[Senate Hearing 117-749]
[From the U.S. Government Publishing Office]
S. Hrg. 117-749
TIGHTENING THE SCREWS ON RUSSIA: SMART
SANCTIONS, ECONOMIC STATECRAFT, AND
NEXT STEPS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE ECONOMIC ACTIONS TAKEN BY THE ADMINISTRATION
IN RESPONSE TO RUSSIA'S INVASION OF UKRAINE
__________
SEPTEMBER 20, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-633 PDF WASHINGTON : 2023
-----------------------------------------------------------------------------------
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
----------
TUESDAY, SEPTEMBER 20, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 29
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 30
WITNESSES
Elizabeth Rosenberg, Assistant Secretary for Terrorist Financing
and Financial Crimes, U.S. Department of the Treasury.......... 5
Prepared statement........................................... 31
Responses to written questions of:
Senator Hagerty.......................................... 40
Andrew Adams, Director, Task Force KleptoCapture, U.S. Department
of Justice..................................................... 6
Prepared statement........................................... 34
Responses to written questions of:
Senator Sinema........................................... 40
(iii)
TIGHTENING THE SCREWS ON RUSSIA: SMART SANCTIONS, ECONOMIC STATECRAFT,
AND NEXT STEPS
----------
TUESDAY, SEPTEMBER 20, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9 a.m., via Webex and in room SD-538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order.
Today's hearing, again, is a hybrid format. Witnesses are
in person. Thank you both for being there. I know you have busy
schedules, including today, so thank you.
Members have the option to appear in person or virtually,
as you know
Vladimir Putin's war on Ukraine has massacred innocent
civilian communities, leveled cities, weaponized food and
energy sources, imperiled the security of a nuclear facility,
and jeopardized the future of a sovereign democracy.
His actions also, we know, threaten global order--drawing a
clear distinction between those who stand for democracy and
rule of law and the forces of repression and tyranny.
But there are two things that Putin did not count on.
First, the resilience and strength of spirit of the
Ukrainian people, on clear display last week again when the
Ukrainian military retook Kharkiv, Ukraine's second-largest
city.
Second, the ability of President Biden to assemble and lead
a broad, unified coalition of allies, and to keep that
coalition together.
This Administration, with bipartisan and bicameral support
from Congress, has spearheaded a forceful, comprehensive, and
multilateral response to support the Ukrainian people and to
isolate Russia.
Today's hearing examines the economic piece of the
Administration's strategy.
This hearing follows on the Committee's work in evaluating
our sanctions policy, as we did last year in a hearing on
Treasury's sanctions review, and at a hearing this past July,
where we heard from the Commerce Department on its expansive
restrictions on exports to Russia.
Because we are united, our efforts are beginning to work.
As Secretary of State Blinken said the other week, ``Putin
thought he would divide and weaken NATO.''
Again, Putin he was wrong. His actions have led to NATO's
growth. We are now poised to welcome Sweden and Finland. His
actions led to NATO's growth, reminding the world the vital
role this alliance of democracies plays.
And America, and increasingly the world, is wise to Russian
propaganda.
This Administration has corralled an unprecedented
multilateral coalition, which includes our European partners
and other allied countries, to impose one of the most
comprehensive sets of economic sanctions in recent years.
These measures aim to limit trade and financial relations
with Russia, to penalize corrupt Russian oligarchs for
supporting Vladimir Putin, and to cripple Russia's economy,
cutting off support for funding this brutal and immoral war.
We have dramatically escalated this economic effort. And it
is impacting every sector: sanctions against a number of major
Russian banks, dozens of Russian officials, and Putin
associates; expanded export controls that restrict Russia's
access to the technologies needed to sustain its aggressive
military capabilities; limitations on imports of Russian energy
products; even the seizure of a $300 million yacht owned by a
sanctioned Russian oligarch.
The impact of the Administration's smart and targeted
economic measures has rippled throughout the Russian economy,
damaging their defense industrial base.
Ukrainian troops have found Russian military equipment
rigged with semiconductors that appear to have been taken out
of home appliances like dishwashers and refrigerators.
As we pass the 6-month mark of the war, we welcome back
Elizabeth Rosenberg, who serves as Assistant Secretary for
Terrorist Financing and Financial Crimes at the Department of
Treasury, and we welcome Andrew Adams, Director of the
KleptoCapture Task Force at the Department of Justice.
We look forward to hearing from the witnesses about the
economic sanctions designed to weaken Russia's economy and
about our efforts to pursue corrupt Russian oligarchs' assets.
We are making it increasingly difficult for Putin to fund
his brutal war in the face of a shrinking Russian economy and
its isolation on the global stage.
We must maintain the pressure of our many sanctions
regimes; we must keep the coalition intact.
With so much of Russia's revenue coming from energy sales,
I look forward to hearing more from the witnesses today about
the intended impact and status of the price cap negotiations.
Just last week I met with a group of Ukrainian Americans
from Ohio. My State is proud to have a vibrant, active
Ukrainian community. Their message was clear: we ``cannot lose
the momentum.''
We must continue to hold the Russian Government and
sanctions evaders responsible.
The multilateral coalition, which President Biden adeptly
assembled, rolled out a sweeping series of rules designed to
degrade Russia's military and technological capabilities. We
will not let up while Russia continues to threaten the
sovereignty of Ukraine.
Senator Toomey.
STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, and thank you to
our witnesses.
Last week, Ukrainian forces recaptured the town of Izium in
eastern Ukraine. It had been occupied by Russian soldiers for 6
months.
In the streets, overjoyed and tearful residents celebrated
their liberation. But in the forest just outside town, the
horrors of Russia's invasion were once again revealed.
Ukrainian soldiers discovered a mass grave filled with hundreds
of civilians. Many of these victims are believed to have been
tortured, bound, assaulted, and murdered--not unlike the
horrors that occurred in Bucha in April.
Our Government has rightly said such atrocities committed
by the Russians are war crimes. Identifying and prosecuting
these war crimes are crucial to bringing justice to the
Ukrainian people. But let us be clear: These crimes will
continue unless we can force Vladimir Putin and those around
him to conclude that abandoning the invasion is better than
continuing it.
Ending this war on terms acceptable to Ukraine's democratic
Government is not just a morally righteous undertaking for the
United States; it is also in the vital interests of our allies
and ourselves. The outcome will have ramifications far beyond
Ukraine. We cannot allow revisionist autocrats to feel free to
redraw international borders and fundamentally challenge global
stability.
The principles of sovereignty and freedom must mean
something, even when facing down the barrel of a gun. The
stakes are high in Europe, where the United States has deep and
longstanding security commitments, and they reach as far as
Asia, where the Chinese Government is taking note of how the
U.S. and its allies respond to Russia's invasion of its smaller
neighbor.
Today this Committee will examine the existing and future
sanctions that the U.S. and its allies will bring to bear on
the Kremlin for its invasion of Ukraine. While the outcome of
the war will be determined on the battlefield, sanctions have
the potential to dramatically hasten an end to the conflict by
depriving the Kremlin of the funds it needs to continue this
war.
And let us be honest. The sanctions imposed on Russia thus
far have not yet come remotely close to achieving this
objective. Roughly $1 billion in hard currency continues to
flow into the Kremlin's war chest every day from energy sales.
Treasury Deputy Secretary Wally Adeyemo recently acknowledged,
and I quote, ``There is one part of the Russian economy doing
even better than when the war began: their oil industry.''
By the way, Russia's gas industry is doing equally well.
Gazprom recently announced record profits of over $40 billion--
record profits--for the first part of this year.
Today's hearing will focus on the Administration's plan for
a novel sanctions regime that imposes price caps on the
purchase of Russian oil. This is an intriguing idea. I hope it
will be considered for Russian gas as well. The premise of the
idea is simple: Service providers, such as financiers and
insurers, within the G7 will only be permitted to facilitate
the purchase of Russian oil below the set cap price. Given that
the vast majority of such service providers are, in fact,
domiciled in G7 countries, I think this plan has the potential
to significantly curtail Russian oil revenue.
But several questions remain about this program, including:
How low will the price cap be set? What will enforcement of the
cap look like? And how will the Administration ensure that
buyers in countries like China and India do not skirt the price
cap for their own gain?
This last question is, arguably, the most important to
determining the effectiveness of this price cap regime. And
because it is so important, Senator Van Hollen and I plan to
introduce legislation that will complement the Administration's
price cap scheme and impose mandatory sanctions on any foreign
financial institution worldwide involved with any transaction
in Russian oil above the price cap.
The legislation will be the first major bipartisan
sanctions legislation that has been introduced on Russia since
February, and I intend to work with Senator Van Hollen to get
this bill enacted as soon as possible so that Russia can no
longer profit from the oil sales funding its war in Ukraine.
Seven months after Putin began his ``special operation,''
as he puts it, in Ukraine, the Ukrainians have conducted a
remarkably successful campaign to liberate portions of the
country from Russian control. Concerns harbored by China and
India about Putin's war have been aired publicly, and gas
prices in Europe are actually falling, down 45 percent since
late August.
This war is not going as planned for Putin. I say this to
my colleagues, now is not the time for half measures or
complacency. It is time to crush the Kremlin's ability to
continue this war.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey. I will now
introduce today's witnesses.
Elizabeth Rosenberg, Assistant Secretary for Terrorist
Financing and Financial Crimes at Treasury. Welcome back to the
Committee. As Assistant Secretary, she is responsible for
leveraging the Treasury Department tools to target threats to
national security and safeguarding the financial system from
abuse.
We also welcome Andrew Adams, Director of the KleptoCapture
Task Force at DOJ, a task force and interagency law enforcement
endeavor led by Justice prosecutors and dedicated to enforcing
the sweeping sanctions in response to Russia's unprovoked
military invasion, a former Federal prosecutor from New York
where he focused on organized crime, money laundering, and the
recovery of assets.
Assistant Secretary Rosenberg, please begin.
STATEMENT OF ELIZABETH ROSENBERG, ASSISTANT SECRETARY FOR
TERRORIST FINANCING AND FINANCIAL CRIMES, U.S. DEPARTMENT OF
THE TREASURY
Ms. Rosenberg. Chairman Brown, Ranking Member Toomey, and
distinguished Members of the Committee, thank you for the
opportunity to speak with you today about the Department of the
Treasury's efforts to hold Russia accountable for its brutal
and unjustified further invasion of Ukraine.
The U.S. Department of the Treasury is working with
Administration partners, including my colleague from the
Department of Justice, whom I am joined by today, to implement
the U.S. Government's holistic response to Putin's war. Since
the further invasion began 6 months ago, we have been advancing
President Biden's promise to ``squeeze Russia's access to
finance and technology for strategic sectors of its economy and
degrade its industrial capacity for years to come.''
Just last week, we imposed additional sanctions to further
degrade Russia's military, hold the perpetrators of this war
accountable, and financially isolate Putin. To date, Treasury
has sanctioned hundreds of Russian individuals and entities,
and this includes a majority of Russia's largest financial
institutions, key nodes in Russia's military-industrial supply
chains, and the oligarchs and cronies who help perpetuate
Putin's war.
The United States has been joined by over 30 countries--
collectively representing more than half of the global
economy--in imposing sanctions, the largest sanctions regime in
modern history.
On the other side, Russia's propagandists have been
aggressively attempting to bury any unfavorable news and push
misinformation, saying that, for example, sanctions are not
working and cause food insecurity. In fact, Russia has crippled
Ukraine's farming and export economy and dramatically driven up
global energy and grain prices.
The U.S. and partner economic responses to Russia's war
have had and will continue to have a significant effect on
Russia's ability to fund its war. Russia has been forced to
impose draconian capital controls. The IMF expects Russia's
economy will contract for at least the next 2 years, a sharp
reversal from its 4.7 percent growth in 2021. The Russian stock
market is about 35 percent below pre-war levels. Russia is
unsustainably burning through its rainy-day funds, moving
toward fiscal deficit by year's end. Simply put, Russia's
economic picture is bleak and deteriorating.
Significantly, these economic constraints are translating
into real battlefield difficulties for Russia. Struggling to
import industrial goods and technology, Russia has been forced
to turn to outdated equipment and approach global pariahs like
North Korea and Iran to source materiel.
Because Russia is a sizable international economy and a
globally important energy producer, imposing financial costs on
Russia while mitigating the consequences of Russia's actions
has required extraordinary planning, coordination, economic
analysis, diplomacy, and creative policymaking. We have been
keenly focused on Russia's large-volume oil exports and
windfall earnings in a high energy price environment. At this
point, this represents Russia's primary source of hard
currency.
Given the global nature of oil markets, elevated energy
prices affect us all, including American households that have
seen rising prices at the pump and inflationary pressure across
the economy. High energy prices hit the poorest the hardest in
our country and across the world.
Our effort, alongside an international coalition starting
with the G7, to impose a price cap on maritime Russian oil
exports is the most viable option to support the security and
affordability of the global oil supply. The policy involves
price cap coalition countries offering services for Russia's
maritime transport of oil priced below the cap and refraining
from doing so for oil priced above the cap.
The majority of providers of some maritime services, like
insurance, payments, and trade finance, are located within the
G7 and EU countries, so there is an overwhelming economic
incentive for buyers to purchase under the price cap so that
they can engage these services. It will be cheaper and less
risky to move Russian oil cargoes in this way. We are already
seeing this policy work, with Russia forced to negotiate steep
discounts for oil it sells to buyers in Asia.
To close, I would like to express my gratitude for the
additional resources Congress provided in the Ukrainian
supplemental appropriations packages, which helped us at
Treasury and across the U.S. Government surge in the policy
response to Russia's war and, critically, support the people of
Ukraine. I would be happy to answer any further questions you
have in this setting and to continue to work with you all in
the future.
Thank you.
Chairman Brown. Thank you, Ms. Rosenberg.
Director Adams.
STATEMENT OF ANDREW ADAMS, DIRECTOR, TASK FORCE KLEPTOCAPTURE,
U.S. DEPARTMENT OF JUSTICE
Mr. Adams. Thank you, and good morning, Chairman Brown. I
appreciate the opportunity to appear before you today on behalf
of the United States Department of Justice and in my capacity
as Director of the Department's Russian sanctions task force--
KleptoCapture--to discuss the important work of the task force
in response to Russia's unprovoked, illegal, and brutal war of
aggression in Ukraine.
The atrocities committed since Russia's February invasion
have been well publicized. Russian attacks have devastated
Ukrainian cities, leaving some on the verge of humanitarian
collapse. Estimates are that as many as 1.6 million Ukrainians
have been interrogated, detained, and forcibly deported to
Russia under the oversight of Russian officials. And numerous
news reports have detailed how the Russian campaign against
Ukrainians includes a program of torture and rape, reporting
that tragically finds support in the findings of mass graves
and devastation uncovered in the wake of Russia's retreat from
the recent Ukrainian counteroffensive.
This is why the work of the task force is so important. Our
targets have and continue to profit from a system of corruption
and violence, and they continue to sustain and enable that same
corrupt and violent regime. Their willingness to facilitate and
acquiesce in Russia's malign activities contributes to the
death and destruction that we are witnessing in Ukraine.
The task force is dedicated to enforcing the sanctions,
export restrictions, and economic countermeasures that the
United States has imposed, along with its international allies
and partners, in response to this unprovoked military invasion.
It draws on the expertise and energy of agents, analysts,
translators, and prosecutors throughout the Department and
throughout the U.S. Government, including prominently our
colleagues at the Treasury Department.
Our goals are, first, to bring charges against any
individual or entity sanctioned under the Treasury designations
or limited through Commerce Department rule making rolled out
in response to Russian aggression.
With respect to people and entities on those lists, we will
pursue any charge or seizure theory available. Sanctions
evasion and money laundering are obvious charges and theories
in this space, but if opportunities to bring charges for bank
fraud, visa fraud, extortion, or any other Federal crime, are
presented as to a listed person or entity, that is a charge
that this task force will support and pursue.
Second, we would target those who would facilitate the
evasion of economic sanctions and the Commerce Department's
export controls for banks, real estate agents, broker-dealers,
exporters, manufacturers, shipping companies, and others. Our
goal is to shine a light where sanctioned actors may otherwise
operate in shadow.
Now, our immediate focus has been on disruption of those
individuals and entities who have aided and supported the
Russian regime. We have worked quickly with international
partners to seize an oligarch's $90 million luxury yacht in
Spain, to seize and transport a roughly half-billion-dollar
yacht from Fiji to San Diego harbor, to seize millions of
dollars associated with sanctioned parties held at multiple
U.S. financial institutions, and to pursue oligarchs involved
in violations of U.S. export controls. We have also filed and
unsealed charges against Russian oligarchs themselves and their
associates for evading sanctions and other related crimes.
The Department welcomes the Committee's consideration of
legislation to augment the task force's ability to seek charges
and seize assets, resulting from oligarchs' corrupt dealings
with the Russian Government, and enable the transfer of
proceeds from those actions to Ukraine to remediate the harms
caused by the Russian aggression.
In addition, the Department continues to advocate for the
following key proposals:
One, our proposal to clamp down on the facilitation of
sanctions evasion by amending the International Emergency
Economic Powers Act, or IEEPA, and its penalty provision to
extend the existing forfeiture authorities to facilitating
property and not simply to the proceeds of such offenses.
Second, our proposal to add criminal violations of IEEPA
and the Export Control Reform Act to the definition of
``racketeering activity'' in the Racketeer Influenced and
Corrupt Organizations Act, or RICO. This proposal would extend
a powerful forfeiture tool against racketeering enterprises
engaged in sanctions violations and pave the way for
prosecutions that appropriately capture the scope and the
complexity of these evasion networks.
Third, our proposal to extend the statute of limitations
from 5 to 10 years for money laundering in connection with
certain foreign offenses, which would grant our prosecutors
time to follow the money and unravel the complex networks on
which oligarchs rely to hide their wealth.
And, fourth, our proposal to improve the United States'
ability to work with our international partners to recover
assets linked to foreign corruption.
I appreciate the opportunity to appear here today and to
discuss the task force's focus and efforts to date and
potential legislation as it relates to Russia's unprovoked and
illegal war of aggression in Ukraine.
Thank you, sir.
Chairman Brown. Thank you, Director.
If we need yet another reminder that competency and
commitment to our Nation's core values, democracy, and the rule
of law are essential to good government, we need to look no
further than this Administration and its Herculean effort to
impose targeted smart sanctions on Russia, its leveraged
targeted export controls on the Russian economy, done so with
an unprecedented multilateral coalition. And, of course, we
must continue to ratchet up the pain if Russia continues to
fight this war of aggression.
Assistant Secretary Rosenberg, tell us the right metrics to
determine whether sanctions are working. And as you discuss
that, what are the more significant challenges to make sure the
sanctions continue to achieve that purpose?
Ms. Rosenberg. Thank you, Senator, for the question. As you
have noted, the sanctions that the United States and over 30
countries have put in place alongside export controls have had
a powerful economic effect in achieving our goal: depriving
Russia of revenue and of military equipment to wage its brutal
war. Some metrics here.
Half of Russia's foreign exchange reserves have been locked
up. Russia has been forced to resort to these draconian capital
controls. It is burning through its fiscal buffers, heading
toward fiscal deficit by the end of the year. It is struggling
to fund imports, including of critical industrial goods
necessary for manufacturing, and this is translating into
battlefield difficulties for Russia crucial to the goal of
depriving Russia of the ability to fight its war.
Specifically, it has had to cannibalize its own domestic
industry in order to manufacture battlefield equipment it
cannot procure on the international market because of the
capital controls in particular. It is also compelled to look to
international pariahs Iran and North Korea in order to source
some of its military equipment. The soldiers on its front line
do not have access to the most modern warfighting equipment.
Those are important indicators of the criteria that we should
look to for the efficacy of this policy approach.
With regard to challenges here, something that is forefront
for us at the Treasury Department and our colleagues throughout
the U.S. Government and elsewhere is to look to opportunities
Russia may be pursuing to evade the sanctions, to find ways to
skirt controls in order to engage in procurement for its
military equipment. A current and future priority for us will
be looking to enforce sanctions that get at Russia's supply
networks they may be using for evasion.
Chairman Brown. Thank you. What else can be done to keep
the pressure on Russia?
Ms. Rosenberg. In addition to the priority I just noted,
going after major enforcement efforts, looking at Russia's
illicit procurement networks, we can work closely with
international allies to ensure that they are enforcing their
own sanctions and expanding and augmenting them in ways that
complement measures we have in place.
For example, some of our partners still have the
opportunity to put full blocking sanctions on some entities
that we have fully blocked in the United States.
Chairman Brown. Thank you.
Earlier this month, the Administration, along with other G7
countries, announced the plan that you both mentioned, you both
discussed, to impose a price cap on imported Russian oil.
Ranking Member Toomey spoke positively about it, its
possibilities. Secretary Yellen said it would significantly
reduce Russia's main source of funding for its illegal and
immoral war, but keep supplies flowing to global energy
markets.
What do you estimate its impact would be to the Russian
economy if the price cap is effective, number one? And as you
answer, talk about the necessity or is there a necessity that
China and Russia be a partner or at least be helpful or at
least not be opposed to these?
Ms. Rosenberg. Thank you for the question. Many of us have
noticed and focused on the fact that Russia is earning windfall
profits from energy exports given that it has driven up energy
prices itself by invading Ukraine. And with this in mind, the
G7 has put forward this price cap policy. It will have two
major economic effects. So to affirm was Secretary Yellen has
said, this will deprive Russia of revenue because it will be
compelled to sell into the price cap here at lower prices. And
a second important economic effect is that, given this downward
pressure on prices, developing economies will have the
opportunity to purchase them for less, for a lower price. That
is significant to them and significant to security of supply.
You mentioned China. It is important to note that China----
Chairman Brown. And India. I may have misspoken. China and
India both.
Ms. Rosenberg. China and India. It is important to note
that it is not essential--by design of this policy, it is not
essential for such countries, such major importers of Russian
oil to formally join this group. They can, nevertheless, use
the existence of the price cap to leverage lower prices from
Russia. And, in fact, we are seeing that already, where Asian
purchasers have used the price cap in order to leverage lower
prices, cut-rate prices for Russian energy. That is this policy
already at work.
Chairman Brown. Thank you.
Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
I want to focus on two aspects of this idea that the
Administration has developed: the likelihood of evasion, but
also the price cap level itself. Treasury's guidance on the
price cap plan so far indicates that the policy is constructed
as a prohibition on service providers within the G7 countries
who finance, insure, and broker Russian oil transactions above
this price cap level, wherever it ends up being set. And as I
said, I am hopeful that this will be effective. It strikes me
as a very constructive step.
But, obviously, it is not meant to apply, it does not
apply, certainly not directly, to oil service providers outside
the G7. We have seen a huge increase in Indian and Chinese
purchases of oil, just as U.S. and European purchases have
declined. In fact, those purchases have fully offset the
decline of the U.S. and the EU. And my concern is that China
and India will continue to buy Russian oil and probably on a
large scale. They will do so with their own service providers.
It might not be quite as convenient as the existing regime, but
they are quite capable of insuring and brokering and financing
oil sales with indigenous companies and capabilities.
So I wonder if, briefly, Ms. Rosenberg, you could comment
on any concerns you have that there is still this mechanism,
this opportunity for Russia to continue to sell oil, albeit not
to G7 countries or those who use services of G7 countries, but
outside of the G7?
Ms. Rosenberg. Thank you, Senator, for the opportunity to
address these important questions. This price cap policy
envisions a scenario where countries--China and India, for
example--continue to purchase Russian oil. That is envisioned
within this policy.
Senator Toomey. I understand, yes.
Ms. Rosenberg. And it is possible that they could purchase
that oil below the cap using G7 services. For example, there is
a distinct advantage for them to do so: 80 to 90 percent of
maritime insurance is concentrated in service providers within
the EU--or, rather, within Europe, which means that India, for
example, has a powerful interest in purchasing some of that oil
below the price cap in order to take advantage of those
services, which provide more reliability.
Senator Toomey. Yes, could I--I am sorry to interrupt. I am
short on time here. There is no question everybody would like
to buy oil as cheaply as they possibly can. And I completely
acknowledge that this regime, if it is effective with G7
countries, might very well have some downward pressure. But
there will also be efforts to evade it. There will be countries
that will see an opportunity to get more discounted oil even if
it is not fully discounted to the price level.
This is why I think it is important that we address this
question. I acknowledge that the big majority of the market for
the service providers comes from companies within the G7. They
would be affected by this. But they do not have monopolies, and
the Chinese and the Indians, as I say, are quite capable of
expanding the role of their indigenous service providers.
This is not meant as really even a criticism of this
arrangement. This is why Senator Van Hollen and I have
introduced legislation that would require sanctions to be
imposed on those who would evade this way.
Let me ask you another question, if I could. What is your
best estimate right now of the marginal cost of producing a
barrel of oil in Russia?
Ms. Rosenberg. Senator, there are varying costs for doing
so. It depends on the geology of the field, the technology
involved in lifting and the amortization cost. I hope I could
take just 1 second to address a key facet of the point you made
earlier.
Senator Toomey. OK. But I do have another point I need to
get to, and we have got a minute. So if we could do it quickly.
Ms. Rosenberg. A key aspect of a successful price cap
policy is the international approach involved here and the
entirety of the G7. It is the case that some service providers
may be able to function outside of it, but the broad coalition
of the G7 and the existence of a price cap means that even
outside of it, purchasers have the opportunity and leverage in
order to ratchet down the price that they pay.
Senator Toomey. I get that, and I am hoping that that
dynamic works. And if that market dynamic works and Indian and
Chinese buyers end up paying no more than the cap price, then
our sanctions legislation is kind of moot. It will sit there as
a backstop without doing any harm, without being implemented.
But if it does not work--and let us be honest, the Russians
have taken in a lot of revenue we did not fully anticipate--
then we would have a backstop.
My point on the price level is I think it makes sense--and
I am open to an alternative idea, but I think it makes sense--I
do not think you guys have set a price cap level yet. I hope it
will be very close to the marginal cost of production, and I
get that that varies over the course of a massive country like
Russia. But, still, keeping it as low as possible diminishes
the profits that the Russians make. I think that is a very
important step.
A last point, Mr. Chairman, if you will indulge me. Just an
observation for Mr. Adams' sake. I know the Administration has
proposed expanding Justice's resources and tools to pursue
administrative civil forfeiture and punish sanction evasions. I
think enhancements might very well be appropriate to penalize
Russia's aggression in Ukraine. But the Administration's
proposals seem generally not to be limited to Russia, nor to be
time-limited. And I think we should proceed very, very
cautiously before we decide to expand these prosecutorial and
administrative powers in areas unrelated to this invasion.
Thank you.
Chairman Brown. Senator Tillis is recognized from North
Carolina.
Senator Tillis. Thank you, Mr. Chair. Is that because I
wore a tie today?
Chairman Brown. That was why.
Senator Tillis. Thank you all for being here. What research
has been conducted to--you were talking about maybe a lot of
the Russian consumption being at the price cap, possibly
negotiated below it. But what are going to be the biggest
changes in terms of consumption? Who are the top three
countries that are likely to greatly increase their dependence
on Russian oil over the next 12 months?
Ms. Rosenberg. Senator, thank you for the question. The
European Union has decided in its sixth sanctions package to
stop the purchase of Russian oil and refined product, and that
will take effect on December 5th for seaborne oil. So the
several million barrels that Europe has been purchasing will
flow elsewhere. Generally, that may include countries in Asia,
Africa, or Latin America. There is not one single country or
two that would take on all of it. It will likely be an array of
countries.
Senator Tillis. Would China and India top the list of some
of the greatest increased consumption?
Ms. Rosenberg. Those countries are significant consuming
countries of Russian crude oil already. It is possible that
Russia could increase its exports to those countries, but the
volume that will come from Russia, given that Europe has pulled
back from the market, will flow to many countries.
Senator Tillis. So do you think the price cap alone is
enough to get the price where we want it to be? Or is there
going to be a need for secondary sanctions so that we go beyond
the U.S. and the G7?
Ms. Rosenberg. The price cap we believe will have a
powerful effect in doing several things, certainly in the first
instance denying Russia revenue to fund its war; and, second,
by keeping Russian oil in the market at lower prices, it will
reduce the potential for price spikes in the market. It
enhances security of supply. It makes affordable energy
available for lower-income countries. All of those things are
important benefits to a price environment that is good for our
economy and our partners' economies.
Senator Tillis. The Russians have--Putin made a great
mistake when he went into Ukraine. He is seeing that play out
on the battlefield. We are talking about tens of thousands of
casualties, probably 25,000 deaths. Now we also know that their
supply chains have been greatly disrupted. Their ability to
replace a lot of what they have lost on the battlefield has
been greatly disrupted, and so they are going to countries like
North Korea and Iran to look for support. I believe that is
already in violation of sanctions. What more do we need to do
to curb that and limit Russia's options outside of their own
indigenous defense industrial base?
Ms. Rosenberg. Senator, it is certainly a violation of
sanctions when entities in Iran or North Korea supply Russian-
designated entities with military equipment. So, for example,
earlier this month the Treasury Department imposed sanctions on
Iranian entities that were supplying UAVs to Russia in
violation of our Russia sanctions. And our approach here will
be to continue to impose sanctions to hold accountable those
suppliers to Russian-designated entities.
Senator Tillis. Are there any in the works now based on
transactions that have already occurred?
Ms. Rosenberg. Senator, I am not in a position to forecast
or speak about sanctions that may be coming, but please rest
assured that this is a significant priority for us.
Senator Tillis. I think there is estimated--is it $300
billion in Russian assets that have been seized by the United
States?
Mr. Adams. Senator, I can respond, at least in part. With
respect to seizures, that is correct. As----
Senator Tillis. Or frozen. Frozen, not seized.
Mr. Adams. Thank you, sir. There is a distinction.
Senator Tillis. Now, the question is: How can we seize
them? And what legal hurdles do you have for doing that?
Mr. Adams. Thank you, Senator. So it is one of the
Department's priorities to look at the assets that are close to
hand and most readily investigatable. Those include assets that
are frozen in the United States. We have a focus on looking at
whether those relate to the proceeds of crime or have been
facilitating money laundering in----
Senator Tillis. What is the worldwide number on frozen
assets? And have any of those in other jurisdictions been
seized?
Mr. Adams. Senator, the estimations of the total number
range into the billions. I do not have a precise number to
offer. There are foreign partners who have certainly frozen
assets abroad, and in at least some jurisdictions, there are
authorities that may ultimately lead to seizure and full
confiscation, much like our civil forfeiture and criminal
forfeiture.
Senator Tillis. Well, I for one hope we put the foot on the
accelerator and do everything we can to make sure that that
money never falls back into the hands of the oligarchs. Thank
you.
Thank you, Mr. Chair.
Chairman Brown. Thanks, Senator Tillis.
Senator Van Hollen from Maryland is recognized.
Senator Van Hollen. Thank you, Mr. Chairman. Thank you to
both of our witnesses.
As the Chairman and others have said, the Ukrainian people
have inspired people throughout our country and throughout the
world in their fight for freedom and for sovereignty. And the
support from the United States and our allies to the people of
Ukraine has been essential in that fight, both the military
support and the economic sanctions. And I want to applaud the
Biden administration for working with our allies to provide
that essential military equipment and to impose those sanctions
very rapidly. We have seen projections of Russian GDP having
declined as a result of that.
We all recognize--and I know the Biden administration does
as well--that the one area where Russia has continued to
generate a lot of revenue to fund their war machine is in their
sale of energy--gas and especially oil. And so I also applaud
the Administration's effort with the G7 to establish the price
cap.
I think we all know--a lot of us have been following this
closely. I chair the FSGG Subcommittee. We had a hearing on
June 14th with Deputy Secretary Adeyemo where we covered some
of these issues. And it is pretty clear that there is some
skepticism among oil traders about whether this will work. That
is why I am really pleased to team up with Senator Toomey to
introduce legislation which, as he described it, we see as a
complement to the Administration's effort, a backstop, because
you can easily imagine Vladimir Putin saying that he is not
going to comply with this price cap, and that will set off a
negotiation with those around the world who may be willing to
purchase oil for a little bit above the price cap, which is
still in their interests compared to global prices.
And so the idea behind this legislation is to provide a
uniform backstop worldwide and say to any financial institution
that is thinking about financing or participating in a
transaction to purchase Russian oil above the price cap set by
the G7 will face penalties. And if you are right--and we hope
you are--that we do not need anything like that, people comply
voluntarily, great. But if they do not, you would have a
backstop. And, again, if it works perfectly, you will not need
it.
So I guess my question is: What is your sense of the need
for additional leverage? Wouldn't you support something that
gives you a little bit extra leverage as you go around
negotiating this price cap? Assistant Secretary Rosenberg.
Ms. Rosenberg. Thank you, Senator, for the opportunity to
address this point. The Biden-Harris administration and our G7
partners have a good deal of leverage and authorities right now
in order to pursue a policy that sets out, as you have
recognized, a powerful set of incentives for purchasers of
Russian oil to purchase that oil at cut-rate prices, below the
cap here. We also have authorities that we can bring to bear
for the purposes of enforcement, which I believe you are
specifically addressing, when there is an instance, for
example, of a purchaser that has committed fraud, that has made
material misrepresentations to service providers that are
acting in good faith to follow this price cap policy.
Thus, to the extent that we need to use enforcement
measures, we have sufficient authorities to pursue those
avenues.
Senator Van Hollen. I guess, Madam Secretary, that, as
Senator Toomey pointed out, if you are Russia, you are going to
be hell-bent on trying to develop different avenues to sell
your oil at a price somewhat higher than whatever price the G7
sets. And so this mechanism signals to Russia and others around
the world that if you are involved in some kind of scheme to
evade these price caps, you will be hit, and it will be
automatic.
I believe one of the benefits of putting this sort of
threat of sanctions out in advance is everybody is on full
alert that this is the law and this will apply. Clearly, if
somebody is buying in good faith, you know, there can be
exceptions for those purposes. But I do think there is a great
benefit to having a worldwide backup so that Russia does not
try, as it is bound to do, to play countries against each other
if those countries know they are all going to be subject to the
same uniform sanction penalty. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Menendez of New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman. Let me start off
by commending the Administration's leadership on the price cap.
A successful cap, however, requires agreement from a broad
group of countries and is a delicate balancing act.
So, Secretary Rosenberg, where are we at in terms of
securing the necessary buy-in and support to make the price cap
work? Is there buy-in from other major economies beyond the G7?
Ms. Rosenberg. Thank you, Senator, for the question and
opportunity to speak to this. In negotiating and crafting the
price cap policy, we have worked very closely with partners in
the G7, and in this instance that includes the EU, so all of
the EU Nations as well. That was enshrined and articulated in
the G7 Ministerial Statement from several weeks ago with a
commitment to implement this strategy. So we are in a very
strong place when it comes to coordination across this group.
That is meaningful because a significant majority of services
for the maritime transport of Russian oil are concentrated in
these countries.
We have also had the opportunity to speak with major
purchasing economies that are not part of the G7 but that would
be in a position, already have been and will continue to be
purchasers of Russian oil, and they understand the purpose of
this policy, and we have significant common cause with them
when it comes to their ability to purchase Russian oil at
significantly decreased rates.
Senator Menendez. Let me ask you, how much of a concern is
Russia's efforts to create alternative insurance mechanisms?
And what are we doing to make those efforts ineffective?
Ms. Rosenberg. Thank you, Senator. Russia does have
insurance, maritime insurance, that it has used. It does not
have enough insurance though in order to support all Russian
oil that it exports, which is one of the reasons why insurance
provided by European countries has been important and I think
will continue to be important for purchasers of Russian oil.
Furthermore, those purchasers of Russian oil know that to
use VLCC tankers, some of the largest tankers, they are
essentially required to use European insurance. So there is a
powerful incentive for those purchasers to continue to access
G7 insurance and other services for the purchase of Russian
oil.
Senator Menendez. Well, India's importation of Russian oil
has skyrocketed, helping it to maintain Russia's exports. How
successful is our ongoing engagement with India on agreeing to
adhere to a price cap? And can the price cap actually work if
India and China are not part of the coalition of countries
implementing it?
Ms. Rosenberg. Thank you, Senator. It is the case that
India has significantly increased its purchase of Russian oil.
That is conceived of in this policy when it comes into force,
and India continuing to purchase, including at a significant
volume, can be entirely consistent with the price cap. What is
key is that India is in the position to negotiate a lower
price, a significantly lower price for the oil that it
purchases.
And to the latter question that you just asked, it is not
essential that countries such as India or others in Southeast
or East Asia that purchase Russian oil formally join the price
cap in order to be able to use that cap to leverage a very low
cost of oil. That will advance our purpose, driving down
Russia's revenue and also keeping Russian oil on the market at
depressed prices for security of supply.
Senator Menendez. That is a great point, but it is also a
question. If China wants to help Russia, then it can purchase
oil beyond the price cap, and it is a direct way of helping
Russia at a critical time without being more directly involved
in Ukraine.
So at some point, we have to think about how--these are not
just any economies; these are major importing economies in
terms of India and China--and they act in this context is going
to be critical as to how successful we are. And I look forward
to seeing how we are going to deal with that.
I get concerned about--I have been the author of more
sanctions than I would like to remember, and the challenge is,
of course, enforcement and dealing with evasion. And so it is
critical that the United States crack down on entities and
Nations that seek to evade and subvert Western sanctions. I am
particularly concerned about possible sanctions evasions by
Turkish financial institutions through their use of Russia's
domestic payment system, Mir. I was pleased to see that the
U.S. just sanctioned the CEO of NSPK, which oversees Mir's
operations.
What further steps is the Administration taking to close
loopholes that allow Western sanctions to be undermined through
the use of the Mir payment system?
Ms. Rosenberg. Thank you, Senator. We are quite concerned
about the potential for evasion for Russian sanctions broadly
in any jurisdiction, and as you note, this is one jurisdiction
that we have focused on. Our Deputy Secretary has made a
specific effort in that regard.
We are also interested in how existing financial
connectivity that Russia has to the rest of the world, whether
in the payment service you noted or others, whether those can
be abused. We should think of any such connectivity as
potentially vulnerable and appropriate for enhanced due
diligence. We will continue to engage with Turkiye to focus on
that vulnerability.
Senator Menendez. Mr. Chairman, I had one final question,
if I may?
Chairman Brown. Sure. Proceed.
Senator Menendez. Thank you.
Mr. Adams, we have seen a lot of high-profile yachts seized
and what-not, although I do not know how much it costs us to
maintain them before we can get rid of them. So I do not know
what the net effect of that is. But certainly to those who lost
them, it is significant.
The long-term success of a successful seizure effort will
come down to coordination and information sharing at multiple
levels across jurisdictions. What are some of the biggest
obstacles to ensuring a robust effort to identify and seize
privately held assets? And how is the U.S. aiding other
jurisdictions to ensure that that takes place?
Mr. Adams. Thank you, Senator. I appreciate the concern
behind that question. The biggest obstacle historically has
been communication across borders in dealing with our
international partners. In the wake of the February invasion,
those obstacles have diminished greatly. There has been, in my
experience, a significant uptick in the ability and the
interest of international sharing, both in terms of law
enforcement and intelligence.
The key hurdle previously was a mismatch and a misalignment
between the U.S. sanctions regime on the one hand and foreign
partners' sanctions regimes on the other. As the European
Union, as our partners in the United Kingdom and elsewhere
around the globe have come into alignment with our sanctions
regime, it has greatly increased our ability to effect
seizures, to effect requests for searches, to request arrests,
et cetera. That I think will only continue as those regimes
continue to come into alignment and, in particular, as our
partners in Europe and the United Kingdom continue to work on
legislation of their own that will increase their own ability
to proceed on civil asset forfeiture or an analogous
proceeding.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Brown. Thank you.
Senator Rounds from South Dakota is recognized.
Senator Rounds. Thank you, Mr. Chairman.
Thank you to both of you for appearing before us today. Ms.
Rosenberg, as you know, the use of sanctions has increased
astronomically since the end of the cold war. My question is:
Do you believe that sanctions are an effective way to advance
U.S. national security and policy priorities?
Ms. Rosenberg. Thank you for the question, Senator. I do
believe that sanctions are an effective way to advance U.S.
policy objectives, but not by themselves. They are effective in
coordination with other authorities and tools of statecraft,
including diplomacy, when appropriate the use of military or
intelligence tools; and, furthermore, they are most effective
when used alongside international partners, both as an economic
matter and as a signaling matter to the target of the
sanctions.
Senator Rounds. In a globalized economy where Russia can
still earn $1 billion a day in oil revenue, even while being
heavily sanctioned, how do we make certain that our economic
and other nonmilitary tools actually stay effective?
Ms. Rosenberg. Senator, to this excellent point, I would
refer back to my comment previously on the multilateralism
here. So the United States is, of course, a significantly sized
economy, but there are other significantly sized economies that
have even greater connectivity with Russia. And when we act
together, given their connectivity to Russia, it will have the
greatest effect in causing economic and financial isolation for
Russia. That is how multilateral sanctions can be most
effective.
Senator Rounds. It seems interesting that even though they
have actually reduced the amount that they have produced and
been able to deliver and the fact that they have got supply
chain problems as well, with the price going up there were two
messages that I had heard earlier in your opening statement.
First was that we are successfully actually limiting and seeing
their economy actually reduce in terms of its overall value.
And yet at the same time, their largest industry, which is the
production of petroleum, has substantially increased.
Am I missing something between the two? It seems that the
sanctions, specifically with regard to their ability to produce
and to market oil, does not seem to have worked as well as what
we had hoped that it would. Is that a fair statement?
Ms. Rosenberg. Senator, this broad international coalition
of sanctions and export controls, are having the effect of
overall constraining Russia's economy and putting it into
pretty difficult and dire conditions. Nevertheless, the
particular area that you have noted, in energy, is actually the
last significant remaining Russian opportunity to earn hard
currency. To many people, including Members of this Committee,
that is intolerable, that Russia should still continue to earn
windfall profits from the sale of this energy, which is why we
seek to address it with further policy measures.
Senator Rounds. Thank you.
Mr. Adams, it is my understanding that your task force is
fully empowered to use the most cutting-edge investigating
techniques, including data analytics, cryptocurrency tracing,
foreign intelligence source, and information from financial
regulators and private sector partners, to identify sanctions
evasion and related criminal misconduct.
In discussions with other Federal offices, I have been told
that frequently the private sector actually provides more and
better information than other sectors of the Federal
Government.
I guess my question would be: What role does the private
sector play in assisting you in identifying Russia's evasion
efforts? And have you experienced a similar level of
information sharing?
Mr. Adams. Thank you, Senator. The private sector has been
an enormous partner throughout this effort, and I am referring
here to the banking sector, to the financial services sector
generally, to the insurance industry, to the shipping industry,
et cetera.
There are instances in which our job as law enforcement
officers cannot be done without witnesses who have firsthand
knowledge of how the economy is working on the ground and have
specific knowledge about particular sanctions evaders, as you
note.
Working with the banking sector is not separate in my mind
from working with the public sector and law enforcement. It is
a symbiosis. We get information through bank secrecy reporting
channels. We get information through less formal informants, et
cetera.
To be able to marry those sources of information with
confidential sources, for example, to marry it with our ability
to proceed via search warrants, et cetera, amplifies both sides
of what is essentially the same coin.
Senator Rounds. Thank you.
Thank you, Mr. Chairman. My time has expired.
Chairman Brown. Thank you, Senator Rounds.
Senator Smith from Minnesota is recognized from her office.
Senator Smith. Thank you, Mr. Chair, and thank you to our
panelists for this excellent hearing.
My question is around global food insecurity. The Russian
war in Ukraine is contributing to a global food security
crisis. Somalia is one of the worst-hit countries. Before the
war, Ukraine and Russia contributed up to 90 percent of
Somalia's grain supply, and now an estimated 7 million Somalis
are facing acute food insecurity and near-famine conditions.
And despite some progress in restoring shipments of wheat to
East African Nations, we continue to see Russian efforts to
steal and divert grain supplies and threats from Russian
President Putin to look at reducing future shipments.
So, Ms. Rosenberg, I was very glad to see last week
Treasury announcing new sanctions against individuals that are
overseeing the seizure and the theft of Ukraine's grain. Could
you talk to us about how we can do more to use sanctions and
other tools of economic statecraft to hold Russia accountable
for intentionally exacerbating this food crisis?
Ms. Rosenberg. Thank you, Senator, for the opportunity to
speak to food insecurity and Russia's role in enhancing,
unfortunately, the food insecurity that exists for so many
countries.
One thing that is important we have found to point out is
the necessity to clarify the fact that our sanctions do not
bear on the export or the trade of food, medicine, or medical
devices. That speaks to misinformation out there. In fact, what
we have sought to do is to clarify that we have permission in
all of our sanctions structure to ensure that such trade can
continue. We have issued general licenses to that effect and
additional guidance.
It is important to hold accountable those entities,
including in Russia, that have been responsible for stealing
Ukrainian grain and destroying their agricultural equipment
from blockading the export of Ukrainian grain. And as you have
noted, it is particularly outrageous and dismaying that Russia
has been engaging in these activities, given the profound need
by countries that are food insecure for this food aid that
Ukraine has been in the position of supplying, as well as
Russia, in the past.
Beyond efforts that we can bring forward and continue to do
so to hold accountable those in Russia that are responsible, it
is, furthermore, essential to ensure that that grain is able to
be exported, and so the agreements, the negotiated agreements
that have come into place and hopefully will be retained in
order to allow that grain to continue to be exported will be
just as essential as holding accountable those who are
responsible for preventing the export of that grain.
Thank you.
Senator Smith. Thank you. Thank you very much.
Just in the time that I have left, I would like to follow
up on the excellent questions from Senator Menendez and also
Senator Rounds around strategies that Russia is deploying to
evade sanctions. It seems as if this is a constantly evolving
battle--right?--between new strategies on the part of Russia to
evade sanctions and then our efforts to adapt and to evolve as
well.
So maybe, Mr. Adams, could you just talk a little bit about
that? How have Russia's strategies to evade coalition sanctions
evolved? And how are our detection and enforcement strategies
evolving in response?
Mr. Adams. Thank you, Senator. In many ways, I think we see
the same playbook for sanctions evasion today that we have seen
for years. There is clearly a drive to evade export controls in
particular given the stark deficiencies of the Russian military
and the ability to rearm itself. And so from a strategic
standpoint, we at the Department are looking at efforts to
evade both the financing, sanctionable financing of controlled
exports and looking specifically at new financiers and new
shell companies, new financial services firms that are popping
up in order to essentially play a shell game in terms of how to
hide that money.
One strategy that we have adopted with the task force is to
be as public as quickly as possible in setting out a road map
for the private sector to look at. When we unseal affidavits,
when we take actions, we try to speak with as much detail as
possible about the specific companies involved, the specific
route of money that is going through the financial system, so
that we have an outsized effect beyond a particular case or a
particular seizure, so that banks, insurance companies,
financial services firms can look at our work product and take
their own action as they instill their own cultures of
compliance.
Senator Smith. Thank you very much.
Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Smith.
Senator Daines from Montana is recognized.
Senator Daines. Chairman, thank you.
I was one of the first U.S. officials to visit Ukraine
following Putin's invasion on February 24th. That was in mid-
April I went over. Following that visit, I saw Putin's
atrocities firsthand. In fact, I brought a New York Times
reporter with me as we went and saw the atrocities there in the
Bucha area, of course, kind of north and a bit to the west of
Kyiv. I pushed the Biden administration on my return to take
immediate actions to reopen the U.S. embassy as well as to send
more lethal aid to Ukrainian people.
On Sunday, the Guardian reported that Ukraine is lobbying
the U.N. General Assembly to adopt a resolution to establish a
mechanism that could leave the seizure of as much as $300
billion of Russian State assets overseas.
As the war raged on and Russia's actions became more brutal
and barbaric, I then urged Treasury Secretary Yellen to impose
tighter sanctions on Russia's financial institutions.
In June, the U.S. Department of Justice stated the U.S. and
its allies have frozen $30 billion--I believe the number now is
closer to $39 billion--of Russian elite assets and $300 billion
of Russian central bank assets held overseas. Not long ago, I
introduced a bill, Senate bill 4283, that would authorize the
Biden administration to confiscate these Russian assets and use
these assets to offset the cost of our Nation's assistance to
Ukraine. I can tell you, when you talk about that with the
taxpayers of this country, they think that is a great idea, as
we have been most generous in sending aid over to Ukraine.
I think it seems prudent that we take advantage of our
sanctions to the fullest and repurpose these Russian funds to
help pay for the response to their invasion of Ukraine.
For Mr. Adams and for Ms. Rosenberg, can either of you
offer guidance on what the Biden administration plans to do
with the roughly $39 billion of seized Russian assets? And, by
the way, it is kind of a nice balance. We authorized about $40
billion and change to support the Ukrainians. We have got about
$39 billion in seized Russian assets. What does the
Administration do with that? And why can't we just take those
dollars and use them as an offset for the aid we have sent to
Ukraine? We will start with Mr. Adams.
Mr. Adams. Thank you, Senator. The concern behind the
question is entirely felt within the Department and the
Administration, heartfelt by the people at the task force. And
the task force, the Department, stands ready to work with you,
your office, with the Committee, with the Senate, to talk about
legislation that has been proposed, that may be proposed, that
may further expand our ability to go after----
Senator Daines. And I thank you for that. Heartfelt, that
is great. Concern, that is wonderful. But why aren't we taking
action? What is the barrier prohibiting us from taking these
seized assets here and using those to offset the aid that we
have sent to Ukraine? The taxpayers would love to see that, I
can tell you that.
Mr. Adams. Thank you, Senator. To go directly to the
hurdles here, with respect to frozen assets, which I think is a
key distinction here between what has been seized pursuant to
our warrants and----
Senator Daines. What is the frozen asset number that you--
if you were to look at your tally, what is that number?
Mr. Adams. I think that is the number that you are
referring to.
Senator Daines. Yes, correct. OK. Just to make sure we are
on the same page, because that does match virtually what we
sent to Ukraine. It is around about $40 billion.
Mr. Adams. And with respect to frozen assets that sit in
bank accounts, that sit in securities holdings, those are not
entire co-extensive with what is today forfeitable, what we can
bring a seizure warrant to go and ultimately divest all the
ownership.
Senator Daines. How much do you think we could provide of
seizure warrant and actually take?
Mr. Adams. It is difficult to predict today, and it is
under investigation right now. The question is: As a general
matter, are the assets either traceable to the proceeds of an
existing crime, involving in money laundering, or the assets of
a racketeering enterprise?
Senator Daines. Thank you.
Ms. Rosenberg, your thoughts.
Ms. Rosenberg. Thank you, Senator. Let me just affirm that
it is certainly our common cause and interest to pursue the
restitution for the Ukrainian people. I would associate myself
with the sentiment that it is challenging to move from frozen
assets to forfeited assets, and there is a distinction between
assets that are State assets versus assets that apply to
oligarchs or to individuals, creating different legal standards
for the both of them.
Additionally, some of those assets that you have noted are
held in the United States and U.S. jurisdiction and others are
held abroad. It is most important that we move in parallel to
certain of our international counterparts in order to have
consistency and credibility across our regimes.
Senator Daines. Would legislation help?
Mr. Adams. Senator, from the Department's perspective,
there are proposals that the Department has engaged with the
Senate on that would help, I think, expand our ability both to
investigate and ultimately to pursue the forfeiture of assets
that are under consideration.
Senator Daines. All right. Thank you.
Chairman Brown. Thank you, Senator Daines.
Senator Sinema from Arizona is recognized from her office.
Senator Sinema. Thank you, Mr. Chairman, and thank you to
the witnesses for being here today.
Arizonans and Americans continue to stand with the
Ukrainian people against Russia's illegal war. We are inspired
by the courage and the determination of the Ukrainian people.
We must continue to take smart, aggressive action to disrupt
and dismantle Vladimir Putin's war machine and bring this
bloody illegal conflict to a close.
Earlier this month, the Russian Government announced that
Putin has personally sanctioned me, Senator Kelly, and other
distinguished Members of this Committee. You know, when Senator
McCain served in the Senate, he was sanctioned by Putin in the
exact same way, and I could not be prouder to share such a
distinction with him. I consider it a badge of honor.
What he said in response to Russia was this: ``While I
suppose this means I will spend this Easter in Sedona rather
than Siberia, I could not be more proud of being sanctioned by
Vladimir Putin for standing up for freedom and human rights for
the Russian people and against Putin's deadly aggression in
Ukraine. I will never stop my efforts to support democracy,
free speech, and the rule of law in Russia.''
I could not agree more.
Assistant Secretary Rosenberg, it is good to see you. I am
encouraged by reports that the Russian military is being forced
to repurpose domestic industry to obtain key inputs for its
battlefield hardware because no respected world power will sell
to them. This success shows what is possible when Nations put
aside differences and work together toward a common goal.
Can you expand on the direct combat implications of this
achievement? And are these international export restrictions a
factor in why the Russian military had to pull back from
Kharkiv a few weeks ago?
Ms. Rosenberg. Thank you, Senator, for the opportunity to
discuss this issue. Indeed, we do believe that export
restrictions and financial sanctions are directly meaningful
for Russia's difficulty in sourcing modern, state-of-the-art
battlefield equipment. Their soldiers on the front line do not
have access to key warfighting equipment, which degrades
Russia's readiness, its posture, and its ability to wage this
war.
Specifically, we have noticed and pointed out Russia's
difficulty in getting access to chips, certain high-tech
equipment that is significant as components to certain
battlefield equipment. As you rightly noted, Russia has
struggled to be able to procure on the open market because
responsible countries of the world have denied it the
opportunity to procure those goods. That is something that we
will seek to continue: tightening those export controls. They
are a vise that continues to tighten. Successively over time it
will be more and more difficult for Russia to source that
equipment, meaning that its second-rate materiel is an
impediment for battlefield readiness for the period of the war
yet ahead of us, unfortunately.
Senator Sinema. Thank you. Do you have a sense of which
industrial goods and technology are the most devastating for
global suppliers to withhold from the Russian military?
Ms. Rosenberg. Senator, I did not catch the beginning of
your question, but to the extent that this is about particular
goods and technology controls----
Senator Sinema. Yes.
Ms. Rosenberg. Yes, I would defer to my Commerce Department
colleagues who maintain the lists and the particular
prohibitions as well as my Defense Department colleagues and
their analysts to make an assessment of what is most
significant to Russia's warfighting ability and its battlefield
readiness. But as I believe you have noted, the broad array of
restrictions across many categories of equipment and technology
that Russia uses to source its battlefield equipment are
important, as well as the complementary financial sanctions
that also seek to deprive Russia the opportunity to make such
procurements.
Senator Sinema. Thank you. I also want to ask you about the
efficacy of current restrictions on Russian oil exports. Some
reports state that Russian oil producers are attempting to
circumvent the spirit of these restrictions by blending their
oil with oil from other countries so that the percentage of
Russian oil falls beneath 50 percent. Under current rules, that
would allow the oil to be branded as a non-Russian country's
blend, even though nearly half of the oil revenue will continue
to go to Russia.
Is this an issue of concern for the United States? Or is
this primarily an issue for the European Commission?
Ms. Rosenberg. Thank you. At this time we are putting
together the price cap policy, which will come into force on
December 5th. The point that you have made about blending of
Russian crude is one that we have heard from other individuals
and people in the industry. We have an opportunity to offer
further clarity on this important point in the forthcoming
guidance and frequently asked questions that the U.S.
Government will put out in the coming weeks to effectuate our
price cap. Our partners in other G7 countries will have the
opportunity to do so--as well as to clarify the specifics here.
But it is important to remember that Russian oil on the water
is Russian oil on the water for the purposes of the price cap
policy.
Thank you.
Senator Sinema. And my final question. Does the Department
support European Commission efforts to tighten restrictions on
this very type of blending scheme?
Ms. Rosenberg. Thank you, Senator. We work very closely
with the European Commission, which is part of the G7 coalition
for the price cap. We all collectively see the price cap policy
as strengthening and enforcing the existing set of restrictions
that we have to respond to Russia and what it does is buildupon
the EU's sixth package that passed in the spring that has the
provisional basis, the provisional legal basis for its ban on
Russian services for third countries. So we will certainly work
closely with the EU and other G7 partners as we continue to
implement this policy.
Thank you.
Senator Sinema. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Sinema.
Senator Cortez Masto from Nevada is recognized from her
office.
Senator Cortez Masto. Thank you, Mr. Chairman. Thank you to
both Ms. Rosenberg and Mr. Adams.
Mr. Adams, let me talk with you. Let me just say this: I
appreciate President Biden's implement robust sanctions against
the Russian Government to stop the illegal and unprovoked
invasion against the people of Ukraine. I also appreciate the
work that you are doing in the creation of the KleptoCapture
Task Force. Let me just talk about two things, because I have
two proposals that I am working on, and thank you, I know we
have reached out to DOJ and the Administration about this.
But here is what I am interested in is your position on
when you talk about the benefits of adding the crime of
sanctions evasion to the definition of ``racketeering
activity'' under RICO. As you well know, there are civil and
criminal actions under the Racketeer Influenced and Corrupt
Organizations Act, and I am interested in your thoughts if
adding the crime of sanctions evasion would be helpful in the
work that you are doing.
Mr. Adams. Thank you, Senator, and my thanks to both you
and your staff for the conversations about the proposed
legislation. We are committed to continue those conversations.
It would be helpful in a number of respects to add IEEPA
and ECRA violations to the list of RICO predicates. There are a
number of ways in which we expect that would inure to the
benefit of seizing assets. Under the RICO criminal provisions
and the forfeiture laws, the ability to go after racketeering
enterprises and the assets, all assets of a racketeering
enterprise is a particularly powerful forfeiture tool, and it
is one that is appropriate in the context of sophisticated,
complicated, complex, multinational racketeering enterprises
that are engaged in a number of financial crimes.
It is the case, as we have talked about today on a number
of points, that what we see are efforts to evade sanctions in
Russia, but they also tie into efforts to evade sanctions in
Iran and North Korea. There are partnerships and growing
partnerships in Iran and North Korea, in particular due to the
success of our sanctions regime and the success of the export
control regime.
The ability to look at financial service providers, for
example, to look at facilitators who are engaged generally in
the efforts to make a buck on the back of sanctions evasion,
irrespective of where in the world the sanctions evasions are
taking place, would be particularly powerful and allow us to go
after a broader set of actors and to use a particularly
powerful forfeiture hammer to ultimately inure to the benefit
of Ukraine.
Senator Cortez Masto. Thank you. And, listen, I so
appreciate your answers to some of the questions today. I have
taken action both under civil and criminal RICO and addressed
and tried to take action under forfeiture laws as well. It is
very challenging, there is no doubt about it, and there are
certain property rights that have to be taken into
consideration.
I do think we need to make sure that we are giving you all
the tools that you need under our existing laws, and by adding
just a sanction evasion as a RICO predicate would be one of the
easiest things that we can do to give you more opportunity to
take the action that we are all asking you to take, quite
honestly.
The second thing I want to ask you, I know the
Administration seeks to extend the statute of limitations for
acts against the U.S. for sanctions evasion from 5 to 10 years.
Can you talk a little bit about that and why that is important?
Mr. Adams. Thank you, Senator, and the proposal here is, as
you say, to extend the statute of limitations, focusing on, in
particular, activity and unlawful activity that is taking place
abroad. The reason for the request is the difficulty in
conducting those kinds of investigations in particular.
I mentioned earlier that the realignment and the continuing
alignment of our sanctions regime and our foreign partners'
sanctions regime is encouraging. It has been robust,
particularly in the last few months.
That said, the difficulties of conducting transnational
investigations of piercing often opaque jurisdictions that have
an interest in concealing or providing a harbor for those who
would conceal illegal activity is a tall order. It requires
intensive resources, and it at times requires multiple years of
investigation.
Senator Cortez Masto. Right, so, in essence, you just need
more time for the investigation. You do not have that because
of the extent of the assets and what you are dealing with in an
international perspective.
Thank you again. I so appreciate both of you and the work
that you do.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Warren from Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman.
So ever since President Biden announced sanctions against
Russia for the invasion of Ukraine in February, I have had
serious concerns about Russian elites potential using
cryptocurrency to evade sanctions. Back then, we already knew
that countries like North Korea had used crypto to skirt
sanctions and launder at least hundreds of millions of dollars,
and Russia could easily be part of that.
So that is why I introduced the Digital Asset Sanctions
Compliance Enhancement Act with many of my colleagues actually
on this Committee to strengthen our sanctions regime. Since my
bill's introduction in March, Treasury has identified numerous
cases of Russian entities attempting to evade sanctions with
crypto.
In April, Treasury sanctioned multiple Russian crypto
mining companies. Just last week, Treasury sanctioned five
crypto addresses tied to a Russian neo-Nazi paramilitary group.
And on top of that, Russia's Deputy Finance Minister announced
earlier this month that Russia is looking into using
stablecoins as a way around Western sanctions.
Assistant Secretary Rosenberg, could digital assets be used
right now by Russian oligarchs to evade sanctions on Russia?
Ms. Rosenberg. Yes, Senator, that is possible.
Senator Warren. All right. I appreciate your candid answer
here. Many crypto boosters continue to claim that crypto could
never be used as a way to evade sanctions. Despite the evidence
to the contrary, they say that because blockchain is
transparent, anybody can where the tokens are moving, so no
problem here.
Now, obviously, we know there are problems. A whole
industry has popped up to create tools for illicit actors to
tangle or hide the trail of crypto transactions. One of these
tools is called a ``mixer,'' which pools funds with the
explicit purpose of hiding the origins of the funds. In fact,
one report estimates that so far this year, nearly a quarter of
all funds sent to mixers came from illicit actors.
Assistant Secretary Rosenberg, let us start with the
basics. Do mixers and other technology used to hide
cryptotransactions make it harder for Treasury officials to do
their job of enforcing sanctions?
Ms. Rosenberg. Anonymity-enhancing technologies, such as
mixers that you mentioned, are indeed a concern for
understanding the flow of illicit finance and getting after it.
It is true that what you note, that on a public blockchain, it
is possible to trace the source of money and where it is
flowing. The detractor from that would be anonymity-enhancing
technologies.
Senator Warren. That is right, like these mixers. So that
is why I was glad to see last month that Treasury sanctioned
Tornado Cash, a mixer used by a North Korea-linked hacking
group to launder nearly half-a-billion dollars. Earlier this
year, the mixing service Blender was sanctioned for laundering
funds for Russian and North Korean groups.
Now, some in the crypto industry are furious over these
sanctions, and they are fighting to have the chance to keep
right on laundering money. Some downplay, some even lie about
the risks associated with their products.
One of the industry witnesses who testified before this
Committee earlier this year claimed that mixers do not make it
easier for illicit actors to hide their transactions. Well,
that was clearly wrong. Tornado Cash alone has been used to
launder over $7 billion with nearly 30 percent of its current
business tied to illicit actors.
Even so, Coinbase, the largest U.S.-based crypto exchange,
is now bankrolling a lawsuit against Treasury for its work to
sanction these mixers.
So, Assistant Secretary Rosenberg, will sanctions against
mixers like Tornado Cash help strengthen our sanctions regime
against Russia and other illicit actors?
Ms. Rosenberg. Thank you, Senator. Sanctions such as the
one that you have noted, when they can serve as a deterrent to
any criminal that would seek to use a mixer in order to launder
their funds, the proceeds of corruption or other criminal
activity, that is an effective avenue we can use in order to
signal that we cannot tolerate money laundering. So whether
that is for a Russian criminal actor, an Iranian, a North
Korean, or wherever they may come from.
Senator Warren. Well, I appreciate that. You know, one
thing I have learned over the past couple of years is when the
crypto boosters cry the loudest, you are probably on to
something. If crypto has nothing to hide on money laundering
for oligarchs or drug lords or tax evaders, then they should
not mind a little transparency. Thanks very much.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
Senator Ossoff from Georgia is recognized from his office.
Senator Ossoff. Thanks to both of our panelists for your
service and your testimony today.
Assistant Secretary Rosenberg, I would like to begin with
you. What will be the most significant implementation
challenges associated with the G7 price cap?
Ms. Rosenberg. Thank you for the question. We have already
begun significant work to implement this, by discussing and
explaining it publicly. It is a different kind of sanction or a
different kind of financial set of rules than we have imposed
before, along with our G7 partners, so there is a good deal of
work to be done, a good challenge to be had in explaining this
and clarifying it to the parties that would be in the position
to use it. And that includes the service providers that must
know and understand it in order to be able to work within its
parameters. We have sought to engage those service providers
extensively as we have constructed the framework for compliance
and have learned a great deal from them as well as from other
countries that purchase Russian oil and that would seek to
purchase Russian oil.
So a challenge we have is being able to continue to discuss
and explain this broadly with all those in a position to
implement it.
Senator Ossoff. Thank you, Ms. Rosenberg, and my
understanding is that the guidance that has been issued,
according to that guidance, financial institutions that
inadvertently capitalize the shipment of oil that is not
compliant with the cap will not be penalized for that. How will
``inadvertent'' be defined? What due diligence will financial
institutions be required to undertake in order to ensure that
they are not facilitating oil trades which are not compliant
with this arrangement?
Ms. Rosenberg. Thank you, Senator. Our purpose is indeed
strong compliance with the price cap policy such that
purchasers of Russian oil will be in a position to leverage it,
as I have noted before. Your reference to the guidance, the
preliminary guidance that we put out does speak to service
providers that may be duped or having received false
information. If they are acting in good faith, if they are
undertaking due diligence in the normal course along the lines
of what they are required to do under other compliance
frameworks or supervisory frameworks, that is in general terms
the nature of the requirements that we would expect them to be
undertaking here. Our focus by contrast as an enforcement
matter would be on those purchasers making these material
misrepresentations or lying to the service providers.
Senator Ossoff. Thank you, Ms. Rosenberg. More broadly now,
what forms of access to international markets or capital or
technology that may not currently be constrained by the
sanctions regime as constructed are more essential to the
Russian Federation's capacity to generate military power over
the next several years?
Let me just restate the question for clarity. What forms of
access to international markets and capital that the Russian
Federation may still enjoy and to specific technologies, will
the Russian Government and Russian industry be best able to
exploit to generate military power given the high rate of
attrition that they have experienced thus far during operations
in Ukraine?
Ms. Rosenberg. Thank you, Senator, for the question. One
key area of focus for us is looking to Russia's significant
source of wealth when it comes to its energy sales, its major
source of hard currency at this time. That is important to
Russia for budgetary support now and will be in the future,
which is why policies such as the price cap policy are
essential in degrading its fiscal basis now and into the
future. And I would point out a policy which is not a U.S.
policy but which will nevertheless be significant, and that is
Europe's long-term goal to move away from the purchase of
Russian energy and indeed to seek alternative energy supplies
and greater efficiency. That has caused Russia to anticipate a
decline in revenue, a very meaningful decline in revenue over
the years to come. That is significant when it comes to its
ability to sustain any kind of economic growth or achieve any
kind of economic growth or sustain it into the future.
Thank you.
Senator Ossoff. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Ossoff.
That concludes the questioning. In bringing this hearing to
a close, it is important that we all again realize what is at
stake. The struggle of the Ukrainian people and Putin's
inhumane war is a fight between democracy and tyranny. The
price is high. Zelensky said it best, describing to Putin what
Ukrainians would go without. He said, ``Without gas or without
you? Without you. Without light or without you? Without you.
Without food or without you? Without you. Without water or
without you? Without you.''
That is the strength of Ukrainian resolve and ours on this
Committee and in this Congress, and the Administration must
match it. Congress must work hand in hand with you, with the
Administration, and our multilateral coalition to protect the
sovereignty and protect the people of Ukraine.
Again, thanks to the two of you for being here today and
providing testimony.
Senators who wish to submit questions, they are due 1 week
from today, on Tuesday, September 27th. To the two of you as
witnesses, please submit your responses to those questions for
the record no more than 45 days from the day you receive them.
Thank you again.
With that, the hearing is adjourned.
[Whereupon, at 10:31 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
The Committee on Banking, Housing, and Urban Affairs will come to
order.
Today's hearing is in a hybrid format. Our witnesses are in-person,
but Members have the option to appear either in-person or virtually.
Vladimir Putin's war on Ukraine has massacred innocent civilian
communities, leveled cities, weaponized food and energy sources,
imperiled the security of a nuclear facility, and jeopardized the
future of a sovereign democracy.
His actions also threaten global order--drawing a clear distinction
between those who stand for democracy and rule of law and the forces of
repression and tyranny.
But there are two things that Putin did not count on:
First: the resilience and strength of spirit of the Ukrainian
people--which was on clear display last week, when the Ukrainian
military retook Kharkiv, Ukraine's second-largest city.
Second: the ability of President Biden to assemble and lead a
broad, unified coalition of allies, and to keep that coalition
together.
This Administration, with bipartisan and bicameral support from
Congress, has spearheaded a forceful, comprehensive, and multilateral
response to support the Ukrainian people and isolate Russia.
Today's hearing examines the economic piece of the Administration's
strategy.
This hearing follows on the Committee's work in evaluating our
sanctions policy--as we did last year in a hearing on Treasury's
sanctions review, and at a hearing this past July, where we heard from
the Commerce Department on its expansive restrictions on exports to
Russia.
Because we are united, our efforts are beginning to work.
As Secretary of State Antony Blinken said the other week, ``Putin
thought he would divide and weaken NATO.''
But he was wrong. Putin's actions have led to NATO's growth--We're
now poised to welcome Sweden and Finland--reminding the world the vital
role this alliance of democracies plays.
And America, and increasingly the world, is wise to Russia's
propaganda.
This Administration has corralled an unprecedented multilateral
coalition, which includes our European partners and other allied
countries, to impose one of the most comprehensive sets of economic
sanctions in recent years.
Those measures aim to limit trade and financial relations with
Russia, to penalize corrupt Russian oligarchs for supporting Vladimir
Putin, and to cripple Russia's economy, cutting off support for funding
this brutal and immoral war.
We've dramatically escalated this economic effort. And it is
impacting every sector:
Sanctions against a number of major Russian banks and
dozens of Russian officials and Putin associates.
Expanded export controls that restrict Russia's access to
the technologies needed to sustain its aggressive military
capabilities.
Limitations on imports of Russian energy products.
And even the seizure of a $300 million yacht owned by a
sanctioned Russian oligarch.
The impact of our smart and targeted economic measures has rippled
throughout the Russian economy, damaging their defense industrial base.
Ukrainian troops have found Russian military equipment rigged with
semiconductors that appear to have been taken out of home appliances
like dishwashers and refrigerators.
As we pass the 6 month mark of the war, we welcome back Elizabeth
Rosenberg, who serves as Assistant Secretary for Terrorist Financing
and Financial Crimes at the U.S. Department of the Treasury, and
welcome Andrew Adams, Director of the KleptoCapture Task Force at the
Department of Justice.
We look forward to hearing from the witnesses about the economic
sanctions designed to weaken Russia's economy and about our efforts to
pursue corrupt Russian oligarchs' assets.
We are making it increasingly difficult for Putin to fund his
brutal war in the face of a shrinking Russian economy and its isolation
on the global stage.
We must maintain the pressure of our many sanctions regimes and we
must keep the coalition intact.
With so much of Russia's revenue coming from energy sales, I look
forward to hearing more from the witnesses today about the intended
impact and status of the price cap negotiations.
Just last week I met with a group of Ukrainian Americans from
Ohio--my State is proud to have a vibrant, active Ukrainian community--
and their message was clear:
We ``cannot lose the momentum.'' We must continue to hold the
Russian Government and sanctions evaders responsible.
The multilateral coalition, which President Biden assembled, rolled
out a sweeping series of rules designed to degrade Russia's military
and technological capabilities. We will not let up while Russia
continues to threaten the sovereignty of Ukraine.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Mr. Chairman, thank you.
Last week, Ukrainian forces recaptured the town of Iziyum in
eastern Ukraine. It had been occupied by Russian soldiers for 6 months.
In the streets, overjoyed and tearful residents celebrated their
liberation. But in a forest just outside town, the horrors of Russia's
invasion were once again revealed.
Ukrainian soldiers discovered a mass grave filled with hundreds of
civilians. Many of these victims are believed to have been tortured,
bound, assaulted, and murdered--not unlike the horrors that occurred in
Bucha in April.
Our Government has rightly said such atrocities committed by the
Russians are war crimes. Identifying and prosecuting these war crimes
are crucial to bringing justice to the Ukrainian people, but let's be
clear: These crimes will continue unless we can force Vladimir Putin
and those around him to conclude that abandoning the invasion is better
than continuing it.
Ending this war--on terms acceptable to Ukraine's democratic
Government--is not just a morally righteous undertaking for the United
States. It is also in the vital interests of our allies and ourselves.
The outcome will have ramifications far beyond Ukraine. We cannot
allow revisionist autocrats to feel free to redraw international
borders and fundamentally challenge global stability.
The principles of sovereignty and freedom must mean something--even
when facing down the barrel of a gun. The stakes are sky high in
Europe, where the United States has deep and longstanding security
commitments, and they reach as far as Asia, where the Chinese
Government is taking note of how the U.S. and its allies respond to
Russia's invasion of its smaller neighbor.
Today, this Committee will examine the existing and future
sanctions that the U.S. and its allies will bring to bear on the
Kremlin for its invasion of Ukraine. While the outcome of the war will
be determined on the battlefield, sanctions have the potential to
dramatically hasten an end to the conflict by depriving the Kremlin of
the funds it needs to continue this war.
And let's be honest: the sanctions imposed on Russia have not yet
come remotely close to achieving this objective. Roughly $1 billion in
hard currency continues to flow into the Kremlin's war chest every day
from energy sales.
Even Treasury Deputy Secretary Adeyemo recently acknowledged:
``There is one part of the Russian economy doing even better than when
the war began: their oil industry.'' Russia's gas industry is doing
equally well: Gazprom recently announced record profits of over $40
billion from the first part of this year.
Today's hearing will focus on the Administration's plan for a novel
sanctions regime that imposes price caps on the purchase of Russian
oil. This is an intriguing idea that I hope will be considered for
Russian gas as well.
The premise of the scheme is simple: service providers, such as
financiers and insurers, within the G7 will only be permitted to
facilitate the purchase of Russian oil below the set cap. Given that
the vast majority of such service providers are domiciled in G7
countries, I think this plan has the potential to significantly curtail
Russian oil revenue.
But several questions remain about this program, including: How
will the price cap be set? What will enforcement of the cap look like?
And how will the Administration ensure that buyers in countries like
China and India do not skirt the price cap for their own gain?
This last question is arguably the most important to determining
the effectiveness of the price cap regime. And because the G7 agreement
does not address this question, I have joined with Senator Chris Van
Hollen to introduce sanctions legislation that will complement the
Administration's price cap scheme and impose mandatory sanctions on any
foreign financial institution, worldwide, involved with any transaction
in Russian oil above the price cap.
This legislation is the first major bipartisan sanctions
legislation that has been introduced on Russia since February. And I
promise to work with Senator Van Hollen to get this bill enacted as
soon as possible so that Russia can no longer profit from the oil sales
funding its war in Ukraine.
Seven months after Putin began his ``special operation'' in
Ukraine, the Ukrainians have conducted a successful campaign to
liberate portions of the country from Russian control, concerns
harbored by China and India about Putin's war have been aired publicly,
and gas prices in Europe are actually falling--down 45 percent since
late August.
The war is not going as planned for Putin. But I say this to my
colleagues: now is not the time for half-measures or complacency. It is
time to crush the Kremlin's will to continue this war.
______
PREPARED STATEMENT OF ELIZABETH ROSENBERG
Assistant Secretary for Terrorist Financing and Financial Crimes, U.S.
Department of the Treasury
September 20, 2022
Chairman Brown, Ranking Member Toomey, and distinguished Members of
the Banking Committee, thank you for the opportunity to speak with you
today and provide an update on the Department of the Treasury's efforts
to hold Russia accountable for its brutal and unjustified further
invasion of Ukraine.
The U.S. Department of the Treasury is a key agency working
alongside others across the Administration to implement the U.S.
Government's holistic response to Putin's war. Since the further
invasion began 6 months ago, we have been advancing President Biden's
promise to ``squeeze Russia's access to finance and technology for
strategic sectors of its economy and degrade its industrial capacity
for years to come.'' \1\
---------------------------------------------------------------------------
\1\ https://www.whitehouse.gov/briefing-room/speeches-remarks/
2022/02/24/remarks-by-president-biden-on-russias-unprovoked-and-
unjustified-attack-on-ukraine/
---------------------------------------------------------------------------
Just last week, we imposed additional sanctions to further degrade
Russia's ability to rebuild its military, hold the perpetrators of this
war accountable, and further financially isolate Putin. To date,
Treasury has sanctioned hundreds of Russian individuals and entities,
cutting them off from the U.S. financial system. This includes a
majority of Russia's largest financial institutions, key nodes in their
military-industrial supply chains, and the oligarchs and cronies who
steal from the Russian people to line their own pockets and help Putin
perpetuate his war. For example, Treasury's sanctions over the last few
months, including our latest tranche last week, have targeted elites
tied to the Kremlin, firms connected to Russian steel production and
the military-industrial base, and sanctions evasion networks operating
on behalf of designated Russian entities. They have also exposed
Russian agents and entities involved with Russian Government efforts to
promulgate disinformation and election interference in the U.S. and
Ukraine.
Treasury has also implemented restrictions on dealings in Russian
sovereign debt; prohibited economic dealings with the so-called Donetsk
People's Republic and Luhansk People's Republic regions of Ukraine;
prohibited new investment in the Russian Federation, and imposed
services bans covering the provision of quantum computing, accounting,
trust and corporate formation, and management consulting services to
any person located in the Russian federation. We have also imposed
prohibitions on importing certain commodities from Russia into the
United States, including oil and natural gas, and similarly imposed
prohibitions on exporting certain items like luxury goods and dollar-
denominated banknotes.
The United States has been joined by over 30 countries--
representing more than half of the global economy--in imposing these
measures. The G7, the EU, and other partners like South Korea,
Singapore, and Australia have joined us in implementing the largest
sanctions regime in modern history. To complement these targeted
measures, Treasury has worked alongside colleagues at the Department of
Justice to develop unprecedented and wide-reaching international
information exchange activities with partner countries, including
through the Russian Elites, Proxies, and Oligarchs (REPO) Task Force.
These efforts facilitate our ability to share intelligence, law
enforcement data, and relevant financial records in order to expose
shadowy economic and commercial Russian evasion networks. We are also
working with allies and the Government of Ukraine to examine how we may
best use Russian assets that have been frozen and forfeited to support
the people of Ukraine.
In addition, Treasury has mounted an aggressive campaign to close
the global financial policy and regulatory loopholes across
jurisdictions that Russian aiders and abettors of this war, and other
criminals, use to perpetuate their illicit activity. At home, this
includes three key regulatory efforts: FinCEN's work to stand up a
beneficial ownership database pursuant to the Corporate Transparency
Act, developing new disclosure requirements for nonfinanced purchases
of real estate, and ongoing analysis related to the illicit finance
risks presented by investment advisers and funds. FinCEN has also
issued several Russia-related alerts, including on Russia's attempts to
evade sanctions. Abroad, Treasury is working to strengthen global
standards for corporate transparency through the Financial Action Task
Force (FATF) and enhance its focus on using financial transparency
tools to combat the scourge of corruption. This includes launching new
efforts at the FATF to address abuse of Citizenship by Investment, or
so-called golden passport programs, and the risks for money laundering,
corruption, and evasion of sanctions posed by financial gatekeepers and
Politically Exposed Persons (PEPs). Notably, FATF has also taken the
unprecedented step of downgrading Russia's standing within FATF as a
result of its war in Ukraine, further delegitimizing it in the eyes of
the international financial community.
On the other side, Russian propagandists have been hard at work. In
the style of the former Soviet Union, Moscow is aggressively attempting
to bury any unfavorable news and push the paradoxical narrative--and
misinformation--that sanctions are simultaneously not working and yet
also cause food insecurity. In fact, Russia's invasion spiked the price
of energy earlier this year by 21 percent. Russia's months-long
blockade of Ukraine's Black Sea ports, coupled with the purposeful
destruction and theft of agricultural infrastructure, crippled
Ukraine's farming and export economy, dramatically drove up global
grain prices, and outrageously deprived food-insecure recipients of
much needed resources. Its attacks on a major food exporter produced
similar shocks to global food prices. To detract focus from its brutal
tactics, Russia continues to minimize the dislocations it has caused to
global commodity markets and its inhumane deprivation of people in
Ukraine and across the globe.
This lies in stark contrast with the efforts of the U.S. and others
to aid Ukraine and developing countries around the world suffering from
Putin's actions. Foremost among these efforts are the Congressional
commitments to provide Ukraine with budget support and economic
assistance to keep critical Government functions going. In addition, we
are pushing international donors to accelerate their complementary
bilateral support. We thank Congress for already granting $8.5 billion
for Ukraine assistance that has gone toward these efforts.
The economic actions we have taken, both independently and jointly
with our international partners, have had and will continue to have a
significant effect on the Russian economy. Russia had been forced to
impose draconian capital controls and is burning through its rainy-day
fund, dramatically eroding its economic base and buffers in
unsustainable ways. Russia will be in fiscal deficit by the end of this
year. The IMF expects Russia's economy will contract for at least the
next 2 years, a sharp reversal from its 4.7 percent growth in 2021. \2\
Russia's inflation rate after its invasion reached up to 21.3 percent,
almost triple the rate from 2021, and remains in the double digits. \3\
The Russian stock market also reflects pessimism--its valuation remains
depressed, sitting about 35 percent below pre-war levels. \4\ Further,
the Central Bank Governor of Russia has started to advocate for
``structural transformation.'' \5\ The bottom line is that Russia's
economic picture is bleak and deteriorating.
---------------------------------------------------------------------------
\2\ https://www.imf.org/en/Publications/WEO/Issues/2022/07/26/
world-economic-outlook-update-july-2022
\3\ https://www.cbr.ru/eng/press/keypr/
\4\ Data from time series Moscow Stock Exchange Index available
here: https://www.moex.com/.
\5\ https://www.cbr.ru/eng/press/event/?id=14034
---------------------------------------------------------------------------
Significantly, these economic constraints are translating into real
battlefield difficulties for Russia. The Russian Duma proposed wartime
economic controls over the economy which would allow the State to
commandeer private businesses as necessary and force employees of
certain enterprises to work overtime. \6\ Struggling to import a host
of industrial goods and technology, Russia has been forced to
cannibalize its domestic industry to assemble battlefield hardware it
can no longer buy from responsible countries. Russia has been forced to
turn to outdated equipment and approach global pariahs like North Korea
and Iran to source the tools to fight.
---------------------------------------------------------------------------
\6\ As reported by Russian media: https://tass.com/economy/
1476563.
---------------------------------------------------------------------------
Fundamentally, the challenge we face in using financial measures to
hold Russia accountable while mitigating the effects of the war on
third countries is of a different kind than we face in other sanctions
programs. Russia is not North Korea, Iran, or Venezuela. Moreover,
Russia is a sizeable international economy, a globally important energy
producer, and over the last 30 years has grown closely tied--and in
some instances inextricably intertwined--with some of our closest
international partners and allies. Imposing financial costs on Russia
for its brutal policies while mitigating the consequences of Russia's
actions has required extraordinary planning, coordination, economic
analysis and diplomacy, and creative policymaking, all alongside a
large group of international partners.
In line with the 2021 Treasury Sanctions Review, we are constantly
re-evaluating and reassessing our course of action. We ask ourselves:
Do our policies achieve our intended goals? How has the target adapted
to our measures? What adjustments do we need to make to increase our
effectiveness and mitigate unintended consequences? How do we sustain
and strengthen the international coalition of countries working
together to hold President Putin accountable for his horrific war?
Examples of the real time adjustment Treasury has made to our
financial policies include the multiple fact sheets we have issued just
this year, including Preserving Agricultural Trade, Access to
Communication, and Other Support to Those Impacted by Russia's War
Against Ukraine in April 2022 and the Food Security Fact Sheet
published in July 2022, which both offer expansive information about
how sanctions are calibrated to avoid unintended impacts as well as to
counter Russian disinformation. These public guidance documents also
clarify, in writing, to both industry and the international community
that agricultural and medical products are not the targets of U.S.
sanctions. Rather, any impediments to the delivery of these vital
commodities lie squarely with Russia and its war, theft of food
products, and shelling of agricultural sites, in addition to Russia's
own export restrictions on food and fertilizer.
We have also been keenly focused on Russia's oil exports as we have
implemented our evolving policy approach to deny Russia the money
needed to sustain its war. At this point, these exports represent
Russia's primary source of hard currency. Moreover, Russia is reaping
windfall profits from oil and petroleum products due to rising energy
costs, spurred by the geopolitical uncertainty Russia caused by
choosing to pursue a land war in Europe. We are concerned with the way
energy revenues fuel Russia's war efforts but the global nature of the
oil market requires a careful approach.
Energy security affects us all--including American households that
have seen rising prices at the pump and elsewhere as the downstream
effects of rising energy costs have applied inflationary pressures
across the economy. Elevated energy prices hit the poorest the hardest,
in our country and across the world. Simply put, applying financial
pressure to curb Russia's windfall energy profits requires a different,
creative approach to make sure that Russian coffers, not regular
citizens in our economy and the rest of the world, bear the costs we
impose. That challenge--and the need for a carefully tailored policy
approach--is urgent. We cannot allow Russia to continue to fund its
atrocities, and we must do all we can to prevent the recessionary risks
that follow extended painful, unaffordable energy prices.
Our commitment to counter Russia's energy war profiteering centers
on our effort--alongside an international coalition, starting with the
G7 countries--to impose a ``price cap'' on maritime Russian oil and
product exports. Ultimately, the price cap policy is the most viable
option to support the security and affordability of the global oil
supply.
The oil price cap mechanism is a tool for other importers--mainly
developing and emerging economies suffering most as a result of Putin's
war--to demand a lower price for Russian oil that they purchase. We are
already seeing this take place with Russia negotiating steep discounts
for the oil it sells to buyers in Asia. These discounts are already
depriving Russia of revenues it would otherwise use to finance its
reckless war.
As a technical matter, this policy creates a framework for
companies in price-cap-coalition countries offering services for
Russia's maritime transport of oil: They can continue to offer these
services for Russian oil priced below the cap, and may not for any
Russian oil sold above that price. Given that premium service providers
and the majority of providers of some maritime services--like
insurance, payments, and trade finance--are located in G7 and EU
countries, there is an overwhelming economic incentive for buyers to
purchase under the price cap so they can engage these service
providers. It will be cheaper and less risky to move Russian oil
cargoes this way. We will continue to communicate closely with service
providers, as we have already done in developing this framework, to
collectively, constructively, and aggressively sustain participation in
and the success of this policy.
But make no mistake: This is and will remain very hard work. This
is an entirely new way to use financial measures against a global
bully. A price cap coalition requires unprecedented coordination with
international partners, as well as close partnership with global
maritime industries, and exceptional resolve in the face of hostile
Russian bluster and threats, including the risk that Russia may seek to
retaliate. I can tell you confidently that we at Treasury--and our
partners across the U.S. Government--are extraordinarily diligent when
it comes to these economic policies and the commitment to extensive and
creative multilateral engagement. Moreover, we are laser-focused on the
imperative to hold Russia accountable and support the people of
Ukraine, to constantly understand the risk environment, and to advance
a foreign and financial policy that embodies our goals and does not
bend to the rants and coercion of a brutal bully.
We know that Russia's war in Ukraine is not the only challenge for
which the Treasury Department will be called upon to act. Other threats
demand our attention as well, and the illicit finance landscape
continues to evolve. Additionally, while the U.S. dollar, U.S.
financial institutions and services, and our capital markets are still
dominant in international finance and trade, our adversaries are
actively finding ways to attack this centrality and insulate themselves
from touchpoints with the U.S. financial system. These are long-term
challenges that we cannot sanction ourselves out of. We must continue
to strengthen the U.S. financial system and innovate new ways to use
economic policies and authorities to meet both our domestic and foreign
policy objectives. The price cap--a bold policy never previously
attempted by the U.S. Treasury--is the vanguard for a new form of
economic statecraft, and I am proud to be a part of the team pushing
these boundaries in the interest of U.S. national security.
Lastly, I'd like to echo Secretary Yellen and Deputy Secretary
Adeyemo's sentiments from when they were last here and express my
gratitude for the additional resources Congress has provided in the
Ukraine supplemental appropriations packages. Your timely actions are
what allow me and the dedicated career staff at Treasury to surge on
this urgent national security priority. The partnership between
Congress and the Administration has always been very important to U.S.
policy toward Russia, sanctions, and responding to the crisis in
Ukraine. I would be happy to answer your questions and look forward to
working with you as we move forward. Thank you.
______
PREPARED STATEMENT OF ANDREW ADAMS
Director, Task Force KleptoCapture, U.S. Department of Justice
September 20, 2022
Good morning, Chairman, Ranking Member, and Members of the
Committee. I appreciate the opportunity to appear before you today on
behalf of the United States Department of Justice and in my capacity as
Director of the Department's Russian sanctions Task Force--
KleptoCapture--to discuss the Task Force and to discuss Federal asset
forfeiture, both civil and criminal, as it relates to Russia's
unprovoked and illegal war of aggression in Ukraine. Today, I will
summarize the Task Force's structure, scope, and strategic priorities,
before turning to particular tools utilized by the Task Force in its
work to date and tools that, if provided, would further enhance the
Task Force's ability to accomplish those strategic goals.
Task Force: Structure
As this Committee is well-aware, the Department's response to
Russia's invasion of Ukraine included the launch of Task Force
KleptoCapture. The Task Force is an interagency law enforcement
endeavor led by Justice Department prosecutors and dedicated to
enforcing the sweeping sanctions and export restrictions that the
United States has imposed, along with allies and partners, in response
to Russia's unprovoked military invasion. The Task Force sits within
the Office of the Deputy Attorney General and draws on the expertise
and energy of agents, analysts, translators, and prosecutors throughout
the Department. Two deputy directors have joined to aid in running the
task force, both experienced attorneys within the Department of
Justice, one hailing from the National Security Division, and the other
from the Criminal Division's Money Laundering and Asset Recovery
Section, with particular experience and expertise from his work with
that Section's Kleptocracy Unit. In support of its mission, the Task
Force draws on dedicated teams at FBI, Homeland Security, the IRS-
Criminal Investigations, the U.S. Postal Inspection Service, the
Commerce Department, the State Department, every relevant component of
the Treasury Department, and from the intelligence community, military
branches, and our international partners.
The Department has long targeted sanctions evasion, Russian
organized crime and global kleptocracy, both through trial attorneys at
Main Justice and through the extensive efforts of the United States
Attorney's Office community. The efforts of those departmental
components have been robust and successful. Charges targeting sanctions
evasion and export control violations by individuals and major
financial institutions; money laundering charges and seizures involving
everything from cryptocurrency to trade-based money laundering; charges
targeting kleptocracy and laundering of foreign bribes; and willful
failures of anti-money laundering systems in both traditional and novel
financial institutions--all are cases well within the experience of the
Department.
The Department's historical focus and past success informs the work
of the Task Force in two ways. First--and as a core challenge to be met
through our work--past action means that the fruits of corruption that
might be found in the United States are likely to be buried deep
beneath layers of sham owners and shell companies--while the most
obvious and ostentatious forms of kleptocracy will be located outside
of the United States, as the world has already seen.
Second, those past efforts mean that cases under the ambit of the
Task Force will continue to benefit from the leadership of the U.S.
Attorney's Office community across the country, as well as from teams
within Main Justice, who have been working in this space for several
years. Subpoenas, search warrants, and the like will flow from grand
juries and courts around the country, and prosecutors across the U.S.
Attorney community and Main Justice will take part in running
individual investigations under the Task Force's coordination.
Task Force: Scope
The work of the Task Force is based on the sanctions and export
controls imposed in response to Russian aggression since 2014. It is no
exaggeration to say that, as of the early months of this year, the
scope, intended impact, and international alignment of those measures
are without precedent. The Committee will be familiar with the key
categories of actions taken to date, but here I will summarize the
principal measures undertaken to date for context and to emphasize the
breadth and impact of those measures:
First, the Treasury Department has rolled out lists of sanctioned
individuals and entities subject to asset freezes, and sanctions
targeting services that might be provided to, or transactions with,
those listed targets. These are the classic sanctions that form the
basis for most historical casework and figure most prominently in the
public imagination. When we talk about locking down an oligarch's yacht
as the fruit of a sanctions violation, for example, these measures are
the tool to hand.
Second, the Task Force's scope will be based in part on the
Commerce Department's series of export controls placed on particular
U.S. goods and technologies bound for Russia, and on actors within the
global supply chain who provide Russia with the raw material for
conducting wars of aggression.
Third, the United States--in close coordination with foreign
partners--has rolled out a series of sanctions targeting economically
critical infrastructure within the Russian State and the Russian
military industry. Perhaps most prominently those measures have
included immobilizing the Russian Central Bank's assets, held in
coffers around the world.
Against the backdrop of those sanctions and controls the Task
Force's goals are, first, to bring any appropriate charge against any
individual or entity sanctioned under the Treasury Department
designations, or limited through the Commerce Department's export
controls, rolled out in response to Russian aggression. With respect to
people and entities on those lists, we will pursue any charge or
seizure theory available. Sanctions evasion and money laundering are
obvious charges and theories in this space, but if opportunities to
bring charges for bank fraud, visa fraud, narcotics trafficking, or any
other Federal crime, are presented as to a listed person or entity,
that is a charge that the Task Force will support and pursue.
The Task Force's scope goes beyond those specifically designated
persons, however. The Task Force will target those who would facilitate
the evasion of economic sanctions and export controls. The Department
has a track record of success in this vein that we will continue in our
efforts today: For banks, real estate agents, broker-dealers,
exporters, manufacturers, and others, our goal is to shine a light
where sanctioned actors may operate in shadow.
Strategic Priorities in the Short- and Long-Term
The Task Force's focus in its first 6 months has been on
disruption, disgorgement, and discomfiture of those individuals and
entities who have aided and supported the corrupt Russian regime. The
aim has been to bring criminal charges and seize assets linked to
particularly prominent, and often extravagantly wealthy, enablers of
the Russian State. Since the Task Force's establishment in March, the
Justice Department has worked with international partners to seize a
sanctioned Russian oligarch's $90 million luxury yacht in Spain, to
seize and transport a nearly half-billion-dollar yacht belonging to a
sanctioned oligarch from Fiji to San Diego, to seize millions of
dollars associated with sanctioned parties held at multiple U.S.
financial institutions, and to pursue luxury aircraft and to publicly
expose the opaque corporate structures masking the ownership of those
assets. Those seizures are based on sanctions violations, bank fraud,
and money laundering by several designated Russian nationals and their
proxies. The Justice Department has also charged Russian oligarchs and
their associates for evading sanctions, as well as for conducting
foreign malign influence operations arising from illegal efforts to
promote Russian propaganda and undermine Ukrainian democracy and
society.
These acts of immediate, significant, and public disruption of
oligarchs' wealth and networks will continue apace. They have had a
tangible deterrent effect, including in some cases the push toward
active cooperation with the United States. The message of support
underscored our seriousness of purpose and encouraged our international
partners to align with our robust sanctions regime and to propose their
own analogues to our law enforcement tools.
As we witness the recent successes that have come from Ukraine's
perseverance and struggle in the face of Russia's most recent, illegal
aggression, it is appropriate that we reaffirm our commitment to the
goals of disruption, disgorgement, and discomfiture of those
individuals and entities who have aided the corrupt Russian regime,
while also turning attention to the longer-term targeting of those
actors who would facilitate the evasion of economic sanctions and
critical export controls. Referred to here as ``Facilitators,'' these
are individuals and entities across the economic spectrum who are not
themselves sanctioned, but who assist sanctioned individuals or
entities or those who wish to engage in export control violations in
those illegal endeavors. Targeting Facilitators is a strategic priority
for mid- to long-term success of the Task Force's mission, aimed at
dismantling routes through which criminals would otherwise undermine
the efficacy of the sanction and export control programs.
As to these strategic priorities, first, the primary obstacle to
identifying illicit proceeds and the actors for whom, and by whom,
those funds are transmitted, is the use by criminal networks of shell
corporations found in multiple, often offshore and relatively
noncooperative, jurisdictions. Banks, accountancy firms, law firms,
real estate agents, financial advisors and other traditional and
nontraditional financial services firms are key gatekeepers for, and
access points into, the global financial system, including favored U.S.
markets. The Task Force is therefore directing particular attention to
attempts by foreign individuals and entities, including off-shore shell
corporations, to move funds through correspondent accounts at U.S.
banks. In its simplest form, this may involve stripping critical
information (or inserting affirmatively false information) from
international wires, thereby undermining the anti-money laundering,
countering-the-financing-of-terrorism, and sanctions-enforcement
programs of U.S. financial institutions. In more complex form, we are
examining the use of nested bank accounts and the U.S. dollar funding
of offshore ``nostro'' accounts dedicated to use by sanctioned actors.
If U.S. banks are unable to accurately determine the originator,
beneficiary, purpose, or source of funds with respect to a transaction,
through whatever means of obfuscation and omission, their ability to
investigate, report, or block a suspicious transaction is compromised
in material respects.
Second, in order to help maximize the efficacy of strong Federal
export controls, the Task Force has deployed a three-prong plan: (1)
investigate and prosecute criminal violations of U.S. export control
laws; (2) support interagency partners' efforts to deploy civil and
administrative tools as enforcement mechanisms; and (3) collaborate
with our partners to identify procurement networks and facilitators who
seek to assist Russian end-users in their efforts to circumvent U.S.
export control laws.
The Task Force is committed to investigating and prosecuting
individuals and entities who facilitate or conduct transactions
designed to evade sanctions and export control regimes or otherwise
protect or obscure the assets of sanctioned parties, and to highlight
the breadth and international reach of those Federal laws. This is an
effort that extends well beyond the subset of targets commonly
recognized as the ``oligarch'' set, and one that will require
continuous effort to maintain interdepartmental and interagency
cooperation and communication.
Tools to Hand and Legislative Proposals
Fundamentally, this Task Force is investigating entrenched, well-
funded, organized crime; and the means, methods, and approach for
dealing with the mission of this Task Force must be grounded in the
approach taken to successfully combat organized crime. We recognize
that the offenses we are investigating are generating real--even if
widely dispersed--victims. We must pursue aggressive, muscular
investigations that will encompass not only the full financial picture
of a subject's business, but will dive into their historical affairs,
family offices, and deeply held personal motivations. We must be
prepared to offer the opportunity for substantive, significant
cooperation to individuals with serious criminal exposure, and be
prepared to require accountability as part of that cooperation,
understanding that reconciliation begins and ends in truth and candor.
We must maintain a clear-eyed understanding that our targets will
attempt to exploit people and institutions of good faith in efforts to
intimidate witnesses into silence and to present false narratives to
investigators and courts.
Among the more prominent tools used to date has been the use of
seizure warrants--authorized by Federal magistrate judges--to effect
the seizure of criminal property and to begin the process of forfeiting
that property through the Federal criminal and civil asset forfeiture
laws, and liquidating forfeited property when appropriate. For many
years I have been a Federal prosecutor focusing on organized crime,
money laundering, and the recovery of assets. My home office is the
United States Attorney's Office for the Southern District of New York,
which sits in Manhattan, but its cases span around the United States
and, indeed, around the world. One example of the global reach of that
Office is the work done by New York prosecutors in the area of recovery
of looted and stolen works of art and cultural property and the return
of those works to rightful owners in Europe--all of this is done
through the tools available through the Federal civil asset forfeiture
laws. In 2019, those tools were specifically used to aid Ukraine: A
painting, known as ``Amorous Couple'', was stolen from the National
Museum of the Arts in Kyiv in the closing days of World War II. For
decades, the painting was sought by the Museum for return, but remained
missing until this past decade, when it began circulating in London and
the United States under a new title. In 2019, the painting was
identified by Federal investigators as the same piece stolen many
decades prior. A warrant for the painting's seizure was authorized on
the basis that the painting was tainted property--stolen property that
had crossed into the United States after its theft. Without a thief to
prosecute, or a criminally knowledgeable importer, that criminal
investigation could not be resolved through the standard criminal
processes of an indictment, a criminal trial, and a criminal
sentencing. But because U.S. prosecutors have both criminal tools and
civil asset forfeiture tools available to them, the painting was seized
for civil forfeiture; notice was provided to the then-current owner,
the auction house engaged in its sale, and to the world at large; and a
proceeding to determine who had the right to ownership under U.S. law
commenced. The answer in that case was clear, and the parties quickly
resolved the issue--the painting had to be, and swiftly was, returned
to Ukraine.
That case was just one of many involving the return of tainted,
criminal proceeds or facilitating property that would have been
impossible without the tools available through the U.S. asset
forfeiture procedures and without the human resources available to
conduct those cases--the prosecutors, analysts, agents, and linguists
that drive our Justice Department forward.
Federal prosecutors utilize both criminal and civil forfeiture in
cases across the Department. Criminal forfeiture is a penalty imposed
following a criminal prosecution and following conviction. In criminal
forfeiture, only the specific defendant's interest in an asset can be
divested--other owners or persons claiming interests in the asset may
petition the Court to protect their rights even as a convicted
defendant's rights are divested. In criminal cases, the highest burden
of proof under the U.S. legal system is applied--we must prove a
person's guilt ``beyond a reasonable doubt'' before they are subject to
any penalties, including incarceration or forfeiture. However, once
convicted of a crime, the Government need only demonstrate that
property is tied to that crime through the lower standard of proof,
essentially whether it is more likely than not tainted. In criminal
proceedings, as in civil proceedings, the Government provides notice of
its intent to forfeit property to any possible claimants or owners,
through direct notification and through broad publication of the intent
to forfeit the property.
Civil forfeiture is an adjunct to criminal forfeiture. In a civil
forfeiture proceeding, the United States files a lawsuit against
property itself--United States v. One Looted Painting by Pablo Picasso
or United States v. $1,000,000 in Bank Account 1234, for example. We
use this tool in several situations--where a criminal charge is
unlikely to succeed because the criminal is either concealed to the
point of anonymity or is located in a jurisdiction beyond the reach of
extradition (in Russia, for example), or where the only person with
criminal intent has died, and yet the proceeds of the crime live on.
Regardless of the reason for proceeding through civil forfeiture,
the United States must still demonstrate to the satisfaction of a court
that property has a nexus to an identified crime, for example that the
property is involved in a money laundering transaction or is the
proceeds of a fraud, theft, or extortion. These ``theories'' of
forfeiture are specific to the statute providing for forfeiture as to
particular crimes--not all crimes carry forfeiture of property
``involved in'' that offense, or ``facilitating'' that offense, as a
component of their forfeiture penalties.
Moreover, the Department must again provide notice to claimants and
potential claimants and also provide notice to the world at large
through publication of our intent to forfeit. The notion here is one of
due process and respect for legitimate property rights--although
criminal actors forfeit their rights in property generated through
crime, everyone (including innocent owners) must be afforded notice and
the opportunity to request a hearing prior to the divestment of rights
in property.
The Department greatly appreciates the efforts to date to craft
proposals that, if passed, would augment the Justice Department's
resources and tools to impose serious costs for Russia's unjustified
aggression, and to isolate and target the crimes of Russian officials,
Government-aligned elites, and those who aid or conceal their unlawful
conduct. In addition to the Administration's announced proposal to
apply administrative civil forfeiture proceedings to new classes of
assets, the Department continues to advocate that the following
critical proposals would strengthen the Justice Department's efforts:
Enabling the Transfer of the Proceeds of Forfeited
Kleptocrat Property to Ukraine To Remediate Harms of Russian
Aggression. The proposal would improve the United States'
ability to use forfeited funds to remediate harms caused to
Ukraine by Russia's war of aggression against Ukraine.
Generally, existing statutory and regulatory authorities
require that forfeited funds are used to compensate victims of
the crimes underlying the forfeitures and for law enforcement
purposes. This proposal would permit the Departments of
Justice, the Treasury, and State to work together to return
funds forfeited to the U.S. Government to remediate harms of
Russian aggression toward Ukraine. Providing this authority
requires amendments to multiple statutes governing the use of
forfeited funds.
Clamping Down on Facilitation of Sanctions Evasion. This
proposal would expand forfeiture authorities under the
International Emergency Economic Powers Act (IEEPA) to reach
property used to facilitate sanctions violations enabling the
Government to take away the violators' ``tools of the trade.''
This proposal would amend IEEPA's penalty provision to extend
the existing forfeiture authorities to facilitating property,
not just to proceeds of the offenses. With this change, assets
that are used to mask sanctions evasion, without themselves
being the proceeds of that evasion, would be within the ambit
of our forfeiture authorities, just as under current
authorities we can forfeit a medical license held by a doctor
who used the license to distribute controlled substances in
violation of the Controlled Substances Act, or a vehicle used
by a drug dealer to transport narcotics to or from a drug
transaction.
Modernizing Racketeering To Include Sanctions Evasion. This
proposal would improve the United States' ability to
investigate and prosecute sanctions evasion and export control
violations by adding criminal violations of IEEPA and the
Export Control Reform Act (ECRA) to the definition of
racketeering activity in the Racketeer Influenced and Corrupt
Organizations (RICO) Act. This proposal would extend a powerful
forfeiture tool against racketeering enterprises engaged in
sanctions evasion.
Expanding the Time Limit to ``Follow the Money''. This
proposal would ensure that the United States can prosecute
violators and seek forfeitures based on foreign offenses more
effectively by extending the statute of limitations from 5
years to 10 years. The change would also extend the statute of
limitations for seeking forfeiture of property based on these
offenses, as a critical tool to deprive criminals of their ill-
gotten gains.
Leveraging Foreign Partners' Ability To Recover Oligarch
Wealth. This proposal would improve the United States' ability
to work with our international partners to recover assets
linked to foreign corruption. As kleptocrats and other
criminals commit crimes and launder money in multiple
jurisdictions, this proposal would expand upon existing U.S.
law to facilitate enforcement of foreign restraint and
forfeiture orders for criminal property. The proposal would
improve our ability to take these actions here in the United
States in support of international efforts to forfeit criminal
property.
The Department is deeply appreciative of the effort and attention
that the Committee's membership has devoted to these and other
proposals that would strengthen the Department's immediate and longer-
term projects in support of Ukraine. The Task Force, and the Department
writ large, stand ready to continue partnering with Congress to craft
legislation that is diligent in its respect for the fundamental rights
of Americans and robust in its response to what amounts to Russia's
network of sophisticated and international organized crime.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ELIZABETH ROSENBERG
Q.1. On September 15, the Administration imposed sanctions
(https://www.state.gov/targeting-senior-russian-officials-
defense-industrial-base-financial-infrastructure-leaders-and-
human-rights-abusers/) on key financial institutions such as
Russia's National Card Payment System, an entity owned by the
Central Bank of Russia that operates the country's Mir payment
card network, the payments by which were reportedly being
rejected in Turkey.
In May, a number of Republican Senators wrote to the Deputy
Secretary of the Treasury Department requesting that the
Administration extend the application of sanctions to target
the National Card Payment System and review UnionPay's
involvement in assisting Russia evade sanctions.
Can you confirm that Turkey is no longer processing Mir
payments?
A.1. During Treasury's engagements in Turkiye between October
17 and 19, Turkish Government and banking officials confirmed
that all Turkish banks have stopped accepting MIR payment
cards. They noted that their decision was informed by the
September 15, 2022, guidance from Treasury's Office of Foreign
Assets Control (OFAC) on the use of the MIR National Payment
System. \1\
---------------------------------------------------------------------------
\1\ See ``Frequently Asked Questions: Russian Harmful Foreign
Activities Sanctions'' (No. 1082), U.S. Department of the Treasury
(Sept. 15, 2022), https://home.treasury.gov/policy-issues/financial-
sanctions/faqs/1082.
Q.2. Can you also comment on the status of Mir card acceptance
in Vietnam, the United Arab Emirates, and other jurisdictions
---------------------------------------------------------------------------
where they have a presence?
A.2. We understand there is one bank in Vietnam, the Vietnam-
Russia Joint Venture Bank (VRB), currently using the MIR
National Payment System for ATM cash withdrawals only. These
withdrawals are subject to per transaction and daily limits.
The State Bank of Vietnam (SBV) has told us it does not expect
any expansion of MIR usage in Vietnam and closely monitors the
activities of VRB. Treasury will continue to examine this
issue.
Treasury does not have reporting at this time that any
banks in the UAE currently accept MIR cards. Among the various
risks arising from the MIR National Payment System, there are
due diligence risks associated with using MIR cards, because a
name does not need to be printed on the card, and many banks
have avoided MIR for this and other reasons. There have been
press reports, primarily from Russian news sources, about
discussions between the UAE and Russia to introduce the use of
MIR payment cards in UAE. Treasury has engaged top UAE banking
and Government officials about this issue and will continue to
do so.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ANDREW ADAMS
Q.1. Your testimony mentions how Russian oligarchs and
organized crime syndicates have utilized both cryptocurrency
and trade-based money laundering to illicitly move funds. I've
worked to improve Federal enforcement capacities against both
of these sanctions evasion tactics.
Could you help me scope the current size of these problems
with the respect to Russian organized crime? Specifically,
based on previously announced enforcement actions and charges
and with respect to Russian organized crime, is cryptocurrency
or trade-based money laundering currently a bigger problem?
A.1. Response not received in time for publication.
[all]