
criminal activity, activity that undermines our democracy.
    Senator Donnelly. OK. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Thank you all for being 
here.
    Last week the Washington Post reported that President Trump 
agreed to a new strategy for Syria that may include new Russia 
sanctions. The strategy follows a requirement that I worked 
with my colleagues on the Armed Services Committee to include 
in this year's NDAA.
    My question for you is: What sanctions, if any, do you 
think that our Government could impose on Russia that would 
change its actions in Syria? And I will open it up to the 
panel.
    Mr. Aron. Well, again I hate to disappoint. When Putin on 
Russian national TV in October of 2015 shook hands in the 
Kremlin palace with Assad and said, ``Our goal is to restore 
the legitimate Government of Syria,'' this was a promise not so 
much to Assad; this was a promise and a larger strategy of 
Putin's where he portrays himself now as the restorer of the 
former glory of the Soviet Union, somebody who comes to aid of 
the former Soviet clients and allies, and Syria is the oldest 
one of them. And he is a wartime president, and this is how he 
portrays his legitimacy.
    I cannot think beyond the sanctions that already have been 
discussed here--which are, I think, a sustained and a long-term 
process, I cannot think of anything we can do at the moment to 
make Putin change his strategy in Syria precisely because it 
would undermine significantly his domestic political support.
    Senator Cortez Masto. Thank you.
    Ms. Rosenberg. I would associate myself with that 
sentiment. I am not confident that sanctions are the tool to 
change Russia's behavior in support of President Assad, 
including condoning or supporting the use of chemical weapons 
against the Syria population.
    Senator Cortez Masto. Thank you.
    Mr. Singh. I would just add I think it would require direct 
Presidential involvement.
    Senator Cortez Masto. OK. Thank you.
    Last month several of us met with former Ambassador McFaul 
following the Helsinki Summit, and as you know, President Trump 
said after the summit that he would consider allowing Putin to 
question McFaul and other former American civil servants. As 
you can imagine, McFaul was quite concerned about his safety 
net of other former civil servants traveling abroad. Congress 
passed a resolution condemning Trump's statement not long after 
that, but some of us feel we have a duty to the men and women 
who have served this country to do more to protect them.
    If you were designing an economic statecraft strategy to 
deter Putin from arresting former American civil servants and 
other Governments from cooperating with him, what would it look 
like? Is there more that we can do to protect those Americans 
who are serving abroad?
    Mr. Aron. Thank you, Senator. Mike McFaul is not just a 
colleague. He is a good personal friend of mine for many years, 
a man whose both scholarly and personal integrity I highly 
respect. It was painful for me personally to learn about this 
promise to Putin. Again, I think the sanctions we already have 
or that are in the works and the future sanctions are probably 
enough, but my advice to Mike is not to travel to Russia.
    Senator Cortez Masto. OK. Anyone else, any other thoughts 
on----
    Mr. Singh. I would just say I think the moment passed in 
Helsinki. There should have been direct and immediate 
consequences. There were none.
    Senator Cortez Masto. It is too late, there is nothing we 
can do now. Is that what you are saying?
    Mr. Singh. It is never too late, but I think in order to 
make a difference to Putin, again, this requires Presidential 
engagement immediately after those actions were taken.
    Senator Cortez Masto. Thank you. Anything else?
    Ms. Rosenberg. No, I would just add that I am not confident 
that, again, sanctions are the tool of choice here, that, in 
fact, strong leadership must come from the Executive, as was 
just mentioned, as well as from the diplomatic community and 
diplomatic layers.
    Senator Cortez Masto. Thank you. Thank you again for the 
conversation. And let me just say to the Chair and Ranking 
Member, thank you so much for the hearings. This is obviously 
such an important topic and role that we play in Congress, and 
I so appreciate the opportunity to explore further the actions 
that we can and should be taking. So thank you.
    Chairman Crapo. And thank you for your attentiveness and 
support on this, Senator.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    Mr. Singh, back in 2014, when you were putting together 
some of the sanctions around Ukraine's circumstances, you chose 
at that point not to include any kind of sanctions on Russian 
debt. And let me also state for the record I am proud to 
support Senator Van Hollen and Senator Rubio's DETER Act, which 
I think even with the President's announcement today, we need 
that teeth that a legislative action would have because, 
candidly, I do not trust this White House to fulfill their 
obligations since we have seen an enormous, enormous blind spot 
in terms of Russian activity by this President. One need only 
look at the pitiful performance in Helsinki as an example. 
Sorry about my editorial comment before I go back and give you 
time to think about the question, Mr. Singh.
    But back in 2014, with the Ukraine sanctions, you did not 
think sanctioning on a going-forward basis Russian debt was 
appropriate. My understanding is you think at this point that 
should be back on the table. Can you talk about that? Can you 
talk about the effects it might have, negative and--and what 
other risks that would run into in terms of our allies who 
still have some ongoing projects with Russia?
    Mr. Singh. Sure. Thank you, Senator. You are correct; I was 
cautious about sanctioning Russian sovereign debt in late 2014. 
I have changed my mind because the circumstances have changed. 
Back in late 2014, it was my view that sanctioning sovereign 
debt could have tipped the scales in Russia into a full-fledged 
financial crisis. A full-fledged financial crisis in Russia 
would have been counterproductive in two main ways.
    One is it would cause us to lose the narrative within 
Russia. In other words, it would play into Putin's hands, that 
the hardship the Russian people were facing was just the latest 
in a long series of historical injustices.
    Number two, it would harm us reputationally. If we were 
seen as intentionally provoking a full-fledged crisis in 
Russia, it could harm our hard-earned reputation as a 
trustworthy steward of the global economy. That is hard to win 
and easy to lose.
    I think if I look at Russia now, the background conditions 
are markedly improved. The recession has ended. Inflation has 
fallen from the midteens in late 2014 to all-time record lows. 
Foreign reserves in Russia have been fully replenished to 
presanctions levels. The fiscal profile of Russia is better 
than ours. Foreign investors----
    Senator Warner. Is there a reason that is the case? I am 
looking at some of these numbers. The Chairman and I spent a 
long time together on a so-called Gang of Six around Simpson-
Bowles. I am pretty amazed. Is the number accurate that Russian 
debt-to-GDP is only 13 percent?
    Mr. Singh. That is right.
    Senator Warner. Gosh, I wish we had a balance sheet like 
that.
    Mr. Singh. Yes, agreed. So Russia can absorb a hit, number 
one.
    Number two, sanctioning sovereign debt would not deliver a 
shock wave across global markets. To your point, Senator, total 
outstanding Russian sovereign debt is about $150 billion. 
Americans own $10 billion of that debt. Foreigners as a whole 
own $50 billion. That is tiny. The global sovereign debt market 
is $45 trillion. Our Treasury market is $14 trillion. We would 
not see major contagion effects if we moved on Russian 
sovereign debt.
    But I think most fundamentally, the provocation has 
changed. I can think of no good reason why public pension funds 
in the U.S.--teachers, policemen, firemen, Government 
officials--why their savings are directly funding a country 
that is violating our sovereignty.
    Senator Warner. Let me follow up on that, and maybe some of 
my colleagues have already raised this issue. As we think about 
potential targets, I know there was a great deal of interest in 
targeting some of the Russian oligarchs, many of those who are, 
frankly, cronies or have that status because of their ties to 
Putin. If that question has not been asked, I would love a 
response on that. I would also love a response on the fact 
that, you know, Special Prosecutor Mueller I think did a 
brilliant job with the level of specificity on naming the GRU 
agents who are involved in the election interference.
    While chances of actually sanctioning those individuals 
remain somewhat limited, would a sanction action on named 
Russian intelligence agents carry any kind of chilling effect 
on a going-forward basis?
    Mr. Singh. I would defer to my colleagues on the change of 
Putin's calculus himself. I am not an expert on his psychology. 
But as a general matter, I like the idea of picking individuals 
whenever possible rather than just sanctioning economic 
sectors. You can deliver a comparable impact in terms of 
changing behavior without nearly the same degree of spillover 
costs. So I think we should look at the very highest levels of 
the Russian Government. It should include Putin; it should 
include the people that you mentioned, Senator.
    Senator Warner. The GRU agents themselves.
    Mr. Singh. Yes.
    Senator Warner. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    The President with an Executive order is clearly, I 
believe, trying a lay a line in the sand, and his message 
clearly is pointed at Russia. I am just curious, and I 
recognize that if some of my colleagues have raised this 
already, I would defer. But how important is it to have a line 
in the sand with regard to meddling within our election 
processes?
    Ms. Rosenberg. I think it is absolutely crucial that the 
United States make clear to Russia or anyone who would meddle 
in U.S. democratic institutions and processes that these are 
the core of our sovereignty. They are only a space in which 
U.S. citizens can participate.
    Mr. Singh. Senator, with respect, I do not see how it is a 
line in the sand. It would be if there were clearly delineated 
consequences or if there were clearly spelled out costs for 
actions that have already occurred. To my knowledge, those are 
not laid out in the Executive order. So I do not see where the 
line is. I do not see what the consequences are if that line is 
crossed.
    Ms. Rosenberg. May I add to what I said before to say I 
think it is essential to make that statement. I agree that 
there must be consequences. That is an excellent area for 
congressional oversight in order to clarify what the line is 
across which the United States will not permit Russia to go and 
what the consequences shall be.
    Senator Rounds. That was the intent of the Secure Elections 
Act, which a number of us are sponsors or cosponsors of. My 
impression was that the Executive order was designed to make it 
very clear that simply by the end of the election process, the 
issue would not go away, and that it did not take anything off 
the table. I am just curious if it's time that we actually let 
them know that it is not simply a matter of a cyber-response 
but, rather--or for that matter, a sanctions response. But is 
it time to actually lay out, including the beefing up of our 
military forces, places like Europe, sending in more assets, 
and in strengthening and simply saying, look, this is just a 
case of if we do--and I believe the President really did mean 
it to be a line in the sand, and I think the fact that he has 
Treasury actively involved with the issue, along with the 
Secretary of State, requiring that they come back with a--not 
just with an analysis but with a recommendation for a response, 
I think his intent was to not simply say this is what we are 
going to do but, rather, to say there will be consequences.
    I would like your thoughts, because I do like the fact that 
finally we have a very clear message that it is not acceptable 
from the Administration. Second of all, he did not say what he 
would do, and yet he appears to make it very clear that all 
options are on the table. And so, you know, the question is 
what deterrence. Can you simply say, ``Do not do it''? Or do 
you have to say, ``If you do it, there will be the following 
consequences,'' and then they can weigh them? I guess that is 
my question.
    Mr. Aron. I think it is clearly the latter. Putin grew up 
in the slums of postwar Leningrad. It was a very tough 
environment. He talks about it in his biography. He is a tough 
man, and he respects credible force.
    To the extent that we could persuade him that we are 
credible, that these are not mere threats but there will be 
consequences, I think he is not a madman. There is a very--it 
is not easy to change his policy because, as I said, what he, 
in effect, is having today in Russia is a wartime presidency. 
His chief of staff, general staff of the Russian armed forces, 
said we are at war with the United States. It is not a kinetic 
war, but it is an economic war, it is a cyberwar, it is a moral 
war, it is a political war, it is a geopolitical contest. Putin 
cannot give up a lot of these assets, but I think he also 
understands that, on balance, he would have to respect the 
force and the real damage which he might read in these lines of 
sand, on the sand, or whatever else you have between the 
Congress and the executive branch.
    Senator Rounds. So would any of you disagree with the 
statement that it still requires Congress to move forward with 
specific legislation that would codify what these sanctions 
could be?
    Mr. Aron. Absolutely. Absolutely. Putin, for all his--you 
know, he made--again, his narrative of legitimacy is not that 
Russia is good but that the West is bad, America is just as 
corrupt and meretricious as we are, and this is the key thrust 
of Russian propaganda media in Russia today if you watch it. 
But with all of that, I think he understands and his advisers 
tell him that the American Congress is not the Russian Duma, 
that what it intends, if it pursues it and stays with it, is 
something that he should be afraid of.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman.
    I would like to follow up real quick, and thank you all for 
being here today, and to the Chair and Ranking Member for 
really informative and important hearings.
    I would like to follow up real quick with what Senator 
Rounds was asking, because I think that there will be a number 
of people who see the actions today as drawing a line in the 
sand. But as you said, Dr. Aron, Putin is not a madman, but he 
is an opportunist. And a concern that I have and I have 
raised--and we heard some testimony the last time--is that if 
this, in fact, is a line in the sand that was drawn today, that 
Putin may say, ``All right, we are not going to cross that line 
this time.'' And I have a real concern that if we see a 
pullback and an acknowledgment that that is a line in the sand, 
we are not going to cross it, this election--that this 
Administration may declare victory and will start lifting 
sanctions and whatever.
    Is that a possibility? Do you see that, or am I just kind 
of like thinking out of my head? But I see that as a 
possibility that that could happen, which could lead to 
disaster in 2020 in our elections.
    Mr. Aron. There is, in my view, a bit of a danger here in 
getting too--sort of tying most of the sanctions, or at least 
as far as the Administration is concerned, to the election. One 
thing--I mean, you know, I love this country. I came here as a 
refugee. But the problem with America a lot of times is that 
nothing happens in the world until it happens to America. Putin 
started undermining democracies in 2007. Ask the Estonian 
Government, ask the Georgian Government, ask the Government of 
Ukraine and Latvia. Cyberattacks, attacks on the Governments, 
attacks on their banking institutions, power grids and so on. 
It is a separate issue, I think. I think the attack on the U.S. 
Presidential election was a target of opportunity. It is a 
fascinating story which we can discuss later. But the point is 
that, yes, I think Putin may indeed sit out this election.
    Senator Jones. And if we do, we cannot let our guard down. 
I mean, we cannot----
    Mr. Aron. Exactly, exactly. What we have to understand is 
that this election and the 2016 election were just points on 
Putin's larger agenda.
    Senator Jones. Right.
    Mr. Aron. Which is to undermine democratic institutions of 
the West. He could pick and choose his elections. He can pick 
and choose his countries. But just because, as I believe, he 
will not interfere in this election because of all this 
attention to it, we cannot declare victory, no.
    Senator Jones. All right. I would like to now follow up, 
Mr. Singh, because you made a real point of talking about going 
after or at least conducting a comprehensive study of Mr. 
Putin's wealth, assets that he may have. And I agree with you. 
I think that that needs to be done. And I would like--you know, 
we have got unofficial reports of just massive wealth and 
corruption. But they are just reports at this point.
    So I would like to ask you a little bit about what kind of 
study you are envisioning here. Is that something that we can 
enlist our allies to do, since a lot of these assets are made 
perhaps abroad in their countries? Can we coordinate with 
allies? And, frankly, as to your experience in Treasury, do we 
have that ability to just do that now without congressional 
action? Could the Administration just say, yeah, we are going 
to start this right now? Have they got that authority to do 
that?
    Mr. Singh. Yes, Senator, I think if the estimates of 
Putin's wealth are anywhere close to being correct, most of his 
money is outside of Russia and most of it is in liquid assets 
in countries that we have good relationships with. So it will 
require partnering with countries in Europe and other 
jurisdictions to really get at where the ultimate investments 
are held. Who are the financial intermediaries that are 
benefiting from managing Putin's money?
    This is expertise that resides within Treasury. I would not 
part of the group in Treasury that did this type of forensic 
work. Elizabeth could probably speak to it in more detail. But 
certainly it is something we are capable of.
    Senator Jones. All right. Thank you.
    Ms. Rosenberg, real quick. I have got 6 seconds. Go ahead.
    Ms. Rosenberg. Taking a leadership stand on beneficial 
ownership--that is, corporate transparency in the United 
States--and using the platform of the Financial Action Task 
Force presidency, which the U.S. now holds, would be an 
opportunity to ask many of these other countries in which 
Putin's assets probably lie to embrace transparency. This would 
help to illuminate that in other countries, supporting parallel 
work here in the United States.
    Senator Jones. Great. Thank you. I may follow up with a 
couple of written questions. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank you for 
conducting these hearings, and I thank all the witnesses. I 
have had a chance to look at today's Executive order, which 
actually just did come out as we were in this hearing, and 
reached the same conclusion that Senator Rubio reached earlier, 
which is that the Executive order is like the DETER Act we 
introduced, except without the certainty and without the 
assurance of penalty, which is what is necessary in order to 
provide a strong deterrent.
    So as far as I can tell, part of the reason they did this 
was not to deter Putin's action but to deter this Congress from 
moving forward with something that would be significant, which 
would have teeth and permanence, as our colleagues have talked 
about.
    Ambassador McFaul testified here last week that, based on 
his assessment of Putin and the Russians, they would take into 
account a penalty; and if they were very clearly put on notice 
as to what the penalty would be in advance, it would influence 
their behavior. As all of you have indicated, and I agree, it 
is much harder to take action after the fact with sanctions and 
say, you know, ``Mr. Putin, unless you get out of Syria now, we 
are not going to lift these sanctions.'' It is very different 
to draw a clear and bright line in advance.
    Mr. Singh, if you could just talk a little bit more about 
that, you mentioned it, but the idea of creating a certain 
result and also a strong enough result to deter interference in 
our elections, why that is important to set out in statute.
    Mr. Singh. Yes, Senator, my expertise is in financial 
markets, so I come at that question with that perspective. And 
we all know markets are forward-looking. They are shaped by 
expectations, and those expectations cannot be abstract. They 
have to have concrete consequences laid out for them to react.
    If we rely upon Executive orders which do not provide any 
clarity as to the path of escalation of certain behaviors 
continue, I do not think there will be any material reaction 
through financial markets in Russia. And if there is no 
reaction in financial markets in Russia, the economic costs 
would continue to be minimal.
    Senator Van Hollen. And, Ms. Rosenberg, I think you 
indicated the same sentiment earlier, but do you share that 
view?
    Ms. Rosenberg. I do. Furthermore, I see value in putting on 
notice, and creating consequences. But, without a strategy, 
without steps of escalation, just the threat of blunt force, 
which the market must weigh against the messages from the 
Administration that this is all a hoax, there is not an 
expectation that there would be implementation of this 
discretionary policy. We need a strategy and that escalatory 
letter. This is a role where Congress can provide significant 
leadership.
    Senator Van Hollen. Right. I appreciate that. The entire 
purpose of putting this in statute with some automatic types of 
severe responses is to take away the uncertainty and the fact 
that, based on President Trump's statements, Putin would have 
reason to doubt the willingness of this Administration to take 
action. And as I look at this Executive order, it really falls 
short in two areas.
    One is when it comes to assessing whether or not there has 
been interference. They first have the Director of National 
Intelligence look at it, but those findings are not made 
public.
    Then you have another layer where the DOJ and Homeland 
Security have to make a finding as to whether or not it was 
material.
    And then you have another layer where the Secretary of 
State decides whether to implement any sanctions or not, except 
with respect to individuals who they might have identified as 
involved.
    And so the kind of sanctions we have been talking about 
here today, for example, sanctions on issuance of purchases of 
Russian sovereign debt, which Dr. Aron and others have said 
they thought would be a meaningful action, that is all left up 
to the Administration under this Executive order. And, you 
know, the Chairman made the point earlier that we have some 
discretion in some of our sanctions, but more recently, the way 
they have been designed is to say that you have mandatory 
sanctions, they can then be subject to a waiver if there are 
national security findings.
    And so I believe--and I understand based on your 
testimony--that the more we can make it clear in advance that 
there will be consequences if we catch the Russians interfering 
in our elections again, and that they will be severe, the more 
likely we are--not a guarantee, but the more likely we are to 
deter that interference. Would you all agree with that?
    Mr. Aron. I would definitely agree with that. Again, as I 
said answering previous questions, these sets of sanctions 
ought to be preserved beyond the elections, be permanently on 
the books, because Putin is like that man on the tiger. He made 
the opposition to the United States and the West, and Russia is 
a besieged fortress, the core of his legitimacy. It is very 
difficult to get off the tiger, and who knows what the next 
targets will be. I am very much concerned about the Baltics.
    So, yes, elections and the specific findings and penalties 
in connection with a possible Russian interference, but we have 
got to look beyond that. This is just one item and probably not 
even the largest item on Putin's agenda.
    Senator Van Hollen. Right.
    Senator Brown [presiding]. Ms. Rosenberg, Mr. Singh, make 
your answers brief, please. He asked the question of all three 
of you.
    Mr. Singh. Sure. I think it is vitally important to 
demonstrate resolve. The only caveat I would add is that we 
should retain flexibility to calibrate the measures, to partner 
with Europe, to have the highest probability of doing so, to 
have the ability to stage our escalation and to deescalate if 
the response is adequate, and to make sure we are fulfilling 
our obligations to be a faithful steward of the global economy. 
That is where we need flexibility.
    Ms. Rosenberg. I agree with what has been said. I would be 
remiss if I did not mention that, having been on the other side 
of this equation from my prior work within the Treasury 
Department, there is an important role for some measure of 
flexibility. It is important that these measures would not be 
provoked automatically and do not inadvertently undermine the 
policy that they are intended to carry out.
    I know that you are sensitive to that, and to me that is 
where important congressional oversight is key and an important 
pivot.
    Senator Van Hollen. I agree. That is why we provide some 
waiver authority. But I do think that the automatic feature is 
essential to deterrence. That is my view.
    Thank you, Mr. Chairman.
    Chairman Crapo [presiding]. Thank you.
    Senator Warren.
    Senator Warren. Thank you. Thank you, Mr. Chairman. And 
thank you to our witnesses for being here.
    You know, it has been well documented by this Committee 
that the Trump administration has not implemented seven 
mandatory sanctions of the Russia sanctions law that was passed 
overwhelmingly by Congress last year. Of course, it does not 
mean that the Administration is doing nothing. Since January of 
2017, the Trump administration has sanctioned 217 Russia-
related individuals and entities and blocked hundreds of 
millions of dollars in Russian assets in the United States. And 
that is well and good, but there is a disconnect between the 
punitive actions taken against Russia by Treasury and the State 
Department and the behavior of President Trump himself--
President Trump, who said it is an ``incredible offer'' to let 
Putin's thugs interrogate our former diplomats.
    So, Ms. Rosenberg, the former sanctions policy coordinator 
at the State Department, Dan Fried, told this Committee last 
week that, ``Sanctions will have more power if they are 
embedded in an overall policy that works, is credible, and is 
consistently expressed.'' Do you agree with that?
    Ms. Rosenberg. Absolutely.
    Senator Warren. Good. So what impact do mixed messages from 
President Trump have on the effectiveness of our sanctions?
    Ms. Rosenberg. They undermine credibility of the U.S. 
policy posture, which is not a one-time problem. That goes on 
until the United States wins it back. My colleague was just 
saying that it is hard to gather and easy to lose.
    Senator Warren. Actually, very well put on that. It sounds 
like President Trump and the people he has appointed to be in 
his Administration are not on the same page when it comes to 
enforcing all our Russia sanctions and making sure that those 
sanctions are part of a comprehensive policy to push back on 
Russian aggression. And President Trump's mixed signals send 
the message to Putin that he will not face maximum punishment 
for trying to interfere in our democracy. That is not good for 
our security. It is not good for the security of our allies.
    Sanctions usually follow an effort to try to follow the 
money, and the Russians close to Putin want to make it harder 
for the United States to follow the money. In the Russia 
sanctions law that was passed last year, Congress required 
Treasury to provide a report on the net worth and the income 
sources of senior Russians who were close to Putin. Instead of 
doing that, the Treasury Department copied and pasted the 
billionaires list that had already been published in Forbes.
    Now, Ms. Rosenberg, in January, you recommended in an 
article that you published that the Trump administration 
``should provide additional public information about the 
oligarchs and officials named in the list and publicly describe 
which oligarchs and officials have engaged in acts of 
corruption and/or supported Putin's malign activities''. 
Presumably, much of this information is contained in the 
classified portions of the reports and can be declassified 
following appropriate review.
    So let me ask you, does the Treasury Department need 
additional authority from Congress to appropriately declassify 
and publicize this information?
    Ms. Rosenberg. No. They have independent authority to 
declassify intelligence as appropriate.
    Senator Warren. So without disclosing intelligence sources 
and methods, do you think it would be helpful to the United 
States and our allies if the Treasury Department published an 
unclassified report on the assets of Putin and his closest 
associates and the companies that they use to hide those assets 
and publish that on, say, a public website?
    Ms. Rosenberg. With the appropriate caveats that you 
mentioned to not reveal sources and methods, I would say 
transparency is our friend, and transparency is the friend to 
the Russian people who have a right to know how their State 
assets are being spent by their own Government.
    Senator Warren. Well, thank you. I hope that the Trump 
administration follows your advice and publishes this 
information. If we want to squeeze Putin and his cronies, we 
need to follow the money and expose the assets so that these 
corrupt individuals have fewer ways to hide their assets and 
keep themselves rich at everyone else's expense.
    Thank you.
    Chairman Crapo. Thank you very much, Senator Warren, and 
that concludes the questioning.
    Again, I want to thank our witnesses for not only your 
written testimony but your answers to questions here and the 
advice and guidance you have given us. And I am pretty 
confident that you will be getting some more questions for the 
record. I know I have at least one that I am going to submit to 
you, and I advise Senators that questions for the record are 
due September 19th, and I ask the witnesses, if you receive 
questions, if you would please respond as quickly as possible. 
Some witnesses drag that out a bit. It really helps us if you 
will respond promptly.
    We will keep the record open for the next 7 days, and, 
again, I just want to thank the witnesses for your help. This 
is an incredibly important issue. It is very complicated, and 
it is important that we get it right. So thank you for being 
here with us today.
    With that, this hearing is adjourned.
    [Whereupon, at 3:54 p.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Let me begin by thanking our witnesses for agreeing to testify this 
afternoon, and to help the Committee gain a better understanding on 
what might motivate the Russian Federation's President Vladimir Putin 
to change his present dangerous and destabilizing course.
    Further to the Administration's commitment to protecting our 
Nation's elections from foreign interference, the White House announced 
this morning a new Executive Order, based on its finding that the 
ability of foreigners to interfere in U.S. elections is an unusual and 
extraordinary threat to the national security of the United States.
    The EO is entitled, ``Imposing Sanctions in the Event of Foreign 
Interference in a United States Election'', and requires the Director 
of National Intelligence to analyze and report on foreign Government 
actions, the AG and Homeland Security to report on whether or not the 
election was materially affected by any foreign interference and then 
requires the Secretaries of Treasury and State to impose whatever 
sanctions they determine appropriate.
    A little bit later, I'm sure we may want to know what the 
impression of this is from our witnesses.
    Today, the Committee meets for the third time, in as many weeks, on 
the subject of Russia and President Putin's aggressive, malign 
activities directed against the United States, its allies, and spheres 
of influence.
    The hearings we have held so far have centered on the 
implementation status and the economic and political effectiveness of 
the existing sanctions architecture on Russia, including an assessment 
of the Countering America's Adversaries through Sanction's Act of 2017, 
or ``CAATSA'' as it is now known, and the Administration's use of its 
own authorities to sanction Russia.
    In the course of those hearings, the Committee also explored the 
potential for expanding on the existing set of sanctions authorities in 
order to amplify the economic effects on Russia sufficient to cause a 
change in Putin's behavior and strategic calculus.
    In our first hearing, we asked Administration officials drawn from 
the Departments of Treasury, State, and Homeland Security to testify on 
the question of whether or not the implementation of existing sanctions 
against Russia are working to deter or otherwise change Putin's 
behavior or strategic calculus with regard to the Kremlin's complete 
lack of regard for sovereign territorial integrity and independence of 
democratic institutions.
    The Administration has sanctioned over 230 individuals and entities 
for violations of congressional and Administration sanctions 
authorities, and further reported that it was stepping up its efforts 
to defend our Nation's critical infrastructure and aggressively support 
State and local efforts to secure the 2018 U.S. midterm elections.
    Those targeted include the heads of major State-owned banks and 
energy companies, many of Putin's closest associates or oligarchs and 
several Russian actors for interference in the 2016 elections.
    On the issue of electoral interference, the Homeland Security 
official reported that malicious cyberoperations are not just State-
run, not just run by a single actor and remain one of the most 
significant strategic threats to the United States.
    In our second hearing, a panel of outside experts testified on the 
same question as the Administration, offering their own views on the 
need for the Administration to have a cohesive Russia strategy and 
implement CAATSA fully, while Congress considers enacting new sanctions 
legislation.
    The Committee received testimony from the outside experts on the 
need for new, increased sanctions, since Russia has adapted itself to 
the current round of sanctions and, in fact, its economy has developed 
a resilience to the sanctions imposed by the United States and Europe.
    As Rachel Ziemba explained in her testimony from our last hearing, 
``Russia's economy may not be thriving, but it is surviving.'' And, 
many analysts believe that situation can exist for a long time.
    Yet, we also received testimony from each witness that a serious 
amplification of sanctions is fraught with the potential for 
unacceptable blowback against U.S. and European interests, and our 
interests in the Middle East and Asia, unless carefully constructed and 
tied to specific behaviors while appropriate discretion and off-ramps 
are carefully tailored.
    Sanctions alone are no silver bullet and do not guarantee quick 
reversals of undesirable behaviors no matter how draconian the 
sanction, especially since the more draconian the sanction, the more 
difficult multilateral participation and enforcement become.
    It stands to reason, then, that new sanctions must at least be 
accompanied by other tools to constrain a large Nation like Russia and 
deter a ruler like Putin from future malign activities.
    I look forward to a broader discussion this afternoon on resisting 
Putin's aggression from a broader range of geoeconomic and strategic 
policy options available to the United States and its allies.
    In addition to the sanctions discussed in our previous hearings, 
what other proposals should Congress and the president be considering 
to reach a desirable outcome with Russia?
    How susceptible to domestic unrest is Putin's regime?
    How important is it that the United States and Europe support each 
other's Russia strategy, and what would that have to look like?
    We must, as a Nation, find that prescription for sanctions and 
other measures that break the factors contributing to a Russian 
resilience to economic sanctions and put real pressure on Putin to 
change his map for Kremlin hegemony.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you Mr. Chairman, for calling this hearing and our earlier 
hearings on the impact of Russia sanctions and what we might do to 
bolster them.
    We are joined this morning by a distinguished panel of witnesses 
and I look forward to hearing from them.
    Today we'll hear about some new ideas--sanctions and nonsanctions 
tools alike--that might be more aggressively deployed to counter 
Russian aggression.
    They may include new sovereign debt and energy sanctions, 
transparency and anticorruption measures to combat Russian-generated 
money laundering through U.S. real estate transactions and offshore 
sources; and other measures to combat Russian illicit finance risks, or 
even to codify limits on Russia's access to World Bank and other 
international financial institution resources.
    Our last hearing made clear that additional transparency would hit 
Russian elites where it hurts--in their pocketbooks, including their 
multimillion-dollar Manhattan and Miami condos.
    As we've heard in our prior hearings, there is little disagreement 
that while sanctions have had some effect on Russia's economy, they're 
not having much effect on Putin's decision making. Russian abuses in 
Crimea and eastern Ukraine, Syria, and right here in the U.S. against 
our elections and other critical infrastructure, are common knowledge.
    Just this week, reports have surfaced that the Russians may be 
behind the attacks on the health of our personnel in Cuba. And that 
they're supporting Assad's efforts to overtake the holdout province of 
Idlib, potentially with the use of chemical weapons, just as they have 
so brutally used barrel bombs against civilians there.
    With over 3 million refugees and other civilians effectively 
trapped by intensified bombing, the U.N. has described this crisis as 
potentially the largest humanitarian catastrophe of our new century.
    Russian aggression here also continues unchecked. During our 
hearings, no one on the Committee has challenged established 
conclusions of fact by the U.S. intelligence community about Russia's 
involvement in ongoing attacks against our infrastructure and 
elections.
    And as our witnesses observed last week, we have to quickly resolve 
the growing tension between what military, intelligence, diplomatic, 
sanctions, and other professionals in the U.S. Government are doing to 
punish and deter Russia, and what the President himself is saying and 
doing.
    Our Government must speak with one voice. The President should make 
clear how he will use CAATSA to forcefully respond to Russian attacks, 
issue an executive order that clearly outlines the sanctions 
consequences for continuing attacks directed at the midterms, and 
implement that order forcefully if attacks continue.
    But as Ms. Rosenberg points out in her written testimony, a 
permissive executive order on election meddling is no substitute for 
further mandatory sanctions.
    We should work with our allies rather than alienate them. Vladimir 
Putin would like nothing more than to drive division between the United 
States and Europe, and amongst the Nations of Europe. Europe can 
contribute more to NATO, as it committed to do in 2014 and has been 
doing since.
    But today, September 12th, marks the day 17 years ago that NATO 
invoked Article 5, committing to take action alongside the United 
States if those responsible for 9/11 were identified. Isolation is a 
poor foreign or national security policy--then or now.
    The same spirit of unity that marked our response in the weeks and 
months after 9/11 should also infuse our response to Russia's attacks 
on our Nation's infrastructure, and on our democracy.
                                 ______
                                 
                    PREPARED STATEMENT OF LEON ARON
 Resident Scholar and Director of Russian Studies, American Enterprise 
                               Institute
                           September 12, 2018
    Thank you Chairman Crapo, Ranking Member Brown, and Members of the 
Committee: Before we discuss and evaluate specific measures, I think it 
might be helpful to begin by placing the sanctions on Vladimir Putin's 
regime (which is not to be equated with Russia or the Russian people!) 
in a larger context.
    Why are sanctions, like those on Russia, imposed on countries? 
Essentially to exact domestic political costs on a country's foreign 
policy.
    If that is the main purpose, there are two distinctions that need 
to be made in evaluating the impact of sanctions. One is short-term vs. 
medium- and long-term effects. And the other, more important 
distinction, is the difference between economic effects and political 
effectiveness. The former are relatively easy to achieve, especially 
when the disparity between the respective economies is as great as it 
is between the United States and Russia today. But the latter purpose, 
to change the policies of the sanctioned regime, is almost never 
achieved in the short term and has not been especially successful in 
the medium term either.
    This has been the case almost everywhere and at all times. One 
reason is the hope that the sanctions will be lifted or at least 
lightened. Secondly, and most importantly, authoritarian regimes, even 
the seemingly stable ones, carry on what Churchill called the fight of 
bulldogs under the carpet. A quick retreat could lead to a hemorrhaging 
and eventually loss of the leader's power, which could be accompanied 
by the loss of one's life as well. Hence, defiance is almost always the 
first reaction.
    Thus far, Russia has fit the general pattern, both with respect to 
the economic effects of the sanctions and their political 
effectiveness. Which is to say that the economic effects have been 
undeniable, damaging, and growing--but equally predictable has been the 
regime's defiance in the face of these sanctions. Alexei Kudrin, 
Putin's former and longest-serving Minister of Finance and still 
reportedly among Putin's most trusted economic advisors, has estimated 
the losses from sanctions and the absorption of Crimea into the Russian 
Federation from 2014 to 2017 at $100-150 billion in a country whose GDP 
last year was around $1.57 trillion. \1\
---------------------------------------------------------------------------
     \1\ ``Russia's Losses From Crimea Integration Estimated at $150-
200 bln--Ex-Finance Minister'', TASS, March 31 2015, http://tass.ru/en/
russia/786132.
---------------------------------------------------------------------------
    Similarly, according to the International Monetary Fund, the 
sanctions could initially reduce Russia's inflation-adjusted GDP to 
between 1 and 1.5 percent. \2\ The actual losses are almost certainly 
higher because of the impact of capital flight, the drop in foreign 
direct investment, and imports of technology in a country where 90 
percent of industry operates on imported equipment (and 100 percent in 
the most advanced sectors).
---------------------------------------------------------------------------
     \2\ Anders Aslund, ``Want To Hit Putin Where It Hurts? Target His 
Friends'', The Hill, September 2, 2018, http://thehill.com/opinion/
international/404524-want-to-hit-putin-where-it-hurts-target-his-
friends.
---------------------------------------------------------------------------
    As to the pattern of defiance in the face of the sanctions, there 
is no need to detail it to this audience; a short list of Russia's 
postsanctions actions would do: the shooting down of a Malaysian 
airliner over Russia-controlled territory in July 2014; six months 
later the deployment of regular Russian troops in the battle against 
Ukrainian forces around the town of Debaltseve; nine months later the 
sending of Russian troops to Syria; a year later an attempted coup in 
Montenegro to prevent it from joining NATO; and then of course the 
interference into the U.S. presidential election and the poisoning of a 
former intelligence officer in Britain.
    But the seeming absence of immediate political effects of the 
sanctions must not be confused with their ineffectiveness.
    To begin with, we should not underestimate the power of moral 
outrage which the sanctions represent--especially if they are initiated 
by the only country that ultimately matters to Russians: America. As we 
learned after the Soviet Union collapsed, the moral outrage which U.S. 
sanctions represented chipped away at the regime's legitimacy. And 
Russia is not a totalitarian country. Public opinion matters.
    Similarly, we should keep in mind, and not be disheartened by the 
fact there are no silver bullets and it is very hard to invent 
something that is both new and effective.
    As a result, the several packages of measures in the pipeline 
today, including the DETER legislation, appear most effective when they 
build on or deepen the existing sanctions that are most likely to have 
a domestic political impact.
    I would single out two such measures.
    First, the earlier ban on investment in and transfer of technology 
to the Russian oil industry--a measure that is furthered by the DETER 
package to including ``blocking'' or freezing assets of two of Russia's 
three largest oil companies.
    This is a ticking bomb under the Putin regime.
    A former head of the Russia office of an oil multinational has 
commented in an elite Russian online journal that, I quote my 
translation, ``From my own experience . . . I know that without Western 
technologies and investors the oil-and-gas sector of Russia would be on 
a deathbed.'' \3\
---------------------------------------------------------------------------
     \3\ Konstantin Eggert, ``Voina budet proigrana. Pochemu putinskaya 
elita boitsya sanktsii bol'she sovetskoi'' (The War Will Be Lost. Why 
the Putin Elite Fears Sanctions More Than the Soviet Elite), Snob, 
August 10, 2018 https://snob.ru/entry/164380.
---------------------------------------------------------------------------
    True, Russia is not a petro-State like Saudi Arabia. No more than 
15-20 percent of its GDP comes from oil and gas. But the tax revenues 
from energy exports constitute at least 50 percent of the Russian State 
budget. This is ready cash for President Putin to pay for his key 
political assets: the security services, the armed forces, over 36 
million pensioners, \4\ and millions of public-sector workers. Yes, in 
theory, if he does not have the money to feed these constituencies 
Putin may decide to turn Russia into a totalitarian State like Cuba or 
North Korea, where public opinion does not matter at all. Does he have 
the temperament for the inevitable bloodshed or for the risks involved? 
He may or may not. We simply don't know. But these are exactly the kind 
of tough choices that sanctions should be designed to force Putin to 
make.
---------------------------------------------------------------------------
     \4\ ``Kakoe kolichestvo pensionerov zafiksirovano v Rossii v 2017 
godu'' (How Many Pensioners Are Registered in Russia in 2017), 
Straxovoi Portal, https://insur-portal.ru/pension/kolichestvo-
pensionerov-v-rossii.
---------------------------------------------------------------------------
    The ban on financing and technology transfer is a ticking bomb 
because while Russia is not running out of oil, it is beginning to run 
out cheap oil in Western Siberia. There is plenty of oil still left in 
Russia, more than any other country in the world, but most of it in 
Northeast Siberia is at or above the Arctic Circle, under permafrost, 
much of it offshore in the Kara Sea, Laptev Sea, and the East Siberia 
Sea. Virtually all of it must be mined at temperatures between minus 22 
and minus 55 degrees Fahrenheit.
    The startup investment in exploration and extraction is likely to 
run into the hundreds of billions of dollars, which Russia does not 
have--in addition to the required technology that Russia cannot even 
touch.
    The second measure that is likely to have a sizeable domestic 
political effect is the restrictions under the DETER legislation that 
ban the sale of Russian sovereign debt. This policy builds on the 
already existing restrictions on raising capital by several Russian 
private companies and banks.
    This past August, Russian media labeled the 14-day limit on 
operations with sovereign debt the ``most serious threats to the 
Russian economy.'' \5\
---------------------------------------------------------------------------
     \5\ Arnold Khachaturov, ``Rubl' Trepeshchet'' (The Ruble Is 
Trembling), Novaya Gazeta, August 9, 2018, https://www.novayagazeta.ru/
articles/2018/08/09/77446-rubl-trepeschet.
---------------------------------------------------------------------------
    An outright ban on the sale of the OFZ, the Russian acronym for 
Obligatsii Federal'nogo Zayoma, or Federal Loan Bonds would be a very 
serious blow. As a Russia expert put it, OFZ's are the ``Finance 
Ministry's workhorse funding instrument for the budget.'' \6\
---------------------------------------------------------------------------
     \6\ Ben Aris, ``Even the Specter of Sanctions Is Hurting Russia'', 
The Moscow Times, August 25, 2018, https://themoscowtimes.com/articles/
even-the-specter-of-sanctions-is-hurting-russia-op-ed-62666.
---------------------------------------------------------------------------
    A third of Russian State debt is already held by foreigners, and 
Russian experts anticipate a massive fire sell-off for cents on the 
dollar and ``nonresidents exit'' from Russian ``papers.'' \7\ Finally, 
the sale of sovereign debt, according to Russian experts, helps 
finance, among others, the Russian Pension Fund. \8\
---------------------------------------------------------------------------
     \7\ Khachaturov, op. cit.
     \8\ See, for example, Vladislav Inozemtsev, ``Prishli za Putinym'' 
(They've Come for Putin), Forbes.ru, August 9, 2018, http://
www.forbes.ru/biznes/365639-prishli-za-putinym-chem-grozyat-kremlyu-
novye-sankcii-ssha.
---------------------------------------------------------------------------
    Moreover, an ambitious economic program announced by President 
Putin after his inauguration this past May calls for nearly $115 
billion in additional spending over the next 6 years, and--along with 
hiking the Value Added Tax from 18 to 20 percent, \9\ and raising the 
retirement age, the Finance Ministry had planned to raise nearly $36 
billion by selling the OFZs, most of them to foreign investors. \10\
---------------------------------------------------------------------------
     \9\ ``Russia's Duma Passes Bill Raising Value-Added Tax to 20 
Percent'', The Moscow Times, July 24, 2018, https://themoscowtimes.com/
news/russia-duma-passes-bill-raising-value-added-tax-20-percent-62331.
     \10\ Ben Aris, ``Russian Government Gets a New Programme and 
People'', bne Intellinews, May 20, 2018 http://www.forbes.ru/biznes/
365639-prishli-za-putinym-chem-grozyat-kremlyu-novye-sankcii-ssha; and 
see Aris, ``Specter of Sanctions''.
---------------------------------------------------------------------------
    In conclusion, making Vladimir Putin moderate, not to mention 
retreat from, his current aggressive policies will require measures 
targeted as precisely as possible at increasing the domestic political 
costs of his regime's behavior--as well as a great deal of patience.
    Thank you, Mr. Chairman.
                                 ______
                                 
               PREPARED STATEMENT OF ELIZABETH ROSENBERG
 Senior Fellow and Director, Energy, Economics, and Security Program, 
                   Center for a New American Security
                           September 12, 2018
    Chairman Crapo, Ranking Member Brown, distinguished Members of the 
Committee, thank you for inviting me to appear before this Committee to 
discuss new tools to counter Russia.
    Today, the security and integrity of the United States is under 
attack by Russia's threats to our democratic institutions. 
Additionally, Russia's malign activities actively undermine our core 
policies and values linked to respect for national sovereignty, rule of 
law, prohibitions against the use of weapons of mass destruction, and 
protection of human rights. Russia's malicious and aggressive foreign 
interference is also a destabilizing affront to U.S. global leadership 
and to the national interests of our closest allies.
    Equally as alarming as the grave and deeply damaging harms wrought 
by Russia is the inadequate U.S. policy response. The directors of our 
intelligence agencies, U.S. cabinet-level officials, including the 
Secretaries of State, Treasury, and Defense, and the executives of the 
most prominent social media companies have spoken clearly about the 
threat. But so far, the Administration's policy response has appeared 
uncoordinated or contradictory, and has been insufficiently bold in 
indicating to Russia that its activities will not be tolerated. How 
U.S. policy leaders proceed now is of fundamental importance to the 
character of, and future for, our democracy and core values. Now, U.S. 
lawmakers must continue their strong leadership role in articulating a 
strategic vision for addressing this threat and deploying an array of 
policy tools to push back on Russia and uphold our national security.
    The Trump administration has embraced a maximum financial pressure 
strategy to address many of our leading national security priorities, 
including responding to threats from Iran and North Korea. With regard 
to Russia, however, U.S. policy has suffered from uneven execution and 
limited implementation of the law, and a lack of strategy, uniform 
messaging, and long-term vision. The Administration has offered tough 
rhetoric and has embraced the use of sanctions. However, the White 
House has also telegraphed a desire to relieve tensions with Russia at 
times, sending confused signals to political leaders and to global 
financial and energy markets, and contributing to a loss of credibility 
for U.S. policy. The White House is reportedly considering tough new 
sanctions to respond to foreign meddling in U.S. elections. \1\ 
However, the discretionary nature of such new authorities, coupled with 
signals from the President that Russian interference into U.S. 
elections is a ``hoax'', undermines their deterrent effect. Members of 
the U.S. policy community are more keenly aware of these unfortunately 
mixed signals than most, which is what led Congress to almost unanimous 
support for tough Russia sanctions legislation last summer, and what 
motivates the current push for more aggressive Russia measures.
---------------------------------------------------------------------------
     \1\ Shane Harris, Josh Dawsey, and Ellen Nakashima, ``White House 
Drafting Sanctions Order To Punish Foreign Interference in U.S. 
Elections'', The Washington Post, August 8, 2018, https://
www.washingtonpost.com/world/national-security/white-house-drafting-
sanctions-order-to-punishforeign-interference-in-us-elections/2018/08/
08/ef0939f2-9b0a-11e8-843b-
36e177f3081c_story.html?noredirect=on&utm_term=.9bfdc2f24896.
---------------------------------------------------------------------------
    I applaud the seriousness of purpose demonstrated by members of 
Congress to address the threats from Russia, and I support the notion 
that much more must be done. It is impossible, and possibly morally 
reprehensible, to countenance the threats we face and contemplate 
inaction. However, I urge policy leaders not to embrace policy that 
appears tough but lacks teeth, that strives to deliver consequences to 
Russia but instead imposes unintended consequences to our country and 
its allies, and undermines our foreign policy goals. Sanctions have 
been a U.S. tool of choice for addressing rogue regimes and thugs, and 
a favorite tool to address Russia since 2014. But they are not the only 
option or solution, and their pathological use can diminish U.S. 
credibility, and the cogency and availability of sanctions more 
generally. It is possible that the practical utility of U.S. sanctions 
on Russia is now primarily in the realm of messaging and of exposing 
malicious activity, rather than as a force to deter Russian malicious 
activities. Actually achieving such deterrence now will require an 
adaptation of the sanctions and economic pressure applied to Russia, a 
holistic foreign policy strategy, and the simultaneous use of an array 
of complementary policy tools.
The Role of Sanctions in Countering Russia
    The present U.S. sanctions regime targets a wide swath of Russia's 
malign activity. Currently, authorities are in place to expose and 
target Russia's illegal annexation of Crimea and territorial aggression 
in eastern Ukraine; support for Syrian President Bashar Assad's war 
crimes, including his use of chemical weapons on his own people; use of 
chemical weapons on the soil of a close U.S. ally; malicious 
cyberactivity; violations of human rights; and violations of various 
sanctions programs, including the North Korea sanctions program.
    There has been a robust debate about whether sanctions have 
effectively delivered policy success since implementation of the major 
sanctions measures targeting Russia in 2014. The critics have a strong 
case that becomes more and more convincing with the passage of time, as 
the list of ills sanctions are meant to address becomes longer, as the 
United States loses credibility and allies in the campaign to push back 
on Russia, and as the policy delivery appears episodic and lacking in 
strategy. \2\ This is a poor framework from which to expect policy 
success.
---------------------------------------------------------------------------
     \2\ ``America's Escalating Russian Sanctions: A Thickening Web'', 
The Economist, August 30, 2018, https://www.economist.com/europe/2018/
08/30/americas-escalating-russian-sanctions; Julia Ioffe, ``How Not To 
Design Russia Sanctions'', The Atlantic, January 31, 2018, https://
www.theatlantic.com/international/archive/2018/01/kremlin-report-
sanctions-policy/551921/.
---------------------------------------------------------------------------
    In fact, it appears likely that for these measures to deliver 
enough of an economic blow to Russia to compel policy change, they will 
involve an enormous set of economic consequences for the United States 
and its allies and trading partners. That may involve costs that the 
United States is only willing to bear if there is a broadly held view 
that we are truly at war with Russia, a political belief that is far 
from mainstream at present.
    This does not mean that sanctions should not be part of the policy 
approach to address Russian threats, but rather that their application 
must be used to specifically expose and impose consequences for 
malicious Russian activities. They can also be used successfully to 
impede the flow of Russian money and curb Russia's malicious 
activities. Sanctions must not be overemphasized to the exclusion of 
other forms of economic statecraft, and sanctions must be paired with 
other tools of national power and coordinated with allies. Divided from 
our transatlantic partners on sanctions, we will struggle for clarity 
and strength in our Russia policy and we will alienate and harm our 
closest friends in the fight. Ultimately, U.S. sanctions cannot alone 
be expected to deliver foreign policy success; they must be combined 
with other tools of national power. Policymakers must proceed from this 
starting point when deploying this tool in the future.
    Looking forward, policymakers must be especially mindful of the 
size and global interconnectedness of Russia's economy and the 
willingness and ability of its leaders to cope with economic hardship 
and not make political concessions in the face of this stress. While 
sanctions implemented by the United States and the European Union in 
2014 and 2015 did cause economic damage to the Russian Federation, the 
Russian economy has shown itself to be resilient, and the Russian 
Government has shown itself to be an effective manager of the 
sanctions-imposed stress. Russia's recession ended in 2016, and while 
its growth has been a meager 1.5-2 percent since, this has been enough 
to avoid broad discontent with Putin's foreign policy. Rising oil 
prices and the ability of Russian State and private executives to court 
foreign exchange, particularly in light of the declining ruble, has 
been a powerful buoy to the Russian economy. Its leaders have worked 
diligently to bail out institutions under sanctions stress and raise 
capital to insulate itself from further sanctions. It has ``on-shored'' 
many critical capabilities, especially in its energy sector, is looking 
to China as an alternative market and financier, and is bracing for a 
long fight with the United States. \3\
---------------------------------------------------------------------------
     \3\ Rachel Ziemba, Senior Adjunct Fellow, Center for a New 
American Security, ``Russia Sanctions: Current Effectiveness and 
Potential Future Steps'', Testimony before the U.S. Senate Committee on 
Banking, Housing, and Urban Affairs, September 6, 2018, https://
www.cnas.org/publications/congressionaltestimony/testimony-before-the-
u-s-senate-committee-on-banking-housing-and-
urbanaffairs?token=khIvHdgtVWsdRODQ0Q7LdfXd8eGg34y.
---------------------------------------------------------------------------
New Policy Measures on Russia
    The Senate is currently considering two major, bipartisan pieces of 
Russia sanctions legislation--the Defending Elections From Threats by 
Establishing Redlines Act of 2018 (DETER Act) and the Defending 
American Security From Kremlin Aggression Act of 2018 (DASKA Act). Both 
would impose sanctions on new issuance of Russian sovereign debt, place 
Russian banks on the U.S. Specially Designated Nationals and Blocked 
Persons (SDN) list, which would freeze any bank assets in the U.S. and 
block all transactions with the banks that come into U.S. jurisdiction, 
and would tighten sanctions on Russia's energy sector, which remains a 
dominant source of Russian Government revenue. There are many ideas in 
the legislation worth careful evaluation and development, and I 
strongly support a premise and goal of the legislation: presenting 
powerful consequences to Russia to deter its threats and interference 
in our core democratic institutions, its territorial aggression, and 
Russia's unacceptable breaches of sovereignty and human rights. The 
introduction of these pieces of legislation has already achieved a 
powerful political goal for U.S. foreign policy. It has signaled 
outrage and critique to Russia, and a clear intent to escalate policy 
measures in the face of Russian aggression and breaches in 
international norms that the United States cannot abide.
    Lawmakers must proceed in earnest to refine proposed sanctions 
measures, but they must be mindful of the unintended consequences and 
the need to target the economic pressure on Russian interests rather 
than Russian trading partners. Lawmakers should aim squarely at 
sanctions targets directly involved in threatening and insidious 
activities. Doing so will expose this conduct in the public domain, 
garnering credibility for the United States and forming a basis for 
building multinational support to counter these Russian activities.
    Maximalist sanctions designed to deliver a punishing blow to 
Russia's biggest economic actors may seem appealing to security hawks 
eager to constrain or punish Russia, but they are not savvy. If U.S. 
policymakers attempt to unilaterally and suddenly sever ties between 
the largest Russian energy companies and their foreign partners they 
may negatively impact U.S., European, and Asian energy consumers or 
investors exposed directly or indirectly to the Russian market, and 
undercut U.S. sanctions strategy on Iran. U.S. policymakers may also 
inadvertently enrich Russian energy firms that replace foreign firms, 
thereby consolidating Russian influence in global supply and pricing. A 
further potential unintended consequence might be increases in the role 
Chinese firms play in the Russian market, undermining U.S. leverage on 
Russia. By contrast, a U.S. policy approach attempting to impede future 
investment and production capacity in the Russian energy sector, 
perhaps by limiting the provision of technology, specialty equipment, 
services, and capital, may deliver the economic pressure U.S. lawmakers 
intend but avoid disruptive market effects and harm to U.S. 
relationships with partners in Europe and developed Asian economies.
    Similarly, U.S. sanctions measures targeting the entire stock of 
Russian debt trade and transactions can also have wide-ranging and 
disruptive market impacts. A more targeted sanctions policy approach of 
tailoring restrictions just on future debt issuance may achieve a 
strong economic and political signal and limit the consequences to U.S. 
interests. Although Russian authorities may be able to replace the 
foreign finance of new debt with either domestic sources (such as State 
banks, pension funds, or rich individuals) or rely on funds from 
autocratic States, doing so will impose costs in terms of rising rates, 
further restricting fiscal policy space and free cash flow of the 
Russian Government. As foreign ownership of Russian local currency debt 
has already fallen, at 28 percent of total outstanding issuance in late 
July according to Russian Government data, the contagion risk to other 
emerging markets via direct portfolio effects may have fallen. The 
symbolic effect of sanctions on primary issuance of sovereign debt 
might still be meaningful, and the economic effects would be 
concentrated in Russia and, to the extent that there is contagion, 
sentiment impacts on emerging markets with weak balance sheets, such as 
Brazil, South Africa, and Turkey, rather than on the debt of developed 
markets such as the United States.
    Additionally, new defense measures may be most effective by taking 
a targeted approach to restricting Russia's ability to procure 
internationally made component parts for use in weapons and defense 
systems, possibly through an updated application of Countering 
America's Adversaries Through Sanctions Act (CAATSA) section 231. This 
could be done while maintaining reasonable pressure to reduce Russia's 
defense exports and earnings. When it comes to using sanctions to 
target cronies close to President Putin, it will be important to train 
these authorities on individuals who are actually part of Putin's inner 
circle and to the greatest extent possible expose their involvement in 
Russia's malicious and destabilizing activities.
    There are certainly an array of other policy options that 
legislators must study to counter Russia, including through increased 
force posture and projection in Europe, the Eastern Mediterranean, and 
the Black Sea, and through offensive cyberoperations. There are also 
proactive measures the United States should pursue, through provision 
of aid and technical assistance, to advance European energy security, 
shore up support for backsliding democracies in Eastern and Central 
Europe, and support an informed and free press into Russia and in 
countries it seeks to influence and misinform.
Financial Transparency as a National Security Priority
    Now, in the realm of economic statecraft to address Russia, I urge 
U.S. lawmakers, and the Members of this Committee in particular, to 
pair any new set of sanctions measures on Russia with critical and 
much-needed policy to promote financial transparency and the disclosure 
of beneficial ownership information in the corporate formation process. 
This may have broad-ranging and powerful effects in exposing and 
deterring Russian corruption and illicit financial activity in the 
United States and Russia's interference in our democratic processes. 
Ultimately, it may be the most effective thing that Congress can do to 
root out and confront Russia's insidious influence and destabilization 
campaigns in our homeland. It should be a centerpiece of the array of 
tools the United States uses in a holistic policy to address the 
Russian threat, including military, diplomatic, intelligence, economic, 
technical and development assistance, and legal measures.
    The current version of DASKA includes a provision to expand 
Geographic Targeting Orders for obtaining information from title 
insurance companies on beneficial owners of entities that purchase 
high-value residential properties. \4\ While this would represent a 
useful new measure of financial transparency, it is wholly insufficient 
on its own to meet the scale of the vulnerability.
---------------------------------------------------------------------------
     \4\ United States Senate, Defending American Security Against 
Kremlin Aggression of 2018, S. 3336, 115th Congress, https://
www.congress.gov/bill/115th-congress/senate-bill/3336/titles.
---------------------------------------------------------------------------
    I urge you to take up new legislative language to require the 
collection and disclosure of beneficial ownership information in the 
corporate formation process and on an ongoing basis. This would offer a 
powerful solution to the problem of anonymous companies in the United 
States, which represents an appalling gap in the integrity of our 
financial system and an enormous loophole that enables malicious 
actors, including Russian operatives seeking to undermine U.S. 
democratic institutions and processes, to operate anonymously and with 
utter impunity in the United States.
    The United States boasts the most sophisticated and preeminent 
financial system globally, with unparalleled financial crimes 
enforcement capabilities and resources. Yet, even with all of those 
advantages, our financial system has a wide-open back door for our 
adversaries to march through, set up shop and wage an enormous and 
well-funded influence campaign, laundering money, and paying for 
attacks on our democracy. U.S. law enforcement agencies have been 
asking for access to beneficial ownership information for some time, 
the likes of which could help to expose and deter Russian attacks on 
our democracy. But, despite the severity of the threat, these requests 
from the law enforcement community have been ignored. \5\ Banking 
executives also support the requirement for collection of beneficial 
ownership information, as it would help them to better protect 
themselves from abuse by criminals and other illicit financiers. \6\
---------------------------------------------------------------------------
     \5\ M. Kendall Day, Acting Deputy Assistant Attorney General, 
Criminal Division, U.S. Department of Justice, ``Beneficial Ownership: 
Fighting Illicit International Financial Networks Through 
Transparency'', Testimony to the Senate Judiciary Committee, February 
6, 2018, https://www.judiciary.senate.gov/imo/media/doc/02-06-
18%20Day%20Testimony.pdf.
     \6\ Greg Baer, President, The Clearing House Association, 
``Implementation of FinCEN's Customer Due Diligence Rule--Financial 
Institution Perspective'', Testimony to the House Financial Services 
Subcommittee on Financial Institutions and Consumer Credit, April 27, 
2018, https://financialservices.house.gov/uploadedfiles/hhrg-115-ba15-
wstate-gbaer-20180427.pdf.
---------------------------------------------------------------------------
    The international community is well aware of the gaps in U.S. 
oversight of corporate entities. The Financial Action Task Force 
(FATF), the global standard-setter for financial crimes compliance, 
found the United States ``noncompliant'' in its most recent review of 
our approach to transparency and beneficial ownership. As FATF stated: 
``Beyond [a SEC requirement for entities which issue securities] there 
is no requirement for other companies or company registries to obtain 
and hold up-to-date information on their [beneficial owner] or to take 
reasonable measures to do so.'' \7\ This is an alarm bell about a 
tremendous gap in our national security, one we know that Russia is 
exploiting.
---------------------------------------------------------------------------
     \7\ Financial Action Task Force, ``Anti- Money Laundering and 
Counter-Terrorist Financing Measures: Mutual Evaluation Report'' 
(December 2016), http://www.fatf-gafi.org/media/fatf/documents/reports/
mer4/MERUnited-States-2016.pdf, 224.
---------------------------------------------------------------------------
    At present, anonymous companies are free to operate without 
providing accurate information to law enforcement. This enables their 
involvement in illicit activity, such as money laundering, or the 
funding of major political and social influence campaigns to undermine 
our democracy and sew discord. \8\ Other jurisdictions also rated by 
FATF as noncompliant during this evaluation period include: Nicaragua, 
Sri Lanka, Zimbabwe, and Panama. \9\ It is disgraceful that this level 
of international public humiliation for inadequate beneficial ownership 
regulations has done nothing to motivate policy change.
---------------------------------------------------------------------------
     \8\ Matea Gold, ``Did Facebook Ads Traced to a Russian Company 
Violate U.S. Election Law?'', The Washington Post, September 27, 2017, 
https://www.washingtonpost.com/news/postpolitics/wp/2017/09/07/did-
facebook-ads-traced-to-a-russian-company-violate-u-s-electionlaw/
?noredirect=on&utm_term=.46220204c35d.
     \9\ Financial Action Task Force, Table of ratings for assessment 
conducted against the 2012 FATF Recommendations, using the 2013 
Methodology (September 2018), http://www.fatfgafi.org/media/fatf/
documents/4th-Round-Ratings.pdf.
---------------------------------------------------------------------------
    Why have our financial and national security leaders failed to act? 
Efforts to advance beneficial ownership over the last year have 
foundered on concerns about privacy and the burden of imposing such 
regulations on small businesses. But these protestations are often 
inflated, ideological, and impractical. It is possible to responsibly 
balance civil liberties concerns and the requirement to disclose basic 
beneficial ownership information. Our national security and the need to 
maintain the integrity of our democracy demand it.
    Even before the chilling revelations about insidious Russian 
threats from the U.S. intelligence community and social media 
executives before Congress, there was a broad coalition of law 
enforcement, business interests, and national security supporters that 
supported beneficial ownership legislation. Kenneth Blanco, the 
Director of the Treasury Department's Financial Crimes Enforcement 
Network (FinCEN) testified to the House Committee on Financial Services 
about the importance of collecting beneficial ownership information for 
the implementation of the new Customer Due Diligence (CDD) Rule. \10\
---------------------------------------------------------------------------
     \10\ Kenneth Blanco, Director, Financial Crimes Enforcement 
Network, ``Testimony for the Record'', Testimony to the Subcommittee on 
Terrorism and Illicit Finance, House Committee on Financial Services, 
May 16, 2018, https://financialservices.house.gov/uploadedfiles/hhrg-
115-ba01-wstate-kblanco-20180516.pdf.
---------------------------------------------------------------------------
    The Financial Accountability and Corporate Transparency (FACT) 
Coalition, a nonpartisan alliance of civil society and public interest 
organizations, has highlighted the high cost of allowing illicit money 
to flow absent greater transparency measures. \11\ They have focused 
specifically on the threat of illicit finance originating through the 
use of anonymous corporate entity formation as a grave national 
security concern, most recently in an open letter to the House 
Committee on Financial Services from distinguished experts on the topic 
with decades of relevant Government experience. \12\
---------------------------------------------------------------------------
     \11\ FACT Coalition, ``Briefing Memo: IRS Does Not Collect 
Beneficial Ownership Information and Additional Concerns With an IRS 
Approach'', May 7, 2018, https://thefactcoalition.org/briefing-memo-
irs-does-notcollect-beneficial-ownership-information-and-additional-
concerns-with-an-irsapproach?utm_medium=policy-analysis/briefing-memos.
     \12\ FACT Coalition, ``36 Former Military and Civilian National 
Security Leaders Urge House of Representatives To End Anonymous Shell 
Companies'', June 1, 2018, https://thefactcoalition.org/36-former-
military-civilian-national-security-leaders-urge-congress-end-
anonymous-shellcompanies?utm_medium=resources/incorporation-
transparency.
---------------------------------------------------------------------------
    State Governments, which have specific responsibility for 
regulating corporate entities within their borders, are also starting 
to sound the alarm. Earlier this year, 24 State attorneys general 
signed a letter to Congress calling for tightening of beneficial 
ownership transparency. \13\ The need to effectively address Russian 
threats, including to our democratic institutions and processes, must 
be the catalyst to motivate policy change on beneficial ownership now. 
Lawmakers should adopt this policy and make it part of the economic 
statecraft targeting Russia, embracing it alongside broader economic 
and financial sanctions in any forthcoming legislation targeting 
Russia.
---------------------------------------------------------------------------
     \13\ ``Ferguson Calls on Congress to Require Shell Company 
Transparency'', Washington State Office of the Attorney General, press 
release, August 2, 2018, https://www.atg.wa.gov/news/news-releases/
fergusoncalls-congress-require-shell-company-transparency.
---------------------------------------------------------------------------
    Additionally, to further promote financial transparency that can 
protect us from Russia's meddling and threats to our homeland, Congress 
should consider long-delayed crossborder funds transmittal reporting 
requirements. \14\ Current regulations require financial institutions 
to retain records of electronic funds transfers of greater than $3,000. 
However, there is no requirement that this information be furnished to 
FinCEN, merely that it be retained in the event that FinCEN asks for 
it. This passive approach stands in contrast to other leading economies 
that require disclosure of international value transfers as a matter of 
course. The countries, including close U.S. allies, have found this 
information valuable for understanding and combating national security 
threats, including the progress of rogue regimes in the financing of 
proliferation of weapons of mass destruction and other financial 
crimes. Congress should revisit the feasibility of the FinCEN proposed 
rule and consider what implementation of the crossborder rule would do 
to address and combat the Russian threat to U.S. national security.
---------------------------------------------------------------------------
     \14\ Financial Crimes Enforcement Network, ``Implications and 
Benefits of Cross-Border Funds Transmittal Reporting'' (January 2009), 
https://www.fincen.gov/sites/default/files/shared/
ImplicationsAndBenefitsOfCBFTR.pdf.
---------------------------------------------------------------------------
Further Congressional Oversight
    Beyond these measures there are other policy options that the U.S. 
Congress should consider to advance its efforts to promote transparency 
and expose and counter Russia's threats. First and foremost, lawmakers 
must keep up the pressure in their oversight efforts, calling the 
Administration to regularly account for its strategy and implementation 
of policy. The Treasury Department's repeated extension of a sanctions 
wind down period to the Russian aluminum firm Rusal should serve as a 
lesson to Congressional overseers in needing to better understand the 
potential consequences of sanctions action, and in playing a more 
active role in making sure that their message and effect are consistent 
with a coherent policy toward Russia. Rusal was targeted because it is 
controlled by Russian oligarch Oleg Deripaska, whose holding company 
was also sanctioned. In designating the entire firm, however, the 
Treasury Department put the aluminum market into a spiral, with 
potential long-term consequences for the firm's operations worldwide, 
including in the United States, supply chains, and how traders and 
observers perceive--and unfortunately misperceive--the intent of U.S. 
sanctions. \15\
---------------------------------------------------------------------------
     \15\ Donna Borak and Marshall Cohen, ``Sanctions on Russia's Rusal 
Could Be Lifted, Mnuchin Says'', CNN.com, July 27, 2018, https://
www.cnn.com/2018/07/27/politics/mnuchin-russia-sanctionsrusal/
index.html.
---------------------------------------------------------------------------
    Congress also has an important role to play in elevating oversight 
of sanctions authorities already in place. Additionally, CAATSA 
required the Administration to produce an annual report that identifies 
and maps ``illicit financial flows linked to the Russian Federation if 
such flows affect the United States financial system or those of major 
allies of the United States.'' Congress should use this report as a 
roadmap for identifying areas in which the Treasury Department could 
use additional resources, or be encouraged to expand existing efforts 
to share information with allies, break down barriers to interagency 
cooperation, identify typologies of Russian illicit finance, and better 
repair other gaps in our regulatory or legal infrastructure. \16\
---------------------------------------------------------------------------
     \16\ Public Law 115-44, ``Countering America's Adversaries Through 
Sanctions Act'', August 2, 2017, Section 243; the first report can be 
found at Treasury Department, Report to Congress Pursuant to Section 
243 of the Countering America's Adversaries Through Sanctions Act of 
2017 Regarding Interagency Efforts in the United States to Combat 
Illicit Finance Relating to the Russian Federation (August 6, 2018), 
https://home.treasury.gov/sites/default/files/2018-08/
U_CAATSA_243_Report_FINAL.pdf.
---------------------------------------------------------------------------
    While Congress considers various measures to advance the 
transparency of how categories of corporate entities in the U.S. 
financial sector operate, it should not lose sight of the opportunity 
to extend transparency to other ways the Russian Government and Putin's 
inner circle funnels money into the United States. Lawmakers can 
consider restrictions on investment of Russian money in the U.S. 
market, especially by individuals identified as oligarchs, many of whom 
have demonstrable connections to Russian President Vladimir Putin. The 
U.S. Treasury has wide authority to freeze assets and impose other 
sanctions on these actors, and initial evidence from the April 
sanctions of some of these cronies and oligarchs suggests that 
investment restrictions do put pressure on members of Putin's inner 
circle. \17\ The current version of the DETER Act includes authorities 
for mandatory sanctions on ``any senior foreign political figure or 
oligarch in the Russian Federation'', including a visa ban if the 
Director of National Intelligence determines that the Russian 
Government, or agents acting on its behalf, knowingly interfered in a 
U.S. elections. \18\
---------------------------------------------------------------------------
     \17\ Tom Keatinge, ``This Time, Sanctions on Russia Are Having the 
Desired Effect'', Financial Times, April 13, 2018, https://www.ft.com/
content/cad69cf4-3e40-11e8-bcc8-cebcb81f1f90.
     \18\ U.S. Senate, ``Defending Elections From Threats by 
Establishing Redlines Act of 2018'', S. 2313, 115th Congress, 2nd 
Session, January 16, 2018, https://www.congress.gov/bill/115th-
congress/senatebill/2313/text#toc-idA56783BD8F5140649B72C1AA9AE7BCA9.
---------------------------------------------------------------------------
    An additional idea that Congress should begin to study is the 
development of new anti- money laundering requirements, which currently 
apply primarily to banks and money services providers, to cover other 
kinds of professional services providers that Russian oligarchs and 
cronies rely on to move money into the U.S., such as investment 
advisors, venture capital and private equity firms, and certain 
professional services providers. Press reports have highlighted the 
potential threat from Russian venture capital firms in Silicon Valley, 
who may be using Russian State resources to acquire sensitive national 
security-applicable technology. \19\
---------------------------------------------------------------------------
     \19\ Zach Dorfman, ``How Silicon Valley Became a Den of Spies'', 
Politico, July 27, 2018, https://www.politico.com/magazine/story/2018/
07/27/silicon-valley-spies-china-russia-219071.
---------------------------------------------------------------------------
Conclusion
    Every American should be concerned about Russia's efforts to 
undermine our democracy, to violate sovereignty, and to blatantly 
support and enable grave abuses of human rights and use of weapons of 
mass destruction. The scope of these threats is broad, and there is 
limited indication that Russia is deterred by any of the policy 
measures that have been undertaken to date. Congress has used coercive 
economic and financial measures to push back against this malign 
activity, measures which are justified by the severity of the threat. 
However, those tools must be used wisely, in conjunction with other 
financial, diplomatic, and military tools, and in coordination with 
allies.
    In particular, the financial transparency measures I outlined today 
would constitute a powerful weapon to push back against the flow of 
Russian money into our financial system, which has been difficult for 
law enforcement officials to track and account for. These measures 
would lose deficiencies that have made the United States a haven for 
illicit finance from a variety of sources, including those who work on 
behalf of Russia's malign influence campaigns. Many of the solutions I 
have outlined have been proposed or considered in previous agency 
regulation or legislation. All that is required is the political will 
to follow through on their adoption and implementation.
    Congress has taken an active role in the application of sanctions 
to the variety of areas in which the United States and Russia are at 
odds. Congress has a direct role to play in this aspect of the fight as 
well, by eliminating the pervasive use of anonymous corporate entities, 
providing more resources to Treasury/FinCEN, but also exercising 
oversight of their activities, and pursuing other disclosure measures 
that will shine a light on dirty money flowing through the U.S. 
financial system. In doing so, Congress can put tremendous pressure on 
Russia's malign activity and offer a strong complement to the other 
methods the United States is using to defend itself against this 
unprecedented threat.
    Thank you for your time and attention. I look forward to answering 
your questions.
                                 ______
                                 
                   PREPARED STATEMENT OF DALEEP SINGH
 Senior Fellow, Atlantic Council, and Adjunct Professor, Johns Hopkins 
                               University
                           September 12, 2018
    Mr. Chairman and Ranking Member Brown, thank you for the 
opportunity to appear before this Committee.
    As a Treasury official, I worked extensively on the design of 
Russia sanctions in 2014. Looking back, I draw three main conclusions 
from the experience: (1) sanctions ``do their job'' if they are 
carefully designed and embedded into a coherent foreign policy; (2) the 
signaling of future sanctions is at least as potent as the actions 
themselves (like any weapon, the best sanctions are never used); and 
(3) sanctions aren't enough to change behavior. Bearing these lessons 
in mind, I will offer suggestions to counter ongoing Russian aggression 
and malign behavior--both using sanctions and other economic tools.
    For context, allow me to share perspective from the 2014 
experience.
How Were Sanctions Designed in 2014?
    Before 2014, the United States had never imposed sanctions on a 
country the size of Russia. It was the tenth largest economy in world, 
with a GDP roughly the size of Italy. More important than its size was 
the complexity of Russia's economy and its connections to the rest of 
the world. Russia was and is of systemic importance in global energy 
markets, ranking second and third in the production of natural gas and 
oil, respectively. Its largest banks were comparable in size and 
complexity to Lehman Brothers before 2008. Given the high stakes 
involved, our objective was clear: design a menu of options that could 
deliver \1\ economic costs while minimizing spillovers to the U.S. and 
global economy.
---------------------------------------------------------------------------
     \1\ Strictly speaking, maximizing costs (financial crisis) was not 
the objective.
---------------------------------------------------------------------------
    We pursued this objective by first writing down a set of guiding 
principles that remain instructive. Sanctions against a large, complex, 
and integrated market economy such as Russia should be: (1) powerful 
enough to demonstrate U.S. resolve and our capacity to impose 
overwhelming costs; (2) responsible to limit contagion through the U.S. 
and global financial system; (3) targeted to avoid the appearance of 
punishing the Russian civilian population and, in doing so, 
strengthening Putin's domestic narrative; (4) calibrated to increase 
the chance of partnering with European and international allies; and 
(5) staged to preserve scope for escalation or deescalation, in 
addition to learning from previous steps.
    Putting these principles into action required an understanding of 
Russia's economic pressure points. We focused on asymmetries. Where did 
U.S. economic leverage intersect with Russia's vulnerability? Foreign 
capital was and is an obvious choice. U.S. and European firms are the 
dominant suppliers of something Russia needed in large quantity and 
could not easily replace from other sources. Similarly, in energy, 
Russia's supply chains were dependent upon U.S. and European technology 
to boost their long-term production capacity and innovative potential. 
Here again, U.S. and EU companies are major suppliers of goods and 
services that Russia needs and cannot easily replace.
Financing Restrictions Proved Especially Potent
    Restricting foreign capital proved even more potent than we 
anticipated. By removing U.S. and European supply of debt and equity 
financing to the largest Russian State-owned enterprises in the most 
critical sectors of the economy, the 2014 sanctions triggered a wave of 
capital outflows from Russia, followed by economic recession.
    The mechanism by which the financial restrictions operated is worth 
recalling to appreciate their potency. For sanctioned entities, the 
restricted supply of Western capital spiked their cost of borrowing and 
reduced their access to foreign capital at any price. The sudden 
financing shock impaired our targets' credit profiles, leading to 
record levels of capital outflows from Russia as a whole. In a futile 
attempt to defend the ruble, the Russian central bank depleted about a 
quarter of its foreign currency reserves before allowing the currency 
to depreciate up to fifty percent from its presanctions level against 
the U.S. dollar. Importantly, the speed of the negative feedback loop 
in Russia was determined by market forces and Putin's own actions, not 
prescribed in advance by U.S. policy.
    Import prices surged in tandem with the weakened currency and 
pushed overall inflation to the midteens, forcing several rounds of 
emergency interest rate hikes by the central bank to extreme levels. 
Banks required Government injections of capital and regulatory 
forbearance to avoid insolvency. Adjusted for inflation, wages and 
spending collapsed. Bank lending and investment dried up.
Spillover Risks Were Managed Carefully
    By the second half of 2014, we knew these sanctions had the 
potential to deliver a knockout blow, particularly with lower oil 
prices causing a dual shock, \2\ but we took care to limit unwanted 
spillovers--both to increase the staying power of sanctions and to 
avoid appearances of targeting Russian civilians. Our sanctions only 
targeted a handful of State-owned companies in key sectors. We did not 
target private companies, nor we did not sanction all sectors of the 
economy. We prohibited new U.S. flows of financing to the targets of 
our sanctions, but existing stocks of risk were not disrupted. U.S. 
investors remained free to reduce exposure to Russia at a pace and 
magnitude of their own choosing. Derivatives and money markets, both of 
which tend to be the ``dry tinder'' of financial crisis, were largely 
untouched by sanctions.
---------------------------------------------------------------------------
     \2\ Most credible estimates are that 10 to 40 percent of Russia's 
economic contraction during this period was due to sanctions, with 
lower oil prices playing a larger role.
---------------------------------------------------------------------------
Impact and Spillovers Were Largely as Expected
    Due in large part to this restraint, the economic impact to and 
spillovers from Russia were in line with our expectations. The Russian 
economy contracted 2.8 percent in 2015, the largest decline among large 
economies, and the recession continued in 2016. Somewhere between one-
half and two-thirds of this impact was likely caused by lower oil 
prices; the rest we can conservatively attribute to sanctions.
    Over the medium term, these sanctions dealt a weak strategic hand 
to Putin's Russia. Its already depleted capital stock was starved of 
much-needed financing and direct investment. Removal of U.S. and 
European energy technology, and the deintegration of Russia from the 
global financial system, deprived Russia of key inputs to productivity 
growth and made its economy even more brittle. The overall chilling 
effect reportedly prompted defections from talented portions of 
Russia's declining labor force. As of last July, the IMF estimated 
potential growth in Russia over the medium-term at no more than 1.5 
percent.
    Meanwhile, unwanted spillovers within Russia and to Western 
economies were largely contained. Sanctions forced the Russian 
Government to deplete a portion of its finite set of resources to 
contain financial and economic stress, but we avoided causing 
widespread panic and impoverishment among the general public. This was 
consistent with our purpose: to create diplomatic leverage and deal 
space, not to deliver a knockout blow.
    Blowback to the U.S. economy was minimal in the aggregate, although 
certain businesses and sectors were more negatively affected. (By 
construction, sanctions are an economic distortion; spillovers are 
unavoidable). Even for Europe, where direct trade and financial 
linkages to Russia are far more significant, the effects were 
summarized by the European Commission as ``contained.'' \3\ In fact, 
without sanctions, it is fair to project that the costs and 
uncertainties brought about by unchecked Russian aggression in the 
heart of Europe would have been far less contained that what was 
experienced.
---------------------------------------------------------------------------
     \3\ 0.3 percent of GDP in 2014 and 0.4 percent in 2015.
---------------------------------------------------------------------------
Signals Were at Least as Important as Actions
    Throughout this process, both the impact and spillovers from 
sanctions were managed through signaling. The signals were expressed by 
the most senior officials of the U.S. Government, and they were made 
credible by a coherent, multifaceted, and coordinated foreign policy.
    In March 2014, after announcing the first round of sanctions 
against Russia, President Obama signaled the possibility of further 
escalation with a new executive order that authorized broader sanctions 
against key sectors of the Russian economy. In the same statement, he 
pushed forcefully in favor of an IMF bailout program for Ukraine--a 
recognition that the best defense against Russian aggression was a 
strong economic offense. Vice President Biden was dispatched to the 
Baltic States to reinforce our Article 5 commitment to NATO countries, 
and to step up cooperation with Europe on developing buffers against 
energy shortfalls in the region.
    After announcing sanctions in July 2014 against Russia's largest 
banks, energy companies, and defense firms, President Obama warned 
again that the costs on Russia would ratchet higher if Putin's 
aggression in Ukraine continued. He also signaled that European allies 
were poised to replicate our sanctions after close consultations (which 
they did, multiplying the direct effect of sanctions and reducing the 
competitive disadvantage to U.S. firms). The same credible threat of 
escalation was repeated by President Obama in September after another 
round of sanctions, this time targeted at Russia's largest bank, even 
amid diplomatic efforts in Minsk to broker a cease-fire.
    Many of the most punishing days in Russian markets during 2014 were 
not those in which new sanctions actions were formally announced; some 
of the biggest impacts were delivered after signals about future policy 
were revealed. This makes intuitive sense. Markets are forward-looking; 
asset prices determined by expectations about the future. Escalatory 
signals were often enough to could deliver impact to Russian markets 
without taking any new action, and they were perhaps a small 
counterweight to Putin's so-called ``escalation dominance'' in the 
military realm. Of course these effects become muted when investors 
doubt the credibility of the threat, but this has only become a 
relevant concern more recently.
Changing Behavior
    Did any of these costs ultimately matter to Putin? Answering this 
question is beyond my expertise, but I would observe that any leader--
however rogue--cares about popularity (at least as a method of 
control), and recessions do not win hearts and minds. Putin's tolerance 
for economic pain is demonstrably higher than that of most Western 
leaders, but I believe there is a threshold above which his calculus is 
changed. Pointing out Putin's history as a tactical opportunist, some 
have argued convincingly that were it not for the mounting costs to the 
Russian economy in late 2014, Putin's forces would have marched all the 
way to Kyiv; or, at a minimum, he would have rejected even half-hearted 
engagement in the Minsk process. We'll never know the counterfactual, 
but by the Russian leadership's own admissions the impact of sanctions 
was appreciable during this period. Even less clear is whether we 
managed to win the narrative. Do the Russian people understand that 
U.S. sanctions were an attempt to defend the sovereignty and 
territorial integrity of a free country? Or do most Russians believe in 
Putin's story that the recession of 2014-15 is just the latest in a 
series of historical injustices perpetrated by the West? We simply 
don't know the answer, and this is a subject I will address in the 
recommendations section.
Current Context and Recommendations
    Turning to the current context, we know that Russian aggression and 
violations of sovereignty have spread across Europe and the U.K., into 
Syria, and certainly here at home. At the same time, economic and 
financial conditions in Russia have improved markedly. The economy is 
out of recession. Inflation recently touched an all-time low. Oil 
prices have tripled from their trough. Foreign reserves have been 
replenished to presanctions levels. The Government's deficit and debt 
profiles remain sound. Both the provocations from Russia, and its 
ability to absorb a hit from sanctions, have increased.
    Against this background, I would emphasize that the sanctions 
toolkit designed in 2014 does not need to be reinvented. What matters, 
ultimately, is the political willingness to use our sanctions tools in 
a sustained and coherent fashion, together with high-level signaling 
that expresses our resolve to change Putin's behavior. Escalation can 
take two general forms: increasing the scope of existing sanctions to 
cover a broader set of targets, or deepening the scale of impact on any 
particular individual or institution. Sanctions can go broader, deeper, 
or both.
    Below I sketch out an illustrative set of options that apply the 
principles described earlier.
    First, costs should be broadened to include the very highest levels 
of the Russian Government. At a minimum, Treasury and other authorities 
should conduct a study that attempts to identify the location, 
holdings, and financial intermediaries that manage and benefit from 
Putin's wealth. Even in the unlikely scenario that this effort has no 
effect on Putin's geopolitical calculus, it will signal to the Russian 
people that our quarrel is not with them, and it might provide a 
measure of transparency on his fortunes held abroad.
    Second, U.S. investors should be prohibited from purchasing new 
Russian sovereign debt. In 2014, I was more cautious about the 
unpredictable spillover effects that could result from a sudden 
disruption to Russia's risk-free, benchmark asset, particularly during 
a period of acute stress. To be clear, this is still a serious step--
but circumstances have changed. Russia is far better able to absorb a 
hit to its sovereign debt market, considering the background conditions 
described earlier, \4\ and investors have had years to reduce exposures 
in Russia. More to the point, I can think of no credible argument why 
U.S. public pension funds and savings vehicles should indirectly fund 
the Russian Government while the latter continues to sponsor violations 
of U.S. sovereignty.
---------------------------------------------------------------------------
     \4\ In fact, the Russian Finance Ministry recently suggested it 
would buy back its domestic debt in an adverse scenario.
---------------------------------------------------------------------------
    Third, while I am not in favor of prohibitions on secondary market 
trading \5\ of Russian assets as a general matter, there is merit in 
constructive ambiguity. Requirements on U.S. persons to disclose any 
existing holdings of Promsyvazbank (Russia's designated bank to service 
the defense sector), and possibly VEB, would be an effective step to 
generate a broader chilling effect, especially if it includes a grace 
period. By itself, this measure would not prohibit any activities, but 
markets are conditioned to read the signals. These financial 
institutions are appendages of the Russian Government, oriented around 
domestic lending with relatively fewer international linkages than 
other large Russian banks.
---------------------------------------------------------------------------
     \5\ Secondary market trading refers to the buying and selling of a 
financial instrument (e.g., Russian debt) after it has been issued.
---------------------------------------------------------------------------
    Fourth, a comprehensive package to counter Russian aggression 
requires an offensive economic strategy in its near abroad, not only to 
Ukraine but also to Georgia, the Baltics, Moldova, and possibly central 
Asia. Possible steps could include conditions-based financial support 
to reinforce long-standing IMF priorities in the region to improve the 
rule of law, battle corruption, and implement market-oriented reforms. 
The overarching purpose is to create successful alternatives to 
Russian-style autocracy.
    Finally, I would strongly encourage a robust campaign to improve 
transparency within Russia. Distributing verifiable evidence of 
corruption, and the dependence of the current regime on kleptocracy, 
would help to counter the Government's disinformation campaigns and its 
control of the media. Working with the IMF and other multilateral 
institutions could also shine a light on the basic challenges of doing 
business in Russia--enforcing contracts, protecting intellectual 
property, and defending property rights. Fostering genuine private-
sector exchanges between the U.S. and Russia could also help in this 
regard.
    Mr. Chairman and Ranking Member Brown, thank you once again for the 
invitation to testify, and I look forward to your questions.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                         FROM LEON ARON

Q.1. Discretion and Penalties. In your discussion of the 
President's recent Executive Order ``Imposing Certain Sanctions 
in the Event of Foreign Interference in a United States 
Election'', issued on September 12, 2018, you each raised some 
concern over the amount of discretion the Administration 
retained in the process of coming to a sanctions determination.
    In your opinion, what is the optimum amount of discretion 
for this or any future Administration to retain in this 
particular case, or sanctions determinations more generally?

A.1. The standard practice is to grant the Executive 
flexibility and discretion as to the timing and scope of 
application, while preserving the overall Congress-mandated 
framework.

Q.2. The Director of National Intelligence is tasked with 
investigating and reviewing election meddling from almost any 
foreign source, should that review culminate in assessment of 
foreign interference, in your opinion, should sanctions be 
automatically imposed on that assessment, or should there be a 
further finding of materiality by the Attorney General and 
Secretary of Homeland Security?

A.2. Given the sensitivity of the issue and that, in the case 
of Russia, the other nuclear superpower would be sanctioned, I 
would support the involvement of the AG and Homeland Security.

Q.3. In other words, would it be good policy, in your opinion 
to have the intelligence community making sanctions 
determinations, itself?

A.3. See the above.

Q.4. The Executive Order and the DETER Act, each contemplate 
sanctions against any foreign actor, but the specific types of 
sanctions and their targets are only specified with regard to 
Russian interference.
    In your opinion, should the types of sanctions and their 
targets be any different for other foreign actors who interfere 
in U.S. elections?

A.4. I believe sanctions ought to be meted out based on the 
severity of offense, not on the country of origin.

Q.5. Other Tools. The Committee has held two hearings, before 
today, and a number of Senators, and witnesses alike, have 
advocated for harsher restrictions, moving forward.
    How much more can the U.S. amplify sanctions against an 
economic and political target like Russia, before contagions 
and spill-overs make their use unacceptable to the United 
States?

A.5. Since the target is the world's other superpower, Congress 
should understand that at least some negative consequence for 
the U.S. are inevitable. As I mentioned at the hearing, a ban 
on the purchase of Russian sovereign debt (OFZ) is one such 
option. Russia's exclusion from the SWIFT system would 
represent an ultimate escalation (bearing in mind that Russian 
officials have called such a move a ``declaration of war'').

Q.6. What other tools or policies, beyond sanctions, might 
encourage Russia to reverse course in Ukraine, or cease its 
information warfare operations against the democratic processes 
of the United States and European Union?

A.6. Outside the sanctions, the toolbox is rather small. A more 
vigorous and robust support of Ukraine in its ongoing war with 
Russia would represent one such step.

Q.7. In your opinion, which tools in the U.S. toolbox would 
Putin fear more than sanctions?

A.7. Being forced to withdraw from Ukraine.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                    FROM ELIZABETH ROSENBERG

Q.1. Discretion and Penalties. In your discussion of the 
President's recent Executive Order ``Imposing Certain Sanctions 
in the Event of Foreign Interference in a United States 
Election'', issued on September 12, 2018, you each raised some 
concern over the amount of discretion the Administration 
retained in the process of coming to a sanctions determination.
    In your opinion, what is the optimum amount of discretion 
for this or any future Administration to retain in this 
particular case, or sanctions determinations more generally?

A.1. As a general matter, Congress should prescribe what 
activity ought to be exposed, deterred, and/or targeted by 
sanctions, while the Administration must maintain the 
flexibility to select individuals or entities to target with 
designations. This will facilitate an appropriate balance 
between the use of sanctions and other tools of statecraft and 
ensure that the Administration can keep the sanctions list 
appropriately updated.

Q.2. The Director of National Intelligence is tasked with 
investigating and reviewing election meddling from almost any 
foreign source, should that review culminate in assessment of 
foreign interference, in your opinion, should sanctions be 
automatically imposed on that assessment, or should there be a 
further finding of materiality by the Attorney General and 
Secretary of Homeland Security?

A.2. A determination of interference should not automatically 
lead to the imposition of sanctions. The Administration must 
have discretion to determine thresholds of significance or 
materiality, and the appropriate target. This will help to 
facilitate greatest utility and advancement of U.S. policy 
interests. If, for various reasons, sanctions designations are 
not the most appropriate or effective next step after a 
determination of interference, the Administration should 
nevertheless take some form of action to address this activity 
and deter any future such activity.

Q.3. In other words, would it be good policy, in your opinion 
to have the intelligence community making sanctions 
determinations, itself?

A.3. As is the case at present, the policy community should 
make the decision to impose sanctions, based on intelligence 
and publicly available information, as appropriate. It would be 
inappropriate for the intelligence community to take on the 
role of sanctions implementer, regulator, or enforcer.

Q.4. The Executive Order and the DETER Act, each contemplate 
sanctions against any foreign actor, but the specific types of 
sanctions and their targets are only specified with regard to 
Russian interference.
    In your opinion, should the types of sanctions and their 
targets be any different for other foreign actors who interfere 
in U.S. elections?

A.4. Sanctions authorities related to interference in U.S. 
elections, as well as the posture for implementation and 
enforcement of these authorities, should apply equally to 
individuals or entities of any nationality.

Q.5. Other Tools. The Committee has held two hearings, before 
today, and a number of Senators, and witnesses alike, have 
advocated for harsher restrictions, moving forward.
    How much more can the U.S. amplify sanctions against an 
economic and political target like Russia, before contagions 
and spill-overs make their use unacceptable to the United 
States?

A.5. The United States can impose additional sanctions on 
Russia that will have meaningful effects on Russian targets and 
limited spill-over effects for non-Russian entities, including 
the United States. This may include sanctions on primary 
issuance of sovereign debt, or on nonsystemically significant 
Russian financial institutions. Harsher financial sanctions 
that target financial institutions central to the Russian 
economy, or that target current Russian oil production, are 
likely to produce spillover effects that many in the United 
States may find unacceptable either for the economic spillover 
effects or the tension they cause in relationships with allies 
and partners.

Q.6. What other tools or policies, beyond sanctions, might 
encourage Russia to reverse course in Ukraine, or cease its 
information warfare operations against the democratic processes 
of the United States and European Union?

A.6. Beyond sanctions, continued public awareness-raising about 
the specific methods Russia and other actors use in information 
warfare operations would provide benefits to the international 
community in identifying red flags and typologies of election 
interference. The more information that can be incorporated in 
risk assessments and countermeasures, the less effective Russia 
will be in the future. Forms of force projection by NATO or by 
the United States directly may also serve to discourage Russia 
from its territorial aggression.

Q.7. In your opinion, which tools in the U.S. toolbox would 
Putin fear more than sanctions?

A.7. The strongest U.S. tool is multilateral security alliances 
and the potential that the United States and its transatlantic 
partners could mobilize an array of capabilities, from defense, 
economic, information, and cybermeasures, to push back on 
Russian malign activity.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                    FROM ELIZABETH ROSENBERG

Q.1. It is clear that economic sanctions are most effective 
when implemented with the cooperation of the international 
community. Unlike in the U.S., EU sanctions must be renewed by 
member States on a unanimous basis, generally every 6 months.
    What efforts should be made to deepen our coordination with 
our partners to enforce sanctions?

A.1. The U.S. Administration should reopen the State 
Department's Sanctions Coordination Office, in much the same 
format and structure as what is called for in the newest 
version of the Defending American Security from Kremlin 
Aggression Act. The United States needs a high-level, 
institutionalized diplomatic effort to keep lines of 
communication open with European partners.

Q.2. Are there specific steps that the Administration should 
take that it has not already taken with respect to coordinating 
with our partners?

A.2. Along with reopening the State Department's Sanctions 
Coordination Office, the Administration should also report to 
Congress on its strategy to ensure greater coordination with 
European partners and how it plans to navigate widening 
differences in the U.S. and EU sanctions regimes going forward.

Q.3. What are the risks that Russia is able to pick off a 
Nation within the EU and prevent an extension of sanctions by 
the Europeans?

A.3. There are EU member States that lean towards weakening 
sanctions pressure against Russia, and Russia has cultivated 
its ties to these countries. It remains incredibly likely that, 
as a result, the EU will not be able to add more significant 
sectoral sanctions targeting Russia to existing authorities. At 
best, the EU can be expected to list more individuals 
implicated in malign activities.

Q.4. What additional authorities (if any) do you think are 
needed to increase cooperation with our allies?

A.4. Congress should help to institutionalize the presence of 
the Sanctions Coordination Office in the State Department to 
steer the diplomacy on these efforts. Congress should also 
provide further support to Treasury's Office of Foreign Assets 
Control to help manage the heavy burden of sanctions 
implementation and enforcement.

Q.5. Russia has responded to Western sanctions with heated 
rhetoric and by placing a retaliatory ban on certain imports, 
among other measures. It is likely to respond with hostility to 
additional sanctions.
    What actions do you expect the Russian Government to take 
in response to a new round of sanctions? Please provide what 
you believe to be Russia's most likely response to an 
additional round of sanctions.

A.5. In response to a new round of sanctions the Russian 
Government is most likely to respond similarly to how it has 
responded to past rounds of sanctions, such as with CAATSA. It 
might expel additional U.S. diplomats or otherwise force the 
United States to downsize its diplomatic mission in Russia. The 
Russian Government might also respond with additional sanctions 
of its own against U.S. persons and products, although this may 
have as great an effect (or greater) on Russian entities as it 
is likely to have on U.S. businesses and consumers.

Q.6. How likely is it that increased sanctions lead to a 
response by Russia in another domain or in some form of other 
aggression?

A.6. Russia may respond to additional sanctions measures with 
cyberintrusions similar to those it carried out to interfere in 
U.S. and European elections. However, those activities are 
likely to continue with or without additional U.S. sanctions 
against Russia. It is unlikely that Russia would respond to 
additional sanctions with direct military action in Ukraine or 
elsewhere.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                    FROM ELIZABETH ROSENBERG

Q.1. Money Laundering. Ms. Rosenberg, in your written 
testimony, you mention that the U.S. financial system has a 
``wide open back door for our adversaries to march through, set 
up shop, and wage an enormous and well-funded influence 
campaign, laundering money and paying for attacks on our 
democracy.'' As you suggest, one avenue to stop this would be 
to provide U.S. law enforcement with increased access to 
beneficial ownership information.
    What actions would you recommend Congress take in order to 
allow U.S. law enforcement agencies further access to 
beneficial ownership information?

A.1. I strongly recommend that Congress pass legislation 
requiring the collection of beneficial ownership information 
and the disclosure of that information to the Financial Crimes 
Enforcement Network (FinCEN) in order to form a beneficial 
ownership registry. I would also recommend appropriating 
additional resources to FinCEN so that it can better work with 
other law enforcement bodies to share and utilize beneficial 
ownership information.

Q.2. Russian Spying. We know from public reporting that Russian 
efforts to obtain information on valuable, sensitive, or even 
dual-use technologies in Silicon Valley has been going on for 
years. From public reporting, it has also been made clear that 
Russia's espionage activities have in part been financed by 
Russian companies or venture-capital firms based in and around 
Silicon Valley.
    In your estimation, who is providing resources to Russian 
venture capital firms in Silicon Valley in order to acquire 
sensitive national security-applicable technology? For what 
purposes?

A.2. Some venture capital and investment organizations, like 
the Skolkovo Foundation and Rusnano, are directly backed or 
owned by the Russian Government. \1\ Others are backed by or 
related to major Russian financial institutions like Sberbank 
and VTB. There are also major investors like Yuri Milner, whose 
venture capital firm DST Global has major Russian financial 
institutions as investors. \2\ Russian venture capital firms 
have made a wide range of investments in Silicon Valley; the 
investments tied to sensitive national-security applicable 
technology appear to have been in biotechnology and 
nanotechnology. \3\
---------------------------------------------------------------------------
     \1\ Zach Dorfman, ``How Silicon Valley Became a Den of Spies'', 
Politico, July 27, 2018, https://www.politico.com/magazine/story/2018/
07/27/silicon-valley-spies-china-russia-219071.
     \2\ Julia Ioffe, ``Russian Money in Silicon Valley'', The 
Atlantic, November 9, 2017, https://www.theatlantic.com/international/
archive/2017/11/yuri-milner-paradise-papers/545483/.
     \3\ Joanna Glasner, ``These Are the U.S. Startups That Russian 
Investors Are Backing'', TechCrunch, November 11, 2017, https://
techcrunch.com/2017/11/11/these-are-the-us-startups-that-russian-
investors-are-backing/.

Q.3. Do there currently exist anti- money-laundering 
requirements to prevent Russian oligarchs close to Putin from 
---------------------------------------------------------------------------
investing in these venture capital firms?

A.3. While FinCEN has proposed expanding anti- money-laundering 
requirements to all registered investment advisers, including 
venture capital firms, there are currently no anti- money-
laundering requirements placed on these venture capital firms 
that might prevent investments from Russian oligarchs.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
                       FROM DALEEP SINGH

Q.1. Discretion and Penalties. In your discussion of the 
President's recent Executive Order ``Imposing Certain Sanctions 
in the Event of Foreign Interference in a United States 
Election'', issued on September 12, 2018, you each raised some 
concern over the amount of discretion the Administration 
retained in the process of coming to a sanctions determination.
    In your opinion, what is the optimum amount of discretion 
for this or any future Administration to retain in this 
particular case, or sanctions determinations more generally?

A.1. Generally speaking, my belief is the executive branch 
should retain substantial discretion to determine the design 
and execution of sanctions. Sanctions are most effective when 
used as leverage for diplomatic negotiation. To the extent that 
the executive branch retains primary authority to conduct U.S. 
foreign policy, it should also retain the ability to calibrate 
sanctions to maximize the likelihood of diplomatic success. 
Splitting the responsibility for sanctions across branches of 
Government runs the risk of sending mixed messages, thereby 
reducing the potency of sanctions to change behavior--the 
ultimate goal.
    With respect to Russia, however, I worry that the executive 
branch has not exercised its sanctions authority in an optimal 
manner. The outperformance of Russian markets makes this clear: 
investors do not believe the executive branch is serious about 
holding Russia accountable. Faced with this circumstance, I 
don't think Congress has any choice but to take the lead on the 
design and execution of Russia sanctions. This is not optimal, 
and it may create an unhelpful precedent over the long-term, 
but it's still better than the alternative of doing nothing.

Q.2. The Director of National Intelligence is tasked with 
investigating and reviewing election meddling from almost any 
foreign source, should that review culminate in assessment of 
foreign interference, in your opinion, should sanctions be 
automatically imposed on that assessment, or should there be a 
further finding of materiality by the Attorney General and 
Secretary of Homeland Security? In other words, would it be 
good policy, in your opinion to have the intelligence community 
making sanctions determinations, itself?

A.2. This is well outside my area of expertise, but my view is 
that a finding of foreign interference by the Director of 
National Intelligence (DNI) should be sufficient to warrant 
sanctions. Ideally, the DNI could provide context on the 
materiality of the interference, both relative to history and 
across countries--in consultation with other relevant 
Government authorities. If the violation is material, the 
executive branch should take the lead role on designing and 
executing the appropriate response via sanctions or other tools 
of foreign policy. As described above, Congress should act as a 
check on the executive branch's actions, filling the void if 
sufficient action is not taken.

Q.3. The Executive Order and the DETER Act, each contemplate 
sanctions against any foreign actor, but the specific types of 
sanctions and their targets are only specified with regard to 
Russian interference.
    In your opinion, should the types of sanctions and their 
targets be any different for other foreign actors who interfere 
in U.S. elections?

A.3. I recognize the distinction between the degree of 
specificity on sanctions against Russia compared to lack of 
detail on consequences for other foreign actors. In this case, 
however, I believe it's appropriate. The violations of U.S. 
sovereignty committed by Russia are not abstract or 
prospective; according to our most senior intelligence 
officials, they have already occurred--and repeatedly. To my 
knowledge, malign behavior of this kind by other foreign actors 
has not been substantiated. Specifying the precise sanctions 
that would be appropriate for a prospective foreign belligerent 
would be premature and perhaps misguided without any context.

Q.4. Other Tools. The Committee has held two hearings, before 
today, and a number of Senators, and witnesses alike, have 
advocated for harsher restrictions, moving forward.
    How much more can the U.S. amplify sanctions against an 
economic and political target like Russia, before contagions 
and spill-overs make their use unacceptable to the United 
States?

A.4. Russia's economy is far better able to absorb a hit from 
U.S. sanctions than in 2014 or 2015. The economy is out of 
recession. Inflation recently touched an all-time low. Oil 
prices have tripled from their trough. Foreign reserves have 
been replenished to presanctions levels. The Government's 
deficit and debt profiles remain sound. In my judgment, the key 
areas of spillover risk are from the Russian banking system and 
energy production. So long as our sanctions are not designed to 
cause widespread default within the Russian banking system, 
panic within the Russian financial system, and/or the export of 
Russian energy production, we are unlikely to see major 
spillovers or contagion.

Q.5. What other tools or policies, beyond sanctions, might 
encourage Russia to reverse course in Ukraine, or cease its 
information warfare operations against the democratic processes 
of the United States and European Union? In your opinion, which 
tools in the U.S. toolbox would Putin fear more than sanctions?

A.5. I agree with the premise of your question--sanctions alone 
are unlikely to change Putin's behavior. My suggestions are 
three-fold:
    First, costs should be broadened to include the very 
highest levels of the Russian Government. At a minimum, 
Treasury and other authorities should conduct a study that 
attempts to identify the location, holdings, and financial 
intermediaries that manage and benefit from Putin's wealth. 
Even in the unlikely scenario that this effort has no effect on 
Putin's geopolitical calculus, it will signal to the Russian 
people that our quarrel is not with them, and it might provide 
a measure of transparency on his fortunes held abroad.
    Second, a comprehensive package to counter Russian 
aggression requires an offensive economic strategy in its near 
abroad, not only to Ukraine but also to Georgia, the Baltics, 
Moldova, and possibly central Asia. Possible steps could 
include conditions-based financial support to reinforce long-
standing IMF priorities in the region to improve the rule of 
law, battle corruption, and implement market-oriented reforms. 
The overarching purpose is to create successful alternatives to 
Russian-style autocracy. This is what Putin fears most.
    Finally, I would strongly encourage a robust campaign to 
improve transparency within Russia. Shining a light on 
verifiable evidence of corruption, and the dependence of the 
current regime on kleptocracy, would help to counter the 
Government's disinformation campaigns and its control of the 
media. Working with the IMF and other multilateral institutions 
could also shine a light on the basic challenges of doing 
business in Russia--enforcing contracts, protecting 
intellectual property, and defending property rights.

Q.6. In your testimony you tout the many virtues of the 
sanctions architecture put into place in 2014, and for that 
matter, Congress enhanced later in 2017 with CAATSA. Yet, 
despite this web of sanctions, most economic indicators are now 
up, in Russia. What are the possible contagions and spill-over 
effects of possibly over-correcting through the use of more 
restrictive sovereign debt measures? What financial or economic 
defenses has Russia been working on to blunt such measures?

A.6. Sanctioning sovereign debt is a serious escalation. 
Government bonds are the ``risk-free'' asset that underpin the 
valuation of virtually all other assets in the country, as well 
as the national currency. Pension funds and insurance companies 
often hold large amounts of sovereign debt to meet obligations 
to their customers. Banks and other companies use sovereign 
debt as collateral in borrowing arrangements, both domestically 
and abroad. Derivative contracts also involve sovereign debt in 
their valuation and collateral arrangements, often in ways that 
are complex and difficult to understand in advance. Index funds 
that trade widely in Western markets include Russian sovereign 
debt as a key component.
    If sanctions are restricted to primary issuance, however, 
many of these risks are contained. And as mentioned earlier, 
Russia is far better able to absorb a hit to its sovereign debt 
market, considering the favorable background conditions for 
Russia and its efforts to improve its debt profile. Western 
investors have had years to reduce exposures to the Russian 
sovereign. More to the point, I can think of no credible 
argument why U.S. public pension funds and savings vehicles 
should indirectly fund the Russian Government while the latter 
continues to sponsor violations of U.S. sovereignty.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM DALEEP SINGH

Q.1. It is clear that economic sanctions are most effective 
when implemented with the cooperation of the international 
community. Unlike in the U.S., EU sanctions must be renewed by 
member States on a unanimous basis, generally every 6 months.
    What efforts should be made to deepen our coordination with 
our partners to enforce sanctions?
    Are there specific steps that the Administration should 
take that it has not already taken with respect to coordinating 
with our partners?
    What are the risks that Russia is able to pick off a Nation 
within the EU and prevent an extension of sanctions by the 
Europeans?
    What additional authorities (if any) do you think are 
needed to increase cooperation with our allies?

A.1. I am in full agreement. Multilateral cooperation is a 
force multiplier in terms of the direct effects of sanctions 
(excluding Russia from European and U.S. capital markets is 70-
90 percent of the global total), the potency of the signal (the 
U.S. is not acting arbitrarily), and the avoidance of putting 
U.S. firms at competitive disadvantage. The first step that 
should be taken is to restore the role of U.S. sanctions 
coordinator at the State Department. Daniel Fried served with 
distinction in this role, and his efforts to coordinate 
sanctions with the EU were instrumental. Second, the Treasury 
Department should step up efforts--both formally and 
informally--to develop working relationships with sanctions 
counterparts from finance ministries in the EU and elsewhere. 
Lastly, U.S. political leaders should make it clear that 
participation in the international community is reserved for 
countries that respect U.S. and international norms of 
sovereignty and territorial integrity.
    With regard to the risk of Russia picking off a single 
nation within the EU to prevent sanctions extension, this is a 
serious danger that France and Germany have managed well in 
recent years. Any fracture in the commitment by these two 
anchor countries to stand united against Russian aggression, in 
coordination with the United States, would be cause for alarm.

Q.2. Russia has responded to Western sanctions with heated 
rhetoric and by placing a retaliatory ban on certain imports, 
among other measures. It is likely to respond with hostility to 
additional sanctions.
    What actions do you expect the Russian Government to take 
in response to a new round of sanctions? Please provide what 
you believe to be Russia's most likely response to an 
additional round of sanctions.
    How likely is it that increased sanctions lead to a 
response by Russia in another domain or in some form of other 
aggression?

A.2. Russia's economy matters far less to the United States 
than the American economy matters to Russia. The food sanctions 
to which you refer were largely counterproductive for Russia; 
they raised import inflation, contributed to the rise of 
interest rates in Russia, and reduced consumer purchasing 
power. The only area in which Russia is of global systemic 
importance is the energy sector, but Russia's economy would not 
function--nor would its Government get financed--without 
receipts from oil and gas. Taken together--and viewed through 
an economic lens--I do not see good options for Russia to 
impose harm on the U.S. without hurting itself even more. For 
that reason, my belief is that Russia's response would likely 
be in the geopolitical realm. Meddling in the non-NATO, near-
abroad (e.g., Moldova, Ukraine, Georgia) seems quite plausible.